2014 Third Quarter Highlights and Comparison
with Second Quarter
- Net income of $23.2 million, or $0.11
per diluted share, compared to $21.2 million, or $0.11 per diluted
share, for the second quarter of 2014.
- Pre-tax, pre-provision income of $50.8
million, up $2.1 million compared to the second quarter of
2014.
- Non-interest expenses decreased by $4.5
million to $93.6 million, primarily reflecting reductions in
write-downs on other real estate owned (“OREO”) properties, the
deposit insurance assessment and employees’ compensation and
benefits.
- Non-interest income increased by $0.2
million to $16.2 million, primarily reflecting an increase in
revenues from the mortgage banking business.
- Net interest income, excluding fair
value adjustments on derivative instruments of $0.4 million,
decreased by $2.4 million to $127.3 million. Net interest margin of
4.12% in the third quarter of 2014 compared to 4.20% in the second
quarter of 2014. The decrease in net interest income and margin
primarily reflects faster prepayment rates on U.S. agency
mortgage-backed securities (“MBS”) and a decrease in the average
yield of the consumer loans portfolio.
- Provision for loan and lease losses
increased by $0.3 million to $27.0 million, mainly reflecting lower
reserve releases on collateral dependent commercial and
construction loans in Florida and an increase in the provision for
residential mortgage loans, partially offset by lower specific
reserve requirements on impaired commercial and industrial
loans.
- Credit quality variances:
- Non-performing assets decreased by
$12.9 million, or 2%, to $744.4 million.
- Non-performing loans, including
non-performing loans held for sale, decreased by $5.2 million to
$614.2 million, mainly driven by charge-offs and collections on
commercial and construction loans.
- New non-performing loan inflows
decreased by $59.1 million, or 42%, compared to inflows in the
second quarter of 2014.
- The other real estate owned inventory
balance decreased by $9.0 million to $112.8 million, mainly due to
sales of $12.3 million completed in the third quarter and
write-downs of $2.8 million, partially offset by additions.
- No sales of non-performing loans held
for sale since the third quarter of 2013.
- Net charge-offs of $42.7 million
compared to $52.3 million for the second quarter of 2014.
- Total capital, Tier 1 capital, and
leverage ratios of 18.57%, 17.30%, and 12.34%, respectively, as of
September 30, 2014. Common equity Tier 1 capital ratio of 14.39%
and tangible common equity ratio of 9.82% as of September 30,
2014.
- Non-brokered deposits, excluding
government deposits, up $76.6 million to $6.2 billion as of
September 30, 2014.
- Government deposits increased by $28.9
million to $468.7 million as of September 30, 2014 from $439.7
million as of June 30, 2014, primarily in the Virgin Islands. As of
September 30, 2014, the Corporation had $250.9 million of
government deposits in Puerto Rico and $217.8 million in the Virgin
Islands.
- Brokered certificates of deposit
decreased by $33.1 million to $3.1 billion as of September 30,
2014.
- Total loan originations, including
refinancings, renewals and draws from existing commitments
(excluding credit card utilization activity) of $821.2 million for
the third quarter of 2014, compared to $781.3 million for the
second quarter of 2014, primarily reflecting increases in
commercial loan originations in both our Florida and Puerto Rico
regions.
First BanCorp. (the “Corporation”) (NYSE: FBP), the bank holding
company for FirstBank Puerto Rico (“FirstBank” or “the Bank”),
today reported net income of $23.2 million for the third quarter of
2014, or $0.11 per diluted share, compared to $21.2 million, or
$0.11 per diluted share, for the second quarter of 2014 and $15.9
million, or $0.08 per diluted share, for the third quarter of
2013.
Aurelio Alemán, President and Chief Executive Officer of First
BanCorp., commented: “We are very pleased to report net income of
$23.2 million for the third quarter of 2014, a 46% increase
compared to the third quarter of 2013 and our highest net income
since returning to profitability. Our pre-tax, pre-provision income
was strong at $50.8 million for the third quarter, up $2.1 million
compared to the second quarter of 2014. The third quarter was
highlighted by increased origination activity in commercial and
residential loans and over $105 million in core deposit
growth.”
Mr. Alemán continued, “Despite the still challenging economic
environment and its impact on the consumer in Puerto Rico, we have
stayed the course in the execution of our strategies. While our
overall loan portfolio declined slightly due to some pay downs of
commercial loans and lower consumer loan volumes, our pipeline
remains stable. We continue to proactively manage our expense base
and implement efficiency initiatives. Our non-performing assets and
loans declined slightly this quarter. We also saw a decrease in
inflows of non-performing loans as well as a decrease in adversely
classified loans compared to the second quarter of 2014.”
Mr. Alemán stated further: “Earnings generation over the past
three quarters has strengthened our capital position. Asset quality
improvement remains our top priority, we will continue to invest in
our franchise and improve operating efficiency, and evaluate market
opportunities in order to achieve consistent, profitable growth in
the future and generate appropriate returns for our
shareholders.”
This press release includes certain non-GAAP financial measures,
including adjusted pre-tax, pre-provision income, adjusted net
interest income and margin, and certain capital ratios and should
be read in conjunction with the accompanying tables (Exhibit A),
which are an integral part of this press release.
ADJUSTED PRE-TAX, PRE-PROVISION INCOME TRENDS
One metric that management believes is useful in analyzing
performance is the level of earnings adjusted to exclude tax
expense, the provision for loan and lease losses, securities gains
or losses, fair value adjustments on derivatives measured at fair
value and equity in earnings or loss of unconsolidated entity,
which is a non-GAAP financial measure. In addition, from time to
time, earnings are adjusted also for items judged by management to
be outside of ordinary banking activities and/or for items that,
while they may be associated with ordinary banking activities, are
so unusually large that management believes that a complete
analysis of the Corporation’s performance requires consideration
also of results that exclude such amounts (for additional
information about this non-GAAP financial measure, see “Adjusted
Pre-Tax, Pre-Provision Income” in “Basis of Presentation”).
The following table reconciles income before income taxes to
adjusted pre-tax, pre-provision income for the last five quarters
including adjusted pre-tax, pre-provision income of $50.8 million
in the third quarter of 2014, up $2.1 million from the prior
quarter:
(Dollars in thousands)
Quarter
Ended September 30, June 30, March
31, December 31, September 30, 2014
2014 2014 2013 2013 Income
before income taxes
$
23,265
$ 20,949 $ 17,970 $ 15,634 $ 19,616 Add: Provision for loan and
lease losses 26,999 26,744 31,915 22,969 22,195 Add/Less: Net loss
(gain) on investments and impairments 245 (291 ) - - - Less:
Unrealized gain on derivative instruments (418 ) (262 ) (313 ) (355
) (232 ) Add: Acquisitions of mortgage loans from Doral related
expenses 659 576 - - - Add: Secondary offering costs (1) - - - -
1,669 Add: Credit card processing platform conversion costs - - - -
1,715 Less: National gross receipt tax - outside Puerto Rico (2) -
- - (473 ) - Add: Branch consolidations and restructuring
expenses/valuation adjustments - 236 718 1,421 - Add: Loss
contingency - attorneys' fees Lehman litigation - - - 2,500 -
Add/Less: Equity in loss (earnings) of unconsolidated entity
- 670 6,610 5,893
5,908 Adjusted pre-tax, pre-provision income (3) $
50,750 $ 48,622 $ 56,900 $ 47,589 $
50,871 Change from most recent prior quarter-amount $
2,128 $ (8,278 ) $ 9,311 $ (3,282 ) $ 14,976 Change from most
recent prior quarter-percentage 4.4 % -14.5 % 19.6 % -6.5 % 41.7 %
(1) Offering of common stock by certain of the Corporation's
existing stockholders. (2) Represents the impact of the national
gross receipts tax related to the trade or business outside of
Puerto Rico that was reversed in the fourth quarter of 2013 after
enactment of Act No. 117. (3) See "Basis of Presentation" for
definition.
The increase in adjusted pre-tax, pre-provision income from the
2014 second quarter primarily reflected:
- A $4.4 million decrease in adjusted
non-interest expenses of $92.9 million for the third quarter of
2014, as compared to adjusted non-interest expenses of $97.3
million for the second quarter of 2014, primarily due to a $2.5
million decrease in OREO losses and related operating expenses, a
$1.2 million decrease in the deposit insurance assessment and a
$1.1 million decrease in employees’ compensation and benefits
expense. See Non-Interest Expenses section below for additional
information.
Adjusted non-interest expenses in the last
two quarters exclude: (i) professional service fees related to
acquisitions of mortgage loans from Doral Financial Corporation
("Doral"); and (ii) expenses related to branch consolidations and
other restructuring efforts. See Basis of Presentation section
below for a reconciliation of this non-GAAP financial measure to
the corresponding GAAP measure.
- A $0.1 million increase in adjusted
non-interest income of $16.4 million for the third quarter of 2014,
as compared to $16.3 million for the second quarter of 2014,
reflecting a $0.8 million increase in revenues from the mortgage
banking business, partially offset by decreases in insurance
commission income as well as credit and debit cards fee
income.
Adjusted non-interest income excludes the
equity in earnings (loss) of unconsolidated entity, gain or loss on
sales of investment securities and other-than-temporary impairment
(“OTTI”) on investment securities. See Basis of Presentation
section below for a reconciliation of this non-GAAP financial
measure to the corresponding GAAP measure.
Partially offset by:
- A $2.4 million decrease in net interest
income, excluding fair value adjustments, mainly driven by faster
prepayment rates on U.S. agency MBS investments and a decrease in
the average yield on consumer loans. See Net Interest Income
discussion below for additional information.
NET INTEREST INCOME
Net interest income, excluding fair value adjustments on
derivatives (“valuations”), and net interest income on a
tax-equivalent basis are non-GAAP measures. (See “Basis of
Presentation – Net Interest Income, Excluding Valuations and on a
Tax-Equivalent Basis” below for additional information.) The
following table reconciles net interest income in accordance with
GAAP to net interest income, excluding valuations, and net interest
income on a tax-equivalent basis. The table also reconciles net
interest spread and net interest margin on a GAAP basis to these
items excluding valuations and on a tax-equivalent basis.
(Dollars in thousands)
Quarter Ended
September 30,2014
June 30,2014
March 31,2014
December 31,2013
September 30,2013
Net Interest Income Interest Income - GAAP $ 156,662 $
158,423 $ 160,571 $ 162,690 $ 162,203
Unrealized gain on derivative
instruments
(418 ) (262 ) (313 ) (355 ) (232
) Interest income excluding valuations 156,244 158,161 160,258
162,335 161,971 Tax-equivalent adjustment 3,995
5,005 5,223 5,122
4,420 Interest income on a tax-equivalent basis excluding
valuations 160,239 163,166 165,481 167,457 166,391 Interest
Expense - GAAP 28,968 28,516
29,251 30,031 31,298 Net
interest income - GAAP $ 127,694 $ 129,907 $ 131,320
$ 132,659 $ 130,905 Net interest income
excluding valuations $ 127,276 $ 129,645 $ 131,007
$ 132,304 $ 130,673 Net interest income
on a tax-equivalent basis excluding valuations $ 131,271 $
134,650 $ 136,230 $ 137,426 $ 135,093
Average Balances Loans and leases $ 9,476,576 $
9,560,792 $ 9,662,735 $ 9,665,013 $ 9,639,612 Total securities and
other short-term investments 2,768,923
2,811,178 2,816,253 2,719,241
2,719,973 Average Interest-Earning Assets $
12,245,499 $ 12,371,970 $ 12,478,988 $
12,384,254 $ 12,359,585 Average
Interest-Bearing Liabilities $ 10,245,634 $ 10,395,437
$ 10,542,793 $ 10,450,671 $ 10,409,792
Average Yield/Rate Average yield on interest-earning
assets - GAAP 5.08 % 5.14 % 5.22 % 5.21 % 5.21 % Average rate on
interest-bearing liabilities - GAAP 1.12 % 1.10 %
1.13 % 1.14 % 1.19 % Net interest spread -
GAAP 3.96 % 4.04 % 4.09 % 4.07 %
4.02 % Net interest margin - GAAP 4.14 % 4.21 %
4.27 % 4.25 % 4.20 % Average yield on
interest-earning assets excluding valuations 5.06 % 5.13 % 5.21 %
5.20 % 5.20 % Average rate on interest-bearing liabilities
excluding valuations 1.12 % 1.10 % 1.13 %
1.14 % 1.19 % Net interest spread excluding
valuations 3.94 % 4.03 % 4.08 % 4.06 %
4.01 % Net interest margin excluding valuations 4.12
% 4.20 % 4.26 % 4.24 % 4.19 %
Average yield on interest-earning assets on a tax-equivalent basis
and excluding valuations 5.19 % 5.29 % 5.38 % 5.36 % 5.34 % Average
rate on interest-bearing liabilities excluding valuations
1.12 % 1.10 % 1.13 % 1.14 % 1.19 % Net
interest spread on a tax-equivalent basis and excluding valuations
4.07 % 4.19 % 4.25 % 4.22 % 4.15
% Net interest margin on a tax-equivalent basis and excluding
valuations 4.25 % 4.37 % 4.43 % 4.40 %
4.34 %
Net interest income, excluding valuations, amounted to $127.3
million, a decrease of $2.4 million when compared to the second
quarter of 2014. The net interest margin decreased to 4.12% for the
third quarter of 2014 from 4.20% for the second quarter of 2014.
The decreases in net interest income and margin were mainly due
to:
- A 39 basis point decrease in the
average yield of consumer loans, or a decrease of approximately
$2.1 million in interest income, as the remaining discount of $1.5
million of the credit card portfolio acquired in 2012 was fully
accreted to income during the second quarter of 2014. The decrease
also reflects the impact of new loan originations booked at lower
rates than the average yield of loans that are maturing given the
current level of interest rates.
- A 35 basis point decrease in the
average yield of MBS investments, or a decrease of approximately
$1.5 million in interest income, attributable to faster prepayment
rates on U.S. agency MBS investments purchased at a premium.
- A $1.1 million decrease in interest
income attributable to the $126.5 million reduction in total
average earning assets.
- A 16 basis point increase in the
average cost of repurchase agreements, or an increase of
approximately $0.4 million in interest expense, attributable to the
contractual repricing of a $100 million agreement.
Partially offsetting the aforementioned items were:
- Increased interest income reflecting
the full quarter impact of the acquisition of mortgage loans from
Doral in full satisfaction of secured borrowings on May 30, 2014.
The interest income recorded on such loans was approximately $1.8
million higher than the interest income recorded in the second
quarter on previous commercial secured borrowings.
- An increase in net interest income of
approximately $0.7 million related to the impact of one additional
day in the current quarter.
- A $0.3 million decrease in interest
expense attributable to the $149.8 million reduction on total
interest-bearing liabilities, primarily reflecting the full quarter
impact of government deposit withdrawals by public corporations in
Puerto Rico in the latter part of the second quarter of 2014.
PROVISION FOR LOAN AND LEASE LOSSES
The provision for loan and lease losses for the third quarter of
2014 was $27.0 million, an increase of $0.3 million, compared to
$26.7 million for the second quarter of 2014. The Corporation
recorded a negative provision for loan losses of $7.1 million for
the commercial and construction loan portfolio in Florida compared
to a negative provision of $10.5 million in the second quarter of
2014. Despite higher loan loss recoveries, the variance in the
provision mainly reflects the impact in the previous quarter of
reserve releases related to updated appraisals.
The provision for residential mortgage loans in the third
quarter of 2014 increased by $2.0 million to $5.9 million compared
to the second quarter of 2014 primarily due to an increase in
charge-offs and the overall increase in portfolio size. The
provision for consumer loans of $19.0 million in the third quarter
of 2014 remained relatively flat as compared to the second quarter
of 2014, an increase of $0.2 million.
The provision for commercial and construction loans in Puerto
Rico in the third quarter of 2014 decreased by $5.3 million to $8.9
million compared to the second quarter of 2014 mainly related to
lower specific reserve requirements on certain noncollateral
dependent loans, including the specific reserve of a commercial and
industrial loan determined impaired during the third quarter that
was less than the estimated loss previously held as part of the
general reserve, partially offset by an increase in net charge-offs
of commercial and industrial loans and the impact in the previous
quarter of a $4.8 million reserve release associated with the
enhancements to the general allowance estimation process.
See Credit Quality discussion below for additional information
regarding the allowance for loan and lease losses, including
variances in charge-offs and loss recoveries.
NON-INTEREST INCOME
Quarter Ended
September 30, June 30, March 31,
December 31, September 30, (In thousands)
2014
2014 2014 2013 2013 Service
charges on deposit accounts $ 3,235 $ 3,290 $ 3,203 $ 3,162 $ 3,157
Mortgage banking activities 3,809 3,036 3,368 3,906 3,521 Net
(loss) gain on investments and impairments (245 ) 291 - - -
Broker-dealer income - - 459 97 - Branch consolidations - valuation
adjustments on fixed assets - - - (529 ) - Other operating income
9,375 9,984 10,930 11,742 9,290 Equity in (loss) earnings of
unconsolidated entity - (670 ) (6,610 )
(5,893 ) (5,908 ) Non-interest income $ 16,174
$ 15,931 $ 11,350 $ 12,485 $ 10,060
Non-interest income for the third quarter of 2014 amounted to
$16.2 million, compared to $15.9 million for the second quarter of
2014. The increase was primarily due to:
- A $0.8 million increase in revenues
from the mortgage banking business, primarily related to a $0.5
million decrease in losses related to compensatory fees imposed by
government-sponsored agencies, and a $0.5 million decrease in
mark-to-market losses on to-be-announced (“TBA”) MBS forward
contracts used to hedge the securitization pipeline.
The aforementioned were partially offset by a
$0.2 million decrease in realized gains on loan sales and
securitization activities attributable to lower sales. Loans sold
and securitized in the secondary market to government-sponsored
entities in the third quarter of 2014 amounted to $75.1 million
with a related gain of $2.7 million, compared to $83.1 million and
a gain of $2.9 million recorded in the second quarter of 2014.
- A $0.7 million positive variance
related to the accounting for the Bank’s investment in CPG/GS PR
NPL, LLC (“CPG/GS”). The equity in loss of unconsolidated entity of
$0.7 million recorded in the second quarter of 2014 reduced to zero
the book value of the Bank’s investment in CPG/GS. The Bank holds a
35% subordinated ownership interest in CPG/GS, the entity that
purchased $269.2 million of loans from FirstBank in 2011. This
investment is accounted for under the equity method and following
the hypothetical liquidation book value (“HLBV”) method to
determine the Bank’s share in CPG/GS earnings or losses.
Partially offset by:
- A $0.4 million decrease in other
operating income that includes reductions in credit and debit card
fees, merchant fees and losses on sales of certain fixed
assets.
- The impact in the previous quarter of
the $0.3 million gain on sale of investments recorded in connection
with the sale of a $4.6 million Puerto Rico government agency
bond.
- A $0.2 million decrease in insurance
commission income.
- A $0.2 million other-than-temporary
impairment on private label MBS.
Non-Interest Expenses
Quarter Ended September 30, June 30,
March 31, December 31, September 30, (In
thousands)
2014 2014 2014 2013
2013 Employees' compensation and benefits $ 33,964 $
35,023 $ 32,942 $ 31,062 $ 32,823 Occupancy and equipment 14,727
14,246 13,600 15,204 15,109 Deposit insurance premium 8,335 9,579
9,822 10,495 10,479 Other insurance and supervisory fees 1,158
1,205 1,168 957 1,034 Taxes, other than income taxes 4,528 4,504
4,575 4,101 4,718 Professional fees : Collections, appraisals and
other credit related fees 2,480 2,363 1,345 2,198 2,780 Outsourcing
technology services 4,840 4,600 4,214 4,202 4,338 Other
professional fees 3,554 3,843 4,481 4,845 4,086 Credit and debit
card processing expenses 3,741 3,882 3,824 4,869 2,682 Credit card
processing platform conversion costs - - - - 1,715 Branch
consolidations and restructuring expenses - 236 718 892 - Business
promotion 3,925 4,142 3,973 5,251 3,478 Communications 2,143 1,894
1,879 1,836 1,866 Net loss on OREO operations 4,326 6,778 5,837
13,321 7,052 Acquisitions of loans from Doral related expenses 659
576 - - - Secondary offering costs - - - - 1,669 Loss contingency
for attorneys' fees - Lehman litigation - - - 2,500 - Other
5,224 5,274 4,407 4,808 5,325 Total $
93,604 $ 98,145 $ 92,785 $ 106,541 $ 99,154
Non-interest expenses in the third quarter of 2014 amounted to
$93.6 million, a decrease of $4.5 million from $98.1 million for
the second quarter of 2014. The main drivers of the decrease
were:
- A $2.5 million decrease in losses on
OREO properties and related operating expenses. Total write-downs
on OREO properties in the third quarter of 2014 amounted to $2.8
million compared to $5.2 million for the second quarter of 2014, a
decrease of $2.4 million.
- A $1.2 million decrease in the deposit
insurance assessment driven by improvements in liquidity, a
decrease in leverage commercial loans balance, a strengthened
capital position, and a decrease in average assets.
- A $1.1 million decrease in employees’
compensation and benefit expenses primarily due to a reduction in
performance-based compensation and stock-based compensation
expense.
INCOME TAXES
The Corporation recorded an income tax expense for the third
quarter of 2014 of $0.1 million compared to an income tax benefit
of $0.3 million for the second quarter of 2014. The income tax
benefit in the previous quarter mainly resulted from the $1.8
million adjustment recorded to reduce the liability for uncertain
tax positions of prior years that was partially offset by a $1.0
million charge to the Alternative Minimum Tax (“AMT”) expense in
the second quarter. Under the Puerto Rico Internal Revenue Code,
the Corporation and its subsidiaries are treated as separate
taxable entities and are not entitled to file consolidated tax
returns and, thus, the Corporation is not able to utilize losses
from one subsidiary to offset gains in another subsidiary. As of
September 30, 2014, the deferred tax asset, net of a valuation
allowance of $505.2 million, amounted to $9.9 million.
CREDIT QUALITY
Non-Performing Assets
(Dollars in thousands)
September 30, June 30, March 31, December
31, September 30, 2014 2014
2014 2013 2013 Non-performing loans held for
investment: Residential mortgage $ 185,025 $ 175,404 $ 172,796 $
161,441 $ 142,002 Commercial mortgage 169,967 166,218 145,535
120,107 127,374 Commercial and Industrial 130,917 143,669 113,996
114,833 127,584 Construction 30,111 38,830 50,387 58,866 64,241
Consumer and Finance leases 43,496 40,510
39,061 40,302 37,184
Total non-performing loans held for investment
559,516 564,631 521,775
495,549 498,385 OREO 112,803 121,842
138,622 160,193 133,284 Other repossessed property 17,467
16,114 15,587 14,865
14,125 Total non-performing assets, excluding
loans held for sale $ 689,786 $ 702,587 $ 675,984 $ 670,607 $
645,794 Non-performing loans held for sale 54,641
54,755 54,755 54,801
80,234 Total non-performing assets, including
loans held for sale (1) $ 744,427 $ 757,342 $ 730,739
$ 725,408 $ 726,028 Past-due loans 90
days and still accruing (2) $ 143,535 $ 143,916 $ 118,049 $ 120,082
$ 127,735 Non-performing loans held for investment to total loans
held for investment 6.01 % 5.96 % 5.45 % 5.14 % 5.24 %
Non-performing loans to total loans 6.54 % 6.49 % 5.98 % 5.67 %
6.01 %
Non-performing assets, excluding
non-performing loans held for sale to total assets, excluding
non-performing loans held for sale
5.48 % 5.63 % 5.30 % 5.32 % 5.08 % Non-performing assets to total
assets 5.89 % 6.05 % 5.70 % 5.73 % 5.68 %
(1) Purchased credit impaired loans of
$104.3 million accounted for under ASC 310-30 as of September 30,
2014, primarily mortgage loans acquired from Doral in the second
quarter of 2014, are excluded and not considered non-performing due
to the application of the accretion method, under which these loans
will accrete interest income over the remaining life of the loans
using estimated cash flow analysis.
(2) Amount includes purchased credit
impaired loans with individual delinquencies over 90 days and still
accruing with a carrying value as of September 30, 2014 of
approximately $15.6 million, primarily related to loans acquired
from Doral.
Credit quality metrics variances:
- Total non-performing assets decreased
to $744.4 million as of September 30, 2014, compared to $757.3
million as of June 30, 2014. Total non-performing loans, including
non-performing loans held for sale, decreased by $5.2 million, or
1%, from the second quarter of 2014. The decrease was primarily
driven by charge-offs of commercial and industrial and construction
loans in both Puerto Rico and the Virgin Islands regions, partially
offset by increases in consumer, residential and commercial
mortgage non-performing loans. The largest individual relationship
placed in non-performing status during the third quarter of 2014
was a $4.7 million defaulted commercial mortgage restructured
loan.
- Inflows of non-performing loans held
for investment decreased by $59.1 million, or 42%, compared to
inflows in the second quarter of 2014. This decrease was primarily
reflected in the commercial and industrial and commercial mortgage
portfolios, a decrease of $64.6 million. These decreases were
partially offset by an increase in inflows of non-performing
residential mortgage loans of $5.7 million.
- Adversely classified commercial and
construction loans held for investment decreased by $35.0 million
to $571.4 million, or 6%, from the second quarter of 2014.
- The OREO balance decreased by $9.0
million, driven by sales of $12.3 million and write-downs of $2.8
million, partially offset by additions.
- Total troubled debt restructured loans
(“TDRs”) held for investment were $701.1 million at September 30,
2014, up $72.9 million, or 12%, from June 30, 2014. Approximately
$485.1 million of total TDRs held for investment were in accrual
status as of September 30, 2014. The increase in the balance of
TDRs was mainly related to the forbearance granted in the third
quarter of 2014 to the $75.0 million direct exposure with the
Puerto Rico Electric Power Authority (“PREPA”). See Exposure to the
Puerto Rico Government discussion below for additional
information.
Allowance for Loan and Lease Losses
The following table sets forth an analysis of the allowance for
loan and lease losses during the periods indicated:
Quarter Ended
(Dollars in thousands)
September 30, June 30,
March 31, December 31, September 30,
2014 2014 2014 2013 2013
Allowance for loan and lease losses, beginning of period $ 241,177
$ 266,778 $ 285,858 $ 289,379 $ 301,047
Provision for loan and lease losses 26,999
26,744 (1) 31,915 22,969
22,195 Net (charge-offs) recoveries of loans:
Residential mortgage (5,734 ) (4,687 ) (6,353 ) (4,544 ) (8,457 )
Commercial mortgage 1,116 (9,126 ) (5,775 ) 2,605 (5,918 )
Commercial and Industrial (16,431 ) (19,036 ) (2) (21,796 ) (9,146
) (5,718 ) Construction (3,205 ) (2,606 ) (353 ) (435 ) 71 Consumer
and finance leases (18,488 ) (16,890 ) (16,718
) (14,970 ) (13,841 ) Net charge-offs (42,742
) (52,345 ) (50,995 ) (26,490 ) (33,863
) Allowance for loan and lease losses, end of period $ 225,434
$ 241,177 $ 266,778 $ 285,858 $ 289,379
Allowance for loan and lease losses to period end
total loans held for investment 2.42 % 2.55 % 2.79 % 2.97 % 3.04 %
Net charge-offs (annualized) to average loans outstanding during
the period 1.80 % 2.19 % 2.11 % 1.10 % 1.41 %
Net charge-offs (annualized), excluding
charge-offs of $6.9 million related to the acquisition of mortgage
loans from Doral, to average loans outstanding during the
period
1.80 % 1.90 % 2.11 % 1.10 % 1.41 % Provision for loan and lease
losses to net charge-offs during the period 0.63x 0.51x 0.63x 0.87x
0.66x
Provision for loan and lease losses to net
charge-offs during the period, excluding impact of the acquisition
of mortgage loans from Doral
0.63x 0.56x 0.63x 0.87x 0.66x (1) Includes provision of $1.4
million associated with the acquisition of mortgage loans from
Doral. (2) Includes net charge-offs totaling $6.9 million
associated with the acquisition of mortgage loans from Doral.
- The ratio of the allowance for loan and
lease losses to loans held for investment was 2.42% as of September
30, 2014, compared to 2.55% as of June 30, 2014. The slight
decrease in the ratio was primarily due to lower specific reserve
requirements on certain noncollateral dependent commercial and
industrial loans and certain charge-offs of loans with previously
established reserves. The ratio of the allowance to non-performing
loans held for investment was 40.29% as of September 30, 2014
compared to 42.71% as of June 30, 2014.
The following table sets forth information concerning the
composition of the Corporation’s allowance for loan and lease
losses as of September 30, 2014 and June 30, 2014 by loan category
and by whether the allowance and related provisions were calculated
individually for impairment purposes or through a general valuation
allowance:
(Dollars in thousands)
ResidentialMortgage
Loans
Commercial (includingCommercial
Mortgage,C&I, and Constructionloans)
Consumer andFinance
Leases
Total As of September 30, 2014 Impaired loans:
Principal balance of loans, net of charge-offs $ 421,823 $ 519,186
$ 32,005 $ 973,014 Allowance for loan and lease losses 17,515
38,331 5,295 61,141 Allowance for loan and lease losses to
principal balance 4.15 % 7.38 % 16.54 % 6.28 % PCI loans:
Carrying value of PCI loans 99,535 3,418 1,360 104,313 Allowance
for PCI loans - - - - Allowance for PCI loans to carrying value - -
- - Loans with general allowance: Principal balance of loans
2,298,290 3,946,563 1,993,222 8,238,075 Allowance for loan and
lease losses 12,391 91,995 59,907 164,293 Allowance for loan and
lease losses to principal balance 0.54 % 2.33 % 3.01 % 1.99 %
Total loans held for investment: Principal balance of loans
$ 2,819,648 $ 4,469,167 $ 2,026,587 $ 9,315,402 Allowance for loan
and lease losses 29,906 130,326 65,202 225,434 Allowance for loan
and lease losses to principal balance 1.06 % 2.92 % 3.22 % 2.42 %
As of June 30, 2014 Impaired loans: Principal
balance of loans, net of charge-offs $ 414,448 $ 465,482 $ 28,928 $
908,858 Allowance for loan and lease losses 16,464 48,024 3,870
68,358 Allowance for loan and lease losses to principal balance
3.97 % 10.32 % 13.38 % 7.52 % PCI loans: Carrying value of
PCI loans 99,997 3,447 2,176 105,620 Allowance for PCI loans - - -
- Allowance for PCI loans to carrying value - - - - Loans
with general allowance: Principal balance of loans 2,280,714
4,140,745 2,031,164 8,452,623 Allowance for loan and lease losses
13,291 98,736 60,792 172,819 Allowance for loan and lease losses to
principal balance 0.58 % 2.38 % 2.99 % 2.04 % Total loans
held for investment: Principal balance of loans $ 2,795,159 $
4,609,674 $ 2,062,268 $ 9,467,101 Allowance for loan and lease
losses 29,755 146,760 64,662 241,177 Allowance for loan and lease
losses to principal balance 1.06 % 3.18 % 3.14 % 2.55 %
Net Charge-Offs
The following table presents annualized net charge-offs to
average loans held-in-portfolio:
Quarter Ended
September 30, June 30, March 31, December
31, September 30, 2014 2014 2014
2013 2013 Residential mortgage 0.82 % 0.71 %
1.00 % 0.72 % 1.31 % Commercial mortgage -0.24 % 2.00 % 1.27
% -0.57 % 1.23 % Commercial and Industrial 2.54 % 2.69 % (1)
2.90 % 1.21 % 0.81 % Construction 6.57 % 5.25 % 0.65 % 0.81
% -0.11 % Consumer and finance leases 3.62 % 3.27 % 3.23 %
2.91 % 2.71 % Total loans 1.80 % 2.19 % (2) 2.11 % 1.10 %
1.41 %
(1) Includes net charge-offs totaling $6.9
million associated with the acquisition of mortgage loans from
Doral. The ratio of commercial and industrial net charge-offs to
average loans, excluding charge-offs associated with the
acquisition of mortgage loans from Doral, was 1.81%.
(2) Includes net charge-offs totaling $6.9
million associated with the acquisition of mortgage loans from
Doral. The ratio of total net charge-offs to average loans,
excluding charge-offs associated with the acquisition of mortgage
loans from Doral, was 1.90%.
The ratios above are based on annualized net charge-offs and are
not necessarily indicative of the results expected in subsequent
periods.
- Net charge-offs for the third quarter
of 2014 were $42.7 million, or an annualized 1.80%, compared to
$52.3 million, or an annualized 2.19% in the second quarter of
2014. Net charge-offs for the second quarter of 2014 included a
$6.9 million charge-off resulting from fair value adjustments
related to the mortgage loans acquired from Doral in full
satisfaction of commercial secured borrowings. Excluding the
charge-offs resulting from the Doral transaction, total net
charge-offs decreased by $2.7 million, primarily due to an increase
in loss recoveries. Approximately $16.0 million of the charge-offs
recorded in the third quarter of 2014 relates to two collateral
dependent commercial and industrial relationships in Puerto Rico.
Recoveries of amounts previously charged-off increased to $11.2
million in the third quarter of 2014 from $6.7 million in the
second quarter of 2014. The majority of the recoveries recorded in
the last two quarters are related to the commercial mortgage and
construction loan portfolios in Florida.
STATEMENT OF FINANCIAL CONDITION
Total assets were approximately $12.6 billion as of September
30, 2014, up $120.0 million from June 30, 2014.
The increase was mainly due to:
- A $292.3 million increase in cash and
cash equivalents, tied to the increase in deposits and cash inflows
from loan repayments.
Partially offset by:
- A $136.0 million decrease in loans held
for investment, net of allowance, mainly reflecting decreases in
commercial loans, including a $63.8 million decrease in outstanding
loans to government entities in Puerto Rico and the Virgin Islands,
a $54.6 million commercial and industrial loan paid in full in
Puerto Rico before contractual maturity, and an $18.8 million
commercial mortgage loan paid in full in Florida.
Total loan originations, including
refinancings, renewals, and draws from existing revolving and
non-revolving commitments, amounted to approximately $821.2
million, compared to $781.3 million in the second quarter of 2014.
These figures exclude the credit card utilization activity. The
increase was mainly related to commercial and industrial loans in
both our Puerto Rico and the Virgin Islands regions.
- A $20.3 million decrease in
available-for-sale securities, mainly due to regular MBS repayments
and a $5.9 million decrease in the fair value of available-for-sale
securities, partially offset by the purchase of approximately $44
million of U.S. government and sponsored-agencies debt securities
with an average yield of 1.72%.
- A $9.0 million decrease in the OREO
inventory balance driven by sales of $12.3 million and write-downs
of $2.8 million, partially offset by additions in the quarter.
Total liabilities were approximately $11.3 billion as of
September 30, 2014, up $101.9 million from June 30, 2014.
The increase was mainly due to:
- A $76.6 million increase in
non-brokered deposits, excluding government deposits, mainly
savings and retail CDs in Puerto Rico.
- A $28.9 million increase in government
deposits, mainly related to transactional accounts in the Virgin
Islands.
- A $25.0 million 4-year FHLB advance
with a rate of 1.79% entered into in the third quarter that
replaced a $20.0 million advance that matured early in the
quarter.
Partially offset by:
- A $33.1 million decrease in brokered
CDs.
Total stockholders’ equity amounted to $1.3 billion as of
September 30, 2014, an increase of $18.2 million from June 30,
2014, mainly driven by:
- The net income of $23.2 million
reported in the third quarter.
Partially offset by:
- A decrease of $5.9 million in other
comprehensive income mainly attributable to a decrease in the fair
value of U.S. agency MBS and debt securities of approximately $7.6
million, partially offset by an increase of $1.3 million in the
fair value of Puerto Rico government obligations held by the
Corporation as part of its available-for-sale investment securities
portfolio. See Exposure to Puerto Rico Government section below for
additional information.
The Corporation’s total capital, Tier 1 capital, and leverage
ratios as of September 30, 2014 were 18.57%, 17.30%, and 12.34%,
respectively, compared to total capital, Tier 1 capital and
leverage ratios of 18.06%, 16.80%, and 12.04%, respectively, as of
the end of the second quarter of 2014. Meanwhile, the total
capital, Tier 1 capital, and leverage ratios as of September 30,
2014 of our banking subsidiary, FirstBank Puerto Rico, were 18.21%,
16.95%, and 12.10%, respectively, compared to total capital, Tier 1
capital, and leverage ratios of 17.70%, 16.43%, and 11.79%,
respectively, as of the end of the prior quarter. All of the
regulatory capital ratios for the Bank are well above the minimum
required under the consent order entered into with the FDIC and the
Office of the Commissioner of Financial Institutions of the
Commonwealth of Puerto Rico. Given such consent order, however, the
Bank cannot be considered to be a well-capitalized institution.
Based on our current interpretation of the international
regulatory capital requirements adopted by the Basel Committee on
Banking Supervision (known as “Basel 3”), we anticipate that, when
these are effective, we will exceed the fully phased-in minimum
capital ratios these rules establish.
Tangible Common Equity
The Corporation’s tangible common equity ratio increased to
9.82% as of September 30, 2014 from 9.76% as of June 30, 2014, and
the Tier 1 common equity to risk-weighted assets ratio increased to
14.39% as of September 30, 2014 from 13.92% as of June 30,
2014.
The following table is a reconciliation of the Corporation’s
tangible common equity and tangible assets over the last five
quarters to the comparable GAAP items:
(In thousands, except ratios and per share information)
September 30, June 30,
March 31, December 31, September
30, 2014 2014 2014 2013 2013
Tangible Equity: Total equity - GAAP $ 1,324,157 $ 1,306,001
$ 1,255,898 $ 1,215,858 $ 1,220,593 Preferred equity (36,104 )
(36,104 ) (56,810 ) (63,047 ) (63,047 ) Goodwill (28,098 ) (28,098
) (28,098 ) (28,098 ) (28,098 ) Purchased credit card relationship
(17,235 ) (18,080 ) (18,942 ) (19,787 ) (20,718 ) Core deposit
intangible (5,810 ) (6,200 ) (6,591 )
(6,981 ) (7,570 )
Tangible common equity
$ 1,236,910 $ 1,217,519
$ 1,145,457 $ 1,097,945
$ 1,101,160 Tangible Assets:
Total assets - GAAP $ 12,643,280 $ 12,523,251 $ 12,819,428 $
12,656,925 $ 12,787,450 Goodwill (28,098 ) (28,098 ) (28,098 )
(28,098 ) (28,098 ) Purchased credit card relationship (17,235 )
(18,080 ) (18,942 ) (19,787 ) (20,718 ) Core deposit intangible
(5,810 ) (6,200 ) (6,591 ) (6,981 )
(7,570 )
Tangible assets $
12,592,137 $ 12,470,873 $
12,765,797 $ 12,602,059 $
12,731,064 Common shares outstanding
212,978 212,760
208,968 207,069
207,043 Tangible common equity ratio
9.82 % 9.76 % 8.97 %
8.71 % 8.65 % Tangible book value
per common share $ 5.81 $ 5.72
$ 5.48 $ 5.30 $ 5.32
The following table reconciles stockholders’ equity (GAAP) to
Tier 1 common equity based on current applicable bank regulatory
requirements (known as “Basel 1”):
(Dollars in thousands)
As
of September 30, June 30, March 31,
December 31, September 30, 2014 2014
2014 2013 2013 Tier 1 Common
Equity: Total equity - GAAP $ 1,324,157 $ 1,306,001 $ 1,255,898
$ 1,215,858 $ 1,220,593 Qualifying preferred stock (36,104 )
(36,104 ) (56,810 ) (63,047 ) (63,047 ) Unrealized loss on
available-for-sale securities (1) 34,301 28,381 56,180 78,734
58,485 Disallowed deferred tax asset (2) - - (25 ) - (43 ) Goodwill
(28,098 ) (28,098 ) (28,098 ) (28,098 ) (28,098 ) Core deposit
intangible (5,810 ) (6,200 ) (6,591 ) (6,981 ) (7,570 ) Other
disallowed assets (23 ) (23 ) (23 ) (23
) (410 )
Tier 1 common equity $
1,288,423 $ 1,263,957 $
1,220,531 $ 1,196,443 $
1,179,910 Total risk-weighted assets
$ 8,954,477 $ 9,079,164
$ 9,255,697 $ 9,405,798
$ 9,402,910 Tier 1 common equity to
risk-weighted assets ratio 14.39 % 13.92
% 13.19 % 12.72 % 12.55
%
1) Tier 1 capital excludes net unrealized
gains (losses) on available-for-sale debt securities and net
unrealized gains on available-for-sale equity securities with
readily determinable fair values, in accordance with regulatory
risk-based capital guidelines. In arriving at Tier 1 capital,
institutions are required to deduct net unrealized losses on
available-for-sale equity securities with readily determinable fair
values, net of tax.
2) Approximately $11.3 million of the
Corporation's deferred tax assets as of September 30, 2014 (June
30, 2014 - $9.9 million; March 31, 2014 - $9 million; December 31,
2013 - $7 million; September 30, 2013 - $7.7 million) was included
without limitation in regulatory capital pursuant to the risk-based
capital guidelines, while approximately $0 of such assets as of
September 30, 2014 (June 30, 2014 - $0; March 31, 2014 - $25
thousand; December 31, 2013 - $0; September 30, 2013 - $43
thousand) exceeded the limitation imposed by these guidelines and,
as "disallowed deferred tax assets," was deducted in calculating
Tier 1 capital. According to regulatory capital guidelines, the
deferred tax assets that are dependent upon future taxable income
are limited for inclusion in Tier 1 capital to the lesser of: (i)
the amount of such deferred tax asset that the entity expects to
realize within one year of the calendar quarter-end date, based on
its projected future taxable income for that year, or (ii) 10% of
the amount of the entity's Tier 1 capital. Approximately $1.4
million of the Corporation's other net deferred tax liability as of
September 30, 2014 (June 30, 2014 - $1.2 million deferred tax
liability; March 31, 2014 - $0.8 million deferred tax liability;
December 31, 2013 - $0.3 million deferred tax asset; September 30,
2013 - $0.3 million deferred tax liability) represented primarily
the deferred tax effects of unrealized gains and losses on
available-for-sale debt securities, which are permitted to be
excluded prior to deriving the amount of net deferred tax assets
subject to limitation under the guidelines.
Exposure to Puerto Rico Government
As of September 30, 2014, the Corporation had $364.3 million of
credit facilities granted to the Puerto Rico Government, its
municipalities and public corporations, of which $316.3 million was
outstanding, compared to $340.7 million outstanding as of June 30,
2014. Approximately $201.4 million of the granted credit facilities
outstanding consisted of loans to municipalities in Puerto Rico for
which, in most cases, the good faith, credit and unlimited taxing
power of the applicable municipality have been pledged to their
repayment. Approximately $24.8 million consisted of loans to units
of the central government, and approximately $90.1 million
consisted of loans to public corporations, including a $75.0
million direct exposure to PREPA. In addition, the Corporation had
$200.4 million outstanding in financings to the hotel industry in
Puerto Rico guaranteed by the Puerto Rico Tourism Development
Fund.
In August 2014, PREPA entered into a forbearance agreement with
a group of banks, including First Bank, to extend further its
maturing credit lines to March 31, 2015.
The Corporation had outstanding $61.1 million in obligations of
the Puerto Rico government as part of its available-for-sale
investment securities portfolio carried on its books at a fair
value of $46.4 million as of September 30, 2014. The fair value of
the Puerto Rico government obligations held by the Corporation
increased by approximately $1.3 million during the third quarter of
2014.
As of September 30, 2014, the Corporation had $250.9 million of
public sector deposits in Puerto Rico, compared to $252.6 million
as of June 30, 2014. Approximately 57% is from municipalities in
Puerto Rico and 43% is from public corporations and the central
government and agencies.
Conference Call / Webcast Information
First BanCorp’s senior management will host an earnings
conference call and live webcast on Tuesday, October 28, 2014, at
10:00 a.m. (Eastern Time). The call may be accessed via a live
Internet webcast through the investor relations section of the
Corporation’s web site: www.firstbankpr.com or through a dial-in
telephone number at (877) 506-6537 or (412) 380–2001 for
international callers. The Corporation recommends that listeners go
to the web site at least 15 minutes prior to the call to download
and install any necessary software. Following the webcast
presentation, a question and answer session will be made available
to research analysts and institutional investors. A replay of the
webcast will be archived in the investor relations section of First
BanCorp’s web site, www.firstbankpr.com, until October 28, 2015. A
telephone replay will be available one hour after the end of the
conference call through November 28, 2014 at (877) 344-7529 or
(412) 317-0088 for international callers. The conference number is
10054531.
Safe Harbor
This press release may contain “forward-looking statements”
concerning the Corporation’s future economic performance. The words
or phrases “expect,” “anticipate,” “look forward,” “should,”
“believes” and similar expressions are meant to identify
“forward-looking statements” within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and are subject to the
safe harbor created by such sections. The Corporation wishes to
caution readers not to place undue reliance on any such
“forward-looking statements,” which speak only as of the date made,
and to advise readers that various factors, including, but not
limited to, the following could cause actual results to differ
materially from those expressed in, or implied by such
forward-looking statements: uncertainty about whether the
Corporation and FirstBank will be able to fully comply with the
written agreement dated June 3, 2010 that the Corporation entered
into with the Federal Reserve Bank of New York (the “New York Fed”)
and the consent order dated June 2, 2010 that FirstBank entered
into with the FDIC and the Office of the Commissioner of Financial
Institutions of the Commonwealth of Puerto Rico (the “FDIC Order”)
that, among other things, require FirstBank to maintain certain
capital levels and reduce its special mention, classified,
delinquent, and non-performing assets; the risk of being subject to
possible additional regulatory actions; uncertainty as to the
availability of certain funding sources, such as brokered CDs; the
Corporation’s reliance on brokered CDs and its ability to obtain,
on a periodic basis, approval from the FDIC to issue brokered CDs
to fund operations and provide liquidity in accordance with the
terms of the FDIC Order; the risk of not being able to fulfill the
Corporation’s cash obligations or resume paying dividends to the
Corporation’s stockholders in the future due to the Corporation’s
inability to receive approval from the New York Fed or the Board of
Governors of the Federal Reserve System (the “Federal Reserve
Board”) to receive dividends from FirstBank or FirstBank’s failure
to generate sufficient cash flow to make a dividend payment to the
Corporation; the strength or weakness of the real estate markets
and of the consumer and commercial credit sectors and their impact
on the credit quality of the Corporation’s loans and other assets,
which has contributed and may continue to contribute to, among
other things, high levels of non-performing assets, charge-offs,
and provisions and may subject the Corporation to further risk from
loan defaults and foreclosures; the ability of FirstBank to realize
the benefit of its deferred tax asset; adverse changes in general
economic conditions in Puerto Rico, the U.S., and the U.S. Virgin
Islands and British Virgin Islands, including the interest rate
environment, market liquidity, housing absorption rates, real
estate prices, and disruptions in the U.S. capital markets, which
may reduce interest margins, impact funding sources, and affect
demand for all of the Corporation’s products and services and
reduce the Corporation’s revenues, earnings, and the value of the
Corporation’s assets; a credit default by the Puerto Rico
government or any of its public corporations or other
instrumentalities, and recent and any future downgrades of the
long-term and short-term debt ratings of the Puerto Rico
government, which could exacerbate Puerto Rico’s adverse economic
conditions; an adverse change in the Corporation’s ability to
attract new clients and retain existing ones; a decrease in demand
for the Corporation’s products and services and lower revenues and
earnings because of the continued recession in Puerto Rico, the
current fiscal problems of the Puerto Rico government and recent
credit downgrades of the Puerto Rico government’s debt; the risk
that any portion of the unrealized losses in the Corporation’s
investment portfolio is determined to be other-than-temporary,
including unrealized losses on Puerto Rico government obligations;
uncertainty about regulatory and legislative changes for financial
services companies in Puerto Rico, the U.S., and the U.S. Virgin
Islands and British Virgin Islands, which could affect the
Corporation’s financial condition or performance and could cause
the Corporation’s actual results for future periods to differ
materially from prior results and anticipated or projected results;
changes in the fiscal and monetary policies and regulations of the
U.S. federal government, including those determined by the Federal
Reserve Board, the New York Fed, the FDIC, government-sponsored
housing agencies, and regulators in Puerto Rico and the U.S. and
British Virgin Islands; the risk of possible failure or
circumvention of controls and procedures and the risk that the
Corporation’s risk management policies may not be adequate; the
risk that the FDIC may further increase the deposit insurance
premium and/or require special assessments to replenish its
insurance fund, causing an additional increase in the Corporation’s
non-interest expenses; the impact on the Corporation’s results of
operations and financial condition of acquisitions and
dispositions; a need to recognize additional impairments on
financial instruments, goodwill, or other intangible assets
relating to acquisitions; the risk that downgrades in the credit
ratings of the Corporation’s long-term senior debt will adversely
affect the Corporation’s ability to access necessary external
funds; the impact of the Dodd-Frank Wall Street Reform and Consumer
Protection Act on the Corporation’s businesses, business practices,
and cost of operations; and general competitive factors and
industry consolidation. The Corporation does not undertake, and
specifically disclaims any obligation, to update any
“forward-looking statements” to reflect occurrences or
unanticipated events or circumstances after the date of such
statements except as required by the federal securities laws.
Basis of Presentation
Use of Non-GAAP Financial Measures
This press release contains non-GAAP financial measures.
Non-GAAP financial measures are set forth when management believes
they will be helpful to an understanding of the Corporation’s
results of operations or financial position. Where non-GAAP
financial measures are used, the comparable GAAP financial measure,
as well as the reconciliation to the comparable GAAP financial
measure, can be found in the text or in the attached tables to this
earnings release.
Tangible Common Equity Ratio and Tangible Book Value per Common
Share
The tangible common equity ratio and tangible book value per
common share are non-GAAP financial measures generally used by the
financial community to evaluate capital adequacy. Tangible common
equity is total equity less preferred equity, goodwill, core
deposit intangibles, and other intangibles, such as the purchased
credit card relationship intangible. Tangible assets are total
assets less goodwill, core deposit intangibles, and other
intangibles, such as the purchased credit card relationship
intangible. Management and many stock analysts use the tangible
common equity ratio and tangible book value per common share in
conjunction with more traditional bank capital ratios to compare
the capital adequacy of banking organizations with significant
amounts of goodwill or other intangible assets, typically stemming
from the use of the purchase method of accounting for mergers and
acquisitions. Neither tangible common equity nor tangible assets,
or the related measures should be considered in isolation or as a
substitute for stockholders’ equity, total assets, or any other
measure calculated in accordance with GAAP. Moreover, the manner in
which the Corporation calculates its tangible common equity,
tangible assets, and any other related measures may differ from
that of other companies reporting measures with similar names.
Tier 1 Common Equity to Risk-Weighted Assets Ratio
The Tier 1 common equity to risk-weighted assets ratio is
calculated by dividing (a) Tier 1 capital less non-common elements
including qualifying perpetual preferred stock and qualifying trust
preferred securities by (b) risk-weighted assets, which assets are
calculated in accordance with current applicable bank regulatory
requirements (Basel 1). The Tier 1 common equity ratio is not
required by GAAP or on a recurring basis by applicable bank
regulatory requirements. Management is currently monitoring this
ratio, along with the other ratios discussed above, in evaluating
the Corporation’s capital levels and believes that, at this time,
the ratio may be of interest to investors.
Adjusted Pre-Tax, Pre-Provision Income
Adjusted pre-tax, pre-provision income is a non-GAAP performance
metric that management believes is useful in analyzing underlying
performance trends, particularly in times of economic stress.
Adjusted pre-tax, pre-provision income, as defined by management,
represents net income (loss) excluding income tax expense
(benefit), the provision for loan and lease losses, gains on sale
and OTTI of investment securities, fair value adjustments on
derivatives, equity in earnings or loss of unconsolidated entity as
well as certain items identified as unusual, non-recurring or
non-operating.
In addition, from time to time, adjusted pre-tax, pre-provision
income will reflect the omission of revenue or expense items that
management judges to be outside of ordinary banking activities
and/or of items that, while they may be associated with ordinary
banking activities, are so unusually large that management believes
that a complete analysis of the Corporation’s performance requires
consideration also of adjusted pre-tax, pre-provision income that
excludes such amounts.
Net Interest Income, Excluding Valuations and on a
Tax-Equivalent Basis
Net interest income, interest rate spread, and net interest
margin are reported excluding the changes in the fair value of
derivative instruments and on a tax-equivalent basis. The
presentation of net interest income excluding valuations provides
additional information about the Corporation’s net interest income
and facilitates comparability and analysis. The changes in the fair
value of derivative instruments have no effect on interest due or
interest earned on interest-bearing liabilities or interest-earning
assets, respectively. The tax-equivalent adjustment to net interest
income recognizes the income tax savings when comparing taxable and
tax-exempt assets and assumes a marginal income tax rate. Income
from tax-exempt earning assets is increased by an amount equivalent
to the taxes that would have been paid if this income had been
taxable at statutory rates. Management believes that it is a
standard practice in the banking industry to present net interest
income, interest rate spread, and net interest margin on a fully
tax-equivalent basis. This adjustment puts all earning assets, most
notably tax-exempt securities and certain loans, on a common basis
that facilitates comparison of results to results of peers.
Financial measures adjusted to exclude the effect of expenses
related to the acquisitions of mortgage loans from Doral, expenses
related to branch consolidations and other restructuring expenses,
equity in earnings (loss) of unconsolidated entity, gains or losses
on sales of investment securities and OTTI of investment
securities.
To supplement the Corporation’s financial statements presented
in accordance with GAAP, the Corporation provides additional
measures of adjusted non-interest expenses and adjusted
non-interest income. Adjusted non-interest expenses exclude
professional service fees specifically related to the acquisitions
of mortgage loans from Doral, expenses related to branch
consolidations in Puerto Rico, and expenses associated with the
restructuring of some business units. Adjusted non-interest income
excludes equity in earnings (loss) of unconsolidated entity, gains
(losses) on sales of investments and OTTI of investment securities.
Management believes that these non-GAAP measures enhance the
ability of analysts and investors to analyze trends in the
Corporation’s business and to better understand the performance of
the Corporation. In addition, the Corporation may utilize these
non-GAAP financial measures as a guide in its budgeting and
long-term planning process. Any analysis of these non-GAAP
financial measures should be used only in conjunction with results
presented in accordance with GAAP. The following table shows
reconciliations of these non-GAAP financial measures to the
corresponding measures calculated and presented in accordance with
GAAP.
(Dollars in thousands)
2014 Third Quarter As Reported (GAAP)
Branch consolidationand
optimizationexpenses
Equity in loss
ofunconsolidatedentity
Acquisition ofmortgage
loansfrom Doralrelatedexpenses
OTTI on debtsecurities
Adjusted (Non-GAAP)
Non-interest income $ 16,174
$ - $ - $ -
$ 245
$ 16,419 Non-interest expenses $
93,604 $ - $ - $
(659 ) $ - $ 92,945
(Dollars in thousands)
2014 Second
Quarter
As Reported(GAAP)
Branch consolidationand
optimizationexpenses
Equity in loss
ofunconsolidatedentity
Acquisition ofmortgage
loansfrom Doralrelatedexpenses
Gain on sale
ofinvestments
Adjusted (Non-GAAP)
Non-interest income $ 15,931
$ - $ 670 $ (291 )
$ 16,310 Non-interest expenses $
98,145 $ (236 ) $ -
$ (576 ) $ 97,333
FIRST BANCORP Condensed Consolidated Statements of
Financial Condition As of September
30, June 30, December 31, (In thousands, except
for share information)
2014 2014 2013
ASSETS Cash and due from banks $ 953,038 $
660,709 $ 454,302 Money market investments:
Time deposits with other financial institutions 300 300 300 Other
short-term investments 16,657 16,653
201,069 Total money market investments 16,957
16,953 201,369 Investment
securities available for sale, at fair value 1,977,137 1,997,408
1,978,282 Other equity securities 25,752
29,141 28,691 Total
investment securities 2,002,889 2,026,549
2,006,973 Investment in unconsolidated
entity - - 7,279
Loans, net of allowance for loan and lease losses of
$225,434 (June 30, 2014 - $241,177; December 31, 2013 - $285,858)
9,089,968 9,225,924 9,350,312 Loans held for sale, at lower of cost
or market 80,014 72,105 75,969
Total loans, net 9,169,982 9,298,029
9,426,281 Premises and equipment, net
167,916 170,056 166,946 Other real estate owned 112,803 121,842
160,193 Accrued interest receivable on loans and investments 48,516
52,092 54,012 Other assets 171,179 177,021
179,570 Total assets $ 12,643,280 $
12,523,251 $ 12,656,925
LIABILITIES
Deposits: Non-interest-bearing deposits $ 862,422 $ 851,038
$ 851,212 Interest-bearing deposits 8,840,752
8,779,750 9,028,712 Total deposits
9,703,174 9,630,788 9,879,924
Securities sold under agreements to repurchase 900,000
900,000 900,000 Advances from the Federal Home Loan Bank (FHLB)
325,000 320,000 300,000 Other borrowings 231,959 231,959 231,959
Accounts payable and other liabilities 158,990
134,503 129,184 Total liabilities
11,319,123 11,217,250 11,441,067
STOCKHOLDERS' EQUITY
Preferred Stock, authorized 50,000,000
shares: issued 22,828,174 shares;outstanding 1,444,146 (June 30,
2014 - 1,444,146 shares outstanding;December 31, 2013 - 2,521,872
shares outstanding); aggregateliquidation value of $36,104 (June
30, 2014 - $36,104; December 31, 2013 - $63,047)
36,104 36,104 63,047
Common stock, $0.10 par value, authorized
2,000,000,000 shares; issued, 213,642,311 shares (June 30, 2014 -
213,399,037 shares issued; December 31, 2013 - 207,635,157 shares
issued) 21,364 21,340 20,764 Less: Treasury stock (at par value)
(66 ) (64 ) (57 ) Common stock
outstanding, 212,977,588 shares outstanding (June 30, 2014 -
212,760,158 shares outstanding; December 31, 2013 - 207,068,978
shares outstanding) 21,298 21,276
20,707 Additional paid-in capital 915,231 914,382
888,161 Retained earnings 385,847 362,646 322,679 Accumulated other
comprehensive loss (34,323 ) (28,407 ) (78,736
) Total stockholders' equity 1,324,157
1,306,001 1,215,858 Total liabilities and
stockholders' equity $ 12,643,280 $ 12,523,251 $
12,656,925
FIRST BANCORP Condensed
Consolidated Statements of Income (Loss)
Quarter Ended Nine-Month Period Ended
(In thousands, except per share information)
September 30,
June 30, September 30, September 30,
September 30, 2014 2014 2013
2014 2013 Net interest income: Interest
income $ 156,662 $ 158,423 $ 162,203 $ 475,656 $ 483,098 Interest
expense 28,968 28,516 31,298
86,735 100,812 Net interest
income 127,694 129,907 130,905 388,921 382,286 Provision for loan
and lease losses 26,999 26,744
22,195 85,658 220,782 Net
interest income after provision for loan and lease losses
100,695 103,163 108,710
303,263 161,504
Non-interest income
(loss): Service charges on deposit accounts 3,235 3,290 3,157
9,728 9,635 Mortgage banking activities 3,809 3,036 3,521 10,213
12,924 Net (loss) gain on investments and impairments (245 ) 291 -
46 (159 ) Equity in (loss) earnings of unconsolidated entity - (670
) (5,908 ) (7,280 ) (10,798 ) Impairment of collateral pledged to
Lehman - - - - (66,574 ) Other non-interest income 9,375
9,984 9,290 30,748
26,998 Total non-interest income (loss) 16,174
15,931 10,060 43,455
(27,974 )
Non-interest expenses:
Employees' compensation and benefits 33,964 35,023 32,823 101,929
99,493 Occupancy and equipment 14,727 14,482 15,109 43,527 45,062
Business promotion 3,925 4,142 3,538 12,040 10,726 Professional
fees 11,533 11,371 11,840 32,944 36,707 Taxes, other than income
taxes 4,528 4,504 4,718 13,607 14,009 Insurance and supervisory
fees 9,493 10,784 11,513 31,267 37,018 Net loss on other real
estate owned operations 4,326 6,778 7,052 16,941 29,191 Other
non-interest expenses 11,108 11,061
12,561 32,279 36,281
Total non-interest expenses 93,604 98,145
99,154 284,534 308,487
Income (loss) before income taxes
23,265
20,949 19,616 62,184 (174,957 ) Income tax (expense) benefit
(64 ) 276 (3,676 ) (675 ) (4,319
)
Net income (loss) $ 23,201 $ 21,225 $
15,940 $ 61,509 $ (179,276 )
Net income
(loss) attributable to common stockholders $ 23,201 $
22,505 $ 15,940 $ 63,168 $ (179,276 )
Earnings (loss) per common share: Basic $ 0.11 $ 0.11
$ 0.08 $ 0.30 $ (0.87 ) Diluted $ 0.11
$ 0.11 $ 0.08 $ 0.30 $ (0.87 )
About First BanCorp.
First BanCorp. is the parent corporation of FirstBank Puerto
Rico, a state-chartered commercial bank with operations in Puerto
Rico, the Virgin Islands and Florida, and of FirstBank Insurance
Agency. First BanCorp. and FirstBank Puerto Rico operate within
U.S. banking laws and regulations. The Corporation operates a total
of 143 branches, stand-alone offices, and in-branch service centers
throughout Puerto Rico, the U.S. and British Virgin Islands, and
Florida. Among the subsidiaries of FirstBank Puerto Rico are First
Federal Finance Corp., a small loan company; FirstBank Puerto Rico
Securities, a broker-dealer subsidiary; First Management of Puerto
Rico; and FirstMortgage, Inc., a mortgage origination company. In
the U.S. Virgin Islands, FirstBank operates First Express, a small
loan company. First BanCorp’s shares of common stock trade on the
New York Stock Exchange under the symbol FBP. Additional
information about First BanCorp. may be found at
www.firstbankpr.com.
EXHIBIT A
Table 1 - Selected Financial Data
(In thousands, except for per share
and financial ratios data)
Quarter Ended Nine-Month Period Ended
September 30, June 30, September 30,
September 30, September 30, 2014 2014
2013 2014 2013 Condensed Income Statements:
Total interest income $ 156,662 $ 158,423 $ 162,203 $ 475,656 $
483,098 Total interest expense 28,968 28,516 31,298 86,735 100,812
Net interest income 127,694 129,907 130,905 388,921 382,286
Provision for loan and lease losses 26,999 26,744 22,195 85,658
220,782 Non-interest income (loss) 16,174 15,931 10,060 43,455
(27,974 ) Non-interest expenses 93,604 98,145 99,154 284,534
308,487 Income (loss) before income taxes
23,265
20,949 19,616 62,184 (174,957 ) Income tax (expense) benefit (64 )
276 (3,676 ) (675 ) (4,319 ) Net income (loss) 23,201 21,225 15,940
61,509 (179,276 ) Net income (loss) attributable to common
stockholders 23,201 22,505 15,940 63,168 (179,276 )
Per Common Share Results: Net earnings (loss) per share
basic $ 0.11 $ 0.11 $ 0.08 $ 0.30 $ (0.87 ) Net earnings (loss) per
share diluted $ 0.11 $ 0.11 $ 0.08 $ 0.30 $ (0.87 ) Cash dividends
declared $ - $ - $ - $ - $ - Average shares outstanding 210,466
208,202 205,579 208,151 205,512 Average shares outstanding diluted
212,359 210,144 207,316 209,811 205,512 Book value per common share
$ 6.05 $ 5.97 $ 5.59 $ 6.05 $ 5.59 Tangible book value per common
share (1) $ 5.81 $ 5.72 $ 5.32 $ 5.81 $ 5.32
Selected
Financial Ratios (In Percent): Profitability:
Return on Average Assets 0.73 0.67 0.50 0.65 (1.86 ) Interest Rate
Spread (2) 4.07 4.19 4.15 4.17 3.94 Net Interest Margin (2) 4.25
4.37 4.34 4.35 4.15 Return on Average Total Equity 7.01 6.66 5.19
6.43 (17.65 ) Return on Average Common Equity 7.21 6.95 5.47 6.69
(18.51 ) Average Total Equity to Average Total Assets 10.44 10.10
9.68 10.10 10.56 Total capital 18.57 18.06 16.89 18.57 16.89 Tier 1
capital 17.30 16.80 15.61 17.30 15.61 Leverage 12.34 12.04 11.65
12.34 11.65 Tangible common equity ratio (1) 9.82 9.76 8.65 9.82
8.65 Tier 1 common equity to risk-weight assets (1) 14.39 13.92
12.55 14.39 12.55 Dividend payout ratio - - - - - Efficiency ratio
(3) 65.06 67.30 70.34 65.81 87.07
Asset Quality:
Allowance for loan and lease losses to loans held for investment
2.42 2.55 3.04 2.42 3.04 Net charge-offs (annualized) to average
loans 1.80 2.19 (4) 1.41 2.04 (4) 4.97 (6) Provision for loan and
lease losses to net charge-offs 63.17 51.09 (5) 65.54 58.64 (5)
60.19 (7) Non-performing assets to total assets 5.89 6.05 5.68 5.89
5.68 Non-performing loans held for investment to total loans held
for investment 6.01 5.96 5.24 6.01 5.24 Allowance to total
non-performing loans held for investment 40.29 42.71 58.06 40.29
58.06 Allowance to total non-performing loans held for investment
excluding residential real estate loans 60.20 61.96 81.20 60.20
81.20
Other Information: Common Stock Price: End of
period $ 4.75 $ 5.44 $ 5.68 $ 4.75 $ 5.68
1) Non-GAAP measure. See pages 13-14 for
GAAP to Non-GAAP reconciliations.
2) On a tax-equivalent basis and excluding
changes in the fair value of derivative instruments (Non-GAAP
measure). See page 4 for GAAP to Non-GAAP reconciliations and refer
to discussions in Tables 2 and 3 below.
3) Non-interest expenses to the sum of net
interest income and non-interest income. The denominator includes
non-recurring income and changes in the fair value of derivative
instruments.
4) The net charge-offs to average loans
ratio, excluding the impact associated with the acquisition of
mortgage loans from Doral, was 1.90% for the quarter ended June 30,
2014 and 1.94% for the nine-month period ended September 30, 2014,
respectively.
5) The provision for loan and lease losses
to net charge-offs ratio, excluding the impact associated with the
acquisition of mortgage loans from Doral, was 55.72% for the
quarter ended June 30, 2014 and 60.52% for the nine-month period
ended September 30, 2014, respectively.
6) The net charge-offs to average loans
ratio, excluding the impact associated with the bulk sales of
assets and the transfer of loans to held for sale, was 1.87% for
the nine-month period ended September 30, 2013.
7) The provision for loan and lease losses
to net charge-offs ratio, excluding the impact associated with the
bulk sales of assets and the transfer of loans to held for sale,
was 66.07% for the nine-month period ended September 30, 2013.
Table 2 - Statement of Average Interest-Earning Assets and
Average Interest-Bearing Liabilities (On a Tax Equivalent
Basis) (Dollars in thousands)
Average volume Interest
income (1) / expense Average rate (1) September
30, June 30, September 30, September 30,
June 30, September 30, September 30, June
30, September 30, Quarter ended 2014
2014 2013 2014 2014 2013
2014 2014 2013 Interest-earning assets:
Money market & other short-term investments $ 744,738 $ 729,302
$ 639,285 $ 473 $ 454 $ 456 0.25 % 0.25 % 0.28 % Government
obligations (2) 339,261 335,813 342,739 1,956 2,101 2,008 2.29 %
2.51 % 2.32 % Mortgage-backed securities 1,657,816 1,717,748
1,705,745 11,985 14,191 14,847 2.87 % 3.31 % 3.45 % FHLB stock
26,788 27,995 30,884 283 273 311 4.19 % 3.91 % 4.00 % Equity
securities 320 320 1,320 - -
- 0.00 % 0.00 % 0.00 % Total investments (3)
2,768,923 2,811,178 2,719,973 14,697
17,019 17,622 2.11 % 2.43 % 2.57 % Residential mortgage
loans 2,803,138 2,635,082 2,580,758 39,401 36,707 37,273 5.58 %
5.59 % 5.73 % Construction loans 195,108 198,665 257,188 1,910
1,691 2,141 3.88 % 3.41 % 3.30 % C&I and commercial mortgage
loans 4,434,798 4,658,776 4,755,518 49,043 50,473 48,971 4.39 %
4.35 % 4.09 % Finance leases 237,374 243,014 241,256 4,707 4,985
5,188 7.87 % 8.23 % 8.53 % Consumer loans 1,806,158
1,825,255 1,804,892 50,481 52,291
55,196 11.09 % 11.49 % 12.13 % Total loans (4) (5) 9,476,576
9,560,792 9,639,612 145,542 146,147
148,769 6.09 % 6.13 % 6.12 % Total interest-earning assets $
12,245,499 $ 12,371,970 $ 12,359,585 $ 160,239 $ 163,166 $ 166,391
5.19 % 5.29 % 5.34 % Interest-bearing liabilities: Brokered
CDs $ 3,097,358 $ 3,124,808 $ 3,149,417 $ 7,482 $ 7,496 $ 8,295
0.96 % 0.96 % 1.04 % Other interest-bearing deposits 5,691,643
5,838,450 5,773,400 11,862 11,970 13,158 0.83 % 0.82 % 0.90 % Other
borrowed funds 1,131,959 1,131,959 1,131,959 8,675 8,217 8,321 3.04
% 2.91 % 2.92 % FHLB advances 324,674 300,220
355,016 949 833 1,524 1.16 % 1.11 % 1.70 %
Total interest-bearing liabilities $ 10,245,634 $ 10,395,437 $
10,409,792 $ 28,968 $ 28,516 $ 31,298 1.12 % 1.10 % 1.19 % Net
interest income $ 131,271 $ 134,650 $ 135,093 Interest rate spread
4.07 % 4.19 % 4.15 % Net interest margin 4.25 % 4.37 % 4.34 %
1) On a tax-equivalent basis. The
tax-equivalent yield was estimated by dividing the interest rate
spread on exempt assets by 1 less the Puerto Rico statutory tax
rate of 39% and adding to it the cost of interest-bearing
liabilities. When adjusted to a tax-equivalent basis, yields on
taxable and exempt assets are comparable. Changes in the fair value
of derivative instruments are excluded from interest income because
the changes in valuation do not affect interest paid or
received.
2) Government obligations include debt
issued by government-sponsored agencies.
3) Unrealized gains and losses on
available-for-sale securities are excluded from the average
volumes.
4) Average loan balances include the
average of total non-performing loans.
5) Interest income on loans includes $3.1
million, $2.8 million and $3.7 million for the quarters ended
September 30, 2014, June 30, 2014, and September 30, 2013,
respectively, of income from prepayment penalties and late fees
related to the Corporation's loan portfolio.
Table 3 - Year-To-Date Statement of
Average Interest-Earning Assets and Average Interest-Bearing
Liabilities (On a Tax Equivalent Basis) (Dollars in thousands)
Average volume Interest income (1) /
expense Average rate (1) September 30,
September 30, September 30, September 30,
September 30, September 30, Nine-Month Period
Ended 2014 2013 2014 2013
2014 2013 Interest-earning assets: Money
market & other short-term investments $ 739,456 $ 709,240 $
1,427 $ 1,494 0.26 % 0.28 % Government obligations (2) 339,295
337,156 6,115 5,847 2.41 % 2.32 % Mortgage-backed securities
1,691,816 1,642,080 42,268 35,933 3.34 % 2.93 % FHLB stock 27,724
31,775 897 1,048 4.33 % 4.41 % Equity securities 320
1,348 - - 0.00 % 0.00 % Total investments (3)
2,798,611 2,721,599 50,707 44,322 2.42 % 2.18
% Residential mortgage loans 2,663,641 2,730,842 111,066 112,688
5.57 % 5.52 % Construction loans 203,359 292,594 5,616 7,032 3.69 %
3.21 % C&I and commercial mortgage loans 4,638,218 4,787,841
150,828 145,371 4.35 % 4.06 % Finance leases 242,173 239,407 14,882
15,396 8.22 % 8.60 % Consumer loans 1,818,628
1,793,811 155,787 166,002 11.45 % 12.37 % Total loans
(4) (5) 9,566,019 9,844,495 438,179
446,489 6.12 % 6.06 % Total interest-earning assets $ 12,364,630 $
12,566,094 $ 488,886 $ 490,811 5.29 % 5.22 %
Interest-bearing liabilities: Brokered CDs $ 3,135,572 $ 3,298,338
$ 22,585 $ 30,566 0.96 % 1.24 % Other interest-bearing deposits
5,817,613 5,740,514 36,524 40,349 0.84 % 0.94 % Other borrowed
funds 1,131,959 1,131,959 25,020 24,717 2.96 % 2.92 % FHLB advances
308,388
376,847 2,606 5,180 1.13 % 1.84 % Total
interest-bearing liabilities $ 10,393,532 $ 10,547,658 $ 86,735 $
100,812 1.12 % 1.28 % Net interest income $ 402,151 $ 389,999
Interest rate spread 4.17 % 3.94 % Net interest margin 4.35 % 4.15
%
1) On a tax-equivalent basis. The
tax-equivalent yield was estimated by dividing the interest rate
spread on exempt assets by 1 less the Puerto Rico statutory tax
rate of 39% and adding to it the cost of interest-bearing
liabilities. When adjusted to a tax-equivalent basis, yields on
taxable and exempt assets are comparable. Changes in the fair value
of derivative instruments are excluded from interest income because
the changes in valuation do not affect interest paid or
received.
2) Government obligations include debt
issued by government-sponsored agencies.
3) Unrealized gains and losses on
available-for-sale securities are excluded from the average
volumes.
4) Average loan balances include the
average of total non-performing loans.
5) Interest income on loans includes $8.8
million, and $10.8 million for the nine-month period ended
September 30, 2014 and 2013, respectively, of income from
prepayment penalties and late fees related to the Corporation's
loan portfolio.
Table 4 - Non-Interest Income
Quarter Ended Nine-Month Period Ended
September 30, June 30, September 30,
September 30, September 30, (In thousands)
2014 2014 2013 2014 2013
Service charges on deposit accounts $ 3,235 $ 3,290 $ 3,157 $ 9,728
$ 9,635 Mortgage banking activities 3,809 3,036 3,521 10,213 12,924
Insurance income 1,290 1,467 1,303 5,328 4,831 Broker-dealer income
- - - 459 - Other operating income 8,085 8,517
7,987 24,961 22,167
Non-interest income before net (loss) gain
on investments, equity in earnings (loss) of unconsolidated entity,
and write-off of collateral pledged with Lehman
16,419 16,310 15,968
50,689 49,557 Net gain on sale
of investments - 291 - 291 - OTTI on equity securities - - - - (42
) OTTI on debt securities (245 ) - -
(245 ) (117 ) Net (loss) gain on investments
(245 ) 291 - 46
(159 ) Impairment - collateral pledged to
Lehman - - - - (66,574 ) Equity in earnings (loss) of
unconsolidated entity - (670 ) (5,908 )
(7,280 ) (10,798 ) $ 16,174 $ 15,931 $
10,060 $ 43,455 $ (27,974 )
Table 5 - Non-Interest Expenses
Quarter Ended Nine-Month Period Ended September
30, June 30, September 30, September 30,
September 30, (In thousands)
2014 2014
2013 2014 2013 Employees' compensation
and benefits $ 33,964 $ 35,023 $ 32,823 $ 101,929 $ 99,493
Occupancy and equipment 14,727 14,246 15,109 42,573 45,062 Deposit
insurance premium 8,335 9,579 10,479 27,736 33,426 Other insurance
and supervisory fees 1,158 1,205 1,034 3,531 3,592 Taxes, other
than income taxes 4,528 4,504 4,718 13,607 14,009 Professional
fees: Collections, appraisals and other credit related fees 2,480
2,363 2,780 6,188 7,224 Outsourcing technology services 4,840 4,600
4,338 13,654 9,942 Other professional fees 3,554 3,843 4,086 11,878
10,771 Credit and debit card processing expenses 3,741 3,882 2,682
11,447 8,040 Credit card processing platform conversion costs - -
1,715 - 1,715 Branch consolidations and other restructuring
expenses - 236 - 954 - Business promotion 3,925 4,142 3,478 12,040
10,529 Communications 2,143 1,894 1,866 5,916 5,565 Net loss on
OREO operations 4,326 6,778 7,052 16,941 27,312 Secondary offering
costs - - 1,669 - 1,669 Terminated preferred stock exchange offer
expenses - - - - 1,333 Acquisitions of loans from Doral related
expenses 659 576 - 1,235 - Bulk sales expenses - - - - 8,840 Other
5,224 5,274 5,325
14,905 19,965 Total $ 93,604 $ 98,145
$ 99,154 $ 284,534 $ 308,487
Table 6 - Selected Balance Sheet Data (In
thousands)
As of September 30, June 30,
December 31, 2014 2014 2013 Balance
Sheet Data: Loans, including loans held for sale $ 9,395,416 $
9,539,206 $ 9,712,139 Allowance for loan and lease losses 225,434
241,177 285,858 Money market and investment securities 2,019,846
2,043,501 2,208,342 Intangible assets 51,143 52,378 54,866 Deferred
tax asset, net 9,853 8,738 7,644 Total assets 12,643,280 12,523,251
12,656,925 Deposits 9,703,174 9,630,788 9,879,924 Borrowings
1,456,959 1,451,959 1,431,959 Total preferred equity 36,104 36,104
63,047 Total common equity 1,322,376 1,298,304 1,231,547
Accumulated other comprehensive loss, net of tax (34,323 ) (28,407
) (78,736 ) Total equity 1,324,157 1,306,001 1,215,858
Table 7 - Consolidated Loan Portfolio
(In thousands)
As of September 30, June
30, December 31, 2014 2014 2013
Residential mortgage loans $ 2,819,648 $ 2,795,159 $
2,549,008 Commercial loans: Construction loans 141,689
148,266 168,713 Commercial mortgage loans 1,812,094 1,813,930
1,823,608 Commercial and Industrial loans 2,515,384 2,647,478
2,788,250 Loans to local financial institutions collateralized by
real estate mortgages - - 240,072 Commercial
loans 4,469,167 4,609,674 5,020,643
Finance leases 236,115 240,593 245,323
Consumer loans 1,790,472 1,821,675 1,821,196
Loans held for investment 9,315,402 9,467,101 9,636,170 Loans held
for sale 80,014 72,105 75,969 Total loans $
9,395,416 $ 9,539,206 $ 9,712,139
Table 8 - Loan Portfolio by Geography (In thousands)
As of September 30, 2014 Puerto Rico Virgin
Islands United States Consolidated
Residential mortgage loans $ 2,139,435 $ 343,620 $ 336,593 $
2,819,648 Commercial loans: Construction loans 92,734 25,631
23,324 141,689 Commercial mortgage loans 1,445,044 71,888 295,162
1,812,094 Commercial and Industrial loans 2,131,996
109,943 273,445 2,515,384 Commercial loans
3,669,774 207,462 591,931 4,469,167
Finance leases 236,115 - - 236,115
Consumer loans 1,705,885 48,841 35,746
1,790,472 Loans held for investment 7,751,209 599,923
964,270 9,315,402 Loans held for sale 37,909
40,325 1,780 80,014 Total loans $ 7,789,118 $ 640,248
$ 966,050 $ 9,395,416
(In thousands)
As of June 30, 2014 Puerto Rico
Virgin Islands United States Consolidated
Residential mortgage loans $ 2,132,586 $ 342,516 $ 320,057 $
2,795,159 Commercial loans: Construction loans 94,979 30,855
22,432 148,266 Commercial mortgage loans 1,423,948 72,262 317,720
1,813,930 Commercial and Industrial loans 2,260,456
149,884 237,138 2,647,478 Commercial loans
3,779,383 253,001 577,290 4,609,674
Finance leases 240,593 - - 240,593
Consumer loans 1,738,203 49,737 33,735
1,821,675 Loans held for investment 7,890,765 645,254
931,082 9,467,101 Loans held for sale 31,168
40,153 784 72,105 Total loans $ 7,921,933 $ 685,407 $
931,866 $ 9,539,206 (In thousands)
As of December
31, 2013 Puerto Rico Virgin Islands United
States Consolidated Residential mortgage loans $
1,906,982 $ 348,816 $ 293,210 $ 2,549,008 Commercial loans:
Construction loans 105,830 33,744 29,139 168,713 Commercial
mortgage loans 1,464,085 74,271 285,252 1,823,608 Commercial and
Industrial loans 2,436,709 125,757 225,784 2,788,250 Loans to a
local financial institution collateralized by real estate mortgages
240,072 - - 240,072 Commercial loans
4,246,696 233,772 540,175 5,020,643
Finance leases 245,323 - -
245,323 Consumer loans 1,739,478 49,689
32,029 1,821,196 Loans held for investment 8,138,479 632,277
865,414 9,636,170 Loans held for sale 35,394
40,575 - 75,969 Total loans $ 8,173,873 $ 672,852 $
865,414 $ 9,712,139
Table 9 - Consolidated Non-Performing
Assets
(Dollars in thousands)
September 30, June 30,
December 31, 2014 2014 2013
Non-performing loans held for investment: Residential mortgage $
185,025 $ 175,404 $ 161,441 Commercial mortgage 169,967 166,218
120,107 Commercial and Industrial 130,917 143,669 114,833
Construction 30,111 38,830 58,866 Consumer and Finance leases
43,496 40,510 40,302
Total non-performing loans held for investment 559,516
564,631 495,549 OREO
112,803 121,842 160,193 Other repossessed property 17,467
16,114 14,865 Total
non-performing assets, excluding loans held for sale $ 689,786 $
702,587 $ 670,607 Non-performing loans held for sale
54,641 54,755 54,801 Total
non-performing assets, including loans held for sale (1) $ 744,427
$ 757,342 $ 725,408 Past-due loans 90
days and still accruing (2) $ 143,535 $ 143,916 $ 120,082 Allowance
for loan and lease losses $ 225,434 $ 241,177 $ 285,858 Allowance
to total non-performing loans held for investment 40.29 % 42.71 %
57.69 % Allowance to total non-performing loans held for
investment, excluding residential real estate loans 60.20 % 61.96 %
85.56 %
(1) Purchased credit impaired loans of
$104.3 million accounted for under ASC 310-30 as of September 30,
2014, primarily mortgage loans acquired from Doral in the second
quarter of 2014, are excluded and not considered non-performing due
to the application of the accretion method, under which these loans
will accrete interest income over the remaining life of the loans
using estimated cash flow analysis.
(2) Amount includes purchased credit
impaired loans with individual delinquencies over 90 days and still
accruing with a carrying value as of September 30, 2014 of
approximately $15.6 million, primarily related to loans acquired
from Doral.
Table 10 - Non-Performing Assets by
Geography (In thousands)
September 30, June 30,
December 31, 2014 2014 2013
Puerto Rico: Non-performing loans held for investment:
Residential mortgage $ 159,740 $ 149,946 $ 139,771 Commercial
mortgage 147,909 142,417 101,255 Commercial and Industrial 124,406
137,046 109,224 Construction 25,780 30,229 43,522 Finance leases
4,501 3,414 3,082 Consumer 36,722 34,768
34,660 Total non-performing loans held for investment
499,058 497,820 431,514 OREO 99,721 101,051
123,851 Other repossessed property 17,437 16,056
14,806 Total non-performing assets, excluding loans held for
sale $ 616,216 $ 614,927 $ 570,171 Non-performing loans held for
sale 14,636 14,750 14,796 Total non-performing
assets, including loans held for sale (1) $ 630,852 $ 629,677 $
584,967 Past-due loans 90 days and still accruing (2) $ 140,229 $
139,173 $ 118,097
Virgin Islands: Non-performing
loans held for investment: Residential mortgage $ 13,576 $ 12,797 $
8,439 Commercial mortgage 7,044 7,708 6,827 Commercial and
Industrial 6,511 6,623 5,609 Construction 4,173 8,442 11,214
Consumer 861 876 514 Total non-performing
loans held for investment 32,165 36,446 32,603
OREO 7,904 14,597 14,894 Other repossessed property 3
- 5 Total non-performing assets, excluding loans held
for sale $ 40,072 $ 51,043 $ 47,502 Non-performing loans held for
sale 40,005 40,005 40,005 Total non-performing
assets, including loans held for sale $ 80,077 $ 91,048 $ 87,507
Past-due loans 90 days and still accruing $ 2,766 $ 4,743 $ 1,985
United States: Non-performing loans held for
investment: Residential mortgage $ 11,709 $ 12,661 $ 13,231
Commercial mortgage 15,014 16,093 12,025 Commercial and Industrial
- - - Construction 158 159 4,130 Consumer 1,412 1,452
2,046 Total non-performing loans held for investment
28,293 30,365 31,432 OREO 5,178 6,194 21,448
Other repossessed property 27 58 54 Total
non-performing assets, excluding loans held for sale $ 33,498 $
36,617 $ 52,934 Non-performing loans held for sale -
- - Total non-performing assets, including loans held for
sale $ 33,498 $ 36,617 $ 52,934 Past-due loans 90 days and still
accruing $ 540 $ - $ -
(1) Purchased credit impaired loans of
$104.3 million accounted for under ASC 310-30 as of September 30,
2014, primarily mortgage loans acquired from Doral in the second
quarter of 2014, are excluded and not considered non-performing due
to the application of the accretion method, under which these loans
will accrete interest income over the remaining life of the loans
using estimated cash flow analysis.
(2) Amount includes purchased credit
impaired loans with individual delinquencies over 90 days and still
accruing with a carrying value as of September 30, 2014 of
approximately $15.6 million, primarily related to loans acquired
from Doral.
Table 11 - Allowance for Loan and Lease
Losses
Quarter Ended Nine-Month Period
Ended (Dollars in thousands)
September 30,
June 30, September 30, September 30,
September 30, 2014 2014 2013
2014 2013 Allowance for loan and lease losses,
beginning of period $ 241,177 $ 266,778 $ 301,047
$ 285,858 $ 435,414 Provision for loan and
lease losses 26,999 26,744 (1)
22,195 85,658 (1) 220,782
(3)
Net (charge-offs) recoveries of loans: Residential mortgage (5,734
) (4,687 ) (8,457 ) (16,774 ) (123,455 )
(4)
Commercial mortgage 1,116 (9,126 ) (5,918 ) (13,785 ) (65,207 )
(5)
Commercial and Industrial (16,431 ) (19,036 ) (2) (5,718 ) (57,263
) (2) (96,067 )
(6)
Construction (3,205 ) (2,606 ) 71 (6,164 ) (40,812 )
(7)
Consumer and finance leases (18,488 ) (16,890 )
(13,841 ) (52,096 ) (41,276 ) Net charge-offs
(42,742 ) (52,345 ) (2) (33,863 )
(146,082 ) (2) (366,817 )
(8)
Allowance for loan and lease losses, end of period $ 225,434
$ 241,177 $ 289,379 $ 225,434 $ 289,379
Allowance for loan and lease losses to period end total
loans held for investment 2.42 % 2.55 % 3.04 % 2.42 % 3.04 % Net
charge-offs (annualized) to average loans outstanding during the
period 1.80 % 2.19 % 1.41 % 2.04 % 4.97 %
Net charge-offs (annualized), excluding
charge-offs related to the acquisition of mortgage loans from
Doral, loans sold and loans transferred to held for sale, to
average loans outstanding during the period
1.80 % 1.90 % 1.41 % 1.94 % 1.87 % Provision for loan and lease
losses to net charge-offs during the period 0.63x 0.51x 0.66x 0.59x
0.60x
Provision for loan and lease losses to net
charge-offs during the period, excluding impact of the acquisition
of mortgage loans from Doral, loans sold and the transfer of loans
to held for sale
0.63x 0.56x 0.66x 0.61x 0.66x (1) Includes provision of $1.4
million associated with the acquisition of mortgage loans from
Doral. (2) Includes net charge-offs totaling $6.9 million
associated with the acquisition of mortgage loans from Doral. (3)
Includes provision of $132.0 million associated with the bulk sales
and the transfer of loans to held for sale. (4) Includes net
charge-offs totaling $99.0 million associated with the bulk sales.
(5) Includes net charge-offs of $54.6 million associated with the
bulk sale of adversely classified commercial assets and the
transfer of loans to held for sale. (6) Includes net charge-offs
totaling $44.7 million associated with the bulk sale of adversely
classified commercial assets. (7) Includes net charge-offs of $34.2
million associated with the bulk sales and the transfer of loans to
held for sale. (8) Includes net charge-offs of $232.4 million
associated with the bulk sales and the transfer of loans to held
for sale.
Table 12 – Net Charge-Offs to Average
Loans
Nine-Month Period Ended Year ended
September 30, December 31, December 31,
December 31, December 31, 2014 2013
2012 2011 2010 Residential mortgage
0.84 % 4.77 % (3) 1.32 % 1.32 % 1.80 % (8) Commercial
mortgage 1.00 % 3.44 % (4) 1.41 % 3.21 % 5.02 % (9)
Commercial and Industrial 2.72 % (1) 3.52 % (5) 1.21 % 1.57 % 2.16
% (10) Construction 4.04 % 15.11 % (6) 10.49 % 16.33 % 23.80
% (11) Consumer and finance leases 3.37 % 2.76 % 1.92 % 2.33
% 2.98 % Total loans 2.04 % (2) 4.01 % (7) 1.74 % 2.68 %
4.76 % (12)
(1) Includes net charge-offs totaling $6.9
million associated with the acquisition of mortgage loans from
Doral. The ratio of commercial and industrial net charge-offs to
average loans, excluding charge-offs associated with the
acquisition of mortgage loans from Doral, was 2.51%.
(2) Includes net charge-offs totaling $6.9
million associated with the acquisition of mortgage loans from
Doral. The ratio of total net charge-offs to average loans,
excluding charge-offs associated with the acquisition of mortgage
loans from Doral, was 1.94%.
(3) Includes net charge-offs totaling $99.0 million associated with
the bulk loan sales. The ratio of residential mortgage net
charge-offs to average loans, excluding charge-offs associated with
the bulk loan sales, was 1.13%.
(4) Includes net charge-offs of $54.6
million associated with the bulk sale of adversely classified
commercial assets and the transfer of loans to held for sale in the
first quarter of 2013. The ratio of commercial mortgage net
charge-offs to average loans, excluding charge-offs associated with
the bulk sale of adversely classified commercial assets and the
transfer of loans to held for sale, was 0.45%.
(5) Includes net charge-offs totaling $44.7 million associated with
the bulk sale of adversely classified commercial assets. The ratio
of commercial and industrial net charge-offs to average loans,
excluding charge-offs associated with the bulk sale of adversely
classified commercial assets, was 2.04%.
(6) Includes net charge-offs of $34.2
million associated with the bulk loan sales and the transfer of
loans to held for sale. The ratio of construction loan net
charge-offs to average loans, excluding charge-offs associated with
the bulk loan sales and the transfer of loans to held for sale, was
2.91%.
(7) Includes net charge-offs of $232.4
million associated with the bulk loan sales and the transfer of
loans to held for sale. The ratio of total net charge-offs to
average loans, excluding charge-offs associated with the bulk loan
sales and the transfer of loans to held for sale, was 1.68%.
(8) Includes net charge-offs totaling $7.8 million associated with
non-performing residential mortgage loans sold in a bulk sale. (9)
Includes net charge-offs totaling $29.5 million associated with the
transfer of loans to held for sale in the fourth quarter of 2010.
The ratio of commercial mortgage net charge-offs to average loans,
excluding charge-offs associated with the transfer of loans to held
for sale, was 3.38%. (10) Includes net charge-offs totaling $8.6
million associated with the transfer of loans to held for sale in
the fourth quarter of 2010. The ratio of commercial and industrial
net charge-offs to average loans, excluding charge-offs associated
with the transfer of loans to held for sale, was 1.98%.
(11) Includes net charge-offs totaling
$127.0 million associated with the transfer of loans to held for
sale in the fourth quarter of 2010. The ratio of construction net
charge-offs to average loans, excluding charge-offs associated with
the transfer of loans to held for sale, was 18.93%.
(12) Includes net charge-offs totaling
$165.1 million associated with the transfer of loans to held for
sale in the fourth quarter of 2010. The ratio of total net
charge-offs to average loans, excluding charge-offs associated with
the transfer of loans to held for sale, was 3.60%.
First BanCorp.John B. Pelling III, 305-577-6000 Ext.
162Investor Relations Officerjohn.pelling@firstbankpr.com
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