UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
Form
8-K
CURRENT REPORT
Pursuant
to Section 13 or 15(d)
of
the Securities Exchange Act of 1934
Date
of Report (Date of Earliest Event Reported):
October
27, 2014
First
BanCorp.
(Exact
Name of Registrant as Specified in its Charter)
Puerto Rico |
001-14793 |
66-0561882 |
(State or Other Jurisdiction of Incorporation) |
(Commission |
(I.R.S. Employer Identification No.) |
1519 Ponce de Leon Ave. |
00908-0146 |
|
(Address of Principal Executive Offices) |
(Zip Code) |
(787)
729-8200
(Registrant’s
Telephone Number, including Area Code)
Not
applicable
(Former
name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
⃞ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
⃞ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
⃞ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
⃞ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 | Results of Operations and Financial Condition. |
On October 27, 2014, First BanCorp. (the “Corporation”), the bank holding company for FirstBank Puerto Rico (“FirstBank” or “the Bank”), issued a press release announcing its unaudited results of operations for the third quarter ended September 30, 2014. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
A copy of the presentation that the Corporation will use at its conference call to discuss its financial results for the third quarter ended September 30, 2014 is attached hereto as Exhibit 99.2 and is incorporated herein by reference. As announced in a press release dated October 15, 2014, the call may be accessed via a live Internet webcast at 10:00 a.m. Eastern time on Tuesday, October 28, 2014 through the investor relations section of the Corporation’s website: www.firstbankpr.com or through the dial-in telephone number (877) 506-6537 or (412) 380-2001 for international callers. The conference number is 10054531.
The Corporation has included in this release the following financial measures that are not recognized under generally accepted accounting principles, which are referred to as non-GAAP financial measures: (i) the calculation of net interest income, interest rate spread and net interest margin rate on a tax-equivalent basis and excluding changes in the fair value of derivative instruments; (ii) the calculation of the tangible common equity ratio and the tangible book value per common share; (iii) the Tier 1 common equity to risk-weighted assets ratio; (iv) the adjusted pre-tax, pre-provision income, (v) non-interest income adjusted to exclude equity in loss of unconsolidated entity, gain or loss on sales of investment securities and other-than-temporary impairment on investment securities, (vi) non-interest expenses adjusted to expenses related to branch consolidations in Puerto Rico, and Florida and professional service fees specifically related to the acquisitions of mortgage loans from Doral Financial Corporation (“Doral”), and (vii) additional measures of provision for loan and lease losses, provision for loan and lease losses to net charge-offs, net charge-offs, and net charge-offs to average loans, to exclude the impact of fair value adjustments related to the mortgage loans acquired from Doral in full satisfaction of secured borrowings owed by such entity to FirstBank. Investors should be aware that non-GAAP financial measures have inherent limitations and should be read only in conjunction with the Corporation’s consolidated financial data prepared in accordance with GAAP.
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 release includes a reconciliation of these non-GAAP financial measures to the GAAP financial measures, except for the reconciliation with respect to the calculation of the non-GAAP financial measures “provision for loan and lease losses to net charge-offs ratio” and “net charge-offs to average loans” excluding the impact of fair value adjustments related to mortgage loans acquired from Doral in full satisfaction of secured borrowings owed by such entity to FirstBank which is included below:
Provision for loan and lease losses to Net Charge-Offs (Non-GAAP to GAAP reconciliation) |
Provision for loan and lease losses to Net Charge-Offs (Non-GAAP to GAAP reconciliation) |
|||||||||||||
Quarter Ended June 30, 2014 | Nine-Month Period Ended September 30, 2014 | |||||||||||||
(In thousands) |
Provision for Loan and Lease Losses |
Net Charge-Offs |
Provision for Loan and Lease Losses |
Net Charge-Offs | ||||||||||
Provision for loan and lease losses and net charge-offs, excluding special items (Non-GAAP) | $ | 25,316 | $ | 45,437 | $ | 84,230 | $ | 139,174 | ||||||
Special items: | ||||||||||||||
Loss on acquisition of mortgage loans from Doral in full satisfaction of secured borrowings owed by Doral to FirstBank | 1,428 | 6,908 | 1,428 | 6,908 | ||||||||||
Provision for loan and lease losses and net charge-offs (GAAP) | $ | 26,744 | $ | 52,345 | $ | 85,658 | $ | 146,082 | ||||||
Provision for loan and lease losses to net charge-offs, excluding special items (Non-GAAP) | 55.72 | % | 60.52 | % | ||||||||||
Provision for loan and lease losses to net charge-offs (GAAP) | 51.09 | % | 58.64 | % |
(Dollars in thousands, except per share information) | Adjusted, excluding | |||||||||||
As | Loss on Acquisition of Mortgage Loans | Loss on Acquisition of Mortgage Loans from Doral | ||||||||||
Quarter ended June 30, 2014 | Reported (GAAP) | from Doral | (Non-GAAP) | |||||||||
Total net charge-offs | $ | 52,345 | $ | (6,908 | ) | $ | 45,437 | |||||
Total net charge-offs to average loans | 2.19 | % | 1.90 | % | ||||||||
Commercial and Industrial | 19,036 | (6,908 | ) | 12,128 | ||||||||
Commercial and Industrial loans net charge-offs to average loans | 2.69 | % | 1.81 | % | ||||||||
Nine-month period ended September 30, 2014 | ||||||||||||
Total net charge-offs | $ | 146,082 | $ | (6,908 | ) | $ | 139,174 | |||||
Total net charge-offs to average loans | 2.04 | % | 1.94 | % | ||||||||
Commercial and Industrial | 57,263 | (6,908 | ) | 50,355 | ||||||||
Commercial and Industrial loans net charge-offs to average loans | 2.72 | % | 2.51 | % |
Item 9.01. |
Financial Statements and Exhibits. |
(d) Exhibits
Exhibit | Description of Exhibit | |
99.1 |
Press Release dated October 27, 2014 - First BanCorp Announces Earnings for the Quarter Ended September 30, 2014 |
|
99.2 |
First BanCorp Conference Call Presentation – Financial Results for the Third Quarter Ended September 30, 2014 |
|
Exhibits 99.1 and 99.2 referenced therein, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall Exhibits 99.1 and 99.2 be deemed incorporated by reference in any filings under the Securities Act of 1933, as amended. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: |
October 28, 2014 |
First BanCorp. |
||
|
||||
|
|
By: |
Orlando Berges |
|
Name: |
Orlando Berges |
|||
Title: |
EVP and Chief Financial Officer |
Exhibit
Index
Exhibit |
Description of Exhibit |
|
99.1 | Press Release dated October 27, 2014 - First BanCorp Announces Earnings for the Quarter Ended September 30, 2014 | |
99.2 | First BanCorp Conference Call Presentation – Financial Results for the Third Quarter Ended September 30, 2014 |
6
Exhibit 99.1
First BanCorp. Announces Earnings for the Quarter Ended September 30, 2014
2014 Third Quarter Highlights and Comparison with Second Quarter
SAN JUAN, Puerto Rico--(BUSINESS WIRE)--October 27, 2014--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:
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.
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:
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, |
June 30, |
March 31, |
December 31, |
September 30, |
||||||||||||||||
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:
Partially offsetting the aforementioned items were:
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:
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.
Partially offset by:
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:
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. |
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(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. |
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Credit quality metrics variances:
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 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) |
Residential |
Commercial (including |
Consumer and |
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%. |
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(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%. |
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The ratios above are based on annualized net charge-offs and are not necessarily indicative of the results expected in subsequent periods.
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:
Partially offset by:
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.
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:
Partially offset by:
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:
Partially offset by:
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. |
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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. |
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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 consolidation |
Equity in loss of |
Acquisition of |
OTTI on debt |
Adjusted (Non- |
|||||||||||||||
Non-interest income | $ | 16,174 | $ | - | $ | - | $ | - | $ | 245 | $ | 16,419 | |||||||||
Non-interest expenses | $ | 93,604 | $ | - | $ | - | $ | (659 | ) | $ | - | $ | 92,945 | ||||||||
(Dollars in thousands) | |||||||||||||||||||||
2014 Second Quarter |
As Reported |
Branch consolidation |
Equity in loss of |
Acquisition of |
Gain on sale of |
Adjusted (Non- |
|||||||||||||||
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; |
||||||||||||
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.
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EXHIBIT A |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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2) Government obligations include debt issued by government-sponsored agencies. |
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3) Unrealized gains and losses on available-for-sale securities are excluded from the average volumes. |
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4) Average loan balances include the average of total non-performing loans. |
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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. |
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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. |
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|
Table 4 - Non-Interest Income |
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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 |
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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 |
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(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. |
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(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. |
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|
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. |
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Table 11 - Allowance for Loan and Lease Losses |
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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 |
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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%. |
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(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%. |
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(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%. |
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(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%. |
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(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%. |
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(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%. |
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CONTACT:
First BanCorp.
John B. Pelling III, 305-577-6000
Ext. 162
Investor Relations Officer
john.pelling@firstbankpr.com
Exhibit 99.2
Financial Results Financial Results Third Quarter 2014 Third Quarter 2014
Forward-Looking Statements This presentation contains “forward-looking statements” concerning First BanCorp’s (the “Corporation”) future economic performance. The words or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “expect,” “anticipate,” “look forward,” “should,” “believes” and similar expressions are meant to identify “forward-looking statements” within the meaning of Section 27A of the Private Securities Litigation Reform Act of 1995, and are subject to the safe harbor created by such section. 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, uncertainty about whether the Corporation and FirstBank Puerto Rico (“FirstBank” or “the Bank”) 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 “FED”) and the order dated June 2, 2010 (the “Order”)that FirstBank entered into with the FDIC and the Office of the Commissioner of Financial Institutions of Puerto Rico 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 retail 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 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 FED 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, including the Corporation’s construction and commercial real estate loan portfolios, which have contributed and may continue to contribute to, among other things, the high levels of non-performing assets, charge-offs and the provision expense and may subject the Corporation to further risk from loan defaults and foreclosures; adverse changes in general economic conditions in the United States and in Puerto Rico, including the interest rate scenario, 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 the value of the Corporation’s assets; 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 and the current fiscal problems and budget deficit of the Puerto Rico government; uncertainty about regulatory and legislative changes for financial services companies in Puerto Rico, the United States and the U.S. and British Virgin Islands, which could affect the Corporation’s financial performance and could cause the Corporation’s actual results for future periods to differ materially from prior results and anticipated or projected results; uncertainty about the effectiveness of the various actions undertaken to stimulate the United States economy and stabilize the United States’ financial markets, and the impact such actions may have on the Corporation’s business, financial condition and results of operations; changes in the fiscal and monetary policies and regulations of the federal government, including those determined by the Federal Reserve System, 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 expense; risks of not being able to recover the assets pledged to Lehman Brothers Special Financing, Inc.; the impact on the Corporation’s results of operations and financial condition associated with acquisitions and dispositions; a need to recognize additional impairments on financial instruments or goodwill relating to acquisitions; risks 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. Investors should refer to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2013 for a discussion of such factors and certain risks and uncertainties to which the Corporation is subject.
Agenda Third Quarter 2014 Highlights: Aurelio Alemán, President & Chief Executive Officer Third Quarter Results of Operations: Orlando Berges, Executive Vice President & Chief Financial Officer Questions & Answers
THIRD QUARTER 2014 THIRD QUARTER 2014 Highlights
Profitability Net income of $23.2 million, or $0.11 per diluted share, up 9% compared to $21.2 million in 2Q 2014. Year-over-year 3Q net income increased $7.2 million compared to 3Q 2013 net income of $15.9 million. Net interest margin decreased by 7 basis points to 4.14%. Pre-tax, pre-provision income of $50.8 million up from $48.6 million in 2Q 2014. Asset Quality Total NPAs decreased by $12.9 million compared to 2Q 2014. No large nonperforming loan sales were completed during the quarter. OREO inventory balance declined $9.0 million due to sales of $12.2 million completed in 3Q 2014. Inflows to nonperforming loans decreased by $59.1 million or 42% compared to 2Q 2014. Provision for loan and lease losses of $27.0 million compared to $26.7 million in 2Q 2014 a $0.3 million increase. Net charge-offs of $42.7 million, including $16.0 million charge-off related to two collateral dependent commercial and industrial relationships in Puerto Rico. Core Deposits Deposits, net of government and brokered, increased by $76.6 million in 3Q 2014. Government deposits increased $28.9 million in 3Q 2014. Brokered certificates of deposit (CDs) decreased by $33.1 million in 3Q 2014. Capital 3Q 2014 Capital position was further strengthened: ‒Risk Based Capital Ratio 18.6% compared to 18.1% in 2Q 2014; ‒Tier 1 Ratio 17.3% compared to 16.8% in 2Q 2014; and ‒Leverage Ratio 12.3% compared to 12.0% in 2Q 2014. Book value per common share of $6.05 compared to $5.97 in 2Q 2014 and $5.59 in 3Q 2013. Tangible book value per common share of $5.81 compared to $5.72 in 2Q 2014 and $5.32 in 3Q 2013. Deferred Tax Asset valuation allowance of $505 million. 2Q14 Highlights: IMPROVED PROFITABILITY; FOCUS REMAINS ON CREDIT
Third Quarter 2014 Highlights: LOAN PORTFOLIO Origination and renewal activity at $917 million for 3Q 2014 at healthy levels compared to 2Q 2014: Increase compared to 2Q was mainly related to seasonal renewals on commercial facilities. Slight improvement in residential mortgages originations. Reduction in auto sales is reflected in loan originations. The FL market produced approximately $71 million in commercial origination volume in 3Q compared to $41 million in 2Q. ($ in millions) Loan Originations* Despite softening in our market, we continue selectively pursuing high quality loans: Slight increase in residential mortgages. Reduction in the commercial book includes a reduction in outstanding loans to government entities and a C&I loan paid in full in Puerto Rico. Focus on growth opportunities in FL market. * Originations including refinancings and draws from existing revolving and non-revolving commitments Loan Portfolio $0$2,250$4,500$6,750$9,000$11,2503Q2,7672,7472,7142,5112,5191,9862,0132,0202,0472,0593533622231951645,0874,9324,6044,6924,76616485276238115$10,257 $10,140 $9,836 $9,683 9,623 Loans Held for Sale Commercial Construction Consumer & Finance Leases Residential Mortgage$0$2,000$4,000$6,000$8,000$10,0003Q 20134Q 20131Q 20142Q 20143Q 20142,5192,5492,5482,7952,8202,0592,0672,0722,0622,0271641691531481424,7664,8524,7944,4614,32711576797280$9,623 $9,712 $9,646 $9,539 $9,395 $-$220 $440 $660 $880 $1,100 3Q 20134Q 20131Q 20142Q 20143Q 2014177 162 151 161 169 290 284 275 272 245 5 9 6 7 7 448 517 421 442 496 $920$972$853$882$917
Core deposits increased $105.5 million during 3Q 2014. Non-brokered deposits, excluding government deposits, increased $76.6 million. Brokered CDs were reduced $33.1 million during 3Q 2014. The cost of deposits net of brokered remained unchanged at 0.72%. Focus on cross-selling opportunities. Continue to reduce reliance on brokered deposits: -32% of deposits are brokered CDs, a decline of $33 million compared to 2Q 2013. 7 ($ in millions) Core Deposits * Total Deposit Composition Third Quarter 2014 Highlights: DEPOSIT MIX * Core deposits are total deposits excluding brokered CDs. Interest Bearing59%Non-interest Bearing9%Brokered CDs32%$-$1,750 $3,500 $5,250 $7,000 3Q 20134Q 20131Q 20142Q 20143Q 20142,828 2,842 2,860 2,812 2,814 1,106 1,136 1,201 1,174 1,246 2,080 2,054 2,073 2,108 2,111 759 706 742 440 469 $6,773 $6,738 $6,876 $6,534 $6,640 Retail Commercial CDs & IRAs Public Funds
Third Quarter Highlights: PR GOVERNMENT EXPOSURE ($ in millions) Total asset exposure to the Puerto Rico Government as of September 30, 2014 was $377 million a $24.4 million decrease from 2Q 2014. In addition, there is $200 million of indirect exposure to the Tourism Development Fund supporting hotel projects. Total Government Deposits as of September 30, 2014 were $251 million. Time deposits declined $0.9 million compared to 2Q 2014. Transaction accounts increased $0.6 million compared to 2Q 2014. Government Unit Time Deposits Transaction Accounts Total Federal Funds-$ 8.9$ 8.9$ Municipalities20.6 117.2 137.7 Public Agencies2.2 100.6 102.8 Public Corporations- 1.3 1.3 Total Deposits22.7$ 228.1$ 250.8$ Total Government Unit Outstanding Investment Portfolio 61.1$ Central Government: Commonwealth Appropriations17.0Federal Funds7.7 Total Central Government (3 Loans) 24.8 Public Corporations: Operating Revenues 86.1 Rental Income 4.0 Total Public Corporations (3 Loans)90.1Municipalities (9 Loans)Property Tax Revenues201.4Total Direct Government Exposure377.4$ Source of Repayment
THIRD QUARTER 2014 THIRD QUARTER 2014 Results of Operations Results of Operations
Interest income156,662$ 158,423$ (1,761)$ 162,203$ Interest expense28,968 28,516 452 31,298 Net interest income127,694 129,907 (2,213) 130,905 Provision for loan and lease losses26,999 26,744 255 22,195 Non-interest income16,174 16,601 (427) 15,968 Equity in losses of unconsolidated entities0 (670) 670 (5,908) Total non-interest income16,174 15,931 243 10,060 Personnel expense33,964 35,023 (1,059) 32,823 Occupancy and equipment expense14,727 14,482 245 15,109 Insurance and supervisory fees9,493 10,784 (1,291) 11,513 REO expense4,326 6,778 (2,452) 7,052 Other operating expenses31,093 31,078 15 32,657 Total non-interest expense93,604 98,145 (4,541) 99,154 Pre-tax income (loss)23,265 20,949 2,316 19,616 Income tax expense 64 (276) 340 3,676 Net income (loss)23,202$ 21,225$ 1,976$ 15,940$ Adjusted Pre-tax, pre-provision income50,750$ 48,622$ 2,128$ 50,871$ Fully diluted EPS0.11$ 0.11$ -$ 0.08$ Book value per share6.05$ 5.97$ 0.08$ 5.59$ Tangible book value per share5.81$ 5.72$ 0.09$ 5.32$ Common stock price4.75$ 5.44$ (0.69)$ 5.68$ Net Interest Margin (GAAP)4.14%4.21%(0.07%)4.20%Efficiency ratio65.1%67.3%(2.2%)70.3%10 ($ in thousands, except per share data) Select Financial Information 3Q 2014 2Q 2014 Variance Results of Operations: THIRD QUARTER 2014 FINANCIAL HIGHLIGHTS 3Q 2013
$-$30.0 $60.0 $90.0 $120.0 $150.0 3Q 20134Q 20131Q 20142Q 20143Q 2014130.9132.7131.3129.9127.7NIM (GAAP) Net Interest Income4.204.254.274.214.14 11 Results of Operations: NET INTEREST INCOME NIM declined 7 basis points, compared to 2Q 14. Net interest income declined $2.2 million in the third quarter due to: -A 39 basis points decrease in the average yield of consumer loans, or a decrease of approximately $2.1 million in interest income; and -A 35 basis points decrease in the average yield of MBS, or a decrease of approximately $1.5 million in interest income, attributable to faster prepayment rates on U.S. agency MBS investments. -Partially offset by Increased interest income reflecting the full quarter impact of the acquisition of mortgage loans from Doral on May 30, 2014. The interest income recorded on such loans was approximately $1.8 million higher than the interest income recorded in the second quarter. 2.602.752.943.203.46Net Interest ($ in millions)
Results of Operations: COST OF FUNDS Cost of total deposits, excluding brokered CDs, remained unchanged at 0.72%. The average rate paid on non-brokered deposits, including interest-bearing checking accounts, savings and retail CDs, increased by 1 basis points to 0.83% during the third quarter. The average cost of brokered CDs remained unchanged while average balance decline $27.5 million during the third quarter of 2014. Cost of Deposits 0.90%0.89%0.87%0.82%0.83%0.79%0.77%0.76%0.72%0.72%0.60%0.90%1.20%3Q 20134Q 20131Q 20142Q 20143Q 2014 Interest Bearing Total
Results of Operations: NON-INTEREST INCOME* Non-interest income excluding losses on the unconsolidated entity decreased $0.4 million compared to 2Q 2014, due to: -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; -A $0.2 million decrease in insurance commission income; and -A $0.2 million other-than-temporary impairment on private label MBS. Partially offset by: -A $0.8 million increase in revenues from the mortgage banking business partially offset by a $0.2 million decrease in realized gains on loan sales and securitization activities attributed to lower sales; * Non interest income excludes equity losses of unconsolidated entities and write down of collateral pledged to Lehman in Q2 2013. ($ in millions) $-$5.0 $10.0 $15.0 $20.0 3Q 20134Q 20131Q 20142Q 20143Q 20149.3 11.3 11.4 10.3 9.1 3.5 3.9 3.4 3.0 3.8 3.2 3.2 3.2 3.3 3.2 $16.0 $18.4 $18.0 $16.6 $16.2 Service charges –deposits Mortgage banking Other
Results of Operations: OPERATING EXPENSES A $2.5 million decrease in losses on OREO properties. 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 $1.1 million decrease in employees’ compensation and benefit expenses primarily due to a reduction in performance-based compensation and stock-based compensation expense. A $1.2 million decrease in the deposit insurance assessment driven by improvements in liquidity, a decrease in leverage commercial loans balance, a strengthened capital position, and a decrease in average assets. ($ in millions) 3Q 20142Q 2014% Change Credit related expenses6.8$ 9.1$ -26%Compensation & benefits34.0 35.0 -3%Occupancy & equipment14.7 14.3 3%Credit & debit card processing expenses3.7 3.9 -4%Taxes other than income4.5 4.5 1%Deposit insurance prem & supervisory9.5 10.8 -12%Acquisition of loans from Doral 0.7 0.6 14%Branch optimization expenses- 0.2 -100%All other expenses19.7 19.8 0% Total93.6$ 98.1$ -5% 2010 2011 2012 2013
Results of Operations: ASSET QUALITY NPAs decreased $12.9 million to $744 million in 3Q 2014. Total NPLs decreased $5.2 million primarily driven by charge-offs of commercial and industrial and construction loans in both Puerto Rico and the Virgin Islands. 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. Adversely classified commercial and construction loans held for investment decreased by $35.0 million. Inflows of non-performing loans held for investment decreased by $59.1 million, or 42%, compared to inflows in the second quarter of 2014. Residential and consumer migration declined $59 million or 42% compared to 2Q 2014. ($ in millions) Non-performing Assets 2014 1,639 1,551 1,506 1,239 1,233 1,208 1,184 1,138 1,119 1,066 1,008 976 683 506 498 496 522 565 560 150 150 163 163 172 176 188 194 213 242 251 260 256 151 147 175 154 138 130 159 148 95 80 55 55 55 55 1,7901,7011,6691,5621,4101,3901,3771,3371,3321,3081,2591,2381,0877527267257317577449.5% 10.0% 9.3% 10.2% 10.2% 9.6% 8.4% 5.7% 5.7% 5.7% 6.1% 5.9% $0$400$800$1,200$1,600$2,0001Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3QNPLs Held for Sale Repossessed Assets & Other Loans Held for Investment NPAs / Assets3Q 142Q 14$ ∆ % ∆ Residential185$ 175$ 10$ 5%Consumer 43 41 3 7%C&I and CRE301 310 (9) (3%)Construction30 39 (9) (22%)Loans HFS55 55 (0) (0%)NPLs614 619 (5) (1%)REO & Repo Prop130 138 (8) (6%)NPAs744$ 757$ (13)$ (2%)Migration:3Q 142Q 14$ ∆ % ∆ Residential36$ 30$ 6$ 19%Consumer 19 18 2 8%Commercial & Construction26 92 (66) (72%)Total Migration81$ 140$ (59)$ (42%)
Results of Operations: NET CHARGE-OFFS & ALLOWANCE COVERAGE ($ in millions) Total net charge-offs for 3Q 2014 were $43 million, or 1.80% of average loans. Allowance coverage ratio of 2.42% as of September 30, 2014 compared to 2.55% as of June 30, 2014. The decrease in the ratio was primarily related to lower specific reserve requirements on certain non-collateral dependent commercial loans. Commercial NPLs are being carried at 57.9% of unpaid principal balance, net of specific reserves. Net Charge-offs 1 As of September 30, 2014 2 Net Carrying Amount = % of unpaid principal balance net of reserves and accumulated charge-offs Product Book Value Accum. Charge-offs Reserves Net Carrying Amount (2)C&I$130.9$64.3$17.758.0%CRE77.9 99.5 3.2 42.1%Const.176.8 62.7 10.3 69.5%Total$385.6$226.5$31.257.9%Commercial Non-performing Loans (includes HFS) (1)$-$10 $20 $30 $40 $50 $60 3Q 20134Q 20131Q 20142Q 20143Q 20148 5 6 5 6 14 15 17 17 18 12 7 28 28 15 $34 $26 $51 $52 $43 Construction Commercial Consumer Residential
Results of Operations: CAPITAL POSITION Total stockholders’ equity amounted to $1.3 billion as of September 30, 2014, an increase of 18.2 million attributable to net income of $23.2 million and offset by a decrease in other comprehensive income due to the fair value of U.S. agency MBS. The capital levels continue to be strong as First BanCorp executes on its strategic plan. Capital Ratios 16.9%Total Risk Based Capital 18.1%18.6%15.6%Tier 116.8%17.3%11.7%Leverage12.0%12.3%12.6%Tier 1 Common13.9%14.4%8.7%Tangible Common9.8%9.8%6.5%9.0%11.5%14.0%16.5%19.0%3Q 20134Q 20131Q 20142Q 20143Q 2014
THIRD QUARTER 2014 THIRD QUARTER 2014 Q&A
EXHIBITS
Results of Operations: THIRD QUARTER KEY MARGIN DRIVERS Q3 vs. Q2 Change in Average Interest Earning Assets & Interest Bearing Liabilities * On a tax equivalent basis and excluding valuations $ D in % D in Average Average Volume Rate Average total investments(42,255)$ (0.32%)(2,322)$ Average loans & leases: Residential mortgage loans168,056 (0.01%)2,694 Construction loans(3,557) 0.47%219 C&I and commercial mortgage loans(223,978) 0.04%(1,430) Finance leases(3,401) (0.02%)(86) Consumer loans(19,097) (0.40%)(1,810) Total average loans(84,216) (0.04%)(605) Average total interest-earning assets(126,471) (0.10%)(2,927) Interest-bearing liabilities: Brokered CDs(27,450) (0.00%)14 Other interest-bearing deposits(146,807) 0.00%108 Other borrowed funds- 0.13%(458) Average total interest-bearing liabilities(149,803) 0.02%(452) Increase (decrease) in net interest income *(3,379)$ Net Interest Income Changes
Results of Operations: MIGRATION Residential Mortgage Commercial Mortgage Commercial & Industrial Construction Consumer Total Beginning balance175,404$ 166,218$ 143,669$ 38,830$ 40,510$ 564,631$ Plus: Additions to non-performing35,645 11,985 13,967 122 19,392 81,111 Less: Non-performing loans transferred to OREO(2,216) (1,058) (2,124) (749) (103) (6,250) Non-performing loans charged-off(4,445) (2,292) (17,570) (7,689) (13,773) (45,769) Loans returned to accrual status / collections(19,363) (4,886) (7,025) (403) (2,530) (34,207) Ending balance185,025$ 169,967$ 130,917$ 30,111$ 43,496$ 559,516$ Residential Mortgage Commercial Mortgage Commercial & Industrial Construction Consumer Total Beginning balance172,796$ 145,535$ 113,996$ 50,387$ 39,061$ 521,775$ Plus: Additions to non-performing29,981 36,039 54,557 1,791 17,891 140,259 Less: Non-performing loans transferred to OREO(1,083) (575) (2,041) (45) - (3,744) Non-performing loans charged-off(3,965) (13,422) (12,449) (2,509) (11,231) (43,576) Loans returned to accrual status / collections(22,325) (1,359) (10,394) (10,794) (5,211) (50,083) Ending balance175,404$ 166,218$ 143,669$ 38,830$ 40,510$ 564,631$ September 30, 2014June 30, 2014
Use of Non-GAAP Financial Measures Basis of Presentation Use of Non-GAAP Financial Measures This presentation may contain 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 the 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 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 purchased credit card relationship intangible. Tangible assets are total assets less goodwill, core deposit intangibles and 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. (In thousands, except ratios and per share information)September 30,June 30,March 31,December 31,September 30,20142014201420132013Total 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 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 ratio9.82%9.76%8.97%8.71%8.65%Tangible book value per common share5.81$ 5.72$ 5.48$ 5.30$ 5.32$ Tangible Equity: Tangible Assets:
Use of Non-GAAP Financial Measures Basis of Presentation Use of Non-GAAP Financial Measures This presentation may contain 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 the earnings release. 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 applicable bank regulatory requirements. The Tier 1 common equity ratio is not required by GAAP or on a recurring basis by applicable bank regulatory requirements. However, this ratio will be required under Basel III capital standards as proposed. 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. (Dollars in thousands)September 30,June 30,March 31,December 31,September 30,20142014201420132013Total equity - GAAP1,324,157$ 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 ratio14.39%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. As ofTier 1 Common Equity:
Use of Non-GAAP Financial Measures Basis of Presentation Use of Non-GAAP Financial Measures This presentation may contain 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 the earnings release. Adjusted Pre-Tax, Pre-Provision Income One non-GAAP performance metric that management believes is useful in analyzing underlying performance trends, particularly in times of economic stress, is adjusted pre-tax, pre-provision income. Adjusted pre-tax, pre-provision income, as defined by management, represents net (loss) income 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 and liabilities measured at fair value, equity in earnings or losses of unconsolidated entities as well as certain items identified as unusual, non-recurring or non-operating. From time to time, revenue and expenses are impacted by items judged by management to be outside of ordinary banking activities and/or by items that, while they may be associated with ordinary banking activities, are so unusually large that management believes that a complete analysis of its Corporation’s performance requires consideration also of results that exclude such amounts. These items result from factors originating outside the Corporation such as regulatory actions/assessments, and may result from unusual management decisions, such as the early extinguishment of debt. (Dollars in thousands)September 30,June 30,March 31,December 31,September 30,20142014201420132013Income before income taxes 23,265$ $ 20,949 17,970$ 15,634$ 19,616$ Add: Provision for loan and lease losses26,999 26,74431,915 22,969 22,195 Add/Less: Net loss (gain) on investments and impairments245 (291) - - - Less: Unrealized gain on derivative instruments (418) (262) (313) (355) (232) Add: Acquisitions of mortgage loans from Doral related expenses659 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-amount2,128$ (8,278)$ 9,311$ (3,282)$ 14,976$ Change from most recent prior quarter-percentage4.4%-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. Quarter Ended
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