First BanCorp. Announces Results for the Quarter Ended June 30, 2013

2013 Second Quarter highlights and comparison with First Quarter

  • Net loss of $122.6 million, or $0.60 per diluted share, including a $72.9 million loss on the bulk sale of non-performing residential assets and a $66.6 million loss related to the write-off of assets pledged as collateral to Lehman Brothers, Inc. (“Lehman”).
  • Adjusted net income of $16.8 million, or $0.08 per diluted share, excluding the effects of the bulk sale of non-performing residential assets and the Lehman collateral write-off, compared to an adjusted net loss of $4.6 million, or $0.02 per diluted share, for the first quarter of 2013, excluding the $68.0 million loss on the bulk sale of adversely classified commercial assets and valuation adjustments for certain loans transferred to held for sale in the first quarter.
  • Completed bulk sale of non-performing residential mortgage loans with a book value of $203.8 million and other real estate owned properties (“OREO”) properties with a book value of $19.2 million, for $128.3 million in a cash transaction.
  • Significant progress in credit quality metrics:
    • Non-performing assets decreased for the 13th consecutive quarter, declining by $334.7 million, or 31%, from the first quarter of 2013.
    • Non-performing loans, including non-performing loans held for sale, declined by $229.6 million, or 28%, from the first quarter of 2013.
    • Inflows of non-performing loans held for investment declined by $78.3 million, or 44%, compared to inflows for the first quarter of 2013.
    • OREO decreased by $42.2 million, or 23%, from the first quarter of 2013.
    • Provision for loan and lease losses of $87.5 million, including $67.9 million associated with the bulk sale of non-performing residential assets.
    • Adjusted provision for loan and lease losses, excluding the impact of the bulk sales of assets and the transfer of loans to held for sale in the first and second quarters of 2013, decreased to $19.6 million, down from $47.0 million for the first quarter of 2013.
    • Net charge-offs of $128.9 million, including $98.0 million of net charge-offs related to the bulk sale of non-performing residential assets.
    • Adjusted net charge-offs, excluding the impact of the bulk sales of assets and the transfer of loans to held for sale in the first and second quarters of 2013, were $31.0 million, or an annualized 1.29% of average loans, down from $69.5 million, or an annualized 2.87% of average loans, for the first quarter of 2013.
  • Net interest income, excluding fair value adjustments of derivative instruments, increased by $2.1 million to $126.2 million, and the net interest margin expanded to 4.02% from 3.95% in the first quarter of 2013.
  • Adjusted non-interest income of $14.9 million, excluding the $66.6 million impact of the Lehman collateral write-off, increased by $1.3 million compared to the first quarter of 2013.
  • Total capital, Tier 1 capital, and leverage ratios of 16.61%, 15.32%, and 11.26%, respectively, as of June 30, 2013. Common equity Tier 1 capital ratio of 12.28% and Tangible common equity ratio of 8.64% as of June 30, 2013.

Business Wire

SAN JUAN, Puerto Rico--(BUSINESS WIRE)--

First BanCorp. (the Corporation) ( FBP ), the bank holding company for FirstBank Puerto Rico (FirstBank or the Bank), today reported a net loss of $122.6 million for the second quarter of 2013, or $0.60 per diluted share, compared to a net loss of $72.6 million, or $0.35 per diluted share, for the first quarter of 2013 and net income of $9.4 million, or $0.05 per diluted share for the second quarter of 2012.

The results for the second quarter of 2013 were negatively impacted by two significant items: (i) a $72.9 million loss on the previously announced bulk sale of non-performing residential mortgage loans and OREO properties, and (ii) a $66.6 million loss related to the previously announced write-off of the collateral pledged to Lehman. Financial results for the first quarter of 2013 were similarly adversely impacted by a loss of $68.0 million related to a bulk sale of adversely classified assets, mainly commercial loans, and valuation adjustments to certain loans transferred to held for sale.

This press release includes certain non-GAAP financial measures, including adjusted net income (loss), adjusted pre-tax, pre-provision income, adjusted net interest income and margin, adjusted non-interest income, adjusted non-interest expenses, certain capital ratios, and certain other financial measures adjusted to exclude the effects of the bulk sales of assets and the valuation adjustments to certain loans transferred to held for sale, and should be read in conjunction with the accompanying tables (Exhibit A), which are an integral part of this press release.

Aurelio Alemán, President and Chief Executive Officer of First BanCorp., commented : Our initiatives to accelerate improvement of asset quality led to several extraordinary expenses and charges in the second quarter and created significant variability in our financial results. Excluding the write-down of the collateral pledged to Lehman and the bulk sale of non-performing residential loans, our adjusted net income was $16.8 million compared to an adjusted loss of $4.6 million in the first quarter. Furthermore, OREO adjustments and changes to the Puerto Rico tax code created additional variance in our quarterly results. While our market is still facing headwinds, with the Puerto Rico governments approved budget and steps taken to address fiscal issues, the economic environment should continue to show signs of stabilization.

We are very pleased with the progress achieved in the de-risking of our balance sheet, our non-performing assets to total assets ratio is at the lowest level since the peak in 2010. Franchise metrics continue to improve, our net interest margin expanded to over 4 percent, we achieved growth on core deposits and strong loan origination activity at over $900 million during the second quarter. Further asset quality improvements through proactive portfolio management and sales of held for sale loans and OREO continues to be our top priority and our team is keenly focused on opportunities for further earnings generation and optimization of our expense base.

RECENT SIGNIFICANT EVENTS:

Impairment of Collateral Pledged to Lehman

Late in the day on May 10, 2013, the Corporation received notice from its counsel that the United States Bankruptcy Court for the Southern District of New York denied the Banks Motion for Summary Judgment filed in connection with its claim to recover certain assets posted as collateral with Lehman and that the Motion for Summary Judgment submitted by Barclays Capital (Barclays) was granted.

This matter relates to the claim that the Bank filed against Barclays to recover the securities (or the cash equivalent thereof) that were posted as collateral in connection with certain interest rate swap agreements executed with Lehman. Beginning with the second quarter of 2009, the Corporation classified the pledged securities as a non-performing asset with a book value of $64.5 million. As a result of the Bankruptcy Courts May 10, 2013 decision, the Corporation determined that it is probable that the asset is impaired and, in the 2013 second quarter, recorded a non-cash charge of $66.6 million associated with the write-off of the carrying value of the pledged securities and related accrued interest. The Corporation has filed a Notice of Appeal and will continue with its efforts through the legal process to recover the value of the assets.

Bulk Sales of Assets

On June 21, 2013, the Corporation announced that it had completed a sale of non-performing residential mortgage loans with a book value of $203.8 million and, OREO properties with a book value of $19.2 million in a cash transaction. The sales price of this bulk sale was $128.3 million. Approximately $30.1 million of reserves had already been allocated to the loans. This transaction resulted in total charge-offs of $98.0 million and an incremental loss of $69.8 million. In addition, the Corporation recorded $3.1 million of professional service fees specifically related to this bulk sale of non-performing residential assets. This transaction resulted in a total pre-tax loss of $72.9 million.

As previously reported, on March 28, 2013, the Corporation completed the sale of adversely classified loans with a book value of $211.4 million, mainly commercial loans, and OREO properties with a book value of $6.3 million in a cash transaction. This transaction resulted in total charge-offs of $98.5 million and an incremental loss of $58.9 million, reflected in the first quarter of 2013. In addition, the Corporation recorded $3.9 million of professional service fees in the first quarter of 2013 specifically related to this bulk sale of adversely classified commercial assets. This transaction resulted in a total pre-tax loss of $62.8 million.

In addition, during the first quarter of 2013, the Corporation transferred to held for sale non-performing loans with an aggregate book value of $181.6 million. These transfers resulted in charge-offs of $36.0 million and an incremental loss of $5.2 million reflected in the provision for loan and lease losses for the first quarter of 2013.

During the second quarter of 2013, the Corporation completed the sale of a $40.8 million non-performing commercial mortgage loan related to one of the loans transferred to held for sale in the first quarter without incurring additional losses.

In a separate transaction during the second quarter, the Corporation entered into an agreement to receive foreclosed real estate in partial satisfaction of debt related to one of the loans written-off and transferred to held for sale in the first quarter. The remaining balance of such partially satisfied commercial mortgage loan held for sale was restructured, resulting in a lower of cost or market loss of $3.4 million recorded as part of Other income in the second quarter of 2013.

The following table shows a reconciliation with respect to the calculation of certain non-GAAP financial measures (adjusted net charge-offs, adjusted provision for loan and lease losses, adjusted non-interest income, adjusted non-interest expenses, adjusted net income (loss), adjusted earnings (loss) per common share,), which reflect the exclusion of the impact of the bulk sales, the transfer of loans to held for sale, and the write-off of the collateral pledged to Lehman, with the corresponding measures calculated and presented in accordance with GAAP.

               
Adjusted, excluding Bulk Sale,
(Dollars in thousands, except per share information) and Write-Off of collateral
As Bulk Sale Write-off of collateral pledged to Lehman,
2013 Second Quarter Reported (GAAP) Transaction Impact   pledged to Lehman (Non-GAAP)
 
Total net charge-offs (1) $ 128,948 $ 97,972 $ - $ 30,976
Total net charge-offs to average loans 5.25 % 1.29 %
Residential mortgage 103,418 97,941 - 5,477
Residential mortgage loans net charge-offs to average loans 14.78 % 0.84 %
Construction 2,368 31 - 2,337
Construction loans net charge-offs to average loans 3.43 % 3.39 %
 
Provision for loan and lease losses $ 87,464 $ 67,890 $ - $ 19,574
Residential mortgage - 67,859 - (67,859 )
Construction - 31 - (31 )
 
Non-interest (loss) income $ (51,663 ) $ - $ 66,574 $ 14,911
Impairment of collateral pledged to Lehman (66,574 ) - 66,574 -
 
Non-interest expenses $ 111,323 $ 4,962 $ - $ 106,361
Professional fees 13,735 3,060 - 10,675
Net loss on OREO operations 14,829 1,879 - 12,950
Other expenses 11,928 23 - 11,905
 
Net (loss) income $ (122,583 ) $ (72,852 ) $ (66,574 ) $ 16,843
 
Net (loss) income per common share $ (0.60 ) $ (0.36 ) $ (0.32 ) $ 0.08
 

1 - Charge-off percentages annualized

               
(Dollars in thousands, except per share information) Adjusted, excluding
As Bulk Sale Loans Transferred Bulk Sale and Loans Transferred
2013 First Quarter Reported (GAAP) Transaction Impact To Held For Sale Impact To Held For Sale (Non-GAAP)
 
 
Total net charge-offs (1) $ 204,006 $ 98,519 $ 35,953 $ 69,534
Total net charge-offs to average loans 8.10 % 2.87 %
Residential mortgage 11,580 1,031 - 10,549
Residential mortgage loans net charge-offs to average loans 1.65 % 1.50 %
Commercial mortgage 56,036 40,057 14,553 1,426
Commercial mortgage loans net charge-offs to average loans 12.06 % 0.34 %
Commercial and Industrial 84,829 44,678 - 40,151
Commercial and Industrial loans net charge-offs to average loans 11.16 % 5.47 %
Construction 38,515 12,753 21,400 4,362
Construction loans net charge-offs to average loans 44.66 % 7.74 %
 
Provision for loan and lease losses $ 111,123 $ 58,890 $ 5,222 $ 47,011
Residential mortgage 7,948 979 - 6,969
Commercial mortgage 36,397 29,753 (1,033 ) 7,677
Commercial and Industrial 35,292 20,766 - 14,526
Construction 21,948 7,392 6,255 8,301
 
Non-interest expenses $ 98,010 $ 3,878 $ - $ 94,132
Professional fees 11,132 3,878 - 7,254
 
Net loss $ (72,633 ) $ (62,768 ) $ (5,222 ) $ (4,643 )
 
Net loss per common share $ (0.35 ) $ (0.30 ) $ (0.03 ) $ (0.02 )
 
1 - Charge-off percentages annualized

Changes to the Puerto Rico Internal Revenue Code

On June 30, 2013, the Puerto Rico Government approved Act No. 40 (Act 40), which amended the Puerto Rico Internal Revenue Code of 2011 (the 2011 PR Code), and Act No. 46 (Act 46), which brings changes to the sales and use tax regime. The main provisions of Act 40 that impact financial institutions include:

     

(i)

A new national gross receipts tax that, in the case of financial institutions is 1% of gross income, is not deductible for purposes of computing net taxable income and is not part of the alternative minimum tax (AMT). This provision is retroactive to January 1, 2013. As a result, an expense of $3.2 million was recorded in the second quarter of 2013 related to the national gross receipts tax which reflects 6 months of expenses. The impact of the gross national receipts tax corresponding to the first quarter of 2013 amounted to $1.7 million. This expense is included as part of Taxes, other than income taxes in the Consolidated Statement of (Loss) Income. Subject to certain limitations, a financial institution will be able to claim 0.5% of its gross income as a credit against its regular income tax or the alternative minimum tax. A $1.6 million benefit related to this credit was recorded as a reduction to the provision for income taxes in the second quarter

 
(ii)

A decrease in the surtax deduction available to corporations to compute the additional surtax from $750,000 to $25,000 and a change in the surtax rate to rates that range from 5% to 19%, resulting in an increase in the maximum statutory tax rate from 30% to 39%. This provision is also retroactive to January 1, 2013. The effect on operating results in the second quarter of 2013 related to these changes was a net benefit of approximately $0.5 million, mainly due to the increase in the deferred tax asset of profitable subsidiaries. The deferred tax valuation allowance increased to $523.4 million as of June 30, 2013 from $384.4 million at the end of the previous quarter as a result of changes in tax rates and operating results for the second quarter.

 
(iii) A higher AMT rate (30% of the alternative minimum net income, as compared to 20% previously) and various parallel computations required to be made before determining whether an AMT liability exists. This change did not have an impact on the Corporations provision for income taxes recorded in the second quarter of 2013.
 
(iv) The Net Operating Loss (NOL) carryover period increased from 10 years to 12 years for losses incurred in taxable years that commenced after December 31, 2004 and ended before January 1, 2013. The carryover period for NOL incurred during taxable years commencing after December 31, 2012 will be 10 years. The NOL deduction is now limited to 90% of taxable income for regular income tax purpose and 80% for AMT purposes.
 

Significant changes to the sales and use tax regime include adjustments to the Business to Business exclusion. The business to business exclusion applicable to services rendered from one registered business to another registered business remains in effect, except for certain services, which will be taxable including, among others, service charges imposed by financial institutions to other businesses (commercial clients), collection services, repairs and maintenance services of real and personal property, and computer programming including modifications to previously designed systems. The sales and use tax provisions were effective beginning on July 1, 2013.

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 and liabilities measured at fair value and equity in earnings or losses of unconsolidated entities, 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 Corporations performance requires consideration also of results that exclude such amounts (for additional information about these non-GAAP financial measures, see Adjusted Pre-Tax, Pre-Provision Income in Basis of Presentation).

The following table shows adjusted pre-tax, pre-provision income of $35.9 million in the second quarter of 2013, down from the prior quarter:

 

           
(Dollars in thousands) Quarter Ended
June 30, March 31, December 31, September 30, June 30,
2013 2013 2012 2012 2012
 
(Loss) income before income taxes $ (123,562 ) $ (71,011 ) $ 16,028 $ 19,834 $ 10,901
Add: Provision for loan and lease losses 87,464 111,123 30,466 28,952 24,884
Add: Net loss on investments and impairments 42 117 69 547 143

Less: Unrealized gain on derivative instruments and liabilities measured at fair value

(708 ) (400 ) (432 ) (170 ) (506 )

Add: Bulk sales related expenses and other professional fees related to the terminated preferred stock exchange offer

3,198 5,096 - - -

Add: Loss on certain OREO properties sold as part of the bulk sale of non-performing residential mortgage assets

1,879 - - - -
Add: National gross receipt tax (1) 1,656 - - - -
Add: Write-off collateral pledged to Lehman 66,574 - - - -
Less/Add: Equity in (earnings) losses of unconsolidated entities   (648 )   5,538     8,330     2,199     2,491  
Adjusted pre-tax, pre-provision income (2) $ 35,895   $ 50,463   $ 54,461   $ 51,362   $ 37,913  
 
Change from most recent prior quarter-amount $ (14,568 ) $ (3,998 ) $ 3,099 $ 13,449 $ 3,116
Change from most recent prior quarter-percentage -28.9 % -7.3 % 6.0 % 35.5 % 9.0 %
     
(1) Represents the impact of the national gross receipts tax corresponding to the first quarter of 2013, recorded during the second quarter after enactment.
(2) See "Basis of Presentation" for definition.
 

The reduction in adjusted pre-tax, pre-provision income from the 2013 first quarter primarily reflected:

  • A $12.2 million increase in adjusted non-interest expenses mainly due to: (i) $5.3 million in write-downs to the value of certain commercial OREO properties in the Virgin Islands, (ii) a $3.2 million charge related to the new national gross receipts tax ($1.7 million corresponding to the first quarter, recorded in the second quarter after enactment), (iii) a $3.4 million increase in adjusted professional services fees, excluding bulk sales related expenses and other professional fees related to the terminated preferred stock exchange offer, and (iv) a $0.5 million adverse impact of certain non-periodic employee compensation-related expenses, such as lump-sum and severance payments. See Non-Interest Expenses discussion below for additional information.
  • A $3.4 million loss related to the restructuring of a commercial mortgage loan held for sale in which the Corporation entered into an agreement to receive foreclosed real estate in partial satisfaction of a debt arrangement and modified the terms of the remaining balance.

These adverse variances were partially offset by:

  • A $2.1 million increase in net interest income, excluding fair value adjustments to derivative instruments, mainly due to reductions in the cost of funding. See Net Interest Income discussion below for additional information.

NET INTEREST INCOME

Net interest income, excluding fair value adjustments on derivatives and financial liabilities measured at fair value (valuations), and net interest income on a tax-equivalent basis are non-GAAP measures. (S ee 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
June 30, 2013 March 31, 2013 December 31, 2012 September 30, 2012 June 30, 2012
Net Interest Income
Interest Income - GAAP $ 160,670 $ 160,225 $ 165,054 $ 166,964 $ 153,652

Unrealized (gain) loss on derivative instruments

  (708 )   (400 )   (432 )   (170 )   33  
Interest income excluding valuations 159,962 159,825 164,622 166,794 153,685
Tax-equivalent adjustment   3,038     1,595     1,451     1,463     1,634  
Interest income on a tax-equivalent basis excluding valuations 163,000 161,420 166,073 168,257 155,319
 
Interest Expense - GAAP 33,782 35,732 39,423 41,461 44,947

Unrealized gain (loss) on derivative instruments and liabilities measured at fair value

  -     -     -     -     539  
Interest expense excluding valuations   33,782     35,732     39,423     41,461     45,486  
 
Net interest income - GAAP $ 126,888   $ 124,493   $ 125,631   $ 125,503   $ 108,705  
 
Net interest income excluding valuations $ 126,180   $ 124,093   $ 125,199   $ 125,333   $ 108,199  
 
Net interest income on a tax-equivalent basis excluding valuations $ 129,218   $ 125,688   $ 126,650   $ 126,796   $ 109,833  
 
Average Balances
Loans and leases $ 9,820,781 $ 10,077,907 $ 10,199,808 $ 10,297,835 $ 10,183,229
Total securities and other short-term investments   2,768,659     2,675,755     2,576,421     2,238,701     2,450,198  
Average Interest-Earning Assets $ 12,589,440   $ 12,753,662   $ 12,776,229   $ 12,536,536   $ 12,633,427  
 
Average Interest-Bearing Liabilities $ 10,583,702   $ 10,652,144   $ 10,700,868   $ 10,518,169   $ 10,577,054  
 
Average Yield/Rate
Average yield on interest-earning assets - GAAP 5.12 % 5.10 % 5.14 % 5.30 % 4.89 %
Average rate on interest-bearing liabilities - GAAP   1.28 %   1.36 %   1.47 %   1.57 %   1.71 %
Net interest spread - GAAP   3.84 %   3.74 %   3.67 %   3.73 %   3.18 %
Net interest margin - GAAP   4.04 %   3.96 %   3.91 %   3.98 %   3.46 %
 
Average yield on interest-earning assets excluding valuations 5.10 % 5.08 % 5.13 % 5.29 % 4.89 %
Average rate on interest-bearing liabilities excluding valuations   1.28 %   1.36 %   1.47 %   1.57 %   1.73 %
Net interest spread excluding valuations   3.82 %   3.72 %   3.66 %   3.72 %   3.16 %
Net interest margin excluding valuations   4.02 %   3.95 %   3.90 %   3.98 %   3.44 %
 
Average yield on interest-earning assets on a tax-equivalent basis and excluding valuations 5.19 % 5.13 % 5.17 % 5.34 % 4.94 %
Average rate on interest-bearing liabilities excluding valuations   1.28 %   1.36 %   1.47 %   1.57 %   1.73 %
Net interest spread on a tax-equivalent basis and excluding valuations   3.91 %   3.77 %   3.70 %   3.77 %   3.21 %
Net interest margin on a tax-equivalent basis and excluding valuations   4.12 %   4.00 %   3.94 %   4.02 %   3.50 %
 

Net interest income, excluding valuations, amounted to $126.2 million, an increase of $2.1 million when compared to the first quarter of 2013. Net interest margin expanded to 4.02% for the second quarter of 2013 from 3.95% for the first quarter of 2013. The increase in net interest income and margin was mainly due to:

  • A decrease of $2.0 million, or 8 basis points, in total interest expense, of which approximately $1.7 million was due to a reduction in the average cost of total deposits with the remaining decrease primarily related to the maturities of Federal Home Loan Bank advances. The average cost and balance of brokered certificates of deposit (CDs) continued to decrease during the second quarter of 2013 as the Corporation repaid approximately $481.6 million of matured brokered CDs with an all-in cost of 1.58% and new issuances amounted to $402.0 million with an all-in cost of 0.72%.
  • A $1.1 million increase in interest income on investment securities mainly related to a $146.7 million increase in the average balance of the mortgage-backed securities portfolio. The Corporation deployed some of its liquidity into higher yielding investments.

These increases were partially offset by:

  • A $1.0 million decrease in interest income on loans driven by various factors including a higher migration of residential mortgage loans into non-performing status, lower cash collections on residential mortgage non-accrual loans for which interest income is recognized on a cash basis, and a decrease in the average volume of the credit card portfolio.

PROVISION FOR LOAN AND LEASE LOSSES

The provision for loan and lease losses for the second quarter of 2013 was $87.5 million, including $67.9 million related to the bulk sale of non-performing residential assets. The adjusted provision for loan and lease losses, excluding the impact of the bulk sales and the transfer of loans to held for sale in the first and second quarters of 2013, was $19.6 million for the second quarter of 2013, down from $47.0 million for the first quarter of 2013. The decrease was mainly reflected in the commercial and construction loan portfolios, primarily attributable to a lower migration of loans to non-performing and adversely classified categories, as well as lower underlying losses on these portfolios. See Credit Quality discussion below for additional information regarding the allowance for loan and lease losses.

                   

NON-INTEREST (LOSS) INCOME

  Quarter Ended
June 30, March 31, December 31, September 30, June 30,
(In thousands) 2013 2013 2012 2012 2012
 
Service charges on deposit accounts $ 3,098 $ 3,380 $ 3,228 $ 3,267 $ 3,240
Mortgage banking activities 4,823 4,580 6,700 4,728 4,057
Net loss on investments and impairments (42 ) (117 ) (69 ) (547 ) (143 )
Broker-dealer income - - - 20 1,347
Impairment - collateral pledged to Lehman (66,574 ) - - - -
Other operating income 6,384 11,324 10,239 9,857 8,012
Equity in earnings (losses) of unconsolidated entities   648     (5,538 )   (8,330 )   (2,199 )   (2,491 )
 
Non-interest (loss) income $ (51,663 ) $ 13,629   $ 11,768   $ 15,126   $ 14,022  
 

Non-interest loss for the second quarter of 2013 amounted to $51.7 million, compared to non-interest income of $13.6 million for the first quarter of 2013. The decrease was mainly related to the $66.6 million write-off of the collateral pledged to Lehman. Adjusted non-interest income, excluding the Lehman collateral write-off, increased $1.3 million from the 2013 first quarter primarily due to:

  • A $6.2 million positive variance in equity in earnings (losses) of unconsolidated entities. The Corporation recorded $0.6 million of equity in earnings of unconsolidated entities compared to a charge of $5.5 million for the first quarter of 2013. This adjustment is related to the Banks investment in CPG/GS PR NPL, LLC (CPG/GS), the entity that purchased $269.2 million of loans from FirstBank in 2011. The Bank holds a 35% subordinated ownership interest in CPG/GS. This investment is accounted for under the equity method and following the hypothetical liquidation book value method to determine the Banks share in CPG/GS earnings or losses.
  • A $0.2 million increase in revenues from the mortgage banking business mainly related to an increase of $1.7 million in the net gain on loan sales and securitization activities, including realized gains on sales of Ginnie Mae mortgage-backed securities and forwards contracts used by the Corporation to hedge its securitization pipeline, and an increase in servicing fees. This was partially offset by a charge of $1.8 million related to the lower of cost or market adjustment on residential mortgage loans held for sale, net of the unrealized gain on forward contracts that hedge part of the residential mortgage loans held for sale portfolio.

These increases were partially offset by:

  • A $3.4 million loss related to the restructuring of a commercial mortgage loan held for sale in which the Corporation received foreclosed real estate in partial satisfaction of a debt arrangement and modified the terms of the remaining balance. This loss is included as part of Other operating income in the table above.
  • A $0.5 million decrease in revenues from the insurance agency activities, primarily reflecting the impact in the previous quarter of seasonal profit sharing received by the agency based on the volume of insurance policies production, included as part of Other operating income in the table above.
  • A $1.0 million decrease in fees related to the discontinuance of the credit card debt protection program; this decrease was offset in net operating results by a reduction in expenses related to the interim servicing of this portfolio. This reduction in income is reflected as part of Other operating income in the table above.
         

NON-INTEREST EXPENSES

Quarter Ended
June 30,   March 31, December 31, September 30, June 30,

(In thousands)

2013 2013 2012 2012 2012
 
Employees' compensation and benefits $ 33,116 $ 33,554 $ 31,840 $ 31,058 $ 31,101
Occupancy and equipment 14,946 15,070 14,972 15,208 15,181
Deposit insurance premium 11,430 11,517 11,897 11,657 11,982
Other insurance and supervisory fees 1,269 1,289 1,366 1,366 1,320
Taxes, other than income taxes 6,239 2,989 3,013 3,499 3,435
Professional fees :
Collections, appraisals and other credit related fees 2,520 1,924 1,127 2,250 1,802
Outsourcing technology services 4,258 1,346 1,557 1,311 944
Bulk sales professional fees 3,060 3,878 - - -
Terminated preferred stock exchange offer professional fees 115 1,081 - - -
Other professional fees 3,782 2,903 4,275 3,908 3,484
Business promotion 3,831 3,357 4,067 4,004 3,475
Net loss on REO operations 14,829 7,310 6,201 8,686 6,786
Other   11,928   11,792   10,590   8,896   7,432
Total $ 111,323 $ 98,010 $ 90,905 $ 91,843 $ 86,942
 

Non-interest expenses in the second quarter of 2013 amounted to $111.3 million, an increase of $13.3 million from $98.0 million for the first quarter of 2013. Non-interest expenses specifically related to the bulk sales of assets completed in the last two quarters amounted to $5.0 million and $3.9 million for the second quarter and first quarter of 2013, respectively. The main drivers of the $13.3 million increase were:

  • A $7.5 million increase in the net loss on OREO operations, including a $1.9 million loss on the sale of certain OREO properties included as part of the bulk sale of residential non-performing assets. Excluding the loss on certain OREO properties included as part of the bulk sale, the adjusted net loss on OREO operations increased by $5.6 million mainly due to $5.3 million in write-downs to the value of certain commercial OREO properties in the Virgin Islands. These commercial OREO properties written-off had a book value of $14.3 million as of June 30, 2013, almost the entire inventory of the Corporations commercial OREO properties in the Virgin Islands region.
  • A $3.3 million increase in taxes, other than income taxes, mainly related to the new national gross receipts (1% of gross income for financial institutions). Subject to certain limitations, financial institutions will be able to claim 0.5% of its gross income as a credit against its regular income tax or the alternative minimum tax. A $1.6 million benefit related to this credit was recorded as a reduction to the provision for income taxes in the second quarter.
  • A $2.9 million increase in fees for professional services related to the outsourcing of technology services, mainly due to services provided by FIS under a multi-year agreement. FIS assumed full on-site operational responsibility for the Banks IT operations and staff and the alliance is expected to result in lower operating costs and greater operational efficiencies in the future. This increase was partially offset by savings in employees compensation and benefits expense related to employees transferred to FIS and savings in software maintenance costs.
  • A $0.6 million increase in professional fees related to attorney collections fees and mortgage appraisal services.
  • A $0.9 million increase in other professional fees mainly reflecting the impact in the previous quarter of an insurance recovery on certain employment legal cases, as well as higher consulting and audit fees.
  • A $0.5 million increase in business promotion expenses, mainly due to the timing of marketing activities.

These increases were partially offset by:

  • The impact in the previous quarter of non-recurring expenses amounting to $1.2 million related to the terminated preferred stock exchange offer.
  • A $0.4 million reduction in employees compensation and benefit expenses mainly due to savings of approximately $1.7 million related to employees transferred to FIS that was partially offset by a $0.5 million adverse impact of certain non-periodic employee compensation-related expenses such as employees lump-sum and severance payments, and by a $0.9 million increase related to both merit salary increases and the effect of one additional working day during the second quarter.

The Corporation expects to achieve reductions in credit-related expenses during the second half of 2013 as a result of the bulk sales completed during the first two quarters.

INCOME TAXES

The income tax benefit for the second quarter of 2013 amounted to $1.0 million compared to an expense of $1.6 million for the first quarter of 2013, reflecting the impact of amendments to the 2011 PR Code enacted on June 30, 2013. Some of these amendments are retroactive to January 1, 2013. Please refer to Recent Significant Events Changes to the Puerto Rico Internal Revenue Code for additional information and impact on the Corporations operating results.

                   

CREDIT QUALITY

 
Non-Performing Assets
 
(Dollars in thousands) June 30, March 31, December 31, September 30, June 30,
2013 2013 2012 2012 2012
Non-performing loans held for investment:
Residential mortgage $ 133,937 $ 311,495 $ 313,626 $ 320,913 $ 333,043
Commercial mortgage 136,737 136,708 214,780 231,163 239,881
Commercial and Industrial 131,906 141,045 230,090 230,459 255,253
Construction 68,204 59,810 178,190 189,458 202,133
Consumer and Finance leases   35,416     33,652     38,875     36,051     35,378  
Total non-performing loans held for investment   506,200     682,710     975,561     1,008,044     1,065,688  
 
REO 139,257 181,479 185,764 177,001 167,341
Other repossessed property 11,503 9,913 10,107 9,775 10,601
Other assets (1)   -     64,543     64,543     64,543     64,543  
Total non-performing assets, excluding loans held for sale $ 656,960 $ 938,645 $ 1,235,975 $ 1,259,363 $ 1,308,173
 
Non-performing loans held for sale   94,951     147,995     2,243     -     -  
Total non-performing assets, including loans held for sale (2) $ 751,911   $ 1,086,640   $ 1,238,218   $ 1,259,363   $ 1,308,173  
 
Past-due loans 90 days and still accruing $ 113,061 $ 125,384 $ 142,012 $ 141,028 $ 120,585
Non-performing loans held for investment to total loans held for investment 5.36 % 7.14 % 9.70 % 9.89 % 10.35 %
Non-performing loans to total loans 6.21 % 8.45 % 9.64 % 9.83 % 10.29 %

Non-performing assets, excluding non-performing loans held for sale, to total assets, excluding non-performing loans held for sale

5.17 % 7.30 % 9.44 % 9.58 % 10.13 %
Non-performing assets to total assets 5.87 % 8.35 % 9.45 % 9.58 % 10.13 %
 

(1)Collateral pledged to Lehman Brothers, Inc.

(2)Amount excludes purchased credit impaired loans with a carrying value as of June 30, 2013 of approximately $8.3 million acquired as part of the credit card portfolio acquired from FIA.
 

The Corporation continues to execute its strategic plan and achieved significant improvements in credit quality metrics.

  • Total non-performing loans, including non-performing loans held for sale, decreased by $229.6 million, or 28%, from the first quarter of 2013. This reduction reflects the impact of the bulk sale of residential non-performing loans with a book value of $203.8 million at the time of sale and the sale of a $40.8 million commercial mortgage loan that was previously written off and transferred to held for sale in the first quarter of 2013.
  • Inflows of non-performing loans decreased by $78.3 million, or 44%, compared to inflows in the first quarter. This reduction was primarily attributable to the commercial mortgage and commercial and industrial loan portfolios reflecting the impact in the previous quarter of the inflow of two commercial mortgage relationships that aggregated $85.0 million. Partially offsetting the decline in inflows of non-performing commercial loans were higher inflows of non-performing residential mortgage loans.
  • Adversely classified commercial and construction loans held for investment decreased by $3.9 million to $664.6 million, or 1%, from the first quarter of 2013. Non-performing commercial and construction loans held for sale decreased by $53.0 million.
  • OREO decreased by $42.2 million from the first quarter of 2013, primarily as a result of the sale of OREO properties with a book value at the time of sale of $19.2 million included as part of the bulk sale of non-performing residential assets, as well as other individual sales and write-downs.
  • Total troubled debt restructured loans (TDRs) held for investment were $613.1 million at June 30, 2013, down $100.1 million, or 14%, from March 31, 2013 primarily reflecting TDRs sold as part of the bulk sale of residential non-performing assets. Approximately $410.0 million of total TDRs held for investment were in accrual status as of June 30, 2013.

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:

               
(Dollars in thousands) June 30, March 31, December 31, September 30, June 30,
  2013 2013 2012 2012 2012
 
Allowance for loan and lease losses, beginning of period $ 342,531   $ 435,414   $ 445,531   $ 457,153   $ 483,943  
Total provision for loan and lease losses   87,464   (1)   111,123   (5)   30,466     28,952     24,884  
Net charge-offs of loans:
Residential mortgage (103,418 ) (2) (11,580 ) (6) (9,555 ) (7,358 ) (14,211 )
Commercial mortgage (3,253 ) (56,036 ) (7) (6,101 ) (5,002 ) (6,271 )
Commercial and Industrial (5,520 ) (84,829 ) (8) (12,601 ) (12,261 ) (8,385 )
Construction (2,368 ) (3) (38,515 ) (9) (1,837 ) (8,326 ) (15,186 )
Consumer and finance leases   (14,389 )   (13,046 )   (10,489 )   (7,627 )   (7,621 )
Net charge-offs   (128,948 ) (4)   (204,006 ) (10)   (40,583 )   (40,574 )   (51,674 )
Allowance for loan and lease losses, end of period $ 301,047   $ 342,531   $ 435,414   $ 445,531   $ 457,153  
 
Allowance for loan and lease losses to period end total loans held for investment 3.19 % 3.58 % 4.23 % 4.37 % 4.44 %
Net charge-offs (annualized) to average loans outstanding during the period 5.25 % 8.10 % 1.59 % 1.58 % 2.03 %

Net charge-offs (annualized), excluding charge-offs related to loans sold and loans transferred to held for sale, to average loans outstanding during the period

1.29 % 2.87 % 1.59 % 1.58 % 2.03 %
Provision for loan and lease losses to net charge-offs during the period 0.68x 0.54x 0.75x 0.71x 0.48x

Provision for loan and lease losses to net charge-offs during the period, excluding impact of loans sold and loans transferred to held for sale

0.63x 0.68x 0.75x 0.71x 0.48x
(1) Includes provision of $67.9 million associated with the bulk sale of non-performing residential assets.
(2) Includes net charge-offs totaling $97.9 million associated with the bulk sale of non-performing residential assets.
(3) Includes net charge-offs totaling $31k associated with the bulk sale of non-performing residential assets.
(4) Includes net charge-offs totaling $98.0 million associated with the bulk sale of non-performing residential assets.
(5) Includes provision of $64.1 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 $1.0 million associated with the bulk sale of adversely classified commercial assets.
(7) 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.
(8) Includes net charge-offs totaling $44.7 million associated with the bulk sale of adversely classified commercial assets.
(9) Includes net charge-offs of $34.2 million associated with the bulk sale of adversely classified commercial assets and the transfer of loans to held for sale.
(10) Includes net charge-offs of $134.5 million associated with the bulk sale of adversely classified commercial assets and the transfer of loans to held for sale.
 
  • The ratio of the allowance for loan and lease losses to loans held for investment was 3.19% as of June 30, 2013, compared to 3.58% as of March 31, 2013 primarily due to the sale of non-performing loans, a decrease in specific reserves related to certain commercial loans based on updated collateral appraisals, and lower underlying losses on the commercial portfolios. Nevertheless, the ratio of the allowance to non-performing loans held for investment increased to 59.47% as of June 30, 2013 from 50.17% as of March 31, 2013.

The following table sets forth information concerning the composition of the Corporations allowance for loan and lease losses as of June 30, 2013 and March 31, 2013 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 Mortgage Loans

Commercial (including

Commercial Mortgage,

C&I, and Construction

loans)

Consumer and Finance Leases Total
 
As of June 30, 2013
 
Impaired loans:
Principal balance of loans, net of charge-offs $ 384,062 $ 486,248 $ 27,785 $ 898,095
Allowance for loan and lease losses 20,406 87,166 2,941 110,513

Allowance for loan and lease losses to principal balance

5.31 % 17.93 % 10.58 % 12.31 %
 
PCI loans:
Carrying value of PCI loans - - 8,285 8,285
Allowance for PCI loans - - - -
Allowance for PCI loans to carrying value - - - -
 
Loans with general allowance:
Principal balance of loans 2,127,144 4,400,964 2,011,298 8,539,406
Allowance for loan and lease losses 15,175 123,252 52,107 190,534
Allowance for loan and lease losses to principal balance 0.71 % 2.80 % 2.59 % 2.23 %
 
Total loans held for investment:
Principal balance of loans $ 2,511,206 $ 4,887,212 $ 2,047,368 $ 9,445,786
Allowance for loan and lease losses 35,581 210,418 55,048 301,047
Allowance for loan and lease losses to principal balance 1.42 % 4.31 % 2.69 % 3.19 %
 
As of March 31, 2013
 
Impaired loans:
Principal balance of loans, net of charge-offs $ 579,305 $ 494,341 $ 26,619 $ 1,100,265
Allowance for loan and lease losses 47,495 93,206 3,327 144,028
Allowance for loan and lease losses to principal balance 8.20 % 18.85 % 12.50 % 13.09 %
 
PCI loans:
Carrying value of PCI loans - - 9,224 9,224
Allowance for PCI loans - - - -
Allowance for PCI loans to carrying value - - - -
 
Loans with general allowance:
Principal balance of loans 2,134,778 4,332,061 1,984,218 8,451,057
Allowance for loan and lease losses 17,227 127,243 54,033 198,503
Allowance for loan and lease losses to principal balance 0.81 % 2.94 % 2.72 % 2.35 %
 
Total loans held for investment:
Principal balance of loans $ 2,714,083 $ 4,826,402 $ 2,020,061 $ 9,560,546
Allowance for loan and lease losses 64,722 220,449 57,360 342,531
Allowance for loan and lease losses to principal balance 2.38 % 4.57 % 2.84 % 3.58 %
 

Net Charge-Offs

The following table presents annualized net charge-offs to average loans held-in-portfolio:

   
Quarter Ended
June 30,   March 31,   December 31,     September 30,     June 30,
2013 2013 2012 2012 2012
 
Residential mortgage 14.78% (1) 1.65% (4) 1.36% 1.05% 2.04%
 
Commercial mortgage 0.79% 12.06% (5) 1.70% 1.36% 1.68%
 
Commercial and Industrial 0.72% 11.16% (6) 1.40% 1.33% 0.88%
 
Construction 3.43% (2) 44.66% (7) 2.06% 9.11% 15.21%
 
Consumer and finance leases 2.83% 2.59% 2.10% 1.55% 1.81%
 
Total loans 5.25% (3) 8.10% (8) 1.59% 1.58% 2.03%
   

(1) Includes net charge-offs totaling $97.9 million associated with the bulk sale of non-performing residential assets. The ratio of residential mortgage net charge-offs to average loans, excluding charge-offs associated with the bulk sale of non-performing residential assets, was 0.84%.

(2) Includes net charge-offs totaling $31k associated with the bulk sale of non-performing residential assets. The ratio of residential mortgage net charge-offs to average loans, excluding charge-offs associated with the bulk sale of non-performing residential assets, was 3.39%.

(3) Includes net charge-offs totaling $98.0 million associated with the bulk sale of non-performing residential assets. The ratio of residential mortgage net charge-offs to average loans, excluding charge-offs associated with the bulk sale of non-performing residential assets, was 1.29%.

(4) Includes net charge-offs totaling $1.0 million associated with the bulk sale of adversely classified commercial assets. The ratio of residential mortgage net charge-offs to average loans, excluding charge-offs associated with the bulk sale of adversely classified commercial assets, was 1.50%.

(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 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 0.34%.

(6) 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 5.47%.
(7) Includes net charge-offs of $34.2 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 construction loans 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 7.74%.
(8) Includes net charge-offs of $134.5 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 total 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 2.87%.
 

The ratios above are based on annualized net charge-offs and are not necessarily indicative of the results expected in subsequent periods.

  • Net charge-offs for the second quarter of 2013 were $128.9 million, or an annualized 5.25% of average loans, compared to $204.0 million, or an annualized 8.10%, in the first quarter of 2013. The bulk loan sales completed in the last two quarters and the transfer of loans to held for sale in the first quarter added $98.0 million and $134.5 million in charge-offs in the second quarter and first quarter of 2013, respectively. Adjusted net charge-offs, excluding the impact of the bulk loan sales and the transfer of loans to held for sale, amounted to $31.0 million, or an annualized 1.29% of average loans, a decrease of $38.6 million compared to the first quarter of 2013. The decrease reflects, among other things, the impact in the previous quarter of a $25.4 million charge-off related to a single C&I relationship restructured through a loan split in the first quarter of 2013.

STATEMENT OF FINANCIAL CONDITION

Total assets were approximately $12.8 billion as of June 30, 2013, down $202.7 million from March 31, 2013. The decrease was mainly due to:

  • A $111.5 million decrease in total loans, net of allowance, mainly due to the bulk sale of residential non-performing loans and the sale of a $40.8 million non-performing commercial mortgage loan held for sale that was partially offset by increases in commercial and consumer loans driven by a higher volume of loan originations.
  • Total loan originations, including refinancing and draws from existing revolving and non-revolving commitments, amounted to approximately $924.7 million, compared to $715.3 million in the previous quarter. The increase was primarily related to the commercial and industrial loan portfolio in both Florida and Puerto Rico.
  • A $42.2 million decrease in OREO primarily as a result of the sale of OREO properties with a book value of $19.2 million included as part of the bulk sale of residential non-performing assets as well as other individual sales and write-downs.
  • The $66.6 million write-off of the collateral pledged to Lehman and related accrued interest.
  • A $60.5 million decrease in securities available-for-sale mainly due to MBS repayments and a decrease in value related to an increase in market interest rates.

These decreases were partially offset by an increase of $72.6 million in cash and cash equivalents mainly due to balances held with the Federal Reserve Bank of New York (the Federal Reserve).

Total liabilities were approximately $11.6 billion as of June 30, 2013, down $21.0 million from March 31, 2013. The decrease was mainly due to:

  • A $79.3 million decrease in the carrying value of brokered CDs.
  • A $20.0 million decrease in FHLB advances.

These decreases were partially offset by a $73.4 million increase in non-brokered deposits mainly due to increases in government and demand deposits.

Total stockholders equity amounted to $1.2 billion as of June 30, 2013, a decrease of $181.7 million from March 31, 2013, driven by:

  • The net loss of $122.6 million reported in the second quarter.
  • A decrease of $60.0 million in other comprehensive income due to unrealized losses on available-for-sale securities attributable to changes in market interest rates.

The Corporations total capital, Tier 1 capital, and leverage ratios as of June 30, 2013 were 16.61%, 15.32%, and 11.26%, respectively, compared to total capital, Tier 1 capital and leverage ratios of 17.44%, 16.15%, and 12.06%, respectively, at the end of the first quarter of 2013. Meanwhile, the total capital, Tier 1 capital, and leverage ratios as of June 30, 2013 of our banking subsidiary, FirstBank Puerto Rico, were 16.16%, 14.87%, and 10.94%, respectively, compared to total capital, Tier 1 capital, and leverage ratios of 16.98%, 15.69%, and 11.74%, respectively, at the end of the prior quarter. The decrease in capital ratios was primarily related to the total loss of $72.9 million on the bulk sale of non-performing residential assets and the $66.6 million Lehman collateral write-off. All of the regulatory capital ratios for the Bank are well above the minimum required under the Consent Order entered into with the Federal Deposit Insurance Corporation (FDIC) and the Office of the Commissioner of Financial Institutions of the Commonwealth of Puerto Rico. Given the Consent Order, however, the Bank cannot be considered to be a well-capitalized institution.

Based on our current interpretation of the Basel III capital rules, we anticipate that we will exceed the fully phased-in minimum capital ratios these rules establish.

Tangible Common Equity

The Corporations tangible common equity ratio decreased to 8.64% as of June 30, 2013 from 9.90% as of March 31, 2013 and the Tier 1 common equity to risk-weighted assets ratio decreased to 12.28% as of June 30, 2013 from 13.18% as of March 31, 2013.

The following table is a reconciliation of the Corporations tangible common equity and tangible assets over the last five quarters to the comparable GAAP items:

             
(In thousands, except ratios and per share information)
 
    June 30,     March 31, December 31, September 30, June 30,
  2013     2013     2012     2012     2012  
Tangible Equity:
Total equity - GAAP $ 1,222,328 $ 1,403,999 $ 1,485,023 $ 1,484,117 $ 1,448,959
Preferred equity (63,047 ) (63,047 ) (63,047 ) (63,047 ) (63,047 )
Goodwill (28,098 ) (28,098 ) (28,098 ) (28,098 ) (28,098 )
Purchased credit card relationship (21,649 ) (22,580 ) (23,511 ) (23,920 ) (24,342 )
Core deposit intangible   (8,158 )   (8,746 )   (9,335 )   (9,923 )   (10,512 )
 
Tangible common equity $ 1,101,376   $ 1,281,528   $ 1,361,032   $ 1,359,129   $ 1,322,960  
 
Tangible Assets:
Total assets - GAAP $ 12,803,169 $ 13,005,876 $ 13,099,741 $ 13,139,747 $ 12,913,650
Goodwill (28,098 ) (28,098 ) (28,098 ) (28,098 ) (28,098 )
Purchased credit card relationship (21,649 ) (22,580 ) (23,511 ) (23,920 ) (24,342 )
Core deposit intangible   (8,158 )   (8,746 )   (9,335 )   (9,923 )   (10,512 )
 
Tangible assets $ 12,745,264   $ 12,946,452   $ 13,038,797   $ 13,077,806   $ 12,850,698  
 
Common shares outstanding   206,982     206,228     206,235     206,179     206,134  
 
Tangible common equity ratio 8.64 % 9.90 % 10.44 % 10.39 % 10.29 %
Tangible book value per common share $ 5.32 $ 6.21 $ 6.60 $ 6.59 $ 6.42
 

The following table reconciles stockholders equity (GAAP) to Tier 1 common equity:

 
(Dollars in thousands) As of
  June 30,   March 31,   December 31,   September 30,   June 30,
2013 2013 2012 2012 2012
 
Tier 1 Common Equity:
Total equity - GAAP $ 1,222,328 $ 1,403,999 $ 1,485,023 $ 1,484,117 $ 1,448,959
Qualifying preferred stock (63,047 ) (63,047 ) (63,047 ) (63,047 ) (63,047 )
Unrealized loss (gain) on available-for-sale securities (1) 40,142 (19,868 ) (28,476 ) (42,528 ) (26,623 )
Disallowed deferred tax asset (2) - - - (40 ) (41 )
Goodwill (28,098 ) (28,098 ) (28,098 ) (28,098 ) (28,098 )
Core deposit intangible (8,158 ) (8,746 ) (9,335 ) (9,923 ) (10,512 )
Other disallowed assets   (569 )   (2,515 )   (4,032 )   (4,155 )   (2,917 )
Tier 1 common equity $ 1,162,599   $ 1,281,725   $ 1,352,035   $ 1,336,326   $ 1,317,721  
 
Total risk-weighted assets $ 9,467,699   $ 9,721,502   $ 9,933,719   $ 10,026,572   $ 10,046,284  
 
Tier 1 common equity to risk-weighted assets ratio 12.28 % 13.18 % 13.61 % 13.33 % 13.12 %
   

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 $10 million of the Corporation's deferred tax assets at June 30, 2013 (March 31, 2013 - $10 million; December 31, 2012 - $11 million; September 30, 2012 - $12 million; June 30, 2012 - $12 million) was included without limitation in regulatory capital pursuant to the risk-based capital guidelines, while approximately $0 of such assets at June 30, 2013 (March 31, 2013 - $0; December 31, 2012 - $0; September 30, 2012 - $40k; June 30, 2012 - $41k) exceeded the limitation imposed by these guidelines and, as "disallowed deferred tax assets," was deducted in arriving at 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 $3 million of the Corporation's other net deferred tax liability at June 30, 2013 (March 31, 2013 - $6 million; December 31, 2012 - $6 million; September 30, 2012 - $7 million; June 30, 2012 - $7 million) 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.
 

Conference Call / Webcast Information

First BanCorps senior management will host an earnings conference call and live webcast on Wednesday, July 24, 2013, at 10:00 a.m. (Eastern Time). The call may be accessed via a live Internet webcast through the investor relations section of the Corporations web site: www.firstbankpr.com or through a dial-in telephone number at (888) 317-6016 or (412) 3176016 for international callers. Listeners are recommended to 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 BanCorps web site, www.firstbankpr.com , until July 24, 2014. A telephone replay will be available one hour after the end of the conference call through 9:00 a.m. Eastern time August 26, 2013 at (877) 344-7529 or (412) 317-0088 for international callers. The conference number is 10031760.

Safe Harbor

This press release may contain forward-looking statements concerning the Corporations 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 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, 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 and the 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 retail brokered CDs; the Corporations 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 Corporations cash obligations or resume paying dividends to the Corporations stockholders in the future due to the Corporations inability to receive approval from the Federal Reserve to receive dividends from FirstBank or FirstBanks 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 Corporations loans and other assets, 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 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 Corporations products and services and reduce the Corporations revenues, earnings, and the value of the Corporations assets; an adverse change in the Corporations ability to attract new clients and retain existing ones; a decrease in demand for the Corporations products and services and lower revenues and earnings because of the continued recession in Puerto Rico, the current fiscal problems and budget deficit of the Puerto Rico government and recent credit downgrades of the Puerto Rico government; uncertainty about regulatory and legislative changes for financial services companies in Puerto Rico, the U.S., and the U.S. and British Virgin Islands, which could affect the Corporations financial condition or performance and could cause the Corporations 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 U.S. economy and stabilize the U.S. 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, 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 Corporations 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 Corporations non-interest expenses; the impact on the Corporations 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 risks that downgrades in the credit ratings of the Corporations long-term senior debt will adversely affect the Corporations ability to access necessary external funds; the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act on the Corporations businesses, business practices, and cost of operations; the risk of losses in the value of investments in unconsolidated entities that the Corporation does not control; 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 Corporations 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 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 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. Management is currently monitoring this ratio, along with the other ratios discussed above, in evaluating the Corporations capital levels and believes that, at this time, the ratio may be of interest to investors.

Adjusted Pre-Tax, Pre-Provision Income

A 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 other than temporary impairment (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 Corporations performance requires consideration also of results that exclude 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 financial liabilities elected to be measured at fair value on a tax-equivalent basis. The presentation of net interest income excluding valuations provides additional information about the Corporations net interest income and facilitates comparability and analysis. The changes in the fair value of derivative instruments and unrealized gains and losses on liabilities measured at fair value 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 the bulk sales of assets and loans transferred to held for sale and the write-off of the collateral pledged to Lehman

To supplement the Corporations financial statements presented in accordance with GAAP, the Corporation provides additional measures of adjusted net income (loss), adjusted net earnings (loss) per diluted share, adjusted provision for loan and lease losses, adjusted non-interest income, adjusted non-interest expenses, adjusted provision for loan and lease losses to net charge-offs, adjusted net charge-offs, and adjusted net charge-offs to average loans to exclude the impact of the bulk sales of assets completed in each of the first two quarters of 2013, the transfer of non-performing loans to held for sale in the first quarter of 2013, and the write-off of the collateral pledged to Lehman. Management believes that these non-GAAP measures enhance the ability of analysts and investors to analyze trends in the Corporations 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.

...
 
FIRST BANCORP
Condensed Consolidated Statements of Financial Condition
           
As of
June 30, March 31, December 31,
(In thousands, except for share information)   2013     2013     2012  
ASSETS
 
Cash and due from banks $ 618,593   $ 545,719   $ 730,016  
 
Money market investments:
Federal funds sold - - -
Time deposits with other financial institutions 300 300 505
Other short-term investments   216,074     216,328     216,330  
Total money market investments   216,374     216,628     216,835  
 
Investment securities available for sale, at fair value 1,990,788 2,051,295 1,731,077
 
 
Other equity securities   32,321     32,892     38,757  
 
Total investment securities   2,023,109     2,084,187     1,769,834  
 
Investment in unconsolidated entities   19,080     18,432     23,970  
 

Loans, net of allowance for loan and lease losses of $301,047 (March 31, 2013 - $342,531; December 31, 2012 - $435,414)

9,144,739 9,218,015 9,618,700
Loans held for sale, at lower of cost or market   237,583     275,771     85,394  
Total loans, net   9,382,322     9,493,786     9,704,094  
 
Premises and equipment, net 174,429 178,339 181,363
Other real estate owned 139,257 181,479 185,764
Accrued interest receivable on loans and investments 54,636 51,967 51,671
Other assets   175,369     235,339     236,194  
Total assets $ 12,803,169   $ 13,005,876   $ 13,099,741  
 
LIABILITIES
 
Deposits:
Non-interest-bearing deposits $ 938,318 $ 856,563 $ 837,387
Interest-bearing deposits   9,039,327     9,127,006     9,027,159  
Total deposits   9,977,645     9,983,569     9,864,546  
 
Securities sold under agreements to repurchase 900,000 900,000 900,000
Advances from the Federal Home Loan Bank (FHLB) 358,440 378,440 508,440
Notes payable - - -
Other borrowings 231,959 231,959 231,959
Accounts payable and other liabilities   112,797     107,909     109,773  
Total liabilities   11,580,841     11,601,877     11,614,718  
 
STOCKHOLDERS' EQUITY
 
 

Preferred Stock, authorized 50,000,000 shares: issued 22,828,174 shares; outstanding 2,521,872; aggregate liquidation value $63,047

63,047 63,047 63,047
 

Common stock, $0.10 par value, authorized 2,000,000,000 shares; issued 207,514,167 (March 31, 2013 - 206,722,833; December 31, 2012 - 206,730,318 shares issued)

20,751 20,672 20,673
Less: Treasury stock (at par value)   (53 )   (49 )   (49 )
 

Common stock outstanding, 206,982,105 shares outstanding (March 31, 2013 - 206,227,980; December 31, 2012 - 206,235,465 shares outstanding)

20,698 20,623 20,624
Additional paid-in capital 886,775 885,974 885,754
Retained earnings
291,950 414,533 487,166 Accumulated other comprehensive (loss) income   (40,142 )   19,822     28,432   Total stockholders' equity   1,222,328     1,403,999     1,485,023   Total liabilities and stockholders' equity $ 12,803,169   $ 13,005,876   $ 13,099,741  
 
FIRST BANCORP
Condensed Consolidated Statements of (Loss) Income
                   
Quarter Ended Six-Month Period Ended
June 30, March 31, June 30, June 30, June 30,
(In thousands, except per share information)   2013     2013     2012     2013     2012  
 
Net interest income:
Interest income $ 160,670 $ 160,225 $ 153,652 $ 320,895 $ 305,759
Interest expense   33,782     35,732     44,947     69,514     95,188  
Net interest income 126,888 124,493 108,705 251,381 210,571
Provision for loan and lease losses   87,464     111,123     24,884     198,587     61,081  
Net interest income after provision for loan and lease losses   39,424     13,370     83,821     52,794     149,490  
 
Non-interest (loss) income:
Service charges on deposit accounts 3,098 3,380 3,240 6,478 6,487
Mortgage banking activities 4,823 4,580 4,057 9,403 8,532
Net loss on investments and impairments (42 ) (117 ) (143 ) (159 ) (1,350 )
Equity in earnings (losses) of unconsolidated entities 648 (5,538 ) (2,491 ) (4,890 ) (8,727 )
Impairment of collateral pledged to Lehman (66,574 ) - - (66,574 ) -
Other non-interest income   6,384     11,324     9,359     17,708     17,555  
Total non-interest (loss) income   (51,663 )   13,629     14,022     (38,034 )   22,497  
 
Non-interest expenses:
Employees' compensation and benefits 33,116 33,554 31,101 66,670 62,712
Occupancy and equipment 14,946 15,070 15,181 30,016 30,857
Business promotion 3,831 3,357 3,475 7,188 6,022
Professional fees 13,735 11,132 6,230 24,867 12,299
Taxes, other than income taxes 6,239 2,989 3,435 9,228 6,851
Insurance and supervisory fees 12,699 12,806 13,302 25,505 26,310
Net loss on other real estate owned operations 14,829 7,310 6,786 22,139 10,229
Other non-interest expenses   11,928     11,792     7,432     23,720     16,855  
Total non-interest expenses   111,323     98,010     86,942     209,333     172,135  
 
(Loss) income before income taxes (123,562 ) (71,011 ) 10,901 (194,573 ) (148 )
Income tax benefit (expense)   979     (1,622 )   (1,545 )   (643 )   (3,678 )
 
Net (loss) income $ (122,583 ) $ (72,633 ) $ 9,356   $ (195,216 ) $ (3,826 )
 
Net (loss) income attributable to common stockholders $ (122,583 ) $ (72,633 ) $ 9,356   $ (195,216 ) $ (3,826 )
 
(Loss) earnings per common share:
 
Basic $ (0.60 ) $ (0.35 ) $ 0.05   $ (0.95 ) $ (0.02 )
Diluted $ (0.60 ) $ (0.35 ) $ 0.05   $ (0.95 ) $ (0.02 )

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 152 branches, stand-alone offices, and in-branch service centers throughout Puerto Rico, the U.S. and British Virgin Islands, and Florida. Among the subsidiaries of FirstBank Puerto Rico are First Federal Finance Corp., a small loan company; FirstBank Puerto Rico Securities, a broker-dealer subsidiary; First Management of Puerto Rico; and FirstMortgage, Inc., a mortgage origination company. In the U.S. Virgin Islands, FirstBank operates First Express, a small loan company. First BanCorp’s shares of common stock trade on the New York Stock Exchange under the symbol FBP. Additional information about First BanCorp. may be found at www.firstbankpr.com.

       

EXHIBIT A

 

Table 1 – Selected Financial Data

 
(In thousands, except for per share and financial ratios) Quarter Ended Six Month Period Ended
June 30,   March 31,   June 30, June 30,   June 30,
  2013     2013     2012     2013     2012  
Condensed Income Statements:
Total interest income $ 160,670 $ 160,225 $ 153,652 $ 320,895 $ 305,759
Total interest expense 33,782 35,732 44,947 69,514 95,188
Net interest income 126,888 124,493 108,705 251,381 210,571
Provision for loan and lease losses 87,464 111,123 24,884 198,587 61,081
Non-interest (loss) income (51,663 ) 13,629 14,022 (38,034 ) 22,497
Non-interest expenses 111,323 98,010 86,942 209,333 172,135
(Loss) income before income taxes (123,562 ) (71,011 ) 10,901 (194,573 ) (148 )
Income tax expense 979 (1,622 ) (1,545 ) (643 ) (3,678 )
Net (loss) income (122,583 ) (72,633 ) 9,356 (195,216 ) (3,826 )
Net (loss) income attributable to common stockholders (122,583 ) (72,633 ) 9,356 (195,216 ) (3,826 )
 
 
Per Common Share Results:
Net (loss) earnings per share basic $ (0.60 ) $ (0.35 ) $ 0.05 $ (0.95 ) $ (0.02 )
Net (loss) earnings per share diluted $ (0.60 ) $ (0.35 ) $ 0.05 $ (0.95 ) $ (0.02 )
Cash dividends declared $ - $ - $ - $ - $ -
Average shares outstanding 205,490 205,465 205,415 205,477 205,316
Average shares outstanding diluted 205,490 205,465 205,952 205,477 205,316
Book value per common share $ 5.60 $ 6.50 $ 6.72 $ 5.60 $ 6.72
Tangible book value per common share (1) $ 5.32 $ 6.21 $ 6.42 $ 5.32 $ 6.42
 
Selected Financial Ratios (In Percent):
 
Profitability:
Return on Average Assets (3.80 ) (2.25 ) 0.29 (3.03 ) (0.06 )
Interest Rate Spread (2) 3.91 3.77 3.21 3.84 3.08
Net Interest Margin (2) 4.12 4.00 3.50 4.06 3.37
Return on Average Total Equity (35.65 ) (19.82 ) 2.62 (27.51 ) (0.53 )
Return on Average Common Equity (37.36 ) (20.70 ) 2.74 (28.78 ) (0.56 )
Average Total Equity to Average Total Assets 10.66 11.37 11.14 11.00 11.12
Total capital 16.61 17.44 17.30 16.61 17.30
Tier 1 capital 15.32 16.15 15.98 15.32 15.98
Leverage 11.26 12.06 12.51 11.26 12.51
Tangible common equity ratio (1) 8.64 9.90 10.29 8.64 10.29
Tier 1 common equity to risk-weight assets (1) 12.28 13.18 13.12 12.28 13.12
Dividend payout ratio - - - - -
Efficiency ratio (3) 147.99 70.96 70.84 98.12 73.86
 
Asset Quality:
Allowance for loan and lease losses to loans held for investment 3.19 3.58 4.44 3.19 4.44
Net charge-offs (annualized) to average loans 5.25 (4 ) 8.10 (4 ) 2.03 6.69 (4 ) 1.90
Provision for loan and lease losses to net charge-offs 67.83 (5 ) 54.47 (5 ) 48.16 59.64 (5 ) 62.43
Non-performing assets to total assets 5.87 8.35 10.13 5.87 10.13
Non-performing loans held for investment to total loans held for investment 5.36 7.14 10.35 5.36 10.35
Allowance to total non-performing loans held for investment 59.47 50.17 42.90 59.47 42.90

Allowance to total non-performing loans held for investment excluding residential real estate loans

80.87 92.27 62.40 80.87 62.40
 
Other Information:
Common Stock Price: End of period $ 7.08 $ 6.23 $ 3.96 $ 7.08 $ 3.96
 
 
1- Non-GAAP measure. See pages 16-17 for GAAP to Non-GAAP reconciliations.

2- On a tax-equivalent basis and excluding fair value valuations (Non-GAAP measure). See page 7 for GAAP to Non-GAAP reconciliations and refer to discussions in Tables 2 and 3 below.

3- Non-interest expenses to the sum of net interest income and non-interest income. The denominator includes non-recurring income and changes in the fair value of derivative instruments and financial liabilities measured at fair value.

4- The net charge-offs to average loans ratio, excluding impact associated with the bulk sales and the transfer of loans to held for sale, was 1.29%, 2.87% and 2.11% for the quarter ended June 30, 2013, March 31, 2013 and six-month period ended June 30, 2013, respectively.

5- The provision for loan and lease losses to net charge-offs ratio, excluding impact associated with the bulk sales and the transfer of loans to held for sale, was 63.19%, 67.61%, and 66.25% for the quarter ended June 30, 2013, March 31, 2013 and six-month period ended June 30, 2013, respectively.

                               

Table 2 – Quarterly Statement of Average Interest-Earning Assets and Average Interest-Bearing Liabilities (On a Tax-Equivalent Basis and Excluding Valuations)

 
(Dollars in thousands)
Average volume Interest income (1) / expense Average rate (1)
June 30, March 31, June 30, June 30, March 31, June 30, June 30, March 31, June 30,
Year ended   2013   2013   2012   2013   2013   2012 2013   2013   2012  
 
Interest-earning assets:
Money market & other short-term investments $ 710,561 $ 779,412 $ 656,642 $ 499 $ 539 $ 456 0.28 % 0.28 % 0.28 %
Government obligations (2) 342,708 325,835 675,729 1,988 1,851 3,091 2.33 % 2.30 % 1.84 %
Mortgage-backed securities 1,682,682 1,536,027 1,082,175 11,571 9,515 8,366 2.76 % 2.51 % 3.11 %
Corporate bonds - - 1,876 - - 31 0.00 % 0.00 % 6.65 %
FHLB stock 31,348 33,117 32,399 322 415 353 4.12 % 5.08 % 4.38 %
Equity securities   1,360   1,364   1,377   -   -   - 0.00 % 0.00 % 0.00 %
Total investments (3)   2,768,659   2,675,755   2,450,198   14,380   12,320   12,297 2.08 % 1.87 % 2.02 %
Residential mortgage loans 2,799,369 2,814,973 2,784,364 37,411 38,004 36,822 5.36 % 5.48 % 5.32 %
Construction loans 276,128 344,983 399,394 2,274 2,617 2,556 3.30 % 3.08 % 2.57 %
C&I and commercial mortgage loans 4,710,448 4,899,586 5,315,831 48,551 47,849 54,321 4.13 % 3.96 % 4.11 %
Finance leases 239,677 237,245 239,943 5,122 5,086 5,226 8.57 % 8.69 % 8.76 %
Consumer loans   1,795,159   1,781,120   1,443,697   55,262   55,544   44,097 12.35 % 12.65 % 12.28 %
Total loans (4) (5)   9,820,781   10,077,907   10,183,229   148,620   149,100   143,022 6.07 % 6.00 % 5.65 %
Total interest-earning assets $ 12,589,440 $ 12,753,662 $ 12,633,427 $ 163,000 $ 161,420 $ 155,319 5.19 % 5.13 % 4.94 %
 
Interest-bearing liabilities:
Brokered CDs $ 3,311,165 $ 3,437,601 $ 3,473,457 $ 10,473 $ 11,798 $ 17,803 1.27 % 1.39 % 2.06 %
Other interest-bearing deposits 5,774,995 5,672,033 5,587,225 13,445 13,746 15,686 0.93 % 0.98 % 1.13 %
Other borrowed funds 1,131,959 1,131,959 1,171,833 8,233 8,163 8,969 2.92 % 2.92 % 3.08 %
FHLB advances   365,583   410,551   344,539   1,631   2,025   3,028 1.79 % 2.00 % 3.53 %
Total interest-bearing liabilities (6) $ 10,583,702 $ 10,652,144 $ 10,577,054 $ 33,782 $ 35,732 $ 45,486 1.28 % 1.36 % 1.73 %
Net interest income $ 129,218 $ 125,688 $ 109,833
Interest rate spread 3.91 % 3.77 % 3.21 %
Net interest margin 4.12 % 4.00 % 3.50 %
 
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 (39% for 2013; 30% for 2012) 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 and unrealized gains or losses on liabilities measured at fair value are excluded from interest income and interest expense because the changes in valuation do not affect interest paid or received.
 
2- Government obligations include debt issued by government-sponsored agencies.
 
3- Unrealized gains and losses on available-for-sale securities are excluded from the average volumes.
 
4- Average loan balances include the average of total non-performing loans.
 
5- Interest income on loans includes $3.5 million, $3.6 million and $2.9 million for the quarters ended June 30, 2013, March 31, 2013, and June 30, 2012, respectively, of income from prepayment penalties and late fees related to the Corporation's loan portfolio.
 
6- Unrealized gains and losses on liabilities measured at fair value are excluded from the average volumes.
                 

Table 3 – Year-To-Date Statement of Average Interest-Earning Assets and Average Interest-Bearing Liabilities (On a Tax-Equivalent Basis and Excluding Valuations)

 
(Dollars in thousands)
Average volume Interest income (1) / expense Average rate (1)
June 30, June 30, June 30, June 30, June 30, June 30,
Year Ended   2013   2012   2013   2012 2013   2012  
 
Interest-earning assets:
Money market & other short-term investments $ 744,796 $ 579,412 $ 1,038 $ 825 0.28 % 0.29 %
Government obligations (2) 334,318 816,034 3,839 7,169 2.32 % 1.77 %
Mortgage-backed securities 1,609,759 990,772 21,086 15,801 2.64 % 3.21 %
Corporate bonds - 1,937 - 60 0.00 % 6.23 %
FHLB stock 32,227 34,525 737 754 4.61 % 4.39 %
Equity securities   1,362   1,377   -   - 0.00 % 0.00 %
Total investments (3)   2,722,462   2,424,057   26,700   24,609 1.98 % 2.04 %
Residential mortgage loans 2,807,128 2,787,543 75,415 75,562 5.42 % 5.45 %
Construction loans 310,590 415,972 4,891 5,215 3.18 % 2.52 %
C&I and commercial mortgage loans 4,804,270 5,463,693 96,400 110,964 4.05 % 4.08 %
Finance leases 238,468 241,643 10,208 10,538 8.63 % 8.77 %
Consumer loans   1,788,178   1,377,387   110,806   81,947 12.50 % 11.96 %
Total loans (4) (5)   9,948,634   10,286,238   297,720   284,226 6.03 % 5.56 %
Total interest-earning assets $ 12,671,096 $ 12,710,295 $ 324,420 $ 308,835 5.16 % 4.89 %
 
Interest-bearing liabilities:
Brokered CDs $ 3,374,033 $ 3,555,026 $ 22,271 $ 37,536 1.33 % 2.12 %
Other interest-bearing deposits 5,723,799 5,530,210 27,191 32,687 0.96 % 1.19 %
Other borrowed funds 1,131,959 1,211,706 16,396 19,186 2.92 % 3.18 %
FHLB advances   387,943   354,165   3,656   6,269 1.90 % 3.56 %
Total interest-bearing liabilities (6) $ 10,617,734 $ 10,651,107 $ 69,514 $ 95,678 1.32 % 1.81 %
Net interest income $ 254,906 $ 213,157
Interest rate spread 3.84 % 3.08 %
Net interest margin 4.06 % 3.37 %
 
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 (39% for 2013; 30% for 2012) 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 and unrealized gains or losses on liabilities measured at fair value are excluded from interest income and interest expense 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 $7.1 million, and $5.3 million for the six-month periods ended June 30, 2013 and June 30, 2012, respectively, of income from prepayment penalties and late fees related to the Corporation's loan portfolio.
 
6- Unrealized gains and losses on liabilities measured at fair value are excluded from the average volumes.
                   

Table 4 – Non-Interest Income

  Quarter Ended Six-Month Period Ended
June 30, March 31, June 30, June 30, June 30,
(In thousands)   2013     2013     2012     2013     2012  
 
Service charges on deposit accounts 3,098 3,380 3,240 $ 6,478 $ 6,487
Mortgage banking activities 4,823 4,580 4,057 9,403 8,532
Insurance income 1,508 2,020 1,312 3,528 2,792
Broker-dealer income - - 1,347 - 2,610
Other operating income   4,876     9,304     6,700     14,180     12,153  
 

Non-interest income before net loss on investments, equity in losses of unconsolidated entities, and write-off of collateral pledged with Lehman

 
  14,305     19,284     16,656     33,589     32,574  
 
Proceeds from securities litigation settlement and other proceeds - - - - 26
OTTI on equity securities (42 ) - - (42 ) -
OTTI on debt securities   -     (117 )   (143 )   (117 )   (1,376 )
Net loss on investments   (42 )   (117 )   (143 )   (159 )   (1,350 )
 
 
Impairment - collateral pledged to Lehman (66,574 ) - - (66,574 ) -
Equity in losses of unconsolidated entities   648     (5,538 )   (2,491 )   (4,890 )   (8,727 )
$ (51,663 ) $ 13,629   $ 14,022   $ (38,034 ) $ 22,497  
 

Table 5 – Non-Interest Expenses

Quarter Ended Six Month Period Ended
June 30, March 31, June 30, June 30, June 30,
(In thousands)   2013     2013     2012     2013     2012  
 
Employees' compensation and benefits $ 33,116 $ 33,554 $ 31,101 $ 66,670 $ 62,712
Occupancy and equipment 14,946 15,070 15,181 30,016 30,857
Deposit insurance premium 11,430 11,517 11,982 22,947 23,969
Other insurance and supervisory fees 1,269 1,289 1,320 2,558 2,341
Taxes, other than income taxes 6,239 2,989 3,435 9,228 6,851
Professional fees :
Collections, appraisals and other credit related fees 2,520 1,924 1,802 4,444 3,420
Outsourcing technology services 4,258 1,346 944 5,604 2,079
Bulk sales professional fees 3,060 3,878 - 6,938 -
Terminated preferred stock professional fees 115 1,081 - 1,196 -
Other professional fees 3,782 2,903 3,484 6,685 6,800
Credit and debit card processing expenses 2,281 3,077 811 5,358 942
Business promotion 3,831 3,357 3,475 7,188 6,022
Communications 1,885 1,814 1,758 3,699 3,479
Net loss on REO operations 14,829 7,310 6,786 22,139 10,229
Other   7,762     6,901     4,863     14,663     12,434  
Total $ 111,323   $ 98,010   $ 86,942   $ 209,333   $ 172,135  
           
Table 6 - Selected Balance Sheet Data
(In thousands) As of
  June 30, March 31, December 31,
  2013     2013   2012
Balance Sheet Data:
Loans, including loans held for sale $ 9,683,369 $ 9,836,317 $ 10,139,508
Allowance for loan and lease losses 301,047 342,531 435,414
Money market and investment securities 2,239,483 2,300,816 1,986,669
Intangible assets 57,905 59,424 60,944
Deferred tax asset, net 6,598 4,446 4,867
Total assets 12,803,169 13,005,876 13,099,741
Deposits 9,977,645 9,983,569 9,864,546
Borrowings 1,490,399 1,510,399 1,640,399
Total preferred equity 63,047 63,047 63,047
Total common equity 1,199,423 1,321,130 1,393,546
Accumulated other comprehensive income, net of tax (40,142 ) 19,822 28,430
Total equity 1,222,328 1,403,999 1,485,023
           

Table 7 - Loan Portfolio

 

Composition of the loan portfolio including loans held for sale at period-end.

 
(In thousands) As of
  June 30, March 31, December 31,
  2013   2013   2012
 
Residential mortgage loans $ 2,511,206 $ 2,714,083 $ 2,747,217
 
Commercial loans:
Construction loans (1) 194,912 222,762 361,875
Commercial mortgage loans (1) 1,916,509 1,671,269 1,883,798
Commercial and Industrial loans (1) 2,527,431 2,680,133 2,793,157
Loans to local financial institutions collateralized by real estate mortgages   248,360   252,238   255,390
Commercial loans   4,887,212   4,826,402   5,294,220
 
Finance leases   241,675   238,587   236,926
 
Consumer loans   1,805,693   1,781,474   1,775,751
Loans held for investment 9,445,786 9,560,546 10,054,114
Loans held for sale   237,583   275,771   85,394
Total loans $ 9,683,369 $ 9,836,317 $ 10,139,508
(1)       During the second quarter of 2013, after a comprehensive review of substantially all of the loans in our commercial portfolios, the classification of certain loans was revised to more accurately depict the nature of the underlying loans. This reclassification resulted in a net increase of $269.0 million in commercial mortgage loans, since the principal source of repayment for such loans is derived primarily from the operation of the underlying real estate, with a corresponding decrease of $246.8 million in commercial and industrial loans and a $22.2 million decrease in construction loans. The Corporation evaluated the impact of this reclassification on the provision for loan losses and determined that the effect of this adjustment was not material to any previously reported results.
               
Table 8 - Loan Portfolio by Geography
(In thousands) As of June 30, 2013
  Puerto Rico Virgin Islands   United States Consolidated
 
Residential mortgage loans $ 1,867,053 $ 369,073 $ 275,080 $ 2,511,206
 
Commercial loans:
Construction loans 128,631 38,933 27,348 194,912
Commercial mortgage loans 1,520,172 74,430 321,907 1,916,509
Commercial and Industrial loans 2,305,824 98,937 122,670 2,527,431
Loans to a local financial institution collateralized by real estate mortgages   248,360   -   -   248,360
Commercial loans   4,202,987   212,300   471,925   4,887,212
 
Finance leases   241,675   -   -   241,675
 
Consumer loans   1,725,026   50,071   30,596   1,805,693
Loans held for investment 8,036,741 631,444 777,601 9,445,786
 
Loans held for sale   186,097   42,513   8,973   237,583
Total loans $ 8,222,838 $ 673,957 $ 786,574 $ 9,683,369
           

Table 9 – Non-Performing Assets

 
(Dollars in thousands) June 30, March 31, December 31,
  2013     2013     2012  
Non-performing loans held for investment:
Residential mortgage $ 133,937 $ 311,495 $ 313,626
Commercial mortgage 136,737 136,708 214,780
Commercial and Industrial 131,906 141,045 230,090
Construction 68,204 59,810 178,190
Consumer and Finance leases   35,416     33,652     38,875  
Total non-performing loans held for investment   506,200     682,710     975,561  
 
REO 139,257 181,479 185,764
Other repossessed property 11,503 9,913 10,107
Other assets (1)   -     64,543     64,543  
Total non-performing assets, excluding loans held for sale $ 656,960 $ 938,645 $ 1,235,975
 
Non-performing loans held for sale   94,951     147,995     2,243  
Total non-performing assets, including loans held for sale (2) $ 751,911   $ 1,086,640   $ 1,238,218  
 
Past-due loans 90 days and still accruing $ 113,061 $ 125,384 $ 142,012
Allowance for loan and lease losses $ 301,047 $ 342,531 $ 435,414
Allowance to total non-performing loans held for investment 59.47 % 50.17 % 44.63 %
Allowance to total non-performing loans held for investment, excluding residential real estate loans 80.87 % 92.27 % 65.78 %
   

(1)

Collateral pledged to Lehman Brothers, Inc.

(2)

Amount excludes purchased credit impaired loans with a carrying value as of June 30, 2013 of approximately $8.3 million acquired as part of the credit card portfolio acquired from FIA.

 

           
Table 10 - Non-Performing Assets by Geography
(In thousands) June 30, March 31, December 31,
    2013   2013   2012
Puerto Rico:
Non-performing loans held for investment:
Residential mortgage $ 110,929 $ 279,310 $ 281,086
Commercial mortgage 100,459 103,556 172,534
Commercial and Industrial 124,596 127,290 215,985
Construction 46,273 35,986 99,383
Finance leases 2,801 2,656 3,182
Consumer   28,953   27,403   32,529
Total non-performing loans held for investment   414,011   576,201   804,699
 
REO 108,507 140,395 145,683
Other repossessed property 11,417 9,875 10,070
Investment securities   -   64,543   64,543
Total non-performing assets, excluding loans held for sale $ 533,935 $ 791,014 $ 1,024,995
Non-performing loans held for sale   54,946   107,990   2,243
Total non-performing assets, including loans held for sale (1) $ 588,881 $ 899,004 $ 1,027,238
Past-due loans 90 days and still accruing $ 111,331 $ 119,391 $ 137,288
 
Virgin Islands:
Non-performing loans held for investment:
Residential mortgage $ 9,465 $ 18,691 $ 18,054
Commercial mortgage 5,651 3,915 11,232
Commercial and Industrial 7,310 12,555 12,905
Construction 17,271 17,727 72,648
Consumer   753   580   804
Total non-performing loans held for investment   40,450   53,468   115,643
 
REO 18,624 25,213 24,260
Other repossessed property   45   11   17
Total non-performing assets, excluding loans held for sale $ 59,119 $ 78,692 $ 139,920
Non-performing loans held for sale   40,005   40,005   -
Total non-performing assets, including loans held for sale $ 99,124 $ 118,697 $ 139,920
Past-due loans 90 days and still accruing $ 1,730 $ 5,993 $ 4,068
 
United States:
Non-performing loans held for investment:
Residential mortgage $ 13,543 $ 13,494 $ 14,486
Commercial mortgage 30,627 29,237 31,014
Commercial and Industrial - 1,200 1,200
Construction 4,660 6,097 6,159
Consumer   2,909   3,013   2,360
Total non-performing loans held for investment   51,739   53,041   55,219
 
REO 12,126 15,871 15,821
Other repossessed property   41   27   20
Total non-performing assets, excluding loans held for sale $ 63,906 $ 68,939 $ 71,060
Non-performing loans held for sale   -   -   -
Total non-performing assets, including loans held for sale $ 63,906 $ 68,939 $ 71,060
Past-due loans 90 days and still accruing $ - $ - $ 656
 

(1)

 

Amount excludes purchased credit impaired loans with a carrying value as of June 30, 2013 of approximately $8.3 million acquired as part of the credit card portfolio acquired from FIA.

 

               

Table 11 – Allowance for Loan and Lease Losses

 
Quarter Ended       Six-Month Period Ended
(Dollars in thousands) June 30, March 31, June 30, June 30, June 30,
  2013     2013     2012     2013     2012  
 
Allowance for loan and lease losses, beginning of period $ 342,531   $ 435,414   $ 483,943   $ 435,414   $ 493,917  
Total provision for loan and lease losses   87,464   (1)   111,123   (5)   24,884     198,587   (11)   61,081  
Net charge-offs of loans:
Residential mortgage (103,418 ) (2) (11,580 ) (6) (14,211 ) (114,998 ) (12) (19,942 )
Commercial mortgage (3,253 ) (56,036 ) (7) (6,271 ) (59,289 ) (13) (9,865 )
Commercial and Industrial (5,520 ) (84,829 ) (8) (8,385 ) (90,349 ) (14) (21,054 )
Construction (2,368 ) (3) (38,515 ) (9) (15,186 ) (40,883 ) (15) (30,578 )
Consumer and finance leases   (14,389 )   (13,046 )   (7,621 )   (27,435 )   (16,406 )
Net charge-offs   (128,948 ) (4)   (204,006 ) (10)   (51,674 )   (332,954 ) (16)   (97,845 )
Allowance for loan and lease losses, end of period $ 301,047   $ 342,531   $ 457,153   $ 301,047   $ 457,153  
 
Allowance for loan and lease losses to period end total loans held for investment 3.19 % 3.58 % 4.44 % 3.19 % 4.44 %
Net charge-offs (annualized) to average loans outstanding during the period 5.25 % 8.10 % 2.03 % 6.69 % 1.90 %
Net charge-offs (annualized), excluding charge-offs related to loans sold and loans transferred to held for sale, to average loans outstanding during the period
1.29 % 2.87 % 2.03 % 2.11 % 1.90 %
Provision for loan and lease losses to net charge-offs during the period 0.68x 0.54x 0.48x 0.60x 0.62x

Provision for loan and lease losses to net charge-offs during the period, excluding impact of loans sold and the transfer of loans to held for sale

0.63x 0.68x 0.48x 0.66x 0.62x
(1) Includes provision of $67.9 million associated with the bulk sale of non-performing residential assets.
(2) Includes net charge-offs totaling $97.9 million associated with the bulk sale of non-performing residential assets.
(3) Includes net charge-offs totaling $31k associated with the bulk sale of non-performing residential assets.
(4) Includes net charge-offs totaling $98.0 million associated with the bulk sale of non-performing residential assets.
(5) Includes provision of $64.1 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 $1.0 million associated with the bulk sale of adversely classified commercial assets.
(7) 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.
(8) Includes net charge-offs totaling $44.7 million associated with the bulk sale of adversely classified commercial assets.
(9) Includes net charge-offs of $34.2 million associated with the bulk sale of adversely classified commercial assets and the transfer of loans to held for sale.
(10) Includes net charge-offs of $134.5 million associated with the bulk sale of adversely classified commercial assets and the transfer of loans to held for sale.
(11) Includes provision of $132.0 million associated with the bulk sales and the transfer of loans to held for sale.
(12) Includes net charge-offs totaling $99.0 million associated with the bulk sales.
(13) 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.
(14) Includes net charge-offs totaling $44.7 million associated with the bulk sale of adversely classified commercial assets.
(15) Includes net charge-offs of $34.2 million associated with the bulk sales and the transfer of loans to held for sale.
(16) 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

 
Six-Month Period Ended Year ended
June 30, December 31, December 31, December 31, December 31,
2013 2012 2011 2010 2009
 
Residential mortgage 8.19% (1) 1.40% 1.32% 1.80% (6) 0.82%

 

Commercial mortgage 6.75% (2) 3.43% 3.21% 5.02% (7) 1.64%
 
Commercial and Industrial 5.93% (3) 1.62% 1.57% 2.16% (8) 0.72%
 
Construction 26.33% (4) 23.29% 16.33% 23.80% (9) 11.54%
 
Consumer and finance leases 2.71% 2.43% 2.33% 2.98% 3.05%
 
Total loans 6.69% (5) 2.84% 2.68% 4.76% (10) 2.48%
   
(1) 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 1.23%.
(2) 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 0.56%.
(3) 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 3.05%.
(4) 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 loans 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 5.34%.
(5) 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 2.11%.
(6) Includes net charge-offs totaling $7.8 million associated with non-performing residential mortgage loans sold in a bulk sale.
(7) 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%.
(8) 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%.

(9) 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%.

(10) Includes net charge-offs totaling $165.1 million associated with the tranfer 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%.

Contact:
First BanCorp.
John B. Pelling III, 305-577-6000 Ext. 162
Investor Relations Officer
john.pelling@firstbankpr.com

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