First BanCorp. Announces Earnings for the Quarter and Year Ended December 31, 2012
First BanCorp. Announces Earnings for the Quarter and Year Ended December 31, 2012
SAN JUAN, Puerto Rico--(BUSINESS WIRE)-- First BanCorp. (the "Corporation") (NYS: FBP) , the bank holding company for FirstBank Puerto Rico ("FirstBank" or "the Bank"), today reported net income of $14.5 million for the fourth quarter of 2012 compared to net income of $19.1 million for the third quarter of 2012 and net loss of $14.8 million for the fourth quarter of 2011. For the year ended December 31, 2012, the Corporation reported net income of $29.8 million, an improvement compared to the net loss of $82.2 million for the year ended December 31, 2011.
This press release includes certain non-GAAP financial measures, including adjusted pre-tax, pre-provision income, adjusted net interest income and margin, and certain capital ratios, and should be read in conjunction with the accompanying tables (Exhibit A), which are an integral part of this press release.
2012 Fourth Quarter Highlights and Comparison with 2012 Third Quarter:
Net income of $14.5 million, or $0.07 per diluted share.
Adjusted pre-tax, pre-provision income of $54.5 million, up $3.1 million.
Net interest income essentially unchanged:
Net interest income of $125.2 million, excluding fair value adjustments of $0.4 million, a decrease of $0.1 million.
Net interest margin, excluding fair value adjustments, decreased by 8 basis points to 3.90% driven by higher average cash balances maintained at the Federal Reserve.
Provision for loan and lease losses of $30.5 million, up $1.5 million.
Stable credit quality metrics:
Total non-performing assets decreased for the eleventh consecutive quarter, declining by $21.1 million to $1.24 billion.
The level of non-performing loans decreased by $30.2 million from the previous quarter to $977.8 million.
Net charge-offs remained flat at $40.6 million, or an annualized 1.59% of average loans.
Equity in losses of unconsolidated entities of $8.3 million, a negative variance of $6.1 million impacting net income, compared to losses of $2.2 million in the third quarter of 2012.
Increase of $2.0 million in revenues from the mortgage banking business.
Decrease of $0.9 million in non-interest expenses led by lower losses on real estate owned (REO) operations.
Strong regulatory capital ratios continued to increase through earnings generation:
Total capital, Tier 1 capital, and leverage ratios of the Corporation were 17.82%, 16.51%, and 12.60%, respectively, as of December 31, 2012, compared to 17.52%, 16.20%, and 12.71%, respectively, as of September 30, 2012.
Total capital, Tier 1 capital, and leverage ratios of the Corporation's wholly owned banking subsidiary, FirstBank were 17.35%, 16.04%, and 12.25%, respectively, as of December 31, 2012, compared to 17.03%, 15.71%, and 12.35%, respectively, as of September 30, 2012.
Tier 1 common risk-based capital ratio of the Corporation of 13.61% as of December 31, 2012, up from 13.33% as of September 30, 2012.
Tangible common equity ratio of the Corporation of 10.44% as of December 31, 2012, up from 10.39% as of September 30, 2012.
Growth in total deposits:
Non-brokered deposits, excluding government fund deposits, increased by $151.5 million.
Government fund deposits decreased by $149.5 million.
Brokered certificates of deposit (CDs) decreased by $33.8 million.
Aurelio Alemán, President and Chief Executive Officer of First BanCorp., commented: "Fourth quarter results capped a year of strong progress for First BanCorp., and we are pleased to report our third consecutive quarterly profit and first profitable year since 2008. The progress in advancing the franchise operating metrics is evident, pre-tax, pre-provision income reached $54.5 million for the quarter, up $26.0 million, or 91%, compared to the same quarter last year. Results for year 2012 reflect year-over-year improvements in a number of key areas, including an expanded net interest margin, stabilization in credit quality metrics, and a significant growth in non-brokered deposits and fee income. The net profit growth was also aided by lower provisions for loan losses. This growth has occurred in a challenging economic environment and demonstrates the strength of our franchise and the continued benefits from effectively executing our strategic plan.
During the year 2012, we have achieved significant improvements, including pre-tax, pre-provision income of $178.5 million, up 38% from the prior year; net interest income of $461.7 million, an increase of $68.2 million from last year; net interest margin of 3.63%, up significantly from 2.82% in 2011; and fee income derived from deposits, loan products and transaction fees increased by approximately $6 million, including fee income generated from the credit card portfolio acquired in 2012. The Corporation's credit-risk profile improved as total non-performing assets decreased $99.1 million, or 7%, from last year and total net charge-offs decreased $116.5 million, or 39%. The quality of our deposit base improved in 2012 with a $313.7 million, or 5%, growth in non-brokered deposits while the number of consumer and commercial deposit customers in Puerto Rico grew 11% and 20%, respectively.
Lower rates paid on both brokered and non-brokered deposits and the reduction in the overall cost of funds were key to the expanded net interest margin, as we continued to improve the overall funding mix through our strategic focus on growing non-brokered deposits. In addition, the First Bank-branded credit card portfolio acquired in 2012 was an important contributor to our improvement in net interest income, diversified our revenue stream, and provides opportunities to broaden and deepen our relationship with our customers. Many of our credit quality performance metrics continued to show signs of improvement as reflected by the decrease in non-performing assets and net charge-offs; nevertheless, non-performing asset levels remain elevated and continue to be a challenge in the current economic environment. Improving asset quality continues to be our first priority as we continue with our emphasis on loan workouts and non-performing assets disposition strategies."
Mr. Alemán stated further: "Earnings generation over the past three quarters has strengthened our capital position. We will continue to evaluate opportunities to invest in our franchise through enhanced products and services, and work to improve our credit quality and operating efficiency in order to achieve consistent, profitable growth in the future and generate appropriate returns for our shareholders."
The following table provides details with respect to the calculation of the earnings per common share for the quarters ended December 31, 2012, September 30, 2012, and December 31, 2011 and for the years ended December 31, 2012 and 2011:
(In thousands, except per share information) | Quarter Ended | Year Ended | ||||||||||||||||||
December 31, | September 30, | December 31, | December 31, | December 31, | ||||||||||||||||
2012 | 2012 | 2011 | 2012 | 2011 | ||||||||||||||||
Net income (loss) | $ | 14,535 | $ | 19,073 | $ | (14,842 | ) | $ | 29,782 | $ | (82,232 | ) | ||||||||
Cumulative convertible preferred stock dividend (Series G) | - | - | (997 | ) | - | (16,903 | ) | |||||||||||||
Preferred stock discount accretion (Series G) | - | - | (145 | ) | - | (5,634 | ) | |||||||||||||
Favorable impact from issuing common stock in exchange for Series G preferred stock, net of issuance costs (1) | - | - | 277,995 | - | 277,995 | |||||||||||||||
Net income attributable to common stockholders - basic | $ | 14,535 | $ | 19,073 | $ | 262,011 | $ | 29,782 | $ | 173,226 | ||||||||||
Convertible preferred stock dividends and accretion | - | - | 1,142 | - | 22,537 | |||||||||||||||
Net income attributable to common stockholders - diluted | $ | 14,535 | $ | 19,073 | $ | 263,153 | $ | 29,782 | $ | 195,763 | ||||||||||
Average common shares outstanding | 205,416 | 205,415 | 192,546 | 205,366 | 64,466 | |||||||||||||||
Average potential common shares | 804 | 508 | 2,195 | 462 | 25,192 | |||||||||||||||
Average common shares outstanding - | ||||||||||||||||||||
assuming dilution | 206,220 | 205,923 | 194,741 | 205,828 | 89,658 | |||||||||||||||
Basic earnings per common share | $ | 0.07 | $ | 0.09 | $ | 1.36 | $ | 0.15 | $ | 2.69 | ||||||||||
Diluted earnings per common share | $ | 0.07 | $ | 0.09 | $ | 1.35 | (2) | $ | 0.14 | $ | 2.18 | (2) | ||||||||
(1) | Excess of carrying amount of the Series G Preferred Stock exchanged over the fair value of new common shares issued in the fourth quarter of 2011. | |||||||||||||||||||
(2) | For the quarter and year ended December 31, 2011, the diluted (loss) per share, excluding the one-time favorable impact of $278.0 million from issuing common stock in exchange for the Series G Preferred Stock, held by the U.S. Treasury, was $(0.08) and $(1.63), respectively. | |||||||||||||||||||
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 Corporation's 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 $54.5 million in the fourth quarter of 2012, up from $51.4 million in the prior quarter:
(Dollars in thousands) | Quarter Ended | |||||||||||||||||||
December 31, | September 30, | June 30, | March 31, | December 31, | ||||||||||||||||
2012 | 2012 | 2012 | 2012 | 2011 | ||||||||||||||||
Income (loss) before income taxes | $ | 16,028 | $ | 19,834 | $ | 10,901 | $ | (11,049 | ) | $ | (14,600 | ) | ||||||||
Add: Provision for loan and lease losses | 30,466 | 28,952 | 24,884 | 36,197 | 41,987 | |||||||||||||||
Less: Net loss on sale and OTTI of investment securities | 69 | 547 | 143 | 1,207 | 1,014 | |||||||||||||||
Add: Unrealized (gain) loss on derivatives instruments and liabilities measured at fair value | (432 | ) | (170 | ) | (506 | ) | (283 | ) | 1,746 | |||||||||||
Add: Contingency adjustment-tax credits | - | - | - | 2,489 | - | |||||||||||||||
Add: Loss on early extinguishment of borrowings | - | - | - | - | - | |||||||||||||||
Add: Equity in losses (earnings) of unconsolidated entities | 8,330 | 2,199 | 2,491 | 6,236 | (1,666 | ) | ||||||||||||||
Adjusted pre-tax, pre-provision income (1) | $ | 54,461 | $ | 51,362 | $ | 37,913 | $ | 34,797 | $ | 28,481 | ||||||||||
Change from most recent prior quarter-amount | $ | 3,099 | $ | 13,449 | $ | 3,116 | $ | 6,316 | $ | (575 | ) | |||||||||
Change from most recent prior quarter-percentage | 6.0 | % | 35.5 | % | 9.0 | % | 22.2 | % | -2.0 | % | ||||||||||
(1) See "Basis of Presentation" for definition. | ||||||||||||||||||||
As discussed in the sections that follow, the increase in adjusted pre-tax, pre-provision income from the 2012 third quarter primarily reflected an increase of $2.0 million in revenues from the mortgage banking business, driven by a higher gain on sales and securitizations of residential mortgage loans, and a $0.9 million decrease in non-interest expenses led by lower losses on REO operations and a decrease in professional services fees.
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. (See "Basis of Presentation - Net Interest Income, Excluding Valuations and on a Tax-Equivalent Basis" below for additional information.) The following table reconciles net interest income in accordance with GAAP to net interest income, excluding valuations, and net interest income on a tax-equivalent basis. The table also reconciles net interest spread and net interest margin on a GAAP basis to these items excluding valuations and on a tax-equivalent basis.
(Dollars in Thousands) | ||||||||||||||||||||
Quarter Ended | ||||||||||||||||||||
December 31, 2012 | September 30, 2012 | June 30, 2012 | March 31, 2012 | December 31, 2011 | ||||||||||||||||
Net Interest Income | ||||||||||||||||||||
Interest Income - GAAP | $ | 165,054 | $ | 166,964 | $ | 153,652 | $ | 152,107 | $ | 156,752 | ||||||||||
Unrealized (gain) loss on derivative instruments | (432 | ) | (170 | ) | 33 | (332 | ) | (246 | ) | |||||||||||
Interest income excluding valuations | 164,622 | 166,794 | 153,685 | 151,775 | 156,506 | |||||||||||||||
Tax-equivalent adjustment | 1,451 | 1,463 | 1,634 | 1,741 | 1,456 | |||||||||||||||
Interest income on a tax-equivalent basis excluding valuations | 166,073 | 168,257 | 155,319 | 153,516 | 157,962 | |||||||||||||||
Interest Expense - GAAP | 39,423 | 41,461 | 44,947 | 50,241 | 58,209 | |||||||||||||||
Unrealized gain (loss) on derivative instruments and liabilities measured at fair value | - | - | 539 | (49 | ) | (1,992 | ) | |||||||||||||
Interest expense excluding valuations | 39,423 | 41,461 | 45,486 | 50,192 | 56,217 | |||||||||||||||
Net interest income - GAAP | $ | 125,631 | $ | 125,503 | $ | 108,705 | $ | 101,866 | $ | 98,543 | ||||||||||
Net interest income excluding valuations | $ | 125,199 | $ | 125,333 | $ | 108,199 | $ | 101,583 | $ | 100,289 | ||||||||||
Net interest income on a tax-equivalent basis excluding valuations | $ | 126,650 | $ | 126,796 | $ | 109,833 | $ | 103,324 | $ | 101,745 | ||||||||||
Average Balances | ||||||||||||||||||||
Loans and leases | $ | 10,199,808 | $ | 10,297,835 | $ | 10,183,229 | $ | 10,389,246 | $ | 10,637,523 | ||||||||||
Total securities and other short-term investments | 2,576,421 | 2,238,701 | 2,450,198 | 2,397,918 | 2,665,918 | |||||||||||||||
