First BanCorp Announces Results for the Quarter Ended March 31, 2013
First BanCorp Announces Results for the Quarter Ended March 31, 2013
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 a net loss of $72.6 million for the first quarter of 2013, or $0.35 per diluted share, compared to net income of $14.5 million, or $0.07 per diluted share, for the fourth quarter of 2012 and a net loss of $13.2 million, or $0.06 per diluted share for the first quarter of 2012. Financial results for the first quarter of 2013 included a loss of $68.0 million related to the previously announced bulk sale of adversely classified loans and other real estate owned (OREO) properties and valuation adjustments to certain loans transferred to held for sale.
This press release includes certain non-GAAP financial measures, including adjusted net loss, adjusted pre-tax, pre-provision income, adjusted net interest income and margin, certain capital ratios, and certain other financial measures adjusted to exclude the effect of the bulk sale of assets and of 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.
2013 First Quarter Highlights and Comparison with 2012 Fourth Quarter:
- Net loss of $72.6 million, or $0.35 per diluted share, reflecting a $68.0 million loss related to the bulk sale of assets and, to a lesser extent, valuation adjustments to certain loans transferred to held for sale.
- Adjusted net loss of $4.6 million, or $0.02 per diluted share, excluding the effects of the bulk sale and valuation adjustments to certain loans transferred to held for sale.
- Adjusted pre-tax, pre-provision income of $50.5 million, compared to $54.5 million in the last quarter.
- Net interest income relatively flat:
- Net interest income of $124.1 million, excluding fair value adjustments of $0.4 million, a decrease of $1.1 million primarily due to fewer days in the first quarter of 2013.
- Net interest margin, excluding fair value adjustments, increased by 5 basis points to 3.95%, driven by further reductions in the average cost of funding.
- Bulk sale of adversely classified loans and OREO properties with a book value of $217.7 million, including $185.0 million of non-performing assets, for $120.2 million in a cash transaction.
- In addition to the bulk sale, transfer of $181.6 million of non-performing loans to held for sale, including $101.4 million with agreements signed for sale.
- Credit quality metrics:
- Total non-performing assets decreased for the 12th consecutive quarter, declining by $151.6 million to $1.09 billion, mainly related to the bulk sale of assets and valuation adjustments to certain loans transferred to held for sale. Non-performing assets to total assets ratio decreased to 8.35% compared to 9.45% as of December 31, 2012.
- The level of non-performing loans, including non-performing loans held for sale, decreased by $147.1 million from the previous quarter to $830.7 million.
- Provision for loan and lease losses of $111.1 million, including $64.1 million associated with the bulk sale of assets and the transfer of certain loans to held for sale. Excluding the impact of the bulk sale and the transfer of certain loans to held for sale, the provision increased to $47.0 million, up from $30.5 million for the fourth quarter of 2012.
- Net charge-offs of $204.0 million, including net charge-offs of $134.5 million related to the bulk sale and the transfer of loans to held for sale. Excluding the impact of the bulk sale and the transfer of loans to held for sale, net charge-offs were $69.5 million, or an annualized 2.87% of average loans, up from $40.6 million, or an annualized 1.59%, in the fourth quarter of 2012. The increase was primarily due to a $25.4 million charge-off related to a single relationship restructured in the first quarter of 2013.
- Non-interest income of $13.6 million, an increase of $1.9 million
- Non-interest expenses of $98.0 million, including $3.9 million related to the bulk sale of assets. Excluding the impact of expenses related to the bulk sale of assets, non-interest expenses amounted to $94.1 million, up from $90.9 million in the fourth quarter of 2012, including non-recurring expenses of $1.2 million related to the previously announced not consummated preferred stock exchange offer, and a loss of $0.7 million related to OREO properties sold to another company.
- Strong regulatory capital ratios despite the impact of the loss on the bulk sale of assets and the transfer of loans to held for sale:
- Total capital, Tier 1 capital, and leverage ratios of the Corporation were 17.44%, 16.15%, and 12.06%, respectively, as of March 31, 2013, compared to 17.82%, 16.51%, and 12.60%, respectively, as of December 31, 2012.
- Total capital, Tier 1 capital, and leverage ratios of the Corporation's wholly owned banking subsidiary, FirstBank, were 16.98%, 15.69%, and 11.74%, respectively, as of March 31, 2013, compared to 17.35%, 16.04%, and 12.25%, respectively, as of December 31, 2012.
- Tier 1 common risk-based capital ratio of the Corporation of 13.18% as of March 31, 2013, down from 13.61% as of December 31, 2012.
- Tangible common equity ratio of the Corporation of 9.90% as of March 31, 2013, down from 10.44% as of December 31, 2012.
- Growth in total deposits:
- Non-brokered deposits, excluding government deposits, increased by $145.6 million.
- Government deposits decreased by $14.4 million.
- Brokered certificates of deposit (CDs) decreased by $12.6 million.
Aurelio Alemán, President and Chief Executive Officer of First BanCorp., commented: "The first quarter represented a significant step in the continued execution of our strategic plan. Improving asset quality remains a top priority as we continue to enhance our core franchise. Through a bulk loan sale we reduced our nonperforming assets by $152 million to $1.1 billion. Despite the impact to our net income in the quarter, our core franchise continues to grow stronger delivering solid pre-tax, pre-provision earnings. Core deposits increased by $146 million in the quarter, loan originations were $802 million, and our capital position remains strong. With the Puerto Rico market continuing to show some signs of stability we expect further reductions in impaired assets. The accelerated reduction of nonperforming and impaired assets will further strengthen our core operating metrics."
Mr. Alemán stated further, "During the first quarter we also announced that we had formalized our strategic alliance with FIS™ (FIS), the world's largest global provider dedicated to banking and payment technologies. This partnership will give FirstBank the enhanced ability to achieve technological leadership by providing state of the art products and services to our clients across the territories. While there is still more work to do, we have a clear strategy and a strong core franchise."
Bulk Sale of Assets and Transfer of Loans to Held For Sale
On April 1, 2013, the Corporation announced that it had entered into three separate agreements to sell loans. On March 28, 2013, the Corporation completed the sale of adversely classified loans with a book value of $211.4 million ($100.1 million of commercial and industrial ("C&I") loans, $68.8 million of commercial mortgage loans, $41.3 million of construction loans, and $1.2 million of residential mortgage loans), and $6.3 million of OREO properties in a cash transaction. The sales price of this bulk sale was $120.2 million, or 55% of the book value before reserves, for the $217.7 million of loans and OREO and $1.3 million of other related receivables. Approximately $39.9 million of reserves had already been allocated to the loans. This transaction resulted in total charge-offs of $98.5 million and an incremental loss of $58.9 million, reflected in the provision for loan and lease losses for the first quarter of 2013. In addition, the Corporation recorded $3.9 million of professional fees specifically related to the bulk sale of assets. This transaction resulted in a total loss of $62.8 million.
The other two agreements consist of a Letter of Intent and a Definitive Agreement entered into during the first quarter of 2013 for the sale of non-performing loans with an aggregate book value of $101.4 million. These two transactions are expected to close in 2013 and the loans were reclassified to held for sale in the first quarter of 2013. The recorded investment in these loans was written down to $80.8 million, which resulted in charge-offs of $20.4 million and an incremental net loss of $5.2 million reflected in the provision for loan and lease losses for the first quarter of 2013. The Corporation's primary goal with respect to these sales is to accelerate the disposition of non-performing assets, which is a priority objective of the strategic plan. In addition, the Corporation reclassified an additional $80.2 million of commercial mortgage and construction non-performing loans to held for sale. The transfer of these additional loans to held for sale resulted in charge-offs of $15.5 million.
Impact of Bulk Sale of Assets and Loans Transferred to Held For Sale
|(Dollars in thousands, except per share information)||Excluding|
|As||Bulk Sale||Loans Transferred||Bulk Sale and Loans Transferred|
|2013 First Quarter||Reported (GAAP)||Transaction Impact||To Held For Sale Impact||To Held For Sale Impact (Non-GAAP)|
|Total net charge-offs (1)||$||204,006||$||98,519||$||35,953||$||69,534|
|Total net charge-offs to average loans||8.10||%||2.87||%|
|Residential mortgage loans net charge-offs to average loans||1.65||%||1.50||%|
|Commercial mortgage loans net charge-offs to average loans||12.06||%||0.34||%|
|Commercial and Industrial||84,829||44,678||-||40,151|
|Commercial and Industrial loans net charge-offs to average loans||11.16||%||5.47||%|
|Construction loans net charge-offs to average loans||44.66||%||7.74||%|
|Provision for loan and lease losses||$||111,123||$||58,890||$||5,222||$||47,011|
|Commercial and Industrial||35,292||20,766||-||14,526|
|Net loss per common share||$||(0.35||)||$||(0.30||)||$||(0.03||)||$||(0.02||)|
|1 - Charge-off percentages annualized|
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 $50.5 million in the first quarter of 2013, down from $54.5 million in the prior quarter:
|Pre-Tax, Pre-Provision Income|
|(Dollars in thousands)||Quarter Ended|
|March 31,||December 31,||September 30,||June 30,||March 31,|
|(Loss) income before income taxes||$||(71,011||)||$||16,028||$||19,834||$||10,901||$||(11,049||)|
|Add: Provision for loan and lease losses||111,123||30,466||28,952||24,884||36,197|
|Add: Net loss on investments and impairments||117||69||547||143||1,207|
|Add: Unrealized (gain) loss on derivatives instruments and liabilities|
|measured at fair value||(400||)||(432||)||(170||)||(506||)||(283||)|
|Add: Loans sale transaction related expenses and|
|other non-recurring professional fee expenses||5,096||-||-||-||-|
|Add: Contingency adjustment-tax credits||-||-||-||-||2,489|
|Add: Equity in losses of unconsolidated entities||5,538||8,330||2,199||2,491||6,236|
|Adjusted pre-tax, pre-provision income (1)||$||50,463||$||54,461||$||51,362||$||37,913||$||34,797|
|Change from most recent prior quarter-amount||$||(3,998||)||$||3,099||$||13,449||$||3,116||$||6,316|
|Change from most recent prior quarter-percentage||-7.3||%||6.0||%||35.5||%||9.0||%||22.2||%|
|(1) See "Basis of Presentation" for definition.|
As discussed in the sections that follow, the decrease in adjusted pre-tax, pre-provision income from the 2012 fourth quarter primarily reflected: (i) an increase in non-interest expenses, including increases of $1.7 million in employees' compensation and benefits expenses, primarily reflecting higher seasonal payroll taxes and incentive compensation and an increase of $1.1 million in losses on OREO operations primarily due to higher write-downs and losses on the sale of OREO properties , (ii) a decrease of $2.1 million in revenues from the mortgage banking business, driven by a lower volume of residential mortgage loan sales and lower gains on securitizations and subsequent sales of GNMA securities, and (iii) a decrease of $1.1 million in net interest income mainly reflecting the impact of two fewer days in the first quarter.
Net Interest Income
Net interest income, excluding fair value adjustments on derivatives and financial liabilities measured at fair value ("valuations"), and net interest income on a tax-equivalent basis are non-GAAP measures. (See "Basis of Presentation - Net Interest Income, Excluding Valuations and on a Tax-Equivalent Basis" below for additional information.) The following table reconciles net interest income in accordance with GAAP to net interest income, excluding valuations, and net interest income on a tax-equivalent basis. The table also reconciles net interest spread and net interest margin on a GAAP basis to these items excluding valuations and on a tax-equivalent basis.
|(Dollars in thousands)|
|March 31, 2013||December 31, 2012|
September 30, 2012
|June 30, 2012||March 31, 2012|
|Net Interest Income|
|Interest Income - GAAP||$||160,225||$||165,054||$||166,964||$||153,652||$||152,107|
|Unrealized (gain) loss on|
|Interest income excluding valuations||159,825||164,622||166,794||153,685||151,775|
|Interest income on a tax-equivalent basis excluding valuations||161,420||166,073||168,257||155,319||153,516|
|Interest Expense - GAAP||35,732||39,423||41,461||44,947||50,241|
|Unrealized gain (loss) on|
|derivative instruments and liabilities measured at fair value||-||-||-||539||(49||)|
|Interest expense excluding valuations||35,732||39,423||41,461||45,486||50,192|
|Net interest income - GAAP||$||124,493||$||125,631||$||125,503||$||108,705||$||101,866|
|Net interest income excluding valuations||$||124,093||$||125,199||$||125,333||$||108,199||$||101,583|
|Net interest income on a tax-equivalent basis excluding valuations||$||125,688||$||126,650||$||126,796||$||109,833||
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