FIRST BANCORP quarterly report, Q1 FY2013

全文

First BanCorp. — Q1 2013 Form 10-Q

Reporting period: Quarter ended March 31, 2013. Unaudited consolidated results; amounts below are in U.S. dollars. First BanCorp. is a Puerto Rico-based financial holding company operating through FirstBank in Puerto Rico, the U.S. mainland, and the U.S. and British Virgin Islands.

Financial results and condition

  • Earnings: Net loss was $72.6 million, or $0.35 per common share, compared with a $13.2 million loss, or $0.06 per share, in Q1 2012. Return on average assets was -2.25%; return on average equity was -19.82%.
  • Interest income and margin: Interest income was $160.2 million, up from $152.1 million. Net interest income rose 22% to $124.5 million from $101.9 million. The tax-equivalent net interest margin excluding fair-value effects was 4.00%, versus 3.25%; GAAP net interest margin was 3.96%, versus 3.20%.
  • Credit costs and expenses: Provision for loan and lease losses increased to $111.1 million from $36.2 million. Non-interest income was $13.6 million, up from $8.5 million; non-interest expense increased to $98.0 million from $85.2 million. Loss before taxes was $71.0 million; income tax expense was $1.6 million.
  • Cash flow: Operating activities provided $30.7 million, investing activities used $202.1 million, and financing activities used $13.1 million. Cash and cash equivalents ended the quarter at $762.3 million, down $184.5 million from year-end 2012.
  • Balance sheet and funding: Total assets were $13.0 billion, down $93.9 million from December 31, 2012. Deposits were $10.0 billion, up $119.0 million; total borrowings were $1.51 billion, down $130.0 million, principally following FHLB repayments. Stockholders’ equity was $1.40 billion, down $81.0 million. The allowance for loan and lease losses was $342.5 million, or 3.58% of held-for-investment loans.
  • Capital and liquidity: FirstBank’s total capital, Tier 1 capital, and leverage ratios were 16.98%, 15.69%, and 11.74%, respectively, exceeding the FDIC Order’s stated thresholds. Despite these ratios, the Bank cannot be treated as “well capitalized” while subject to the order. Management reported core liquidity of $1.3 billion, or 9.92% of assets, and basic liquidity of 12.93%. Available additional FHLB capacity was approximately $392 million.

Material changes and unusual items

  • A bulk sale of adversely classified loans and OREO closed in March. The assets had $217.7 million of book value before reserves and were sold for $120.2 million, plus $1.3 million of related receivables. The transaction generated $98.5 million of charge-offs, a $58.9 million incremental provision, and $3.9 million in related professional fees; the reported total loss was $62.8 million.
  • The company also transferred $181.6 million of non-performing loans to held for sale. Related charge-offs were $36.0 million; two additional loan-sale agreements covering $101.4 million of book-value loans were expected to close in 2013. Management’s stated aim was to accelerate non-performing asset reduction.
  • Excluding the bulk sale and loans transferred to held for sale, provision was $47.0 million and annualized net charge-offs were 2.87% of average loans, compared with $36.2 million of provision and a 1.78% charge-off rate in Q1 2012. These are company-presented non-GAAP measures.
  • Total non-performing assets, including loans held for sale, were $1.09 billion at quarter-end. Non-performing loans, including held-for-sale loans, were $830.7 million, down $147.1 million from year-end; the decline largely reflects asset sales and charge-offs. New non-performing commercial mortgage inflows included two relationships totaling $85 million.
  • The credit-card portfolio acquired in May 2012 supported interest income and fee growth. Management attributed $16.5 million of Q1 interest income to the portfolio, including $2.7 million of discount accretion. Average funding cost declined, aided by lower deposit pricing and the maturity of higher-cost borrowings.
  • Available-for-sale securities increased $320.2 million to $2.05 billion, primarily reflecting purchases of U.S. agency mortgage-backed securities. Other comprehensive loss was $8.6 million, mainly due to unrealized losses on securities.

Outlook, commentary, and principal risks

  • The filing provides no specific earnings or revenue guidance. Management said it expected to exceed proposed fully phased-in Basel III minimum capital ratios under its current interpretation, while noting that final rules and related calculations could change.
  • FirstBank remains subject to an FDIC/OCIF Consent Order and First BanCorp. to a Federal Reserve Written Agreement. These require capital and asset-quality actions and restrict, among other matters, dividends and brokered-CD activity. FDIC approval to access the brokered-CD market was in effect through June 30, 2013; future approvals were uncertain.
  • Brokered CDs totaled $3.36 billion, approximately one-third of deposits, with about $2.0 billion maturing within one year. The company reported continuing efforts to reduce brokered funding and grow non-brokered deposits.
  • Puerto Rico represented approximately 85% of gross loan exposure. The Commonwealth’s credit ratings were downgraded, and management cited recession, fiscal deficits, weak real estate and credit conditions, and proposed tax changes as risks to asset quality, funding, and earnings.
  • A $64.5 million asset related to securities pledged to Lehman remained subject to ongoing litigation and regulatory review. The company warned that a partial or full impairment could adversely affect future results; recovery was uncertain.
  • Other risks include high credit losses and foreclosures, dependence on regulatory approvals and external funding, interest-rate and collateral-value movements, and potential losses on the subordinated investment in CPG/GS. FirstBank maintained a full valuation allowance on its net deferred tax asset; the consolidated valuation allowance was $384.4 million.
  • Common and preferred dividends remained suspended. A proposed preferred-stock exchange offer was terminated in April 2013 after required holder consent was not obtained. Management stated that disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.

Important facts for investors to verify

  • How much of the credit-cost spike reflects one-time asset-sale and transfer effects, and whether underlying charge-offs and commercial-loan inflows continue to improve.
  • Completion, proceeds, and realized losses on the remaining planned loan sales, together with subsequent non-performing asset and OREO trends.
  • Renewal of FDIC brokered-CD approvals, deposit retention, near-term maturities, and liquidity under stress.
  • Compliance with the regulatory agreements, capital levels after losses, and any restrictions affecting dividends, debt payments, or funding access.
  • Developments in the Lehman collateral litigation and any resulting impairment assessment for the $64.5 million asset.
  • Exposure to Puerto Rico’s fiscal and economic conditions, including the effect of government credit downgrades and proposed tax changes on borrowers and securities.