UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

Form 8-K

Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

FIRST BANCORP.

Puerto Rico		66-0561882
(State or Other Jurisdiction		(I.R.S. Employer
of Incorporation)		Identification No.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 2.02 Results of Operations and Financial Condition.

On February 9, 2011, First BanCorp (the “Corporation”) issued a press release announcing its unaudited results of operations for the fourth quarter and year ended December 31, 2010. A copy of the press release is attached hereto as Exhibit 99.1 and is hereby incorporated herein by reference.

The Corporation has included in this release the following non-GAAP financial measures: (i) the calculation of net interest income, interest rate spread and net interest margin rate on a tax- equivalent basis and excluding changes in the fair value of derivative instruments and certain financial liabilities, (ii) the calculation of the tangible common equity ratio and the tangible book value per common share, (iii) the Tier 1 common equity to risk-weighted assets ratio, (iv) the adjusted pre-tax, pre-provision income, and (v) certain other financial measures adjusted to exclude the effect of loans transferred to held for sale resulting from the execution of an agreement providing for the strategic sale of loans. Investors should be aware that non-GAAP measures have inherent limitations and should be read only in conjunction with the Corporation’s consolidated financial data prepared in accordance with GAAP.

Net interest income, interest rate spread and net interest margin are reported on a tax-equivalent basis and excluding changes in the fair value (“valuations”) of derivative instruments and financial liabilities elected to be measured at fair value. The presentation of net interest income excluding valuations provides additional information about the Corporation’s net interest income and facilitates comparability and analysis. The changes in the fair value of derivative instruments 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, as described in Exhibit A — Tables 2 and 3 of the attached Press Release (included herein as Exhibit 99.1). 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.

The following table reconciles the non-GAAP financial measure “net interest income on a tax-equivalent basis and excluding fair value changes” with net interest income calculated and presented in accordance with GAAP. The table also reconciles the non-GAAP financial measures “net interest spread and margin on a tax-equivalent basis and excluding fair value changes” with net interest spread and margin calculated and presented in accordance with GAAP.

Reconciliation of GAAP Net Interest Margin and Spread to Non-GAAP Net Interest Margin and Spread on a Tax-Equivalent Basis and excluding fair value changes on derivative instruments and liabilities measured at fair value (“valuations”)

(dollars in thousands)

		Quarter Ended																				Year Ended
		December 31, 2010				September 30, 2010				June 30, 2010				March 31, 2010				December 31, 2009				December 31, 2010				December 31, 2009
Net Interest Income (in thousands)
Interest Income — GAAP		$	192,806			$	204,028			$	214,864			$	220,988			$	243,449			$	832,686			$	996,574
Unrealized (gain) loss on derivative instruments			(903	)			938				487				744				(2,764	)			1,266				(5,519	)
Interest income excluding valuations			191,903				204,966				215,351				221,732				240,685				833,952				991,055
Tax-equivalent adjustment			4,494				6,778				7,222				9,912				12,311				28,406				53,617
Interest income on a tax-equivalent basis excluding valuations			196,397				211,744				222,573				231,644				252,996				862,358				1,044,672
Interest Expense — GAAP			80,758				90,326				95,802				104,125				106,152				371,011				477,532
Unrealized (loss) gain on derivative instruments and liabilities measured at fair value			(813	)			(526	)			3,896				(989	)			(247	)			1,568				(45	)
Interest expense excluding valuations			79,945				89,800				99,698				103,136				105,905				372,579				477,487
Net interest income — GAAP		$	112,048			$	113,702			$	119,062			$	116,863			$	137,297			$	461,675			$	519,042
Net interest income excluding valuations		$	111,958			$	115,166			$	115,653			$	118,596			$	134,780			$	461,373			$	513,568
Net interest income on a tax-equivalent basis excluding valuations		$	116,452			$	121,944			$	122,875			$	128,508			$	147,091			$	489,779			$	567,185
Average Balances (in thousands)
Loans and leases		$	12,185,511			$	12,443,055			$	13,025,808			$	13,569,467			$	13,777,928			$	12,801,107			$	13,460,562
Total securities and other short-term investments			3,863,532				4,640,055				5,485,934				5,526,589				5,505,527				4,873,837				5,865,662
Average Interest-Earning Assets		$	16,049,043			$	17,083,110			$	18,511,742			$	19,096,056			$	19,283,455			$	17,674,944			$	19,326,224
Average Interest-Bearing Liabilities		$	14,036,776			$	15,002,168			$	16,378,022			$	16,910,781			$	17,112,556			$	15,560,623			$	17,099,692
Average Yield/Rate
Average yield on interest-earning assets — GAAP			4.77	%			4.74	%			4.66	%			4.69	%			5.01	%			4.71	%			5.16	%
Average rate on interest-bearing liabilities — GAAP			2.28	%			2.39	%			2.35	%			2.50	%			2.46	%			2.38	%			2.79	%
Net interest spread — GAAP			2.49	%			2.35	%			2.31	%			2.19	%			2.55	%			2.33	%			2.37	%
Net interest margin — GAAP			2.77	%			2.64	%			2.58	%			2.48	%			2.82	%			2.61	%			2.69	%
Average yield on interest-earning assets excluding valuations			4.74	%			4.76	%			4.66	%			4.71	%			4.95	%			4.72	%			5.13	%
Average rate on interest-bearing liabilities excluding valuations			2.26	%			2.37	%			2.44	%			2.47	%			2.46	%			2.39	%			2.79	%
Net interest spread excluding valuations			2.48	%			2.39	%			2.22	%			2.24	%			2.49	%			2.33	%			2.34	%
Net interest margin excluding valuations			2.77	%			2.67	%			2.51	%			2.52	%			2.77	%			2.61	%			2.66	%
Average yield on interest-earning assets on a tax-equivalent basis and excluding valuations			4.86	%			4.92	%			4.82	%			4.92	%			5.21	%			4.88	%			5.41	%
Average rate on interest-bearing liabilities excluding valuations			2.26	%			2.37	%			2.44	%			2.47	%			2.46	%			2.39	%			2.79	%
Net interest spread on a tax-equivalent basis and excluding valuations			2.60	%			2.55	%			2.38	%			2.45	%			2.75	%			2.48	%			2.62	%
Net interest margin on a tax-equivalent basis and excluding valuations			2.88	%			2.83	%			2.66	%			2.73	%			3.03	%			2.77	%			2.93	%

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 and core deposit intangibles. Tangible assets are total assets less goodwill and core deposit intangibles. 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 accounting method of accounting for mergers and acquisitions. Neither tangible common equity nor tangible assets, or 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. The following table is a reconciliation of the Corporation’s tangible common equity and tangible assets:

Tangible Common Equity
(In thousands, except per share information)

		As of
		December 31,				September 30,				June 30,				March 31,				December 31,
		2010				2010				2010				2010				2009
Tangible Equity:
Total equity — GAAP		$	1,151,663			$	1,321,979			$	1,438,289			$	1,488,543			$	1,599,063
Preferred equity			(425,009	)			(411,876	)			(930,830	)			(929,660	)			(928,508	)
Goodwill			(28,098	)			(28,098	)			(28,098	)			(28,098	)			(28,098	)
Core deposit intangible			(14,043	)			(14,673	)			(15,303	)			(15,934	)			(16,600	)
Tangible common equity		$	684,513			$	867,332			$	464,058			$	514,851			$	625,857
Tangible Assets:
Total assets — GAAP		$	15,686,781			$	16,678,879			$	18,116,023			$	18,850,964			$	19,628,448
Goodwill			(28,098	)			(28,098	)			(28,098	)			(28,098	)			(28,098	)
Core deposit intangible			(14,043	)			(14,673	)			(15,303	)			(15,934	)			(16,600	)
Tangible assets		$	15,644,640			$	16,636,108			$	18,072,622			$	18,806,932			$	19,583,750
Common shares outstanding			21,304				21,304				6,169				6,169				6,169
Tangible common equity ratio			4.38	%			5.21	%			2.57	%			2.74	%			3.20	%
Tangible book value per common share		$	32.13			$	40.71			$	75.22			$	83.45			$	101.44

The Tier 1 common equity to risk-weighted assets ratio is calculated by dividing (a) tier 1 capital less non-common elements including qualifying perpetual preferred stock and qualifying trust preferred securities by (b) risk-weighted assets, which assets are calculated in accordance with applicable bank regulatory requirements. The Tier 1 common equity ratio is not required by GAAP or on a recurring basis by applicable bank regulatory requirements. However, this ratio was used by the Federal Reserve in connection with its stress test administered to the 19 largest U.S. bank holding companies under the Supervisory Capital Assessment Program, the results of which were announced on May 7, 2009. Management is currently monitoring this ratio, along with the other ratios discussed above, in evaluating the Corporation’s capital levels and believes that, at this time, the ratio may be of interest to investors.

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

Tier 1 Common Equity to Risk-Weighted Assets
(Dollars in thousands)

		As of
		December 31,				September 30,				June 30,				March 31,				December 31,
		2010				2010				2010				2010				2009
Tier 1 Common Equity:
Total equity — GAAP		$	1,151,663			$	1,321,979			$	1,438,289			$	1,488,543			$	1,599,063
Qualifying preferred stock			(425,009	)			(411,876	)			(930,830	)			(929,660	)			(928,508	)
Unrealized gain on available-for-sale securities (1)			(17,718	)			(30,295	)			(63,311	)			(22,948	)			(26,617	)
Disallowed deferred tax asset (2)			(37,515	)			(43,552	)			(38,078	)			(40,522	)			(11,827	)
Goodwill			(28,098	)			(28,098	)			(28,098	)			(28,098	)			(28,098	)
Core deposit intangible			(14,043	)			(14,673	)			(15,303	)			(15,934	)			(16,600	)
Cumulative change gain in fair value of liabilities accounted for under a fair value option			(2,185	)			(2,654	)			(3,170	)			(951	)			(1,535	)
Other disallowed assets			(226	)			(636	)			(66	)			(24	)			(24	)
Tier 1 common equity		$	626,869			$	790,195			$	359,433			$	450,406			$	585,854
Total risk-weighted assets		$	11,613,637			$	11,930,854			$	12,570,330			$	13,402,979			$	14,303,496
Tier 1 common equity to risk-weighted assets ratio			5.40	%			6.62	%			2.86	%			3.36	%			4.10	%

One non-GAAP performance metric that management believes is useful in analyzing underlying performance trends, particularly in times of economic stress, is adjusted pre-tax, pre-provision income. Adjusted pre-tax, pre-provision income, as defined by management, represents net (loss) income excluding income tax expense (benefit), the provision for loan and lease losses, gains on sale and OTTI of investment securities, 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 them to be nonrecurring. These items result from factors originating outside the Corporation such as regulatory actions/assessments, and may result from unusual management decisions, such as the early extinguishment of debt.

The following table reconciles (loss) income before income taxes (GAAP) to adjusted pre-tax, pre-provision income:

Pre-Tax, Pre-Provision Income
(Dollars in thousands)

		Quarter Ended
		December 31,				September 30,				June 30,				March 31,				December 31,
		2010				2010				2010				2010				2009
Loss before income taxes		$	(158,016	)		$	(76,196	)		$	(86,817	)		$	(100,138	)		$	(49,891	)
Add: Provision for loan and lease losses			196,347				120,482				146,793				170,965				137,187
Less: Net loss (gain) on sale and OTTI of investment securities			620				(48,281	)			(24,237	)			(30,764	)			(24,387	)
Add: Loss on early extinguishment of repurchase agreements			—				47,405				—				—				—
Adjusted Pre-tax, pre-provision income		$	38,951			$	43,410			$	35,739			$	40,063			$	62,909
Change from most recent prior quarter — amount		$	(4,459	)		$	7,671			$	(4,324	)		$	(22,846	)		$	629
Change from most recent prior quarter — percent			-10.3	%			21.5	%			-10.8	%			-36.3	%			1.0	%

To supplement the Corporation’s financial statements presented in accordance with GAAP, the Corporation provides additional measures of net income (loss), net income (loss) per diluted share, provision for loan and lease losses, provision for loan and lease losses to net charge-offs, net charge-offs, and net charge-offs to average loans to exclude the impact of the transfer of $447 million of loans to held for sale. In connection with the transfer, the Corporation charged-off $165.1 million and recognized an additional provision for loan and lease losses of $102.9 million. Further, the net income (loss) per diluted share for the year ended December 31, 2010 also was measured excluding the one-time favorable impact in retained earnings of $440.5 million resulting from the issuance of common stock in exchange for Series A through E preferred stock and from the issuance of the Series G preferred stock and amended warrant in exchange for Series F preferred stock (“exchange transactions”) completed in the third quarter of 2010. Management believes that these non-GAAP measures enhance the ability of analysts and investors to analyze trends in the Corporation’s business and to better understand the performance of the Corporation. In addition, the Corporation may utilize these non-GAAP financial measures as a guide in its budgeting and long-term planning process. Any analysis of these non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP. A reconciliation of these non-GAAP measures with the most directly comparable financial measures calculated in accordance with GAAP follows:

		Net Loss and Loss per share (Non-GAAP to GAAP reconciliation)
		Quarter ended												Year ended
		December 31, 2010												December 31, 2010
		Net Loss attributable												Net Loss attributable
(In thousands, except per share information)		Net Loss				to common stockholders (diluted)(3)				Per Share (diluted)				Net Loss				to common stockholders (diluted)(3)				Per Share (diluted)
Net loss, net loss attributable to common stockholders and loss per share, excluding special items (Non-GAAP)		$	(54,794	)		$	(73,229	)		$	(3.44	)		$	(327,666	)		$	(365,912	)		$	(32.35	)
Special items:
Loan sale transaction (1)			(102,938	)			(102,938	)			(4.83	)			(102,938	)			(102,938	)			(9.10	)
Exchange transactions (2)			—				—				—				—				440,509				38.94
Net Income (loss) and earnings (loss) per share (GAAP)		$	(157,732	)		$	(176,167	)		$	(8.27	)		$	(430,604	)		$	(28,341	)		$	(2.51	)

		Provision for Loan and Lease Losses, Net Charge-Offs, Provision for Loans and
		Lease Losses to Net Charge-Offs, and Net Charge-Offs to Average Loans (Non-
		GAAP to GAAP reconciliation)
		Quarter ended								Year ended
		December 31, 2010								December 31, 2010
		Provision for Loan								Provision for Loan
(In thousands, except per share information)		and Lease Losses				Net Charge-Offs				and Lease Losses				Net Charge-Offs
Provision for loan and lease losses, net charge-offs, and average loans, excluding special items (Non-GAAP)		$	93,409			$	86,791			$	531,649			$	444,625
Special items:
Loan sale transaction (1)			102,938				165,057				102,938				165,057
Provision for loan and lease losses, net charge-offs and average loans (GAAP)		$	196,347			$	251,848			$	634,587			$	609,682
Provision for loan and lease losses to net charge-offs, excluding special items (Non-GAAP)			107.63	%							119.57	%
Provision for loan and lease losses to net charge-offs (GAAP)			77.96	%							104.08	%
Net charge-offs to average loans, excluding special items (Non-GAAP)			2.96	%							3.60	%
Net charge-offs to average loans (GAAP)			8.27	%							4.76	%

Item 8.01 Other Events.

On February 9, 2011, the Corporation announced that, pursuant to the non-binding letter of intent announced on December 7, 2010, it has entered into a definitive agreement to sell a loan portfolio with an unpaid principal balance of $516.7 million and a net book value of $438.5 million, before the charge-off taken to properly record the loan pool as held for sale as of December 31, 2010. Such loan portfolio is 94% adversely classified. A copy of the press release is attached hereto as Exhibit 99.2 and is hereby incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

Exhibit No.		Description
99.1		Press Release dated February 9, 2011 — First BanCorp Reports Financial Results for the Fourth Quarter and Year Ended December 31, 2010
99.2		Press Release dated February 9, 2011 — First BanCorp Announces Loan sale

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Exhibit Index

Exhibit No.		Description
99.1		Press Release dated February 9, 2011 — First BanCorp Reports Financial Results for the Fourth Quarter and Year Ended December 31, 2010
99.2		Press Release dated February 9, 2011 — First BanCorp Announces Loan sale