First BanCorp. Announces Results for the Quarter and Year Ended December 31, 2013

First BanCorp. (the “Corporation”) (NYSE: FBP), the bank holding company for FirstBank Puerto Rico (“FirstBank” or “the Bank”), today reported net income of $14.8 million for the fourth quarter of 2013, or $0.07 per diluted share, compared to $15.9 million, or $0.08 per diluted share, for the third quarter of 2013 and net income of $14.5 million, or $0.07 per diluted share, for the fourth quarter of 2012. For the year ended December 31, 2013, the Corporation reported a net loss of $164.5 million, compared to net income of $29.8 million for the year ended December 31, 2012.

Aurelio Alemán, President and Chief Executive Officer of First BanCorp., commented: “Results for 2013 reflect year-over-year improvements in our franchise in a number of key areas, in spite of the challenges still present in our economic environment. We made significant progress in financial metrics achieving pre-tax, pre-provision income of $184 million, up from the prior year; net interest income of $515 million, an increase of $53 million from the prior year; net interest margin of 4.11%, up significantly from 3.64% in the prior year. We grew our total deposits, excluding brokered CDs, by $247.8 million and loan origination activity increased over $600 million to $3.7 billion. Also, our credit-risk profile improved considerably as total non-performing assets decreased 41% from last year, or $513 million, to $725 million.

Our profitability in the fourth quarter was affected by various extraordinary items, such as charges related to the Lehman litigation and additional credit-related expenses associated with managing our legacy portfolio. We also incurred some restructuring charges as we consolidate several branches and operations. Our net interest margin expanded to 4.25%, and loan originations increased to $972 million. Our non-performing assets decreased slightly, as we continue moving our troubled legacy loans into a better disposition state. Our capital levels remain strong.

We are prepared to continue managing the challenging economic environment in our main market. That said we remain encouraged by the proactive steps taken by the Puerto Rico government to address the fiscal situation and look forward to more stable market conditions. We remain focused on improving profitability as we effectively execute our strategic plan.”

The adjusted net income of $18.5 million for the fourth quarter of 2013, compared to $19.3 million for the third quarter of 2013, excludes:

• A $2.5 million loss contingency for attorneys’ fees awarded to the counterparty on the Lehman litigation recorded in the fourth quarter of 2013.
• Expenses related to branch consolidations and other restructuring efforts, and related valuation adjustments, amounting to $1.4 million recorded in the fourth quarter of 2013.
• The net reversal of $0.2 million in expenses and related income tax credit in connection with the national gross receipts tax previously accrued for the Corporation’s trade or business outside of Puerto Rico. The reversal was recorded in the fourth quarter of 2013.
• Costs associated with the common stock offering by certain of the Corporation’s existing stockholders amounting to $1.7 million recorded in the third quarter of 2013.
• Costs associated with the conversion of the credit card processing platform amounting to $1.7 million recorded in the third quarter of 2013.

The results for the year ended December 31, 2013 were negatively impacted by two significant items: (i) an aggregate loss of $140.8 million on two separate bulk sales of adversely classified and non-performing assets and valuation adjustments to certain loans transferred to held for sale, and (ii) a $66.6 million loss related to the write-off of assets pledged as collateral to Lehman together with an additional $2.5 million for a loss contingency of attorneys’ fees awarded to the counterparty related to this matter. Excluding these items, net income for the year ended December 31, 2013 was $45.4 million.

The following table shows a reconciliation with respect to the results of operations for the year ended December 31, 2013 excluding the impact of the bulk sales of assets, the transfer of loans to held for sale, and the write-off of the collateral pledged to Lehman and related contingency of attorneys’ fees, with the corresponding measures calculated and presented in accordance with GAAP:

This press release includes certain other 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.

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 measured at fair value and equity in earnings or loss of unconsolidated entity, which is 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 this non-GAAP financial measure, see “Adjusted Pre-Tax, Pre-Provision Income” in “Basis of Presentation”).

The following table shows adjusted pre-tax, pre-provision income for the last five quarters including adjusted pre-tax, pre-provision income of $47.6 million in the fourth quarter of 2013, down $3.3 million from the prior quarter:

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

• A $7.9 million increase in adjusted non-interest expenses of $103.6 million for the fourth quarter, as compared to adjusted non-interest expenses of $95.8 million for the third quarter, primarily due to a $7.0 million increase in write-downs to OREO properties, mainly commercial properties, and higher marketing and credit card processing expenses. See Non-Interest Expenses section below for additional information.

Adjusted non-interest expenses in the last two quarters exclude: (i) a loss contingency related to attorneys’ fees granted by the court to Barclays Capital in connection with the denial of the Corporation’s Summary Judgment on its claim to recover assets pledged to Lehman, which the Corporation will appeal, (ii) expenses and valuation adjustments recorded in the fourth quarter of 2013 related to branch consolidations and other restructuring efforts, (iii) the impact of the national gross receipts tax related to the trade or business outside of Puerto Rico that was reversed in the fourth quarter of 2013 after enactment of Act No. 117 that introduced amendments to the 2013 Tax Burden Adjustment and Redistribution Act (“Act 40”), and (iv) costs associated with the conversion of the credit card processing platform and expenses related to the common stock offering by certain of the Corporation’s existing stockholders completed in the third quarter of 2013. See Basis of Presentation section below for reconciliation of this non-GAAP financial measure to the corresponding GAAP measure.

Partially offset by:

• A $1.6 million increase in net interest income, excluding fair value adjustments, mainly due to further reductions in the cost of funding as well as the decrease in mortgage-backed securities (“MBS”) prepayment activity levels that resulted in a higher yield on U.S. agency MBS held by the Corporation. See Net Interest Income discussion below for additional information.
• A $2.9 million increase in adjusted non-interest income of $18.9 million for the fourth quarter, as compared to $16.0 million for the third quarter, mainly driven by a recovery of $2.1 million on a lower of cost or market adjustment to commercial loans held for sale. Other significant contributors to the increase were higher revenues from the mortgage banking business, increases in fees on certain commercial loans and higher credit card fees earned.

Adjusted non-interest income excludes the equity in earnings (loss) of unconsolidated entity and valuation adjustments on fixed assets as they are no longer being used for operations after the consolidation of certain branches in Florida. See Basis of Presentation section below for reconciliation of this non-GAAP financial measure to the corresponding GAAP measure.

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.

Net interest income, excluding valuations, amounted to $132.3 million, an increase of $1.6 million when compared to the third quarter of 2013. Net interest margin, excluding valuations, expanded to 4.24% for the fourth quarter of 2013 from 4.19% for the third quarter of 2013. The increase in net interest income and margin was mainly due to:

• A decrease of $1.3 million, or 5 basis points, in total interest expense, mainly due to a reduction in the average cost of total deposits and maturities of Federal Home Loan Bank advances. Interest expense on brokered CDs decreased $0.6 million as the average cost of brokered CDs decreased 6 basis points during the fourth quarter of 2013. The Corporation repaid approximately $446.1 million of matured brokered CDs with an all-in cost of 1.00% and new issuances amounted to $407.2 million with an all-in cost of 0.90%. The Corporation's strategic focus remains to grow non-brokered deposits and improve the overall funding mix. Average non-brokered deposits increased by $133.7 million compared to the third quarter of 2013. The remaining decrease in interest expenses of approximately $0.7 million was primarily related to maturities of $53.4 million of FHLB advances that carried an average cost of 4.94%.
• A $1.4 million increase in interest income on investment securities mainly due to the decrease in MBS prepayment activity levels that resulted in a higher yield on U.S. agency MBS bought at a premium. Higher interest income on investment securities was also attributable, to a lesser extent, to a $31.6 million increase in the average volume of MBS mainly reflecting the full impact of purchases of 15-Year U.S. agency MBS totaling $148.5 million in the latter part of the third quarter.

These increases were partially offset by:

• A $1.1 million decrease in interest income on loans mainly related to: (i) a $1.6 million decline in interest income on the residential mortgage loan portfolio attributable to both a lower average volume and a lower yield driven by an increase in non-performing residential mortgage loans, and (ii) a $1.1 million decrease in interest income on consumer loans mainly related to a lower average volume and late fees related to the credit card loans portfolio. These variances were partially offset by a $2.0 million increase in interest income on commercial loans mainly attributable to the $98.8 million increase in the average balance of these portfolios.

PROVISION FOR LOAN AND LEASE LOSSES

The provision for loan and lease losses for the fourth quarter of 2013 was $23.0 million, compared to $22.2 million for the third quarter of 2013. The provision for commercial and industrial loans increased by $10.3 million, compared to the provision for the third quarter, mainly related to the migration of two relationships into adversely classified categories, an increase in the general reserve and, to a lesser extent, the overall increase in the volume of this portfolio. The provision for consumer loans increased by $1.9 million, compared to the provision for the third quarter, mainly related to the increase in the general reserve for auto loans based on historical loss experience and higher reserves for adversely classified boat loans. These increases were partially offset by an $11.4 million decrease in the provision for commercial mortgage loans mainly due to improvements in charge-off trends reflected in a lower general reserve, a lower reserve requirement for certain collateral dependent loans, and a significant recovery on a large loan paid off in Florida. See Credit Quality discussion below for additional information regarding the allowance for loan and lease losses.

NON-INTEREST INCOME (LOSS)

Non-interest income for the fourth quarter of 2013 amounted to $12.5 million, compared to $10.1 million for the third quarter of 2013. The increase was primarily due to:

• The lower of cost or fair value adjustment on commercial loans held for sale that resulted in a recovery of $2.1 million, included as part of “Other operating income” in the table above.
• A $0.4 million increase in revenues from the mortgage banking business mainly related to a $0.6 million increase in the net realized gain on loan sales and securitization activities, partially offset by a $0.2 million decrease in servicing fees due to the expiration of the interim servicing on residential mortgage loans sold in the second quarter of 2013.
• A $0.3 million increase in fees on certain commercial loans, including commitments unused fees, agent fees, and other non-deferrable fees, included as part of “Other operating income” in the table above.
• A $0.2 million increase in credit card fees, included as part of “Other operating income” in the table above.

Partially offset by:

• A $0.5 million loss related to valuation adjustments on fixed assets as they are no longer being used for operations after the consolidation of certain branches in Florida.
• A $0.2 million decrease in insurance income, included as part of “Other operating income” in the table above.

Non-interest expenses in the fourth quarter of 2013 amounted to $106.5 million, an increase of $7.4 million from $99.2 million for the third quarter of 2013. Non-interest expenses for the fourth quarter included several unusual items: (i) a $2.5 million loss contingency related to attorneys’ fees granted by the court to Barclays Capital in connection with the denial of the Corporation’s Summary Judgment on its claim to recover assets pledged to Lehman, which the Corporation will appeal, (ii) expenses of $0.9 million related to the branch consolidations and other restructuring efforts, and (iii) the reversal of approximately $0.5 million in expenses related to the portion of the national gross receipts related to the Corporation’s trade or business outside of Puerto Rico that was previously accrued in the second and third quarter of 2013. This amount was reversed in the fourth quarter after enactment of Act 117, which introduced amendments to Act 40, which was enacted on June 30, 2013. The reversal, as well as the accrual, is reflected as part of “Taxes, other than income taxes” in the table above. Results for the third quarter included approximately $1.7 million in costs associated with the secondary offering of the Corporation’s common stock by certain of the Corporation’s existing stockholders and $1.7 million in costs associated with the conversion of the credit card processing platform.

Adjusted non-interest expenses, which exclude the expenses identified in the foregoing paragraph, amounted to $103.6 million for the fourth quarter of 2013, up $7.9 million compared to the third quarter. The main drivers of the increase were:

• A higher net loss on OREO operations, mainly reflecting a $7.0 million increase in write-downs primarily related to commercial OREO properties in both Puerto Rico and the Virgin Islands. This was partially offset by lower OREO operating expenses, mainly property taxes expense.
• A $1.8 million increase in business promotion expenses, primarily related to institutional and credit card advertising campaigns.
• A $2.2 million increase in credit card processing expenses mainly due to servicing and processing fees attributable to, among other things, increased levels in call center calls related to account activations and inquiries after the conversion of the processing platform.

Partially offset by:

• A $1.8 million reduction in employees’ compensation and benefit expenses mainly related to lower incentive compensation expense.
• A $0.5 million decrease in attorneys’ loan collection fees.
• A $0.3 million decrease in the provision for off-balance sheet exposures, mainly related to lower reserve requirements for unfunded loan commitments. This is reflected as part of “Other” in the table above.

INCOME TAXES

The income tax expense for the fourth quarter of 2013 amounted to $0.8 million compared to $3.7 million for the third quarter of 2013. The decrease primarily reflects the impact in the previous quarter of a $3.0 million increase in reserves for uncertain tax positions. Aside from reserves for uncertain tax positions, most of the income tax expense recorded in 2013 relates to profitable subsidiaries. Under the Puerto Rico Internal Revenue Code, the Corporation and its subsidiaries are treated as separate taxable entities and are not entitled to file consolidated tax returns and, thus, the Corporation is not able to utilize losses from one subsidiary to offset gains in another subsidiary. As of December 31, 2013, the deferred tax asset, net of a valuation allowance of $522.7 million, amounted to $7.6 million.

CREDIT QUALITY

Non-Performing Assets

Credit quality metrics remained relatively stable

• Total non-performing assets remained relatively flat at $725.4 million as of December 31, 2013, compared to $726.0 million as of September 30, 2013. Total non-performing loans, including non-performing loans held for sale, decreased by $28.3 million, or 5%, from the third quarter of 2013. The decrease in non-performing loans was primarily due to foreclosures of approximately $35.0 million in commercial properties that previously collateralized two non-performing commercial mortgage loans, two non-performing commercial loan participations totaling $7.6 million liquidated in the fourth quarter, a $3.2 million troubled debt restructured construction loan restored to accrual status after a sustained performance period, charge-offs and principal repayments. These reductions were partially offset by an increase of $19.4 million in non-performing residential mortgage loans, primarily in Puerto Rico.
• Inflows of non-performing loans held for investment increased by $10.4 million, or 13%, compared to inflows in the third quarter. This increase was primarily reflected in the residential and commercial mortgage loan portfolios. There were two commercial relationships individually in excess of $5 million that entered into non-performing status during the fourth quarter totaling $14.5 million.
• Non-performing commercial and construction loans held for sale decreased by $25.4 million driven by foreclosures of properties that previously served as collateral of a commercial mortgage loan.
• Adversely classified commercial and construction loans held for investment decreased by $9.5 million to $623.0 million, or 1%, from the third quarter of 2013.
• The OREO balance increased by $26.9 million, driven by additions of $49.2 million, partially offset by sales and fair value adjustments.
• Total troubled debt restructured loans (“TDRs”) held for investment were $630.3 million at December 31, 2013, down $6.6 million, or 1%, from September 30, 2013. Approximately $425.4 million of total TDRs held for investment were in accrual status as of December 31, 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:

• The ratio of the allowance for loan and lease losses to loans held for investment was 2.97% as of December 31, 2013, compared to 3.04% as of September 30, 2013, primarily due to charge-offs of impaired commercial loans with previously established adequate reserves and lower underlying losses on commercial mortgage loans. The ratio of the allowance to non-performing loans held for investment was 57.69% as of December 31, 2013 compared to 58.06% as of September 30, 2013.

The following table sets forth information concerning the composition of the Corporation’s allowance for loan and lease losses as of December 31, 2013 and September 30, 2013 by loan category and by whether the allowance and related provisions were calculated individually for impairment purposes or through a general valuation allowance:

Net Charge-Offs

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

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 fourth quarter of 2013 were $26.5 million, or an annualized 1.10% of average loans, compared to $33.9 million, or an annualized 1.41%, in the third quarter of 2013. The decrease was primarily related to commercial mortgage loans in Florida, including a $4.5 million recovery related to a single loan paid-off during the fourth quarter, and a decrease in charge-offs of residential mortgage loans in Puerto Rico resulting from the evaluation for impairment purposes of loans considered homogeneous given high delinquency and loan-to-value levels. These decreases were partially offset by an increase of $3.4 million in net charge-offs of commercial and industrial loans driven by a charge-off of $2.2 million on a commercial loan with a previously established reserve and an increase in charge-offs on consumer loans, mainly boat financings.

STATEMENT OF FINANCIAL CONDITION

Total assets were approximately $12.7 billion as of December 31, 2013, down $130.5 million from September 30, 2013.

The decrease was mainly due to:

• A $168.7 million decrease in cash and cash equivalents, mainly balances maintained at the Federal Reserve, used in part to pay down maturing brokered CDs and FHLB advances.
• A $69.0 million decrease in available-for-sale securities mainly due to regular MBS repayments and a decrease in the fair value of U.S. agency MBS due to changes in market interest rates.
• A $13.2 million decrease in residential mortgage loans held for sale driven by sales and securitizations of conforming loans commensurate with a lower volume of residential mortgage loan originations.
• A $5.9 million decrease in the investment in unconsolidated entity.

These decreases were partially offset by:

• A $127.5 million increase in loans held for investment mainly reflecting increases in commercial and industrial loans, including a $90.7 million increase in the principal balance of loans outstanding from government entities and a $56.7 million increase in commercial and industrial loans in Florida.

Total loan originations, including refinancings and draws from existing revolving and non-revolving commitments, amounted to approximately $885.8 million, compared to $836.6 million in the third quarter of 2013. These figures exclude the credit cards utilization activity. The increase was mainly related to facilities granted to government entities in both Puerto Rico and the Virgin Islands, partially offset by a decline in residential mortgage and auto loan originations attributable, in part, to a decrease in consumer demand.

Total liabilities were approximately $11.4 billion as of December 31, 2013, down $125.8 million from September 30, 2013.

The decrease was mainly due to:

• A $38.5 million decrease in brokered CDs.
• A $53.1 million decrease in government deposits.
• A $53.4 million decrease in FHLB advances.

These decreases were partially offset by:

• A $17.4 million increase in non-brokered deposits, excluding government deposits, mainly due to increases in savings and demand deposits.

Total stockholders’ equity amounted to $1.2 billion as of December 31, 2013, a decrease of $4.7 million from September 30, 2013, driven by:

• A decrease of $20.3 million in other comprehensive income mainly attributable to declines in the value of U.S. agency MBS of approximately $21.5 million. The fair value of Puerto Rico government obligations held by the Corporation as part of its available-for-sale investment securities portfolio increased by $2.1 million during the fourth quarter. See Exposure to Puerto Rico Government section below for additional information.

Partially offset by:

• The net income of $14.8 million reported in the fourth quarter.

The Corporation’s total capital, Tier 1 capital, and leverage ratios as of December 31, 2013 were 17.06%, 15.78%, and 11.71%, respectively, compared to total capital, Tier 1 capital and leverage ratios of 16.89%, 15.61%, and 11.65%, respectively, as of the end of the third quarter of 2013. Meanwhile, the total capital, Tier 1 capital, and leverage ratios as of December 31, 2013 of our banking subsidiary, FirstBank Puerto Rico, were 16.67%, 15.40%, and 11.44%, respectively, compared to total capital, Tier 1 capital, and leverage ratios of 16.48%, 15.20%, and 11.35%, respectively, as of the end of the prior quarter. All of the regulatory capital ratios for the Bank are well above the minimum required under the consent order entered into with the FDIC and the Office of the Commissioner of Financial Institutions of the Commonwealth of Puerto Rico. Given such consent order, however, the Bank cannot be considered to be a well-capitalized institution.

Based on our current interpretation of the international regulatory capital requirements adopted by the Basel Committee on Banking Supervision (known as “Basel 3”), we anticipate that, when they are effective, we will exceed the fully phased-in minimum capital ratios these rules establish.

Tangible Common Equity

The Corporation’s tangible common equity ratio increased to 8.71% as of December 31, 2013 from 8.65% as of September 30, 2013, and the Tier 1 common equity to risk-weighted assets ratio increased to 12.72% as of December 31, 2013 from 12.55% as of September 30, 2013.

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

The following table reconciles stockholders’ equity (GAAP) to Tier 1 common equity based on current applicable bank regulatory requirements (known as “Basel 1”):

Exposure to Puerto Rico Government

As of December 31, 2013, the Corporation had $454.6 million of credit facilities granted to the Puerto Rico Government, its municipalities and public corporations, of which $397.8 million was outstanding, compared to $326.7 million as of September 30, 2013. Approximately $200.5 million of the granted credit facilities outstanding consists of loans to municipalities in Puerto Rico for which, in most cases, the good faith, credit and unlimited taxing power of the applicable municipality has been pledged to their repayment. Approximately $84.6 million consists of loans to public corporations that obtain revenues from rates charged for services or products, such as electric power, and approximately $112.7 million consists of loans to the central government or units of the central government. In addition, the Corporation had $205.1 million outstanding in financings to the hotel industry in Puerto Rico guaranteed by the Puerto Rico Tourism Development Fund.

In addition, the Corporation had outstanding $71.0 million in obligations of the Puerto Rico government as part of its available-for-sale investment securities portfolio carried on its books at a fair value of $51.3 million as of December 31, 2013, compared to $49.2 million as of September 30, 2013.

As of December 31, 2013, the Corporation had $546.5 million of public sector deposits in Puerto Rico, compared to $584.1 million as of September 30, 2013. Approximately 21% come from municipalities in Puerto Rico and 79% come from public corporations and the central government.

Conference Call / Webcast Information

First BanCorp’s senior management will host an earnings conference call and live webcast on Tuesday, February 4, 2014, at 11:00 a.m. (Eastern Time). The call may be accessed via a live Internet webcast through the investor relations section of the Corporation’s web site: www.firstbankpr.com or through a dial-in telephone number at (888) 317-6016 or (412) 317–6016 for international callers. The Corporation recommends that listeners 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 BanCorp’s web site, www.firstbankpr.com, until February 4, 2015. A telephone replay will be available one hour after the end of the conference call through 9:00 a.m. Eastern time March 4, 2014 at (877) 344-7529 or (412) 317-0088 for international callers. The conference number is 10040151.

Safe Harbor

This press release may contain “forward-looking statements” concerning the Corporation’s 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 Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by such sections. 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 Bank of New York (the “New York Fed”) and the consent 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 brokered CDs; the Corporation’s 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 Corporation’s cash obligations or resume paying dividends to the Corporation’s stockholders in the future due to the Corporation’s inability to receive approval from the New York Fed or the Board of Governors of the Federal Reserve System (“Federal Reserve Board”) to receive dividends from FirstBank or FirstBank’s 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 Corporation’s loans and other assets, which has contributed and may continue to contribute to, among other things, the high levels of non-performing assets, charge-offs, and provisions and may subject the Corporation to further risk from loan defaults and foreclosures; the ability of FirstBank to realize the benefit of the deferred tax asset; 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 Corporation’s products and services and reduce the Corporation’s revenues, earnings, and the value of the Corporation’s assets; an adverse change in the Corporation’s ability to attract new clients and retain existing ones; a decrease in demand for the Corporation’s 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; a credit default by the Puerto Rico government or any of its public corporations or other instrumentalities, and recent and/or future downgrades of the long-term debt ratings of the Puerto Rico government, which could adversely affect economic conditions in Puerto Rico; the risk that any portion of the unrealized losses in the Corporation’s investment portfolio is determined to be other-than-temporary, including unrealized losses on Puerto Rico government obligations; uncertainty about regulatory and legislative changes for financial services companies in Puerto Rico, the U.S., and the U.S. Virgin Islands and British Virgin Islands, which could affect the Corporation’s financial condition or performance and could cause the Corporation’s actual results for future periods to differ materially from prior results and anticipated or projected results; changes in the fiscal and monetary policies and regulations of the federal government, including those determined by the Federal Reserve Board, the New York Fed, 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 Corporation’s 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 Corporation’s non-interest expenses; the impact on the Corporation’s 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 Corporation’s long-term senior debt will adversely affect the Corporation’s ability to access necessary external funds; the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act on the Corporation’s 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 Corporation’s 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 current applicable bank regulatory requirements (Basel 1). 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 Corporation’s capital levels and believes that, at this time, the ratio may be of interest to investors.

Adjusted Pre-Tax, Pre-Provision Income

Adjusted pre-tax, pre-provision income is a non-GAAP performance metric that management believes is useful in analyzing underlying performance trends, particularly in times of economic stress. 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 loss of unconsolidated entity as well as certain items identified as unusual, non-recurring or non-operating.

In addition, from time to time, adjusted pre-tax, pre-provision income will reflect the omission of revenue or expenses items that management judges to be outside of ordinary banking activities and/or of 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 adjusted pre-tax, pre-provision income that excludes 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 and on a tax-equivalent basis. 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. 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 secondary offering costs, the credit card processing platform conversion costs, attorneys’ fees related to the Lehman litigation, expenses related to branch consolidations and other restructuring expenses and related valuation adjustments, equity in earnings (loss) of unconsolidated entity, and certain other adjustments.

To supplement the Corporation’s financial statements presented in accordance with GAAP, the Corporation provides additional measures of adjusted non-interest expenses and adjusted non-interest income. Adjusted non-interest expenses exclude attorneys’ fees related to the Lehman litigation recorded in the fourth quarter of 2013, expenses in the fourth quarter of 2013 related to branch consolidations in Florida and the Virgin Islands and expenses associated with the restructuring of some business units, the costs associated with the conversion of the credit card processing platform recorded in the third quarter of 2013, the impact of the national gross receipts tax related to the trade or business outside of Puerto Rico that was reversed in the fourth quarter of 2013 after enactment of Act No. 117 that introduced amendments to Act 40, which was enacted on June 30, 2013, and the costs associated with the secondary offering of the Corporation’s common stock by certain of the Corporation’s existing stockholders recorded in the third quarter of 2013. Adjusted non-interest income excludes equity in earnings (loss) of unconsolidated entity and a valuation adjustment to fixed assets that are no longer used for operations after branch consolidations in Florida. 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. The following table shows reconciliations of these non-GAAP financial measures to the corresponding measures calculated and presented in accordance with GAAP.

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 148 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