10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2009
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
COMMISSION FILE NUMBER 001-14793
FIRST BANCORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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Puerto Rico
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66-0561882 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. employer
identification number) |
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1519 Ponce de León Avenue, Stop 23
Santurce, Puerto Rico
(Address of principal executive offices)
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00908
(Zip Code) |
(787) 729-8200
(Registrants telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer
þ |
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Accelerated filer
o
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Non-accelerated filer o (Do not check if a smaller reporting
company) |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the
Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
Common stock: 92,542,722 outstanding as of July 31, 2009.
FIRST BANCORP.
INDEX PAGE
2
Forward Looking Statements
This Form 10-Q contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. When used in this Form 10-Q or future filings by First
BanCorp (the Corporation) with the Securities and Exchange Commission (SEC), in the
Corporations press releases or in other public or stockholder communications, or in oral
statements made with the approval of an authorized executive officer, the word or phrases would
be, will allow, intends to, will likely result, are expected to, should, anticipate
and similar expressions are meant to identify forward-looking statements.
First BanCorp wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and represent First BanCorps
expectations of future conditions or results and are not guarantees of future performance. First
BanCorp advises readers that various factors could cause actual results to differ materially from
those contained in any forward-looking statement. Such factors include, but are not limited to,
the following:
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risks arising from credit and other risks of the Corporations lending and investment
activities, including the Corporations condo-conversion loans from its Florida operations
and the construction and commercial loan portfolios in Puerto Rico, which have affected and
may continue to affect, among other things, the level of non-performing assets, charge-offs
and the provision expense; |
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an adverse change in the Corporations ability to attract new clients and retain existing
ones; |
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a decrease in demand for the Corporations products and services and lower revenues and
earnings because of the recession in the United States, the continued recession in Puerto
Rico and the current fiscal problems and budget deficit of the Puerto Rico government; |
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adverse changes in general economic conditions in the state of Florida and Puerto Rico,
including the interest rate scenario, market liquidity, rates and prices, and disruptions in
the U.S. capital markets, which may reduce interest margins, impact funding sources and
affect demand for the Corporations products and services and the value of the Corporations
assets, including the value of derivative instruments used for protection from interest rate
fluctuations; |
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uncertainty about the impact of measures adopted by the Puerto Rico government in
response to its fiscal situation on the different sectors of the economy; |
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uncertainty about the effectiveness and impact of the U.S. governments rescue plan,
including the bailout of U.S. government-sponsored housing agencies, on the financial
markets in general and on the Corporations business, financial condition and results of
operations; |
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changes in the fiscal and monetary policies and regulations of the federal government,
including those determined by the Federal Reserve System (FED), the Federal Deposit
Insurance Corporation (FDIC), government-sponsored housing agencies and local regulators in
Puerto Rico and the U.S. and British Virgin Islands; |
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risks of not being able to recover all assets pledged to Lehman Brothers Special
Financing, Inc.; |
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risks associated with the soundness of other financial institutions; |
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changes in the Corporations expenses associated with acquisitions and dispositions; |
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developments in technology; |
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the impact of the Doral Financial Corporations financial condition on the repayment of
its outstanding secured loans to the Corporation; |
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the Corporations ability to issue brokered certificates of deposit and fund operations; |
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risks associated with downgrades in the credit ratings of the Corporations securities; |
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general competitive factors and industry consolidation; and |
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risks associated with regulatory and legislative changes for financial services companies
in Puerto Rico, the United States, and the U.S. and British Virgin Islands, which could
affect the Corporations financial performance and could cause the Corporations actual
results for future periods to differ materially from those anticipated or projected. |
The Corporation does not undertake, and specifically disclaims any obligation, to update any
of the 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.
Investors should carefully consider these factors and the risk factors referenced under
Item 1A, Risk Factors, in this Quarterly Report on Form 10-Q.
3
FIRST BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
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(In thousands, except for share information) |
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June 30, 2009 |
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December 31, 2008 |
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ASSETS |
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Cash and due from banks |
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$ |
177,963 |
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$ |
329,730 |
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Money market investments: |
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Federal funds sold |
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50,773 |
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54,469 |
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Time deposits with other financial institutions |
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1,540 |
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600 |
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Other short-term investments |
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17,512 |
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20,934 |
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Total money market investments |
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69,825 |
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76,003 |
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Investment securities available for sale, at fair value: |
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Securities pledge that can be repledged |
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4,188,442 |
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2,913,721 |
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Other investment securities |
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1,339,539 |
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948,621 |
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Total investment securities available for sale |
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5,527,981 |
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3,862,342 |
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Investment securities held to maturity, at amortized cost: |
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Securities pledge that can be repledged |
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452,690 |
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968,389 |
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Other investment securities |
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234,241 |
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738,275 |
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Total investment securities held to maturity, fair value of $703,430
(2008 - $1,720,412) |
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686,931 |
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1,706,664 |
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Other equity securities |
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83,430 |
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64,145 |
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Loans, net of allowance for loan and lease losses of $407,746
(2008 - $281,526) |
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12,695,025 |
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12,796,363 |
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Loans held for sale, at lower of cost or market |
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32,939 |
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10,403 |
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Total loans, net |
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12,727,964 |
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12,806,766 |
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Premises and equipment, net |
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192,817 |
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178,468 |
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Other real estate owned |
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58,064 |
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37,246 |
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Accrued interest receivable on loans and investments |
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79,415 |
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98,565 |
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Due from customers on acceptances |
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789 |
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504 |
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Other assets |
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407,708 |
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330,835 |
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Total assets |
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$ |
20,012,887 |
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$ |
19,491,268 |
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LIABILITIES |
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Deposits: |
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Non-interest-bearing deposits |
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$ |
718,370 |
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$ |
625,928 |
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Interest bearing deposits (including $0 and $1,150,959 measured
at fair value as of June 30, 2009 and December 31, 2008, respectively) |
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11,317,057 |
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12,431,502 |
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Total deposits |
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12,035,427 |
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13,057,430 |
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Loans payable |
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135,000 |
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Securities sold under agreements to repurchase |
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4,130,092 |
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3,421,042 |
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Advances from the Federal Home Loan Bank (FHLB) |
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1,325,440 |
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1,060,440 |
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Notes payable (including $11,565 and $10,141 measured at fair value
as of June 30, 2009 and December 31, 2008, respectively) |
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24,388 |
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23,274 |
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Other borrowings |
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231,959 |
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231,914 |
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Bank acceptances outstanding |
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789 |
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504 |
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Accounts payable from investment purchases |
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142,859 |
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Accounts payable and other liabilities |
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146,247 |
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148,547 |
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Total liabilities |
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18,172,201 |
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17,943,151 |
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Commitments and Contingencies (Note 21) |
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STOCKHOLDERS EQUITY |
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Preferred stock, authorized 50,000,000 shares: issued and
outstanding 22,404,000 shares (2008 -22,004,000)
at an aggregate liquidation value of $950,100 (2008 - $550,100) |
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926,259 |
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550,100 |
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Common stock, $1 par value, authorized 250,000,000 shares;
issued 102,444,549 |
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102,444 |
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102,444 |
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Less: Treasury stock (at cost) |
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|
(9,898 |
) |
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(9,898 |
) |
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Common stock outstanding, 92,546,749 shares outstanding |
|
|
92,546 |
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|
|
92,546 |
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|
|
|
|
|
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Additional paid-in capital |
|
|
134,179 |
|
|
|
108,299 |
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Legal surplus |
|
|
299,006 |
|
|
|
299,006 |
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Retained earnings |
|
|
342,314 |
|
|
|
440,777 |
|
Accumulated other comprehensive income, net of deferred tax expense of
$3,419 (2008 - $717) |
|
|
46,382 |
|
|
|
57,389 |
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|
|
|
|
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Total stockholdersequity |
|
|
1,840,686 |
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|
|
1,548,117 |
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|
|
|
|
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Total liabilities and stockholdersequity |
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$ |
20,012,887 |
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$ |
19,491,268 |
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The accompanying notes are an integral part of these statements.
4
FIRST BANCORP
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(Unaudited)
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Quarter Ended |
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Six-Month Period Ended |
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June 30, |
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June 30, |
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June 30, |
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June 30, |
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(In thousands, except per share information) |
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2009 |
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2008 |
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2009 |
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2008 |
|
Interest income: |
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|
|
|
|
|
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|
|
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|
|
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Loans |
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$ |
185,318 |
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$ |
204,794 |
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$ |
373,263 |
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$ |
418,605 |
|
Investment securities |
|
|
67,345 |
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|
|
70,001 |
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|
|
137,632 |
|
|
|
132,018 |
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Money market investments |
|
|
117 |
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|
1,813 |
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|
208 |
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|
5,072 |
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Total interest income |
|
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252,780 |
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|
|
276,608 |
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|
|
511,103 |
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|
|
555,695 |
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Interest expense: |
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Deposits |
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79,458 |
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|
|
99,767 |
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|
|
174,768 |
|
|
|
205,964 |
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Loans payable |
|
|
614 |
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|
|
|
|
|
|
960 |
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Federal
funds purchased and securities sold under agreements to repurchase |
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|
29,015 |
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|
28,969 |
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|
59,160 |
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|
62,908 |
|
Advances from FHLB |
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|
8,317 |
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|
9,572 |
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|
16,609 |
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|
20,720 |
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Notes payable and other borrowings |
|
|
4,362 |
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|
3,694 |
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|
6,994 |
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|
7,039 |
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Total interest expense |
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|
121,766 |
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|
142,002 |
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258,491 |
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296,631 |
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|
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Net interest income |
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|
131,014 |
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|
|
134,606 |
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|
|
252,612 |
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|
|
259,064 |
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|
|
|
|
|
|
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|
|
|
|
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Provision for loan and lease losses |
|
|
235,152 |
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|
|
41,323 |
|
|
|
294,581 |
|
|
|
87,116 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net interest (loss) income after provision for loan and lease losses |
|
|
(104,138 |
) |
|
|
93,283 |
|
|
|
(41,969 |
) |
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|
171,948 |
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|
|
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|
|
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|
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|
|
|
|
|
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Non-interest income: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Other service charges on loans |
|
|
1,523 |
|
|
|
1,418 |
|
|
|
3,052 |
|
|
|
2,731 |
|
Service charges on deposit accounts |
|
|
3,327 |
|
|
|
3,191 |
|
|
|
6,492 |
|
|
|
6,555 |
|
Mortgage banking activities |
|
|
2,373 |
|
|
|
804 |
|
|
|
3,179 |
|
|
|
1,123 |
|
Net gain (loss) on sale of investments |
|
|
10,305 |
|
|
|
(190 |
) |
|
|
28,143 |
|
|
|
16,003 |
|
Other-than-temporary impairment losses on investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other-than-temporary impairment losses |
|
|
(32,541 |
) |
|
|
(489 |
) |
|
|
(32,929 |
) |
|
|
(489 |
) |
Noncredit-related impairment losses on debt securities
not expected to be sold (recognized in other
comprehensive income) |
|
|
31,480 |
|
|
|
|
|
|
|
31,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impairment losses on investment securities |
|
|
(1,061 |
) |
|
|
(489 |
) |
|
|
(1,449 |
) |
|
|
(489 |
) |
Rental income |
|
|
407 |
|
|
|
579 |
|
|
|
856 |
|
|
|
1,122 |
|
Other non-interest income |
|
|
6,541 |
|
|
|
6,689 |
|
|
|
13,195 |
|
|
|
14,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income |
|
|
23,415 |
|
|
|
12,002 |
|
|
|
53,468 |
|
|
|
41,382 |
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|
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Non-interest expeses: |
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|
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|
|
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|
|
|
|
|
|
Employees compensation and benefits |
|
|
34,472 |
|
|
|
34,994 |
|
|
|
68,714 |
|
|
|
71,320 |
|
Occupancy and equipment |
|
|
14,824 |
|
|
|
15,541 |
|
|
|
29,598 |
|
|
|
30,520 |
|
Business promotion |
|
|
3,836 |
|
|
|
4,802 |
|
|
|
6,952 |
|
|
|
9,067 |
|
Professional fees |
|
|
3,342 |
|
|
|
4,919 |
|
|
|
6,528 |
|
|
|
9,978 |
|
Taxes, other than income taxes |
|
|
6,641 |
|
|
|
3,988 |
|
|
|
10,642 |
|
|
|
8,014 |
|
Insurance and supervisory fees |
|
|
16,622 |
|
|
|
3,945 |
|
|
|
23,294 |
|
|
|
7,929 |
|
Net loss on real estate owned (REO) operations |
|
|
6,626 |
|
|
|
3,172 |
|
|
|
12,001 |
|
|
|
6,428 |
|
Other non-interest expenses |
|
|
9,625 |
|
|
|
10,402 |
|
|
|
22,787 |
|
|
|
20,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses |
|
|
95,988 |
|
|
|
81,763 |
|
|
|
180,516 |
|
|
|
163,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(176,711 |
) |
|
|
23,522 |
|
|
|
(169,017 |
) |
|
|
49,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
|
98,053 |
|
|
|
9,472 |
|
|
|
112,250 |
|
|
|
17,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(78,658 |
) |
|
$ |
32,994 |
|
|
$ |
(56,767 |
) |
|
$ |
66,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common stockholders |
|
$ |
(94,825 |
) |
|
$ |
22,925 |
|
|
$ |
(88,052 |
) |
|
$ |
46,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(1.03 |
) |
|
$ |
0.25 |
|
|
$ |
(0.95 |
) |
|
$ |
0.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
(1.03 |
) |
|
$ |
0.25 |
|
|
$ |
(0.95 |
) |
|
$ |
0.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share |
|
$ |
0.07 |
|
|
$ |
0.07 |
|
|
$ |
0.14 |
|
|
$ |
0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
5
FIRST BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(56,767 |
) |
|
$ |
66,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
10,460 |
|
|
|
9,165 |
|
Amortization and impairment of core deposit intangible |
|
|
5,856 |
|
|
|
1,695 |
|
Provision for loan and lease losses |
|
|
294,581 |
|
|
|
87,116 |
|
Deferred income tax benefit |
|
|
(94,057 |
) |
|
|
(15,068 |
) |
Stock-based compensation recognized |
|
|
52 |
|
|
|
|
|
Gain on sale of investments, net |
|
|
(28,143 |
) |
|
|
(16,003 |
) |
Other-than-temporary impairments on available-for-sale securities |
|
|
1,449 |
|
|
|
489 |
|
Derivatives instruments and hedging activities gain |
|
|
(16,302 |
) |
|
|
(27,599 |
) |
Net gain on sale of loans and impairments |
|
|
(3,807 |
) |
|
|
(617 |
) |
Net amortization of premiums and discounts an deferred loan fees and costs |
|
|
549 |
|
|
|
(539 |
) |
Net increase in mortgage loans held for sale |
|
|
(27,691 |
) |
|
|
|
|
Amortization of broker placement fees |
|
|
12,146 |
|
|
|
7,079 |
|
Net amortization (accretion) of premium and discounts on investment securities |
|
|
5,341 |
|
|
|
(7,900 |
) |
Decrease in accrued income tax payable |
|
|
(16,509 |
) |
|
|
(4,715 |
) |
Decrease in accrued interest receivable |
|
|
19,390 |
|
|
|
10,205 |
|
Decrease in accrued interet payable |
|
|
(19,193 |
) |
|
|
(31,588 |
) |
Decrease in other assets |
|
|
17,283 |
|
|
|
12,365 |
|
Increase (decrease) in other liabilities |
|
|
22,521 |
|
|
|
(23,244 |
) |
|
|
|
|
|
|
|
Total adjustments |
|
|
183,925 |
|
|
|
841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
127,158 |
|
|
|
67,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Principal collected on loans |
|
|
1,661,329 |
|
|
|
1,446,537 |
|
Loans originated |
|
|
(1,984,001 |
) |
|
|
(1,948,093 |
) |
Purchases of loans |
|
|
(100,697 |
) |
|
|
(116,864 |
) |
Proceeds from sale of loans |
|
|
4,866 |
|
|
|
70,601 |
|
Proceeds form sale of repossessed assets |
|
|
31,510 |
|
|
|
37,190 |
|
Purchase of servicing assets |
|
|
|
|
|
|
(621 |
) |
Proceeds from sale of available-for-sale securities |
|
|
791,313 |
|
|
|
389,784 |
|
Purchases of securities held to maturity |
|
|
|
|
|
|
(99 |
) |
Purchases of securities available for sale |
|
|
(2,627,666 |
) |
|
|
(3,351,675 |
) |
Principal repayments and maturities of securities held to maturity |
|
|
1,017,001 |
|
|
|
1,489,215 |
|
Principal repayments of securities available for sale |
|
|
511,713 |
|
|
|
165,658 |
|
Additions to premises and equipment |
|
|
(24,809 |
) |
|
|
(15,088 |
) |
Proceeds from redemption of other investment securities |
|
|
|
|
|
|
9,342 |
|
Increase in other equity securities |
|
|
(19,285 |
) |
|
|
(17,106 |
) |
Net cash inflow on acquisition of business |
|
|
|
|
|
|
5,154 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(738,726 |
) |
|
|
(1,836,065 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net (decrease) increase in deposits |
|
|
(1,015,725 |
) |
|
|
432,637 |
|
Net increase in loans payable |
|
|
135,000 |
|
|
|
|
|
Net increase in federal funds purchased and securities
sold under agreements to repurchase |
|
|
709,050 |
|
|
|
904,944 |
|
Net FHLB advances taken |
|
|
265,000 |
|
|
|
357,000 |
|
Dividends paid |
|
|
(39,710 |
) |
|
|
(33,088 |
) |
Issuance of preferred stock and associated warrant |
|
|
400,000 |
|
|
|
|
|
Exercise of stock options |
|
|
|
|
|
|
53 |
|
Other financing activities |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
453,623 |
|
|
|
1,661,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(157,945 |
) |
|
|
(107,095 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
405,733 |
|
|
|
378,945 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
247,788 |
|
|
$ |
271,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents include: |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
177,963 |
|
|
$ |
122,979 |
|
Money market instruments |
|
|
69,825 |
|
|
|
148,871 |
|
|
|
|
|
|
|
|
|
|
$ |
247,788 |
|
|
$ |
271,850 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
6
FIRST BANCORP
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
Preferred Stock: |
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
550,100 |
|
|
$ |
550,100 |
|
Issuance of preferred stock Series F |
|
|
400,000 |
|
|
|
|
|
Preferred stock discount Series F, net of accretion |
|
|
(23,841 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
|
926,259 |
|
|
|
550,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock outstanding: |
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
|
92,546 |
|
|
|
92,504 |
|
Common stock issued under stock option plan |
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
Balance at end of period |
|
|
92,546 |
|
|
|
92,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid-In-Capital: |
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
|
108,299 |
|
|
|
108,279 |
|
Issuance of common stock warrants |
|
|
25,820 |
|
|
|
|
|
Shares issued under stock option plan |
|
|
|
|
|
|
47 |
|
Stock-based compensation recognized |
|
|
52 |
|
|
|
|
|
Other |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
|
134,179 |
|
|
|
108,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal Surplus |
|
|
299,006 |
|
|
|
286,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings: |
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
|
440,777 |
|
|
|
409,978 |
|
Net (loss) income |
|
|
(56,767 |
) |
|
|
66,583 |
|
Cash dividends declared on common stock |
|
|
(12,966 |
) |
|
|
(12,950 |
) |
Cash dividends declared on preferred stock |
|
|
(26,750 |
) |
|
|
(20,138 |
) |
Accretion of preferred stock discount Series F |
|
|
(1,980 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
|
342,314 |
|
|
|
443,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss), net of tax: |
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
|
57,389 |
|
|
|
(25,264 |
) |
Other comprehensive loss, net of tax |
|
|
(11,007 |
) |
|
|
(53,501 |
) |
|
|
|
|
|
|
|
Balance at end of period |
|
|
46,382 |
|
|
|
(78,765 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholdersequity |
|
$ |
1,840,686 |
|
|
$ |
1,401,693 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
7
FIRST BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Six-Month Period Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net (loss) income |
|
$ |
(78,658 |
) |
|
$ |
32,994 |
|
|
$ |
(56,767 |
) |
|
$ |
66,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on available-for-sale debt securities on which an
other-than-temporary impairment has been recognized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncredit-related impairment losses on debt securities not expected to be sold |
|
|
(31,480 |
) |
|
|
|
|
|
|
(31,480 |
) |
|
|
|
|
Reclassification adjustment for other-than-temporary impairment on debt
securities included in net income |
|
|
1,061 |
|
|
|
|
|
|
|
1,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other unrealized gains and losses on available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other unrealized holding gain (loss) arising during the period |
|
|
6,565 |
|
|
|
(66,258 |
) |
|
|
49,869 |
|
|
|
(48,079 |
) |
Reclassification adjustments for net (gain) loss
included in net income |
|
|
(10,305 |
) |
|
|
190 |
|
|
|
(28,143 |
) |
|
|
(6,661 |
) |
Reclassification adjustments for other-than-temporary impairment
on equity securities |
|
|
|
|
|
|
489 |
|
|
|
388 |
|
|
|
489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit related to items of other comprehensive income |
|
|
(2,210 |
) |
|
|
511 |
|
|
|
(2,702 |
) |
|
|
750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss for the period, net of tax |
|
|
(36,369 |
) |
|
|
(65,068 |
) |
|
|
(11,007 |
) |
|
|
(53,501 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss) income |
|
$ |
(115,027 |
) |
|
$ |
(32,074 |
) |
|
$ |
(67,774 |
) |
|
$ |
13,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
8
FIRST BANCORP
PART I NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1 BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The Consolidated Financial Statements (unaudited) have been prepared in conformity with the
accounting policies stated in the Corporations Audited Consolidated Financial Statements included
in the Corporations Annual Report on Form 10-K for the year ended December 31, 2008. Certain
information and note disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles in the United States of America (GAAP)
have been condensed or omitted from these statements pursuant to the rules and regulations of the
SEC and, accordingly, these financial statements should be read in conjunction with the Audited
Consolidated Financial Statements of the Corporation for the year ended December 31, 2008, included
in the Corporations 2008 Annual Report on Form 10-K. All adjustments (consisting only of normal
recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of
the statement of financial position, results of operations and cash flows for the interim periods
have been reflected. All significant intercompany accounts and transactions have been eliminated in
consolidation.
The results of operations for the quarter and six-month period ended June 30, 2009 are not
necessarily indicative of the results to be expected for the entire year.
Adoption of new accounting standards and recently issued but not yet effective accounting
pronouncements
In May 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard No. (SFAS) 163, Accounting for Financial Guarantee Insurance Contracts an
interpretation of FASB Statement No. 60. This Statement requires that an insurance enterprise
recognize a claim liability prior to an event of default (insured event) when there is evidence
that credit deterioration has occurred in an insured financial obligation. This Statement also
clarifies how SFAS 60 applies to financial guarantee insurance contracts, including the recognition
and measurement to be used to account for premium revenue and claim liabilities. SFAS 163 is
effective for financial statements issued for fiscal years beginning after December 15, 2008, and
all interim periods within those fiscal years, except for some disclosures about the insurance
enterprises risk-management activities which are effective since the first interim period after
the issuance of this statement. The adoption of this Statement did not have a significant impact on
the Corporations financial statements.
In June 2008, the FASB issued Staff Position No. (FSP) EITF 03-6-1 (FSP EITF 03-6-1),
Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating
Securities. FSP EITF 03-6-1 applies to entities with
9
outstanding unvested share-based payment awards that contain rights to nonforfeitable
dividends. Furthermore, awards with dividends that do not need to be returned to the entity if the
employee forfeits the award are considered participating securities. Accordingly, under FSP
EITF 03-6-1 unvested share-based payment awards that are considered to be participating securities
should be included in the computation of EPS pursuant to the two-class method under SFAS 128. FSP
EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those years. The adoption of this Statement did not
have an impact on the Corporations financial statements since, as of June 30, 2009, the
outstanding unvested shares of restricted stock do not contain rights to nonforfeitable dividends.
In April 2009, the FASB issued FSP No. FAS 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies. FSP No. FAS 141(R)-1
amends the provisions related to the initial recognition and measurement, subsequent measurement
and disclosure of assets and liabilities arising from contingencies in a business combination under
SFAS 141(R), Business Combinations. The FSP will carry forward the requirements in SFAS 141 for
acquired contingencies, thereby requiring that such contingencies be recognized at fair value on
the acquisition date if fair value can be reasonably estimated during the allocation period.
Otherwise, entities would typically account for the acquired contingencies in accordance with SFAS
5, Accounting for Contingencies. This FSP is effective for assets or liabilities arising from
contingencies in business combinations for which the acquisition date is on or after the beginning
of the first annual reporting period beginning on or after December 15, 2008. The adoption of this
Statement did not have an impact on the Corporations financial statements.
In April 2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly. FSP No. FAS 157-4 provides guidelines for making fair value
measurements more consistent with the principles presented in SFAS 157, Fair Value Measurements.
The FSP relates to determining fair values when there is no active market or where the price inputs
being used represent distressed sales. It reaffirms what SFAS 157 states is the objective of fair
value measurement, that is, to reflect how much an asset would be sold for in an orderly
transaction (as opposed to a distressed or forced transaction) at the date of the financial
statements under current market conditions. Specifically, it reaffirms the need to use judgment to
ascertain if a formerly active market has become inactive and in determining fair values when
markets have become inactive. This FSP is effective for interim and annual reporting periods ending
after June 15, 2009 on a prospective basis. The adoption of this Statement did not impact the
Corporations fair value methodologies on its financial assets.
10
In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation
of Other-Than-Temporary Impairments (FSP FAS 115-2). FSP FAS 115-2 requires an entity to
recognize the credit component of an other-than-temporary impairment (OTTI) of a debt security in
earnings and the noncredit component in other comprehensive income (OCI) when the entity does not
intend to sell the security and it is more likely than not that the entity will not be required to
sell the security prior to recovery. This FSP also requires expanded disclosures and became
effective for interim and annual reporting periods ending after June 15, 2009. As a result of the
adoption of this FSP, the Corporation recorded a $1.1 million OTTI through earnings in the second
quarter of 2009 that represents the credit loss of available-for-sale private label mortgage-backed
securities (MBS). This FSP does not amend existing recognition and measurement guidance related
to an OTTI of equity securities. The expanded disclosures related to FSP FAS 115-2 are included in
Note 4 Investment Securities.
In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments. FSP FAS 107-1 and APB 28-1 amends SFAS 107, Disclosures about
Fair Value of Financial Instruments, applies to all financial instruments within the scope of SFAS
107 and requires entities to disclose the method(s) and significant assumptions used to estimate
the fair value of financial instruments, in both interim financial statements as well as annual
financial statements. This FSP became effective for interim reporting periods ending after June
15, 2009. The adoption of FSP FAS 107-1 and APB 28-1 expanded the Corporations interim financial
statement disclosures with regard to the fair value of financial instruments as presented in Note
18 Fair Value.
In May 2009, the FASB issued SFAS 165, Subsequent Events (SFAS 165). SFAS 165 establishes
general standards of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued. SFAS 165 sets forth
(i) the period after the balance sheet date during which management of a reporting entity should
evaluate events or transactions that may occur for potential recognition or disclosure in the
financial statements, (ii) the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements and (iii) the
disclosures that an entity should make about events or transactions that occurred after the balance
sheet date. SFAS 165 is effective for interim or annual financial periods ending after June 15,
2009. Refer to Note 23 for subsequent events evaluated by the Corporation.
In June 2009, the FASB issued SFAS 166, Accounting for Transfers of Financial Assets-an
amendment of FASB Statement No. 140 (SFAS 166). SFAS 166 improves the relevance,
representational faithfulness, and comparability of the information that a reporting entity
provides in its financial statements about a transfer of financial assets; the effects of a
transfer on its financial position, financial performance, and cash flows; and a transferors
continuing involvement, if any, in transferred financial assets. SFAS 166 is effective as of the
beginning of each reporting entitys first annual reporting period that begins after November 15,
2009, for interim periods within that first annual reporting
11
period and for interim and annual reporting periods thereafter. The Corporation is evaluating
the impact the adoption of SFAS 166 will have on its financial statements.
In June 2009, the FASB issued SFAS 167, Amendments to FASB Interpretation No. 46(R) (SFAS
167). SFAS 167 improves financial reporting by enterprises involved with variable interest
entities and addresses (i) the effects on certain provisions of FASB Interpretation No. 46 (revised
December 2003), Consolidation of Variable Interest Entities, as a result of the elimination of
the qualifying special-purpose entity concept in SFAS 166 and (ii) constituent concerns about the
application of certain key provisions of Interpretation 46(R), including those in which the
accounting and disclosures under the Interpretation do not always provide timely and useful
information about an enterprises involvement in a variable interest entity. SFAS 167 is effective
as of the beginning of each reporting entitys first annual reporting period that begins after
November 15, 2009, for interim periods within that first annual reporting period, and for interim
and annual reporting periods thereafter. The Corporation is evaluating the impact, if any, the
adoption of SFAS 167 will have on its financial statements.
In June 2009, the FASB issued SFAS 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB Statement No. 162. The
FASB Accounting Standards Codification (Codification) will be the single source of authoritative
nongovernmental GAAP. Rules and interpretive releases of the SEC under the authority of federal
securities laws are also sources of authoritative GAAP for SEC registrants. SFAS 168 is effective
for interim and annual periods ending after September 15, 2009. All existing accounting standards
are superseded as described in SFAS 168. All other accounting literature not included in the
Codification is nonauthoritative. Following this Statement, the FASB will not issue new standards
in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead,
it will issue Accounting Standards Updates (ASUs). The FASB will not consider ASUs as
authoritative in their own right. ASUs will serve only to update the Codification, provide
background information about the guidance, and provide the bases for conclusions on the change(s)
in the Codification.
12
2 EARNINGS PER COMMON SHARE
The calculations of earnings per common share for the quarters and six-month periods ended on
June 30, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Six-Month Period Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands, except per share information) |
|
Net (Loss) Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(78,658 |
) |
|
$ |
32,994 |
|
|
$ |
(56,767 |
) |
|
$ |
66,583 |
|
Less: Preferred stock dividends (1) |
|
|
(15,069 |
) |
|
|
(10,069 |
) |
|
|
(29,305 |
) |
|
|
(20,138 |
) |
Less: Preferred stock discount accretion |
|
|
(1,098 |
) |
|
|
|
|
|
|
(1,980 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common stockholders |
|
$ |
(94,825 |
) |
|
$ |
22,925 |
|
|
$ |
(88,052 |
) |
|
$ |
46,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares outstanding |
|
|
92,511 |
|
|
|
92,505 |
|
|
|
92,511 |
|
|
|
92,505 |
|
Average potential common shares |
|
|
|
|
|
|
203 |
|
|
|
|
|
|
|
145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average number of common shares outstanding |
|
|
92,511 |
|
|
|
92,708 |
|
|
|
92,511 |
|
|
|
92,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earning per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(1.03 |
) |
|
$ |
0.25 |
|
|
$ |
(0.95 |
) |
|
$ |
0.50 |
|
Diluted |
|
$ |
(1.03 |
) |
|
$ |
0.25 |
|
|
$ |
(0.95 |
) |
|
$ |
0.50 |
|
|
|
|
(1) |
|
For the quarter and six-month period ended June 30, 2009, preferred stock dividends
include $2.6 million of Series F Preferred Stock cumulative preferred dividends not declared
as of the end of the period. Refer to Note 16 for additional information related to the Series
F Preferred Stock issued to the U.S. Treasury in connection with the Troubled Asset Relief
Program (TARP) Capital Purchase Program. |
(Loss) earnings per common share are computed by dividing net (loss) income attributable
to common stockholders by the weighted average common shares issued and outstanding. Net (loss)
income attributable to common stockholders represents net (loss) income adjusted for preferred
stock dividends including dividends declared, accretion of discount on preferred stock issuances
and cumulative dividends related to the current dividend period that have not been declared as of
the end of the period. Basic weighted average common shares outstanding exclude unvested shares of
restricted stock.
Potential common shares consist of common stock issuable under the assumed exercise of stock
options, unvested shares of restricted stock, and outstanding warrants using the treasury stock
method. This method assumes that the potential common shares are issued and the proceeds from the
exercise, in addition to the amount of compensation cost attributable to future services, are used
to purchase common stock at the exercise date. The difference between the number of potential
shares issued and the shares purchased is added as incremental shares to the actual number of
shares outstanding to compute diluted earnings per share. Stock options, unvested shares of
restricted stock, and outstanding warrants that result in lower potential shares issued than shares
purchased under the treasury stock method are not included in the computation of dilutive earnings
per share since their inclusion would have an antidilutive effect on earnings per share. For the
quarter and six-month period ended June 30, 2009, there were 3,910,910 outstanding stock options,
warrants outstanding to purchase 5,842,259 shares of common stock related to the TARP Capital
Purchase Program and 36,243 unvested shares of restricted stock that were excluded from the
computation of diluted earnings per common share because the Corporation reported a net loss
attributable to common stockholders for such periods. Refer to Note 16 for additional information
related to the issuance of the Series F Preferred Stock and Warrant (as hereinafter defined) under the
TARP Capital Purchase Program. For the quarter and six-month period ended June 30,
13
2008, a total of 2,020,600 weighted-average outstanding stock options were not included
in the computation of dilutive earnings per share since their inclusion would have an antidilutive
effect on earnings per share.
3 STOCK-BASED COMPENSATION PLAN
Between 1997 and January 2007, the Corporation had a stock option plan (the 1997 stock option
plan) that authorized the granting of up to options for 8,696,112 shares of the Corporations
common stock to eligible employees. The options granted under the plan could not exceed 20% of the
number of common shares outstanding. Each option provides for the purchase of one share of common
stock at a price not less than the fair market value of the stock on the date the option was
granted. Stock options were fully vested upon grant. The maximum term to exercise the options is
ten years. The stock option plan provides for a proportionate adjustment in the exercise price and
the number of shares that can be purchased in the event of a stock dividend, stock split,
reclassification of stock, merger or reorganization and certain other issuances and distributions
such as stock appreciation rights. On January 21, 2007, the 1997 stock option plan expired; all
outstanding awards grants under this plan continue to be in full force and effect, subject to their
original terms. All shares that remained available for grants under the 1997 stock option plan
were cancelled.
On April 29, 2008, the Corporations stockholders approved the First BanCorp 2008 Omnibus
Incentive Plan (the Omnibus Plan). The Omnibus Plan provides for equity-based compensation
incentives (the awards) through the grant of stock options, stock appreciation rights, restricted
stock, restricted stock units, performance shares, and other stock-based awards. This plan allows
the issuance of up to 3,800,000 shares of common stock, subject to adjustments for stock splits,
reorganization and other similar events. The Corporations Board of Directors, upon receiving the
relevant recommendation of the Compensation Committee, has the power and authority to determine
those eligible to receive awards and to establish the terms and conditions of any awards subject to
various limits and vesting restrictions that apply to individual and aggregate awards. During the
fourth quarter of 2008, pursuant to its independent director compensation plan, the Corporation
granted 36,243 shares of restricted stock with a fair value of $8.69 under the Omnibus Plan to the
Corporations independent directors. The restrictions on such restricted stock awards will lapse
ratably on an annual basis over a three-year period commencing on December 1, 2009. For the quarter
and six-month period ended June 30, 2009, the Corporation recognized $26,250 and $52,500,
respectively, of stock-based compensation expense related to the aforementioned restricted stock
awards. The total unrecognized compensation cost related to these non-vested restricted stocks was
$253,750 as of June 30, 2009 and is expected to be recognized over the next 2.4 years.
The Corporation accounted for stock options using the modified prospective method upon
adoption of SFAS 123R, Share-Based Payment. There were no stock options granted during 2009 and
2008 and therefore no compensation expense associated with stock options for the first half of 2009
and 2008.
14
SFAS 123R requires the Corporation to develop an estimate of the number of share-based awards
which will be forfeited due to employee turnover. Quarterly changes in the estimated forfeiture
rate may have a significant effect on share-based compensation, as the effect of adjusting the rate
for all expense amortization is recognized in the period in which the forfeiture estimate is
changed. If the actual forfeiture rate is higher than the estimated forfeiture rate, then an
adjustment is made to increase the estimated forfeiture rate, which will result in a decrease to
the expense recognized in the financial statements. If the actual forfeiture rate is lower than the
estimated forfeiture rate, then an adjustment is made to decrease the estimated forfeiture rate,
which will result in an increase to the expense recognized in the financial statements. When
unvested options or shares of restricted stock are forfeited, any compensation expense previously
recognized on the forfeited awards is reversed in the period of the forfeiture.
Stock options outstanding as of June 30, 2009 are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period Ended |
|
|
|
June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
Aggregate |
|
|
|
Number of |
|
|
Weighted-Average |
|
|
Contractual Term |
|
|
Intrinsic Value |
|
|
|
Options |
|
|
Exercise Price |
|
|
(Years) |
|
|
(In thousands) |
|
Stock options outstanding and exercisable at
the beginning and end of period |
|
|
3,910,910 |
|
|
$ |
12.82 |
|
|
|
5.7 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no stock options granted or exercised during the first half of 2009. No
options were granted during the first half of 2008. Cash proceeds from 6,000 options exercised
during the first half of 2008 amounted to approximately $53,000 and did not have any intrinsic
value.
15
4 INVESTMENT SECURITIES
Investment Securities Available for Sale
The amortized cost, non-credit loss component of OTTI securities recorded in accumulated other
comprehensive income, (AOCI) gross unrealized gains and losses recorded in accumulated other comprehensive
income, approximate fair value, weighted-average yield and contractual maturities of investment
securities available for sale as of June 30, 2009 and December 31, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
December 31, 2008 |
|
|
|
|
|
|
|
Non-Credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Component |
|
|
Gross |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Weighted |
|
|
|
Amortized |
|
|
of OTTI |
|
|
Unrealized |
|
|
Fair |
|
|
average |
|
|
Amortized |
|
|
Unrealized |
|
|
Fair |
|
|
average |
|
|
|
cost |
|
|
Recorded in AOCI |
|
|
gains |
|
|
losses |
|
|
value |
|
|
yield% |
|
|
cost |
|
|
gains |
|
|
losses |
|
|
value |
|
|
yield% |
|
|
|
(Dollars in thousands) |
|
U.S. Treasury securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 5 to 10 years |
|
$ |
95,694 |
|
|
$ |
|
|
|
$ |
1,016 |
|
|
$ |
|
|
|
$ |
96,710 |
|
|
|
3.54 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government
sponsored agencies: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 1 to 5 years |
|
|
1,139,521 |
|
|
|
|
|
|
|
4,321 |
|
|
|
157 |
|
|
|
1,143,685 |
|
|
|
2.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico Government
obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within one year |
|
|
4,287 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
4,293 |
|
|
|
6.14 |
|
|
|
4,593 |
|
|
|
46 |
|
|
|
|
|
|
|
4,639 |
|
|
|
6.18 |
|
After 1 to 5 years |
|
|
110,692 |
|
|
|
|
|
|
|
77 |
|
|
|
238 |
|
|
|
110,531 |
|
|
|
5.41 |
|
|
|
110,624 |
|
|
|
259 |
|
|
|
479 |
|
|
|
110,404 |
|
|
|
5.41 |
|
After 5 to 10 years |
|
|
6,394 |
|
|
|
|
|
|
|
291 |
|
|
|
82 |
|
|
|
6,603 |
|
|
|
5.80 |
|
|
|
6,365 |
|
|
|
283 |
|
|
|
128 |
|
|
|
6,520 |
|
|
|
5.80 |
|
After 10 years |
|
|
15,784 |
|
|
|
|
|
|
|
20 |
|
|
|
196 |
|
|
|
15,608 |
|
|
|
5.31 |
|
|
|
15,789 |
|
|
|
45 |
|
|
|
264 |
|
|
|
15,570 |
|
|
|
5.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and
Puerto Rico Government
obligations |
|
|
1,372,372 |
|
|
|
|
|
|
|
5,731 |
|
|
|
673 |
|
|
|
1,377,430 |
|
|
|
2.55 |
|
|
|
137,371 |
|
|
|
633 |
|
|
|
871 |
|
|
|
137,133 |
|
|
|
5.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within one year |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
6.49 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
37 |
|
|
|
5.94 |
|
After 1 to 5 years |
|
|
87 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
89 |
|
|
|
6.74 |
|
|
|
157 |
|
|
|
2 |
|
|
|
|
|
|
|
159 |
|
|
|
7.07 |
|
After 5 to 10 years |
|
|
30 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
33 |
|
|
|
8.41 |
|
|
|
31 |
|
|
|
3 |
|
|
|
|
|
|
|
34 |
|
|
|
8.40 |
|
After 10 years |
|
|
1,718,250 |
|
|
|
|
|
|
|
46,145 |
|
|
|
3,813 |
|
|
|
1,760,582 |
|
|
|
5.12 |
|
|
|
1,846,386 |
|
|
|
45,743 |
|
|
|
1 |
|
|
|
1,892,128 |
|
|
|
5.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,718,376 |
|
|
|
|
|
|
|
46,150 |
|
|
|
3,813 |
|
|
|
1,760,713 |
|
|
|
5.12 |
|
|
|
1,846,611 |
|
|
|
45,748 |
|
|
|
1 |
|
|
|
1,892,358 |
|
|
|
5.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within one year |
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28 |
|
|
|
7.08 |
|
|
|
45 |
|
|
|
1 |
|
|
|
|
|
|
|
46 |
|
|
|
5.72 |
|
After 1 to 5 years |
|
|
91 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
95 |
|
|
|
6.56 |
|
|
|
180 |
|
|
|
6 |
|
|
|
|
|
|
|
186 |
|
|
|
6.71 |
|
After 5 to 10 years |
|
|
509 |
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
520 |
|
|
|
4.59 |
|
|
|
566 |
|
|
|
9 |
|
|
|
|
|
|
|
575 |
|
|
|
5.33 |
|
After 10 years |
|
|
328,235 |
|
|
|
|
|
|
|
7,956 |
|
|
|
588 |
|
|
|
335,603 |
|
|
|
5.37 |
|
|
|
331,594 |
|
|
|
10,283 |
|
|
|
10 |
|
|
|
341,867 |
|
|
|
5.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
328,863 |
|
|
|
|
|
|
|
7,971 |
|
|
|
588 |
|
|
|
336,246 |
|
|
|
5.37 |
|
|
|
332,385 |
|
|
|
10,299 |
|
|
|
10 |
|
|
|
342,674 |
|
|
|
5.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 1 to 5 years |
|
|
41 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
45 |
|
|
|
10.87 |
|
|
|
53 |
|
|
|
5 |
|
|
|
|
|
|
|
58 |
|
|
|
10.20 |
|
After 5 to 10 years |
|
|
263,233 |
|
|
|
|
|
|
|
9,521 |
|
|
|
535 |
|
|
|
272,219 |
|
|
|
4.81 |
|
|
|
269,716 |
|
|
|
4,678 |
|
|
|
|
|
|
|
274,394 |
|
|
|
4.96 |
|
After 10 years |
|
|
1,492,364 |
|
|
|
|
|
|
|
25,128 |
|
|
|
5,267 |
|
|
|
1,512,225 |
|
|
|
4.59 |
|
|
|
1,071,521 |
|
|
|
28,005 |
|
|
|
1 |
|
|
|
1,099,525 |
|
|
|
5.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,755,638 |
|
|
|
|
|
|
|
34,653 |
|
|
|
5,802 |
|
|
|
1,784,489 |
|
|
|
4.62 |
|
|
|
1,341,290 |
|
|
|
32,688 |
|
|
|
1 |
|
|
|
1,373,977 |
|
|
|
5.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized Mortgage Obligations
issued or guaranteed by FHLMC, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA and GNMA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 10 years |
|
|
174,459 |
|
|
|
|
|
|
|
|
|
|
|
2,452 |
|
|
|
172,007 |
|
|
|
1.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other mortgage pass-through
trust certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 10 years |
|
|
128,046 |
|
|
|
31,480 |
|
|
|
2 |
|
|
|
|
|
|
|
96,568 |
|
|
|
3.18 |
|
|
|
144,217 |
|
|
|
2 |
|
|
|
30,236 |
|
|
|
113,983 |
|
|
|
5.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed
securities |
|
|
4,105,382 |
|
|
|
31,480 |
|
|
|
88,776 |
|
|
|
12,655 |
|
|
|
4,150,023 |
|
|
|
4.70 |
|
|
|
3,664,503 |
|
|
|
88,737 |
|
|
|
30,248 |
|
|
|
3,722,992 |
|
|
|
5.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 5 to 10 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241 |
|
|
|
|
|
|
|
|
|
|
|
241 |
|
|
|
7.70 |
|
After 10 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,307 |
|
|
|
|
|
|
|
|
|
|
|
1,307 |
|
|
|
7.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,548 |
|
|
|
|
|
|
|
|
|
|
|
1,548 |
|
|
|
7.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities (without
contractual maturity) (1) |
|
|
427 |
|
|
|
|
|
|
|
110 |
|
|
|
9 |
|
|
|
528 |
|
|
|
3.65 |
|
|
|
814 |
|
|
|
|
|
|
|
145 |
|
|
|
669 |
|
|
|
2.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
available for sale |
|
$ |
5,478,181 |
|
|
$ |
31,480 |
|
|
$ |
94,617 |
|
|
$ |
13,337 |
|
|
$ |
5,527,981 |
|
|
|
4.16 |
|
|
$ |
3,804,236 |
|
|
$ |
89,370 |
|
|
$ |
31,264 |
|
|
$ |
3,862,342 |
|
|
|
5.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents common shares of other financial institutions in Puerto Rico. |
Maturities of mortgage-backed securities are based on contractual terms assuming no
prepayments. Expected maturities of investments might differ from contractual maturities because
they may be subject to prepayments and/or call options. The weighted-average yield on investment
securities available for sale is based on amortized cost and, therefore, does not give effect to
changes in fair value. The net unrealized gain or loss on securities
16
available for sale and the non-credit loss component of OTTI are presented as part of AOCI
..
The following tables show the Corporations available-for-sale investments fair value and
gross unrealized losses, aggregated by investment category and length of time that individual
securities have been in a continuous unrealized loss position, as of June 30, 2009 and December 31,
2008. It also includes debt securities for which an other-than-temporary impairment was recognized and
only the amount related to a credit loss was recognized in earnings :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2009 |
|
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
|
(In thousands) |
|
Debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S Government sponsored
agencies |
|
$ |
149,843 |
|
|
$ |
157 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
149,843 |
|
|
$ |
157 |
|
|
Puerto Rico Government obligations |
|
|
11,189 |
|
|
|
11 |
|
|
|
13,655 |
|
|
|
505 |
|
|
|
24,844 |
|
|
|
516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC |
|
|
247,171 |
|
|
|
3,813 |
|
|
|
|
|
|
|
|
|
|
|
247,171 |
|
|
|
3,813 |
|
GNMA |
|
|
39,876 |
|
|
|
588 |
|
|
|
|
|
|
|
|
|
|
|
39,876 |
|
|
|
588 |
|
FNMA |
|
|
603,947 |
|
|
|
5,802 |
|
|
|
14 |
|
|
|
|
|
|
|
603,961 |
|
|
|
5,802 |
|
Collateralized Mortgage Obligations issued
or guaranteed by FHLMC, FNMA
and GNMA |
|
|
172,007 |
|
|
|
2,452 |
|
|
|
|
|
|
|
|
|
|
|
172,007 |
|
|
|
2,452 |
|
Other mortgage pass-through trust certificates |
|
|
|
|
|
|
|
|
|
|
96,303 |
|
|
|
31,480 |
|
|
|
96,303 |
|
|
|
31,480 |
|
Equity securities |
|
|
46 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
46 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,224,079 |
|
|
$ |
12,832 |
|
|
$ |
109,972 |
|
|
$ |
31,985 |
|
|
$ |
1,334,051 |
|
|
$ |
44,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008 |
|
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
|
(In thousands) |
|
Debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico Government
obligations |
|
$ |
|
|
|
$ |
|
|
|
$ |
13,288 |
|
|
$ |
871 |
|
|
$ |
13,288 |
|
|
$ |
871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC |
|
|
68 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
68 |
|
|
|
1 |
|
GNMA |
|
|
903 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
903 |
|
|
|
10 |
|
FNMA |
|
|
361 |
|
|
|
1 |
|
|
|
21 |
|
|
|
|
|
|
|
382 |
|
|
|
1 |
|
Other mortgage pass-through trust certificates |
|
|
|
|
|
|
|
|
|
|
113,685 |
|
|
|
30,236 |
|
|
|
113,685 |
|
|
|
30,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
318 |
|
|
|
145 |
|
|
|
|
|
|
|
|
|
|
|
318 |
|
|
|
145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,650 |
|
|
$ |
157 |
|
|
$ |
126,994 |
|
|
$ |
31,107 |
|
|
$ |
128,644 |
|
|
$ |
31,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Investment Securities Held to Maturity
The amortized cost, gross unrealized gains and losses, approximate fair value,
weighted-average yield and contractual maturities of investment securities held-to-maturity as of
June 30, 2009 and December 31, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
December 31, 2008 |
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Weighted |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Fair |
|
|
average |
|
|
Amortized |
|
|
Unrealized |
|
|
Fair |
|
|
average |
|
|
|
cost |
|
|
gains |
|
|
losses |
|
|
value |
|
|
yield% |
|
|
cost |
|
|
gains |
|
|
losses |
|
|
value |
|
|
yield% |
|
|
|
(Dollars in thousands) |
|
U.S. Treasury securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within 1 year |
|
$ |
8,500 |
|
|
$ |
85 |
|
|
$ |
|
|
|
$ |
8,585 |
|
|
|
1.07 |
|
|
$ |
8,455 |
|
|
$ |
34 |
|
|
$ |
|
|
|
$ |
8,489 |
|
|
|
1.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of other U.S. Government
sponsored agencies: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 10 years |
|
|
8,235 |
|
|
|
|
|
|
|
1,902 |
|
|
|
6,333 |
|
|
|
6.13 |
|
|
|
945,061 |
|
|
|
5,281 |
|
|
|
728 |
|
|
|
949,614 |
|
|
|
5.77 |
|
Puerto Rico Government
obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 5 to 10 years |
|
|
18,249 |
|
|
|
422 |
|
|
|
170 |
|
|
|
18,501 |
|
|
|
5.86 |
|
|
|
17,924 |
|
|
|
480 |
|
|
|
97 |
|
|
|
18,307 |
|
|
|
5.85 |
|
After 10 years |
|
|
5,060 |
|
|
|
9 |
|
|
|
|
|
|
|
5,069 |
|
|
|
5.50 |
|
|
|
5,145 |
|
|
|
35 |
|
|
|
|
|
|
|
5,180 |
|
|
|
5.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and Puerto Rico Government obligations |
|
|
40,044 |
|
|
|
516 |
|
|
|
2,072 |
|
|
|
38,488 |
|
|
|
4.85 |
|
|
|
976,585 |
|
|
|
5,830 |
|
|
|
825 |
|
|
|
981,590 |
|
|
|
5.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 1 to 5 years |
|
|
6,713 |
|
|
|
84 |
|
|
|
1 |
|
|
|
6,796 |
|
|
|
3.80 |
|
|
|
8,338 |
|
|
|
71 |
|
|
|
5 |
|
|
|
8,404 |
|
|
|
3.83 |
|
FNMA certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 1 to 5 years |
|
|
6,054 |
|
|
|
104 |
|
|
|
|
|
|
|
6,158 |
|
|
|
3.91 |
|
|
|
7,567 |
|
|
|
88 |
|
|
|
|
|
|
|
7,655 |
|
|
|
3.85 |
|
After 5 to 10 years |
|
|
607,531 |
|
|
|
18,512 |
|
|
|
|
|
|
|
626,043 |
|
|
|
4.50 |
|
|
|
686,948 |
|
|
|
9,227 |
|
|
|
|
|
|
|
696,175 |
|
|
|
4.46 |
|
After 10 years |
|
|
24,589 |
|
|
|
202 |
|
|
|
6 |
|
|
|
24,785 |
|
|
|
5.31 |
|
|
|
25,226 |
|
|
|
247 |
|
|
|
25 |
|
|
|
25,448 |
|
|
|
5.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
644,887 |
|
|
|
18,902 |
|
|
|
7 |
|
|
|
663,782 |
|
|
|
4.52 |
|
|
|
728,079 |
|
|
|
9,633 |
|
|
|
30 |
|
|
|
737,682 |
|
|
|
4.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 10 years |
|
|
2,000 |
|
|
|
|
|
|
|
840 |
|
|
|
1,160 |
|
|
|
5.80 |
|
|
|
2,000 |
|
|
|
|
|
|
|
860 |
|
|
|
1,140 |
|
|
|
5.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
held-to-maturity |
|
$ |
686,931 |
|
|
$ |
19,418 |
|
|
$ |
2,919 |
|
|
$ |
703,430 |
|
|
|
4.54 |
|
|
$ |
1,706,664 |
|
|
$ |
15,463 |
|
|
$ |
1,715 |
|
|
$ |
1,720,412 |
|
|
|
5.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities of mortgage-backed securities are based on contractual terms assuming no
prepayments. Expected maturities of investments might differ from contractual maturities because
they may be subject to prepayments and/or call options.
18
The following tables show the Corporations held-to-maturity investments fair value and gross
unrealized losses, aggregated by investment category and length of time that individual securities
have been in a continuous unrealized loss position, as of June 30, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2009 |
|
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
|
(In thousands) |
|
Debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S Government sponsored
agencies |
|
$ |
|
|
|
$ |
|
|
|
$ |
6,333 |
|
|
$ |
1,902 |
|
|
$ |
6,333 |
|
|
$ |
1,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico Government
obligations |
|
|
6,928 |
|
|
|
72 |
|
|
|
4,552 |
|
|
|
98 |
|
|
|
11,480 |
|
|
|
170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA |
|
|
6,593 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
6,593 |
|
|
|
6 |
|
FHLMC |
|
|
|
|
|
|
|
|
|
|
506 |
|
|
|
1 |
|
|
|
506 |
|
|
|
1 |
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
1,160 |
|
|
|
840 |
|
|
|
1,160 |
|
|
|
840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13,521 |
|
|
$ |
78 |
|
|
$ |
12,551 |
|
|
$ |
2,841 |
|
|
$ |
26,072 |
|
|
$ |
2,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008 |
|
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
|
(In thousands) |
|
Debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government sponsored
agencies |
|
$ |
|
|
|
$ |
|
|
|
$ |
7,262 |
|
|
$ |
728 |
|
|
$ |
7,262 |
|
|
$ |
728 |
|
Puerto Rico Government
obligations |
|
|
|
|
|
|
|
|
|
|
4,436 |
|
|
|
97 |
|
|
|
4,436 |
|
|
|
97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA |
|
|
|
|
|
|
|
|
|
|
6,825 |
|
|
|
25 |
|
|
|
6,825 |
|
|
|
25 |
|
FHLMC |
|
|
|
|
|
|
|
|
|
|
600 |
|
|
|
5 |
|
|
|
600 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
1,140 |
|
|
|
860 |
|
|
|
1,140 |
|
|
|
860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
20,263 |
|
|
$ |
1,715 |
|
|
$ |
20,263 |
|
|
$ |
1,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assessment for OTTI
On a quarterly basis, the Corporation performs an assessment to determine whether there have been
any events or economic circumstances indicating that a security with an unrealized loss has
suffered OTTI pursuant to FSP SFAS 115-1 and SFAS 124-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments (FSP SFAS 115-1 and 124-1). A debt
security is considered impaired if the fair value is less than its amortized cost basis at the
reporting date. The accounting literature requires the Corporation to assess whether the unrealized
loss is other-than-temporary. Prior to the adoption of FSP FAS 115-2, unrealized losses that were
determined to be temporary were recorded, net of tax, in other comprehensive income for available
for sale securities, whereas
19
unrealized losses related to held-to-maturity securities determined to be temporary were not
recognized. Regardless of whether the security was classified as available for sale or held to
maturity, unrealized losses that were determined to be other-than-temporary were recorded to
earnings. An unrealized loss was considered other-than-temporary if (i) it was probable that the
holder would not collect all amounts due according to the contractual terms of the debt security,
or (ii) the fair value was below the amortized cost of the debt security for a prolonged period of
time and the Corporation did not have the positive intent and ability to hold the security until
recovery or maturity.
The Corporation adopted FSP FAS 115-2 during the second quarter of 2009. FSP FAS 115-2 amended
the OTTI model for debt securities. Under the new guidance, OTTI losses must be recognized in
earnings if an investor has the intent to sell the debt security or it is more likely than not that
it will be required to sell the debt security before recovery of its amortized cost basis.
However, even if an investor does not expect to sell a debt security, it must evaluate expected
cash flows to be received and determine if a credit loss has occurred.
Under FSP FAS 115-2, an unrealized loss is generally deemed to be other-than-temporary and a credit
loss is deemed to exist if the present value of the expected future cash flows is less than the
amortized cost basis of the debt security. As a result of the Corporations adoption of FSP FAS
115-2, the credit loss component of an OTTI is recorded as a component of Net impairment losses on
investment securities in the accompanying consolidated statement of (loss) income, while the
remaining portion of the impairment loss is recognized in OCI, provided the Corporation does not
intend to sell the underlying debt security and it is more likely than not that the Corporation
will not have to sell the debt security prior to recovery.
Debt securities issued by U.S. government agencies, government-sponsored entities and the U.S.
Treasury accounted for more than 95% of the total available-for-sale and held-to-maturity portfolio
as of June 30, 2009 and no credit losses are expected, given the explicit and implicit guarantees
provided by the U.S. federal government. The Corporations assessment was concentrated mainly on
private label MBS of approximately $128 million for which the Corporation evaluates credit losses
on a quarterly basis. The Corporation considered the following factors in determining whether a
credit loss exists and the period over which the debt security is expected to recover:
|
|
|
The length of time and the extent to which the fair value has been less than the
amortized cost basis. |
|
|
|
|
Changes in the near term prospects of the underlying collateral of a security such
as changes in default rates, loss severity given default and significant changes in
prepayment assumptions; |
|
|
|
|
The level of cash flows generated from the underlying collateral supporting the
principal and interest payments of the debt securities; and
|
20
|
|
|
Any adverse change to the credit conditions and liquidity of the issuer, taking
into consideration the latest information available about the overall financial
condition of the issuer, credit ratings, recent legislation and government actions
affecting the issuers industry and actions taken by the issuer to deal with the
present economic climate. |
During the second quarter of 2009, the Corporation recorded OTTI losses on available-for-sale
debt securities as follows:
|
|
|
|
|
(In thousands) |
|
Private label MBS |
|
Total other-than-temporary impairment losses |
|
$ |
(32,541 |
) |
Unrealized other-than-temporary impairment losses recognized in OCI (1) |
|
|
31,480 |
|
|
|
|
|
Net impairment losses recognized in earnings (2) |
|
$ |
(1,061 |
) |
|
|
|
|
|
|
|
(1) |
|
Represents the noncredit component impact of the OTTI on available-for-sale debt securities |
|
(2) |
|
Represents the credit component of the OTTI on available-for-sale debt securities |
The following table summarizes the roll-forward of credit losses on debt securities
held by the Corporation for which a portion of an OTTI is recognized in OCI:
|
|
|
|
|
|
|
Quarter Ended |
|
(In thousands) |
|
June 30, 2009 |
|
Credit losses at the beginning of the period |
|
$ |
|
|
Additions: |
|
|
|
|
Credit losses related to securities for which an OTTI
was not previously recognized |
|
|
1,061 |
|
|
|
|
|
Ending balance of credit losses on debt securities held for which a
portion of an OTTI was recognized in OCI |
|
$ |
1,061 |
|
|
|
|
|
As of June 30, 2009, debt securities with OTTI, for which a loss related to credit was
recognized in earnings, consisted entirely of private label MBS. Private label MBS are mortgage
pass-through certificates bought from R&G Financial Corporation (R&G Financial), a Puerto Rican
financial institution. During the second quarter of 2009, the Corporation received from R&G
Financial a payment of $4.2 million to eliminate the 10% recourse provision contained in the
private label MBS. The elimination of the recourse provision was the reason for which the present
value of the expected future cash flows in these private label MBS is less than the amortized cost
of the security.
Private label MBS are collateralized by fixed-rate mortgages on single-family residential
properties in the United States and the interest rate is variable, tied to 3-month LIBOR and
limited to the weighted-average coupon of the underlying collateral. The underlying mortgages are
fixed-rate single family loans with original high FICO scores (over 700) and moderate original
loan-to-value ratios (under 80%), as well as moderate delinquency levels. The Corporation
modeled the cash flow from the fixed-rate mortgage collateral using a static cash flow analysis
according to collateral attributes of the underlying mortgage pool (i.e.
21
loan term, current
balance, note rate, rate adjustment type, rate adjustment frequency, rate caps, others) in
combination with prepayment forecasts obtained from a commercially available prepayment model
(ADCO). The variable cash flow of the security is modeled using the 3-month LIBOR forward curve.
Loss assumptions were driven by the combination of default and loss severity estimates, taking into
account loan credit characteristics (loan-to-value, state, origination date, property type,
occupancy, loan purpose, documentation type, debt-to-income ratio, others) to provide an estimate
of default and loss severity.
For valuation purposes, the Corporation used a discounted
cash flow model applying a discount rate that reflects market observed floating spreads over
LIBOR, with a widening spread bias on a non-rated security and utilizes
relevant assumptions such as prepayment rate, default rate, and loss severity on a loan level basis. Based on the expected cash flows
derived from the model, and since the Corporation does not have the intention to sell the
securities and has sufficient capital and liquidity to hold these securities until a recovery of
the fair value occurs, only the credit loss component was reflected in earnings. Significant
assumptions in the valuation of the private label MBS were as follows as of June 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
Average |
|
Range |
Discount rate
|
|
|
15 |
% |
|
15% |
Prepayment rate
|
|
|
23 |
% |
|
15.90% 39.40% |
Projected Cumulative Loss Rate
|
|
|
4 |
% |
|
0.39% 8.90% |
For the six-month periods ended on June 30, 2009 and 2008, the Corporation recorded OTTI
of approximately $0.4 million and $0.5 million, respectively, on certain equity securities held in
its available-for-sale investment portfolio related to financial institutions in Puerto Rico.
Management concluded that the declines in value of the securities were other-than-temporary; as
such, the cost basis of these securities was written down to the market value as of the date of the
analysis and is reflected in earnings as a realized loss.
Total proceeds from the sale of securities available for sale during the first half of 2009
amounted to approximately $791.3 million (2008 $389.8 million). The following table summarizes
the realized gains and losses on sales of securities available for sale for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, |
|
|
Six-Month Period Ended June 30, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Realized gains |
|
$ |
10,305 |
|
|
$ |
|
|
|
$ |
28,143 |
|
|
$ |
6,851 |
|
Realized losses |
|
|
|
|
|
|
(190 |
) |
|
|
|
|
|
|
(190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized security gains (losses) |
|
$ |
10,305 |
|
|
$ |
(190 |
) |
|
$ |
28,143 |
|
|
$ |
6,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
5 OTHER EQUITY SECURITIES
Institutions that are members of the FHLB system are required to maintain a minimum
investment in FHLB stock. Such minimum is calculated as a percentage of aggregate outstanding
mortgages, and an additional investment is required that is calculated as a percentage of total
FHLB advances, letters of credit, and the collateralized portion of interest-rate swaps
outstanding. The stock is capital stock issued at $100 par value. Both stock and cash dividends may
be received on FHLB stock.
As of June 30, 2009 and December 31, 2008, the Corporation had investments in FHLB stock with
a book value of $81.9 million and $62.6 million, respectively. The net realizable value is a
reasonable proxy for the fair value of these instruments. Dividend income from FHLB stock for the
second quarter and six-month period ended June 30, 2009 amounted to $0.8 million and $1.1 million,
respectively, compared to $1.1 million and $2.3 million, respectively, for the same periods in
2008.
The Corporation has other equity securities that do not have a readily available fair value.
The carrying value of such securities as of June 30, 2009 and December 31, 2008 was $1.6 million.
During the first quarter of 2008, the Corporation realized a one-time gain of $9.3 million on the
mandatory redemption of part of its investment in VISA, Inc., which completed its initial public
offering (IPO) in March 2008.
6 LOAN PORTFOLIO
The following is a detail of the loan portfolio:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
As of |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Residential real estate loans, mainly secured by first mortgages |
|
$ |
3,621,496 |
|
|
$ |
3,481,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans: |
|
|
|
|
|
|
|
|
Construction loans |
|
|
1,580,207 |
|
|
|
1,526,995 |
|
Commercial mortgage loans |
|
|
1,564,933 |
|
|
|
1,535,758 |
|
Commercial loans |
|
|
4,002,306 |
|
|
|
3,857,728 |
|
Loans to local financial institutions collaterilized by
real estate mortgages |
|
|
336,300 |
|
|
|
567,720 |
|
|
|
|
|
|
|
|
Commercial loans |
|
|
7,483,746 |
|
|
|
7,488,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance leases |
|
|
341,119 |
|
|
|
363,883 |
|
|
Consumer loans |
|
|
1,656,410 |
|
|
|
1,744,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable |
|
|
13,102,771 |
|
|
|
13,077,889 |
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses |
|
|
(407,746 |
) |
|
|
(281,526 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net |
|
|
12,695,025 |
|
|
|
12,796,363 |
|
|
|
|
|
|
|
|
|
|
Loans held for sale |
|
|
32,939 |
|
|
|
10,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
12,727,964 |
|
|
$ |
12,806,766 |
|
|
|
|
|
|
|
|
23
The Corporations primary lending area is Puerto Rico. The Corporations Puerto Rico banking
subsidiary (FirstBank or the Bank) also lends in the U.S. and British Virgin Islands markets
and in the United States (principally in the state of Florida). Of the total gross loan portfolio,
including loans held for sale, of $13.1 billion as of June 30, 2009, approximately 81% has regional
credit risk concentration in Puerto Rico, 11% in the United States (mainly in the state of Florida)
and 8% in the Virgin Islands.
The Corporations largest loan concentration to one borrower of $336.3 million as of June 30, 2009
is with one mortgage originator in Puerto Rico, Doral Financial Corporation. This commercial loan
is secured by individual mortgage loans on residential and commercial real estate. During the
second quarter of 2009, the Corporation completed a transaction with R&G Financial that involved
the purchase of approximately $205 million of residential mortgage loans that previously served as
collateral for a commercial loan extended to R&G Financial. The purchase price of the transaction was
retained by the Corporation to fully pay off the loan, thereby significantly reducing the
Corporations exposure to a single borrower. Also, a $500 million facility extended in the first
quarter of 2009 to the Puerto Rico Sales Tax Financing Corp. (COFINA under its Spanish acronym), an
instrumentality of the Government of Puerto Rico, was paid off on June 18, 2009.
7 ALLOWANCE FOR LOAN AND LEASE LOSSES
The changes in the allowance for loan and lease losses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Six-Month Period Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Balance at beginning of period |
|
$ |
302,531 |
|
|
$ |
210,495 |
|
|
$ |
281,526 |
|
|
$ |
190,168 |
|
Provision for loan and lease losses |
|
|
235,152 |
|
|
|
41,323 |
|
|
|
294,581 |
|
|
|
87,116 |
|
Charge-offs |
|
|
(131,375 |
) |
|
|
(31,602 |
) |
|
|
(173,835 |
) |
|
|
(58,988 |
) |
Recoveries |
|
|
1,438 |
|
|
|
2,056 |
|
|
|
5,474 |
|
|
|
3,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
407,746 |
|
|
$ |
222,272 |
|
|
$ |
407,746 |
|
|
$ |
222,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The allowance for impaired loans is part of the allowance for loan and lease losses. The
allowance for impaired loans covers those loans for which management has determined that it is
probable that the debtor will be unable to pay all the amounts due in accordance with the
contractual terms of the loan agreement, and does not necessarily represent loans for which the
Corporation will incur a loss. As of June 30, 2009 and December 31, 2008, impaired loans and their
related allowance were as follows:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
As of |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Impaired loans with valuation allowance, net of charge-offs |
|
$ |
647,390 |
|
|
$ |
384,914 |
|
Impaired loans without valuation allowance, net of charge-offs |
|
|
288,199 |
|
|
|
116,315 |
|
|
|
|
|
|
|
|
Total impaired loans |
|
$ |
935,589 |
|
|
$ |
501,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for impaired loans |
|
$ |
117,526 |
|
|
$ |
83,353 |
|
24
The loans that were classified as impaired during the first half of 2009, totaled
approximately $614.0 million ($368.3 million pertained to Florida operations). These loans required
a specific reserve of $83.9 million. Partially offsetting the increase in impaired loans were
charge-offs of approximately $26.5 million related to the $614 million of loans classified as
impaired during 2009 and approximately $93.3 million associated with impaired loans identified
prior to 2009 and other decreases, including loans paid in full, partial payments and collateral
repossessions, mainly in Florida. During the first half of 2009, the Corporation repossessed
approximately $9.2 million of commercial real estate properties in Florida, net of charge-offs of
approximately $8.2 million.
Approximately $64.7 million, or 54%, of the charge-offs recorded during 2009 are related
to the construction loan portfolio in Florida and $26.3 million, or 22%, are related to the
construction loan portfolio in Puerto Rico.
The following table sets forth an analysis of the activity in the allowance for impaired loans
for the six-month period ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six-Month Period Ended June 30, 2009 |
|
|
|
Construction |
|
|
Commercial |
|
|
Commercial Mortgage |
|
|
|
|
|
|
|
|
|
Loans |
|
|
Loans |
|
|
Loans |
|
|
Other Loans (1) |
|
|
Total |
|
Allowance for impaired loans, beginning of period |
|
$ |
56,330 |
|
|
$ |
18,343 |
|
|
$ |
8,680 |
|
|
$ |
|
|
|
$ |
83,353 |
|
Provision for impaired loans |
|
|
113,185 |
|
|
|
19,463 |
|
|
|
17,796 |
|
|
|
3,571 |
|
|
|
154,015 |
|
Charge-offs |
|
|
(91,060 |
) |
|
|
(14,946 |
) |
|
|
(13,836 |
) |
|
|
|
|
|
|
(119,842 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for impaired loans, end of period |
|
$ |
78,455 |
|
|
$ |
22,860 |
|
|
$ |
12,640 |
|
|
$ |
3,571 |
|
|
$ |
117,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Mainly related to restructured residential mortgage loans. |
Interest income in the amount of approximately $5.4 million and $9.8 million was
recognized on impaired loans for the second quarter and first half of 2009, respectively, compared
to $2.2 million and $7.9 million, respectively, for the same periods in 2008. The average recorded
investment in impaired loans for the first six-months of 2009 and 2008 was $693.4 million and
$205.8 million, respectively.
The Corporation provides homeownership preservation assistance to its customers through a loss
mitigation program in Puerto Rico. Due to the nature of the borrowers financial condition, the
restructure or loan modification through this program as well as other individual commercial,
commercial mortgage loans, construction loans and residential mortgages in the U.S. mainland fits
the definition of Troubled Debt Restructuring (TDR) as defined by SFAS 15, Accounting by Debtors
and Creditors of Troubled Debt Restructurings. Such restructures are identified as TDRs and
accounted for based on the provisions SFAS 114, Accounting by Creditors for Impairment of a Loan.
As of June 30, 2009, the Corporations TDR loans consisted of $56.9 million of residential mortgage
loans, $25.1 million commercial loans, $44.5 million commercial mortgage loans and $104.0 million
of construction loans.
25
8 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
One of the market risks facing the Corporation is interest rate risk, which includes the risk
that changes in interest rates will result in changes in the value of the Corporations assets or
liabilities and the risk that net interest income from its loan and investment portfolios will
change in response to changes in interest rates. The overall objective of the Corporations
interest rate risk management activities is to reduce the variability of earnings caused by changes
in interest rates.
The Corporation uses various financial instruments, including derivatives, to manage the
interest rate risk primarily to the value of its medium-term notes and for protection of rising
interest rates in connection with private label MBS.
The Corporation designates a derivative as a fair value hedge, a cash flow hedge or an
economic undesignated hedge when it enters into the derivative contract. As of June 30, 2009 and
December 31, 2008, all derivatives held by the Corporation were considered economic undesignated
hedges. These undesignated hedges are recorded at fair value with the resulting gain or loss
recognized in current earnings.
The following summarizes most of the derivative activities used by the Corporation in managing
interest rate risk:
Interest rate cap agreements Interest rate cap agreements provide the right to
receive cash if a reference interest rate rises above a contractual rate. The value
increases as the reference interest rate rises. The Corporation enters into interest rate
cap agreements for protection against rising interest rates. Specifically, the interest
rate on certain private label mortgage pass-through securities and certain of the
Corporations commercial loans to other financial institutions is generally a variable rate
limited to the weighted-average coupon of the pass-through certificate or referenced
residential mortgage collateral, less a contractual servicing fee.
Interest rate swaps Interest rate swap agreements generally involve the exchange
of fixed and floating-rate interest payment obligations without the exchange of the
underlying notional principal amount. As of June 30, 2009, most of the interest rate swaps
outstanding are used for protection against rising interest rates. In the past, interest
rate swaps volume was much higher since they were used to convert fixed-rate brokered CDs
(liabilities), mainly those with long-term maturities, to a variable rate and mitigate the
interest rate risk inherent in variable rate loans. However, most of these interest rate
swaps were called during 2009, in the face of lower interest rate levels, and as a
consequence the Corporation exercised its call option on the swapped-to-floating brokered
CDs. Similar to unrealized gains and losses arising from changes in fair value, net
interest settlements on interest rate swaps are recorded as an adjustment to interest
income or interest expense depending on whether an asset or liability is being economically
hedged.
26
Indexed options Indexed options are generally over-the-counter (OTC)
contracts that the Corporation enters into in order to receive the appreciation of a
specified Stock Index (e.g., Dow Jones Industrial Composite Stock Index) over a specified
period in exchange for a premium paid at the contracts inception. The option period is
determined by the contractual maturity of the notes payable tied to the performance of the
Stock Index. The credit risk inherent in these options is the risk that the exchange party
may not fulfill its obligation.
To satisfy the needs of its customers, the Corporation may enter into non-hedging
transactions. On these transactions, generally, the Corporation participates as a buyer in one of
the agreements and as the seller in the other agreement under the same terms and conditions.
In addition, the Corporation enters into certain contracts with embedded derivatives that do
not require separate accounting as these are clearly and closely related to the economic
characteristics of the host contract. When the embedded derivative possesses economic
characteristics that are not clearly and closely related to the economic characteristics of the
host contract, it is bifurcated, carried at fair value, and designated as a trading or non-hedging
derivative instrument.
The following table summarizes the notional amounts of all derivative instruments as of June
30, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
Notional Amounts |
|
|
|
As of |
|
|
As of |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Economic undesignated hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts: |
|
|
|
|
|
|
|
|
Interest rate swap agreements used to hedge fixed-rate brokered certificates of deposits, notes payable and loans |
|
$ |
80,577 |
|
|
$ |
1,184,820 |
|
Written interest rate cap agreements |
|
|
197,955 |
|
|
|
128,043 |
|
Purchase interest rate cap agreements |
|
|
335,114 |
|
|
|
276,400 |
|
Equity contracts: |
|
|
|
|
|
|
|
|
Embedded written options on stock index deposits and notes payable |
|
|
53,515 |
|
|
|
53,515 |
|
Purchased options used to manage exposure to the stock
market on embedded stock index options |
|
|
53,515 |
|
|
|
53,515 |
|
|
|
|
|
|
|
|
|
|
$ |
720,676 |
|
|
$ |
1,696,293 |
|
|
|
|
|
|
|
|
27
The following table summarizes the fair values of derivative instruments and the location
in the Statement of Financial Condition as of June 30, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives |
|
|
Liability Derivatives |
|
|
|
|
|
|
|
As of |
|
|
As of |
|
|
|
|
|
|
As of |
|
|
As of |
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
Statement of |
|
|
|
|
|
|
|
|
|
|
Statement of |
|
|
|
|
|
|
|
|
|
Financial Condition |
|
|
Fair |
|
|
Fair |
|
|
Financial Condition |
|
|
Fair |
|
|
Fair |
|
|
|
Location |
|
|
Value |
|
|
Value |
|
|
Location |
|
|
Value |
|
|
Value |
|
|
|
(Dollars in thousands) |
|
Economic undesignated hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements used to hedge fixed-rate
brokered CDs, notes payable and loans |
|
Other Assets |
|
$ |
326 |
|
|
$ |
5,649 |
|
|
Accounts payable and other liabilities |
|
$ |
5,708 |
|
|
$ |
7,188 |
|
Written interest rate cap agreements |
|
Other Assets |
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities |
|
|
428 |
|
|
|
3 |
|
Purchase interest rate cap agreements |
|
Other Assets |
|
|
4,004 |
|
|
|
764 |
|
|
Accounts payable and other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded written options on stock index deposits |
|
Other Assets |
|
|
|
|
|
|
|
|
|
Interest bearing deposits |
|
|
23 |
|
|
|
241 |
|
Embedded written options on stock index notes payable |
|
Other Assets |
|
|
|
|
|
|
|
|
|
Notes payable |
|
|
510 |
|
|
|
1,073 |
|
Purchased options used to manage exposure to the stock
market on embedded stock index options |
|
Other Assets |
|
|
568 |
|
|
|
1,597 |
|
|
Accounts payable and other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,898 |
|
|
$ |
8,010 |
|
|
|
|
|
|
$ |
6,669 |
|
|
$ |
8,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the effect of derivative instruments on the Statement of
Income for the quarters and six-month periods ended on June 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gain or (Loss) |
|
|
Unrealized Gain or (Loss) |
|
|
|
Location of Unrealized Gain or (loss) |
|
|
Quarter Ended |
|
|
Six-Month Period Ended |
|
|
|
Recognized in Income on |
|
|
June 30, |
|
|
June 30, |
|
|
|
Derivatives |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(In thousands) |
|
|
(In thousands) |
|
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements used to hedge: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokered CDs |
|
Interest Expense on Deposit |
|
$ |
(877 |
) |
|
$ |
(29,805 |
) |
|
$ |
(5,236 |
) |
|
$ |
25,552 |
|
Notes payable |
|
Interest Expense on Notes Payable and Other Borrowings |
|
|
|
|
|
|
(247 |
) |
|
|
3 |
|
|
|
(114 |
) |
Loans |
|
Interest Income on Loans |
|
|
837 |
|
|
|
2,548 |
|
|
|
1,390 |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written and purchased interest rate cap agreements -
mortgage-backed securities |
|
Interest Income on Investment Securities |
|
|
2,489 |
|
|
|
3,041 |
|
|
|
2,706 |
|
|
|
857 |
|
Written and purchased interest rate cap agreements loans |
|
Interest Income on Loans |
|
|
139 |
|
|
|
54 |
|
|
|
144 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded written and purchased options on stock index deposits |
|
Interest Expense on Deposits |
|
|
(15 |
) |
|
|
(129 |
) |
|
|
(82 |
) |
|
|
(150 |
) |
Embedded written and purchased options on stock index notes payable |
|
Interest Expense on Notes Payable and Other Borrowings |
|
|
(53 |
) |
|
|
(67 |
) |
|
|
(166 |
) |
|
|
113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Unrealized Gain (Loss) on derivatives |
|
|
|
|
|
$ |
2,520 |
|
|
$ |
(24,605 |
) |
|
$ |
(1,241 |
) |
|
$ |
26,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments, such as interest rate swaps, are subject to market risk. As is
the case with investment securities, the market value of derivative instruments is largely a
function of the financial markets expectations regarding the future direction of interest rates.
Accordingly, current market values are not necessarily indicative of the future impact of
derivative instruments on earnings. This will depend, for the most part, on the shape of the
yield curve, the level of interest rates, as well as the expectations for rates in the future.
The unrealized gains and losses in the fair value of derivatives that economically hedge certain
callable brokered CDs and medium-term notes are partially offset by unrealized gains and losses on
the valuation of such economically hedged liabilities that were elected to be measured at fair
value under the provisions of SFAS 159. The Corporation includes the gain or loss on those
economically hedged liabilities (brokered CDs and medium-term notes) in the same line item as the
offsetting loss or gain on the related derivatives as set forth below:
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended June 30, |
|
|
2009 |
|
2008 |
|
|
Loss |
|
Gain / (Loss) |
|
Net Unrealized |
|
Loss |
|
Gain |
|
Net Unrealized |
(In thousands) |
|
on Derivatives |
|
on SFAS 159 liabilities |
|
Gain / (Loss) |
|
on Derivatives |
|
on SFAS 159 liabilities |
|
Loss |
Interest expense on Deposits |
|
$ |
(892 |
) |
|
$ |
1,555 |
|
|
$ |
663 |
|
|
$ |
(29,934 |
) |
|
$ |
28,462 |
|
|
$ |
(1,472 |
) |
Interest expense on Notes Payable and Other Borrowings |
|
|
(53 |
) |
|
|
(1,679 |
) |
|
|
(1,732 |
) |
|
|
(314 |
) |
|
|
2 |
|
|
|
(312 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period ended June 30, |
|
|
2009 |
|
2008 |
|
|
Loss |
|
Gain / (Loss) |
|
Net Unrealized |
|
Gain / (Loss) |
|
(Loss) / Gain |
|
Net Unrealized |
(In thousands) |
|
on Derivatives |
|
on SFAS 159 liabilities |
|
Gain / (Loss) |
|
on Derivatives |
|
on SFAS 159 liabilities |
|
Gain |
Interest expense on Deposits |
|
$ |
(5,318 |
) |
|
$ |
8,696 |
|
|
$ |
3,378 |
|
|
|
25,402 |
|
|
|
(21,095 |
) |
|
$ |
4,307 |
|
Interest expense on Notes Payable and Other Borrowings |
|
|
(163 |
) |
|
|
(1,424 |
) |
|
|
(1,587 |
) |
|
|
(1 |
) |
|
|
899 |
|
|
|
898 |
|
A summary of interest rate swaps as of June 30, 2009 and December 31, 2008 follows:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
As of |
|
|
June 30, |
|
December 31, |
|
|
2009 |
|
2008 |
|
|
(Dollars in thousands) |
Pay fixed/receive floating: |
|
|
|
|
|
|
|
|
Notional amount |
|
$ |
80,577 |
|
|
$ |
78,855 |
|
Weighted-average receive rate at period end |
|
|
2.24 |
% |
|
|
3.21 |
% |
Weighted-average pay rate at period end |
|
|
6.52 |
% |
|
|
6.75 |
% |
Floating rates range from 167 to 252 basis points over 3-month LIBOR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive fixed/pay floating (generally used to economically hedge fixed-rate brokered CDs and notes payable): |
|
|
|
|
|
|
|
|
Notional amount |
|
$ |
|
|
|
$ |
1,105,965 |
|
Weighted-average receive rate at period end |
|
|
0.00 |
% |
|
|
5.30 |
% |
Weighted-average pay rate at period end |
|
|
0.00 |
% |
|
|
3.09 |
% |
During the first half of 2009, all of the $1.1 billion of interest rate swaps that
economically hedge brokered CDs were called by the counterparties, mainly due to lower levels of
3-month LIBOR. Following the cancellation of the interest rate swaps, the Corporation exercised its
call option on the approximately $1.1 billion swapped-to- floating brokered CDs. The Corporation
recorded a net loss of $3.5 million as a result of these transactions resulting from the reversal
of the cumulative mark-to-market valuation of the swaps and the brokered CDs called.
As of June 30, 2009, the Corporation has not entered into any derivative instrument containing
credit-risk-related contingent features.
29
9 GOODWILL AND OTHER INTANGIBLES
Goodwill as of June 30, 2009 and December 31, 2008 amounted to $28.1 million recognized
as part of Other Assets. The goodwill resulted primarily from the acquisition of Ponce General
Corporation in 2005. No goodwill impairment was recognized during 2009 and 2008. Goodwill is
reviewed for impairment at least annually. Goodwill impairment analysis will be conducted during
the second half of 2009.
As of June 30, 2009, the gross carrying amount and accumulated amortization of core deposit
intangibles was $41.8 million and $23.7 million, respectively, recognized as part of Other Assets
in the Consolidated Statements of Financial Condition (December 31, 2008 $45.8 million and
$21.8 million, respectively). During the quarter and six-month period ended June 30, 2009, the
amortization expense of core deposits amounted to $0.9 million and $1.9 million, respectively,
compared to $0.9 million and $1.7 million, respectively, for the comparable periods in 2008. As a
result of an impairment evaluation on core deposit intangibles, in accordance with SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, there was an impairment charge of
$4.0 million recognized during the first half of 2009 related to core deposits in FirstBank Florida
attributable to decreases in the base of core deposits acquired.
10 DEPOSITS
The following table summarizes deposit balances:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
As of |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thosands) |
|
Non-interest bearing checking account deposits |
|
$ |
718,370 |
|
|
$ |
625,928 |
|
Savings accounts |
|
|
1,479,795 |
|
|
|
1,288,179 |
|
Interest-bearing checking accounts |
|
|
881,868 |
|
|
|
726,731 |
|
Certificates of deposits |
|
|
1,719,229 |
|
|
|
1,986,770 |
|
Brokered certificates of deposits (includes
$0 and $1,150,959 measured at fair value as
of June 30, 2009 and December 31, 2008,
respectively) |
|
|
7,236,165 |
|
|
|
8,429,822 |
|
|
|
|
|
|
|
|
|
|
$ |
12,035,427 |
|
|
$ |
13,057,430 |
|
|
|
|
|
|
|
|
The interest expense on deposits includes the market valuation of interest rate swaps
that economically hedge brokered CDs, the related interest exchanged, the amortization of broker
placement fees related to brokered CDs not elected for the fair value option and changes in fair
value of callable brokered CDs elected for the fair value option under SFAS 159 (SFAS 159 brokered
CDs).
30
The following are the components of interest expense on deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Six-Month Period Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
|
(In thousands) |
|
Interest expense on deposits |
|
$ |
75,058 |
|
|
$ |
94,039 |
|
|
$ |
166,000 |
|
|
$ |
203,192 |
|
Amortization of broker placement fees (1) |
|
|
5,063 |
|
|
|
4,256 |
|
|
|
12,146 |
|
|
|
7,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on deposits excluding net unrealized (gain) loss on
derivatives and SFAS 159 brokered CDs |
|
|
80,121 |
|
|
|
98,295 |
|
|
|
178,146 |
|
|
|
210,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized (gain) loss on derivatives and SFAS 159 brokered CDs |
|
|
(663 |
) |
|
|
1,472 |
|
|
|
(3,378 |
) |
|
|
(4,307 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense on deposits |
|
$ |
79,458 |
|
|
$ |
99,767 |
|
|
$ |
174,768 |
|
|
$ |
205,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Related to brokered CDs not elected for the fair value option under SFAS 159. |
Total interest expense on deposits includes net cash settlements on interest rate swaps
that economically hedge brokered CDs that for the quarter and six-month period ended June 30, 2009
amounted to net interest realized of $0.8 million and $5.5 million, respectively, compared to $12.9
million and $19.9 million, respectively, for the comparable periods in 2008. As of June 30, 2009,
there were no interest rate swap agreements outstanding that hedge brokered CDs since all of them
were called by the counterparties during 2009. Refer to Note 8 for additional information.
11 LOANS PAYABLE
As of June 30, 2009, loans payable consisted of $135 million in short-term borrowings under
the FED Discount Window Program bearing interest at 0.50%. In the first quarter of 2009, the
Corporation received approval to participate in the Borrower-in-Custody (BIC) Program of the FED.
Through the BIC Program, a broad range of loans (including commercial, consumer and mortgages) may
be pledged as collateral for borrowings through the FED Discount Window. As of June 30, 2009, the
Corporation had an unused capacity of approximately $514 million on this credit facility based on
collateral pledged at the FED, including the haircut reflecting the perceived risk associated with
holding the collateral.
12 SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase (repurchase agreements) consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Repurchase agreements, interest ranging from -1.75% to 5.39%
(2008 - 2.29% to 5.39%) (1) |
|
$ |
4,130,092 |
|
|
$ |
3,421,042 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As of June 30, 2009, certain U.S. Treasury securities repurchase agreements amounting to $66.4 million
were arranged at negative rates. |
31
Repurchase agreements mature as follows:
|
|
|
|
|
|
|
June 30, |
|
|
|
2009 |
|
|
|
(In thousands) |
|
One to thirty days |
|
$ |
1,142,592 |
|
Over thirty to ninety days |
|
|
|
|
Over ninety days to one year |
|
|
587,500 |
|
One to three years |
|
|
1,000,000 |
|
Three to five years |
|
|
900,000 |
|
Over five years |
|
|
500,000 |
|
|
|
|
|
Total |
|
$ |
4,130,092 |
|
|
|
|
|
As of June 30, 2009 and December 31, 2008, the securities underlying such agreements were
delivered to the dealers with whom the repurchase agreements were transacted.
Repurchase agreements as of June 30, 2009, grouped by counterparty, were as follows:
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
Maturity |
|
Counterparty |
|
Amount |
|
|
(In Months) |
|
Credit Suisse First Boston |
|
$ |
1,383,031 |
|
|
|
22 |
|
Dean Witter / Morgan Stanley |
|
|
796,500 |
|
|
|
14 |
|
Citigroup Global Markets |
|
|
694,830 |
|
|
|
38 |
|
JP Morgan |
|
|
585,151 |
|
|
|
27 |
|
Barclays Capital |
|
|
570,580 |
|
|
|
26 |
|
UBS Financial Services, Inc. |
|
|
100,000 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
$ |
4,130,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
13 ADVANCES FROM THE FEDERAL HOME LOAN BANK (FHLB)
Following is a summary of the advances from the FHLB:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Fixed-rate advances from FHLB, with a weighted-average
interest rate of 2.41% (2008 - 3.09%) |
|
$ |
1,325,440 |
|
|
$ |
1,060,440 |
|
|
|
|
|
|
|
|
32
Advances from FHLB mature as follows:
|
|
|
|
|
|
|
(In thousands) |
|
One to thirty days |
|
$ |
525,000 |
|
Over thirty to ninety days |
|
|
|
|
Over ninety days to one year |
|
|
60,000 |
|
One to three years |
|
|
507,000 |
|
Three to five years |
|
|
233,440 |
|
|
|
|
|
Total |
|
$ |
1,325,440 |
|
|
|
|
|
As of June 30, 2009, the Corporation had additional capacity of approximately $402
million on this credit facility based on collateral pledged at the FHLB, including the haircut
reflecting the perceived risk associated with holding the collateral.
14 NOTES PAYABLE
Notes payable consist of:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Callable step-rate notes, bearing step increasing interest
from 5% to 7% (5.50% as of June 30, 2009 and December 31, 2008)
maturing on October 18, 2019, measured at fair value under SFAS 159 |
|
$ |
11,565 |
|
|
$ |
10,141 |
|
|
|
|
|
|
|
|
|
|
Dow Jones Industrial Average (DJIA) linked principal
protected notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A maturing on February 28, 2012 |
|
|
6,095 |
|
|
|
6,245 |
|
|
|
|
|
|
|
|
|
|
Series B maturing on May 27, 2011 |
|
|
6,728 |
|
|
|
6,888 |
|
|
|
|
|
|
|
|
Total |
|
$ |
24,388 |
|
|
$ |
23,274 |
|
|
|
|
|
|
|
|
15 OTHER BORROWINGS
Other borrowings consist of:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Junior subordinated debentures due in 2034,
interest-bearing at a floating-rate of 2.75%
over 3-month LIBOR (3.36% as of June 30, 2009
and 4.62% as of December 31, 2008) |
|
$ |
103,093 |
|
|
$ |
103,048 |
|
|
|
|
|
|
|
|
|
|
Junior subordinated debentures due in 2034,
interest-bearing at a floating-rate of 2.50%
over 3-month LIBOR (3.11% as of June 30, 2009
and 4.00% as of December 31, 2008) |
|
|
128,866 |
|
|
|
128,866 |
|
|
|
|
|
|
|
|
Total |
|
$ |
231,959 |
|
|
$ |
231,914 |
|
|
|
|
|
|
|
|
33
16 STOCKHOLDERS EQUITY
Common stock
The Corporation has 250,000,000 authorized shares of common stock with a par value of $1 per
share. As of June 30, 2009 and December 31, 2008, there were 102,444,549 shares issued and
92,546,749 shares outstanding. In February 2009, the Corporations Board of Directors declared a
first quarter cash dividend of $0.07 per common share which was paid on March 31, 2009 to common
stockholders of record on March 15, 2009 and in May 2009 declared a second quarter dividend of
$0.07 per common share which was paid on June 30, 2009 to common stockholders of record on June 15,
2009. On July 30, 2009, the Corporation announced the suspension of common and preferred dividends
effective with the preferred dividend for the month of August 2009.
Stock repurchase plan and treasury stock
The Corporation has a stock repurchase program under which from time to time it repurchases
shares of common stock in the open market and holds them as treasury stock. No shares of common
stock were repurchased during 2009 and 2008 by the Corporation. As of June 30, 2009 and December
31, 2008, of the total amount of common stock repurchased, 9,897,800 shares were held as treasury
stock and were available for general corporate purposes.
Preferred stock
The Corporation has 50,000,000 authorized shares of preferred stock with a par value of $1,
redeemable at the Corporations option subject to certain terms. This stock may be issued in series
and the shares of each series shall have such rights and preferences as shall be fixed by the Board
of Directors when authorizing the issuance of that particular series. As of June 30, 2009, the
Corporation has five outstanding series of non- convertible non-cumulative preferred stock: 7.125%
non-cumulative perpetual monthly income preferred stock, Series A; 8.35% non-cumulative perpetual
monthly income preferred stock, Series B; 7.40% non-cumulative perpetual monthly income preferred
stock, Series C; 7.25% non-cumulative perpetual monthly income preferred stock, Series D; and 7.00%
non-cumulative perpetual monthly income preferred stock, Series E, which trade on the NYSE. The
liquidation value per share is $25. Annual dividends of $1.75 per share (Series E), $1.8125 per
share (Series D), $1.85 per share (Series C), $2.0875 per share (Series B) and $1.78125 per share
(Series A) are payable monthly, if declared by the Board of Directors. Dividends declared on the
non-convertible non-cumulative preferred stock for the first half of 2009 and 2008 amounted to
$20.1 million.
In January 2009, in connection with the TARP Capital Purchase Program, established as part of
the Emergency Economic Stabilization Act of 2008, the Corporation issued to the U.S. Treasury
400,000 shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series F, $1,000 liquidation
preference value per share. The Series F Preferred Stock has a call feature after three years. In
connection with this investment, the Corporation also
34
issued to the U.S. Treasury a 10-year warrant (the Warrant) to purchase 5,842,259 shares of
the Corporations common stock at an exercise price of $10.27 per share. The Corporation registered
the Series F Preferred Stock, the Warrant and the shares of common stock underlying the Warrant for
sale under the Securities Act of 1933. The allocated carrying values of the Series F Preferred
Stock and the Warrant on the date of issuance (based on the relative fair values) were $374.2
million and $25.8 million, respectively. The Series F Preferred Stock will accrete to the
redemption price of $400 million over five years.
The Series F Preferred Stock qualifies as Tier 1 regulatory capital. Cumulative dividends on
the Series F Preferred Stock accrue on the liquidation preference amount on a quarterly basis at a
rate of 5% per annum for the first five years, and thereafter at a rate of 9% per annum, but will
only be paid when, as and if declared by the Corporations Board of Directors out of assets legally
available therefore. The Series F Preferred Stock ranks pari passu with the Corporations existing
Series A through E, in terms of dividend payments and distributions upon liquidation, dissolution
and winding up of the Corporation. The Purchase Agreement of this issuance contains limitations on
the payment of dividends on common stock, including limiting regular quarterly cash dividends to an
amount not exceeding the last quarterly cash dividend paid per share, or the amount publicly
announced (if lower), of common stock prior to October 14, 2008, which is $0.07 per share. For the
six-month period ended June 30, 2009, preferred stock dividends of Series F Preferred Stock
amounted to $9.2 million, including $2.6 million of cumulative preferred dividends not declared as
of the end of the period.
The Warrant has a 10-year term and is exercisable at any time. The exercise price and the
number of shares issuable upon exercise of the Warrant are subject to certain anti-dilution
adjustments.
The possible future issuance of equity securities through the exercise of the warrant could
affect the Corporations current stockholders in a number of ways, including by:
|
|
|
diluting the voting power of the current holders of common stock (the shares underlying
the Warrant represent approximately 6% of the Corporations shares of common stock as of
June 30, 2009); |
|
|
|
|
diluting the earnings per share and book value per share of the outstanding shares of
common stock; and |
|
|
|
|
making the payment of dividends on common stock more expensive. |
As mentioned above, on July 30, 2009, the Corporation announced the suspension of dividends for
common and all its outstanding series of preferred stock. This suspension is effective with the
dividends for the month of August 2009, on the Corporations five outstanding series of
non-cumulative preferred stock and dividends for the Corporations outstanding Series F Cumulative Preferred
Stock and the Corporations common stock.
35
17 INCOME TAXES
Income tax expense includes Puerto Rico and Virgin Islands income taxes as well as applicable
U.S. federal and state taxes. The Corporation is subject to Puerto Rico income tax on its income
from all sources. As a Puerto Rico corporation, First BanCorp is treated as a foreign corporation
for U.S. income tax purposes and is generally subject to United States income tax only on its
income from sources within the United States or income effectively connected with the conduct of a
trade or business within the United States. Any such tax paid is creditable, within certain
conditions and limitations, against the Corporations Puerto Rico tax liability. The Corporation
is also subject to U.S. Virgin Islands taxes on its income from sources within that jurisdiction.
Any such tax paid is creditable against the Corporations Puerto Rico tax liability, subject to
certain conditions and limitations.
Under the Puerto Rico Internal Revenue Code of 1994, as amended (PR Code), First BanCorp is
subject to a maximum statutory tax rate of 39%. In 2009 the Puerto Rico Government approved Act
No. 7 (the Act), to stimulate Puerto Ricos economy and to reduce the Puerto Rico Governments
fiscal deficit. The Act imposes a series of temporary and permanent measures, including the
imposition of a 5% surtax over the total income tax determined, which is applicable to
corporations, among others, whose combined income exceeds $100,000, effectively resulting in an
increase in the maximum statutory tax rate from 39% to 40.95%. This temporary measure is effective
for tax years that commenced after December 31, 2008 and before January 1, 2012. The PR Code also
includes an alternative minimum tax of 22% that applies if the Corporations regular income tax
liability is less than the alternative minimum tax requirements.
The Corporation has maintained an effective tax rate lower than the maximum statutory rate
mainly by investing in government obligations and mortgage-backed securities exempt from U.S. and
Puerto Rico income taxes and by doing business through International Banking Entities (IBEs) of
the Corporation and the Bank and through the Banks subsidiary FirstBank Overseas Corporation, in
which the interest income and gain on sales is exempt from Puerto Rico and U.S. income taxation.
Under the Act, all IBEs are subject to a special 5% tax on their net income not otherwise subject
to tax pursuant to the PR Code. This temporary measure is also effective for tax years that
commence after December 31, 2008 and before January 1, 2012. The IBEs and FirstBank Overseas
Corporation were created under the International Banking Entity Act of Puerto Rico, which provides
for total Puerto Rico tax exemption on net income derived by IBEs operating in Puerto Rico. IBEs
that operate as a unit of a bank pay income taxes at normal rates to the extent that the IBEs net
income exceeds 20% of the banks total net taxable income.
For the six-month period ended June 30, 2009, the Corporation recognized an income tax benefit
of $112.3 million, compared to an income tax benefit of $17.2 million recorded for the same period
in 2008. The positive fluctuation in the financial results was mainly related to increased deferred tax benefits due to net
operating losses carryforward recorded as a result of current taxable losses and due to lower
taxable income and adjustments to the deferred tax asset, as a result of the aforementioned changes
to the PR Code enacted tax rates. The Corporation recorded an additional income tax benefit of $6.0
million for the six-month period ended
36
June 30, 2009 in connection with changes to enacted tax rates, net of a $3.6 million provision
recorded for the operations of FirstBank Overseas Corporation. Deferred tax amounts have been
adjusted for the effect of the change in the income tax rate considering the enacted tax rate
expected to apply to taxable income in the period in which the deferred tax asset or liability is
expected to be settled or realized.
As of June 30, 2009, the Corporation evaluated its ability to realize the deferred tax asset
and concluded, based on the evidence available, that it is more likely than not that some of the
deferred tax asset will not be realized and, thus, established a valuation allowance of $5.5
million, compared to a valuation allowance of $7.3 million as of December 31, 2008. As of June 30,
2009, the deferred tax asset, net of the valuation allowance of $5.5 million, amounted to
approximately $217.8 million compared to $128.0 million, net of the valuation allowance of $7.3
million as of December 31, 2008.
FASB Interpretation No. 48 (FIN 48) prescribes a comprehensive model for the financial
statement recognition, measurement, presentation and disclosure of income tax uncertainties with
respect to positions taken or expected to be taken on income tax returns. Under FIN 48, income tax
benefits are recognized and measured based upon a two-step model: 1) a tax position must be more
likely than not to be sustained based solely on its technical merits in order to be recognized, and
2) the benefit is measured as the largest dollar amount of that position that is more likely than
not to be sustained upon settlement. The difference between the benefit recognized in accordance
with FIN 48 and the tax benefit claimed on a tax return is referred to as an unrecognized tax
benefit (UTB).
As of June 30, 2009, the balance of the Corporations UTBs amounted to $4.7 million
(excluding accrued interest), all of which, if recognized, would affect the Corporations effective
tax rate. The Corporation classifies all interest and penalties, if any, related to tax
uncertainties as income tax expense. As of June 30, 2009 and December 31, 2008, the Corporations
accrual for interest that relates to tax uncertainties amounted to $2.1 million and $6.8 million,
respectively. As of June 30, 2009, there is no need to accrue for the payment of penalties. For the
six-month period ended on June 30, 2009 and 2008, the total amount of interest recognized by the
Corporation as part of income tax expense related to tax uncertainties was $0.5 million and $0.8
million, respectively. The amount of UTBs may increase or decrease in the future for various
reasons, including changes in the amounts for current tax year positions, the expiration of open
income tax returns due to the expiration of statutes of limitations, changes in managements
judgment about the level of uncertainty, the status of examinations, litigation and legislative
activity and the addition or elimination of uncertain tax positions. During the second quarter of
2009, the Corporation reversed UTBs by $10.8 million and related accrued interest of $3.5 million
due to the lapse of the statute of limitations for the 2004 taxable year.
The Corporations UTBs and interest relate to tax years still subject to review by taxing
authorities. Audit periods remain open for review until the statute of limitations has expired. The
statute of limitations under the PR Code is 4 years, and for Virgin Islands and U.S. income tax
purposes is 3 years after a tax return is due or filed, whichever is later. The completion of an
audit by the taxing authorities or the expiration
37
of the statute of limitations for a given audit period could result in an adjustment to the
Corporations liability for income taxes. Any such adjustment could be material to results of
operations for any given quarterly or annual period based, in part, upon the results of operations
for the given period.
In July 2009, the Corporation entered into an agreement with the Puerto Rico Department of the
Treasury to conclude an income tax investigation and to eliminate all possible income and
withholding tax deficiencies related to taxable years 2005, 2006, 2007 and 2008. As a result of
such agreement, the Corporation will reverse during the third quarter of 2009 the remaining UTBs
and related interest by approximately $2.9 million, net of the payment made to the Puerto Rico
Department of the Treasury in connection with the conclusion of the tax investigation.
18 FAIR VALUE
SFAS 159 generally permits the measurement of selected eligible financial instruments at fair
value at specified election dates. The Corporation elected to adopt the fair value option for
certain of its brokered CDs and medium-term notes (SFAS 159 liabilities) on the adoption date.
Fair Value Option
Callable Brokered CDs and Certain Medium-Term Notes
The Corporation elected the fair value option for certain financial liabilities that were
hedged with interest rate swaps that were previously designated for fair value hedge accounting in
accordance with SFAS 133. As of June 30, 2009 and December 31, 2008, these liabilities included
certain medium-term notes with a fair value of $11.6 million and $10.1 million, respectively, and
principal balance of $15.4 million recorded in notes payable. As of December 31, 2008, liabilities
recognized at fair value also included callable brokered CDs with an aggregate fair value of $1.15
billion and principal balance of $1.13 billion, recorded in interest-bearing deposits. Interest
paid/accrued on these instruments is recorded as part of interest expense and the accrued interest
is part of the fair value of the SFAS 159 liabilities. Electing the fair value option allows the
Corporation to eliminate the burden of complying with the requirements for hedge accounting under
SFAS 133 (e.g., documentation and effectiveness assessment) without introducing earnings
volatility. Interest rate risk on the callable brokered CDs measured at fair value under SFAS 159
was economically hedged with callable interest rate swaps, with the same terms and conditions,
until they were all called during 2009. The Corporation did not elect the fair value option for
the vast majority of other brokered CDs because these are not hedged by derivatives.
Medium-term notes and callable brokered CDs for which the Corporation elected the fair value
option were priced using observable market data in the institutional markets.
Fair Value Measurement
38
SFAS 157 defines fair value as the exchange price that would be received for an asset or paid
to transfer a liability (an exit price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants on the measurement date. SFAS
157 also establishes a fair value hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring fair value. The
standard describes three levels of inputs that may be used to measure fair value:
|
|
|
Level 1
|
|
Valuations of Level 1 assets and liabilities are obtained from readily available pricing
sources for market transactions involving identical assets or liabilities. Level 1 assets and
liabilities include equity securities that are traded in an active exchange market, as well as
certain U.S. Treasury and other U.S. government and agency securities and corporate debt
securities that are traded by dealers or brokers in active markets. |
|
|
|
Level 2
|
|
Valuations of Level 2 assets and liabilities are based on
observable inputs other than Level 1 prices, such as quoted prices
for similar assets or liabilities, or other inputs that are
observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities. Level 2
assets and liabilities include (i) mortgage-backed securities for
which the fair value is estimated based on the value of identical
or comparable assets, (ii) debt securities with quoted prices that
are traded less frequently than exchange-traded instruments and
(iii) derivative contracts and financial liabilities (e.g.,
callable brokered CDs and medium-term notes elected for the fair
value option under SFAS 159) whose value is determined using a
pricing model with inputs that are observable in the market or can
be derived principally from or corroborated by observable market
data. |
|
|
|
Level 3
|
|
Valuations of Level 3 assets and liabilities are based on
unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets
or liabilities. Level 3 assets and liabilities include financial
instruments whose value is determined using pricing models for
which the determination of fair value requires significant
management judgment or estimation. |
Estimated Fair Value of Financial Instruments
The information about the estimated fair value of financial instruments required by GAAP is
presented hereunder. The aggregate fair value amounts presented do not necessarily represent
managements estimate of the underlying value of the Corporation.
The estimated fair value is subjective in nature and involves uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision. Changes in the
underlying assumptions used in calculating fair value could significantly affect the
39
results. In addition, the fair value estimates are based on outstanding balances without
attempting to estimate the value of anticipated future business.
The following table presents the estimated fair value and carrying value of financial
instruments as of June 30, 2009 and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Carrying |
|
|
|
|
|
|
Total Carrying |
|
|
|
|
|
|
Amount in |
|
|
|
|
|
|
Amount in |
|
|
|
|
|
|
Statement of |
|
|
|
|
|
|
Statement of |
|
|
|
|
|
|
Financial |
|
|
Fair Value |
|
|
Financial |
|
|
Fair Value |
|
|
|
Condition |
|
|
Estimated |
|
|
Condition |
|
|
Estimated |
|
|
|
6/30/2009(1) |
|
|
6/30/2009(2) |
|
|
12/31/2008(1) |
|
|
12/31/2008(2) |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks and money
market investments |
|
$ |
247,788 |
|
|
$ |
247,788 |
|
|
$ |
405,733 |
|
|
$ |
405,733 |
|
Investment securities available
for sale |
|
|
5,527,981 |
|
|
|
5,527,981 |
|
|
|
3,862,342 |
|
|
|
3,862,342 |
|
Investment securities held to maturity |
|
|
686,931 |
|
|
|
703,430 |
|
|
|
1,706,664 |
|
|
|
1,720,412 |
|
Other equity securities |
|
|
83,430 |
|
|
|
83,430 |
|
|
|
64,145 |
|
|
|
64,145 |
|
Loans receivable, including loans
held for sale |
|
|
13,135,710 |
|
|
|
|
|
|
|
13,088,292 |
|
|
|
|
|
Less: allowance for loan and
lease losses |
|
|
(407,746 |
) |
|
|
|
|
|
|
(281,526 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of allowance |
|
|
12,727,964 |
|
|
|
12,769,659 |
|
|
|
12,806,766 |
|
|
|
12,416,603 |
|
Derivatives, included in assets |
|
|
4,898 |
|
|
|
4,898 |
|
|
|
8,010 |
|
|
|
8,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
12,035,427 |
|
|
|
12,175,191 |
|
|
|
13,057,430 |
|
|
|
13,221,026 |
|
Loans payable |
|
|
135,000 |
|
|
|
135,000 |
|
|
|
|
|
|
|
|
|
Federal funds purchased and securities
sold under agreements to repurchase |
|
|
4,130,092 |
|
|
|
4,308,099 |
|
|
|
3,421,042 |
|
|
|
3,655,652 |
|
Advances from FHLB |
|
|
1,325,440 |
|
|
|
1,367,332 |
|
|
|
1,060,440 |
|
|
|
1,079,298 |
|
Notes payable |
|
|
24,388 |
|
|
|
22,940 |
|
|
|
23,274 |
|
|
|
18,755 |
|
Other borrowings |
|
|
231,959 |
|
|
|
76,727 |
|
|
|
231,914 |
|
|
|
81,170 |
|
Derivatives, included in liabilities |
|
|
6,669 |
|
|
|
6,669 |
|
|
|
8,505 |
|
|
|
8,505 |
|
|
|
|
(1) |
|
This column discloses carrying amount,
required by FSP FAS 107-1 and APB 28-1. |
|
(2) |
|
This column discloses fair value estimates, required by
FSP FAS 107-1 and APB 28-1. |
Assets and liabilities measured at fair value on a recurring basis, including financial
liabilities for which the Corporation has elected the fair value option, are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2009 |
|
As of December 31, 2008 |
|
|
Fair Value Measurements Using |
|
Fair Value Measurements Using |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets / Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets / Liabilities |
(In thousands) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
at Fair Value |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
at Fair Value |
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale (1) |
|
$ |
97,238 |
|
|
$ |
5,334,175 |
|
|
$ |
96,568 |
|
|
$ |
5,527,981 |
|
|
$ |
2,217 |
|
|
$ |
3,746,142 |
|
|
$ |
113,983 |
|
|
$ |
3,862,342 |
|
Derivatives, included in assets (1) |
|
|
|
|
|
|
1,384 |
|
|
|
3,514 |
|
|
|
4,898 |
|
|
|
|
|
|
|
7,250 |
|
|
|
760 |
|
|
|
8,010 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Callable brokered CDs (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,150,959 |
|
|
|
|
|
|
|
1,150,959 |
|
Medium-term notes (2) |
|
|
|
|
|
|
11,565 |
|
|
|
|
|
|
|
11,565 |
|
|
|
|
|
|
|
10,141 |
|
|
|
|
|
|
|
10,141 |
|
Derivatives, included in liabilities (1) |
|
|
|
|
|
|
6,669 |
|
|
|
|
|
|
|
6,669 |
|
|
|
|
|
|
|
8,505 |
|
|
|
|
|
|
|
8,505 |
|
|
|
|
(1) |
|
Carried at fair value prior to the adoption of SFAS 159. |
|
(2) |
|
Items for which the Corporation has elected the fair value option under SFAS 159. |
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Fair Value for the Quarter Ended |
|
|
Changes in Fair Value for the Six-Month Period Ended |
|
|
|
June 30, 2009, for items Measured at Fair Value Pursuant |
|
|
June 30, 2009, for items Measured at Fair Value Pursuant |
|
|
|
to Election of the Fair Value Option |
|
|
to Election of the Fair Value Option |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Changes in Fair Value |
|
|
|
|
|
|
|
|
|
|
Changes in Fair Value |
|
|
|
Unrealized Losses and |
|
|
Unrealized Gains and |
|
|
Unrealized (Losses) Gains |
|
|
Unrealized Gains and |
|
|
Unrealized Losses and |
|
|
Unrealized Gains (Losses) |
|
|
|
Interest Expense included |
|
|
Interest Expense included |
|
|
and Interest Expense |
|
|
Interest Expense included |
|
|
Interest Expense included |
|
|
and Interest Expense |
|
|
|
in Interest Expense |
|
|
in Interest Expense |
|
|
included in |
|
|
in Interest Expense |
|
|
in Interest Expense |
|
|
included in |
|
(In thousands) |
|
on Deposits (1) |
|
|
on Notes Payable (1) |
|
|
Current-Period Earnings (1) |
|
|
on Deposits (1) |
|
|
on Notes Payable (1) |
|
|
Current-Period Earnings (1) |
|
Callable brokered CDs |
|
$ |
(287 |
) |
|
$ |
|
|
|
$ |
(287 |
) |
|
$ |
(2,068 |
) |
|
$ |
|
|
|
$ |
(2,068 |
) |
Medium-term notes |
|
|
|
|
|
|
(1,892 |
) |
|
|
(1,892 |
) |
|
|
|
|
|
|
(1,849 |
) |
|
|
(1,849 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(287 |
) |
|
$ |
(1,892 |
) |
|
$ |
(2,179 |
) |
|
$ |
(2,068 |
) |
|
$ |
(1,849 |
) |
|
$ |
(3,917 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Changes in fair value for the quarter and six-month period
ended June 30, 2009 include interest expense on callable brokered
CDs of $1.8 million, and $10.8 million, respectively, and
interest expense on medium-term notes of $0.2 million and $0.4
million, respectively. Interest expense on callable brokered CDs
and medium-term notes that have been elected to be carried at
fair value under the provisions of SFAS 159 are recorded in
interest expense in the Consolidated Statement of Income based on
their contractual coupons. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Fair Value for the Quarter Ended |
|
|
Changes in Fair Value for the Six-Month Period Ended |
|
|
|
June 30, 2008, for items Measured at Fair Value Pursuant |
|
|
June 30, 2008, for items Measured at Fair Value Pursuant |
|
|
|
to Election of the Fair Value Option |
|
|
to Election of the Fair Value Option |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Changes in Fair Value |
|
|
|
|
|
|
|
|
|
|
Changes in Fair Value |
|
|
|
Unrealized Gains and |
|
|
Unrealized Gains and |
|
|
Unrealized Gains |
|
|
Unrealized Losses and |
|
|
Unrealized Gains and |
|
|
Unrealized (Losses) Gains |
|
|
|
Interest Expense included |
|
|
Interest Expense included |
|
|
and Interest Expense |
|
|
Interest Expense included |
|
|
Interest Expense included |
|
|
and Interest Expense |
|
|
|
in Interest Expense |
|
|
in Interest Expense |
|
|
included in |
|
|
in Interest Expense |
|
|
in Interest Expense |
|
|
included in |
|
(In thousands) |
|
on Deposits (1) |
|
|
on Notes Payable (1) |
|
|
Current-Period Earnings (1) |
|
|
on Deposits (1) |
|
|
on Notes Payable (1) |
|
|
Current-Period Earnings (1) |
|
Callable brokered CDs |
|
$ |
(1,320 |
) |
|
$ |
|
|
|
$ |
(1,320 |
) |
|
$ |
(99,992 |
) |
|
$ |
|
|
|
$ |
(99,992 |
) |
Medium-term notes |
|
|
|
|
|
|
(211 |
) |
|
|
(211 |
) |
|
|
|
|
|
|
474 |
|
|
|
474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1,320 |
) |
|
$ |
(211 |
) |
|
$ |
(1,531 |
) |
|
$ |
(99,992 |
) |
|
$ |
474 |
|
|
$ |
(99,518 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Changes in fair value for the quarter and six-month period ended
June 30, 2008 include interest expense on callable brokered CDs of $29.8
million, and $78.9 million, respectively, and interest expense on
medium-term notes of $0.2 million and $0.4 million, respectively.
Interest expense on callable brokered CDs and medium-term notes that
have been elected to be carried at fair value under the provisions of
SFAS 159 are recorded in interest expense in the Consolidated Statement
of Income based on their contractual coupons. |
The table below presents a reconciliation for all assets and liabilities measured at fair
value on a recurring basis using significant unobservable inputs (Level 3) for the quarters and
six-month periods ended June 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value Measurements |
|
|
Total Fair Value Measurements |
|
|
|
(Quarter Ended June 30, 2009) |
|
|
(Six-Month Period Ended June 30, 2009) |
|
(In thousands) |
|
Derivatives (1) |
|
|
Securities Available For Sale (2) |
|
|
Derivatives (1) |
|
|
Securities Available For Sale (2) |
|
Beginning balance |
|
$ |
982 |
|
|
$ |
110,982 |
|
|
$ |
760 |
|
|
$ |
113,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains or (losses) (realized / unrealized): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
|
|
2,532 |
|
|
|
(1,061 |
) |
|
|
2,754 |
|
|
|
(1,061 |
) |
Included in other comprehensive income |
|
|
|
|
|
|
(2,372 |
) |
|
|
|
|
|
|
(1,244 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal repayments and amortization |
|
|
|
|
|
|
(10,981 |
) |
|
|
|
|
|
|
(15,110 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
3,514 |
|
|
$ |
96,568 |
|
|
$ |
3,514 |
|
|
$ |
96,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts related to the valuation of interest rate cap agreements which were carried at fair
value prior to the adoption of SFAS 159. |
|
(2) |
|
Amounts mostly related to certain private label mortgage-backed securities which were carried
at fair value prior to the adoption of SFAS 159. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value Measurements |
|
|
Total Fair Value Measurements |
|
|
|
(Quarter Ended June 30, 2008) |
|
|
(Six-Month Period Ended June 30, 2008) |
|
(In thousands) |
|
Derivatives (1) |
|
|
Securities Available For Sale (2) |
|
|
Derivatives (1) |
|
|
Securities Available For Sale (2) |
|
Beginning balance |
|
$ |
2,888 |
|
|
$ |
119,051 |
|
|
$ |
5,103 |
|
|
$ |
133,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains or (losses) (realized / unrealized): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
|
|
3,095 |
|
|
|
|
|
|
|
880 |
|
|
|
|
|
Included in other comprehensive income |
|
|
|
|
|
|
3,025 |
|
|
|
|
|
|
|
(7,607 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal repayments and amortization |
|
|
|
|
|
|
(6,886 |
) |
|
|
|
|
|
|
(10,881 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
5,983 |
|
|
$ |
115,190 |
|
|
$ |
5,983 |
|
|
$ |
115,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts related to the valuation of interest rate cap agreements which were carried at fair
value prior to the adoption of SFAS 159. |
|
(2) |
|
Amounts mostly related to certain private label mortgage-backed securities which were carried
at fair value prior to the adoption of SFAS 159. |
41
The table below summarizes changes in unrealized gains and losses recorded in earnings
for the quarters and six-month periods ended June 30, 2009 and 2008 for Level 3 assets and
liabilities that are still held as of the end of each period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Unrealized |
|
|
Changes in Unrealized |
|
|
|
Gains (Losses) |
|
|
Gains (Losses) |
|
|
|
Quarter Ended |
|
|
Six-Month Period Ended |
|
|
|
June 30, 2009 |
|
|
June 30, 2009 |
|
(In thousands) |
|
Derivatives |
|
|
Securities Available For Sale |
|
|
Derivatives |
|
|
Securities Available For Sale |
|
Changes in unrealized gains (losses) relating to assets still held at
reporting date (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income on loans |
|
$ |
43 |
|
|
$ |
|
|
|
$ |
48 |
|
|
$ |
|
|
Interest income on investment securities |
|
|
2,489 |
|
|
|
|
|
|
|
2,706 |
|
|
|
|
|
Net impairment losses on investment securities |
|
|
|
|
|
|
(1,061 |
) |
|
|
|
|
|
|
(1,061 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,532 |
|
|
$ |
(1,061 |
) |
|
$ |
2,754 |
|
|
$ |
(1,061 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Unrealized losses of $2.4 million and $1.2 million on Level 3 available-for-sale securities was
recognized as part of comprehensive income for the quarter and six-month period ended June 30,
2009. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Unrealized |
|
|
Changes in Unrealized |
|
|
|
Gains (Losses) |
|
|
Gains (Losses) |
|
|
|
Quarter Ended |
|
|
Six-Month Period Ended |
|
|
|
June 30, 2008 |
|
|
June 30, 2008 |
|
(In thousands) |
|
Derivatives |
|
|
Securities Available For Sale |
|
|
Derivatives |
|
|
Securities Available For Sale |
|
Changes in unrealized gains (losses) relating to assets still held at
reporting date (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income on loans |
|
$ |
54 |
|
|
$ |
|
|
|
$ |
23 |
|
|
$ |
|
|
Interest income on investment securities |
|
|
3,041 |
|
|
|
|
|
|
|
857 |
|
|
|
|
|
Net impairment losses on investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,095 |
|
|
$ |
|
|
|
$ |
880 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Unrealized gain of $3.0 million and unrealized loss of $7.6 million on
Level 3 available-for-sale securities was recognized as part of comprehensive
income for the quarter and six-month period ended June 30, 2008. |
Additionally, fair value is used on a non-recurring basis to evaluate certain assets in
accordance with GAAP. Adjustments to fair value usually result from the application of
lower-of-cost-or-market accounting (e.g., loans held for sale carried at the lower of cost or fair
value and repossessed assets) or write-downs of individual assets (e.g., goodwill, loans).
As of June 30, 2009, impairment or valuation adjustments were recorded for assets recognized
at fair value on a non-recurring basis as shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses recorded for |
|
Losses recorded for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the Quarter Ended |
|
the Six-month period |
|
|
Carrying value as of June 30, 2009 |
|
June 30, 2009 |
|
ended June 30, 2009 |
(In thousands) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
|
|
|
|
|
|
|
Loans receivable (1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
759,241 |
|
|
$ |
80,146 |
|
|
$ |
117,880 |
|
Other Real Estate Owned (2) |
|
|
|
|
|
|
|
|
|
|
58,064 |
|
|
|
3,677 |
|
|
|
5,695 |
|
Core deposit intangible (3) |
|
|
|
|
|
|
|
|
|
|
7,348 |
|
|
|
270 |
|
|
|
3,988 |
|
|
|
|
(1) |
|
Mainly impaired commercial and construction loans. The impairment was generally measured
based on the fair value of the collateral in accordance with the provisions of SFAS 114. The
fair values are derived from appraisals that take into consideration prices in observed
transactions involving similar assets in similar locations but adjusted for specific
characteristics and assumptions of the collateral (e.g. absorption rates), which are not
market observable. |
|
(2) |
|
The fair value is derived from appraisals that take into consideration prices in
observed transactions involving similar assets in similar locations but adjusted for
specific characteristics and assumptions of the properties (e.g. absorption rates), which
are not market observable. Losses are related to market valuation adjustments after the
transfer from the loan to the Other Real Estate Owned (OREO) portfolio. |
|
(3) |
|
Amount represents core deposit intangible of FirstBank Florida. The
impairment was generally measured based on internal information about decreases
in the base of core deposits acquired upon the acquisition of FirstBank
Florida. |
42
As of June 30, 2008, impairment or valuation adjustments were recorded for assets recognized
at fair value on a non-recurring basis as shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses recorded for |
|
Losses recorded for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the Quarter Ended |
|
the Six-month period |
|
|
Carrying value as of June 30, 2008 |
|
June 30, 2008 |
|
ended June 30, 2008 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable (1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
175,341 |
|
|
$ |
21,896 |
|
|
$ |
40,685 |
|
Other Real Estate Owned (2) |
|
|
|
|
|
|
|
|
|
|
38,620 |
|
|
|
522 |
|
|
|
843 |
|
Loans held for sale (3) |
|
|
|
|
|
|
29,194 |
|
|
|
|
|
|
|
457 |
|
|
|
457 |
|
|
|
|
(1) |
|
Mainly impaired commercial and construction loans. The impairment was generally measured based on the fair value of the collateral in accordance with the
provisions of SFAS 114. The fair values are derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar
locations but adjusted for specific characteristics and assumptions of the collateral (e.g. absorption rates), which are not market observable. |
|
(2) |
|
The fair value is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations but adjusted
for specific characteristics and assumptions of the properties (e.g. absorption rates), which are not market observable. Losses are related to market valaution
adjustments after the transfer from the loan to the OREO portfolio. |
|
(3) |
|
Fair value is primarily derived from quotations based on the mortgage-backed securities market. |
The following is a description of the valuation methodologies used for instruments for which
an estimated fair value is presented as well as for instruments for which the Corporation has
elected the fair value option. The estimated fair value was calculated using certain facts and
assumptions, which vary depending on the specific financial instrument.
Cash and due from banks and money market investments
The carrying amount of cash and due from banks and money market investments are reasonable
estimates of their fair value. Money market investments include held-to-maturity U.S. Government
obligations, which have a contractual maturity of three months or less. The fair value of these
securities is based on quoted market prices in active markets that incorporate the risk of
nonperformance.
Investment securities available for sale and held to maturity
The fair value of investment securities is the market value based on quoted market prices,
when available, or market prices for identical or comparable assets that are based on observable
market parameters including benchmark yields, reported trades, quotes from brokers or dealers,
issuer spreads, bids offers and reference data including market research operations. Observable
prices in the market already consider the risk of nonperformance. If listed prices or quotes are
not available, fair value is based upon models that use unobservable inputs due to the limited
market activity of the instrument, as is the case with certain private label mortgage-backed
securities held by the Corporation. Refer to Note 4 for additional information about the fair value
of private label mortgage-backed securities.
Other equity securities
Equity or other securities that do not have a readily available fair value are stated at the
net realizable value which management believes is a reasonable proxy for their fair value.
43
This category is principally composed of stock that is owned by the Corporation to comply with
Federal Home Loan Bank (FHLB) regulatory requirements. Their realizable value equals their cost as
these shares can be freely redeemed at par.
Loans receivable, including loans held for sale
The fair value of all loans was estimated using discounted cash flow analyses, using interest
rates currently being offered for loans with similar terms and credit quality and with adjustments
that the Corporations nanagement believes a market participant would consider in determining fair
value. Loans were classified by type such as commercial, residential mortgage, credit cards and
automobile. These asset categories were further segmented into fixed- and adjustable-rate
categories. The fair values of performing fixed-rate and adjustable-rate loans were calculated by
discounting expected cash flows through the estimated maturity date. Loans with no stated maturity,
like credit lines, were valued at book value. Prepayment assumptions were considered for
non-residential loans. For residential mortgage loans, prepayment estimates were based on
prepayment experiences of generic U.S. mortgage-backed securities pools with similar
characteristics (e.g. coupon and original term) and adjusted based on the Corporations historical
data. Discount rates were based on the Treasury and LIBOR/Swap Yield Curves at the date of the
analysis, and included appropriate adjustments for expected credit losses and liquidity.
For impaired collateral dependent loans, the impairment was primarily measured based on the
fair value of the collateral, which is derived from appraisals that take into consideration prices
in observable transactions involving similar assets in similar locations, in accordance with the
provisions of SFAS 114.
Deposits
The estimated fair value of demand deposits and savings accounts, which are deposits with no
defined maturities, equals the amount payable on demand at the reporting date. For deposits with
stated maturities, but that reprice at least quarterly, the fair value is also estimated to be the
recorded amounts at the reporting date.
The fair values of retail fixed-rate time deposits, with stated maturities, are based on the
present value of the future cash flows expected to be paid on the deposits. The cash flows were
based on contractual maturities; no early repayments are assumed. Discount rates were based on the
LIBOR yield curve.
The estimated fair value of total deposits excludes the fair value of core deposit
intangibles, which represent the value of the customer relationship measured by the value of demand
deposits and savings deposits that bear a low or zero rate of interest and do not fluctuate in
response to changes in interest rates.
The fair value of brokered CDs, which are included within deposits, is determined using
discounted cash flow analyses over the full term of the CDs. The valuation uses a
44
Hull-White Interest Rate Tree approach, an industry-standard approach for valuing instruments
with interest rate call options. The fair value of the CDs is computed using the outstanding
principal amount. The discount rates used are based on US dollar LIBOR and swap rates.
At-the-money implied swaption volatility term structure (volatility by time to maturity) is used to
calibrate the model to current market prices. The fair value does not incorporate the risk of
nonperformance, since brokered CDs are generally participated out by brokers in shares of less than
$100,000 and insured by the FDIC.
Loans payable
Loans payable consisted of short-term borrowings under the FED Discount Window Program. Due to the
short-term nature of these borrowings, their outstanding balances are estimated to be the fair
value.
Securities sold under agreements to repurchase
Some repurchase agreements reprice at least quarterly, and their outstanding balances are
estimated to be their fair value. Where longer commitments are involved, fair value is estimated
using exit price indications of the cost of unwinding the transactions as of the end of the
reporting period. Securities sold under agreements to repurchase are fully collateralized by
investment securities.
Advances from FHLB
The fair value of advances from FHLB with fixed maturities is determined using discounted cash
flow analyses over the full term of the borrowings, using indications of the fair value of similar
transactions. The cash flows assume no early repayment of the borrowings. Discount rates are based
on the LIBOR yield curve. For advances from FHLB that reprice quarterly, their outstanding balances
are estimated to be their fair value. Advances from FHLB are fully collateralized by mortgage loans
and, to a lesser extent, investment securities.
Derivative instruments
The fair value of most of the derivative instruments is based on observable market parameters and
takes into consideration the credit risk component, when appropriate. The Hull-White Interest Rate
Tree approach is used to value the option components of derivative instruments, and discounting of
the cash flows is performed using USD dollar LIBOR-based discount rates or yield curves that
account for the industry sector and the credit rating of the counterparty and/or the Corporation.
Derivatives include interest rate swaps used for protection against rising interest rates and prior
to June 30, 2009 included interest rate swaps to economically hedge brokered CDs and medium-term
notes. For these interest rate swaps, a credit component was not considered in the valuation since
the Corporation has fully collateralized with investment securities any mark to market loss with
the counterparty and if there were market gains the counterparty had to deliver collateral to the
Corporation.
45
Certain derivatives with limited market activity, as is the case with derivative instruments
named as reference caps, are valued using models that consider unobservable market parameters
(Level 3). Reference caps are used mainly to hedge interest rate risk inherent in private label
mortgage-backed securities, thus are tied to the notional amount of the underlying fixed-rate
mortgage loans originated in the United States. Significant inputs used for fair value
determination consist of specific characteristics such as information used in the prepayment model
which follows the amortizing schedule of the underlying loans, which is an unobservable input. The
valuation model uses the Black formula, which is a benchmark standard in the financial industry.
The Black formula is similar to the Black-Scholes formula for valuing stock options except that the
spot price of the underlying is replaced by the forward price. The Black formula uses as inputs the
strike price of the cap, forward LIBOR rates, volatility estimates and discount rates to estimate
the option value. LIBOR rates and swap rates are obtained from Bloomberg L.P. (Bloomberg) every
day and build zero coupon curve based on the Bloomberg LIBOR/Swap curve. The discount factor is
then calculated from the zero coupon curve. The cap is the sum of all caplets. For each caplet, the
rate is reset at the beginning of each reporting period and payments are made at the end of each
period. The cash flow of each caplet is then discounted from each payment date.
Although most of the derivative instruments are fully collateralized, a credit spread is
considered for those that are not secured in full. The cumulative mark-to-market effect of credit
risk in the valuation of derivative instruments resulted in an unrealized loss of approximately
$0.8 million as of June 30, 2009, of which an unrealized loss of $2.7 million was recorded in the
first half of 2009 and an unrealized gain of $0.1 million in the first half of 2008.
Term notes payable
The fair value of term notes is determined using a discounted cash flow analysis over the full
term of the borrowings. This valuation also uses the Hull-White Interest Rate Tree approach to
value the option components of the term notes. The model assumes that the embedded options are
exercised economically. The fair value of medium-term notes is computed using the notional amount
outstanding. The discount rates used in the valuations are based on US dollar LIBOR and swap rates.
At-the-money implied swaption volatility term structure (volatility by time to maturity) is used to
calibrate the model to current market prices and value the cancellation option in the term notes.
For the medium-term notes, the credit risk is measured using the difference in yield curves between
swap rates and a yield curve that considers the industry and credit rating of the Corporation as
issuer of the note at a tenor comparable to the time to maturity of the note and option. The net
loss from fair value changes attributable to the Corporations own credit to the medium-term notes
for which the Corporation has elected the fair value option amounted to $10.1 million for the first
half of 2009 and an unrealized gain of $0.9 million for the first half of 2008. The cumulative
mark-to-market unrealized loss on the
medium-term notes since the adoption of SFAS 159 attributable to credit risk amounted to $4.4
million as of June 30, 2009.
46
Other borrowings
Other borrowings consist of junior subordinated debentures. Projected cash flows from the
debentures were discounted using the LIBOR yield curve plus a credit spread. This credit spread was
estimated using the difference in yield curves between Swap rates and a yield curve that considers
the industry and credit rating of the Corporation (US Finance BB) as issuer of the note at a tenor
comparable to the time to maturity of the debentures.
19 SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information follows:
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period Ended June 30, |
|
|
2009 |
|
2008 |
|
|
(In thousands) |
Cash paid for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on borrowings |
|
$ |
283,134 |
|
|
$ |
367,767 |
|
Income tax |
|
|
319 |
|
|
|
2,082 |
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to other real estate owned |
|
|
52,862 |
|
|
|
36,171 |
|
Additions to auto repossesion |
|
|
40,048 |
|
|
|
44,497 |
|
Capitalization of servicing assets |
|
|
3,181 |
|
|
|
515 |
|
Loan securitizations |
|
|
187,815 |
|
|
|
|
|
Non-cash acquisition of mortgage loans that previously served
as collateral of a commercial loan to a local financial institution |
|
205,395 |
|
|
|
|
On January 28, 2008, the Corporation completed the acquisition of Virgin Islands Community
Bank (VICB), with operations in St. Croix, U.S. Virgin Islands, at a purchase price of $2.5
million. The Corporation acquired cash of approximately $7.7 million from VICB.
20 SEGMENT INFORMATION
Based upon the Corporations organizational structure and the information provided to the
Chief Executive Officer of the Corporation and, to a lesser extent, the Board of Directors, the
operating segments are driven primarily by the Corporations legal entities. As of June 30, 2009,
the Corporation had four reportable segments: Commercial and Corporate Banking; Mortgage Banking;
Consumer (Retail) Banking; and Treasury and Investments. There is also an Other category reflecting
other legal entities reported separately on an aggregate basis. Management determined the
reportable segments based on the internal reporting used to evaluate performance and to assess
where to allocate resources. Other factors such as the Corporations organizational chart, nature
of the products, distribution channels and the economic characteristics of the products were also
considered in the determination of the reportable segments.
The Commercial and Corporate Banking segment consists of the Corporations lending and other
services for large customers represented by specialized and middle-market clients and the public
sector. The Commercial and Corporate Banking segment offers commercial
47
loans, including commercial real estate and construction loans, and other products such as cash
management and business management services. The Mortgage Banking segments operations consist of
the origination, sale and servicing of a variety of residential mortgage loans. The Mortgage
Banking segment also acquires and sells mortgages in the secondary markets. In addition, the
Mortgage Banking segment includes mortgage loans purchased from other local banks and mortgage
bankers. The Consumer (Retail) Banking segment consists of the Corporations consumer lending and
deposit-taking activities conducted mainly through its branch network and loan centers. The
Treasury and Investments segment is responsible for the Corporations investment portfolio and
treasury functions executed to manage and enhance liquidity. This segment loans funds to the
Commercial and Corporate Banking, Mortgage Banking and Consumer (Retail) Banking segments to
finance their lending activities and borrows from those segments. The Consumer (Retail) Banking
segment also loans funds to other segments. The interest rates charged or credited by Treasury and
Investments and the Consumer (Retail) Banking segments are allocated based on market rates. The
difference between the allocated interest income or expense and the Corporations actual net
interest income from centralized management of funding costs is reported in the Treasury and
Investments segment. The Other category is mainly composed of insurance, finance leases and other
products.
The accounting policies of the business segments are the same as those described in Note 1 to
the Corporations financial statements for the year ended December 31, 2008 contained in the
Corporations Annual Report on Form 10-K.
The Corporation evaluates the performance of the segments based on net interest income after
the estimated provision for loan and lease losses, non-interest income and direct non-interest
expenses. The segments are also evaluated based on the average volume of their interest-earning
assets less the allowance for loan and lease losses.
48
The following table presents information about the reportable segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
Consumer |
|
|
Commercial and |
|
|
Treasury and |
|
|
|
|
|
|
|
|
|
Banking |
|
|
(Retail) Banking |
|
|
Corporate |
|
|
Investments |
|
|
Other |
|
|
Total |
|
For the quarter ended June 30, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
45,212 |
|
|
$ |
39,925 |
|
|
$ |
72,065 |
|
|
$ |
66,499 |
|
|
$ |
29,079 |
|
|
$ |
252,780 |
|
Net (charge) credit for transfer of funds |
|
|
(31,837 |
) |
|
|
17,248 |
|
|
|
(20,431 |
) |
|
|
34,877 |
|
|
|
143 |
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
(18,353 |
) |
|
|
|
|
|
|
(96,456 |
) |
|
|
(6,957 |
) |
|
|
(121,766 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest (loss) income |
|
|
13,375 |
|
|
|
38,820 |
|
|
|
51,634 |
|
|
|
4,920 |
|
|
|
22,265 |
|
|
|
131,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses |
|
|
(14,683 |
) |
|
|
(15,000 |
) |
|
|
(194,162 |
) |
|
|
|
|
|
|
(11,307 |
) |
|
|
(235,152 |
) |
Non-interest income |
|
|
2,402 |
|
|
|
7,004 |
|
|
|
1,280 |
|
|
|
8,365 |
|
|
|
4,364 |
|
|
|
23,415 |
|
Direct non-interest expenses |
|
|
(9,539 |
) |
|
|
(27,006 |
) |
|
|
(17,487 |
) |
|
|
(1,990 |
) |
|
|
(12,974 |
) |
|
|
(68,996 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment (loss) income |
|
$ |
(8,445 |
) |
|
$ |
3,818 |
|
|
$ |
(158,735 |
) |
|
$ |
11,295 |
|
|
$ |
2,348 |
|
|
$ |
(149,719 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average earnings assets |
|
$ |
3,009,312 |
|
|
$ |
1,783,988 |
|
|
$ |
7,158,541 |
|
|
$ |
6,015,921 |
|
|
$ |
1,351,426 |
|
|
$ |
19,319,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended June 30, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
47,455 |
|
|
$ |
40,022 |
|
|
$ |
85,666 |
|
|
$ |
71,254 |
|
|
$ |
32,211 |
|
|
$ |
276,608 |
|
Net (charge) credit for transfer of funds |
|
|
(35,066 |
) |
|
|
23,808 |
|
|
|
(49,502 |
) |
|
|
64,451 |
|
|
|
(3,691 |
) |
|
|
|
|
Interest expense |
|
|
|
|
|
|
(19,563 |
) |
|
|
|
|
|
|
(114,004 |
) |
|
|
(8,435 |
) |
|
|
(142,002 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
12,389 |
|
|
|
44,267 |
|
|
|
36,164 |
|
|
|
21,701 |
|
|
|
20,085 |
|
|
|
134,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses |
|
|
(1,259 |
) |
|
|
(14,414 |
) |
|
|
(20,037 |
) |
|
|
|
|
|
|
(5,613 |
) |
|
|
(41,323 |
) |
Non-interest income (loss) |
|
|
853 |
|
|
|
6,674 |
|
|
|
1,137 |
|
|
|
(587 |
) |
|
|
3,925 |
|
|
|
12,002 |
|
Direct non-interest expenses |
|
|
(6,125 |
) |
|
|
(25,546 |
) |
|
|
(8,099 |
) |
|
|
(1,586 |
) |
|
|
(11,400 |
) |
|
|
(52,756 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income |
|
$ |
5,858 |
|
|
$ |
10,981 |
|
|
$ |
9,165 |
|
|
$ |
19,528 |
|
|
$ |
6,997 |
|
|
$ |
52,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average earnings assets |
|
$ |
2,909,308 |
|
|
$ |
1,720,661 |
|
|
$ |
5,992,390 |
|
|
$ |
5,487,619 |
|
|
$ |
1,357,393 |
|
|
$ |
17,467,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six-month period ended June 30, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
92,627 |
|
|
$ |
80,727 |
|
|
$ |
142,362 |
|
|
$ |
136,255 |
|
|
$ |
59,132 |
|
|
$ |
511,103 |
|
Net (charge) credit for transfer of funds |
|
|
(66,141 |
) |
|
|
37,048 |
|
|
|
(49,900 |
) |
|
|
79,029 |
|
|
|
(36 |
) |
|
|
|
|
Interest expense |
|
|
|
|
|
|
(37,442 |
) |
|
|
|
|
|
|
(206,365 |
) |
|
|
(14,684 |
) |
|
|
(258,491 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
26,486 |
|
|
|
80,333 |
|
|
|
92,462 |
|
|
|
8,919 |
|
|
|
44,412 |
|
|
|
252,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses |
|
|
(23,125 |
) |
|
|
(19,242 |
) |
|
|
(230,447 |
) |
|
|
|
|
|
|
(21,767 |
) |
|
|
(294,581 |
) |
Non-interest income |
|
|
3,239 |
|
|
|
13,877 |
|
|
|
2,546 |
|
|
|
25,887 |
|
|
|
7,919 |
|
|
|
53,468 |
|
Direct non-interest expenses |
|
|
(17,023 |
) |
|
|
(52,233 |
) |
|
|
(27,464 |
) |
|
|
(3,712 |
) |
|
|
(29,250 |
) |
|
|
(129,682 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment (loss) income |
|
$ |
(10,423 |
) |
|
$ |
22,735 |
|
|
$ |
(162,903 |
) |
|
$ |
31,094 |
|
|
$ |
1,314 |
|
|
$ |
(118,183 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average earnings assets |
|
$ |
3,043,468 |
|
|
$ |
1,807,617 |
|
|
$ |
6,960,139 |
|
|
$ |
5,788,847 |
|
|
$ |
1,354,233 |
|
|
$ |
18,954,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six-month period ended June 30, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
92,560 |
|
|
$ |
82,412 |
|
|
$ |
179,746 |
|
|
$ |
135,872 |
|
|
$ |
65,105 |
|
|
$ |
555,695 |
|
Net (charge) credit for transfer of funds |
|
|
(69,146 |
) |
|
|
45,999 |
|
|
|
(107,276 |
) |
|
|
135,109 |
|
|
|
(4,686 |
) |
|
|
|
|
Interest expense |
|
|
|
|
|
|
(38,725 |
) |
|
|
|
|
|
|
(240,675 |
) |
|
|
(17,231 |
) |
|
|
(296,631 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
23,414 |
|
|
|
89,686 |
|
|
|
72,470 |
|
|
|
30,306 |
|
|
|
43,188 |
|
|
|
259,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses |
|
|
(6,968 |
) |
|
|
(28,989 |
) |
|
|
(33,081 |
) |
|
|
|
|
|
|
(18,078 |
) |
|
|
(87,116 |
) |
Non-interest income |
|
|
1,229 |
|
|
|
13,968 |
|
|
|
2,148 |
|
|
|
15,734 |
|
|
|
8,303 |
|
|
|
41,382 |
|
Direct non-interest expenses |
|
|
(12,505 |
) |
|
|
(53,115 |
) |
|
|
(17,596 |
) |
|
|
(3,436 |
) |
|
|
(22,839 |
) |
|
|
(109,491 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income |
|
$ |
5,170 |
|
|
$ |
21,550 |
|
|
$ |
23,941 |
|
|
$ |
42,604 |
|
|
$ |
10,574 |
|
|
$ |
103,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average earnings assets |
|
$ |
2,861,979 |
|
|
$ |
1,732,717 |
|
|
$ |
5,923,744 |
|
|
$ |
5,297,547 |
|
|
$ |
1,353,989 |
|
|
$ |
17,169,976 |
|
49
The following table presents a reconciliation of the reportable segment financial information
to the consolidated totals (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Six-month Period Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (loss) income for segments and other |
|
$ |
(149,719 |
) |
|
$ |
52,529 |
|
|
$ |
(118,183 |
) |
|
$ |
103,839 |
|
Other operating expenses |
|
|
(26,992 |
) |
|
|
(29,007 |
) |
|
|
(50,834 |
) |
|
|
(54,459 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(176,711 |
) |
|
|
23,522 |
|
|
|
(169,017 |
) |
|
|
49,380 |
|
Income tax benefit |
|
|
98,053 |
|
|
|
9,472 |
|
|
|
112,250 |
|
|
|
17,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated net (loss) income |
|
$ |
(78,658 |
) |
|
$ |
32,994 |
|
|
$ |
(56,767 |
) |
|
$ |
66,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average earning assets for segments |
|
$ |
19,319,188 |
|
|
$ |
17,467,371 |
|
|
$ |
18,954,304 |
|
|
$ |
17,169,976 |
|
Average non-earning assets |
|
|
741,908 |
|
|
|
759,060 |
|
|
|
731,277 |
|
|
|
712,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated average assets |
|
$ |
20,061,096 |
|
|
$ |
18,226,431 |
|
|
$ |
19,685,581 |
|
|
$ |
17,882,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 COMMITMENTS AND CONTINGENCIES
The Corporation enters into financial instruments with off-balance sheet risk in the normal
course of business to meet the financing needs of its customers. These financial instruments may
include commitments to extend credit and commitments to sell mortgage loans at fair value. As of
June 30, 2009, commitments to extend credit amounted to approximately $1.4 billion and standby
letters of credit amounted to approximately $101.6 million. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any conditions established in
the contract. Commitments generally have fixed expiration dates or other termination clauses.
Since certain commitments are expected to expire without being drawn upon, the total commitment
amount does not necessarily represent future cash requirements. For most of the commercial lines of
credit, the Corporation has the option to reevaluate the agreement prior to additional
disbursements. In the case of credit cards and personal lines of credit, the Corporation can, at
any time and without cause, cancel the unused credit facility. Generally, the Corporations
mortgage banking activities do not enter into interest rate lock agreements with its prospective
borrowers.
The Corporation obtained from GNMA a Commitment Authority to issue GNMA mortgage-backed
securities for approximately $301.5 million. Under this program, as of June 30, 2009, the
Corporation had securitized approximately $188 million of FHA/VA mortgage loan production into GNMA
mortgage-backed securities.
Lehman Brothers Special Financing, Inc. (Lehman) was the counterparty to the Corporation on
certain interest rate swap agreements. During the third quarter of 2008, Lehman failed to pay the
scheduled net cash settlement due to the Corporation, which constitutes an event of default under
those interest rate swap agreements. The Corporation terminated all interest rate swaps with Lehman
and replaced them with other counterparties under similar terms and conditions. In connection with
the unpaid net cash
settlement due as of June 30, 2009, under the swap agreements, the Corporation has an
50
unsecured counterparty exposure with Lehman, which filed for bankruptcy on October 3, 2008, of
approximately $1.4 million. This exposure was reserved in the third quarter of 2008. The
Corporation had pledged collateral of $63.6 million with Lehman to guarantee its performance under
the swap agreements in the event payment thereunder was required. The book value of pledged
securities with Lehman as of June 30, 2009 amounted to approximately $64.5 million. The position
of the Corporation with respect to the recovery of the collateral, after discussion with its
outside legal counsel, is that at all times title to the collateral has been vested in the
Corporation and that, therefore, this collateral should not, for any purpose, be considered
property of the bankruptcy estate available for distribution among Lehmans creditors. On
January 30, 2009, the Corporation filed a customer claim with the trustee and at this time the
Corporation is unable to determine the timing of the claim resolution or whether it will succeed in
recovering all or a substantial portion of the collateral or its equivalent value. As additional
relevant facts become available in future periods, a need to recognize a partial or full reserve of
this claim may arise. Considering that the investment securities have not yet been recovered by
the Corporation, despite its efforts in this regard, the Corporation decided to classify such
investments as non-performing during the second quarter of 2009.
As of June 30, 2009, First BanCorp and its subsidiaries were defendants in various legal
proceedings arising in the ordinary course of business. Management believes that the final
disposition of these matters will not have a material adverse effect on the Corporations financial
position or results of operations.
51
22 FIRST BANCORP (Holding Company Only) Financial Information
The following condensed financial information presents the financial position of the Holding
Company only as of June 30, 2009 and December 31, 2008 and the results of its operations for the
quarters and six-month periods ended June 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
As of |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
83,394 |
|
|
$ |
58,075 |
|
Money market investments |
|
|
300 |
|
|
|
300 |
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale, at market: |
|
|
|
|
|
|
|
|
Equity investments |
|
|
528 |
|
|
|
669 |
|
|
|
|
|
|
|
|
|
|
Other investment securities |
|
|
1,550 |
|
|
|
1,550 |
|
Investment in FirstBank Puerto Rico, at equity |
|
|
1,805,023 |
|
|
|
1,574,940 |
|
Investment in FirstBank Insurance Agency, at equity |
|
|
6,552 |
|
|
|
5,640 |
|
Investment in Ponce General Corporation, at equity |
|
|
160,438 |
|
|
|
123,367 |
|
Investment in PR Finance, at equity |
|
|
2,924 |
|
|
|
2,789 |
|
Investment in FBP Statutory Trust I |
|
|
3,093 |
|
|
|
3,093 |
|
Investment in FBP Statutory Trust II |
|
|
3,866 |
|
|
|
3,866 |
|
Other assets |
|
|
5,753 |
|
|
|
6,596 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,073,421 |
|
|
$ |
1,780,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities & Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Other borrowings |
|
$ |
231,959 |
|
|
$ |
231,914 |
|
Accounts payable and other liabilities |
|
|
776 |
|
|
|
854 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
232,735 |
|
|
|
232,768 |
|
Stockholders equity |
|
|
1,840,686 |
|
|
|
1,548,117 |
|
|
|
|
|
|
|
|
Total Liabilities & Stockholders Equity |
|
$ |
2,073,421 |
|
|
$ |
1,780,885 |
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Six-Month Period Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income on investment securities |
|
$ |
|
|
|
$ |
57 |
|
|
$ |
|
|
|
$ |
790 |
|
Interest income on other investments |
|
|
|
|
|
|
204 |
|
|
|
1 |
|
|
|
733 |
|
Dividends from FirstBank Puerto Rico |
|
|
24,962 |
|
|
|
30,001 |
|
|
|
44,939 |
|
|
|
41,872 |
|
Dividends from other subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500 |
|
Other income |
|
|
69 |
|
|
|
93 |
|
|
|
141 |
|
|
|
213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,031 |
|
|
|
30,355 |
|
|
|
45,081 |
|
|
|
46,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable and other borrowings |
|
|
2,291 |
|
|
|
3,126 |
|
|
|
4,729 |
|
|
|
7,389 |
|
Interest on funding to subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
550 |
|
Recovery for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,398 |
) |
Other operating expenses |
|
|
751 |
|
|
|
563 |
|
|
|
1,162 |
|
|
|
1,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,042 |
|
|
|
3,689 |
|
|
|
5,891 |
|
|
|
7,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss on investments and impairments |
|
|
|
|
|
|
(489 |
) |
|
|
(388 |
) |
|
|
(489 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and equity
in undistributed earnings of subsidiaries |
|
|
21,989 |
|
|
|
26,177 |
|
|
|
38,802 |
|
|
|
38,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
|
(11 |
) |
|
|
(1 |
) |
|
|
(3 |
) |
|
|
(546 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed (losses) earnings of subsidiaries |
|
|
(100,636 |
) |
|
|
6,818 |
|
|
|
(95,566 |
) |
|
|
29,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(78,658 |
) |
|
$ |
32,994 |
|
|
$ |
(56,767 |
) |
|
$ |
66,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23 SUBSEQUENT EVENTS
In July 2009, the Corporation entered into an agreement with the Puerto Rico Department of the
Treasury to conclude an income tax investigation and to eliminate all possible income and
withholding tax deficiencies related to taxable years 2005, 2006, 2007 and 2008. As a result of
such agreement, the Corporation will reverse during the third quarter of 2009 the remaining UTBs
and related interest by approximately $2.9 million, net of the payment made to the Puerto Rico
Department of the Treasury in connection with the conclusion of the tax investigation. Also, the
agreement provides a three-year moratorium on the deduction of the last installment of the Class
Action payment made by the Corporation in 2007, according to a previous agreement entered with the
Puerto Rico Department of the Treasury in February 2008. This moratorium started on January 1,
2009 and will end on December 31, 2011. During this period, the Corporation will not be allowed to
deduct any part of the last installment of $18.75 million for income tax purposes.
Effective July 1, 2009, the operations conducted by FirstBank Florida as a separate subsidiary were
merged with and into FirstBank Puerto Rico, the Corporations main banking subsidiary. As part of
the Corporations strategic planning it has been determined that business synergies can be achieved
by merging FirstBank Florida with and into FirstBank Puerto Rico, which reorganization included the
consolidation of FirstBank Puerto Ricos loan production office with the former thrift banking
operations of FirstBank Florida. For the last three years the Corporation has been conducting dual
banking operations in the Florida market, upon consummation of the merger, the consolidation of the
former thrift banking operations with the loan production office
53
resulted in FirstBank Puerto Rico
having a more diversified and efficient banking operation in the form of a branch network in the
Florida market. The merger allows the
Florida operations to benefit by leveraging the capital position of FirstBank Puerto Rico and
thereby provide it with the support necessary to grow in the Florida market.
The Corporation adopted SFAS 165 during the second quarter of 2009 and has evaluated
subsequent events through August 10, 2009, which is the date the financial statements were issued.
There are not any material subsequent events, other than those described above, which would require
further disclosure.
54
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
SELECTED FINANCIAL DATA
(In thousands, except for per share and financial ratios)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
Six-month period ended |
|
|
June 30, |
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Condensed Income Statements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
$ |
252,780 |
|
|
$ |
276,608 |
|
|
$ |
511,103 |
|
|
$ |
555,695 |
|
Total interest expense |
|
|
121,766 |
|
|
|
142,002 |
|
|
|
258,491 |
|
|
|
296,631 |
|
Net interest income |
|
|
131,014 |
|
|
|
134,606 |
|
|
|
252,612 |
|
|
|
259,064 |
|
Provision for loan and lease losses |
|
|
235,152 |
|
|
|
41,323 |
|
|
|
294,581 |
|
|
|
87,116 |
|
Non-interest income |
|
|
23,415 |
|
|
|
12,002 |
|
|
|
53,468 |
|
|
|
41,382 |
|
Non-interest expenses |
|
|
95,988 |
|
|
|
81,763 |
|
|
|
180,516 |
|
|
|
163,950 |
|
(Loss) Income before income taxes |
|
|
(176,711 |
) |
|
|
23,522 |
|
|
|
(169,017 |
) |
|
|
49,380 |
|
Income tax benefit |
|
|
98,053 |
|
|
|
9,472 |
|
|
|
112,250 |
|
|
|
17,203 |
|
Net (loss) income |
|
|
(78,658 |
) |
|
|
32,994 |
|
|
|
(56,767 |
) |
|
|
66,583 |
|
Net (loss) income attributable to common stockholders |
|
|
(94,825 |
) |
|
|
22,925 |
|
|
|
(88,052 |
) |
|
|
46,445 |
|
Per Common Share Results: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share basic |
|
$ |
(1.03 |
) |
|
$ |
0.25 |
|
|
$ |
(0.95 |
) |
|
$ |
0.50 |
|
Net (loss) income per share diluted |
|
$ |
(1.03 |
) |
|
$ |
0.25 |
|
|
$ |
(0.95 |
) |
|
$ |
0.50 |
|
Cash dividends declared |
|
$ |
0.07 |
|
|
$ |
0.07 |
|
|
$ |
0.14 |
|
|
$ |
0.14 |
|
Average shares outstanding |
|
|
92,511 |
|
|
|
92,505 |
|
|
|
92,511 |
|
|
|
92,505 |
|
Average shares outstanding diluted |
|
|
92,511 |
|
|
|
92,708 |
|
|
|
92,511 |
|
|
|
92,650 |
|
Book value per common share |
|
$ |
9.88 |
|
|
$ |
9.21 |
|
|
$ |
9.88 |
|
|
$ |
9.21 |
|
Tangible book value per common share (1) |
|
$ |
9.38 |
|
|
$ |
8.62 |
|
|
$ |
9.38 |
|
|
$ |
8.62 |
|
Selected Financial Ratios (In Percent): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profitability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on Average Assets |
|
|
(1.57 |
) |
|
|
0.72 |
|
|
|
(0.58 |
) |
|
|
0.74 |
|
Interest Rate Spread (2) |
|
|
2.60 |
|
|
|
2.92 |
|
|
|
2.53 |
|
|
|
2.78 |
|
Net Interest Margin (2) |
|
|
2.92 |
|
|
|
3.28 |
|
|
|
2.89 |
|
|
|
3.19 |
|
Return on Average Total Equity |
|
|
(15.93 |
) |
|
|
9.16 |
|
|
|
(5.89 |
) |
|
|
9.26 |
|
Return on Average Common Equity |
|
|
(36.14 |
) |
|
|
10.29 |
|
|
|
(16.99 |
) |
|
|
10.46 |
|
Average Total Equity to Average Total Assets |
|
|
9.85 |
|
|
|
7.91 |
|
|
|
9.79 |
|
|
|
8.04 |
|
Tangible common equity ratio (1) |
|
|
4.35 |
|
|
|
4.25 |
|
|
|
4.35 |
|
|
|
4.25 |
|
Dividend payout ratio |
|
|
(6.84 |
) |
|
|
28.25 |
|
|
|
(14.73 |
) |
|
|
27.88 |
|
Efficiency ratio (3) |
|
|
62.16 |
|
|
|
55.77 |
|
|
|
58.98 |
|
|
|
54.57 |
|
Asset Quality: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses to loans receivable |
|
|
3.11 |
|
|
|
1.82 |
|
|
|
3.11 |
|
|
|
1.82 |
|
Net charge-offs (annualized) to average loans |
|
|
3.85 |
|
|
|
0.97 |
|
|
|
2.52 |
|
|
|
0.91 |
|
Provision for loan and lease losses to net charge-offs |
|
|
180.97 |
|
|
|
139.86 |
|
|
|
174.97 |
|
|
|
158.36 |
|
Non-performing assets to total assets |
|
|
6.53 |
|
|
|
2.65 |
|
|
|
6.53 |
|
|
|
2.65 |
|
Non-accruing loans to total loans receivable |
|
|
8.94 |
|
|
|
3.67 |
|
|
|
8.94 |
|
|
|
3.67 |
|
Allowance to total non-accruing loans |
|
|
34.81 |
|
|
|
49.56 |
|
|
|
34.81 |
|
|
|
49.56 |
|
Allowance to total non-accruing loans
excluding residential real estate loans |
|
|
52.85 |
|
|
|
101.85 |
|
|
|
52.85 |
|
|
|
101.85 |
|
Other Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Price: End of period |
|
$ |
3.95 |
|
|
$ |
6.34 |
|
|
$ |
3.95 |
|
|
$ |
6.34 |
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
As of |
|
|
June 30, |
|
December 31, |
|
|
2009 |
|
2008 |
Balance Sheet Data: |
|
|
|
|
|
|
|
|
Loans and loans held for sale |
|
$ |
13,135,710 |
|
|
$ |
13,088,292 |
|
Allowance for loan and lease losses |
|
|
407,746 |
|
|
|
281,526 |
|
Money market and investment securities |
|
|
6,368,167 |
|
|
|
5,709,154 |
|
Intangible assets |
|
|
46,228 |
|
|
|
52,083 |
|
Deferred tax asset, net |
|
|
217,843 |
|
|
|
128,039 |
|
Total assets |
|
|
20,012,887 |
|
|
|
19,491,268 |
|
Deposits |
|
|
12,035,427 |
|
|
|
13,057,430 |
|
Borrowings |
|
|
5,846,879 |
|
|
|
4,736,670 |
|
Total preferred equity |
|
|
926,259 |
|
|
|
550,100 |
|
Total common equity |
|
|
868,045 |
|
|
|
940,628 |
|
Accumulated other comprehensive income, net of tax |
|
|
46,382 |
|
|
|
57,389 |
|
Total equity |
|
|
1,840,686 |
|
|
|
1,548,117 |
|
|
|
|
1- |
|
Non-gaap measures. Refer to Capital discussion below for additional information of
the components and reconciliation of these measures. |
|
2- |
|
On a tax equivalent basis and excluding the changes in fair
value of derivative instruments and financial instruments
measured at fair value under SFAS 159 (see Net Interest Income
discussion below for a reconciliation of this non-gaap measure). |
|
3- |
|
Non-interest expenses to the sum of net interest income
and non-interest income. The denominator includes
non-recurring income and changes in the fair value of
derivative instruments and financial instruments measured at
fair value under SFAS 159. |
55
The following Managements Discussion and Analysis of Financial Condition and Results of
Operations relates to the accompanying consolidated audited financial statements of First BanCorp
(the Corporation or First BanCorp) and should be read in conjunction with the interim unaudited
financial statements and the notes thereto.
DESCRIPTION OF BUSINESS
First BanCorp is a diversified financial holding company headquartered in San Juan, Puerto
Rico offering a full range of financial products to consumers and commercial customers through
various subsidiaries. First BanCorp is the holding company of FirstBank Puerto Rico (FirstBank or
the Bank), Grupo Empresas de Servicios Financieros (d/b/a PR Finance Group) and FirstBank
Insurance Agency. Through its wholly-owned subsidiaries, the Corporation operates offices in Puerto
Rico, the United States and British Virgin Islands and the State of Florida (USA) specializing in
commercial banking, residential mortgage loan originations, finance leases, personal loans, small
loans, auto loans, vehicle rental and insurance agency services. Refer to Note 23 of the
accompanying unaudited consolidated financial statements for information about operations conducted
in Florida.
OVERVIEW OF RESULTS OF OPERATIONS
First BanCorps results of operations generally depend primarily upon its net interest income,
which is the difference between the interest income earned on its interest-earning assets,
including investment securities and loans, and the interest expense incurred on its
interest-bearing liabilities, including deposits and borrowings. Net interest income is affected by
various factors, including: the interest rate scenario; the volumes, mix and composition of
interest-earning assets and interest-bearing liabilities; and the re-pricing characteristics of
these assets and liabilities. The Corporations results of operations also depend on the provision
for loan and lease losses, which significantly affected the results for the second quarter and
six-month period ended June 30, 2009, non-interest expenses (such as personnel, occupancy and other
costs), non-interest income (mainly service charges and fees on loans and deposits and insurance
income), the results of its hedging activities, gains (losses) on investments, gains (losses) on
sale of loans, and income taxes.
Net loss for the quarter ended June 30, 2009 amounted to $78.7 million or $1.03 per diluted
common share, compared to net income of $33.0 million or $0.25 per diluted common share for the
quarter ended June 30, 2008. The Corporations financial performance for the second quarter of
2009, as compared to the second quarter of 2008, was principally impacted by an increase of $193.8
million in the provision for loan and lease losses attributable to the migration of a substantial
portion of loans to the substandard or doubtful category (including some considered as impaired),
higher general reserves to account for increases in charge-offs and delinquency levels, specific
reserves for additional loans classified as impaired during the second quarter of 2009 and the
overall growth of the Corporations loan portfolio and, to a lesser extent, by (i) an increase of
$14.2 million in non-interest expenses driven primarily by non-controllable
56
expenses, such as a charge of $8.9 million for the special assessment levied by the Federal
Deposit Insurance Corporation (FDIC) and a $3.6 million increase in the regular deposit insurance
premium, and (ii) a decrease of $3.6 million in net interest income adversely impacted by lower
loan yields, resulting from a significant increase in non-accrual loans and the repricing of
variable-rate construction and commercial loans tied to short-term indexes. These factors were
partially offset by: (i) a net income tax benefit increase of $88.6 million resulting from lower
taxable income and changes in enacted tax rates in Puerto Rico, and (ii) an increase of $11.4
million in non-interest income mainly related to a realized gain of $10.3 million on the sale of
investment securities (mainly U.S. sponsored agency fixed-rate MBS) and an increase in gains from
mortgage banking activities driven by a higher volume of loans sales and securitizations.
The highlights and key drivers of the Corporations financial results for the quarter ended
June 30, 2009 include the following:
|
|
|
Net interest income for the quarter ended June 30, 2009 was $131.0 million, compared to
$134.6 million for the same period in 2008. The net interest spread and margin, on an
adjusted tax equivalent basis, for the quarter ended June 30, 2009 were 2.60% and 2.92%,
respectively, compared to 2.92% and 3.28%, respectively, for the same period in 2008. Net
interest income was adversely impacted primarily by a significant increase in non-accrual
loans and, to a lesser extent, the repricing of floating-rate commercial and construction
loans at lower rates. Lower loan yields more than offset the benefit of lower short-term
rates in the average cost of funding and the increase in average interest-earning assets.
Refer to the Net Interest Income discussion below for additional information about,
among other things, recent actions taken by the Corporation to restructure its investment
portfolio. |
|
|
|
|
For the second quarter of 2009, the Corporations provision for loan and lease losses
amounted to $235.2 million, compared to $41.3 million for the same period in 2008. Refer
to the discussion under the Risk Management section below for an analysis of the
allowance for loan and lease losses and non-performing assets and related ratios. The
increase in the provision for 2009 was primarily due to: the migration of a substantial
portion of loans to the substandard and doubtful categories (including some considered as impaired), thus requiring a higher
reserve; changes in reserve factors used to determine the general reserve for the
Corporations construction, commercial and residential mortgage loan portfolios, in both
the Puerto Rico and Florida portfolios, to account for higher charge-offs and delinquency
levels; specific reserves necessary for additional loans classified as impaired during the
second quarter of 2009; and the overall growth of the Corporations loan portfolio. |
|
|
|
|
The Corporations net charge-offs for the second quarter of 2009 were $129.9 million or
3.85% of average loans on an annualized basis, compared to $29.5 million or 0.97% of
average loans on an annualized basis for the same period in 2008. The increase in net
charge-offs was primarily related to construction and commercial loans, in the Florida
region. Refer to the Provision for Loan and Lease Losses and |
57
|
|
|
Risk Management Non-performing assets and Allowance for Loan and Lease Losses sections
below for additional information. |
|
|
|
For the quarter ended June 30, 2009, the Corporations non-interest income amounted to
$23.4 million, compared to $12.0 million for the quarter ended June 30, 2008. The
increase was mainly due to a realized gain of $10.3 million on the sale of certain
investments and a $1.6 million increase in gains from mortgage banking activities. During
the second quarter of 2009, the Corporation completed the sale of approximately $242
million of U.S. agency MBS, realizing a gain of $9.4 million, and also sold its remaining
exposure to auto industry corporate bonds of $1.5 million realizing a gain of $0.9 million
in the process. Refer to the Non Interest Income discussion below for additional
information. |
|
|
|
|
Non-interest expenses for the second quarter of 2009 amounted to $96.0 million,
compared to $81.8 million for the same period in 2008. The Corporation recorded $8.9
million in the second quarter of 2009 for the accrual of the special assessment levied by
the FDIC. The FDIC special assessment, together with an increase of $3.6 million in the
regular deposit insurance premium, resulted in an increase of over $12 million in FDIC
assessments as compared to the second quarter of 2008. Other increases in non-interest
expenses are mainly related to higher losses on real estate owned (REO) operations and
an increase in property tax expense. Refer to the Non Interest Expenses discussion
below for additional information. |
|
|
|
|
For the second quarter of 2009, the Corporation recorded an income tax benefit of $98.1
million, compared to an income tax benefit of $9.5 million for the same period in 2008.
The fluctuation is mainly related to increased deferred tax benefits due to net operating losses carryforward recorded as a result
of current taxable losses and due to a lower
current income tax provision resulting from lower taxable-income and adjustments to
deferred tax asset, as a result of changes to the enacted rates in the Puerto Rico
Internal Revenue Code of 1994, as amended (the PR Code). Refer to the Income Taxes
discussion below for additional information. |
|
|
|
|
Total assets as of June 30, 2009 amounted to $20.0 billion, an increase of
$521.6 million compared to total assets as of December 31, 2008. The increase in total
assets was primarily a result of an increase of $665.2 million in investment securities,
partially offset by a decrease of $157.9 million in cash and cash equivalent funds used to
pay down maturing borrowings. The Corporation increased its investment securities
portfolio with the purchase of highly liquid securities, such as U.S. agency MBS and debt
securities as well as U.S. Treasury investments. Refer to the Financial Condition and
Operating Data discussion below for additional information. |
|
|
|
|
As of June 30, 2009, total liabilities amounted to $18.2 billion, an increase of
approximately $229.0 million, as compared to $17.9 billion as of December 31, 2008. The
increase in total liabilities was mainly attributable to an increase of |
58
|
|
|
$709.1 million in repurchase agreements, mainly new short-term repurchase agreements
entered into to fund the growth of the investment portfolio, an increase of $400 million in
advances from the Federal Home Loan Bank (FHLB) and the Federal Reserve (FED) and an
increase of $171.7 million in core deposits, mainly in Puerto Rico. The aforementioned
increases were partially offset by a decrease of approximately $1.2 billion in brokered
CDs. Brokered certificates of deposit (CDs) with original maturities over 6 months and
issued when interest rates were higher matured or were called during 2009 and current
short-term rates on repurchase agreements and FHLB and FED advances provided a cost
effective funding alternative. Refer to the Risk management Liquidity and Capital
Adequacy discussion below for additional information about the Corporations funding
sources. |
|
|
|
The Corporations stockholders equity amounted to $1.8 billion as of June 30, 2009, an
increase of $292.6 million compared to the balance as of December 31, 2008, driven by the
$400 million investment by the United States Department of the Treasury (the U.S.
Treasury) in preferred stock of the Corporation through the U.S. Treasury Troubled Asset
Relief Program (TARP) Capital Purchase Program. Partially offsetting this increase was
the net loss of $56.8 million incurred in the first half of 2009, dividends amounting to
$39.7 million for the first half of 2009 ($13.0 million in common stock, or $0.14 per
share, and $26.7 million in preferred stock), and a decrease of $11.0 million
in accumulated other comprehensive income.
Refer to the Risk Management Capital section below for additional information. |
|
|
|
|
Total loan production, including purchases, for the quarter ended June 30,
2009 was $900.4 million, compared to $1.0 billion for the comparable period in 2008. The
decrease in loan production during 2009, as compared to the second quarter of 2008, was
mainly associated with a reduced volume of commercial loan originations in Puerto Rico,
adversely impacted by deteriorated economic conditions and a lower overall demand for all
types of loans. |
|
|
|
|
Total non-performing assets as of June 30, 2009 were
$1.3 billion, compared to $637.2 million as of December 31, 2008. The increase in non-performing assets since
December 31, 2008 was led by an increase of $367.8 million in loans classified as
non-performing in the state of Florida, mainly construction loans, an increase of $97.7
million in non-performing residential mortgage loans in Puerto Rico, an increase of $85.0
million in non-performing construction loans in Puerto Rico and an increase of $41.3
million in non-performing commercial loans in Puerto Rico. Also, during the second quarter
of 2009, the Corporation classified as non-performing investment securities with a book
value of $64.5 million that were pledged to Lehman Brothers Special Financing, Inc., in
connection with several interest rate swap agreements entered into with that institution.
Considering that the investment securities have not yet been recovered by the Corporation,
despite its efforts in this regard, the Corporation decided to classify such investments as
non-performing. Other increases in non-performing assets mainly consist of additions to |
59
|
|
|
repossessed properties, mainly additions to the real estate owned portfolio, which
increased by $20.8 million. Partially offsetting the aforementioned increases was a
decrease of $5.2 million in non-performing consumer loans (including finance leases) in
Puerto Rico. Refer to the Risk Management Non-accruing and Non-performing Assets
section below for additional information. |
CRITICAL ACCOUNTING POLICIES AND PRACTICES
The accounting principles of the Corporation and the methods of applying these principles
conform with generally accepted accounting principles in the United States (GAAP) and to general
practices within the banking industry. The Corporations critical accounting policies relate to the
1) allowance for loan and lease losses; 2) other-than-temporary impairments; 3) income taxes; 4)
classification and related values of investment securities; 5) valuation of financial instruments;
6) derivative financial instruments; and 7) income recognition on loans. These critical accounting
policies involve judgments, estimates and assumptions made by management that affect the recorded
assets and liabilities and contingent assets and liabilities disclosed as of the date of the
financial statements and the reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from estimates, if different assumptions or conditions
prevail. Certain determinations inherently have greater reliance on the use of estimates,
assumptions, and judgments and, as such, have a greater possibility of producing results that could
be materially different than those originally reported.
The Corporations critical accounting policies are described in the Management Discussion and
Analysis of Financial Condition and Results of Operations section of First BanCorps 2008 Annual
Report on Form 10-K. There have not been any material changes in the Corporations critical
accounting policies since December 31, 2008, except for changes in the Other-than-Temporary
Impairment (OTTI) model for debt securities as required by the Financial Accounting Standards
Board Staff Position No. (FSP) FAS 115-2 and FAS 124-2 which the Corporation adopted during the
second quarter of 2009. Refer to Note 4 of the accompanying unaudited consolidated financial
statements for additional information about the adoption of FSP FAS 115-2 and FAS 124-2.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income is the excess of interest earned by First BanCorp on its interest-earning
assets over the interest incurred on its interest-bearing liabilities. First BanCorps net interest
income is subject to interest rate risk due to the re-pricing and maturity mismatch of the
Corporations assets and liabilities. Net interest income for the quarter and six-month period
ended June 30, 2009 was $131.0 million and $252.6 million, respectively, compared to $134.6 million
and $259.1 million, respectively, for the comparable periods in 2008. On a tax equivalent basis and
excluding the changes in the fair value of derivative instruments and unrealized gains and losses
on liabilities elected
60
to be measured at fair value under SFAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities, net interest income for the quarter and six-month period ended June 30,
2009 was $142.6 million and $275.0 million, respectively, compared to $144.5 million and $275.8
million, respectively, for the comparable periods of 2008.
The following tables include a detailed analysis of net interest income. Part I presents
average volumes and rates on an adjusted tax equivalent basis and Part II presents, also on an
adjusted tax equivalent basis, the extent to which changes in interest rates and changes in volume
of interest-related assets and liabilities have affected the Corporations net interest income. For
each category of interest-earning assets and interest-bearing liabilities, information is provided
on changes attributable to (i) changes in volume (changes in volume multiplied by prior period
rates), and (ii) changes in rate (changes in rate multiplied by prior period volumes). Rate-volume
variances (changes in rate multiplied by changes in volume) have been allocated to the changes in
volume and rate based upon their respective percentage of the combined totals.
The net interest income is computed on a tax equivalent basis (for definition and
reconciliation of this non-GAAP measure, refer to discussions below) and excluding: (1) the change
in the fair value of derivative instruments and (2) unrealized gains or losses on SFAS 159
liabilities.
61
Part I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Volume |
|
|
Interest income (1) / expense |
|
|
Average Rate (1) |
|
Quarter ended June 30, |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market & other short-term investments |
|
$ |
101,819 |
|
|
$ |
374,559 |
|
|
$ |
117 |
|
|
$ |
1,813 |
|
|
|
0.46 |
% |
|
|
1.95 |
% |
|
Government obligations (2) |
|
|
1,540,821 |
|
|
|
1,303,468 |
|
|
|
15,904 |
|
|
|
20,566 |
|
|
|
4.14 |
% |
|
|
6.35 |
% |
Mortgage-backed securities |
|
|
4,322,708 |
|
|
|
3,806,115 |
|
|
|
60,012 |
|
|
|
58,034 |
|
|
|
5.57 |
% |
|
|
6.13 |
% |
Corporate bonds |
|
|
7,458 |
|
|
|
6,103 |
|
|
|
202 |
|
|
|
141 |
|
|
|
10.86 |
% |
|
|
9.29 |
% |
FHLB stock |
|
|
86,509 |
|
|
|
66,703 |
|
|
|
788 |
|
|
|
1,140 |
|
|
|
3.65 |
% |
|
|
6.87 |
% |
Equity securities |
|
|
1,977 |
|
|
|
4,183 |
|
|
|
18 |
|
|
|
|
|
|
|
3.65 |
% |
|
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments (3) |
|
|
6,061,292 |
|
|
|
5,561,131 |
|
|
|
77,041 |
|
|
|
81,694 |
|
|
|
5.10 |
% |
|
|
5.91 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate loans |
|
|
3,425,235 |
|
|
|
3,308,950 |
|
|
|
51,717 |
|
|
|
54,239 |
|
|
|
6.06 |
% |
|
|
6.59 |
% |
Construction loans |
|
|
1,626,141 |
|
|
|
1,475,995 |
|
|
|
13,142 |
|
|
|
20,745 |
|
|
|
3.24 |
% |
|
|
5.65 |
% |
Commercial loans |
|
|
6,423,055 |
|
|
|
5,379,906 |
|
|
|
66,801 |
|
|
|
73,461 |
|
|
|
4.17 |
% |
|
|
5.49 |
% |
Finance leases |
|
|
347,732 |
|
|
|
376,007 |
|
|
|
7,111 |
|
|
|
8,108 |
|
|
|
8.20 |
% |
|
|
8.67 |
% |
Consumer loans |
|
|
1,678,057 |
|
|
|
1,613,563 |
|
|
|
47,436 |
|
|
|
46,479 |
|
|
|
11.34 |
% |
|
|
11.59 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans (4) (5) |
|
|
13,500,220 |
|
|
|
12,154,421 |
|
|
|
186,207 |
|
|
|
203,032 |
|
|
|
5.53 |
% |
|
|
6.72 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
$ |
19,561,512 |
|
|
$ |
17,715,552 |
|
|
$ |
263,248 |
|
|
$ |
284,726 |
|
|
|
5.40 |
% |
|
|
6.46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokered CDs |
|
$ |
7,051,179 |
|
|
$ |
7,373,267 |
|
|
$ |
56,677 |
|
|
$ |
72,218 |
|
|
|
3.22 |
% |
|
|
3.94 |
% |
Other interest-bearing deposits |
|
|
4,146,552 |
|
|
|
3,671,865 |
|
|
|
23,443 |
|
|
|
26,077 |
|
|
|
2.27 |
% |
|
|
2.86 |
% |
Loans payable |
|
|
768,505 |
|
|
|
|
|
|
|
614 |
|
|
|
|
|
|
|
0.32 |
% |
|
|
0.00 |
% |
Other borrowed funds |
|
|
3,862,885 |
|
|
|
3,724,955 |
|
|
|
31,646 |
|
|
|
32,351 |
|
|
|
3.29 |
% |
|
|
3.49 |
% |
FHLB advances |
|
|
1,450,478 |
|
|
|
1,151,861 |
|
|
|
8,317 |
|
|
|
9,572 |
|
|
|
2.30 |
% |
|
|
3.34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities (6) |
|
$ |
17,279,599 |
|
|
$ |
15,921,948 |
|
|
$ |
120,697 |
|
|
$ |
140,218 |
|
|
|
2.80 |
% |
|
|
3.54 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
|
|
|
|
$ |
142,551 |
|
|
$ |
144,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.60 |
% |
|
|
2.92 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.92 |
% |
|
|
3.28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Volume |
|
|
Interest income (1) / expense |
|
|
Average Rate (1) |
|
Six-Month Period Ended June 30, |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market & other short-term investments |
|
$ |
108,314 |
|
|
$ |
402,774 |
|
|
$ |
208 |
|
|
$ |
5,072 |
|
|
|
0.39 |
% |
|
|
2.53 |
% |
|
Government obligations (2) |
|
|
1,341,934 |
|
|
|
1,786,011 |
|
|
|
35,505 |
|
|
|
57,711 |
|
|
|
5.34 |
% |
|
|
6.50 |
% |
Mortgage-backed securities |
|
|
4,288,731 |
|
|
|
3,102,385 |
|
|
|
123,433 |
|
|
|
92,025 |
|
|
|
5.80 |
% |
|
|
5.97 |
% |
Corporate bonds |
|
|
7,584 |
|
|
|
6,185 |
|
|
|
235 |
|
|
|
282 |
|
|
|
6.25 |
% |
|
|
9.17 |
% |
FHLB stock |
|
|
78,856 |
|
|
|
64,274 |
|
|
|
1,148 |
|
|
|
2,261 |
|
|
|
2.94 |
% |
|
|
7.07 |
% |
Equity securities |
|
|
2,167 |
|
|
|
4,186 |
|
|
|
36 |
|
|
|
11 |
|
|
|
3.35 |
% |
|
|
0.53 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments (3) |
|
|
5,827,586 |
|
|
|
5,365,815 |
|
|
|
160,565 |
|
|
|
157,362 |
|
|
|
5.56 |
% |
|
|
5.90 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate loans |
|
|
3,460,647 |
|
|
|
3,249,913 |
|
|
|
105,766 |
|
|
|
105,959 |
|
|
|
6.16 |
% |
|
|
6.56 |
% |
Construction loans |
|
|
1,586,125 |
|
|
|
1,474,252 |
|
|
|
27,244 |
|
|
|
44,465 |
|
|
|
3.46 |
% |
|
|
6.07 |
% |
Commercial loans |
|
|
6,267,792 |
|
|
|
5,301,551 |
|
|
|
130,946 |
|
|
|
158,901 |
|
|
|
4.21 |
% |
|
|
6.03 |
% |
Finance leases |
|
|
353,969 |
|
|
|
377,004 |
|
|
|
14,693 |
|
|
|
16,396 |
|
|
|
8.37 |
% |
|
|
8.75 |
% |
Consumer loans |
|
|
1,701,580 |
|
|
|
1,633,598 |
|
|
|
96,030 |
|
|
|
94,535 |
|
|
|
11.38 |
% |
|
|
11.64 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans (4) (5) |
|
|
13,370,113 |
|
|
|
12,036,318 |
|
|
|
374,679 |
|
|
|
420,256 |
|
|
|
5.65 |
% |
|
|
7.02 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
$ |
19,197,699 |
|
|
$ |
17,402,133 |
|
|
$ |
535,244 |
|
|
$ |
577,618 |
|
|
|
5.62 |
% |
|
|
6.67 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokered CDs |
|
$ |
7,255,053 |
|
|
$ |
7,286,442 |
|
|
$ |
129,510 |
|
|
$ |
157,921 |
|
|
|
3.60 |
% |
|
|
4.38 |
% |
Other interest-bearing deposits |
|
|
4,087,541 |
|
|
|
3,492,825 |
|
|
|
48,635 |
|
|
|
52,350 |
|
|
|
2.40 |
% |
|
|
3.03 |
% |
Loans payable |
|
|
534,331 |
|
|
|
|
|
|
|
960 |
|
|
|
|
|
|
|
0.36 |
% |
|
|
0.00 |
% |
Other borrowed funds |
|
|
3,609,918 |
|
|
|
3,697,892 |
|
|
|
64,568 |
|
|
|
70,845 |
|
|
|
3.61 |
% |
|
|
3.85 |
% |
FHLB advances |
|
|
1,496,949 |
|
|
|
1,109,465 |
|
|
|
16,609 |
|
|
|
20,720 |
|
|
|
2.24 |
% |
|
|
3.76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities (6) |
|
$ |
16,983,792 |
|
|
$ |
15,586,624 |
|
|
$ |
260,282 |
|
|
$ |
301,836 |
|
|
|
3.09 |
% |
|
|
3.89 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
|
|
|
|
$ |
274,962 |
|
|
$ |
275,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.53 |
% |
|
|
2.78 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.89 |
% |
|
|
3.19 |
% |
|
|
|
(1) |
|
On an adjusted tax equivalent basis. The adjusted tax equivalent yield was estimated by
dividing the interest rate spread on exempt assets by (1 less Puerto Rico statutory tax rate
as adjusted for recent changes to enacted tax rates |
62
|
|
|
|
|
(40.95% for the Corporations subsidiaries other than IBEs in 2009, 35.95% for the Corporations
IBEs in 2009 and 39% for all subsidiaries in 2008)) and adding to it the cost of interest-bearing
liabilities. The tax equivalent adjustment recognizes the income tax savings when comparing
taxable and tax-exempt assets. 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. Therefore, management believes these measures provide useful information to
investors by allowing them to make peer comparisons. Changes in the fair value of derivative and
unrealized gains or losses on SFAS 159 liabilities are excluded from interest income and interest
expense because the changes in valuation do not affect interest paid or received. |
|
(2) |
|
Government obligations include debt issued by government sponsored agencies. |
|
(3) |
|
Unrealized gains and losses in available-for-sale securities are excluded from the average
volumes. |
|
(4) |
|
Average loan balances include the average of non-accruing loans. |
|
(5) |
|
Interest income on loans includes $2.7 million and $2.9 million for the second quarter of
2009 and 2008, respectively, and $5.5 million and $5.4 million for the six-month period ended
June 30, 2009 and 2008, respectively, of income from prepayment penalties and late fees
related to the Corporations loan portfolio. |
|
(6) |
|
Unrealized gains and losses on SFAS 159 liabilities are excluded from the average volumes. |
Part II
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended June 30, |
|
|
Six-month period ended June 30, |
|
|
|
2009 compared to 2008 |
|
|
2009 compared to 2008 |
|
|
|
Increase (decrease) |
|
|
Increase (decrease) |
|
|
|
|
|
|
|
Due to: |
|
|
|
|
|
|
|
|
|
|
Due to: |
|
|
|
|
|
|
Volume |
|
|
Rate |
|
|
Total |
|
|
Volume |
|
|
Rate |
|
|
Total |
|
|
|
(In thousands) |
|
|
(In thousands) |
|
Interest income on interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market & other short-term investments |
|
$ |
(828 |
) |
|
$ |
(868 |
) |
|
$ |
(1,696 |
) |
|
$ |
(2,253 |
) |
|
$ |
(2,611 |
) |
|
$ |
(4,864 |
) |
Government obligations |
|
|
3,146 |
|
|
|
(7,808 |
) |
|
|
(4,662 |
) |
|
|
(12,661 |
) |
|
|
(9,545 |
) |
|
|
(22,206 |
) |
Mortgage-backed securities |
|
|
7,632 |
|
|
|
(5,654 |
) |
|
|
1,978 |
|
|
|
34,647 |
|
|
|
(3,239 |
) |
|
|
31,408 |
|
Corporate bonds |
|
|
35 |
|
|
|
26 |
|
|
|
61 |
|
|
|
54 |
|
|
|
(101 |
) |
|
|
(47 |
) |
FHLB stock |
|
|
263 |
|
|
|
(615 |
) |
|
|
(352 |
) |
|
|
367 |
|
|
|
(1,480 |
) |
|
|
(1,113 |
) |
Equity securities |
|
|
|
|
|
|
18 |
|
|
|
18 |
|
|
|
(20 |
) |
|
|
45 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
|
10,248 |
|
|
|
(14,901 |
) |
|
|
(4,653 |
) |
|
|
20,134 |
|
|
|
(16,931 |
) |
|
|
3,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate loans |
|
|
1,917 |
|
|
|
(4,439 |
) |
|
|
(2,522 |
) |
|
|
6,554 |
|
|
|
(6,747 |
) |
|
|
(193 |
) |
Construction loans |
|
|
1,709 |
|
|
|
(9,312 |
) |
|
|
(7,603 |
) |
|
|
2,675 |
|
|
|
(19,896 |
) |
|
|
(17,221 |
) |
Commercial loans |
|
|
12,711 |
|
|
|
(19,371 |
) |
|
|
(6,660 |
) |
|
|
24,631 |
|
|
|
(52,586 |
) |
|
|
(27,955 |
) |
Finance leases |
|
|
(578 |
) |
|
|
(419 |
) |
|
|
(997 |
) |
|
|
(1,000 |
) |
|
|
(703 |
) |
|
|
(1,703 |
) |
Consumer loans |
|
|
1,910 |
|
|
|
(953 |
) |
|
|
957 |
|
|
|
3,775 |
|
|
|
(2,280 |
) |
|
|
1,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
17,669 |
|
|
|
(34,494 |
) |
|
|
(16,825 |
) |
|
|
36,635 |
|
|
|
(82,212 |
) |
|
|
(45,577 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
27,917 |
|
|
|
(49,395 |
) |
|
|
(21,478 |
) |
|
|
56,769 |
|
|
|
(99,143 |
) |
|
|
(42,374 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokered CDs |
|
|
(3,012 |
) |
|
|
(12,529 |
) |
|
|
(15,541 |
) |
|
|
(671 |
) |
|
|
(27,740 |
) |
|
|
(28,411 |
) |
Other interest-bearing deposits |
|
|
3,099 |
|
|
|
(5,733 |
) |
|
|
(2,634 |
) |
|
|
8,154 |
|
|
|
(11,869 |
) |
|
|
(3,715 |
) |
Loan payable |
|
|
614 |
|
|
|
|
|
|
|
614 |
|
|
|
960 |
|
|
|
|
|
|
|
960 |
|
Other borrowed funds |
|
|
1,199 |
|
|
|
(1,904 |
) |
|
|
(705 |
) |
|
|
(1,718 |
) |
|
|
(4,559 |
) |
|
|
(6,277 |
) |
FHLB advances |
|
|
2,117 |
|
|
|
(3,372 |
) |
|
|
(1,255 |
) |
|
|
5,809 |
|
|
|
(9,920 |
) |
|
|
(4,111 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
4,017 |
|
|
|
(23,538 |
) |
|
|
(19,521 |
) |
|
|
12,534 |
|
|
|
(54,088 |
) |
|
|
(41,554 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest income |
|
$ |
23,900 |
|
|
$ |
(25,857 |
) |
|
$ |
(1,957 |
) |
|
$ |
44,235 |
|
|
$ |
(45,055 |
) |
|
$ |
(820 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A portion of the Corporations interest-earning assets, mostly investments in
obligations of some U.S. Government agencies and sponsored entities, generate interest which is
exempt from income tax, principally in Puerto Rico. Also, interest and gains on sales of
investments held by the Corporations international banking entities are tax-exempt under the
Puerto Rico tax law (Refer to the Income Taxes discussion below for additional information
regarding recent legislation that imposes a temporary 5% tax rate on IBEs net income). To
facilitate the comparison of all interest data related to these assets, the interest income has
been converted to a taxable equivalent basis. The tax equivalent yield was estimated by dividing
the interest rate spread on exempt assets by (1 less the Puerto Rico statutory tax rate as
adjusted for recent changes to enacted tax
63
rates (40.95% for the Corporations subsidiaries other than IBEs in 2009, 35.95% for the
Corporations IBEs in 2009 and 39% for all subsidiaries in 2008)) and adding to it the cost of
interest-bearing liabilities. The computation considers the interest expense disallowance
required by Puerto Rico tax law. An increase in revenues was observed in connection with the
increase in volume and interest rate spread in tax-exempt MBS held by the Corporations IBEs.
Refer to the Income Taxes discussion below for additional information of the Puerto Rico tax
law.
The presentation of net interest income excluding the effects of the changes in the fair value
of the derivative instruments and unrealized gains or losses on SFAS 159 liabilities provides
additional information about the Corporations net interest income and facilitates comparability
and analysis. The changes in the fair value of the derivative instruments and unrealized gains or
losses on SFAS 159 liabilities have no effect on interest due or interest earned on
interest-bearing liabilities or interest-earning assets, respectively, or on interest payments
exchanged with interest rate swap counterparties.
The following table reconciles the interest income on an adjusted tax equivalent basis set
forth in Part I above to interest income set forth in the Consolidated Statements of (Loss)
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, |
|
|
Six-month period ended June 30, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Interest income on interest-earning assets on an adjusted tax equivalent basis |
|
$ |
263,248 |
|
|
$ |
284,726 |
|
|
$ |
535,244 |
|
|
$ |
577,618 |
|
Less: tax equivalent adjustments |
|
|
(13,933 |
) |
|
|
(13,761 |
) |
|
|
(28,381 |
) |
|
|
(22,843 |
) |
Plus: net unrealized gain on derivatives |
|
|
3,465 |
|
|
|
5,643 |
|
|
|
4,240 |
|
|
|
920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
$ |
252,780 |
|
|
$ |
276,608 |
|
|
$ |
511,103 |
|
|
$ |
555,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the components of the changes in fair values of interest
rate swaps and interest rate caps, which are included in interest income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, |
|
|
Six-month period ended June 30, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Unrealized gain on derivatives (economic undesignated hedges): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps |
|
$ |
2,628 |
|
|
$ |
3,095 |
|
|
$ |
2,850 |
|
|
$ |
880 |
|
Interest rate swaps on loans |
|
|
837 |
|
|
|
2,548 |
|
|
|
1,390 |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain on derivatives (economic undesignated hedges) |
|
$ |
3,465 |
|
|
$ |
5,643 |
|
|
$ |
4,240 |
|
|
$ |
920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
The following table summarizes the components of interest expense for the quarters and
six-month periods ended June 30, 2009 and 2008. As previously stated, the net interest margin
analysis excludes the changes in the fair value of derivatives and unrealized gains or losses on
SFAS 159 liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended June 30, |
|
|
Six-month period ended June 30, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Interest expense on interest-bearing liabilities |
|
$ |
116,481 |
|
|
$ |
148,867 |
|
|
$ |
253,635 |
|
|
$ |
314,704 |
|
Net interest realized on interest rate swaps |
|
|
(847 |
) |
|
|
(12,905 |
) |
|
|
(5,499 |
) |
|
|
(19,947 |
) |
Amortization of placement fees on brokered CDs |
|
|
5,063 |
|
|
|
4,256 |
|
|
|
12,146 |
|
|
|
7,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense excluding net unrealized loss (gain) on derivatives (economic
undesignated hedges) and net unrealized (gain) loss on SFAS 159 liabilities |
|
|
120,697 |
|
|
|
140,218 |
|
|
|
260,282 |
|
|
|
301,836 |
|
Net unrealized loss (gain) on derivatives (economic undesignated) and SFAS
159 liabilities |
|
|
1,069 |
|
|
|
1,784 |
|
|
|
(1,791 |
) |
|
|
(5,205 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
$ |
121,766 |
|
|
$ |
142,002 |
|
|
$ |
258,491 |
|
|
$ |
296,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the components of the net unrealized gain and loss on
derivatives (economic undesignated hedges) and net unrealized gain and loss on SFAS 159
liabilities which are included in interest expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended June 30, |
|
|
Six-month period ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss (gain) on derivatives (economic undesignated hedges): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps and other derivatives on brokered CDs |
|
$ |
892 |
|
|
$ |
29,934 |
|
|
$ |
5,318 |
|
|
$ |
(25,402 |
) |
Interest rate swaps and other derivatives on medium-term notes |
|
|
53 |
|
|
|
314 |
|
|
|
163 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss (gain) on derivatives (economic undesignated hedges) |
|
$ |
945 |
|
|
$ |
30,248 |
|
|
$ |
5,481 |
|
|
$ |
(25,401 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (gain) loss on SFAS 159 liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (gain) loss on brokered CDs |
|
|
(1,555 |
) |
|
|
(28,462 |
) |
|
|
(8,696 |
) |
|
|
21,095 |
|
Unrealized loss (gain) on medium-term notes |
|
|
1,679 |
|
|
|
(2 |
) |
|
|
1,424 |
|
|
|
(899 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss (gain) on SFAS 159 liabilities |
|
$ |
124 |
|
|
$ |
(28,464 |
) |
|
$ |
(7,272 |
) |
|
$ |
20,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss (gain) on derivatives (economic undesignated
hedges) and SFAS 159 liabilities |
|
$ |
1,069 |
|
|
$ |
1,784 |
|
|
$ |
(1,791 |
) |
|
$ |
(5,205 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income on interest-earning assets primarily represents interest earned on loans
receivable and investment securities.
Interest expense on interest-bearing liabilities primarily represents interest paid on
brokered CDs, branch-based deposits, repurchase agreements, advances from the FHLB and FED and
notes payable.
Net interest incurred or realized on interest rate swaps primarily represents net interest
exchanged on pay-float swaps that economically hedge brokered CDs and medium-term notes.
The amortization of broker placement fees represents the amortization of fees paid to brokers
upon issuance of related financial instruments (i.e., brokered CDs not elected for the fair value
option under SFAS 159).
65
Unrealized gains or losses on derivatives represent changes in the fair value of derivatives,
primarily interest rate swaps, that economically hedge liabilities (i.e., brokered CDs and
medium-term notes) or assets (i.e., loans and investments).
Unrealized gains or losses on SFAS 159 liabilities represent the change in the fair value of
such liabilities (medium-term notes and brokered CDs), other than the accrual of interests, for
which the Corporation elected the fair value option under SFAS 159.
Derivative instruments, such as interest rate swaps, are subject to market risk. While the
Corporation does have certain trading derivatives to facilitate customer transactions, the
Corporation does not utilize derivative instruments for speculative purposes. As of June 30, 2009,
most of the interest rate swaps outstanding are used for protection against rising interest rates.
In the past, the volume of interest rate swaps was much higher, as they were used to convert the
fixed-rate of a large portfolio of brokered CDs, mainly those with long-term maturities, to a
variable rate and mitigate the interest rate risk related to variable rate loans. However, most
of these interest rate swaps were called during 2009, in the face of lower interest rate levels.
Refer to Note 8 of the accompanying unaudited consolidated financial statements for further
details concerning the notional amounts of derivative instruments and additional information. As
is the case with investment securities, the market value of derivative instruments is largely a
function of the financial markets expectations regarding the future direction of interest rates.
Accordingly, current market values are not necessarily indicative of the future impact of
derivative instruments on net interest income. This will depend, for the most part, on the shape
of the yield curve, the level of interest rates, as well as the expectations for rates in the
future.
Net interest income decreased 3% to $131.0 million for the second quarter of 2009 from $134.6
million in the second quarter of 2008 and by 2% to $252.6 million for the first six months of 2009
from $259.1 million in the first half of 2008. Net interest income was adversely impacted
primarily by a significant increase in non-accrual loans and, to a lesser extent, the repricing of
floating-rate commercial and construction loans at lower rates. Net interest margin on an adjusted
tax-equivalent basis decreased from 3.28% for the second quarter of 2008 to 2.92% for the second
quarter of 2009 and from 3.19% for the first half of 2008 to 2.89% for the first half of 2009.
Lower loan yields more than offset the benefit of lower short-term rates in the average cost of
funding and the increase in average interest-earning assets. The weighted-average yield on loans on
a tax-equivalent basis decreased from 6.72% for the second quarter of 2008 to 5.53% for the second
quarter of 2009 and from 7.02% for the first half of 2008 to 5.65% for the first half of 2009. The
target for the Federal Funds rate was lowered between 200 and 225 basis points from March 31, 2008
to June 30, 2009, the Prime Rate dropped to 3.25% from 5.25% as of March 31, 2008, and the 3-month
LIBOR decreased to 0.595% from 2.69% as of March 31, 2008 adversely affecting the interest income
from the variable-rate construction and commercial loans tied to short-term indexes, which was
exacerbated by the significant increase of over $700 million in non-performing loans since June 30,
2008 (refer to Risk Management Non-accruing and Non-performing Assets section below for
additional information about non-performing loans levels). The Corporation is
66
currently originating loans and renegotiating existing ones at higher credit spreads to
account for inherent risks in the current economy. Such actions are positively impacting net
interest income. Lower yields were also observed in the investment securities portfolio, driven by
the high level of MBS prepayments and the approximately $940 million U.S. agency debentures called
since June 30, 2008. Partially offsetting the decline in earning assets yields were lower funding
costs and an increase in average earning assets. The decrease in the Corporations average cost of
funds is related to the current low level of short-term interest rates as well as the change in the
mix of funding sources. Brokered certificates of deposit (CDs) with original maturities over 6
months and issued when interest rates were higher matured, or were called during 2009, and current
short-term rates on repurchase agreements and FHLB and FED advances provided a cost effective
funding alternative. Since being approved to participate during the first quarter of 2009 in the
Borrower-in-Custody Program (BIC) of the FED, the Corporation has taken advantage of that
alternative funding channel. Through the BIC program, a broad range of loans (including commercial,
consumer and mortgages) are pledged as collateral for borrowings at the FED Discount Window. The
Corporation has increased its use of this low-cost source of funding, and as of June 30, 2009, the
Corporation had approximately $514 million of available credit through the BIC program. Also, the
current low interest rate levels made available the issuance of new short-term brokered CDs at
rates significantly lower than those that matured. For the six-month period ended June 30, 2009,
the Corporation issued $3.3 billion in brokered CDs at an average rate of 1.01% (including the
rollover of short-term brokered CDs and replacement of brokered CDs
called) with a weighted-average maturity of 6 months. The Corporation
increased its short-term borrowing as a measure of interest rate risk management to match the
shortening in the average life of the investment portfolio, as discussed below, and has been
reducing the pricing of its core deposits given current market rates.
Average
earning assets for the second quarter and first half of 2009 increased by $1.8 billion, as compared to comparable periods in 2008. The increase
was driven by commercial and residential real estate loan originations, including the $500 million
facility extended to the Puerto Rico Sales Tax Financing Corp. (COFINA under its Spanish acronym),
an instrumentality of the Government of Puerto Rico, that was outstanding for almost the entire
second quarter of 2009 until it was paid off on June 18, 2009. Also, funds obtained through
short-term borrowings as well as proceeds from sales and prepayments of MBS were invested, in
part, in the purchase of investment securities to offset declining securities yields due to the
acceleration of MBS prepayments and calls of approximately $937 million of U.S. agency debentures
in 2009. The average volume of investment securities increased by $500.2 million for the second
quarter of 2009, as compared to the second quarter of 2008, and by $461.8 million for the first
half of 2009 compared to the first half of 2008. Purchases of investment securities for the first
half of 2009 (mainly U.S. agency callable securities with contractual maturities of 2-3 years and 15 year U.S. government sponsored agencies MBS) were financed with very low-cost of sources of funding, thus protecting interest
margins.
On an adjusted tax equivalent basis, net interest income decreased by $2.0 million, or 1%, for
the second quarter of 2009 compared to the same period in 2008 and by $0.8 million for the first
half of 2009 compared to the first half of 2008. The decrease was
67
principally due to the lower yields on earning assets as described above, partially offset by
a $0.2 million increase in the tax-equivalent adjustment as compared to the second quarter of 2008
and by a $5.5 million increase in the tax-equivalent adjustment for the first half of 2009 as
compared to the same period in 2008. The tax-equivalent adjustment increases interest income on
tax-exempt securities and loans by an amount which makes tax-exempt income comparable, on a pre-tax
basis, to the Corporations taxable income as previously stated. The increase in the tax-equivalent
adjustment was mainly related to increases in the interest rate spread on tax-exempt assets, mainly
MBS held by the Corporations IBE subsidiary, FirstBank Overseas Corporation, resulting from the
overall decrease in the cost of funding.
Provision and Allowance for Loan and Lease Losses
The provision for loan and lease losses is charged to earnings to maintain the allowance for
loan and lease losses at a level that the Corporation considers adequate to absorb probable losses
inherent in the portfolio. The adequacy of the allowance for loan and lease losses is also based
upon a number of additional factors including trends in charge-offs and delinquencies, current
economic conditions, the fair value of the underlying collateral and the financial condition of the
borrowers, and, as such, includes amounts based on judgments and estimates made by the Corporation.
Although the Corporation believes that the allowance for loan and lease losses is adequate, factors
beyond the Corporations control, including factors affecting the economies of Puerto Rico, the
United States, the U.S. Virgin Islands and the British Virgin Islands, may contribute to
delinquencies and defaults, thus necessitating additional reserves.
For the quarter and six-month period ended on June 30, 2009, the Corporation provided $235.2
million and $294.6 million, respectively, for loan and lease losses as compared to $41.3 million
and $87.1 million, respectively, for the comparable periods in 2008. Refer to the discussions under
Credit Risk Management below for an analysis of the allowance for loan and lease losses,
non-performing assets, impaired loans and related information and refer to the discussions under
Financial Condition and Operating Analysis Loan Portfolio and under Risk Management Credit
Risk Management below for additional information concerning the Corporations loan portfolio
exposure in the geographic areas where the Corporation does business.
68
Non-Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, |
|
|
Six-Month Period Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Other service charges on loans |
|
$ |
1,523 |
|
|
$ |
1,418 |
|
|
$ |
3,052 |
|
|
$ |
2,731 |
|
Service charges on deposit accounts |
|
|
3,327 |
|
|
|
3,191 |
|
|
|
6,492 |
|
|
|
6,555 |
|
Mortgage banking activities |
|
|
2,373 |
|
|
|
804 |
|
|
|
3,179 |
|
|
|
1,123 |
|
Rental income |
|
|
407 |
|
|
|
579 |
|
|
|
856 |
|
|
|
1,122 |
|
Insurance income |
|
|
2,229 |
|
|
|
2,551 |
|
|
|
4,599 |
|
|
|
5,279 |
|
Other operating income |
|
|
4,312 |
|
|
|
4,138 |
|
|
|
8,596 |
|
|
|
9,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income before net gain on investments |
|
|
14,171 |
|
|
|
12,681 |
|
|
|
26,774 |
|
|
|
25,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on VISA shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,342 |
|
Net gain on sale of investments |
|
|
10,305 |
|
|
|
(190 |
) |
|
|
28,143 |
|
|
|
6,661 |
|
OTTI on equity securities |
|
|
|
|
|
|
(489 |
) |
|
|
(388 |
) |
|
|
(489 |
) |
OTTI on debt securities |
|
|
(1,061 |
) |
|
|
|
|
|
|
(1,061 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on investments |
|
|
9,244 |
|
|
|
(679 |
) |
|
|
26,694 |
|
|
|
15,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
23,415 |
|
|
$ |
12,002 |
|
|
$ |
53,468 |
|
|
$ |
41,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income primarily consists of other service charges on loans; service charges
on deposit accounts; commissions derived from various banking, securities and insurance activities;
gains and losses on mortgage banking activities; and net gains and losses on investments and
impairments.
Other service charges on loans consist mainly of service charges on credit card-related
activities and other non-deferrable fees.
Service charges on deposit accounts include monthly fees and other fees on deposit accounts.
Income from mortgage banking activities includes gains on sales and securitization of loans
and revenues earned administering residential mortgage loans originated by the Corporation and
subsequently sold with servicing retained. In addition, lower-of-cost-or-market valuation
adjustments to the Corporations residential mortgage loans held for sale and servicing rights, if
any, are recorded as part of mortgage banking activities.
Rental income represents income generated by the Corporations subsidiary, First Leasing and
Rental Corporation, on the rental of various types of motor vehicles.
Insurance income consists of insurance commissions earned by the Corporations subsidiary
FirstBank Insurance Agency, Inc., and the Banks subsidiary in the U.S. Virgin Islands, FirstBank
Insurance V.I., Inc. These subsidiaries offer a wide variety of insurance business.
The other operating income category is composed of miscellaneous fees such as debit, credit
card and point of sale (POS) interchange fees and check and cash management fees.
69
The net gain (loss) on investment securities reflects gains or losses as a result of sales
that are consistent with the Corporations investment policies as well as other-than-temporary
impairment charges on the Corporations investment portfolio.
Non-interest income increased to $23.4 million for the second quarter of 2009 from $12.0 million
for the second quarter of 2008 and increased to $53.5 million for the first half of 2009 compared
to $41.4 million for the first half of 2008. The increase was related to gains from a higher
volume of sales of investment securities and higher gains from mortgage banking activities. A
realized gain of $10.3 million and $28.1 million was recorded in the second quarter and first half
of 2009, respectively, on the sale of investment securities (mainly U.S. agency MBS), compared to a
realized loss of $0.2 million and a realized gain of $6.7 million, respectively, for the comparable
periods in 2008. During the second quarter of 2009, the Corporation completed the sale of
approximately $342 million ($763 million for the first half of 2009) of investment securities
(mainly U.S agency MBS), realizing a gain of $9.4 million ($27.2 million for the first half of
2009), and also sold its remaining exposure to auto industry corporate bonds of $1.5 million
realizing a gain of $0.9 million in the process. A high prepayment scenario for MBS is anticipated
through the rest of the year. Given this outlook, and the fact that certain available-for-sale
securities were trading at a substantial premium over par, the Corporation continued to
re-structure its investment portfolio, rather than wait for the MBS to be pre-paid at par, which
has resulted in the realization of gains on sales. The impact of realized gains on sale of MBS
securities was partially offset, when compared to the first half of 2008, by the $9.3 million gain
recorded in the first quarter of 2008 on the mandatory redemption of a portion of the Corporations
investment in VISA as part of VISAs Initial Public Offering.
A $1.6 million increase in gains from mortgage banking activities for the second quarter of 2009,
as compared to the second quarter of 2008, and of $2.1 million for the first half of 2009 as
compared to the first half of 2008 contributed to higher net interest income and was driven by a
higher volume of loan sales and securitizations. Servicing rights recorded for loan sales and
securitizations during the second quarter and first half of 2009 amounted to $2.0 million and $3.1
million, respectively, compared to $0.2 million and $0.5 million, respectively, for the comparable
periods in 2008. During the second quarter and first half of 2009, and for the first time in many
years, the Corporation completed the securitization of approximately $114 million and $188 million,
respectively, of FHA/VA mortgage loans into GNMA MBS.
Partially offsetting the aforementioned increases in non-interest income were OTTI charges on debt
securities of approximately $1.1 million recorded in the second quarter of 2009. The Corporation
adopted FSP FAS 115-2 and FAS 124-2 in the second quarter of 2009. This FSP amended the OTTI model
for debt securities. Under the new guidance, OTTI loss must be recognized in earnings if an
investor has the intent to sell the debt security or it is more likely than not that it will be
required to sell the debt security before recovery of its amortized cost basis. However, even if
an investor does not expect to sell
70
a debt security, it must evaluate expected cash flows to be received and record in earnings any
credit loss that has occurred.
Debt securities issued by U.S. Government agencies, government sponsored entities and the U.S.
Treasury accounted for more than 95% of the total available-for-sale and held-to-maturity portfolio
as of June 30, 2009 and do not have any credit losses, given the explicit and implicit guarantees
provided by the U.S. federal government. The Corporations assessment was concentrated mainly on
the approximately $130 million private label MBS which the Corporation evaluates for credit losses
on a quarterly basis. The Corporation recorded a $1.1 million OTTI loss (net of a payment received of $4.2 million) through earnings in the
second quarter of 2009 that represents the credit loss of available-for-sale private label MBS.
During the second quarter of 2009, the Corporation received from R&G Financial Corporation (R&G), a
Puerto Rican financial institution, a payment of $4.2 million to eliminate the 10% recourse
provision contained in the private label MBS. The elimination of the recourse provision was the
reason for which the present value of the expected future cash flows in these private label MBS is
less than the amortized cost of the security. The non-credit component of the unrealized loss was
$31.5 million as of June 30, 2009, which was recorded in comprehensive income. Since the
Corporation does not have the intention to sell the securities and has sufficient capital and
liquidity to hold these securities until a recovery of the fair value occurs, only the credit loss
component was reflected in earnings, thus contributing to the decrease in non-interest income.
Refer to Note 4 of the accompanying unaudited consolidated financial statements for additional
information.
With respect to equity securities, no OTTI loss was recorded during the second quarter of
2009, compared to a charge of $0.5 million for the second quarter of 2008. OTTI loss for equity
securities of $0.4 million was recorded for the first half of 2009 compared to a charge of $0.5
million for the first half of 2008. The remaining carrying amount of available-for-sale equity
securities as of June 30, 2009 amounted to $0.5 million.
Fee income from deposit accounts and non-deferrable loan fees remained stable. Despite an
increase in the deposit base, service charges on deposits remained stable as a result of the
decrease in the volume of transactions that require service charges. Customers engaged in fewer
transactions because of the current economic environment.
Non-Interest Expenses
The following table presents the detail of non-interest expenses for the periods indicated:
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, |
|
|
Six-month Period Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Employees compensation and benefits |
|
$ |
34,472 |
|
|
$ |
34,994 |
|
|
$ |
68,714 |
|
|
$ |
71,320 |
|
Occupancy and equipment |
|
|
14,824 |
|
|
|
15,541 |
|
|
|
29,598 |
|
|
|
30,520 |
|
Deposit insurance premium |
|
|
14,895 |
|
|
|
2,345 |
|
|
|
19,775 |
|
|
|
4,691 |
|
Other taxes, insurance and supervisory fees |
|
|
8,368 |
|
|
|
5,588 |
|
|
|
14,161 |
|
|
|
11,252 |
|
Professional fees recurring |
|
|
3,138 |
|
|
|
3,620 |
|
|
|
5,961 |
|
|
|
8,180 |
|
Professional fees non-recurring |
|
|
204 |
|
|
|
1,299 |
|
|
|
567 |
|
|
|
1,798 |
|
Servicing and processing fees |
|
|
2,246 |
|
|
|
2,381 |
|
|
|
4,558 |
|
|
|
4,969 |
|
Business promotion |
|
|
3,836 |
|
|
|
4,802 |
|
|
|
6,952 |
|
|
|
9,067 |
|
Communications |
|
|
2,018 |
|
|
|
2,250 |
|
|
|
4,145 |
|
|
|
4,523 |
|
Net loss on REO operations |
|
|
6,626 |
|
|
|
3,172 |
|
|
|
12,001 |
|
|
|
6,428 |
|
Other |
|
|
5,361 |
|
|
|
5,771 |
|
|
|
14,084 |
|
|
|
11,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
95,988 |
|
|
$ |
81,763 |
|
|
$ |
180,516 |
|
|
$ |
163,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses increased to $96.0 million for the second quarter of 2009 from $81.8
million for the second quarter of 2008 and increased to $180.5 million for the first half of 2009
compared to $164.0 million for the first half of 2008. The Corporation recorded $8.9 million in
the second quarter of 2009 for the accrual of the special assessment levied by the FDIC. The FDIC
special assessment, together with an increase in the regular deposit insurance premium, resulted in
an increase of over $12 million for the second quarter and over $15 million for the first half in
FDIC assessments as compared to 2008. The final FDIC assessment rule establishes a special
assessment of five basis points on each FDIC-insured depository institutions assets, minus its
Tier 1 capital, as of June 30, 2009. The special assessment will be collected on September 30,
2009. The special assessment is assessed against assets minus Tier 1 capital rather than domestic
deposits, but the assessment is capped at 10 basis points of an institutions domestic deposits so
that no institution will pay an amount higher than they would have paid under the interim rule.
Property tax expenses were higher by approximately $2.6 million for the second quarter of
2009, compared to the second quarter of 2008 and for the first half of 2009 compared to the first
half of 2008, mainly attributable to accruals for the reassessed value of certain properties.
Losses on REO operations amounted to $6.6 million for the second quarter of 2009, compared to
$3.2 million for the second quarter of 2008, and amounted to $12.0 million for the first half of
2009 compared to $6.4 million for the first half of 2008. Among the components of these increasing
losses are expenses incurred in REO insurance, taxes and maintenance associated with a higher
inventory and write-downs of the value of repossessed properties due to declining real estate
prices, including a $1.5 million write-down during the second quarter of 2009 relating to a
foreclosed condo-conversion project in the U.S. mainland.
Also contributing to higher non-interest expenses for the first half of 2009 was a $4.0
million impairment of the core deposit intangible of FirstBank Florida. The core deposit
intangible represents the value of the premium paid to acquire core deposits of an institution.
Upon the acquisition of FirstBank Florida in 2005, the Corporation recorded a core deposit
intangible of $17.3 million. The amortized book value of $11.7 million was evaluated and the
evaluation calculated an estimated value of $7.3 million under SFAS 144, Accounting
72
for the
Impairment or Disposal of Long-Lived Assets. This non-cash impairment charge, attributable to
decreases in the base of core deposits acquired, does not affect the Corporations cash balances,
liquidity or operations. Moreover, the charge did not have a negative impact on the Corporations
tangible capital and regulatory capital ratios.
The Corporation had reductions in all other operating expenses, as compared to 2008, including
a decrease of $1.6 million for the quarter and $3.5 million for the first half in professional
service fees, a decrease of $1.0 million for the quarter and $2.1 million for the first half in
business promotion expenses, a decrease of $0.7 million for the quarter and $0.9 for the first half
in occupancy and equipment expenses and a decrease of $0.5 million for the quarter and $2.6 million
for the first half in employees compensation and benefit expenses. The Corporation has been able
to continue the growth of its operations without incurring substantial additional operating
expenses and is committed to its Business Rationalization program, which includes revenue
generating and cost-cutting initiatives.
Income Taxes
Income tax expense includes Puerto Rico and Virgin Islands income taxes as well as applicable
U.S. federal and state taxes. The Corporation is subject to Puerto Rico income tax on its income
from all sources. As a Puerto Rico corporation, First BanCorp is treated as a foreign corporation
for U.S. income tax purposes and is generally subject to United States income tax only on its
income from sources within the United States or income effectively connected with the conduct of a
trade or business within the United States. Any such tax paid is creditable, within certain
conditions and limitations, against the Corporations Puerto Rico tax liability. The Corporation
is also subject to U.S. Virgin Islands taxes on its income from sources within that jurisdiction.
Any such tax paid is creditable against the Corporations Puerto Rico tax liability, subject to
certain conditions and limitations.
Under the Puerto Rico Internal Revenue Code of 1994, as amended (PR Code), First BanCorp is
subject to a maximum statutory tax rate of 39%. In 2009 the Puerto Rico Government approved Act
No. 7 (the Act), to stimulate Puerto Ricos economy and to reduce the Puerto Rico Governments
fiscal deficit. The Act imposes a series of temporary and permanent measures, including the
imposition of a 5% surtax over the total income tax determined, which is applicable to
corporations, among others, whose combined income exceeds $100,000, effectively resulting in an
increase in the maximum statutory tax rate from 39% to 40.95%. This temporary measure is effective
for tax years that commenced after December 31, 2008 and before January 1, 2012. The PR Code also
includes an alternative minimum tax of 22% that applies if the Corporations regular income tax
liability is less than the alternative minimum tax requirements.
The Corporation has maintained an effective tax rate lower than the maximum statutory rate
mainly by investing in government obligations and mortgage-backed securities exempt from U.S. and
Puerto Rico income taxes and by doing business through International Banking Entities (IBEs) of
the Corporation and the Bank and through the Banks subsidiary FirstBank Overseas Corporation, in
which the interest income and gain
73
on sales is exempt from Puerto Rico and U.S. income taxation.
Under the Act, all IBEs are subject to a special 5% tax on their net income not otherwise subject
to tax pursuant to the PR Code. This temporary measure is also effective for tax years that
commence after December 31, 2008 and before January 1, 2012. The IBEs and FirstBank Overseas
Corporation were created under the International Banking Entity Act of Puerto Rico,
which provides for a total Puerto Rico tax exemption on net income derived by IBEs operating
in Puerto Rico. IBEs that operate as a unit of a bank pay income taxes at normal rates to the
extent that the IBEs net income exceeds 20% of the banks total net taxable income.
For the quarter and six-month period ended June 30, 2009, the Corporation recognized an income
tax benefit of $98.1 million and $112.3 million, respectively, compared to an income tax benefit of
$9.5 million and $17.2 million, respectively, recorded for the same periods in 2008. The positive
fluctuation in the financial results was mainly related to increased deferred tax benefits due to net operating losses carryforward recorded as a result of current taxable losses and due to lower taxable income and
adjustments to deferred tax asset, as a result of the aforementioned changes to the PR Code enacted
tax rates. The Corporation recorded an additional income tax benefit of $1.6 million and $6.0
million for the quarter and six-month period ended June 30, 2009, respectively, in connection with
changes to enacted tax rates, net of a $1.8 million and $3.6 million provision for the quarter and
six-month period ended June 30, 2009, respectively, recorded for the operations of FirstBank
Overseas Corporation. Deferred tax amounts have been adjusted for the effect of the tax rate
expected to apply to taxa