e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010
|
|
|
o |
|
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)
|
|
|
Puerto Rico
|
|
66-0561882 |
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. employer
identification number) |
|
|
|
1519 Ponce de León Avenue, Stop 23
|
|
00908 |
Santurce, Puerto Rico
|
|
(Zip Code) |
(Address of principal executive offices) |
|
|
(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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large accelerated filer o
|
|
Accelerated filer þ
|
|
Non-accelerated filer o
(Do not check if a smaller reporting company)
|
|
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: 319,557,932 outstanding as of October 31, 2010.
FIRST BANCORP.
INDEX PAGE
2
Forward Looking Statements
This Quarterly Report on 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, 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:
|
|
|
uncertainty about whether the Corporation will be able to fully comply with the written
agreement dated June 3, 2010 (the Agreement) that the Corporation entered into with the
Federal Reserve Bank of New York (the FED or Federal Reserve) and the order dated June
2, 2010 (the Order and collectively with the Agreement, the Agreements) that the
Corporations banking subsidiary, FirstBank Puerto Rico (FirstBank or the Bank) entered
into with the Federal Deposit Insurance Corporation (FDIC) and the Office of the
Commissioner of Financial Institutions of the Commonwealth of Puerto Rico (OCIF) that,
among other things, require the Bank to attain certain capital levels and reduce its
special mention, classified, delinquent and non-accrual assets; |
|
|
|
|
uncertainty as to whether the Corporation will be able to issue $500 million of equity
so as to meet the remaining substantive condition necessary to compel the United States Department of the Treasury (the U.S. Treasury) to convert into common stock the shares of
the Corporations Fixed Rate Cumulative Mandatorily Convertible Preferred Stock, Series G
(the Series G Preferred Stock), that the Corporation issued to the U.S. Treasury; |
|
|
|
|
uncertainty as to whether the Corporation will be able to complete future
capital-raising efforts; |
|
|
|
|
uncertainty as to the availability of certain funding sources, such as retail brokered
certificates of deposit (CDs); |
|
|
|
|
the risk of not being able to fulfill the Corporations cash obligations or pay
dividends in the future to the Corporations stockholders due to the Corporations
inability to receive approval from the FED to receive dividends from the Corporations main
banking subsidiary; |
|
|
|
|
the risk of being subject to possible additional regulatory action; |
|
|
|
|
the strength or weakness of the real estate market and of the consumer and commercial
credit sector and their impact on the credit quality of the Corporations loans and other
assets, including the construction and commercial real estate loan portfolios, which have
contributed and may continue to contribute to, among other things, the increase in the
levels of non-performing assets, charge-offs and the provision expense and may subject the
Corporation to further rise from loan defaults and foreclosures; |
|
|
|
|
adverse changes in general economic conditions in the United States and in Puerto Rico,
including the interest rate scenario, market liquidity, housing absorption rates, real
estate prices and disruptions in the U.S. capital markets, which may reduce interest
margins, impact funding sources and affect demand for all of the Corporations products and
services and the value of the Corporations assets, including the value of derivative
instruments used for protection from interest rate fluctuations; |
|
|
|
|
the Corporations reliance on brokered CDs and its ability to obtain, on a periodic
basis, approval to issue brokered CDs to fund operations and provide liquidity in
accordance with the terms of the Order; |
|
|
|
|
an adverse change in the Corporations ability to attract new clients and retain
existing ones; |
|
|
|
|
a decrease in demand for the Corporations products and services and lower revenues and
earnings because of the continued recession in Puerto Rico and the current fiscal problems
and budget deficit of the Puerto Rico government; |
|
|
|
|
a need to recognize additional impairments of financial instruments or goodwill
relating to acquisitions; |
|
|
|
|
uncertainty about 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 prior results and anticipated or
projected results; |
3
|
|
|
uncertainty about the effectiveness of the various actions undertaken to stimulate the
U.S. economy and stabilize the U.S. financial markets, and the impact such actions may have
on the Corporations business, financial condition and results of operations; |
|
|
|
|
changes in the fiscal and monetary policies and regulations of the federal government,
including those determined by the FED, the FDIC, government-sponsored housing agencies and
local regulators in Puerto Rico and the U.S. and British Virgin Islands; |
|
|
|
|
the risk of possible failure or circumvention of controls and procedures and the risk
that the Corporations risk management policies may not be adequate; |
|
|
|
|
the risk that the FDIC may further increase the deposit insurance premium and/or
require special assessments to replenish its insurance fund, causing an additional increase
in the Corporations non-interest expense; |
|
|
|
|
risks of not being able to generate sufficient income to realize the benefit of the
deferred tax asset; |
|
|
|
|
risks of not being able to recover the assets pledged to Lehman Brothers Special
Financing, Inc.; |
|
|
|
|
risks relating to the impact on the price of the Corporations common stock of the
reverse stock split that the Corporation will effect, prior to requesting effectiveness of
the registration statement for the offering of shares of common stock; |
|
|
|
|
changes in the Corporations expenses associated with acquisitions and dispositions; |
|
|
|
|
the adverse effect of litigation; |
|
|
|
|
developments in technology; |
|
|
|
|
risks associated with further downgrades in the credit ratings of the Corporations
long-term senior debt; |
|
|
|
|
general competitive factors and industry consolidation; |
|
|
|
|
risks associated with the depression of the price of the Corporations common stock,
including the possibility of the Corporations common stock being delisted from the New
York Stock Exchange (NYSE); and |
|
|
|
|
the possible future dilution to holders of the Corporations common stock resulting
from additional issuances of common stock or securities convertible into common stock. |
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 refer to the Corporations Annual Report on Form 10-K for the year ended
December 31, 2009 as well as Part II, Item 1A, Risk Factors, in this Quarterly Report on Form
10-Q for a discussion of such factors and certain risks and uncertainties to which the Corporation
is subject.
4
FIRST BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
689,132 |
|
|
$ |
679,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market investments: |
|
|
|
|
|
|
|
|
Federal funds sold and securities purchased under agreements to resell |
|
|
5,769 |
|
|
|
1,140 |
|
Time deposits with other financial institutions |
|
|
1,746 |
|
|
|
600 |
|
Other short-term investments |
|
|
207,979 |
|
|
|
22,546 |
|
|
|
|
|
|
|
|
Total money market investments |
|
|
215,494 |
|
|
|
24,286 |
|
|
|
|
|
|
|
|
Investment securities available for sale, at fair value: |
|
|
|
|
|
|
|
|
Securities pledged that can be repledged |
|
|
1,370,457 |
|
|
|
3,021,028 |
|
Other investment securities |
|
|
1,605,723 |
|
|
|
1,149,754 |
|
|
|
|
|
|
|
|
Total investment securities available for sale |
|
|
2,976,180 |
|
|
|
4,170,782 |
|
|
|
|
|
|
|
|
Investment securities held to maturity, at amortized cost: |
|
|
|
|
|
|
|
|
Securities pledged that can be repledged |
|
|
227,757 |
|
|
|
400,925 |
|
Other investment securities |
|
|
262,210 |
|
|
|
200,694 |
|
|
|
|
|
|
|
|
Total investment securities held to maturity, fair value of $513,569
(December 31, 2009 - $621,584) |
|
|
489,967 |
|
|
|
601,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other equity securities |
|
|
64,310 |
|
|
|
69,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of allowance for loan and lease losses of $608,526
(December 31, 2009 - $528,120) |
|
|
11,571,500 |
|
|
|
13,400,331 |
|
Loans held for sale, at lower of cost or market |
|
|
9,196 |
|
|
|
20,775 |
|
|
|
|
|
|
|
|
Total loans, net |
|
|
11,580,696 |
|
|
|
13,421,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net |
|
|
205,782 |
|
|
|
197,965 |
|
Other real estate owned |
|
|
82,706 |
|
|
|
69,304 |
|
Accrued interest receivable on loans and investments |
|
|
61,977 |
|
|
|
79,867 |
|
Due from customers on acceptances |
|
|
754 |
|
|
|
954 |
|
Other assets |
|
|
311,881 |
|
|
|
312,837 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
16,678,879 |
|
|
$ |
19,628,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Non-interest-bearing deposits |
|
$ |
703,836 |
|
|
$ |
697,022 |
|
Interest-bearing deposits |
|
|
11,839,731 |
|
|
|
11,972,025 |
|
|
|
|
|
|
|
|
Total deposits |
|
|
12,543,567 |
|
|
|
12,669,047 |
|
|
|
|
|
|
|
|
|
|
Loans payable |
|
|
|
|
|
|
900,000 |
|
Securities sold under agreements to repurchase |
|
|
1,400,000 |
|
|
|
3,076,631 |
|
Advances from the Federal Home Loan Bank (FHLB) |
|
|
835,440 |
|
|
|
978,440 |
|
Notes payable (including $11,053 and $13,361 measured at fair value
as of September 30, 2010 and December 31, 2009, respectively) |
|
|
25,057 |
|
|
|
27,117 |
|
Other borrowings |
|
|
231,959 |
|
|
|
231,959 |
|
Bank acceptances outstanding |
|
|
754 |
|
|
|
954 |
|
Accounts payable from investment purchases |
|
|
159,390 |
|
|
|
|
|
Accounts payable and other liabilities |
|
|
160,733 |
|
|
|
145,237 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
15,356,900 |
|
|
|
18,029,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, authorized 50,000,000 shares: issued and outstanding 2,946,046 shares
(December 31, 2009 - 22,404,000 shares issued and outstanding)
aggregate liquidation value of $487,221 (December 31, 2009 - $950,100) |
|
|
411,876 |
|
|
|
928,508 |
|
|
|
|
|
|
|
|
Common stock, $0.10 par value (December 31, 2009 - $1 par value), authorized 2,000,000,000 shares
(December 31, 2009 - 250,000,000 shares authorized);
issued 329,455,732 shares (December 31, 2009 - 102,440,522 shares issued) |
|
|
32,946 |
|
|
|
102,440 |
|
Less: Treasury stock (at par value) |
|
|
(990 |
) |
|
|
(9,898 |
) |
|
|
|
|
|
|
|
Common stock outstanding, 319,557,932 shares outstanding (December 31, 2009 - 92,542,722 shares outstanding) |
|
|
31,956 |
|
|
|
92,542 |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
289,640 |
|
|
|
134,223 |
|
Legal surplus |
|
|
299,006 |
|
|
|
299,006 |
|
Retained earnings |
|
|
259,206 |
|
|
|
118,291 |
|
Accumulated
other comprehensive income, net of tax expense of $6,517 (December 31, 2009 - $4,628) |
|
|
30,295 |
|
|
|
26,493 |
|
|
|
|
|
|
|
|
Total stockholdersequity |
|
|
1,321,979 |
|
|
|
1,599,063 |
|
|
|
|
|
|
|
|
Total liabilities and stockholdersequity |
|
$ |
16,678,879 |
|
|
$ |
19,628,448 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
5
FIRST BANCORP
CONSOLIDATED STATEMENTS OF LOSS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Nine-Month Period Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
(In thousands, except per share information) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
171,204 |
|
|
$ |
179,956 |
|
|
$ |
523,707 |
|
|
$ |
553,219 |
|
Investment securities |
|
|
32,313 |
|
|
|
61,881 |
|
|
|
114,602 |
|
|
|
199,513 |
|
Money market investments |
|
|
511 |
|
|
|
185 |
|
|
|
1,571 |
|
|
|
393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
204,028 |
|
|
|
242,022 |
|
|
|
639,880 |
|
|
|
753,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
61,004 |
|
|
|
72,163 |
|
|
|
190,736 |
|
|
|
246,931 |
|
Loans payable |
|
|
|
|
|
|
463 |
|
|
|
3,442 |
|
|
|
1,423 |
|
Federal funds purchased and securities sold under agreements to repurchase |
|
|
19,422 |
|
|
|
28,327 |
|
|
|
69,739 |
|
|
|
87,487 |
|
Advances from FHLB |
|
|
7,179 |
|
|
|
8,127 |
|
|
|
22,460 |
|
|
|
24,736 |
|
Notes payable and other borrowings |
|
|
2,721 |
|
|
|
3,809 |
|
|
|
3,876 |
|
|
|
10,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
90,326 |
|
|
|
112,889 |
|
|
|
290,253 |
|
|
|
371,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
113,702 |
|
|
|
129,133 |
|
|
|
349,627 |
|
|
|
381,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses |
|
|
120,482 |
|
|
|
148,090 |
|
|
|
438,240 |
|
|
|
442,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest loss after provision for loan and lease losses |
|
|
(6,780 |
) |
|
|
(18,957 |
) |
|
|
(88,613 |
) |
|
|
(60,926 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other service charges on loans |
|
|
1,963 |
|
|
|
1,796 |
|
|
|
5,205 |
|
|
|
4,848 |
|
Service charges on deposit accounts |
|
|
3,325 |
|
|
|
3,458 |
|
|
|
10,294 |
|
|
|
9,950 |
|
Mortgage banking activities |
|
|
6,474 |
|
|
|
3,000 |
|
|
|
11,114 |
|
|
|
6,179 |
|
Net gain (loss) on sale of investments |
|
|
48,281 |
|
|
|
34,274 |
|
|
|
103,885 |
|
|
|
62,417 |
|
Other-than-temporary impairment losses on investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other-than-temporary impairment losses |
|
|
|
|
|
|
|
|
|
|
(603 |
) |
|
|
(32,929 |
) |
Noncredit-related impairment portion on debt securities
not expected to be sold (recognized in other comprehensive income) |
|
|
|
|
|
|
(209 |
) |
|
|
|
|
|
|
31,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impairment losses on investment securities |
|
|
|
|
|
|
(209 |
) |
|
|
(603 |
) |
|
|
(1,658 |
) |
Rental income |
|
|
|
|
|
|
390 |
|
|
|
|
|
|
|
1,246 |
|
Loss on early extinguishment of repurchase agreements |
|
|
(47,405 |
) |
|
|
|
|
|
|
(47,405 |
) |
|
|
|
|
Other non-interest income |
|
|
6,628 |
|
|
|
7,280 |
|
|
|
21,627 |
|
|
|
20,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income |
|
|
19,266 |
|
|
|
49,989 |
|
|
|
104,117 |
|
|
|
103,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees compensation and benefits |
|
|
29,849 |
|
|
|
34,403 |
|
|
|
92,535 |
|
|
|
103,117 |
|
Occupancy and equipment |
|
|
14,655 |
|
|
|
15,291 |
|
|
|
43,957 |
|
|
|
47,513 |
|
Business promotion |
|
|
3,226 |
|
|
|
2,879 |
|
|
|
8,771 |
|
|
|
9,831 |
|
Professional fees |
|
|
4,533 |
|
|
|
3,806 |
|
|
|
15,424 |
|
|
|
10,334 |
|
Taxes, other than income taxes |
|
|
3,316 |
|
|
|
3,893 |
|
|
|
10,954 |
|
|
|
11,911 |
|
Insurance and supervisory fees |
|
|
16,787 |
|
|
|
7,197 |
|
|
|
51,911 |
|
|
|
30,491 |
|
Net loss on real estate owned (REO) operations |
|
|
8,193 |
|
|
|
5,015 |
|
|
|
22,702 |
|
|
|
17,016 |
|
Other non-interest expenses |
|
|
8,123 |
|
|
|
10,293 |
|
|
|
32,401 |
|
|
|
33,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses |
|
|
88,682 |
|
|
|
82,777 |
|
|
|
278,655 |
|
|
|
263,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(76,196 |
) |
|
|
(51,745 |
) |
|
|
(263,151 |
) |
|
|
(220,762 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) |
|
|
963 |
|
|
|
(113,473 |
) |
|
|
(9,721 |
) |
|
|
(1,223 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(75,233 |
) |
|
$ |
(165,218 |
) |
|
$ |
(272,872 |
) |
|
$ |
(221,985 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders basic |
|
$ |
357,787 |
|
|
$ |
(174,689 |
) |
|
$ |
147,826 |
|
|
$ |
(262,741 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders diluted |
|
$ |
363,413 |
|
|
$ |
(174,689 |
) |
|
$ |
153,452 |
|
|
$ |
(262,741 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
2.09 |
|
|
$ |
(1.89 |
) |
|
$ |
1.24 |
|
|
$ |
(2.84 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.28 |
|
|
$ |
(1.89 |
) |
|
$ |
0.31 |
|
|
$ |
(2.84 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
6
FIRST BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine-Month Period Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(In thousands) |
|
2010 |
|
|
2009 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(272,872 |
) |
|
$ |
(221,985 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
14,879 |
|
|
|
15,722 |
|
Amortization and impairment of core deposit intangible |
|
|
1,927 |
|
|
|
6,689 |
|
Provision for loan and lease losses |
|
|
438,240 |
|
|
|
442,671 |
|
Deferred income tax expense |
|
|
4,584 |
|
|
|
19,202 |
|
Stock-based compensation recognized |
|
|
70 |
|
|
|
70 |
|
Gain on sale of investments, net |
|
|
(103,885 |
) |
|
|
(62,417 |
) |
Loss on early extiguishment of repurchase agreements |
|
|
47,405 |
|
|
|
|
|
Other-than-temporary impairments on investment securities |
|
|
603 |
|
|
|
1,658 |
|
Derivatives instruments and hedging activities gain |
|
|
(212 |
) |
|
|
(13,228 |
) |
Net gain on sale of loans and impairments |
|
|
(4,969 |
) |
|
|
(5,919 |
) |
Net amortization of premiums and discounts on deferred loan fees and costs |
|
|
1,643 |
|
|
|
724 |
|
Net increase in mortgage loans held for sale |
|
|
(2,240 |
) |
|
|
(21,145 |
) |
Amortization of broker placement fees |
|
|
15,948 |
|
|
|
17,434 |
|
Net amortization of premium and discounts on investment securities |
|
|
4,423 |
|
|
|
5,706 |
|
Increase (decrease) in accrued income tax payable |
|
|
224 |
|
|
|
(21,919 |
) |
Decrease in accrued interest receivable |
|
|
17,890 |
|
|
|
19,010 |
|
Decrease in accrued interest payable |
|
|
(8,881 |
) |
|
|
(24,472 |
) |
Decrease in other assets |
|
|
8,342 |
|
|
|
41,716 |
|
Increase (decrease) in other liabilities |
|
|
12,572 |
|
|
|
(4,521 |
) |
|
|
|
|
|
|
|
Total adjustments |
|
|
448,563 |
|
|
|
416,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
175,691 |
|
|
|
194,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Principal collected on loans |
|
|
3,047,448 |
|
|
|
2,267,772 |
|
Loans originated |
|
|
(1,986,355 |
) |
|
|
(3,362,850 |
) |
Purchases of loans |
|
|
(114,089 |
) |
|
|
(142,446 |
) |
Proceeds from sale of loans |
|
|
204,369 |
|
|
|
9,510 |
|
Proceeds from sale of repossessed assets |
|
|
72,043 |
|
|
|
50,035 |
|
Proceeds from sale of available-for-sale securities |
|
|
2,353,364 |
|
|
|
1,038,814 |
|
Purchases of securities held to maturity |
|
|
(8,475 |
) |
|
|
(8,460 |
) |
Purchases of securities available for sale |
|
|
(2,350,520 |
) |
|
|
(2,781,394 |
) |
Proceeds from principal repayments and maturities of securities held to maturity |
|
|
118,032 |
|
|
|
1,066,778 |
|
Proceeds from principal repayments of securities available for sale |
|
|
1,613,491 |
|
|
|
721,056 |
|
Additions to premises and equipment |
|
|
(22,696 |
) |
|
|
(32,625 |
) |
Proceeds from sale of other investment securities |
|
|
10,668 |
|
|
|
4,032 |
|
Decrease (increase) in other equity securities |
|
|
5,370 |
|
|
|
(14,785 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
2,942,650 |
|
|
|
(1,184,563 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net decrease in deposits |
|
|
(142,678 |
) |
|
|
(758,078 |
) |
Net (decrease) increase in loans payable |
|
|
(900,000 |
) |
|
|
700,000 |
|
Net (repayments) proceeds and cancellation costs of securities
sold under agreements to repurchase |
|
|
(1,724,036 |
) |
|
|
361,092 |
|
Net FHLB advances (paid) taken |
|
|
(143,000 |
) |
|
|
140,000 |
|
Dividends paid |
|
|
|
|
|
|
(43,066 |
) |
Issuance of preferred stock and associated warrant |
|
|
|
|
|
|
400,000 |
|
Issuance costs of common stock issued in exchange for preferred stock Series A through E |
|
|
(8,085 |
) |
|
|
|
|
Other financing activities |
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(2,917,799 |
) |
|
|
799,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
200,542 |
|
|
|
(189,611 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
704,084 |
|
|
|
405,733 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
904,626 |
|
|
$ |
216,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents include: |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
689,132 |
|
|
$ |
124,131 |
|
Money market instruments |
|
|
215,494 |
|
|
|
91,991 |
|
|
|
|
|
|
|
|
|
|
$ |
904,626 |
|
|
$ |
216,122 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
7
FIRST BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine-Month Period Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
Preferred Stock: |
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
928,508 |
|
|
$ |
550,100 |
|
Issuance of preferred stock Series F |
|
|
|
|
|
|
400,000 |
|
Preferred stock discount Series F |
|
|
|
|
|
|
(25,820 |
) |
Accretion of preferred stock discount Series F |
|
|
2,567 |
|
|
|
3,094 |
|
Exchange of
preferred stock Series A through E |
|
|
(487,053 |
) |
|
|
|
|
Exchange of preferred stock Series F |
|
|
(400,000 |
) |
|
|
|
|
Reversal of unaccreted preferred stock discount Series F |
|
|
19,025 |
|
|
|
|
|
Issuance of preferred stock Series G |
|
|
424,174 |
|
|
|
|
|
Preferred stock discount Series G |
|
|
(76,788 |
) |
|
|
|
|
Accretion of preferred stock discount Series G |
|
|
1,443 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
|
411,876 |
|
|
|
927,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock outstanding: |
|
|
|
|
|
|
|
|
Balance at the beginning of the period |
|
|
92,542 |
|
|
|
92,546 |
|
Restricted stock forfeited |
|
|
|
|
|
|
(4 |
) |
Change in par value (from $1.00 to $0.10) |
|
|
(83,287 |
) |
|
|
|
|
Common stock issued in exchange of Series A through E preferred stock |
|
|
22,701 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
|
31,956 |
|
|
|
92,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid-In-Capital: |
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
|
134,223 |
|
|
|
108,299 |
|
Issuance of common stock warrants |
|
|
|
|
|
|
25,820 |
|
Restricted stock forfeited |
|
|
|
|
|
|
4 |
|
Stock-based compensation recognized |
|
|
70 |
|
|
|
70 |
|
Fair value adjustment on amended common stock warrant |
|
|
1,179 |
|
|
|
|
|
Common stock issued in exchange of Series A through E preferred stock |
|
|
68,105 |
|
|
|
|
|
Issuance costs of common stock issued in exchange of Series A through E preferred stock |
|
|
(8,085 |
) |
|
|
|
|
Reversal of issuance costs of Series A through E preferred stock exchanged |
|
|
10,861 |
|
|
|
|
|
Change in par value (from $1.00 to$0.10) |
|
|
83,287 |
|
|
|
|
|
Other |
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
Balance at end of period |
|
|
289,640 |
|
|
|
134,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal Surplus |
|
|
299,006 |
|
|
|
299,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings: |
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
|
118,291 |
|
|
|
440,777 |
|
Net loss |
|
|
(272,872 |
) |
|
|
(221,985 |
) |
Cash dividends declared on common stock |
|
|
|
|
|
|
(12,966 |
) |
Cash dividends declared on preferred stock |
|
|
|
|
|
|
(30,106 |
) |
Accretion of preferred stock discount Series F |
|
|
(2,567 |
) |
|
|
(3,095 |
) |
Stock dividend granted of Series F preferred stock |
|
|
(24,174 |
) |
|
|
|
|
Excess of carrying amount of Series A though E preferred stock exchanged
over fair value of new shares of common stock |
|
|
385,387 |
|
|
|
|
|
Preferred stock discount Series G |
|
|
76,788 |
|
|
|
|
|
Reversal of unaccreted discount Series F |
|
|
(19,025 |
) |
|
|
|
|
Fair value adjustment on amended common stock warrant |
|
|
(1,179 |
) |
|
|
|
|
Accretion of preferred stock discount Series G |
|
|
(1,443 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
|
259,206 |
|
|
|
172,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income, net of tax: |
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
|
26,493 |
|
|
|
57,389 |
|
Other comprehensive income, net of tax |
|
|
3,802 |
|
|
|
15,706 |
|
|
|
|
|
|
|
|
Balance at end of period |
|
|
30,295 |
|
|
|
73,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholdersequity |
|
$ |
1,321,979 |
|
|
$ |
1,698,843 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
8
FIRST BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Nine-Month Period Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
(In thousands) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net loss |
|
$ |
(75,233 |
) |
|
$ |
(165,218 |
) |
|
$ |
(272,872 |
) |
|
$ |
(221,985 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
209 |
|
|
|
|
|
|
|
(31,271 |
) |
Reclassification adjustment for other-than-temporary impairment on debt
securities included in net income |
|
|
|
|
|
|
209 |
|
|
|
|
|
|
|
1,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other unrealized gains and losses on available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other unrealized holding gain arising during the period |
|
|
10,529 |
|
|
|
59,708 |
|
|
|
99,057 |
|
|
|
109,577 |
|
Reclassification adjustments for net gain
included in net income |
|
|
(48,783 |
) |
|
|
(30,242 |
) |
|
|
(93,719 |
) |
|
|
(58,385 |
) |
Reclassification adjustments for other-than-temporary impairment
on equity securities |
|
|
|
|
|
|
|
|
|
|
353 |
|
|
|
388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) related to items of other comprehensive income |
|
|
5,238 |
|
|
|
(3,171 |
) |
|
|
(1,889 |
) |
|
|
(5,873 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income for the period, net of tax |
|
|
(33,016 |
) |
|
|
26,713 |
|
|
|
3,802 |
|
|
|
15,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
$ |
(108,249 |
) |
|
$ |
(138,505 |
) |
|
$ |
(269,070 |
) |
|
$ |
(206,279 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
9
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, 2009. 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
Securities and Exchange Commission (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, 2009, included in the Corporations 2009 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 statement 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 nine-month period ended September 30, 2010 are
not necessarily indicative of the results to be expected for the entire year.
Capital and Liquidity
The Consolidated Financial Statements have been prepared on a going concern basis, which
contemplates the realization of assets and the discharge of liabilities in the normal course of
business for the foreseeable future. Sustained weak economic conditions that have severely affected
Puerto Rico and the United States over the last several years have adversely impacted First
BanCorps results of operations and capital levels. The net loss in 2009, primarily related to
credit losses, the valuation allowance on deferred tax assets and an increase in the deposit
insurance premium, reduced the Corporations capital levels during 2009. The net loss for the
nine-month period ended September 30, 2010 was primarily driven by credit losses. The decrease in
regulatory capital ratios during the first nine-months of 2010 was not significant since the net
loss reported for the period was almost entirely offset by a decrease in risk-weighted assets,
consistent with the Corporations decision to deleverage its balance sheet to preserve its capital
position. As of September 30, 2010, the Corporations Total, Tier 1 capital and Leverage ratios
were 13.26%, 11.96% and 8.34%, respectively, compared to 13.44%, 12.16% and 8.91%, respectively, as
of December 31, 2009.
As described in Note 18, Regulatory Matters, FirstBank is currently operating under a Consent
Order ( the Order) with the Federal Deposit Insurance Corporation (FDIC) and First BanCorp has
entered into a Written Agreement (the Written Agreement and collectively with the Order the
Agreements) with the Board of Governors of the Federal Reserve System (the FED or Federal
Reserve).
As previously reported, the Corporation submitted a Capital Plan to the FED and the FDIC in
July 2010. The primary objective of this Capital Plan is to improve the Corporations capital
structure in order to 1) enhance its ability to operate in the current economic environment, 2) be
in a position to continue executing business strategies to return to profitability and 3) achieve
certain minimum capital ratios set forth in the FDIC Order over time. The minimum capital ratios
are 8% for Leverage (Tier 1 Capital to Average Total Assets), 10% for Tier 1 Capital to
Risk-Weighted Assets and 12% for Total Capital to Risk-Weighted Assets. The Capital Plan sets forth
the following capital restructuring initiatives as well as various deleveraging strategies:
|
1. |
|
The exchange of shares of the Corporations preferred stock held by the U.S. Treasury
for common stock; |
|
|
2. |
|
The exchange of shares of the Corporations common stock for any and all of the
Corporations outstanding Series A through E Preferred Stock; and |
|
|
3. |
|
A $500 million capital raise through the issuance of new common shares for cash. |
During the third quarter of 2010, the Corporation completed transactions designed to
accomplish the first two initiatives. On July 20, 2010, the Corporation closed a transaction with
the U.S. Treasury for the exchange of the $400 million of Fixed Rate Cumulative Perpetual Preferred
Stock, Series F (the Series F Preferred Stock) that the U.S. Treasury acquired pursuant to the
TARP Capital Purchase Program, and dividends accrued on such stock, for new shares of Series G
Preferred Stock. A key benefit of this transaction was obtaining the right, under the terms of the
new Series G Preferred Stock, to compel the conversion of this stock into shares of the
Corporations common stock, provided that the Corporation meets a number of conditions. On August
30, 2010, the Corporation completed its offer to issue shares of its common stock in exchange for
its outstanding Series A through E Preferred Stock (the Exchange Offer), which resulted in the
issuance of 227,015,210 new shares of common stock in exchange for 19,482,128 shares of preferred
stock with an aggregate liquidation amount of $487 million, or 89% of the outstanding Series A
through E preferred stock.
10
In addition, on August 24, 2010, the Corporation obtained its stockholders approval to
increase the number of authorized shares of common stock from 750 million to 2 billion and decrease
the par value of its common stock from $1.00 to $0.10 per share. These approvals and the issuance
of common stock in exchange for Series A through E Preferred Stock satisfy all but one of the
substantive conditions to the Corporations ability to compel the conversion of the 424,174 shares
of the new Series G Preferred Stock, issued to the U.S. Treasury. The other substantive condition
to the Corporations ability to compel the conversion of the Series G Preferred Stock is the
issuance of a minimum aggregate amount of $500 million of additional capital, subject to terms,
other than the price per share, reasonably acceptable to the U.S. Treasury in its sole discretion.
These first two initiatives were designed to improve the Corporations ability to successfully
raise additional capital through a sale of its common stock, which is the last component of the
Capital Plan. On September 16, 2010, the Corporation filed a registration statement for a proposed
underwritten public offering of $500 million ($575 million including an over allotment option) of
its common stock with the SEC. The completion of the Exchange Offer and the issuance of the Series
G Preferred Stock to the U.S. Treasury resulted in significant improvements in the Corporations
Tangible and Tier 1 common equity ratios which improved to 5.21% and 6.62%, respectively, as of
September 30, 2010 from 3.20% and 4.10%, respectively, as of December 31, 2009. (For information
about and a reconciliation of these non-GAAP measures, see Item 2 Managements Discussion and
Analysis of Financial Condition and Results of Operations (MD &A) Risk Management Capital
Capital Restructuring Initiatives.) These capital transactions completed during the third
quarter of 2010 are further discussed in Note 17.
The Corporation has deleveraged its balance sheet in order to preserve capital, principally by
selling investments and reducing the size of the loan portfolio. The decrease in securities and
loans resulting from deleveraging and balance sheet repositioning strategies allowed a reduction of
$3.6 billion in wholesale funding during 2010, including repurchase agreements, advances and
traditional brokered CDs (brokered CDs). Such reductions were partially offset by increases in retail deposits. Significant
decreases in risk-weighted assets have been achieved mainly through the non-renewal of commercial
loans with 100% risk weightings, such as temporary loan facilities to the Puerto Rico and Virgin
Islands governments, through the charge-offs of portions of loans deemed uncollectible and, to a
lesser extent, the sale of non-performing loans. In addition, a reduced volume of loan originations
contributed to this deleveraging strategy and partially offset the effect of net losses on capital
ratios.
Both the Corporation and the Bank actively manage liquidity and cash flow needs. The
Corporation does not have any unsecured debt, other than brokered CDs, maturing during the
remaining of 2010; additionally, it suspended common and preferred dividends to stockholders
effective August 2009. As of September 30, 2010, the holding company had $43.2 million of cash and
cash equivalents. Cash and cash equivalents at the Bank as of September 30, 2010 were approximately
$904.3 million. The Bank has $100 million and $426 million in repurchase agreements and FHLB
advances, respectively, maturing over the next year and $7.4 million in notes that mature prior to
September 30, 2011. In addition, it had $6.7 billion in brokered deposits as of September 30, 2010
of which $3.2 billion mature over the next year. Liquidity at the bank level is highly dependent
on bank deposits, which fund 75.56% of the Banks assets (or 35.43% excluding brokered CDs). At
September 30, 2010, the Bank held approximately $843 million of readily pledgeable or saleable
investment securities.
The Corporations credit as a long-term issuer is currently rated CCC+ by Standard & Poors
(S&P) and B- by Fitch Ratings Limited (Fitch); both with negative outlook. At the FirstBank
subsidiary level, long-term issuer rating is currently B3 by Moodys Investor Service (Moodys),
six notches below their definition of investment grade; CCC+ by S&P seven notches below their
definition of investment grade, and B- by Fitch, six notches below their definition of investment
grade. The outlook on the Banks credit ratings from the three rating agencies is negative. During
the second quarter of 2010, the Corporation and its subsidiary bank suffered credit rating
downgrades from Moodys (B1 to B3), S&P (B to CCC+), and Fitch (B to B-) rating services.
Furthermore, on June 2010, Moodys and Fitch placed the Corporation on Credit Watch Negative and
S&P placed a Negative Outlook. The Corporation does not have any outstanding debt or derivative
agreements that would be affected by the recent credit downgrades. Furthermore, given our
non-reliance on corporate debt or other instruments directly linked in terms of pricing or volume
to credit ratings, the liquidity of the Corporation so far has also not been affected in any
material way by the downgrades. The Corporations ability to access new non-deposit funding,
however, could be adversely affected by these credit ratings and any additional downgrades.
Based on current and expected liquidity needs and sources, management expects First BanCorp to
be able to meet its obligations for a reasonable period of time. The Corporation has $3.2 billion
of brokered CDs maturing within twelve months from September 30, 2010. While the Corporation has
increased its liquidity levels due to the current economic environment, it has continued to issue
brokered CDs pursuant to temporary approvals received from the FDIC to renew or roll over certain
amounts of brokered CDs through December 31, 2010. Management anticipates it will continue to
obtain waivers from the restrictions to issue brokered CDs under the Order to meet its obligations
and execute its business plans. If unanticipated market factors emerge, or if the Corporation is
unable to raise additional capital or complete identified capital preservation initiatives,
successfully execute its strategic operating plans, issue a sufficient amount of brokered deposits
or comply with the Order, its banking regulators could take further action, which could include
actions that may have a material adverse effect on the Corporations business, results of
operations and financial position.
11
Adoption of new accounting requirements and recently issued but not yet effective accounting
requirements
The Financial Accounting Standards Board (FASB) has issued the following accounting
pronouncements and guidance relevant to the Corporations operations:
In June 2009, the FASB amended the existing guidance on the accounting for transfers of
financial assets, to improve 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.
This guidance 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. Subsequently in December 2009, the
FASB amended the existing guidance issued in June 2009. Among the most significant changes and
additions to this guidance are changes to the conditions for sales of a financial asset based on
whether a transferor and its consolidated affiliates included in the financial statements have
surrendered control over the transferred financial asset or third party beneficial interest; and
the addition of the term participating interest, which represents a proportionate (pro rata)
ownership interest in an entire financial asset. The Corporation adopted the guidance with no
material impact on its financial statements.
In June 2009, the FASB amended the existing guidance on the consolidation of variable
interests to improve financial reporting by enterprises involved with variable interest entities
and address (i) the effects of the elimination of the qualifying special-purpose entity concept in
the accounting for transfer of financial assets guidance, and (ii) constituent concerns about the
application of certain key provisions of the guidance, including those in which the accounting and
disclosures do not always provide timely and useful information about an enterprises involvement
in a variable interest entity. This guidance 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.
Subsequently in December 2009, the FASB amended the existing guidance issued in June 2009. Among
the most significant changes and additions to the guidance is the replacement of the quantitative
based risks and rewards calculation for determining which reporting entity, if any, has a
controlling financial interest in a variable interest entity with an approach focused on
identifying which reporting entity has the power to direct the activities of a variable interest
entity that most significantly impact the entitys economic performance and the obligation to
absorb losses of the entity or the right to receive benefits from the entity. The Corporation
adopted the guidance with no material impact on its financial statements.
In January 2010, the FASB updated the Accounting Standards Codification (Codification) to
provide guidance to improve disclosure requirements related to fair value measurements and require
reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements
including significant transfers into and out of Level 1 and Level 2 fair-value measurements and
information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation
of Level 3 fair-value measurements. Currently, entities are only required to disclose activity in
Level 3 measurements in the fair-value hierarchy on a net basis. The FASB also clarified existing
fair-value measurement disclosure guidance about the level of disaggregation, inputs, and valuation
techniques. Entities are required to separately disclose significant transfers into and out of
Level 1 and Level 2 measurements in the fair-value hierarchy and the reasons for the transfers.
Significance will be determined based on earnings and total assets or total liabilities or, when
changes in fair value are recognized in other comprehensive income, based on total equity. A
reporting entity must disclose and consistently follow its policy for determining when transfers
between levels are recognized. Acceptable methods for determining when to recognize transfers
include: (i) actual date of the event or change in circumstances causing the transfer; (ii)
beginning of the reporting period; and (iii) end of the reporting period. The guidance requires
disclosure of fair-value measurements by class instead of major category. A class is generally
a subset of assets and liabilities within a financial statement line item and is based on the
specific nature and risks of the assets and liabilities and their classification in the fair-value
hierarchy. When determining classes, reporting entities must also consider the level of
disaggregated information required by other applicable GAAP. For fair-value measurements using
significant observable inputs (Level 2) or significant unobservable inputs (Level 3), this guidance
requires reporting entities to disclose the valuation technique and the inputs used in determining
fair value for each class of assets and liabilities. If the valuation technique has changed in the
reporting period (e.g., from a market approach to an income approach) or if an additional valuation
technique is used, entities are required to disclose the change and the reason for making the
change. Except for the detailed Level 3 roll forward disclosures, the guidance is effective for
annual and interim reporting periods beginning after December 15, 2009 (first quarter of 2010 for
public companies with calendar year-ends). The new disclosures about purchases, sales, issuances,
and settlements in the roll forward activity for Level 3 fair value measurements are effective for
interim and annual reporting periods beginning after December 15, 2010 (first quarter of 2011 for
public companies with calendar year-ends). Early adoption is permitted. In the initial adoption
period, entities are not required to include disclosures for previous comparative periods; however,
they are required for periods ending after initial adoption. The Corporation adopted the guidance
in the first quarter of 2010 and the required disclosures are presented in Note 20 Fair Value.
In February 2010, the FASB updated the Codification to provide guidance to improve disclosure
requirements related to the recognition and disclosure of subsequent events. The amendment
establishes that an entity that either (a) is an SEC filer or (b) is a conduit bond obligor for
conduit debt securities that are traded in a public market (a domestic or foreign stock exchange or
an over-the-counter market, including local or regional markets) is required to evaluate subsequent
events through the date that the financial
12
statements are issued. If an entity meets neither of those criteria, then it should evaluate
subsequent events through the date the financial statements are available to be issued. An entity
that is an SEC filer is not required to disclose the date through which subsequent events have been
evaluated. Also, the scope of the reissuance disclosure requirements has been refined to include
revised financial statements only. Revised financial statements include financial statements
revised either as a result of the correction of an error or retrospective application of GAAP. The
guidance in this update was effective on the date of issuance in February. The Corporation has
adopted this guidance; refer to Note 25 Subsequent events.
In February 2010, the FASB updated the Codification to provide guidance on the deferral of
consolidation requirements for a reporting entitys interest in an entity (1) that has all the
attributes of an investment company or (2) for which it is industry practice to apply measurement
principles for financial reporting purposes that are consistent with those followed by investment
companies. The deferral does not apply in situations in which a reporting entity has the explicit
or implicit obligation to fund losses of an entity that could potentially be significant to the
entity. The deferral also does not apply to interests in securitization entities, asset-backed
financing entities, or entities formerly considered qualifying special purpose entities. In
addition, the deferral applies to a reporting entitys interest in an entity that is required to
comply or operate in accordance with requirements similar to those in Rule 2a-7 of the Investment
Company Act of 1940 for registered money market funds. An entity that qualifies for the deferral
will continue to be assessed under the overall guidance on the consolidation of variable interest
entities. The guidance also clarifies that for entities that do not qualify for the deferral,
related parties should be considered for determining whether a decision maker or service provider
fee represents a variable interest. In addition, the requirements for evaluating whether a decision
makers or service providers fee is a variable interest are modified to clarify the FASBs
intention that a quantitative calculation should not be the sole basis for this evaluation. The
guidance was effective for interim and annual reporting periods beginning after November 15, 2009.
The adoption of this guidance did not have an impact in the Corporations consolidated financial
statements.
In March 2010, the FASB updated the Codification to provide clarification on the scope
exception related to embedded credit derivatives related to the transfer of credit risk in the form
of subordination of one financial instrument to another. The transfer of credit risk that is only
in the form of subordination of one financial instrument to another (thereby redistributing credit
risk) is an embedded derivative feature that should not be subject to potential bifurcation and
separate accounting. The amendments address how to determine which embedded credit derivative
features, including those in collateralized debt obligations and synthetic collateralized debt
obligations, are considered to be embedded derivatives that should not be analyzed under this
guidance. The Corporation may elect the fair value option for any investment in a beneficial
interest in a securitized financial asset. The guidance is effective for the first fiscal quarter
beginning after June 15, 2010. The adoption of this guidance did not have an impact in the
Corporations consolidated financial statements.
In April 2010, the FASB updated the codification to provide guidance on the effects of a loan
modification when a loan is part of a pool that is accounted for as a single asset. Modifications
of loans that are accounted for within a pool do not result in the removal of those loans from the
pool even if the modification of those loans would otherwise be considered a troubled debt
restructuring. An entity will continue to be required to consider whether the pool of assets in
which the loan is included is impaired if expected cash flows for the pool change. The amendments
in this Update are effective for modifications of loans accounted for within pools occurring in the
first interim or annual period ending on or after July 15, 2010. The amendments are to be applied
prospectively and early application is permitted. The adoption of this guidance did not have an
impact in the Corporations consolidated financial statements.
In July 2010, the FASB updated the codification to expand the disclosure requirements
regarding credit quality of financing receivables and the allowance for credit losses. The
objectives of the enhanced disclosures are to provide information that will enable readers of
financial statements to understand the nature of credit risk in a companys financing receivables,
how that risk is analyzed in determining the related allowance for credit losses and changes to the
allowance during the reporting period. An entity should provide disclosures on a disaggregated
basis for portfolio segments and classes of financing receivable. The amendments in this Update are
effective for both interim and annual reporting period ending after December 15, 2010. The
Corporation is currently evaluating the impact of the adoption of this guidance on its financial
statements.
13
2 EARNINGS PER COMMON SHARE
The calculations of earnings per common share for the quarters and nine-month periods ended on
September 30, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Nine-Month Period Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
(In thousands, except per share information) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net loss |
|
$ |
(75,233 |
) |
|
$ |
(165,218 |
) |
|
$ |
(272,872 |
) |
|
$ |
(221,985 |
) |
Non-cumulative preferred stock dividends (Series A through E) |
|
|
|
|
|
|
(3,356 |
) |
|
|
|
|
|
|
(23,494 |
) |
Cumulative non-convertible preferred stock dividends (Series F) |
|
|
(1,618 |
) |
|
|
(5,000 |
) |
|
|
(11,618 |
) |
|
|
(14,167 |
) |
Cumulative convertible preferred stock dividend (Series G) |
|
|
(4,183 |
) |
|
|
|
|
|
|
(4,183 |
) |
|
|
|
|
Preferred stock discount accretion (Series F and G) |
|
|
(1,688 |
) |
|
|
(1,115 |
) |
|
|
(4,010 |
) |
|
|
(3,095 |
) |
Favorable impact from issuing common stock in exchange for
Series A through E preferred stock, net of issuance costs (1) (Refer to Note 17) |
|
|
385,387 |
|
|
|
|
|
|
|
385,387 |
|
|
|
|
|
Favorable impact from issuing Series G mandatorily
convertible preferred stock in exchange for
Series F preferred stock (2) (Refer to Note 17) |
|
|
55,122 |
|
|
|
|
|
|
|
55,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common
stockholders basic |
|
$ |
357,787 |
|
|
$ |
(174,689 |
) |
|
$ |
147,826 |
|
|
$ |
(262,741 |
) |
Convertible preferred stock dividends and accretion |
|
|
5,626 |
|
|
|
|
|
|
|
5,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common
stockholders diluted |
|
$ |
363,413 |
|
|
$ |
(174,689 |
) |
|
$ |
153,452 |
|
|
$ |
(262,741 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding |
|
|
171,483 |
|
|
|
92,511 |
|
|
|
119,131 |
|
|
|
92,511 |
|
Average potential common shares (3) |
|
|
1,126,792 |
|
|
|
|
|
|
|
379,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
common shares outstanding assuming dilution |
|
|
1,298,275 |
|
|
|
92,511 |
|
|
|
498,856 |
|
|
|
92,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share |
|
$ |
2.09 |
|
|
$ |
(1.89 |
) |
|
$ |
1.24 |
|
|
$ |
(2.84 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share |
|
$ |
0.28 |
|
|
$ |
(1.89 |
) |
|
$ |
0.31 |
|
|
$ |
(2.84 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excess of carrying amount of Series A through E preferred stock exchanged over the fair value
of new common shares issued. |
|
(2) |
|
Excess of carrying amount of Series F preferred stock exchanged and original warrant over the
fair value of new Series G preferred stock issued and amended warrant. |
|
(3) |
|
Assumes conversion of
the Series G convertible preferred stock at the time of issuance based on the most advantageous
conversion rate from the standpoint of the security holder |
Earnings (loss) per common share is computed by dividing net income (loss) available to
common stockholders by the weighted average common shares issued and outstanding. Net income (loss)
available to common stockholders represents net income (loss) adjusted for preferred stock
dividends including dividends declared, and cumulative dividends related to the current dividend
period that have not been declared as of the end of the period, and the accretion of discount on
preferred stock issuances. For 2010 the net income available to common stockholders also includes
the one-time effect of the issuance of common stock in exchange for shares of the Series A through
E Preferred Stock and the issuance of a new Series G Preferred Stock in exchange for the Series F
Preferred Stock. The Exchange Offer and the issuance of the Series G Preferred Stock to the U.S.
Treasury are discussed in Note 17 to the consolidated financial statements. 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 nine-month periods ended September 30, 2010 and 2009, there were 2,072,200 and
2,546,310, respectively, outstanding stock options, as well as warrants outstanding to purchase
5,842,259 shares of common stock that were excluded from the computation of diluted earnings per
common share because their inclusion would have an antidilutive effect. Approximately 21,477 and
32,216 unvested shares of restricted stock outstanding as of September 30, 2010 and 2009 were
excluded from the computation of earnings per share.
The Series G Preferred Stock is included in the calculation of earnings per share in 2010 as
all shares are assumed converted at the time of issuance of the Series G Preferred Stock, under the
if converted method. The amount of potential common shares was obtained based on the most
advantageous conversion rate from the standpoint of the security holder and assuming the
Corporation will not be able to compel conversion until the seven-year anniversary, at which date
the conversion price would be based on the
14
Corporations stock price in the open market and
conversion would be based on the full liquidation value of $1,000 per share, or a conversion rate of
3,347.84 shares of common stock for each share of Series G convertible preferred stock.
3 STOCK OPTION 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 8,696,112 options on 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.
Under the 1997 stock option plan, the Compensation and Benefits Committee (the Compensation
Committee) had the authority to grant stock appreciation rights at any time subsequent to the
grant of an option. Pursuant to stock appreciation rights, the optionee surrenders the right to
exercise an option granted under the plan in consideration for payment by the Corporation of an
amount equal to the excess of the fair market value of the shares of common stock subject to such
option surrendered over the total option price of such shares. Any option surrendered is cancelled
by the Corporation and the shares subject to the option are not eligible for further grants under
the option plan. On January 21, 2007, the 1997 stock option plan expired; all outstanding awards
granted under this plan continue in full force and effect, subject to their original terms. No
awards for shares could be granted under the 1997 stock option plan as of its expiration.
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. Shares
delivered pursuant to an award may consist, in whole or in part, of authorized and unissued shares
of Common Stock or shares of Common Stock acquired by the Corporation. During the fourth quarter of
2008, 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, of which 4,027 were forfeited in the
second half of 2009 and 10,739 have vested.
For the quarter and nine-month period ended September 30, 2010, the Corporation recognized
$23,333 and $69,999, respectively, of stock-based compensation expense related to the
aforementioned restricted stock awards. The total unrecognized compensation cost related to the
non-vested restricted shares was $143,890 as of September 30, 2010 and is expected to be recognized
over the next 1.2 years.
There were no stock options granted during 2010 and 2009, therefore, no compensation
associated with stock options was recorded in those years.
Stock-based compensation accounting guidance requires the Corporation to develop an estimate
of the number of share-based awards which will be forfeited due to employee or director 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.
15
The activity of stock options for the nine-month period ended September 30, 2010 is set forth
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-month period ended |
|
|
|
September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
Aggregate |
|
|
|
Number of |
|
|
Weighted-Average |
|
|
Contractual Term |
|
|
Intrinsic Value |
|
|
|
Options |
|
|
Exercise Price |
|
|
(Years) |
|
|
(In thousands) |
|
Beginning of period |
|
|
2,481,310 |
|
|
$ |
13.46 |
|
|
|
|
|
|
|
|
|
Options cancelled |
|
|
(409,110 |
) |
|
|
14.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period outstanding and exercisable |
|
|
2,072,200 |
|
|
$ |
13.24 |
|
|
|
4.6 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No stock options were exercised during the first nine months of 2010 or 2009.
4 INVESTMENT SECURITIES
Investment Securities Available for Sale
The amortized cost, non-credit loss component of other-than-temporary impairment (OTTI) on
securities recorded in other comprehensive income (OCI), gross unrealized gains and losses
recorded in OCI, approximate fair value, weighted-average yield and contractual maturities of
investment securities available for sale as of September 30, 2010 and December 31, 2009 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Non-Credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Component |
|
|
Gross |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Loss Component |
|
|
Gross |
|
|
|
|
|
|
Weighted |
|
|
|
Amortized |
|
|
of OTTI |
|
|
Unrealized |
|
|
Fair |
|
|
average |
|
|
Amortized |
|
|
of OTTI |
|
|
Unrealized |
|
|
Fair |
|
|
average |
|
|
|
cost |
|
|
Recorded in OCI |
|
|
gains |
|
|
losses |
|
|
value |
|
|
yield% |
|
|
cost |
|
|
Recorded in OCI |
|
|
gains |
|
|
losses |
|
|
value |
|
|
yield% |
|
|
|
(Dollars in thousands) |
|
U.S. Treasury securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 1 to 5 years |
|
$ |
599,959 |
|
|
$ |
|
|
|
$ |
11,981 |
|
|
$ |
|
|
|
$ |
611,940 |
|
|
|
1.34 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
Obligations of U.S. Government
sponsored agencies: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 1 to 5 years |
|
|
707,333 |
|
|
|
|
|
|
|
4,383 |
|
|
|
|
|
|
|
711,716 |
|
|
|
1.40 |
|
|
|
1,139,577 |
|
|
|
|
|
|
|
5,562 |
|
|
|
|
|
|
|
1,145,139 |
|
|
|
2.12 |
|
Puerto Rico Government
obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within one year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,016 |
|
|
|
|
|
|
|
1 |
|
|
|
28 |
|
|
|
11,989 |
|
|
|
1.82 |
|
After 1 to 5 years |
|
|
126,682 |
|
|
|
|
|
|
|
588 |
|
|
|
14 |
|
|
|
127,256 |
|
|
|
5.33 |
|
|
|
113,232 |
|
|
|
|
|
|
|
302 |
|
|
|
47 |
|
|
|
113,487 |
|
|
|
5.40 |
|
After 5 to 10 years |
|
|
104,331 |
|
|
|
|
|
|
|
187 |
|
|
|
|
|
|
|
104,518 |
|
|
|
5.18 |
|
|
|
6,992 |
|
|
|
|
|
|
|
328 |
|
|
|
90 |
|
|
|
7,230 |
|
|
|
5.88 |
|
After 10 years |
|
|
4,719 |
|
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
4,706 |
|
|
|
6.21 |
|
|
|
3,529 |
|
|
|
|
|
|
|
91 |
|
|
|
|
|
|
|
3,620 |
|
|
|
5.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and
Puerto Rico Government
obligations |
|
|
1,543,024 |
|
|
|
|
|
|
|
17,139 |
|
|
|
27 |
|
|
|
1,560,136 |
|
|
|
1.97 |
|
|
|
1,275,346 |
|
|
|
|
|
|
|
6,284 |
|
|
|
165 |
|
|
|
1,281,465 |
|
|
|
2.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 1 to 5 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 |
|
|
|
5.54 |
|
After 10 years |
|
|
1,934 |
|
|
|
|
|
|
|
118 |
|
|
|
|
|
|
|
2,052 |
|
|
|
5.00 |
|
|
|
705,818 |
|
|
|
|
|
|
|
18,388 |
|
|
|
1,987 |
|
|
|
722,219 |
|
|
|
4.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,934 |
|
|
|
|
|
|
|
118 |
|
|
|
|
|
|
|
2,052 |
|
|
|
5.00 |
|
|
|
705,848 |
|
|
|
|
|
|
|
18,388 |
|
|
|
1,987 |
|
|
|
722,249 |
|
|
|
4.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 1 to 5 years |
|
|
38 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
41 |
|
|
|
6.49 |
|
|
|
69 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
72 |
|
|
|
6.56 |
|
After 5 to 10 years |
|
|
1,398 |
|
|
|
|
|
|
|
79 |
|
|
|
|
|
|
|
1,477 |
|
|
|
4.76 |
|
|
|
808 |
|
|
|
|
|
|
|
39 |
|
|
|
|
|
|
|
847 |
|
|
|
5.47 |
|
After 10 years |
|
|
948,009 |
|
|
|
|
|
|
|
33,902 |
|
|
|
824 |
|
|
|
981,087 |
|
|
|
4.27 |
|
|
|
407,565 |
|
|
|
|
|
|
|
10,808 |
|
|
|
980 |
|
|
|
417,393 |
|
|
|
5.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
949,445 |
|
|
|
|
|
|
|
33,984 |
|
|
|
824 |
|
|
|
982,605 |
|
|
|
4.27 |
|
|
|
408,442 |
|
|
|
|
|
|
|
10,850 |
|
|
|
980 |
|
|
|
418,312 |
|
|
|
5.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 5 to 10 years |
|
|
82,373 |
|
|
|
|
|
|
|
4,697 |
|
|
|
|
|
|
|
87,070 |
|
|
|
4.48 |
|
|
|
101,781 |
|
|
|
|
|
|
|
3,716 |
|
|
|
91 |
|
|
|
105,406 |
|
|
|
4.55 |
|
After 10 years |
|
|
137,957 |
|
|
|
|
|
|
|
8,408 |
|
|
|
|
|
|
|
146,365 |
|
|
|
5.51 |
|
|
|
1,374,533 |
|
|
|
|
|
|
|
30,629 |
|
|
|
2,776 |
|
|
|
1,402,386 |
|
|
|
4.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220,330 |
|
|
|
|
|
|
|
13,105 |
|
|
|
|
|
|
|
233,435 |
|
|
|
5.12 |
|
|
|
1,476,314 |
|
|
|
|
|
|
|
34,345 |
|
|
|
2,867 |
|
|
|
1,507,792 |
|
|
|
4.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized Mortgage Obligations
issued or guaranteed by
FHLMC,
FNMA and GNMA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 10 years |
|
|
118,771 |
|
|
|
|
|
|
|
1,710 |
|
|
|
|
|
|
|
120,481 |
|
|
|
0.99 |
|
|
|
156,086 |
|
|
|
|
|
|
|
633 |
|
|
|
412 |
|
|
|
156,307 |
|
|
|
0.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other mortgage pass-through
trust certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 10 years |
|
|
105,184 |
|
|
|
27,785 |
|
|
|
1 |
|
|
|
|
|
|
|
77,400 |
|
|
|
2.26 |
|
|
|
117,198 |
|
|
|
32,846 |
|
|
|
2 |
|
|
|
|
|
|
|
84,354 |
|
|
|
2.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed
securities |
|
|
1,395,664 |
|
|
|
27,785 |
|
|
|
48,918 |
|
|
|
824 |
|
|
|
1,415,973 |
|
|
|
3.97 |
|
|
|
2,863,888 |
|
|
|
32,846 |
|
|
|
64,218 |
|
|
|
6,246 |
|
|
|
2,889,014 |
|
|
|
4.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities (without
contractual maturity) (1) |
|
|
77 |
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
71 |
|
|
|
|
|
|
|
427 |
|
|
|
|
|
|
|
81 |
|
|
|
205 |
|
|
|
303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
available for sale |
|
$ |
2,938,765 |
|
|
$ |
27,785 |
|
|
$ |
66,057 |
|
|
$ |
857 |
|
|
$ |
2,976,180 |
|
|
|
2.92 |
|
|
$ |
4,139,661 |
|
|
$ |
32,846 |
|
|
$ |
70,583 |
|
|
$ |
6,616 |
|
|
$ |
4,170,782 |
|
|
|
3.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 as was the case with approximately $1.2
billion of investment securities (mainly U.S. agency debt securities) called during 2010. 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 available for sale and the non-credit loss component of OTTI are presented as part of
OCI.
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
16
of September 30, 2010 and
December 31, 2009. It also includes debt securities for which an OTTI was recognized and only the
amount related to a credit loss was recognized in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010 |
|
|
|
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 |
|
$ |
14,692 |
|
|
$ |
27 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
14,692 |
|
|
$ |
27 |
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA |
|
|
171,468 |
|
|
|
824 |
|
|
|
|
|
|
|
|
|
|
|
171,468 |
|
|
|
824 |
|
Other mortgage pass-through trust certificates |
|
|
|
|
|
|
|
|
|
|
77,177 |
|
|
|
27,785 |
|
|
|
77,177 |
|
|
|
27,785 |
|
Equity securities |
|
|
71 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
71 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
186,231 |
|
|
$ |
857 |
|
|
$ |
77,177 |
|
|
$ |
27,785 |
|
|
$ |
263,408 |
|
|
$ |
28,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico Government
obligations |
|
$ |
14,760 |
|
|
$ |
118 |
|
|
$ |
9,113 |
|
|
$ |
47 |
|
|
$ |
23,873 |
|
|
$ |
165 |
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC |
|
|
236,925 |
|
|
|
1,987 |
|
|
|
|
|
|
|
|
|
|
|
236,925 |
|
|
|
1,987 |
|
GNMA |
|
|
72,178 |
|
|
|
980 |
|
|
|
|
|
|
|
|
|
|
|
72,178 |
|
|
|
980 |
|
FNMA |
|
|
415,601 |
|
|
|
2,867 |
|
|
|
|
|
|
|
|
|
|
|
415,601 |
|
|
|
2,867 |
|
Collateralized mortgage obligations issued
or guaranteed by FHLMC, FNMA
and GNMA |
|
|
105,075 |
|
|
|
412 |
|
|
|
|
|
|
|
|
|
|
|
105,075 |
|
|
|
412 |
|
Other mortgage pass-through trust
certificates |
|
|
|
|
|
|
|
|
|
|
84,105 |
|
|
|
32,846 |
|
|
|
84,105 |
|
|
|
32,846 |
|
Equity securities |
|
|
90 |
|
|
|
205 |
|
|
|
|
|
|
|
|
|
|
|
90 |
|
|
|
205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
844,629 |
|
|
$ |
6,569 |
|
|
$ |
93,218 |
|
|
$ |
32,893 |
|
|
$ |
937,847 |
|
|
$ |
39,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Investments 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
September 30, 2010 and December 31, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
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 |
|
$ |
8,480 |
|
|
$ |
5 |
|
|
$ |
|
|
|
$ |
8,485 |
|
|
|
0.30 |
|
|
$ |
8,480 |
|
|
$ |
12 |
|
|
$ |
|
|
|
$ |
8,492 |
|
|
|
0.47 |
|
Puerto Rico Government obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 5 to 10 years |
|
|
19,106 |
|
|
|
975 |
|
|
|
|
|
|
|
20,081 |
|
|
|
5.86 |
|
|
|
18,584 |
|
|
|
564 |
|
|
|
93 |
|
|
|
19,055 |
|
|
|
5.86 |
|
After 10 years |
|
|
4,731 |
|
|
|
112 |
|
|
|
|
|
|
|
4,843 |
|
|
|
5.50 |
|
|
|
4,995 |
|
|
|
77 |
|
|
|
|
|
|
|
5,072 |
|
|
|
5.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States and Puerto
Rico Government obligations |
|
|
32,317 |
|
|
|
1,092 |
|
|
|
|
|
|
|
33,409 |
|
|
|
4.35 |
|
|
|
32,059 |
|
|
|
653 |
|
|
|
93 |
|
|
|
32,619 |
|
|
|
4.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 1 to 5 years |
|
|
3,100 |
|
|
|
52 |
|
|
|
|
|
|
|
3,152 |
|
|
|
3.80 |
|
|
|
5,015 |
|
|
|
78 |
|
|
|
|
|
|
|
5,093 |
|
|
|
3.79 |
|
FNMA certificates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 1 to 5 years |
|
|
3,011 |
|
|
|
65 |
|
|
|
|
|
|
|
3,076 |
|
|
|
3.87 |
|
|
|
4,771 |
|
|
|
100 |
|
|
|
|
|
|
|
4,871 |
|
|
|
3.87 |
|
After 5 to 10 years |
|
|
426,506 |
|
|
|
22,146 |
|
|
|
|
|
|
|
448,652 |
|
|
|
4.47 |
|
|
|
533,593 |
|
|
|
19,548 |
|
|
|
|
|
|
|
553,141 |
|
|
|
4.47 |
|
After 10 years |
|
|
23,033 |
|
|
|
895 |
|
|
|
|
|
|
|
23,928 |
|
|
|
5.33 |
|
|
|
24,181 |
|
|
|
479 |
|
|
|
|
|
|
|
24,660 |
|
|
|
5.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
455,650 |
|
|
|
23,158 |
|
|
|
|
|
|
|
478,808 |
|
|
|
4.50 |
|
|
|
567,560 |
|
|
|
20,205 |
|
|
|
|
|
|
|
587,765 |
|
|
|
4.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 10 years |
|
|
2,000 |
|
|
|
|
|
|
|
648 |
|
|
|
1,352 |
|
|
|
5.80 |
|
|
|
2,000 |
|
|
|
|
|
|
|
800 |
|
|
|
1,200 |
|
|
|
5.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
held-to-maturity |
|
$ |
489,967 |
|
|
$ |
24,250 |
|
|
$ |
648 |
|
|
$ |
513,569 |
|
|
|
4.50 |
|
|
$ |
601,619 |
|
|
$ |
20,858 |
|
|
$ |
893 |
|
|
$ |
621,584 |
|
|
|
4.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 September 30, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010 |
|
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
|
(In thousands) |
|
Corporate bonds |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,352 |
|
|
$ |
648 |
|
|
$ |
1,352 |
|
|
$ |
648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,352 |
|
|
$ |
648 |
|
|
$ |
1,352 |
|
|
$ |
648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico Government obligations |
|
$ |
|
|
|
$ |
|
|
|
$ |
4,678 |
|
|
$ |
93 |
|
|
$ |
4,678 |
|
|
$ |
93 |
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
1,200 |
|
|
|
800 |
|
|
|
1,200 |
|
|
|
800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,878 |
|
|
$ |
893 |
|
|
$ |
5,878 |
|
|
$ |
893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
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. 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 April 1, 2009, unrealized losses that were determined to be temporary were recorded,
net of tax, in other comprehensive income for available-for-sale securities, whereas 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 through 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.
In April 2009, the FASB amended the OTTI model for debt securities. Under the amended
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 the amended guidance, 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
this new guidance, the credit loss component of an OTTI, if any, would be recorded as a separate
line item in the accompanying consolidated statements of (loss) income, while the remaining portion
of the impairment loss would be 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. For the quarter and nine-month period ended September 30,
2010, there were no credit loss impairment charges in earnings.
Debt securities issued by U.S. government agencies, government-sponsored entities and the U.S.
Treasury accounted for more than 90% of the total available-for-sale and held-to-maturity portfolio
as of September 30, 2010 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 $105 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
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.
No OTTI losses on available-for-sale debt securities were recorded in the first nine months of
2010. Cumulative unrealized other-than-temporary impairment losses recognized in OCI as of
September 30, 2010 amounted to $31.7 million.
19
For the third quarter and first nine months of 2009, the Corporation recorded OTTI losses
on available-for-sale debt securities as follows:
|
|
|
|
|
|
|
|
|
|
|
Private label MBS |
|
|
|
Quarter ended |
|
|
Nine-month period ended |
|
(In thousands) |
|
September 30, 2009 |
|
|
September 30, 2009 |
|
Total other-than-temporary impairment losses |
|
$ |
|
|
|
$ |
(32,541 |
) |
Unrealized other-than-temporary impairment losses recognized in OCI (1) |
|
|
(209 |
) |
|
|
31,271 |
|
|
|
|
|
|
|
|
Net impairment losses recognized in earnings (2) |
|
$ |
(209 |
) |
|
$ |
(1,270 |
) |
|
|
|
|
|
|
|
|
|
|
(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 rollforward of credit losses on debt securities held
by the Corporation for which a portion of OTTI is recognized in OCI:
|
|
|
|
|
|
|
|
|
|
|
Private label MBS |
|
|
|
Quarter ended |
|
|
Nine-month period ended |
|
(In thousands) |
|
September 30, 2009 |
|
|
September 30, 2009 |
|
Credit losses at the beginning of the period |
|
$ |
1,061 |
|
|
$ |
|
|
Additions: |
|
|
|
|
|
|
|
|
Credit losses related to securities for which an OTTI
was not previously recognized |
|
|
209 |
|
|
|
1,270 |
|
|
|
|
|
|
|
|
Ending balance of credit losses on debt securities held for which a
portion of an OTTI was recognized in OCI |
|
$ |
1,270 |
|
|
$ |
1,270 |
|
|
|
|
|
|
|
|
Private label mortgage-backed securities (MBS) are collateralized by fixed-rate
mortgages on single family residential properties in the United States. The interest rate on these private label MBS 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.
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, no credit losses were reflected in earnings
for the period ended September 30, 2010. As a result of the valuation performed as of September 30,
2010, no additional other-than-temporary impairment was recorded for the period. Significant
assumptions in the valuation of the private label MBS as of September 30, 2010 were as follow:
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
Average |
|
Range |
Discount rate |
|
|
14.5 |
% |
|
|
14.5 |
% |
Prepayment rate |
|
|
26 |
% |
|
|
21.62% 44.79 |
% |
Projected Cumulative Loss Rate |
|
|
4 |
% |
|
|
1.05% 16.80 |
% |
For the nine-month period ended on September 30, 2010, the Corporation recorded OTTI of
approximately $0.4 million 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 nine months of
2010 amounted to approximately $2.4 billion (2009 $1.0 billion). Given the Corporations balance
sheet structure and the shape and level of the yield curve, which in turn is reflected in the
valuation of the securities and the repurchase agreements, the Corporation took advantage of market
conditions
during the quarter and completed the sale of approximately $1.2 billion of U.S. agency MBS
that was matched with the early termination of approximately $1.0 billion of repurchase agreements.
The cost of the unwinding of the repurchase agreements of $47.4 million offset the gain of $47.1
million realized on the sale of investment securities.
20
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 September 30, 2010 and December 31, 2009, the Corporation had investments in FHLB stock
with a book value of $63.0 million and $68.4 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 nine-month period ended September 30, 2010 amounted to $0.6 million and $2.1
million, respectively, compared to $1.0 million and $2.2 million, respectively, for the same
periods in 2009.
The FHLB stocks owned by the Corporation are issued by the FHLB of New York and by the FHLB of
Atlanta. Both Banks are part of the Federal Home Loan Bank System, a national wholesale banking
network of 12 regional, stockholder-owned congressionally chartered banks. The Federal Home Loan
Banks are all privately capitalized and operated by their member stockholders. The system is
supervised by the Federal Housing Finance Agency, which ensures that the Home Loan Banks operate in
a financially safe and sound manner, remain adequately capitalized and able to raise funds in the
capital markets, and carry out their housing finance mission.
The Corporation has other equity securities that do not have a readily available fair value.
The carrying value of such securities as of September 30, 2010 and December 31, 2009 was $1.3
million and $1.6 million, respectively. An impairment charge of $0.25 million was recorded in the
first quarter of 2010 related to an investment in a failed financial institution in the United
States.
During the first quarter of 2010, the Corporation recognized a $10.7 million gain on the sale
of the remaining VISA Class C shares. As of September 30, 2010, the Corporation no longer held any
VISA shares.
6 LOAN PORTFOLIO
The following is a detail of the loan portfolio:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
As of |
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Residential mortgage loans, mainly secured by first mortgages |
|
$ |
3,448,335 |
|
|
$ |
3,595,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans: |
|
|
|
|
|
|
|
|
Construction loans |
|
|
1,114,647 |
|
|
|
1,492,589 |
|
Commercial mortgage loans |
|
|
1,742,462 |
|
|
|
1,693,424 |
|
Commercial and Industrial loans (1) |
|
|
3,824,916 |
|
|
|
4,927,304 |
|
Loans to a local financial institution secured by
real estate mortgages |
|
|
295,855 |
|
|
|
321,522 |
|
|
|
|
|
|
|
|
Commercial loans |
|
|
6,977,880 |
|
|
|
8,434,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance leases |
|
|
289,573 |
|
|
|
318,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans |
|
|
1,464,238 |
|
|
|
1,579,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable |
|
|
12,180,026 |
|
|
|
13,928,451 |
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses |
|
|
(608,526 |
) |
|
|
(528,120 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net |
|
|
11,571,500 |
|
|
|
13,400,331 |
|
|
|
|
|
|
|
|
|
|
Loans held for sale |
|
|
9,196 |
|
|
|
20,775 |
|
|
|
|
|
|
|
|
Total loans |
|
$ |
11,580,696 |
|
|
$ |
13,421,106 |
|
|
|
|
|
|
|
|
|
|
|
1 |
- |
As of September 30, 2010, includes $1.8 billion of commercial loans
that are secured by real estate but are not dependent upon the real estate
for repayment. |
The Corporations primary lending area is Puerto Rico. The Corporations Puerto Rico banking
subsidiary, FirstBank, 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
21
portfolio of $12.2 billion as
of September 30, 2010, approximately 84% has credit risk concentration in Puerto Rico, 8% in the
United States and 8% in the Virgin Islands.
As of September 30, 2010, the Corporation had $273.1 million outstanding of credit facilities
granted to the Puerto Rico Government and/or its political subdivisions, down from $1.2 billion as
of December 31, 2009, and $57.2 million granted to the Virgin Islands government, down from $134.7
million as of December 31, 2009. A substantial portion of these credit facilities are obligations
that have a specific source of income or revenues identified for their repayment, such as property
taxes collected by the central Government and/or municipalities. Another portion of these
obligations consists of loans to public corporations that obtain revenues from rates charged for
services or products, such as electric power and water utilities. Public corporations have varying
degrees of independence from the central Government of Puerto Rico and many receive appropriations
or other payments from it. The Corporation also has loans to various municipalities in Puerto Rico
for which the good faith, credit and unlimited taxing power of the applicable municipality has been
pledged to their repayment.
The largest loan to one borrower as of September 30, 2010 in the amount of $295.9 million is
with one mortgage originator in Puerto Rico, Doral Financial Corporation. This commercial loan is
secured by individual real estate loans, mostly 1-4 residential mortgage loans.
7 ALLOWANCE FOR LOAN AND LEASE LOSSES
The changes in the allowance for loan and lease losses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Nine-Month Period Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Balance at beginning of period |
|
$ |
604,304 |
|
|
$ |
407,746 |
|
|
$ |
528,120 |
|
|
$ |
281,526 |
|
Provision for loan and lease losses |
|
|
120,482 |
|
|
|
148,090 |
|
|
|
438,240 |
|
|
|
442,671 |
|
Charge-offs |
|
|
(120,487 |
) |
|
|
(87,001 |
) |
|
|
(367,309 |
) |
|
|
(260,836 |
) |
Recoveries |
|
|
4,227 |
|
|
|
2,649 |
|
|
|
9,475 |
|
|
|
8,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
608,526 |
|
|
$ |
471,484 |
|
|
$ |
608,526 |
|
|
$ |
471,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2010 and December 31, 2009, impaired loans and
their related allowance were as follows:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
As of |
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Impaired loans with valuation allowance, net of charge-offs |
|
$ |
1,394,335 |
|
|
$ |
1,060,088 |
|
Impaired loans without valuation allowance, net of charge-offs |
|
|
486,735 |
|
|
|
596,176 |
|
|
|
|
|
|
|
|
Total impaired loans |
|
$ |
1,881,070 |
|
|
$ |
1,656,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for impaired loans |
|
$ |
271,425 |
|
|
$ |
182,145 |
|
Interest income of approximately $13.5 million and $25.9 million was recognized on
impaired loans for the third quarter and first nine months of 2010, respectively, compared to $5.8
million and $20.0 million, respectively, for the same periods in 2009. The average recorded
investment in impaired loans for the first nine-months of 2010 and 2009 was $1.8 billion and $839.7
million, respectively.
22
The following tables show the activity for impaired loans and the related specific reserve during
the first nine months of 2010:
|
|
|
|
|
|
|
(In thousands) |
|
Impaired Loans: |
|
|
|
|
Balance at beginning of year |
|
$ |
1,656,264 |
|
Loans determined impaired during the period |
|
|
802,957 |
|
Net charge-offs (1) |
|
|
(299,871 |
) |
Loans sold, net of charge-offs of $42.6 million (2) |
|
|
(120,556 |
) |
Loans foreclosed, paid in full and partial payments, net of additional disbursements |
|
|
(157,724 |
) |
|
|
|
|
Balance at end of period |
|
$ |
1,881,070 |
|
|
|
|
|
|
|
|
(1) |
|
Approximately $151.5 million, or 51%, is related to construction
loans. |
|
(2) |
|
Loans sold in Florida. |
|
|
|
|
|
|
|
(In thousands) |
|
Specific Reserve: |
|
|
|
|
Balance at beginning of year |
|
$ |
182,145 |
|
Provision for loan losses |
|
|
389,151 |
|
Net charge-offs |
|
|
(299,871 |
) |
|
|
|
|
Balance at end of period |
|
$ |
271,425 |
|
|
|
|
|
The Corporation provides homeownership preservation assistance to its customers through a
loss mitigation program in Puerto Rico and through programs sponsored by the Federal Government.
Due to the nature of the borrowers financial condition, restructurings or loan modifications
through these program as well as other restructurings of individual
commercial loans, commercial mortgage
loans, construction loans and residential mortgages in the U.S. mainland fit the definition of
Troubled Debt Restructuring (TDR). A restructuring of a debt constitutes a TDR if the creditor
for economic or legal reasons related to the debtors financial difficulties grants a concession to
the debtor that it would not otherwise consider. Modifications involve changes in one or more of
the loan terms that bring a defaulted loan current and provide sustainable affordability. Changes
may include the refinancing of any past-due amounts, including interest and escrow, the extension
of the maturity of the loan and modifications of the loan rate. As of September 30, 2010, the
Corporations TDR loans amounted to $372.6 million consisting of: $185.6 million of residential
mortgage loans, $41.7 million commercial and industrial loans, $90.3 million commercial mortgage
loans and $55.0 million of construction loans. Outstanding unfunded loan commitments on TDR loans
amounted to $2.3 million as of September 30, 2010.
Included in the $372.6 million of TDR loans are certain impaired condo-conversion loans
restructured into two separate agreements (loan splitting) in the fourth quarter of 2009. At that
time, each of these loans was restructured into two notes: one that represents the portion of the
loan that is expected to be fully collected along with contractual interest and the second note
that represents the portion of the original loan that was charged-off. The restructuring of these
loans was made after analyzing the borrowers and guarantors capacities to service the debt and
ability to perform under the modified terms. As part of the restructuring of the loans, the first
note of each loan has been placed on a monthly payment of principal and interest that amortizes the
debt over 25 years at a market rate of interest. An interest rate reduction was granted for the
second note. The carrying value of the notes deemed collectible amounted to $22.0 million as of
September 30, 2010 and the charge-offs recorded prior to 2010 associated with these loans were
$29.7 million. The loans that have been deemed collectible and returned to accrual status after a
performance period, continue to be individually evaluated for impairment purposes and a specific
reserve of $0.5 million was allocated to these loans as of September 30, 2010.
As of September 30, 2010, the Corporation maintains a $8.5 million reserve for unfunded loan
commitments mainly related to outstanding construction loans commitments in Puerto Rico. The
reserve for unfunded loan commitments is an estimate of the losses inherent in off-balance sheet
loan commitments at the balance sheet date. It is calculated by multiplying an estimated loss
factor by an estimated probability of funding, and then by the period-end amounts for unfunded
commitments. The reserve for unfunded loan commitments is included as part of accounts payable and
other liabilities in the consolidated statement of financial condition.
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 be
adversely affected by 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 for protection from rising interest rates in connection with private
label MBS.
The Corporation designates a derivative as a fair value hedge, cash flow hedge or an economic
undesignated hedge when it enters into the derivative contract. As of September 30, 2010 and
December 31, 2009, all derivatives held by the Corporation were
23
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 the principal 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 from
rising interest rates. Specifically, the interest rate on 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. During the second quarter of 2010, the counterparty for interest rate
caps for certain private label mortgage pass-through securities was taken over by the FDIC,
immediately canceling all outstanding commitments, and as a result, interest rate caps with
notional amount of $113 million are no longer considered to be derivative financial instruments.
The total exposure to fair value of $3.0 million related to such contracts was reclassified to an
account receivable.
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 September 30, 2010, 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 to mitigate the interest rate risk inherent in variable
rate loans. All interest rate swaps related to brokered CDs 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.
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 a 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 September
30, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
Notional Amounts |
|
|
|
As of |
|
|
As of |
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Economic undesignated hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts: |
|
|
|
|
|
|
|
|
Interest rate swap agreements used to hedge loans |
|
$ |
41,635 |
|
|
$ |
79,567 |
|
Written interest rate cap agreements |
|
|
71,841 |
|
|
|
102,521 |
|
Purchased interest rate cap agreements |
|
|
71,841 |
|
|
|
228,384 |
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
$ |
292,347 |
|
|
$ |
517,502 |
|
|
|
|
|
|
|
|
24
The following table summarizes the fair value of derivative instruments and identifies
the location of such derivative instruments in the Statement of Financial Condition as of September
30, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives |
|
|
Liability Derivatives |
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
Statement of |
|
2010 |
|
|
2009 |
|
|
Statement of |
|
2010 |
|
|
2009 |
|
|
|
Financial Condition |
|
Fair |
|
|
Fair |
|
|
Financial Condition |
|
Fair |
|
|
Fair |
|
|
|
Location |
|
Value |
|
|
Value |
|
|
Location |
|
Value |
|
|
Value |
|
|
|
(In thousands) |
|
Economic undesignated hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements used to hedge loans |
|
Other assets |
|
$ |
427 |
|
|
$ |
319 |
|
|
Accounts payable and other liabilities |
|
$ |
6,171 |
|
|
$ |
5,068 |
|
Written interest rate cap agreements |
|
Other assets |
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities |
|
|
1 |
|
|
|
201 |
|
Purchased interest rate cap agreements |
|
Other assets |
|
|
1 |
|
|
|
4,423 |
|
|
Accounts payable and other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded written options on stock index deposits |
|
Other assets |
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
|
|
|
|
|
14 |
|
Embedded written options on stock index notes payable |
|
Other assets |
|
|
|
|
|
|
|
|
|
Notes payable |
|
|
1,039 |
|
|
|
1,184 |
|
Purchased options used to manage exposure to the stock
market on embedded stock index options |
|
Other assets |
|
|
1,109 |
|
|
|
1,194 |
|
|
Accounts payable and other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,537 |
|
|
$ |
5,936 |
|
|
|
|
$ |
7,211 |
|
|
$ |
6,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the effect of derivative instruments on the Statement of
Loss for the quarter and nine-month period ended September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gain or (Loss) |
|
|
Unrealized Gain or (Loss) |
|
|
|
Location of Unrealized Gain or (loss) |
|
Quarter Ended |
|
|
Nine-Month Period Ended |
|
|
|
Recognized in Income on |
|
September 30, |
|
|
September 30, |
|
|
|
Derivatives |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
(In thousands) |
|
|
(In thousands) |
|
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements used to hedge: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokered certificates of deposit |
|
Interest expense on deposits |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(5,236 |
) |
Notes payable |
|
Interest expense on notes payable and other borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
Loans |
|
Interest income on loans |
|
|
(935 |
) |
|
|
(406 |
) |
|
|
(995 |
) |
|
|
984 |
|
Written and purchased interest rate cap agreements mortgage-backed securities |
|
Interest income on investment securities |
|
|
|
|
|
|
(1,028 |
) |
|
|
(1,137 |
) |
|
|
1,678 |
|
Written and purchased interest rate cap agreements loans |
|
Interest income on loans |
|
|
(3 |
) |
|
|
(51 |
) |
|
|
(37 |
) |
|
|
93 |
|
Equity contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded written options on stock index deposits |
|
Interest expense on deposits |
|
|
(1 |
) |
|
|
1 |
|
|
|
(2 |
) |
|
|
(81 |
) |
Embedded written options on stock index notes payable |
|
Interest expense on notes payable and other borrowings |
|
|
25 |
|
|
|
(14 |
) |
|
|
76 |
|
|
|
(180 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loss on derivatives |
|
|
|
$ |
(914 |
) |
|
$ |
(1,498 |
) |
|
$ |
(2,095 |
) |
|
$ |
(2,739 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 have economically hedged certain
callable brokered CDs and medium-term notes are partially offset by unrealized gains and losses on
the valuation of such economically hedged liabilities measured at fair value. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended September 30, |
|
|
2010 |
|
2009 |
|
|
|
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
Loss |
|
|
|
|
(Loss) / Gain |
|
on liabilities measured at fair |
|
Net Unrealized |
|
Gain / (Loss) |
|
on liabilities measured at fair |
|
Net Unrealized |
(In thousands) |
|
on Derivatives |
|
value |
|
Loss |
|
on Derivatives |
|
value |
|
Gain / (Loss) |
Interest expense on deposits |
|
$ |
(1 |
) |
|
$ |
|
|
|
$ |
(1 |
) |
|
$ |
1 |
|
|
$ |
|
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on notes payable and other borrowings |
|
|
25 |
|
|
|
(550 |
) |
|
|
(525 |
) |
|
|
(14 |
) |
|
|
(1,576 |
) |
|
|
(1,590 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-Month Period ended September 30, |
|
|
2010 |
|
2009 |
|
|
|
|
|
|
Gain |
|
|
|
|
|
|
|
|
|
Gain / (Loss) |
|
|
|
|
(Loss) / Gain |
|
on liabilities measured at fair |
|
Net Unrealized |
|
Loss |
|
on liabilities measured at fair |
|
Net Unrealized |
(In thousands) |
|
on Derivatives |
|
value |
|
(Loss) / Gain |
|
on Derivatives |
|
value |
|
Gain / (Loss) |
Interest expense on deposits |
|
$ |
(2 |
) |
|
$ |
|
|
|
$ |
(2 |
) |
|
$ |
(5,317 |
) |
|
$ |
8,696 |
|
|
$ |
3,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on notes payable and other borrowings |
|
|
76 |
|
|
|
2,307 |
|
|
|
2,383 |
|
|
|
(177 |
) |
|
|
(3,000 |
) |
|
|
(3,177 |
) |
25
A summary of interest rate swaps as of September 30, 2010 and December 31, 2009 follows:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
As of |
|
|
September 30, |
|
December 31, |
|
|
2010 |
|
2009 |
|
|
(Dollars in thousands) |
Pay fixed/receive floating (generally used to economically hedge loans): |
|
|
|
|
|
|
|
|
Notional amount |
|
$ |
41,635 |
|
|
$ |
79,567 |
|
Weighted-average receive rate at period end |
|
|
2.14 |
% |
|
|
2.15 |
% |
Weighted-average pay rate at period end |
|
|
6.83 |
% |
|
|
6.52 |
% |
Floating rates range from 167 to 252 basis points over 3-month LIBOR |
|
|
|
|
|
|
|
|
As of September 30, 2010, the Corporation has not entered into any derivative instrument
containing credit-risk-related contingent features.
9 GOODWILL AND OTHER INTANGIBLES
Goodwill as of September 30, 2010 and December 31, 2009 amounted to $28.1 million, recognized
as part of Other assets. The Corporation conducted its annual evaluation of goodwill during the
fourth quarter of 2009. This evaluation is a two-step process. The Step 1 evaluation of goodwill
allocated to the Florida reporting unit, which is one level below the United States business
segment, indicated potential impairment of goodwill. The Step 1 fair value for the unit was below
the carrying amount of its equity book value as of the December 31, 2009 valuation date, requiring
the completion of Step 2. The Step 2 required a valuation of all assets and liabilities of the
Florida unit, including any recognized and unrecognized intangible assets, to determine the fair
value of net assets. To complete Step 2, the Corporation subtracted from the units Step 1 fair
value the determined fair value of the net assets to arrive at the implied fair value of goodwill.
The results of the Step 2 analysis indicated that the implied fair value of goodwill exceeded the
goodwill carrying value by $107.4 million, resulting in no goodwill impairment. There have been no
events related to the Florida reporting unit that could indicate potential goodwill impairment
since the date of the last evaluation; therefore, no goodwill impairment evaluation was performed
during the first nine months of 2010. Goodwill and other indefinite life intangibles are reviewed
at least annually for impairment. The Corporation understands that it is in its best interest to
move the annual evaluation date to an earlier date within the fourth quarter, therefore, the
Corporation will evaluate for goodwill impairment as of October 1, 2010. The change in date will
provide room for improvement to the testing structure and coordination and will enable the
evaluation to be performed in conjunction with the Corporations annual budgeting process.
As of September 30, 2010, the gross carrying amount and accumulated amortization of core
deposit intangibles was $41.8 million and $27.1 million, respectively, recognized as part of Other
assets in the Consolidated Statements of Financial Condition (December 31, 2009 $41.8 million
and $25.2 million, respectively). During the quarter and nine-month period ended September 30,
2010, the amortization expense of core deposit intangibles amounted to $0.6 million and $1.9
million, respectively, compared to $0.8 million and $2.7 million, respectively, for the comparable
periods in 2009. As a result of an impairment evaluation of core deposit intangibles, there was an
impairment charge of $4.0 million recognized during the first half of 2009 related to core deposits
in Florida attributable to decreases in the base of core deposits acquired and recorded as part of
other non-interest expenses in the Statement of Income (Loss).
10 NON-CONSOLIDATED VARIABLE INTEREST ENTITIES AND SERVICING ASSETS
The Corporation transfers residential mortgage loans in sale or securitization transactions in
which it has continuing involvement, which includes servicing responsibilities and guarantee
arrangements. All such transfers have been accounted for as sales as required by applicable
accounting guidance.
When evaluating transfers and other transactions with Variable Interest Entities (VIEs) for
consolidation under the recently adopted guidance, the Corporation first determines if the
counterparty is an entity for which a variable interest exists. If no scope exception is applicable
and a variable interest exists, the Corporation then evaluates if it is the primary beneficiary of
the VIE and whether the entity should be consolidated or not.
Below is a summary of transfers of financial assets to VIEs for which the Company has retained
some level of continuing involvement:
Ginnie Mae
The Corporation typically transfers first lien residential mortgage loans in conjunction with
Ginnie Mae securitization transactions whereby the loans are exchanged for cash or securities that
are readily redeemed for cash proceeds and servicing rights.
26
The securities issued through these
transactions are guaranteed by the issuer and, as such, under seller/servicer agreements the
Corporation is required to service the loans in accordance with the issuers servicing
guidelines and standards. As of September 30, 2010, the Corporation serviced loans securitized
through GNMA with principal balance of $432.2 million.
Trust Preferred Securities
In 2004, FBP Statutory Trust I, a financing subsidiary of the Corporation, sold to
institutional investors $100 million of its variable rate trust preferred securities. The proceeds
of the issuance, together with the proceeds of the purchase by the Corporation of $3.1 million of
FBP Statutory Trust I variable rate common securities, were used by FBP Statutory Trust I to
purchase $103.1 million aggregate principal amount of the Corporations Junior Subordinated
Deferrable Debentures. Also in 2004, FBP Statutory Trust II, a statutory trust that is wholly-owned
by the Corporation, sold to institutional investors $125 million of its variable rate trust
preferred securities. The proceeds of the issuance, together with the proceeds of the purchase by
the Corporation of $3.9 million of FBP Statutory Trust II variable rate common securities, were
used by FBP Statutory Trust II to purchase $128.9 million aggregate principal amount of the
Corporations Junior Subordinated Deferrable Debentures. The trust preferred debentures are
presented in the Corporations Consolidated Statement of Financial Condition as Other Borrowings,
net of related issuance costs. The variable rate trust preferred securities are fully and
unconditionally guaranteed by the Corporation. The $100 million Junior Subordinated Deferrable
Debentures issued by the Corporation in April 2004 and the $125 million issued in September 2004
mature on September 17, 2034 and September 20, 2034, respectively; however, under certain
circumstances, the maturity of Junior Subordinated Debentures may be shortened (such shortening
would result in a mandatory redemption of the variable rate trust preferred securities). The trust
preferred securities, subject to certain limitations, qualify as Tier I regulatory capital under
current Federal Reserve rules and regulations. The Collins Amendment to the Dodd-Frank Wall Street
Reform and Consumer Protection Act eliminates certain trust preferred securities from Tier 1
Capital, but TARP preferred securities are exempted from this treatment. These regulatory
capital deductions for trust preferred securities are to be phased in incrementally over a period
of 3 years beginning on January 1, 2013.
Grantor Trusts
During 2004 and 2005, a third party to the Corporation, from now on identified as the seller,
established a series of statutory trusts to effect the securitization of mortgage loans and the
sale of trust certificates. The seller initially provided the servicing for a fee, which is senior
to the obligations to pay trust certificate holders. The seller then entered into a sales agreement
through which it sold and issued the trust certificates in favor of the Corporations banking
subsidiary. Currently the Bank is the 100% owner of the trust certificates; the servicing of the
underlying residential mortgages that generate the principal and interest cash flows, is performed
by the seller, which receives a fee compensation for services provided, the servicing fee. The
securities are variable rate securities tied to LIBOR index plus a spread. The principal payments
from the underlying loans are remitted to a paying agent (the seller) who then remits interest to
the Bank; interest income is shared to a certain extent with a third party financial institution
that has an interest only strip (IO) tied to the cash flows of the underlying loans, whereas it
is entitled to received the excess of the interest income less a servicing fee over the variable
rate income that the Bank earns on the securities. This IO is limited to the weighted average
coupon of the securities. No recourse agreement exists and the risk from losses on non accruing
loans and repossessed collateral is absorbed by the Bank as the 100% holder of the certificates.
As of September 30, 2010, the outstanding balance of Grantor Trusts amounted to $105.2 million with
a weighted average yield of 2.26%.
Servicing Assets
The Corporation is actively involved in the securitization of pools of FHA-insured and
VA-guaranteed mortgages for issuance of GNMA mortgage-backed securities. Also, certain conventional
conforming-loans are sold to FNMA or FHLMC with servicing retained. The Corporation recognizes as
separate assets the rights to service loans for others, whether those servicing assets are
originated or purchased.
27
The changes in servicing assets are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
Nine-month period ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Balance at beginning of period |
|
$ |
13,335 |
|
|
$ |
10,148 |
|
|
$ |
11,902 |
|
|
$ |
8,151 |
|
Capitalization of servicing assets |
|
|
2,181 |
|
|
|
1,748 |
|
|
|
5,244 |
|
|
|
4,929 |
|
Amortization |
|
|
(572 |
) |
|
|
(592 |
) |
|
|
(1,504 |
) |
|
|
(1,776 |
) |
Adjustment to servicing assets for loans repurchased (1) |
|
|
(38 |
) |
|
|
|
|
|
|
(736 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance before valuation allowance at end of period |
|
|
14,906 |
|
|
|
11,304 |
|
|
|
14,906 |
|
|
|
11,304 |
|
Valuation allowance for temporary impairment |
|
|
(1,018 |
) |
|
|
(1,252 |
) |
|
|
(1,018 |
) |
|
|
(1,252 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
13,888 |
|
|
$ |
10,052 |
|
|
$ |
13,888 |
|
|
$ |
10,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amount represents the adjustment to fair value related to the repurchase of $3.8 million and $71.2 million for the quarter and nine-month period ended September 30, 2010, respectively, in
principal balance of loans serviced for others. |
Impairment charges are recognized through a valuation allowance for each individual
stratum of servicing assets. The valuation allowance is adjusted to reflect the amount, if any, by
which the cost basis of the servicing asset for a given stratum of loans being serviced exceeds its
fair value. Any fair value in excess of the cost basis of the servicing asset for a given stratum
is not recognized. Other-than-temporary impairments, if any, are recognized as a direct write-down
of the servicing assets.
Changes in the impairment allowance were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
Nine-month period ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Balance at
beginning of period |
|
$ |
282 |
|
|
$ |
1,796 |
|
|
$ |
745 |
|
|
$ |
751 |
|
Temporary impairment charges |
|
|
737 |
|
|
|
119 |
|
|
|
1,089 |
|
|
|
2,264 |
|
Recoveries |
|
|
(1 |
) |
|
|
(663 |
) |
|
|
(816 |
) |
|
|
(1,763 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
1,018 |
|
|
$ |
1,252 |
|
|
$ |
1,018 |
|
|
$ |
1,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of net servicing income are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
Nine-month period ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Servicing fees |
|
$ |
1,059 |
|
|
$ |
828 |
|
|
$ |
2,960 |
|
|
$ |
2,132 |
|
Late charges and prepayment penalties |
|
|
138 |
|
|
|
(42 |
) |
|
|
459 |
|
|
|
439 |
|
Adjustment for loans repurchased |
|
|
(38 |
) |
|
|
|
|
|
|
(736 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing income, gross |
|
|
1,159 |
|
|
|
786 |
|
|
|
2,683 |
|
|
|
2,571 |
|
Amortization and impairment of servicing assets |
|
|
(1,308 |
) |
|
|
(48 |
) |
|
|
(1,777 |
) |
|
|
(2,277 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing (loss) income, net |
|
$ |
(149 |
) |
|
$ |
738 |
|
|
$ |
906 |
|
|
$ |
294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
The Corporations servicing assets are subject to prepayment and interest rate risks. Key
economic assumptions used in determining the fair value at the time of sale ranged as follows:
|
|
|
|
|
|
|
|
|
|
|
Maximum |
|
Minimum |
Nine-month period ended September 30, 2010: |
|
|
|
|
|
|
|
|
Constant prepayment rate: |
|
|
|
|
|
|
|
|
Government guaranteed mortgage loans |
|
|
12.7 |
% |
|
|
11.3 |
% |
Conventional conforming mortgage loans |
|
|
18.0 |
% |
|
|
14.8 |
% |
Conventional non-conforming mortgage loans |
|
|
14.8 |
% |
|
|
11.5 |
% |
Discount rate: |
|
|
|
|
|
|
|
|
Government guaranteed mortgage loans |
|
|
11.7 |
% |
|
|
10.3 |
% |
Conventional conforming mortgage loans |
|
|
9.3 |
% |
|
|
9.2 |
% |
Conventional non-conforming mortgage loans |
|
|
13.1 |
% |
|
|
13.1 |
% |
|
|
|
|
|
|
|
|
|
Nine-month period ended September 30, 2009: |
|
|
|
|
|
|
|
|
Constant prepayment rate: |
|
|
|
|
|
|
|
|
Government guaranteed mortgage loans |
|
|
24.8 |
% |
|
|
20.2 |
% |
Conventional conforming mortgage loans |
|
|
21.9 |
% |
|
|
19.0 |
% |
Conventional non-conforming mortgage loans |
|
|
20.1 |
% |
|
|
17.1 |
% |
Discount rate: |
|
|
|
|
|
|
|
|
Government guaranteed mortgage loans |
|
|
13.4 |
% |
|
|
11.8 |
% |
Conventional conforming mortgage loans |
|
|
9.3 |
% |
|
|
9.2 |
% |
Conventional non-conforming mortgage loans |
|
|
13.2 |
% |
|
|
13.1 |
% |
At September 30, 2010, fair values of the Corporations servicing assets were based on a
valuation model that incorporates market driven assumptions, adjusted by the particular
characteristics of the Corporations servicing portfolio, regarding discount rates and mortgage
prepayment rates. The weighted-averages of the key economic assumptions used by the Corporation in
its valuation model and the sensitivity of the current fair value to immediate 10 percent and 20
percent adverse changes in those assumptions for mortgage loans at September 30, 2010, were as
follows:
|
|
|
|
|
|
|
(Dollars in thousands) |
Carrying amount of servicing assets |
|
$ |
13,888 |
|
Fair value |
|
$ |
14,751 |
|
Weighted-average expected life (in years) |
|
|
6.59 |
|
|
|
|
|
|
Constant prepayment rate (weighted-average annual rate) |
|
|
15.61 |
% |
Decrease in fair value due to 10% adverse change |
|
$ |
791 |
|
Decrease in fair value due to 20% adverse change |
|
$ |
1,532 |
|
|
|
|
|
|
Discount rate (weighted-average annual rate) |
|
|
10.43 |
% |
Decrease in fair value due to 10% adverse change |
|
$ |
525 |
|
Decrease in fair value due to 20% adverse change |
|
$ |
1,014 |
|
These sensitivities are hypothetical and should be used with caution. As the figures
indicate, changes in fair value based on a 10 percent variation in assumptions generally cannot be
extrapolated because the relationship of the change in assumption to the change in fair value may
not be linear. Also, in this table, the effect of a variation in a particular assumption on the
fair value of the servicing asset is calculated without changing any other assumption; in reality,
changes in one factor may result in changes in another (for example, increases in market interest
rates may result in lower prepayments), which may magnify or counteract the sensitivities.
29
11 DEPOSITS
The following table summarizes deposit balances:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Type of account and interest rate: |
|
|
|
|
|
|
|
|
Non-interest bearing checking accounts |
|
$ |
703,836 |
|
|
$ |
697,022 |
|
Savings accounts |
|
|
2,029,369 |
|
|
|
1,761,646 |
|
Interest-bearing checking accounts |
|
|
1,063,193 |
|
|
|
998,097 |
|
Certificates of deposit |
|
|
2,058,678 |
|
|
|
1,650,866 |
|
Brokered certificates of deposit |
|
|
6,688,491 |
|
|
|
7,561,416 |
|
|
|
|
|
|
|
|
|
|
$ |
12,543,567 |
|
|
$ |
12,669,047 |
|
|
|
|
|
|
|
|
Brokered CDs mature as follows:
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
(In thousands) |
|
One to ninety days |
|
$ |
1,129,639 |
|
Over ninety days to one year |
|
|
2,083,672 |
|
One to three years |
|
|
3,289,085 |
|
Three to five years |
|
|
174,898 |
|
Over five years |
|
|
11,197 |
|
|
|
|
|
Total |
|
$ |
6,688,491 |
|
|
|
|
|
The following are the components of interest expense on deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Nine-Month Period Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
|
(In thousands) |
|
Interest expense on deposits |
|
$ |
55,842 |
|
|
$ |
66,876 |
|
|
$ |
174,786 |
|
|
$ |
232,876 |
|
Amortization of broker placement fees |
|
|
5,161 |
|
|
|
5,288 |
|
|
|
15,948 |
|
|
|
17,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on deposits excluding net unrealized loss (gain) on
derivatives and brokered CDs measured at fair value |
|
|
61,003 |
|
|
|
72,164 |
|
|
|
190,734 |
|
|
|
250,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss (gain) on derivatives and brokered CDs measured at fair value |
|
|
1 |
|
|
|
(1 |
) |
|
|
2 |
|
|
|
(3,379 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense on deposits |
|
$ |
61,004 |
|
|
$ |
72,163 |
|
|
$ |
190,736 |
|
|
$ |
246,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The interest expense on deposits includes the valuation to market of interest rate swaps
that economically hedged brokered CDs, the related interest exchanged, the amortization of broker
placement fees related to brokered CDs not measured at fair value and changes in fair value of
callable brokered CDs measured at fair value.
Total interest expense on deposits includes net cash settlements on interest rate swaps that
economically hedged brokered CDs and that, for the nine-month period ended September 30, 2009,
amounted to net interest realized of $5.5 million. No amount was recognized for the first nine
months of 2010 since all interest rate swaps related to brokered CDs were called in the first half
of 2009.
12 LOANS PAYABLE
Loans payable consisted of short-term borrowings under the FED Discount Window Program. During
the second quarter of 2010, the Corporation repaid the remaining balance under the Discount Window.
As the capital markets recovered from the crisis witnessed in 2009, the FED gradually reversed its
stance back to lender of last resort. Advances from the Discount Window are once again discouraged,
and as such, the Corporation no longer uses FED Advances for regular funding needs.
30
13 SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase (repurchase agreements) consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Repurchase agreements, interest ranging from 1.23% to 4.51% |
|
|
|
|
|
|
|
|
(2009 0.23% to 5.39%) |
|
$ |
1,400,000 |
|
|
$ |
3,076,631 |
|
|
|
|
|
|
|
|
Repurchase agreements mature as follows:
|
|
|
|
|
|
|
September 30, |
|
|
|
2010 |
|
|
|
(In thousands) |
|
Over ninety days to one year |
|
$ |
100,000 |
|
One to three years |
|
|
500,000 |
|
Three to five years |
|
|
800,000 |
|
|
|
|
|
Total |
|
$ |
1,400,000 |
|
|
|
|
|
As of September 30, 2010 and December 31, 2009, the securities underlying such agreements were
delivered to the dealers with whom the repurchase agreements were transacted.
Repurchase agreements as of September 30, 2010, grouped by counterparty, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
Counterparty |
|
Amount |
|
|
Maturity (In Months) |
|
Credit Suisse First Boston |
|
$ |
400,000 |
|
|
|
33 |
|
Citigroup Global Markets |
|
|
300,000 |
|
|
|
43 |
|
Barclays Capital |
|
|
200,000 |
|
|
|
23 |
|
Dean Witter / Morgan Stanley |
|
|
200,000 |
|
|
|
34 |
|
JP Morgan Chase |
|
|
200,000 |
|
|
|
42 |
|
UBS Financial Services, Inc. |
|
|
100,000 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
$ |
1,400,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
As part of the Corporations balance sheet repositioning strategies, approximately $1.0
billion of repurchase agreements were early terminated during the third quarter of 2010. The cost
of the unwinding of the repurchase agreements of $47.4 million was offset by a gain of $47.1
million on the sale of approximately $1.2 billion of U.S. agency MBS. The repaid repurchase
agreements were scheduled to mature at various dates between January 2011 and October 2012 and had
a weighted-average cost of 4.30%.
14 ADVANCES FROM THE FEDERAL HOME LOAN BANK (FHLB)
Following is a summary of the advances from the FHLB:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Fixed-rate advances from FHLB, with a weighted-average
interest rate of 3.38% (2009 3.21%) |
|
$ |
835,440 |
|
|
$ |
978,440 |
|
|
|
|
|
|
|
|
31
Advances from FHLB mature as follows:
|
|
|
|
|
|
|
September 30, |
|
|
|
2010 |
|
|
|
(In thousands) |
|
Over thirty days to ninety days |
|
$ |
182,000 |
|
Over ninety days to one year |
|
|
244,000 |
|
One to three years |
|
|
356,000 |
|
Three to five years |
|
|
53,440 |
|
|
|
|
|
Total |
|
$ |
835,440 |
|
|
|
|
|
As of September 30, 2010, the Corporation had additional capacity of approximately $185.9
million on this credit facility based on collateral pledged at the FHLB, including haircuts
reflecting the perceived risk associated with holding the collateral.
15 NOTES PAYABLE
Notes payable consist of:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Callable step-rate notes, bearing step increasing interest
from 5.00% to 7.00% (5.50% as of September 30, 2010 and December 31, 2009)
maturing on October 18, 2019, measured at fair value |
|
$ |
11,053 |
|
|
$ |
13,361 |
|
|
|
|
|
|
|
|
|
|
Dow Jones Industrial Average (DJIA) linked principal protected notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A maturing on February 28, 2012 |
|
|
6,600 |
|
|
|
6,542 |
|
|
|
|
|
|
|
|
|
|
Series B maturing on May 27, 2011 |
|
|
7,404 |
|
|
|
7,214 |
|
|
|
|
|
|
|
|
Total |
|
$ |
25,057 |
|
|
$ |
27,117 |
|
|
|
|
|
|
|
|
16 OTHER BORROWINGS
Other borrowings consist of:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Junior subordinated debentures due in 2034,
interest-bearing at a floating-rate of 2.75%
over 3-month LIBOR (3.04% as of September 30, 2010
and 3.00% as of December 31, 2009) |
|
$ |
103,093 |
|
|
$ |
103,093 |
|
|
|
|
|
|
|
|
|
|
Junior subordinated debentures due in 2034,
interest-bearing at a floating-rate of 2.50%
over 3-month LIBOR (2.79% as of September 30, 2010
and 2.75% as of December 31, 2009) |
|
|
128,866 |
|
|
|
128,866 |
|
|
|
|
|
|
|
|
Total |
|
$ |
231,959 |
|
|
$ |
231,959 |
|
|
|
|
|
|
|
|
32
17 STOCKHOLDERS EQUITY
As of September 30, 2010, the Corporation had 2,000,000,000 authorized shares of common stock
with a par value of $0.10 per share. As of September 30, 2010 there were 329,455,732 shares issued
and 319,557,932 shares outstanding compared to 102,440,522 shares issued and 92,542,722 shares
outstanding as of December 31, 2009. The increase in common shares is the result of the completion
of the Exchange Offer discussed below. 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.
On August 24, 2010, the Corporations stockholders approved an additional increase in the
Corporations common stock to 2 billion, up from 750 million. During the prior quarter, the
Corporations stockholders had already increased the authorized shares of common stock from 250
million to 750 million. The Corporations stockholders also approved on August 24, 2010 a decrease
in the par value of the common stock from $1 per share to $0.10 per share. The decrease in the par
value of the Corporations common stock had no effect on the total dollar value of the
Corporations stockholders equity. For the quarter ended September 30, 2010, the Corporation
transferred $83.3 million from common stock to additional paid-in capital, which is the product of
the number of shares issued and outstanding and the difference between the old par value of $1 and
new par value of $0.10, of $0.90.
Exchange Offer
On August 30, 2010, the Corporation completed its offer to issue shares of its common stock in
exchange for its outstanding Series A through E Preferred Stock, which resulted in the issuance of
227,015,210 new shares of common stock in exchange for 19,482,128 shares of Preferred Stock with an
aggregate liquidation amount of $487 million or 89% of the outstanding Series A through E Preferred
Stock. In accordance with the terms of the Exchange Offer, the Corporation used a relevant price of
$1.18 per share of its common stock and an exchange ratio of 55% of the preferred stock liquidation
value to determine the number of shares of its common stock issued in exchange for the tendered
shares of Series A through E Preferred Stock. The fair value of the common stock was $0.40 per
share, which was the price as of the expiration date of the exchange offer. The carrying
(liquidation) value of the Series A through E Preferred Stock exchanged, or $487.1 million, was
reduced and common stock and additional paid-in capital increased in the amount of the fair value
of the common stock issued. The Corporation recorded the par amount of the shares issued as common
stock ($0.10 per common share) or $22.7 million. The excess of the common stock fair value over the
par amount, or $68.1 million, was recorded in additional paid-in capital. The excess of the carrying
amount of the shares of preferred stock over the fair value of the shares of common stock, or
$385.4 million, was recorded as a reduction to accumulated deficit and an increase in earnings per
common share computation.
The results of the exchange offer with respect to Series A through E Preferred Stock were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidation |
|
|
Shares of preferred stock |
|
|
|
|
|
|
Shares of preferred |
|
|
Aggregate liquidation |
|
|
|
|
|
|
preference per |
|
|
outstanding prior to |
|
|
Shares of preferred |
|
|
stock outstanding |
|
|
preference amount after |
|
|
Shares of common stock |
|
Title of Securities |
|
share |
|
|
exchange |
|
|
stock exchanged |
|
|
after exchange |
|
|
exchange (In thousands) |
|
|
issued |
|
7.125% Noncumulative Perpetual Monthly |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Preferred Stock, Series A |
|
|
$25 |
|
|
|
3,600,000 |
|
|
|
3,149,805 |
|
|
|
450,195 |
|
|
$ |
11,255 |
|
|
|
36,703,077 |
|
8.35% Noncumulative Perpetual Monthly |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Preferred Stock, Series B |
|
|
$25 |
|
|
|
3,000,000 |
|
|
|
2,524,013 |
|
|
|
475,987 |
|
|
|
11,900 |
|
|
|
29,411,043 |
|
7.40% Noncumulative Perpetual Monthly |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Preferred Stock, Series C |
|
|
$25 |
|
|
|
4,140,000 |
|
|
|
3,679,389 |
|
|
|
460,611 |
|
|
|
11,515 |
|
|
|
42,873,983 |
|
7.25% Noncumulative Perpetual Monthly |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Preferred Stock, Series D |
|
|
$25 |
|
|
|
3,680,000 |
|
|
|
3,169,408 |
|
|
|
510,592 |
|
|
|
12,765 |
|
|
|
36,931,467 |
|
7.00% Noncumulative Perpetual Monthly |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Preferred Stock, Series E |
|
|
$25 |
|
|
|
7,584,000 |
|
|
|
6,959,513 |
|
|
|
624,487 |
|
|
|
15,612 |
|
|
|
81,095,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,004,000 |
|
|
|
19,482,128 |
|
|
|
2,521,872 |
|
|
$ |
63,047 |
|
|
|
227,015,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared on the non-convertible non-cumulative preferred stock for the first
nine months of 2009 amounted to $20.1 million; consistent with the Corporations announcement in
July 2009, no dividends have been declared for the nine-month period ended September 30, 2010. The
Corporation is currently in the process of voluntarily delisting the remaining Series A through E
preferred Stock from the New York Stock Exchange.
Exchange Agreement with the U.S. Treasury
On July 20, 2010, the Corporation closed a transaction with the U.S. Treasury for the exchange
of all 400,000 shares of the Corporations Series F Preferred Stock, beneficially owned and held by
the U.S. Treasury, for 424,174 shares of a new series of preferred stock, Series G Preferred Stock,
with a liquidation preference of $1,000 per share. The Series G Preferred Stock is mandatorily
convertible into approximately 380.2 million shares of the Corporations common stock, based upon
the initial conversion
price, by the Corporation upon the satisfaction of certain conditions and by the U.S. Treasury and
any subsequent holder at any time and,
33
unless earlier converted, is automatically convertible into
common stock on the seventh anniversary of issuance. As mentioned above, on August, 24, 2010, the
Corporation obtained its stockholders approval to increase the number of authorized shares of
common stock from 750 million to 2 billion and decrease the par value of its common stock from
$1.00 to $0.10 per share. These approvals and the issuance of common stock in exchange for Series A
through E Preferred Stock satisfy all but one of the substantive conditions to the Corporations
ability to compel the conversion of the 424,174 shares of the new series of Series G Preferred
Stock, issued to the U.S. Treasury. The other substantive condition to the Corporations ability to
compel the conversion of the Series G Preferred Stock is the issuance of a minimum aggregate amount
of $500 million of additional capital, subject to terms, other than the price per share, reasonably
acceptable to the U.S. Treasury in its sole discretion. On September 16, 2010, the Corporation
filed a registration statement for a proposed underwritten public offering of $500 million ($575
million including an over allotment option) of its common stock with the SEC. The Corporation
will effect a reverse stock split, if necessary, in the range of between one new share of
common stock for 10 old shares of common stock and one new share of common stock for 20 old shares
of common stock, which is the range that stockholders approved at the Special Meeting of
Stockholders on August 24, 2010.
The Corporation accounted for this transaction as an extinguishment of the previously issued
Series F Preferred Stock. As a result, the Corporation recorded $424.2 million of the new Series G
Preferred Stock, net of a $76.8 million discount and derecognized the carrying value of the Series
F Preferred Stock. The excess of the carrying amount of the Series F Preferred Stock over the fair
value of the Series G Preferred Stock, or $33.6 million was recorded as a reduction to accumulated
deficit.
The valuation of the
Series G Preferred Stock considered the following characteristics of the security, the base preferred stock component, which
consists of quarterly dividends plus the principal repayment, a long call option which gives the
U.S. Treasury the ability to convert the preferred stock to common stock at any time through July
20, 2017, and a short put option that provides the Corporation the ability to compel conversion,
provided certain conditions described above are met, at any time within the nine month period from
issue date through April 20, 2011.
The value of the base preferred stock component was determined using a discounted cash flow method.
The cash flows, which consist of the sum of the discounted quarterly dividends plus the principal
repayment, were discounted considering the Corporations credit rating. The short and long call
options were valued using a Cox-Rubinstein binomial option pricing model-based methodology. The
valuation methodology considered the likelihood of option conversions under different scenarios,
and the valuation interactions of the various components under each scenario.
Like the Series F Preferred Stock, the Series G Preferred Stock, qualifies as Tier 1
regulatory capital. Cumulative dividends on the Series G 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 G 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
Exchange Agreement relating to 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.
Additionally, the Corporation issued an amended 10-year warrant (the Warrant) to the U.S.
Treasury to purchase 5,842,259 shares of the Corporations common stock at an initial exercise
price of $0.7252 per share instead of the exercise price on the original warrant of $10.27 per
share. 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 Corporation evaluated the fair market value of the new warrant and recognized a
$1.2 million increase in value due to the difference between the fair market value of the new and
the old warrant as an increase to additional paid-in capital and an increase to the accumulated
deficit. The warrant value was calculated using the Cox-Rubinstein
binomial option pricing model-based methodology.
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 2% of the Corporations shares of common stock as of
September 30, 2010); |
|
|
|
|
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 was 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 then outstanding Series F
Preferred Stock and the Corporations common stock. Prior to any resumption of the payment of
dividends on or repurchases of any of the remaining outstanding noncumulative preferred stock or
common stock, the Corporation must comply with the terms of the Series G Preferred Stock. In
addition, prior to the repurchase of any stock for cash, the Corporation must obtain the consent of
the U.S. Treasury under certain circumstances.
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 2010 and 2009 by the Corporation. As of September 30, 2010 and
December 31, 2009, of the total amount of common stock repurchased in prior years, 9,897,800 shares
were held as treasury stock and were available for general corporate purposes.
34
18 REGULATORY MATTERS
Effective June 2, 2010, FirstBank, by and through its Board of Directors, entered into the
Order with the FDIC and the Office of the Commissioner of Financial Institutions of Puerto Rico, a
copy of which is attached as Exhibit 10.1 of the Form 8-K filed by the Corporation on June 4, 2010.
This Order provides for various things, including (among other things) the following: (1) within 30
days of entering into the Order, the development by FirstBank of a capital plan to achieve over
time a leverage ratio of at least 8%, a Tier 1 risk-based capital ratio of at least 10% and a total
risk-based capital ratio of at least 12%, (2) the preparation by FirstBank of strategic, liquidity
and earnings plans and related projections within certain timetables set forth in the Order and on
an ongoing basis, (3) the preparation by FirstBank of plans for reducing criticized assets and
delinquent loans within timeframes set forth in the Order, (4) the requirement for First Bank board
approval prior to the extension of credit to classified borrowers, (5) certain limitations with
respect to brokered deposits, including the need for pre-approval by the FDIC of the issuance of
brokered deposits (6) the establishment by FirstBank of a comprehensive policy and methodology for
determining the allowance for loan and lease losses and the review and revision of loan policies,
including the non-accrual policy, and (7) the operation by FirstBank under adequate and effective
programs of independent loan review and appraisal compliance and under an effective policy for
managing sensitivity to interest rate risk. The foregoing summary is not complete and is qualified
in all respects by reference to the actual language of the Order. Although all the regulatory
capital ratios exceeded the established well capitalized levels at September 30, 2010, because of
the Order with the FDIC, FirstBank cannot be treated as well capitalized institution under
regulatory guidance.
Effective June 3, 2010, First BanCorp entered into the Written Agreement with the FED, a copy
of which is attached as Exhibit 10.2 of the Form 8-K filed by the Corporation on June 4, 2010. The
Agreement provides, among other things, that the holding company must serve as a source of strength
to FirstBank, and that, except upon consent of the FED, (1) the holding company may not pay dividends
to stockholders or receive dividends from FirstBank, (2) the holding company and its nonbank
subsidiaries may not make payments on trust preferred securities or subordinated debt, and (3) the
holding company cannot incur, increase or guarantee debt or repurchase any capital securities. The
Agreement also requires that the holding company submit a capital plan which reflects sufficient
capital at First BanCorp on a consolidated basis, which must be acceptable to the FED, and follow certain guidelines with respect to
the appointment or change in responsibilities of senior officers. The foregoing summary is not
complete and is qualified in all respects by reference to the actual language of the Written
Agreement.
The Corporation submitted its capital plan setting forth how it plans to improve capital
positions to comply with the above mentioned Agreements over time. The primary objective of this
Capital Plan is to improve the Corporations capital structure in order to (1) enhance its ability
to operate in the current economic environment, (2) be in a position to continue executing business
strategies to return to profitability and (3) achieve certain minimum capital ratios over time.
Specifically, the capital plan details how the Bank will attempt to achieve a total capital to
risk-weighted assets ratio of at least 12%, a Tier 1 capital to risk-weighted assets ratio of at
least 10% and a leverage ratio of at least 8%. The Capital Plan sets forth the following capital
restructuring initiatives as well as various deleveraging strategies: (1) the exchange of shares of
the Corporations preferred stock held by the U.S. Treasury for common stock; (2) the exchange of
shares of the Corporations common stock for any and all of the Corporations outstanding Series A
through E Preferred Stock; and (3) a $500 million capital raise through the issuance of new common
shares for cash. As discussed in Note 1, the Corporation has completed the transactions designed to
accomplish the first two initiatives, including the exchange of 89% of the outstanding Series A
through E Preferred Stock
and the conversion of the preferred stock held by the U.S. Treasury into a new series of preferred stock that are mandatorily convertible into shares of common stock.
In addition to the capital plan, the Corporation has submitted to its regulators a liquidity
and brokered deposit plan, including a contingency funding plan, a non-performing asset reduction
plan, a budget and profit plan, a strategic plan and a plan for the reduction of classified and
special mention assets. Further, the Corporation have reviewed and enhanced the Corporations loan
review program, various credit policies, the Corporations treasury and investments policy, the
Corporations asset classification and allowance for loan and lease losses and non-accrual
policies, the Corporations charge-off policy and the Corporations appraisal program. The
Agreements also require the submission to the regulators of quarterly progress reports.
The Order imposes no other restrictions on the FirstBanks products or services offered to
customers, nor do they impose any type of penalties or fines upon FirstBank or the Corporation.
Concurrent with the Order, the FDIC has granted FirstBank temporary waivers to enable it to
continue accessing the brokered deposit market through December 31, 2010. FirstBank will request
approvals for future periods.
35
19 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 also 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 (the PR Code), the
Corporation and its subsidiaries are treated as separate taxable entities and are not entitled to
file consolidated tax returns and, thus, the Corporation is not able to utilize losses from one
subsidiary to offset gains in another subsidiary. Accordingly, in order to obtain a tax benefit
from a net operating loss, a particular subsidiary must be able to demonstrate sufficient taxable
income within the applicable carry forward period (7 years under the PR Code). The PR Code provides
a dividend received deduction of 100% on dividends received from controlled subsidiaries subject
to taxation in Puerto Rico and 85% on dividends received from other taxable domestic corporations.
Dividend payments from a U.S. subsidiary to the Corporation are subject to a 10% withholding tax
based on the provisions of the U.S. Internal Revenue Code. Under the 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% and an increase in the capital gain
statutory tax rate from 15% to 15.75%. 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 an International Banking Entities (IBE) of
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 the 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 commenced after December
31, 2008 and before January 1, 2012. The IBE 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 quarter and nine-month period ended September 30, 2010, the Corporation recognized an
income tax benefit of $1.0 million and an income tax expense of $9.7 million, respectively,
compared to income tax expense of $113.5 million and $1.2 million recorded for the same periods
in 2009. The variance in income tax expense mainly resulted from the impact in the third quarter of
2009 of a non-cash charge of approximately $152.2 million to increase the valuation allowance for
the Corporations deferred tax asset. The income tax benefit recorded for the third quarter of
2010 was mainly related to the operations of FirstBank Overseas, which had a pre-tax loss of $30.5
million during the third quarter, driven by its share of the loss on the early extinguishment of
repurchase agreements. This entity was profitable for the nine-month period ended September 30,
2010. Meanwhile, the income tax expense for the first nine months of 2010 is related to the
operations of profitable subsidiaries.
As of September 30, 2010, the deferred tax asset, net of a valuation allowance of $290.5
million, amounted to $101.2 million compared to $109.2 million as of December 31, 2009. The
decrease was associated with a $3.5 million increase in the valuation allowance related to deferred
tax assets created prior to 2010 and the creation of deferred tax liabilities in connection with
unrealized gains on available for sale securities; the unrealized gains on available-for-sale
securities were recorded as part of other comprehensive income.
Accounting for income taxes requires that companies assess whether a valuation allowance
should be recorded against their deferred tax assets based on the consideration of all available
evidence, using a more likely than not realization standard. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount that is more likely than
not to be realized. In making such assessment, significant weight is to be given to evidence that
can be objectively verified, including both positive and negative evidence. The accounting for
income taxes guidance requires the consideration of all sources of taxable income available to
realize the deferred tax asset, including the future reversal of existing temporary differences,
future taxable income exclusive of the reversal of temporary differences and carryforwards, taxable
income in carryback years and tax planning strategies. In estimating taxes, management assesses
the relative merits and risks of the appropriate tax treatment of transactions taking into account
statutory, judicial and regulatory guidance, and recognizes tax benefits only when deemed probable.
36
In assessing the weight of positive and negative evidence, a significant negative factor that
resulted in increases of the valuation allowance was that the Corporations banking subsidiary
FirstBank Puerto Rico continues in a three-year historical cumulative loss position as of the end
of the third quarter of 2010, mainly as a result of charges to the provision for loan and lease
losses, especially in the construction loan portfolio in both, Puerto Rico and Florida markets, as
a result of the economic downturn. As of September 30, 2010, management concluded that $101.2
million of the deferred tax assets will be realized. In assessing the likelihood of realizing the
deferred tax assets, management has considered all four sources of taxable income mentioned above
and, even though the Corporation expects to be profitable in the near future and be able to realize
the deferred tax asset, given current uncertain economic conditions, the Corporation has only
relied on tax-planning strategies as the main source of taxable income to realize the deferred tax
asset amount. Among the most significant tax-planning strategies identified are: (i) sale of
appreciated assets, (ii) consolidation of profitable and unprofitable companies (in Puerto Rico
each company files a separate tax return; no consolidated tax returns are permitted), and (iii)
deferral of deductions without affecting their utilization. In line with these strategies,
effective July 1, 2010 the operations conducted by First Leasing and Grupo Empresas de Servicios
Financieros (PR Finance) as separate subsidiaries were merged with and into FirstBank. Management
will continue monitoring the likelihood of realizing the deferred tax assets in future periods. If
future events differ from managements September 30, 2010 assessment, an additional valuation
allowance may need to be established, which may have a material adverse effect on the Corporations
results of operations. Similarly, to the extent the realization of a portion, or all, of the tax
asset becomes more likely than not based on changes in circumstances (such as, improved earnings,
changes in tax laws or other relevant changes), a reversal of that portion of the deferred tax
asset valuation allowance will then be recorded.
The increase in the valuation allowance does not have any impact on the Corporations
liquidity, nor does such an allowance preclude the Corporation from using tax losses, tax credits
or other deferred tax assets in the future.
FASB guidance 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 the authoritative accounting guidance,
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 this model and the tax benefit claimed on a tax return is referred to as unrecognized tax benefits (UTB).
During the second quarter of 2009, the Corporation reversed UTBs of $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. Also, in July 2009, the Corporation entered into an agreement with the Puerto Rico
Department of the Treasury to conclude an income tax audit 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 reversed 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 audit. There were no UTBs
outstanding as of September 30, 2010 and December 31, 2009.
The Corporation classified all interest and penalties, if any, related to tax uncertainties as
income tax expense. For the first nine months of 2009, the total amount of accrued interest
reversed by the Corporation through income tax expense was $6.8 million. The amount of UTBs may
increase or decrease 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.
20 FAIR VALUE
Fair Value Option
Medium-Term Notes
The Corporation elected the fair value option for certain medium term notes that were hedged
with interest rate swaps that were previously designated for fair value hedge accounting. As of
September 30, 2010 and December 31, 2009, these medium-term notes had a fair value of $11.1 million
and $13.4 million, respectively, and principal balance of $15.4 million recorded in notes payable.
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 notes. Electing the fair value option allows the
Corporation to eliminate the burden of complying with the requirements for hedge accounting (e.g.,
documentation and effectiveness assessment) without introducing earnings volatility.
Medium-term notes for which the Corporation elected the fair value option were priced using
observable market data in the institutional markets.
37
Callable brokered CDs
In the past, the Corporation also measured at fair value callable brokered CDs. All of the
brokered CDs measured at fair value were called during 2009.
Fair Value Measurement
The FASB authoritative guidance for fair value measurement 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. This guidance 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. Three levels of inputs 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., medium-term notes elected to be measured at fair value) 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.
For the quarter and nine-month period ended September 30, 2010, there have been no transfers
into or out of Level 1 and Level 2 measurements of the fair value hierarchy.
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 results. In addition, the
fair value estimates are based on outstanding balances without attempting to estimate the value of
anticipated future business.
38
The following table presents the estimated fair value and carrying value of financial
instruments as of September 30, 2010 and December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Carrying |
|
|
|
|
|
|
Total Carrying |
|
|
|
|
|
|
Amount in |
|
|
|
|
|
|
Amount in |
|
|
|
|
|
|
Statement of |
|
|
|
|
|
|
Statement of |
|
|
|
|
|
|
Financial |
|
|
Fair Value |
|
|
Financial |
|
|
Fair Value |
|
|
|
Condition |
|
|
Estimated |
|
|
Condition |
|
|
Estimated |
|
|
|
9/30/2010 |
|
|
9/30/2010 |
|
|
12/31/2009 |
|
|
12/31/2009 |
|
|
|
(In thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks and money
market investments |
|
$ |
904,626 |
|
|
$ |
904,626 |
|
|
$ |
704,084 |
|
|
$ |
704,084 |
|
Investment securities available
for sale |
|
|
2,976,180 |
|
|
|
2,976,180 |
|
|
|
4,170,782 |
|
|
|
4,170,782 |
|
Investment securities held to maturity |
|
|
489,967 |
|
|
|
513,569 |
|
|
|
601,619 |
|
|
|
621,584 |
|
Other equity securities |
|
|
64,310 |
|
|
|
64,310 |
|
|
|
69,930 |
|
|
|
69,930 |
|
Loans receivable, including loans
held for sale |
|
|
12,189,222 |
|
|
|
|
|
|
|
13,949,226 |
|
|
|
|
|
Less: allowance for loan and
lease losses |
|
|
(608,526 |
) |
|
|
|
|
|
|
(528,120 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of allowance |
|
|
11,580,696 |
|
|
|
11,104,113 |
|
|
|
13,421,106 |
|
|
|
12,811,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives, included in assets |
|
|
1,537 |
|
|
|
1,537 |
|
|
|
5,936 |
|
|
|
5,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
12,543,567 |
|
|
|
12,720,872 |
|
|
|
12,669,047 |
|
|
|
12,801,811 |
|
Loans payable |
|
|
|
|
|
|
|
|
|
|
900,000 |
|
|
|
900,000 |
|
Securities sold under agreements to repurchase |
|
|
1,400,000 |
|
|
|
1,537,030 |
|
|
|
3,076,631 |
|
|
|
3,242,110 |
|
Advances from FHLB |
|
|
835,440 |
|
|
|
872,852 |
|
|
|
978,440 |
|
|
|
1,025,605 |
|
Notes Payable |
|
|
25,057 |
|
|
|
23,567 |
|
|
|
27,117 |
|
|
|
25,716 |
|
Other borrowings |
|
|
231,959 |
|
|
|
63,587 |
|
|
|
231,959 |
|
|
|
80,267 |
|
Derivatives, included in liabilities |
|
|
7,211 |
|
|
|
7,211 |
|
|
|
6,467 |
|
|
|
6,467 |
|
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 September 30, 2010 |
|
As of December 31, 2009 |
|
|
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 : |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
$ |
71 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
71 |
|
|
$ |
303 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
303 |
|
U.S. Treasury Securities |
|
|
611,940 |
|
|
|
|
|
|
|
|
|
|
|
611,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-callable U.S. agency debt |
|
|
305,204 |
|
|
|
|
|
|
|
|
|
|
|
305,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Callable U.S. agency debt and MBS |
|
|
|
|
|
|
1,745,085 |
|
|
|
|
|
|
|
1,745,085 |
|
|
|
|
|
|
|
3,949,799 |
|
|
|
|
|
|
|
3,949,799 |
|
Puerto Rico Government Obligations |
|
|
|
|
|
|
233,850 |
|
|
|
2,630 |
|
|
|
236,480 |
|
|
|
|
|
|
|
136,326 |
|
|
|
|
|
|
|
136,326 |
|
Private label MBS |
|
|
|
|
|
|
|
|
|
|
77,400 |
|
|
|
77,400 |
|
|
|
|
|
|
|
|
|
|
|
84,354 |
|
|
|
84,354 |
|
Derivatives, included in assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
|
|
|
|
|
|
427 |
|
|
|
|
|
|
|
427 |
|
|
|
|
|
|
|
319 |
|
|
|
|
|
|
|
319 |
|
Purchased interest rate cap agreements |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
224 |
|
|
|
4,199 |
|
|
|
4,423 |
|
Purchased options used to manage exposure to the
stock market on embeded stock indexed options |
|
|
|
|
|
|
1,109 |
|
|
|
|
|
|
|
1,109 |
|
|
|
|
|
|
|
1,194 |
|
|
|
|
|
|
|
1,194 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium-term notes |
|
|
|
|
|
|
11,053 |
|
|
|
|
|
|
|
11,053 |
|
|
|
|
|
|
|
13,361 |
|
|
|
|
|
|
|
13,361 |
|
Derivatives, included in liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
|
|
|
|
|
|
6,171 |
|
|
|
|
|
|
|
6,171 |
|
|
|
|
|
|
|
5,068 |
|
|
|
|
|
|
|
5,068 |
|
Written interest rate cap agreements |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
201 |
|
|
|
|
|
|
|
201 |
|
Embedded written options on stock index
deposits and notes payable |
|
|
|
|
|
|
1,039 |
|
|
|
|
|
|
|
1,039 |
|
|
|
|
|
|
|
1,198 |
|
|
|
|
|
|
|
1,198 |
|
39
|
|
|
|
|
|
|
|
|
|
|
Changes in Fair Value for the Quarter Ended September 30, 2010, for |
|
|
Changes in Fair Value for the Nine-Month Period Ended |
|
|
|
items Measured at Fair Value Pursuant to Election of the Fair Value |
|
|
September 30, 2010, for items Measured at Fair Value Pursuant |
|
|
|
Option |
|
|
to Election of the Fair Value Option |
|
|
|
Unrealized Losses and Interest Expense |
|
|
Unrealized Gains and Interest Expense |
|
(In thousands) |
|
included in Current-Period Earnings (1) |
|
|
included in Current-Period Earnings (1) |
|
Medium-term notes |
|
$ |
(762 |
) |
|
$ |
1,670 |
|
|
|
|
|
|
|
|
|
|
$ |
(762 |
) |
|
$ |
1,670 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Changes in fair value for the quarter and nine-month period ended September 30, 2010 include
interest expense on medium-term notes of $0.2 million and $0.6 million, respectively. Interest
expense on medium-term notes that have been elected to be carried at fair value are recorded in
interest expense in the Consolidated Statement of (Loss) Income based on their contractual coupons. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Fair Value for the Quarter Ended |
|
|
Changes in Fair Value for the Nine-Month Period Ended |
|
|
|
September 30, 2009, for items Measured at Fair Value Pursuant |
|
|
September 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 Losses and |
|
|
Unrealized Losses |
|
|
Unrealized Gains and |
|
|
Unrealized Losses and |
|
|
Unrealized 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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(2,068 |
) |
|
$ |
|
|
|
$ |
(2,068 |
) |
Medium-term notes |
|
|
|
|
|
|
(1,788 |
) |
|
|
(1,788 |
) |
|
|
|
|
|
|
(3,637 |
) |
|
|
(3,637 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
(1,788 |
) |
|
$ |
(1,788 |
) |
|
$ |
(2,068 |
) |
|
$ |
(3,637 |
) |
|
$ |
(5,705 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Changes in fair value for the nine-month period ended September 30, 2009 include interest
expense on callable brokered CDs of $10.8 million and interest expense on medium-term notes of $0.2
million and $0.6 million for the quarter and first nine months of 2009, respectively. Interest
expense on callable brokered CDs and medium term notes that have been elected to be carried at fair
value 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 quarter and
nine-month period ended September 30, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value Measurements |
|
|
Total Fair Value Measurements |
|
|
|
(Quarter Ended September 30, 2010) |
|
|
(Nine-Month Period Ended September 30, 2010) |
|
|
|
|
|
|
|
Securities Available For |
|
|
|
|
|
|
|
Level 3 Instruments Only |
|
Derivatives (1) |
|
|
Sale (2) |
|
|
Derivatives (1) |
|
|
Securities Available For Sale (2) |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
|
|
|
$ |
83,442 |
|
|
$ |
4,199 |
|
|
$ |
84,354 |
|
|
Total gains or (losses) (realized / unrealized): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
|
|
|
|
|
|
|
|
|
|
(1,152 |
) |
|
|
|
|
Included in other comprehensive income |
|
|
|
|
|
|
1,090 |
|
|
|
|
|
|
|
5,060 |
|
Purchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,584 |
|
Principal repayments and amortization |
|
|
|
|
|
|
(4,502 |
) |
|
|
|
|
|
|
(11,968 |
) |
Other (1) |
|
|
|
|
|
|
|
|
|
|
(3,047 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
|
|
|
$ |
80,030 |
|
|
$ |
|
|
|
$ |
80,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts related to the valuation of interest rate cap agreements. The counterparty to these
interest rate cap agreements failed on April 30, 2010 and was acquired by another financial
institution through an FDIC assisted transaction. The Corporation currently has a claim with the
FDIC. |
|
(2) |
|
Amounts mostly related to certain private label mortgage-backed securities. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value Measurements |
|
|
Total Fair Value Measurements |
|
|
|
(Quarter Ended September 30, 2009) |
|
|
(Nine-Month Period Ended September 30, 2009) |
|
|
|
|
|
|
|
Securities Available For |
|
|
|
|
|
|
|
Level 3 Instruments Only |
|
Derivatives (1) |
|
|
Sale (2) |
|
|
Derivatives (1) |
|
|
Securities Available For Sale (2) |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
3,514 |
|
|
$ |
96,568 |
|
|
$ |
760 |
|
|
$ |
113,983 |
|
|
Total gains or (losses) (realized / unrealized): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
|
|
(1,047 |
) |
|
|
(209 |
) |
|
|
1,707 |
|
|
|
(1,270 |
) |
Included in other comprehensive income |
|
|
|
|
|
|
1,580 |
|
|
|
|
|
|
|
336 |
|
Principal repayments and amortization |
|
|
|
|
|
|
(5,853 |
) |
|
|
|
|
|
|
(20,963 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
2,467 |
|
|
$ |
92,086 |
|
|
$ |
2,467 |
|
|
$ |
92,086 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts related to the valuation of interest rate cap agreements. |
|
(2) |
|
Amounts mostly related to certain private label mortgage-backed securities. |
40
The table below summarizes changes in unrealized gains and losses recorded in earnings
for the quarter and nine-month period ended September 30, 2009 for Level 3 assets and liabilities
that are still held at the end of such periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Unrealized |
|
|
Changes in Unrealized |
|
|
|
Losses |
|
|
Gains (Losses) |
|
|
|
Quarter Ended |
|
|
Nine-Month Period Ended |
|
|
|
September 30, 2009 |
|
|
September 30, 2009 |
|
Level 3 Instruments Only |
|
|
|
|
|
Securities Available For |
|
|
|
|
|
|
Securities Available For |
|
(In thousands) |
|
Derivatives |
|
|
Sale |
|
|
Derivatives |
|
|
Sale |
|
Changes in unrealized gains (losses) relating to assets still held at
reporting date (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income on loans |
|
$ |
(19 |
) |
|
$ |
|
|
|
$ |
29 |
|
|
$ |
|
|
Interest income on investment securities |
|
|
(1,028 |
) |
|
|
|
|
|
|
1,678 |
|
|
|
|
|
Net impairment losses on investment securities |
|
|
|
|
|
|
(209 |
) |
|
|
|
|
|
|
(1,270 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1,047 |
) |
|
$ |
(209 |
) |
|
$ |
1,707 |
|
|
$ |
(1,270 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Unrealized gains of $1.6 million and $0.3 million on Level 3 available-for-sale securities was
recognized as part of comprehensive income for the quarter and nine-month period ended September
30, 2009. |
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 September 30, 2010, 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 |
|
|
Carrying value as of September 30, 2010 |
|
the Quarter Ended |
|
the Nine-month period |
(In thousands) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
September 30, 2010 |
|
ended September 30, 2010 |
Loans receivable (1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,512,091 |
|
|
$ |
87,092 |
|
|
$ |
387,536 |
|
Other Real Estate Owned (2) |
|
|
|
|
|
|
|
|
|
|
82,706 |
|
|
|
5,880 |
|
|
|
13,144 |
|
|
|
|
(1) |
|
Mainly impaired commercial and construction loans. The impairment was generally measured based
on the fair value of the collateral. 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 of the
loans to the Other Real Estate Owned (OREO) portfolio. |
As of September 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 |
|
|
Carrying value as of September 30, 2009 |
|
the Quarter Ended |
|
the Nine-month period |
(In thousands) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
September 30, 2009 |
|
ended September 30, 2009 |
Loans receivable (1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
994,441 |
|
|
$ |
72,077 |
|
|
$ |
202,645 |
|
Other Real Estate Owned (2) |
|
|
|
|
|
|
|
|
|
|
67,493 |
|
|
|
3,099 |
|
|
|
8,260 |
|
Core deposit intangible (3) |
|
|
|
|
|
|
|
|
|
|
7,016 |
|
|
|
|
|
|
|
3,988 |
|
|
|
|
(1) |
|
Mainly impaired commercial and construction loans. The impairment was generally measured based
on the fair value of the collateral. 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
of the loans to the 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. |
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.
41
Cash and due from banks and money market investments
The carrying amounts 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 (as
is the case with equity securities, U.S. Treasury notes and non-callable U.S. Agency debt
securities), when available, or market prices for identical or comparable assets (as is the case
with MBS and callable U.S. agency debt) 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.
Private label MBS are collateralized by fixed-rate mortgages on single-family residential
properties in the United States; the interest rate on the securities is variable, tied to 3-month
LIBOR and limited to the weighted-average coupon of the underlying collateral. The market valuation
represents the estimated net cash flows over the projected life of the pool of underlying assets
applying a discount rate that reflects market observed floating spreads over LIBOR, with a widening
spread bias on a nonrated security. The market valuation is derived from a model that utilizes
relevant assumptions such as prepayment rate, default rate, and loss severity on a loan level
basis. 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. 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, other) to provide an
estimate of default and loss severity. Refer to Note 4 Investment securities for additional
information about assumptions used in the valuation of private label MBS.
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. This
category is principally composed of FHLB stock that is owned by the Corporation to comply with 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, based on
interest rates currently being offered for loans with similar terms and credit quality and with
adjustments that the Corporations management 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.
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.
42
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 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 of paying counterparties when appropriate,
except when collateral is pledged. That is, on interest rate swaps, the credit risk of both
counterparties is included in the valuation; and on options and caps, only the sellers credit risk
is considered. 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 US 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.
Certain derivatives with limited market activity, as is the case with derivative instruments
named as reference caps, were valued using models that consider unobservable market parameters
(Level 3). Reference caps were used mainly to hedge interest rate risk inherent in private label
mortgage-backed securities, thus were tied to the notional amount of the underlying fixed-rate
mortgage loans originated in the United States. The counterparty to these derivative instruments
failed on April 30, 2010. The Corporation currently has a claim with the FDIC and the exposure to
fair value of $3.0 million was recorded as an account receivable. In the past, significant inputs
used for the fair value determination consisted of specific characteristics such as information
used in the prepayment model which follow the amortizing schedule of the underlying loans, which
was an unobservable input. The valuation model used 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 are used to build a 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 gain of approximately
$1.3 million as of September 30, 2010, which includes an unrealized gain of $0.8 million for the
first nine months of 2010.
43
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
gain 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 recorded for the first nine months of
2010 amounted to $1.9 million, compared to an unrealized loss of $2.9 million for the first nine
months of 2009. The cumulative mark-to-market unrealized gain on the medium-term notes since
measured at fair value attributable to credit risk amounted to $4.5 million as of September 30,
2010.
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 as issuer of the note at a tenor comparable to
the time to maturity of the debentures.
21 SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information follows:
|
|
|
|
|
|
|
|
|
|
|
Nine-Month Period Ended September 30, |
|
|
2010 |
|
2009 |
|
|
(In thousands) |
Cash paid for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on borrowings |
|
$ |
285,567 |
|
|
$ |
393,463 |
|
Income tax |
|
|
435 |
|
|
|
503 |
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to other real estate owned |
|
|
77,712 |
|
|
|
76,677 |
|
Additions to auto repossesion |
|
|
55,826 |
|
|
|
61,107 |
|
Capitalization of servicing assets |
|
|
5,244 |
|
|
|
4,929 |
|
Loan securitizations |
|
|
164,904 |
|
|
|
262,129 |
|
Non-cash acquisition of mortgage loans that previously served
as collateral of a commercial loan to a local financial institution |
|
|
|
|
|
|
205,395 |
|
Change in par value of common stock |
|
|
83,287 |
|
|
|
|
|
Preferred Stock exchanged for new common stock issued: |
|
|
|
|
|
|
|
|
Preferred stock exchanged (Series A through E) |
|
|
476,193 |
|
|
|
|
|
New common stock issued |
|
|
90,806 |
|
|
|
|
|
Series F Preferred Stock exchanged for Series G Preferred Stock: |
|
|
|
|
|
|
|
|
Preferred stock exchanged (Series F) |
|
|
378,408 |
|
|
|
|
|
New Series G Preferred Stock issued |
|
|
347,386 |
|
|
|
|
|
Fair value adjustment on amended common stock warrant |
|
|
1,179 |
|
|
|
|
|
22 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 lines of business for its operations
in Puerto Rico, the Corporations principal market, and by geographic areas for its operations
outside of Puerto Rico. As of September 30, 2010, the Corporation had six reportable segments:
Commercial and Corporate Banking; Mortgage Banking; Consumer (Retail) Banking; Treasury and
Investments; United States operations and Virgin Islands operations. 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.
44
Starting in the fourth quarter of 2009, the Corporation realigned its reporting segments to
better reflect how it views and manages its business. Two additional operating segments were
created to evaluate the operations conducted by the Corporation, outside of Puerto Rico. Operations
conducted in the United States and in the Virgin Islands are now individually evaluated as separate
operating segments. This realignment in the segment reporting essentially reflects the effect of
restructuring initiatives, including the merger of FirstBank Florida operations with and into
FirstBank, and allows the Corporation to better present the results from its growth focus.
Prior to the third quarter of 2009, the operating segments were driven primarily by the
Corporations legal entities. FirstBank operations conducted in the Virgin Islands and through its
loan production office in Miami, Florida were reflected in the Corporations then four reportable
segments (Commercial and Corporate Banking; Mortgage Banking; Consumer (Retail) Banking; Treasury
and Investments) while the operations conducted by FirstBank Florida were reported as part of a
category named Other. In the third quarter of 2009, as a result of the aforementioned merger, the
operations of FirstBank Florida were reported as part of the four reportable segments. Starting in
the first quarter of 2010, activities related to auto floor plan financings previously included as
part of Consumer (Retail) Banking are now included as part of the Commercial and Corporate Banking
segment. The changes in the fourth quarter of 2009 and first quarter of 2010 reflected a further
realignment of the organizational structure as a result of management changes. Prior period amounts
have been reclassified to conform to current period presentation. These changes did not have an
impact on the previously reported consolidated results of the Corporation.
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 loans, including commercial
real estate and construction loans, and floor plan financings as well as 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 lends 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 lends 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 United States operations segment consists of all banking activities
conducted by FirstBank in the United States mainland, including commercial and retail banking
services. The Virgin Islands operations segment consists of all banking activities conducted by the
Corporation in the U.S. and British Virgin Islands, including commercial and retail banking
services and insurance activities.
The accounting policies of the segments are the same as those referred to in Note 1 to the
Corporations financial statements for the year ended December 31, 2009 contained in the
Corporations Annual Report or Form 10-K.
The Corporation evaluates the performance of the segments based on net interest income, 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.
45
The following table presents information about the reportable segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
Consumer |
|
|
Commercial and |
|
|
Treasury and |
|
|
United States |
|
|
Virgin Islands |
|
|
|
|
(In thousands) |
|
Banking |
|
|
(Retail) Banking |
|
|
Corporate |
|
|
Investments |
|
|
Operations |
|
|
Operations |
|
|
Total |
|
For the quarter ended September 30, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
38,653 |
|
|
$ |
46,131 |
|
|
$ |
58,034 |
|
|
$ |
32,419 |
|
|
$ |
12,416 |
|
|
|
16,375 |
|
|
$ |
204,028 |
|
Net (charge) credit for transfer of funds |
|
|
(21,677 |
) |
|
|
1,161 |
|
|
|
(6,126 |
) |
|
|
26,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
(12,552 |
) |
|
|
|
|
|
|
(64,769 |
) |
|
|
(11,348 |
) |
|
|
(1,657 |
) |
|
|
(90,326 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) |
|
|
16,976 |
|
|
|
34,740 |
|
|
|
51,908 |
|
|
|
(5,708 |
) |
|
|
1,068 |
|
|
|
14,718 |
|
|
|
113,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses |
|
|
(15,067 |
) |
|
|
(13,632 |
) |
|
|
(83,851 |
) |
|
|
|
|
|
|
(4,137 |
) |
|
|
(3,795 |
) |
|
|
(120,482 |
) |
Non-interest income |
|
|
6,348 |
|
|
|
6,902 |
|
|
|
2,579 |
|
|
|
932 |
|
|
|
235 |
|
|
|
2,270 |
|
|
|
19,266 |
|
Direct non-interest expenses |
|
|
(11,532 |
) |
|
|
(22,395 |
) |
|
|
(12,860 |
) |
|
|
(1,403 |
) |
|
|
(10,401 |
) |
|
|
(10,233 |
) |
|
|
(68,824 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment (loss) income |
|
$ |
(3,275 |
) |
|
$ |
5,615 |
|
|
$ |
(42,224 |
) |
|
$ |
(6,179 |
) |
|
$ |
(13,235 |
) |
|
$ |
2,960 |
|
|
$ |
(56,338 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average earnings assets |
|
$ |
2,601,342 |
|
|
$ |
1,573,994 |
|
|
$ |
5,775,249 |
|
|
$ |
4,654,372 |
|
|
$ |
986,730 |
|
|
$ |
930,474 |
|
|
$ |
16,522,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
Consumer |
|
|
Commercial and |
|
|
Treasury and |
|
|
United States |
|
|
Virgin Islands |
|
|
|
|
|
|
Banking |
|
|
(Retail) Banking |
|
|
Corporate |
|
|
Investments |
|
|
Operations |
|
|
Operations |
|
|
Total |
|
For the quarter ended September 30, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
39,798 |
|
|
$ |
49,304 |
|
|
$ |
58,859 |
|
|
$ |
61,313 |
|
|
$ |
15,663 |
|
|
|
17,085 |
|
|
$ |
242,022 |
|
Net (charge) credit for transfer of funds |
|
|
(26,425 |
) |
|
|
(1,765 |
) |
|
|
(9,336 |
) |
|
|
37,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
(14,714 |
) |
|
|
|
|
|
|
(73,836 |
) |
|
|
(22,463 |
) |
|
|
(1,876 |
) |
|
|
(112,889 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) |
|
|
13,373 |
|
|
|
32,825 |
|
|
|
49,523 |
|
|
|
25,003 |
|
|
|
(6,800 |
) |
|
|
15,209 |
|
|
|
129,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses |
|
|
(3,354 |
) |
|
|
(18,138 |
) |
|
|
(85,863 |
) |
|
|
|
|
|
|
(32,346 |
) |
|
|
(8,389 |
) |
|
|
(148,090 |
) |
Non-interest income |
|
|
3,212 |
|
|
|
8,383 |
|
|
|
1,483 |
|
|
|
34,042 |
|
|
|
112 |
|
|
|
2,757 |
|
|
|
49,989 |
|
Direct non-interest expenses |
|
|
(8,105 |
) |
|
|
(23,717 |
) |
|
|
(9,882 |
) |
|
|
(1,654 |
) |
|
|
(7,077 |
) |
|
|
(11,190 |
) |
|
|
(61,625 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) |
|
$ |
5,126 |
|
|
$ |
(647 |
) |
|
$ |
(44,739 |
) |
|
$ |
57,391 |
|
|
$ |
(46,111 |
) |
|
$ |
(1,613 |
) |
|
$ |
(30,593 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average earnings assets |
|
$ |
2,726,367 |
|
|
$ |
1,757,626 |
|
|
$ |
6,115,810 |
|
|
$ |
6,177,819 |
|
|
$ |
1,430,889 |
|
|
$ |
977,723 |
|
|
$ |
19,186,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
Consumer |
|
|
Commercial and |
|
|
Treasury and |
|
|
United States |
|
|
Virgin Islands |
|
|
|
|
|
|
Banking |
|
|
(Retail) Banking |
|
|
Corporate |
|
|
Investments |
|
|
Operations |
|
|
Operations |
|
|
Total |
|
For the nine-month period ended September 30, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
118,313 |
|
|
$ |
140,820 |
|
|
$ |
174,567 |
|
|
$ |
114,401 |
|
|
$ |
39,654 |
|
|
$ |
52,125 |
|
|
$ |
639,880 |
|
Net (charge) credit for transfer of funds |
|
|
(71,189 |
) |
|
|
5,982 |
|
|
|
(19,436 |
) |
|
|
84,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
(39,669 |
) |
|
|
|
|
|
|
(211,632 |
) |
|
|
(34,176 |
) |
|
|
(4,776 |
) |
|
|
(290,253 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) |
|
|
47,124 |
|
|
|
107,133 |
|
|
|
155,131 |
|
|
|
(12,588 |
) |
|
|
5,478 |
|
|
|
47,349 |
|
|
|
349,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses |
|
|
(60,505 |
) |
|
|
(37,048 |
) |
|
|
(214,950 |
) |
|
|
|
|
|
|
(108,950 |
) |
|
|
(16,787 |
) |
|
|
(438,240 |
) |
Non-interest income |
|
|
10,765 |
|
|
|
21,670 |
|
|
|
7,184 |
|
|
|
55,805 |
|
|
|
550 |
|
|
|
8,143 |
|
|
|
104,117 |
|
Direct non-interest expenses |
|
|
(29,820 |
) |
|
|
(71,546 |
) |
|
|
(50,022 |
) |
|
|
(4,428 |
) |
|
|
(32,410 |
) |
|
|
(31,742 |
) |
|
|
(219,968 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment (loss) income |
|
$ |
(32,436 |
) |
|
$ |
20,209 |
|
|
$ |
(102,657 |
) |
|
$ |
38,789 |
|
|
$ |
(135,332 |
) |
|
$ |
6,963 |
|
|
$ |
(204,464 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average earnings assets |
|
$ |
2,674,753 |
|
|
$ |
1,621,958 |
|
|
$ |
6,073,657 |
|
|
$ |
5,180,125 |
|
|
$ |
1,131,391 |
|
|
$ |
1,000,797 |
|
|
$ |
17,682,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
Consumer |
|
|
Commercial and |
|
|
Treasury and |
|
|
United States |
|
|
Virgin Islands |
|
|
|
|
|
|
Banking |
|
|
(Retail) Banking |
|
|
Corporate |
|
|
Investments |
|
|
Operations |
|
|
Operations |
|
|
Total |
|
For the nine-month period ended September 30, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
116,566 |
|
|
$ |
150,786 |
|
|
$ |
183,930 |
|
|
$ |
197,561 |
|
|
$ |
51,912 |
|
|
|
52,370 |
|
|
$ |
753,125 |
|
Net (charge) credit for transfer of funds |
|
|
(82,420 |
) |
|
|
(3,648 |
) |
|
|
(53,774 |
) |
|
|
139,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
(46,432 |
) |
|
|
|
|
|
|
(262,224 |
) |
|
|
(55,136 |
) |
|
|
(7,588 |
) |
|
|
(371,380 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
34,146 |
|
|
|
100,706 |
|
|
|
130,156 |
|
|
|
75,179 |
|
|
|
(3,224 |
) |
|
|
44,782 |
|
|
|
381,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses |
|
|
(24,283 |
) |
|
|
(32,782 |
) |
|
|
(229,794 |
) |
|
|
|
|
|
|
(133,126 |
) |
|
|
(22,686 |
) |
|
|
(442,671 |
) |
Non-interest income |
|
|
6,369 |
|
|
|
24,162 |
|
|
|
3,975 |
|
|
|
59,929 |
|
|
|
1,330 |
|
|
|
7,692 |
|
|
|
103,457 |
|
Direct non-interest expenses |
|
|
(23,835 |
) |
|
|
(71,490 |
) |
|
|
(31,779 |
) |
|
|
(5,366 |
) |
|
|
(29,092 |
) |
|
|
(34,821 |
) |
|
|
(196,383 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment (loss) income |
|
$ |
(7,603 |
) |
|
$ |
20,596 |
|
|
$ |
(127,442 |
) |
|
$ |
129,742 |
|
|
$ |
(164,112 |
) |
|
$ |
(5,033 |
) |
|
$ |
(153,852 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average earnings assets |
|
$ |
2,635,929 |
|
|
$ |
1,793,601 |
|
|
$ |
6,220,832 |
|
|
$ |
5,919,854 |
|
|
$ |
1,475,681 |
|
|
$ |
985,711 |
|
|
|
19,031,608 |
|
46
The following table presents a reconciliation of the reportable segment financial
information to the consolidated totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Nine-month Period Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loss for segments and other |
|
$ |
(56,338 |
) |
|
$ |
(30,593 |
) |
|
$ |
(204,464 |
) |
|
$ |
(153,852 |
) |
Other operating expenses |
|
|
(19,858 |
) |
|
|
(21,152 |
) |
|
|
(58,687 |
) |
|
|
(66,910 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(76,196 |
) |
|
|
(51,745 |
) |
|
|
(263,151 |
) |
|
|
(220,762 |
) |
Income tax benefit (expense) |
|
|
963 |
|
|
|
(113,473 |
) |
|
|
(9,721 |
) |
|
|
(1,223 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated net loss |
|
$ |
(75,233 |
) |
|
$ |
(165,218 |
) |
|
$ |
(272,872 |
) |
|
$ |
(221,985 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average earning assets for segments |
|
$ |
16,522,161 |
|
|
$ |
19,186,234 |
|
|
$ |
17,682,681 |
|
|
$ |
19,031,608 |
|
Average non-earning assets |
|
|
728,079 |
|
|
|
1,016,657 |
|
|
|
746,064 |
|
|
|
826,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated average assets |
|
$ |
17,250,240 |
|
|
$ |
20,202,891 |
|
|
$ |
18,428,745 |
|
|
$ |
19,858,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
23 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
September 30, 2010, commitments to extend credit amounted to approximately $841.0 million and
standby letters of credit amounted to approximately $81.1 million. Included in commitments to
extend credit is a $50.0 million participation in a loan extended for the construction of a resort
facility in Puerto Rico. The Corporation does not expect to disburse this commitment until 2012.
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. 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 cancel the unused credit facility at any time and
without cause. Generally, the Corporations mortgage banking activities do not enter into interest
rate lock agreements with prospective borrowers.
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 constituted 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 September 30, 2010 under the swap agreements, the
Corporation has an 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 September 30, 2010 amounted to approximately $64.5 million.
The Corporation believes that the securities pledged as collateral should not be part of the
Lehman bankruptcy estate given the fact that the posted collateral constituted a performance
guarantee under the swap agreements and was not part of a financing agreement, and that ownership
of the securities was never transferred to Lehman. Upon termination of the interest rate swap
agreements, Lehmans obligation was to return the collateral to the Corporation. During the fourth
quarter of 2009, the Corporation discovered that Lehman Brothers, Inc., acting as agent of Lehman,
had deposited the securities in a custodial account at JP Morgan Chase, and that, shortly before
the filing of the Lehman bankruptcy proceedings, it had provided instructions to have most of the
securities transferred to Barclays Capital (Barclays) in New York. After Barclays refusal to
turn over the securities, during December 2009, the Corporation filed a lawsuit against Barclays in
federal court in New York demanding the return of the securities.
During February 2010, Barclays filed a motion with the court requesting that the Corporations
claim be dismissed on the grounds that the allegations of the complaint are not sufficient to
justify the granting of the remedies therein sought. Shortly thereafter, the Corporation filed its
opposition motion. A hearing on the motions was held in court on April 28, 2010. The court, on that
date, after hearing the arguments by both sides, concluded that the Corporations equitable-based
causes of action, upon which the return of the investment securities is being demanded, contain
allegations that sufficiently plead facts warranting the denial of Barclays motion to dismiss the
Corporations claim. Accordingly, the judge ordered the case to proceed to trial. Subsequent to the
decision handed down by the court, the district court judge transferred the case to the Lehman
bankruptcy court for trial. While the Corporation believes it has valid reasons to support its
claim for the return of the securities, the Corporation may not succeed in its litigation against
Barclays to recover all or a substantial portion of the securities.
Additionally, the Corporation continues to pursue its claim filed in January 2009 in the
proceedings under the Securities Protection Act with regard to Lehman Brothers Incorporated in
Bankruptcy Court, Southern District of New York. An estimated loss was not accrued as 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. If additional
relevant negative 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 September 30, 2010, 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.
48
24 FIRST BANCORP (Holding Company Only) Financial Information
The following condensed financial information presents the financial position of the Holding
Company only as of September 30, 2010 and December 31, 2009 and the results of its operations for
the quarter and nine-month period ended September 30, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
As of |
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
43,216 |
|
|
$ |
55,423 |
|
Money market investments |
|
|
300 |
|
|
|
300 |
|
Investment securities available for sale, at market: |
|
|
|
|
|
|
|
|
Equity investments |
|
|
71 |
|
|
|
303 |
|
Other investment securities |
|
|
1,300 |
|
|
|
1,550 |
|
Investment in FirstBank Puerto Rico, at equity |
|
|
1,493,513 |
|
|
|
1,754,217 |
|
Investment in FirstBank Insurance Agency, at equity |
|
|
6,402 |
|
|
|
6,709 |
|
Investment in PR Finance, at equity |
|
|
|
|
|
|
3,036 |
|
Investment in FBP Statutory Trust I |
|
|
3,093 |
|
|
|
3,093 |
|
Investment in FBP Statutory Trust II |
|
|
3,866 |
|
|
|
3,866 |
|
Other assets |
|
|
5,076 |
|
|
|
3,194 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,556,837 |
|
|
$ |
1,831,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities & Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Other borrowings |
|
$ |
231,959 |
|
|
$ |
231,959 |
|
Accounts payable and other liabilities |
|
|
2,899 |
|
|
|
669 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
234,858 |
|
|
|
232,628 |
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
1,321,979 |
|
|
|
1,599,063 |
|
|
|
|
|
|
|
|
Total Liabilities & Stockholders Equity |
|
$ |
1,556,837 |
|
|
$ |
1,831,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Nine-Month Period Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income on other investments |
|
$ |
1 |
|
|
$ |
|
|
|
$ |
1 |
|
|
$ |
1 |
|
Dividends from FirstBank Puerto Rico |
|
|
|
|
|
|
847 |
|
|
|
1,522 |
|
|
|
45,786 |
|
Dividends from other subsidiaries |
|
|
|
|
|
|
|
|
|
|
1,400 |
|
|
|
|
|
Other income |
|
|
56 |
|
|
|
56 |
|
|
|
157 |
|
|
|
197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57 |
|
|
|
903 |
|
|
|
3,080 |
|
|
|
45,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable and other borrowings |
|
|
1,850 |
|
|
|
1,870 |
|
|
|
5,219 |
|
|
|
6,599 |
|
Other operating expenses |
|
|
862 |
|
|
|
516 |
|
|
|
2,372 |
|
|
|
1,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,712 |
|
|
|
2,386 |
|
|
|
7,591 |
|
|
|
8,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on investments and impairments |
|
|
|
|
|
|
248 |
|
|
|
(603 |
) |
|
|
(140 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes and equity
in undistributed losses of subsidiaries |
|
|
(2,655 |
) |
|
|
(1,235 |
) |
|
|
(5,114 |
) |
|
|
37,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
|
(8 |
) |
|
|
|
|
|
|
(8 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed losses of subsidiaries |
|
|
(72,570 |
) |
|
|
(163,983 |
) |
|
|
(267,750 |
) |
|
|
(259,549 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(75,233 |
) |
|
$ |
(165,218 |
) |
|
$ |
(272,872 |
) |
|
$ |
(221,985 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
49
25 SUBSEQUENT EVENTS
The Company has performed an evaluation of all other events occurring subsequent to September
30, 2010, management has determined that there are no additional events occurring in this period
that required disclosure in or adjustment to the accompanying financial statements.
50
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 |
|
Nine-month period ended |
|
|
September 30, |
|
September 30, |
|
September 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Condensed Income Statements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
$ |
204,028 |
|
|
$ |
242,022 |
|
|
$ |
639,880 |
|
|
$ |
753,125 |
|
Total interest expense |
|
|
90,326 |
|
|
|
112,889 |
|
|
|
290,253 |
|
|
|
371,380 |
|
Net interest income |
|
|
113,702 |
|
|
|
129,133 |
|
|
|
349,627 |
|
|
|
381,745 |
|
Provision for loan and lease losses |
|
|
120,482 |
|
|
|
148,090 |
|
|
|
438,240 |
|
|
|
442,671 |
|
Non-interest income |
|
|
19,266 |
|
|
|
49,989 |
|
|
|
104,117 |
|
|
|
103,457 |
|
Non-interest expenses |
|
|
88,682 |
|
|
|
82,777 |
|
|
|
278,655 |
|
|
|
263,293 |
|
Loss before income taxes |
|
|
(76,196 |
) |
|
|
(51,745 |
) |
|
|
(263,151 |
) |
|
|
(220,762 |
) |
Income tax benefit (expense) |
|
|
963 |
|
|
|
(113,473 |
) |
|
|
(9,721 |
) |
|
|
(1,223 |
) |
Net loss |
|
|
(75,233 |
) |
|
|
(165,218 |
) |
|
|
(272,872 |
) |
|
|
(221,985 |
) |
Net income (loss) available to common stockholders, basic |
|
|
357,787 |
|
|
|
(174,689 |
) |
|
|
147,826 |
|
|
|
(262,741 |
) |
Net income (loss) available to common stockholders, diluted |
|
|
363,413 |
|
|
|
(174,689 |
) |
|
|
153,452 |
|
|
|
(262,741 |
) |
Per Common Share Results: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share basic |
|
$ |
2.09 |
|
|
$ |
(1.89 |
) |
|
$ |
1.24 |
|
|
$ |
(2.84 |
) |
Net income (loss) per share diluted |
|
$ |
0.28 |
|
|
$ |
(1.89 |
) |
|
$ |
0.31 |
|
|
$ |
(2.84 |
) |
Cash dividends declared |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.14 |
|
Average shares outstanding |
|
|
171,483 |
|
|
|
92,511 |
|
|
|
119,131 |
|
|
|
92,511 |
|
Average shares outstanding diluted |
|
|
1,298,275 |
|
|
|
92,511 |
|
|
|
498,856 |
|
|
|
92,511 |
|
Book value per common share |
|
$ |
2.85 |
|
|
$ |
8.34 |
|
|
$ |
2.85 |
|
|
$ |
8.34 |
|
Tangible book value per common share (1) |
|
$ |
2.71 |
|
|
$ |
7.85 |
|
|
$ |
2.71 |
|
|
$ |
7.85 |
|
Selected Financial Ratios (In Percent): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profitability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on Average Assets |
|
|
(1.73 |
) |
|
|
(3.27 |
) |
|
|
(1.98 |
) |
|
|
(1.49 |
) |
Interest Rate Spread (2) |
|
|
2.55 |
|
|
|
2.66 |
|
|
|
2.46 |
|
|
|
2.57 |
|
Net Interest Margin (2) |
|
|
2.83 |
|
|
|
2.95 |
|
|
|
2.74 |
|
|
|
2.91 |
|
Return on Average Total Equity |
|
|
(21.28 |
) |
|
|
(35.47 |
) |
|
|
(24.40 |
) |
|
|
(15.53 |
) |
Return on Average Common Equity |
|
|
(50.80 |
) |
|
|
(74.62 |
) |
|
|
(62.75 |
) |
|
|
(34.94 |
) |
Average Total Equity to Average Total Assets |
|
|
8.13 |
|
|
|
9.22 |
|
|
|
8.11 |
|
|
|
9.60 |
|
Tangible common equity ratio (1) |
|
|
5.21 |
|
|
|
3.62 |
|
|
|
5.21 |
|
|
|
3.62 |
|
Dividend payout ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.93 |
) |
Efficiency ratio (3) |
|
|
66.69 |
|
|
|
46.21 |
|
|
|
61.41 |
|
|
|
54.26 |
|
Asset Quality: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses to loans receivable |
|
|
5.00 |
|
|
|
3.43 |
|
|
|
5.00 |
|
|
|
3.43 |
|
Net charge-offs (annualized) to average loans |
|
|
3.74 |
|
|
|
2.53 |
|
|
|
3.67 |
|
|
|
2.52 |
|
Provision for loan and lease losses to net charge-offs |
|
|
103.63 |
|
|
|
175.56 |
|
|
|
122.47 |
|
|
|
175.17 |
|
Non-performing assets to total assets |
|
|
10.01 |
|
|
|
8.39 |
|
|
|
10.01 |
|
|
|
8.39 |
|
Non-performing loans to total loans receivable |
|
|
12.36 |
|
|
|
11.21 |
|
|
|
12.36 |
|
|
|
11.21 |
|
Allowance to total non-performing loans |
|
|
40.41 |
|
|
|
30.64 |
|
|
|
40.41 |
|
|
|
30.64 |
|
Allowance to total non-performing loans
excluding residential real estate loans |
|
|
56.43 |
|
|
|
42.90 |
|
|
|
56.43 |
|
|
|
42.90 |
|
Other Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Price: End of period |
|
$ |
0.28 |
|
|
$ |
3.05 |
|
|
$ |
0.28 |
|
|
$ |
3.05 |
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
As of |
|
|
September 30, |
|
December 31, |
|
|
2010 |
|
2009 |
Balance Sheet Data: |
|
|
|
|
|
|
|
|
Loans and loans held for sale |
|
$ |
12,189,222 |
|
|
$ |
13,949,226 |
|
Allowance for loan and lease losses |
|
|
608,526 |
|
|
|
528,120 |
|
Money market and investment securities |
|
|
3,745,951 |
|
|
|
4,866,617 |
|
Intangible assets |
|
|
42,771 |
|
|
|
44,698 |
|
Deferred tax asset, net |
|
|
101,248 |
|
|
|
109,197 |
|
Total assets |
|
|
16,678,879 |
|
|
|
19,628,448 |
|
Deposits |
|
|
12,543,567 |
|
|
|
12,669,047 |
|
Borrowings |
|
|
2,492,456 |
|
|
|
5,214,147 |
|
Total preferred equity |
|
|
411,876 |
|
|
|
928,508 |
|
Total common equity |
|
|
879,808 |
|
|
|
644,062 |
|
Accumulated other comprehensive income, net of tax |
|
|
30,295 |
|
|
|
26,493 |
|
Total equity |
|
|
1,321,979 |
|
|
|
1,599,063 |
|
|
|
|
(1) |
|
Non-GAAP measure. Refer to Capital discussion below for additional information
about the components and reconciliation of these measures. |
|
(2) |
|
On a tax-equivalent basis and excluding the changes in fair value of derivative and
financial instruments and financial liabilities measured at fair value (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 liabilities measured at fair value. |
51
The following Managements Discussion and Analysis of Financial Condition and Results of
Operations relates to the accompanying consolidated unaudited financial statements of First BanCorp
and should be read in conjunction with the interim unaudited financial statements and the notes
thereto. First BanCorp, incorporated under the laws of the Commonwealth of Puerto Rico, is
sometimes referred in this Quarterly Report on Form 10-Q as the Corporation, we, our.
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) 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, insurance agency and broker-dealer activities.
As described in Item 1, Note 18, Regulatory Matters, FirstBank is currently operating under a
Consent Order ( the Order) with the Federal Deposit Insurance Corporation (FDIC) and First
BanCorp has entered into a Written Agreement (the Written Agreement and collectively with the
Order the Agreements) with the Board of Governors of the Federal Reserve System (the FED or
Federal Reserve).
As discussed in Item 1, Note 1 to the Consolidated Financial Statements, the Corporation has
assessed its ability to continue as a going concern and has concluded that, based on current and
expected liquidity needs and sources, management expects the Corporation to be able to meet its
obligations for a reasonable period of time. The Corporation has $3.2 billion of traditional
brokered certificates of deposit (brokered CDs) maturing within twelve months from September 30,
2010. The Corporation has continued to issue brokered CDs pursuant to temporary approvals received
from the FDIC to renew or roll over certain amounts of brokered CDs through December 31, 2010.
Management anticipates it will continue to obtain waivers from the restrictions to issue brokered
CDs under the Order to meet its obligations and execute its business plans. If unanticipated
market factors emerge, or if the Corporation is unable to raise additional capital or complete the
identified alternative capital preservation initiatives, successfully execute its plans, or comply
with the Order, its banking regulators could take further action, which could include actions that
may have a material adverse effect on the Corporations business, results of operations and
financial position. Also see Liquidity and Capital Adequacy.
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 quarter ended September
30, 2010, non-interest expenses (such as personnel, occupancy, insurance premiums and other costs),
non-interest income (mainly service charges and fees on loans and deposits and insurance income),
gains (losses) on sales of investments, gains (losses) on mortgage banking activities, and income
taxes.
Net loss for the quarter ended September 30, 2010 amounted to $75.2 million, compared to a net
loss of $165.2 million for the quarter ended September 30, 2009. The Corporations financial
results for the third quarter of 2010, as compared to the third quarter of 2009, were principally
impacted by (i) the impact in 2009 of a non-cash charge of $152.2 million to increase the deferred
tax asset valuation allowance, and (ii) a reduction of $27.6 million in the provision for loan and
lease losses related to lower charges to specific reserves, a slower migration of loans to
non-performing status and the overall decline in the size of the loan portfolio. These factors
were partially offset by (i) a decrease of $30.7 million in non-interest income driven by a
reduction of $33.7 million in gains on sale of investments due to a lower volume of sales, aside
from a nominal loss of $0.3 million resulting from a transaction on which the Corporation sold
mortgage-backed securities realizing a gain of $47.1 million that was offset by the cost of $47.4
million for the early extinguishment of a matching set of repurchase agreements, (ii) a decrease of
$15.4 million in net interest income mainly resulting from the Corporations deleveraging
strategies to preserve its capital position and from higher than historical levels of liquidity
maintained in the balance sheet due to the current economic environment, and (iii) an increase of
$5.9 million in non-interest expenses driven by increases in the FDIC deposit insurance premium and
higher losses on real estate owned (REO) operations due to write-downs to the value of repossessed
properties and higher costs associated with a larger inventory.
The key drivers of the Corporations financial results for the quarter ended September 30,
2010 include the following:
|
|
|
Net interest income for the quarter ended September 30, 2010 was $113.7 million,
compared to $129.1 million for the same period in 2009. The decrease is mainly associated
with the deleveraging of the Corporations balance sheet to preserve its capital position,
including sales of approximately $2.2 billion of investment securities over the last 12
months, mainly U.S. agency mortgage-backed securities (MBS), and loan repayments. Net
interest income was also affected by compressions in net interest |
52
|
|
|
margin, which on an adjusted tax-equivalent basis decreased to 2.83% for the third quarter of
2010 from 2.95% for the same period in 2009, mainly due to lower yields on investments and
the adverse impact of maintaining higher than historical liquidity levels. Approximately
$1.2 billion in investment securities were called over the last twelve months and were
replaced with lower yielding U.S. agency investment securities. These factors were partially
offset by the favorable impact of lower deposit pricing and the roll-off and repayments of
higher cost funds, such as maturing brokered CDs and repurchase agreements, and improved
spreads in commercial loans. Refer to the Net Interest Income discussion below for
additional information. |
|
|
|
|
For the third quarter of 2010, the Corporations provision for loan and lease losses
amounted to $120.5 million, compared to $148.1 million for the same period in 2009. Refer
to the discussion under Risk Management below for an analysis of the allowance for loan
and lease losses and non-performing assets and related ratios. The decrease in the
provision for 2010 was primarily due to lower charges to specific reserves, a slower
migration of loans to non-performing status and the overall reduction of the loan
portfolio. Much of the decrease in the provision is related to the construction loan
portfolio in Florida and the commercial and industrial (C&I) portfolio in Puerto Rico. |
|
|
|
|
The Corporations net charge-offs for the third quarter of 2010 were $116.3 million or
3.74% of average loans on an annualized basis, compared to $84.4 million or 2.53% of
average loans on an annualized basis for the same period in 2009, an increase mainly
related to impaired loans for which the Corporation had previously established adequate
specific reserves, including charge-offs of $27.1 million for non-performing construction
and commercial mortgage loans sold during the third quarter in Florida. Refer to the
Provision for Loan and Lease Losses and Risk Management Non-performing assets and
Allowance for Loan and Lease Losses sections below for additional information. |
|
|
|
|
For the quarter ended September 30, 2010, the Corporations non-interest income amounted
to $19.3 million, compared to $50.0 million for the quarter ended September 30, 2009. The
decrease was mainly due to lower gains on sale of investments securities, as the
Corporation realized gains of approximately $1.7 million on the sale of approximately $61.9
million of MBS, versus the $34.0 million aggregate gain recorded on the sale of
approximately $613 million of U.S. agency MBS, $98 million of U.S Treasury Notes and VISA
Class A shares in the third quarter of 2009. Also, a nominal loss of approximately $0.3
million was recorded in the third quarter, resulting from a transaction in which the
Corporation sold approximately $1.2 billion in MBS, combined with the unwinding of a
matching set of repurchase agreements as part of a balance sheet repositioning strategy.
Partially offsetting these factors were increased gains from mortgage banking activities
resulting from a higher volume of loans sold in the secondary market. Refer to the Non
Interest Income discussion below for additional information. |
|
|
|
|
Non-interest expenses for the third quarter of 2010 amounted to $88.7 million, compared
to $82.8 million for the same period in 2009. The increase is mainly related to a $7.8
million increase in the FDIC insurance premium expense, as premium rates increased and the
level of deposits grew compared to 2009, and an increase of $3.2 million in losses on REO
operations, driven by write-downs and costs associated with a larger inventory. This was
partially offset by a decrease of $4.6 million in employees compensation reflecting
further reductions in bonuses and other employee benefits and the headcount reduction.
Refer to the Non Interest Expenses discussion below for additional information. |
|
|
|
|
For the third quarter of 2010, the Corporation recorded an income tax benefit of $1.0
million, compared to an income tax expense of $113.5 million for the same period in 2009.
The 2009 results included a non-cash charge of approximately $152.2 million to increase the
valuation allowance for the Corporations deferred tax asset. The income tax benefit for
the third quarter of 2010 was mainly related to the operations of FirstBank Overseas, a
profitable subsidiary for the first nine months of 2010, due to its share in the loss on
the early extinguishment of repurchase agreements. Refer to the Income Taxes discussion
below for additional information. |
|
|
|
|
Total assets as of September 30, 2010 amounted to $16.7 billion, a decrease of $2.9
billion compared to total assets as of December 31, 2009. The decrease in total assets was
primarily a result of a net decrease of $1.8 billion in the loan portfolio largely
attributable to repayments of credit facilities extended to the Puerto Rico government
and/or political subdivisions coupled with charge-offs, the sale of non-performing loans
and a higher allowance for loan and lease losses. Also, there was a decrease of $1.3
billion in investment securities driven by sales of MBS. The decrease in assets is
consistent with the Corporations deleveraging and balance sheet repositioning strategies
to, among other things, preserve its capital position and enhance net interest margins in
the future. Refer to the Financial Condition and Operating Data discussion below for
additional information. |
|
|
|
|
As of September 30, 2010, total liabilities amounted to $15.4 billion, a decrease of
approximately $2.7 billion, as compared to $18.0 billion as of December 31, 2009. The
decrease in total liabilities is mainly attributable to a $1.7 billion decrease in
repurchase agreements driven by the early extinguishment of approximately $1 billion of
long-term repurchase agreements as part of the Corporations balance sheet repositioning
strategies and the nonrenewal of maturing repurchase agreements. Also, there was a
decrease of $900 million and $143 million in advances from the FED and the Federal Home
Loan Bank (FHLB), respectively, and a decrease of $872.9 million in brokered CDs.
Partially offsetting the aforementioned decreases |
53
|
|
|
was an increase of $747.4 million in total non-brokered deposits. 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 $1.3 billion as of September 30,
2010, a decrease of $277.1 million compared to the balance as of December 31, 2009, driven
by the net loss of $272.9 million for the first nine months of 2010 and $8 million of issue
costs related to the issuance of new common stock in exchange for $487 million of Series A
through E preferred stock (the Exchange Offer), partially offset by an increase of $3.8
million in accumulated other comprehensive income. Although all the regulatory capital
ratios exceeded the established well capitalized levels at September 30, 2010, due to the
Order, FirstBank cannot be treated as a well capitalized institution under regulatory
guidance. |
|
|
|
|
During the third quarter of 2010, the Corporation increased its common equity by issuing
common stock in exchange for $487 million, or 89%, of the outstanding Series A through E
preferred stock at conversion date and issued a new Series G mandatorily convertible
preferred stock (the Series G Preferred Stock) in exchange for the $400 million Series F
preferred stock held by the United States Department of Treasury (U.S. Treasury). As a
result of these initiatives the Corporations tangible common equity and Tier 1 common equity
ratios as of September 30, 2010 increased to 5.21% and 6.62%, respectively, from 3.20% and
4.10%, respectively, at December 31, 2009. Refer to the Risk Management Capital section
below for additional information, including further information about these non-GAAP
financial measures and the Corporations capital plan execution. |
|
|
|
|
Total loan production, including purchases, refinancings and draws from existing
commitments, for the quarter ended September 30, 2010 was $896 million, compared to $1.4
billion for the comparable period in 2009. The decrease in loan production during 2010, as
compared to the third quarter of 2009, was reflected in all major loan categories but in
particular in credit facilities extended to the Puerto Rico and Virgin Islands government.
The Corporation continues with its targeted lending activities and, excluding credit
facilities extended to the Puerto Rico and Virgin Islands governments, loan originations
for the third quarter of 2010 were $481 million compared to $695 million for the third
quarter of 2009, a reduction mainly related to the C&I, the residential mortgage and the
construction loan portfolio. |
|
|
|
|
Total non-performing loans as of September 30, 2010 were $1.51 billion, compared to
$1.56 billion as of December 31, 2009. The decrease of $57.9 million, or 4%, in
non-performing loans from December 31, 2009
mainly in connection with charge-offs and sales of approximately $163
million of impaired loans in Florida.
Non-performing construction loans decreased by $76.2 million mainly due to charge-offs and sales of $115.7 million of non-performing construction loans during 2010.
Non-performing commercial mortgage loans decreased by $23.2 million, or 12%, since December
2009 mainly due to charge-offs and two relationships amounting to $12.5 million in the
aggregate that became current and for which the Corporation expects to collect principal
and interest in full pursuant to the terms of the loans. Non-performing residential
mortgage loans decreased by $14.1 million mainly due to loans restored to accrual status
based on compliance with modified terms as part of the Corporations loss mitigation and
loans modifications transactions. Non-performing C&I loans increased by $52.0 million, or
22%, from the end of 2009 driven by the inflow of three relationships in Puerto Rico in
individual amounts exceeding $10 million with an aggregate carrying value of $62 million,
of which $38.9 million (net of a charge-off of $7.7 million) is related to the
Corporations participation in a syndicated loan downgraded by the lead bank regulator in
its latest annual review. The levels of non-accrual consumer loans, including finance
leases, remained stable showing a $3.6 million increase during the first nine months of
2010. Refer to the Risk Management Non-performing loans 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). 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; and 6) income recognition on loans.
These critical accounting policies involve judgments, estimates and assumptions made by management
that affect the amounts recorded for assets and liabilities and for contingent liabilities 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 require 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 Managements Discussion and
Analysis of Financial Condition and Results of Operations included in First BanCorps 2009 Annual
Report on Form 10-K. There have not been any material changes in the Corporations critical
accounting policies since December 31, 2009.
54
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 nine-month period
ended September 30, 2010 was $113.7 million and $349.6 million, respectively, compared to
$129.1 million and $381.7 million for the comparable periods in 2009. On a tax-equivalent basis and
excluding the changes in the fair value of derivative instruments and unrealized gains and losses
on liabilities measured at fair value, net interest income for the quarter and nine-month period
ended September 30, 2010 was $121.9 million and $373.3 million, respectively, compared to
$145.1 million and $420.1 million for the comparable periods of 2009.
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 and excluding: (1) the change
in the fair value of derivative instruments and (2) unrealized gains or losses on liabilities
measured at fair value (for definition and reconciliation of this non-GAAP measure, refer to
discussions below).
55
Part I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Volume |
|
|
Interest income (1) / expense |
|
|
Average Rate (1) |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Quarter ended September 30, |
|
(Dollars in thousands) |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market & other short-term investments |
|
$ |
794,318 |
|
|
$ |
161,491 |
|
|
$ |
511 |
|
|
$ |
185 |
|
|
|
0.26 |
% |
|
|
0.45 |
% |
Government obligations (2) |
|
|
1,361,925 |
|
|
|
1,382,167 |
|
|
|
8,023 |
|
|
|
9,709 |
|
|
|
2.34 |
% |
|
|
2.79 |
% |
Mortgage-backed securities |
|
|
2,416,485 |
|
|
|
4,595,678 |
|
|
|
27,491 |
|
|
|
63,588 |
|
|
|
4.51 |
% |
|
|
5.49 |
% |
Corporate bonds |
|
|
2,000 |
|
|
|
2,000 |
|
|
|
29 |
|
|
|
29 |
|
|
|
5.75 |
% |
|
|
5.75 |
% |
FHLB stock |
|
|
63,950 |
|
|
|
76,843 |
|
|
|
640 |
|
|
|
1,038 |
|
|
|
3.97 |
% |
|
|
5.36 |
% |
Equity securities |
|
|
1,377 |
|
|
|
1,977 |
|
|
|
|
|
|
|
18 |
|
|
|
0.00 |
% |
|
|
3.61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments (3) |
|
|
4,640,055 |
|
|
|
6,220,156 |
|
|
|
36,694 |
|
|
|
74,567 |
|
|
|
3.14 |
% |
|
|
4.76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans |
|
|
3,454,820 |
|
|
|
3,602,562 |
|
|
|
51,839 |
|
|
|
53,617 |
|
|
|
5.95 |
% |
|
|
5.90 |
% |
Construction loans |
|
|
1,240,522 |
|
|
|
1,604,565 |
|
|
|
8,096 |
|
|
|
12,402 |
|
|
|
2.59 |
% |
|
|
3.07 |
% |
C&I and commercial mortgage loans |
|
|
5,968,781 |
|
|
|
6,137,781 |
|
|
|
65,852 |
|
|
|
62,379 |
|
|
|
4.38 |
% |
|
|
4.03 |
% |
Finance leases |
|
|
293,956 |
|
|
|
335,636 |
|
|
|
5,937 |
|
|
|
6,775 |
|
|
|
8.01 |
% |
|
|
8.01 |
% |
Consumer loans |
|
|
1,484,976 |
|
|
|
1,640,556 |
|
|
|
43,326 |
|
|
|
46,692 |
|
|
|
11.58 |
% |
|
|
11.29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans (4) (5) |
|
|
12,443,055 |
|
|
|
13,321,100 |
|
|
|
175,050 |
|
|
|
181,865 |
|
|
|
5.58 |
% |
|
|
5.42 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
$ |
17,083,110 |
|
|
$ |
19,541,256 |
|
|
$ |
211,744 |
|
|
$ |
256,432 |
|
|
|
4.92 |
% |
|
|
5.21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokered CDs |
|
$ |
6,929,356 |
|
|
$ |
7,292,913 |
|
|
$ |
39,086 |
|
|
$ |
51,305 |
|
|
|
2.24 |
% |
|
|
2.79 |
% |
Other interest-bearing deposits |
|
|
5,008,676 |
|
|
|
3,995,123 |
|
|
|
21,917 |
|
|
|
20,860 |
|
|
|
1.74 |
% |
|
|
2.07 |
% |
Loans payable |
|
|
|
|
|
|
652,391 |
|
|
|
|
|
|
|
463 |
|
|
|
0.00 |
% |
|
|
0.28 |
% |
Other borrowed funds |
|
|
2,214,076 |
|
|
|
4,171,348 |
|
|
|
21,618 |
|
|
|
30,545 |
|
|
|
3.87 |
% |
|
|
2.91 |
% |
FHLB advances |
|
|
850,060 |
|
|
|
1,196,657 |
|
|
|
7,179 |
|
|
|
8,127 |
|
|
|
3.35 |
% |
|
|
2.69 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities (6) |
|
$ |
15,002,168 |
|
|
$ |
17,308,432 |
|
|
$ |
89,800 |
|
|
$ |
111,300 |
|
|
|
2.37 |
% |
|
|
2.55 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
|
|
|
|
$ |
121,944 |
|
|
$ |
145,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.55 |
% |
|
|
2.66 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.83 |
% |
|
|
2.95 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Volume |
|
|
Interest income (1) / expense |
|
|
Average Rate (1) |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Nine-Month Period Ended September 30, |
|
(Dollars in thousands) |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market & other short-term investments |
|
$ |
849,183 |
|
|
$ |
126,234 |
|
|
$ |
1,571 |
|
|
$ |
393 |
|
|
|
0.25 |
% |
|
|
0.42 |
% |
Government obligations (2) |
|
|
1,356,257 |
|
|
|
1,355,492 |
|
|
|
25,000 |
|
|
|
45,214 |
|
|
|
2.46 |
% |
|
|
4.46 |
% |
Mortgage-backed securities |
|
|
2,938,302 |
|
|
|
4,392,359 |
|
|
|
103,491 |
|
|
|
187,021 |
|
|
|
4.71 |
% |
|
|
5.69 |
% |
Corporate bonds |
|
|
2,000 |
|
|
|
5,703 |
|
|
|
87 |
|
|
|
264 |
|
|
|
5.82 |
% |
|
|
6.19 |
% |
FHLB stock |
|
|
67,046 |
|
|
|
78,178 |
|
|
|
2,058 |
|
|
|
2,186 |
|
|
|
4.10 |
% |
|
|
3.74 |
% |
Equity securities |
|
|
1,516 |
|
|
|
2,103 |
|
|
|
15 |
|
|
|
54 |
|
|
|
1.32 |
% |
|
|
3.43 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments (3) |
|
|
5,214,304 |
|
|
|
5,960,069 |
|
|
|
132,222 |
|
|
|
235,132 |
|
|
|
3.39 |
% |
|
|
5.27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans |
|
|
3,518,566 |
|
|
|
3,508,471 |
|
|
|
158,244 |
|
|
|
159,383 |
|
|
|
6.01 |
% |
|
|
6.07 |
% |
Construction loans |
|
|
1,388,771 |
|
|
|
1,592,372 |
|
|
|
25,981 |
|
|
|
39,646 |
|
|
|
2.50 |
% |
|
|
3.33 |
% |
C&I and commercial mortgage loans |
|
|
6,270,952 |
|
|
|
6,223,979 |
|
|
|
198,642 |
|
|
|
193,325 |
|
|
|
4.24 |
% |
|
|
4.15 |
% |
Finance leases |
|
|
304,350 |
|
|
|
347,791 |
|
|
|
18,503 |
|
|
|
21,468 |
|
|
|
8.13 |
% |
|
|
8.25 |
% |
Consumer loans |
|
|
1,525,920 |
|
|
|
1,681,015 |
|
|
|
132,369 |
|
|
|
142,722 |
|
|
|
11.60 |
% |
|
|
11.35 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans (4) (5) |
|
|
13,008,559 |
|
|
|
13,353,628 |
|
|
|
533,739 |
|
|
|
556,544 |
|
|
|
5.49 |
% |
|
|
5.57 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
$ |
18,222,863 |
|
|
$ |
19,313,697 |
|
|
$ |
665,961 |
|
|
$ |
791,676 |
|
|
|
4.89 |
% |
|
|
5.48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokered CDs |
|
$ |
7,195,479 |
|
|
$ |
7,267,812 |
|
|
$ |
124,967 |
|
|
$ |
180,815 |
|
|
|
2.32 |
% |
|
|
3.33 |
% |
Other interest-bearing deposits |
|
|
4,854,273 |
|
|
|
4,056,396 |
|
|
|
65,767 |
|
|
|
69,495 |
|
|
|
1.81 |
% |
|
|
2.29 |
% |
Loans payable |
|
|
400,549 |
|
|
|
574,117 |
|
|
|
3,442 |
|
|
|
1,423 |
|
|
|
1.15 |
% |
|
|
0.33 |
% |
Other borrowed funds |
|
|
2,697,408 |
|
|
|
3,799,118 |
|
|
|
75,998 |
|
|
|
95,113 |
|
|
|
3.77 |
% |
|
|
3.35 |
% |
FHLB advances |
|
|
926,444 |
|
|
|
1,395,752 |
|
|
|
22,460 |
|
|
|
24,736 |
|
|
|
3.24 |
% |
|
|
2.37 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities (6) |
|
$ |
16,074,153 |
|
|
$ |
17,093,195 |
|
|
$ |
292,634 |
|
|
$ |
371,582 |
|
|
|
2.43 |
% |
|
|
2.91 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
|
|
|
|
$ |
373,327 |
|
|
$ |
420,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.46 |
% |
|
|
2.57 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.74 |
% |
|
|
2.91 |
% |
56
|
|
|
(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 changes to enacted tax rates (40.95% for the Corporations subsidiaries other
than IBEs and 35.95% for the Corporations IBEs) 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 derivatives and unrealized gains or losses on liabilities measured at fair value 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-performing loans. |
|
(5) |
|
Interest income on loans includes $2.5 million and $2.8 million for the third quarter of 2010
and 2009, respectively, and $8.1 million and $8.3 million for the nine-month period ended
September 30, 2010 and 2009, respectively, of income from prepayment penalties and late fees
related to the Corporations loan portfolio. |
|
(6) |
|
Unrealized gains and losses on liabilities measured at fair value are excluded from the
average volumes. |
Part II
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended September 30, |
|
|
Nine-month period ended September 30, |
|
|
|
2010 compared to 2009 |
|
|
2010 compared to 2009 |
|
|
|
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 |
|
$ |
558 |
|
|
$ |
(232 |
) |
|
$ |
326 |
|
|
$ |
1,809 |
|
|
$ |
(631 |
) |
|
$ |
1,178 |
|
Government obligations |
|
|
(140 |
) |
|
|
(1,546 |
) |
|
|
(1,686 |
) |
|
|
49 |
|
|
|
(20,263 |
) |
|
|
(20,214 |
) |
Mortgage-backed securities |
|
|
(26,250 |
) |
|
|
(9,847 |
) |
|
|
(36,097 |
) |
|
|
(54,927 |
) |
|
|
(28,603 |
) |
|
|
(83,530 |
) |
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(162 |
) |
|
|
(15 |
) |
|
|
(177 |
) |
FHLB stock |
|
|
(156 |
) |
|
|
(242 |
) |
|
|
(398 |
) |
|
|
(239 |
) |
|
|
111 |
|
|
|
(128 |
) |
Equity securities |
|
|
(4 |
) |
|
|
(14 |
) |
|
|
(18 |
) |
|
|
(12 |
) |
|
|
(27 |
) |
|
|
(39 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
|
(25,992 |
) |
|
|
(11,881 |
) |
|
|
(37,873 |
) |
|
|
(53,482 |
) |
|
|
(49,428 |
) |
|
|
(102,910 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage loans |
|
|
(2,217 |
) |
|
|
439 |
|
|
|
(1,778 |
) |
|
|
410 |
|
|
|
(1,549 |
) |
|
|
(1,139 |
) |
Construction loans |
|
|
(2,548 |
) |
|
|
(1,758 |
) |
|
|
(4,306 |
) |
|
|
(4,638 |
) |
|
|
(9,027 |
) |
|
|
(13,665 |
) |
C&I and commercial mortgage loans |
|
|
(1,778 |
) |
|
|
5,251 |
|
|
|
3,473 |
|
|
|
1,430 |
|
|
|
3,887 |
|
|
|
5,317 |
|
Finance leases |
|
|
(838 |
) |
|
|
|
|
|
|
(838 |
) |
|
|
(2,652 |
) |
|
|
(313 |
) |
|
|
(2,965 |
) |
Consumer loans |
|
|
(4,464 |
) |
|
|
1,098 |
|
|
|
(3,366 |
) |
|
|
(13,341 |
) |
|
|
2,988 |
|
|
|
(10,353 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
(11,845 |
) |
|
|
5,030 |
|
|
|
(6,815 |
) |
|
|
(18,791 |
) |
|
|
(4,014 |
) |
|
|
(22,805 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
(37,837 |
) |
|
|
(6,851 |
) |
|
|
(44,688 |
) |
|
|
(72,273 |
) |
|
|
(53,442 |
) |
|
|
(125,715 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokered CDs |
|
|
(2,459 |
) |
|
|
(9,760 |
) |
|
|
(12,219 |
) |
|
|
(1,778 |
) |
|
|
(54,070 |
) |
|
|
(55,848 |
) |
Other interest-bearing deposits |
|
|
4,819 |
|
|
|
(3,762 |
) |
|
|
1,057 |
|
|
|
12,268 |
|
|
|
(15,996 |
) |
|
|
(3,728 |
) |
Loan payable |
|
|
(463 |
) |
|
|
|