þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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 | ||
Santurce, Puerto Rico | 00908 | |
(Address of principal executive offices) | (Zip Code) |
PAGE | ||||||||
PART I. FINANCIAL INFORMATION |
||||||||
Item 1. Financial Statements: |
||||||||
5 | ||||||||
6 | ||||||||
7 | ||||||||
8 | ||||||||
9 | ||||||||
10 | ||||||||
37 | ||||||||
74 | ||||||||
74 | ||||||||
75 | ||||||||
75 | ||||||||
75 | ||||||||
75 | ||||||||
75 | ||||||||
75 | ||||||||
75 | ||||||||
EX-31.1 SECTION 302, CERTIFICATION OF THE CEO | ||||||||
EX-31.2 SECTION 302, CERTIFICATION OF THE CFO | ||||||||
EX-32.1 SECTION 906, CERTIFICATION OF THE CEO | ||||||||
EX-32.2 SECTION 906, CERTIFICATION OF THE CFO |
2
| risks associated with the Corporations inability to prepare and timely submit SEC and other regulatory filings; | ||
| an adverse change in the Corporations ability to attract new clients and retain existing ones; | ||
| general economic conditions, including prevailing interest rates and the performance of the financial markets, which may affect demand for the Corporations products and services and the value of the Corporations assets, including the value of the interest rate swaps that economically hedge the interest rate risk mainly relating to brokered certificates of deposit and medium-term notes; | ||
| risks arising from worsening economic conditions in Puerto Rico and in the South Florida market; | ||
| risks arising from credit and other risks of the Corporations lending and investment activities, including the condo conversion loans in its Miami Agency; | ||
| increases in the Corporations expenses associated with acquisitions and dispositions; | ||
| developments in technology; | ||
| risks associated with changes to the Corporations business strategy to no longer acquire mortgage loans in bulk; | ||
| risks associated with the failure to obtain a final order from the District Court of Puerto Rico approving the settlement of the class-action lawsuit brought against the Corporation; | ||
| the impact of Doral Financial Corporation and R&G Financial Corporations financial condition on the repayment of their outstanding secured loan to the Corporation; | ||
| risks associated with being subject to the cease and desist orders; | ||
| the Corporations ability to issue brokered certificates of deposit and the ability to fund operations; |
3
| downgrades in the credit ratings of the Corporations securities; | ||
| general competitive factors and industry consolidation; and | ||
| risks associated with regulatory and legislative changes for financial services companies in Puerto Rico, the United States, and the U.S. and British Virgin Islands. |
4
March 31, 2007 | December 31, 2006 | |||||||
Assets |
||||||||
Cash and due from banks |
$ | 132,665,435 | $ | 112,340,615 | ||||
Money market instruments |
397,720,352 | 377,296,017 | ||||||
Federal funds sold and securities purchased
under agreements to resell |
38,432,597 | 42,051,281 | ||||||
Time deposits with other financial institutions |
40,660,728 | 37,123,111 | ||||||
Total money market investments |
476,813,677 | 456,470,409 | ||||||
Investment securities available for sale, at fair value: |
||||||||
Securities pledged that can be repledged |
1,212,754,083 | 1,373,466,630 | ||||||
Other investment securities |
615,737,650 | 326,956,340 | ||||||
Total investment securities available for sale |
1,828,491,733 | 1,700,422,970 | ||||||
Investment securities held to maturity, at amortized cost: |
||||||||
Securities pledged that can be repledged |
2,243,140,343 | 2,661,088,022 | ||||||
Other investment securities |
942,869,427 | 686,042,717 | ||||||
Total investment securities held to maturity, fair value of $3,115,162,000
(2006 - $3,256,965,610) |
3,186,009,770 | 3,347,130,739 | ||||||
Other equity securities |
41,592,385 | 40,159,185 | ||||||
Loans, net of allowance for loan and lease losses of $161,418,789
(December 31, 2006 - $158,295,662) |
10,936,420,088 | 11,070,446,401 | ||||||
Loans held for sale, at lower of cost or market |
26,587,074 | 35,238,127 | ||||||
Total loans, net |
10,963,007,162 | 11,105,684,528 | ||||||
Premises and equipment, net |
156,750,970 | 155,661,727 | ||||||
Other real estate owned |
3,109,631 | 2,869,713 | ||||||
Accrued interest receivable on loans and investments |
103,064,633 | 112,505,003 | ||||||
Due from customers on acceptances |
948,651 | 149,716 | ||||||
Other assets |
302,490,577 | 356,861,273 | ||||||
Total assets |
$ | 17,194,944,624 | $ | 17,390,255,878 | ||||
Liabilities & Stockholders Equity |
||||||||
Liabilities: |
||||||||
Non-interest-bearing deposits |
$ | 711,202,952 | $ | 790,985,153 | ||||
Interest-bearing deposits (includes $4,334,033,255 measured at fair value
as of March 31, 2007) |
10,567,541,939 | 10,213,302,047 | ||||||
Federal funds purchased and securities sold
under agreements to repurchase |
3,163,303,500 | 3,687,724,000 | ||||||
Advances from the Federal Home Loan Bank (FHLB) |
590,000,000 | 560,000,000 | ||||||
Notes payable (includes $14,918,185 measured at fair value as of March
31, 2007) |
182,635,713 | 182,827,572 | ||||||
Other borrowings |
231,743,418 | 231,719,406 | ||||||
Bank acceptances outstanding |
948,651 | 149,716 | ||||||
Accounts payable and other liabilities |
418,802,829 | 493,994,798 | ||||||
Total liabilities |
15,866,179,002 | 16,160,702,692 | ||||||
Commitments and contingencies (Note 16) |
||||||||
Stockholders equity: |
||||||||
Preferred stock, authorized 50,000,000 shares: issued and
outstanding 22,004,000 shares at $25 liquidation value per share |
550,100,000 | 550,100,000 | ||||||
Common stock, $1 par value, authorized
250,000,000 shares; issued 93,151,856 shares |
93,151,856 | 93,151,856 | ||||||
Less: Treasury stock (at par value) |
(9,897,800 | ) | (9,897,800 | ) | ||||
Common stock outstanding |
83,254,056 | 83,254,056 | ||||||
Additional paid-in capital |
25,604,944 | 22,756,994 | ||||||
Legal surplus |
276,847,825 | 276,847,825 | ||||||
Retained earnings |
422,860,042 | 326,761,462 | ||||||
Accumulated other comprehensive loss, net of tax
benefit of $196,577 (December 31, 2006 - $221,389) |
(29,901,245 | ) | (30,167,151 | ) | ||||
Total stockholders equity |
1,328,765,622 | 1,229,553,186 | ||||||
Total liabilities and stockholders equity |
$ | 17,194,944,624 | $ | 17,390,255,878 | ||||
5
Quarter Ended | ||||||||
March 31, | March 31, | |||||||
2007 | 2006 | |||||||
Interest income: |
||||||||
Loans |
$ | 225,638,691 | $ | 246,089,307 | ||||
Investment securities |
67,671,721 | 71,640,717 | ||||||
Money market investments |
5,274,070 | 9,974,864 | ||||||
Total interest income |
298,584,482 | 327,704,888 | ||||||
Interest expense: |
||||||||
Deposits (Note 10) |
124,089,525 | 186,838,073 | ||||||
Federal funds purchased and repurchase agreements |
41,770,029 | 53,565,529 | ||||||
Advances from FHLB |
8,197,241 | 4,177,732 | ||||||
Notes payable and other borrowings |
7,092,915 | 10,304,945 | ||||||
Total interest expense |
181,149,710 | 254,886,279 | ||||||
Net interest income |
117,434,772 | 72,818,609 | ||||||
Provision for loan and lease losses |
24,914,468 | 19,375,887 | ||||||
Net interest income after provision
for loan and lease losses |
92,520,304 | 53,442,722 | ||||||
Non-interest income: |
||||||||
Other service charges on loans |
1,791,092 | 1,486,270 | ||||||
Service charges on deposit accounts |
3,191,092 | 3,277,029 | ||||||
Mortgage banking activities gain (loss) |
762,071 | (574,847 | ) | |||||
Net loss on investments and impairments |
(2,158,691 | ) | (708,768 | ) | ||||
Net gain on partial extinguishment and recharacterization
of secured commercial loans to a local financial
institution |
2,497,166 | | ||||||
Rental income |
663,496 | 773,290 | ||||||
Gain on sale of credit card portfolio |
2,818,972 | | ||||||
Other operating income |
6,257,122 | 6,335,216 | ||||||
Total non-interest income |
15,822,320 | 10,588,190 | ||||||
Non-interest expenses: |
||||||||
Employees compensation and benefits |
36,372,390 | 34,124,921 | ||||||
Occupancy and equipment |
14,382,408 | 12,706,090 | ||||||
Business promotion |
4,930,468 | 3,774,060 | ||||||
Professional fees |
6,396,518 | 7,392,966 | ||||||
Taxes, other than income taxes |
3,581,335 | 2,555,269 | ||||||
Insurance and supervisory fees |
1,691,740 | 1,701,012 | ||||||
Other operating expenses |
12,008,867 | 9,483,337 | ||||||
Total non-interest expenses |
79,363,726 | 71,737,655 | ||||||
Income (loss) before income tax |
28,978,898 | (7,706,743 | ) | |||||
Income tax (provision) benefit |
(6,146,913 | ) | 11,569,985 | |||||
Net income |
$ | 22,831,985 | $ | 3,863,242 | ||||
Net income (loss) attributable to common stockholders |
$ | 12,762,986 | $ | (6,205,757 | ) | |||
Net income (loss) per common share: |
||||||||
Basic |
$ | 0.15 | $ | (0.08 | ) | |||
Diluted |
$ | 0.15 | $ | (0.08 | ) | |||
Dividends declared per common share |
$ | 0.07 | $ | 0.07 | ||||
6
Quarter Ended | ||||||||
March 31, | March 31, | |||||||
2007 | 2006 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 22,831,985 | $ | 3,863,242 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation |
4,361,547 | 4,112,001 | ||||||
Amortization of core deposit intangible |
842,695 | 932,041 | ||||||
Provision for loan and lease losses |
24,914,468 | 19,375,887 | ||||||
Deferred income tax benefit |
(2,314,827 | ) | (28,644,913 | ) | ||||
Stock-based compensation recognized |
2,847,950 | 4,892,360 | ||||||
Loss (gain) on sale of investments, net |
732,301 | (1,424,484 | ) | |||||
Other-than-temporary impairments on available-for-sale securities |
1,426,390 | 2,133,252 | ||||||
Derivative instruments and hedging
activities gain (loss) |
(3,230,098 | ) | 64,737,546 | |||||
Net (gain) loss on sale of loans and impairments |
(599,730 | ) | 677,005 | |||||
Net gain on partial extinguishment and recharacterization of secured commercial loans
to a local financial institution |
(2,497,166 | ) | | |||||
Net amortization of premiums and discounts and deferred net loan fees and costs |
(240,025 | ) | (1,014,516 | ) | ||||
Amortization of broker placement fees |
2,165,180 | 3,956,091 | ||||||
Accretion of basis adjustments on fair value hedges |
(115,035 | ) | | |||||
Net accretion of discounts and premiums on investment securities |
(9,662,676 | ) | (9,528,614 | ) | ||||
Gain on sale of credit card portfolio |
(2,818,972 | ) | | |||||
Increase in accrued income tax payable |
7,725,088 | 14,299,995 | ||||||
Decrease (increase) in accrued interest receivable |
9,310,770 | (46,239 | ) | |||||
(Decrease) increase in accrued interest payable |
(30,684,527 | ) | 4,500,098 | |||||
Decrease (increase) in other assets |
4,066,456 | (5,088,301 | ) | |||||
Decrease in other liabilities |
(3,370,913 | ) | (3,331,116 | ) | ||||
Total adjustments |
2,858,876 | 70,538,093 | ||||||
Net cash provided by operating activities |
25,690,861 | 74,401,335 | ||||||
Cash flows from investing activities: |
||||||||
Principal collected on loans |
857,281,296 | 892,646,456 | ||||||
Loans originated |
(924,916,547 | ) | (1,336,279,411 | ) | ||||
Purchase of loans |
(49,835,659 | ) | (58,803,859 | ) | ||||
Proceeds from sale of loans |
46,301,386 | 17,502,647 | ||||||
Proceeds from sale of repossessed assets |
13,872,963 | 10,136,316 | ||||||
Purchase of servicing assets |
(377,974 | ) | (147,754 | ) | ||||
Proceeds from sale of available for sale securities |
3,125,310 | 12,670,690 | ||||||
Purchase of securities held to maturity |
(39,387,733 | ) | (144,226,030 | ) | ||||
Purchase of securities available for sale |
| (11,975,700 | ) | |||||
Principal repayments and maturities of securities held to maturity |
210,072,213 | 203,391,488 | ||||||
Principal repayments of securities available for sale |
49,412,753 | 55,367,989 | ||||||
Additions to premises and equipment |
(5,450,790 | ) | (6,947,568 | ) | ||||
(Increase) decrease in other equity securities |
(1,433,200 | ) | 12,096,100 | |||||
Net cash provided by (used in) investing activities |
158,664,018 | (354,568,636 | ) | |||||
Cash flows from financing activities: |
||||||||
Net increase in deposits |
366,630,490 | 885,705,546 | ||||||
Net decrease in federal funds purchased and securities sold under repurchase agreements |
(524,420,500 | ) | (32,216,500 | ) | ||||
Net FHLB advances taken (paid) |
30,000,000 | (278,000,000 | ) | |||||
Dividends paid |
(15,896,781 | ) | (15,875,780 | ) | ||||
Exercise of stock options |
| 19,756,484 | ||||||
Net cash (used in) provided by financing activities |
(143,686,791 | ) | 579,369,750 | |||||
Net increase in cash and cash equivalents |
40,668,088 | 299,202,449 | ||||||
Cash and cash equivalents at beginning of period |
568,811,024 | 1,380,640,086 | ||||||
Cash and cash equivalents at end of period |
$ | 609,479,112 | $ | 1,679,842,535 | ||||
Cash and cash equivalents include: |
||||||||
Cash and due from banks |
$ | 132,665,435 | $ | 134,396,167 | ||||
Money market instruments |
476,813,677 | 1,545,446,368 | ||||||
$ | 609,479,112 | $ | 1,679,842,535 | |||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid during the period for: |
||||||||
Interest on borrowings |
$ | 210,318,801 | $ | 181,142,699 | ||||
Income taxes |
479,616 | 5,624,000 | ||||||
Non-cash investing and financing activities: |
||||||||
Additions to other real estate owned |
$ | 995,508 | $ | 1,107,755 | ||||
Additions to auto repossessions |
29,811,648 | 24,954,864 | ||||||
Capitalization of servicing assets |
301,850 | 36,491 | ||||||
Recharacterization of secured commercial loans as securities collateralized by loans |
183,829,925 | |
7
Quarter Ended | ||||||||
March 31, 2007 | March 31, 2006 | |||||||
Preferred Stock |
$ | 550,100,000 | $ | 550,100,000 | ||||
Common Stock Outstanding: |
||||||||
Balance at beginning of period |
83,254,056 | 80,875,056 | ||||||
Common stock issued under stock option plan |
| 2,379,000 | ||||||
Balance at end of period |
83,254,056 | 83,254,056 | ||||||
Additional Paid-In-Capital: |
||||||||
Balance at beginning of period |
22,756,994 | | ||||||
Shares issued under stock option plan |
| 17,377,484 | ||||||
Stock-based compensation recognized |
2,847,950 | 4,892,360 | ||||||
Balance at end of period |
25,604,944 | 22,269,844 | ||||||
Legal Surplus |
276,847,825 | 265,844,192 | ||||||
Retained Earnings: |
||||||||
Balance at beginning of period |
326,761,462 | 316,696,971 | ||||||
Net income |
22,831,985 | 3,863,242 | ||||||
Cash dividends declared on common stock |
(5,827,782 | ) | (5,806,781 | ) | ||||
Cash dividends declared on preferred stock |
(10,068,999 | ) | (10,068,999 | ) | ||||
Cumulative adjustment for accounting change (adoption of FIN 48) |
(2,614,795 | ) | | |||||
Cumulative adjustment for accounting change (adoption of SFAS No. 159) |
91,778,171 | | ||||||
Balance at end of period |
422,860,042 | 304,684,433 | ||||||
Accumulated Other Comprehensive Loss, net of tax |
||||||||
Balance at beginning of period |
(30,167,151 | ) | (15,675,284 | ) | ||||
Other comprehensive income (loss), net of tax |
265,906 | (30,816,013 | ) | |||||
Balance at end of period |
(29,901,245 | ) | (46,491,297 | ) | ||||
Total stockholders equity |
$ | 1,328,765,622 | $ | 1,179,661,228 | ||||
8
Quarter Ended | ||||||||
March 31, | March 31, | |||||||
2007 | 2006 | |||||||
Net income |
$ | 22,831,985 | $ | 3,863,242 | ||||
Other comprehensive income (loss): |
||||||||
Unrealized
gain (loss) on securities: |
||||||||
Unrealized holding loss arising during the period
|
(1,867,973 | ) | (31,795,285 | ) | ||||
Less: Reclassification adjustments for net loss
and other than temporary impairments included
in net income |
2,158,691 | 708,768 | ||||||
Income tax (expense) benefit related to items of
other comprehensive income |
(24,812 | ) | 270,504 | |||||
Other comprehensive income (loss) for the period, net of tax |
265,906 | (30,816,013 | ) | |||||
Total comprehensive income (loss) |
$ | 23,097,891 | $ | (26,952,771 | ) | |||
9
10
11
Quarter Ended | ||||||||
March 31, | ||||||||
2007 | 2006 | |||||||
(In thousands, except per share data) | ||||||||
Net Income: |
||||||||
Net income |
$ | 22,832 | $ | 3,863 | ||||
Less: Preferred stock dividend |
(10,069 | ) | (10,069 | ) | ||||
Net income (loss) available to common stockholders |
$ | 12,763 | $ | (6,206 | ) | |||
Weighted-Average Shares: |
||||||||
Basic weighted-average common shares outstanding |
83,254 | 81,556 | ||||||
Average potential common shares |
385 | | ||||||
Diluted weighted-average number of common shares outstanding |
83,639 | 81,556 | ||||||
Earnings (Loss) per common share: |
||||||||
Basic |
$ | 0.15 | $ | (0.08 | ) | |||
Diluted |
$ | 0.15 | $ | (0.08 | ) | |||
12
Quarter Ended | ||||||||||||||||
March 31, 2007 | ||||||||||||||||
Weighted-Average | Aggregate | |||||||||||||||
Number of | Weighted-Average | Remaining Contractual | Intrinsic Value | |||||||||||||
options | Exercise Price | Term (Years) | (In thousands) | |||||||||||||
Beginning of period |
3,024,410 | $ | 13.95 | |||||||||||||
Options granted |
1,170,000 | 9.20 | ||||||||||||||
End of period outstanding and exercisable |
4,194,410 | $ | 12.63 | 7.6 | $ | 9,967 | ||||||||||
2007 | 2006 | |||||||
Weighted-average stock price at grant date and exercise price |
$ | 9.20 | $ | 12.68 | ||||
Stock option estimated fair value |
$ | 2.40-$2.45 | $ | 4.56-$4.60 | ||||
Weighted-average estimated fair value |
$ | 2.43 | $ | 4.57 | ||||
Expected stock option term (years) |
4.31-4.59 | 4.22-4.31 | ||||||
Expected volatility |
32 | % | 46 | % | ||||
Expected dividend yield |
3.0 | % | 2.2 | % | ||||
Risk-free interest rate |
5.1 | % | 4.7% - 5.0 | % |
13
March 31, 2007 | December 31, 2006 | |||||||||||||||||||||||||||||||||||||||
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) | ||||||||||||||||||||||||||||||||||||||||
Obligations of U.S.
Government sponsored
agencies: |
||||||||||||||||||||||||||||||||||||||||
After 5 to 10 years |
$ | 401,706 | $ | 11 | $ | 9,602 | $ | 392,115 | 4.30 | $ | 402,542 | $ | 6 | $ | 11,820 | $ | 390,728 | 4.31 | ||||||||||||||||||||||
After 10 years |
12,984 | | 68 | 12,916 | 6.16 | 12,984 | | 120 | 12,864 | 6.16 | ||||||||||||||||||||||||||||||
Puerto Rico Government
obligations: |
||||||||||||||||||||||||||||||||||||||||
After 1 to 5 years |
5,190 | 147 | | 5,337 | 6.23 | 4,635 | 126 | | 4,761 | 6.18 | ||||||||||||||||||||||||||||||
After 5 to 10 years |
15,513 | 211 | 467 | 15,257 | 4.85 | 15,534 | 219 | 508 | 15,245 | 4.86 | ||||||||||||||||||||||||||||||
After 10 years |
4,938 | 72 | 177 | 4,833 | 5.86 | 5,376 | 98 | 178 | 5,296 | 5.88 | ||||||||||||||||||||||||||||||
United States and
Puerto Rico Government
obligations |
440,331 | 441 | 10,314 | 430,458 | 4.42 | 441,071 | 449 | 12,626 | 428,894 | 4.43 | ||||||||||||||||||||||||||||||
Mortgage-backed securities: |
||||||||||||||||||||||||||||||||||||||||
FHLMC certificates: |
||||||||||||||||||||||||||||||||||||||||
Within 1 year |
60 | | | 60 | 5.81 | 82 | | | 82 | 5.99 | ||||||||||||||||||||||||||||||
After 1 to 5 years |
1,348 | 30 | | 1,378 | 6.89 | 1,666 | 36 | | 1,702 | 6.98 | ||||||||||||||||||||||||||||||
After 10 years |
5,688 | 59 | 116 | 5,631 | 5.62 | 5,846 | 55 | 110 | 5,791 | 5.61 | ||||||||||||||||||||||||||||||
7,096 | 89 | 116 | 7,069 | 5.86 | 7,594 | 91 | 110 | 7,575 | 5.92 | |||||||||||||||||||||||||||||||
GNMA certificates: |
||||||||||||||||||||||||||||||||||||||||
After 1 to 5 years |
774 | 9 | | 783 | 6.46 | 866 | 10 | | 876 | 6.44 | ||||||||||||||||||||||||||||||
After 5 to 10 years |
781 | 4 | 1 | 784 | 5.50 | 795 | 3 | 3 | 795 | 5.53 | ||||||||||||||||||||||||||||||
After 10 years |
367,610 | 481 | 6,524 | 361,567 | 5.23 | 379,363 | 470 | 7,136 | 372,697 | 5.26 | ||||||||||||||||||||||||||||||
369,165 | 494 | 6,525 | 363,134 | 5.23 | 381,024 | 483 | 7,139 | 374,368 | 5.26 | |||||||||||||||||||||||||||||||
FNMA certificates: |
||||||||||||||||||||||||||||||||||||||||
After 1 to 5 years |
71 | | | 71 | 7.24 | 90 | | | 90 | 7.34 | ||||||||||||||||||||||||||||||
After 5 to 10 years |
33,088 | 12 | 464 | 32,636 | 4.81 | 18,040 | 10 | 305 | 17,745 | 4.87 | ||||||||||||||||||||||||||||||
After 10 years |
815,732 | 807 | 9,061 | 807,478 | 5.19 | 864,508 | 673 | 11,476 | 853,705 | 5.18 | ||||||||||||||||||||||||||||||
848,891 | 819 | 9,525 | 840,185 | 5.18 | 882,638 | 683 | 11,781 | 871,540 | 5.17 | |||||||||||||||||||||||||||||||
Mortgage pass-through
certificates: |
||||||||||||||||||||||||||||||||||||||||
After 10 years |
180,274 | 3 | 3,491 | 176,786 | 5.93 | 367 | 3 | | 370 | 7.28 | ||||||||||||||||||||||||||||||
Mortgage-backed
securities |
1,405,426 | 1,405 | 19,657 | 1,387,174 | 5.29 | 1,271,623 | 1,260 | 19,030 | 1,253,853 | 5.21 | ||||||||||||||||||||||||||||||
Corporate bonds: |
||||||||||||||||||||||||||||||||||||||||
After 5 to 10 years |
1,300 | | 91 | 1,209 | 7.70 | 1,300 | | 83 | 1,217 | 7.70 | ||||||||||||||||||||||||||||||
After 10 years |
4,411 | | 725 | 3,686 | 7.97 | 4,412 | | 668 | 3,744 | 7.97 | ||||||||||||||||||||||||||||||
Corporate bonds |
5,711 | | 816 | 4,895 | 7.91 | 5,712 | | 751 | 4,961 | 7.91 | ||||||||||||||||||||||||||||||
Equity securities (without
contractual maturity) |
7,122 | | 1,157 | 5,965 | 0.03 | 12,406 | 452 | 143 | 12,715 | 3.70 | ||||||||||||||||||||||||||||||
Total investment securities
available for sale |
$ | 1,858,590 | $ | 1,846 | $ | 31,944 | $ | 1,828,492 | 5.07 | $ | 1,730,812 | $ | 2,161 | $ | 32,550 | $ | 1,700,423 | 5.01 | ||||||||||||||||||||||
14
As of March 31, 2007 | ||||||||||||||||||||||||
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 |
||||||||||||||||||||||||
Obligations of U.S. Government
sponsored agencies |
$ | | $ | | $ | 399,058 | $ | 9,670 | $ | 399,058 | $ | 9,670 | ||||||||||||
Puerto Rico Government
obligations |
75 | | 13,516 | 644 | 13,591 | 644 | ||||||||||||||||||
Mortgage-backed securities |
||||||||||||||||||||||||
FHLMC |
105 | | 3,771 | 116 | 3,876 | 116 | ||||||||||||||||||
GNMA |
| | 343,245 | 6,525 | 343,245 | 6,525 | ||||||||||||||||||
FNMA |
92,645 | 503 | 719,351 | 9,022 | 811,996 | 9,525 | ||||||||||||||||||
Mortgage pass-through certificates |
176,424 | 3,491 | | | 176,424 | 3,491 | ||||||||||||||||||
Corporate bonds |
| | 4,895 | 816 | 4,895 | 816 | ||||||||||||||||||
Equity securities |
1,660 | 112 | 1,394 | 1,045 | 3,054 | 1,157 | ||||||||||||||||||
$ | 270,909 | $ | 4,106 | $ | 1,485,230 | $ | 27,838 | $ | 1,756,139 | $ | 31,944 | |||||||||||||
As of December 31, 2006 | ||||||||||||||||||||||||
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 |
||||||||||||||||||||||||
Obligations of U.S. Government
sponsored agencies |
$ | 21,802 | $ | 146 | $ | 381,790 | $ | 11,794 | $ | 403,592 | $ | 11,940 | ||||||||||||
Puerto Rico Government
obligations |
| | 13,474 | 686 | 13,474 | 686 | ||||||||||||||||||
Mortgage-backed securities |
||||||||||||||||||||||||
FHLMC |
30 | | 3,903 | 110 | 3,933 | 110 | ||||||||||||||||||
GNMA |
354,073 | 7,139 | | | 354,073 | 7,139 | ||||||||||||||||||
FNMA |
376,813 | 4,719 | 465,606 | 7,062 | 842,419 | 11,781 | ||||||||||||||||||
Corporate bonds |
| | 4,961 | 751 | 4,961 | 751 | ||||||||||||||||||
Equity securities |
1,629 | 143 | | | 1,629 | 143 | ||||||||||||||||||
$ | 754,347 | $ | 12,147 | $ | 869,734 | $ | 20,403 | $ | 1,624,081 | $ | 32,550 | |||||||||||||
15
March 31, 2007 | December 31, 2006 | |||||||||||||||||||||||||||||||||||||||
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 |
$ | 59,697 | $ | 9 | $ | | $ | 59,706 | 5.07 | $ | 158,402 | $ | 44 | $ | | $ | 158,446 | 4.97 | ||||||||||||||||||||||
Obligations
of other U.S. Government sponsored agencies: |
||||||||||||||||||||||||||||||||||||||||
Due within 1 year |
| | | | | 24,695 | 5 | | 24,700 | 5.25 | ||||||||||||||||||||||||||||||
After 10 years |
2,083,587 | | 39,700 | 2,043,887 | 5.83 | 2,074,943 | | 53,668 | 2,021,275 | 5.83 | ||||||||||||||||||||||||||||||
Puerto Rico Government
obligations: |
||||||||||||||||||||||||||||||||||||||||
After 5 to 10 years |
16,859 | 552 | 113 | 17,298 | 5.84 | 16,716 | 553 | 115 | 17,154 | 5.84 | ||||||||||||||||||||||||||||||
After 10 years |
15,000 | 58 | | 15,058 | 5.50 | 15,000 | 53 | | 15,053 | 5.50 | ||||||||||||||||||||||||||||||
United States and Puerto
Rico Government obligations |
2,175,143 | 619 | 39,813 | 2,135,949 | 5.81 | 2,289,756 | 655 | 53,783 | 2,236,628 | 5.76 | ||||||||||||||||||||||||||||||
Mortgage-backed securities: |
||||||||||||||||||||||||||||||||||||||||
FHLMC certificates: |
||||||||||||||||||||||||||||||||||||||||
After 5 to 10 years |
13,934 | | 437 | 13,497 | 3.44 | 15,438 | | 577 | 14,861 | 3.61 | ||||||||||||||||||||||||||||||
FNMA certificates: |
||||||||||||||||||||||||||||||||||||||||
After 5 to 10 years |
13,301 | | 392 | 12,909 | 3.80 | 14,234 | | 484 | 13,750 | 3.80 | ||||||||||||||||||||||||||||||
After 10 years |
981,632 | 18 | 30,840 | 950,810 | 4.40 | 1,025,703 | 48 | 36,064 | 989,687 | 4.40 | ||||||||||||||||||||||||||||||
Mortgage-backed securities |
1,008,867 | 18 | 31,669 | 977,216 | 4.38 | 1,055,375 | 48 | 37,125 | 1,018,298 | 4.38 | ||||||||||||||||||||||||||||||
Corporate bonds: |
||||||||||||||||||||||||||||||||||||||||
After 10 years |
2,000 | | 3 | 1,997 | 5.80 | 2,000 | 40 | | 2,040 | 5.80 | ||||||||||||||||||||||||||||||
Total investment securities
held to maturity |
$ | 3,186,010 | $ | 637 | $ | 71,485 | $ | 3,115,162 | 5.35 | $ | 3,347,131 | $ | 743 | $ | 90,908 | $ | 3,256,966 | 5.33 | ||||||||||||||||||||||
16
As of March 31, 2007 | ||||||||||||||||||||||||
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 |
||||||||||||||||||||||||
Other U.S. Government sponsored
agencies |
$ | | $ | | $ | 2,043,887 | $ | 39,700 | $ | 2,043,887 | $ | 39,700 | ||||||||||||
Puerto Rico Government obligations |
4,032 | 113 | | | 4,032 | 113 | ||||||||||||||||||
Mortgage-backed securities |
||||||||||||||||||||||||
FHLMC |
| | 13,497 | 437 | 13,497 | 437 | ||||||||||||||||||
FNMA |
24,463 | 960 | 935,958 | 30,272 | 960,421 | 31,232 | ||||||||||||||||||
Other investments |
1,997 | 3 | | | 1,997 | 3 | ||||||||||||||||||
$ | 30,492 | $ | 1,076 | $ | 2,993,342 | $ | 70,409 | $ | 3,023,834 | $ | 71,485 | |||||||||||||
As of December 31, 2006 | ||||||||||||||||||||||||
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 |
||||||||||||||||||||||||
Other U.S. Government sponsored
agencies |
$ | | $ | | $ | 2,021,275 | $ | 53,668 | $ | 2,021,275 | $ | 53,668 | ||||||||||||
Puerto Rico Government obligations |
| | 3,978 | 115 | 3,978 | 115 | ||||||||||||||||||
Mortgage-backed securities |
||||||||||||||||||||||||
FHLMC |
| | 14,861 | 577 | 14,861 | 577 | ||||||||||||||||||
FNMA |
24,589 | 1,020 | 975,510 | 35,528 | 1,000,099 | 36,548 | ||||||||||||||||||
$ | 24,589 | $ | 1,020 | $ | 3,015,624 | $ | 89,888 | $ | 3,040,213 | $ | 90,908 | |||||||||||||
17
March 31, | December 31, | |||||||
2007 | 2006 | |||||||
(In thousands) | ||||||||
Residential real estate loans, mainly
secured by first mortgages |
$ | 2,826,626 | $ | 2,737,392 | ||||
Commercial loans: |
||||||||
Construction loans |
1,454,715 | 1,511,608 | ||||||
Commercial mortgage loans |
1,286,425 | 1,215,040 | ||||||
Commercial loans |
2,730,122 | 2,698,141 | ||||||
Loans to local financial institutions collateralized by
real estate mortgages and pass-through trust certificates |
679,720 | 932,013 | ||||||
Commercial loans |
6,150,982 | 6,356,802 | ||||||
Finance leases |
377,900 | 361,631 | ||||||
Consumer loans |
1,742,331 | 1,772,917 | ||||||
Loans receivable |
11,097,839 | 11,228,742 | ||||||
Allowance for loan and lease losses |
(161,419 | ) | (158,296 | ) | ||||
Loans receivable, net |
10,936,420 | 11,070,446 | ||||||
Loans held for sale |
26,587 | 35,238 | ||||||
Total loans |
$ | 10,963,007 | $ | 11,105,684 | ||||
18
Quarter Ended | ||||||||
March 31, | ||||||||
2007 | 2006 | |||||||
(In thousands) | ||||||||
Balance at beginning of period |
$ | 158,296 | $ | 147,999 | ||||
Provision for loan and lease losses |
24,914 | 19,376 | ||||||
Charge-offs |
(23,177 | ) | (16,449 | ) | ||||
Recoveries |
1,386 | 1,670 | ||||||
Balance at end of period |
$ | 161,419 | $ | 152,596 | ||||
As of | As of | |||||||
March 31, | December 31, | |||||||
2007 | 2006 | |||||||
(In thousands) | ||||||||
Impaired loans |
$ | 62,281 | $ | 63,022 | ||||
Allowance for impaired loans |
8,615 | 9,989 |
19
Notional amounts | ||||||||
As of | As of | |||||||
March 31, | December 31, | |||||||
2007 | 2006 | |||||||
(In thousands) | ||||||||
Interest rate swap agreements: |
||||||||
Pay fixed versus receive floating |
$ | 80,676 | $ | 80,720 | ||||
Receive fixed versus pay floating |
4,777,161 | 4,802,370 | ||||||
Embedded written options |
13,515 | 13,515 | ||||||
Purchased options |
13,515 | 13,515 | ||||||
Written interest rate cap agreements |
128,090 | 125,200 | ||||||
Purchased interest rate cap agreements |
315,817 | 330,607 | ||||||
$ | 5,328,774 | $ | 5,365,927 | |||||
20
Notional amounts | ||||||||
As of | As of | |||||||
March 31, | December 31, | |||||||
2007 | 2006 | |||||||
(In thousands) | ||||||||
Economic undesignated hedges: |
||||||||
Interest rate swaps used to hedge
fixed rate certificates of deposit, notes payable and loans |
$ | 4,857,837 | $ | 336,473 | ||||
Embedded options on stock index deposits |
13,515 | 13,515 | ||||||
Purchased options used to manage exposure to
the stock market on embedded stock index options |
13,515 | 13,515 | ||||||
Written interest rate cap agreements |
128,090 | 125,200 | ||||||
Purchased interest rate cap agreements |
315,817 | 330,607 | ||||||
Total derivatives not designated as hedges |
$ | 5,328,774 | $ | 819,310 | ||||
Designated hedges: |
||||||||
Fair value hedges: |
||||||||
Interest rate swaps used to hedge
fixed-rate certificates of deposit |
$ | | $ | 4,381,175 | ||||
Interest rate swaps used to hedge
fixed- and step-rate notes payable |
| 165,442 | ||||||
Total fair value hedges |
$ | | $ | 4,546,617 | ||||
Total |
$ | 5,328,774 | $ | 5,365,927 | ||||
21
As of | As of | |||||||
March 31, | December 31, | |||||||
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Pay fixed/receive floating (generally used to
economically hedge variable rate loans): |
||||||||
Notional amount |
$ | 80,676 | $ | 80,720 | ||||
Weighted average receive rate at period end |
7.25 | % | 7.38 | % | ||||
Weighted average pay rate at period end |
6.75 | % | 6.37 | % | ||||
Floating rates range from 167 to 252 basis
points over 3-month LIBOR |
||||||||
Receive fixed/pay floating (generally used to
economically hedge fixed-rate brokered CDs and notes payable): |
||||||||
Notional amount |
$ | 4,777,161 | $ | 4,802,370 | ||||
Weighted average receive rate at period end |
5.18 | % | 5.16 | % | ||||
Weighted average pay rate at period end |
5.40 | % | 5.42 | % | ||||
Floating rates range from 5 basis points under to 20
basis points over 3-month LIBOR |
22
As of | As of | |||||||
March 31, | December 31, | |||||||
2007 | 2006 | |||||||
(In thousands) | ||||||||
Non-interest bearing checking account deposits |
$ | 711,203 | $ | 790,985 | ||||
Saving accounts |
978,036 | 984,332 | ||||||
Interest-bearing checking accounts |
439,897 | 433,278 | ||||||
Certificates of deposit |
1,599,381 | 1,696,213 | ||||||
Brokered
certificates of deposit (includes $4,334,033 measured at fair value as of March 31, 2007) |
7,550,228 | 7,099,479 | ||||||
$ | 11,278,745 | $ | 11,004,287 | |||||
23
Quarter ended March 31, | ||||||||
2007 | 2006 | |||||||
(In thousands) | ||||||||
Interest expense on deposits |
$ | 122,364 | $ | 117,252 | ||||
Amortization of broker placement fees (1) |
2,144 | 3,949 | ||||||
Interest expense on deposits excluding net unrealized (gain) loss on
derivatives (undesignated hedges) and SFAS 159 brokered CDs |
124,508 | 121,201 | ||||||
Net unrealized (gain) loss on derivatives (undesignated hedges) and
SFAS 159 brokered CDs |
(418 | ) | 65,637 | |||||
Total interest expense on deposits |
$ | 124,090 | $ | 186,838 | ||||
(1) | For 2007 the amortization of broker placement fees is related to brokered CDs not elected for the fair value option under SFAS 159. |
March 31, | December 31, | |||||||
2007 | 2006 | |||||||
(In thousands) | ||||||||
Callable fixed-rate notes, bearing interest at 6.00%,
maturing on October 1, 2024 |
$ | 151,460 | $ | 151,554 | ||||
Callable step-rate notes, bearing step increasing interest
from 5.00% to 7.00% maturing on October 18, 2019,
measured at fair value under SFAS 159 as of March 31, 2007 |
14,918 | 15,616 | ||||||
Dow Jones Industrial Average (DJIA) linked principal
protected notes: |
||||||||
Series A maturing on February 28, 2012 |
7,840 | 7,525 | ||||||
Series B maturing on May 27, 2011 |
8,418 | 8,133 | ||||||
$ | 182,636 | $ | 182,828 | |||||
24
March 31, | December 31, | |||||||
2007 | 2006 | |||||||
(In thousands) | ||||||||
Junior subordinated floating rate debentures due in 2034,
interest-bearing at a floating-rate of 2.75% over 3-month LIBOR
(8.10% at March 31, 2007 and 8.11% at December 31, 2006) |
$ | 102,877 | $ | 102,853 | ||||
Junior subordinated floating rate debentures due in 2034,
interest-bearing at a floating-rate of 2.50% over 3-month LIBOR
(7.85% at March 31, 2007 and 7.87% at December 31, 2006) |
128,866 | 128,866 | ||||||
$ | 231,743 | $ | 231,719 | |||||
25
26
Transition Impact | ||||||||||||
Ending Statement of | Net | Opening Statement of | ||||||||||
Financial Condition | Increase | Financial Condition | ||||||||||
as of December 31, 2006 | in Retained Earnings | as of January 1, 2007 | ||||||||||
(In thousands) | (Prior to Adoption) (1) | upon Adoption | (After Adoption of Fair Value Option) | |||||||||
Callable brokered CDs |
$ | (4,513,020 | ) | $ | 149,621 | $ | (4,363,399 | ) | ||||
Medium-term notes |
(15,637 | ) | 840 | (14,797 | ) | |||||||
Cumulative-effect adjustment (pre-tax) |
150,461 | |||||||||||
Tax impact |
(58,683 | ) | ||||||||||
Cumulative-effect adjustment (net of tax), increase to
retained earnings |
$ | 91,778 | ||||||||||
(1) | Net of debt issue costs, placement fees and basis adjustment as of December 31, 2006. |
27
Level 1
|
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 agency securities that are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. | |
Level 2
|
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; 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 valuations obtained from third-party pricing services for identical or comparable assets, (ii) debt securities with quoted prices that are traded less frequently than exchange-traded instruments and (iii) derivative contracts and financial liabilities (e.g. callable brokered CDs and medium-term notes elected for fair value option under SFAS 159) whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. | |
Level 3
|
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. |
28
March 31, 2007 | ||||||||||||||||||||||||||||
Changes in Fair Values for the Quarter Ended | ||||||||||||||||||||||||||||
March 31, 2007, for items Measured at Fair Value Pursuant | ||||||||||||||||||||||||||||
Fair Value Measurements Using | to Election of the Fair Value Option | |||||||||||||||||||||||||||
Total | ||||||||||||||||||||||||||||
Changes In | ||||||||||||||||||||||||||||
Fair Values | ||||||||||||||||||||||||||||
(Losses) Included | ||||||||||||||||||||||||||||
(Losses) Included in | (Losses) Included in | in Current- | ||||||||||||||||||||||||||
Assets/ (Liabilities) | Interest Expense | Interest Expense | Period | |||||||||||||||||||||||||
(In thousands) | Level 1 | Level 2 | Level 3 | at Fair Value | on Deposits | on Notes Payable | Earnings (1) | |||||||||||||||||||||
Callable brokered CDs |
$ | | $ | (4,334,033 | ) | $ | | $ | (4,334,033 | ) | $ | (75,177 | ) | $ | | $ | (75,177 | ) | ||||||||||
Medium-term notes |
| (14,918 | ) | | (14,918 | ) | | (315 | ) | (315 | ) | |||||||||||||||||
Securities available for sale (2) |
415,892 | 1,235,814 | 176,786 | 1,828,492 | ||||||||||||||||||||||||
Derivative instruments (3) |
| (117,510 | ) | 9,583 | (107,927 | ) |
(1) | Changes in fair value for the three-month period ended March 31, 2007 include interest expense on callable brokered CDs and medium-term notes of $56.0 million and $0.2 million, respectively. Interest expense on callable brokered CDs and medium-term notes that have been elected to be carried at fair value under the provisions of SFAS 159 are recorded in interest expense in the Consolidated Statements of Income based on their contractual coupons. | |
(2) | Carried at fair value prior to the adoption of SFAS 159. | |
(3) | Derivatives at March 31, 2007 included derivative assets of $ 15.4 million and derivative liabilities of $123.3 million, all of which were carried at fair value prior to the adoption of SFAS 159. |
29
Total Fair Value Measurements (Quarter ended March 31, 2007) |
||||||||
Level 3 Instruments Only | ||||||||
(In thousands) | Derivatives(1) | Securities Available For Sale(2) | ||||||
Beginning balance |
$ | 10,288 | $ | 370 | ||||
Total gains (losses) (realized/unrealized): |
||||||||
Included in earnings |
(705 | ) | | |||||
Included in other comprehensive income |
| (3,491 | ) | |||||
New instruments acquired |
| 182,376 | ||||||
Principal repayment and amortization |
| (2,469 | ) | |||||
Transfers in and/or out of Level 3 |
| | ||||||
Ending balance |
$ | 9,583 | $ | 176,786 | ||||
(1) | Amounts mostly related to the valuation of interest rate cap agreements which were carried at fair value prior to the adoption of SFAS 159. | |
(2) | Amounts mostly related to certain available for sale securities collateralized by loans acquired in the first quarter of 2007 as part of the recharacterization of certain secured commercial loans. |
Total Losses | ||||||||
Level 3 Instruments Only | ||||||||
(In thousands) | Derivatives(1) | Securities Available For Sale | ||||||
Classification of losses
included in earnings for the quarter ended March 31, 2007 (2) : |
||||||||
Interest income on loans |
$ | (295 | ) | $ | | |||
Interest income on investment securities |
(410 | ) | | |||||
$ | (705 | ) | $ | | ||||
(1) | Amount represents valuation of interest rate cap agreements which were carried at fair value prior to the adoption of SFAS 159. | |
(2) | All losses included in current period earnings were unrealized losses. |
Changes in Unrealized Losses | ||||||||
Level 3 Instruments Only | ||||||||
(In thousands) | Derivatives(1) | Securities Available For Sale | ||||||
Changes in unrealized losses
relating to assets still held at reporting date
for the quarter ended March 31, 2007: |
||||||||
Interest income on loans |
$ | (295 | ) | $ | | |||
Interest income on investment securities |
(410 | ) | | |||||
$ | (705 | ) | $ | | ||||
(1) | Amount represents valuation of interest rate cap agreements which were carried at fair value prior to the adoption of SFAS 159. |
30
31
Mortgage | Commercial and | Treasury and | ||||||||||||||||||||||
Banking | Consumer | Corporate | Investments | Other | Total | |||||||||||||||||||
For the quarter ended March 31, 2007: |
||||||||||||||||||||||||
Interest income |
$ | 39,874 | $ | 47,132 | $ | 107,895 | $ | 72,204 | $ | 31,480 | $ | 298,585 | ||||||||||||
Net (charge) credit for transfer of funds |
(29,822 | ) | 27,959 | (72,669 | ) | 80,477 | (5,945 | ) | | |||||||||||||||
Interest expense |
| (19,163 | ) | | (154,506 | ) | (7,481 | ) | (181,150 | ) | ||||||||||||||
Net interest income |
10,052 | 55,928 | 35,226 | (1,825 | ) | 18,054 | 117,435 | |||||||||||||||||
Recovery (provision) for loan and lease losses |
51 | (15,596 | ) | (5,907 | ) | | (3,462 | ) | (24,914 | ) | ||||||||||||||
Other income (loss) |
782 | 8,868 | 744 | (2,019 | ) | 4,950 | 13,325 | |||||||||||||||||
Net gain on partial extinguishment and recharacterization
of secured commercial loan to a local financial institution |
| | 2,497 | | | 2,497 | ||||||||||||||||||
Direct operating expenses |
(5,247 | ) | (22,745 | ) | (5,850 | ) | (2,078 | ) | (11,506 | ) | (47,426 | ) | ||||||||||||
Segment income |
$ | 5,638 | $ | 26,455 | $ | 26,710 | $ | (5,922 | ) | $ | 8,036 | $ | 60,917 | |||||||||||
Average earnings assets |
$ | 2,459,305 | $ | 1,868,497 | $ | 5,490,294 | $ | 5,507,106 | $ | 1,267,459 | $ | 16,592,661 | ||||||||||||
For the quarter ended March 31, 2006: |
||||||||||||||||||||||||
Interest income |
$ | 35,324 | $ | 49,973 | $ | 134,448 | $ | 80,956 | $ | 27,004 | $ | 327,705 | ||||||||||||
Net (charge) credit for transfer of funds |
(23,537 | ) | 25,071 | (89,131 | ) | 92,026 | (4,429 | ) | | |||||||||||||||
Interest expense |
| (16,031 | ) | | (233,517 | ) | (5,338 | ) | (254,886 | ) | ||||||||||||||
Net interest income (loss) |
11,787 | 59,013 | 45,317 | (60,535 | ) | 17,237 | 72,819 | |||||||||||||||||
Provision for loan and lease losses |
(326 | ) | (13,285 | ) | (832 | ) | | (4,933 | ) | (19,376 | ) | |||||||||||||
Other (loss) income |
(554 | ) | 5,836 | 918 | (910 | ) | 5,298 | 10,588 | ||||||||||||||||
Direct operating expenses |
(3,585 | ) | (21,413 | ) | (5,239 | ) | (1,856 | ) | (10,481 | ) | (42,574 | ) | ||||||||||||
Segment income |
$ | 7,322 | $ | 30,151 | $ | 40,164 | $ | (63,301 | ) | $ | 7,121 | $ | 21,457 | |||||||||||
Average earnings assets |
$ | 2,136,483 | $ | 1,936,044 | $ | 7,662,139 | $ | 6,391,152 | $ | 1,078,831 | $ | 19,204,649 | ||||||||||||
Quarter Ended | ||||||||
March 31, | ||||||||
2007 | 2006 | |||||||
Net income: |
||||||||
Total income for segments and other |
$ | 60,917 | $ | 21,457 | ||||
Other operating expenses |
(31,938 | ) | (29,164 | ) | ||||
Income (loss) before income taxes |
28,979 | (7,707 | ) | |||||
Income tax (expense) benefit |
(6,147 | ) | 11,570 | |||||
Total consolidated net income |
$ | 22,832 | $ | 3,863 | ||||
Average assets: |
||||||||
Total average earning assets for segments |
$ | 16,592,661 | $ | 19,204,649 | ||||
Average non-earning assets |
516,559 | 673,872 | ||||||
Total consolidated average assets |
$ | 17,109,220 | $ | 19,878,521 | ||||
32
| The payment of $61 million to be deposited by First BanCorp in a settlement fund within fifteen calendar days of the date of issuance of the Preliminary Order; which was paid on August 16, 2007 and |
| The mailing of a notice to shareholders that describes the general terms of the settlement |
33
As of | As of | |||||||
March 31, | December 31, | |||||||
2007 | 2006 | |||||||
(In thousands) | ||||||||
Assets |
||||||||
Cash and due from banks |
$ | 46,302 | $ | 14,584 | ||||
Money market investments |
300 | 300 | ||||||
Investment securities available for sale, at market: |
||||||||
Mortgage-backed securities |
55,966 | | ||||||
Equity investments |
5,965 | 12,715 | ||||||
Other equity securities |
1,425 | 1,425 | ||||||
Loans receivable, net |
2,634 | 65,161 | ||||||
Investment in FirstBank Puerto Rico |
1,431,694 | 1,309,066 | ||||||
Investment in FirstBank Insurance Agency |
2,798 | 2,982 | ||||||
Investment in Ponce General Corporation |
103,646 | 103,274 | ||||||
Investment in PR Finance |
2,716 | 2,623 | ||||||
Accrued interest receivable |
381 | 401 | ||||||
Investment in FBP Statutory Trust I |
3,093 | 3,093 | ||||||
Investment in FBP Statutory Trust II |
3,866 | 3,866 | ||||||
Other assets |
44,043 | 84,664 | ||||||
Total assets |
$ | 1,704,829 | $ | 1,604,154 | ||||
Liabilities & Stockholders Equity |
||||||||
Liabilities: |
||||||||
Other borrowings |
$ | 286,843 | $ | 288,269 | ||||
Accounts payable and other liabilities |
89,220 | 86,332 | ||||||
Total liabilities |
376,063 | 374,601 | ||||||
Stockholders equity |
1,328,766 | 1,229,553 | ||||||
Total liabilities and stockholders equity |
$ | 1,704,829 | $ | 1,604,154 | ||||
34
Quarter Ended | Quarter Ended | |||||||
March 31, | March 31, | |||||||
2007 | 2006 | |||||||
(In thousands) | ||||||||
Income: |
||||||||
Interest income on investment securities |
$ | 583 | $ | 178 | ||||
Interest income on other investments |
11 | 3 | ||||||
Interest income on loans |
373 | 1,053 | ||||||
Dividend from FirstBank Puerto Rico |
2,028 | 17,127 | ||||||
Dividend from other subsidiaries |
1,000 | 4,000 | ||||||
Other income |
139 | 124 | ||||||
4,134 | 22,485 | |||||||
Expense: |
||||||||
Notes payable and other borrowings |
4,670 | 4,146 | ||||||
Interest on funding to subsidiaries |
865 | 742 | ||||||
Provision (recovery) for loan losses |
1,320 | (71 | ) | |||||
Other operating expenses |
994 | 1,256 | ||||||
7,849 | 6,073 | |||||||
Loss on sale of investments and impairments, net |
(2,159 | ) | (1,033 | ) | ||||
Net loss on partial extinguishment and recharacterization
of secured commercial loans to a local financial institution |
(1,207 | ) | | |||||
(Loss) income before income tax provision and equity
in undistributed earnings (loss) of subsidiaries |
(7,081 | ) | 15,379 | |||||
Income tax benefit |
1,289 | 1,088 | ||||||
Equity in undistributed earnings (loss) of subsidiaries |
28,624 | (12,604 | ) | |||||
Net income |
$ | 22,832 | $ | 3,863 | ||||
35
36
Quarter ended | ||||||||
March 31, | ||||||||
2007 | 2006 | |||||||
Condensed income statements: |
||||||||
Total interest income |
$ | 298,585 | $ | 327,705 | ||||
Total interest expense |
181,150 | 254,886 | ||||||
Net interest income |
117,435 | 72,819 | ||||||
Provision for loan and lease losses |
24,914 | 19,376 | ||||||
Non-interest income |
15,822 | 10,588 | ||||||
Non-interest expenses |
79,364 | 71,738 | ||||||
Income (loss) before income tax |
28,979 | (7,707 | ) | |||||
Income tax (expense) benefit |
(6,147 | ) | 11,570 | |||||
Net income |
22,832 | 3,863 | ||||||
Net income (loss) attributable to common stockholders |
12,763 | (6,206 | ) | |||||
Per common share results: |
||||||||
Net income (loss) per share-basic |
$ | 0.15 | $ | (0.08 | ) | |||
Net income (loss) per share-diluted |
$ | 0.15 | $ | (0.08 | ) | |||
Cash dividends declared |
$ | 0.07 | $ | 0.07 | ||||
Average shares outstanding |
83,254 | 81,556 | ||||||
Average shares outstanding diluted |
83,639 | 81,556 | ||||||
Book value per common share |
$ | 9.35 | $ | 7.56 | ||||
Selected financial ratios (in percent): |
||||||||
Profitability: |
||||||||
Return on average assets |
0.53 | 0.08 | ||||||
Interest rate spread (1) |
2.38 | 2.66 | ||||||
Net interest margin (1) |
2.94 | 3.11 | ||||||
Return on average total equity |
7.78 | 1.28 | ||||||
Return on average common equity |
8.19 | (3.76 | ) | |||||
Average total equity to average total assets |
6.86 | 6.09 | ||||||
Dividend payout ratio |
45.66 | (93.57 | ) | |||||
Efficiency ratio (2) |
59.56 | 86.01 | ||||||
Asset quality: |
||||||||
Allowance for loan and lease losses to loans receivable |
1.45 | 1.17 | ||||||
Net charge-offs annualized to average loans |
0.78 | 0.46 | ||||||
Provision for loan and lease losses to net charge-offs |
1.14 | 1.31 | ||||||
Other information: |
||||||||
Common stock price: end of period |
$ | 13.26 | $ | 12.36 |
March 31, | December 31, | |||||||
2007 | 2006 | |||||||
Balance sheet data: |
||||||||
Loans and loans held for sale |
$ | 11,124,426 | $ | 11,263,980 | ||||
Allowance for loan and lease losses |
161,419 | 158,296 | ||||||
Money market and investment securities |
5,532,908 | 5,544,183 | ||||||
Total assets |
17,194,945 | 17,390,256 | ||||||
Deposits |
11,278,745 | 11,004,287 | ||||||
Borrowings |
4,167,683 | 4,662,271 | ||||||
Total common equity |
778,666 | 679,453 | ||||||
Total equity |
1,328,766 | 1,229,553 |
1- | On a tax equivalent basis (see discussion in Net Interest Income below). | |
2- | Non-interest expenses to the sum of net interest income and non-interest income. The denominator includes non-recurring items and changes in the fair value of derivative instruments and financial instruments measured at fair value under SFAS 159. |
37
| For the quarter ended March 31, 2007, the Corporations operations resulted in a net income of $22.8 million, compared to $3.9 million for the quarter ended March 31, 2006. After payment of preferred stock dividends, the Corporations net income attributable to common stockholders for the quarter ended March 31, 2007 amounted to $12.8 million, compared to a net loss attributable to common stockholders of $6.2 million for the quarter ended March 31, 2006. |
38
| Diluted earnings per common share for the quarter ended March 31, 2007 was $0.15, compared to a loss per common share of $0.08 for the quarter ended March 31, 2006. | ||
| Net interest income for the quarters ended March 31, 2007 and 2006 was $117.4 million and $72.8 million, respectively. Net interest income fluctuated significantly due to the adoption of SFAS 159, effective January 1, 2007. For the first quarter of 2007, the change in the valuation of derivatives and unrealized losses on SFAS 159 liabilities recorded as part of interest expense resulted in net unrealized gains of approximately $0.5 million compared to net unrealized losses of $69.7 million for the same period in 2006. These positive factors were partially offset by a reduction in the Corporations average interest-earning assets and by a compression in the net interest spread and margin due to the flattening of the yield curve. Refer to the Net Interest Income discussion below for further details. | ||
On a tax equivalent basis, excluding the changes in the fair value of derivative instruments, the basis adjustment amortization or accretion, and the changes in the fair value of SFAS 159 liabilities (for definition and reconciliation of this non-GAAP measure, refer to the Net Interest Income discussion below), net interest income for the quarters ended March 31, 2007 and 2006 was $121.8 million and $148.4 million, respectively. The decrease in tax- equivalent net interest income, when excluding the changes in the fair value of derivative instruments, the basis adjustment amortization or accretion, and unrealized losses on SFAS 159 liabilities, was mainly due to a reduction in the Corporations average interest-earning assets of $2.6 billion, or 13%, coupled with a compression in net interest margin due to the flattening of the yield curve and fluctuations in net interest settlements on interest rate swaps. The net interest margin on a tax equivalent basis was 2.94% for the quarter ended March 31, 2007, compared to 3.11% for the same period in 2006, respectively. The compression in the Corporations net interest margin on a tax equivalent basis has been particularly significant with respect to the Corporations portfolio of investment securities. The interest rate spread on the Corporations portfolio of investment securities, other than short-term money market investments (allocating a funding cost equal to the weighted-average cost of the Corporations other borrowed funds), was approximately 0.38% for the quarter ended March 31, 2007 compared to 1.32% for the quarter ended March 31, 2006. Increases in short-term interest rates resulted in a change in net interest settlements on interest rate swaps included as part of interest expense. For the quarter ended March 31, 2007, the net interest settlement on such interest rate swaps resulted in additional charges to interest expense of $3.8 million, compared to benefits of $3.5 million recognized as a reduction to interest expense for the same period in 2006, as the rates paid by the Corporation during 2007 under the variable portion of the swaps exceeded the rates received by the Corporation under the fixed portion of the swaps. | |||
| For the first quarter of 2007, the Corporation provided $24.9 million for loan and lease losses, as compared to $19.4 million for the same period in 2006. Refer to the discussion under the Risk Management section below for an analysis of the allowance for loan and lease losses and non-performing assets and related ratios. The increase in the provision for 2007 was mainly due to increasing trends in non-accruing loans and charge-offs experienced during 2007 compared to the first quarter of 2006. The Corporations trends in non-accruing loans were affected by the fiscal and economic situation in Puerto Rico. According to the Puerto Rico Planning Board, Puerto Rico is in a midst of a recession, causing delinquency trends in consumer and commercial loan portfolios to increase. | ||
| Non-interest income for the first quarter of 2007 and 2006 was $15.8 million and $10.6 million, respectively. The increase in non-interest income for the first quarter of 2007, compared to the first quarter of 2006, was mainly due to a $2.8 million gain on the sale of the Corporations credit card portfolio and a $2.5 million net gain on the partial extinguishment and recharacterization of certain secured commercial loans extended to a local financial institution coupled with higher earnings in the Corporations mortgage banking activities partially offset by losses on the sale of investments. |
39
| The Corporations non-interest expenses for the first quarter of 2007 were $79.4 million compared to $71.7 million for the first quarter of 2006. The increase in non-interest expenses for 2007 was mainly due to increases in employees compensation and benefits, occupancy and equipment expenses, business promotion expenses and legal contingencies, partially offset by a decrease in legal, accounting and consulting fees expenses due to the conclusion during the third quarter of 2006 of the internal review conducted by the Corporations Audit Committee and the restatement process. | ||
| For the quarter ended March 31, 2007, the Corporation reported an income tax expense of $6.1 million, compared to an income tax benefit of $11.6 million for the same period in 2006. The variance in income tax provision for the first quarter of 2007 as compared to the first quarter of 2006 was mainly due to a reduction in deferred tax benefits associated with the adoption of SFAS 159 partially offset by a decrease in the current income tax provision. During the first quarter of 2006, the Corporation reflected changes in the fair value of derivative instruments (an unrealized loss of $69.7 million for changes in fair value recorded as part of interest expense) as non-hedging instruments through operations. With the adoption of SFAS 159, effective January 1, 2007, changes in the fair value of derivatives recorded as part of interest expense (an unrealized gain of $19.8 million) were partially offset by unrealized losses on SFAS 159 liabilities of $19.3 million. The Corporation recognized a deferred tax benefit of $2.3 million for the first quarter of 2007 compared to $28.6 million for the same period in 2006. | ||
| Total assets at March 31, 2007 amounted to $17.2 billion, a decrease of $195.3 million compared to total assets of $17.4 billion at December 31, 2006. The decrease in total assets at March 31, 2007, compared to total assets at December 31, 2006, was mainly the result of a decrease in the Corporations investment securities portfolio as well as a decrease in the Corporations deferred tax asset partially offset by an increase in money market instruments. Notwithstanding the recognition, as of March 31, 2007, of securities collateralized by loans with a fair market value of $176.4 million, obtained as part of the execution of various agreements entered into with R&G Financial Corporation (R&G Financial), the Corporations investment portfolio decreased by $31.6 million as compared to the balance as of December 31, 2006. The decrease in investment securities resulted from maturities and prepayments received from the Corporations investment portfolio, principally mortgage-backed securities and the Corporations decision to deleverage its investment portfolio. The deleverage of the investment portfolio was influenced, among other things, by the flat-to-inverted yield curve. | ||
During the first quarter of 2007, the Corporation entered into various agreements with R&G Financial relating to prior transactions accounted for as commercial loans secured by mortgage loans and pass-through trust certificates from R&G Financial subsidiaries. First, through a mortgage payment agreement, R&G Financial paid the Corporation approximately $50 million to reduce the commercial loan that R&G Premier Bank, R&G Financials banking subsidiary, had outstanding with the Corporation. In addition, the remaining balance of $271 million was re-documented as a secured loan from the Corporation to R&G Financial. Second, R&G Financial and the Corporation amended various agreements involving, as of the date of the transaction, approximately $183.8 million of securities collateralized by loans that were originally sold through five grantor trusts. The modifications to the original agreements allow the Corporation to treat these transactions as true sales for accounting and legal purposes. The execution of the agreements caused a decrease in the Corporations loan portfolio and an increase in the Corporations investment securities portfolio. | |||
| As of March 31, 2007, total liabilities amounted to $15.9 billion, a decrease of $294.5 million as compared to $16.2 billion as of December 31, 2006. The decrease in total liabilities as of March 31, 2007, compared to December 31, 2006, was mainly due to a decrease in federal funds purchased and securities sold under repurchased agreements partially offset by an increase in deposits. The decrease in federal funds purchased and securities sold under repurchased agreements was mainly attributable to the Corporations decision to deleverage its investment portfolio. The increase in deposits was attributable to increases in brokered CDs. |
40
| Total loan production for the quarter ended March 31, 2007 was $974.8 million, a decrease of $420.3 million, or 30%, compared to the same period in 2006. The decrease in loan production during 2007 was mainly due to decreases in residential real estate, commercial, and consumer loan originations which were negatively impacted by higher prevailing interest rates, worsening economic conditions in Puerto Rico, and stricter underwriting guidelines. |
41
42
Quarter ended March 31, | Average volume | Interest Income (1) / expense | Average rate (1) | |||||||||||||||||||||
2007 | 2006 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Earning assets: |
||||||||||||||||||||||||
Money market investments |
$ | 407,564 | $ | 959,644 | $ | 5,378 | $ | 9,975 | 5.35 | % | 4.22 | % | ||||||||||||
Government obligations (2) |
2,707,843 | 2,752,308 | 40,009 | 42,669 | 5.99 | % | 6.29 | % | ||||||||||||||||
Mortgage-backed securities |
2,383,172 | 2,648,290 | 29,973 | 36,432 | 5.10 | % | 5.58 | % | ||||||||||||||||
Corporate bonds |
28,788 | 26,417 | 477 | 434 | 6.72 | % | 6.67 | % | ||||||||||||||||
FHLB stock |
41,527 | 34,984 | 454 | 782 | 4.44 | % | 9.07 | % | ||||||||||||||||
Equity securities |
12,240 | 31,333 | 1 | 213 | 0.03 | % | 2.75 | % | ||||||||||||||||
Total investments (3) |
5,581,134 | 6,452,976 | 76,292 | 90,505 | 5.54 | % | 5.69 | % | ||||||||||||||||
Residential real estate loans |
2,803,244 | 2,427,139 | 45,521 | 40,301 | 6.59 | % | 6.73 | % | ||||||||||||||||
Construction loans |
1,484,913 | 1,299,154 | 31,813 | 26,809 | 8.69 | % | 8.37 | % | ||||||||||||||||
Commercial loans |
4,770,211 | 7,138,251 | 89,965 | 116,386 | 7.65 | % | 6.61 | % | ||||||||||||||||
Finance leases |
369,977 | 292,304 | 8,237 | 6,712 | 9.03 | % | 9.31 | % | ||||||||||||||||
Consumer loans |
1,773,461 | 1,765,586 | 51,686 | 52,849 | 11.82 | % | 12.14 | % | ||||||||||||||||
Total loans (4) (5) |
11,201,806 | 12,922,434 | 227,222 | 243,057 | 8.23 | % | 7.63 | % | ||||||||||||||||
Total earning assets |
$ | 16,782,940 | $ | 19,375,410 | $ | 303,514 | $ | 333,562 | 7.33 | % | 6.98 | % | ||||||||||||
Interest-bearing liabilities: |
||||||||||||||||||||||||
Interest-bearing deposits |
$ | 10,420,609 | $ | 11,782,530 | $ | 124,508 | $ | 121,201 | 4.85 | % | 4.18 | % | ||||||||||||
Other borrowed funds |
3,837,002 | 5,236,363 | 49,021 | 59,787 | 5.18 | % | 4.63 | % | ||||||||||||||||
FHLB advances |
616,776 | 373,389 | 8,197 | 4,178 | 5.39 | % | 4.54 | % | ||||||||||||||||
Total
interest-bearing liabilities (6) |
$ | 14,874,387 | $ | 17,392,282 | $ | 181,726 | $ | 185,166 | 4.95 | % | 4.32 | % | ||||||||||||
Net interest income |
$ | 121,788 | $ | 148,396 | ||||||||||||||||||||
Interest rate spread |
2.38 | % | 2.66 | % | ||||||||||||||||||||
Net interest margin |
2.94 | % | 3.11 | % |
(1) | On a tax equivalent basis. The tax equivalent yield was estimated by dividing the interest rate spread on exempt assets by (1 less PR statutory tax rate (39% for 2007 and 41.5% for 2006)) and adding to it the cost of interest-bearing liabilities. When adjusted to a tax equivalent basis, yields on taxable and exempt assets are comparable. Changes in the fair value of derivative instruments, unrealized gains or losses on SFAS 159 liabilities, and basis adjustment amortization or accretion are excluded from interest income and interest expense for average rate calculation purposes because these changes do not affect interest paid or received. | |
(2) | Government obligations include debt issued by government sponsored agencies. | |
(3) | Unrealized gains and losses in available-for-sale securities are excluded from the average volumes. | |
(4) | Average loan balances include the average of non-accruing loans, on which interest income is recognized when collected. | |
(5) | Interest income on loans includes $3.5 million and $3.6 million for the first quarter of 2007 and 2006, respectively, of income from prepayment penalties and late fees related to the Corporations loan portfolio. | |
(6) | Unrealized gains and losses on SFAS 159 liabilities are excluded from the average volumes. |
43
Quarter ended March 31, | 2007 compared to 2006 | |||||||||||
Increase (decrease) | ||||||||||||
Due to: | ||||||||||||
Volume | Rate | Total | ||||||||||
(In thousands) | ||||||||||||
Interest
income on interest-earning assets: |
||||||||||||
Money market investments |
$ | (6,570 | ) | $ | 1,973 | $ | (4,597 | ) | ||||
Government obligations |
(681 | ) | (1,979 | ) | (2,660 | ) | ||||||
Mortgage-backed securities |
(3,479 | ) | (2,980 | ) | (6,459 | ) | ||||||
Corporate bonds |
39 | 4 | 43 | |||||||||
FHLB stock |
113 | (441 | ) | (328 | ) | |||||||
Equity securities |
(81 | ) | (131 | ) | (212 | ) | ||||||
Total investments |
(10,659 | ) | (3,554 | ) | (14,213 | ) | ||||||
Residential real estate loans |
6,225 | (1,005 | ) | 5,220 | ||||||||
Construction loans |
3,950 | 1,054 | 5,004 | |||||||||
Commercial loans (1) |
(42,029 | ) | 15,608 | (26,421 | ) | |||||||
Finance leases |
1,771 | (246 | ) | 1,525 | ||||||||
Consumer loans |
244 | (1,407 | ) | (1,163 | ) | |||||||
Total loans |
(29,839 | ) | 14,004 | (15,835 | ) | |||||||
Total interest income |
(40,498 | ) | 10,450 | (30,048 | ) | |||||||
Interest expense on interest-bearing liabilities: |
||||||||||||
Deposits |
(15,374 | ) | 18,681 | 3,307 | ||||||||
Other borrowed funds |
(17,089 | ) | 6,323 | (10,766 | ) | |||||||
FHLB advances |
3,119 | 900 | 4,019 | |||||||||
Total interest expense |
(29,344 | ) | 25,904 | (3,440 | ) | |||||||
Change in net interest income |
$ | (11,154 | ) | $ | (15,454 | ) | $ | (26,608 | ) | |||
(1) | Decrease in volume relates primarily to the payment received of $2.4 billion from a local financial institution to partially extinguish a secured commercial loan during the second quarter of 2006. |
44
Quarter ended March 31, | ||||||||
(In thousands) | 2007 | 2006 | ||||||
Interest income on interest earning assets on a tax equivalent basis |
$ | 303,514 | $ | 333,562 | ||||
Less: tax equivalent adjustments |
(3,988 | ) | (10,840 | ) | ||||
Plus: net unrealized (loss) gain on derivatives |
(941 | ) | 4,983 | |||||
Total interest income |
$ | 298,585 | $ | 327,705 | ||||
Quarter ended March 31, | ||||||||
(In thousands) | 2007 | 2006 | ||||||
Unrealized (loss) gain on derivatives (economic undesignated hedges): |
||||||||
Interest rate caps |
$ | (701 | ) | $ | 3,320 | |||
Interest rate swaps on corporate bonds |
| 30 | ||||||
Interest rate swaps on loans |
(240 | ) | 1,633 | |||||
Net unrealized (loss) gain on derivatives (economic undesignated hedges) |
$ | (941 | ) | $ | 4,983 | |||
Quarter ended March 31, | ||||||||
(In thousands) | 2007 | 2006 | ||||||
Interest expense on interest-bearing liabilities |
$ | 175,721 | $ | 184,716 | ||||
Net interest incurred (realized) on interest rate swaps |
3,840 | (3,506 | ) | |||||
Amortization of placement fees on brokered CDs |
2,144 | 3,949 | ||||||
Amortization of placement fees on medium-term notes |
21 | 7 | ||||||
Interest expense excluding net unrealized (gains) losses on derivatives (economic undesignated
hedges), changes in the fair value of SFAS 159 liabilities, and accretion of basis adjustments |
181,726 | 185,166 | ||||||
Net unrealized (gains) losses on derivatives (economic undesignated hedges)
and SFAS 159 liabilities |
(461 | ) | 69,720 | |||||
Accretion of basis adjustment |
(115 | ) | | |||||
Total interest expense |
$ | 181,150 | $ | 254,886 | ||||
45
Quarter ended March 31, | ||||||||
(In thousands) | 2007 | 2006 | ||||||
Unrealized (gains) losses on derivatives (economic undesignated hedges): |
||||||||
Interest rate swaps on brokered CDs |
$ | (19,627 | ) | $ | 65,637 | |||
Interest rate swaps and other derivatives on medium-term notes |
(165 | ) | 4,083 | |||||
Net unrealized (gains) losses on derivatives (economic undesignated hedges) |
$ | (19,792 | ) | $ | 69,720 | |||
Unrealized losses on SFAS 159 liabilities: |
||||||||
Unrealized loss on brokered CDs |
$ | 19,209 | $ | | ||||
Unrealized loss on medium-term notes |
122 | | ||||||
Net unrealized losses on SFAS 159 liabilities |
$ | 19,331 | $ | | ||||
Net unrealized (gains) losses on derivatives (economic
undesignated hedges) and SFAS 159 liabilities |
$ | (461 | ) | $ | 69,720 | |||
Quarter ended March 31, | ||||||||
(In thousands) | 2007 | 2006 | ||||||
Accretion of basis adjustment: |
||||||||
Interest rate swaps on medium-term notes |
$ | (115 | ) | $ | | |||
46
47
48
49
Quarter ended | ||||||||
March 31, | ||||||||
(In thousands) | 2007 | 2006 | ||||||
Other service charges on loans |
$ | 1,791 | $ | 1,486 | ||||
Service charges on deposit accounts |
3,191 | 3,277 | ||||||
Mortgage banking activities gain (loss) |
762 | (575 | ) | |||||
Rental income |
664 | 773 | ||||||
Insurance income |
2,949 | 3,057 | ||||||
Other commissions and fees |
61 | 80 | ||||||
Other operating income |
3,247 | 3,199 | ||||||
Non-interest income before net (loss) gain on investments, net gain
on partial extinguishment and recharacterization of secured
commercial loans to a local financial institution and gain on sale of credit card portfolio |
12,665 | 11,297 | ||||||
Net (loss) gain on sale of investments |
(732 | ) | 1,424 | |||||
Impairment on investments |
(1,427 | ) | (2,133 | ) | ||||
Net loss on investments |
(2,159 | ) | (709 | ) | ||||
Net gain on partial extinguishment and recharacterization of
secured commercial loans to a local financial institution |
2,497 | | ||||||
Gain on sale of credit card portfolio |
2,819 | | ||||||
Total |
$ | 15,822 | $ | 10,588 | ||||
50
51
Quarter ended | ||||||||
March 31, | ||||||||
(In thousands) | 2007 | 2006 | ||||||
Employees compensation and benefits |
$ | 36,372 | $ | 34,125 | ||||
Occupancy and equipment |
14,382 | 12,706 | ||||||
Deposit insurance premium |
356 | 399 | ||||||
Other taxes, insurance and supervisory fees |
4,917 | 3,857 | ||||||
Professional
fees recurring |
3,402 | 2,337 | ||||||
Professional
fees non-recurring |
2,995 | 5,056 | ||||||
Servicing and processing fees |
1,719 | 2,181 | ||||||
Business promotion |
4,930 | 3,774 | ||||||
Communications |
2,228 | 2,456 | ||||||
Other |
8,063 | 4,847 | ||||||
Total |
$ | 79,364 | $ | 71,738 | ||||
52
53
54
March 31, | March 31, | |||||||
(In thousands) | 2007 | 2006 | ||||||
Residential real estate |
$ | 168,339 | $ | 277,943 | ||||
Commercial and construction |
585,927 | 847,853 | ||||||
Finance leases |
47,172 | 47,209 | ||||||
Consumer |
173,315 | 222,078 | ||||||
Total loan production |
$ | 974,753 | $ | 1,395,083 | ||||
55
56
March 31, | December 31, | |||||||
(In thousands) | 2007 | 2006 | ||||||
Residential real estate loans |
$ | 2,853,213 | $ | 2,772,630 | ||||
Commercial loans: |
||||||||
Construction loans |
1,454,715 | 1,511,608 | ||||||
Commercial real estate loans |
1,286,425 | 1,215,040 | ||||||
Commercial loans |
2,730,122 | 2,698,141 | ||||||
Loans to local financial institutions
collateralized by real estate mortgages
and pass-through trust certificates |
679,720 | 932,013 | ||||||
Commercial loans |
6,150,982 | 6,356,802 | ||||||
Finance leases |
377,900 | 361,631 | ||||||
Consumer and other loans |
1,742,331 | 1,772,917 | ||||||
Total loans |
$ | 11,124,426 | $ | 11,263,980 | ||||
57
58
March 31, | December 31, | |||||||
(In thousands) | 2007 | 2006 | ||||||
Money market investments |
$ | 476,814 | $ | 456,470 | ||||
Investment securities held-to-maturity: |
||||||||
U.S. Government and agencies obligations |
2,143,284 | 2,258,040 | ||||||
Puerto Rico Government obligations |
31,859 | 31,716 | ||||||
Mortgage-backed securities |
1,008,867 | 1,055,375 | ||||||
Corporate bonds |
2,000 | 2,000 | ||||||
3,186,010 | 3,347,131 | |||||||
Investment securities available-for-sale: |
||||||||
U.S. Government and agencies obligations |
405,031 | 403,592 | ||||||
Puerto Rico Government obligations |
25,427 | 25,302 | ||||||
Mortgage-backed securities |
1,387,174 | 1,253,853 | ||||||
Corporate bonds |
4,895 | 4,961 | ||||||
Equity securities |
5,965 | 12,715 | ||||||
1,828,492 | 1,700,423 | |||||||
Other equity securities |
41,592 | 40,159 | ||||||
Total investments |
$ | 5,532,908 | $ | 5,544,183 | ||||
March 31, | December 31, | |||||||
(In thousands) | 2007 | 2006 | ||||||
Held-to-maturity: |
||||||||
FHLMC certificates |
$ | 13,934 | $ | 15,438 | ||||
FNMA certificates |
994,933 | 1,039,937 | ||||||
1,008,867 | 1,055,375 | |||||||
Available-for-sale: |
||||||||
FHLMC certificates |
7,069 | 7,575 | ||||||
GNMA certificates |
363,134 | 374,368 | ||||||
FNMA certificates |
840,185 | 871,540 | ||||||
Mortgage pass-through certificates |
176,786 | 370 | ||||||
1,387,174 | 1,253,853 | |||||||
Total mortgage-backed securities |
$ | 2,396,041 | $ | 2,309,228 | ||||
59
Weighted | ||||||||
Carrying | average yield | |||||||
(In thousands) | amount | % | ||||||
U.S. Government and agencies obligations |
||||||||
Due within one year |
$ | 59,697 | 5.07 | |||||
Due after five years through ten years |
392,115 | 4.30 | ||||||
Due after ten years |
2,096,503 | 5.83 | ||||||
2,548,315 | 5.58 | |||||||
Puerto Rico Government obligations |
||||||||
Due after one year through five years |
5,337 | 6.23 | ||||||
Due after five years through ten years |
32,116 | 5.37 | ||||||
Due after ten years |
19,833 | 5.59 | ||||||
57,286 | 5.53 | |||||||
Corporate bonds |
||||||||
Due after five years through ten years |
1,209 | 7.70 | ||||||
Due after ten years |
5,686 | 7.21 | ||||||
6,895 | 7.30 | |||||||
Total |
2,612,496 | 5.58 | ||||||
Mortgage-backed securities |
2,396,041 | 4.91 | ||||||
Equity securities |
5,965 | 0.03 | ||||||
Total
investment securities-available-for-sale and held-to-maturity |
$ | 5,014,502 | 5.25 | |||||
60
(In thousands) | Total | |||
Three months or less |
$ | 816,875 | ||
Over three months to six months |
983,207 | |||
Over six months to one year |
897,328 | |||
Over one year to five years |
1,396,670 | |||
Over five years |
3,456,148 | |||
Total |
$ | 7,550,228 | ||
61
Banking Subsidiaries | ||||||||||||||||
FirstBank | To be well | |||||||||||||||
As of March 31, 2007 | First BanCorp | FirstBank | Florida | capitalized | ||||||||||||
Total capital (Total capital to risk-weighted assets) |
13.78 | % | 13.82 | % | 11.03 | % | 10.00 | % | ||||||||
Tier 1 capital ratio (Tier 1 capital to risk-weighted assets) |
12.59 | % | 12.59 | % | 10.64 | % | 6.00 | % | ||||||||
Leverage ratio (1) |
8.85 | % | 8.71 | % | 8.04 | % | 5.00 | % | ||||||||
As of December 31, 2006 |
||||||||||||||||
Total capital (Total capital to risk-weighted assets) |
12.46 | % | 12.25 | % | 11.35 | % | 10.00 | % | ||||||||
Tier 1 capital ratio (Tier 1 capital to risk-weighted assets) |
11.27 | % | 11.02 | % | 10.96 | % | 6.00 | % | ||||||||
Leverage ratio (1) |
7.97 | % | 7.76 | % | 8.10 | % | 5.00 | % |
(1) | Tier 1 capital to average assets in the case of First BanCorp and First Bank and Tier 1 Capital to adjusted total assets in the case of First Bank Florida. |
62
Contractual Obligations and Commitments | ||||||||||||||||||||
As of March 31, 2007 | ||||||||||||||||||||
(In thousands) | ||||||||||||||||||||
Total | Less than 1 year | 1-3 years | 3-5 years | After 5 years | ||||||||||||||||
Contractual obligations(1): |
||||||||||||||||||||
Certificates of deposit |
$ | 9,149,609 | $ | 4,032,098 | $ | 1,233,227 | $ | 427,544 | $ | 3,456,740 | ||||||||||
Federal funds purchased and
securities sold under agreements
to repurchase |
3,163,304 | 2,075,804 | 387,500 | 100,000 | 600,000 | |||||||||||||||
Advances from FHLB |
590,000 | 35,000 | 514,000 | 41,000 | | |||||||||||||||
Notes payable |
182,636 | | | 16,258 | 166,378 | |||||||||||||||
Other borrowings |
231,743 | | | | 231,743 | |||||||||||||||
Total contractual obligations |
$ | 13,317,292 | $ | 6,142,902 | $ | 2,134,727 | $ | 584,802 | $ | 4,454,861 | ||||||||||
Commitments to sell mortgage loans |
$ | 73,455 | $ | 73,455 | ||||||||||||||||
Standby letters of credit |
$ | 100,018 | $ | 100,018 | ||||||||||||||||
Commitments to extend credit: |
||||||||||||||||||||
Lines of credit |
$ | 1,364,608 | $ | 1,364,608 | ||||||||||||||||
Letters of credit |
47,902 | 47,902 | ||||||||||||||||||
Commitments to originate loans |
500,780 | 500,780 | ||||||||||||||||||
Total commercial commitments |
$ | 1,913,290 | $ | 1,913,290 | ||||||||||||||||
(1) | $29.0 million of tax liability associated with unrecognized tax benefits under FIN 48 has been excluded due to the high degree of uncertainty regarding the timing of future cash outflows associated with such obligations. |
63
64
65
Notional amounts | ||||||||
As of | As of | |||||||
March 31, | December 31, | |||||||
2007 | 2006 | |||||||
(In thousands) | ||||||||
Interest rate swap agreements: |
||||||||
Pay fixed versus receive floating |
$ | 80,676 | $ | 80,720 | ||||
Receive fixed versus pay floating |
4,777,161 | 4,802,370 | ||||||
Embedded written options |
13,515 | 13,515 | ||||||
Purchased options |
13,515 | 13,515 | ||||||
Written interest rate cap agreements |
128,090 | 125,200 | ||||||
Purchased interest rate cap agreements |
315,817 | 330,607 | ||||||
$ | 5,328,774 | $ | 5,365,927 | |||||
Notional amounts | ||||||||
As of | As of | |||||||
March 31, | December 31, | |||||||
2007 | 2006 | |||||||
(In thousands) | ||||||||
Economic undesignated hedges: |
||||||||
Interest rate swaps used to hedge
fixed rate certificates of deposit, notes payable and loans |
$ | 4,857,837 | $ | 336,473 | ||||
Embedded options on stock index deposits |
13,515 | 13,515 | ||||||
Purchased options used to manage exposure to
the stock market on embedded stock index options |
13,515 | 13,515 | ||||||
Written interest rate cap agreements |
128,090 | 125,200 | ||||||
Purchased interest rate cap agreements |
315,817 | 330,607 | ||||||
Total derivatives not designated as hedges |
$ | 5,328,774 | $ | 819,310 | ||||
Designated hedges: |
||||||||
Fair value hedges: |
||||||||
Interest rate swaps used to hedge
fixed-rate certificates of deposit |
$ | | $ | 4,381,175 | ||||
Interest rate swaps used to hedge
fixed- and step-rate notes payable |
| 165,442 | ||||||
Total fair value hedges |
$ | | $ | 4,546,617 | ||||
Total |
$ | 5,328,774 | $ | 5,365,927 | ||||
66
Quarter ended | ||||
(In thousands) | March 31, 2007 | |||
Fair value of contracts outstanding at the beginning of the period |
$ | (126,778 | ) | |
Contracts realized or otherwise settled during the period |
74 | |||
Changes in fair value during the period |
18,777 | |||
Fair value of contracts outstanding at March 31, 2007 |
$ | (107,927 | ) | |
(In thousands) | Payments Due by Period | |||||||||||||||||||
Maturity | Maturity | |||||||||||||||||||
Less Than | Maturity | Maturity | In Excess | Total | ||||||||||||||||
As of March 31, 2007 | One Year | 1-3 Years | 3-5 Years | of 5 Years | Fair Value | |||||||||||||||
Prices provided by external sources |
$ | (386 | ) | $ | (2,575 | ) | $ | (4,623 | ) | $ | (100,343 | ) | $ | (107,927 | ) | |||||
67
68
Quarter ended | ||||||||
March 31, | ||||||||
(Dollars in thousands) | 2007 | 2006 | ||||||
Allowance for loan and lease losses, beginning of period |
$ | 158,296 | $ | 147,999 | ||||
Provision for loan and lease losses |
24,914 | 19,376 | ||||||
Loans charged-off: |
||||||||
Residential real estate |
(165 | ) | (213 | ) | ||||
Commercial and Construction |
(3,260 | ) | (1,987 | ) | ||||
Finance leases |
(2,126 | ) | (694 | ) | ||||
Consumer |
(17,626 | ) | (13,555 | ) | ||||
Recoveries |
1,386 | 1,670 | ||||||
Net charge-offs |
(21,791 | ) | (14,779 | ) | ||||
Allowance for loan and lease losses, end of period |
$ | 161,419 | $ | 152,596 | ||||
Allowance for loan and lease losses to period end total
loans receivable |
1.45 | % | 1.17 | % | ||||
Net charge-offs annualized to average loans
outstanding during the period |
0.78 | % | 0.46 | % | ||||
Provision for loan and lease losses to net charge-offs during the period |
1.14 | x | 1.31 | x |
69
70
March 31, | December 31, | |||||||
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Non-accruing loans: |
||||||||
Residential real estate |
$ | 132,474 | $ | 114,828 | ||||
Commercial, commercial real estate
and construction |
79,137 | 82,713 | ||||||
Finance leases |
6,353 | 8,045 | ||||||
Consumer |
42,014 | 46,501 | ||||||
259,978 | 252,087 | |||||||
Other real estate owned |
3,110 | 2,870 | ||||||
Other repossessed property |
13,899 | 12,103 | ||||||
Total non-performing assets |
$ | 276,987 | $ | 267,060 | ||||
Past due loans |
$ | 33,275 | $ | 31,645 | ||||
Non-performing assets to total assets |
1.61 | % | 1.54 | % | ||||
Non-accruing loans to total loans receivable |
2.34 | % | 2.24 | % | ||||
Allowance for loan and lease losses |
$ | 161,419 | $ | 158,296 | ||||
Allowance to total non-accruing loans |
62.09 | % | 62.79 | % | ||||
Allowance to total non-accruing loans
excluding residential real estate loans |
126.60 | % | 115.33 | % |
71
72
73
74
75
First BanCorp. | ||||
Registrant | ||||
Date: September 24, 2007
|
By: | /s/ Luis M. Beauchamp | ||
Luis M. Beauchamp | ||||
Chairman, President and Chief | ||||
Executive Officer | ||||
Date: September 24, 2007
|
By: | /s/ Fernando Scherrer | ||
Fernando Scherrer | ||||
Executive Vice President | ||||
and Chief Financial Officer |
76