First BanCorp Reports Financial Results for the Third Quarter Ended September 30, 2009
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FBP | Quote | Chart | News | PowerRating -- --Reported a pre-tax loss of $51.7 million, compared to a pre-tax loss of $176.7 million for the second quarter of 2009 and a pre-tax gain of $20.8 million for the third quarter of 2008
--Recorded a provision for loan and lease losses of $148.1 million, which exceeded net charge-offs for the quarter by $63.7 million, compared to a provision of $235.2 million for the second quarter of 2009 and $55.3 million for the third quarter of 2008
--Net interest income, excluding fair value adjustments, increased to $132.2 million, an increase of $3.6 million compared to the second quarter of 2009; net interest margin, excluding fair value adjustments, increased to 2.68%, up 4 basis points compared to the second quarter of 2009
--Recorded a realized gain on sale of investments of $34.3 million, compared to $10.3 million for the second quarter of 2009
--Reported non-interest expenses of $82.8 million, a decrease of $13.2 million compared to the second quarter of 2009; efficiency ratio of 46.21% compared to 62.16% for the second quarter of 2009
--Total non-performing loans increased by $367.5 million to $1.54 billion as of September 30, 2009, while the allowance for loan and lease losses to total loans coverage ratio increased to 3.43% from 3.11% as of June 30, 2009
--Estimated Tier 1 Capital Ratio of 12.5%, estimated Total Capital Ratio of 13.8% and estimated Leverage Ratio of 9.0%; estimated Tier 1 and Total Regulatory Capital exceeded the well-capitalized minimum by $937 million and $545 million, respectively
First BanCorp (the "Corporation") (NYSE: FBP | Quote | Chart | News | PowerRating) today reported a net loss
for the quarter ended September 30, 2009 of $165.2 million, compared to
a net loss of $78.7 million for the quarter ended June 30, 2009, and net
income of $24.5 million for the quarter ended September 30, 2008. For
the nine-month period ended September 30, 2009, the Corporation incurred
a net loss of $222.0 million, compared to net income of $91.1 million
for the same period in 2008. The third quarter and nine months losses
for 2009 were largely driven by a non-cash charge of $152.2 million to
increase the deferred tax asset valuation allowance and a provision for
loan and lease losses in the amount of $148.1 million and $442.7 million
for the quarter and nine-month period ended September 30, 2009,
respectively. On a pre-tax basis, the Corporation reported a $51.7
million loss for the quarter ended September 30, 2009, compared to a
loss of $176.7 million for the quarter ended June 30, 2009 and a gain of
$20.8 million for the quarter ended September 30, 2008. For the
nine-month period ended September 30, 2009, the pre-tax loss was $220.8
million compared to a gain of $70.2 million for the same period of 2008.
This press release should be read in conjunction with the accompanying
tables (Exhibit A), which are an integral part of this press release.
Mr. Aurelio Aleman, Chief Executive Officer of First BanCorp, commented,
"The Corporation updated its analysis of its deferred tax asset and
concluded that the valuation allowance for this asset needed to be
increased by approximately $152.2 million. This increase in the
valuation allowance for the deferred tax asset is a non-cash charge and
has no impact on the Corporation's operations, cash flows and liquidity
and has minimal impact on regulatory tier 1 and total capital ratios.
Future improvement in the Corporation's financial performance and a
return to profitability could permit us to reverse the valuation
allowance through earnings. Our capital continues to be comfortably
higher than the regulatory minimum to be considered a well-capitalized
financial institution."
Regarding the third quarter performance, Mr. Aleman said, "While the
Corporation's results, setting aside the valuation allowance, improved
slightly in the third quarter as evidenced by a narrowing of the pre-tax
loss when compared to the second quarter, we have more work ahead to
unlock the earnings potential of First BanCorp. Further asset
deterioration, that required an increase in the provision for loan and
lease losses, remains a key hurdle in our return to profitability. While
the provision was lower in the third quarter than in the second quarter,
it remains substantially higher than the Corporation's historic loan and
lease loss provisions. Our expectation is that relatively high
delinquencies in residential and commercial credits and weakened
consumer economic conditions will continue until the Federal and
Commonwealth stimulus programs have their intended effect of reigniting
the respective economies of our markets."
"We have been taking firm actions to improve our asset quality with
additional resources and experienced talent at all fronts. We have
improved revenue and controllable expenses during these unprecedented
times. The Corporation has achieved an improvement in fee income, a
reduction in the cost of funds and a widening of interest rate margins,
despite increases in non-performing loans. In addition, our lines of
business and support units have collectively reduced non-interest
expenses consistent with our Business Rationalization Plan, which
continues to be one of our priorities. As we move forward, we have
identified additional opportunities for non-interest income and further
reductions of our cost of doing business," noted Mr. Aleman.
Mr. Aleman remarked with regard to the Florida region, "Though the
economy in the region continues to be weak, a renewed interest by real
estate investors in new, used and foreclosed properties suggests
potential stabilization that should improve our franchise performance in
the state. The restructuring and consolidation of our Florida operations
have resulted in efficiencies, while the hiring of additional
experienced banking professionals positions our business well towards
the future. The Florida region continues to be an attractive market for
generating deposits."
Mr. Aleman continued, "In my new role as CEO, I am determined to return
First BanCorp to profitability and maximize shareholder value. We remain
focused on fortifying and leveraging our strength as the second largest
banking franchise in Puerto Rico, and the largest in the Virgin Islands,
executing our core business strategies to continue achieving organic
growth and providing the best financial solutions and customer service
in the industry to our clients. In addition, we will continue to be a
proactive contributor to the economies of our markets, thereby improving
the well being of our clients, employees and stockholders."
"Our strategy is to protect and improve our capital position to manage
the challenges due to the continued recession, but also to enhance our
opportunities to participate in the economic recovery. In order to
ensure that the Corporation is positioned effectively to execute its
business plans, the Board of Directors and management consistently
monitor and evaluate the capital structure of First BanCorp," concluded
Mr. Aleman.
THIRD QUARTER PERFORMANCE DISCUSSION
Net Interest Income
2009 Third Quarter versus 2009 Second
Quarter
Compared with the 2009 second quarter, net interest income, excluding
fair value adjustments ("valuations") on derivatives and financial
liabilities measured at fair value, increased $3.6 million, or 3%. This
reflected a 4 basis point increase in the net interest margin to 2.68%
from 2.64%. The following table reconciles net interest income in
accordance with generally accepted accounting principles in the United
States of America (GAAP) to net interest income, excluding valuations,
and to net interest income on a tax-equivalent basis. Net interest
income on a tax-equivalent basis and net interest income, excluding
valuations on derivative instruments and financial liabilities, are
non-GAAP measures (see Basis of Presentation below for a full
discussion).
Quarters Ended Nine-month period ended
(Dollars in thousands) September 30, 2009 June 30, 2009 September 30, 2008 September 30, 2009 September 30, 2008
Net interest income $ 129,133 $ 131,014 $ 144,621 $ 381,745 $ 403,685
Unrealized loss (gain) on derivative instruments and liabilities
measured at fair value
3,074 (2,396 ) (4,313 ) (2,957 ) (10,438 )
Net interest income - excluding valuations 132,207 128,618 140,308 378,788 393,247
Tax-equivalent adjustment 12,925 13,933 17,859 41,306 40,702
Net interest income excluding valuations - on a tax-equivalent basis $ 145,132 $ 142,551 $ 158,167 $ 420,094 $ 433,949
Average interest-earning assets $ 19,541,256 $ 19,561,512 $ 18,664,426 $ 19,313,697 $ 17,824,586
Net interest spread 2.32 % 2.35 % 2.75 % 2.31 % 2.65 %
Net interest spread - excluding valuations 2.39 % 2.31 % 2.65 % 2.28 % 2.57 %
Net interest spread excluding valuations - on a tax-equivalent basis 2.66 % 2.60 % 3.03 % 2.57 % 2.87 %
Net interest margin 2.62 % 2.69 % 3.08 % 2.64 % 3.03 %
Net interest margin - excluding valuations 2.68 % 2.64 % 2.99 % 2.62 % 2.95 %
Net interest margin excluding valuations - on a tax-equivalent basis 2.95 % 2.92 % 3.37 % 2.91 % 3.25 %
The increase in the net interest margin, excluding valuations, resulted
from continuous measures taken to improve loan pricing and spreads and
from lower funding costs. Net interest income, excluding valuations,
increased despite the adverse effect on interest income of the increase
in non-performing loans.
The decrease in the Corporation's average cost of funds is related to
the current low level of short-term interest rates and the use of
short-term borrowings as a measure of interest rate risk management to
match the shortening in the average life of the investment portfolio.
The current low interest rate levels made available the issuance of new
short-term brokered CDs at rates significantly lower than those that
matured. Short-term repurchase agreements and Federal Home Loan Bank
(FHLB) and Federal Reserve (FED) advances continue to be cost effective
funding alternatives. Also, the decrease in funding costs reflected the
benefit of lower deposit pricing.
Partially offsetting the aforementioned positive factors was a decrease
in the average volume of interest-earning assets, which includes a
decrease of $179.1 million in the average volume of loans. The decrease
in the average volume of loans was mainly related to the repayment of a
$500 million loan facility extended to the Puerto Rico Sales Tax
Financing Corp. (COFINA, under its Spanish acronym), an instrumentality
of the Government of Puerto Rico, that was outstanding for almost the
entire second quarter of 2009 until it was paid-off on June 18, 2009.
During the third quarter of 2009, the Corporation entered into a new
$500 million credit facility with COFINA of which $250 million was
disbursed in the latter part of the quarter, and thus, the full $500
million is not reflected in the average loan balances for the third
quarter. Also contributing to the decline in average loans were payoffs,
balance reductions and charge-offs on construction and consumer loans.
2009 Third Quarter versus 2008 Third
Quarter
Net interest income, excluding valuations, decreased $8.1 million, or
6%, from the third quarter of 2008. Net interest income, excluding
valuations, was adversely impacted by lower loan yields, resulting
mainly from the significant increase in non-accrual loans and from the
repricing of variable-rate construction and commercial loans tied to
short-term indexes. Net interest margin, excluding valuations, decreased
from 2.99% for the third quarter of 2008 to 2.68% for the third quarter
of 2009. Lower loan yields more than offset the benefit of lower
short-term rates in the average cost of funding and the increase in the
average volume of interest-earning assets. The average 3-month LIBOR for
the third quarter of 2009 was 0.41% compared to 2.91% for the same
period a year ago and the Prime Rate dropped to 3.25% from 5.00% as of
September 30, 2008. The increase in the average volume of
interest-earning assets was mainly driven by the growth of the
Corporation's commercial and industrial (C&I) loan portfolio in Puerto
Rico. Approximately 40% of the increase in average commercial loans
pertained to an average balance of $262.3 million related to credit
facilities extended to the Puerto Rico Government (see the Financial
Condition and Operating Data section below for a full discussion about
credit extended to the Puerto Rico Government).
Provision for Loan and Lease Losses
The provision for loan and lease losses for the third quarter of 2009
was $148.1 million, down $87.1 million from the prior quarter and up
$92.8 million from the third quarter of 2008 (see the Credit Quality
Performance section below for a full discussion).
Non-interest income
2009 Third Quarter versus 2009 Second
Quarter
Non-interest income increased $26.6 million to $50.0 million, from the
2009 second quarter. The increase in non-interest income reflected:
--
A $24.0 million increase in realized gains on the sale of investment
securities, primarily reflecting a $28.3 million gain on the sale of
U.S. agency mortgage-backed securities (MBS), compared to realized
gains on the sale of MBS of $9.4 million in the second quarter of
2009. The recent drop in mortgage pre-payments, as well as future
pre-payment estimates, suggests longer expected lives of MBS, which in
turn could place the Corporation's balance sheet in an
less-than-optimal liability-sensitive position in terms of interest
rate risk. In an effort to manage such risk, and taking advantage of
favorable market valuations, approximately $613 million of 5.5%
30-year U.S. agency MBS were sold in the third quarter, which resulted
in the realization of a gain. Also, the Corporation realized a gain of
$1.9 million on the sale of approximately $98 million of 7-10 Year
U.S. Treasury Notes, which carried a weighted-average yield of 3.54%,
and a gain of $3.8 million on the sale of VISA Class A stock.
--
A $0.9 million decrease in other-than-temporary impairment (OTTI)
charges through earnings related to the credit loss portion of
available-for-sale private label MBS.
--
A $0.6 million increase in gains from mortgage banking activities.
--
Also contributing to the increase in non-interest income from the
prior quarter was higher fee income, mainly fees on loans and service
charges on deposit accounts.
2009 Third Quarter versus 2008 Third
Quarter
Non-interest income increased $36.1 million to $50.0 million, from the
third quarter of 2008. The increase in non-interest income reflected:
--
A $34.1 million increase in realized gains on the sale of investment
securities, due to the aforementioned sales of MBS, U.S. Treasury
Notes and VISA stock.
--
A $1.8 million increase in gains from mortgage banking activities, due
to the increased volume of loan sales and securitizations. Servicing
assets recorded at the time of sale amounted to $1.7 million for the
third quarter of 2009, compared to $0.4 million for the same quarter a
year ago, an increase mainly related to $1.4 million of capitalized
servicing assets in connection with the securitization of
approximately $74 million FHA/VA mortgage loans into GNMA MBS. For the
first time in several years, the Corporation has been engaged in the
securitization of mortgage loans in 2009.
--
Other increases in non-interest income include higher fees on loans,
service charges on deposit accounts, ATM fee income and fees from
services to corporate customers.
Non-interest expenses
2009 Third Quarter versus 2009 Second
Quarter
Non-interest expenses decreased $13.2 million to $82.8 million, from the
2009 second quarter. The decrease in non-interest expenses reflected:
--
An $8.0 million decrease in FDIC assessment fees, as the prior quarter
includes $8.9 million of the FDIC special assessment.
--
A $2.2 million decrease in occupancy and equipment expenses, as the
prior quarter includes accruals of $2.6 million for the reassessed
value of certain real properties.
--
A $1.6 million decrease in the net loss of real estate owned (REO)
operations, as the prior quarter includes a $1.5 million write-down to
a foreclosed condo-conversion project in Florida. Also contributing to
the decrease were lower taxes and maintenance and operating expenses
related to properties in Florida partially offset by an increase of
$0.9 million in write-downs to repossessed properties in Puerto Rico.
--
A $1.0 million decrease in business promotion expenses, as compared to
a higher level of marketing activities in the prior quarter.
All other non-interest expenses were relatively stable as management has
worked to control costs through its corporate-wide Business
Rationalization initiative.
2009 Third Quarter versus 2008 Third
Quarter
Non-interest expenses increased $0.4 million to $82.8 million, from the
third quarter of 2008. The slight increase in non-interest expenses is
mainly related to:
--
An increase of $3.9 million in the FDIC deposit insurance premium,
related to increases in regular assessment rates, which is an
uncontrollable expense.
The increase was almost entirely offset by reductions of $3.5 million in
controllable expenses such as reductions in employees' compensation and
benefits expenses, mainly due to a decrease in the accrual of bonuses,
as well as reductions in business promotion, occupancy, REO losses and
taxes (other than income taxes) expenses, partially offset by an
increase in professional fees. Management is intensely focused on
managing risks, controlling expenses and improving profitability.
The efficiency ratio for the third quarter of 2009 was 46.21% compared
to 51.97% for the same period in 2008.
Income Taxes
2009 Third Quarter versus 2009 Second
Quarter
For the quarter ended September 30, 2009, the Corporation recognized an
income tax expense of $113.5 million, compared to an income tax benefit
of $98.1 million recorded for the second quarter of 2009. The
recognition of an income tax expense for the quarter mainly resulted
from the non-cash charge of approximately $152.2 million to increase the
valuation allowance for the Corporation's deferred tax asset. 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. In making such assessment, significant weight
is to be given to evidence that can be objectively verified. In
accordance with authoritative accounting guidance, the Corporation has
evaluated its deferred tax assets each reporting period, including an
assessment of its cumulative income/loss over the prior three-year
period, expected profits in future periods and tax planning strategies
available, to determine if a valuation allowance was required.
Accounting guidance requires that a valuation allowance be established
after an evaluation of all positive and negative evidence. A significant
negative factor was that the Corporation's banking subsidiary FirstBank
Puerto Rico is in a three-year historical cumulative loss as of the end
of the third quarter of 2009, mainly as a result of charges to the
provision for loan and lease losses during 2009 arising from the impact
of the economic downturn. This, combined with uncertain near-term market
and economic conditions, reduced the Corporation's ability to rely on
projections of future taxable income in assessing the realization of its
deferred tax assets and resulted in the increase of the valuation
allowance. In future quarters, 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
Corporation's liquidity, nor does such an allowance preclude the
Corporation from using tax losses, tax credits or other deferred tax
assets in the future. The increase in the valuation allowance is not a
result of a change in management's view of the Corporation's near or
long-term outlook.
Also contributing to the fluctuation in the income tax provision, was a
reduction in deferred taxes recorded in the quarter, as compared to the
second quarter of 2009, mainly related to the lower provision for loan
and lease losses, and the fact that the second quarter benefit includes
the reversal of approximately $16.1 million in Unrecognized Tax Benefits
(UTBs) for positions taken on income tax returns due to the lapse of the
statute of limitations for the 2004 taxable year. Such reversal was
higher than the reversal in the third quarter of $2.9 million of the
remaining UTBs in connection with an agreement with the Puerto Rico
Department of Treasury that concludes an income tax audit related to
taxable years 2005, 2006, 2007 and 2008.
2009 Third Quarter versus 2008 Third
Quarter
The income tax expense recorded in the third quarter of 2009 was $113.5
million compared to an income tax benefit of $3.7 million for the third
quarter of 2008. The fluctuation is mainly a result of the $152.2
million non-cash charge to increase the deferred tax asset valuation
allowance, as described above. Partially offsetting the impact of the
current quarter increase in the valuation allowance, was the favorable
tax benefit recorded due to the increase in the provision for loan and
lease losses and the $2.9 million reversal of UTBs during the third
quarter of 2009. The income tax provision in 2009 was also impacted by
adjustments to deferred tax amounts as a result of changes to the
enacted rates under the Puerto Rico Internal Revenue Code of 1994, as
amended (the "PR Code"). On March 9, 2009, the Government of Puerto Rico
approved Act No. 7 (the "Act") to stimulate Puerto Rico's economy and to
reduce the Puerto Rico Government's 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. In
addition, under the Act, all International Banking Entities ("IBEs") are
subject to a special 5% tax on their net income not otherwise subject to
tax pursuant to the PR Code. These two temporary measures are effective
for tax years that commenced after December 31, 2008 and before January
1, 2012. The effect of a higher temporary statutory tax rate over the
normal statutory tax rate resulted in an additional income tax benefit
of $0.5 million that was offset by an income tax provision of $2.2
million for the third quarter of 2009 related to the special 5% tax on
the operations of the Corporation's IBE subsidiary. Deferred tax amounts
have been adjusted for the effect of the change in the income tax rate
considering the enacted tax rate expected to apply to taxable income in
the period in which the deferred tax asset or liability is expected to
be settled or realized.
As of September 30, 2009, the deferred tax asset, net of a valuation
allowance of $157 million, amounted to $108.0 million compared to $217.8
million as of June 30, 2009.
Pre-Tax, Pre-Provision Earnings
One performance metric that management believes is useful in analyzing
performance in times of market economic stress is the level of pre-tax
earnings adjusted to exclude the provision for loan and lease losses and
certain other items. (See Pre-tax, Pre-Provision earnings in Basis of
Presentation for a full discussion of this non-GAAP financial measure).
The following table shows pre-tax, pre-provision earnings of $62.3
million in the third quarter of 2009, up 7% from the prior quarter.
Quarter Ended Nine-Month Period Ended
September 30, June 30, September 30, September 30,
(Dollars in thousands) 2009 2009 2008 2009 2008
Consolidated net (loss) income $ (165,218 ) $ (78,658 ) $ 24,546 $ (221,985 ) $ 91,129
Less: Income tax expense (benefit) 113,473 (98,053 ) (3,749 ) 1,223 (20,952 )
Add: Provision for loan and lease losses 148,090 235,152 55,319 442,671 142,435
Net (gain) loss on sale and OTTI of investment securities
(30,281 ) (9,244 ) 696 (56,975 ) (5,476 )
Gain on VISA shares and related proceeds (3,784 ) - (132 ) (3,784 ) (9,474 )
FDIC special assessment - 8,894 - 8,894 -
Core deposit impairment - 270 - 3,988 -
Pre-tax, pre-provision earnings (1) $ 62,280 $ 58,361 $ 76,680 $ 174,032 $ 197,662
(1) See Basis of Presentation for definition
As discussed in the preceding sections, this improvement compared to the
second quarter of 2009 primarily reflected lower operating expenses as
well as higher fee income and net interest margins.
Credit Quality Performance
Credit quality performance for the third quarter of 2009 continued to be
negatively impacted by the sustained economic weakness and declining
real estate values in Puerto Rico and Florida.
The following table sets forth an analysis of the allowance for loan and
lease losses during the periods indicated:
Quarter Ended Nine-Month Period Ended
September 30, June 30, September 30, September 30,
(Dollars in thousands) 2009 2009 2008 2009 2008
Allowance for loan and lease losses, beginning of period $ 407,746 $ 302,531 $ 222,272 $ 281,526 $ 190,168
Provision for loan and lease losses:
Residential mortgage 6,896 16,659 942 36,804 8,801
Commercial mortgage 19,432 25,917 4,161 48,995 1,277
Commercial and Industrial 44,609 67,170 3,239 118,154 33,426
Construction 56,883 112,611 26,869 200,050 41,192
Consumer and finance leases 20,270 12,795 20,108 38,668 57,739
Total provision for loan and lease losses 148,090 235,152 55,319 442,671 142,435
Loans net charge-offs:
Residential mortgage (10,882 ) (3,329 ) (1,649 ) (21,373 ) (4,017 )
Commercial mortgage (5,263 ) (14,229 ) (1,714 ) (19,983 ) (1,898 )
Commercial and Industrial (5,615 ) (13,738 ) (4,580 ) (26,769 ) (19,433 )
Construction (47,324 ) (82,847 ) (1,022 ) (138,694 ) (7,333 )
Consumer and finance leases (15,268 ) (15,794 ) (16,187 ) (45,894 ) (47,483 )
Net charge-offs (84,352 ) (129,937 ) (25,152 ) (252,713 ) (80,164 )
Other adjustments (1) - - 8,731 - 8,731
Allowance for loan and lease losses, end of period $ 471,484 $ 407,746 $ 261,170 $ 471,484 $ 261,170
Allowance for loan and lease losses to period end total loans
receivable
3.43 % 3.11 % 2.06 % 3.43 % 2.06 %
Net charge-offs (annualized) to average loans outstanding during the
period
2.53 % 3.85 % 0.80 % 2.52 % 0.88 %
Provision for loan and lease losses to net charge-offs during the
period
1.76x 1.81x 2.20x 1.75x 1.78x
(1) Carryover of the allowance for loan losses related to the $218
million auto loan portfolio acquired from Chrysler.
Provision for Loan and Lease Losses
The provision for loan and lease losses decreased $87.1 million to
$148.1 million, or by 37%, compared to the provision recorded for the
second quarter of 2009. The decrease is mainly related to lower charges
to specific reserves for impaired construction and commercial real
estate loans, compared to charges recorded in the previous quarter,
since the Corporation has charged-off a significant amount of collateral
dependent loans to their collateral value. The lower provision for loan
and lease losses was also a result of a slower migration of loans to
regulatory substandard or doubtful risk categories, compared to the
migration observed in the previous quarter, and the fact that previously
identified substandard loans were those that caused an increase in
impaired loans. The latter reflects that impaired loans were previously
identified problem loans with appropriate reserves already established (see
Non-performing assets discussion below for additional information).
However, the Corporation has consistently added to its reserves across
the entire loan portfolio during a weak economic environment. Higher
delinquencies, declines in real estate values, recent trends in
charge-offs and the sustained deterioration of economic conditions have
caused increases in reserve factors for criticized loans. As loans are
assigned to higher risk categories, the calculated reserve increases
accordingly, consistent with the Corporation's reserving methodology.
Approximately $34.4 million and $43.5 million of the total provision for
loan and lease losses recorded in the third quarter of 2009 is related
to construction and C&I loans in Puerto Rico, respectively, while $18.1
million pertains to the consumer and finance leases portfolio in Puerto
Rico. The continued trend of rising unemployment and the depressed
economy negatively impacted borrowers and is reflected in a persistent
decline in the volume of sales of new housing, underperformance of other
sectors of the economy and deterioration in the current and expected
consumer loan credit quality.
With respect to the United States loan portfolio, the Corporation
recorded a $32.3 million provision for the third quarter of 2009, or
$53.4 million lower than the provision recorded in the second quarter of
2009. Most of the provision is related to construction and commercial
mortgage loans. The decrease in the provision, compared to charges
recorded in the second quarter of 2009, reflects the fact that about 85%
of the Corporation's total exposure to construction loans in Florida was
already individually measured for impairment, including those collateral
dependent loans charged-off to their collateral value, before the
beginning of the quarter. As of September 30, 2009, approximately 88%,
or $358.7 million of the total exposure to construction loans in Florida
was individually measured for impairment.
The increase of $92.8 million in the provision for loan and lease losses
to $148.1 million for the third quarter of 2009, compared to the same
period in 2008, reflects the increased volume of criticized loans,
including non-performing and impaired loans, that required higher
reserves as well as increases in general reserve factors to account for
increases in charge-offs and delinquency levels affected by declining
real estate values and deteriorated economic conditions in Puerto Rico
and Florida. Even though the deterioration in credit quality was
observed in all of our portfolios, it was more significant in the
construction and commercial loan portfolios, which was affected by the
stagnant housing market and further deterioration in the economies of
the markets served. The overall growth of the loan portfolio also
contributed to a higher provision in 2009.
Net Charge-Offs
Total net charge-offs for the third quarter of 2009 were $84.4 million
or 2.53% of average loans on an annualized basis, compared to $129.9
million or an annualized 3.85% of average loans for the second quarter
of 2009. Net charge-offs in the third quarter of 2008 were $25.2
million, or an annualized 0.80%.
Current quarter construction loans net charge-offs were $47.3 million,
or an annualized 11.80%, down from $82.8 million, or an annualized
20.38% of related loans, in the second quarter of 2009 and up from $1.0
million, or an annualized 0.27%, in the third quarter of 2008.
Condo-conversion and residential development projects in Florida
continued to represent a significant portion of the losses. There were
$19.0 million, $5.3 million and $5.1 million in net charge-offs during
the third quarter of 2009 related to condo-conversion, residential and
commercial construction projects in Florida, respectively. The
Corporation is engaged in continuous efforts to identify alternatives
that enable borrowers to repay their loans and protect the Corporation's
investments. Also, net charge-offs of $17.9 million were recorded in
connection with the construction loan portfolio in Puerto Rico, mainly
residential housing projects, including charge-offs of $14.0 million on
two relationships. These relationships were previously identified
problem credits with prior appropriate reserves established based on
impairment analyses.
Commercial mortgage loans net charge-offs for the third quarter of 2009
were $5.3 million, or an annualized 1.35%, down from $14.2 million, or
an annualized 3.71% of related loans, in the second quarter of 2009.
Total commercial mortgage net charge-offs in the third quarter of 2008
were $1.7 million or an annualized 0.50%. The charge-offs were spread in
several loans, distributed across our geographic markets.
Total C&I net charge-offs for the third quarter of 2009 were $5.6
million, or an annualized 0.49%, down from $13.7 million, or an
annualized 1.12% of related loans, in the 2009 second quarter. Total C&I
net charge-offs in the third quarter of 2008 were $4.6 million, or an
annualized 0.45%. C&I net charge-offs in the third quarter of 2009 were
impacted by a charge-off of $4.7 million on a single relationship in
Puerto Rico. The remaining charge-offs were concentrated on smaller
loans distributed across several industries.
Residential mortgage net charge-offs were $10.9 million, or an
annualized 1.21% of related average loans. This was up from $3.3
million, or an annualized 0.39% of related average balances in the
second quarter of 2009, and from $1.6 million, or an annualized 0.19%,
in the third quarter of 2008. The higher loss levels compared with prior
quarters were a result of $8.4 million in charge-offs (including $6.0
million in Florida) resulting from updates, for impairment purposes, of
residential mortgage loan portfolios considered homogeneous given high
delinquency and loan-to-value levels, which was negatively impacted by
decreases in collateral values. Total residential mortgage loan
portfolios evaluated for impairment purposes amounted to $291.5 million
as of September 30, 2009 and have been charged-off to their realizable
value, representing approximately 66% of the total non-performing
residential mortgage loan portfolio outstanding as of September 30,
2009. Historical and expected loss rates are considered when
establishing the levels of general reserves for the residential mortgage
loan portfolio. Net charge-offs for residential mortgage loans also
includes $1.8 million related to the disposition of REO properties
within a short-time period after acquisition. Consistent with the
Corporation's assessment of the value of properties and current and
future market conditions, management is focused on strategies to
accelerate the sale of REO properties. The ratio of net charge-offs to
average loans on the Corporation's residential mortgage loan portfolio
of 1.21% for the quarter ended September 30, 2009 is still lower than
the approximately 2.3% average charge-off rate for commercial banks in
the U.S. mainland reported for the second quarter of 2009. The Puerto
Rico housing market has not seen the dramatic decline in housing prices
that affected the U.S. mainland; however, there is currently an
oversupply of housing units compounded by a lower demand for housing due
to diminished consumer purchasing power and confidence.
Total consumer and finance leases net charge-offs in the third quarter
of 2009 were $15.3 million, or an annualized 3.09%, compared to net
charge-offs of $15.8 million, or annualized 3.12%, for the second
quarter of 2009. Net charge-offs for the third quarter of 2009 were down
on an absolute basis from net charge-offs for the third quarter of 2008.
However, as a result of a 9% decline in average loans, annualized net
charge-offs as a percent of related loans increased to 3.09% from 2.98%
for the third quarter of 2008.
The following table presents annualized net charge-offs to average loans
held-in-portfolio:
For the Quarter Ended
September 30, 2009 June 30, 2009 March 31, 2009 December 31, 2008 September 30, 2009
Residential mortgage 1.21 % 0.39 % 0.82 % 0.26 % 0.19 %
Commercial mortgage 1.35 % 3.71 % 0.13 % 0.47 % 0.50 %
Commercial and Industrial 0.49 % 1.12 % 0.65 % 0.31 % 0.45 %
Construction 11.80 % 20.38 % 2.21 % 0.11 % 0.27 %
Consumer and finance leases 3.09 % 3.12 % 2.84 % 3.54 % 2.98 %
Total loans 2.53 % 3.85 % 1.16 % 0.87 % 0.80 %
The above ratios are based on annualized net charge-offs and are not
necessarily indicative of the results expected for the entire year or in
subsequent periods.
The following table presents net charge-offs (annualized) to average
loans held-in-portfolio by geographic segment:
Quarter Ended Nine-Month Period Ended
September 30, June 30, September 30, September 30, September 30,
2009 2009 2008 2009 2008
PUERTO RICO:
Residential mortgage 0.66 % 0.43 % 0.18 % 0.65 % 0.18 %
Commercial mortgage 1.15 % 1.13 % 0.79 % 0.83 % 0.30 %
Commercial and Industrial 0.54 % 1.08 % 0.38 % 0.75 % 0.33 %
Construction 7.23 % 8.33 % 0.55 % 6.36 % 0.22 %
Consumer and finance leases 2.97 % 3.10 % 2.93 % 2.89 % 3.03 %
Total loans 1.64 % 1.90 % 0.88 % 1.58 % 0.79 %
VIRGIN ISLANDS:
Residential mortgage 0.10 % 0.19 % 0.00 % 0.11 % 0.03 %
Commercial mortgage 0.00 % 10.61 % 0.00 % 3.57 % 0.00 %
Commercial and Industrial (1) -0.69 % 2.61 % 0.15 % 0.83 % 9.12 %
Construction 0.00 % 0.00 % 0.00 % 0.00 % 0.00 %
Consumer and finance leases 3.79 % 2.73 % 3.39 % 3.51 % 3.24 %
Total loans 0.33 % 1.69 % 0.50 % 0.87 % 1.78 %
FLORIDA OPERATIONS:
Residential mortgage 6.26 % 0.32 % 0.47 % 2.66 % 0.18 %
Commercial mortgage 1.92 % 7.63 % 0.00 % 3.19 % 0.00 %
Commercial and Industrial 0.00 % 0.02 % 7.73 % 2.14 % 2.99 %
Construction 27.23 % 50.28 % 0.00 % 26.05 % 1.36 %
Consumer and finance leases 6.77 % 5.01 % 3.98 % 7.31 % 4.26 %
Total loans 10.93 % 19.93 % 0.45 % 10.71 % 0.85 %
(1) For the third quarter of 2009, recoveries in commercial and
industrial loans in the Virgin Islands exceeded charge-offs.
Non-Performing Assets
Total non-performing assets as of September 30, 2009 amounted to $1.68
billion, compared to $1.31 billion as of June 30, 2009 and $552.9
million as of September 30, 2008. The increase in non-performing assets
since June 30, 2009 was led by increases of $155.6 million in C&I loans,
$103.2 million in construction loans and $62.1 million in commercial
mortgage loans, mainly in Puerto Rico. Also, there were increases of
$39.9 million in non-performing residential mortgage loans and of $6.7
million in consumer loans and finance leases. The REO portfolio
increased by $9.4 million.
The $155.6 million, or 184%, increase in C&I non-performing loans
reflects continued stress in the Puerto Rico portfolio, which accounts
for $146.1 million of the increase, as a result of further weakened
economic conditions. A decline in economic activity spread across
different sectors of the economy affected the credit quality of the
Corporation's C&I portfolio. C&I non-performing loans in the third
quarter of 2009 were impacted by four relationships in Puerto Rico that
in the aggregate accounted for $103.0 million or 66% of the increase in
C&I non-performing loans. C&I non-performing loans in other geographic
segments of the Corporation remained relatively stable with a $1.7
million increase in Florida and a $7.8 million increase in the Virgin
Islands.
The $103.2 million, or 20%, increase in construction non-performing
loans was primarily associated with residential housing construction
projects in Puerto Rico, which accounted for approximately 69% of the
increase, including a single $65.0 million relationship related to a
high-rise residential project. To a lesser extent, construction and land
loans for the development of commercial projects in Puerto Rico also
contributed to the increase in construction non-performing loans,
accounting for approximately 24% of the increase. In Florida,
non-performing construction loans increased by approximately $6.5
million. This increase is net of approximately $37.7 million of loans
placed in non-accrual status during the third quarter of 2009, including
a condo-conversion loan of $18.8 million, and reductions of $31.2
million due to charge-offs, repayments and sales.
The $62.1 million, or 46% increase, in non-performing commercial
mortgage loans was mainly related to rental and retail businesses in
Puerto Rico, which accounted for approximately 75% of the increase. The
largest commercial mortgage relationship placed in non-accrual status
during the third quarter of 2009 amounted to $16.1 million. The stress
of low absorption rates in residential housing projects, lower retail
sales and downward pressures on rents continued to adversely affect the
construction and commercial mortgage portfolios. In Florida,
non-performing commercial mortgage loans increased by $8.2 million
spread across several industries.
Collateral deficiencies in collateral dependent loans raise doubts about
the ultimate ability to collect the principal of the loans, as well as
interest, in the current economic environment. At the close of the third
quarter of 2009, however, approximately $513.4 million of loans placed
in non-accrual status, mainly construction and commercial loans, were
current or had delinquencies of under 90 days in their interest
payments, and collections are being recorded on a cash basis through
earnings, or on a cost-recovery basis, as conditions warrant. In
Florida, as sales of units within condo-conversion projects continue to
lag, some borrowers reverted to rental projects. In several of these
loans, cash collections cover interest, property taxes, insurance and
other operating costs associated with the projects.
During the third quarter of 2009, interest income of approximately $2.2
million related to a $665.6 million non-performing loan portfolio,
mainly non-performing construction and commercial loans, was applied
against the related principal balance under the cost-recovery method.
The Corporation is evaluating restructuring alternatives to mitigate
losses and enable borrowers to repay their loans under revised terms
seeking to preserve the value of the Corporation's interests over the
long-term.
The increase in residential mortgage non-performing loans of $39.9
million is a result of weakened conditions in Puerto Rico's and
Florida's economy and the continued trend of higher unemployment rates
affecting consumers. The Corporation continues to address existing
issues by way of loss mitigation and loan modification transactions,
offering alternatives to avoid foreclosures through internal programs
and programs sponsored by the Federal Government. The increase in
non-performing residential mortgage loans in Puerto Rico this quarter
was $23.2 million, which was 41% lower than the increase of $39.4
million (excluding mortgages purchased in the second quarter associated
with a previously reported unwinding transaction with a local financial
institution) reported from the first to the second quarter of 2009. The
non-performing residential mortgage loan portfolio in Florida increased
by $16.9 million compared to the balance as of June 30, 2009, and the
non-performing residential mortgage loan portfolio in the Virgin Islands
decreased by $0.2 million.
The increase in consumer and finance leases non-performing loans of $6.7
million includes an increase of $4.1 million in boat loans. The
remaining increase is mainly related to auto loans which are also
adversely impacted by weak economic conditions in Puerto Rico.
The allowance to non-performing loans ratio as of September 30, 2009 was
30.64%, compared to 34.81% as of June 30, 2009. The decrease in the
ratio is attributable in part to the decrease in reserves related to
collateral dependent loans that have been charged-off to the extent the
loan amount exceeded the value of its collateral or impaired loans that
did not require specific reserves based on collateral values or cash
flows projections analyses performed.
The following table sets forth information concerning the ratio of
allowance to non-performing loans (the coverage ratio) as of September
30, 2009 and June 30, 2009 by loan category:
Allowance to Non-Performing Assets:
As of September 30, 2009 Construction Loans C&I Loans Commercial Mortgage Loans Residential Mortgage Loans Consumer and Finance Leases Total
(Dollars in thousands)
Non-performing loans charged-off to realizable value $ 287,400 $ 22,045 $ 23,214 $ 291,520 $ - $ 624,179
Other non-performing loans 322,465 218,379 173,494 148,200 52,104 914,642
Total non-performing loans $ 609,865 $ 240,424 $ 196,708 $ 439,720 $ 52,104 $ 1,538,821
Allowance to non-performing loans 23.75 % 68.94 % 23.79 % 6.92 % 160.58 % 30.64 %
Allowance to non-performing loans, excluding non-performing loans
charged-off to realizable value
44.92 % 75.90 % 26.97 % 20.54 % 160.58 % 51.55 %
As of June 30, 2009 Construction Loans C&I Loans Commercial Mortgage Loans Residential Mortgage Loans Consumer and Finance Leases Total
(Dollars in thousands)
Non-performing loans charged-off to realizable value $ 158,895 $ 12,490 $ 13,519 $ 217,201 $ - $ 402,105
Other non-performing loans 347,747 72,292 121,108 182,643 45,453 769,243
Total non-performing loans $ 506,642 $ 84,782 $ 134,627 $ 399,844 $ 45,453 $ 1,171,348
Allowance to non-performing loans 26.70 % 149.50 % 24.23 % 8.61 % 173.08 % 34.81 %
Allowance to non-performing loans, excluding non-performing loans
charged-off to realizable value
38.90 % 175.33 % 26.94 % 18.85 % 173.08 % 53.01 %
The following table sets forth information concerning the composition of
the Corporation's allowance for loan and lease losses as of September
30, 2009 and June 30, 2009 by loan category and by whether the allowance
and related provisions were calculated individually for impairment
purposes or through a general valuation allowance.
As of September 30, 2009
Construction C&I Commercial Mortgage Residential Mortgage Consumer and
(Dollars in thousands) Loans Loans Loans Loans Finance Leases Total
Impaired loans without specific reserves:
Principal balance of loans, net of charge-offs $ 160,163 $ 51,087 $ 64,102 $ 330,917 $ - $ 606,269
Impaired loans with specific reserves:
Principal balance of loans, net of charge-offs 501,268 231,739 123,034 63,271 - 919,312
Allowance for loan and lease losses 65,876 60,663 20,929 2,488 - 149,956
Allowance for loan and lease losses to principal balance
13.14 % 26.18 % 17.01 % 3.93 % 0.00 % 16.31 %
Loans with general allowance
Principal balance of loans 909,020 4,784,746 1,355,798 3,199,965 1,955,161 12,204,690
Allowance for loan and lease losses 78,962 105,077 25,861 27,958 83,670 321,528
Allowance for loan and lease losses to principal balance
8.69 % 2.20 % 1.91 % 0.87 % 4.28 % 2.63 %
Total portfolio, excluding loans held for sale
Principal balance of loans $ 1,570,451 $ 5,067,572 $ 1,542,934 $ 3,594,153 $ 1,955,161 $ 13,730,271
Allowance for loan and lease losses 144,838 165,740 46,790 30,446 83,670 471,484
Allowance for loan and lease losses to principal balance
9.22 % 3.27 % 3.03 % 0.85 % 4.28 % 3.43 %
As of June 30, 2009
Construction C&I Commercial Mortgage Residential Mortgage Consumer and
(Dollars in thousands) Loans Loans Loans Loans Finance Leases Total
Impaired loans without specific reserves:
Principal balance of loans, net of charge-offs $ 107,495 $ 97,767 $ 49,201 $ 250,937 $ - $ 505,400
Impaired loans with specific reserves:
Principal balance of loans, net of charge-offs 444,836 85,576 81,757 35,221 - 647,390
Allowance for loan and lease losses 78,455 22,860 12,640 3,571 - 117,526
Allowance for loan and lease losses to principal balance
17.64 % 26.71 % 15.46 % 10.14 % 0.00 % 18.15 %
Loans with general allowance
Principal balance of loans 1,027,876 4,155,263 1,433,975 3,335,338 1,997,529 11,949,981
Allowance for loan and lease losses 56,824 103,886 19,981 30,861 78,668 290,220
Allowance for loan and lease losses to principal balance
5.53 % 2.50 % 1.39 % 0.93 % 3.94 % 2.43 %
Total portfolio, excluding loans held for sale
Principal balance of loans $ 1,580,207 $ 4,338,606 $ 1,564,933 $ 3,621,496 $ 1,997,529 $ 13,102,771
Allowance for loan and lease losses 135,279 126,746 32,621 34,432 78,668 407,746
Allowance for loan and lease losses to principal balance
8.56 % 2.92 % 2.08 % 0.95 % 3.94 % 3.11 %
Compared to June 30, 2009, the allowance to loans coverage ratio for C&I
loans with general allowance decreased as non-criticized C&I loans
represents a higher proportion of total loans.
Given the present economic outlook in the Corporation's principal
markets and in spite of the actions taken, the Corporation may
experience further deterioration in its portfolios, which may result in
higher credit losses and additions to reserve balances.
Financial Condition and Operating Data
Total assets increased to $20.1 billion as of September 30, 2009, up
$68.3 million from $20.0 billion as of June 30, 2009. The increase in
total assets was primarily a result of an increase of $620.5 million in
gross loans, partially offset by a decrease of $354.4 million in
investment securities, net of unsettled transactions, and a decrease of
$109.9 million in deferred tax assets due to the $152.2 million non-cash
charge recorded in the third quarter of 2009 to increase the deferred
tax asset valuation allowance. The increase in total gross loans was
mainly due to approximately $689 million in credit facilities extended
to the Puerto Rico Government, which includes the $500 million extended
to COFINA and $189 million extended to the Puerto Rico Government
through a revolving credit facility. The latter is part of the
Corporation's participation for up to $300 million in a syndicate
structured by another financial institution to support the
Commonwealth's 2010 Tax and Revenue Anticipation Notes (TRANs) program.
Loan originations, including purchases and refinancings, for the third
quarter of 2009 amounted to $1.4 billion. Refer to Exhibit A -- Table 6
for a detailed breakdown of the Corporation's loan portfolio as of
September 30, 2009. The Corporation's net decrease in investment
securities is mainly related to the sale of approximately $613 million
in U.S. agency MBS, of which $463 million are scheduled to settle in
October and are recorded as a receivable as of September 30, 2009, and
the sale of $98 million in U.S. Treasury Notes. Refer to the
Non-interest income discussion above for additional information about
sales of investment securities.
As of September 30, 2009, total liabilities amounted to $18.4 billion,
an increase of approximately $210.1 million, as compared to $18.2
billion as of June 30, 2009. The increase in total liabilities was
mainly attributable to an increase of $565.0 million in FED advances and
an increase of $257.9 million in brokered CDs issued to finance lending
and investing activities. This was partially offset by a decrease of
$348.0 million in repurchase agreements, mainly short-term repurchase
agreements in the latter part of the quarter, a decrease of $125.0
million in short-term FHLB advances and a reduction of $143.0 million
related to an account payable outstanding as of June 30, 2009 for
unsettled investments purchases. Total deposits, excluding brokered CDs,
increased slightly by $5.4 million, reflecting an increase in non-time
deposit accounts (e.g. savings, checking and other demand deposit
accounts) of $265.0 million, partially offset by a decrease of $259.6
million in certificates of deposit.
The Corporation's stockholders' equity amounted to $1.7 billion as of
September 30, 2009, a decrease of $141.8 million compared to the balance
as of June 30, 2009, driven by the net loss of $165.2 million and
preferred dividends paid in July amounting to $3.36 million, partially
offset by an increase of $26.7 million in accumulated other
comprehensive income related to changes in the fair value of investment
securities. As previously reported, the Corporation decided to suspend
the payment of common and preferred dividends, effective with the
preferred dividend for the month of August 2009.
The Corporation is well-capitalized, having considerable margins over
minimum well-capitalized regulatory requirements. As of September 30,
2009, the total regulatory capital ratio is estimated to be close to
13.8% and the Tier 1 capital ratio is estimated to be close to 12.5%.
This translates to approximately $545 million and $937 million of total
capital and Tier 1 capital, respectively, in excess of minimum
well-capitalized requirements of 10% and 6%, respectively. A key
priority for the Corporation is to maintain a sound capital position to
absorb potential future credit losses should the economic environment
continue to worsen.
The Corporation's tangible common equity ratio was at 3.62% as of
September 30, 2009, compared to 4.35% as of June 30, 2009, and the Tier
1 common equity to risk-weighted assets ratio as of September 30, 2009
was 4.51% compared to 4.73% as of June 30, 2009. See Basis of
Presentation below for a discussion of these non-GAAP measures. The
following table is a reconciliation of the Corporation's tangible common
equity and tangible assets for the periods ended September 30, 2009,
June 30, 2009 and September 30, 2008, respectively:
September 30, June 30, September 30,
(In thousands) 2009 2009 2008
Total equity per consolidated financial statements $ 1,698,843 $ 1,840,686 $ 1,441,272
Preferred equity (927,374 ) (926,259 ) (550,100 )
Goodwill (28,098 ) (28,098 ) (28,098 )
Core deposit intangible (17,297 ) (18,130 ) (24,894 )
Tangible common equity $ 726,074 $ 868,199 $ 838,180
Total assets per consolidated financial statements $ 20,081,185 $ 20,012,887 $ 19,304,440
Goodwill (28,098 ) (28,098 ) (28,098 )
Core deposit intangible (17,297 ) (18,130 ) (24,894 )
Tangible assets $ 20,035,790 $ 19,966,659 $ 19,251,448
Tangible common equity ratio 3.62 % 4.35 % 4.35 %
The following table reconciles stockholders' equity (GAAP) to Tier 1
common equity:
September 30, June 30, September 30,
(In thousands) 2009 2009 2008
Total equity per consolidated financial statements $ 1,698,843 $ 1,840,686 $ 1,441,272
Qualifying preferred stock (927,374 ) (926,259 ) (550,100 )
Unrealized (gain) loss on available-for-sale securities (1) (73,095 ) (46,382 ) 47,187
Disallowed deferred tax asset (2) (1,721 ) (172,187 ) (65,411 )
Goodwill (28,098 ) (28,098 ) (28,098 )
Core deposit intangible (17,297 ) (18,130 ) (24,894 )
Cumulative change loss (gain) in fair value of liabilities (1,647 ) 2,604 (2,118 )
accounted for under a fair value option
Other disallowed assets (514 ) (347 ) (282 )
Tier 1 common equity $ 649,097 $ 651,887 $ 817,556
Total risk-weighted assets $ 14,394,968 $ 13,785,093 $ 13,489,077
Tier 1 common equity to risk-weighted assets ratio 4.51 % 4.73 % 6.06 %
(1) Tier 1 capital excludes net unrealized gains (losses) on
available-for-sale debt securities and net unrealized gains on
available-for-sale equity securities with readily determinable
fair values, in accordance with regulatory risk-based capital
guidelines. In arriving at Tier 1 capital, institutions are
required to deduct net unrealized losses on available-for-sale
equity securities with readily determinable fair values, net of
tax.
(2) Approximately $112 million of the Corporation's deferred tax
assets at September 30, 2009 (June 30, 2009 - $49 million;
September 30, 2008 - $50 million) were included without limitation
in regulatory capital pursuant to the risk-based capital
guidelines, while approximately $2 million of such assets at
September 30, 2009 (June 30, 2009 - $172 million; September 30,
2008 - $65 million) exceeded the limitation imposed by these
guidelines and, as "disallowed deferred tax assets," were deducted
in arriving at Tier 1 capital. According to regulatory capital
guidelines, the deferred tax assets that are dependent upon future
taxable income are limited for inclusion in Tier 1 capital to the
lesser of: (i) the amount of such deferred tax asset that the
entity expects to realize within one year of the calendar quarter
end-date, based on its projected future taxable income for that
year or (ii) 10% of the amount of the entity's Tier 1 capital.
Approximately $6 million of the Corporation's other net deferred
tax liability at September 30, 2009 (June 30, 2009 - $3 million;
September 30, 2008 - $0) represented primarily the deferred tax
effects of unrealized gains and losses on available-for-sale debt
securities, which are permitted to be excluded prior to deriving
the amount of net deferred tax assets subject to limitation under
the guidelines.
Liquidity
During the third quarter, the Corporation continued managing its
liquidity in a proactive manner, and maintained a position believed to
be more than adequate to face its expected and unexpected needs.
Multiple measures are utilized to monitor the liquidity position,
including basic surplus and volatile liabilities measures. Among the
actions taken in recent months to bolster the liquidity position and to
safeguard its access to credit were, the posting of additional
collateral to the FHLB and to the FED, thereby increasing borrowing
capacity. The Corporation has also maintained the basic surplus (cash,
short-term assets minus short-term liabilities, and secured lines of
credit) well in excess of the self-imposed minimum limit of 5% of total
assets. As of September 30, 2009, the estimated basic surplus ratio of
approximately 11.2% included un-pledged assets, FHLB lines of credit,
collateral pledged at the Federal Reserve Bank' Borrower in Custody
Program, and cash. At the end of the quarter, the Corporation has $1.4
billion of FHLB and FED borrowing capacity. Un-pledged liquid securities
as of September 30, 2009 mainly consisted of fixed-rate MBS and U.S.
agency debentures totaling approximately $677.6 million, which can be
sold under agreements to repurchase. The Corporation does not rely on
uncommitted inter-bank lines of credit (federal funds lines) to fund its
operations and does not include them in the basic surplus computation.
Basis of Presentation
Use of Non-GAAP Financial Measures
This earnings press release contains GAAP financial measures and
non-GAAP financial measures. Non-GAAP financial measures are set forth
when management believes they will be helpful to an understanding of the
Corporation's results of operations or financial position. Where
non-GAAP financial measures are used, the comparable GAAP financial
measure, as well as the reconciliation to the comparable GAAP financial
measure, can be found in the text or in the attached tables of this
earnings release.
Pre-tax, Pre-provision Earnings
One non-GAAP performance metric that management believes is useful in
analyzing underlying performance trends, particularly in times of
economic stress, is pre-tax, pre-provision earnings. Pre-tax,
pre-provision earnings, as defined by management, represents net (loss)
income excluding income tax (benefit) expense, the provision for loan
and lease losses, gains on sale and OTTI of investment securities, as
well as certain items identified as unusual, non-recurring or
non-operating.
From time to time, revenue and expenses are impacted by items judged by
management to be outside of ordinary banking activities and/or by items
that, while they may be associated with ordinary banking activities, are
so unusually large that management believes to be non-recurring. These
items result from factors originating outside the Corporation such as
regulatory actions/assessments, and may result from unusual management
decisions, such as the impairment of intangibles.
Management believes the disclosure of items identified as unusual,
non-recurring or non-operating in current and prior period results aids
analysts/investors in better understanding corporate performance and
trends so that they can evaluate their impact on their expectations of
the Corporation's performance, and in their estimates of the
Corporation's future performance.
Items identified as unusual, non-recurring or non-operating for any
particular period are not intended to be a complete list of items that
have materially impacted current or may impact materially future period
performance.
Net interest income, excluding valuations
and on a tax-equivalent basis
Net interest income, interest rate spread and net interest margin are
reported on a tax equivalent basis and excluding the unrealized changes
in the fair value of derivative instruments and financial liabilities
elected to be measured at fair value. The presentation of net interest
income excluding valuations provides additional information about the
Corporation's net interest income and facilitates comparability and
analysis. The changes in the fair value of derivative instruments and
unrealized gains and losses on liabilities measured at fair value have
no effect on interest due or interest earned on interest-bearing
liabilities or interest-earning assets, respectively. The tax equivalent
adjustment to net interest income recognizes the income tax savings when
comparing taxable and tax-exempt assets and assumes a marginal income
tax rate, as described in Exhibit A -- Table 2. Income from tax-exempt
earning assets is increased by an amount equivalent to the taxes that
would have been paid if this income had been taxable at statutory rates.
Management believes that it is a standard practice in the banking
industry to present net interest income, interest rate spread and net
interest margin on a fully tax equivalent basis. This adjustment puts
all earning assets, most notably tax-exempt securities and certain
loans, on a common basis that facilitates comparison of results to
results of peers.
Tangible common equity ratio and Tangible
book value per common share
The tangible common equity ratio and tangible book value per common
share are non-GAAP measures generally used by financial analysts and
investment bankers to evaluate capital adequacy. Tangible common equity
is total equity less preferred equity, goodwill and core deposit
intangibles. Tangible assets are total assets less goodwill and core
deposit intangibles. Management and many stock analysts use the tangible
common equity ratio and tangible book value per common share in
conjunction with more traditional bank capital ratios to compare the
capital adequacy of banking organizations with significant amounts of
goodwill or other intangible assets, typically stemming from the use of
the purchase accounting method of accounting for mergers and
acquisitions. Neither tangible common equity nor tangible assets or
related measures should be considered in isolation or as a substitute
for stockholders' equity, total assets or any other measure calculated
in accordance with GAAP. Moreover, the manner in which the Corporation
calculates its tangible common equity, tangible assets and any other
related measures may differ from that of other companies reporting
measures with similar names.
Tier 1 common equity to risk-weighted
assets ratio
The Tier 1 common equity to risk-weighted assets ratio is calculated by
dividing (a) tier 1 capital less non-common elements including
qualifying perpetual preferred stock and qualifying trust preferred
securities, by (b) risk-weighted assets, which assets are calculated in
accordance with applicable bank regulatory requirements. The Tier 1
common equity ratio is not required by U.S. generally accepted
accounting principles, or GAAP, or on a recurring basis by applicable
bank regulatory requirements. However, this ratio was used by the
Federal Reserve in connection with its stress test administered to the
19 largest U.S. bank holding companies under the Supervisory Capital
Assessment Program (SCAP), the results of which were announced on May 7,
2009. Management is currently monitoring this ratio, along with the
other ratios discussed above, in evaluating the Corporation's capital
levels and believes that, at this time, the ratio may be of interest to
investors.
About First BanCorp
First BanCorp is the parent corporation of FirstBank Puerto Rico, a
state-chartered commercial bank with operations in Puerto Rico, the
Virgin Islands and Florida, and of FirstBank Insurance Agency. First
BanCorp and FirstBank Puerto Rico all operate within U.S. banking laws
and regulations. The Corporation operates a total of 187 branches,
stand-alone offices and in-branch service centers throughout Puerto
Rico, the U.S. and British Virgin Islands, and Florida. Among the
subsidiaries of FirstBank Puerto Rico are Money Express, a finance
company; First Leasing and Car Rental, a car and truck rental leasing
company; and FirstMortgage, a mortgage origination company. In the U.S.
Virgin Islands, FirstBank operates First Insurance VI, an insurance
agency, and First Express, a small loan company. First BanCorp's common
and publicly-held preferred shares trade on the New York Stock Exchange
under the symbols FBP, FBPPrA, FBPPrB, FBPPrC, FBPPrD and FBPPrE.
Additional information about First BanCorp may be found at www.firstbankpr.com.
Safe Harbor
This press release may contain "forward-looking statements" concerning
the Corporation's future economic performance. The words or phrases
"expect," "anticipate," "look forward," "should," "believes" and similar
expressions are meant to identify "forward-looking statements" within
the meaning of Section 27A of the Private Securities Litigation Reform
Act of 1995, and are subject to the safe harbor created by such section.
The Corporation wishes to caution readers not to place undue reliance on
any such "forward-looking statements," which speak only as of the date
made, and to advise readers that various factors, including, but not
limited to, the risks arising from credit and other risks of the
Corporation's lending and investment activities, including the condo
conversion loans from its Florida operations and the construction and
commercial loan portfolios in Puerto Rico, which have affected and may
continue to affect, among other things, the level of non-performing
assets, charge-offs and the provision expense; an adverse change in the
Corporation's ability to attract new clients and retain existing ones; a
decrease in demand for the Corporation's products and services and lower
revenues and earnings because of the recession in the United States, the
continued recession in Puerto Rico and the current fiscal problems and
budget deficit of the Puerto Rico government; adverse changes in general
economic conditions in the state of Florida and Puerto Rico, including
the interest rate scenario, market liquidity, rates and prices, and the
disruptions in the U.S. capital markets, which may reduce interest
margins, impact funding sources and affect demand for the Corporation's
products and services and the value of the Corporation's assets,
including the value of derivative instruments used for protection from
interest rate fluctuations; uncertainty about the impact of measures
adopted by the Puerto Rico government in response to its fiscal
situation on the different sectors of the economy; uncertainty about the
effectiveness and impact of the U.S. government's rescue plan, including
the bailout of U.S. housing government-sponsored agencies, on the
financial markets in general and on the Corporation's business,
financial condition and results of operations; risks of not being able
to recover all assets pledged to Lehman Brothers Special Financing,
Inc.; changes in the Corporation's expenses associated with acquisitions
and dispositions; risks associated with the soundness of other financial
institutions; developments in technology; the impact of Doral Financial
Corporation's financial condition on the repayment of its outstanding
secured loans to the Corporation; the Corporation's ability to issue
brokered certificates of deposit and fund operations; risks associated
with downgrades in the credit ratings of the Corporation's 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, which could affect the Corporation's financial
performance and could cause the Corporation's actual results for future
periods to differ materially from those anticipated or projected. The
Corporation does not undertake, and specifically disclaims any
obligation, to update any "forward-looking statements" to reflect
occurrences or unanticipated events or circumstances after the date of
such statements.
EXHIBIT A
Table 1. Selected Financial Data
SELECTED FINANCIAL DATA
(In thousands, except for per share and financial ratios)
Quarter ended Nine-month period ended
September 30, June 30, September 30, September 30,
2009 2009 2008 2009 2008
Condensed Income Statements:
Total interest income $ 242,022 $ 252,780 $ 288,292 $ 753,125 $ 843,987
Total interest expense 112,889 121,766 143,671 371,380 440,302
Net interest income 129,133 131,014 144,621 381,745 403,685
Provision for loan and lease losses 148,090 235,152 55,319 442,671 142,435
Non-interest income 49,989 23,415 13,871 103,457 55,253
Non-interest expenses 82,777 95,988 82,376 263,293 246,326
(Loss) Income before income taxes (51,745 ) (176,711 ) 20,797 (220,762 ) 70,177
Income tax (expense) benefit (113,473 ) 98,053 3,749 (1,223 ) 20,952
Net (loss) income (165,218 ) (78,658 ) 24,546 (221,985 ) 91,129
Net (loss) income attributable to common stockholders (174,689 ) (94,825 ) 14,477 (262,741 ) 60,922
Per Common Share Results:
Net (loss) income per share basic $ (1.89 ) $ (1.03 ) $ 0.16 $ (2.84 ) $ 0.66
Net (loss) income per share diluted $ (1.89 ) $ (1.03 ) $ 0.16 $ (2.84 ) $ 0.66
Cash dividends declared $ - $ 0.07 $ 0.07 $ 0.14 $ 0.21
Average shares outstanding 92,511 92,511 92,511 92,511 92,507
Average shares outstanding diluted 92,511 92,511 92,569 92,511 92,623
Book value per common share $ 8.34 $ 9.88 $ 9.63 $ 8.34 $ 9.63
Tangible book value per common share $ 7.85 $ 9.38 $ 9.06 $ 7.85 $ 9.06
Selected Financial Ratios (In Percent):
Profitability:
Return on Average Assets (3.27 ) (1.57 ) 0.52 (1.49 ) 0.67
Interest Rate Spread (1) 2.66 2.60 3.03 2.57 2.87
Net Interest Margin (1) 2.95 2.92 3.37 2.91 3.25
Return on Average Total Equity (35.47 ) (15.93 ) 6.98 (15.53 ) 8.51
Return on Average Common Equity (74.62 ) (36.14 ) 6.76 (34.94 ) 9.26
Average Total Equity to Average Total Assets 9.22 9.85 7.39 9.60 7.81
Tangible common equity ratio 3.62 4.35 4.35 3.62 4.35
Dividend payout ratio - (6.84 ) 44.73 (4.93 ) 31.89
Efficiency ratio (2) 46.21 62.16 51.97 54.26 53.67
Asset Quality:
Allowance for loan and lease losses to loans receivable 3.43 3.11 2.06 3.43 2.06
Net charge-offs (annualized) to average loans 2.53 3.85 0.80 2.52 0.88
Provision for loan and lease losses to net charge-offs 175.56 180.97 219.94 175.17 177.68
Non-performing assets to total assets 8.39 6.53 2.86 8.39 2.86
Non-accruing loans to total loans receivable 11.21 8.94 3.95 11.21 3.95
Allowance to total non-accruing loans 30.64 34.81 52.20 30.64 52.20
Allowance to total non-accruing loans excluding residential real
estate loans
42.90 52.85 103.83 42.90 103.83
Other Information:
Common Stock Price: End of period $ 3.05 $ 3.95 $ 11.06 $ 3.05 $ 11.06
As of As of As of
September 30, June 30, December 31,
2009 2009 2008
Balance Sheet Data:
Loans and loans held for sale $ 13,756,168 $ 13,135,710 $ 13,088,292
Allowance for loan and lease losses 471,484 407,746 281,526
Money market and investment securities 5,571,010 6,368,167 5,709,154
Intangible assets 45,395 46,228 52,083
Deferred tax asset, net 107,955 217,843 128,039
Total assets 20,081,185 20,012,887 19,491,268
Deposits 12,298,790 12,035,427 13,057,430
Borrowings 5,941,064 5,846,879 4,736,670
Total preferred equity 927,374 926,259 550,100
Total common equity 698,374 868,045 940,628
Accumulated other comprehensive income, net of tax 73,095 46,382 57,389
Total equity 1,698,843 1,840,686 1,548,117
1- On a tax-equivalent basis (see discussion in Table 2 below).
2- 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.
Table 2. Statement of Average Interest-Earning Assets and
Average Interest-Bearing Liabilities (On a Tax Equivalent Basis)
Average volume Interest income(1) / expense Average rate(1)
September 30, June 30, September 30, September 30, June 30, September 30, September 30, June 30, September 30,
Quarter ended 2009 2009 2008 2009 2009 2008 2009 2009 2008
(Dollars in thousands)
Interest-earning assets:
Money market & other short-term investments $ 161,491 $ 101,819 $ 178,973 $ 185 $ 117 $ 974 0.45 % 0.46 % 2.17 %
Government obligations (2) 1,382,167 1,540,821 1,031,654 9,709 15,904 18,218 2.79 % 4.14 % 7.03 %
Mortgage-backed securities 4,595,678 4,322,708 4,809,138 63,588 60,012 78,214 5.49 % 5.57 % 6.47 %
Corporate bonds 2,000 7,458 6,103 29 202 143 5.75 % 10.86 % 9.32 %
FHLB stock 76,843 86,509 69,427 1,038 788 968 5.36 % 3.65 % 5.55 %
Equity securities 1,977 1,977 3,692 18 18 18 3.61 % 3.65 % 1.94 %
Total investments (3) 6,220,156 6,061,292 6,098,987 74,567 77,041 98,535 4.76 % 5.10 % 6.43 %
Residential mortgage loans 3,602,562 3,425,235 3,427,707 53,617 51,717 54,756 5.90 % 6.06 % 6.36 %
Construction loans 1,604,565 1,626,141 1,487,779 12,402 13,142 20,286 3.07 % 3.24 % 5.42 %
C&I and commercial mortgage loans 6,137,781 6,423,055 5,477,213 62,379 66,801 74,164 4.03 % 4.17 % 5.39 %
Finance leases 335,636 347,732 372,404 6,775 7,111 7,842 8.01 % 8.20 % 8.38 %
Consumer loans 1,640,556 1,678,057 1,800,336 46,692 47,436 52,142 11.29 % 11.34 % 11.52 %
Total loans (4) (5) 13,321,100 13,500,220 12,565,439 181,865 186,207 209,190 5.42 % 5.53 % 6.62 %
Total interest-earning assets $ 19,541,256 $ 19,561,512 $ 18,664,426 $ 256,432 $ 263,248 $ 307,725 5.21 % 5.40 % 6.56 %
Interest-bearing liabilities:
Brokered CDs $ 7,292,913 $ 7,051,179 $ 7,643,238 $ 51,305 $ 56,677 $ 73,962 2.79 % 3.22 % 3.85 %
Other interest-bearing deposits 3,995,123 4,146,552 3,677,632 20,860 23,443 26,005 2.07 % 2.27 % 2.81 %
Loans payable 652,391 768,505 42,391 463 614 240 0.28 % 0.32 % 2.25 %
Other borrowed funds 4,171,348 3,862,885 4,296,355 30,545 31,646 39,333 2.91 % 3.29 % 3.64 %
FHLB advances 1,196,657 1,450,478 1,212,121 8,127 8,317 10,018 2.69 % 2.30 % 3.29 %
Total interest-bearing liabilities (6) $ 17,308,432 $ 17,279,599 $ 16,871,737 $ 111,300 $ 120,697 $ 149,558 2.55 % 2.80 % 3.53 %
Net interest income $ 145,132 $ 142,551 $ 158,167
Interest rate spread 2.66 % 2.60 % 3.03 %
Net interest margin 2.95 % 2.92 % 3.37 %
Average volume Interest income(1) / expense Average rate(1)
Nine-Month Period Ended September 30, 2009 2008 2009 2008 2009 2008
(Dollars in thousands)
Interest-earning assets:
Money market & other short-term investments $ 126,234 $ 327,451 $ 393 $ 6,046 0.42 % 2.47 %
Government obligations (2) 1,355,492 1,532,736 45,214 75,929 4.46 % 6.62 %
Mortgage-backed securities 4,392,359 3,674,801 187,021 170,239 5.69 % 6.19 %
Corporate bonds 5,703 6,158 264 425 6.19 % 9.22 %
FHLB stock 78,178 65,998 2,186 3,229 3.74 % 6.54 %
Equity securities 2,103 4,020 54 29 3.43 % 0.96 %
Total investments (3) 5,960,069 5,611,164 235,132 255,897 5.27 % 6.09 %
Residential mortgage loans 3,508,471 3,309,221 159,383 160,715 6.07 % 6.49 %
Construction loans 1,592,372 1,478,794 39,646 64,751 3.33 % 5.85 %
C&I and commercial mortgage loans 6,223,979 5,360,382 193,325 233,065 4.15 % 5.81 %
Finance leases 347,791 375,460 21,468 24,238 8.25 % 8.62 %
Consumer loans 1,681,015 1,689,565 142,722 146,677 11.35 % 11.60 %
Total loans (4) (5) 13,353,628 12,213,422 556,544 629,446 5.57 % 6.88 %
Total interest-earning assets $ 19,313,697 $ 17,824,586 $ 791,676 $ 885,343 5.48 % 6.63 %
Interest-bearing liabilities:
Brokered CDs $ 7,267,812 $ 7,406,242 $ 180,815 $ 231,883 3.33 % 4.18 %
Other interest-bearing deposits 4,056,396 3,553,985 69,495 78,355 2.29 % 2.94 %
Loans payable 574,117 14,234 1,423 240 0.33 % 2.25 %
Other borrowed funds 3,799,118 3,898,835 95,113 110,178 3.35 % 3.77 %
FHLB advances 1,395,752 1,143,851 24,736 30,738 2.37 % 3.59 %
Total interest-bearing liabilities (6) $ 17,093,195 $ 16,017,147 $ 371,582 $ 451,394 2.91 % 3.76 %
Net interest income $ 420,094 $ 433,949
Interest rate spread 2.57 % 2.87 %
Net interest margin 2.91 % 3.25 %
(1) On a tax-equivalent basis. The tax-equivalent yield was
estimated by dividing the interest rate spread on exempt assets by (1
less Puerto Rico statutory tax rate (40.95% for the Corporation's
subsidiaries other than IBEs in 2009, 35.95% for the Corporation's IBEs
in 2009 and 39% for all subsidiaries in 2008)) 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 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-accruing
loans.
(5) Interest income on loans includes $2.8 million, $2.7 million
and $2.5 million for the third quarter of 2009, second quarter of 2009
and third quarter of 2008, respectively, and $8.3 million and $7.9
million for the nine-month period ended September 30, 2009 and 2008,
respectively, of income from prepayment penalties and late fees related
to the Corporation's loan portfolio.
(6) Unrealized gains and losses on liabilities measured at fair
value are excluded from the average volumes.
Table 3. Non-Interest Income
Quarter Ended Nine-month period ended
September 30, June 30, September 30, September 30,
2009 2009 2008 2009 2008
(In thousands)
Other service charges on loans $ 1,796 $ 1,523 $ 1,612 $ 4,848 $ 4,343
Service charges on deposit accounts 3,458 3,327 3,170 9,950 9,725
Mortgage banking activities 3,000 2,373 1,231 6,179 2,354
Rental income 390 407 583 1,246 1,705
Insurance income 2,316 2,229 2,631 6,915 7,910
Other operating income 4,964 4,312 5,208 13,560 14,266
Non-interest income before net gain on investments
15,924 14,171 14,435 42,698 40,303
Gain on VISA shares and related proceeds 3,784 - 132 3,784 9,474
Net gain on sale of investments 30,490 10,305 - 58,633 6,661
OTTI on equity securities - - (696 ) (388 ) (1,185 )
OTTI on debt securities (209 ) (1,061 ) - (1,270 ) -
Net gain on investments 34,065 9,244 (564 ) 60,759 14,950
Total $ 49,989 $ 23,415 $ 13,871 $ 103,457 $ 55,253
Table 4. Non-Interest Expenses
Quarter Ended Nine-month period ended
September 30, June 30, September 30, September 30,
2009 2009 2008 2009 2008
(In thousands)
Employees' compensation and benefits $ 34,403 $ 34,472 $ 35,629 $ 103,117 $ 106,949
Occupancy and equipment 15,291 17,448 15,647 47,513 46,167
Deposit insurance premium 6,884 14,895 2,967 26,659 7,658
Other taxes, insurance and supervisory fees 4,206 5,744 5,488 15,743 16,740
Professional fees - recurring 3,391 3,138 1,900 9,352 10,080
Professional fees - non-recurring 415 204 824 982 2,622
Servicing and processing fees 2,784 2,246 2,685 7,342 7,654
Business promotion 2,879 3,836 4,083 9,831 13,150
Communications 2,083 2,018 2,173 6,228 6,696
Net loss on REO operations 5,015 6,626 5,626 17,016 12,054
Other (1) 5,426 5,361 5,354 19,510 16,556
Total $ 82,777 $ 95,988 $ 82,376 $ 263,293 $ 246,326
(1) Includes core deposit intangible impairment charge of $4.0
million for the nine-month period ended September 30, 2009.
Table 5. Loan Portfolio
Composition of the loan portfolio including loans held for sale at
period-end.
September 30, June 30, December 31, September 30,
(Dollars in thousands) 2009 2009 2008 2008
Residential mortgage loans $ 3,620,050 $ 3,654,435 $ 3,491,728 $ 3,470,802
Commercial loans:
Construction loans 1,570,451 1,580,207 1,526,995 1,478,076
Commercial mortgage loans 1,542,934 1,564,933 1,535,758 1,422,899
Commercial and Industrial loans (1) 4,738,080 4,002,306 3,857,728 3,602,123
Loans to local financial institutions collateralized by real
estate mortgages
329,492 336,300 567,720 579,305
Commercial loans 8,180,957 7,483,746 7,488,201 7,082,403
Finance leases 329,418 341,119 363,883 371,982
Consumer loans 1,625,743 1,656,410 1,744,480 1,787,915
Total loans $ 13,756,168 $ 13,135,710 $ 13,088,292 $ 12,713,102
(1) As of September 30, 2009, includes $1.2 billion of commercial
loans that although the primary collateral is real estate, the
real estate is not the source of repayment.
Table 6. Loan Portfolio by Geography
Puerto Virgin
As of September 30, 2009 Rico Islands Florida Total
(In thousands)
Residential mortgage loans, including loans held for sale
$ 2,781,401 $ 450,154 $ 388,495 $ 3,620,050
Construction loans (1) 971,223 193,613 405,615 1,570,451
Commercial mortgage loans 958,741 73,606 510,587 1,542,934
Commercial and Industrial loans 4,475,769 230,322 31,989 4,738,080
Loans to local financial institutions collateralized by real estate
mortgages
329,492 - - 329,492
Total commercial loans 6,735,225 497,541 948,191 8,180,957
Finance leases 329,418 - - 329,418
Consumer loans 1,483,360 105,342 37,041 1,625,743
Total loans, gross $ 11,329,404 $ 1,053,037 $ 1,373,727 $ 13,756,168
(1) Construction loans of Florida operations include approximately
$141.1 million of condo-conversion loans.
Table 7. Non-Performing Assets
September 30, June 30, December 31, September 30,
(Dollars in thousands) 2009 2009 2008 2008
Non-accruing loans:
Residential mortgage $ 439,720 $ 399,844 $ 274,923 $ 248,821
Commercial mortgage 196,708 134,627 85,943 72,066
Commercial and Industrial 240,424 84,782 58,358 58,728
Construction 609,865 506,642 116,290 72,203
Finance leases 4,744 5,474 6,026 5,736
Consumer 47,360 39,979 45,635 42,806
1,538,821 1,171,348 587,175 500,360
REO 67,493 58,064 37,246 40,422
Other repossessed property 13,338 12,732 12,794 12,144
Investment securities (1) 64,543 64,543 - -
Total non-performing assets $ 1,684,195 $ 1,306,687 $ 637,215 $ 552,926
Past due loans 90 days and still accruing $ 243,894 $ 190,399 $ 471,364 $ 132,665
Allowance for loan and lease losses $ 471,484 $ 407,746 $ 281,526 $ 261,170
Allowance to total non-accruing loans 30.64 % 34.81 % 47.95 % 52.20 %
Allowance to total non-accruing loans, excluding residential real
estate loans
42.90 % 52.85 % 90.16 % 103.83 %
(1) Collateral pledged with Lehman Brothers Special Financing, Inc.
Table 8. Non-Performing Assets by Geography
PUERTO RICO September 30, June 30, December 31, September 30,
(Dollars in thousands) 2009 2009 2008 2008
Non-accruing loans:
Residential mortgage $ 365,705 $ 342,501 $ 244,843 $ 223,457
Commercial mortgage 121,961 75,367 61,459 53,522
Commercial and Industrial 228,025 81,955 54,568 54,557
Construction 252,127 156,112 71,127 49,278
Finance leases 4,744 5,474 6,026 5,736
Consumer 42,816 35,696 40,313 38,028
1,015,378 697,105 478,336 424,578
REO 47,137 40,164 22,012 17,673
Other repossessed property 12,821 12,261 12,221 11,646
Investment securities 64,543 64,543 - -
Total non-performing assets $ 1,139,879 $ 814,073 $ 512,569 $ 453,897
Past due loans 90 days and still accruing $ 227,053 $ 185,132 $ 220,270 $ 130,379
VIRGIN ISLANDS September 30, June 30, December 31, September 30,
(Dollars in thousands) 2009 2009 2008 2008
Non-accruing loans:
Residential mortgage $ 7,116 $ 7,381 $ 8,492 $ 7,685
Commercial mortgage 11,370 4,129 1,476 1,524
Commercial and Industrial 8,404 594 2,055 1,977
Construction 2,727 2,052 4,113 1,569
Finance leases - - - -
Consumer 3,393 3,296 3,688 3,581
33,010 17,452 19,824 16,336
REO 588 599 430 819
Other repossessed property 389 400 388 339
Total non-performing assets $ 33,987 $ 18,451 $ 20,642 $ 17,494
Past due loans 90 days and still accruing $ 618 $ 3,346 $ 27,471 $ 1,286
FLORIDA OPERATIONS September 30, June 30, December 31, September 30,
(Dollars in thousands) 2009 2009 2008 2008
Non-accruing loans:
Residential mortgage $ 66,899 $ 49,962 $ 21,588 $ 17,679
Commercial mortgage 63,377 55,131 23,007 17,020
Commercial and Industrial 3,995 2,233 1,736 2,194
Construction 355,011 348,478 41,050 21,356
Finance leases - - - -
Consumer 1,151 987 1,634 1,197
490,433 456,791 89,015 59,446
REO 19,768 17,301 14,804 21,930
Other repossessed property 128 71 185 159
Total non-performing assets $ 510,329 $ 474,163 $ 104,004 $ 81,535
Past due loans 90 days and still accruing $ 16,223 $ 1,921 $ 223,623 $ 1,000
Table 9. Ratios of Net Charge-Offs to Average Loans
Nine-Months Ended
September 30, Year Ended December 31,
2009 2008 2007 2006 2005
Residential mortgage loans 0.81 % 0.19 % 0.03 % 0.04 % 0.05 %
Commercial mortgage 1.73 % 0.27 % 0.10 % 0.00 % 0.03 %
Commercial loans 0.76 % 0.59 % 0.26 % 0.06 % 0.11 %
Construction loans 11.61 % 0.52 % 0.26 % 0.00 % 0.00 %
Consumer loans and finance leases 3.02 % 3.19 % 3.48 % 2.90 % 2.06 %
Total loans 2.52 % 0.87 % 0.79 % 0.55 % 0.39 %
SOURCE: First BanCorp
First BanCorp
Alan Cohen, 787-729-8256
Senior Vice President,
Marketing and Public Relations
alan.cohen@firstbankpr.com
For full details on First Bancorp Holding Co (FBP) FBP. First Bancorp Holding Co (FBP) has Short Term PowerRatings at TradingMarkets. Details on First Bancorp Holding Co (FBP) Short Term PowerRatings is available at This Link.
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