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þ | ANNUAL 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 | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
1519 Ponce de León Avenue, Stop 23 | 00908 | |
Santurce, Puerto Rico | (Zip Code) | |
(Address of principal executive office) |
Title of Each Class | Name of Each Exchange on Which Registered | |
Common Stock ($1.00 par value) | New York Stock Exchange | |
7.125% Noncumulative Perpetual Monthly Income | New York Stock Exchange | |
Preferred Stock, Series A (Liquidation Preference $25 per share) | ||
8.35% Noncumulative Perpetual Monthly Income | New York Stock Exchange | |
Preferred Stock, Series B (Liquidation Preference $25 per share) | ||
7.40% Noncumulative Perpetual Monthly Income | New York Stock Exchange | |
Preferred Stock, Series C (Liquidation Preference $25 per share) | ||
7.25% Noncumulative Perpetual Monthly Income | New York Stock Exchange | |
Preferred Stock, Series D (Liquidation Preference $25 per share) | ||
7.00% Noncumulative Perpetual Monthly Income | New York Stock Exchange | |
Preferred Stock, Series E (Liquidation Preference $25 per share) |
NONE
Large accelerated filero | Accelerated filerþ | Non-accelerated filero (Do not check if a smaller reporting company) | Smaller reporting companyo |
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2009 ANNUAL REPORT ON FORM 10-K
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EX-10.6 | ||||||||
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EX-21.1 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 | ||||||||
EX-99.1 | ||||||||
EX-99.2 |
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• | uncertainty about whether the Corporation’s actions to improve its capital structure will have their intended effect; | ||
• | the strength or weakness of the real estate market and of the consumer and commercial credit sector and their impact on the credit quality of the Corporation’s loans and other assets, including the Corporation’s construction and commercial real estate loan portfolios, which have contributed and may continue to contribute to, among other things, the increase in the levels of non-performing assets, charge-offs and the provision expense; | ||
• | adverse changes in general economic conditions in the United States and in Puerto Rico, including the interest rate scenario, market liquidity, housing absorption rates, real estate prices and disruptions in the U.S. capital markets, which may reduce interest margins, impact funding sources and affect demand for all of the 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; | ||
• | the Corporation’s reliance on brokered certificates of deposit and its ability to continue to rely on the issuance of brokered certificates of deposit to fund operations and provide liquidity; | ||
• | an adverse change in the Corporation’s ability to attract new clients and retain existing ones; | ||
• | a decrease in demand for the Corporation’s products and services and lower revenues and earnings because of the continued recession in Puerto Rico and the current fiscal problems and budget deficit of the Puerto Rico government; | ||
• | a need to recognize additional impairments of financial instruments or goodwill relating to acquisitions; | ||
• | uncertainty about regulatory and legislative changes for financial services companies in Puerto Rico, the United States and the U.S. and British Virgin Islands, which could affect the Corporation’s financial performance and could cause the Corporation’s actual results for future periods to differ materially from prior results and anticipated or projected results; | ||
• | uncertainty about the effectiveness of the various actions undertaken to stimulate the U.S. economy and stabilize the U.S. financial markets, and the impact such actions may have on the Corporation’s business, financial condition and results of operations; | ||
• | changes in the fiscal and monetary policies and regulations of the federal government, including those determined by the Federal Reserve System (the “Federal Reserve”), the Federal Deposit Insurance Corporation (“FDIC”), government-sponsored housing agencies and local regulators in Puerto Rico and the U.S. and British Virgin Islands; | ||
• | the risk that the FDIC may further increase the deposit insurance premium and/or require special assessments to replenish its insurance fund, causing an additional increase in our non-interest expense; | ||
• | risks of an additional allowance as a result of an analysis of the ability to generate sufficient income to |
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realize the benefit of the deferred tax asset; | |||
• | risks of not being able to recover the assets pledged to Lehman Brothers Special Financing, Inc.; | ||
• | changes in the Corporation’s expenses associated with acquisitions and dispositions; | ||
• | developments in technology; | ||
• | the impact of Doral Financial Corporation’s financial condition on the repayment of its outstanding secured loans to the Corporation; | ||
• | risks associated with further downgrades in the credit ratings of the Corporation’s securities; | ||
• | general competitive factors and industry consolidation; and | ||
• | the possible future dilution to holders of our Common Stock resulting from additional issuances of Common Stock or securities convertible into Common Stock. |
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• | in the event of a stock split, subdivision, reclassification or combination of the outstanding shares of common stock; | ||
• | until the earlier of the date the Treasury no longer holds the Warrant or any portion thereof or January 16, 2012, if the Corporation issues shares of common stock or securities convertible into common stock for no consideration or at a price per share that is less than 90% of the market price on the last trading day preceding the date of the pricing of such sale. Any amounts that the Corporation receives in connection with the issuance of such shares or convertible securities will be deemed to be equal to the sum of the net offering price of all such securities plus the minimum aggregate amount, if any, payable upon exercise or conversion of any such convertible securities; no adjustment will be required with respect to (i) consideration for or to fund business or asset acquisitions, (ii) shares issued in connection with employee benefit plans and compensation arrangements in the ordinary course consistent with past practice approved by the Corporation’s Board of Directors, (iii) a public or broadly marketed offering and sale by the Corporation or its affiliates of the Corporation’s common stock or convertible securities for cash pursuant to registration under the Securities Act or issuance under Rule 144A on a basis consistent with capital raising transactions by comparable financial institutions, and (iv) the exercise of preemptive rights on terms existing on January 16, 2009; | ||
• | in connection with the Corporation’s distributions to security holders (e.g., stock dividends); | ||
• | in connection with certain repurchases of common stock by the Corporation; and | ||
• | in connection with certain business combinations. |
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• | Code of Ethics for Senior Financial Officers | ||
• | Code of Ethics applicable to all employees | ||
• | Independence Principles for Directors |
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• | prohibiting the payment of principal and interest on subordinated debt; | ||
• | prohibiting the holding company from making distributions without prior regulatory approval; | ||
• | placing limits on asset growth and restrictions on activities; | ||
• | placing additional restrictions on transactions with affiliates; | ||
• | restricting the interest rate the institution may pay on deposits; | ||
• | prohibiting the institution from accepting deposits from correspondent banks; and | ||
• | in the most severe cases, appointing a conservator or receiver for the institution. |
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Well-Capitalized | ||||||||||||
First BanCorp | First Bank | Minimum | ||||||||||
As of December 31, 2009 | ||||||||||||
Total capital (Total capital to risk-weighted assets) | 13.44 | % | 12.87 | % | 10.00 | % | ||||||
Tier 1 capital ratio (Tier 1 capital to risk-weighted assets) | 12.16 | % | 11.70 | % | 6.00 | % | ||||||
Leverage ratio(1) | 8.91 | % | 8.53 | % | 5.00 | % |
(1) | Tier 1 capital to average assets. |
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• | The Corporation expects to face increased regulation of the financial industry resulting from the recent instability in capital markets, financial institutions and financial system in general. Compliance with such regulation may increase our costs and limit our ability to pursue business opportunities. | ||
• | The Corporation’s ability to assess the creditworthiness of our customers may be impaired if the models and approaches we use to select, manage, and underwrite the loans become less predictive of future behaviors. | ||
• | The models used to estimate losses inherent in the credit exposure require difficult, subjective, and complex judgments, including forecasts of economic conditions and how these economic predictions might impair the ability of the borrowers to repay their loans, which may no longer be capable of accurate estimation and which may, in turn, impact the reliability of the models. | ||
• | The Corporation’s ability to borrow from other financial institutions or to engage in sales of mortgage loans to third parties (including mortgage loan securitization transactions with government-sponsored entities) on favorable terms, or at all could be adversely affected by further disruptions in the capital markets or other events, including deteriorating investor expectations. | ||
• | Competitive dynamics in the industry could change as a result of consolidation of financial services companies in connection with current market conditions. |
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• | changes or perceived changes in the condition, operations, results or prospects of the Corporation’s businesses and market assessments of these changes or perceived changes; | ||
• | announcements of strategic developments, acquisitions and other material events by the Corporation or its competitors; | ||
• | changes in governmental regulations or proposals, or new governmental regulations or proposals, affecting the Corporation, including those relating to the recent financial crisis and global economic downturn and those that may be specifically directed to the Corporation; | ||
• | the continued decline, failure to stabilize or lack of improvement in general market and economic conditions in the Corporation’s principal markets; | ||
• | the departure of key personnel; | ||
• | changes in the credit, mortgage and real estate markets; | ||
• | operating results that vary from the expectations of management, securities analysts and investors; and | ||
• | operating and stock price performance of companies that investors deem comparable to the Corporation. |
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• | diluting the voting power of the current holders of common stock (the shares underlying the Warrant represent approximately 6% of the Corporation’s outstanding shares of common stock as of December 31, 2009 and BNS owns 10% of the Corporation’s shares of common stock); | ||
• | diluting the earnings per share and book value per share of the outstanding shares of common stock; and | ||
• | making the payment of dividends on common stock more expensive. |
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- | Headquarters — Located at First Federal Building, 1519 Ponce de León Avenue, Santurce, Puerto Rico, a 16 story office building. Approximately 60% of the building, an underground three level parking lot and an adjacent parking lot are owned by the Corporation. | ||
- | EDP & Operations Center — A five-story structure located at 1506 Ponce de León Avenue, Santurce, Puerto Rico. These facilities are fully occupied by the Corporation. | ||
- | Consumer Lending Center — A three-story building with a three-level parking lot located at 876 Muñoz Rivera Avenue, Hato Rey, Puerto Rico. These facilities are fully occupied by the Corporation. | ||
- | In addition, during 2006, First BanCorp purchased a building located on 1130 Muñoz Rivera Avenue, Hato Rey, Puerto Rico. These facilities are being renovated and expanded to accommodate branch operations, data processing, administrative and certain headquarter offices. FirstBank expects to commence occupancy in summer 2010. |
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Dividends | ||||||||||||||||
Quarter Ended | High | Low | Last | per Share | ||||||||||||
2009: | ||||||||||||||||
December | $ | 2.88 | $ | 1.51 | $ | 2.30 | $ | — | ||||||||
September | 4.20 | 3.01 | 3.05 | — | ||||||||||||
June | 7.55 | 3.95 | 3.95 | 0.07 | ||||||||||||
March | 11.05 | 3.63 | 4.26 | 0.07 | ||||||||||||
2008: | ||||||||||||||||
December | $ | 12.17 | $ | 7.91 | $ | 11.14 | $ | 0.07 | ||||||||
September | 12.00 | 6.05 | 11.06 | 0.07 | ||||||||||||
June | 11.20 | 6.34 | 6.34 | 0.07 | ||||||||||||
March | 10.97 | 7.56 | 10.16 | 0.07 | ||||||||||||
2007: | ||||||||||||||||
December | $ | 10.16 | $ | 6.15 | $ | 7.29 | $ | 0.07 | ||||||||
September | 11.06 | 8.62 | 9.50 | 0.07 | ||||||||||||
June | 13.64 | 10.99 | 10.99 | 0.07 | ||||||||||||
March | 13.52 | 9.08 | 13.26 | 0.07 |
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Number of Securities | ||||||||||||
Weighted-Average | Remaining Available for | |||||||||||
Number of Securities | Exercise Price of | Future Issuance Under | ||||||||||
to be Issued Upon | Outstanding | Equity Compensation | ||||||||||
Exercise of Outstanding | Options, warrants | Plans (Excluding Securities | ||||||||||
Options | and rights | Reflected in Column (A)) | ||||||||||
Plan category | (A) | (B) | (C) | |||||||||
Equity compensation plans approved by stockholders | 2,481,310 | (1) | $ | 13.46 | 3,767,784 | (2) | ||||||
Equity compensation plans not approved by stockholders | N/A | N/A | N/A | |||||||||
Total | 2,481,310 | $ | 13.46 | 3,767,784 | ||||||||
(1) | Stock options granted under the 1997 stock option plan which expired on January 21, 2007. All outstanding awards under the stock option plan continue in full forth and effect, subject to their original terms and the shares of common stock underlying the options are subject to adjustments for stock splits, reorganization and other similar events. | |
(2) | Securities available for future issuance under the First BanCorp 2008 Omnibus Incentive Plan (the “Omnibus Plan”) approved by stockholder on April 29, 2008. The Omnibus Plan provides for equity-based compensation incentives (the “awards”) through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, and other stock-based awards. This plan allows the issuance of up to 3,800,000 shares of common stock, subject to adjustments for stock splits, reorganization and other similar events. |
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ITEM 6. | SELECTED FINANCIAL DATA |
Year Ended December 31, | ||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
Condensed Income Statements: | ||||||||||||||||||||
Total interest income | $ | 996,574 | $ | 1,126,897 | $ | 1,189,247 | $ | 1,288,813 | $ | 1,067,590 | ||||||||||
Total interest expense | 477,532 | 599,016 | 738,231 | 845,119 | 635,271 | |||||||||||||||
Net interest income | 519,042 | 527,881 | 451,016 | 443,694 | 432,319 | |||||||||||||||
Provision for loan and lease losses | 579,858 | 190,948 | 120,610 | 74,991 | 50,644 | |||||||||||||||
Non-interest income | 142,264 | 74,643 | 67,156 | 31,336 | 63,077 | |||||||||||||||
Non-interest expenses | 352,101 | 333,371 | 307,843 | 287,963 | 315,132 | |||||||||||||||
(Loss) income before income taxes | (270,653 | ) | 78,205 | 89,719 | 112,076 | 129,620 | ||||||||||||||
Income tax (expense) benefit | (4,534 | ) | 31,732 | (21,583 | ) | (27,442 | ) | (15,016 | ) | |||||||||||
Net (loss) income | (275,187 | ) | 109,937 | 68,136 | 84,634 | 114,604 | ||||||||||||||
Net (loss) income attributable to common stockholders | (322,075 | ) | 69,661 | 27,860 | 44,358 | 74,328 | ||||||||||||||
Per Common Share Results: | ||||||||||||||||||||
Net (loss) income per common share basic | $ | (3.48 | ) | $ | 0.75 | $ | 0.32 | $ | 0.54 | $ | 0.92 | |||||||||
Net (loss) income per common share diluted | $ | (3.48 | ) | $ | 0.75 | $ | 0.32 | $ | 0.53 | $ | 0.90 | |||||||||
Cash dividends declared | $ | 0.14 | $ | 0.28 | $ | 0.28 | $ | 0.28 | $ | 0.28 | ||||||||||
Average shares outstanding | 92,511 | 92,508 | 86,549 | 82,835 | 80,847 | |||||||||||||||
Average shares outstanding diluted | 92,511 | 92,644 | 86,866 | 83,138 | 82,771 | |||||||||||||||
Book value per common share | $ | 7.25 | $ | 10.78 | $ | 9.42 | $ | 8.16 | $ | 8.01 | ||||||||||
Tangible book value per common share(1) | $ | 6.76 | $ | 10.22 | $ | 8.87 | $ | 7.50 | $ | 7.29 | ||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Loans and loans held for sale | $ | 13,949,226 | $ | 13,088,292 | $ | 11,799,746 | $ | 11,263,980 | $ | 12,685,929 | ||||||||||
Allowance for loan and lease losses | 528,120 | 281,526 | 190,168 | 158,296 | 147,999 | |||||||||||||||
Money market and investment securities | 4,866,617 | 5,709,154 | 4,811,413 | 5,544,183 | 6,653,924 | |||||||||||||||
Intangible Assets | 44,698 | 52,083 | 51,034 | 54,908 | 58,292 | |||||||||||||||
Deferred tax asset, net | 109,197 | 128,039 | 90,130 | 162,096 | 130,140 | |||||||||||||||
Total assets | 19,628,448 | 19,491,268 | 17,186,931 | 17,390,256 | 19,917,651 | |||||||||||||||
Deposits | 12,669,047 | 13,057,430 | 11,034,521 | 11,004,287 | 12,463,752 | |||||||||||||||
Borrowings | 5,214,147 | 4,736,670 | 4,460,006 | 4,662,271 | 5,750,197 | |||||||||||||||
Total preferred equity | 928,508 | 550,100 | 550,100 | 550,100 | 550,100 | |||||||||||||||
Total common equity | 644,062 | 940,628 | 896,810 | 709,620 | 663,416 | |||||||||||||||
Accumulated other comprehensive income (loss), net of tax | 26,493 | 57,389 | (25,264 | ) | (30,167 | ) | (15,675 | ) | ||||||||||||
Total equity | 1,599,063 | 1,548,117 | 1,421,646 | 1,229,553 | 1,197,841 | |||||||||||||||
Selected Financial Ratios (In Percent): | ||||||||||||||||||||
Profitability: | ||||||||||||||||||||
Return on Average Assets | (1.39 | ) | 0.59 | 0.40 | 0.44 | 0.64 | ||||||||||||||
Return on Average Total Equity | (14.84 | ) | 7.67 | 5.14 | 7.06 | 8.98 | ||||||||||||||
Return on Average Common Equity | (34.07 | ) | 7.89 | 3.59 | 6.85 | 10.23 | ||||||||||||||
Average Total Equity to Average Total Assets | 9.36 | 7.74 | 7.70 | 6.25 | 7.09 | |||||||||||||||
Interest Rate Spread(1)(2) | 2.62 | 2.83 | 2.29 | 2.35 | 2.87 | |||||||||||||||
Interest Rate Margin(1)(2) | 2.93 | 3.20 | 2.83 | 2.84 | 3.23 | |||||||||||||||
Tangible common equity ratio(1) | 3.20 | 4.87 | 4.79 | 3.60 | 2.97 | |||||||||||||||
Dividend payout ratio | (4.03 | ) | 37.19 | 88.32 | 52.50 | 30.46 | ||||||||||||||
Efficiency ratio(3) | 53.24 | 55.33 | 59.41 | 60.62 | 63.61 | |||||||||||||||
Asset Quality: | ||||||||||||||||||||
Allowance for loan and lease losses to loans receivable | 3.79 | 2.15 | 1.61 | 1.41 | 1.17 | |||||||||||||||
Net charge-offs to average loans | 2.48 | 0.87 | 0.79 | 0.55 | 0.39 | |||||||||||||||
Provision for loan and lease losses to net charge-offs | 1.74 | x | 1.76 | x | 1.36 | x | 1.16 | x | 1.12 | x | ||||||||||
Non-performing assets to total assets | 8.71 | 3.27 | 2.56 | 1.54 | 0.75 | |||||||||||||||
Non-performing loans to total loans receivable | 11.23 | 4.49 | 3.50 | 2.24 | 1.06 | |||||||||||||||
Allowance to total non-performing loans | 33.77 | 47.95 | 46.04 | 62.79 | 110.18 | |||||||||||||||
Allowance to total non-performing loans, excluding residential real estate loans | 47.06 | 90.16 | 93.23 | 115.33 | 186.06 | |||||||||||||||
Other Information: | ||||||||||||||||||||
Common Stock Price: End of period | $ | 2.30 | $ | 11.14 | $ | 7.29 | $ | 9.53 | $ | 12.41 |
(1) | Non-gaap measures. Refer to “Capital” discussion below for additional information of the components and reconciliation of these measures. | |
(2) | On a tax equivalent basis (see “Net Interest Income” discussion below). | |
(3) | Non-interest expenses to the sum of net interest income and non-interest income. The denominator includes non-recurring income and changes in the fair value of derivative instruments and financial instruments measured at fair value. |
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Year Ended December 31, | ||||||||||||||||||||||||
2009 | 2008 | 2007 | ||||||||||||||||||||||
Dollars | Per Share | Dollars | Per Share | Dollars | Per Share | |||||||||||||||||||
(In thousands, except for per common share amounts) | ||||||||||||||||||||||||
Net income attributable to common stockholders for prior year | $ | 69,661 | $ | 0.75 | $ | 27,860 | $ | 0.32 | $ | 44,358 | $ | 0.53 | ||||||||||||
Increase (decrease) from changes in: | ||||||||||||||||||||||||
Net interest income | (8,839 | ) | (0.10 | ) | 76,865 | 0.88 | 7,322 | 0.09 | ||||||||||||||||
Provision for loan and lease losses | (388,910 | ) | (4.20 | ) | (70,338 | ) | (0.81 | ) | (45,619 | ) | (0.55 | ) | ||||||||||||
Net gain (loss) on investments and impairments | 63,953 | 0.69 | 23,919 | 0.28 | 5,468 | 0.06 | ||||||||||||||||||
Gain (loss) on partial extinguishment and recharacterization of secured commercial loans to local financial institutions | — | — | (2,497 | ) | (0.03 | ) | 13,137 | 0.16 | ||||||||||||||||
Gain on sale of credit card portfolio | — | — | (2,819 | ) | (0.03 | ) | 2,319 | 0.03 | ||||||||||||||||
Insurance reimbursement and other agreements related to a contingency settlement | — | — | (15,075 | ) | (0.17 | ) | 15,075 | 0.18 | ||||||||||||||||
Other non-interest income | 3,668 | 0.04 | 3,959 | 0.05 | (179 | ) | — | |||||||||||||||||
Employees’ compensation and benefits | 9,119 | 0.10 | (1,490 | ) | (0.02 | ) | (12,840 | ) | (0.15 | ) | ||||||||||||||
Professional fees | 592 | 0.01 | 4,942 | 0.06 | 11,344 | 0.13 | ||||||||||||||||||
Deposit insurance premium | (30,471 | ) | (0.33 | ) | (3,424 | ) | (0.04 | ) | (5,073 | ) | (0.06 | ) | ||||||||||||
Net loss on REO operations | (490 | ) | (0.01 | ) | (18,973 | ) | (0.22 | ) | (2,382 | ) | (0.03 | ) | ||||||||||||
Core deposit intangible impairment | (3,988 | ) | (0.04 | ) | — | — | — | — | ||||||||||||||||
All other operating expenses | 6,508 | 0.07 | (6,583 | ) | (0.08 | ) | (10,929 | ) | (0.13 | ) | ||||||||||||||
Income tax provision | (36,266 | ) | (0.39 | ) | 53,315 | 0.61 | 5,859 | 0.07 | ||||||||||||||||
Net (loss) income before changes in preferred stock dividends, preferred discount amortization and change in average common shares | (315,463 | ) | (3.41 | ) | 69,661 | 0.80 | 27,860 | 0.33 | ||||||||||||||||
Change in preferred dividends and preferred discount amortization | (6,612 | ) | (0.07 | ) | — | — | — | — | ||||||||||||||||
Change in average common shares (1) | — | — | — | (0.05 | ) | — | (0.01 | ) | ||||||||||||||||
Net (loss) income attributable to common stockholders | $ | (322,075 | ) | $ | (3.48 | ) | $ | 69,661 | $ | 0.75 | $ | 27,860 | $ | 0.32 | ||||||||||
(1) | For 2008, mainly attributed to the sale of 9.250 million common shares to the Bank of Nova Scotia (“Scotiabank”) in the second half of 2007. |
• | Net loss for the year ended December 31, 2009 was $275.2 million compared to net income of $109.9 million and net income of $68.1 million for the years ended December 31, 2008 and 2007, respectively. |
• | Diluted loss per common share for the year ended December 31, 2009 amounted to $(3.48) compared to earnings per diluted share of $0.75 and $0.32 for the years ended December 31, 2008 and 2007, respectively. |
• | Net interest income for the year ended December 31, 2009 was $519.0 million compared to $527.9 million and $451.0 million for the years ended December 31, 2008 and 2007, respectively. Net interest spread and margin on an adjusted tax equivalent basis (for definition and reconciliation of this non-GAAP measure, refer to the“Net Interest Income” discussion below) were 2.62% and 2.93%, respectively, down 21 and 27 basis points from 2008. The decrease for 2009 compared to 2008 was mainly associated with a significant increase in non-performing loans and the repricing of floating-rate commercial and construction loans at lower rates due to decreases in market interest rates such as three-month LIBOR and the Prime rate, even though the Corporation is actively increasing spreads on loan renewals. The Corporation increased the use of interest rate floors in new commercial and construction loans agreements and renewals in 2009 to protect net interest margins going forward. Lower loan yields more than offset the benefit of lower short-term rates in the average cost of funding and the increase in average interest-earning assets. Refer to the “Net Interest Income”discussion below for additional information. |
The increase in net interest income for 2008, compared to 2007, was mainly associated with a decrease in the average cost of funds resulting from lower short-term interest rates and, to a lesser extent, a higher volume of interest-earning assets. The decrease in funding costs more than offset lower loans yields resulting from the repricing of variable-rate construction and commercial loans tied to short-term indexes and from a higher volume of non-accrual loans. |
• | The provision for loan and lease losses for 2009 was $579.9 million compared to $190.9 million and $120.6 million for 2008 and 2007, respectively. The increase for 2009, as compared to 2008, was mainly attributable |
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to the significant increase in non-performing loans and increases in specific reserves for impaired commercial and construction loans. Also, the migration of loans to higher risk categories and increases to loss factors used to determine the general reserve allowance contributed to the higher provision. |
The increase for 2008, as compared to 2007, was mainly attributable to the significant increase in delinquency levels and increases in specific reserves for impaired commercial and construction loans. During 2008, the Corporation experienced continued stress in the credit quality of and worsening trends on its construction loan portfolio, in particular, condo-conversion loans affected by the continuing deterioration in the health of the economy, an oversupply of new homes and declining housing prices in the United States and on its commercial loan portfolio which was adversely impacted by deteriorating economic conditions in Puerto Rico. Also, higher reserves for residential mortgage loans in Puerto Rico and in the United States were necessary to account for the credit risk tied to recessionary conditions in the economy. |
Refer to the “Provision for Loan and Lease Losses” and “Risk Management” discussions below for additional information and further analysis of the allowance for loan and lease losses and non-performing assets and related ratios. |
• | Non-interest income for the year ended December 31, 2009 was $142.3 million compared to $74.6 million and $67.2 million for the years ended December 31, 2008 and 2007, respectively. The increase in non-interest income in 2009, compared to 2008, was mainly related to a $59.6 million increase in realized gains on the sale of investment securities, primarily reflecting a $79.9 million gain on the sale of mortgage-backed securities (“MBS”) (mainly U.S. agency fixed-rate MBS), compared to realized gains on the sale of MBS of $17.7 million in 2008. In an effort to manage interest rate risk, and taking advantage of favorable market valuations, approximately $1.8 billion of U.S. agency MBS (mainly 30 year fixed-rate U.S. agency MBS) were sold in 2009, compared to approximately $526 million of U.S. agency MBS sold in 2008. Also contributing to higher non-interest income was the $5.3 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 $6.1 million for 2009 compared to $1.6 million for 2008. The increase was mainly related to $4.6 million of capitalized servicing assets in connection with the securitization of approximately $305 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 since early 2009. |
The increase in non-interest income in 2008, compared to 2007, was related to a realized gain of $17.7 million on the sale of investment securities (mainly U.S. sponsored agency fixed-rate MBS) and to the gain of $9.3 million on the sale of part of the Corporation’s investment in VISA in connection with VISA’s initial public offering (“IPO”). A surge in MBS prices, mainly due to announcements of the Federal Reserve (“FED”) that it will invest up to $600 billion in obligations from U.S. government-sponsored agencies, including $500 billion in MBS, provided an opportunity to realize a sale of approximately $284 million fixed-rate U.S. agency MBS at a gain of $11.0 million. Early in 2008, a spike and subsequent contraction in yield spread for U.S. agency MBS also provided an opportunity for the sale of approximately $242 million and a realized gain of $6.9 million. Higher point of sale (POS) and ATM interchange fee income and an increase in fee income from cash management services provided to corporate customers also contributed to the increase in non-interest income. The increase in non-interest income attributable to these activities was partially offset, when comparing 2008 to 2007, by isolated events such as the $15.1 million income recognition for reimbursement of expenses, mainly from insurance carriers, related to the class action lawsuit settled in 2007, and a gain of $2.8 million on the sale of a credit card portfolio and of $2.5 million on the partial extinguishment and recharacterization of a secured commercial loan to a local financial institution that were all recognized in 2007. |
Refer to “Non-Interest Income” discussion below for additional information. |
• | Non-interest expenses for 2009 was $352.1 million compared to $333.4 million and $307.8 million for 2008 and 2007, respectively. The increase in non-interest expenses for 2009, as compared to 2008, was principally attributable to: (i) an increase of $30.5 million in the FDIC deposit insurance premium, including $8.9 million for the special assessment levied by the FDIC in 2009 and increases in regular assessment rates, (ii) a $4.0 million core deposit intangible impairment charge, and (iii) a $1.8 million increase in the reserve for probable losses on outstanding unfunded loan commitments. The aforementioned increases were partially offset by decreases in certain controllable expenses such as: (i) a $9.1 million decrease in employees’ compensation and benefit expenses, due to a lower headcount and reductions in bonuses, incentive compensation and overtime costs, (ii) a $3.4 million decrease in business promotion expenses due to a lower |
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level of marketing activities, and (iii) a $1.1 million decrease in taxes, other than income taxes, driven by a reduction in municipal taxes which are assessed based on taxable gross revenues. |
The increase in non-interest expenses for 2008, as compared to 2007, was principally attributable to: (i) a higher net loss on REO operations that increased to $21.4 million for 2008 from $2.4 million for 2007, driven by a higher inventory of repossessed properties and declining real estate prices, mainly in the U.S. mainland, that have caused write-downs on the value of repossessed properties, and (ii) an increase of $3.4 million in deposit insurance premium expense, as the Corporation used available one-time credits to offset the premium increase in 2007 resulting from a new assessment system adopted by the FDIC, and (iii) higher occupancy and equipment expenses, an increase of $2.9 million tied to the growth of the Corporation’s operations. The Corporation was able to continue the growth of its operations without incurring substantial additional non-interest expenses as reflected by a slight increase of 2% in non-interest expenses, excluding the increase in REO operations losses. Modest increases were observed in occupancy and equipment expenses, an increase of $2.9 million, and in employees’ compensation and benefit, an increase of $1.5 million. Refer to “Non-Interest Expenses”discussion below for additional information. |
• | For 2009, the Corporation recorded an income tax expense of $4.5 million, compared to an income tax benefit of $31.7 million for 2008. The income tax expense for 2009 mainly resulted from the aforementioned $184.4 million non-cash increase in the valuation allowance for the Corporation’s deferred tax asset. The increase in the valuation allowance was driven by the losses incurred in 2009 that placed FirstBank in a three-year cumulative loss position as of the end of the third quarter of 2009. |
For 2008, the Corporation recorded an income tax benefit of $31.7 million, compared to an income tax expense of $21.6 million for 2007. The fluctuation was mainly related to lower taxable income. A significant portion of revenues was derived from tax-exempt assets and operations conducted through the international banking entity, FirstBank Overseas Corporation. Also, the positive fluctuation in financial results was impacted by two transactions: (i) a reversal of $10.6 million of Unrecognized Tax Benefits (“UTBs”) during the second quarter of 2008 for positions taken on income tax returns due to the lapse of the statute of limitations for the 2003 taxable year, and (ii) the recognition of an income tax benefit of $5.4 million in connection with an agreement entered into with the Puerto Rico Department of Treasury during the first quarter of 2008 that established a multi-year allocation schedule for deductibility of the $74.25 million payment made by the Corporation during 2007 to settle a securities class action suit. |
Refer to “Income Taxes” discussion below for additional information. |
• | Total assets as of December 31, 2009 amounted to $19.6 billion, an increase of $137.2 million compared to $19.5 billion as of December 31, 2008. The Corporation’s loan portfolio increased by $860.9 million (before the allowance for loan and lease losses), driven by new originations, mainly credit facilities extended to the Puerto Rico Government and/or its political subdivisions. Also, an increase of $298.4 million in cash and cash equivalents contributed to the increase in total assets, as the Corporation improved its liquidity position as a precautionary measure given current volatile market conditions. Partially offsetting the increase in loans and liquid assets was a $790.8 million decrease in investment securities, driven by sales and principal repayments of MBS. |
• | As of December 31, 2009, total liabilities amounted to $18.0 billion, an increase of $86.2 million as compared to $17.9 billion as of December 31, 2008. The increase in total liabilities was mainly attributable to an increase of $818 million in short-term advances from the FED and FHLB and an increase of $480 million in non-brokered deposits, partially offset by a decrease of $868.4 million in brokered CDs and a decrease of $344.4 million in repurchase agreements. The Corporation has been reducing the reliance on brokered CDs and is focused on core deposit growth initiatives in all of the markets served. |
• | The Corporation’s stockholders’ equity amounted to $1.6 billion as of December 31, 2009, an increase of $50.9 million compared to the balance as of December 31, 2008, driven by the $400 million investment by the United States Department of the Treasury (the “U.S. Treasury”) in preferred stock of the Corporation through the U.S. Treasury Troubled Asset Relief Program (TARP) Capital Purchase Program. This was partially offset by the net loss of $275.2 million recorded for 2009, dividends paid amounting to $43.1 million in 2009 ($13.0 million on common stock, or $0.14 per share, and $30.1 million on preferred stock) and a $30.9 million decrease in other comprehensive income mainly due to a noncredit-related impairment of |
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$31.7 million on private label MBS. |
• | Total loan production, including purchases and refinancings, for the year ended December 31, 2009 was $4.8 billion compared to $4.2 billion and $4.1 billion for the years ended December 31, 2008 and 2007, respectively. The increase in loan production in 2009, as compared to 2008, was mainly associated with a $977.9 million increase in commercial loan originations driven by approximately $1.7 billion in credit facilities extended to the Puerto Rico Government and/or its political subdivisions. Partially offsetting the increase in the originations of commercial loans was a decrease of $303.3 million in originations of consumer loans and of $98.5 million in residential mortgage loan originations adversely affected by weak economic conditions in Puerto Rico. The increase in loan production in 2008, as compared to 2007, was mainly associated with an increase in commercial loan originations and the purchase of a $218 million auto loan portfolio. |
• | Total non-performing assets as of December 31, 2009 was $1.71 billion compared to $637.2 million as of December 31, 2008. Even though deterioration in credit quality was observed in all of the Corporation’s portfolios, it was more significant in the construction and commercial loan portfolios, which were affected by both the stagnant housing market and further weakening in the economies of the markets served during most of 2009. The increase in non-performing assets was led by an increase of $518.0 million in non-performing construction loans, of which $314.1 million is related to the construction loan portfolio in the Puerto Rico portfolio and $205.2 million is related to construction projects in Florida. Other portfolios that experienced a significant growth in credit risk, mainly in Puerto Rico, include: (i) a $183.0 million increase in non-performing commercial and industrial (“C&I) loans, (ii) a $166.7 million increase in non-performing residential mortgage loans, and (ii) a $110.6 million increase in non-performing commercial mortgage loans. Also, during 2009, the Corporation classified as non-performing investment securities with a book value of $64.5 million that were pledged to Lehman Brothers Special Financing, Inc., in connection with several interest rate swap agreements entered into with that institution. Considering that the investment securities have not yet been recovered by the Corporation, despite its efforts, the Corporation decided to classify such investments as non-performing. Refer to the “Risk Management — Non-accruing and Non-performing Assets” section below for additional information with respect to non-performing assets by geographic areas and recent actions taken by the Corporation to reduce its exposure to troubled loans. |
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Level 1 | Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. | |
Level 2 | Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, 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 3 | Valuations are observed from unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
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1. | A valuation technique that uses: |
a. | The quoted price of the identical liability when traded as an asset | ||
b. | Quoted prices for similar liabilities or similar liabilities when traded as assets |
2. | Another valuation technique that is consistent with the principles of fair value measurement. Two examples would be an income approach, such as a present value technique, or a market approach, such as a technique that is based on the amount at the measurement date that the reporting entity would pay to transfer the identical liability or would receive to enter into the identical liability. |
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Average volume | Interest income(1)/ expense | Average rate(1) | ||||||||||||||||||||||||||||||||||
Year Ended December 31, | 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | |||||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||||||||||||||
Money market & other short-term investments | $ | 182,205 | $ | 286,502 | $ | 440,598 | $ | 577 | $ | 6,355 | $ | 22,155 | 0.32 | % | 2.22 | % | 5.03 | % | ||||||||||||||||||
Government obligations(2) | 1,345,591 | 1,402,738 | 2,687,013 | 54,323 | 93,539 | 159,572 | 4.04 | % | 6.67 | % | 5.94 | % | ||||||||||||||||||||||||
Mortgage-backed securities | 4,254,044 | 3,923,423 | 2,296,855 | 238,992 | 244,150 | 117,383 | 5.62 | % | 6.22 | % | 5.11 | % | ||||||||||||||||||||||||
Corporate bonds | 4,769 | 7,711 | 7,711 | 294 | 570 | 510 | 6.16 | % | 7.39 | % | 6.61 | % | ||||||||||||||||||||||||
FHLB stock | 76,982 | 65,081 | 46,291 | 3,082 | 3,710 | 2,861 | 4.00 | % | 5.70 | % | 6.18 | % | ||||||||||||||||||||||||
Equity securities | 2,071 | 3,762 | 8,133 | 126 | 47 | 3 | 6.08 | % | 1.25 | % | 0.04 | % | ||||||||||||||||||||||||
Total investments(3) | 5,865,662 | 5,689,217 | 5,486,601 | 297,394 | 348,371 | 302,484 | 5.07 | % | 6.12 | % | 5.51 | % | ||||||||||||||||||||||||
Residential mortgage loans | 3,523,576 | 3,351,236 | 2,914,626 | 213,583 | 215,984 | 188,294 | 6.06 | % | 6.44 | % | 6.46 | % | ||||||||||||||||||||||||
Construction loans | 1,590,309 | 1,485,126 | 1,467,621 | 52,908 | 82,513 | 121,917 | 3.33 | % | 5.56 | % | 8.31 | % | ||||||||||||||||||||||||
C&I and commercial mortgage loans | 6,343,635 | 5,473,716 | 4,797,440 | 263,935 | 314,931 | 362,714 | 4.16 | % | 5.75 | % | 7.56 | % | ||||||||||||||||||||||||
Finance leases | 341,943 | 373,999 | 379,510 | 28,077 | 31,962 | 33,153 | 8.21 | % | 8.55 | % | 8.74 | % | ||||||||||||||||||||||||
Consumer loans | 1,661,099 | 1,709,512 | 1,729,548 | 188,775 | 197,581 | 202,616 | 11.36 | % | 11.56 | % | 11.71 | % | ||||||||||||||||||||||||
Total loans(4) (5) | 13,460,562 | 12,393,589 | 11,288,745 | 747,278 | 842,971 | 908,694 | 5.55 | % | 6.80 | % | 8.05 | % | ||||||||||||||||||||||||
Total interest-earning assets | $ | 19,326,224 | $ | 18,082,806 | $ | 16,775,346 | $ | 1,044,672 | $ | 1,191,342 | $ | 1,211,178 | 5.41 | % | 6.59 | % | 7.22 | % | ||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||
Interest-bearing checking accounts | $ | 866,464 | $ | 580,572 | $ | 443,420 | $ | 19,995 | $ | 12,914 | $ | 11,365 | 2.31 | % | 2.22 | % | 2.56 | % | ||||||||||||||||||
Savings accounts | 1,540,473 | 1,217,730 | 1,020,399 | 19,032 | 18,916 | 15,037 | 1.24 | % | 1.55 | % | 1.47 | % | ||||||||||||||||||||||||
Certificates of deposit | 1,680,325 | 1,812,957 | 1,652,430 | 50,939 | 73,466 | 82,761 | 3.03 | % | 4.05 | % | 5.01 | % | ||||||||||||||||||||||||
Brokered CDs | 7,300,696 | 7,671,094 | 7,639,470 | 227,896 | 318,199 | 415,287 | 3.12 | % | 4.15 | % | 5.44 | % | ||||||||||||||||||||||||
Interest-bearing deposits | 11,387,958 | 11,282,353 | 10,755,719 | 317,862 | 423,495 | 524,450 | 2.79 | % | 3.75 | % | 4.88 | % | ||||||||||||||||||||||||
Loans payable | 643,618 | 10,792 | — | 2,331 | 243 | — | 0.36 | % | 2.25 | % | — | |||||||||||||||||||||||||
Other borrowed funds | 3,745,980 | 3,864,189 | 3,449,492 | 124,340 | 148,753 | 172,890 | 3.32 | % | 3.85 | % | 5.01 | % | ||||||||||||||||||||||||
FHLB advances | 1,322,136 | 1,120,782 | 723,596 | 32,954 | 39,739 | 38,464 | 2.49 | % | 3.55 | % | 5.32 | % | ||||||||||||||||||||||||
Total interest-bearing liabilities(6) | $ | 17,099,692 | $ | 16,278,116 | $ | 14,928,807 | $ | 477,487 | $ | 612,230 | $ | 735,804 | 2.79 | % | 3.76 | % | 4.93 | % | ||||||||||||||||||
Net interest income | $ | 567,185 | $ | 579,112 | $ | 475,374 | ||||||||||||||||||||||||||||||
Interest rate spread | 2.62 | % | 2.83 | % | 2.29 | % | ||||||||||||||||||||||||||||||
Net interest margin | 2.93 | % | 3.20 | % | 2.83 | % |
(1) | On an adjusted tax-equivalent basis. The tax-equivalent yield was estimated by dividing the interest rate spread on exempt assets by 1 less the Puerto Rico statutory tax rate as adjusted for changes to enacted tax rates (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 2007) and adding to it the cost of interest-bearing liabilities. The tax-equivalent adjustment recognizes the income tax savings when comparing taxable and tax-exempt assets. Management believes that it is a standard practice in the banking industry to present net interest income, interest rate spread and net interest margin on a fully tax-equivalent basis. Therefore, management believes these measures provide useful information to investors by allowing them to make peer comparisons. Changes in the fair value of derivative 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 $11.2 million, $10.2 million, and $11.1 million for 2009, 2008 and 2007, 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. |
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2009 Compared to 2008 | 2008 Compared to 2007 | |||||||||||||||||||||||
Increase (decrease) | Increase (decrease) | |||||||||||||||||||||||
Due to: | Due to: | |||||||||||||||||||||||
Volume | Rate | Total | Volume | Rate | Total | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Interest income on interest-earning assets: | ||||||||||||||||||||||||
Money market & other short-term investments | $ | (1,724 | ) | $ | (4,054 | ) | $ | (5,778 | ) | $ | (6,082 | ) | $ | (9,718 | ) | $ | (15,800 | ) | ||||||
Government obligations | (3,672 | ) | (35,544 | ) | (39,216 | ) | (80,954 | ) | 14,921 | (66,033 | ) | |||||||||||||
Mortgage-backed securities | 19,474 | (24,632 | ) | (5,158 | ) | 97,011 | 29,756 | 126,767 | ||||||||||||||||
Corporate bonds | (192 | ) | (84 | ) | (276 | ) | — | 60 | 60 | |||||||||||||||
FHLB stock | 578 | (1,206 | ) | (628 | ) | 1,115 | (266 | ) | 849 | |||||||||||||||
Equity securities | (62 | ) | 141 | 79 | (29 | ) | 73 | 44 | ||||||||||||||||
Total investments | 14,402 | (65,379 | ) | (50,977 | ) | 11,061 | 34,826 | 45,887 | ||||||||||||||||
Residential mortgage loans | 10,716 | (13,117 | ) | (2,401 | ) | 28,173 | (483 | ) | 27,690 | |||||||||||||||
Construction loans | 4,681 | (34,286 | ) | (29,605 | ) | 1,214 | (40,618 | ) | (39,404 | ) | ||||||||||||||
C&I and commercial mortgage loans | 43,028 | (94,024 | ) | (50,996 | ) | 45,020 | (92,803 | ) | (47,783 | ) | ||||||||||||||
Finance leases | (2,654 | ) | (1,231 | ) | (3,885 | ) | (477 | ) | (714 | ) | (1,191 | ) | ||||||||||||
Consumer loans | (5,466 | ) | �� | (3,340 | ) | (8,806 | ) | (2,332 | ) | (2,703 | ) | (5,035 | ) | |||||||||||
Total loans | 50,305 | (145,998 | ) | (95,693 | ) | 71,598 | (137,321 | ) | (65,723 | ) | ||||||||||||||
Total interest income | 64,707 | (211,377 | ) | (146,670 | ) | 82,659 | (102,495 | ) | (19,836 | ) | ||||||||||||||
Interest expense on interest-bearing liabilities: | ||||||||||||||||||||||||
Brokered CDs | (14,707 | ) | (75,596 | ) | (90,303 | ) | 1,591 | (98,679 | ) | (97,088 | ) | |||||||||||||
Other interest-bearing deposits | 12,285 | (27,615 | ) | (15,330 | ) | 21,551 | (25,418 | ) | (3,867 | ) | ||||||||||||||
Loans payable | 8,265 | (6,177 | ) | 2,088 | 243 | — | 243 | |||||||||||||||||
Other borrowed funds | (4,439 | ) | (19,974 | ) | (24,413 | ) | 18,327 | (42,464 | ) | (24,137 | ) | |||||||||||||
FHLB advances | 6,122 | (12,907 | ) | (6,785 | ) | 17,599 | (16,324 | ) | 1,275 | |||||||||||||||
Total interest expense | 7,526 | (142,269 | ) | (134,743 | ) | 59,311 | (182,885 | ) | (123,574 | ) | ||||||||||||||
Change in net interest income | $ | 57,181 | $ | (69,108 | ) | $ | (11,927 | ) | $ | 23,348 | $ | 80,390 | $ | 103,738 | ||||||||||
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Year Ended December 31, | ||||||||||||
(In thousands) | 2009 | 2008 | 2007 | |||||||||
Interest income on interest-earning assets on an adjusted tax-equivalent basis | $ | 1,044,672 | $ | 1,191,342 | $ | 1,211,178 | ||||||
Less: tax equivalent adjustments | (53,617 | ) | (56,408 | ) | (15,293 | ) | ||||||
Plus (less): net unrealized gain (loss) on derivatives | 5,519 | (8,037 | ) | (6,638 | ) | |||||||
Total interest income | $ | 996,574 | $ | 1,126,897 | $ | 1,189,247 | ||||||
Year Ended December 31, | ||||||||||||
(In thousands) | 2009 | 2008 | 2007 | |||||||||
Unrealized gain (loss) on derivatives (economic undesignated hedges): | ||||||||||||
Interest rate caps | $ | 3,496 | $ | (4,341 | ) | $ | (3,985 | ) | ||||
Interest rate swaps on loans | 2,023 | (3,696 | ) | (2,653 | ) | |||||||
Net unrealized gain (loss) on derivatives (economic undesignated hedges) | $ | 5,519 | $ | (8,037 | ) | $ | (6,638 | ) | ||||
Year Ended December 31, | ||||||||||||
(In thousands) | 2009 | 2008 | 2007 | |||||||||
Interest expense on interest-bearing liabilities | $ | 460,128 | $ | 632,134 | $ | 713,918 | ||||||
Net interest (realized) incurred on interest rate swaps | (5,499 | ) | (35,569 | ) | 12,323 | |||||||
Amortization of placement fees on brokered CDs | 22,858 | 15,665 | 9,056 | |||||||||
Amortization of placement fees on medium-term notes | — | — | 507 | |||||||||
Interest expense excluding net unrealized loss (gain) on derivatives (economic undesignated hedges) and net unrealized (gain) loss on liabilities measured at fair value, | 477,487 | 612,230 | 735,804 | |||||||||
Net unrealized loss (gain) on derivatives (economic undesignated hedges) and liabilities measured at fair value | 45 | (13,214 | ) | 4,488 | ||||||||
Accretion of basis adjustment | (2,061 | ) | — | (2,061 | ) | |||||||
Total interest expense | $ | 477,532 | $ | 599,016 | $ | 738,231 | ||||||
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Year Ended December 31, | ||||||||||||
(In thousands) | 2009 | 2008 | 2007 | |||||||||
Unrealized loss (gain) on derivatives (economic undesignated hedges): | ||||||||||||
Interest rate swaps and other derivatives on brokered CDs | $ | 5,321 | $ | (62,856 | ) | $ | (66,826 | ) | ||||
Interest rate swaps and other derivatives on medium-term notes | 199 | (392 | ) | 692 | ||||||||
Net unrealized loss (gain) on derivatives (economic undesignated hedges) | 5,520 | (63,248 | ) | (66,134 | ) | |||||||
Unrealized (gain) loss on liabilities measured at fair value: | ||||||||||||
Unrealized (gain) loss on brokered CDs | (8,696 | ) | 54,199 | 71,116 | ||||||||
Unrealized loss (gain) on medium-term notes | 3,221 | (4,165 | ) | (494 | ) | |||||||
Net unrealized (gain) loss on liabilities measured at fair value: | (5,475 | ) | 50,034 | 70,622 | ||||||||
Net unrealized loss (gain) on derivatives (economic undesignated hedges) and liabilities measured at fair value | $ | 45 | $ | (13,214 | ) | $ | 4,488 | |||||
Year Ended December 31, | ||||
2007 | ||||
(In thousands) | ||||
Accreation of basis adjustments on fair value hedges: | ||||
Interest rate swaps on brokered CDs | $ | — | ||
Interest rate swaps on medium-term notes | (2,061 | ) | ||
Accretion of basis adjustment on fair value hedges | $ | (2,061 | ) | |
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• | Increases in specific reserves for construction and commercial impaired loans. | ||
• | Increases in non-performing and net charge-offs levels. | ||
• | The migration of loans to higher risk categories, thus requiring higher general reserves. | ||
• | The overall growth of the loan portfolio. |
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2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Other service charges on loans | $ | 6,830 | $ | 6,309 | $ | 6,893 | ||||||
Service charges on deposit accounts | 13,307 | 12,895 | 12,769 | |||||||||
Mortgage banking activities | 8,605 | 3,273 | 2,819 | |||||||||
Rental income | 1,346 | 2,246 | 2,538 | |||||||||
Insurance income | 8,668 | 10,157 | 10,877 | |||||||||
Other operating income | 18,362 | 18,570 | 13,595 | |||||||||
Non-interest income before net gain (loss) on investments, insurance reimbursement and other agreements related to a contingency settlement, net gain on partial extinguishment and recharacterization of secured commercial loans to local financial institutions and gain on sale of credit card portfolio | 57,118 | 53,450 | 49,491 | |||||||||
Gain on VISA shares and related proceeds | 3,784 | 9,474 | — | |||||||||
Net gain on sale of investments | 83,020 | 17,706 | 3,184 | |||||||||
OTTI on equity securities and corporate bonds | (388 | ) | (5,987 | ) | (5,910 | ) | ||||||
OTTI on debt securities | (1,270 | ) | — | — | ||||||||
Net gain (loss) on investments | 85,146 | 21,193 | (2,726 | ) | ||||||||
Insurance reimbursement and other agreements related to a contingency settlement | — | — | 15,075 | |||||||||
Gain on partial extinguishment and recharacterization of secured commercial loans to local financial institutions | — | — | 2,497 | |||||||||
Gain on sale of credit card portfolio | — | — | 2,819 | |||||||||
Total | $ | 142,264 | $ | 74,643 | $ | 67,156 | ||||||
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§ | A $59.6 million increase in realized gains on the sale of investment securities, primarily reflecting a $79.9 million gain on the sale of MBS (mainly U.S. agency fixed-rate MBS), compared to realized gains on the sale of MBS of $17.7 million in 2008. In an effort to manage interest rate risk, and take advantage of favorable market valuations, approximately $1.8 billion of U.S. agency MBS (mainly 30 Year fixed-rate U.S. agency MBS) were sold in 2009, compared to approximately $526 million of U.S. agency MBS sold in 2008. | ||
§ | A $5.3 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 $6.1 million for 2009 compared to $1.6 million for 2008. The increase is mainly related to $4.6 million of capitalized servicing assets in connection with the securitization of approximately $305 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. | ||
§ | A $5.6 million decrease in OTTI charges related to equity securities and corporate bonds, partially offset by OTTI charges through earnings of $1.3 million in 2009 related to the credit loss portion of available-for-sale private label MBS. |
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2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Employees’ compensation and benefits | $ | 132,734 | $ | 141,853 | $ | 140,363 | ||||||
Occupancy and equipment | 62,335 | 61,818 | 58,894 | |||||||||
Deposit insurance premium | 40,582 | 10,111 | 6,687 | |||||||||
Other taxes, insurance and supervisory fees | 20,870 | 22,868 | 21,293 | |||||||||
Professional fees — recurring | 12,980 | 12,572 | 13,480 | |||||||||
Professional fees — non-recurring | 2,237 | 3,237 | 7,271 | |||||||||
Servicing and processing fees | 10,174 | 9,918 | 6,574 | |||||||||
Business promotion | 14,158 | 17,565 | 18,029 | |||||||||
Communications | 8,283 | 8,856 | 8,562 | |||||||||
Net loss on REO operations | 21,863 | 21,373 | 2,400 | |||||||||
Other | 25,885 | 23,200 | 24,290 | |||||||||
Total | $ | 352,101 | $ | 333,371 | $ | 307,843 | ||||||
§ | An increase of $30.5 million in the FDIC deposit insurance premium, including $8.9 million for the special assessment levied by the FDIC in 2009 and increases in regular assessment rates. The FDIC increased its insurance premium rates to banks in 2009 due to losses to the FDIC insurance fund as a result of bank failures during 2008 and 2009, coupled with additional losses that the FDIC projected for the future due to anticipated additional bank failures. | ||
§ | A $4.0 million impairment of the core deposit intangible of FirstBank Florida, recorded in 2009 as part of other non-interest expenses. The core deposit intangible represents the value of the premium paid to acquire core deposits of an institution. Core deposit intangible impairment occurs when the present value of expected future earnings attributed to maintaining the core deposit base diminishes. Factors which contributed to the impairment include deposit run-off and a shift of customers to time certificates. | ||
§ | A $1.8 million increase in the reserve for probable losses on outstanding unfunded loan commitments recorded as part of other non-interest expenses. The reserve for unfunded loan commitments is an estimate of the losses inherent in off-balance sheet loan commitments at the balance sheet date, and it was mainly related to outstanding construction loans commitments. It is calculated by multiplying an estimated loss factor by an estimated probability of funding, and then by the period-end amounts for unfunded commitments. The reserve for unfunded loan commitments is included as part of accounts payable and other liabilities in the consolidated statement of financial condition. |
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§ | A $9.1 million decrease in employees’ compensation and benefit expenses, mainly due to a lower headcount and reductions in bonuses, incentive compensation and overtime costs. The number of full time equivalent employees decreased by 163, or 6%, during 2009. | ||
§ | A $3.4 million decrease in business promotion expenses due to a lower level of marketing activities. | ||
§ | A $1.1 million decrease in taxes, other than income taxes, mainly driven by a decrease in municipal taxes which are assessed based on taxable gross revenues. |
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• | Segment income before taxes for the year ended December 31, 2009 was $20.9 million compared to $21.8 million and $37.8 million for the years ended December 31, 2008 and 2007, respectively. | ||
• | Net interest income for the year ended December 31, 2009 was $149.6 million compared to $166.0 million and $174.3 million for the years ended December 31, 2008 and 2007, respectively. The decrease in net interest income reflects a diminished consumer loan portfolio due to principal repayments and charge-offs relating to the auto and personal loans portfolio (including finance leases). This portfolio is mainly composed of fixed-rate loans financed with shorter-term borrowings thus positively affected in a declining interest rate scenario; however, this was more than offset by a decrease in the amount credited to this segment for its deposit-taking activities due to the decline in interest rates and the lower volume of loans, resulting in a decrease in net interest income in 2009 as compared to 2008 and in 2008 as compared to 2007. | ||
• | The provision for loan and lease losses for 2009 decreased by $18.0 million compared to the same period in 2008 and increased by $6.7 million when comparing 2008 with the same period in 2007. The decrease in the provision was mainly related to the lower amount of the consumer loan portfolio, a relative stability in delinquency and non-performing levels, and a decrease in net charge-offs attributable in part to the changes in underwriting standards implemented since late 2005 and the originations using these new underwriting standards of new consumer loans to replace maturing consumer loans that had an average life of approximately four years. The increase in 2008, compared to 2007, was due to adjustments to loss factors based on economic indicators. | ||
• | Non-interest income for the year ended December 31, 2009 was $32.0 million compared to $35.6 million and $32.5 million for the years ended December 31, 2008 and 2007, respectively. The decrease for 2009, as compared to 2008, was mainly related to lower insurance income and a reduction in income from vehicle rental activities partially offset by higher service charges on deposit accounts and higher ATM interchange fee income. As part of the Corporation’s strategies to focus on its core business, the Corporation divested its short-term rental business during the fourth quarter of 2009. The increase for 2008, as compared to 2007, was mainly related to higher point of sale (POS) and ATM interchange fee income caused by a change in the calculation of interchange fees charged between financial institutions in Puerto Rico from a fixed fee calculation to a percentage of the sale calculation since the second half of 2007. | ||
• | Direct non-interest expenses for the year ended December 31, 2009 were $98.3 million compared to $99.2 million and $95.2 million for the years ended December 31, 2008 and 2007, respectively. The decrease in direct non-interest expenses for 2009, as compared to 2008, was primarily due to reductions in marketing and occupancy expenses, mainly electricity costs, partially offset by the increase in the FDIC insurance premium associated with increases in the regular assessment rates and the special fee levied in 2009. The increase in direct non-interest expenses for 2008, compared to 2007, was mainly due to increases in compensation, marketing collection efforts and the FDIC insurance premium. |
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• | Segment loss before taxes for the year ended December 31, 2009 was $129.8 million compared to income of $56.9 million and $78.6 million for the years ended December 31, 2008 and 2007, respectively. | ||
• | Net interest income for the year ended December 31, 2009 was $180.3 million compared to $112.3 million and $104.8 million for the years ended December 31, 2008 and 2007, respectively. The increase in net interest income for 2009 and 2008, was related to both an increase in the average volume of earning assets driven by new commercial loan originations and lower interest rates charged by other business segments due to the decline in short-term interest rates that more than offset lower loan yields due to the significant increase in non-accrual loans and to the repricing at lower rates. However, the Corporation is actively increasing spreads on variable-rate commercial loan renewals given the current market environment. During 2009, the Corporation increased the use of interest rate floors in new commercial and construction loan agreements and renewals to protect net interest margins going forward. The increase in volume of earning assets was primarily due to credit facilities extended to the Puerto Rico Government and its political subdivisions. As of December 31, 2009, the Corporation had $1.2 billion outstanding of credit facilities granted to the Puerto Rico Government and its political subdivisions. | ||
• | The provision for loan losses for 2009 was $273.8 million compared to $35.5 million and $12.5 million for 2008 and 2007, respectively. The increase in the provision for loan and lease losses for 2009 was mainly driven by the continuing pressures of a weak Puerto Rico economy and a stagnant housing market that were the main reasons for the increase in non-accrual loans, the migration of loans to higher risk categories (including a significant increase in impaired loans) and the increase in charge-offs. These have resulted in higher specific reserves for impaired loans and increases in loss factors used for the determination of the general reserve. Refer to the “Provision for Loan and Lease Losses” discussion above and to the “Risk Management – Allowance for Loan and Lease Losses and Non-performing Assets” discussion below for additional information with respect to the credit quality of the Corporation’s commercial and construction loan portfolio. The increase in the provision for loan and lease losses for 2008 was mainly driven by the increase in the amount of commercial and construction impaired loans in Puerto Rico due to deteriorating economic conditions. |
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• | Total non-interest income for the year ended December 31, 2009 amounted to $5.7 million compared to a non-interest income of $4.6 million and $6.2 million for the years ended December 31, 2008 and 2007, respectively. The increase in non-interest income for 2009, as compared to 2008, was mainly attributable to higher non-deferrable loans fees such as agent, commitment and drawing fees from commercial customers. Also, an increase in cash management fees from corporate customers contributed to the increase in non-interest income. The increase in non-interest income for 2008 was mainly attributable to the $2.5 million gain resulting from an agreement entered into with another local financial institution for the partial extinguishment of secured commercial loans extended to such institution. Aside from this transaction, non-interest income for the Commercial and Corporate Banking Segment increased by $0.9 million in connection with higher fees on cash management services provided to corporate customers. | ||
• | Direct non-interest expenses for 2009 were $41.9 million compared to $24.5 million and $20.1 million for 2008 and 2007, respectively. The increase for 2009, as compared to 2008, was primarily due to the portion of the increase in the FDIC deposit insurance premium allocated to this segment; this was partially offset by reductions in compensation expense. The increase for 2008, as compared to 2007, was also mainly due to the portion of the increase in the FDIC insurance premium as increase in compensation and a higher loss in REO operations, primarily due to the increase in the volume of repossessed properties and writedowns. |
• | Segment loss before taxes for the year ended December 31, 2009 was $14.3 million compared to income of $8.3 million and $7.2 million for the years ended December 31, 2008 and 2007, respectively. | ||
• | Net interest income for the year ended December 31, 2009 was $39.2 million compared to $37.3 million and $27.6 million for the years ended December 31, 2008 and 2007, respectively. The increase in net interest income for 2009 and 2008 was mainly related to the decline in short-term rates. This portfolio is principally composed of fixed-rate residential mortgage loans tied to long-term interest rates that are financed with shorter-term borrowings, thus positively affected in a declining interest rate scenario as the one prevailing in 2009 and 2008. The increase was also related to a higher portfolio, driven in 2009 by the purchase of approximately $205 million of residential mortgages that previously served as collateral for a commercial loan extended to R&G Financial, a Puerto Rican financial institution. The increase in the portfolio in 2008 was driven by mortgage loan originations. |
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• | The provision for loan and lease losses for the year 2009 was $29.7 million compared to $9.0 million and $1.6 million for the years ended December 31, 2008 and 2007, respectively. The increase in 2009 and 2008 was mainly related to the increase in the volume of non-performing loans due to deteriorating economic conditions in Puerto Rico and an increase in reserve factors to account for the continued recessionary economic conditions and negative loss trends. | ||
• | Non-interest income for the year ended December 31, 2009 was $8.5 million compared to $2.7 million and $2.1 million for the years ended December 31, 2008 and 2007, respectively. The increase for 2009, as compared to 2008 was driven by approximately $4.6 million of capitalized servicing assets in connection with the securitization of approximately $305 million FHA/VA mortgage loans into GNMA MBS. For the first time in several years, the Corporation was engaged in the securitization of mortgage loans throughout 2009. The increase for 2008, as compared to 2007, was driven by a higher volume of loan sales in the secondary market. | ||
• | Direct non-interest expenses for 2009 were $32.3 million compared to $22.7 million and $20.9 million for 2008 and 2007, respectively. The increase for 2009, as compared to 2008, was also mainly related to the portion of the FDIC deposit insurance premium allocated to this segment, a higher loss on REO operations associated with a higher volume of repossessed properties and an increase in professional service fees. The increase for 2008, as compared to 2007, is related to technology related expenses incurred to improve the servicing of the mortgage loans as well as increases in compensation and, to a lesser extent, higher losses on REO operations in connection with a higher volume of repossessed properties and trends in sales. |
• | Segment income before taxes for the year ended December 31, 2009 amounted to $163.1 million compared to $142.3 million for 2008 and of $36.5 million for the years ended December 31, 2007. | ||
• | Net interest income for the year ended December 31, 2009 was $86.1 million compared to $123.4 million and $46.5 million for the years ended December 31, 2008 and 2007, respectively. The decrease in 2009, as compared to 2008, was mainly due to the decrease in the amount credited to this segment for its deposit-taking activities due to the decline in interest rates and due to lower yields on investment securities. This was partially offset by reductions in the cost of funding as maturing brokered CDs were replaced with shorter-term CDs at lower prevailing rates and very low-cost sources of funding such as advances from the FED and a higher average volume of investments. Funds obtained through short-term borrowings were invested, in part, in the purchase of investment securities to mitigate the decline in the average yield on securities that resulted from the acceleration of MBS prepayments and calls of U.S. agency debentures (refer to the Financial and Operating Data |
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Analysis — Investment Activities discussion below for additional information about investment purchases, sales and calls in 2009). The decrease in the yield of investments was driven by the approximately $945 million of U.S. agency debentures called in 2009 and MBS prepayments. The variance observed in 2008, as compared to 2007, is mainly related to lower short-term rates and, to a lesser extent, to an increase in the volume of average interest-earning assets. The Corporation’s securities portfolio is mainly composed of fixed-rate U.S. agency MBS and debt securities tied to long-term rates. During 2008, the Corporation purchased approximately $3.2 billion in fixed-rate MBS at an average yield of 5.44%, which was significantly higher than the cost of borrowings used to finance the purchase of such assets. Despite the early redemption by counterparties of approximately $1.2 billion of U.S. agency debentures through call exercises, the lack of liquidity in the financial markets caused several call dates go by in 2008 without issuers actions to exercise call provisions embedded in approximately $945 million of U.S. agency debentures still held by the Corporation as of December 31, 2008. The Corporation benefited from higher than current market yields on these instruments. Also, non-cash gains from changes in the fair value of derivative instruments and liabilities measured at fair value accounted for approximately $14.2 million of the increase in net interest income for 2008 as compared to 2007. | |||
• | Non-interest income for the year ended December 31, 2009 amounted to $84.4 million compared to income of $25.6 million and losses of $2.2 million for the years ended December 31, 2008 and 2007, respectively. The increase in 2009, as compared to 2008, was driven by a $59.6 million increase in realized gains on the sale of investment securities, primarily reflecting a $79.9 million gain on the sale of MBS (mainly U.S. agency fixed-rate MBS), compared to realized gains on the sale of MBS of $17.7 million in 2008. The positive fluctuation in non-interest income for 2008, as compared to 2007, was related to a realized gain of $17.7 million mainly on the sale of approximately $526 million of U.S. sponsored agency fixed-rate MBS and to the gain of $9.3 million on the sale of part of the Corporation’s investment in VISA in connection with VISA’s IPO. Refer to “Non-interest income” discussion above for additional information. | ||
• | Direct non-interest expenses for 2009 were $7.4 million compared to $6.7 million and $7.8 million for 2008 and 2007, respectively. The fluctuations are mainly associated to professional service fees. |
• | Segment loss before taxes for the year ended December 31, 2009 was $222.3 million compared to loss of $62.4 million and $12.1 million for the years ended December 31, 2008 and 2007, respectively. | ||
• | Net interest income for the year ended December 31, 2009 was $2.6 million compared to $28.8 million and $38.7 million for the years ended December 31, 2008 and 2007, respectively. The decrease in net interest income for 2009 and 2008 was related to the surge in non-performing assets, |
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mainly construction loans, and a decrease in the volume of average earning-assets partially offset by a lower cost of funding due to the decline in market interest rates that benefit interest rates paid on short-term borrowings. In 2009, the Corporation implemented initiatives to accelerate deposit growth with special emphasis on increasing core deposits and shift away from brokered deposits. Also, the Corporation took actions to reduce its non-performing credits including the sales of certain troubled loans. | |||
• | The provision for loan losses for 2009 was $188.7 million compared to $53.4 million and $30.2 million for 2008 and 2007, respectively. The increase in the provision for loan and lease losses for 2009 was mainly driven by the increase in non-performing loans and the decline in collateral values that has resulted in historical increases in charge-offs levels. Higher delinquency levels and loss trends were accounted for the loss factors used to determine the general reserve. Also, additional charges were necessary because of a higher volume of impaired loans that required specific reserves. Refer to the “Provision for Loan and Lease Losses” discussion above and to the “Risk Management — Allowance for Loan and Lease Losses and Non-performing Assets” discussion below for additional information with respect to the credit quality of the loan portfolio in the United States. The increase in the provision for loan and lease losses for 2008 was mainly driven by higher specific reserves relating to condo-conversion loans due to the deterioration of the real estate market and a slumping economy. | ||
• | Total non-interest income for the year ended December 31, 2009 amounted to $1.5 million compared to a non-interest loss of $3.6 million and non-interest income of $1.2 million for the years ended December 31, 2008 and 2007, respectively. The increase in non-interest income for 2009, as compared to 2008, was mainly attributable to a gain of $0.9 million on the sale of the entire portfolio of auto industry corporate bonds after having taking impairment charges of $4.2 million on those bonds in 2008. The decrease in non-interest income for 2008 was for the aforementioned impairment charge on corporate bonds and lower service charges on deposit accounts and loan fees. | ||
• | Direct non-interest expenses for 2009 were $37.7 million compared to $34.2 million and $21.8 million for 2008 and 2007, respectively. The increase for 2009, as compared to 2008, was primarily due to the increase in the FDIC deposit insurance premium, and professional service fees. The increase for 2008, as compared to 2007, was mainly due to a higher loss in REO operations, primarily due to write-downs and expenses related to condo-conversion projects. |
• | Segment income before taxes for the year ended December 31, 2009 was $0.8 million compared to $9.2 million and $26.3 million for the years ended December 31, 2008 and 2007, respectively. | ||
• | Net interest income for the year ended December 31, 2009 was $61.1 million compared to $60.0 million and $59.1 million for the years ended December 31, 2008 and 2007, respectively. The |
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increase in net interest income was primarily due to the decrease in the cost of funding due to maturing CDs renewed at lower prevailing rates and reductions in rates paid on interest-bearing and savings accounts due to the decline in market interest rates. To a lesser, extent, the increase was also due to a higher volume of commercial loans primarily due to approximately $79.8 million in credit facilities extended to the U.S. Virgin Islands Government and political subdivisions in 2009. The increase for 2008, compared to 2007, was also driven by a lower cost of funding. | |||
• | The provision for loan and lease losses for 2009 increased by $12.7 million compared to the same period in 2008 and increased by $10.0 million when comparing 2008 with the same period in 2007. The increase in the provision for 2009 was mainly related to the construction and residential and commercial mortgage loans portfolio affected by increases to general reserves to account for higher delinquency levels and a challenging economy. The increase in 2008, compared to 2007, was driven by increases to general reserves for the residential, commercial and commercial mortgage loans portfolio to account for negative trends in the economy. General economic conditions worsened, underscoring the severity of recessionary conditions in the US economy, critically important to the U.S. Virgin Islands as the primary market for visitors, trade and investment. | ||
• | Non-interest income for the year ended December 31, 2009 was $10.2 million compared to $9.8 million and $12.2 million for the years ended December 31, 2008 and 2007, respectively. The increase for 2009, as compared to 2008, was mainly related to higher service charges on deposit accounts and higher ATM interchange fee income. The decrease for 2008, as compared to 2007, was mainly related to the impact in 2007 of a $2.8 million gain on the sale of a credit card portfolio. Aside from this transaction, non-interest income increased by $0.4 million primarily due to higher service charges on deposits and higher credit and debit card interchange fee income. | ||
• | Direct non-interest expenses for the year ended December 31, 2009 were $45.4 million compared to $48.1 million and $42.4 million for the years ended December 31, 2008 and 2007, respectively. The decrease in direct operating expenses for 2009, as compared to 2008, was primarily due to a decrease in compensation expense, mainly due to headcount, overtime and bonuses reductions. The increase in direct operating expense for 2008, compared to 2007, was mainly due to increases in compensation, depreciation and professional service fees. |
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December 31, | 2009 | 2008 | 2007 | |||||||||
(In thousands) | ||||||||||||
ASSETS | ||||||||||||
Interest-earning assets: | ||||||||||||
Money market & other short-term investments | $ | 182,205 | $ | 286,502 | $ | 440,598 | ||||||
Government obligations | 1,345,591 | 1,402,738 | 2,687,013 | |||||||||
Mortgage-backed securities | 4,254,044 | 3,923,423 | 2,296,855 | |||||||||
Corporate bonds | 4,769 | 7,711 | 7,711 | |||||||||
FHLB stock | 76,982 | 65,081 | 46,291 | |||||||||
Equity securities | 2,071 | 3,762 | 8,133 | |||||||||
Total investments | 5,865,662 | 5,689,217 | 5,486,601 | |||||||||
Residential mortgage loans | 3,523,576 | 3,351,236 | 2,914,626 | |||||||||
Construction loans | 1,590,309 | 1,485,126 | 1,467,621 | |||||||||
Commercial loans | 6,343,635 | 5,473,716 | 4,797,440 | |||||||||
Finance leases | 341,943 | 373,999 | 379,510 | |||||||||
Consumer loans | 1,661,099 | 1,709,512 | 1,729,548 | |||||||||
Total loans | 13,460,562 | 12,393,589 | 11,288,745 | |||||||||
Total interest-earning assets | 19,326,224 | 18,082,806 | 16,775,346 | |||||||||
Total non-interest-earning assets(1) | 480,998 | 425,150 | 438,861 | |||||||||
Total assets | $ | 19,807,222 | $ | 18,507,956 | $ | 17,214,207 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Interest-bearing liabilities: | ||||||||||||
Interest-bearing checking accounts | $ | 866,464 | $ | 580,572 | $ | 443,420 | ||||||
Savings accounts | 1,540,473 | 1,217,730 | 1,020,399 | |||||||||
Certificates of deposit | 1,680,325 | 1,812,957 | 1,652,430 | |||||||||
Brokered CDs | 7,300,696 | 7,671,094 | 7,639,470 | |||||||||
Interest-bearing deposits | 11,387,958 | 11,282,353 | 10,755,719 | |||||||||
Loans payable(2) | 643,618 | 10,792 | — | |||||||||
Other borrowed funds | 3,745,980 | 3,864,189 | 3,449,492 | |||||||||
FHLB advances | 1,322,136 | 1,120,782 | 723,596 | |||||||||
Total interest-bearing liabilities | 17,099,692 | 16,278,116 | 14,928,807 | |||||||||
Total non-interest-bearing liabilities(3) | 852,943 | 796,476 | 959,361 | |||||||||
Total liabilities | 17,952,635 | 17,074,592 | 15,888,168 | |||||||||
Stockholders’ equity: | ||||||||||||
Preferred stock | 909,274 | 550,100 | 550,100 | |||||||||
Common stockholders’ equity | 945,313 | 883,264 | 775,939 | |||||||||
Stockholders’ equity | 1,854,587 | 1,433,364 | 1,326,039 | |||||||||
Total liabilities and stockholders’ equity | $ | 19,807,222 | $ | 18,507,956 | $ | 17,214,207 | ||||||
(1) | Includes the allowance for loan and lease losses and the valuation on investment securities available-for-sale. | |
(2) | Consists of short-term borrowings under the FED Discount Window Program. | |
(3) | Includes changes in fair value of liabilities elected to be measured at fair value . |
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(In thousands) | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||
Residential mortgage loans, including loans held for sale | $ | 3,616,283 | $ | 3,491,728 | $ | 3,164,421 | $ | 2,772,630 | $ | 2,346,945 | ||||||||||
Commercial loans: | ||||||||||||||||||||
Commercial mortgage loans | 1,590,821 | 1,535,758 | 1,279,251 | 1,215,040 | 1,090,193 | |||||||||||||||
Construction loans | 1,492,589 | 1,526,995 | 1,454,644 | 1,511,608 | 1,137,118 | |||||||||||||||
Commercial and Industrial loans | 5,029,907 | 3,857,728 | 3,231,126 | 2,698,141 | 2,421,219 | |||||||||||||||
Loans to local financial institutions collateralized by real estate mortgages and pass-through trust certificates | 321,522 | 567,720 | 624,597 | 932,013 | 3,676,314 | |||||||||||||||
Total commercial loans | 8,434,839 | 7,488,201 | 6,589,618 | 6,356,802 | 8,324,844 | |||||||||||||||
Finance leases | 318,504 | 363,883 | 378,556 | 361,631 | 280,571 | |||||||||||||||
Consumer loans and other loans | 1,579,600 | 1,744,480 | 1,667,151 | 1,772,917 | 1,733,569 | |||||||||||||||
Total loans, gross | 13,949,226 | 13,088,292 | 11,799,746 | 11,263,980 | 12,685,929 | |||||||||||||||
Less: | ||||||||||||||||||||
Allowance for loan and lease losses | (528,120 | ) | (281,526 | ) | (190,168 | ) | (158,296 | ) | (147,999 | ) | ||||||||||
Total loans, net | $ | 13,421,106 | $ | 12,806,766 | $ | 11,609,578 | $ | 11,105,684 | $ | 12,537,930 | ||||||||||
Puerto | Virgin | United | ||||||||||||||
As of December 31, 2009 | Rico | Islands | States | Total | ||||||||||||
(In thousands) | ||||||||||||||||
Residential real estate loans, including loans held for sale | $ | 2,790,829 | $ | 450,649 | $ | 374,805 | $ | 3,616,283 | ||||||||
Commercial mortgage loans | 983,125 | 73,114 | 534,582 | 1,590,821 | ||||||||||||
Construction loans (1) | 998,235 | 194,813 | 299,541 | 1,492,589 | ||||||||||||
Commercial and Industrial loans | 4,756,297 | 241,497 | 32,113 | 5,029,907 | ||||||||||||
Loans to a local financial institution collateralized by real estate mortgages | 321,522 | — | — | 321,522 | ||||||||||||
Total commercial loans | 7,059,179 | 509,424 | 866,236 | 8,434,839 | ||||||||||||
Finance leases | 318,504 | — | — | 318,504 | ||||||||||||
Consumer loans | 1,446,354 | 98,418 | 34,828 | 1,579,600 | ||||||||||||
Total loans, gross | $ | 11,614,866 | $ | 1,058,491 | $ | 1,275,869 | $ | 13,949,226 | ||||||||
Allowance for loan and lease losses | (410,714 | ) | (27,502 | ) | (89,904 | ) | (528,120 | ) | ||||||||
$ | 11,204,152 | $ | 1,030,989 | $ | 1,185,965 | $ | 13,421,106 | |||||||||
(1) | Construction loans of Florida operations include approximately $70.4 million of condo-conversion loans, net of charge-offs of $32.4 million. |
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For the Year Ended December 31, | ||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Beginning balance | $ | 12,806,766 | $ | 11,609,578 | $ | 11,105,684 | $ | 12,537,930 | $ | 9,556,958 | ||||||||||
Residential real estate loans originated and purchased | 591,889 | 690,365 | 715,203 | 908,846 | 1,372,490 | |||||||||||||||
Construction loans originated and purchased | 433,493 | 475,834 | 678,004 | 961,746 | 1,061,773 | |||||||||||||||
C&I and Commercial mortgage loans originated and purchased | 3,153,278 | 2,175,395 | 1,898,157 | 2,031,629 | 2,258,558 | |||||||||||||||
Secured commercial loans disbursed to local financial institutions | — | — | — | — | 681,407 | |||||||||||||||
Finance leases originated | 80,716 | 110,596 | 139,599 | 177,390 | 145,808 | |||||||||||||||
Consumer loans originated and purchased | 514,774 | 788,215 | 653,180 | 807,979 | 992,942 | |||||||||||||||
Total loans originated and purchased | 4,774,150 | 4,240,405 | 4,084,143 | 4,887,590 | 6,512,978 | |||||||||||||||
Sales and securitizations of loans | (464,705 | ) | (164,583 | ) | (147,044 | ) | (167,381 | ) | (118,527 | ) | ||||||||||
Repayments and prepayments | (3,010,857 | ) | (2,589,120 | ) | (3,084,530 | ) | (6,022,633 | ) | (3,803,804 | ) | ||||||||||
Other (decreases) increases(1) (2) | (684,248 | ) | (289,514 | ) | (348,675 | ) | (129,822 | ) | 390,325 | |||||||||||
Net increase (decrease) | 614,340 | 1,197,188 | 503,894 | (1,432,246 | ) | 2,980,972 | ||||||||||||||
Ending balance | $ | 13,421,106 | $ | 12,806,766 | $ | 11,609,578 | $ | 11,105,684 | $ | 12,537,930 | ||||||||||
Percentage increase (decrease) | 4.80 | % | 10.31 | % | 4.54 | % | (11.42 | )% | 31.19 | % |
(1) | Includes the change in the allowance for loan and lease losses and cancellation of loans due to the repossession of the collateral. | |
(2) | For 2008, is net of $19.6 million of loans from the acquisition of VICB. For 2007, includes the recharacterization of securities collateralized by loans of approximately $183.8 million previously accounted for as a secured commercial loan with R&G Financial. For 2005, includes $470 million of loans acquired as part of the Ponce General acquisition. |
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Puerto | Virgin | United | ||||||||||||||
As of December 31, 2009 | Rico | Islands | States | Total | ||||||||||||
(In thousands) | ||||||||||||||||
Loans for residential housing projects: | ||||||||||||||||
High-rise(1) | $ | 202,800 | $ | — | $ | 559 | $ | 203,359 | ||||||||
Mid-rise(2) | 100,433 | 4,471 | 28,125 | 133,029 | ||||||||||||
Single-family detach | 123,807 | 4,166 | 31,186 | 159,159 | ||||||||||||
Total for residential housing projects | 427,040 | 8,637 | 59,870 | 495,547 | ||||||||||||
Construction loans to individuals secured by residential properties | 11,716 | 26,636 | — | 38,352 | ||||||||||||
Condo-conversion loans | 10,082 | — | 70,435 | 80,517 | ||||||||||||
Loans for commercial projects | 324,711 | 117,333 | 1,535 | 443,579 | ||||||||||||
Bridge loans — residential | 56,095 | — | 1,285 | 57,380 | ||||||||||||
Bridge loans — commercial | 3,003 | 20,261 | 72,178 | 95,442 | ||||||||||||
Land loans — residential | 77,820 | 20,690 | 66,802 | 165,312 | ||||||||||||
Land loans — commercial | 61,868 | 1,105 | 27,519 | 90,492 | ||||||||||||
Working capital | 29,727 | 1,015 | — | 30,742 | ||||||||||||
Total before net deferred fees and allowance for loan losses | 1,002,062 | 195,677 | 299,624 | 1,497,363 | ||||||||||||
Net deferred fees | (3,827 | ) | (865 | ) | (82 | ) | (4,774 | ) | ||||||||
Total construction loan portfolio, gross | 998,235 | 194,812 | 299,542 | 1,492,589 | ||||||||||||
Allowance for loan losses | (100,007 | ) | (16,380 | ) | (47,741 | ) | (164,128 | ) | ||||||||
Total construction loan portfolio, net | $ | 898,228 | $ | 178,432 | $ | 251,801 | $ | 1,328,461 | ||||||||
(1) | For purposes of the above table, high-rise portfolio is composed of buildings with more than 7 stories, mainly composed of two projects that represent approximately 71% of the Corporation’s total outstanding high-rise residential construction loan portfolio in Puerto Rico. | |
(2) | Mid-rise relates to buildings up to 7 stories. |
(Dollars in thousands) | ||||
Total undisbursed funds under existing commitments | $ | 249,961 | ||
Construction loans in non-accrual status | $ | 634,329 | ||
Net charge offs — Construction loans (1) | $ | 183,600 | ||
Allowance for loan losses — Construction loans | $ | 164,128 | ||
Non-performing construction loans to total construction loans | 42.50 | % | ||
Allowance for loan losses — construction loans to total construction loans | 11.00 | % | ||
Net charge-offs to total average construction loans (1) | 11.54 | % | ||
(1) | Includes charge-offs of $137.4 million related to construction loans in Florida and $46.2 million related to construction loans in Puerto Rico. |
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(In thousands) | ||||
Under $300K | $ | 142,280 | ||
$300K-$600K | 87,306 | |||
Over $600K (1) | 197,454 | |||
$ | 427,040 | |||
(1) | Mainly composed of three high-rise projects and one single-family detached project that accounts for approximately 67% and 14%, respectively, of the residential housing projects in Puerto Rico. |
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(In thousands) | 2009 | 2008 | ||||||
Money market investments | $ | 24,286 | $ | 76,003 | ||||
Investment securities held-to-maturity, at amortized cost: | ||||||||
U.S. Government and agencies obligations | 8,480 | 953,516 | ||||||
Puerto Rico Government obligations | 23,579 | 23,069 | ||||||
Mortgage-backed securities | 567,560 | 728,079 | ||||||
Corporate bonds | 2,000 | 2,000 | ||||||
601,619 | 1,706,664 | |||||||
Investment securities available-for-sale, at fair value: | ||||||||
U.S. Government and agencies obligations | 1,145,139 | — | ||||||
Puerto Rico Government obligations | 136,326 | 137,133 | ||||||
Mortgage-backed securities | 2,889,014 | 3,722,992 | ||||||
Corporate bonds | — | 1,548 | ||||||
Equity securities | 303 | 669 | ||||||
4,170,782 | 3,862,342 | |||||||
Other equity securities, including $68.4 million and $62.6 million of FHLB stock as of December 31, 2009 and 2008, respectively | 69,930 | 64,145 | ||||||
Total investments | $ | 4,866,617 | $ | 5,709,154 | ||||
(In thousands) | 2009 | 2008 | ||||||
Held-to-maturity | ||||||||
FHLMC certificates | $ | 5,015 | $ | 8,338 | ||||
FNMA certificates | 562,545 | 719,741 | ||||||
567,560 | 728,079 | |||||||
Available-for-sale | ||||||||
FHLMC certificates | 722,249 | 1,892,358 | ||||||
GNMA certificates | 418,312 | 342,674 | ||||||
FNMA certificates | 1,507,792 | 1,373,977 | ||||||
Collateralized Mortgage Obligations issued or guaranteed by FHLMC, FNMA and GNMA | 156,307 | — | ||||||
Other mortgage pass-through certificates | 84,354 | 113,983 | ||||||
2,889,014 | 3,722,992 | |||||||
Total mortgage-backed securities | $ | 3,456,574 | $ | 4,451,071 | ||||
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Carrying | Weighted | |||||||
(Dollars in thousands) | amount | average yield % | ||||||
U.S. Government and agencies obligations | ||||||||
Due within one year | $ | 8,480 | 0.47 | |||||
Due after ten years | 1,145,139 | 2.12 | ||||||
1,153,619 | 2.11 | |||||||
Puerto Rico Government obligations | ||||||||
Due within one year | 11,989 | 1.82 | ||||||
Due after one year through five years | 113,487 | 5.40 | ||||||
Due after five years through ten years | 25,814 | 5.87 | ||||||
Due after ten years | 8,615 | 5.47 | ||||||
159,905 | 5.21 | |||||||
Corporate bonds | ||||||||
Due after ten years | 2,000 | 5.80 | ||||||
Total | 1,315,524 | 2.49 | ||||||
Mortgage-backed securities | 3,456,574 | 4.37 | ||||||
Equity securities | 303 | — | ||||||
Total investment securities available-for-sale and held-to-maturity | $ | 4,772,401 | 3.85 | |||||
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2-5 Years | Over 5 Years | |||||||||||||||||||||||
Fixed | Variable | Fixed | Variable | |||||||||||||||||||||
One Year | Interest | Interest | Interest | Interest | ||||||||||||||||||||
or Less | Rates | Rates | Rates | Rates | Total | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Investments:(1) | ||||||||||||||||||||||||
Money market investments | $ | 24,286 | $ | — | $ | — | $ | — | $ | — | $ | 24,286 | ||||||||||||
Mortgage-backed securities | 449,798 | 676,992 | — | 2,329,784 | — | 3,456,574 | ||||||||||||||||||
Other securities(2) | 96,957 | 1,252,700 | — | 36,100 | — | 1,385,757 | ||||||||||||||||||
Total investments | 571,041 | 1,929,692 | — | 2,365,884 | — | 4,866,617 | ||||||||||||||||||
Loans:(1)(2)(3) | ||||||||||||||||||||||||
Residential mortgage | 777,931 | 376,867 | — | 2,461,485 | — | 3,616,283 | ||||||||||||||||||
C&I and commercial mortgage | 5,198,518 | 705,779 | 222,578 | 815,375 | — | 6,942,250 | ||||||||||||||||||
Construction | 1,436,136 | 24,967 | — | 31,486 | — | 1,492,589 | ||||||||||||||||||
Finance leases | 96,453 | 222,051 | — | — | — | 318,504 | ||||||||||||||||||
Consumer | 515,603 | 1,063,997 | — | — | — | 1,579,600 | ||||||||||||||||||
Total loans | 8,024,641 | 2,393,661 | 222,578 | 3,308,346 | — | 13,949,226 | ||||||||||||||||||
Total earning assets | $ | 8,595,682 | $ | 4,323,353 | $ | 222,578 | $ | 5,674,230 | $ | — | $ | 18,815,843 | ||||||||||||
(1) | Scheduled repayments reported in the maturity category in which the payment is due and variable rates according to repricing frequency. | |
(2) | Equity securities available-for-sale, other equity securities and loans having no stated scheduled of repayment and no stated maturity were included under the “one year or less category”. | |
(3) | Non-accruing loans were included under the “one year or less category”. |
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• | a selection of comparable publicly traded companies, based on nature of business, location and size; | ||
• | the discount rate applied to future earnings, based on an estimate of the cost of equity; | ||
• | the potential future earnings of the reporting unit; and | ||
• | the market growth and new business assumptions. |
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• | The establishment of a process to enable the recognition, assessment, and management of risks that could affect the Corporation’s assets and liabilities management; | ||
• | The identification of the Corporation’s risk tolerance levels for yield maximization relating to its assets and liabilities; | ||
• | The evaluation of the adequacy and effectiveness of the Corporation’s risk management process relating to the Corporation’s assets and liabilities, including management’s role in that process; and | ||
• | The evaluation of the Corporation’s compliance with its risk management process relating to the Corporation’s assets and liabilities. |
• | The establishment of a process to enable the identification, assessment, and management of risks that could affect the Corporation’s credit management; | ||
• | The identification of the Corporation’s risk tolerance levels related to its credit management; | ||
• | The evaluation of the adequacy and effectiveness of the Corporation’s risk management process related to the Corporation’s credit management, including management’s role in that process; | ||
• | The evaluation of the Corporation’s compliance with its risk management process related to the Corporation’s credit management; and | ||
• | The approval of loans as required by the lending authorities approved by the Board of Directors. |
• | The conduct and integrity of the Corporation’s financial reporting to any governmental or regulatory body, shareholders, other users of the Corporation’s financial reports and the public; | ||
• | The Corporation’s systems of internal control over financial reporting and disclosure controls and procedures; |
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• | The qualifications, engagement, compensation, independence and performance of the Corporation’s independent auditors, their conduct of the annual audit of the Corporation’s financial statements, and their engagement to provide any other services; |
• | The Corporation’s legal and regulatory compliance; | ||
• | The application for the Corporation’s related person transaction policy as established by the Board of Directors; | ||
• | The application of the Corporation’s code of business conduct and ethics as established by management and the Board of Directors; and | ||
• | The preparation of the Audit Committee report required to be included in the Corporation’s annual proxy statement by the rules of the Securities and Exchange Commission. |
• | The appointment of persons responsible for the Corporation’s significant risks; | ||
• | The development of the risk management infrastructure needed to enable it to monitor risk policies and limits established by the Board of Directors; | ||
• | The evaluation of the risk management process to identify any gap and the implementation of any necessary control to close such gap; | ||
• | The establishment of a process to enable the recognition, assessment, and management of risks that could affect the Corporation; and | ||
• | The provision to the Board of Directors of appropriate information about the Corporation’s risks. |
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(1) | Management’s Investment and Asset Liability Committee (“MIALCO”) — oversees interest rate and market risk, liquidity management and other related matters. Refer to “—Liquidity Risk and Capital Adequacy and Interest Rate Risk Management” discussions below for further details. | ||
(2) | Information Technology Steering Committee — is responsible for the oversight of and counsel on matters related to information technology including the development of information management policies and procedures throughout the Corporation. | ||
(3) | Bank Secrecy Act Committee — is responsible for oversight, monitoring and reporting of the Corporation’s compliance with the Bank Secrecy Act. | ||
(4) | Credit Committees (Delinquency and Credit Management Committee) — oversees and establishes standards for credit risk management processes within the Corporation. The Credit Management Committee is responsible for the approval of loans above an established size threshold. The Delinquency Committee is responsible for the periodic review of (1) past due loans, (2) overdrafts, (3) non-accrual loans, (4) other real estate owned (“OREO”) assets, and (5) the bank’s watch list and non-performing loans. | ||
(5) | Florida Executive Steering Committee — oversees implementation and compliance of policies approved by the Board of Directors and the performance of the Florida region’s operations. The Florida Executive Steering Committee evaluates and monitors interrelated risks related to FirstBank’s operations in Florida. |
(1) | Chief Executive Officer is responsible for the overall risk governance structure of the Corporation. | ||
(2) | Chief Risk Officer is responsible for the oversight of the risk management organization as well as risk governance processes. In addition, the CRO with the collaboration of the Risk Assessment Manager manages the operational risk program. | ||
(3) | Chief Credit Risk Officer and the Chief Lending Officer are responsible of managing the Corporation’s credit risk program. | ||
(4) | Chief Financial Officer in combination with the Corporation’s Treasurer, manages the Corporation’s interest rate and market and liquidity risks programs and, together with the Corporation’s Chief Accounting Officer, is responsible for the implementation of accounting policies and practices in accordance with GAAP and applicable regulatory requirements. The Chief Financial Officer is assisted by the Risk Assessment Manager in the review of the Corporation’s internal control over financial reporting. | ||
(5) | Chief Accounting Officer is responsible for the development and implementation of the Corporation’s accounting policies and practices and the review and monitoring of critical accounts and transactions to ensure that they are managed in accordance with GAAP and applicable regulatory requirements. |
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Weighted-Average | ||||||||||||||||
Rate as of | As of December 31, | |||||||||||||||
December 31, 2009 | 2009 | 2008 | 2007 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Savings accounts | 1.68 | % | $ | 1,774,273 | $ | 1,288,179 | $ | 1,036,662 | ||||||||
Interest-bearing checking accounts | 1.75 | % | 985,470 | 726,731 | 518,570 | |||||||||||
Certificates of deposit | 2.17 | % | 9,212,282 | 10,416,592 | 8,857,405 | |||||||||||
Interest-bearing deposits | 2.06 | % | 11,972,025 | 12,431,502 | 10,412,637 | |||||||||||
Non-interest-bearing deposits | 697,022 | 625,928 | 621,884 | |||||||||||||
Total | $ | 12,669,047 | $ | 13,057,430 | $ | 11,034,521 | ||||||||||
Interest-bearing deposits: | ||||||||||||||||
Average balance outstanding | $ | 11,387,958 | $ | 11,282,353 | $ | 10,755,719 | ||||||||||
Non-interest-bearing deposits: | ||||||||||||||||
Average balance outstanding | $ | 715,982 | $ | 682,496 | $ | 563,990 | ||||||||||
Weighted average rate during the period on interest-bearing deposits(1) | 2.79 | % | 3.75 | % | 4.88 | % |
(1) | Excludes changes in fair value of callable brokered CDs measured at fair value and changes in the fair value of derivatives that economically hedge brokered CDs . |
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(In thousands) | ||||
Three months or less | $ | 1,958,454 | ||
Over three months to six months | 1,366,163 | |||
Over six months to one year | 2,258,717 | |||
Over one year | 2,969,471 | |||
Total | $ | 8,552,805 | ||
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Weighted Average | ||||||||||||||||
Rate as of | As of December 31, | |||||||||||||||
December 31, 2009 | 2009 | 2008 | 2007 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 3.34% | $ | 3,076,631 | $ | 3,421,042 | $ | 3,094,646 | |||||||||
Loans payable (1) | 1.00% | 900,000 | — | — | ||||||||||||
Advances from FHLB | 3.21% | 978,440 | 1,060,440 | 1,103,000 | ||||||||||||
Notes payable | 4.63% | 27,117 | 23,274 | 30,543 | ||||||||||||
Other borrowings | 2.86% | 231,959 | 231,914 | 231,817 | ||||||||||||
Total (2) | $ | 5,214,147 | $ | 4,736,670 | $ | 4,460,006 | ||||||||||
Weighted-average rate during the period | 2.79 | % | 3.78 | % | 5.06 | % |
(1) | Advances from the FED under the FED Discount Window Program. | |
(2) | Includes $3.0 billion as of December 31, 2009 that are tied to variable rates or matured within a year. |
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Banking Subsidiary | ||||||||||||
First | To be well | |||||||||||
BanCorp | FirstBank | capitalized | ||||||||||
As of December 31, 2009 | ||||||||||||
Total capital (Total capital to risk-weighted assets) | 13.44 | % | 12.87 | % | 10.00 | % | ||||||
Tier 1 capital ratio (Tier 1 capital to risk-weighted assets) | 12.16 | % | 11.70 | % | 6.00 | % | ||||||
Leverage ratio | 8.91 | % | 8.53 | % | 5.00 | % | ||||||
As of December 31, 2008 | ||||||||||||
Total capital (Total capital to risk-weighted assets) | 12.80 | % | 12.23 | % | 10.00 | % | ||||||
Tier 1 capital ratio (Tier 1 capital to risk-weighted assets) | 11.55 | % | 10.98 | % | 6.00 | % | ||||||
Leverage ratio | 8.30 | % | 7.90 | % | 5.00 | % |
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December 31, | December 31, | |||||||
(In thousands) | 2009 | 2008 | ||||||
Total equity — GAAP | $ | 1,599,063 | $ | 1,548,117 | ||||
Preferred equity | (928,508 | ) | (550,100 | ) | ||||
Goodwill | (28,098 | ) | (28,098 | ) | ||||
Core deposit intangible | (16,600 | ) | (23,985 | ) | ||||
Tangible common equity | $ | 625,857 | $ | 945,934 | ||||
Total assets — GAAP | $ | 19,628,448 | $ | 19,491,268 | ||||
Goodwill | (28,098 | ) | (28,098 | ) | ||||
Core deposit intangible | (16,600 | ) | (23,985 | ) | ||||
Tangible assets | $ | 19,583,750 | $ | 19,439,185 | ||||
Common shares outstanding | 92,542 | 92,546 | ||||||
Tangible common equity ratio | 3.20 | % | 4.87 | % | ||||
Tangible book value per common share | $ | 6.76 | $ | 10.22 |
December 31, | December 31, | |||||||
(In thousands) | 2009 | 2008 | ||||||
Total equity — GAAP | $ | 1,599,063 | $ | 1,548,117 | ||||
Qualifying preferred stock | (928,508 | ) | (550,100 | ) | ||||
Unrealized gain on available-for-sale securities (1) | (26,617 | ) | (57,389 | ) | ||||
Disallowed deferred tax asset (2) | (11,827 | ) | (69,810 | ) | ||||
Goodwill | (28,098 | ) | (28,098 | ) | ||||
Core deposit intangible | (16,600 | ) | (23,985 | ) | ||||
Cumulative change gain in fair value of liabilities acounted for under a fair value option | (1,535 | ) | (3,473 | ) | ||||
Other disallowed assets | (24 | ) | (508 | ) | ||||
Tier 1 common equity | $ | 585,854 | $ | 814,754 | ||||
Total risk-weighted assets | $ | 14,303,496 | $ | 13,762,378 | ||||
Tier 1 common equity to risk-weighted assets ratio | 4.10 | % | 5.92 | % |
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 $111 million of the Corporation’s deferred tax assets at December 31, 2009 (December 31, 2008 — $58 million) were included without limitation in regulatory capital pursuant to the risk-based capital guidelines, while approximately $12 million of such assets at December 31, 2009 (December 31, 2008 — $70 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 $4 million of the Corporation’s other net deferred tax liability at December 31, 2009 (December 31, 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. |
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Contractual Obligations and Commitments | ||||||||||||||||||||
As of December 31, 2009 | ||||||||||||||||||||
Total | Less than 1 year | 1-3 years | 3-5 years | After 5 years | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Contractual obligations: | ||||||||||||||||||||
Certificates of deposit (1) | $ | 9,212,283 | $ | 6,041,065 | $ | 2,835,562 | $ | 321,850 | $ | 13,806 | ||||||||||
Loans payable | 900,000 | 900,000 | — | — | — | |||||||||||||||
Securities sold under agreements to repurchase | 3,076,631 | 676,631 | 1,600,000 | 800,000 | — | |||||||||||||||
Advances from FHLB | 978,440 | 325,000 | 445,000 | 208,440 | — | |||||||||||||||
Notes payable | 27,117 | — | 13,756 | — | 13,361 | |||||||||||||||
Other borrowings | 231,959 | — | — | — | 231,959 | |||||||||||||||
Operating leases | 63,795 | 10,342 | 14,362 | 8,878 | 30,213 | |||||||||||||||
Other contractual obligations | 10,387 | 7,157 | 3,130 | 100 | — | |||||||||||||||
Total contractual obligations | $ | 14,500,612 | $ | 7,960,195 | $ | 4,911,810 | $ | 1,339,268 | $ | 289,339 | ||||||||||
Commitments to sell mortgage loans | $ | 13,158 | $ | 13,158 | ||||||||||||||||
Standby letters of credit | $ | 103,904 | $ | 103,904 | ||||||||||||||||
Commitments to extend credit: | ||||||||||||||||||||
Lines of credit | $ | 1,220,317 | $ | 1,220,317 | ||||||||||||||||
Letters of credit | 48,944 | 48,944 | ||||||||||||||||||
Commitments to originate loans | 255,598 | 255,598 | ||||||||||||||||||
Total commercial commitments | $ | 1,524,859 | $ | 1,524,859 | ||||||||||||||||
(1) | Includes $7.6 billion of brokered CDs sold by third-party intermediaries in denominations of $100,000 or less, within FDIC insurance limits and $25.6 million in CDARS. |
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December 31, 2009 | December 31, 2008 | |||||||||||||||||||||||||||||||
Net Interest Income Risk (Projected for the next 12 months) | Net Interest Income Risk (Projected for the next 12 months) | |||||||||||||||||||||||||||||||
Static Simulation | Growing Balance Sheet | Static Simulation | Growing Balance Sheet | |||||||||||||||||||||||||||||
(Dollars in millions) | $ Change | % Change | $ Change | % Change | $ Change | % Change | $ Change | % Change | ||||||||||||||||||||||||
+200 bps ramp | $ | 10.6 | 2.16 | % | $ | 16.0 | 3.39 | % | $ | 6.5 | 1.39 | % | $ | 6.4 | 1.29 | % | ||||||||||||||||
-200 bps ramp | $ | (31.9 | ) | (6.53 | )% | $ | (33.0 | ) | (6.98 | )% | $ | (12.8 | ) | (2.77 | )% | $ | (15.5 | ) | (3.15 | )% |
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Year ended | ||||
(In thousands) | December 31, 2009 | |||
Fair value of contracts outstanding at the beginning of year | $ | (495 | ) | |
Fair value of new contracts at inception | (35 | ) | ||
Contracts terminated or called during the year | (5,198 | ) | ||
Changes in fair value during the year | 5,197 | |||
Fair value of contracts outstanding as of December 31, 2009 | $ | (531 | ) | |
Payments Due by Period | ||||||||||||||||||||
Maturity | Maturity | |||||||||||||||||||
(In thousands) | Less Than | Maturity | Maturity | In Excess | Total | |||||||||||||||
As of December 31, 2009 | One Year | 1-3 Years | 3-5 Years | of 5 Years | Fair Value | |||||||||||||||
Pricing from observable market inputs | $ | (461 | ) | $ | 18 | $ | (636 | ) | $ | (3,651 | ) | $ | (4,730 | ) | ||||||
Pricing that consider unobservable market inputs | — | — | — | 4,199 | 4,199 | |||||||||||||||
$ | (461 | ) | $ | 18 | $ | (636 | ) | $ | 548 | $ | (531 | ) | ||||||||
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(In thousands) | As of December 31, 2009 | |||||||||||||||||||||
Total | Accrued | |||||||||||||||||||||
Exposure at | Negative | Total | interest receivable | |||||||||||||||||||
Counterparty | Rating(1) | Notional | Fair Value(2) | Fair Values | Fair Value | (payable) | ||||||||||||||||
Interest rate swaps with rated counterparties: | ||||||||||||||||||||||
JP Morgan | A+ | $ | 67,345 | $ | 621 | $ | (4,304 | ) | $ | (3,683 | ) | $ | — | |||||||||
Credit Suisse First Boston | A+ | 49,311 | 2 | (764 | ) | (762 | ) | — | ||||||||||||||
Goldman Sachs | A | 6,515 | 557 | — | 557 | — | ||||||||||||||||
Morgan Stanley | A | 109,712 | 238 | — | 238 | — | ||||||||||||||||
232,883 | 1,418 | (5,068 | ) | (3,650 | ) | — | ||||||||||||||||
Other derivatives (3) | 284,619 | 4,518 | (1,399 | ) | 3,119 | (269 | ) | |||||||||||||||
Total | $ | 517,502 | $ | 5,936 | $ | (6,467 | ) | $ | (531 | ) | $ | (269 | ) | |||||||||
(In thousands) | As of December 31, 2008 | |||||||||||||||||||||
Total | Accrued | |||||||||||||||||||||
Exposure at | Negative | Total | interest receivable | |||||||||||||||||||
Counterparty | Rating(1) | Notional | Fair Value(2) | Fair Values | Fair Value | (payable) | ||||||||||||||||
Interest rate swaps with rated counterparties: | ||||||||||||||||||||||
Wachovia | AA- | $ | 16,570 | $ | 41 | $ | — | $ | 41 | $ | 108 | |||||||||||
Merrill Lynch | A | 230,190 | 1,366 | — | 1,366 | (106 | ) | |||||||||||||||
UBS Financial Services, Inc. | A+ | 14,384 | 88 | — | 88 | 179 | ||||||||||||||||
JP Morgan | A+ | 531,886 | 2,319 | (5,726 | ) | (3,407 | ) | 1,094 | ||||||||||||||
Credit Suisse First Boston | A+ | 151,884 | 178 | (1,461 | ) | (1,283 | ) | 512 | ||||||||||||||
Citigroup | A+ | 295,130 | 1,516 | (1 | ) | 1,515 | 2,299 | |||||||||||||||
Goldman Sachs | A | 16,165 | 597 | — | 597 | 158 | ||||||||||||||||
Morgan Stanley | A | 107,450 | 735 | — | 735 | 59 | ||||||||||||||||
1,363,659 | 6,840 | (7,188 | ) | (348 | ) | 4,303 | ||||||||||||||||
Other derivatives (3) | 332,634 | 1,170 | (1,317 | ) | (147 | ) | (203 | ) | ||||||||||||||
Total | $ | 1,696,293 | $ | 8,010 | $ | (8,505 | ) | $ | (495 | ) | $ | 4,100 | ||||||||||
(1) | Based on the S&P and Fitch Long Term Issuer Credit Ratings. | |
(2) | For each counterparty, this amount includes derivatives with positive fair value excluding the related accrued interest receivable/payable. | |
(3) | Credit exposure with several Puerto Rico counterparties for which a credit rating is not readily available. Approximately $4.2 million and $0.8 million of the credit exposure with local companies relates to caps referenced to mortgages bought from R&G Premier Bank as of December 31, 2009 and 2008, respectively. |
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Year Ended December 31, | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Allowance for loan and lease losses, beginning of year | $ | 281,526 | $ | 190,168 | $ | 158,296 | $ | 147,999 | $ | 141,036 | ||||||||||
Provision (recovery) for loan and lease losses: | ||||||||||||||||||||
Residential mortgage | 45,010 | 13,032 | 2,736 | 4,059 | 2,759 | |||||||||||||||
Commercial mortgage | 71,401 | 7,740 | 1,326 | 3,898 | 1,133 | |||||||||||||||
Commercial and Industrial | 146,157 | 35,561 | 18,369 | (1,662 | ) | (5,774 | ) | |||||||||||||
Construction | 264,246 | 53,109 | 23,502 | 5,815 | 7,546 | |||||||||||||||
Consumer and finance leases | 53,044 | 81,506 | 74,677 | 62,881 | 44,980 | |||||||||||||||
Total provision for loan and lease losses | 579,858 | 190,948 | 120,610 | 74,991 | 50,644 | |||||||||||||||
Charged-off: | ||||||||||||||||||||
Residential mortgage | (28,934 | ) | (6,256 | ) | (985 | ) | (997 | ) | (945 | ) | ||||||||||
Commercial mortgage | (25,871 | ) | (3,664 | ) | (1,333 | ) | (19 | ) | (268 | ) | ||||||||||
Commercial and Industrial | (35,696 | ) | (25,911 | ) | (9,927 | ) | (6,017 | ) | (8,290 | ) | ||||||||||
Construction | (183,800 | ) | (7,933 | ) | (3,910 | ) | — | — | ||||||||||||
Consumer and finance leases | (70,121 | ) | (73,308 | ) | (78,675 | ) | (70,176 | ) | (42,417 | ) | ||||||||||
(344,422 | ) | (117,072 | ) | (94,830 | ) | (77,209 | ) | (51,920 | ) | |||||||||||
Recoveries: | ||||||||||||||||||||
Residential mortgage | 73 | — | 1 | 17 | — | |||||||||||||||
Commercial mortgage | 667 | — | — | — | 4 | |||||||||||||||
Commercial and Industrial | 1,188 | 1,678 | 659 | 3,491 | 1,275 | |||||||||||||||
Construction | 200 | 198 | 78 | — | — | |||||||||||||||
Consumer and finance leases | 9,030 | 6,875 | 5,354 | 9,007 | 5,597 | |||||||||||||||
11,158 | 8,751 | 6,092 | 12,515 | 6,876 | ||||||||||||||||
Net charge-offs | (333,264 | ) | (108,321 | ) | (88,738 | ) | (64,694 | ) | (45,044 | ) | ||||||||||
Other adjustments(1) | — | 8,731 | — | — | 1,363 | |||||||||||||||
Allowance for loan and lease losses, end of year | $ | 528,120 | $ | 281,526 | $ | 190,168 | $ | 158,296 | $ | 147,999 | ||||||||||
Allowance for loan and lease losses to year end total loans receivable | 3.79 | % | 2.15 | % | 1.61 | % | 1.41 | % | 1.17 | % | ||||||||||
Net charge-offs to average loans outstanding during the period | 2.48 | % | 0.87 | % | 0.79 | % | 0.55 | % | 0.39 | % | ||||||||||
Provision for loan and lease losses to net charge-offs during the period | 1.74 | x | 1.76 | x | 1.36 | x | 1.16 | x | 1.12 | x |
(1) | For 2008, carryover of the allowance for loan losses related to the $218 million auto loan portfolio acquired from Chrysler. | |
For 2005, allowance for loan losses from the acquisition of FirstBank Florida. |
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||||||||||||||||||||||
(In thousands) | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||
Residential mortgage | $ | 31,165 | 26 | % | $ | 15,016 | 27 | % | $ | 8,240 | 27 | % | $ | 6,488 | 25 | % | $ | 3,409 | 18 | % | ||||||||||||||||||||
Commercial mortgage loans | 63,972 | 11 | % | 17,775 | 12 | % | 13,699 | 11 | % | 13,706 | 11 | % | 9,827 | 9 | % | |||||||||||||||||||||||||
Construction loans | 164,128 | 11 | % | 83,482 | 12 | % | 38,108 | 12 | % | 18,438 | 13 | % | 12,623 | 9 | % | |||||||||||||||||||||||||
Commercial and Industrial loans (including loans to local financial institutions) | 186,007 | 38 | % | 74,358 | 33 | % | 63,030 | 33 | % | 53,929 | 32 | % | 58,117 | 48 | % | |||||||||||||||||||||||||
Consumer loans and finance leases | 82,848 | 14 | % | 90,895 | 16 | % | 67,091 | 17 | % | 65,735 | 19 | % | 64,023 | 16 | % | |||||||||||||||||||||||||
$ | 528,120 | 100 | % | $ | 281,526 | 100 | % | $ | 190,168 | 100 | % | $ | 158,296 | 100 | % | $ | 147,999 | 100 | % | |||||||||||||||||||||
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Residential | Commercial | Construction | Consumer and | |||||||||||||||||||||
(Dollars in thousands) | Mortgage Loans | Mortgage Loans | C&I Loans | Loans | Finance Leases | Total | ||||||||||||||||||
As of December 31, 2009 | ||||||||||||||||||||||||
Impaired loans without specific reserves: | ||||||||||||||||||||||||
Principal balance of loans, net of charge-offs | $ | 384,285 | $ | 62,920 | $ | 48,943 | $ | 100,028 | $ | — | $ | 596,176 | ||||||||||||
Impaired loans with specific reserves: | ||||||||||||||||||||||||
Principal balance of loans, net of charge-offs | 60,040 | 159,284 | 243,123 | 597,641 | — | 1,060,088 | ||||||||||||||||||
Allowance for loan and lease losses | 2,616 | 30,945 | 62,491 | 86,093 | — | 182,145 | ||||||||||||||||||
Allowance for loan and lease losses to principal balance | 4.36 | % | 19.43 | % | 25.70 | % | 14.41 | % | 0.00 | % | 17.18 | % | ||||||||||||
Loans with general allowance: | ||||||||||||||||||||||||
Principal balance of loans | 3,151,183 | 1,368,617 | 5,059,363 | 794,920 | 1,898,104 | 12,272,187 | ||||||||||||||||||
Allowance for loan and lease losses | 28,549 | 33,027 | 123,516 | 78,035 | 82,848 | 345,975 | ||||||||||||||||||
Allowance for loan and lease losses to principal balance | 0.91 | % | 2.41 | % | 2.44 | % | 9.82 | % | 4.36 | % | 2.82 | % | ||||||||||||
Total portfolio, excluding loans held for sale: | ||||||||||||||||||||||||
Principal balance of loans | $ | 3,595,508 | $ | 1,590,821 | $ | 5,351,429 | $ | 1,492,589 | $ | 1,898,104 | $ | 13,928,451 | ||||||||||||
Allowance for loan and lease losses | 31,165 | 63,972 | 186,007 | 164,128 | 82,848 | 528,120 | ||||||||||||||||||
Allowance for loan and lease losses to principal balance | 0.87 | % | 4.02 | % | 3.48 | % | 11.00 | % | 4.36 | % | 3.79 | % | ||||||||||||
As of December 31, 2008 | ||||||||||||||||||||||||
Impaired loans without specific reserves: | ||||||||||||||||||||||||
Principal balance of loans, net of charge-offs | $ | 19,909 | $ | 18,359 | $ | 55,238 | $ | 22,809 | $ | — | $ | 116,315 | ||||||||||||
Impaired loans with specific reserves: | ||||||||||||||||||||||||
Principal balance of loans, net of charge-offs | — | 47,323 | 79,760 | 257,831 | — | 384,914 | ||||||||||||||||||
Allowance for loan and lease losses | — | 8,680 | 18,343 | 56,330 | — | 83,353 | ||||||||||||||||||
Allowance for loan and lease losses to principal balance | 0.00 | % | 18.34 | % | 23.00 | % | 21.85 | % | 0.00 | % | 21.65 | % | ||||||||||||
Loans with general allowance: | ||||||||||||||||||||||||
Principal balance of loans | 3,461,416 | 1,470,076 | 4,290,450 | 1,246,355 | 2,108,363 | 12,576,660 | ||||||||||||||||||
Allowance for loan and lease losses | 15,016 | 9,095 | 56,015 | 27,152 | 90,895 | 198,173 | ||||||||||||||||||
Allowance for loan and lease losses to principal balance | 0.43 | % | 0.62 | % | 1.31 | % | 2.18 | % | 4.31 | % | 1.58 | % | ||||||||||||
Total portfolio, excluding loans held for sale: | ||||||||||||||||||||||||
Principal balance of loans | $ | 3,481,325 | $ | 1,535,758 | $ | 4,425,448 | $ | 1,526,995 | $ | 2,108,363 | $ | 13,077,889 | ||||||||||||
Allowance for loan and lease losses | 15,016 | 17,775 | 74,358 | 83,482 | 90,895 | 281,526 | ||||||||||||||||||
Allowance for loan and lease losses to principal balance | 0.43 | % | 1.16 | % | 1.68 | % | 5.47 | % | 4.31 | % | 2.15 | % |
Impaired Loans: | (In thousands) | |||
Balance at beginning of year | $ | 501,229 | ||
Loans determined impaired during the year | 1,466,805 | |||
Net charge-offs (1) | (244,154 | ) | ||
Loans sold, net of charge-offs of $49.6 million (2) | (39,374 | ) | ||
Loans foreclosed, paid in full and partial payments | (28,242 | ) | ||
Balance at end of year | $ | 1,656,264 | ||
(1) | Approximately $114.2 million, or 47%, is related to construction loans in Florida and $44.6 million, or 18%, is related to construction loans in Puerto Rico. | |
(2) | Related to five construction projects sold in Florida. |
Year ended December 31, 2009 | ||||||||||||||||||||
Construction | Commercial | Commercial Mortgage | Residential Mortgage | |||||||||||||||||
(In thousands) | Loans | Loans | Loans | Loans | Total | |||||||||||||||
Allowance for impaired loans, beginning of period | $ | 56,330 | $ | 18,343 | $ | 8,680 | $ | — | $ | 83,353 | ||||||||||
Provision for impaired loans | 211,658 | 69,401 | 43,583 | 18,304 | 342,946 | |||||||||||||||
Charge-offs | (181,895 | ) | (25,253 | ) | (21,318 | ) | (15,688 | ) | (244,154 | ) | ||||||||||
Allowance for impaired loans, end of period | $ | 86,093 | $ | 62,491 | $ | 30,945 | $ | 2,616 | $ | 182,145 | ||||||||||
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2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Non-accruing loans: | ||||||||||||||||||||
Residential mortgage | $ | 441,642 | $ | 274,923 | $ | 209,077 | $ | 114,828 | $ | 54,777 | ||||||||||
Commercial mortgage | 196,535 | 85,943 | 46,672 | 38,078 | 15,273 | |||||||||||||||
Commercial and Industrial | 241,316 | 58,358 | 26,773 | 24,900 | 18,582 | |||||||||||||||
Construction | 634,329 | 116,290 | 75,494 | 19,735 | 1,959 | |||||||||||||||
Finance leases | 5,207 | 6,026 | 6,250 | 8,045 | 3,272 | |||||||||||||||
Consumer | 44,834 | 45,635 | 48,784 | 46,501 | 40,459 | |||||||||||||||
1,563,863 | 587,175 | 413,050 | 252,087 | 134,322 | ||||||||||||||||
REO | 69,304 | 37,246 | 16,116 | 2,870 | 5,019 | |||||||||||||||
Other repossessed property | 12,898 | 12,794 | 10,154 | 12,103 | 9,631 | |||||||||||||||
Investment securities(1) | 64,543 | — | — | — | — | |||||||||||||||
Total non-performing assets | $ | 1,710,608 | $ | 637,215 | $ | 439,320 | $ | 267,060 | $ | 148,972 | ||||||||||
Past due loans 90 days and still accruing | $ | 165,936 | $ | 471,364 | $ | 75,456 | $ | 31,645 | $ | 27,501 | ||||||||||
Non-performing assets to total assets | 8.71 | % | 3.27 | % | 2.56 | % | 1.54 | % | 0.75 | % | ||||||||||
Non-accruing loans to total loans receivable | 11.23 | % | 4.49 | % | 3.50 | % | 2.24 | % | 1.06 | % | ||||||||||
Allowance for loan and lease losses | $ | 528,120 | $ | 281,526 | $ | 190,168 | $ | 158,296 | $ | 147,999 | ||||||||||
Allowance to total non-accruing loans | 33.77 | % | 47.95 | % | 46.04 | % | 62.79 | % | 110.18 | % | ||||||||||
Allowance to total non-accruing loans, excluding residential real estate loans | 47.06 | % | 90.16 | % | 93.23 | % | 115.33 | % | 186.06 | % |
(1) | Collateral pledged with Lehman Brothers Special Financing, Inc. |
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Residential | Commercial | Construction | Consumer and | |||||||||||||||||||||
(Dollars in thousands) | Mortgage Loans | Mortgage Loans | C&I Loans | Loans | Finance Leases | Total | ||||||||||||||||||
As of December 31, 2009 | ||||||||||||||||||||||||
Non-performing loans charged-off to realizable value | $ | 320,224 | $ | 38,421 | $ | 19,244 | $ | 139,787 | $ | — | $ | 517,676 | ||||||||||||
Other non-performing loans | 121,418 | 158,114 | 222,072 | 494,542 | 50,041 | 1,046,187 | ||||||||||||||||||
Total non-performing loans | $ | 441,642 | $ | 196,535 | $ | 241,316 | $ | 634,329 | $ | 50,041 | $ | 1,563,863 | ||||||||||||
Allowance to non-performing loans | 7.06 | % | 32.55 | % | 77.08 | % | 25.87 | % | 165.56 | % | 33.77 | % | ||||||||||||
Allowance to non-performing loans, excluding non-performing loans charged-off to realizable value | 25.67 | % | 40.46 | % | 83.76 | % | 33.19 | % | 165.56 | % | 50.48 | % | ||||||||||||
As of December 31, 2008 | ||||||||||||||||||||||||
Non-performing loans charged-off to realizable value | $ | 19,909 | $ | 8,852 | $ | 9,890 | $ | 1,810 | $ | — | $ | 40,461 | ||||||||||||
Other non-performing loans | 255,014 | 77,091 | 48,468 | 114,480 | 51,661 | 546,714 | ||||||||||||||||||
Total non-performing loans | $ | 274,923 | $ | 85,943 | $ | 58,358 | $ | 116,290 | $ | 51,661 | $ | 587,175 | ||||||||||||
Allowance to non-performing loans | 5.46 | % | 20.68 | % | 127.42 | % | 71.79 | % | 175.95 | % | 47.95 | % | ||||||||||||
Allowance to non-performing loans, excluding non-performing loans charged-off to realizable value | 5.89 | % | 23.06 | % | 153.42 | % | 72.92 | % | 175.95 | % | 51.49 | % |
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(In thousands) | ||||
Principal balance deemed collectible | $ | 22,374 | ||
Amount charged-off | $ | (29,713 | ) | |
Specific Reserve: | (In thousands) | |||
Balance at beginning of year | $ | 14,375 | ||
Provision for loan losses | 17,213 | |||
Charge-offs | (29,713 | ) | ||
Balance at end of year | $ | 1,875 | ||
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Year Ended | ||||||||||||||||||||
December 31, | December 31, | December 31, | December 31, | December 31, | ||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
Residential mortgage | 0.82 | % | 0.19 | % | 0.03 | % | 0.04 | % | 0.05 | % | ||||||||||
Commercial mortgage | 1.64 | % | 0.27 | % | 0.10 | % | 0.00 | % | 0.03 | % | ||||||||||
Commercial and Industrial | 0.72 | % | 0.59 | % | 0.26 | % | 0.06 | % | 0.11 | % | ||||||||||
Construction | 11.54 | % | 0.52 | % | 0.26 | % | 0.00 | % | 0.00 | % | ||||||||||
Consumer and finance leases | 3.05 | % | 3.19 | % | 3.48 | % | 2.90 | % | 2.06 | % | ||||||||||
Total loans | 2.48 | % | 0.87 | % | 0.79 | % | 0.55 | % | 0.39 | % |
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December 31, 2009 | December 31, 2008 | |||||||
PUERTO RICO: | ||||||||
Residential mortgage | 0.64 | % | 0.20 | % | ||||
Commercial mortgage | 0.82 | % | 0.37 | % | ||||
Commercial and Industrial | 0.72 | % | 0.32 | % | ||||
Construction | 4.88 | % | 0.19 | % | ||||
Consumer and finance leases | 2.93 | % | 3.10 | % | ||||
Total loans | 1.44 | % | 0.82 | % | ||||
VIRGIN ISLANDS: | ||||||||
Residential mortgage | 0.08 | % | 0.02 | % | ||||
Commercial mortgage | 2.79 | % | 0.00 | % | ||||
Commercial and Industrial | 0.59 | % | 6.73 | % | ||||
Construction | 0.00 | % | 0.00 | % | ||||
Consumer and finance leases | 3.50 | % | 3.54 | % | ||||
Total loans | 0.73 | % | 1.48 | % | ||||
FLORIDA: | ||||||||
Residential mortgage | 2.84 | % | 0.30 | % | ||||
Commercial mortgage | 3.02 | % | 0.09 | % | ||||
Commercial and Industrial | 1.87 | % | 6.58 | % | ||||
Construction | 29.93 | % | 1.08 | % | ||||
Consumer and finance leases | 7.33 | % | 5.88 | % | ||||
Total loans | 11.70 | % | 0.86 | % |
Total credit losses (equal to net charge-offs plus losses on REO operations) for 2009 amounted to $355.1 million, or 2.62% to average loans and repossessed assets, respectively, in contrast to credit losses of $129.7 million, or a loss rate of 1.04%, for 2008. In addition, there was a $1.8 million increase in the reserve for probable losses on outstanding unfunded loan commitments. |
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Year Ended | ||||||||
December 31, | ||||||||
2009 | 2008 | |||||||
(Dollars in thousands) | ||||||||
REO | ||||||||
REO balances, carrying value: | ||||||||
Residential | $ | 35,778 | $ | 20,265 | ||||
Commercial | 19,149 | 2,306 | ||||||
Condo-conversion projects | 8,000 | 9,500 | ||||||
Construction | 6,377 | 5,175 | ||||||
Total | $ | 69,304 | $ | 37,246 | ||||
REO activity (number of properties): | ||||||||
Beginning property inventory, | 155 | 87 | ||||||
Properties acquired | 295 | 169 | ||||||
Properties disposed | (165 | ) | (101 | ) | ||||
Ending property inventory | 285 | 155 | ||||||
Average holding period (in days) | ||||||||
Residential | 221 | 160 | ||||||
Commercial | 170 | 237 | ||||||
Condo-conversion projects | 643 | 306 | ||||||
Construction | 330 | 145 | ||||||
266 | 200 | |||||||
REO operations (loss) gain: | ||||||||
Market adjustments and (losses) gain on sale: | ||||||||
Residential | $ | (9,613 | ) | $ | (3,521 | ) | ||
Commercial | (1,274 | ) | (1,402 | ) | ||||
Condo-conversion projects | (1,500 | ) | (5,725 | ) | ||||
Construction | (1,977 | ) | (347 | ) | ||||
(14,364 | ) | (10,995 | ) | |||||
Other REO operations expenses | (7,499 | ) | (10,378 | ) | ||||
Net Loss on REO operations | $ | (21,863 | ) | $ | (21,373 | ) | ||
CHARGE-OFFS | ||||||||
Residential charge-offs, net | (28,861 | ) | (6,256 | ) | ||||
Commercial charge-offs, net | (59,712 | ) | (27,897 | ) | ||||
Construction charge-offs, net | (183,600 | ) | (7,735 | ) | ||||
Consumer and finance leases charge-offs, net | (61,091 | ) | (66,433 | ) | ||||
Total charge-offs, net | (333,264 | ) | (108,321 | ) | ||||
TOTAL CREDIT LOSSES (1) | $ | (355,127 | ) | $ | (129,694 | ) | ||
LOSS RATIO PER CATEGORY (2): | ||||||||
Residential | 1.08 | % | 0.29 | % | ||||
Commercial | 0.96 | % | 0.53 | % | ||||
Construction | 11.65 | % | 0.92 | % | ||||
Consumer | 3.04 | % | 3.18 | % | ||||
TOTAL CREDIT LOSS RATIO (3) | 2.62 | % | 1.04 | % |
(1) | Equal to REO operations (losses) gains plus Charge-offs, net. | |
(2) | Calculated as net charge-offs plus market adjustments and gains (losses) on sale of REO divided by average loans and repossessed assets. | |
(3) | Calculated as net charge-offs plus net loss on REO operations divided by average loans and repossessed assets. |
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2009 | ||||||||||||||||
March 31 | June 30 | September 30 | December 31 | |||||||||||||
(Dollar in thousands, except for per share results) | ||||||||||||||||
Interest income | $ | 258,323 | $ | 252,780 | $ | 242,022 | $ | 243,449 | ||||||||
Net interest income | 121,598 | 131,014 | 129,133 | 137,297 | ||||||||||||
Provision for loan losses | 59,429 | 235,152 | 148,090 | 137,187 | ||||||||||||
Net income (loss) | 21,891 | (78,658 | ) | (165,218 | ) | (53,202 | ) | |||||||||
Net income (loss) attributable to common stockholders | 6,773 | (94,825 | ) | (174,689 | ) | (59,334 | ) | |||||||||
Earnings (loss) per common share-basic | $ | 0.07 | $ | (1.03 | ) | $ | (1.89 | ) | $ | (0.64 | ) | |||||
Earnings (loss) per common share-diluted | $ | 0.07 | $ | (1.03 | ) | $ | (1.89 | ) | $ | (0.64 | ) |
2008 | ||||||||||||||||
March 31 | June 30 | September 30 | December 31 | |||||||||||||
(Dollar in thousands, except for per share results) | ||||||||||||||||
Interest income | $ | 279,087 | $ | 276,608 | $ | 288,292 | $ | 282,910 | ||||||||
Net interest income | 124,458 | 134,606 | 144,621 | 124,196 | ||||||||||||
Provision for loan losses | 45,793 | 41,323 | 55,319 | 48,513 | ||||||||||||
Net income | 33,589 | 32,994 | 24,546 | 18,808 | ||||||||||||
Net income attributable to common stockholders | 23,520 | 22,925 | 14,477 | 8,739 | ||||||||||||
Earnings per common share-basic | $ | 0.25 | $ | 0.25 | $ | 0.16 | $ | 0.09 | ||||||||
Earnings per common share-diluted | $ | 0.25 | $ | 0.25 | $ | 0.16 | $ | 0.09 |
— | Net interest income increased 11% to $137.3 million for the fourth quarter of 2009 from $124.2 million for the fourth quarter of 2008. Net interest income for the fourth quarter of 2009 includes a net unrealized gain of $2.5 million, compared to a net unrealized loss of $5.3 million for the fourth quarter of 2008, a positive fluctuation of $7.8 million, related to the changes in valuation of derivatives instruments that enonomically hedge the Corporation’s brokered CDs and medium term notes and unrealized gains and losses on liabilities measured at fair value. Compared with the fourth quarter of 2008, net interest income, excluding fair value adjustments on derivatives and financial liabilities measured at fair value, increased $5.3 million, or 4%. The Corporation benefited from lower funding costs related to continued low levels of interest rates and the mix of financing sources. Lower interest rate levels was reflected in the pricing of newly issued brokered CDs at rates significantly lower than rate levels for prior year’s fourth quarter. The average cost of brokered CDs decreased by 154 basis points from 4.06% for the fourth quarter of 2008 to 2.52% for the fourth quarter of 2009. Also, the Corporation was able to reduce the average cost of its core deposits from 2.83% for prior year’s fourth quarter to 1.95% for the fourth quarter of 2009. The decrease in funding costs was partially offset by a significant increase in non-performing loans and the repricing of floating-rate commercial and construction loans at lower rates due to decreases in market interest rates such as three-month LIBOR and the Prime rate, even though the Corporation is actively increasing spreads on loan renewals. The increase in net interest income was also associated with an increase of $429.6 million of interest-earning assets, over the prior year’s fourth quarter. The increase in interest-earnings assets was driven by a higher average loans volume, which increased by $847 million, driven by additional credit facilities extended to the Government of Puerto Rico. Partially offsetting the increase in average loans was a decrease in average investments of $417 million, driven mostly by the sales of approximately $1.7 billion of Agency MBS and calls of approximately $945 million of U.S. Agency debt securities that were more than purchases made during 2009. |
— | Non-interest income increased to $38.8 million for the fourth quarter of 2009 from $19.4 million for prior year’s fourth quarter. The variance is mainly related to a realized gain of $24.4 million on the sale of U.S. Agency MBS versus a realized gain on the sale of MBS of $11.0 million in prior year’s fourth quarter. The |
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recent drop in mortgage pre-payments, as well as future pre-payment estimates, could result in the extension of the MBS portfolio’s average life, which in turn would shift the balance sheet’s interest rate gap position. In an effort to manage such risk, and take advantage of market opportunities, approximately $460 million of U.S. Agency MBS ( mainly 30 Year fixed rate MBS with an aggregate weighted average rate of 5.33%) were sold in the fourth quarter of 2009, compared to approximately $284 million of U.S. Agency MBS sold in the prior year’s fourth quarter. The realized gain on the sale of MBS during the fourth quarter of 2008 was partially offset by other-than-temporary impairment charges of $4.8 million related to auto industry corporate bonds and certain equity securities. There were no other-than- temporary impairments charges during the fourth quarter of 2009. | |||
— | The provision for loan and lease losses amounted to $137.3 million, or 170% of net charge-offs, for the fourth quarter of 2009 compared to $48.5 million, or 172% of net charge-offs, for the fourth quarter of 2008. The increase, as compared to the fourth quarter of 2008, was mainly attributable to the significant increase in non-performing loans, increases in specific reserves for impaired commercial and construction loans, and the overall growth of the loan portfolio. Also, the migration of loans to higher risk categories and increases to loss factors used to determine the general reserve allowance contributed to the higher provision. The increase in loss factors was necessary to account for higher charge-offs and delinquency levels as well as for worsening trends in economic conditions in Puerto Rico and the United States. | ||
— | Non-interest expenses increased 2% to $88.8 million from $87.0 million for the fourth quarter of 2008. The increase in the non-interest expense for the fourth quarter 2009, as compared to prior year’s fourth quarter, was principally attributable to an increase of $11.5 million in the FDIC deposit insurance premium, which was partly related to increases in regular assessment rates by the FDIC in 2009. The aforementioned increase was partially offset by decreases in certain expenses such as: (i) a $5.3 million decrease in employees’ compensation and benefit expenses, due to a lower headcount and reductions in bonuses, incentive compensation and overtime costs, and (ii) a $4.5 million decrease in net loss on REO operations, mainly due to lower write-downs and expenses in the U.S. mainland. |
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– | Report of Independent Registered Public Accounting Firm. | ||
– | Consolidated Statements of Financial Condition as of December 31, 2009 and 2008. | ||
– | Consolidated Statements of (Loss) Income for Each of the Three Years in the Period Ended December 31, 2009. |
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– | Consolidated Statements of Changes in Stockholders’ Equity for Each of the Three Years in the Period Ended December 31, 2009. | ||
– | Consolidated Statements of Comprehensive (Loss) Income for each of the Three Years in the Period Ended December 31, 2009. | ||
– | Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 2009. | ||
– | Notes to the Consolidated Financial Statements. |
No. | Exhibit | |
3.1 | Articles of Incorporation (1) | |
3.2 | By-Laws of First BanCorp (1) | |
3.3 | Certificate of Designation creating the 7.125% non-cumulative perpetual monthly income preferred stock, Series A (2) | |
3.4 | Certificate of Designation creating the 8.35% non-cumulative perpetual monthly income preferred stock, Series B (3) | |
3.5 | Certificate of Designation creating the 7.40% non-cumulative perpetual monthly income preferred stock, Series C (4) | |
3.6 | Certificate of Designation creating the 7.25% non-cumulative perpetual monthly income preferred stock, Series D (5) | |
3.7 | Certificate of Designation creating the 7.00% non-cumulative perpetual monthly income preferred stock, Series E (6) | |
3.8 | Certificate of Designation creating the fixed-rate cumulative perpetual preferred stock, Series F (7) | |
4.0 | Form of Common Stock Certificate(9) | |
4.1 | Form of Stock Certificate for 7.125% non-cumulative perpetual monthly income preferred stock, Series A (2) | |
4.2 | Form of Stock Certificate for 8.35% non-cumulative perpetual monthly income preferred stock, Series B (3) | |
4.3 | Form of Stock Certificate for 7.40% non-cumulative perpetual monthly income preferred stock, Series C (4) | |
4.4 | Form of Stock Certificate for 7.25% non-cumulative perpetual monthly income preferred stock, Series D (5) | |
4.5 | Form of Stock Certificate for 7.00% non-cumulative perpetual monthly income preferred stock, Series E (10) | |
4.6 | Form of Stock Certificate for Fixed Rate Cumulative Perpetual Preferred Stock, Series F (1) | |
4.7 | Warrant dated January 16, 2009 to purchase shares of First BanCorp (8) | |
4.8 | Letter Agreement, dated January 16, 2009, including Securities Purchase Agreement — Standard Terms attached thereto as Exhibit A, between First BanCorp and the United States Department of the Treasury (14) | |
10.1 | FirstBank’s 1997 Stock Option Plan(11) | |
10.2 | First BanCorp’s 2008 Omnibus Incentive Plan(12) |
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No. | Exhibit | |
10.3 | Investment agreement between The Bank of Nova Scotia and First BanCorp dated February 15, 2007, including the Form of Stockholder Agreement(13) | |
10.4 | Employment Agreement – Aurelio Alemán(11) | |
10.5 | Amendment No. 1 to Employment Agreement – Aurelio Alemán(15) | |
10.6 | Amendment No. 2 to Employment Agreement – Aurelio Alemán | |
10.7 | Employment Agreement – Randolfo Rivera(11) | |
10.8 | Amendment No. 1 to Employment Agreement – Randolfo Rivera (15) | |
10.9 | Amendment No. 2 to Employment Agreement – Randolfo Rivera | |
10.10 | Employment Agreement – Lawrence Odell(16) | |
10.11 | Amendment No. 1 to Employment Agreement – Lawrence Odell(16) | |
10.12 | Amendment No. 2 to Employment Agreement – Lawrence Odell(15) | |
10.13 | Amendment No. 3 to Employment Agreement – Lawrence Odell | |
10.14 | Employment Agreement – Orlando Berges(17) | |
10.15 | Service Agreement Martinez Odell & Calabria(16) | |
10.16 | Amendment No. 1 to Service Agreement Martinez Odell & Calabria(16) | |
10.17 | Amendment No. 2 to Service Agreement Martinez Odell & Calabria | |
12.1 | Ratio of Earnings to Fixed Charges and Preference Dividends | |
14.1 | Code of Ethics for CEO and Senior Financial Officers (1) | |
21.1 | List of First BanCorp’s subsidiaries | |
31.1 | Section 302 Certification of the CEO | |
31.2 | Section 302 Certification of the CFO | |
32.1 | Section 906 Certification of the CEO | |
32.2 | Section 906 Certification of the CFO | |
99.1 | Certification of the CEO Pursuant to Section III(b)(4) of the Emergency Stabilization Act of 2008 and 31 CFR § 30.15 | |
99.2 | Certification of the CFO Pursuant to Section III(b)(4) of the Emergency Stabilization Act of 2008 and 31 CFR § 30.15 | |
99.3 | Policy Statement and Standards of Conduct for Members of Board of Directors, Executive Officers and Principal Shareholders(18) | |
99.4 | Independence Principles for Directors of First BanCorp (19) |
(1) | Incorporated by reference from the Form 10-K for the year ended December 31, 2008 filed by the Corporation on March 2, 2009. | |
(2) | Incorporated by reference to First BanCorp’s registration statement on Form S-3 filed by the Corporation on March 30, 1999. | |
(3) | Incorporated by reference to First BanCorp’s registration statement on Form S-3 filed by the Corporation on September 8, 2000. | |
(4) | Incorporated by reference to First BanCorp’s registration statement on Form S-3 filed by the Corporation on May 18, 2001. | |
(5) | Incorporated by reference to First BanCorp’s registration statement on Form S-3/A filed by the Corporation on January 16, 2002. |
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(6) | Incorporated by reference to Form 8-A filed by the Corporation on September 26, 2003. | |
(7) | Incorporated by reference to Exhibit 3.1 from the Form 8-K filed by the Corporation on January 20, 2009. | |
(8) | Incorporated by reference to Exhibit 4.1 from the Form 8-K filed by the Corporation on January 20, 2009. | |
(9) | Incorporated by reference from Registration statement on Form S-4 filed by the Corporation on April 15, 1998 | |
(10) | Incorporated by reference to Exhibit 4.1 from the Form 8-K filed by the Corporation on September 5, 2003. | |
(11) | Incorporated by reference from the Form 10-K for the year ended December 31, 1998 filed by the Corporation on March 26, 1999. | |
(12) | Incorporated by reference to Exhibit 10.1 from the Form 10-Q for the quarter ended March 31, 2008 filed by the Corporation on May 12, 2008. | |
(13) | Incorporated by reference to Exhibit 10.01 from the Form 8-K filed by the Corporation on February 22, 2007. | |
(14) | Incorporated by reference to Exhibit 10.1 from the Form 8-K filed by the Corporation on January 20, 2009. | |
(15) | Incorporated by reference from the Form 10-Q for the quarter ended March 31, 2009 filed by the Corporation on May 11, 2009. | |
(16) | Incorporated by reference from the Form 10-K for the year ended December 31, 2005 filed by the Corporation on February 9, 2007. | |
(17) | Incorporated by reference from the Form 10-Q for the quarter ended June 30, 2009 filed by the Corporation on August 11, 2009. | |
(18) | Incorporated by reference from the Form 10-K for the year ended December 31, 2003 filed by the Corporation on March 15, 2004. | |
(19) | Incorporated by reference from the Form 10-K for the year ended December 31, 2007 filed by the Corporation on February 29, 2008. |
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FIRST BANCORP. | ||||
By: | /s/ Aurelio Alemán | Date: 3/1/10 | ||
President and Chief Executive Officer |
/s/ Aurelio Alemán | Date: 3/1/10 | |||
President and Chief Executive Officer | ||||
/s/ Orlando Berges | Date: 3/1/10 | |||
Executive Vice President and | ||||
Chief Financial Officer | ||||
/s/ José Menéndez-Cortada | Date: 3/1/10 | |||
Chairman of the Board | ||||
/s/ Fernando Rodríguez-Amaro | Date: 3/1/10 | |||
Director | ||||
/s/ Jorge L. Díaz | Date: 3/1/10 | |||
/s/ Sharee Ann Umpierre-Catinchi | Date: 3/1/10 | |||
Director | ||||
/s/ José L. Ferrer-Canals | Date: 3/1/10 | |||
/s/ Frank Kolodziej | Date: 3/1/10 | |||
/s/ Héctor M. Nevares | Date: 3/1/10 | |||
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/s/ José F. Rodríguez | Date: 3/1/10 | |||
/s/ Pedro Romero | Date: 3/1/10 | |||
Senior Vice President and | ||||
Chief Accounting Officer |
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First BanCorp Index to Consolidated Financial Statements | ||
F-1 | ||
F-2 | ||
F-4 | ||
F-5 | ||
F-6 | ||
F-7 | ||
F-8 | ||
F-9 |
Table of Contents
/s/ Aurelio Alemán | ||||
Aurelio Alemán | ||||
President and Chief Executive Officer | ||||
/s/ Orlando Berges | ||||
Orlando Berges | ||||
Executive Vice President and Chief Financial Officer |
F-1
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254 Muñoz Rivera Avenue
BBVA Tower, 9th Floor
Hato Rey, PR 00918
Telephone (787) 754-9090
Facsimile (787) 766-1094
Stockholders of First BanCorp
F-2
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San Juan, Puerto Rico
March 1, 2010
(OF PUERTO RICO)
License No. 216 Expires Dec. 1, 2010
Stamp 2389662 of the P.R. Society of
Certified Public Accountants has been
affixed to the file copy of this report
F-3
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December 31, 2009 | December 31, 2008 | |||||||
(In thousands, except for share information) | ||||||||
ASSETS | ||||||||
Cash and due from banks | $ | 679,798 | $ | 329,730 | ||||
Money market investments: | ||||||||
Federal funds sold | 1,140 | 54,469 | ||||||
Time deposits with other financial institutions | 600 | 600 | ||||||
Other short-term investments | 22,546 | 20,934 | ||||||
Total money market investments | 24,286 | 76,003 | ||||||
Investment securities available for sale, at fair value: | ||||||||
Securities pledged that can be repledged | 3,021,028 | 2,913,721 | ||||||
Other investment securities | 1,149,754 | 948,621 | ||||||
Total investment securities available for sale | 4,170,782 | 3,862,342 | ||||||
Investment securities held to maturity, at amortized cost: | ||||||||
Securities pledged that can be repledged | 400,925 | 968,389 | ||||||
Other investment securities | 200,694 | 738,275 | ||||||
Total investment securities held to maturity, fair value of $621,584 (2008 - $1,720,412) | 601,619 | 1,706,664 | ||||||
Other equity securities | 69,930 | 64,145 | ||||||
Loans, net of allowance for loan and lease losses of $528,120 (2008 - $281,526) | 13,400,331 | 12,796,363 | ||||||
Loans held for sale, at lower of cost or market | 20,775 | 10,403 | ||||||
Total loans, net | 13,421,106 | 12,806,766 | ||||||
Premises and equipment, net | 197,965 | 178,468 | ||||||
Other real estate owned | 69,304 | 37,246 | ||||||
Accrued interest receivable on loans and investments | 79,867 | 98,565 | ||||||
Due from customers on acceptances | 954 | 504 | ||||||
Other assets | 312,837 | 330,835 | ||||||
Total assets | $ | 19,628,448 | $ | 19,491,268 | ||||
LIABILITIES | ||||||||
Deposits: | ||||||||
Non-interest-bearing deposits | $ | 697,022 | $ | 625,928 | ||||
Interest-bearing deposits (including $0 and $1,150,959 measured at fair value as of December 31, 2009 and December 31, 2008, respectively) | 11,972,025 | 12,431,502 | ||||||
Total deposits | 12,669,047 | 13,057,430 | ||||||
Loans payable | 900,000 | — | ||||||
Securities sold under agreements to repurchase | 3,076,631 | 3,421,042 | ||||||
Advances from the Federal Home Loan Bank (FHLB) | 978,440 | 1,060,440 | ||||||
Notes payable (including $13,361 and $10,141 measured at fair value as of December 31, 2009 and December 31, 2008, respectively) | 27,117 | 23,274 | ||||||
Other borrowings | 231,959 | 231,914 | ||||||
Bank acceptances outstanding | 954 | 504 | ||||||
Accounts payable and other liabilities | 145,237 | 148,547 | ||||||
Total liabilities | 18,029,385 | 17,943,151 | ||||||
Commitments and contingencies (Notes 28, 31 and 34) | ||||||||
STOCKHOLDERS’ EQUITY | ||||||||
Preferred stock, authorized 50,000,000 shares: issued and outstanding 22,404,000 shares (2008 - 22,004,000) at an aggregate liquidation value of $950,100 (2008 - $550,100) | 928,508 | 550,100 | ||||||
Common stock, $1 par value, authorized 250,000,000 shares; issued 102,440,522 (2008 - 102,444,549) | 102,440 | 102,444 | ||||||
Less: Treasury stock (at cost) | (9,898 | ) | (9,898 | ) | ||||
Common stock outstanding, 92,542,722 shares outstanding (2008 - 92,546,749) | 92,542 | 92,546 | ||||||
Additional paid-in capital | 134,223 | 108,299 | ||||||
Legal surplus | 299,006 | 299,006 | ||||||
Retained earnings | 118,291 | 440,777 | ||||||
Accumulated other comprehensive income, net of tax expense of $4,628 (2008 - $717) | 26,493 | 57,389 | ||||||
Total stockholders’ equity | 1,599,063 | 1,548,117 | ||||||
Total liabilities and stockholders’ equity | $ | 19,628,448 | $ | 19,491,268 | ||||
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Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(In thousands, except per share data) | ||||||||||||
Interest income: | ||||||||||||
Loans | $ | 741,535 | $ | 835,501 | $ | 901,941 | ||||||
Investment securities | 254,462 | 285,041 | 265,275 | |||||||||
Money market investments | 577 | 6,355 | 22,031 | |||||||||
Total interest income | 996,574 | 1,126,897 | 1,189,247 | |||||||||
Interest expense: | ||||||||||||
Deposits | 314,487 | 414,838 | 528,740 | |||||||||
Loans payable | 2,331 | 243 | — | |||||||||
Federal funds purchased and securities sold under agreements to repurchase | 114,651 | 133,690 | 148,309 | |||||||||
Advances from FHLB | 32,954 | 39,739 | 38,464 | |||||||||
Notes payable and other borrowings | 13,109 | 10,506 | 22,718 | |||||||||
Total interest expense | 477,532 | 599,016 | 738,231 | |||||||||
Net interest income | 519,042 | 527,881 | 451,016 | |||||||||
Provision for loan and lease losses | 579,858 | 190,948 | 120,610 | |||||||||
Net interest (loss) income after provision for loan and lease losses | (60,816 | ) | 336,933 | 330,406 | ||||||||
Non-interest income: | ||||||||||||
Other service charges on loans | 6,830 | 6,309 | 6,893 | |||||||||
Service charges on deposit accounts | 13,307 | 12,895 | 12,769 | |||||||||
Mortgage banking activities | 8,605 | 3,273 | 2,819 | |||||||||
Net gain on sale of investments | 86,804 | 27,180 | 3,184 | |||||||||
Other-than-temporary impairment losses on investment securities: | ||||||||||||
Total other-than-temporary impairment losses | (33,400 | ) | (5,987 | ) | (5,910 | ) | ||||||
Noncredit-related impairment portion on debt securities not expected to be sold (recognized in other comprehensive income) | 31,742 | — | — | |||||||||
Net impairment losses on investment securities | (1,658 | ) | (5,987 | ) | (5,910 | ) | ||||||
Net gain on partial extinguishment and recharacterization of a secured commercial loan to a local financial institutions | — | — | 2,497 | |||||||||
Rental income | 1,346 | 2,246 | 2,538 | |||||||||
Gain on sale of credit card portfolio | — | — | 2,819 | |||||||||
Insurance reimbursements and other agreements related to a contingency settlement | — | — | 15,075 | |||||||||
Other non-interest income | 27,030 | 28,727 | 24,472 | |||||||||
Total non-interest income | 142,264 | 74,643 | 67,156 | |||||||||
Non-interest expenses: | ||||||||||||
Employees’ compensation and benefits | 132,734 | 141,853 | 140,363 | |||||||||
Occupancy and equipment | 62,335 | 61,818 | 58,894 | |||||||||
Business promotion | 14,158 | 17,565 | 18,029 | |||||||||
Professional fees | 15,217 | 15,809 | 20,751 | |||||||||
Taxes, other than income taxes | 15,847 | 16,989 | 15,364 | |||||||||
Insurance and supervisory fees | 45,605 | 15,990 | 12,616 | |||||||||
Net loss on real estate owned (REO) operations | 21,863 | 21,373 | 2,400 | |||||||||
Other non-interest expenses | 44,342 | 41,974 | 39,426 | |||||||||
Total non-interest expenses | 352,101 | 333,371 | 307,843 | |||||||||
(Loss) income before income taxes | (270,653 | ) | 78,205 | 89,719 | ||||||||
Income tax (expense) benefit | (4,534 | ) | 31,732 | (21,583 | ) | |||||||
Net (loss) income | $ | (275,187 | ) | $ | 109,937 | $ | 68,136 | |||||
Preferred stock dividends and accretion of discount | 46,888 | 40,276 | 40,276 | |||||||||
Net (loss) income attributable to common stockholders | $ | (322,075 | ) | $ | 69,661 | $ | 27,860 | |||||
Net (loss) income per common share: | ||||||||||||
Basic | $ | (3.48 | ) | $ | 0.75 | $ | 0.32 | |||||
Diluted | $ | (3.48 | ) | $ | 0.75 | $ | 0.32 | |||||
Dividends declared per common share | $ | 0.14 | $ | 0.28 | $ | 0.28 | ||||||
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Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net (loss) income | $ | (275,187 | ) | $ | 109,937 | $ | 68,136 | |||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||||||
Depreciation | 20,774 | 19,172 | 17,669 | |||||||||
Amortization and impairment of core deposit intangible | 7,386 | 3,603 | 3,294 | |||||||||
Provision for loan and lease losses | 579,858 | 190,948 | 120,610 | |||||||||
Deferred income tax expense (benefit) | 16,054 | (38,853 | ) | 13,658 | ||||||||
Stock-based compensation recognized | 92 | 9 | 2,848 | |||||||||
Gain on sale of investments, net | (86,804 | ) | (27,180 | ) | (3,184 | ) | ||||||
Other-than-temporary impairments on available-for-sale securities | 1,658 | 5,987 | 5,910 | |||||||||
Derivative instruments and hedging activities (gain) loss | (15,745 | ) | (26,425 | ) | 6,134 | |||||||
Net gain on sale of loans and impairments | (7,352 | ) | (2,617 | ) | (2,246 | ) | ||||||
Net gain on partial extinguishment and recharacterization of a secured commercial loan to a local financial institution | — | — | (2,497 | ) | ||||||||
Net amortization of premiums and discounts and deferred loan fees and costs | 606 | (1,083 | ) | (663 | ) | |||||||
Net increase in mortgage loans held for sale | (21,208 | ) | (6,194 | ) | — | |||||||
Amortization of broker placement fees | 22,858 | 15,665 | 9,563 | |||||||||
Accretion of basis adjustments on fair value hedges | — | — | (2,061 | ) | ||||||||
Net amortization (accretion) of premium and discounts on investment securities | 5,221 | (7,828 | ) | (42,026 | ) | |||||||
Gain on sale of credit card portfolio | — | — | (2,819 | ) | ||||||||
Decrease in accrued income tax payable | (19,408 | ) | (13,348 | ) | (3,419 | ) | ||||||
Decrease in accrued interest receivable | 18,699 | 9,611 | 4,397 | |||||||||
Decrease in accrued interest payable | (24,194 | ) | (31,030 | ) | (13,808 | ) | ||||||
Decrease (increase) in other assets | 28,609 | (14,959 | ) | 4,408 | ||||||||
Decrease in other liabilities | (8,668 | ) | (9,501 | ) | (123,611 | ) | ||||||
Total adjustments | 518,436 | 65,977 | (7,843 | ) | ||||||||
Net cash provided by operating activities | 243,249 | 175,914 | 60,293 | |||||||||
Cash flows from investing activities: | ||||||||||||
Principal collected on loans | 3,010,435 | 2,588,979 | 3,084,530 | |||||||||
Loans originated | (4,429,644 | ) | (3,796,234 | ) | (3,813,644 | ) | ||||||
Purchase of loans | (190,431 | ) | (419,068 | ) | (270,499 | ) | ||||||
Proceeds from sale of loans | 43,816 | 154,068 | 150,707 | |||||||||
Proceeds from sale of repossessed assets | 78,846 | 76,517 | 52,768 | |||||||||
Purchase of servicing assets | — | (621 | ) | (1,851 | ) | |||||||
Proceeds from sale of available-for-sale securities | 1,946,434 | 679,955 | 959,212 | |||||||||
Purchases of securities held to maturity | (8,460 | ) | (8,540 | ) | (511,274 | ) | ||||||
Purchases of securities available for sale | (2,781,394 | ) | (3,468,093 | ) | (576,100 | ) | ||||||
Proceeds from principal repayments and maturities of securities held to maturity | 1,110,245 | 1,586,799 | 623,374 | |||||||||
Proceeds from principal repayments of securities available for sale | 880,384 | 332,419 | 214,218 | |||||||||
Additions to premises and equipment | (40,271 | ) | (32,830 | ) | (24,642 | ) | ||||||
Proceeds from sale/redemption of other investment securities | 4,032 | 9,474 | — | |||||||||
(Increase) decrease in other equity securities | (5,785 | ) | 875 | (23,422 | ) | |||||||
Net cash inflow on acquisition of business | — | 5,154 | — | |||||||||
Net cash used in investing activities | (381,793 | ) | (2,291,146 | ) | (136,623 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Net (decrease) increase in deposits | (393,636 | ) | 1,924,312 | 59,499 | ||||||||
Net increase in loans payable | 900,000 | — | — | |||||||||
Net (decrease) increase in federal funds purchased and securities sold under agreements to repurchase | (344,411 | ) | 326,396 | (593,078 | ) | |||||||
Net FHLB advances (paid) taken | (82,000 | ) | (42,560 | ) | 543,000 | |||||||
Repayments of notes payable and other borrowings | — | — | (150,000 | ) | ||||||||
Dividends paid | (43,066 | ) | (66,181 | ) | (64,881 | ) | ||||||
Issuance of common stock | — | — | 91,924 | |||||||||
Issuance of preferred stock and associated warrant | 400,000 | — | — | |||||||||
Exercise of stock options | — | 53 | — | |||||||||
Other financing activities | 8 | — | — | |||||||||
Net cash provided by (used in) financing activities | 436,895 | 2,142,020 | (113,536 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents | 298,351 | 26,788 | (189,866 | ) | ||||||||
Cash and cash equivalents at beginning of year | 405,733 | 378,945 | 568,811 | |||||||||
Cash and cash equivalents at end of year | $ | 704,084 | $ | 405,733 | $ | 378,945 | ||||||
Cash and cash equivalents include: | ||||||||||||
Cash and due from banks | $ | 679,798 | $ | 329,730 | $ | 195,809 | ||||||
Money market instruments | 24,286 | 76,003 | 183,136 | |||||||||
$ | 704,084 | $ | 405,733 | $ | 378,945 | |||||||
F-6
Table of Contents
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Preferred Stock: | ||||||||||||
Balance at beginning of year | $ | 550,100 | $ | 550,100 | $ | 550,100 | ||||||
Issuance of preferred stock — Series F | 400,000 | — | — | |||||||||
Preferred stock discount — Series F, net of accretion | (21,592 | ) | — | — | ||||||||
Balance at end of period | 928,508 | 550,100 | 550,100 | |||||||||
Common Stock outstanding: | ||||||||||||
Balance at beginning of year | 92,546 | 92,504 | 83,254 | |||||||||
Issuance of common stock | — | — | 9,250 | |||||||||
Common stock issued under stock option plan | — | 6 | — | |||||||||
Restricted stock grants | — | 36 | — | |||||||||
Restricted stock forfeited | (4 | ) | — | — | ||||||||
Balance at end of year | 92,542 | 92,546 | 92,504 | |||||||||
Additional Paid-In-Capital: | ||||||||||||
Balance at beginning of year | 108,299 | 108,279 | 22,757 | |||||||||
Issuance of common stock | — | — | 82,674 | |||||||||
Issuance of common stock warrants | 25,820 | — | — | |||||||||
Shares issued under stock option plan | — | 47 | — | |||||||||
Stock-based compensation recognized | 92 | 9 | 2,848 | |||||||||
Restricted stock grants | — | (36 | ) | — | ||||||||
Restricted stock forfeited | 4 | — | — | |||||||||
Other | 8 | — | — | |||||||||
Balance at end of year | 134,223 | 108,299 | 108,279 | |||||||||
Legal Surplus: | ||||||||||||
Balance at beginning of year | 299,006 | 286,049 | 276,848 | |||||||||
Transfer from retained earnings | — | 12,957 | 9,201 | |||||||||
Balance at end of year | 299,006 | 299,006 | 286,049 | |||||||||
Retained Earnings: | ||||||||||||
Balance at beginning of year | 440,777 | 409,978 | 326,761 | |||||||||
Net (loss) income | (275,187 | ) | 109,937 | 68,136 | ||||||||
Cash dividends declared on common stock | (12,966 | ) | (25,905 | ) | (24,605 | ) | ||||||
Cash dividends declared on preferred stock | (30,106 | ) | (40,276 | ) | (40,276 | ) | ||||||
Cumulative adjustment for accounting change — adoption of accounting for uncertainty in income taxes | — | — | (2,615 | ) | ||||||||
Cumulative adjustment for accounting change — adoption of fair value option | — | — | 91,778 | |||||||||
Accretion of preferred stock discount — Series F | (4,227 | ) | — | — | ||||||||
Transfer to legal surplus | — | (12,957 | ) | (9,201 | ) | |||||||
Balance at end of year | 118,291 | 440,777 | 409,978 | |||||||||
Accumulated Other Comprehensive Income (Loss), net of tax: | ||||||||||||
Balance at beginning of year | 57,389 | (25,264 | ) | (30,167 | ) | |||||||
Other comprehensive (loss) income, net of tax | (30,896 | ) | 82,653 | 4,903 | ||||||||
Balance at end of year | 26,493 | 57,389 | (25,264 | ) | ||||||||
Total stockholders’ equity | $ | 1,599,063 | $ | 1,548,117 | $ | 1,421,646 | ||||||
F-7
Table of Contents
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Net (loss) income | $ | (275,187 | ) | $ | 109,937 | $ | 68,136 | |||||
Unrealized losses on available-for-sale debt securities on which an other-than-temporary impairment has been recognized: | ||||||||||||
Noncredit-related impairment portion on debt securities not expected to be sold | (31,742 | ) | — | — | ||||||||
Reclassification adjustment for other-than-temporary impairment on debt securities included in net income | 1,270 | — | — | |||||||||
All other unrealized gains and losses on available-for-sale securities: | ||||||||||||
All other unrealized holding gains arising during the period | 85,871 | 95,316 | 2,171 | |||||||||
Reclassification adjustments for net gain included in net income | (82,772 | ) | (17,706 | ) | (3,184 | ) | ||||||
Reclassification adjustments for other-than-temporary impairment on equity securities | 388 | 5,987 | 5,910 | |||||||||
Income tax (expense) benefit related to items of other comprehensive income | (3,911 | ) | (944 | ) | 6 | |||||||
Other comprehensive (loss) income for the year, net of tax | (30,896 | ) | 82,653 | 4,903 | ||||||||
Total comprehensive (loss) income | $ | (306,083 | ) | $ | 192,590 | $ | 73,039 | |||||
F-8
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F-9
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
F-10
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
F-11
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
F-12
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
F-13
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
F-14
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
F-15
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
• | a selection of comparable publicly traded companies, based on nature of business, location and size; | ||
• | the discount rate applied to future earnings, based on an estimate of the cost of equity; | ||
• | the potential future earnings of the reporting unit; and | ||
• | the market growth and new business assumptions. |
F-16
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
F-17
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
F-18
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
F-19
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Level 1 | Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. |
Level 2 | Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, 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 3 | Valuations are observed from unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
F-20
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
F-21
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
F-22
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
F-23
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
F-24
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
1. | A valuation technique that uses: |
a. | The quoted price of the identical liability when traded as an asset | ||
b. | Quoted prices for similar liabilities or similar liabilities when traded as assets |
2. | Another valuation technique that is consistent with the principles of fair value measurement. Two examples would be an income approach, such as a present value technique, or a market approach, such as a technique that is based on the amount at the measurement date that the reporting entity would pay to transfer the identical liability or would receive to enter into the identical liability. |
F-25
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
F-26
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2009 | 2008 | |||||||
Balance | ||||||||
(Dollars in thousands) | ||||||||
Federal funds sold, interest 0.01% (2008 - 0.01%) | $ | 1,140 | $ | 54,469 | ||||
Time deposits with other financial institutions, weighted-average interest rate 0.24% (2008-interest 1.05%) | 600 | 600 | ||||||
Other short-term investments, weighted-average interest rate of 0.18% (2008-weighted-average interest rate of 0.21%) | 22,546 | 20,934 | ||||||
$ | 24,286 | $ | 76,003 | |||||
F-27
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2009 | ||||||||||||||||||||||||||||||||||||||||||||
Non-Credit | December 31, 2008 | |||||||||||||||||||||||||||||||||||||||||||
Loss Component | Gross | Weighted | Gross | Weighted | ||||||||||||||||||||||||||||||||||||||||
Amortized | of OTTI | Unrealized | Fair | average | Amortized | Unrealized | Fair | average | ||||||||||||||||||||||||||||||||||||
cost | Recorded in OCI | gains | losses | value | yield% | cost | gains | losses | value | yield% | ||||||||||||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||
Obligations of U.S. Government sponsored agencies: | ||||||||||||||||||||||||||||||||||||||||||||
After 1 to 5 years | $ | 1,139,577 | $ | — | $ | 5,562 | $ | — | $ | 1,145,139 | 2.12 | $ | — | $ | — | $ | — | $ | — | — | ||||||||||||||||||||||||
Puerto Rico Government obligations: | ||||||||||||||||||||||||||||||||||||||||||||
Due within one year | 12,016 | — | 1 | 28 | 11,989 | 1.82 | 4,593 | 46 | — | 4,639 | 6.18 | |||||||||||||||||||||||||||||||||
After 1 to 5 years | 113,232 | — | 302 | 47 | 113,487 | 5.40 | 110,624 | 259 | 479 | 110,404 | 5.41 | |||||||||||||||||||||||||||||||||
After 5 to 10 years | 6,992 | — | 328 | 90 | 7,230 | 5.88 | 6,365 | 283 | 128 | 6,520 | 5.80 | |||||||||||||||||||||||||||||||||
After 10 years | 3,529 | — | 91 | — | 3,620 | 5.42 | 15,789 | 45 | 264 | 15,570 | 5.30 | |||||||||||||||||||||||||||||||||
United States and Puerto Rico Government obligations | 1,275,346 | — | 6,284 | 165 | 1,281,465 | 2.44 | 137,371 | 633 | 871 | 137,133 | 5.44 | |||||||||||||||||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||||||||||||||||||||||
FHLMC certificates: | ||||||||||||||||||||||||||||||||||||||||||||
Due within one year | — | — | — | — | — | — | 37 | — | — | 37 | 5.94 | |||||||||||||||||||||||||||||||||
After 1 to 5 years | 30 | — | — | — | 30 | 5.54 | 157 | 2 | — | 159 | 7.07 | |||||||||||||||||||||||||||||||||
After 5 to 10 years | — | — | — | — | — | — | 31 | 3 | — | 34 | 8.40 | |||||||||||||||||||||||||||||||||
After 10 years | 705,818 | — | 18,388 | 1,987 | 722,219 | 4.66 | 1,846,386 | 45,743 | 1 | 1,892,128 | 5.46 | |||||||||||||||||||||||||||||||||
705,848 | — | 18,388 | 1,987 | 722,249 | 4.66 | 1,846,611 | 45,748 | 1 | 1,892,358 | 5.46 | ||||||||||||||||||||||||||||||||||
GNMA certificates: | ||||||||||||||||||||||||||||||||||||||||||||
Due within one year | — | — | — | — | — | — | 45 | 1 | — | 46 | 5.72 | |||||||||||||||||||||||||||||||||
After 1 to 5 years | 69 | — | 3 | — | 72 | 6.56 | 180 | 6 | — | 186 | 6.71 | |||||||||||||||||||||||||||||||||
After 5 to 10 years | 808 | — | 39 | — | 847 | 5.47 | 566 | 9 | — | 575 | 5.33 | |||||||||||||||||||||||||||||||||
After 10 years | 407,565 | — | 10,808 | 980 | 417,393 | 5.12 | 331,594 | 10,283 | 10 | 341,867 | 5.38 | |||||||||||||||||||||||||||||||||
408,442 | — | 10,850 | 980 | 418,312 | 5.12 | 332,385 | 10,299 | 10 | 342,674 | 5.38 | ||||||||||||||||||||||||||||||||||
FNMA certificates: | ||||||||||||||||||||||||||||||||||||||||||||
After 1 to 5 years | — | — | — | — | — | — | 53 | 5 | — | 58 | 10.20 | |||||||||||||||||||||||||||||||||
After 5 to 10 years | 101,781 | — | 3,716 | 91 | 105,406 | 4.55 | 269,716 | 4,678 | — | 274,394 | 4.96 | |||||||||||||||||||||||||||||||||
After 10 years | 1,374,533 | — | 30,629 | 2,776 | 1,402,386 | 4.51 | 1,071,521 | 28,005 | 1 | 1,099,525 | 5.60 | |||||||||||||||||||||||||||||||||
1,476,314 | — | 34,345 | 2,867 | 1,507,792 | 4.51 | 1,341,290 | 32,688 | 1 | 1,373,977 | 5.47 | ||||||||||||||||||||||||||||||||||
Collateralized Mortgage Obligations issued or guaranteed by FHLMC, FNMA and GNMA: | ||||||||||||||||||||||||||||||||||||||||||||
After 10 years | 156,086 | — | 633 | 412 | 156,307 | 0.99 | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Other mortgage pass-through trust certificates: | ||||||||||||||||||||||||||||||||||||||||||||
After 10 years | 117,198 | 32,846 | 2 | — | 84,354 | 2.30 | 144,217 | 2 | 30,236 | 113,983 | 5.43 | |||||||||||||||||||||||||||||||||
Total mortgage-backed securities | 2,863,888 | 32,846 | 64,218 | 6,246 | 2,889,014 | 4.35 | 3,664,503 | 88,737 | 30,248 | 3,722,992 | 5.46 | |||||||||||||||||||||||||||||||||
Corporate bonds: | ||||||||||||||||||||||||||||||||||||||||||||
After 5 to 10 years | — | — | — | — | — | — | 241 | — | — | 241 | 7.70 | |||||||||||||||||||||||||||||||||
After 10 years | — | — | — | — | — | — | 1,307 | — | — | 1,307 | 7.97 | |||||||||||||||||||||||||||||||||
Corporate bonds | — | — | — | — | — | — | 1,548 | — | — | 1,548 | 7.93 | |||||||||||||||||||||||||||||||||
Equity securities (without contractual maturity) (1) | 427 | — | 81 | 205 | 303 | — | 814 | — | 145 | 669 | 2.38 | |||||||||||||||||||||||||||||||||
Total investment securities available for sale | $ | 4,139,661 | $ | 32,846 | $ | 70,583 | $ | 6,616 | $ | 4,170,782 | 3.76 | $ | 3,804,236 | $ | 89,370 | $ | 31,264 | $ | 3,862,342 | 5.46 | ||||||||||||||||||||||||
(1) | Represents common shares of other financial institutions in Puerto Rico. |
F-28
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Amortized Cost | Fair Value | |||||||
(In thousands) | ||||||||
Within 1 year | $ | 12,016 | $ | 11,989 | ||||
After 1 to 5 years | 1,252,908 | 1,258,728 | ||||||
After 5 to 10 years | 109,581 | 113,483 | ||||||
After 10 years | 2,764,729 | 2,786,279 | ||||||
Total | 4,139,234 | 4,170,479 | ||||||
Equity securities | 427 | 303 | ||||||
Total investment securities available for sale | $ | 4,139,661 | $ | 4,170,782 | ||||
As of December 31, 2009 | ||||||||||||||||||||||||
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||
Puerto Rico Government obligations | $ | 14,760 | $ | 118 | $ | 9,113 | $ | 47 | $ | 23,873 | $ | 165 | ||||||||||||
Mortgage-backed securities | ||||||||||||||||||||||||
FHLMC | 236,925 | 1,987 | — | — | 236,925 | 1,987 | ||||||||||||||||||
GNMA | 72,178 | 980 | — | — | 72,178 | 980 | ||||||||||||||||||
FNMA | 415,601 | 2,867 | — | — | 415,601 | 2,867 | ||||||||||||||||||
Collateralized mortgage obligations issued or guaranteed by FHLMC, FNMA and GNMA | 105,075 | 412 | — | — | 105,075 | 412 | ||||||||||||||||||
Other mortgage pass-through trust certificates | — | — | 84,105 | 32,846 | 84,105 | 32,846 | ||||||||||||||||||
Equity securities | 90 | 205 | — | — | 90 | 205 | ||||||||||||||||||
$ | 844,629 | $ | 6,569 | $ | 93,218 | $ | 32,893 | $ | 937,847 | $ | 39,462 | |||||||||||||
As of December 31, 2008 | ||||||||||||||||||||||||
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||
Puerto Rico Government obligations | $ | — | $ | — | $ | 13,288 | $ | 871 | $ | 13,288 | $ | 871 | ||||||||||||
Mortgage-backed securities | ||||||||||||||||||||||||
FHLMC | 68 | 1 | — | — | 68 | 1 | ||||||||||||||||||
GNMA | 903 | 10 | — | — | 903 | 10 | ||||||||||||||||||
FNMA | 361 | 1 | 21 | — | 382 | 1 | ||||||||||||||||||
Other mortgage pass-through trust certificates | — | — | 113,685 | 30,236 | 113,685 | 30,236 | ||||||||||||||||||
Equity securities | 318 | 145 | — | — | 318 | 145 | ||||||||||||||||||
$ | 1,650 | $ | 157 | $ | 126,994 | $ | 31,107 | $ | 128,644 | $ | 31,264 | |||||||||||||
F-29
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2009 | December 31, 2008 | |||||||||||||||||||||||||||||||||||||||
Gross | Weighted | Gross | Weighted | |||||||||||||||||||||||||||||||||||||
Amortized | Unrealized | Fair | average | Amortized | Unrealized | Fair | average | |||||||||||||||||||||||||||||||||
cost | gains | losses | value | yield% | cost | gains | losses | value | yield% | |||||||||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||
U.S. Treasury securities: | ||||||||||||||||||||||||||||||||||||||||
Due within 1 year | $ | 8,480 | $ | 12 | $ | — | $ | 8,492 | 0.47 | $ | 8,455 | $ | 34 | $ | — | $ | 8,489 | 1.07 | ||||||||||||||||||||||
Obligations of other U.S. Government sponsored agencies: | ||||||||||||||||||||||||||||||||||||||||
After 10 years | — | — | — | — | — | 945,061 | 5,281 | 728 | 949,614 | 5.77 | ||||||||||||||||||||||||||||||
Puerto Rico Government obligations: | ||||||||||||||||||||||||||||||||||||||||
After 5 to 10 years | 18,584 | 564 | 93 | 19,055 | 5.86 | 17,924 | 480 | 97 | 18,307 | 5.85 | ||||||||||||||||||||||||||||||
After 10 years | 4,995 | 77 | — | 5,072 | 5.50 | 5,145 | 35 | — | 5,180 | 5.50 | ||||||||||||||||||||||||||||||
United States and Puerto | ||||||||||||||||||||||||||||||||||||||||
Rico Government obligations | 32,059 | 653 | 93 | 32,619 | 4.38 | 976,585 | 5,830 | 825 | 981,590 | 5.73 | ||||||||||||||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||||||||||||||||||
FHLMC certificates: | ||||||||||||||||||||||||||||||||||||||||
After 1 to 5 years | 5,015 | 78 | — | 5,093 | 3.79 | 8,338 | 71 | 5 | 8,404 | 3.83 | ||||||||||||||||||||||||||||||
FNMA certificates: | ||||||||||||||||||||||||||||||||||||||||
After 1 to 5 years | 4,771 | 100 | — | 4,871 | 3.87 | 7,567 | 88 | — | 7,655 | 3.85 | ||||||||||||||||||||||||||||||
After 5 to 10 years | 533,593 | 19,548 | — | 553,141 | 4.47 | 686,948 | 9,227 | — | 696,175 | 4.46 | ||||||||||||||||||||||||||||||
After 10 years | 24,181 | 479 | — | 24,660 | 5.30 | 25,226 | 247 | 25 | 25,448 | 5.31 | ||||||||||||||||||||||||||||||
Mortgage-backed securities | 567,560 | 20,205 | — | 587,765 | 4.49 | 728,079 | 9,633 | 30 | 737,682 | 4.48 | ||||||||||||||||||||||||||||||
Corporate bonds: | ||||||||||||||||||||||||||||||||||||||||
After 10 years | 2,000 | — | 800 | 1,200 | 5.80 | 2,000 | — | 860 | 1,140 | 5.80 | ||||||||||||||||||||||||||||||
Total investment securities held-to-maturity | $ | 601,619 | $ | 20,858 | $ | 893 | $ | 621,584 | 4.49 | $ | 1,706,664 | $ | 15,463 | $ | 1,715 | $ | 1,720,412 | 5.19 | ||||||||||||||||||||||
Amortized Cost | Fair Value | |||||||
(In thousands) | ||||||||
Within 1 year | $ | 8,480 | $ | 8,492 | ||||
After 1 to 5 years | 9,786 | 9,964 | ||||||
After 5 to 10 years | 552,177 | 572,196 | ||||||
After 10 years | 31,176 | 30,932 | ||||||
Total investment securities held to maturity | $ | 601,619 | $ | 621,584 | ||||
F-30
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of December 31, 2009 | ||||||||||||||||||||||||
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||
Puerto Rico Government obligations | $ | — | $ | — | $ | 4,678 | $ | 93 | $ | 4,678 | $ | 93 | ||||||||||||
Corporate bonds | — | — | 1,200 | 800 | 1,200 | 800 | ||||||||||||||||||
$ | — | $ | — | $ | 5,878 | $ | 893 | $ | 5,878 | $ | 893 | |||||||||||||
As of December 31, 2008 | ||||||||||||||||||||||||
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||
U.S. Government sponsored agencies | $ | — | $ | — | $ | 7,262 | $ | 728 | $ | 7,262 | $ | 728 | ||||||||||||
Puerto Rico Government obligations | — | — | 4,436 | 97 | 4,436 | 97 | ||||||||||||||||||
Mortgage-backed securities | ||||||||||||||||||||||||
FHLMC | — | — | 600 | 5 | 600 | 5 | ||||||||||||||||||
FNMA | — | — | 6,825 | 25 | 6,825 | 25 | ||||||||||||||||||
Corporate bonds | — | — | 1,140 | 860 | 1,140 | 860 | ||||||||||||||||||
$ | — | $ | — | $ | 20,263 | $ | 1,715 | $ | 20,263 | $ | 1,715 | |||||||||||||
F-31
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
• | The length of time and the extent to which the fair value has been less than the amortized cost basis. | ||
• | Changes in the near term prospects of the underlying collateral of a security such as changes in default rates, loss severity given default and significant changes in prepayment assumptions; | ||
• | The level of cash flows generated from the underlying collateral supporting the principal and interest payments of the debt securities; and | ||
• | Any adverse change to the credit conditions and liquidity of the issuer, taking into consideration the latest information available about the overall financial condition of the issuer, credit ratings, recent legislation and government actions affecting the issuer’s industry and actions taken by the issuer to deal with the present economic climate. |
Private label MBS | ||||
(In thousands) | 2009 | |||
Total other-than-temporary impairment losses | (33,012 | ) | ||
Unrealized other-than-temporary impairment losses recognized in OCI (1) | 31,742 | |||
Net impairment losses recognized in earnings (2) | $ | (1,270 | ) | |
(1) | Represents the noncredit component impact of the OTTI on private label MBS | |
(2) | Represents the credit component of the OTTI on private label MBS |
(In thousands) | 2009 | |||
Credit losses at the beginning of the period | $ | — | ||
Additions: | ||||
Credit losses related to debt securities for which an OTTI was not previously recognized | 1,270 | |||
Ending balance of credit losses on debt securities held for which a portion of an OTTI was recognized in OCI | $ | 1,270 | ||
F-32
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Weighted | ||||||||
Average | Range | |||||||
Discount rate | 15 | % | 15 | % | ||||
Prepayment rate | 21 | % | 13.06% – 50.25 | % | ||||
Projected Cumulative Loss Rate | 4 | % | 0.22% – 10.56 | % |
Year ended December 31, | ||||||||
(In thousands) | 2009 | 2008 | ||||||
Realized gains | $ | 82,772 | $ | 17,896 | ||||
Realized losses | — | (190 | ) | |||||
Net realized security gains | $ | 82,772 | $ | 17,706 | ||||
2009 | 2008 | |||||||||||||||
Amortized | Amortized | |||||||||||||||
Cost | Fair Value | Cost | Fair Value | |||||||||||||
(In thousands) | ||||||||||||||||
FHLMC | $ | 1,350,291 | $ | 1,369,535 | $ | 1,862,939 | $ | 1,908,024 | ||||||||
GNMA | 474,349 | 483,964 | 332,385 | 342,674 | ||||||||||||
FNMA | 2,629,187 | 2,684,065 | 2,978,102 | 3,025,549 |
F-33
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
F-34
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Interest on money market investments: | ||||||||||||
Taxable | $ | 568 | $ | 1,369 | $ | 4,805 | ||||||
Exempt | 9 | 4,986 | 17,226 | |||||||||
577 | 6,355 | 22,031 | ||||||||||
Mortgage-backed securities: | ||||||||||||
Taxable | 30,854 | 2,517 | 2,044 | |||||||||
Exempt | 172,923 | 199,875 | 110,816 | |||||||||
203,777 | 202,392 | 112,860 | ||||||||||
PR Government obligations, U.S. Treasury securities and U.S. Government agencies: | ||||||||||||
Taxable | 2,694 | 3,657 | — | |||||||||
Exempt | 44,510 | 74,667 | 148,986 | |||||||||
47,204 | 78,324 | 148,986 | ||||||||||
Equity securities: | ||||||||||||
Taxable | 69 | 38 | — | |||||||||
Exempt | 37 | 6 | 3 | |||||||||
106 | 44 | 3 | ||||||||||
Other investment securities (including FHLB dividends): | ||||||||||||
Taxable | 3,375 | 4,281 | 3,426 | |||||||||
Exempt | — | — | — | |||||||||
3,375 | 4,281 | 3,426 | ||||||||||
Total interest and dividends on investments | $ | 255,039 | $ | 291,396 | $ | 287,306 | ||||||
F-35
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Interest income on investment securities and money market investments | $ | 248,563 | $ | 291,732 | $ | 287,990 | ||||||
Dividends on FHLB stock | 3,082 | 3,710 | 2,861 | |||||||||
Net interest settlement on interest rate caps | — | 237 | — | |||||||||
Interest income excluding unrealized gain (loss) on derivatives (economic hedges) | 251,645 | 295,679 | 290,851 | |||||||||
Unrealized gain (loss) on derivatives (economic hedges) from interest rate caps | 3,394 | (4,283 | ) | (3,545 | ) | |||||||
Total interest income and dividends on investments | $ | 255,039 | $ | 291,396 | $ | 287,306 | ||||||
December 31, | ||||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Residential mortgage loans, mainly secured by first mortgages | $ | 3,595,508 | $ | 3,481,325 | ||||
Commercial loans: | ||||||||
Construction loans | 1,492,589 | 1,526,995 | ||||||
Commercial mortgage loans | 1,590,821 | 1,535,758 | ||||||
Commercial and Industrial loans(1) | 5,029,907 | 3,857,728 | ||||||
Loans to local financial institutions collateralized by real estate mortgages | 321,522 | 567,720 | ||||||
Commercial loans | 8,434,839 | 7,488,201 | ||||||
Finance leases | 318,504 | 363,883 | ||||||
Consumer loans | 1,579,600 | 1,744,480 | ||||||
Loans receivable | 13,928,451 | 13,077,889 | ||||||
Allowance for loan and lease losses | (528,120 | ) | (281,526 | ) | ||||
Loans receivable, net | 13,400,331 | 12,796,363 | ||||||
Loans held for sale | 20,775 | 10,403 | ||||||
Total loans | $ | 13,421,106 | $ | 12,806,766 | ||||
(1) | As of December 31, 2009, includes $1.2 billion of commercial loans that are secured by real estate but are not dependent upon the real estate for repayment. |
F-36
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Balance at beginning of year | $ | 281,526 | $ | 190,168 | $ | 158,296 | ||||||
Provision for loan and lease losses | 579,858 | 190,948 | 120,610 | |||||||||
Losses charged against the allowance | (344,422 | ) | (117,072 | ) | (94,830 | ) | ||||||
Recoveries credited to the allowance | 11,158 | 8,751 | 6,092 | |||||||||
Other adjustments(1) | — | 8,731 | — | |||||||||
Balance at end of year | $ | 528,120 | $ | 281,526 | $ | 190,168 | ||||||
(1) | Carryover of the allowance for loan losses related to a $218 million auto loan portfolio acquired in the third quarter of 2008. |
F-37
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Impaired loans with valuation allowance, net of charge-offs | $ | 1,060,088 | $ | 384,914 | $ | 66,941 | ||||||
Impaired loans without valuation allowance, net of charge-offs | 596,176 | 116,315 | 84,877 | |||||||||
Total impaired loans | $ | 1,656,264 | $ | 501,229 | $ | 151,818 | ||||||
Allowance for impaired loans | 182,145 | 83,353 | 7,523 | |||||||||
During the year: | ||||||||||||
Average balance of impaired loans | 1,022,051 | 302,439 | 116,362 | |||||||||
Interest income recognized on impaired loans (1) | 21,160 | 12,974 | 6,588 |
(1) | For 2009 excludes interest income of approximately $4.7 million, related to $761.5 million non-performing loans, that was applied against the related principal balance under the cost-recovery method. |
Impaired Loans: | (In thousands) | |||
Balance at beginning of year | $ | 501,229 | ||
Loans determined impaired during the year | 1,466,805 | |||
Net charge-offs (1) | (244,154 | ) | ||
Loans sold, net of charge-offs of $49.6 million (2) | (39,374 | ) | ||
Loans foreclosed, paid in full and partial payments | (28,242 | ) | ||
Balance at end of year | $ | 1,656,264 | ||
(1) | Approximately $114.2 million, or 47%, is related to construction loans in Florida and $44.6 million, or 18%, is related to construction loans in Puerto Rico. | |
(2) | Related to five construction projects sold in Florida. |
Specific Reserve: | (In thousands) | |||
Balance at beginning of year | $ | 83,353 | ||
Provision for loan losses | 342,946 | |||
Net charge-offs | (244,154 | ) | ||
Balance at end of year | $ | 182,145 | ||
F-38
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
�� | ||||
(In thousands) | ||||
Principal balance deemed collectible | $ | 22,374 | ||
Amount charged-off | $ | (29,713 | ) | |
Specific Reserve: | (In thousands) | |||
Balance at beginning of year | $ | 14,375 | ||
Provision for loan losses | 17,213 | |||
Charge-offs | (29,713 | ) | ||
Balance at end of year | $ | 1,875 | ||
Amount | ||||
(In thousands) | ||||
Balance at December 31, 2007 | $ | 182,573 | ||
New loans | 44,963 | |||
Payments | (48,380 | ) | ||
Other changes | — | |||
Balance at December 31, 2008 | 179,156 | |||
New loans | 3,549 | |||
Payments | (6,405 | ) | ||
Other changes | (152,130 | ) | ||
Balance at December 31, 2009 | $ | 24,170 | ||
F-39
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of December 31, | ||||||||||||
Useful Life | 2009 | 2008 | ||||||||||
In Years | (Dollars in thousands) | |||||||||||
Buildings and improvements | 10 - 40 | $ | 90,158 | $ | 84,282 | |||||||
Leasehold improvements | 1 - 15 | 57,522 | 52,945 | |||||||||
Furniture and equipment | 3 - 10 | 123,582 | 119,419 | |||||||||
271,262 | 256,646 | |||||||||||
Accumulated depreciation | (155,459 | ) | (133,109 | ) | ||||||||
115,803 | 123,537 | |||||||||||
Land | 28,327 | 24,791 | ||||||||||
Projects in progress | 53,835 | 30,140 | ||||||||||
Total premises and equipment, net | $ | 197,965 | $ | 178,468 | ||||||||
Amount | ||||
(In thousands) | ||||
2010 | $ | 2,557 | ||
2011 | 2,522 | |||
2012 | 2,522 | |||
2013 | 2,522 | |||
2014 and thereafter | 6,477 |
F-40
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Balance at beginning of year | $ | 8,151 | $ | 7,504 | $ | 5,317 | ||||||
Capitalization of servicing assets | 6,072 | 1,559 | 1,285 | |||||||||
Servicing assets purchased | — | 621 | 1,962 | |||||||||
Amortization | (2,321 | ) | (1,533 | ) | (1,060 | ) | ||||||
Balance before valuation allowance at end of year | 11,902 | 8,151 | 7,504 | |||||||||
Valuation allowance for temporary impairment | (745 | ) | (751 | ) | (336 | ) | ||||||
Balance at end of year | $ | 11,157 | $ | 7,400 | $ | 7,168 | ||||||
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Balance at beginning of year | $ | 751 | $ | 336 | $ | 57 | ||||||
Temporary impairment charges | 2,537 | 1,437 | 461 | |||||||||
Recoveries | (2,543 | ) | (1,022 | ) | (182 | ) | ||||||
Balance at end of year | 745 | 751 | $ | 336 | ||||||||
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Servicing fees | $ | 3,082 | $ | 2,565 | $ | 2,133 | ||||||
Late charges and prepayment penalties | 581 | 513 | 503 | |||||||||
Servicing income, gross | 3,663 | 3,078 | 2,636 | |||||||||
Amortization and impairment of servicing assets | (2,315 | ) | (1,948 | ) | (1,339 | ) | ||||||
Servicing income, net | $ | 1,348 | $ | 1,130 | $ | 1,297 | ||||||
F-41
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Maximum | Minimum | |||||||
2009: | ||||||||
Constant prepayment rate: | ||||||||
Government guaranteed mortgage loans | 24.8 | % | 14.3 | % | ||||
Conventional conforming mortgage loans | 21.9 | % | 16.4 | % | ||||
Conventional non-conforming mortgage loans | 20.1 | % | 12.8 | % | ||||
Discount rate: | ||||||||
Government guaranteed mortgage loans | 13.6 | % | 11.8 | % | ||||
Conventional conforming mortgage loans | 9.3 | % | 9.2 | % | ||||
Conventional non-conforming mortgage loans | 13.2 | % | 13.1 | % | ||||
2008: | ||||||||
Constant prepayment rate: | ||||||||
Government guaranteed mortgage loans | 22.1 | % | 13.6 | % | ||||
Conventional conforming mortgage loans | 17.7 | % | 10.2 | % | ||||
Conventional non-conforming mortgage loans | 14.5 | % | 9.0 | % | ||||
Discount rate: | ||||||||
Government guaranteed mortgage loans | 10.5 | % | 10.1 | % | ||||
Conventional conforming mortgage loans | 9.3 | % | 9.3 | % | ||||
Conventional non-conforming mortgage loans | 13.4 | % | 13.2 | % | ||||
2007: | ||||||||
Constant prepayment rate: | ||||||||
Government guaranteed mortgage loans | 17.2 | % | 11.0 | % | ||||
Conventional conforming mortgage loans | 13.2 | % | 8.8 | % | ||||
Conventional non-conforming mortgage loans | 13.2 | % | 10.6 | % | ||||
Discount rate: | ||||||||
Government guaranteed mortgage loans | 10.0 | % | 10.0 | % | ||||
Conventional conforming mortgage loans | 9.0 | % | 9.0 | % | ||||
Conventional non-conforming mortgage loans | 13.7 | % | 13.0 | % |
(Dollars in thousands) | ||||
Carrying amount of servicing assets | $ | 11,157 | ||
Fair value | $ | 12,920 | ||
Weighted-average expected life (in years) | 6.6 | |||
Constant prepayment rate (weighted-average annual rate) | 15.4 | % | ||
Decrease in fair value due to 10% adverse change | $ | 745 | ||
Decrease in fair value due to 20% adverse change | $ | 1,388 | ||
Discount rate (weighted-average annual rate) | 11.10 | % | ||
Decrease in fair value due to 10% adverse change | $ | 149 | ||
Decrease in fair value due to 20% adverse change | $ | 632 |
F-42
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, | ||||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Type of account and interest rate: | ||||||||
Non-interest bearing checking accounts | $ | 697,022 | $ | 625,928 | ||||
Savings accounts - 0.50% to 2.52% (2008 - 0.80% to 3.75%) | 1,774,273 | 1,288,179 | ||||||
Interest bearing checking accounts - 0.50% to 2.79% (2008 - 0.75% to 3.75% ) | 985,470 | 726,731 | ||||||
Certificates of deposit - 0.15% to 7.00% (2008 - 0.75% to 7.00%) | 1,650,866 | 1,986,770 | ||||||
Brokered certificates of deposit(1) - 0.25% to 5.30% (2008 - 2.15% to 6.00%) | 7,561,416 | 8,429,822 | ||||||
$ | 12,669,047 | $ | 13,057,430 | |||||
(1) | Includes $0 and $1,150,959 measured at fair value as of December 31, 2009 and 2008, respectively. |
Total | ||||
(In thousands) | ||||
Over one year to two years | $ | 1,786,651 | ||
Over two years to three years | 1,048,911 | |||
Over three years to four years | 279,467 | |||
Over four years to five years | 42,382 | |||
Over five years | 13,806 | |||
Total | $ | 3,171,217 | ||
F-43
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Interest-bearing checking accounts | $ | 19,995 | $ | 12,914 | $ | 11,365 | ||||||
Savings | 19,032 | 18,916 | 15,037 | |||||||||
Certificates of deposit | 50,939 | 73,466 | 82,761 | |||||||||
Brokered certificates of deposit | 224,521 | 309,542 | 419,577 | |||||||||
Total | $ | 314,487 | $ | 414,838 | $ | 528,740 | ||||||
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Interest expense on deposits | $ | 295,004 | $ | 407,830 | $ | 515,394 | ||||||
Amortization of broker placement fees(1) | 22,858 | 15,665 | 9,056 | |||||||||
Interest expense on deposits excluding net unrealized (gain) loss on derivatives and brokered CDs measured at fair value | 317,862 | 423,495 | 524,450 | |||||||||
Net unrealized (gain) loss on derivatives and brokered CDs measured at fair value | (3,375 | ) | (8,657 | ) | 4,290 | |||||||
Total interest expense on deposits | $ | 314,487 | $ | 414,838 | $ | 528,740 | ||||||
(1) | Related to brokered CDs not measured at fair value. |
December, 31 | ||||||||
2009 | 2008 | |||||||
(Dollars in thousands) | ||||||||
Repurchase agreements, interest ranging from 0.23% to 5.39% (2008 - 2.29% to 5.39%) (1) | $ | 3,076,631 | $ | 3,421,042 | ||||
(1) | As of December 31, 2009, includes $1.4 billion with an average rate of 4.29%, which lenders have the right to call before their contractual maturities at various dates beginning on February 1, 2010 |
F-44
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2009 | ||||
(In thousands) | ||||
One to thirty days | $ | 196,628 | ||
Over thirty to ninety days | 380,003 | |||
Over ninety days to one year | 100,000 | |||
One to three years | 1,600,000 | |||
Three to five years | 800,000 | |||
Total | $ | 3,076,631 | ||
December 31, 2009 | ||||||||||||||||
Amortized | Approximate | Weighted | ||||||||||||||
Cost of | Fair Value | Average | ||||||||||||||
Underlying | Balance of | of Underlying | Interest | |||||||||||||
Underlying Securities | Securities | Borrowing | Securities | Rate of Security | ||||||||||||
(Dollars in thousands) | ||||||||||||||||
U.S. Treasury securities and obligations of other | ||||||||||||||||
U.S. Government Sponsored Agencies | $ | 871,725 | $ | 794,267 | $ | 875,835 | 2.15 | % | ||||||||
Mortgage-backed securities | 2,504,941 | 2,282,364 | 2,560,374 | 4.37 | % | |||||||||||
Total | $ | 3,376,666 | $ | 3,076,631 | $ | 3,436,209 | ||||||||||
Accrued interest receivable | $ | 13,720 | ||||||||||||||
December 31, 2008 | ||||||||||||||||
Amortized | Approximate | Weighted | ||||||||||||||
Cost of | Fair Value | Average | ||||||||||||||
Underlying | Balance of | of Underlying | Interest | |||||||||||||
Underlying Securities | Securities | Borrowing | Securities | Rate of Security | ||||||||||||
(Dollars in thousands) | ||||||||||||||||
U.S. Treasury securities and obligations of other | ||||||||||||||||
U.S. Government Sponsored Agencies | $ | 511,621 | $ | 459,289 | $ | 514,796 | 5.77 | % | ||||||||
Mortgage-backed securities | 3,299,221 | 2,961,753 | 3,376,421 | 5.34 | % | |||||||||||
Total | $ | 3,810,842 | $ | 3,421,042 | $ | 3,891,217 | ||||||||||
Accrued interest receivable | $ | 20,856 | ||||||||||||||
(Dollars in thousands) | Weighted-Average | |||||||
Counterparty | Amount | Maturity (In Months) | ||||||
Credit Suisse First Boston | $ | 1,051,731 | 24 | |||||
Citigroup Global Markets | 600,000 | 38 | ||||||
Barclays Capital | 500,000 | 24 | ||||||
JP Morgan Chase | 475,000 | 27 | ||||||
Dean Witter / Morgan Stanley | 349,900 | 27 | ||||||
UBS Financial Services, Inc. | 100,000 | 31 | ||||||
$ | 3,076,631 | |||||||
F-45
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December, 31 | December, 31 | |||||||
2009 | 2008 | |||||||
(Dollars in thousands) | ||||||||
Fixed-rate advances from FHLB with a weighted-average interest rate of 3.21% (2008 - 3.09%) | $ | 978,440 | $ | 1,060,440 | ||||
December, 31 | ||||
2009 | ||||
(In thousands) | ||||
One to thirty days | $ | 5,000 | ||
Over thirty to ninety days | 13,000 | |||
Over ninety days to one year | 307,000 | |||
One to three years | 445,000 | |||
Three to five years | 208,440 | |||
Total | $ | 978,440 | ||
F-46
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, | ||||||||
2009 | 2008 | |||||||
(Dollars in thousands) | ||||||||
Callable step-rate notes, bearing step increasing interest from 5.00% to 7.00% (5.50% as of December 31, 2009 and 2008) maturing on October 18, 2019, measured at fair value | $ | 13,361 | $ | 10,141 | ||||
Dow Jones Industrial Average (DJIA) linked principal protected notes: | ||||||||
Series A maturing on February 28, 2012 | 6,542 | 6,245 | ||||||
Series B maturing on May 27, 2011 | 7,214 | 6,888 | ||||||
$ | 27,117 | $ | 23,274 | |||||
December 31, | ||||||||
2009 | 2008 | |||||||
(Dollars in thousands) | ||||||||
Junior subordinated debentures due in 2034, interest-bearing at a floating-rate of 2.75% over 3-month LIBOR (3.00% as of December 31, 2009 and 4.62% as of December 31, 2008) | $ | 103,093 | $ | 103,048 | ||||
Junior subordinated debentures due in 2034, interest-bearing at a floating-rate of 2.50% over 3-month LIBOR (2.75% as of December 31, 2009 and 4.00% as of December 31, 2008) | 128,866 | 128,866 | ||||||
$ | 231,959 | $ | 231,914 | |||||
F-47
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(In thousands, except per share data) | ||||||||||||
Net (Loss) Income: | ||||||||||||
Net (loss) income | $ | (275,187 | ) | $ | 109,937 | $ | 68,136 | |||||
Less: Preferred stock dividends(1) | (42,661 | ) | (40,276 | ) | (40,276 | ) | ||||||
Less: Preferred stock discount accretion | (4,227 | ) | — | — | ||||||||
Net (loss) income attributable to common stockholders | $ | (322,075 | ) | $ | 69,661 | $ | 27,860 | |||||
Weighted-Average Shares: | ||||||||||||
Basic weighted-average common shares outstanding | 92,511 | 92,508 | 86,549 | |||||||||
Average potential common shares | — | 136 | 317 | |||||||||
Diluted weighted-average number of common shares outstanding | 92,511 | 92,644 | 86,866 | |||||||||
(Loss) Earnings per common share: | ||||||||||||
Basic | $ | (3.48 | ) | $ | 0.75 | $ | 0.32 | |||||
Diluted | $ | (3.48 | ) | $ | 0.75 | $ | 0.32 | |||||
(1) | For the year ended December 31, 2009, preferred stock dividends include $12.6 million of Series F Preferred Stock cumulative preferred |
F-48
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Regulatory Requirements | ||||||||||||||||||||||||
For Capital | To be | |||||||||||||||||||||||
Actual | Adequacy Purposes | Well-Capitalized | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
At December 31, 2009 | ||||||||||||||||||||||||
Total Capital (to Risk-Weighted Assets) | ||||||||||||||||||||||||
First BanCorp | $ | 1,922,138 | 13.44 | % | $ | 1,144,280 | 8 | % | N/A | N/A | ||||||||||||||
FirstBank | $ | 1,838,378 | 12.87 | % | $ | 1,142,795 | 8 | % | $ | 1,428,494 | 10 | % | ||||||||||||
Tier I Capital (to Risk-Weighted Assets) | ||||||||||||||||||||||||
First BanCorp | $ | 1,739,363 | 12.16 | % | $ | 572,140 | 4 | % | N/A | N/A | ||||||||||||||
First Bank | $ | 1,670,878 | 11.70 | % | $ | 571,398 | 4 | % | $ | 857,097 | 6 | % | ||||||||||||
Leverage ratio | ||||||||||||||||||||||||
First BanCorp | $ | 1,739,363 | 8.91 | % | $ | 740,844 | 4 | % | N/A | N/A | ||||||||||||||
FirstBank | $ | 1,670,878 | 8.53 | % | $ | 783,087 | 4 | % | $ | 978,859 | 5 | % | ||||||||||||
At December 31, 2008 | ||||||||||||||||||||||||
Total Capital (to Risk-Weighted Assets) | ||||||||||||||||||||||||
First BanCorp | $ | 1,762,474 | 12.80 | % | $ | 1,100,990 | 8 | % | N/A | N/A | ||||||||||||||
FirstBank | $ | 1,602,538 | 12.23 | % | $ | 1,048,065 | 8 | % | $ | 1,310,082 | 10 | % | ||||||||||||
Tier I Capital (to Risk-Weighted Assets) | ||||||||||||||||||||||||
First BanCorp | $ | 1,589,854 | 11.55 | % | $ | 550,495 | 4 | % | N/A | N/A | ||||||||||||||
FirstBank | $ | 1,438,265 | 10.98 | % | $ | 524,033 | 4 | % | $ | 786,049 | 6 | % | ||||||||||||
Leverage ratio | ||||||||||||||||||||||||
First BanCorp | $ | 1,589,854 | 8.30 | % | $ | 765,935 | 4 | % | N/A | N/A | ||||||||||||||
FirstBank | $ | 1,438,265 | 7.90 | % | $ | 728,409 | 4 | % | $ | 910,511 | 5 | % |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Number of | ||||
Restricted | ||||
Shares | ||||
Beginning of year | 36,243 | |||
Restricted shares forfeited | (4,027 | ) | ||
End of period outstanding | 32,216 | |||
End of period vested restricted shares | 10,739 | |||
F-50
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
For the Year Ended December 31, 2009 | ||||||||||||||||
Weighted- | ||||||||||||||||
Average | Aggregate | |||||||||||||||
Weighted- | Remaining | Intrinsic | ||||||||||||||
Number of | Average | Contractual | Value (In | |||||||||||||
Options | Exercise Price | Term (Years) | thousands) | |||||||||||||
Beginning of year | 3,910,910 | $ | 12.82 | |||||||||||||
Options cancelled | (1,429,600 | ) | 11.69 | |||||||||||||
End of period outstanding and exercisable | 2,481,310 | $ | 13.46 | 5.2 | $ | — | ||||||||||
2007 | ||||
Weighted-average stock price at grant date and exercise price | $ | 9.20 | ||
Stock option estimated fair value | $ | 2.40 - $2.45 | ||
Weighted-average estimated fair value | $ | 2.43 | ||
Expected stock option term (years) | 4.31 - 4.59 | |||
Expected volatility | 32 | % | ||
Weighted-average expected volatility | 32 | % | ||
Expected dividend yield | 3.0 | % | ||
Weighted-average expected dividend yield | 3.0 | % | ||
Risk-free interest rate | 5.1 | % |
F-51
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
F-52
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
— | diluting the voting power of the current holders of common stock (the shares underlying the warrant represent approximately 6% of the Corporation’s shares of common stock as of December 31, 2009); | ||
— | diluting the earnings per share and book value per share of the outstanding shares of common stock; and | ||
— | making the payment of dividends on common stock more expensive. |
F-53
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Other commissions and fees | $ | 469 | $ | 420 | $ | 273 | ||||||
Insurance income | 8,668 | 10,157 | 10,877 | |||||||||
Other | 17,893 | 18,150 | 13,322 | |||||||||
Total | $ | 27,030 | $ | 28,727 | $ | 24,472 | ||||||
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Servicing and processing fees | $ | 10,174 | $ | 9,918 | $ | 6,574 | ||||||
Communications | 8,283 | 8,856 | 8,562 | |||||||||
Depreciation and expenses on revenue — earning equipment | 1,341 | 2,227 | 2,144 | |||||||||
Supplies and printing | 3,073 | 3,530 | 3,402 | |||||||||
Core deposit intangible impairment | 3,988 | — | — | |||||||||
Other | 17,483 | 17,443 | 18,744 | |||||||||
Total | $ | 44,342 | $ | 41,974 | $ | 39,426 | ||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Current income tax benefit (expense) | $ | 11,520 | $ | (7,121 | ) | $ | (7,925 | ) | ||||
Deferred income tax (expense) benefit | (16,054 | ) | 38,853 | (13,658 | ) | |||||||
Total income tax (expense) benefit | $ | (4,534 | ) | $ | 31,732 | $ | (21,583 | ) | ||||
F-55
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Year Ended December 31, | ||||||||||||||||||||||||
2009 | 2008 | 2007 | ||||||||||||||||||||||
% of | % of | % of | ||||||||||||||||||||||
Pre-Tax | Pre-Tax | Pre-Tax | ||||||||||||||||||||||
Amount | Income | Amount | Income | Amount | Income | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Computed income tax at statutory rate | $ | 110,832 | 40.95 | % | $ | (30,500 | ) | (39.0 | )% | $ | (34,990 | ) | (39.0 | )% | ||||||||||
Federal and state taxes | (311 | ) | (0.1 | )% | — | 0.0 | % | (227 | ) | (0.3 | )% | |||||||||||||
Non-tax deductible expenses | — | 0.0 | % | — | 0.0 | % | (1,111 | ) | (1.2 | )% | ||||||||||||||
Benefit of net exempt income | 52,293 | 19.3 | % | 49,799 | 63.7 | % | 23,974 | 26.7 | % | |||||||||||||||
Deferred tax valuation allowance | (184,397 | ) | (68.1 | )% | (2,446 | ) | (3.1 | )% | 1,250 | 1.4 | % | |||||||||||||
Net operating loss carry forward | — | 0.0 | % | (402 | ) | (0.5 | )% | (7,003 | ) | (7.8 | )% | |||||||||||||
Reversal of Unrecognized Tax Benefits | 18,515 | 6.8 | % | 10,559 | 13.5 | % | — | 0.0 | % | |||||||||||||||
Settlement payment — closing agreement | — | 0.0 | % | 5,395 | 6.9 | % | — | 0.0 | % | |||||||||||||||
Other-net | (1,466 | ) | (0.5 | )% | (673 | ) | (0.8 | )% | (3,476 | ) | (3.9 | )% | ||||||||||||
Total income tax (provision) benefit | $ | (4,534 | ) | (1.7 | )% | $ | 31,732 | 40.7 | % | $ | (21,583 | ) | (24.1 | )% | ||||||||||
December 31, | ||||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Deferred tax asset: | ||||||||
Allowance for loan and lease losses | $ | 212,933 | $ | 106,879 | ||||
Unrealized losses on derivative activities | 1,028 | 1,912 | ||||||
Deferred compensation | 41 | 682 | ||||||
Legal reserve | 500 | 211 | ||||||
Reserve for insurance premium cancellations | 649 | 679 | ||||||
Net operating loss and donation carryforward available | 68,572 | 1,286 | ||||||
Impairment on investments | 4,622 | 5,910 | ||||||
Tax credits available for carryforward | 3,838 | 5,409 | ||||||
Unrealized net loss on available-for-sale securities | 20 | 22 | ||||||
Realized loss on investments | 142 | 136 | ||||||
Settlement payment — closing agreement | 7,313 | 9,652 | ||||||
Interest expense accrual — Unrecognized Tax Benefits | — | 2,658 | ||||||
Other reserves and allowances | 12,665 | 7,010 | ||||||
Deferred tax asset | 312,323 | 142,446 | ||||||
Deferred tax liability: | ||||||||
Unrealized gain on available-for-sale securities | 4,629 | 716 | ||||||
Differences between the assigned values and tax bases of assets and liabilities recognized in purchase business combinations | 3,015 | 4,715 | ||||||
Unrealized gain on other investments | 468 | 578 | ||||||
Other | 3,342 | 1,123 | ||||||
Deferred tax liability | 11,454 | 7,132 | ||||||
Valuation allowance | (191,672 | ) | (7,275 | ) | ||||
Deferred income taxes, net | $ | 109,197 | $ | 128,039 | ||||
F-56
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
F-57
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands) | ||||
Balance at beginning of year | $ | 15,600 | ||
Increases related to positions taken during prior years | 173 | |||
Decreases related to positions taken during prior years | (317 | ) | ||
Expiration of statute of limitations | (10,733 | ) | ||
Audit settlement | (4,723 | ) | ||
Balance at end of year | $ | — | ||
Amount | ||||
(In thousands) | ||||
2010 | $ | 10,342 | ||
2011 | 7,680 | |||
2012 | 6,682 | |||
2013 | 4,906 | |||
2014 | 3,972 | |||
2015 and later years | 30,213 | |||
Total | $ | 63,795 | ||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Opening Statement of | ||||||||||||
Ending Statement of | Financial Condition | |||||||||||
Financial Condition | Net Increase in | as of January 1, 2007 | ||||||||||
as of December 31, 2006 | Retained Earnings | (After Adoption of | ||||||||||
Transition Impact | (Prior to Adoption) (1) | Upon Adoption | Fair Value Option) | |||||||||
(In thousands) | ||||||||||||
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) increased to retained earnings | $ | 91,778 | ||||||||||
(1) | Net of debt issue costs, placement fees and basis adjustment as of December 31, 2006. |
Level 1 | Valuations of Level 1 assets and liabilities are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. Level 1 assets and liabilities include equity securities that are traded in an active exchange market, as well as certain U.S. Treasury and other U.S. government and agency securities and corporate debt securities that are traded by dealers or brokers in active markets. |
Level 2 | Valuations of Level 2 assets and liabilities are based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include (i) mortgage-backed securities for which the fair value is estimated based on the value of identical or comparable assets, (ii) debt securities with quoted prices that are traded less frequently than exchange-traded instruments and (iii) derivative contracts and financial liabilities (e.g., callable brokered CDs and medium-term notes elected to be |
F-59
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
measured at fair value) whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. |
Level 3 | Valuations of Level 3 assets and liabilities are based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models for which the determination of fair value requires significant management judgment or estimation. |
Total Carrying | Total Carrying | |||||||||||||||
Amount in | Amount in | |||||||||||||||
Statement of | Statement of | |||||||||||||||
Financial | Fair Value | Financial | Fair Value | |||||||||||||
Condition | Estimated | Condition | Estimated | |||||||||||||
12/31/2009 | 12/31/2009 | 12/31/2008 | 12/31/2008 | |||||||||||||
(In thousands) | ||||||||||||||||
Assets: | ||||||||||||||||
Cash and due from banks and money market investments | $ | 704,084 | $ | 704,084 | $ | 405,733 | $ | 405,733 | ||||||||
Investment securities available for sale | 4,170,782 | 4,170,782 | 3,862,342 | 3,862,342 | ||||||||||||
Investment securities held to maturity | 601,619 | 621,584 | 1,706,664 | 1,720,412 | ||||||||||||
Other equity securities | 69,930 | 69,930 | 64,145 | 64,145 | ||||||||||||
Loans receivable, including loans held for sale | 13,949,226 | 13,088,292 | ||||||||||||||
Less: allowance for loan and lease losses | (528,120 | ) | (281,526 | ) | ||||||||||||
Loans, net of allowance | 13,421,106 | 12,811,010 | 12,806,766 | 12,416,603 | ||||||||||||
Derivatives, included in assets | 5,936 | 5,936 | 8,010 | 8,010 | ||||||||||||
Liabilities: | ||||||||||||||||
Deposits | 12,669,047 | 12,801,811 | 13,057,430 | 13,221,026 | ||||||||||||
Loans payable | 900,000 | 900,000 | — | — | ||||||||||||
Securities sold under agreements to repurchase | 3,076,631 | 3,242,110 | 3,421,042 | 3,655,652 | ||||||||||||
Advances from FHLB | 978,440 | 1,025,605 | 1,060,440 | 1,079,298 | ||||||||||||
Notes Payable | 27,117 | 25,716 | 23,274 | 18,755 | ||||||||||||
Other borrowings | 231,959 | 80,267 | 231,914 | 81,170 | ||||||||||||
Derivatives, included in liabilities | 6,467 | 6,467 | 8,505 | 8,505 |
F-60
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of December 31, 2009 | As of December 31, 2008 | |||||||||||||||||||||||||||||||
Fair Value Measurements Using | Fair Value Measurements Using | |||||||||||||||||||||||||||||||
Assets / Liabilities | Assets / Liabilities | |||||||||||||||||||||||||||||||
(In thousands) | Level 1 | Level 2 | Level 3 | at Fair Value | Level 1 | Level 2 | Level 3 | at Fair Value | ||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Securities available for sale : | ||||||||||||||||||||||||||||||||
Equity securities | $ | 303 | $ | — | $ | — | $ | 303 | $ | 669 | $ | — | $ | — | $ | 669 | ||||||||||||||||
Corporate Bonds | — | — | — | — | 1,548 | — | — | 1,548 | ||||||||||||||||||||||||
U.S. agency debt and MBS | — | 3,949,799 | — | 3,949,799 | — | 3,609,009 | — | 3,609,009 | ||||||||||||||||||||||||
Puerto Rico Government Obligations | — | 136,326 | — | 136,326 | — | 137,133 | — | 137,133 | ||||||||||||||||||||||||
Private label MBS | — | — | 84,354 | 84,354 | — | — | 113,983 | 113,983 | ||||||||||||||||||||||||
Derivatives, included in assets | — | 1,737 | 4,199 | 5,936 | — | 7,250 | 760 | 8,010 | ||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Callable brokered CDs | — | — | — | — | — | 1,150,959 | — | 1,150,959 | ||||||||||||||||||||||||
Medium-term notes | — | 13,361 | — | 13,361 | — | 10,141 | — | 10,141 | ||||||||||||||||||||||||
Derivatives, included in liabilities | — | 6,467 | — | 6,467 | — | 8,505 | — | 8,505 |
F-61
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Changes in Fair Value for the Year Ended December 31, 2009, for Items Measured at Fair Value Pursuant to Election of the Fair Value Option | ||||||||||||
Total | ||||||||||||
Changes in Fair Value | ||||||||||||
Unrealized Gains and | Unrealized Losses and | Unrealized Gains (Losses) | ||||||||||
Interest Expense included | Interest Expense included | and Interest Expense | ||||||||||
in Interest Expense | in Interest Expense | included in | ||||||||||
(In thousands) | on Deposits(1) | on Notes Payable(1) | Current-Period Earnings(1) | |||||||||
Callable brokered CDs | $ | (2,068 | ) | $ | — | $ | (2,068 | ) | ||||
Medium-term notes | — | (4,069 | ) | (4,069 | ) | |||||||
$ | (2,068 | ) | $ | (4,069 | ) | $ | (6,137 | ) | ||||
(1) | Changes in fair value for the year ended December 31, 2009 include interest expense on callable brokered CDs of $10.8 million and interest expense on medium-term notes of $0.8 million. Interest expense on callable brokered CDs and medium-term notes that have been elected to be carried at fair value are recorded in interest expense in the Consolidated Statements of Income based on such instruments contractual coupons. |
Changes in Fair Value for the Year Ended December 31, 2008, for Items Measured at Fair Value Pursuant to Election of the Fair Value Option | ||||||||||||
Total | ||||||||||||
Changes in Fair Value | ||||||||||||
Unrealized Losses and | Unrealized Gains and | Unrealized (Losses) Gains | ||||||||||
Interest Expense included | Interest Expense included | and Interest Expense | ||||||||||
in Interest Expense | in Interest Expense | included in | ||||||||||
(In thousands) | on Deposits(1) | on Notes Payable(1) | Current-Period Earnings(1) | |||||||||
Callable brokered CDs | $ | (174,208 | ) | $ | — | $ | (174,208 | ) | ||||
Medium-term notes | — | 3,316 | 3,316 | |||||||||
$ | (174,208 | ) | $ | 3,316 | $ | (170,892 | ) | |||||
(1) | Changes in fair value for the year ended December 31, 2008 include interest expense on callable brokered CDs of $120.0 million and interest expense on medium-term notes of $0.8 million. Interest expense on callable brokered CDs and medium-term notes that have been elected to be carried at fair value are recorded in interest expense in the Consolidated Statements of Income based on such instruments contractual coupons. |
Changes in Fair Value for the Year Ended December 31, 2007, for Items Measured at Fair Value Pursuant to Election of the Fair Value Option | ||||||||||||
Total | ||||||||||||
Changes in Fair Value | ||||||||||||
Unrealized Losses and | Unrealized Gains and | Unrealized (Losses) Gains | ||||||||||
Interest Expense included | Interest Expense included | and Interest Expense | ||||||||||
in Interest Expense | in Interest Expense | included in | ||||||||||
(In thousands) | on Deposits(1) | on Notes Payable(1) | Current-Period Earnings(1) | |||||||||
Callable brokered CDs | $ | (298,641 | ) | $ | — | $ | (298,641 | ) | ||||
Medium-term notes | — | (294 | ) | (294 | ) | |||||||
$ | (298,641 | ) | $ | (294 | ) | $ | (298,935 | ) | ||||
(1) | Changes in fair value for the year ended December 31, 2007 include interest expense on callable brokered CDs of $227.5 million and interest expense on medium-term notes of $0.8 million. Interest expense on callable brokered CDs and medium-term notes that have been elected to be carried at fair value are recorded in interest expense in the Consolidated Statements of Income based on such instruments contractual coupons. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Total Fair Value Measurements | Total Fair Value Measurements | Total Fair Value Measurements | ||||||||||||||||||||||
(Year Ended December 31, 2009) | (Year Ended December 31, 2008) | (Year Ended December 31, 2007) | ||||||||||||||||||||||
Level 3 Instruments Only | Securities | Securities | Securities | |||||||||||||||||||||
(In thousands) | Derivatives(1) | Available For Sale(2) | Derivatives(1) | Available For Sale(2) | Derivatives(1) | Available For Sale(2) | ||||||||||||||||||
Beginning balance | $ | 760 | $ | 113,983 | $ | 5,102 | $ | 133,678 | $ | 9,087 | $ | 370 | ||||||||||||
Total gains or (losses) (realized/unrealized): | ||||||||||||||||||||||||
Included in earnings | 3,439 | (1,270 | ) | (4,342 | ) | — | (3,985 | ) | — | |||||||||||||||
Included in other comprehensive income | — | (2,610 | ) | — | (1,830 | ) | — | (28,407 | ) | |||||||||||||||
New instruments acquired | — | — | — | — | — | 182,376 | ||||||||||||||||||
Principal repayments and amortization | — | (25,749 | ) | — | (17,865 | ) | — | (20,661 | ) | |||||||||||||||
Ending balance | $ | 4,199 | $ | 84,354 | $ | 760 | $ | 113,983 | $ | 5,102 | $ | 133,678 | ||||||||||||
(1) | Amounts related to the valuation of interest rate cap agreements. | |
(2) | Amounts mostly related to certain private label mortgage-backed securities. |
Changes in Unrealized Gains (Losses) | Changes in Unrealized Losses | Changes in Unrealized Losses | ||||||||||||||||||||||
(Year Ended December 31, 2009) | (Year Ended December 31, 2008) | (Year Ended December 31, 2007) | ||||||||||||||||||||||
Securities | Securities | Securities | ||||||||||||||||||||||
Level 3 Instruments Only | Available | Available | Available | |||||||||||||||||||||
(In thousands) | Derivatives | For Sale | Derivatives | For Sale | Derivatives | For Sale | ||||||||||||||||||
Changes in unrealized losses relating to assets still held at reporting date(1): | ||||||||||||||||||||||||
Interest income on loans | $ | 45 | $ | — | $ | (59 | ) | $ | — | $ | (440 | ) | $ | — | ||||||||||
Interest income on investment securities | 3,394 | — | (4,283 | ) | — | (3,545 | ) | — | ||||||||||||||||
Net impairment losses on investment securities (credit component) | — | (1,270 | ) | — | — | — | — | |||||||||||||||||
$ | 3,439 | $ | (1,270 | ) | $ | (4,342 | ) | $ | — | $ | (3,985 | ) | $ | — | ||||||||||
(1) | Unrealized losses of $2.6 million, $1.8 million and $28.4 million on Level 3 available-for-sale securities was recognized as part of other comprehensive income for the years ended December 31, 2009, 2008 and 2007, respectively. |
Losses recorded for | ||||||||||||||||
the Year Ended | ||||||||||||||||
Carrying value as of December 31, 2009 | December 31, 2009 | |||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
(In thousands) | ||||||||||||||||
Loans receivable (1) | $ | — | $ | — | $ | 1,103,069 | $ | 144,024 | ||||||||
Other Real Estate Owned (2) | — | — | 69,304 | 8,419 | ||||||||||||
Core deposit intangible (3) | — | — | 6,683 | 3,988 | ||||||||||||
Loans held for sale (4) | — | 20,775 | — | 58 |
(1) | Mainly impaired commercial and construction loans. The impairment was generally measured based on the fair value of the collateral. The fair values are derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations but adjusted for specific characteristics and assumptions of the collateral (e.g. absorption rates), which are not market observable. | |
(2) | The fair value is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations but adjusted for specific characteristics and assumptions of the properties (e.g. absorption rates), which are not market observable. Losses are related to market valuation adjustments after the transfer from the loan to the Other Real Estate Owned (“OREO”) portfolio. | |
(3) | Amount represents core deposit intangible of First Bank Florida. The impairment was generally measured based on internal information about decreases in the base of core deposits acquired upon the acquisition of First Bank Florida. | |
(4) | Fair value is primarily derived from quotations based on the mortgage-backed securities market. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Losses recorded for | ||||||||||||||||
the Year Ended | ||||||||||||||||
Carrying value as of December 31, 2008 | December 31, 2008 | |||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
(In thousands) | ||||||||||||||||
Loans receivable (1) | $ | — | $ | — | $ | 209,900 | $ | 51,037 | ||||||||
Other Real Estate Owned (2) | — | — | 37,246 | 7,698 |
(1) | Mainly impaired commercial and construction loans. The impairment was generally measured based on the fair value of the collateral. The fair values are derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations but adjusted for specific characteristics and assumptions of the collateral (e.g. absorption rates), which are not market observable. | |
(2) | The fair value is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations but adjusted for specific characteristics and assumptions of the properties (e.g. absorption rates), which are not market observable. Valuation allowance is based on market valuation adjustments after the transfer from the loan to the OREO portfolio. |
Losses recorded for | ||||||||||||||||
the Year Ended | ||||||||||||||||
Carrying value as of December 31, 2007 | December 31, 2007 | |||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
(In thousands) | ||||||||||||||||
Loans receivable (1) | $ | — | $ | 59,418 | $ | — | $ | 5,187 |
(1) | Mainly impaired commercial and construction loans. The impairment was measured based on the fair value of the collateral which was derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Cash paid for: | ||||||||||||
Interest on borrowings | $ | 494,628 | $ | 687,668 | $ | 721,545 | ||||||
Income tax | 7,391 | 3,435 | 10,142 | |||||||||
Non-cash investing and financing activities: | ||||||||||||
Additions to other real estate owned | 98,554 | 61,571 | 17,108 | |||||||||
Additions to auto repossessions | 80,568 | 87,116 | 104,728 | |||||||||
Capitalization of servicing assets | 6,072 | 1,559 | 1,285 | |||||||||
Loan securitizations | 305,378 | — | — | |||||||||
Recharacterization of secured commercial loans as securities collateralized by loans | — | — | 183,830 | |||||||||
Non-cash acquisition of mortgage loans that previously served as collateral of a commercial loan to a local financial institution | 205,395 | — | — |
December 31, | ||||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Financial instruments whose contract amounts represent credit risk: | ||||||||
Commitments to extend credit: | ||||||||
To originate loans | $ | 255,598 | $ | 518,281 | ||||
Unused credit card lines | — | 22 | ||||||
Unused personal lines of credit | 33,313 | 50,389 | ||||||
Commercial lines of credit | 1,187,004 | 863,963 | ||||||
Commercial letters of credit | 48,944 | 33,632 | ||||||
Standby letters of credit | 103,904 | 102,178 | ||||||
Commitments to sell loans | 13,158 | 50,500 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Notional Amounts | ||||||||
As of | As of | |||||||
December 31, | December 31, | |||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Economic undesignated hedges: | ||||||||
Interest rate contracts: | ||||||||
Interest rate swap agreements used to hedge fixed-rate brokered CDs, notes payable and loans | $ | 79,567 | $ | 1,184,820 | ||||
Written interest rate cap agreements | 102,521 | 128,043 | ||||||
Purchased interest rate cap agreements | 228,384 | 276,400 | ||||||
Equity contracts: | ||||||||
Embedded written options on stock index deposits and notes payable | 53,515 | 53,515 | ||||||
Purchased options used to manage exposure to the stock market on embedded stock index options | 53,515 | 53,515 | ||||||
$ | 517,502 | $ | 1,696,293 | |||||
Asset Derivatives | Liability Derivatives | |||||||||||||||||||
As of December 31, | As of December 31, | |||||||||||||||||||
Statement of | 2009 | 2008 | Statement of | 2009 | 2008 | |||||||||||||||
Financial Condition | Fair | Fair | Financial Condition | Fair | Fair | |||||||||||||||
Location | Value | Value | Location | Value | Value | |||||||||||||||
(In thousands) | ||||||||||||||||||||
Economic undesignated hedges: | ||||||||||||||||||||
Interest rate contracts: | ||||||||||||||||||||
Interest rate swap agreements used to hedge fixed-rate brokered CDs, notes payable and loans | Other assets | $ | 319 | $ | 5,649 | Accounts payable and other liabilities | $ | 5,068 | $ | 7,188 | ||||||||||
Written interest rate cap agreements | Other assets | — | — | Accounts payable and other liabilities | 201 | 3 | ||||||||||||||
Purchased interest rate cap agreements | Other assets | 4,423 | 764 | Accounts payable and other liabilities | — | — | ||||||||||||||
Equity contracts: | ||||||||||||||||||||
Embedded written options on stock index deposits | Other assets | — | — | Interest-bearing deposits | 14 | 241 | ||||||||||||||
Embedded written options on stock index notes payable | Other assets | — | — | Notes payable | 1,184 | 1,073 | ||||||||||||||
Purchased options used to manage exposure to the stock market on embedded stock index options | Other assets | 1,194 | 1,597 | Accounts payable and other liabilities | — | — | ||||||||||||||
$ | 5,936 | $ | 8,010 | $ | 6,467 | $ | 8,505 | |||||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Gain or (Loss) | ||||||||||||||
Location of Gain or (Loss) | Year Ended December 31, | |||||||||||||
Recognized in Income on Derivatives | 2009 | 2008 | 2007 | |||||||||||
(In thousands) | ||||||||||||||
ECONOMIC UNDESIGNATED HEDGES: | ||||||||||||||
Interest rate contracts: | ||||||||||||||
Interest rate swap agreements used to hedge fixed-rate: | ||||||||||||||
Brokered CDs | Interest expense - Deposits | $ | (5,236 | ) | $ | 63,132 | $ | 66,617 | ||||||
Notes payable | Interest expense - Notes payable and other borrowings | 3 | 124 | 1,440 | ||||||||||
Loans | Interest income - Loans | 2,023 | (3,696 | ) | (2,653 | ) | ||||||||
Written and purchased interest rate cap agreements - - mortgage-backed securities | Interest income - Investment securities | 3,394 | (4,283 | ) | (3,546 | ) | ||||||||
Written and purchased interest rate cap agreements - - loans | Interest income - loans | 102 | (58 | ) | (439 | ) | ||||||||
Equity contracts: | ||||||||||||||
Embedded written and purchased options on stock index deposits | Interest expense - Deposits | (85 | ) | (276 | ) | 209 | ||||||||
Embedded written and purchased options on stock index notes payable | Interest expense - Notes payable and other borrowings | (202 | ) | 268 | (71 | ) | ||||||||
Total (loss) gain on derivatives | $ | (1 | ) | $ | 55,211 | $ | 61,557 | |||||||
Year ended December 31, | ||||||||||||||||||||||||
2009 | 2008 | |||||||||||||||||||||||
Loss | Gain (Loss) | Net | Gain | (Loss) Gain | Net | |||||||||||||||||||
(In thousands) | on Derivatives | on liabilities measured at fair value | Gain (Loss) | on Derivatives | on liabilities measured at fair value | Gain | ||||||||||||||||||
Interest expense — Deposits | $ | (5,321 | ) | $ | 8,696 | $ | 3,375 | $ | 62,856 | $ | (54,199 | ) | $ | 8,657 | ||||||||||
Interest expense — Notes payable and Other Borrowings | (199 | ) | (3,221 | ) | (3,420 | ) | 392 | 4,165 | 4,557 |
As of | As of | |||||||
December 31, | December 31, | |||||||
2009 | 2008 | |||||||
(Dollars in thousands) | ||||||||
Pay fixed/receive floating : | ||||||||
Notional amount | $ | 79,567 | $ | 81,575 | ||||
Weighted-average receive rate at period end | 2.15 | % | 3.21 | % | ||||
Weighted-average pay rate at period end | 6.52 | % | 6.75 | % | ||||
Floating rates range from 167 to 252 basis points over 3-month LIBOR | ||||||||
Receive fixed/pay floating (generally used to economically hedge fixed-rate brokered CDs and notes payable): | ||||||||
Notional amount | $ | — | $ | 1,103,244 | ||||
Weighted-average receive rate at period end | 0.00 | % | 5.30 | % | ||||
Weighted-average pay rate at period end | 0.00 | % | 3.09 | % |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Notional Amount | ||||
(In thousands) | ||||
Pay-fixed and receive-floating swaps: | ||||
Balance as of December 31, 2007 | $ | 82,932 | ||
Cancelled and matured contracts | (1,357 | ) | ||
New contracts | — | |||
Balance as of December 31, 2008 | 81,575 | |||
Cancelled and matured contracts | (2,008 | ) | ||
New contracts | — | |||
Balance as of December 31, 2009 | $ | 79,567 | ||
Receive-fixed and pay floating swaps: | ||||
Balance as of December 31, 2007 | $ | 4,161,541 | ||
Cancelled and matured contracts | (3,426,519 | ) | ||
New contracts | 368,222 | |||
Balance as of December 31, 2008 | 1,103,244 | |||
Cancelled and matured contracts | (1,103,244 | ) | ||
New contracts | — | |||
Balance as of December 31, 2009 | $ | — | ||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Mortgage | Consumer | Commercial and | Treasury and | United States | Virgin Islands | |||||||||||||||||||||||
(In thousands) | Banking | (Retail) Banking | Corporate | Investments | Operations | Operations | Total | |||||||||||||||||||||
For the year ended December 31, 2009: | ||||||||||||||||||||||||||||
Interest income | $ | 156,729 | $ | 210,102 | $ | 239,399 | $ | 251,949 | $ | 67,936 | $ | 70,459 | $ | 996,574 | ||||||||||||||
Net (charge) credit for transfer of funds | (117,486 | ) | 205 | (59,080 | ) | 176,361 | — | — | — | |||||||||||||||||||
Interest expense | — | (60,661 | ) | — | (342,161 | ) | (65,360 | ) | (9,350 | ) | (477,532 | ) | ||||||||||||||||
Net interest income | 39,243 | 149,646 | 180,319 | 86,149 | 2,576 | 61,109 | 519,042 | |||||||||||||||||||||
Provision for loan and lease losses | (29,717 | ) | (62,457 | ) | (273,822 | ) | — | (188,651 | ) | (25,211 | ) | (579,858 | ) | |||||||||||||||
Non-interest income | 8,497 | 32,003 | 5,695 | 84,369 | 1,460 | 10,240 | 142,264 | |||||||||||||||||||||
Direct non-interest expenses | (32,314 | ) | (98,263 | ) | (41,948 | ) | (7,416 | ) | (37,704 | ) | (45,364 | ) | (263,009 | ) | ||||||||||||||
Segment (loss) income | $ | (14,291 | ) | $ | 20,929 | $ | (129,756 | ) | $ | 163,102 | $ | (222,319 | ) | $ | 774 | $ | (181,561 | ) | ||||||||||
Average earnings assets | $ | 2,654,504 | $ | 2,109,602 | $ | 5,974,950 | $ | 5,831,078 | $ | 1,449,878 | $ | 996,508 | $ | 19,016,520 | ||||||||||||||
For the year ended December 31, 2008: | ||||||||||||||||||||||||||||
Interest income | $ | 156,577 | $ | 225,474 | $ | 287,708 | $ | 288,063 | $ | 95,043 | $ | 74,032 | $ | 1,126,897 | ||||||||||||||
Net (charge) credit for transfer of funds | (119,257 | ) | 3,573 | (175,454 | ) | 291,138 | — | — | — | |||||||||||||||||||
Interest expense | — | (63,001 | ) | — | (455,802 | ) | (66,204 | ) | (14,009 | ) | (599,016 | ) | ||||||||||||||||
Net interest income | 37,320 | 166,046 | 112,254 | 123,399 | 28,839 | 60,023 | 527,881 | |||||||||||||||||||||
Provision for loan and lease losses | (8,997 | ) | (80,506 | ) | (35,504 | ) | — | (53,406 | ) | (12,535 | ) | (190,948 | ) | |||||||||||||||
Non-interest income (loss) | 2,667 | 35,531 | 4,591 | 25,577 | (3,570 | ) | 9,847 | 74,643 | ||||||||||||||||||||
Direct non-interest expenses | (22,703 | ) | (99,232 | ) | (24,467 | ) | (6,713 | ) | (34,236 | ) | (48,105 | ) | (235,456 | ) | ||||||||||||||
Segment income (loss) | $ | 8,287 | $ | 21,839 | $ | 56,874 | $ | 142,263 | $ | (62,373 | ) | $ | 9,230 | $ | 176,120 | |||||||||||||
Average earnings assets | $ | 2,492,566 | $ | 2,185,888 | $ | 5,086,787 | $ | 5,583,181 | $ | 1,515,418 | $ | 942,052 | $ | 17,805,892 | ||||||||||||||
For the year ended December 31, 2007: | ||||||||||||||||||||||||||||
Interest income | $ | 133,068 | $ | 238,874 | $ | 335,625 | $ | 284,155 | $ | 121,897 | $ | 75,628 | $ | 1,189,247 | ||||||||||||||
Net (charge) credit for transfer of funds | (105,459 | ) | (794 | ) | (230,777 | ) | 370,451 | (33,421 | ) | — | — | |||||||||||||||||
Interest expense | — | (63,807 | ) | — | (608,119 | ) | (49,734 | ) | (16,571 | ) | (738,231 | ) | ||||||||||||||||
Net interest income | 27,609 | 174,273 | 104,848 | 46,487 | 38,742 | 59,057 | 451,016 | |||||||||||||||||||||
Provision for loan and lease losses | (1,643 | ) | (73,799 | ) | (12,465 | ) | — | (30,174 | ) | (2,529 | ) | (120,610 | ) | |||||||||||||||
Non-interest income (loss) | 2,124 | 32,529 | 3,737 | (2,161 | ) | 1,167 | 12,188 | 49,584 | ||||||||||||||||||||
Net gain on partial extinguishment and recharacterization of secured commercial loans to a local financial institution | — | — | 2,497 | — | — | — | 2,497 | |||||||||||||||||||||
Direct non-interest expenses | (20,890 | ) | (95,169 | ) | (20,056 | ) | (7,842 | ) | (21,848 | ) | (42,407 | ) | (208,212 | ) | ||||||||||||||
Segment income (loss) | $ | 7,200 | $ | 37,834 | $ | 78,561 | $ | 36,484 | $ | (12,113 | ) | $ | 26,309 | $ | 174,275 | |||||||||||||
Average earnings assets | $ | 2,140,647 | $ | 2,207,447 | $ | 4,363,149 | $ | 5,400,648 | $ | 1,561,029 | $ | 895,434 | $ | 16,568,354 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Net (loss) income: | ||||||||||||
Total (loss) income for segments and other | $ | (181,561 | ) | $ | 176,120 | $ | 174,275 | |||||
Other Income | — | — | 15,075 | |||||||||
Other operating expenses | (89,092 | ) | (97,915 | ) | (99,631 | ) | ||||||
Income before income taxes | (270,653 | ) | 78,205 | 89,719 | ||||||||
Income tax (expense) benefit | (4,534 | ) | 31,732 | (21,583 | ) | |||||||
Total consolidated net (loss) income | $ | (275,187 | ) | $ | 109,937 | $ | 68,136 | |||||
Average assets: | ||||||||||||
Total average earning assets for segments | $ | 19,016,520 | $ | 17,805,892 | $ | 16,568,354 | ||||||
Average non-earning assets | 790,702 | 702,064 | 645,853 | |||||||||
Total consolidated average assets | $ | 19,807,222 | $ | 18,507,956 | $ | 17,214,207 | ||||||
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Revenues: | ||||||||||||
Puerto Rico(1) | $ | 988,743 | $ | 1,026,188 | $ | 1,045,523 | ||||||
United States | 69,396 | 91,473 | 123,064 | |||||||||
Virgin Islands | 80,699 | 83,879 | 87,816 | |||||||||
Total consolidated revenues | $ | 1,138,838 | $ | 1,201,540 | $ | 1,256,403 | ||||||
Selected Balance Sheet Information: | ||||||||||||
Total assets: | ||||||||||||
Puerto Rico | $ | 16,843,767 | $ | 16,824,168 | $ | 14,633,217 | ||||||
United States | 1,716,694 | 1,619,280 | 1,540,808 | |||||||||
Virgin Islands | 1,067,987 | 1,047,820 | 1,012,906 | |||||||||
Loans: | ||||||||||||
Puerto Rico | $ | 11,614,866 | $ | 10,601,488 | $ | 9,413,118 | ||||||
United States | 1,275,869 | 1,484,011 | 1,448,613 | |||||||||
Virgin Islands | 1,058,491 | 1,002,793 | 938,015 | |||||||||
Deposits: | ||||||||||||
Puerto Rico | $ | 10,497,646 | $ | 10,746,688 | $ | 8,776,874 | ||||||
United States | 1,252,977 | 1,243,754 | 1,239,913 | |||||||||
Virgin Islands | 918,424 | 1,066,988 | 1,017,734 |
(1) | For 2007, Revenues of Puerto Rico operations include $15.1 million related to reimbursement of expenses, mainly from insurance carriers, related to a class action lawsuit settled in 2007. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of December 31, | ||||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Assets | ||||||||
Cash and due from banks | $ | 55,423 | $ | 58,075 | ||||
Money market investments | 300 | 300 | ||||||
Investment securities available for sale, at market: | ||||||||
Equity investments | 303 | 669 | ||||||
Other investment securities | 1,550 | 1,550 | ||||||
Investment in First Bank Puerto Rico, at equity | 1,754,217 | 1,574,940 | ||||||
Investment in First Bank Insurance Agency, at equity | 6,709 | 5,640 | ||||||
Investment in Ponce General Corporation, at equity | — | 123,367 | ||||||
Investment in PR Finance, at equity | 3,036 | 2,789 | ||||||
Investment in FBP Statutory Trust I | 3,093 | 3,093 | ||||||
Investment in FBP Statutory Trust II | 3,866 | 3,866 | ||||||
Other assets | 3,194 | 6,596 | ||||||
Total assets | $ | 1,831,691 | $ | 1,780,885 | ||||
Liabilities & Stockholders’ Equity | ||||||||
Liabilities: | ||||||||
Other borrowings | $ | 231,959 | $ | 231,914 | ||||
Accounts payable and other liabilities | 669 | 854 | ||||||
Total liabilities | 232,628 | 232,768 | ||||||
Stockholders’ equity | 1,599,063 | 1,548,117 | ||||||
Total liabilities and stockholders’ equity | $ | 1,831,691 | $ | 1,780,885 | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Income: | ||||||||||||
Interest income on investment securities | $ | — | $ | 727 | $ | 3,029 | ||||||
Interest income on other investments | 38 | 1,144 | 1,289 | |||||||||
Interest income on loans | — | — | 631 | |||||||||
Dividend from First Bank Puerto Rico | 46,562 | 81,852 | 79,135 | |||||||||
Dividend from other subsidiaries | 1,000 | 4,000 | 1,000 | |||||||||
Other income | 496 | 408 | 565 | |||||||||
48,096 | 88,131 | 85,649 | ||||||||||
Expense: | ||||||||||||
Notes payable and other borrowings | 8,315 | 13,947 | 18,942 | |||||||||
Interest on funding to subsidiaries | — | 550 | 3,319 | |||||||||
(Recovery) provision for loan losses | — | (1,398 | ) | 1,300 | ||||||||
Other operating expenses | 2,698 | 1,961 | 2,844 | |||||||||
11,013 | 15,060 | 26,405 | ||||||||||
Net loss on investments and impairments | (388 | ) | (1,824 | ) | (6,643 | ) | ||||||
Net loss on partial extinguishment and recharacterization of secured commercial loans to a local financial institution | — | — | (1,207 | ) | ||||||||
Income before income taxes and equity in undistributed (losses) earnings of subsidiaries | 36,695 | 71,247 | 51,394 | |||||||||
�� | ||||||||||||
Income tax provision | (6 | ) | (543 | ) | (1,714 | ) | ||||||
Equity in undistributed (losses) earnings of subsidiaries | (311,876 | ) | 39,233 | 18,456 | ||||||||
Net (loss) income | (275,187 | ) | 109,937 | 68,136 | ||||||||
Other comprehensive (loss) income, net of tax | (30,896 | ) | 82,653 | 4,903 | ||||||||
Comprehensive (loss) income | $ | (306,083 | ) | $ | 192,590 | $ | 73,039 | |||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net (loss) income | $ | (275,187 | ) | $ | 109,937 | $ | 68,136 | |||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||||||
(Recovery) provision for loan losses | — | (1,398 | ) | 1,300 | ||||||||
Deferred income tax provision | 3 | 543 | 1,714 | |||||||||
Stock-based compensation recognized | 71 | 7 | — | |||||||||
Equity in undistributed losses (earnings) of subsidiaries | 311,876 | (39,233 | ) | (18,456 | ) | |||||||
Net loss on sale of investment securities | — | — | 733 | |||||||||
Loss on impairment of investment securities | 388 | 1,824 | 5,910 | |||||||||
Net loss on partial extinguishment and recharacterization of secured commercial loans to a local financial institution | — | — | 1,207 | |||||||||
Accretion of discount on investment securities | — | (33 | ) | (197 | ) | |||||||
Net decrease (increase) in other assets | 3,399 | (3,542 | ) | 52,515 | ||||||||
Net (decrease) increase in other liabilities | (144 | ) | 245 | (72,639 | ) | |||||||
Total adjustments | 315,593 | (41,587 | ) | (27,913 | ) | |||||||
Net cash provided by operating activities | 40,406 | 68,350 | 40,223 | |||||||||
Cash flows from investing activities: | ||||||||||||
Capital contribution to subsidiaries | (400,000 | ) | (37,786 | ) | — | |||||||
Principal collected on loans | — | 3,995 | 1,622 | |||||||||
Purchases of securities available for sale | — | — | — | |||||||||
Sales, principal repayments and maturity of available-for-sale and held-to-maturity securities | — | 1,582 | 11,403 | |||||||||
Other investing activities | — | — | 437 | |||||||||
Net cash (used in) provided by investing activities | (400,000 | ) | (32,209 | ) | 13,462 | |||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from purchased funds and other short-term borrowings | — | — | — | |||||||||
Repayments of purchased funds and other short-term borrowings | — | (1,450 | ) | (5,800 | ) | |||||||
Issuance of common stock | — | — | 91,924 | |||||||||
Exercise of stock options | — | 53 | — | |||||||||
Issuance of preferred stock | 400,000 | — | — | |||||||||
Cash dividends paid | (43,066 | ) | (66,181 | ) | (64,881 | ) | ||||||
Other financing activities | 8 | — | — | |||||||||
Net cash provided by (used in) financing activities | 356,942 | (67,578 | ) | 21,243 | ||||||||
Net (decrease) increase in cash and cash equivalents | (2,652 | ) | (31,437 | ) | 74,928 | |||||||
Cash and cash equivalents at the beginning of the year | 58,375 | 89,812 | 14,884 | |||||||||
Cash and cash equivalents at the end of the year | $ | 55,723 | $ | 58,375 | $ | 89,812 | ||||||
Cash and cash equivalents include: | ||||||||||||
Cash and due form banks | 55,423 | 58,075 | 43,519 | |||||||||
Money market investments | 300 | 300 | 46,293 | |||||||||
$ | 55,723 | $ | 58,375 | $ | 89,812 | |||||||
F-78