EXHIBIT 99.1
Alan Cohen
Senior Vice President, Marketing and Public Relations
Office (787) 729-8256
alan.cohen@firstbankpr.com
FIRST BANCORP FILES QUARTERLY REPORTS FOR THE MARCH 31, 2007 AND
JUNE 30, 2007 QUARTERS, BECOMING CURRENT IN ITS FINANCIAL REPORTING
| | • | | Becomes current in its financial reporting |
| |
| | • | | Reports net income for the six months ended June 30, 2007 of $46.6 million or $0.32 per common share (basic and diluted) as compared to $35.7 million or $0.19 per common share (basic and diluted) for the same period in 2006 |
San Juan, Puerto Rico, September 24, 2007 — First BanCorp (NYSE: FBP) (the “Corporation”) today announced the filing with the Securities and Exchange Commission (the “SEC”) of quarterly reports on Form 10-Q for the fiscal quarters ended March 31, 2007 and June 30, 2007. With these filings the Corporation becomes current in SEC and New York Stock Exchange financial reporting requirements. “After a painstaking 24-month process, we are glad to have become current with SEC reporting requirements,” mentioned Luis M. Beauchamp, President and Chief Executive Officer of First BanCorp. “I am pleased we will be reporting in a normal cycle and continuing an open dialogue with shareholders and the investment community at large. I congratulate our team for its dual focus on fulfilling the Corporation’s reporting requirements while maintaining a sharp focus on the day-to-day implementation of our business strategies,” continued Mr. Beauchamp.
For the six months ended June 30, 2007, First BanCorp reported net income of $46.6 million, or $0.32 per common share (basic and diluted). Net income for the same period in 2006 was $35.7 million, or $0.19 per common share (basic and diluted). Results for 2007 and 2006 included
one-time expenses of $8.5 and $11.4 million, respectively, in legal, accounting and consulting fees related to the Audit Committee’s internal review of certain mortgage-related transactions entered into between 1999 and 2005, related legal and regulatory issues and other matters and $0.8 million and ($68.1) million, respectively, of non-cash net gain (losses) resulting from the valuation of derivatives, basis adjustments on fair value hedges and the adoption of SFAS 159, effective January 1, 2007 (the “valuation changes”). (Refer to the “Net interest income” discussion on the June 30, 2007 Form 10-Q for a detailed explanation of the derivative and fair value accounting for both 2006 and 2007.)
Net interest income increased to $234.7 million for the six months ended June 30, 2007 as compared with $199.1 million for the same period in 2006. During 2007 and 2006, net interest income was impacted by the valuation changes. Excluding the valuation changes, net interest income would have been $233.9 million and $267.2 million for the six months ended June 30, 2007 and 2006, respectively, or a decrease of $33.3 million. The 2007 net interest income was affected by the $2.4 billion repayment of a secured commercial loan from a local financial institution, which lowered the credit concentration to that borrower. This loan yielded 150 basis points over 3-month LIBOR. The repayment decreased net interest income for the six months ended June 30, 2007 as compared to the same period in 2006 by approximately $15 million. Also, the LIBOR rate increased approximately 90 basis points during the first half of 2006. Although the LIBOR rate remained relatively unchanged during the first half of 2007, the increase in the LIBOR rate had a negative impact of $19 million on net interest income during the first half of 2007 due to our funding structure as the full increase of the LIBOR rate is reflected in the Corporation’s results of 2007. The decrease in the average balance of the investment portfolio of approximately $1.5 billion in the first half of 2007 as compared to the first half of 2006 did not have a material impact on net interest margin due to the sustained flatness of the yield curve as the Corporation continued to deleverage its balance sheet in an effort to eliminate the negative carry in the investment portfolio (refer to Table 2).
The exclusion of changes in the fair value of derivative instruments, including the ineffective portion of designated hedges after adoption of fair value hedge accounting, the basis adjustment amortization or accretion, and the changes in the fair value of SFAS 159, liabilities from net
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interest income provide additional information about the Corporation’s net interest income and facilitates comparability and analysis. The changes in the fair value of the financial instruments, the basis adjustment, and the changes in the fair value of SFAS 159 liabilities have no effect on interest due or interest earned on interest-bearing liabilities or interest-earning assets, respectively, or on interest payments exchanged with swap counterparties. In addition, since the Corporation intends to hold the interest rate swaps until they mature because, economically, the interest rate swaps are satisfying their intended results, the unrealized changes in fair value will reverse over the remaining lives of the swaps.
The provision for loan and lease losses for the six months ended June 30, 2007 was approximately $49.5 million (116% of net charge-offs for the period) compared to $28.7 million (95% of net charge-offs for the period) for the six-month period ended June 30, 2006 or an increase of $20.8 million. The increase in the provision for the 2007 period as compared to 2006 was primarily due to increases in non—accruing loans and charge-offs coupled with the growth of the Corporation’s commercial loan portfolio (other than secured commercial loans to local financial institutions). In addition, during 2006 the Corporation experienced a reduction in its provision for loan losses due to the repayment of approximately $2.4 billion received in connection with the secured commercial loan extended to a local financial institution. The Corporation determined, based on an analysis of the credit quality, composition of its loan portfolio, and loan loss experience, that a higher provision was required during 2007, as compared to 2006, to maintain its level of loan and lease losses at an appropriate level. The increase in non-accrual loans and charge-offs during 2007, as compared to the first half of 2006, primarily reflected deteriorating economic conditions in Puerto Rico.
Net charge-offs for the first half of 2007 were $42.8 million or 0.77% of average loans on an annualized basis, compared to $30.2 million or 0.48% of average loans on an annualized basis for the same period in 2006. The increase in net charge-offs for the 2007 period, compared to 2006, was mainly associated with the Corporation’s consumer and finance lease portfolio as well as commercial loans due to higher delinquency levels experienced during 2007. The increase in net charge-offs is primarily the result of the aforementioned deteriorating economic conditions in Puerto Rico.
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As previously announced on August 2, 2007, the Corporation has not experienced significant losses in either the residential real estate portfolio or commercial portfolio, which includes commercial mortgage, construction and commercial, mainly attributable to the fact that most of these loans have real estate collateral. “We continue to monitor very closely our reserve levels and continue to analyze specific loans in response to new information,” said Fernando Scherrer, Chief Financial Officer of the Corporation. “Although we have seen a slowdown and, in some specific areas a decrease in real estate values, FirstBank has a seasoned portfolio with adequate loan-to-value ratios”, continued Mr. Scherrer.
For the six months ended June 30, 2007, non-interest income amounted to $26.7 million as compared to $12.4 million for the same period in 2006, or an increase of $14.3 million. The increase was mainly attributable to: (i) a gain of $2.5 million during 2007 relating to the partial extinguishment and recharacterization of a secured commercial loan with a local financial institution, (ii) a gain of $2.8 million during 2007 relating to the sale of the credit card portfolio, and (iii) a loss in 2006 of $11.6 million on the partial extinguishment of a secured commercial loan to a local financial institution. During 2003 the Corporation sold substantially its entire credit card portfolio pursuant to a strategic alliance with MBNA (now Bank of America). During the first quarter of 2007, the Corporation sold the remaining portion of its portfolio, which consisted mainly of credit card loans in the U.S. Virgin Islands, thus expanding the strategic alliance into this territory (refer to Table 3).
Non-interest expense for the six months ended June 30, 2007 amounted to $152.8 million as compared to $142.8 million for the same period in 2006, or an increase of $10 million or 7%. The increase is mainly attributable to an increase of $5.7 million in employee compensation and benefits, resulting from normal salary increases and an increase in staff count associated with the Corporation’s loan originations and deposit gathering efforts, in particular the continued development of the FirstBank Florida franchise acquired in 2005, the development of the middle market operations, which started in 2005; and the addition of several new branches during late 2006 and early 2007. Also, the Corporation strengthened several support areas, including internal audit and compliance, credit risk management, finance and accounting, information technology and banking operations. “Under current market conditions, we do not expect an increase in staff count for the remainder of the year or even next year. We are confident that we
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now have the proper infrastructure both in the front end and back end to support the current levels of business as well as a significant amount of growth,” said Aurelio Alemán, Chief Operating Officer of the Corporation (refer to Table 4).
For the six months ended June 30, 2007, the Corporation recognized an income tax expense of $12.4 million (21% effective tax rate), compared to $4.3 million (11% effective tax rate) in the same period of 2006. The increase in income tax expense was mainly due to a decrease in deferred income tax benefits, resulting principally from lower unrealized losses on derivative instruments and the adoption of SFAS 159, partially offset by a decrease in the current income tax provision. Prior to the implementation of the long-haul method of effectiveness testing under SFAS 133 during the second quarter of 2006, the Corporation recorded as part of interest expense unrealized losses of $69.7 million in the valuation of derivative instruments during the first quarter of 2006, which resulted in higher deferred tax benefits for the first half of 2006 as compared to the same period of 2007. With the adoption of SFAS 159, effective January 1, 2007, unrealized and realized losses of $63.4 million in the valuation of derivative instruments recorded as part of interest expense were partially offset by unrealized gains in the valuation of SFAS 159 liabilities of $56.5 million. For the first half of 2007, the Corporation recognized a deferred tax benefit of $2.0 million compared to a deferred tax benefit of $26.5 million for the same period in 2006.
The current provision for income taxes for the first half of 2007 amounted to $14.4 million, compared to $30.6 million for the first half of 2006, a decrease of $16.2 million. The decrease in the current income tax provision for the first half of 2007 is mainly attributable to lower taxable income.
The Corporation adopted FIN 48 as of January 1, 2007. FIN 48 prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of income tax uncertainties with respect to positions taken or expected to be taken in income tax returns. The adoption of FIN 48 reduced the beginning balance of retained earnings as of January 1, 2007 by $2.6 million. Under FIN 48, income tax benefits are recognized and measured based upon a two-step model: 1) a tax position must be more likely than not to be sustained based solely on its
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technical merits in order to be recognized, and 2) the benefit is measured as the largest dollar amount of that position that is more likely than not to be sustained upon settlement. The difference between the benefit recognized in accordance with FIN 48 and the tax benefit claimed on a tax return is referred to as an unrecognized tax benefit.
The Corporation’s total assets as of June 30, 2007 amounted to $17.6 billion as compared to $17.4 billion as of December 31, 2006, an increase of $215 million. The increase in total assets as of June 30, 2007, compared to total assets as of December 31, 2006, was mainly the result of an increase in money market investments. During the second quarter of 2007, the Corporation temporarily invested proceeds from newly issued brokered certificates of deposit (“CDs”) in short-term money market investments in anticipation of expected maturities of brokered CDs during the second half of the year. In addition, loan originations for the six months of 2007 amounted to $1.9 billion compared to $2.7 billion during the same period of 2006. The decrease in originations was due to stricter underwriting standards in an effort to improve credit quality.
As of June 30, 2007, total liabilities amounted to $16.3 billion, an increase of $138.0 million as compared to $16.2 billion as of December 31, 2006. The increase in total liabilities was mainly due to an increase in brokered CDs and FHLB advances, partially offset by decreases in non-interest bearing deposits, federal funds purchased and securities sold under repurchase agreements, and notes payable. The increase in brokered CDs was principally due to the issuance of new brokered CDs in anticipation of expected maturities during the second half of the year. Notes payable decreased during the second quarter of 2007 due to the early redemption of the Corporation’s $150 million callable fixed-rate medium-term note. The Corporation’s decision was influenced by, among other things, the weighted-average cost of such note, which was above the Corporation’s weighted-average cost of funds.
The Corporation’s stockholders’ equity amounted to $1.3 billion as of June 30, 2007, an increase of $76.8 million compared to the balance as of December 31, 2006. The increase in stockholders’ equity for the six-month period ended June 30, 2007 is mainly composed of after-tax adjustments to beginning retained earnings of approximately $91.8 million as part of the adoption of SFAS 159 and net income of $46.6 million for the first half of 2007, partially offset
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by cash dividends of $31.8 million paid during the first half of 2007 and other comprehensive losses associated with the valuation of the Corporation’s securities available-for-sale portfolio of $30.1 million.
First BanCorp and its banking subsidiaries were “well-capitalized” for bank regulatory purposes as of June 30, 2007 (refer to Table 7). As of June 30, 2007, the total regulatory capital of the Corporation had increased to 13.69% from 12.60% as of June 30, 2006. In addition, upon the funding of the 10% investment by Scotiabank on August 27, 2007, the total capital of the Corporation is expected to increase another 79 basis points to approximately 14.48%.
“There is no doubt that these are tough times for the financial services industry in Puerto Rico. The flat-to-inverted yield curve, drop in consumer confidence and credit deterioration have impacted our results. However, the recent 50 basis points rate cut by the Federal Reserve, which may be the first in a series of cuts aimed at easing credit to stimulate economic growth, will benefit the Bank given our funding structure. The prospects of a normal yield curve should lead to an improvement of the net interest margin which has been compressed for the last year, which in turn should translate into earnings growth starting in the fourth quarter of 2007,” said Luis Beauchamp. “In addition, our business rationalization project has been focused on reducing non-interest expenses and we are actively managing the expense reduction opportunities.”
Subsequent Event
The Corporation announced on August 27, 2007 the completion of its sale of 9.250 million shares of First BanCorp’s common stock to Scotiabank (TSX, NYSE: BNS) in a private placement for a total purchase price of $94.8 million.
About First BanCorp
First BanCorp is the parent corporation of FirstBank Puerto Rico, a state-chartered commercial bank with operations in Puerto Rico, the Virgin Islands and Florida; of FirstBank Insurance Agency; and of Ponce General Corporation. First BanCorp, FirstBank Puerto Rico and FirstBank Florida, formerly Unibank, the thrift subsidiary of Ponce General, all operate within U.S. banking laws and regulations. The Corporation operates a total of 153 financial services facilities throughout Puerto Rico, the U.S. and British Virgin Islands, and Florida. Among the subsidiaries
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of FirstBank Puerto Rico are Money Express, a finance company; First Leasing and Car Rental, a car and truck rental leasing company; and FirstMortgage, a mortgage origination company. In the U.S. Virgin Islands, FirstBank operates First Insurance VI, an insurance agency and First Express, a small loan company. First BanCorp’s common and preferred shares trade on the New York Stock Exchange under the symbols FBP, FBPPrA, FBPPrB, FBPPrC, FBPPrD and FBPPrE.
Safe Harbor
This press release may contain “forward-looking statements” concerning First BanCorp’s (the “Corporation”) future economic performance. The words or phrases “expect,” “anticipate,” “look forward,” “should,” “believes” and similar expressions are meant to identify “forward-looking statements” within the meaning of the Private Securities Litigation reform Act of 1995. The Corporation wishes to caution readers not to place undue reliance on any such “forward-looking statements,” which speak only as of the date made, and to advise readers that various factors, including, the deteriorating economic conditions in Puerto Rico, the ability to obtain a final order approving the settlement of the shareholder litigation, interest rate risk relating to the secured loans to Doral Financial Corporation and R&G Financial Corporation, the continued repayment by Doral and R&G Financial of their outstanding loans, the impact on net income of the reduction in net interest income resulting from the repayment of a significant amount of the commercial loans to Doral, the impact of the consent orders on the Corporation’s future operations and results, the Corporation’s ability to continue to implement the terms of the consent orders, FirstBank’s ability to issue brokered certificates of deposit, its liquidity, the ability to fund operations, changes in the interest rate environment, the deteriorating regional and national economic conditions, including the risks arising from credit and other risks of the Corporation’s lending and investment activities, particularly the condo conversion loans in its Miami Agency, competitive and regulatory factors and legislative changes, could affect the Corporation’s financial performance and could cause the Corporation’s actual results for future periods to differ materially from those anticipated or projected. The Corporation does not undertake, and specifically disclaims any obligation, to update any “forward- looking statements” to reflect occurrences or unanticipated events or circumstances after the date of such statements.
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Exhibits of Results for the Quarter Ended June 30, 2007 and 2006, and the Six Months Ended June 30, 2007 and 2006
Table 1. Selected Financial Data
| | | | | | | | | | | | | | | | | |
| (In thousands except for per share and financial ratios) | | | | | | |
| | | Quarter ended | | | Six Month Period Ended | |
| | | June 30, | | | June 30, | |
| | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
Condensed Income Statements: | | | | | | | | | | | | | | | | |
| Total interest income | | $ | 305,871 | | | $ | 344,443 | | | $ | 604,456 | | | $ | 672,148 | |
| Total interest expense | | | 188,656 | | | | 218,205 | | | | 369,806 | | | | 473,091 | |
| Net interest income | | | 117,215 | | | | 126,238 | | | | 234,650 | | | | 199,057 | |
| Provision for loan and lease losses | | | 24,628 | | | | 9,354 | | | | 49,542 | | | | 28,730 | |
| Non-interest income | | | 10,903 | | | | 1,783 | | | | 26,725 | | | | 12,371 | |
| Non-interest expenses | | | 73,454 | | | | 71,040 | | | | 152,818 | | | | 142,778 | |
| Income before income taxes | | | 30,036 | | | | 47,627 | | | | 59,015 | | | | 39,920 | |
| Income tax expense | | | (6,241 | ) | | | (15,824 | ) | | | (12,388 | ) | | | (4,254 | ) |
| Net income | | | 23,795 | | | | 31,803 | | | | 46,627 | | | | 35,666 | |
| Net income attributable to common stockholders | | | 13,726 | | | | 21,734 | | | | 26,489 | | | | 15,528 | |
Per Common Share Results: | | | | | | | | | | | | | | | | |
| Net income per share basic | | $ | 0.16 | | | $ | 0.26 | | | $ | 0.32 | | | $ | 0.19 | |
| Net income per share diluted | | $ | 0.16 | | | $ | 0.26 | | | $ | 0.32 | | | $ | 0.19 | |
| Cash dividends declared | | $ | 0.07 | | | $ | 0.07 | | | $ | 0.14 | | | $ | 0.14 | |
| Average shares outstanding | | | 83,254 | | | | 83,254 | | | | 83,254 | | | | 82,410 | |
| Average shares outstanding diluted | | | 83,876 | | | | 83,412 | | | | 83,757 | | | | 82,908 | |
| Book value per common share | | $ | 9.08 | | | $ | 7.32 | | | $ | 9.08 | | | $ | 7.32 | |
Selected Financial Ratios (In Percent): | | | | | | | | | | | | | | | | |
Profitability: | | | | | | | | | | | | | | | | |
| Return on Average Assets | | | 0.56 | % | | | 0.62 | % | | | 0.54 | % | | | 0.36 | % |
| Interest Rate Spread (1) | | | 2.34 | | | | 2.28 | | | | 2.35 | | | | 2.46 | |
| Net Interest Margin (1) | | | 2.88 | | | | 2.73 | | | | 2.91 | | | | 2.91 | |
| Return on Average Total Equity | | | 7.16 | | | | 10.91 | | | | 7.45 | | | | 6.05 | |
| Return on Average Common Equity | | | 7.05 | | | | 14.08 | | | | 7.55 | | | | 4.90 | |
| Average Total Equity to Average Total Assets | | | 7.76 | | | | 5.69 | | | | 7.31 | | | | 5.88 | |
| Dividend payout ratio | | | 42.46 | | | | 26.81 | | | | 44.00 | | | | 74.93 | |
| Efficiency ratio (2) | | | 57.33 | | | | 55.49 | | | | 58.47 | | | | 67.53 | |
Asset Quality: | | | | | | | | | | | | | | | | |
| Allowance for loan and lease losses to loans receivable | | | 1.47 | | | | 1.35 | | | | 1.47 | | | | 1.35 | |
| Net charge-offs (annualized) to average loans | | | 0.75 | | | | 0.50 | | | | 0.77 | | | | 0.48 | |
| Provision for loan and lease losses to net charge-offs | | | 1.17 | | | | 0.61 | | | | 1.16 | | | | 0.95 | |
Other Information: | | | | | | | | | | | | | | | | |
| Common Stock Price: End of period | | $ | 10.99 | | | $ | 9.30 | | | $ | 10.99 | | | $ | 9.30 | |
| 1- | | On a tax equivalent basis (see Note 1 to Table 2). |
| |
| 2- | | Non-interest expenses to the sum of net interest income and non-interest income. The denominator includes non-recurring items and changes in the fair value of derivative instruments and financial instruments measured at fair value under SFAS 159. |
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Table 2. Statement of Average Earning Assets and Average Interest Bearing-Liabilities
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended June 30, | | Average volume | | | Interest Income (1)/expense | | | Average rate (1) | |
| | | 2007 | | | 2006 | | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| | (Dollars in thousands) | |
| Earning assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| Money market investments | | $ | 424,877 | | | $ | 2,081,151 | | | $ | 5,288 | | | $ | 24,904 | | | | 4.99 | % | | | 4.80 | % |
| Government obligations (2) | | | 2,613,939 | | | | 2,944,943 | | | | 38,824 | | | | 44,347 | | | | 5.96 | % | | | 6.04 | % |
| Mortgage-backed securities | | | 2,340,279 | | | | 2,559,381 | | | | 29,295 | | | | 31,805 | | | | 5.02 | % | | | 4.98 | % |
| Corporate bonds | | | 27,819 | | | | 26,140 | | | | 458 | | | | 424 | | | | 6.60 | % | | | 6.50 | % |
| FHLB stock | | | 44,099 | | | | 24,160 | | | | 748 | | | | 479 | | | | 6.80 | % | | | 7.95 | % |
| Equity securities | | | 8,515 | | | | 29,526 | | | | 2 | | | | — | | | | 0.09 | % | | | 0.00 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Total investments (3) | | | 5,459,528 | | | | 7,665,301 | | | | 74,615 | | | | 101,959 | | | | 5.48 | % | | | 5.34 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Residential real estate loans | | | 2,877,844 | | | | 2,583,195 | | | | 46,847 | | | | 41,836 | | | | 6.53 | % | | | 6.50 | % |
| Construction loans | | | 1,447,779 | | | | 1,495,293 | | | | 31,403 | | | | 32,094 | | | | 8.70 | % | | | 8.61 | % |
| Commercial loans | | | 4,740,338 | | | | 6,194,798 | | | | 90,738 | | | | 109,287 | | | | 7.68 | % | | | 7.08 | % |
| Finance leases | | | 381,609 | | | | 314,023 | | | | 8,342 | | | | 7,010 | | | | 8.77 | % | | | 8.92 | % |
| Consumer loans | | | 1,737,817 | | | | 1,783,936 | | | | 50,794 | | | | 53,353 | | | | 11.72 | % | | | 12.00 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Total loans (4) (5) | | | 11,185,387 | | | | 12,371,245 | | | | 228,124 | | | | 243,580 | | | | 8.18 | % | | | 7.90 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Total earning assets | | $ | 16,644,915 | | | $ | 20,036,546 | | | $ | 302,739 | | | $ | 345,539 | | | | 7.30 | % | | | 6.92 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing deposits | | $ | 10,503,431 | | | $ | 13,054,199 | | | $ | 127,804 | | | $ | 148,557 | | | | 4.88 | % | | | 4.55 | % |
| Other borrowed funds | | | 3,648,460 | | | | 4,761,624 | | | | 46,449 | | | | 57,946 | | | | 5.11 | % | | | 4.88 | % |
| FHLB advances | | | 675,530 | | | | 230,426 | | | | 9,001 | | | | 2,867 | | | | 5.34 | % | | | 4.99 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Total interest-bearing liabilities (6) | | $ | 14,827,421 | | | $ | 18,046,249 | | | $ | 183,254 | | | $ | 209,370 | | | | 4.96 | % | | | 4.64 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Net interest income | | | | | | | | | | $ | 119,485 | | | $ | 136,169 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate spread | | | | | | | | | | | | | | | | | | | 2.34 | % | | | 2.28 | % |
| Net interest margin | | | | | | | | | | | | | | | | | | | 2.88 | % | | | 2.73 | % |
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| | | | | | | | | | | | | | | | | | | | | | | | | |
| Six-month period ended June 30, | | Average volume | | | Interest Income (1) / expense | | | Average rate (1) | |
| | | 2007 | | | 2006 | | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| | (Dollars in thousands) | |
| Earning assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| Money market investments | | $ | 416,244 | | | $ | 1,523,506 | | | $ | 10,666 | | | $ | 34,879 | | | | 5.17 | % | | | 4.62 | % |
| Government obligations (2) | | | 2,660,632 | | | | 2,849,157 | | | | 78,833 | | | | 87,016 | | | | 5.97 | % | | | 6.16 | % |
| Mortgage-backed securities | | | 2,361,926 | | | | 2,603,591 | | | | 59,268 | | | | 68,237 | | | | 5.06 | % | | | 5.28 | % |
| Corporate bonds | | | 28,304 | | | | 26,278 | | | | 935 | | | | 858 | | | | 6.66 | % | | | 6.58 | % |
| FHLB stock | | | 42,817 | | | | 29,537 | | | | 1,202 | | | | 1,261 | | | | 5.66 | % | | | 8.61 | % |
| Equity securities | | | 10,368 | | | | 30,424 | | | | 3 | | | | 213 | | | | 0.06 | % | | | 1.41 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Total investments (3) | | | 5,520,291 | | | | 7,062,493 | | | | 150,907 | | | | 192,464 | | | | 5.51 | % | | | 5.50 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Residential real estate loans | | | 2,840,729 | | | | 2,504,730 | | | | 92,368 | | | | 82,137 | | | | 6.56 | % | | | 6.61 | % |
| Construction loans | | | 1,466,238 | | | | 1,397,757 | | | | 63,216 | | | | 58,903 | | | | 8.69 | % | | | 8.50 | % |
| Commercial loans | | | 4,755,577 | | | | 6,664,728 | | | | 180,703 | | | | 225,673 | | | | 7.66 | % | | | 6.83 | % |
| Finance leases | | | 375,825 | | | | 303,217 | | | | 16,579 | | | | 13,722 | | | | 8.90 | % | | | 9.13 | % |
| Consumer loans | | | 1,755,532 | | | | 1,774,802 | | | | 102,480 | | | | 106,202 | | | | 11.77 | % | | | 12.07 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Total loans (4) (5) | | | 11,193,901 | | | | 12,645,234 | | | | 455,346 | | | | 486,637 | | | | 8.20 | % | | | 7.76 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Total earning assets | | $ | 16,714,192 | | | $ | 19,707,727 | | | $ | 606,253 | | | $ | 679,101 | | | | 7.31 | % | | | 6.95 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing deposits | | $ | 10,462,227 | | | $ | 12,422,245 | | | $ | 252,312 | | | $ | 269,758 | | | | 4.86 | % | | | 4.38 | % |
| Other borrowed funds | | | 3,742,210 | | | | 4,997,313 | | | | 95,470 | | | | 117,733 | | | | 5.14 | % | | | 4.75 | % |
| FHLB advances | | | 646,242 | | | | 301,427 | | | | 17,198 | | | | 7,045 | | | | 5.37 | % | | | 4.71 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Total interest-bearing liabilities (6) | | $ | 14,850,679 | | | $ | 17,720,985 | | | $ | 364,980 | | | $ | 394,536 | | | | 4.96 | % | | | 4.49 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Net interest income | | | | | | | | | | $ | 241,273 | | | $ | 284,565 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate spread | | | | | | | | | | | | | | | | | | | 2.35 | % | | | 2.46 | % |
| Net interest margin | | | | | | | | | | | | | | | | | | | 2.91 | % | | | 2.91 | % |
| (1) | | On a tax equivalent basis. The tax equivalent yield was estimated by dividing the interest rate spread on exempt assets by (1 less PR statutory tax rate (39% for 2007 and 43.5% for the Corporation’s Puerto Rico banking subsidiary in 2006 and 41.5% for all other subsidiaries in 2006)) and adding to it the cost of interest-bearing liabilities. When adjusted to a tax equivalent basis, yields on taxable and exempt assets are comparable. Changes in the fair value of derivative instruments (including the ineffective portion after the adoption of hedge accounting in the second quarter of 2006), unrealized gains or losses on SFAS 159 liabilities, and basis adjustment amortization or accretion are excluded from interest income and interest expense for average rate calculation purposes because 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, on which interest income is recognized when collected. |
| |
| (5) | | Interest income on loans includes $2.4 million and $3.4 million for the second quarter of 2007 and 2006, respectively, and $5.9 million and $7.0 million for the six-month period ended June 30, 2007 and 2006, respectively, of income from prepayment penalties and late fees related to the Corporation’s loan portfolio. |
| |
| (6) | | Unrealized gains and losses on SFAS 159 liabilities are excluded from average volumes. |
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Table 3. Non-Interest Income
| | | | | | | | | | | | | | | | | |
| | | Quarter ended | | | Six-Month Period Ended | |
| | | June 30, | | | June 30, | |
| (In thousands) | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| |
| Other service charges on loans | | $ | 2,418 | | | $ | 1,467 | | | $ | 4,209 | | | $ | 2,953 | |
| Service charges on deposit accounts | | | 3,185 | | | | 3,278 | | | | 6,376 | | | | 6,555 | |
| Mortgage banking activities gain (loss) | | | 351 | | | | 427 | | | | 1,113 | | | | (148 | ) |
| Rental income | | | 669 | | | | 838 | | | | 1,333 | | | | 1,611 | |
| Insurance income | | | 2,625 | | | | 2,812 | | | | 5,574 | | | | 5,869 | |
| Other commissions and fees | | | 68 | | | | 1,256 | | | | 129 | | | | 1,336 | |
| Other operating income | | | 3,023 | | | | 3,211 | | | | 6,270 | | | | 6,410 | |
| | | | | | | | | | | | | |
| Non-interest income before net (loss) gain on investments, net (loss) gain on partial extinguishment and recharacterization of secured commercial loans to local financial institutions and gain on sale of credit card portfolio | | | 12,339 | | | | 13,289 | | | | 25,004 | | | | 24,586 | |
| | | | | | | | | | | | | |
| Net gain (loss) on sale of investments | | | — | | | | 951 | | | | (732 | ) | | | 2,375 | |
| Impairment on investments | | | (1,436 | ) | | | (817 | ) | | | (2,863 | ) | | | (2,950 | ) |
| | | | | | | | | | | | | |
| Net (loss) gain on investments | | | (1,436 | ) | | | 134 | | | | (3,595 | ) | | | (575 | ) |
| (Loss) gain on partial extinguishment and recharacterization of secured commercial loans to local financial institutions | | | — | | | | (11,640 | ) | | | 2,497 | | | | (11,640 | ) |
| Gain on sale of credit card portfolio | | | — | | | | — | | | | 2,819 | | | | — | |
| | | | | | | | | | | | | |
| Total | | $ | 10,903 | | | $ | 1,783 | | | $ | 26,725 | | | $ | 12,371 | |
| | | | | | | | | | | | | |
Table 4. Non-Interest Expenses
| | | | | | | | | | | | | | | | | |
| | | Quarter ended | | | Six-Month Period Ended | |
| | | June 30, | | | June 30, | |
| (In thousands) | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| |
| Employees’ compensation and benefits | | $ | 33,352 | | | $ | 29,870 | | | $ | 69,724 | | | $ | 63,995 | |
| Occupancy and equipment | | | 14,496 | | | | 13,624 | | | | 28,878 | | | | 26,330 | |
| Deposit insurance premium | | | 328 | | | | 390 | | | | 684 | | | | 789 | |
| Other taxes, insurance and supervisory fees | | | 5,124 | | | | 4,078 | | | | 10,041 | | | | 7,935 | |
| Professional fees - recurring | | | 3,343 | | | | 3,801 | | | | 6,745 | | | | 6,138 | |
| Professional Fees - non-recurring | | | 2,265 | | | | 6,342 | | | | 5,260 | | | | 11,398 | |
| Servicing and processing fees | | | 1,656 | | | | 1,771 | | | | 3,375 | | | | 3,952 | |
| Business promotion | | | 4,864 | | | | 4,324 | | | | 9,794 | | | | 8,098 | |
| Communications | | | 2,169 | | | | 2,012 | | | | 4,397 | | | | 4,468 | |
| Other | | | 5,857 | | | | 4,828 | | | | 13,920 | | | | 9,675 | |
| | | | | | | | | | | | | |
| Total | | $ | 73,454 | | | $ | 71,040 | | | $ | 152,818 | | | $ | 142,778 | |
| | | | | | | | | | | | | |
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Table 5. Loans Portfolio
Composition of the loan portfolio including loans held for sale at year-end.
| | | | | | | | | | | | | |
| | | June 30, | | | December 31, | | | June 30, | |
| (In thousands) | | 2007 | | | 2006 | | | 2006 | |
| |
| Residential real estate loans | | $ | 2,924,697 | | | $ | 2,772,630 | | | $ | 2,648,199 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Commercial loans: | | | | | | | | | | | | |
| Construction loans | | | 1,459,774 | | | | 1,511,608 | | | | 1,560,580 | |
| Commercial real estate loans | | | 1,278,995 | | | | 1,215,040 | | | | 1,152,796 | |
| Commercial loans | | | 2,813,448 | | | | 2,698,141 | | | | 2,441,329 | |
| Loans to local financial institutions collateralized by real estate mortgages and pass-through trust certificates | | | 663,931 | | | | 932,013 | | | | 992,586 | |
| | | | | | | | | | |
| Commercial loans | | | 6,216,148 | | | | 6,356,802 | | | | 6,147,291 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Finance leases | | | 386,267 | | | | 361,631 | | | | 325,867 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Consumer and other loans | | | 1,721,567 | | | | 1,772,917 | | | | 1,783,902 | |
| | | | | | | | | | |
| Total loans | | $ | 11,248,679 | | | $ | 11,263,980 | | | $ | 10,905,259 | |
| | | | | | | | | | |
Table 6. Non-Performing Assets
| | | | | | | | | | | | | |
| | | June 30, | | | December 31, | | | June 30, | |
| (Dollars in thousands) | | 2007 | | | 2006 | | | 2006 | |
| |
| Non-accruing loans: | | | | | | | | | | | | |
| Residential real estate | | $ | 147,954 | | | $ | 114,828 | | | $ | 85,542 | |
| Commercial, commercial real estate and construction | | | 119,891 | | | | 82,713 | | | | 49,140 | |
| Finance leases | | | 6,987 | | | | 8,045 | | | | 6,125 | |
| Consumer | | | 40,732 | | | | 46,501 | | | | 43,169 | |
| | | | | | | | | | |
| | | | 315,564 | | | | 252,087 | | | | 183,976 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Other real estate owned | | | 6,280 | | | | 2,870 | | | | 3,435 | |
| Other repossessed property | | | 14,100 | | | | 12,103 | | | | 15,000 | |
| | | | | | | | | | |
| Total non-performing assets | | $ | 335,944 | | | $ | 267,060 | | | $ | 202,411 | |
| | | | | | | | | | |
| Allowance for loan and lease losses | | $ | 165,009 | | | $ | 158,296 | | | $ | 146,527 | |
| Allowance to total non-accruing loans | | | 52 | % | | | 63 | % | | | 80 | % |
| Allowance to total non-accruing loans, excluding residential real estate loans | | | 98 | % | | | 115 | % | | | 149 | % |
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Table 7. Capital Position
The Corporation’s and its banking subsidiary’s regulatory capital positions.
| | | | | | | | | | | | | | | | | |
| | | | | | | Banking Subsidiaries | |
| | | First | | | | | | | FirstBank | | | To be well | |
| | | BanCorp | | | FirstBank | | | Florida | | | capitalized | |
As of June 30, 2007 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total capital (Total capital to risk-weighted assets) | | | 13.69 | % | | | 13.72 | % | | | 11.07 | % | | | 10.00 | % |
| Tier 1 capital ratio (Tier 1 capital to risk-weighted assets) | | | 12.51 | % | | | 12.50 | % | | | 10.65 | % | | | 6.00 | % |
| Leverage ratio (1) | | | 8.93 | % | | | 8.79 | % | | | 7.86 | % | | | 5.00 | % |
| | | | | | | | | | | | | | | | | |
As of December 31, 2006 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Total capital (Total capital to risk-weighted assets) | | | 12.46 | % | | | 12.25 | % | | | 11.35 | % | | | 10.00 | % |
| Tier 1 capital ratio (Tier 1 capital to risk-weighted assets) | | | 11.27 | % | | | 11.02 | % | | | 10.96 | % | | | 6.00 | % |
| Leverage ratio (1) | | | 7.97 | % | | | 7.76 | % | | | 8.10 | % | | | 5.00 | % |
| | | | | | | | | | | | | | | | | |
As of June 30, 2006 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Total capital (Total capital to risk-weighted assets) | | | 12.60 | % | | | 12.74 | % | | | 10.08 | % | | | 10.00 | % |
| Tier 1 capital ratio (Tier 1 capital to risk-weighted assets) | | | 11.47 | % | | | 11.56 | % | | | 9.73 | % | | | 6.00 | % |
| Leverage ratio (1) | | | 6.56 | % | | | 6.53 | % | | | 7.36 | % | | | 5.00 | % |
| | |
| (1) | | Tier 1 capital to average assets in the case of First BanCorp and FirstBank and Tier 1 Capital to adjusted total assets in the case of FirstBank Florida. |
# # #
14
