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SECURITIES AND EXCHANGE COMMISSION
THE SECURITIES EXCHANGE ACT OF 1934
Puerto Rico | 66-0561882 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
1519 Ponce de León Avenue, Stop 23 | ||
Santurce, Puerto Rico | 00908 | |
(Address of principal executive office) | (Zip Code) |
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 Preferred Stock, Series A (Liquidation Preference $25 per share) | New York Stock Exchange | |
8.35% Noncumulative Perpetual Monthly Income Preferred Stock, Series B (Liquidation Preference $25 per share) | New York Stock Exchange | |
7.40% Noncumulative Perpetual Monthly Income Preferred Stock, Series C (Liquidation Preference $25 per share) | New York Stock Exchange | |
7.25% Noncumulative Perpetual Monthly Income Preferred Stock, Series D (Liquidation Preference $25 per share) | New York Stock Exchange | |
7.00% Noncumulative Perpetual Monthly Income Preferred Stock, Series E (Liquidation Preference $25 per share) | New York Stock Exchange |
Large Accelerated Filerþ | Accelerated Filero | |
Non-Accelerated Filer o (Do not check if a smaller reporting company) | Smaller reporting companyo |
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Item 10 | Directors, Executive Officers and Corporate Governance. | Information in response to this Item is incorporated into this Annual Report on Form 10-K by reference from the sections entitled “Information with Respect to Nominees for Director of First BanCorp, Directors whose Terms Continue and Executive Officers of the Corporation” and “Corporate Governance and Related Matters” in First BanCorp’s definitive Proxy Statement for use in connection with its 2008 Annual Meeting of stockholders (the “Proxy Statement”). | ||
Item 11 | Executive Compensation. | Information in response to this Item is incorporated into this Annual Report on Form 10-K by reference from the sections entitled “Compensation Discussion and Analysis,” “Tabular Executive Compensation Disclosure,” “Compensation of Directors,” and “Compensation Committee Report” in First BanCorp’s Proxy Statement. | ||
Item 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. | Information in response to this Item is incorporated into this Annual Report on Form 10-K by reference from the section entitled “Beneficial Ownership of Securities” in First BanCorp’s Proxy Statement. | ||
Item 13 | Certain Relationships and Related Transactions, and Director Independence. | Information in response to this Item is incorporated into this Annual Report on Form 10-K by reference from the sections entitled “Certain Relationships and Related Person Transactions” and “Corporate Governance and Related Matters” in First BanCorp’s Proxy Statement. | ||
Item 14 | Principal Accountant Fees and Services. | Information in response to this Item is incorporated into this Annual Report on Form 10-K by reference from the section entitled “Audit Fees” in First BanCorp’s Proxy Statement. |
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2007 ANNUAL REPORT ON FORM 10-K
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• | an adverse change in the Corporation’s ability to attract new clients and retain existing ones; | ||
• | general economic conditions, including the interest rate scenario and the performance of the financial markets, which may affect demand for the Corporation’s products and services and the value of the Corporation’s assets, including the value of the interest rate swaps that economically hedge the interest rate risk mainly relating to brokered certificates of deposit as well as other derivative instruments used for protection from interest rate fluctuations; | ||
• | risks arising from worsening economic conditions in Puerto Rico and in the United States market; | ||
• | risks arising from credit and other risks of the Corporation’s lending and investment activities, including the condo conversion loans in its Miami Agency; | ||
• | changes in the Corporation’s expenses associated with acquisitions and dispositions; | ||
• | developments in technology; | ||
• | the impact of Doral Financial Corporation’s and R&G Financial Corporation’s financial condition on the repayment of their outstanding secured loans to the Corporation; | ||
• | risks to the Corporation associated with being subject to the Federal Reserve Board of New York (FED) cease and desist order; | ||
• | the Corporation’s ability to issue brokered certificates of deposit and fund operations; | ||
• | risks associated with downgrades in the credit ratings of the Corporation’s securities; | ||
• | general competitive factors and industry consolidation; and | ||
• | risks associated with regulatory and legislative changes for financial services companies in Puerto Rico, the United States, and the U.S. and British Virgin Islands. |
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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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Banking Subsidiaries | ||||||||||||||||
Well- | ||||||||||||||||
FirstBank | Capitalized | |||||||||||||||
First BanCorp | FirstBank | Florida | Minimum | |||||||||||||
As of December 31, 2007 | ||||||||||||||||
Total capital (Total capital to risk-weighted assets) | 13.86 | % | 13.23 | % | 10.92 | % | 10.00 | % | ||||||||
Tier 1 capital ratio (Tier 1 capital to risk-weighted assets) | 12.61 | % | 11.98 | % | 10.42 | % | 6.00 | % | ||||||||
Leverage ratio (1) | 9.29 | % | 8.85 | % | 7.79 | % | 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. |
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• | The net interest income; | |
• | The value of owned securities, including interest rate swaps; and | |
• | the volume of loans originated, particularly mortgage loans. |
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- | Litigation in connection with the Opinion of the Secretary of Justice of Puerto Rico |
- | Details on the Financing of the Project |
- | 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, corner Jesús T. Piñero Avenue, Hato Rey, Puerto Rico. These facilities are fully occupied by the Corporation. In addition, during 2006, First BanCorp purchased the following office located in Puerto Rico: |
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Dividends | ||||||||||||||||
Quarter ended | High | Low | Last | Per Share | ||||||||||||
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 | ||||||||||||
2006: | ||||||||||||||||
December | $ | 10.79 | $ | 9.39 | $ | 9.53 | $ | 0.07 | ||||||||
September | 11.15 | 8.66 | 11.06 | 0.07 | ||||||||||||
June | 12.22 | 8.90 | 9.30 | 0.07 | ||||||||||||
March | 13.15 | 12.20 | 12.36 | 0.07 | ||||||||||||
2005: | ||||||||||||||||
December | $ | 15.56 | $ | 10.61 | $ | 12.41 | $ | 0.07 | ||||||||
September | 26.07 | 16.50 | 16.92 | 0.07 | ||||||||||||
June | 21.31 | 17.31 | 20.08 | 0.07 | ||||||||||||
March | 32.26 | 20.78 | 21.13 | 0.07 |
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Year ended December 31, | ||||||||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||
Condensed Income Statements: | ||||||||||||||||||||
Total interest income | $ | 1,189,247 | $ | 1,288,813 | $ | 1,067,590 | $ | 690,334 | $ | 549,466 | ||||||||||
Total interest expense | 738,231 | 845,119 | 635,271 | 292,853 | 297,528 | |||||||||||||||
Net interest income | 451,016 | 443,694 | 432,319 | 397,481 | 251,938 | |||||||||||||||
Provision for loan and lease losses | 120,610 | 74,991 | 50,644 | 52,800 | 55,915 | |||||||||||||||
Non-interest income | 67,156 | 31,336 | 63,077 | 59,624 | 106,798 | |||||||||||||||
Non-interest expenses | 307,843 | 287,963 | 315,132 | 180,480 | 164,630 | |||||||||||||||
Income before income taxes | 89,719 | 112,076 | 129,620 | 223,825 | 138,191 | |||||||||||||||
Income tax expense | 21,583 | 27,442 | 15,016 | 46,500 | 18,297 | |||||||||||||||
Net income | 68,136 | 84,634 | 114,604 | 177,325 | 119,894 | |||||||||||||||
Net income attributable to common stockholders | 27,860 | 44,358 | 74,328 | 137,049 | 89,535 | |||||||||||||||
Per Common Share Results (1): | ||||||||||||||||||||
Net income per common share diluted | $ | 0.32 | $ | 0.53 | $ | 0.90 | $ | 1.65 | $ | 1.09 | ||||||||||
Net income per common share basic | $ | 0.32 | $ | 0.54 | $ | 0.92 | $ | 1.70 | $ | 1.12 | ||||||||||
Cash dividends declared | $ | 0.28 | $ | 0.28 | $ | 0.28 | $ | 0.24 | $ | 0.22 | ||||||||||
Average shares outstanding | 86,549 | 82,835 | 80,847 | 80,419 | 79,988 | |||||||||||||||
Average shares outstanding diluted | 86,866 | 83,138 | 82,771 | 83,010 | 81,966 | |||||||||||||||
Book value per common share | $ | 9.42 | $ | 8.16 | $ | 8.01 | $ | 8.10 | $ | 6.54 | ||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Loans and loans held for sale | $ | 11,799,746 | $ | 11,263,980 | $ | 12,685,929 | $ | 9,697,994 | $ | 7,041,055 | ||||||||||
Allowance for loan and lease losses | 190,168 | 158,296 | 147,999 | 141,036 | 126,378 | |||||||||||||||
Money market and investment securities | 4,811,413 | 5,544,183 | 6,653,924 | 5,699,201 | 5,368,123 | |||||||||||||||
Total assets | 17,186,931 | 17,390,256 | 19,917,651 | 15,637,045 | 12,679,042 | |||||||||||||||
Deposits | 11,034,521 | 11,004,287 | 12,463,752 | 7,912,322 | 6,771,869 | |||||||||||||||
Borrowings | 4,460,006 | 4,662,271 | 5,750,197 | 6,300,573 | 4,634,237 | |||||||||||||||
Total common equity | 871,546 | 679,453 | 647,741 | 654,233 | 523,722 | |||||||||||||||
Total equity | 1,421,646 | 1,229,553 | 1,197,841 | 1,204,333 | 1,073,822 | |||||||||||||||
Selected Financial Ratios (In Percent): | ||||||||||||||||||||
Profitability: | ||||||||||||||||||||
Return on Average Assets | 0.40 | 0.44 | 0.64 | 1.30 | 1.15 | |||||||||||||||
Return on Average Total Equity | 5.14 | 7.06 | 8.98 | 15.73 | 13.31 | |||||||||||||||
Return on Average Common Equity | 3.59 | 6.85 | 10.23 | 23.75 | 18.21 | |||||||||||||||
Average Total Equity to Average Total Assets | 7.70 | 6.25 | 7.09 | 8.28 | 8.64 | |||||||||||||||
Dividend payout ratio | 88.32 | 52.50 | 30.46 | 14.10 | 19.66 | |||||||||||||||
Efficiency ratio (2) | 59.41 | 60.62 | 63.61 | 39.48 | 45.89 | |||||||||||||||
Asset Quality: | ||||||||||||||||||||
Allowance for loan and lease losses to loans receivable | 1.61 | 1.41 | 1.17 | 1.46 | 1.80 | |||||||||||||||
Net charge-offs to average loans | 0.79 | 0.55 | 0.39 | 0.48 | 0.66 | |||||||||||||||
Provision for loan and lease losses to net charge-offs | 1.36 | x | 1.16 | x | 1.12 | x | 1.38 | x | 1.35 | x | ||||||||||
Other Information: | ||||||||||||||||||||
Common Stock Price | $ | 7.29 | $ | 9.53 | $ | 12.41 | $ | 31.76 | $ | 19.78 |
(1) | Amounts presented were recalculated, when applicable, to retroactively consider the effect of the June 30, 2005 two-for-one common stock split. | |
(2) | Non-interest expense 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 under SFAS 159. |
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Year ended December 31, | ||||||||||||||||||||||||
2007 | 2006 | 2005 | ||||||||||||||||||||||
In thousands, except per common share amounts | Dollars | Per share | Dollars | Per share | Dollars | Per share | ||||||||||||||||||
Net income attributable to common stockholders for prior year | $ | 44,358 | $ | 0.53 | $ | 74,328 | $ | 0.90 | $ | 137,049 | $ | 1.65 | ||||||||||||
Increase (decrease) from changes in: | ||||||||||||||||||||||||
Net interest income | 7,322 | 0.09 | 11,375 | 0.14 | 34,838 | 0.42 | ||||||||||||||||||
Provision for loan losses | (45,619 | ) | (0.55 | ) | (24,347 | ) | (0.29 | ) | 2,156 | 0.03 | ||||||||||||||
Net gain (loss) on investments and impairments | 5,468 | 0.06 | (20,533 | ) | (0.25 | ) | 2,882 | 0.03 | ||||||||||||||||
Gain (loss) on partial extinguishment and recharacterization of secured commercial loans to local financial institutions | 13,137 | 0.16 | (10,640 | ) | (0.13 | ) | — | — | ||||||||||||||||
Gain on sale of credit card portfolio | 2,319 | 0.03 | 500 | 0.01 | (5,533 | ) | (0.07 | ) | ||||||||||||||||
Insurance reimbursement and other agreements related to a contingency settlement | 15,075 | 0.18 | — | — | — | — | ||||||||||||||||||
Other non-interest income | (179 | ) | (0.00 | ) | (1,068 | ) | (0.01 | ) | 6,104 | 0.08 | ||||||||||||||
Employees’ compensation and benefits | (12,840 | ) | (0.15 | ) | (25,445 | ) | (0.31 | ) | (19,638 | ) | (0.24 | ) | ||||||||||||
Professional fees | 11,344 | 0.13 | (18,708 | ) | (0.23 | ) | (9,222 | ) | (0.11 | ) | ||||||||||||||
Deposit insurance premium | (5,073 | ) | (0.06 | ) | (366 | ) | (0.00 | ) | (269 | ) | (0.00 | ) | ||||||||||||
Provision for contingencies | — | — | 82,750 | 1.00 | (82,750 | ) | (1.00 | ) | ||||||||||||||||
All other operating expenses | (13,311 | ) | (0.16 | ) | (11,062 | ) | (0.14 | ) | (22,773 | ) | (0.27 | ) | ||||||||||||
Income tax provision | 5,859 | 0.07 | (12,426 | ) | (0.15 | ) | 31,484 | 0.38 | ||||||||||||||||
Net income before preferred stock dividends and change in average common shares | 27,860 | 0.33 | 44,358 | 0.54 | 74,328 | 0.90 | ||||||||||||||||||
Change in average common shares | — | (0.01 | ) | — | (0.01 | ) | — | — | ||||||||||||||||
Net income attributable to common stockholders | $ | 27,860 | $ | 0.32 | $ | 44,358 | $ | 0.53 | $ | 74,328 | $ | 0.90 | ||||||||||||
• | Net income for the year ended December 31, 2007 was $68.1 million compared to $84.6 million and $114.6 million for the years ended December 31, 2006 and 2005, respectively. | |
• | Diluted earnings per common share for the year ended December 31, 2007 amounted to $0.32 compared to $0.53 and $0.90 for the years ended December 31, 2006 and 2005, respectively. | |
• | Net interest income for the year ended December 31, 2007 was $451.0 million compared to $443.7 million and $432.3 million for the years ended December 31, 2006 and 2005, respectively. The increase in 2007 was principally due to the effect in the financial results of years 2006 and 2005 of unrealized losses related to changes in the fair value of derivative instruments prior to the implementation of the long-haul method of accounting on April 3, 2006. Previous to the second quarter of 2006, the Corporation recorded changes in the fair value of derivative instruments as non-hedging instruments through operations as part of interest expense. The adoption of fair value hedge accounting in the second quarter of 2006 and the adoption of SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities” in 2007 reduced the accounting volatility that previously resulted from the accounting asymmetry created by accounting for the financial liabilities at amortized cost and the derivatives at fair value. The mark-to-market valuation changes for the year ended December 31, 2007 amounted to a net non-cash loss of $9.1 million, compared to net non-cash losses of $58.2 million and $73.4 million for 2006 and 2005, respectively. | |
Net interest income on an adjusted tax equivalent basis (for definition and reconciliation of this non-GAAP measure, refer to the“Net Interest Income”discussion below) decreased 10% for 2007, as compared to 2006, (from $529.9 million in 2006 to $475.4 million in 2007) and 7% for 2006, as compared to 2005 (from $566.9 million in 2005 to $529.9 million in 2006). Adjusted tax equivalent net interest income excludes the effect of mark-to-market valuation changes on derivative instruments and financial liabilities measured at fair value and includes an adjustment that increases interest income on tax-exempt securities and loans by an amount which makes tax-exempt income comparable, on a pre-tax basis, to the Corporation’s taxable income. The decrease in adjusted tax equivalent net interest income in 2007, as compared to 2006, was mainly driven by the continued pressure of the flattening of the yield curve during most of 2007 and the decrease in the average volume of interest earning assets primarily attributed to the repayment of approximately $2.4 billion received from a local financial institution reducing the balance of its secured commercial loan with the Corporation during the latter part of the second quarter of 2006. | ||
Notwithstanding the decrease in net interest income on an adjusted tax equivalent basis in absolute terms, the Corporation has been able to maintain its net interest margin at a relatively stable level. Net interest margin for the year ended December 31, 2007 was 2.83%, compared to 2.84% for the previous year reflecting the effect of |
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the Corporation’s decision to deleverage its balance sheet primarily by the repayment of high-cost borrowings with the proceeds from the sale of lower yielding securities as well as the effect of the steepened yield curve during the last quarter of 2007. During the second half of 2007 the Corporation sold approximately $556 million and $400 million of low-yield mortgage-backed securities and U.S. Treasury investments, respectively, and used the proceeds in part to pay down high cost borrowings as they matured. The Corporation reinvested approximately $566 million in higher yielding U.S. Agency mortgage-backed securities. Also, the Corporation was able to mitigate in part the pressure of the sustained flatness of the yield curve during most of 2007 by the redemption of its $150 million medium-term note which carried a cost higher than the overall cost of funding. | ||
The decrease in adjusted tax equivalent net interest income for 2006, as compared to 2005, was mainly driven by the reduction in the net interest margin, which on an adjusted tax equivalent basis decreased by 39 basis points due to the flattening of the yield curve, and fluctuations in net interest incurred on interest rate swaps. The decrease in net interest margin for 2006 as compared to 2005 was also attributable to the above noted payment of $2.4 billion received from a local financial institution during the second quarter of 2006 that significantly reduced its secured commercial loan with the Corporation. Proceeds from the repayment were invested temporarily in short-term investments, reducing the Corporation’s average yield on interest-earning assets. The decrease in the interest margin for 2006, as compared to 2005, was partially offset by the increase in the average volume of interest-earning assets of $1.1 billion attributable to the growth in the construction and residential loan portfolios as well as short-term investments. | ||
The increase in short-term rates during 2007 and 2006 resulted in a change in net interest settlement payments included as part of interest expense. For 2007, the net settlement payments on interest rate swaps resulted in charges to interest expense of $12.3 million compared to $8.9 million for 2006 and net interest realized of $71.7 million recognized as a reduction to interest expense in 2005, as the rates paid under the variable leg of the swaps exceeded the rates received during 2007 and 2006. | ||
• | The provision for loan and lease losses for the year 2007 was $120.6 million compared to $75.0 million and $50.6 million for the years 2006 and 2005, respectively. The increase in the Corporation’s provision for 2007 was due to a deterioration in the credit quality of the Corporation’s loan portfolio which is associated with the weakening economic conditions in Puerto Rico and the slowdown in the United States housing sector. These conditions resulted in higher net charge-offs relating to Puerto Rico consumer loans as well as commercial and construction loans, representing an increase of $6.9 million and $8.7 million, respectively, as compared to 2006 and higher provisions allocated to the Corporation’s construction loan portfolio originated by the Miami Agency. During the second half of 2007, the Corporation recorded a specific reserve of $8.1 million on four construction condominium-conversion loans (“condo conversion” loans) with an aggregate principal balance at the date of the evaluation of $60.5 million extended to a single borrower through the Miami Agency based on an updated impairment analysis that incorporated new appraisals. Refer to the discussion under the “Risk Management” section below for an analysis of the allowance for loan and lease losses and non-performing assets and related ratios. | |
The above mentioned troubled relationship in the Miami Agency comprised four condo conversion loans that the Corporation had placed in non-accrual status during the second and third quarters of 2007. For the third quarter of 2007, the Corporation updated the impairment analysis on the relationship and requested new appraisals that reflected collateral deficiency as compared to the Corporation’s recorded investment in the loans. The aggregate unpaid principal balance of the relationship classified as non-accrual decreased to $46.4 million as of December 31, 2007, net of a charge-off of $3.3 million recorded to this relationship in the fourth quarter of 2007. The charge-off was recorded at the time of sale of one of the loans in the relationship with an outstanding principal balance of $14.1 million at the time of sale. This sale was made at a price of $10.8 million, which exceeded the recorded investment in the loan (loan receivable less specific reserve) by approximately $1 million. The Corporation continues to work on different alternatives to decrease the recorded investment in the non-accruing relationship on the Miami Agency. | ||
The Corporation maintains a constant monitoring of the Miami Agency portfolio. Recent loan reviews showed that the Miami Agency construction loan portfolio has an added susceptibility to current general market conditions and real estate trends in the U.S. market due to the oversupply of available property inventory and downward price pressures. Based on these factors and a detailed review of the portfolio, the Corporation determined it was prudent to increase general provisions allocated to this portfolio. |
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The increase in the provision during 2006, as compared to 2005, principally reflects growth in the Corporation’s commercial, excluding loans to local financial institutions, and consumer portfolios, and increasing trends in non-performing loans experienced during 2006 as compared to 2005. The Corporation’s net charge-offs and non-performing loans were affected by the fiscal and economic situation of Puerto Rico. According to the Puerto Rico Planning Board, Puerto Rico has been in the midst of a recession since the third quarter of 2005. The slowdown in activity is the result of, among other things, higher utility prices, higher taxes, governmental budget imbalances, the upward trend in short-term interest rates and the flattening of the yield curve, and higher levels of oil prices. | ||
• | Non-interest income for the year ended December 31, 2007 was $67.2 million compared to $31.3 million and $63.1 million for the years ended December 31, 2006 and 2005, respectively. The increase in non-interest income in 2007, compared to 2006, was mainly attributable to the income recognition of approximately $15.1 million for indemnity of expenses, mainly from insurance carriers, related to the settlement of the class action lawsuit brought against the Corporation, a decrease of $9.3 million in other-than-temporary impairment charges related to the Corporation’s equity securities portfolio, the fluctuation resulting from gains and losses recorded on partial repayments of certain secured commercial loans extended to local financial institutions (a gain of $2.5 million recorded in 2007 compared to a loss of $10.6 million recorded in 2006), a higher gain on the sale of its credit card portfolio (a gain of $2.8 million recorded in 2007 compared to $0.5 million recorded in 2006) pursuant to a strategic alliance reached with a U.S. financial institution and higher income from service charges on loans (an increase of $0.9 million or 16% as compared to 2006) due to the increase in the loan portfolio volume driven by new originations. | |
The decrease in non-interest income in 2006, compared to 2005, was mainly attributable to the aforementioned $10.6 million loss recorded in 2006 on the partial extinguishment of a secured commercial loan extended to Doral Financial Corporation (“Doral”), an increase in other-than-temporary impairment charges of $6.9 million in the Corporation’s investment portfolio and lower gains on the sale of investments of $13.7 million. These negative variances were partially offset by increases of $1.8 million in commission income from the Corporation’s insurance business and $1.3 million in service charges on deposit accounts and loans. | ||
• | Non-interest expense for 2007 was $307.8 million compared to $288.0 million and $315.1 million for the years 2006 and 2005, respectively. The increase in non-interest expenses for 2007, as compared to 2006, was mainly due to a $12.8 million increase in employees’ compensation and benefits expense primarily due to increases in the average compensation and related fringe benefits paid to employees, coupled with the accrual of approximately $3.3 million for a voluntary separation program established by the Corporation as part of its cost saving strategies, a $5.1 million increase in the deposit insurance premium expense resulting from changes in the premium calculation by the Federal Deposit Insurance Corporation (“FDIC”) effective in 2007, a $4.5 million increase in occupancy and equipment expenses mainly attributable to increases in costs associated with the expansion of the Corporation’s branch network and loan origination offices and an increase of $6.4 million in other operating expenses primarily attributable to a $3.3 million increase related to costs associated with capital raising efforts in 2007 not qualifying for capitalization coupled with increased costs associated with foreclosure actions on the aforementioned loan relationship at the Miami Agency. These factors were partially offset by an $11.3 million decrease in professional fees attributable to the conclusion during 2006 of the Audit Committee’s review and the restatement process. | |
The decrease in non-interest expense for 2006 compared to 2005 was mainly due to the accruals in 2005 of $74.25 million and $8.5 million recorded in connection with potential settlements of the class action lawsuits and Securities and Exchange Commission (“SEC”) investigation, respectively, as a result of the Corporation’s restatement. Excluding these accruals, non-interest expense during 2006 increased by $55.6 million compared to 2005 mainly due to increases of $25.4 million in employees’ compensation and benefits, $6.9 million in occupancy and equipment and $14.6 million in professional fees due to legal, accounting and consulting fees associated with the internal review conducted by the Corporation’s Audit Committee as a result of the restatement announcement and other related legal and regulatory matters. | ||
• | Income tax expense for the year ended December 31, 2007 was $21.6 million (or 24% of pre-tax earnings) compared to $27.4 million (or 24% of pre-tax earnings) and $15.0 million (or 12% of pre-tax earnings) for the years ended December 31, 2006 and 2005, respectively. The decrease in income tax expense in 2007 as compared to 2006 was primarily due to a lower taxable income coupled with the effect of a lower statutory tax rate in Puerto Rico for 2007 (39% in 2007 compared to 43.5% in 2006). |
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The increase in income tax expense in 2006 as compared to 2005 was primarily due to the recognition of deferred tax benefits of $28.5 million in 2005 related to the potential class action lawsuit settlement that was partially offset by a decrease in the current income tax provision due to lower taxable income. The decrease in current income tax provision for 2006 compared to 2005 was mainly due to a decrease in taxable income partially offset by a change in the Corporation’s proportion of exempt and taxable income coupled with an increase in non-qualifying income of the International Banking Entities that under current legislation were taxed at regular rates. | ||
• | Total assets as of December 31, 2007 amounted to $17.2 billion, a reduction of $203.3 million compared to $17.4 billion as of December 31, 2006. The decline was driven from the sale of investment securities and prepayments and maturities of investment securities not reinvested as part of the Corporation’s strategy to deleverage its balance sheet and protect its net interest margin and the use of funds to pay down brokered certificates of deposit (“CDs”) and repurchase agreements as they matured. Furthermore, the Corporation’s deferred tax asset as of December 31, 2007 decreased by $72.0 million as compared to the balance as of December 31, 2006, mainly due to the effect of adoption of SFAS 159 on January 1, 2007 of approximately $58.7 million and a reversal related with the class action settlement paid in 2007. | |
• | Total liabilities as of December 31, 2007 were $15.8 billion, a reduction of $395.4 million compared to $16.2 billion as of December 31, 2006. The decrease is mainly attributable to decreases in federal funds purchased and securities sold under repurchase agreements consistent with the deleverage of the investment portfolio and to the redemption of the Corporation’s $150 million callable fixed-rate medium-term note during 2007. This was partially offset by an increase in the amount of advances from the FHLB. | |
• | The Corporation’s stockholders’ equity amounted to $1.4 billion as of December 31, 2007, an increase of $192.1 million compared to the balance as of December 31, 2006. The increase in stockholders’ equity as of December 31, 2007 mainly consists of after-tax adjustments to beginning retained earnings of approximately $91.8 million from the adoption of SFAS 159 and net proceeds of approximately $91.9 million from the issuance to the Bank of Nova Scotia (“Scotiabank”) of 9.250 million shares of common stock in August 2007. | |
• | Total loan production, including purchases, for the year ended December 31, 2007 was $4.1 billion compared to $4.9 billion and $6.5 billion for the years ended December 31, 2006 and 2005, respectively. The decrease in loan production was mainly due to decreases in the origination of residential real estate and commercial loans. The decrease in mortgage and commercial loan production for 2007 compared to 2006 and 2005 was attributable, among other things, to the slowdown in the Puerto Rico and U.S. housing market and to stricter underwriting standards. | |
• | Total non-performing loans as of December 31, 2007 was $413.1 million compared to $252.1 million as of December 31, 2006. The increase was mainly attributable to an increase of $94.2 million in our non-performing residential real estate loans (mostly in Puerto Rico), as compared to the balance as of December 31, 2006, and the previously described classification as non-accrual of one loan relationship in the Miami Agency, amounting to approximately $46.4 million as of December 31, 2007, net of a charge-off of $3.3 million recorded to this relationship in the fourth quarter of 2007 . Total non-performing loans of $413.1 million as of December 31, 2007 reflected an increase of only 2% as compared to the balance as of the end of the previous trailing quarter ended on September 30, 2007. The Corporation has already started foreclosure proceedings on the real estate collaterals of the impaired loans relationship from the Miami Agency. The common form of foreclosure in Puerto Rico is judicial foreclosure and in average foreclosure proceedings takes longer than in the United States (non-judicial). In average, foreclosure proceedings in Puerto Rico takes 14 to 20 months in comparison to an average of 5 months in the United States based on HUD’s foreclosure timeframes. | |
The Corporation may experience additional increases in the volume of its non-performing residential mortgage loan portfolio due to Puerto Rico’s current economic recession. The Corporation started during the third quarter of 2007 a loan loss mitigation program providing homeownership preservation assistance. The Corporation has completed approximately 183 loan modifications, related to residential mortgage loans with an outstanding principal balance of $26.0 million before the modification, that involves changes in one or more of the loan terms to bring a defaulted loan current and provide sustainable affordability. |
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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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Investment Securities
The fair value of investment securities is the market value based on quoted market prices, when available, (Level 1) or market prices obtained from third-party pricing services for identical or comparable assets (Level 2). If listed prices or quotes are not available, fair value is based upon externally developed models that are unobservable inputs due to the limited market activity of the instrument (Level 3), as is the case with certain private label mortgage-backed securities held by the Corporation. Unlike U.S. agency mortgage-backed securities, the fair value of these private label securities cannot be readily determined because they are not actively traded in securities markets. Significant information used for fair value determination is proprietary with regards to specific characteristics such as the prepayment model which follows the amortizing schedule of the underlying loans, which is an unobservable input.
Private label mortgage-backed securities are collateralized by mortgages on single-family residential properties in the United States. The Corporation derived the fair value for these private label securities based on a market valuation received from a third party. The market valuation is calculated by discounting the estimated net cash flows over the projected life of the pool of underlying assets using prepayment, default and interest rate assumptions that market participants would commonly use for similar mortgage asset classes that are subject to prepayment, credit and interest rate risk.
Derivative Instruments
The fair value of the derivative instruments is provided by valuation experts and counterparties (Level 2). Certain derivatives with limited market activity, as is the case with derivative instruments named as “reference caps”, are valued using externally developed models that consider unobservable market parameters (Level 3). Reference caps are used to mainly hedge interest rate risk inherent on private label mortgage-backed securities, thus are tied to the notional amount of the underlying mortgage loans originated in the United States. Significant information used for fair value determination is proprietary with regards to specific characteristics such as the prepayment model which follows the amortizing schedule of the underlying loans, which is an unobservable input.
The Corporation derived the fair value of reference caps based on a market valuation received from a third party. The valuation model uses Black formula which is a benchmark standard in financial industry. The Black formula uses as inputs the strike price of the cap, forward LIBOR rates, volatility estimates and discount rates to estimate the option value. LIBOR rates and swap rates used in the model are obtained from Bloomberg L.P. (“Bloomberg”) every day and build zero coupon curve based on the Bloomberg LIBOR/Swap curve. The discount factor is then calculated from the zero coupon curve. The cap is the sum of all caplets. For each caplet, the rate is reset at the beginning of each reporting period and payments are made at the end of each period. The cash flow of caplet is then discounted from each payment date.
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Average volume | Interest Income (1) / expense | Average rate (1) | |||||||||||||||||||||||||||||||||||
Year ended December 31, | 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | ||||||||||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||||||||||||||
Earning assets: | |||||||||||||||||||||||||||||||||||||
Money market investments | $ | 440,598 | $ | 1,444,533 | $ | 636,114 | $ | 22,155 | $ | 72,755 | $ | 22,191 | 5.03 | % | 5.04 | % | 3.49 | % | |||||||||||||||||||
Government obligations (2) | 2,687,013 | 2,827,196 | 2,493,725 | 159,572 | 170,088 | 166,724 | 5.94 | % | 6.02 | % | 6.69 | % | |||||||||||||||||||||||||
Mortgage-backed securities | 2,296,855 | 2,540,394 | 2,738,388 | 117,383 | 128,096 | 152,813 | 5.11 | % | 5.04 | % | 5.58 | % | |||||||||||||||||||||||||
Corporate bonds | 7,711 | 8,347 | 48,311 | 510 | 574 | 2,487 | 6.61 | % | 6.88 | % | 5.15 | % | |||||||||||||||||||||||||
FHLB stock | 46,291 | 26,914 | 71,588 | 2,861 | 2,009 | 3,286 | 6.18 | % | 7.46 | % | 4.59 | % | |||||||||||||||||||||||||
Equity securities | 8,133 | 27,155 | 50,784 | 3 | 350 | 1,686 | 0.04 | % | 1.29 | % | 3.32 | % | |||||||||||||||||||||||||
Total investments (3) | 5,486,601 | 6,874,539 | 6,038,910 | 302,484 | 373,872 | 349,187 | 5.51 | % | 5.44 | % | 5.78 | % | |||||||||||||||||||||||||
Residential real estate loans | 2,914,626 | 2,606,664 | 1,813,506 | 188,294 | 171,333 | 121,066 | 6.46 | % | 6.57 | % | 6.68 | % | |||||||||||||||||||||||||
Construction loans | 1,467,621 | 1,462,239 | 710,753 | 121,917 | 126,592 | 52,300 | 8.31 | % | 8.66 | % | 7.36 | % | |||||||||||||||||||||||||
Commercial loans | 4,797,440 | 5,593,018 | 7,171,366 | 362,714 | 401,027 | 395,280 | 7.56 | % | 7.17 | % | 5.51 | % | |||||||||||||||||||||||||
Finance leases | 379,510 | 322,431 | 243,384 | 33,153 | 28,934 | 22,263 | 8.74 | % | 8.97 | % | 9.15 | % | |||||||||||||||||||||||||
Consumer loans | 1,729,548 | 1,783,384 | 1,570,468 | 202,616 | 214,967 | 191,071 | 11.71 | % | 12.05 | % | 12.17 | % | |||||||||||||||||||||||||
Total loans (4)(5) | 11,288,745 | 11,767,736 | 11,509,477 | 908,694 | 942,853 | 781,980 | 8.05 | % | 8.01 | % | 6.79 | % | |||||||||||||||||||||||||
Total earning assets | $ | 16,775,346 | $ | 18,642,275 | $ | 17,548,387 | $ | 1,211,178 | $ | 1,316,725 | $ | 1,131,167 | 7.22 | % | 7.06 | % | 6.45 | % | |||||||||||||||||||
Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||||
Interest-bearing checking accounts | $ | 443,420 | $ | 371,422 | $ | 376,360 | $ | 11,365 | $ | 5,919 | $ | 4,730 | 2.56 | % | 1.59 | % | 1.26 | % | |||||||||||||||||||
Savings accounts | 1,020,399 | 1,022,686 | 1,092,938 | 15,037 | 12,970 | 12,572 | 1.47 | % | 1.27 | % | 1.15 | % | |||||||||||||||||||||||||
Certificates of deposit | 9,291,900 | 10,479,500 | 8,386,463 | 498,048 | 531,188 | 306,687 | 5.36 | % | 5.07 | % | 3.66 | % | |||||||||||||||||||||||||
Interest bearing deposits | 10,755,719 | 11,873,608 | 9,855,761 | 524,450 | 550,077 | 323,989 | 4.88 | % | 4.63 | % | 3.29 | % | |||||||||||||||||||||||||
Other borrowed funds | 3,449,492 | 4,543,262 | 5,001,384 | 172,890 | 223,069 | 207,503 | 5.01 | % | 4.91 | % | 4.15 | % | |||||||||||||||||||||||||
FHLB advances | 723,596 | 273,395 | 890,680 | 38,464 | 13,704 | 32,756 | 5.32 | % | 5.01 | % | 3.68 | % | |||||||||||||||||||||||||
Total interest-bearing liabilities (6) | $ | 14,928,807 | $ | 16,690,265 | $ | 15,747,825 | $ | 735,804 | $ | 786,850 | $ | 564,248 | 4.93 | % | 4.71 | % | 3.58 | % | |||||||||||||||||||
Net interest income | $ | 475,374 | $ | 529,875 | $ | 566,919 | |||||||||||||||||||||||||||||||
Interest rate spread | 2.29 | % | 2.35 | % | 2.87 | % | |||||||||||||||||||||||||||||||
Net interest margin | 2.83 | % | 2.84 | % | 3.23 | % |
(1) | On an adjusted tax equivalent basis. The adjusted tax equivalent yield was estimated by dividing the interest rate spread on exempt assets by (1 less Puerto Rico statutory tax rate (39% for 2007 and 43.5% for the Corporation’s Puerto Rico banking subsidiary in 2006, 41.5% for all other subsidiaries in 2006 and 41.5% for all subsidiaries in 2005)) 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 $11.1 million, $14.9 million, and $11.0 million for 2007, 2006 and 2005, 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 the average volumes. | |
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2007 compared to 2006 | 2006 compared to 2005 | |||||||||||||||||||||||
Increase (decrease) | Increase (decrease) | |||||||||||||||||||||||
Due to: | Due to: | |||||||||||||||||||||||
Volume | Rate | Total | Volume | Rate | Total | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Interest income on interest-earning assets: | ||||||||||||||||||||||||
Money market investments | $ | (50,485 | ) | $ | (115 | ) | $ | (50,600 | ) | $ | 37,480 | $ | 13,084 | $ | 50,564 | |||||||||
Government obligations | (8,259 | ) | (2,257 | ) | (10,516 | ) | 21,179 | (17,815 | ) | 3,364 | ||||||||||||||
Mortgage-backed securities | (12,367 | ) | 1,654 | (10,713 | ) | (10,593 | ) | (14,124 | ) | (24,717 | ) | |||||||||||||
Corporate bonds | (41 | ) | (23 | ) | (64 | ) | (2,403 | ) | 490 | (1,913 | ) | |||||||||||||
FHLB stock | 1,323 | (471 | ) | 852 | (2,693 | ) | 1,416 | (1,277 | ) | |||||||||||||||
Equity securities | (145 | ) | (202 | ) | (347 | ) | (578 | ) | (758 | ) | (1,336 | ) | ||||||||||||
Total investments | (69,974 | ) | (1,414 | ) | (71,388 | ) | 42,392 | (17,707 | ) | 24,685 | ||||||||||||||
Residential real estate loans | 20,070 | (3,109 | ) | 16,961 | 52,540 | (2,273 | ) | 50,267 | ||||||||||||||||
Construction loans | 457 | (5,132 | ) | (4,675 | ) | 63,662 | 10,630 | 74,292 | ||||||||||||||||
Commercial loans (1) | (58,602 | ) | 20,289 | (38,313 | ) | (100,083 | ) | 105,830 | 5,747 | |||||||||||||||
Finance leases | 5,054 | (835 | ) | 4,219 | 7,162 | (491 | ) | 6,671 | ||||||||||||||||
Consumer loans | (6,396 | ) | (5,955 | ) | (12,351 | ) | 25,785 | (1,889 | ) | 23,896 | ||||||||||||||
Total loans | (39,417 | ) | 5,258 | (34,159 | ) | 49,066 | 111,807 | 160,873 | ||||||||||||||||
Total interest income | (109,391 | ) | 3,844 | (105,547 | ) | 91,458 | 94,100 | 185,558 | ||||||||||||||||
Interest expense on interest-bearing liabilities: | ||||||||||||||||||||||||
Deposits | (53,151 | ) | 27,524 | (25,627 | ) | 75,385 | 150,703 | 226,088 | ||||||||||||||||
Other borrowed funds | (54,261 | ) | 4,082 | (50,179 | ) | (20,751 | ) | 36,317 | 15,566 | |||||||||||||||
FHLB advances | 23,883 | 877 | 24,760 | (26,822 | ) | 7,770 | (19,052 | ) | ||||||||||||||||
Total interest expense | (83,529 | ) | 32,483 | (51,046 | ) | 27,812 | 194,790 | 222,602 | ||||||||||||||||
Change in net interest income | $ | (25,862 | ) | $ | (28,639 | ) | $ | (54,501 | ) | $ | 63,646 | $ | (100,690 | ) | $ | (37,044 | ) | |||||||
(1) | Significant decrease in volume substantially relates to the payment received of $2.4 billion from a local financial institution to partially extinguish a secured commercial loan during the second quarter of 2006. |
Year ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(Dollars in thousands) | ||||||||||||
Interest income on an adjusted tax equivalent basis | $ | 1,211,178 | $ | 1,316,725 | $ | 1,131,167 | ||||||
Less: tax equivalent adjustments | (15,293 | ) | (27,987 | ) | (61,166 | ) | ||||||
Plus: net unrealized (loss) gain on derivatives (economic undesignated hedges) | (6,638 | ) | 75 | (2,411 | ) | |||||||
Total interest income | $ | 1,189,247 | $ | 1,288,813 | $ | 1,067,590 | ||||||
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Year ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(Dollars in thousands) | ||||||||||||
Unrealized (loss) gain on derivatives (economic undesignated hedges): | ||||||||||||
Interest rate caps | $ | (3,985 | ) | $ | (472 | ) | $ | (4,039 | ) | |||
Interest rate swaps on corporate bonds | — | 27 | 823 | |||||||||
Interest rate swaps on loans | (2,653 | ) | 520 | 805 | ||||||||
Net unrealized (loss) gain on derivatives (economic undesignated hedges) | $ | (6,638 | ) | $ | 75 | $ | (2,411 | ) | ||||
Year ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(Dollars in thousands) | ||||||||||||
Interest expense on interest-bearing liabilities | $ | 713,918 | $ | 757,969 | $ | 620,774 | ||||||
Net interest incurred (realized) on interest rate swaps | 12,323 | 8,926 | (71,650 | ) | ||||||||
Amortization of placement fees on brokered certificates of deposit | 9,056 | 19,896 | 15,096 | |||||||||
Amortization of placement fees on medium-term notes | 507 | 59 | 28 | |||||||||
Interest expense excluding net unrealized and realized (gain) loss on derivatives (designated and economic undesignated hedges), net unrealized loss on SFAS 159 liabilities and accretion of basis adjustments | 735,804 | 786,850 | 564,248 | |||||||||
Net unrealized and realized loss on derivatives (designated and economic undesignated hedges) and SFAS 159 liabilities | 4,488 | 61,895 | 71,023 | |||||||||
Accretion of basis adjustment | (2,061 | ) | (3,626 | ) | — | |||||||
Total interest expense | $ | 738,231 | $ | 845,119 | $ | 635,271 | ||||||
Year ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(Dollars in thousands) | ||||||||||||
Unrealized (gain) loss on derivatives (designated hedges — ineffective portion): | ||||||||||||
Interest rate swaps on brokered certificates of deposit | $ | — | $ | (3,989 | ) | $ | — | |||||
Interest rate swaps on medium-term notes | — | (720 | ) | — | ||||||||
Net unrealized (gain) loss on derivatives (designated hedges — ineffective portion) | — | (4,709 | ) | — | ||||||||
Unrealized and realized (gain) loss on derivatives (economic undesignated hedges): | ||||||||||||
Interest rate swaps and other derivatives on brokered certificates of deposit | (66,826 | ) | 62,521 | 69,163 | ||||||||
Interest rate swaps and other derivatives on medium-term notes | 692 | 4,083 | 1,860 | |||||||||
Net unrealized (gain) loss on derivatives (economic undesignated hedges) | (66,134 | ) | 66,604 | 71,023 | ||||||||
Unrealized loss (gain) on SFAS 159 liabilities: | ||||||||||||
Unrealized loss on brokered certificates of deposit | 71,116 | — | — | |||||||||
Unrealized gain on medium-term notes | (494 | ) | — | — | ||||||||
Net unrealized loss on SFAS 159 liabilities | 70,622 | — | — | |||||||||
Net unrealized loss on derivatives (designated and economic undesignated hedges) and SFAS 159 liabilities | $ | 4,488 | $ | 61,895 | $ | 71,023 | ||||||
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Year ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(Dollars in thousands) | ||||||||||||
Accretion of basis adjustments on fair value hedges: | ||||||||||||
Interest rate swaps on brokered certificates of deposit | $ | — | $ | (3,576 | ) | $ | — | |||||
Interest rate swaps on medium-term notes | (2,061 | ) | (50 | ) | — | |||||||
Accretion of basis adjustments on fair value hedges | $ | (2,061 | ) | $ | (3,626 | ) | $ | — | ||||
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Year ended December 31, | 2007 | 2006 | 2005 | |||||||||
(Dollars in thousands) | ||||||||||||
Other service charges on loans | $ | 6,893 | $ | 5,945 | $ | 5,431 | ||||||
Service charges on deposit accounts | 12,769 | 12,591 | 11,796 | |||||||||
Mortgage banking activities | 2,819 | 2,259 | 3,798 | |||||||||
Rental income | 2,538 | 3,264 | 3,463 | |||||||||
Insurance income | 10,877 | 11,284 | 9,443 | |||||||||
Other commissions and fees | 273 | 1,470 | 911 | |||||||||
Other non-interest income | 13,322 | 12,857 | 15,896 | |||||||||
Non-interest income before net (loss) gain on investments, insurance reimbursement and other agreements related to a contingency settlement, net gain (loss) on partial extinguishment and recharacterization of secured commercial loans to local financial institutions and gain on sale of credit card portfolio | 49,491 | 49,670 | 50,738 | |||||||||
Net gain on sale of investment | 3,184 | 7,057 | 20,713 | |||||||||
Impairment on investments | (5,910 | ) | (15,251 | ) | (8,374 | ) | ||||||
Net (loss) gain on investment | (2,726 | ) | (8,194 | ) | 12,339 | |||||||
Insurance reimbursement and other agreements related to a contingency settlement | 15,075 | — | — | |||||||||
Gain (loss) on partial extinguishment and recharacterization of secured commercial loans to local financial institutions | 2,497 | (10,640 | ) | — | ||||||||
Gain on sale of credit cards portfolio | 2,819 | 500 | — | |||||||||
Total | $ | 67,156 | $ | 31,336 | $ | 63,077 | ||||||
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Year ended December 31, | 2007 | 2006 | 2005 | |||||||||
(Dollars in thousands) | ||||||||||||
Employees’ compensation and benefits | $ | 140,363 | $ | 127,523 | $ | 102,078 | ||||||
Occupancy and equipment | 58,894 | 54,440 | 47,582 | |||||||||
Deposit insurance premium | 6,687 | 1,614 | 1,248 | |||||||||
Other taxes, insurance and supervisory fees | 21,293 | 17,881 | 14,071 | |||||||||
Professional fees — recurring | 13,480 | 11,455 | 7,317 | |||||||||
Professional fees — non-recurring | 7,271 | 20,640 | 6,070 | |||||||||
Servicing and processing fees | 6,574 | 7,297 | 6,573 | |||||||||
Business promotion | 18,029 | 17,672 | 18,718 | |||||||||
Communications | 8,562 | 9,165 | 8,642 | |||||||||
Provision for contingencies | — | — | 82,750 | |||||||||
Other | 26,690 | 20,276 | 20,083 | |||||||||
Total | $ | 307,843 | $ | 287,963 | $ | 315,132 | ||||||
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• | Segment income before taxes for the year ended December 31, 2007 was $82.9 million compared to $139.6 million and $112.5 million for the years ended December 31, 2006 and 2005, respectively. | ||
• | Net interest income for the year ended December 31, 2007 was $205.3 million compared to $238.5 million and $200.8 million for the years ended December 31, 2006 and 2005, respectively. The decrease in net interest income for the year 2007 as compared to 2006 was primarily attributable to a decrease in the average of interest-earning assets due to principal repayments and charge-offs relating to the auto and personal loans portfolio coupled with the sale of approximately $15.6 million during 2007 of the Corporation’s credit card portfolio. The increase for 2006 compared to 2005 was mainly driven by the increase in the average volume of interest-earning assets primarily due to new loan originations, in particular increases in the auto and personal loans portfolio. | ||
• | The provision for loan and lease losses for the year 2007 increased by $20.2 million compared to the same period in 2006 and $1.5 million when comparing 2006 with the same period in 2005. The increase in the provision for loan and lease losses was mainly due to a higher general reserve for the Puerto Rico consumer loan portfolio, particularly auto loans, as a result of weak economic conditions in Puerto Rico. Increasing trends in non-performing loans and charge-offs experienced during 2007 and 2006 were affected by the fiscal and economic situation of Puerto Rico. According to the Puerto Rico Planning Board, Puerto Rico has been in a midst of a recession since the third quarter of 2005. The slowdown in activity is the result of, among other things, higher utilities prices, higher taxes, government budgetary imbalances, the upward trend in short-term interest rates and the flattening of the yield curve, and higher levels of oil prices. | ||
• | Non-interest income for the year ended December 31, 2007 was $27.3 million compared to $23.5 million and $23.1 million for the years ended December 31, 2006 and 2005, respectively. The |
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increase in non-interest income for 2007, as compared to 2006, was driven by a gain on sale of a credit card portfolio of $2.8 million resulted from a portfolio sold pursuant to a strategic alliance agreement reached with a U.S. financial institution. | |||
• | Direct non-interest expenses for the year ended December 31, 2007 were $94.1 million compared to $86.9 million and $77.3 million for the years ended December 31, 2006 and 2005, respectively. The increase in direct operating expense for 2007 and 2006 was mainly due to increases in employees’ compensation and benefits and occupancy and equipment. The increase in employees’ compensation and benefits was mainly from increases in the headcount in the Corporation’s retail bank branch network coupled with increases in average salary and employee benefits to support the growth of the segment. |
• | Segment income before taxes for the year ended December 31, 2007 was $77.8 million compared to $123.8 million and $145.9 million for the years ended December 31, 2006 and 2005, respectively. | ||
• | Net interest income for the year ended December 31, 2007 was $135.9 million compared to $154.7 million and $153.5 million for the years ended December 31, 2006 and 2005, respectively. The decrease in net interest income for the year 2007 was mainly driven by a decrease in the average volume of interest-earning assets. The decrease in the segment’s average volume of interest-earning assets was mainly due to the substantial partial repayment of $2.4 billion received from Doral in May 2006 that reduced the segment’s outstanding secured commercial loan from local financial institutions. The repayment also reduced the Corporation’s loans-to-one borrower exposure. The slight increase in net interest income in 2006 as compared to 2005 is mainly attributable to an increase in net interest margin due to the increase in short-term rates. The majority of the Corporation’s commercial and construction loans are variable rate loans tied to short-term indexes. During 2006, the Federal Reserve Bank increased its targeted federal funds rate by 108 basis points, and, correspondingly, LIBOR and Prime rates also increased. | ||
• | The provision for loan and lease losses for the year 2007 was $41.2 million compared to $7.9 million and $2.7 million for the years 2006 and 2005, respectively. The increase in the provision for loan and lease losses for 2007, compared to 2006, was mainly driven by higher general and specific reserves relating to the Miami Agency construction loan portfolio due to the slowdown of the U.S. housing market, an $8.1 million charge due to the collateral impairment on the previously discussed troubled loan relationship in the Miami Agency, and to the increase in the loan portfolio. The increase for |
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2006, compared to 2005, was primarily attributable to the growth in the Corporation’s commercial portfolio coupled with increasing trends in non-performing loans and charge-offs experienced during 2006. | |||
• | Total non-interest income for the year ended December 31, 2007 amounted to $6.3 million compared to a non-interest loss of $6.1 million and non-interest income of $5.6 million for the years ended December 31, 2006 and 2005 respectively. The fluctuation in non-interest income for 2007, as compared to 2006, and 2006 as compared to 2005, was mainly attributable to the net loss of $10.6 million on the partial extinguishment of a secured commercial loan to a local financial institution, recorded in 2006. | ||
• | Direct non-interest expenses for 2007 were $23.2 million compared to $16.9 million and $10.5 million for 2006 and 2005, respectively. The increase in direct operating expense for 2007, as compared to 2006, was mainly from increases in employees’ compensation due to increases in average salary and employee benefits and increases in foreclosure related expenses associated with the impaired loans in the Miami Agency coupled with the expense allocated to this segment related to the FDIC insurance premium expense . The increase for 2006, as compared to 2005, was driven by increases in employees’ compensation and benefits primarily due to the full deployment of the Corporation’s middle-market business strategy and increases in average salary and employee benefits to support the growth of the segment. The staffing of the middle market regional offices was done during 2005 with the full year salary expense effect in 2006. |
• | Segment income before taxes for the year ended December 31, 2007 was $18.6 million compared to $24.4 million and $25.5 million for the years ended December 31, 2006 and 2005, respectively. | ||
• | Net interest income for the year ended December 31, 2007 was $39.0 million compared to $43.4 million and $39.0 million for the years ended December 31, 2006 and 2005, respectively. The decrease in net interest income for 2007, as compared to 2006, was principally due to declining loan yields on the residential mortgage loan portfolio resulting from the increase in non-performing loans. The increase in net interest income for the year 2006, as compared to 2005, was mainly driven by the increase in the average outstanding balance of mortgage loans, partially offset by a reduction in net |
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interest margin due to the flattening of the yield curve and by a significantly higher balance of non-accruing loans. | |||
• | The provision for loan and lease losses for the year 2007 was $1.6 million compared to $4.0 million and $2.1 million for the years ended December 31, 2006 and 2005, respectively. The decrease in 2007, as compared to 2006, was due to the fact that in 2006 after a detailed review of the residential mortgage loan portfolio the Corporation determined that it was needed to increase its allowance for loan and lease losses based on the deterioration of the economic conditions in Puerto Rico and the increase in the home price index in Puerto Rico. The Corporation continues to update the analysis on a yearly basis, the latest being in March 2007 when the Corporation obtained similar results. As a consequence, the Corporation determines that the allowance for loan losses for the residential mortgage loan portfolio is maintained at an adequate level. The increase in the provision for loan and lease losses for 2006, as compared to 2005, was mainly due to growth in the segment’s portfolio coupled with increasing trends in non-performing loans and revisions to the allowance based on deteriorating economic conditions. | ||
• | Non-interest income for the year ended December 31, 2007 was $3.0 million compared to $2.5 million and $3.9 million for the years ended December 31, 2006 and 2005, respectively. The increase for 2007 was driven by higher service charges on loans associated with the growth in the residential mortgage loans portfolio coupled with a negative lower-of-cost-or-market adjustment of $1.0 million recorded in 2006 to the loans-held-for-sale portfolio. This negative adjustment, resulting from increases in long-term rates, was the main reason for the decrease in non-interest income for 2006 as compared to 2005. | ||
• | Direct non-interest expenses for 2007 were $21.8 million compared to $17.5 million and $15.4 million for the years 2006 and 2005, respectively. The increase in direct operating expense for 2007 was mainly due to increases in employees’ average salary compensation and higher employer benefits. The Corporation continued to commit substantial resources to this segment with the goal of becoming a leading institution in the highly competitive residential mortgage loans market. |
• | Segment loss before taxes for the year ended December 31, 2007 amounted to $14.5 million compared to a loss of $79.2 million and a loss of $12.8 million for the years ended December 31, 2006 and 2005, respectively. | ||
• | Net interest loss for the year ended December 31, 2007 was $4.5 million compared to a loss of $63.2 million and a loss of $20.7 million for the years ended December 31, 2006 and 2005, respectively. The lower net interest loss for 2007 was caused by the effect in 2006 earnings of non-cash losses from changes in the fair value of derivative instruments prior to the implementation of the long-haul method of accounting on April 3, 2006. During the first quarter of 2006, the Corporation recorded unrealized losses of $69.7 million for non-hedge derivatives as part of interest expense. The adoption of fair value hedge accounting in the second quarter of 2006 and the adoption of SFAS 159 in 2007 reduced the accounting volatility that previously resulted from the accounting asymmetry created by accounting for the financial liabilities at amortized cost and the derivatives at fair value. The increase in net interest loss for the year 2006, as compared to 2005, was mainly driven by negative changes in the valuation of derivative instruments, mainly interest rate swaps that hedge designated and undesignated brokered CDs in 2006, changes in |
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net payments on interest rate swaps included as part of interest expense, and a reduction in net interest margin due to the flattening of the yield curve. The decrease in net interest margin for 2006 was also attributable to the payment of $2.4 billion received from a local financial institution. Proceeds from the repayment were invested temporarily in short-term investments at zero or negative margin, reducing the segment’s net interest margin. During the second half of 2006, the Corporation used a part of the repayment proceeds to repay higher rate outstanding brokered CDs that matured. | |||
• | Non-interest loss for the year ended December 31, 2007 amounted to $2.2 million compared to a loss of $8.3 million and non-interest income of $12.9 million for the years ended December 31, 2006 and 2005, respectively. The decrease in non-interest loss for 2007 was driven by lower other-than-temporary impairment charges in the Corporation’s equity securities portfolio, which decreased by $9.3 million as compared to 2006. The decrease in non-interest income for 2006 was mainly attributable to an increase in other-than-temporary impairment charges of $6.9 million in the Corporation’s investment portfolio when compared to 2005. | ||
• | Direct non-interest expenses for 2007 were $7.8 million compared to $7.7 million and $5.0 million for the years 2006 and 2005, respectively. The increase in direct operating expense for 2007 and 2006 was mainly due to increases in employees’ compensation and benefits. |
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December 31, | 2007 | 2006 | 2005 | |||||||||
(Dollars in thousands) | ||||||||||||
Assets | ||||||||||||
Interest-earning assets: | ||||||||||||
Money market investments | $ | 440,598 | $ | 1,444,533 | $ | 636,114 | ||||||
Government obligations | 2,687,013 | 2,827,196 | 2,493,725 | |||||||||
Mortgage-backed securities | 2,296,855 | 2,540,394 | 2,738,388 | |||||||||
Corporate bonds | 7,711 | 8,347 | 48,311 | |||||||||
FHLB stock | 46,291 | 26,914 | 71,588 | |||||||||
Equity securities | 8,133 | 27,155 | 50,784 | |||||||||
Total investments | 5,486,601 | 6,874,539 | 6,038,910 | |||||||||
Residential real estate loans | 2,914,626 | 2,606,664 | 1,813,506 | |||||||||
Construction loans | 1,467,621 | 1,462,239 | 710,753 | |||||||||
Commercial loans | 4,797,440 | 5,593,018 | 7,171,366 | |||||||||
Finance leases | 379,510 | 322,431 | 243,384 | |||||||||
Consumer loans | 1,729,548 | 1,783,384 | 1,570,468 | |||||||||
Total loans | 11,288,745 | 11,767,736 | 11,509,477 | |||||||||
Total interest-earning assets | 16,775,346 | 18,642,275 | 17,548,387 | |||||||||
Total non-interest-earning assets (1) | 438,861 | 540,636 | 452,652 | |||||||||
Total assets | $ | 17,214,207 | $ | 19,182,911 | $ | 18,001,039 | ||||||
Liabilities and stockholders’ equity | ||||||||||||
Interest-bearing liabilities: | ||||||||||||
Interest-bearing checking accounts | $ | 443,420 | $ | 371,422 | $ | 376,360 | ||||||
Savings accounts | 1,020,399 | 1,022,686 | 1,092,938 | |||||||||
Certificates of deposit | 9,291,900 | 10,479,500 | 8,386,463 | |||||||||
Interest bearing deposits | 10,755,719 | 11,873,608 | 9,855,761 | |||||||||
Other borrowed funds | 3,449,492 | 4,543,262 | 5,001,384 | |||||||||
FHLB advances | 723,596 | 273,395 | 890,680 | |||||||||
Total interest-bearing liabilities | 14,928,807 | 16,690,265 | 15,747,825 | |||||||||
Total non-interest-bearing liabilities (2) | 959,361 | 1,294,563 | 976,705 | |||||||||
Total liabilities | 15,888,168 | 17,984,828 | 16,724,530 | |||||||||
Stockholders’ equity: | ||||||||||||
Preferred stock | 550,100 | 550,100 | 550,100 | |||||||||
Common stockholders’ equity | 775,939 | 647,983 | 726,409 | |||||||||
Stockholders’ equity | 1,326,039 | 1,198,083 | 1,276,509 | |||||||||
Total liabilities and stockholders’ equity | $ | 17,214,207 | $ | 19,182,911 | $ | 18,001,039 | ||||||
(1) | Includes the allowance for loan losses and the valuation on investment securities available-for-sale. | |
(2) | Includes changes in fair value on liabilities elected to be measured at fair value under SFAS 159. |
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December 31, | 2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Residential real estate loans, including loans held for sale | $ | 3,164,421 | $ | 2,772,630 | $ | 2,346,945 | $ | 1,322,650 | $ | 1,023,188 | ||||||||||
Commercial mortgage | 1,279,251 | 1,215,040 | 1,090,193 | 690,900 | 683,766 | |||||||||||||||
Construction loans | 1,454,644 | 1,511,608 | 1,137,118 | 398,453 | 328,175 | |||||||||||||||
Commercial loans | 3,231,126 | 2,698,141 | 2,421,219 | 1,871,851 | 1,623,964 | |||||||||||||||
Commercial loans to local financial institutions collateralized by real estate mortgages and pass-through trust certificates | 624,597 | 932,013 | 3,676,314 | 3,841,908 | 2,061,437 | |||||||||||||||
Total commercial loans | 6,589,618 | 6,356,802 | 8,324,844 | 6,803,112 | 4,697,342 | |||||||||||||||
Finance leases | 378,556 | 361,631 | 280,571 | 212,234 | 159,696 | |||||||||||||||
Consumer loans | 1,667,151 | 1,772,917 | 1,733,569 | 1,359,998 | 1,160,829 | |||||||||||||||
Total loans, gross | 11,799,746 | 11,263,980 | 12,685,929 | 9,697,994 | 7,041,055 | |||||||||||||||
Less: | ||||||||||||||||||||
Allowance for loan and lease losses | (190,168 | ) | (158,296 | ) | (147,999 | ) | (141,036 | ) | (126,378 | ) | ||||||||||
Total loans, net | $ | 11,609,578 | $ | 11,105,684 | $ | 12,537,930 | $ | 9,556,958 | $ | 6,914,677 | ||||||||||
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Puerto | Virgin | |||||||||||||||
As of December 31, 2007 | Rico | Islands | United States | Total | ||||||||||||
(Dollars in thousands) | ||||||||||||||||
Residential real estate loans, including loans held for sale | $ | 2,373,601 | $ | 430,169 | $ | 360,651 | $ | 3,164,421 | ||||||||
Commercial mortgage | 837,097 | 65,952 | 376,202 | 1,279,251 | ||||||||||||
Construction loans | 668,134 | 143,561 | 642,949 | 1,454,644 | ||||||||||||
Commercial loans | 3,071,060 | 133,376 | 26,690 | 3,231,126 | ||||||||||||
Commercial loans to local financial institutions collateralized by real estate mortgages and pass-through trust certificates | 624,597 | — | — | 624,597 | ||||||||||||
Total commercial loans | 5,200,888 | 342,889 | 1,045,841 | 6,589,618 | ||||||||||||
Finance leases | 378,556 | — | — | 378,556 | ||||||||||||
Consumer loans | 1,482,497 | 142,531 | 42,123 | 1,667,151 | ||||||||||||
Total loans, gross | $ | 9,435,542 | $ | 915,589 | $ | 1,448,615 | $ | 11,799,746 | ||||||||
For the year ended December 31, | ||||||||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Beginning balance | $ | 11,105,684 | $ | 12,537,930 | $ | 9,556,958 | $ | 6,914,677 | $ | 5,523,111 | ||||||||||
Residential real estate loans originated and purchased | 715,203 | 908,846 | 1,372,490 | 765,486 | 546,703 | |||||||||||||||
Construction loans originated and purchased | 678,004 | 961,746 | 1,061,773 | 309,053 | 259,684 | |||||||||||||||
Commercial loans originated and purchased | 1,898,157 | 2,031,629 | 2,258,558 | 1,014,946 | 924,712 | |||||||||||||||
Secured commercial loans disbursed to local financial institutions | — | — | 681,407 | 2,228,056 | 1,258,782 | |||||||||||||||
Finance leases originated | 139,599 | 177,390 | 145,808 | 116,200 | 67,332 | |||||||||||||||
Consumer loans originated and purchased | 653,180 | 807,979 | 992,942 | 746,113 | 583,083 | |||||||||||||||
Total loans originated and purchased | 4,084,143 | 4,887,590 | 6,512,978 | 5,179,854 | 3,640,296 | |||||||||||||||
Sales and securitizations of loans | (147,044 | ) | (167,381 | ) | (118,527 | ) | (180,818 | ) | (228,824 | ) | ||||||||||
Repayments and prepayments | (3,084,530 | ) | (6,022,633 | ) | (3,803,804 | ) | (2,263,043 | ) | (1,938,301 | ) | ||||||||||
Other (decreases) increases(1)(2) | (348,675 | ) | (129,822 | ) | 390,325 | (93,712 | ) | (81,605 | ) | |||||||||||
Net increase (decrease) | 503,894 | (1,432,246 | ) | 2,980,972 | 2,642,281 | 1,391,566 | ||||||||||||||
Ending balance | $ | 11,609,578 | $ | 11,105,684 | $ | 12,537,930 | $ | 9,556,958 | $ | 6,914,677 | ||||||||||
Percentage increase (decrease) | 4.54 | % | -11.42 | % | 31.19 | % | 38.21 | % | 25.20 | % |
(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 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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2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Money market investments | $ | 183,136 | $ | 456,470 | ||||
Investment securities held-to-maturity: | ||||||||
U.S. Government and agencies obligations | 2,365,147 | 2,258,040 | ||||||
Puerto Rico Government obligations | 31,222 | 31,716 | ||||||
Mortgage-backed securities | 878,714 | 1,055,375 | ||||||
Corporate bonds | 2,000 | 2,000 | ||||||
3,277,083 | 3,347,131 | |||||||
Investment securities available-for-sale: | ||||||||
U.S. Government and agencies obligations | 16,032 | 403,592 | ||||||
Puerto Rico Government obligations | 24,521 | 25,302 | ||||||
Mortgage-backed securities | 1,239,169 | 1,253,853 | ||||||
Corporate bonds | 4,448 | 4,961 | ||||||
Equity securities | 2,116 | 12,715 | ||||||
1,286,286 | 1,700,423 | |||||||
Other equity securities | 64,908 | 40,159 | ||||||
Total investments | $ | 4,811,413 | $ | 5,544,183 | ||||
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2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Held-to-maturity: | ||||||||
FHLMC certificates | $ | 11,274 | $ | 15,438 | ||||
FNMA certificates | 867,440 | 1,039,937 | ||||||
878,714 | 1,055,375 | |||||||
Available-for-sale: | ||||||||
FHLMC certificates | 158,953 | 7,575 | ||||||
GNMA certificates | 44,340 | 374,368 | ||||||
FNMA certificates | 902,198 | 871,540 | ||||||
Mortgage pass-through certificates | 133,678 | 370 | ||||||
1,239,169 | 1,253,853 | |||||||
Total mortgage-backed securities | $ | 2,117,883 | $ | 2,309,228 | ||||
Carrying amount | Weighted average yield % | |||||||
(Dollars in thousands) | ||||||||
U.S. Government and agencies obligations | ||||||||
Due within one year | $ | 254,882 | 4.14 | |||||
Due after five years through ten years | 7,001 | 6.05 | ||||||
Due after ten years | 2,119,296 | 5.82 | ||||||
2,381,179 | 5.64 | |||||||
Puerto Rico Government obligations | ||||||||
Due after one year through five years | 13,741 | 4.99 | ||||||
Due after five years through ten years | 24,695 | 5.80 | ||||||
Due after ten years | 17,307 | 5.53 | ||||||
55,743 | 5.52 | |||||||
Corporate bonds | ||||||||
Due after five years through ten years | 1,102 | 7.70 | ||||||
Due after ten years | 5,346 | 7.16 | ||||||
6,448 | 7.25 | |||||||
Total | 2,443,370 | |||||||
Mortgage-backed securities | 2,117,883 | |||||||
Equity securities | 2,116 | |||||||
Total investment securities available-for-sale and held-to-maturity | $ | 4,563,369 | ||||||
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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 | |||||||||||||||||||
Money market investments | $ | 183,136 | $ | — | $ | — | $ | — | $ | — | $ | 183,136 | ||||||||||||
Mortgage-backed securities | 247,297 | 476,049 | 298 | 1,394,239 | — | 2,117,883 | ||||||||||||||||||
Other securities(1) | 321,890 | 13,948 | — | 2,174,556 | — | 2,510,394 | ||||||||||||||||||
Total investments | 752,323 | 489,997 | 298 | 3,568,795 | — | 4,811,413 | ||||||||||||||||||
Loans(2) | ||||||||||||||||||||||||
Residential real estate | 497,693 | 365,391 | — | 2,301,337 | — | 3,164,421 | ||||||||||||||||||
Commercial and commercial mortgage | 4,094,929 | 602,295 | 192,583 | 192,929 | 52,238 | 5,134,974 | ||||||||||||||||||
Construction | 1,396,257 | 26,129 | — | 32,258 | — | 1,454,644 | ||||||||||||||||||
Finance leases | 96,621 | 281,935 | — | — | — | 378,556 | ||||||||||||||||||
Consumer | 655,853 | 944,658 | — | 13,088 | 53,552 | 1,667,151 | ||||||||||||||||||
Total loans | 6,741,353 | 2,220,408 | 192,583 | 2,539,612 | 105,790 | 11,799,746 | ||||||||||||||||||
Total earning assets | $ | 7,493,676 | $ | 2,710,405 | $ | 192,881 | $ | 6,108,407 | $ | 105,790 | $ | 16,611,159 | ||||||||||||
(1) | Equity securities available-for-sale and other equity securities were included under the “one year or less category”. | |
(2) | Non-accruing loans were included under the “one year or less category”. |
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December 31, | ||||||||||||||||
Weighted average rates | 2007 | 2006 | 2005 | |||||||||||||
as of December 31, 2007 | (Dollars in thousands) | |||||||||||||||
Savings accounts | 1.93% | $ | 1,036,662 | $ | 984,332 | $ | 1,034,047 | |||||||||
Interest-bearing checking accounts | 2.15% | 518,570 | 433,278 | 375,305 | ||||||||||||
Certificates of deposit | 5.09% | 8,857,405 | 8,795,692 | 10,243,394 | ||||||||||||
Interest-bearing deposits | 4.63% | 10,412,637 | 10,213,302 | 11,652,746 | ||||||||||||
Non-interest-bearing deposits | 621,884 | 790,985 | 811,006 | |||||||||||||
Total | $ | 11,034,521 | $ | 11,004,287 | $ | 12,463,752 | ||||||||||
Interest-bearing deposits: | ||||||||||||||||
Average balance outstanding | $ | 10,755,719 | $ | 11,873,608 | $ | 9,855,761 | ||||||||||
Non-interest-bearing deposits: | ||||||||||||||||
Average balance outstanding | $ | 563,990 | $ | 771,343 | $ | 791,815 | ||||||||||
Weighted average rate during the period on interest-bearing deposits (1) | 4.88 | % | 4.63 | % | 3.29 | % |
(1) | Excludes changes in the fair value of callable brokered CDs elected to be measured at fair value under SFAS 159 and changes in the fair value of derivatives that hedge (economically or under fair value hedge accounting) brokered CDs and the basis adjustment. |
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(Dollars in thousands) | ||||
Three months or less | $ | 1,582,362 | ||
Over three months to six months | 700,000 | |||
Over six months to one year | 1,038,033 | |||
Over one year | 4,740,528 | |||
Total | $ | 8,060,923 | ||
As of December 31, | ||||||||||||||||
Weighted average rates | 2007 | 2006 | 2005 | |||||||||||||
as of December 31, 2007 | (Dollars in thousands) | |||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 4.47 | % | $ | 3,094,646 | $ | 3,687,724 | $ | 4,833,882 | ||||||||
Advances from FHLB | 4.73 | % | 1,103,000 | 560,000 | 506,000 | |||||||||||
Notes payable | 4.76 | % | 30,543 | 182,828 | 178,693 | |||||||||||
Other borrowings | 7.57 | % | 231,817 | 231,719 | 231,622 | |||||||||||
Total (1) | 4.70 | % | $ | 4,460,006 | $ | 4,662,271 | $ | 5,750,197 | ||||||||
Weighted average rate during the period | 5.06 | % | 4.99 | % | 4.08 | % |
(1) | Includes $2.6 billion as of December 31, 2007 which are tied to variable rates or matured within a year. |
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Contractual Obligations and Commitments | ||||||||||||||||||||
(As of December 31, 2007) | ||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Total | Less than 1 year | 1-3 years | 3-5 years | After 5 years | ||||||||||||||||
Contractual obligations (1): | ||||||||||||||||||||
Certificates of deposit | $ | 8,857,405 | $ | 3,933,539 | $ | 1,218,259 | $ | 344,840 | $ | 3,360,767 | ||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 3,094,646 | 807,146 | 387,500 | 700,000 | 1,200,000 | |||||||||||||||
Advances from FHLB | 1,103,000 | 922,000 | 97,000 | 74,000 | 10,000 | |||||||||||||||
Notes payable | 30,543 | — | — | 16,237 | 14,306 | |||||||||||||||
Other borrowings | 231,817 | — | — | — | 231,817 | |||||||||||||||
Operating leases | 63,184 | 10,168 | 15,802 | 10,418 | 26,796 | |||||||||||||||
Other contractual obligations | 17,954 | 4,051 | 7,808 | 6,095 | — | |||||||||||||||
Total contractual obligations | $ | 13,398,549 | $ | 5,676,904 | $ | 1,726,369 | $ | 1,151,590 | $ | 4,843,686 | ||||||||||
Commitments to sell mortgage loans | $ | 11,801 | $ | 11,801 | ||||||||||||||||
Standby letters of credit | $ | 112,690 | $ | 112,690 | ||||||||||||||||
Commitments to extend credit: | ||||||||||||||||||||
Lines of credit | $ | 1,171,411 | $ | 1,171,411 | ||||||||||||||||
Letters of credit | 41,478 | 41,478 | ||||||||||||||||||
Commitments to originate loans | 455,136 | 455,136 | ||||||||||||||||||
Total commercial commitments | $ | 1,668,025 | $ | 1,668,025 | ||||||||||||||||
(1) | $30.7 million of tax liability, including accrued interest of $8.6 million, associated with unrecognized tax benefits under FIN 48 has been excluded due to the high degree of uncertainty regarding the timing of future cash outflows associated with such obligations. |
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Banking Subsidiaries | ||||||||||||||||
Well- | ||||||||||||||||
FirstBank | Capitalized | |||||||||||||||
First BanCorp | FirstBank | Florida | Minimum | |||||||||||||
As of December 31, 2007 | ||||||||||||||||
Total capital (Total capital to risk-weighted assets) | 13.86 | % | 13.23 | % | 10.92 | % | 10.00 | % | ||||||||
Tier 1 capital ratio (Tier 1 capital to risk-weighted assets) | 12.61 | % | 11.98 | % | 10.42 | % | 6.00 | % | ||||||||
Leverage ratio (1) | 9.29 | % | 8.85 | % | 7.79 | % | 5.00 | % | ||||||||
As of December 31, 2006 | ||||||||||||||||
Total capital (Total capital to risk-weighted assets) | 12.25 | % | 12.25 | % | 11.35 | % | 10.00 | % | ||||||||
Tier 1 capital ratio (Tier 1 capital to risk-weighted assets) | 11.06 | % | 11.02 | % | 10.96 | % | 6.00 | % | ||||||||
Leverage ratio (1) | 7.82 | % | 7.78 | % | 7.91 | % | 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. |
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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; | ||
• | The identification of the Corporation’s risk tolerance levels 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; |
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• | The evaluation of the Corporation’s compliance with its risk management process relating to the Corporation’s assets and liabilities; and | ||
• | The approval of loans and other business matters following the lending authorities approved by the Board. |
(1) | Management’s Investment and Asset Liability Committee – oversees interest rate and market risk, liquidity management and other related matters. Refer to “—Interest Rate Risk Management” discussion 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 Bank Secrecy Act. | ||
(4) | Credit Committees (Delinquency and Credit Management Committee) – oversee and establish 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 reviews of (1) past due loans, (2) overdrafts, (3) non-accrual loans, (4) OREO assets, and (5) the bank’s watch list and non-performing loans. |
(1) | Chief Executive Officer and Chief Operating Officer – responsible for the overall risk governance structure. | ||
(2) | Chief Risk Officer – responsible for the oversight of the risk management organization as well as risk governance processes. In addition, the CRO manages the operational risk program. |
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(3) | Chief Credit Officer – manages 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 in combination with the Corporation’s Chief Accounting Officer is responsible for the implementation of accounting policies and practices in accordance with generally accepted accounting principles in the United States and applicable regulatory requirements. | ||
(5) | Chief Accounting Officer – 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 generally accepted accounting principles in the United States and applicable regulatory requirements. |
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December 31, 2007 | December 31, 2006 | |||||||||||||||||||||||||||||||
Net Interest Income Risk (projected for 2008) | Net Interest Income Risk (projected for 2007) | |||||||||||||||||||||||||||||||
Static Simulation | Growing Balance Sheet | Static Simulation | Growing Balance Sheet | |||||||||||||||||||||||||||||
(Dollars in millions) | $ Change | % Change | $ Change | % Change | $ Change | % Change | $ Change | % Change | ||||||||||||||||||||||||
+200 bps ramp | ($ | 8.1 | ) | (1.64 | %) | ($ | 8.4 | ) | (1.66 | %) | ($ | 34.6 | ) | (6.86 | %) | ($ | 36.9 | ) | (7.1 | %) | ||||||||||||
-200 bps ramp | ($ | 13.2 | ) | (2.68 | %) | ($ | 13.2 | ) | (2.60 | %) | 50.7 | 10.1 | % | 20.4 | 3.9 | % |
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Notional Amount | ||||||||
As of December 31, | ||||||||
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Interest rate swap agreements: | ||||||||
Pay fixed versus receive floating | $ | 80,212 | $ | 80,720 | ||||
Receive fixed versus pay floating | 4,164,261 | 4,802,370 | ||||||
Embedded written options | 53,515 | 13,515 | ||||||
Purchased options | 53,515 | 13,515 | ||||||
Written interest rate cap agreements | 128,075 | 125,200 | ||||||
Purchased interest rate cap agreements | 294,982 | 330,607 | ||||||
$ | 4,774,560 | $ | 5,365,927 | |||||
Notional Amount | ||||||||
December 31, | ||||||||
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Economic undesignated hedges: | ||||||||
Interest rate swaps used to hedge fixed rate certificates of deposit, notes payable and loans | $ | 4,244,473 | $ | 336,473 | ||||
Embedded options on stock index deposits | 53,515 | 13,515 | ||||||
Purchased options used to manage exposure to the stock market on embedded stock index options | 53,515 | 13,515 | ||||||
Written interest rate cap agreements | 128,075 | 125,200 | ||||||
Purchased interest rate cap agreements | 294,982 | 330,607 | ||||||
Total derivatives not designated as hedge | 4,774,560 | 819,310 | ||||||
Designated hedges: | ||||||||
Fair value hedge: | ||||||||
Interest rate swaps used to hedge fixed rate certificates of deposit | $ | — | $ | 4,381,175 | ||||
Interest rate swaps used to hedge fixed and step rate notes payable | — | 165,442 | ||||||
Total fair value hedges | — | 4,546,617 | ||||||
Total | $ | 4,774,560 | $ | 5,365,927 | ||||
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As of December 31, | ||||||||
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Pay fixed/receive floating (generally used to economically hedge variable rate loans): | ||||||||
Notional amount | $ | 80,212 | $ | 80,720 | ||||
Weighted average receive rate at year end | 7.09 | % | 7.38 | % | ||||
Weighted average pay rate at year end | 6.75 | % | 6.37 | % | ||||
Floating rates range from 167 to 252 basis points over LIBOR rate | ||||||||
Receive fixed/pay floating (generally used to economically hedge fixed-rate brokered CDs and notes payable): | ||||||||
Notional amount | $ | 4,164,261 | $ | 4,802,370 | ||||
Weighted average receive rate at year end | 5.26 | % | 5.16 | % | ||||
Weighted average pay rate at year end | 5.07 | % | 5.42 | % | ||||
Floating rates range from minus 5 basis points to 11 basis points over 3- month LIBOR rate |
Notional amount | ||||
(Dollars in thousands) | ||||
Pay-fixed and receive-floating swaps: | ||||
Balance at December 31, 2005 | $ | 109,320 | ||
Canceled and matured contracts | (28,600 | ) | ||
New contracts | — | |||
Balance at December 31, 2006 | 80,720 | |||
Canceled and matured contracts | (508 | ) | ||
New contracts | — | |||
Balance at December 31, 2007 | $ | 80,212 | ||
Receive-fixed and pay floating swaps: | ||||
Balance at December 31, 2005 | $ | 5,751,128 | ||
Canceled and matured contracts | (948,758 | ) | ||
New contracts | — | |||
Balance at December 31, 2006 | 4,802,370 | |||
Canceled and matured contracts | (638,109 | ) | ||
New contracts | — | |||
Balance at December 31, 2007 | $ | 4,164,261 | ||
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Year Ended | ||||
(Dollars in thousands) | December 31, 2007 | |||
Fair value of contracts outstanding at the beginning of the year | $ | (127,978 | ) | |
Contracts realized or otherwise settled during the year | 15,062 | |||
Changes in fair value during the year | 60,466 | |||
Fair value of contracts outstanding at the end of the year | $ | (52,450 | ) | |
(Dollars in thousands) | Payments Due by Period | |||||||||||||||||||
Maturity | Maturity | |||||||||||||||||||
Less Than | Maturity | Maturity | In Excess | Total | ||||||||||||||||
As of December 31, 2007 | One Year | 1-3 Years | 3-5 Years | of 5 Years | Fair Value | |||||||||||||||
Prices provided by external sources | $ | (122 | ) | $ | (743 | ) | $ | (680 | ) | $ | (52,450 | ) | $ | (52,450 | ) | |||||
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(Dollars in thousands) | December 31, 2007 | |||||||||||||||||||
Total | ||||||||||||||||||||
Number of | Exposure at | Negative | Total | |||||||||||||||||
Rating (1) | Counterparties (2) | Notional | Fair Value (3) | Fair Values | Fair Value | |||||||||||||||
AA | 1 | $ | 90,016 | $ | — | $ | (929 | ) | $ | (929 | ) | |||||||||
AA- | 5 | 2,411,575 | 7,057 | (32,161 | ) | (25,104 | ) | |||||||||||||
A+ | 5 | 2,010,491 | 5,079 | (24,091 | ) | (19,012 | ) | |||||||||||||
A | 1 | 74,400 | 2,305 | (875 | ) | 1,430 | ||||||||||||||
CCC | 1 | 3,768 | 72 | — | 72 | |||||||||||||||
Subtotal | 13 | $ | 4,590,250 | $ | 14,513 | $ | (58,056 | ) | $ | (43,543 | ) | |||||||||
Other derivatives: | ||||||||||||||||||||
Caps (4) | 128,075 | — | (47 | ) | (47 | ) | ||||||||||||||
Equity-indexed options (4) | 53,515 | — | (9,048 | ) | (9,048 | ) | ||||||||||||||
Loans (4) | 2,720 | 188 | — | 188 | ||||||||||||||||
$ | 4,774,560 | $ | 14,701 | $ | (67,151 | ) | $ | (52,450 | ) | |||||||||||
(Dollars in thousands) | December 31, 2006 | |||||||||||||||||||
Total | ||||||||||||||||||||
Number of | Exposure at | Negative | Total | |||||||||||||||||
Rating (1) | Counterparties (2) | Notional | Fair Value (3) | Fair Values | Fair Value | |||||||||||||||
AA+ | 1 | $ | 240,772 | $ | — | $ | (6,553 | ) | $ | (6,553 | ) | |||||||||
AA- | 7 | 3,088,244 | 3,082 | (87,046 | ) | (83,964 | ) | |||||||||||||
A+ | 4 | 1,690,069 | 2,843 | (44,637 | ) | (41,794 | ) | |||||||||||||
BBB- | 1 | 205,407 | 9,088 | — | 9,088 | |||||||||||||||
Subtotal | 13 | $ | 5,224,492 | $ | 15,013 | $ | (138,236 | ) | $ | (123,223 | ) | |||||||||
Other derivatives: | ||||||||||||||||||||
Caps (4) | 125,200 | — | (390 | ) | (390 | ) | ||||||||||||||
Equity-indexed options (4) | 13,515 | — | (4,347 | ) | (4,347 | ) | ||||||||||||||
Loans (4) | 2,720 | — | (18 | ) | (18 | ) | ||||||||||||||
$ | 5,365,927 | $ | 15,013 | $ | (142,991 | ) | $ | (127,978 | ) | |||||||||||
(1) | Based on the S&P and Fitch Long Term Issuer Credit Ratings | |
(2) | Based on legal entities. Affiliated legal entities are reported separetely. | |
(3) | For each counterparty, this amount includes derivatives with a positive fair value excluding the related accured interest receivable/payable. | |
(4) | These derivatives represent transactions sold to local companies or institutions for which a credit rating is not readily available. The credit exposure is mitigated because a transactions with the same terms and conditions was bought with a rated counterparty. |
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Year ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Allowance for loan and lease losses, beginning of year | $ | 158,296 | $ | 147,999 | $ | 141,036 | $ | 126,378 | $ | 111,911 | ||||||||||
Provision for loan and lease losses | 120,610 | 74,991 | 50,644 | 52,799 | 55,916 | |||||||||||||||
Loans charged-off: | ||||||||||||||||||||
Residential real estate | (985 | ) | (997 | ) | (945 | ) | (254 | ) | (475 | ) | ||||||||||
Commercial and Construction | (15,170 | ) | (6,036 | ) | (8,558 | ) | (6,190 | ) | (6,488 | ) | ||||||||||
Finance leases | (10,393 | ) | (5,721 | ) | (2,748 | ) | (2,894 | ) | (2,424 | ) | ||||||||||
Consumer | (68,282 | ) | (64,455 | ) | (39,669 | ) | (34,704 | ) | (38,745 | ) | ||||||||||
Recoveries | 6,092 | 12,515 | 6,876 | 5,901 | 6,683 | |||||||||||||||
Net charge-offs | (88,738 | ) | (64,694 | ) | (45,044 | ) | (38,141 | ) | (41,449 | ) | ||||||||||
Other adjustments(1) | — | — | 1,363 | — | — | |||||||||||||||
Allowance for loan and lease losses, end of year | $ | 190,168 | $ | 158,296 | $ | 147,999 | $ | 141,036 | $ | 126,378 | ||||||||||
Allowance for loan and lease losses to year end total loans receivable | 1.61 | % | 1.41 | % | 1.17 | % | 1.46 | % | 1.80 | % | ||||||||||
Net charge-offs to average loans outstanding during the year | 0.79 | % | 0.55 | % | 0.39 | % | 0.48 | % | 0.66 | % | ||||||||||
Provision for loan and lease losses to net charge-offs during the year | 1.36 | x | 1.16 | x | 1.12 | x | 1.38 | x | 1.35 | x |
(1) | Represents allowance for loan losses from the acquisition of First Bank Florida. |
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As of December 31, | 2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||||||||||||||||||||||
Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||||||
Residential real estate loans | $ | 8,240 | 27 | % | $ | 6,488 | 25 | % | $ | 3,409 | 18 | % | $ | 1,595 | 14 | % | $ | 4,298 | 15 | % | ||||||||||||||||||||
Commercial mortgage loans | 13,699 | 11 | % | 13,706 | 11 | % | 9,827 | 9 | % | 8,958 | 7 | % | 11,746 | 10 | % | |||||||||||||||||||||||||
Construction loans | 38,108 | 12 | % | 18,438 | 13 | % | 12,623 | 9 | % | 5,077 | 4 | % | 3,710 | 5 | % | |||||||||||||||||||||||||
Commercial loans (including loans to local financial institutions) | 63,030 | 33 | % | 53,929 | 32 | % | 58,117 | 48 | % | 70,906 | 59 | % | 58,084 | 52 | % | |||||||||||||||||||||||||
Finance leases | 6,445 | 3 | % | 6,194 | 3 | % | 4,684 | 2 | % | 4,043 | 2 | % | 4,310 | 2 | % | |||||||||||||||||||||||||
Consumer loans | 60,646 | 14 | % | 59,541 | 16 | % | 59,339 | 14 | % | 50,457 | 14 | % | 44,230 | 16 | % | |||||||||||||||||||||||||
Total Allowance for Loan and Lease Losses | $ | 190,168 | 100 | % | $ | 158,296 | 100 | % | $ | 147,999 | 100 | % | $ | 141,036 | 100 | % | $ | 126,378 | 100 | % | ||||||||||||||||||||
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As of December 31, | 2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Non-accruing loans: | ||||||||||||||||||||
Residential real estate | $ | 209,077 | $ | 114,828 | $ | 54,777 | $ | 31,577 | $ | 26,327 | ||||||||||
Commercial, commercial real estate and construction | 148,939 | 82,713 | 35,814 | 32,454 | 38,304 | |||||||||||||||
Finance leases | 6,250 | 8,045 | 3,272 | 2,212 | 3,181 | |||||||||||||||
Consumer | 48,784 | 46,501 | 40,459 | 25,422 | 17,713 | |||||||||||||||
413,050 | 252,087 | 134,322 | 91,665 | 85,525 | ||||||||||||||||
Other real estate owned | 16,116 | 2,870 | 5,019 | 9,256 | 4,617 | |||||||||||||||
Other repossessed property | 10,154 | 12,103 | 9,631 | 7,291 | 6,879 | |||||||||||||||
Investment securities | — | — | — | — | 3,750 | |||||||||||||||
Total non-performing assets | $ | 439,320 | $ | 267,060 | $ | 148,972 | $ | 108,212 | $ | 100,771 | ||||||||||
Past due loans | $ | 75,456 | $ | 31,645 | $ | 27,501 | $ | 18,359 | $ | 23,493 | ||||||||||
Non-performing assets to total assets | 2.56 | % | 1.54 | % | 0.75 | % | 0.69 | % | 0.79 | % | ||||||||||
Non-accruing loans to total loans | 3.50 | % | 2.24 | % | 1.06 | % | 0.95 | % | 1.21 | % | ||||||||||
Allowance for loan and lease losses | $ | 190,168 | $ | 158,296 | $ | 147,999 | $ | 141,036 | $ | 126,378 | ||||||||||
Allowance to total non-accruing loans | 46.04 | % | 62.79 | % | 110.18 | % | 153.86 | % | 147.77 | % | ||||||||||
Allowance to total non-accruing loans excluding residential real estate loans | 93.23 | % | 115.33 | % | 186.06 | % | 234.72 | % | 213.48 | % |
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Total | ||||
(In thousands) | ||||
Less than one year | $ | 2,570,956 | ||
Over one year to five years | 1,282,738 | |||
Over five years to ten years | 1,009,044 | |||
Over ten years | 2,314,323 | |||
Total | $ | 7,177,061 | ||
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2007 | |||||||||||||||||||||||
March 31 | June 30 | September 30 | December 31 | ||||||||||||||||||||
(Dollars in thousands, except for per share results) | |||||||||||||||||||||||
Interest income | $ | 298,585 | $ | 305,871 | $ | 295,931 | $ | 288,860 | |||||||||||||||
Net interest income | 117,435 | 117,215 | 105,029 | 111,337 | |||||||||||||||||||
Provision for loan losses | 24,914 | 24,628 | 34,260 | 36,808 | |||||||||||||||||||
Net income | 22,832 | 23,795 | 14,142 | 7,367 | |||||||||||||||||||
Net income (loss) attributable to common stockholders | 12,763 | 13,726 | 4,073 | (2,702 | ) | ||||||||||||||||||
Earnings (loss) per common share-basic | $ | 0.15 | $ | 0.16 | $ | 0.05 | $ | (0.03 | ) | ||||||||||||||
Earnings (loss) per common share-diluted | $ | 0.15 | $ | 0.16 | $ | 0.05 | $ | (0.03 | ) |
2006 | |||||||||||||||||||||||
March 31 | June 30 | September 30 | December 31 | ||||||||||||||||||||
(Dollars in thousands, except for per share results) | |||||||||||||||||||||||
Interest income | $ | 327,705 | $ | 344,443 | $ | 317,711 | $ | 298,954 | |||||||||||||||
Net interest income | 72,819 | 126,238 | 122,702 | 121,935 | |||||||||||||||||||
Provision for loan and lease losses | 19,376 | 9,354 | 20,560 | 25,701 | |||||||||||||||||||
Net income | 3,863 | 31,803 | 26,682 | 22,286 | |||||||||||||||||||
Net (loss) income attributable to common stockholders | (6,206 | ) | 21,734 | 16,613 | 12,217 | ||||||||||||||||||
(Loss) earnings per common share-basic | $ | (0.08 | ) | $ | 0.26 | $ | 0.20 | $ | 0.16 | ||||||||||||||
(Loss) earnings per common share-diluted | $ | (0.08 | ) | $ | 0.26 | $ | 0.20 | $ | 0.15 |
- | An increase in the provision for loan and lease losses of $11.1 million for fourth quarter of 2007, as compared to the fourth quarter of 2006, due to higher provisions for the commercial and construction loan portfolios, particularly to the Miami Agency construction loan portfolio, attributed to the slowdown in the United States housing market. |
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- | A decrease in net interest income of $10.6 million for the fourth quarter of 2007, as compared to the same period in 2006. During 2007 and 2006, net interest income was impacted by the valuation changes and hedging activities. The Corporation recorded a net unrealized loss in valuation changes of $3.3 million for the fourth quarter of 2007, compared to a net unrealized gain of $6.3 million for the same period in 2006. The negative fluctuation is principally attributable to the fair value of certain derivative instruments, known as “referenced interest rate caps” that the Corporation bought in 2004 to mainly hedge interest rate risk inherent in certain mortgage-backed securities. While rates rose through mid-2006 the caps appreciated in value. As the economic cycle turned and rates began to fall along with expectations of further drops, the value of the caps diminished. The value of the caps is related to current rates as well as to forward rate expectations. The unrealized loss on the referenced interest rate caps for the fourth quarter of 2007 amounted to $3.7 million compared to an unrealized loss of $0.9 million for the fourth quarter of 2006. Furthermore, the Corporation recorded lower net non-cash gains ($0.5 million for the fourth quarter of 2007 compared to $7.2 million for the fourth quarter of 2006) related to changes in the fair value of other derivative instruments and financial liabilities that were elected to be measured at fair value upon adoption of SFAS 159, in 2007. | |
- | An increase in non-interest expenses of $7.8 million for the fourth quarter of 2007, as compared to the same period in 2006, in particular increases in employees’ compensation and benefits, including the voluntary separation program charge of $3.3 million recognized during the fourth quarter, the deposit insurance premium expense resulting from changes in the premium calculation by the Federal Deposit Insurance Corporation (“FDIC”) and increases in occupancy and equipment expenses mainly attributable to increases in costs associated with the expansion of the Corporation’s branch network and loan origination offices. Increases in foreclosure-related expenses were also experienced during the fourth quarter of 2007 relating to the previously reported impaired loan relationship in the Miami Agency. | |
- | An increase of $5.6 million in non-interest income for the fourth quarter of 2007, as compared to the same period in 2006. This increase is due to aggregate realized gains of $4.7 million on the sale of approximately $443 million of FNMA and GNMA mortgage-backed securities, $100 million of U.S. Treasury investment securities and certain equity securities, compared to a realized gain of $1.6 million for the same quarter a year ago coupled with lower other-than-temporary impairment charges related to the Corporation’s investment securities portfolio. |
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- | Report of Independent Registered Public Accounting Firm. | |
- | Consolidated Statements of Financial Condition as of December 31, 2007 and 2006. | |
- | Consolidated Statements of Income for Each of the Three Years in the Period Ended December 31, 2007. |
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- | Consolidated Statements of Changes in Stockholders’ Equity for Each of the Three Years in the Period Ended December 31, 2007. | |
- | Consolidated Statements of Comprehensive Income for Each of the Three Years in the Period Ended December 31, 2007. | |
- | Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 2007. | |
- | Notes to the Consolidated Financial Statements. |
No. | Exhibit | |
3.1 | Certificate of Incorporation(1) | |
3.2 | By-Laws of First BanCorp, as amended effective August 28, 2007 | |
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) | |
4.0 | Form of Common Stock Certificate(1) | |
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 (7) | |
10.1 | FirstBank’s 1987 Stock Option Plan(8) | |
10.2 | FirstBank’s 1997 Stock Option Plan(8) | |
10.3 | Investment agreement between The Bank of Nova Scotia and First BanCorp dated as of February 15, 2007(9) | |
14.1 | Code of Ethics for Senior Financial Officers(10) | |
14.2 | Code of Ethics applicable to all employees(10) | |
14.3 | Policy Statement and Standards of Conduct for Members of Board of Directors, Executive Officers and Principal Shareholders(10) | |
14.4 | Independence Principles for Directors of First BanCorp, as amended effective August 28, 2007 | |
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 |
(1) | Incorporated by reference from Registration statement on Form S-4 filed by the Corporation on April 15, 1998. | |
(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. | |
(6) | Incorporated by reference to Form 8-A filed by the Corporation on September 26, 2003. | |
(7) | Incorporated by reference to Exhibit 4.1 from the Form 8-K filed by the Corporation on September 5, 2003. | |
(8) | Incorporated by reference from the Form 10-K for the year ended December 31, 1998 filed by the Corporation on March 26, 1999. | |
(9) | Incorporated by reference to Exhibit 10.01 from the Form 8-K filed by the Corporation on February 22, 2007. | |
(10) | Incorporated by reference from the Form 10-K for the year ended December 31, 2003 filed by the Corporation on March 15, 2004. |
110
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By: | /s/ Luis M. Beauchamp | Date: 2/29/08 | ||
Luis M. Beauchamp Chairman | ||||
President and Chief Executive Officer |
/s/ Luis M. Beauchamp | Date: 2/29/08 | |
Luis M. Beauchamp | ||
Chairman | ||
President and Chief Executive Officer | ||
/s/ Aurelio Alemán | Date: 2/29/08 | |
Aurelio Alemán | ||
Senior Executive Vice President and | ||
Chief Operating Officer | ||
/s/ Fernando Scherrer | Date: 2/29/08 | |
Fernando Scherrer, CPA | ||
Executive Vice President and | ||
Chief Financial Officer | ||
/s/ Fernando Rodríguez-Amaro | Date: 2/29/08 | |
Fernando Rodríguez Amaro, | ||
Director | ||
/s/ Jorge L. Díaz | Date: 2/29/08 | |
Jorge L. Díaz, | ||
Director | ||
/s/ Sharee Ann Umpierre-Catinchi | Date: 2/29/08 | |
Sharee Ann Umpierre-Catinchi, | ||
Director | ||
/s/ José Teixidor | Date: 2/29/08 | |
José Teixidor, Director | ||
/s/ José L. Ferrer-Canals | Date: 2/29/08 | |
José L. Ferrer-Canals, Director | ||
/s/ José Menéndez-Cortada | Date: 2/29/08 | |
José Menéndez-Cortada, Lead | ||
Director | ||
/s/ Frank Kolodziej | Date: 2/29/08 | |
Frank Kolodziej, Director | ||
/s/ Héctor M. Nevares | Date: 2/29/08 | |
Héctor M. Nevares, Director |
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Table of Contents
/s/ José F. Rodríguez | Date: 2/29/08 | |
José F. Rodríguez, Director | ||
/s/ Pedro Romero | Date: 2/29/08 | |
Pedro Romero, CPA | ||
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
Luis Beauchamp
Chairman of the Board, President
and Chief Executive Officer
Fernando Scherrer
Executive Vice President
and Chief Financial Officer
F-1
Table of Contents
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
Table of Contents
San Juan, Puerto Rico
February 29, 2008
(OF PUERTO RICO)
License No. 216 Expires Dec. 1, 2010
Stamp 2287582 of P.R. Society of
Certified Public Accountants has been
affixed to the file copy of this report
F-3
Table of Contents
(In thousands, except for share information) | December 31, 2007 | December 31, 2006 | ||||||
Assets | ||||||||
Cash and due from banks | $ | 195,809 | $ | 112,341 | ||||
Money market instruments | 148,579 | 377,296 | ||||||
Federal funds sold | 7,957 | 42,051 | ||||||
Time deposits with other financial institutions | 26,600 | 37,123 | ||||||
Total money market investments | 183,136 | 456,470 | ||||||
Investment securities available for sale, at fair value: | ||||||||
Securities pledged that can be repledged | 789,271 | 1,373,467 | ||||||
Other investment securities | 497,015 | 326,956 | ||||||
Total investment securities available for sale | 1,286,286 | 1,700,423 | ||||||
Investment securities held to maturity, at amortized cost: | ||||||||
Securities pledged that can be repledged | 2,522,509 | 2,661,088 | ||||||
Other investment securities | 754,574 | 686,043 | ||||||
Total investment securities held to maturity, fair value of $3,261,934 (2006 - $3,256,966) | 3,277,083 | 3,347,131 | ||||||
Other equity securities | 64,908 | 40,159 | ||||||
Loans, net of allowance for loan and lease losses of $190,168 (2006 - $158,296) | 11,588,654 | 11,070,446 | ||||||
Loans held for sale, at lower of cost or market | 20,924 | 35,238 | ||||||
Total loans, net | 11,609,578 | 11,105,684 | ||||||
Premises and equipment, net | 162,635 | 155,662 | ||||||
Other real estate owned | 16,116 | 2,870 | ||||||
Accrued interest receivable on loans and investments | 107,979 | 112,505 | ||||||
Due from customers on acceptances | 747 | 150 | ||||||
Other assets | 282,654 | 356,861 | ||||||
Total assets | $ | 17,186,931 | $ | 17,390,256 | ||||
Liabilities & Stockholders’ Equity | ||||||||
Liabilities: | ||||||||
Non-interest-bearing deposits | $ | 621,884 | $ | 790,985 | ||||
Interest-bearing deposits (2007 - includes $4,186,563 measured at fair value) | 10,412,637 | 10,213,302 | ||||||
Federal funds purchased and securities sold under agreements to repurchase | 3,094,646 | 3,687,724 | ||||||
Advances from the Federal Home Loan Bank (FHLB) | 1,103,000 | 560,000 | ||||||
Notes payable (2007 - includes $14,306 measured at fair value) | 30,543 | 182,828 | ||||||
Other borrowings | 231,817 | 231,719 | ||||||
Bank acceptances outstanding | 747 | 150 | ||||||
Accounts payable and other liabilities | 270,011 | 493,995 | ||||||
Total liabilities | 15,765,285 | 16,160,703 | ||||||
Commitments and contingencies (Notes 26, 29 and 32) | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, authorized 50,000,000 shares: issued and outstanding 22,004,000 shares at $25 liquidation value per share | 550,100 | 550,100 | ||||||
Common stock, $1 par value, authorized 250,000,000 shares; 102,402,306 shares issued (2006 - 93,151,856 shares) | 102,402 | 93,152 | ||||||
Less: Treasury stock (at par value) | (9,898 | ) | (9,898 | ) | ||||
Common stock outstanding | 92,504 | 83,254 | ||||||
Additional paid-in capital | 108,279 | 22,757 | ||||||
Legal surplus | 286,049 | 276,848 | ||||||
Retained earnings | 409,978 | 326,761 | ||||||
Accumulated other comprehensive loss, net of tax benefit of $227 ( 2006 - $221) | (25,264 | ) | (30,167 | ) | ||||
Total stockholders’ equity | 1,421,646 | 1,229,553 | ||||||
Total liabilities and stockholders’ equity | $ | 17,186,931 | $ | 17,390,256 | ||||
F-4
Table of Contents
Year ended December 31, | ||||||||||||
(In thousands, except per share data) | 2007 | 2006 | 2005 | |||||||||
Interest income: | ||||||||||||
Loans | $ | 901,941 | $ | 936,052 | $ | 772,100 | ||||||
Investment securities | 265,275 | 281,847 | 273,604 | |||||||||
Money market investments | 22,031 | 70,914 | 21,886 | |||||||||
Total interest income | 1,189,247 | 1,288,813 | 1,067,590 | |||||||||
Interest expense: | ||||||||||||
Deposits | 528,740 | 605,033 | 393,152 | |||||||||
Federal funds purchased and repurchase agreements | 148,309 | 195,328 | 179,124 | |||||||||
Advances from FHLB | 38,464 | 13,704 | 32,756 | |||||||||
Notes payable and other borrowings | 22,718 | 31,054 | 30,239 | |||||||||
Total interest expense | 738,231 | 845,119 | 635,271 | |||||||||
Net interest income | 451,016 | 443,694 | 432,319 | |||||||||
Provision for loan and lease losses | 120,610 | 74,991 | 50,644 | |||||||||
Net interest income after provision for loan and lease losses | 330,406 | 368,703 | 381,675 | |||||||||
Non-interest income: | ||||||||||||
Other service charges on loans | 6,893 | 5,945 | 5,431 | |||||||||
Service charges on deposit accounts | 12,769 | 12,591 | 11,796 | |||||||||
Mortgage banking activities | 2,819 | 2,259 | 3,798 | |||||||||
Net (loss) gain on investments and impairments | (2,726 | ) | (8,194 | ) | 12,339 | |||||||
Net gain (loss) on partial extinguishment and recharacterization of secured commercial loans to local financial institutions | 2,497 | (10,640 | ) | — | ||||||||
Rental income | 2,538 | 3,264 | 3,463 | |||||||||
Gain on sale of credit card portfolio | 2,819 | 500 | — | |||||||||
Insurance reimbursements and other agreements related to a contingency settlement | 15,075 | — | — | |||||||||
Other non-interest income | 24,472 | 25,611 | 26,250 | |||||||||
Total non-interest income | 67,156 | 31,336 | 63,077 | |||||||||
Non-interest expenses: | ||||||||||||
Employees’ compensation and benefits | 140,363 | 127,523 | 102,078 | |||||||||
Occupancy and equipment | 58,894 | 54,440 | 47,582 | |||||||||
Business promotion | 18,029 | 17,672 | 18,718 | |||||||||
Professional fees | 20,751 | 32,095 | 13,387 | |||||||||
Taxes, other than income taxes | 15,364 | 12,428 | 9,809 | |||||||||
Insurance and supervisory fees | 12,616 | 7,067 | 5,510 | |||||||||
Provision for contigencies | — | — | 82,750 | |||||||||
Other non-interest expenses | 41,826 | 36,738 | 35,298 | |||||||||
Total non-interest expenses | 307,843 | 287,963 | 315,132 | |||||||||
Income before income tax provision | 89,719 | 112,076 | 129,620 | |||||||||
Income tax provision | 21,583 | 27,442 | 15,016 | |||||||||
Net income | $ | 68,136 | $ | 84,634 | $ | 114,604 | ||||||
Dividends to preferred stockholders | 40,276 | 40,276 | 40,276 | |||||||||
Net income attributable to common stockholders | $ | 27,860 | $ | 44,358 | $ | 74,328 | ||||||
Net income per common share: | ||||||||||||
Basic | $ | 0.32 | $ | 0.54 | $ | 0.92 | ||||||
Diluted | $ | 0.32 | $ | 0.53 | $ | 0.90 | ||||||
Dividends declared per common share | $ | 0.28 | $ | 0.28 | $ | 0.28 | ||||||
F-5
Table of Contents
Year Ended December 31, | ||||||||||||
(In thousands) | 2007 | 2006 | 2005 | |||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 68,136 | $ | 84,634 | $ | 114,604 | ||||||
Adjustment to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation | 17,669 | 16,810 | 15,412 | |||||||||
Amortization of core deposit intangible | 3,294 | 3,385 | 3,709 | |||||||||
Provision for loan and lease losses | 120,610 | 74,991 | 50,644 | |||||||||
Deferred income tax provision (benefit) | 13,658 | (31,715 | ) | (60,223 | ) | |||||||
Stock-based compensation recognized | 2,848 | 5,380 | — | |||||||||
Gain on sale of investments, net | (3,184 | ) | (7,057 | ) | (20,713 | ) | ||||||
Other-than-temporary impairments on available-for-sale securities | 5,910 | 15,251 | 8,374 | |||||||||
Derivative instruments and hedging activities loss | 6,134 | 61,820 | 73,443 | |||||||||
Net gain on sale of loans and impairments | (2,246 | ) | (1,690 | ) | (3,270 | ) | ||||||
Net (gain) loss on partial extinguishment and recharacterization of secured commercial loans to local financial institutions | (2,497 | ) | 10,640 | — | ||||||||
Net amortization on premiums and discounts and deferred loan fees and costs | (663 | ) | (2,568 | ) | (1,725 | ) | ||||||
Amortization of broker placement fees | 9,563 | 19,955 | 15,124 | |||||||||
Accretion of basis adjustments on fair value hedges | (2,061 | ) | (3,626 | ) | — | |||||||
Net accretion of premium and discounts on investment securities | (42,026 | ) | (35,933 | ) | (30,014 | ) | ||||||
Amortization of discount on subordinated notes | — | — | 544 | |||||||||
Gain on sale of credit cards portfolio | (2,819 | ) | (500 | ) | — | |||||||
(Decrease) increase in accrued income tax payable | (3,419 | ) | (39,702 | ) | 28,363 | |||||||
Decrease (increase) in accrued interest receivable | 4,397 | (8,813 | ) | (43,996 | ) | |||||||
(Decrease) increase in accrued interest payable | (13,808 | ) | 33,910 | 58,800 | ||||||||
Decrease (increase) in other assets | 4,408 | 12,089 | (33,206 | ) | ||||||||
(Decrease) increase in other liabilities | (123,611 | ) | 14,451 | 103,543 | ||||||||
Total adjustments | (7,843 | ) | 137,078 | 164,809 | ||||||||
Net cash provided by operating activities | 60,293 | 221,712 | 279,413 | |||||||||
Cash flows from investing activities: | ||||||||||||
Principal collected on loans | 3,084,530 | 6,022,633 | 3,803,804 | |||||||||
Loans originated | (3,813,644 | ) | (4,718,928 | ) | (6,058,105 | ) | ||||||
Purchase of loans | (270,499 | ) | (168,662 | ) | (454,873 | ) | ||||||
Proceeds from sale of loans | 150,707 | 169,422 | 120,682 | |||||||||
Proceeds from sale of repossessed assets | 52,768 | 50,896 | 33,337 | |||||||||
Purchase of servicing assets | (1,851 | ) | (1,156 | ) | — | |||||||
Proceeds from sale of available-for-sale securities | 959,212 | 232,483 | 252,746 | |||||||||
Purchase of securities held to maturity | (511,274 | ) | (447,483 | ) | (2,540,827 | ) | ||||||
Purchase of securities available-for-sale | (576,100 | ) | (225,373 | ) | (1,221,389 | ) | ||||||
Principal repayments and maturities of securities held to maturity | 623,374 | 574,797 | 2,511,738 | |||||||||
Principal repayments of securities available for sale | 214,218 | 217,828 | 325,981 | |||||||||
Additions to premises and equipment | (24,642 | ) | (55,524 | ) | (28,921 | ) | ||||||
(Increase) decrease in other equity securities | (23,422 | ) | 2,208 | 41,691 | ||||||||
Cash received for net liabilities assumed on acquisition of business | — | — | (78,405 | ) | ||||||||
Net cash (used in) provided by investing activities | (136,623 | ) | 1,653,141 | (3,292,541 | ) | |||||||
Cash flows from financing activities: | ||||||||||||
Net increase (decrease) in deposits | 59,499 | (1,550,714 | ) | 4,120,051 | ||||||||
Net (decrease) increase in federal funds purchased and securities sold under repurchase agreements | (593,078 | ) | (1,146,158 | ) | 668,521 | |||||||
Net FHLB advances taken (paid) | 543,000 | 54,000 | (1,132,000 | ) | ||||||||
Repayments of notes payable and other borrowings | (150,000 | ) | — | (127,993 | ) | |||||||
Dividends paid | (64,881 | ) | (63,566 | ) | (62,915 | ) | ||||||
Exercise of stock options | — | 19,756 | 2,094 | |||||||||
Issuance of common stock | 91,924 | — | — | |||||||||
Treasury stock acquired | — | — | (965 | ) | ||||||||
Net cash (used in) provided by financing activities | (113,536 | ) | (2,686,682 | ) | 3,466,793 | |||||||
Net (decrease) increase in cash and cash equivalents | (189,866 | ) | (811,829 | ) | 453,665 | |||||||
Cash and cash equivalents at beginning of period | 568,811 | 1,380,640 | 926,975 | |||||||||
Cash and cash equivalents at end of period | $ | 378,945 | $ | 568,811 | $ | 1,380,640 | ||||||
Cash and cash equivalents include: | ||||||||||||
Cash and due from banks | $ | 195,809 | $ | 112,341 | $ | 155,849 | ||||||
Money market instruments | 183,136 | 456,470 | 1,224,791 | |||||||||
Total Cash and cash equivalents | $ | 378,945 | $ | 568,811 | $ | 1,380,640 | ||||||
F-6
Table of Contents
Year Ended December 31, | ||||||||||||
(In thousands) | 2007 | 2006 | 2005 | |||||||||
Preferred Stock | $ | 550,100 | $ | 550,100 | $ | 550,100 | ||||||
Common Stock Outstanding: | ||||||||||||
Balance at beginning of year | 83,254 | 80,875 | 40,389 | |||||||||
Issuance of common stock | 9,250 | — | — | |||||||||
Common stock issued under stock option plan | — | 2,379 | 76 | |||||||||
Treasury stock acquired before June 30, 2005 stock split | — | — | (28 | ) | ||||||||
Shares issued as a result of stock split on June 30, 2005 | — | — | 40,438 | |||||||||
Balance at end of year | 92,504 | 83,254 | 80,875 | |||||||||
Additional Paid-In-Capital: | ||||||||||||
Balance at beginning of year | 22,757 | — | 4,863 | |||||||||
Issuance of common stock | 82,674 | — | — | |||||||||
Treasury stock acquired | — | — | (937 | ) | ||||||||
Shares issued under stock option plan | — | 17,377 | 2,018 | |||||||||
Stock-based compensation recognized | 2,848 | 5,380 | — | |||||||||
Adjustment for stock split on June 30, 2005 | — | — | (5,944 | ) | ||||||||
Balance at end of year | 108,279 | 22,757 | — | |||||||||
Capital Reserve: | ||||||||||||
Balance at beginning of year | — | — | 82,825 | |||||||||
Transfer to legal surplus | — | — | (82,825 | ) | ||||||||
Balance at end of year | — | — | — | |||||||||
Legal Surplus: | ||||||||||||
Balance at beginning of year | 276,848 | 265,844 | 183,019 | |||||||||
Transfer from retained earnings | 9,201 | 11,004 | — | |||||||||
Transfer from capital reserve | — | — | 82,825 | |||||||||
286,049 | 276,848 | 265,844 | ||||||||||
Retained Earnings: | ||||||||||||
Balance at beginning of year | 326,761 | 316,697 | 299,501 | |||||||||
Net income | 68,136 | 84,634 | 114,604 | |||||||||
Cash dividends declared on common stock | (24,605 | ) | (23,290 | ) | (22,639 | ) | ||||||
Cash dividends declared on preferred stock | (40,276 | ) | (40,276 | ) | (40,276 | ) | ||||||
Cumulative adjustment for accounting change (adoption of FIN 48) | (2,615 | ) | — | — | ||||||||
Cumulative adjustment for accounting change (adoption of SFAS No. 159) | 91,778 | — | — | |||||||||
Adjustment for stock split on June 30, 2005 | — | — | (34,493 | ) | ||||||||
Transfer to legal surplus | (9,201 | ) | (11,004 | ) | — | |||||||
Balance at end of year | 409,978 | 326,761 | 316,697 | |||||||||
Accumulated Other Comprehensive (Loss) Income, Net of Tax: | ||||||||||||
Balance at beginning of year | (30,167 | ) | (15,675 | ) | 43,636 | |||||||
Other comprehensive income (loss), net of tax | 4,903 | (14,492 | ) | (59,311 | ) | |||||||
Balance at end of year | (25,264 | ) | (30,167 | ) | (15,675 | ) | ||||||
Total Stockholders’ Equity | $ | 1,421,646 | $ | 1,229,553 | $ | 1,197,841 | ||||||
F-7
Table of Contents
Year ended December 31, | ||||||||||||
(In thousands) | 2007 | 2006 | 2005 | |||||||||
Net income | $ | 68,136 | $ | 84,634 | $ | 114,604 | ||||||
Other comprehensive income (loss): | ||||||||||||
Unrealized gains (losses) on securities: | ||||||||||||
Unrealized holding gains (losses) arising during the period | 2,171 | (22,891 | ) | (47,839 | ) | |||||||
Less: Reclassification adjustment for net loss (gain) and other-than-temporary impairments included in net income | 2,726 | 8,194 | (12,383 | ) | ||||||||
Income tax benefit related to items of other comprehensive income | 6 | 205 | 911 | |||||||||
Other comprehensive income (loss) for the period, net of tax | 4,903 | (14,492 | ) | (59,311 | ) | |||||||
Total comprehensive income | $ | 73,039 | $ | 70,142 | $ | 55,293 | ||||||
F-8
Table of Contents
F-9
Table of Contents
F-10
Table of Contents
F-11
Table of Contents
F-12
Table of Contents
F-13
Table of Contents
• | Definite life intangibles, mainly core deposits, are amortized over their estimated life, generally on a straight-line basis, and are reviewed periodically for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. | |
• | Goodwill and other indefinite life intangibles are not amortized but are reviewed periodically for impairment at least annually. |
F-14
Table of Contents
F-15
Table of Contents
F-16
Table of Contents
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-17
Table of Contents
Investment Securities
The fair value of investment securities is the market value based on quoted market prices, when available, (Level 1) or market prices obtained from third-party pricing services for identical or comparable assets (Level 2). If listed prices or quotes are not available, fair value is based upon externally developed models that are unobservable inputs due to the limited market activity of the instrument (Level 3), as is the case with certain private label mortgage-backed securities held by the Corporation. Unlike U.S. agency mortgage-backed securities, the fair value of these private label securities cannot be readily determined because they are not actively traded in securities markets. Significant information used for fair value determination is proprietary with regards to specific characteristics such as the prepayment model which follows the amortizing schedule of the underlying loans, which is an unobservable input.
Private label mortgage-backed securities are collateralized by mortgages on single-family residential properties in the United States. The Corporation derived the fair value for these private label securities based on a market valuation received from a third party. The market valuation is calculated by discounting the estimated net cash flows over the projected life of the pool of underlying assets using prepayment, default and interest rate assumptions that market participants would commonly use for similar mortgage asset classes that are subject to prepayment, credit and interest rate risk.
Derivative Instruments
The fair value of the derivative instruments is provided by valuation experts and counterparties (Level 2). Certain derivatives with limited market activity, as is the case with derivative instruments named as “reference caps”, are valued using externally developed models that consider unobservable market parameters (Level 3). Reference caps are used to mainly hedge interest rate risk inherent on private label mortgage-backed securities, thus are tied to the notional amount of the underlying mortgage loans originated in the United States. Significant information used for fair value determination is proprietary with regards to specific characteristics such as the prepayment model which follows the amortizing schedule of the underlying loans, which is an unobservable input.
The Corporation derived the fair value of reference caps based on a market valuation received from a third party. The valuation model uses Black formula which is a benchmark standard in financial industry. The Black formula uses as inputs the strike price of the cap, forward LIBOR rates, volatility estimates and discount rates to estimate the option value. LIBOR rates and swap rates used in the model are obtained from Bloomberg L.P. (“Bloomberg”) every day and build zero coupon curve based on the Bloomberg LIBOR/Swap curve. The discount factor is then calculated from the zero coupon curve. The cap is the sum of all caplets. For each caplet, the rate is reset at the beginning of each reporting period and payments are made at the end of each period. The cash flow of caplet is then discounted from each payment date.
F-18
Table of Contents
F-19
Table of Contents
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Balance | Balance | |||||||
Money market instruments, interest ranging from 2.47% to 4.40% (2006 -4.87% to 5.29%) | $ | 148,579 | $ | 377,296 | ||||
Federal funds sold, interest 4.05% (2006 - 5.15%) | 7,957 | 42,051 | ||||||
Time deposits with other financial institutions, interest ranging from 3.90% to 4.72% (2006 - 5.14% to 5.38%) | 26,600 | 37,123 | ||||||
Total | $ | 183,136 | $ | 456,470 | ||||
F-20
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December 31, 2007 | December 31, 2006 | |||||||||||||||||||||||||||||||||||||||
Gross | Weighted | Gross | Weighted | |||||||||||||||||||||||||||||||||||||
Amortized | Unrealized | Fair | average | Amortized | Unrealized | Fair | average | |||||||||||||||||||||||||||||||||
cost | gains | losses | value | yield% | cost | gains | losses | value | yield% | |||||||||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||
Obligations of U.S. government sponsored agencies: | ||||||||||||||||||||||||||||||||||||||||
After 5 to 10 years | $ | 6,975 | $ | 26 | $ | — | $ | 7,001 | 6.05 | $ | 402,542 | $ | 6 | $ | 11,820 | $ | 390,728 | 4.31 | ||||||||||||||||||||||
After 10 years | 8,984 | 47 | — | 9,031 | 6.21 | 12,984 | — | 120 | 12,864 | 6.16 | ||||||||||||||||||||||||||||||
Puerto Rico government obligations: | ||||||||||||||||||||||||||||||||||||||||
After 1 to 5 years | 13,947 | 141 | 347 | 13,741 | 4.99 | 4,635 | 126 | — | 4,761 | 6.18 | ||||||||||||||||||||||||||||||
After 5 to 10 years | 7,245 | 247 | 99 | 7,393 | 5.67 | 15,534 | 219 | 508 | 15,245 | 4.86 | ||||||||||||||||||||||||||||||
After 10 years | 3,416 | 37 | 66 | 3,387 | 5.64 | 5,376 | 98 | 178 | 5,296 | 5.88 | ||||||||||||||||||||||||||||||
United States and Puerto Rico government obligations | 40,567 | 498 | 512 | 40,553 | 5.62 | 441,071 | 449 | 12,626 | 428,894 | 4.43 | ||||||||||||||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||||||||||||||||||
FHLMC certificates: | ||||||||||||||||||||||||||||||||||||||||
Within 1 year | 98 | 1 | — | 99 | 5.50 | 82 | — | — | 82 | 5.99 | ||||||||||||||||||||||||||||||
After 1 to 5 years | 640 | 20 | — | 660 | 7.01 | 1,666 | 36 | — | 1,702 | 6.98 | ||||||||||||||||||||||||||||||
After 10 years | 158,070 | 235 | 111 | 158,194 | 5.60 | 5,846 | 55 | 110 | 5,791 | 5.61 | ||||||||||||||||||||||||||||||
158,808 | 256 | 111 | 158,953 | 5.61 | 7,594 | 91 | 110 | 7,575 | 5.92 | |||||||||||||||||||||||||||||||
GNMA certificates: | ||||||||||||||||||||||||||||||||||||||||
After 1 to 5 years | 496 | 8 | — | 504 | 6.48 | 866 | 10 | — | 876 | 6.44 | ||||||||||||||||||||||||||||||
After 5 to 10 years | 708 | 6 | 5 | 709 | 6.01 | 795 | 3 | 3 | 795 | 5.53 | ||||||||||||||||||||||||||||||
After 10 years | 42,665 | 582 | 120 | 43,127 | 5.93 | 379,363 | 470 | 7,136 | 372,697 | 5.26 | ||||||||||||||||||||||||||||||
43,869 | 596 | 125 | 44,340 | 5.94 | 381,024 | 483 | 7,139 | 374,368 | 5.26 | |||||||||||||||||||||||||||||||
FNMA certificates: | ||||||||||||||||||||||||||||||||||||||||
After 1 to 5 years | 34 | 1 | — | 35 | 7.08 | 90 | — | — | 90 | 7.34 | ||||||||||||||||||||||||||||||
After 5 to 10 years | 289,125 | 138 | 750 | 288,513 | 4.93 | 18,040 | 10 | 305 | 17,745 | 4.87 | ||||||||||||||||||||||||||||||
After 10 years | 608,942 | 5,290 | 582 | 613,650 | 5.65 | 864,507 | 674 | 11,476 | 853,705 | 5.18 | ||||||||||||||||||||||||||||||
898,101 | 5,429 | 1,332 | 902,198 | 5.42 | 882,637 | 684 | 11,781 | 871,540 | 5.17 | |||||||||||||||||||||||||||||||
Mortgage pass-through certificates: | ||||||||||||||||||||||||||||||||||||||||
After 10 years | 162,082 | 3 | 28,407 | 133,678 | 6.14 | 367 | 3 | — | 370 | 7.28 | ||||||||||||||||||||||||||||||
Mortgage-backed securities | 1,262,860 | 6,284 | 29,975 | 1,239,169 | 5.55 | 1,271,622 | 1,261 | 19,030 | 1,253,853 | 5.21 | ||||||||||||||||||||||||||||||
Corporate bonds: | ||||||||||||||||||||||||||||||||||||||||
After 5 to 10 years | 1,300 | — | 198 | 1,102 | 7.70 | 1,300 | — | 83 | 1,217 | 7.70 | ||||||||||||||||||||||||||||||
After 10 years | 4,412 | — | 1,066 | 3,346 | 7.97 | 4,412 | — | 668 | 3,744 | 7.97 | ||||||||||||||||||||||||||||||
Corporate bonds | 5,712 | — | 1,264 | 4,448 | 7.91 | 5,712 | — | 751 | 4,961 | 7.91 | ||||||||||||||||||||||||||||||
Equity securities (without contractual maturity) | 2,638 | — | 522 | 2,116 | — | 12,406 | 452 | 143 | 12,715 | 3.70 | ||||||||||||||||||||||||||||||
Total investment securities available-for-sale | $ | 1,311,777 | $ | 6,782 | $ | 32,273 | $ | 1,286,286 | 5.55 | $ | 1,730,811 | $ | 2,162 | $ | 32,550 | $ | 1,700,423 | 5.01 | ||||||||||||||||||||||
F-21
Table of Contents
Amortized Cost | Fair Value | |||||||
(Dollars in thousands) | ||||||||
Within 1 year | $ | 98 | $ | 99 | ||||
After 1 to 5 years | 15,117 | 14,940 | ||||||
After 5 to 10 years | 305,353 | 304,718 | ||||||
After 10 years | 988,571 | 964,413 | ||||||
Total | 1,309,139 | 1,284,170 | ||||||
Equity securities | 2,638 | 2,116 | ||||||
Total investment securities available-for-sale | $ | 1,311,777 | $ | 1,286,286 | ||||
F-22
Table of Contents
As of December 31, 2007 | ||||||||||||||||||||||||
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||
Puerto Rico government obligations | $ | — | $ | — | $ | 13,648 | $ | 512 | $ | 13,648 | $ | 512 | ||||||||||||
Mortgage-backed securities | ||||||||||||||||||||||||
FHLMC | 48,202 | 40 | 3,436 | 71 | 51,638 | 111 | ||||||||||||||||||
GNMA | 625 | 11 | 26,887 | 114 | 27,512 | 125 | ||||||||||||||||||
FNMA | 285,973 | 274 | 221,902 | 1,058 | 507,875 | 1,332 | ||||||||||||||||||
Mortgage pass-through certificates | 133,337 | 28,407 | — | — | 133,337 | 28,407 | ||||||||||||||||||
Corporate Bonds | — | — | 4,448 | 1,264 | 4,448 | 1,264 | ||||||||||||||||||
Equity securities | 1,384 | 522 | — | — | 1,384 | 522 | ||||||||||||||||||
$ | 469,521 | $ | 29,254 | $ | 270,321 | $ | 3,019 | $ | 739,842 | $ | 32,273 | |||||||||||||
As of December 31, 2006 | ||||||||||||||||||||||||
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||
Obligations of U.S. Government sponsored agencies | $ | 21,802 | $ | 146 | $ | 381,790 | $ | 11,794 | $ | 403,592 | $ | 11,940 | ||||||||||||
Puerto Rico government obligations | — | — | 13,474 | 686 | 13,474 | 686 | ||||||||||||||||||
Mortgage-backed securities | ||||||||||||||||||||||||
FHLMC | 30 | — | 3,903 | 110 | 3,933 | 110 | ||||||||||||||||||
GNMA | 354,073 | 7,139 | — | — | 354,073 | 7,139 | ||||||||||||||||||
FNMA | 376,813 | 4,719 | 465,606 | 7,062 | 842,419 | 11,781 | ||||||||||||||||||
Corporate Bonds | — | — | 4,961 | 751 | 4,961 | 751 | ||||||||||||||||||
Equity securities | 1,629 | 143 | — | — | 1,629 | 143 | ||||||||||||||||||
$ | 754,347 | $ | 12,147 | $ | 869,734 | $ | 20,403 | $ | 1,624,081 | $ | 32,550 | |||||||||||||
F-23
Table of Contents
December 31, 2007 | December 31, 2006 | |||||||||||||||||||||||||||||||||||||||
Gross | Weighted | Gross | Weighted | |||||||||||||||||||||||||||||||||||||
Amortized | Unrealized | Fair | average | Amortized | Unrealized | Fair | average | |||||||||||||||||||||||||||||||||
cost | gains | losses | value | yield % | cost | gains | losses | value | yield % | |||||||||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||
U.S. Treasury securities: | ||||||||||||||||||||||||||||||||||||||||
Due within 1 year | $ | 254,882 | $ | 369 | $ | 24 | $ | 255,227 | 4.14 | $ | 158,402 | $ | 44 | $ | — | $ | 158,446 | 4.97 | ||||||||||||||||||||||
Obligations of other U.S. Government sponsored agencies: | ||||||||||||||||||||||||||||||||||||||||
Due within 1 year | — | — | — | — | — | 24,695 | 5 | — | 24,700 | 5.25 | ||||||||||||||||||||||||||||||
After 10 years | 2,110,265 | 1,486 | 2,160 | 2,109,591 | 5.82 | 2,074,943 | — | 53,668 | 2,021,275 | 5.83 | ||||||||||||||||||||||||||||||
Puerto Rico government obligations: | ||||||||||||||||||||||||||||||||||||||||
After 5 to 10 years | 17,302 | 541 | 107 | 17,736 | 5.85 | 16,716 | 553 | 115 | 17,154 | 5.84 | ||||||||||||||||||||||||||||||
After 10 years | 13,920 | — | 256 | 13,664 | 5.50 | 15,000 | 53 | — | 15,053 | 5.50 | ||||||||||||||||||||||||||||||
United States and Puerto Rico government obligations | 2,396,369 | 2,396 | 2,547 | 2,396,218 | 5.64 | 2,289,756 | 655 | 53,783 | 2,236,628 | 5.76 | ||||||||||||||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||||||||||||||||||
FHLMC certificates | ||||||||||||||||||||||||||||||||||||||||
After 5 to 10 years | 11,274 | — | 116 | 11,158 | 3.65 | 15,438 | — | 577 | 14,861 | 3.61 | ||||||||||||||||||||||||||||||
FNMA certificates: | ||||||||||||||||||||||||||||||||||||||||
After 5 to 10 years | 69,553 | — | 1,067 | 68,486 | 4.30 | 14,234 | — | 484 | 13,750 | 3.80 | ||||||||||||||||||||||||||||||
After 10 years | 797,887 | 61 | 13,785 | 784,163 | 4.42 | 1,025,703 | 48 | 36,064 | 989,687 | 4.40 | ||||||||||||||||||||||||||||||
Mortgage-backed securities: | 878,714 | 61 | 14,968 | 863,807 | 4.40 | 1,055,375 | 48 | 37,125 | 1,018,298 | 4.38 | ||||||||||||||||||||||||||||||
Corporate Bonds: | ||||||||||||||||||||||||||||||||||||||||
After 10 years | 2,000 | — | 91 | 1,909 | 5.80 | 2,000 | 40 | — | 2,040 | 5.80 | ||||||||||||||||||||||||||||||
Total investment securities held-to-maturity | $ | 3,277,083 | $ | 2,457 | $ | 17,606 | $ | 3,261,934 | 5.31 | $ | 3,347,131 | $ | 743 | $ | 90,908 | $ | 3,256,966 | 5.33 | ||||||||||||||||||||||
Amortized Cost | Fair Value | |||||||
(Dollars in thousands) | ||||||||
Within 1 year | $ | 254,882 | $ | 255,227 | ||||
After 5 to 10 years | 98,129 | 97,380 | ||||||
After 10 years | 2,924,072 | 2,909,327 | ||||||
Total Investment securities held-to-maturity | $ | 3,277,083 | $ | 3,261,934 | ||||
F-24
Table of Contents
December 31, 2007 | December 31, 2006 | |||||||||||||||||||||||||||||||
Gross | Gross | |||||||||||||||||||||||||||||||
Amortized | Unrealized | Fair | Amortized | Unrealized | Fair | |||||||||||||||||||||||||||
cost | gains | losses | value | cost | gains | losses | value | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
U.S. government and U.S. government sponsored agencies | ||||||||||||||||||||||||||||||||
Due within 30 days | $ | 45,994 | $ | 3 | $ | — | $ | 45,997 | $ | 199,973 | $ | 27 | $ | — | $ | 200,000 | ||||||||||||||||
After 30 days up to 60 days | 21,932 | 1 | 10 | 21,923 | — | — | — | — | ||||||||||||||||||||||||
After 60 days up to 90 days | 79,191 | 41 | — | 79,232 | 175,885 | 78 | — | 175,963 | ||||||||||||||||||||||||
$ | 147,117 | $ | 45 | $ | 10 | $ | 147,152 | $ | 375,858 | $ | 105 | $ | — | $ | 375,963 | |||||||||||||||||
As of December 31, 2007 | ||||||||||||||||||||||||
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||
Other U.S. government sponsored agencies | $ | 616,572 | $ | 1,568 | $ | 24,469 | $ | 592 | $ | 641,041 | $ | 2,160 | ||||||||||||
U.S. Treasury notes | 24,697 | 24 | — | — | 24,697 | 24 | ||||||||||||||||||
Puerto Rico government obligations | 13,664 | 256 | 4,200 | 107 | 17,864 | 363 | ||||||||||||||||||
Mortgage-backed securities | ||||||||||||||||||||||||
FHLMC | — | — | 11,158 | 116 | 11,158 | 116 | ||||||||||||||||||
FNMA | 849,341 | 14,852 | 849,341 | 14,852 | ||||||||||||||||||||
Corporate Bonds | 1,909 | 91 | — | — | 1,909 | 91 | ||||||||||||||||||
$ | 656,842 | $ | 1,939 | $ | 889,168 | $ | 15,667 | $ | 1,546,010 | $ | 17,606 | |||||||||||||
As of December 31, 2006 | ||||||||||||||||||||||||
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||
Other U.S. government sponsored agencies | $ | — | $ | — | $ | 2,021,275 | $ | 53,668 | $ | 2,021,275 | $ | 53,668 | ||||||||||||
Puerto Rico government obligations | — | �� | 3,978 | 115 | 3,978 | 115 | ||||||||||||||||||
Mortgage-backed securities | ||||||||||||||||||||||||
FHLMC | — | — | 14,861 | 577 | 14,861 | 577 | ||||||||||||||||||
FNMA | 24,589 | 1,020 | 975,510 | 35,528 | 1,000,099 | 36,548 | ||||||||||||||||||
$ | 24,589 | $ | 1,020 | $ | 3,015,624 | $ | 89,888 | $ | 3,040,213 | $ | 90,908 | |||||||||||||
F-25
Table of Contents
2007 | 2006 | |||||||||||||||
Amortized | Amortized | |||||||||||||||
Cost | Fair Value | Cost | Fair Value | |||||||||||||
(In thousands) | ||||||||||||||||
FHLMC | $ | 1,203,395 | $ | 1,201,817 | $ | 1,012,864 | $ | 991,142 | ||||||||
GNMA | 43,869 | 44,340 | 381,024 | 374,368 | ||||||||||||
FNMA | 2,700,600 | 2,691,192 | 2,839,631 | 2,763,872 | ||||||||||||
FHLB | 283,035 | 282,800 | 428,160 | 423,819 | ||||||||||||
RG Crown Mortgage Loan Trust | 161,744 | 133,337 | — | — |
F-26
Table of Contents
Year ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(In thousands) | ||||||||||||
Interest on money market investments: | ||||||||||||
Taxable | $ | 4,805 | $ | 21,816 | $ | 2,974 | ||||||
Exempt | 17,226 | 49,098 | 18,912 | |||||||||
22,031 | 70,914 | 21,886 | ||||||||||
Mortgage-backed securities: | ||||||||||||
Taxable | 2,044 | 3,121 | 3,391 | |||||||||
Exempt | 110,816 | 121,687 | 127,377 | |||||||||
112,860 | 124,808 | 130,768 | ||||||||||
PR Government obligations, U.S. Treasury securities and U.S. Government agencies: | ||||||||||||
Taxable | — | — | — | |||||||||
Exempt | 148,986 | 154,079 | 134,614 | |||||||||
148,986 | 154,079 | 134,614 | ||||||||||
Equity securities: | ||||||||||||
Taxable | — | 274 | 588 | |||||||||
Exempt | 3 | 76 | 1,038 | |||||||||
3 | 350 | 1,626 | ||||||||||
Other investment securities (including FHLB dividends): | ||||||||||||
Taxable | 3,426 | 2,579 | 5,668 | |||||||||
Exempt | — | 31 | 928 | |||||||||
3,426 | 2,610 | 6,596 | ||||||||||
Total interest and dividends on investments | $ | 287,306 | $ | 352,761 | $ | 295,490 | ||||||
Year ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(In thousands) | ||||||||||||
Interest income on investment securities and money market investments | $ | 287,990 | $ | 350,750 | $ | 291,859 | ||||||
Dividends on FHLB stock | 2,861 | 2,009 | 3,286 | |||||||||
Net interest settlement on interest rate swaps | — | (25 | ) | (478 | ) | |||||||
Interest income excluding unrealized (loss) gain on derivatives (economic hedges) | 290,851 | 352,734 | 294,667 | |||||||||
Unrealized (loss) gain on derivatives (economic hedges) from interest rate caps and interest rate swaps on corporate bonds | (3,545 | ) | 27 | 823 | ||||||||
Total interest income and dividends on investments | $ | 287,306 | $ | 352,761 | $ | 295,490 | ||||||
F-27
Table of Contents
December 31, | December 31, | |||||||
2007 | 2006 | |||||||
(In thousands) | ||||||||
Residential real estate loans, mainly secured by first mortgages | $ | 3,143,497 | $ | 2,737,392 | ||||
Commercial loans: | ||||||||
Construction loans | 1,454,644 | 1,511,608 | ||||||
Commercial mortgage loans | 1,279,251 | 1,215,040 | ||||||
Commercial loans | 3,231,126 | 2,698,141 | ||||||
Loans to local financial institutions collateralized by real estate mortgages and pass-through trust certificates | 624,597 | 932,013 | ||||||
Commercial loans | 6,589,618 | 6,356,802 | ||||||
Finance leases | 378,556 | 361,631 | ||||||
Consumer loans | 1,667,151 | 1,772,917 | ||||||
Loans receivable | 11,778,822 | 11,228,742 | ||||||
Allowance for loan and lease losses | (190,168 | ) | (158,296 | ) | ||||
Loans receivable, net | 11,588,654 | 11,070,446 | ||||||
Loans held for sale | 20,924 | 35,238 | ||||||
Total loans | $ | 11,609,578 | $ | 11,105,684 | ||||
F-28
Table of Contents
F-29
Table of Contents
Year ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(In thousands) | ||||||||||||
Balance at beginning of year | $ | 158,296 | $ | 147,999 | $ | 141,036 | ||||||
Provision charged to income | 120,610 | 74,991 | 50,644 | |||||||||
Losses charged against the allowance | (94,830 | ) | (77,209 | ) | (51,920 | ) | ||||||
Recoveries credited to the allowance | 6,092 | 12,515 | 6,876 | |||||||||
Other adjustments(1) | — | — | 1,363 | |||||||||
Balance at end of year | $ | 190,168 | $ | 158,296 | $ | 147,999 | ||||||
(1) | Represents allowance for loan losses from the acquisition of FirstBank Florida. |
2007 | 2006 | 2005 | ||||||||||
(In thousands) | ||||||||||||
Impaired loans | $ | 151,818 | $ | 63,022 | $ | 59,801 | ||||||
Impaired loans with valuation allowance | 66,941 | 63,022 | 59,801 | |||||||||
Allowance for impaired loans | 7,523 | 9,989 | 9,219 | |||||||||
During the year: | ||||||||||||
Average balance of impaired loans | 116,362 | 54,083 | 59,681 | |||||||||
Interest income recognized on impaired loans | 6,588 | 3,239 | 4,584 |
Table of Contents
Amount | ||||
(In thousands) | ||||
Balance at December 31, 2005 | $ | 79,403 | ||
New loans | 57,622 | |||
Payments | (15,800 | ) | ||
Other changes | (2,372 | ) | ||
Balance at December 31, 2006 | 118,853 | |||
New loans | 82,611 | |||
Payments | (20,934 | ) | ||
Other changes | 2,043 | |||
Balance at December 31, 2007 | $ | 182,573 | ||
Useful life | Year ended December 31, | |||||||||||
in years | 2007 | 2006 | ||||||||||
(Dollars in thousands) | ||||||||||||
Buildings and improvements | 10-40 | $ | 80,044 | $ | 75,516 | |||||||
Leasehold improvements | 1-15 | 41,328 | 37,573 | |||||||||
Furniture and equipment | 3-10 | 107,373 | 98,393 | |||||||||
228,745 | 211,482 | |||||||||||
Accumulated depreciation | (116,213 | ) | (100,039 | ) | ||||||||
112,532 | 111,443 | |||||||||||
Land | 21,867 | 21,824 | ||||||||||
Projects in progress | 28,236 | 22,395 | ||||||||||
Total premises and equipment, net | $ | 162,635 | $ | 155,662 | ||||||||
Table of Contents
(Dollars in thousands) | ||||
2008 | $ | 3,269 | ||
2009 | 3,061 | |||
2010 | 2,325 | |||
2011 | 2,325 | |||
2012 and thereafter | 11,956 |
December 31, | ||||||||
2007 | 2006 | |||||||
(In thousands) | ||||||||
Type of account and interest rate: | ||||||||
Non-interest bearing checking accounts | $ | 621,884 | $ | 790,985 | ||||
Savings accounts – 0.60% to 5.00% (2006 - 1.00% to 5.00%) | 1,036,662 | 984,332 | ||||||
Interest bearing checking accounts – 0.40% to 5.00% (2006 - 1.01% to 5.00%) | 518,570 | 433,278 | ||||||
Certificates of deposit – 0.75% to 7.00% (2006 – 0.75% to 7.25%) | 1,680,344 | 1,696,213 | ||||||
Brokered certificates of deposit (1)– 3.20% to 6.50% (2006 – 3.00% to 6.13%) | 7,177,061 | 7,099,479 | ||||||
$ | 11,034,521 | $ | 11,004,287 | |||||
(1) | Includes $4,186,563 measured at fair value as of December 31, 2007. |
Table of Contents
Total | ||||
(In thousands) | ||||
Over one year to two years | $ | 855,415 | ||
Over two years to three years | 362,844 | |||
Over three years to four years | 179,014 | |||
Over four years to five years | 165,826 | |||
Over five years | 3,360,767 | |||
Total | $ | 4,923,866 | ||
Year ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(In thousands) | ||||||||||||
Interest bearing checking accounts | $ | 11,365 | $ | 5,919 | $ | 4,730 | ||||||
Savings | 15,037 | 12,970 | 12,572 | |||||||||
Certificates of deposit | 82,767 | 80,284 | 52,769 | |||||||||
Brokered certificates of deposit | 419,571 | 505,860 | 323,081 | |||||||||
Total | $ | 528,740 | $ | 605,033 | $ | 393,152 | ||||||
Table of Contents
2007 | 2006 | 2005 | ||||||||||
(In thousands) | ||||||||||||
Interest expense on deposits | $ | 515,394 | $ | 530,181 | $ | 308,893 | ||||||
Amortization of broker placement fees (1) | 9,056 | 19,896 | 15,096 | |||||||||
Interest expense on deposits excluding net unrealized loss on derivatives ( undesignated and designated hedges), SFAS 159 brokered CDs and accretion of basis adjustment on fair value hedges | 524,450 | 550,077 | 323,989 | |||||||||
Net unrealized loss on derivatives (undesignated and designated hedges) and SFAS 159 brokered CDs | 4,290 | 58,532 | 69,163 | |||||||||
Accretion of basis adjustment on fair value hedges | — | (3,576 | ) | — | ||||||||
Total interest expense on deposits | $ | 528,740 | $ | 605,033 | $ | 393,152 | ||||||
(1) | For 2007 the amortization of broker placement fees is related to brokered CDs not elected for the fair value option under SFAS 159. |
December 31, | ||||||||
2007 | 2006 | |||||||
(In thousands) | ||||||||
Federal funds purchased, interest ranging from 4.50% to 5.12% | $ | 161,256 | $ | — | ||||
Repurchase agreements, interest ranging from 3.26% to 5.67% (2006 - 3.26% to 5.84%) | 2,933,390 | 3,687,724 | ||||||
Total | $ | 3,094,646 | $ | 3,687,724 | ||||
December 31, 2007 | ||||
(In thousands) | ||||
One to thirty days | $ | 807,146 | ||
Over thirty to ninety days | — | |||
Over ninety days to one year | — | |||
Over one year | 2,287,500 | |||
Total | $ | 3,094,646 | ||
F-34
Table of Contents
December 31, 2007 | ||||||||||||||||
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 | $ | 1,984,596 | $ | 1,759,948 | $ | 1,984,356 | 5.83 | % | ||||||||
Mortgage-backed securities | 1,323,226 | 1,173,442 | 1,317,523 | 5.06 | % | |||||||||||
Total | $ | 3,307,822 | $ | 2,933,390 | $ | 3,301,879 | ||||||||||
Accrued interest receivable | $ | 28,253 | ||||||||||||||
December 31, 2006 | ||||||||||||||||
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 | $ | 2,459,976 | $ | 2,233,290 | $ | 2,394,924 | 5.58 | % | ||||||||
PR Government securities | 374 | 340 | 393 | 6.48 | % | |||||||||||
Mortgage-backed securities | 1,601,689 | 1,454,094 | 1,564,739 | 4.88 | % | |||||||||||
Total | $ | 4,062,039 | $ | 3,687,724 | $ | 3,960,056 | ||||||||||
Accrued interest receivable | $ | 38,412 | ||||||||||||||
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Weighted-average | ||||||||
Counterparty | Amount | maturity (in months) | ||||||
(Dollars in thousands) | ||||||||
Barclays Capital | $ | 428,690 | 1 | |||||
Citigroup Global Markets | 400,000 | 84 | ||||||
Credit Suisse First Boston | 884,500 | 64 | ||||||
Morgan Stanley | 260,200 | 48 | ||||||
JP Morgan | 860,000 | 83 | ||||||
UBS Financial Services Inc. | 100,000 | 61 | ||||||
$ | 2,933,390 | |||||||
F-36
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December 31, | ||||||||||||
Maturity | Interest rate | 2007 | 2006 | |||||||||
(Dollars in thousands) | ||||||||||||
December 19, 2007 | 5.60 | % | $ | — | $ | 20,000 | ||||||
January 2, 2008 | 4.56 | % | 100,000 | — | ||||||||
January 2, 2008 | 4.11 | % | 90,000 | — | ||||||||
January 2, 2008 | 4.40 | % | 30,000 | — | ||||||||
January 4, 2008 | 4.28 | % | 200,000 | — | ||||||||
January 7, 2008 | 4.28 | % | 48,000 | — | ||||||||
January 25, 2008 | 3.81 | % | 10,000 | 10,000 | ||||||||
June 19, 2008 | 5.61 | % | 15,000 | 15,000 | ||||||||
October 9, 2008 | 5.10 | % | 14,000 | 14,000 | ||||||||
October 16, 2008 | 5.09 | % | 15,000 | 15,000 | ||||||||
November 17, 2008 | tied to 3-month LIBOR (4.94% and 5.41% at December 31, 2007 and December 31, 2006, respectively) | 200,000 | 200,000 | |||||||||
December 15, 2008 | tied to 3-month LIBOR (5.03% and 5.40% at December 31, 2007 and December 31, 2006, respectively) | 200,000 | 200,000 | |||||||||
January 15, 2009 | 5.69 | % | 20,000 | 20,000 | ||||||||
June 19, 2009 | 5.60 | % | 15,000 | 15,000 | ||||||||
July 21, 2009 | 5.44 | % | 20,000 | 20,000 | ||||||||
October 24, 2009 | 4.38 | % | 10,000 | — | ||||||||
December 14, 2009 | 4.96 | % | 7,000 | 7,000 | ||||||||
March 15, 2010 | 4.84 | % | 8,000 | — | ||||||||
May 21, 2010 | 5.16 | % | 10,000 | — | ||||||||
December 14, 2010 | 4.97 | % | 7,000 | 7,000 | ||||||||
March 14, 2011 | 4.86 | % | 8,000 | — | ||||||||
May 21, 2011 | 5.19 | % | 10,000 | — | ||||||||
October 19, 2011 | 5.22 | % | 10,000 | 10,000 | ||||||||
December 14, 2011 | 4.99 | % | 7,000 | 7,000 | ||||||||
March 14, 2012 | 4.88 | % | 9,000 | — | ||||||||
May 21, 2012 | 5.22 | % | 10,000 | — | ||||||||
September 26, 2012 | 4.95 | % | 10,000 | — | ||||||||
October 24, 2012 | 4.65 | % | 10,000 | — | ||||||||
May 21, 2013 | 5.26 | % | 10,000 | — | ||||||||
$ | 1,103,000 | $ | 560,000 | |||||||||
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December 31, | ||||||||
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Callable fixed-rate notes, bearing interest at 6.00%, maturing on October 1, 2024 (1) | $ | — | $ | 151,554 | ||||
Callable step-rate notes, bearing step increasing interest from 5.00% to 7.00% (5.50% as of December 31, 2007 and 5.00% as of December 31, 2006), maturing on October 18, 2019, measured at fair value under SFAS 159 as of December 31, 2007. | 14,306 | 15,616 | ||||||
Dow Jones Industrial Average (DJIA) linked principal protected notes: | ||||||||
Series A, maturing on February 28, 2012 | 7,845 | 7,525 | ||||||
Series B, maturing on May 27, 2011 | 8,392 | 8,133 | ||||||
$ | 30,543 | $ | 182,828 | |||||
(1) | During 2007, the Corporation redeemed the $150 million medium-term note. The derecognition of the unamortized balances of the basis adjustment, placement fees and debt issue costs resulted in adjustments to earnings of approximately $1.3 million, increasing the Corporation’s net interest income. |
December 31, | ||||||||
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Junior subordinated debentures due in 2034, interest bearing at a floating rate of 2.75% over three-month LIBOR (2007 - 7.74%, 2006 - 8.11%) | $ | 102,951 | $ | 102,853 | ||||
Junior subordinated debentures due in 2034, interest bearing at a floating rate of 2.50% over three-month LIBOR (2007 - 7.43%, 2006 - 7.87%) | 128,866 | 128,866 | ||||||
$ | 231,817 | $ | 231,719 | |||||
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Year ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(In thousands, except per share data) | ||||||||||||
Net income: | ||||||||||||
Net income | $ | 68,136 | $ | 84,634 | $ | 114,604 | ||||||
Less: Preferred stock dividend | (40,276 | ) | (40,276 | ) | (40,276 | ) | ||||||
Net income attributable to common stockholders | $ | 27,860 | $ | 44,358 | $ | 74,328 | ||||||
Weighted-Average Shares: | ||||||||||||
Basic weighted average common shares outstanding | 86,549 | 82,835 | 80,847 | |||||||||
Average potential common shares | 317 | 303 | 1,924 | |||||||||
Diluted weighted average number of common shares outstanding | 86,866 | 83,138 | 82,771 | |||||||||
Earnings per common share: | ||||||||||||
Basic | $ | 0.32 | $ | 0.54 | $ | 0.92 | ||||||
Diluted | $ | 0.32 | $ | 0.53 | $ | 0.90 | ||||||
F-39
Table of Contents
Regulatory requirement | ||||||||||||||||||||||||
For capital | To be | |||||||||||||||||||||||
Actual | adequacy purposes | well capitalized | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
At December 31, 2007 | ||||||||||||||||||||||||
Total Capital (to Risk-Weighted Assets) | ||||||||||||||||||||||||
First BanCorp | $ | 1,735,644 | 13.86 | % | $ | 1,001,582 | 8 | % | N/A | N/A | ||||||||||||||
FirstBank | $ | 1,570,982 | 13.23 | % | $ | 949,858 | 8 | % | $ | 1,187,323 | 10 | % | ||||||||||||
FirstBank Florida | $ | 69,446 | 10.92 | % | $ | 50,878 | 8 | % | $ | 63,598 | 10 | % | ||||||||||||
Tier I Capital (to Risk-Weighted Assets) | ||||||||||||||||||||||||
First BanCorp | $ | 1,578,998 | 12.61 | % | $ | 500,791 | 4 | % | N/A | N/A | ||||||||||||||
FirstBank | $ | 1,422,375 | 11.98 | % | $ | 474,929 | 4 | % | $ | 712,394 | 6 | % | ||||||||||||
FirstBank Florida | $ | 66,240 | 10.42 | % | $ | 25,439 | 4 | % | $ | 38,159 | 6 | % | ||||||||||||
Leverage ratio (1) | ||||||||||||||||||||||||
First BanCorp | $ | 1,578,998 | 9.29 | % | $ | 679,516 | 4 | % | N/A | N/A | ||||||||||||||
FirstBank | $ | 1,422,375 | 8.85 | % | $ | 643,065 | 4 | % | $ | 803,831 | 5 | % | ||||||||||||
FirstBank Florida | $ | 66,240 | 7.79 | % | $ | 33,999 | 4 | % | $ | 42,499 | 5 | % | ||||||||||||
At December 31, 2006 | ||||||||||||||||||||||||
Total Capital (to Risk-Weighted Assets) | ||||||||||||||||||||||||
First BanCorp | $ | 1,471,949 | 12.25 | % | $ | 961,299 | 8 | % | N/A | N/A | ||||||||||||||
FirstBank | $ | 1,398,527 | 12.25 | % | $ | 913,141 | 8 | % | $ | 1,141,427 | 10 | % | ||||||||||||
FirstBank Florida | $ | 63,970 | 11.35 | % | $ | 45,086 | 8 | % | $ | 56,357 | 10 | % | ||||||||||||
Tier I Capital (to Risk-Weighted Assets) | ||||||||||||||||||||||||
First BanCorp | $ | 1,329,058 | 11.06 | % | $ | 480,649 | 4 | % | N/A | N/A | ||||||||||||||
FirstBank | $ | 1,258,074 | 11.02 | % | $ | 456,571 | 4 | % | $ | 684,856 | 6 | % | ||||||||||||
FirstBank Florida | $ | 61,770 | 10.96 | % | $ | 22,543 | 4 | % | $ | 33,814 | 6 | % | ||||||||||||
Leverage ratio (1) | ||||||||||||||||||||||||
First BanCorp | $ | 1,329,058 | 7.82 | % | $ | 679,716 | 4 | % | N/A | N/A | ||||||||||||||
FirstBank | $ | 1,258,074 | 7.78 | % | $ | 647,238 | 4 | % | $ | 809,048 | 5 | % | ||||||||||||
FirstBank Florida | $ | 61,770 | 7.91 | % | $ | 31,253 | 4 | % | $ | 39,066 | 5 | % |
(1) | Tier 1 Capital to average assets in the case of First BanCorp and First Bank and Tier 1 Capital to adjusted total assets in the case of First Bank Florida. |
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December 31, 2005 | ||||
(Dollars in thousands, except | ||||
per share data) | ||||
Net income | ||||
As reported | $ | 114,604 | ||
Deduct: Stock-based employee compensation expense determined under fair value method | 6,118 | |||
Pro forma | $ | 108,486 | ||
Earnings per common share-basic: | ||||
As reported | $ | 0.92 | ||
Pro forma | $ | 0.84 | ||
Earnings per common share-diluted: | ||||
As reported | $ | 0.90 | ||
Pro forma | $ | 0.82 |
F-41
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For the year ended December 31, 2007 | ||||||||||||||||
Weighted-Average | ||||||||||||||||
Remaining | ||||||||||||||||
Weighted-Average | Contractual Term | Aggregate Intrisic | ||||||||||||||
Number of options | Exercise Price | (Years) | Value (in thousands) | |||||||||||||
Beginning of year | 3,024,410 | $ | 13.95 | |||||||||||||
Options granted | 1,170,000 | 9.20 | ||||||||||||||
Options cancelled | (57,500 | ) | 14.42 | |||||||||||||
End of period outstanding and exercisable | 4,136,910 | $ | 12.60 | 6.8 | $ | 45 | ||||||||||
2007 | 2006 | 2005 | ||||||||||
Weighted-average stock price at grant date and exercise price | $ | 9.20 | $ | 12.21 | $ | 23.92 | ||||||
Stock option estimated fair value | $ | 2.40-$2.45 | $ | 2.89-$4.60 | $ | 6.40-$6.41 | ||||||
Weighted-average estimated fair value | $ | 2.43 | $ | 4.36 | $ | 6.40 | ||||||
Expected stock option term (years) | 4.31-4.59 | 4.22-4.31 | 4.25-4.27 | |||||||||
Expected volatility | 32 | % | 39%-46 | % | 28 | % | ||||||
Weighted-average expected volatility | 32 | % | 45 | % | 28 | % | ||||||
Expected dividend yield | 3.0 | % | 2.2%-3.2 | % | 1.0 | % | ||||||
Weighted-average expected dividend yield | 3.0 | % | 2.3 | % | 1.0 | % | ||||||
Risk-free interest rate | 5.1 | % | 4.7%-5.6 | % | 4.2 | % |
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F-43
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F-44
Table of Contents
Year ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(In thousands) | ||||||||||||
Other commissions and fees | $ | 273 | $ | 1,470 | $ | 911 | ||||||
Insurance income | 10,877 | 11,284 | 9,443 | |||||||||
Other | 13,322 | 12,857 | 15,896 | |||||||||
Total | $ | 24,472 | $ | 25,611 | $ | 26,250 | ||||||
Year ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(In thousands) | ||||||||||||
Servicing and processing fees | $ | 6,574 | $ | 7,297 | $ | 6,573 | ||||||
Communications | 8,562 | 9,165 | 8,642 | |||||||||
Depreciation and expenses on revenue — earning equipment | 2,144 | 2,455 | 2,225 | |||||||||
Supplies and printing | 3,402 | 3,494 | 3,094 | |||||||||
Other | 21,144 | 14,327 | 14,764 | |||||||||
Total | $ | 41,826 | $ | 36,738 | $ | 35,298 | ||||||
F-45
Table of Contents
Year ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(In thousands) | ||||||||||||
Current income tax expense | $ | 7,925 | $ | 59,157 | $ | 75,239 | ||||||
Deferred income tax expense (benefit) | 13,658 | (31,715 | ) | (60,223 | ) | |||||||
Total income tax expense | $ | 21,583 | $ | 27,442 | $ | 15,016 | ||||||
Year ended December 31, | ||||||||||||||||||||||||
2007 | 2006 | 2005 | ||||||||||||||||||||||
% of | % of | % of | ||||||||||||||||||||||
pre-tax | pre-tax | pre-tax | ||||||||||||||||||||||
Amount | income | Amount | income | Amount | income | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Computed income tax at statutory rate | $ | 34,990 | 39.0 | % | $ | 46,512 | 41.5 | % | $ | 53,792 | 41.5 | % | ||||||||||||
Federal and state taxes | 227 | 0.3 | % | 1,657 | 1.5 | % | 4,996 | 3.9 | % | |||||||||||||||
Non-tax deductible expenses | 1,111 | 1.2 | % | 2,232 | 2.0 | % | 3,528 | 2.7 | % | |||||||||||||||
Benefit of net exempt income | (23,974 | ) | -26.7 | % | (34,601 | ) | -30.9 | % | (57,522 | ) | -44.4 | % | ||||||||||||
Deferred tax valuation allowance | (1,250 | ) | -1.4 | % | 3,209 | 2.9 | % | 2,847 | 2.2 | % | ||||||||||||||
2% temporary tax applicable to banks | — | — | 1,704 | 1.5 | % | — | — | |||||||||||||||||
Net operating loss carry forward | 7,003 | 7.8 | % | — | — | — | — | |||||||||||||||||
Other-net | 3,476 | 3.9 | % | 6,729 | 6.0 | % | 7,375 | 5.7 | % | |||||||||||||||
Total income tax provision | $ | 21,583 | 24.1 | % | $ | 27,442 | 24.5 | % | $ | 15,016 | 11.6 | % | ||||||||||||
F-46
Table of Contents
December 31, | ||||||||
2007 | 2006 | |||||||
(In thousands) | ||||||||
Deferred tax asset: | ||||||||
Allowance for loan and lease losses | $ | 74,118 | $ | 61,705 | ||||
Unrealized losses on derivative activities | 4,358 | 82,223 | ||||||
Deferred compensation | 1,301 | 2,312 | ||||||
Legal reserve | 123 | 29,198 | ||||||
Reserve for insurance premium cancellations | 711 | 703 | ||||||
Net operating loss and donation carryforward available | 7,198 | 2,552 | ||||||
Impairment on investments | 4,205 | 4,425 | ||||||
Tax credits available for carryforward | 7,117 | 7,117 | ||||||
Unrealized net loss on available-for-sale securities | 333 | — | ||||||
Other reserves and allowances | 3,490 | 1,690 | ||||||
Deferred tax asset | 102,954 | 191,925 | ||||||
Deferred tax liability: | ||||||||
Unrealized gain on available-for-sale securities | — | 145 | ||||||
Broker placement fees | — | 15,222 | ||||||
Differences between the assigned values and tax bases of assets and liabilities recognized in purchase business combinations | 4,885 | 5,056 | ||||||
Unrealized gain on other investments | 582 | 468 | ||||||
Other | 2,446 | 2,881 | ||||||
Deferred tax liability | 7,913 | 23,772 | ||||||
Valuation allowance | (4,911 | ) | (6,057 | ) | ||||
Deferred income taxes, net | $ | 90,130 | $ | 162,096 | ||||
F-47
Table of Contents
Year | Amount | |||
(Dollars in thousands) | ||||
2008 | $ | 10,168 | ||
2009 | 8,571 | |||
2010 | 7,231 | |||
2011 | 5,651 | |||
2012 | 4,767 | |||
2013 and later years | 26,796 | |||
Total | $ | 63,184 | ||
F-48
Table of Contents
Transition Impact | ||||||||||||
Ending Statement of | Net | Opening Statement of | ||||||||||
Financial Condition | Increase | Financial Condition | ||||||||||
as of December 31, 2006 | in Retained Earnings | as of January 1, 2007 | ||||||||||
(In thousands) | (Prior to Adoption) (1) | upon Adoption | (After Adoption of Fair Value Option) | |||||||||
Callable brokered CDs | $ | (4,513,020 | ) | $ | 149,621 | $ | (4,363,399 | ) | ||||
Medium-term notes | (15,637 | ) | 840 | (14,797 | ) | |||||||
Cumulative-effect adjustment (pre-tax) | 150,461 | |||||||||||
Tax impact | (58,683 | ) | ||||||||||
Cumulative-effect adjustment (net of tax), increase to retained earnings | $ | 91,778 | ||||||||||
(1) | Net of debt issue costs, placement fees and basis adjustment as of December 31, 2006. |
F-49
Table of Contents
Level 1 | Level 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 that are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. | |
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include (i) mortgage-backed securities for which the fair value is estimated based on valuations obtained from third-party pricing services for identical or comparable assets, (ii) debt securities with quoted prices that are traded less frequently than exchange-traded instruments and (iii) derivative contracts and financial liabilities (e.g., callable brokered CDs and medium-term notes elected for fair value option under SFAS 159) whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. | |
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models for which the determination of fair value requires significant management judgment or estimation. |
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December 31, 2007 | ||||||||||||||||||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||||||||||||||||||
Total Carrying | ||||||||||||||||||||||||||||||||
Total Carrying | Amount in | Assets/Liabilities | ||||||||||||||||||||||||||||||
Amount in | Statement of | Measured at Fair | ||||||||||||||||||||||||||||||
Statement of | Fair Value | Financial | Value on a | |||||||||||||||||||||||||||||
Financial Condition | Estimate | Condition | Fair Value Estimate | recurring basis | ||||||||||||||||||||||||||||
(In thousands) | 12/31/2007 (1) | 12/31/2007 (2) | 12/31/2006 (1) | 12/31/2006 (2) | 12/31/07 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Cash and due from banks and money market investments | $ | 378,945 | $ | 378,980 | $ | 568,811 | $ | 568,916 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Investment securities available for sale (3) | 1,286,286 | 1,286,286 | 1,700,423 | 1,700,423 | 1,286,286 | 22,596 | 1,130,012 | 133,678 | ||||||||||||||||||||||||
Investment securities held to maturity | 3,277,083 | 3,261,934 | 3,347,131 | 3,256,966 | — | — | — | — | ||||||||||||||||||||||||
Other equity securities | 64,908 | 64,908 | 40,159 | 40,159 | — | — | — | — | ||||||||||||||||||||||||
Loans receivable, including loans held for sale | 11,609,578 | 11,513,064 | 11,105,684 | 10,977,486 | — | — | — | — | ||||||||||||||||||||||||
Derivatives, included in assets (3) | 14,701 | 14,701 | 15,013 | 15,013 | 14,701 | — | 9,598 | 5,103 | ||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Deposits (4) | 11,034,521 | 11,030,229 | 11,004,287 | 10,673,249 | 4,186,563 | — | 4,186,563 | — | ||||||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 3,094,646 | 3,137,094 | 3,687,724 | 3,679,535 | — | — | — | — | ||||||||||||||||||||||||
Advances from FHLB | 1,103,000 | 1,107,347 | 560,000 | 560,416 | — | — | — | — | ||||||||||||||||||||||||
Notes Payable (5) | 30,543 | 30,043 | 182,828 | 177,555 | 14,306 | — | 14,306 | — | ||||||||||||||||||||||||
Other borrowings | 231,817 | 217,908 | 231,719 | 231,719 | — | — | — | — | ||||||||||||||||||||||||
Derivatives, included in liabilities (3) | 67,151 | 67,151 | 142,991 | 142,991 | 67,151 | — | 67,151 | — |
(1) | This column discloses carrying amount, information required annually by SFAS 107. | |
(2) | This column discloses fair value estimates required annually by SFAS 107. | |
(3) | Carried at fair value prior to the adoption of SFAS 159. | |
(4) | Amounts include Callable Brokered CDs for which the Corporation has elected the fair value option under SFAS 159. | |
(5) | Amounts include Medium-term notes for which the Corporation has elected the fair value option under SFAS 159. |
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 | ||||||||||||
Changes in Fair Value included in | Changes in Fair Value included in | Included in | ||||||||||
Interest Expense | Interest Expense | Current-Period | ||||||||||
(In thousands) | on Deposits (1) | on Notes Payable (1) | 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 the Corporation has elected to carry at fair value under the provisions of SFAS 159 are recorded in interest expense in the Consolidated Statements of Income based on their contractual coupons. |
F-51
Table of Contents
Total Fair Value Measurements (Year ended December 31, 2007) | ||||||||
(In thousands) | Derivatives (1) | Securities Available For Sale (2) | ||||||
Beginning balance | $ | 9,088 | $ | 370 | ||||
Total losses (realized/unrealized): | ||||||||
Included in earnings | (3,985 | ) | — | |||||
Included in other comprehensive income | — | (28,407 | ) | |||||
New instruments acquired | — | 182,376 | ||||||
Principal repayments and amortization | — | (20,661 | ) | |||||
Transfers in and/or out of Level 3 | — | — | ||||||
Ending balance | $ | 5,103 | $ | 133,678 | ||||
(1) | Amounts related to the valuation of interest rate cap agreements which were carried at fair value prior to the adoption of SFAS 159. | |
(2) | Amounts mostly related to certain available for sale securities collateralized by loans acquired in the first quarter of 2007 as part of the recharacterization of certain secured commercial loans. |
F-52
Table of Contents
Changes in Unrealized Losses (Year ended December 31, 2007) | ||||
(In thousands) | Derivatives (1) | |||
Changes in unrealized losses relating to assets still held at reporting date(2): | ||||
Interest income on loans | $ | 440 | ||
Interest income on investment securities | 3,545 | |||
$ | 3,985 | |||
(1) | Amount represents valuation of interest rate cap agreements which were carried at fair value prior to the adoption of SFAS 159. | |
(2) | Unrealized losses of $28.4 million on Level 3 available for sale securities were recognized as part of other comprehensive income. |
Year ended | ||||||||||||
Carrying value as of December 31, 2007 | December 31, 2007 | |||||||||||
(In thousands) | Level 1 | Level 2 | Level 3 | Total Losses | ||||||||
Loans (1) | $— | $ | 59,418 | $— | $ | 5,187 |
(1) | Relates to certain impaired collateral dependent loans. The impairment was measured based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations, in accordance with the provisions of SFAS 114 . |
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Year Ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(In thousands) | ||||||||||||
Cash paid for: | ||||||||||||
Interest on borrowings | $ | 721,545 | $ | 720,439 | $ | 559,642 | ||||||
Income tax | 10,142 | 91,779 | 44,536 | |||||||||
Non-cash investing and financing activities: | ||||||||||||
Additions to other real estate owned | 17,108 | 2,989 | 3,904 | |||||||||
Additions to auto repossessions | 104,728 | 113,609 | 72,891 | |||||||||
Capitalization of servicing assets | 1,285 | 1,121 | 1,481 | |||||||||
Recharacterization of secured commercial loans as securities collateralized by loans | 183,830 | — | — |
December 31, | ||||||||
2007 | 2006 | |||||||
(In thousands) | ||||||||
Financial instruments whose contract amounts represent credit risk: | ||||||||
Commitments to extend credit: | ||||||||
To originate loans | $ | 455,136 | $ | 539,267 | ||||
Unused credit card lines | 19 | 21,474 | ||||||
Unused personal lines of credit | 61,731 | 50,279 | ||||||
Commercial lines of credit | 1,109,661 | 1,331,823 | ||||||
Commercial letters of credit | 41,478 | 40,915 | ||||||
Standby letters of credit | 112,690 | 97,319 | ||||||
Commitments to sell loans | 11,801 | 55,238 |
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Notional Amount | ||||||||
December 31, | ||||||||
2007 | 2006 | |||||||
(In thousands) | ||||||||
Interest rate swap agreements: | ||||||||
Pay fixed versus receive floating | $ | 80,212 | $ | 80,720 | ||||
Receive fixed versus pay floating | 4,164,261 | 4,802,370 | ||||||
Embedded written options | 53,515 | 13,515 | ||||||
Purchased options | 53,515 | 13,515 | ||||||
Written interest rate cap agreements | 128,075 | 125,200 | ||||||
Purchased interest rate cap agreements | 294,982 | 330,607 | ||||||
$ | 4,774,560 | $ | 5,365,927 | |||||
Notional amounts | ||||||||
As of | As of | |||||||
December 31, | December 31, | |||||||
2007 | 2006 | |||||||
(In thousands) | ||||||||
Economic undesignated hedges: | ||||||||
Interest rate swaps used to hedge fixed rate certificates of deposit, notes payable and loans | $ | 4,244,473 | $ | 336,473 | ||||
Embedded options on stock index deposits | 53,515 | 13,515 | ||||||
Purchased options used to manage exposure to the stock market on embedded stock index options | 53,515 | 13,515 | ||||||
Written interest rate cap agreements | 128,075 | 125,200 | ||||||
Purchased interest rate cap agreements | 294,982 | 330,607 | ||||||
Total derivatives not designated as hedges | 4,774,560 | 819,310 | ||||||
Designated hedges: | ||||||||
Fair value hedge: | ||||||||
Interest rate swaps used to hedge fixed-rate certificates of deposit | $ | — | $ | 4,381,175 | ||||
Interest rate swaps used to hedge fixed- and step-rate notes payable | — | 165,442 | ||||||
Total fair value hedges | — | 4,546,617 | ||||||
Total | $ | 4,774,560 | $ | 5,365,927 | ||||
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December 31, | ||||||||
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Pay fixed/receive floating (generally used to economically hedge variable rate loans): | ||||||||
Notional amount | $ | 80,212 | $ | 80,720 | ||||
Weighted average receive rate at year end | 7.09 | % | 7.38 | % | ||||
Weighted average pay rate at year end | 6.75 | % | 6.37 | % | ||||
Floating rates range from 167 to 252 basis points over 3-month LIBOR rate |
December 31, | ||||||||
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Receive fixed/pay floating (generally used to economically hedge fixed-rate brokered CDs and notes payable): | ||||||||
Notional amount | $ | 4,164,261 | $ | 4,802,370 | ||||
Weighted average receive rate at year end | 5.26 | % | 5.16 | % | ||||
Weighted average pay rate at year end | 5.07 | % | 5.42 | % | ||||
Floating rates range from minus 5 basis points to 11 basis points over 3-month LIBOR rate |
Notional amount | ||||
(Dollars in thousands) | ||||
Pay-fixed and receive-floating swaps: | ||||
Balance at December 31, 2005 | $ | 109,320 | ||
Canceled and matured contracts | (28,600 | ) | ||
New contracts | — | |||
Balance at December 31, 2006 | 80,720 | |||
Canceled and matured contracts | (508 | ) | ||
New contracts | — | |||
Balance at December 31, 2007 | $ | 80,212 | ||
Receive-fixed and pay floating swaps: | ||||
Balance at December 31, 2005 | $ | 5,751,128 | ||
Canceled and matured contracts | (948,758 | ) | ||
New contracts | — | |||
Balance at December 31, 2006 | 4,802,370 | |||
Canceled and matured contracts | (638,109 | ) | ||
New contracts | — | |||
Balance at December 31, 2007 | $ | 4,164,261 | ||
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Mortgage | Consumer | Commercial and | Treasury and | |||||||||||||||||||||
Banking | (Retail) Banking | Corporate | Investments | Other | Total | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
For the year ended December 31, 2007 | ||||||||||||||||||||||||
Interest income | $ | 165,159 | $ | 184,353 | $ | 425,109 | $ | 284,165 | $ | 130,461 | $ | 1,189,247 | ||||||||||||
Net (charge) credit for transfer of funds | (126,145 | ) | 101,391 | (289,201 | ) | 336,150 | (22,195 | ) | — | |||||||||||||||
Interest expense | — | (80,404 | ) | — | (624,840 | ) | (32,987 | ) | (738,231 | ) | ||||||||||||||
Net interest income | 39,014 | 205,340 | 135,908 | (4,525 | ) | 75,279 | 451,016 | |||||||||||||||||
Provision for loan and lease losses | (1,645 | ) | (55,633 | ) | (41,176 | ) | — | (22,156 | ) | (120,610 | ) | |||||||||||||
Non-interest income (loss) | 3,019 | 27,314 | 3,778 | (2,161 | ) | 17,634 | 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 | (21,816 | ) | (94,122 | ) | (23,161 | ) | (7,842 | ) | (45,409 | ) | (192,350 | ) | ||||||||||||
Segment income (loss) | $ | 18,572 | $ | 82,899 | $ | 77,846 | $ | (14,528 | ) | $ | 25,348 | $ | 190,137 | |||||||||||
Average earning assets | $ | 2,558,779 | $ | 1,824,661 | $ | 5,471,097 | $ | 5,401,148 | $ | 1,312,669 | $ | 16,568,354 | ||||||||||||
For the year ended December 31, 2006 | ||||||||||||||||||||||||
Interest income | $ | 148,811 | $ | 201,609 | $ | 472,179 | $ | 350,038 | $ | 116,176 | $ | 1,288,813 | ||||||||||||
Net (charge) credit for transfer of funds | (105,431 | ) | 108,979 | (317,446 | ) | 334,149 | (20,251 | ) | — | |||||||||||||||
Interest expense | — | (72,128 | ) | — | (747,402 | ) | (25,589 | ) | (845,119 | ) | ||||||||||||||
Net interest income | 43,380 | 238,460 | 154,733 | (63,215 | ) | 70,336 | 443,694 | |||||||||||||||||
Provision for loan and lease losses | (3,988 | ) | (35,482 | ) | (7,936 | ) | — | (27,585 | ) | (74,991 | ) | |||||||||||||
Non-interest income (loss) | 2,471 | 23,543 | 4,590 | (8,313 | ) | 19,685 | 41,976 | |||||||||||||||||
Net loss on partial extinguishment of secured commercial loans to a local financial institution | — | — | (10,640 | ) | — | — | (10,640 | ) | ||||||||||||||||
Direct non-interest expenses | (17,450 | ) | (86,905 | ) | (16,917 | ) | (7,677 | ) | (43,890 | ) | (172,839 | ) | ||||||||||||
Segment income (loss) | $ | 24,413 | $ | 139,616 | $ | 123,830 | $ | (79,205 | ) | $ | 18,546 | $ | 227,200 | |||||||||||
Average earning assets | $ | 2,283,683 | $ | 1,919,083 | $ | 6,298,326 | $ | 6,787,581 | $ | 1,156,712 | $ | 18,445,385 | ||||||||||||
For the year ended December 31, 2005 | ||||||||||||||||||||||||
Interest income | $ | 107,364 | $ | 176,007 | $ | 406,433 | $ | 293,437 | $ | 84,349 | $ | 1,067,590 | ||||||||||||
Net (charge) credit for transfer of funds | (68,328 | ) | 78,029 | (252,982 | ) | 255,955 | (12,674 | ) | — | |||||||||||||||
Interest expenses | — | (53,253 | ) | — | (570,056 | ) | (11,962 | ) | (635,271 | ) | ||||||||||||||
Net interest income | 39,036 | 200,783 | 153,451 | (20,664 | ) | 59,713 | 432,319 | |||||||||||||||||
Provision for loan and lease losses | (2,060 | ) | (34,002 | ) | (2,699 | ) | — | (11,883 | ) | (50,644 | ) | |||||||||||||
Non-interest income (loss) | 3,948 | 23,055 | 5,649 | 12,875 | 17,549 | 63,076 | ||||||||||||||||||
Direct non-interest expenses | (15,431 | ) | (77,317 | ) | (10,498 | ) | (5,017 | ) | (32,693 | ) | (140,956 | ) | ||||||||||||
Segment income | $ | 25,493 | $ | 112,519 | $ | 145,903 | $ | (12,806 | ) | $ | 32,686 | $ | 303,795 | |||||||||||
Average earning assets | $ | 1,634,845 | $ | 1,706,647 | $ | 7,299,878 | $ | 6,027,745 | $ | 785,325 | $ | 17,454,440 | ||||||||||||
Year ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(In thousands) | ||||||||||||
Net Income: | ||||||||||||
Total income for segments and other | $ | 190,137 | $ | 227,200 | $ | 303,795 | ||||||
Other non-interest income | 15,075 | — | — | |||||||||
Other operating expenses | (115,493 | ) | (115,124 | ) | (174,175 | ) | ||||||
Income before income taxes | 89,719 | 112,076 | 129,620 | |||||||||
Income taxes | (21,583 | ) | (27,442 | ) | (15,016 | ) | ||||||
Total consolidated net income | $ | 68,136 | $ | 84,634 | $ | 114,604 | ||||||
Average assets: | ||||||||||||
Total average earning assets for segments | $ | 16,568,354 | $ | 18,445,385 | $ | 17,454,440 | ||||||
Average non earning assets | 645,853 | 737,526 | 546,599 | |||||||||
Total consolidated average assets | $ | 17,214,207 | $ | 19,182,911 | $ | 18,001,039 | ||||||
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2007 | 2006 | 2005 | ||||||||||
(Dollars in thousands) | ||||||||||||
Revenues: | ||||||||||||
Puerto Rico | $ | 1,045,523 | $ | 1,107,451 | $ | 1,015,641 | ||||||
United States | 123,064 | 133,083 | 52,384 | |||||||||
Other | 87,816 | 79,615 | 62,642 | |||||||||
Total consolidated revenues | $ | 1,256,403 | $ | 1,320,149 | $ | 1,130,667 | ||||||
Selected Balance Sheet Information: | ||||||||||||
Total assets: | ||||||||||||
Puerto Rico | $ | 14,633,217 | $ | 14,688,754 | $ | 17,697,563 | ||||||
United States | 1,540,808 | 1,742,243 | 1,382,083 | |||||||||
Other | 1,012,906 | 959,259 | 838,005 | |||||||||
Loans: | ||||||||||||
Puerto Rico | $ | 9,413,118 | $ | 8,777,267 | $ | 10,634,545 | ||||||
United States | 1,448,613 | 1,594,141 | 1,271,698 | |||||||||
Other | 938,015 | 892,572 | 779,686 | |||||||||
Deposits: | ||||||||||||
Puerto Rico (1) | $ | 9,484,103 | $ | 9,318,931 | $ | 10,998,192 | ||||||
United States | 532,684 | 580,917 | 476,166 | |||||||||
Other | 1,017,734 | 1,104,439 | 989,394 |
(1) | Includes brokered certificates of deposit used to fund activities conducted in Puerto Rico and in the United States. |
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Year ended December 31, | ||||||||
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Assets | ||||||||
Cash and due from banks | $ | 43,519 | $ | 14,584 | ||||
Money market instruments | 46,293 | 300 | ||||||
Investment securities available-for-sale, at market: | ||||||||
Mortgage-backed securities | 41,234 | — | ||||||
Equity investments | 2,117 | 12,715 | ||||||
Other investment securities | 1,550 | 1,425 | ||||||
Loans receivable | 2,597 | 65,161 | ||||||
Investment in FirstBank Puerto Rico, at equity | 1,457,899 | 1,338,023 | ||||||
Investment in FirstBank Insurance Agency, at equity | 4,632 | 2,982 | ||||||
Investment in Ponce General, at equity | 106,120 | 103,274 | ||||||
Investment in PR Finance, at equity | 2,979 | 2,623 | ||||||
Accrued interest receivable | 376 | 401 | ||||||
Investment in FBP Statutory Trust I | 3,093 | 3,093 | ||||||
Investment in FBP Statutory Trust II | 3,866 | 3,866 | ||||||
Other assets | 1,503 | 55,707 | ||||||
Total assets | $ | 1,717,778 | $ | 1,604,154 | ||||
Liabilities & Stockholders’ Equity | ||||||||
Liabilities: | ||||||||
Other borrowings | $ | 282,567 | $ | 288,269 | ||||
Accounts payable and other liabilities | 13,565 | 86,332 | ||||||
Total liabilities | 296,132 | 374,601 | ||||||
Stockholders’ equity | 1,421,646 | 1,229,553 | ||||||
Total liabilities and stockholders’ equity | $ | 1,717,778 | $ | 1,604,154 | ||||
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Year ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(Dollars in thousands) | ||||||||||||
Income: | ||||||||||||
Interest income on investment securities | $ | 3,029 | $ | 349 | $ | 756 | ||||||
Interest income on other investments | 1,289 | 175 | 2,972 | |||||||||
Interest income on loans | 631 | 3,987 | 4,188 | |||||||||
Dividends from FirstBank Puerto Rico | 79,135 | 107,302 | 67,880 | |||||||||
Dividends from other subsidiaries | 1,000 | 14,500 | 240 | |||||||||
Other income | 565 | 543 | 417 | |||||||||
85,649 | 126,856 | 76,453 | ||||||||||
Expense: | ||||||||||||
Notes payable and other borrowings | 22,261 | 22,375 | 16,516 | |||||||||
Provision (recovery) for loan losses | 1,300 | (71 | ) | 169 | ||||||||
Other operating expenses | 2,844 | 5,390 | 9,654 | |||||||||
26,405 | 27,694 | 26,339 | ||||||||||
Net (loss) gain on investments and impairments | (6,643 | ) | (12,525 | ) | 2,589 | |||||||
Net loss on partial extinguishment and recharacterization of secured commercial loans to a local financial institution | (1,207 | ) | — | — | ||||||||
Income before taxes and equity in undistributed earnings (losses) of subsidiaries | 51,394 | 86,637 | 52,703 | |||||||||
Income tax (provision) benefit | (1,714 | ) | 1,381 | 53 | ||||||||
Equity in undistributed earnings (losses) of subsidiaries | 18,456 | (3,384 | ) | 61,848 | ||||||||
Net income | 68,136 | 84,634 | 114,604 | |||||||||
Other comprehensive income (loss), net of tax | 4,903 | (14,492 | ) | (59,311 | ) | |||||||
Comprehensive income | $ | 73,039 | $ | 70,142 | $ | 55,293 | ||||||
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Year ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(In thousands) | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net Income | $ | 68,136 | $ | 84,634 | $ | 114,604 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Provision (recovery) for loan losses | 1,300 | (71 | ) | 169 | ||||||||
Deferred income tax provision (benefit) | 1,714 | (2,572 | ) | (70 | ) | |||||||
Equity in undistributed (earnings) losses of subsidiaries | (18,456 | ) | 3,384 | (61,848 | ) | |||||||
Net loss (gain) on sale of investment securities | 733 | (2,726 | ) | (10,963 | ) | |||||||
Loss on impairment of investment securities | 5,910 | 15,251 | 8,374 | |||||||||
Net loss on partial extinguishment and recharacterization of secured commercial loans to a local financial institution | 1,207 | — | — | |||||||||
Accretion of discount on investment securities | (197 | ) | — | — | ||||||||
Net decrease (increase) in other assets | 52,515 | (52,372 | ) | (276 | ) | |||||||
Net (decrease) increase in other liabilities | (72,639 | ) | 2,544 | 8,903 | ||||||||
Total adjustments | (27,913 | ) | (36,562 | ) | (55,711 | ) | ||||||
Net cash provided by operating activities | 40,223 | 48,072 | 58,893 | |||||||||
Cash flows from investing activities: | ||||||||||||
Capital contribution to subsidiaries | — | — | (110,000 | ) | ||||||||
Principal collected on loans | 1,622 | 9,824 | 9,002 | |||||||||
Purchases of securities available-for-sale | — | (460 | ) | (34,582 | ) | |||||||
Sales, pricipal repayments and maturity of available-for-sale and held-to-maturity securities | 11,403 | 5,461 | 56,621 | |||||||||
Cash paid on acquisitions | — | — | (103,670 | ) | ||||||||
Other investing activities | 437 | — | 687 | |||||||||
Net cash provided by (used in) investing activities | 13,462 | 14,825 | (181,942 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from purchased funds and other short-term borrowings | — | 123,247 | 944,374 | |||||||||
Repayments of purchased funds and other short-term borrowings | (5,800 | ) | (130,522 | ) | (970,717 | ) | ||||||
Issuance of common stock | 91,924 | — | — | |||||||||
Payment to repurchase common stock | — | — | (965 | ) | ||||||||
Exercise of stock options | — | 19,756 | 2,094 | |||||||||
Cash dividends paid | (64,881 | ) | (63,566 | ) | (62,915 | ) | ||||||
Net cash provided by (used in) financing activities | 21,243 | (51,085 | ) | (88,129 | ) | |||||||
Net increase (decrease) in cash and cash equivalents | 74,928 | 11,812 | (211,178 | ) | ||||||||
Cash and cash equivalents at the beginning of the year | 14,884 | 3,072 | 214,250 | |||||||||
Cash and cash equivalents at end of the year | $ | 89,812 | $ | 14,884 | $ | 3,072 | ||||||
Cash and cash equivalents include: | ||||||||||||
Cash and due from banks | $ | 43,519 | $ | 14,584 | $ | 2,772 | ||||||
Money market instruments | 46,293 | 300 | 300 | |||||||||
$ | 89,812 | $ | 14,884 | $ | 3,072 | |||||||
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