EX-99.1 2 a50462013ex99-1.htm EXHIBIT 99.1 a50462013ex99-1.htm
Exhibit 99.1
 
First BanCorp. Announces Earnings for the Quarter Ended September 30, 2012
 
SAN JUAN, Puerto Rico--(BUSINESS WIRE)--October 31, 2012--First BanCorp. (the “Corporation”) (NYSE: FBP), the bank holding company for FirstBank Puerto Rico (“FirstBank” or “the Bank”), today reported net income of $19.1 million for the third quarter of 2012, or $0.09 per diluted share, an improvement compared to net income of $9.4 million, or $0.05 per diluted share, for the second quarter of 2012 and a net loss of $24.0 million, or $1.46 loss per diluted share, for the third quarter of 2011. The net income for the nine-month period ended September 30, 2012, was $15.2 million, or $0.07 per diluted share, compared to a net loss of $67.4 million, or $4.17 loss per diluted share, for the same period in 2011.
 
2012 Third Quarter Highlights and Comparison with 2012 Second Quarter:
 
 
·
Net income of $19.1 million.
 
 
·
Growth in net interest income and margin:
 
 
o
Net interest income, excluding fair value adjustments of $0.2 million, increased by $17.1 million.
 
 
o
Net interest margin, excluding fair value adjustments, increased by 54 basis points to 3.98%.
 
 
·
Provision for loan and lease losses of $29.0 million, up $4.1 million.
 
 
·
Stable credit quality metrics:
 
 
o
Total non-performing assets decreased for the tenth consecutive quarter, declining by $48.8 million.
 
 
o
The level of non-performing loans decreased by $57.6 million from the previous quarter to $1.01 billion.
 
 
o
Inflows of loans into non-performing status declined by $12.0 million, or 12%, from the previous quarter.
 
 
o
Net charge-offs declined by $11.1 million to $40.6 million, or an annualized 1.58% of average loans.
 
 
·
Increase of $1.1 million in non-interest income:
 
 
o
Full quarter impact of the credit cards portfolio acquisition from FIA Card Services reflects an increase of $2.0 million in interchange and other related fees.
 
 
o
Non-cash charge associated with the equity in losses of unconsolidated entities of $2.2 million, compared to losses of $2.5 million in the second quarter of 2012.
 
 
·
Increase of $4.9 million in non-interest expenses led by higher losses on real estate owned (REO) operations and expenses related to the recently acquired credit cards portfolio.
 
 
·
Strong capital position:
 
 
o
Total capital, Tier 1 capital and leverage ratios of the Corporation of 17.52%,16.20% and 12.71%, respectively, as of September 30, 2012, compared to 17.30%, 15.98% and 12.51%, respectively, as of June 30, 2012.
 
 
o
Total capital, Tier 1 capital and leverage ratios of the Corporation’s wholly owned banking subsidiary, FirstBank of 17.03%, 15.71% and 12.35%, respectively, as of September 30, 2012, compared to 16.80%, 15.48%, and 12.13%, respectively, as of June 30, 2012.
 
 
o
Tier 1 common risk-based capital ratio of the Corporation of 13.33% as of September 30, 2012, compared to 13.12% as of June 30, 2012.
 
 
o
Tangible common equity ratio of the Corporation of 10.39% as of September 30, 2012, compared to 10.29% as of June 30, 2012.
 
 
·
Growth in total deposits of $54.4 million, or 1%, excluding brokered certificates of deposit (CDs), while brokered CDs decreased by $58.1 million, or 2%.
 
 
 
 
Aurelio Alemán, President and Chief Executive Officer of First BanCorp, commented, “We are very pleased to report our second consecutive quarterly profit. This quarter’s financial results reflect an expanded net interest margin, improvement in efficiency and credit quality metrics, and growth in non-brokered deposits demonstrating the strength of our franchise and the continued benefits from effectively executing our strategic plan.
 
“Over the past twelve months we have achieved significant improvements, including; pre-tax, pre-provision income of $51.4 million, up 77% from the same quarter last year; net interest margin of 3.98%, up significantly from 2.82% last year; non-brokered deposits up 5% from last year; non-performing assets down 9% from last year; and net charge-offs down 40% from last year.
 
“The full quarter impact of the recently acquired credit card portfolio was an important contributor to our improvement in net interest income, non-interest income and efficiency ratios, and provides additional cross-selling opportunities for our continued organic core deposit growth. Lower rates paid on both brokered and non-brokered deposits also contributed to the expanded net interest margin. The focus on transaction services and deposit strategies continues to deliver positive results, non-brokered deposits grew by $54.4 million during the third quarter. Many of our credit quality performance metrics continued to show signs of improvement as reflected by the decrease in non-performing assets and net charge-offs; nevertheless, non-performing asset levels remain elevated and continue to be a challenge in the current uncertain economic environment. Improving asset quality continues to be our first priority.”
 
Mr. Alemán stated further, “Our capital levels continue to be strong and benefit from internal capital generation. We will remain disciplined in our pricing of loans and deposits, and will stay focused in evaluating opportunities to introduce additional products and services across our customer base and work to improve our credit quality, risk profile and operating efficiency. We will continue to execute our strategic plan by making selective investments in initiatives to achieve consistent, profitable growth in quarters and years to come.”
 
This press release includes certain non-GAAP financial measures, including certain capital ratios, adjusted net interest income and margin, and pre-tax, pre-provision income, and should be read in conjunction with the accompanying tables (Exhibit A), which are an integral part of this press release.
 
The following table provides details with respect to the calculation of the earnings (loss) per common share for the quarters ended September 30, 2012, June 30, 2012, and September 30, 2011, and for the nine-month periods ended September 30, 2012, and September 30, 2011:
 
(In thousands, except per share information)
  
Quarter Ended
    
Nine-month Period Ended
  
   
September 30,
    
June 30,
    
September 30,
    
September 30,
    
September 30,
  
   
2012
    
2012
    
2011
    
2012
    
2011
  
                               
Net income (loss)
   $ 19,073     $ 9,356     $ (24,046 )   $ 15,247     $ (67,390 )
Cumulative convertible preferred stock dividend (Series G)
     -       -       (5,302 )     -       (15,906 )
Preferred stock discount accretion (Series G)
     -       -       (1,795 )     -       (5,489 )
                                         
Net income (loss) attributable to common stockholders
   $ 19,073     $ 9,356     $ (31,143 )   $ 15,247     $ (88,785 )
                                         
Average common shares outstanding
     205,415       205,415       21,303       205,349       21,303  
Average potential common shares
     508       537       -       348       -  
Average common shares outstanding - assuming dilution
     205,923       205,952       21,303       205,697       21,303  
                                         
Basic earnings (loss) per common share
   $ 0.09     $ 0.05     $ (1.46 )   $ 0.07     $ (4.17 )
Diluted earnings (loss) per common share
   $ 0.09     $ 0.05     $ (1.46 )   $ 0.07     $ (4.17 )
                                         
 
 
 
 
Adjusted Pre-Tax, Pre-Provision Income Trends
 
One metric that management believes is useful in analyzing performance is the level of earnings adjusted to exclude tax expense, the provision for loan and lease losses, securities gains or losses, fair value adjustments on derivatives and liabilities measured at fair value and equity in earnings or losses of unconsolidated entities, a non-GAAP financial measure. In addition, from time to time, earnings are adjusted also for items judged by management to be outside of ordinary banking activities and/or for items that, while they may be associated with ordinary banking activities, are so unusually large that management believes that a complete analysis of the Corporation’s performance requires consideration also of results that exclude such amounts (for additional information about these non-GAAP financial measures, see “Adjusted Pre-Tax, Pre-Provision Income” in “Basis of Presentation”).
 
The following table shows adjusted pre-tax, pre-provision income of $51.4 million in the 2012 third quarter, up from $37.9 million in the prior quarter:
 
(Dollars in thousands)
  
Quarter Ended
   
September 30,
  
June 30,
  
March 31,
  
December 31,
  
September 30,
   
2012
  
2012
  
2012
  
2011
  
2011
                                         
Income (loss) before income taxes
  
$
19,834
    
$
10,901
    
$
(11,049
)
  
$
(14,600
)
  
$
(21,158
)
Add: Provision for loan and lease losses
    
28,952
      
24,884
      
36,197
      
41,987
      
46,446
  
Less: Net loss (gain) on sale and OTTI of investment securities
    
547
      
143
      
1,207
      
1,014
      
(12,156
)
Add: Unrealized (gain) loss on derivatives instruments and liabilities measured at fair value
    
(170
)
    
(506
)
    
(283
)
    
1,746
      
2,555
  
Add: Contingency adjustment - tax credits
    
-
      
-
      
2,489
      
-
      
-
  
Add: Loss on early extinguishment of borrowings
    
-
      
-
      
-
      
-
      
9,012
  
Add: Equity in losses (earnings) of unconsolidated entities
    
2,199
      
2,491
      
6,236
      
(1,666
)
    
4,357
  
Adjusted Pre-tax, pre-provision income (1)
  
$
51,362
    
$
37,913
    
$
34,797
    
$
28,481
    
$
29,056
  
                                         
Change from most recent prior quarter - amount
  
$
13,449
    
$
3,116
    
$
6,316
    
$
(575
)
  
$
(989
)
Change from most recent prior quarter - percent
    
35.5
%
    
9.0
%
    
22.2
%
    
-2.0
%
    
-3.3
%
                                         
(1) See "Basis of Presentation" for definition.
 
As discussed in the sections that follow, the increase in pre-tax, pre-provision income from the 2012 second quarter primarily reflected: (i) an increase of $17.1 million in net interest income, excluding fair value adjustments of $0.2 million, (ii) the full quarter impact of interchange income and other related fees related to the recently acquired credit card portfolio from FIA Card Services (FIA), an increase of $2.0 million, and (iii) increased revenues from the mortgage banking business reflecting both a higher volume of loan sales and securitizations and improved margins. Partially offsetting these increases was: (i) a $4.9 million increase in non-interest expenses led by higher losses on REO operations and credit card processing expenses, and (ii) lower revenues from our broker-dealer operations due to fewer transactions. The increase in non-interest expenses reflects the full quarter impact of expenses related to the credit cards business, an aggregate increase of $3.1 million compared to the previous quarter. Losses on the sale of certain REO commercial properties, higher write-downs to the value of REO properties and increased REO operational costs also contributed to the increase in non-interest expenses.
 
 
 
 
 
Net Interest Income
 
Net interest income, excluding fair value adjustments on derivatives and financial liabilities measured at fair value (“valuations”), and net interest income on a tax-equivalent basis are non-GAAP measures. (See “Basis of Presentation – Net Interest Income, Excluding Valuations and on a Tax-Equivalent Basis” below for additional information.) The following table reconciles net interest income in accordance with GAAP to net interest income, excluding valuations, and net interest income on a tax-equivalent basis. The table also reconciles net interest spread and net interest margin on a GAAP basis to these items excluding valuations and on a tax-equivalent basis.
 
(Dollars in Thousands)
                                        
   
Quarter Ended
   
September 30,
2012
  
June 30,
2012
  
March 31,
2012
  
December 31,
2011
  
September 30,
2011
Net Interest Income (in thousands)
                                        
Interest Income - GAAP
  
$
166,964
    
$
153,652
    
$
152,107
    
$
156,752
    
$
158,542
  
Unrealized loss (gain) on derivative instruments
    
(170
)
    
33
      
(332
)
    
(246
)
    
954
  
Interest income excluding valuations
    
166,794
      
153,685
      
151,775
      
156,506
      
159,496
  
Tax-equivalent adjustment
    
1,463
      
1,634
      
1,741
      
1,456
      
1,521
  
Interest income on a tax-equivalent basis excluding valuations
    
168,257
      
155,319
      
153,516
      
157,962
      
161,017
  
                                         
Interest Expense - GAAP
    
41,461
      
44,947
      
50,241
      
58,209
      
64,287
  
Unrealized gain (loss) on derivative instruments and liabilities measured at fair value
    
-
      
539
      
(49
)
    
(1,992
)
    
(1,601
)
Interest expense excluding valuations
    
41,461
      
45,486
      
50,192
      
56,217
      
62,686
  
                                         
Net interest income - GAAP
  
$
125,503
    
$
108,705
    
$
101,866
    
$
98,543
    
$
94,255
  
                                         
Net interest income excluding valuations
  
$
125,333
    
$
108,199
    
$
101,583
    
$
100,289
    
$
96,810
  
                                         
Net interest income on a tax-equivalent basis excluding valuations
  
$
126,796
    
$
109,833
    
$
103,324
    
$
101,745
    
$
98,331
  
                                         
Average Balances (in thousands)
                                        
Loans and leases
  
$
10,297,835
    
$
10,183,229
    
$
10,389,246
    
$
10,637,523
    
$
10,832,426
  
Total securities and other short-term investments
    
2,238,701
      
2,450,198
      
2,397,918
      
2,665,918
      
2,787,708
  
Average Interest-Earning Assets
  
$
12,536,536
    
$
12,633,427
    
$
12,787,164
    
$
13,303,441
    
$
13,620,134
  
                                         
Average Interest-Bearing Liabilities
  
$
10,518,169
    
$
10,577,054
    
$
10,725,162
    
$
11,255,725
    
$
11,944,454
  
                                         
Average Yield/Rate
                                        
Average yield on interest-earning assets - GAAP
    
5.30
%
    
4.89
%
    
4.78
%
    
4.67
%
    
4.62
%
Average rate on interest-bearing liabilities - GAAP
    
1.57
%
    
1.71
%
    
1.88
%
    
2.05
%
    
2.14
%
Net interest spread - GAAP
    
3.73
%
    
3.18
%
    
2.90
%
    
2.62
%
    
2.48
%
Net interest margin - GAAP
    
3.98
%
    
3.46
%
    
3.20
%
    
2.94
%
    
2.75
%
                                         
Average yield on interest-earning assets excluding valuations
    
5.29
%
    
4.89
%
    
4.77
%
    
4.67
%
    
4.65
%
Average rate on interest-bearing liabilities excluding valuations
    
1.57
%
    
1.73
%
    
1.88
%
    
1.98
%
    
2.08
%
Net interest spread excluding valuations
    
3.72
%
    
3.16
%
    
2.89
%
    
2.69
%
    
2.57
%
Net interest margin excluding valuations
    
3.98
%
    
3.44
%
    
3.20
%
    
2.99
%
    
2.82
%
                                         
Average yield on interest-earning assets on a tax-equivalent basis and excluding valuations
    
5.34
%
    
4.94
%
    
4.83
%
    
4.71
%
    
4.69
%
Average rate on interest-bearing liabilities excluding valuations
    
1.57
%
    
1.73
%
    
1.88
%
    
1.98
%
    
2.08
%
Net interest spread on a tax-equivalent basis and excluding valuations
    
3.77
%
    
3.21
%
    
2.95
%
    
2.73
%
    
2.61
%
Net interest margin on a tax-equivalent basis and excluding valuations
    
4.02
%
    
3.50
%
    
3.25
%
    
3.03
%
    
2.86
%
                                         
 
 
 
 
Net interest income, excluding valuations, increased $17.1 million when compared to the second quarter of 2012. This reflected a 54 basis points increase in the net interest margin driven by the full quarter impact of the credit card portfolio acquired in late May 2012, further reductions in the overall cost of funding and, to a lesser extent, higher yields on the reinvestment of matured U.S. Treasury and agency securities into U.S. agency mortgage-backed-securities (MBS). The credit card portfolio increased the average balance of consumer loans by approximately $241.4 million and contributed to a $12.4 million increase in interest income. As this purchase was the main driver for the 40 basis points increase in the yield on total earning assets, the improvement in net interest margin of 54 basis points to 3.98% was also derived from a reduction in the overall cost of funding, achieved mainly through renewals of maturing brokered CDs at lower current rates and further reductions in the non-brokered deposits pricing.
 
Low market interest rates and diligence in managing deposit pricing resulted in the third quarter cost of interest-bearing deposits declining 16 basis points in comparison to the previous quarter. The average cost of brokered CDs decreased by 25 basis points while the average balance decreased by $72.5 million. During the third quarter of 2012, the Corporation repaid approximately $651.1 million of maturing brokered CDs with an all-in cost of 2.38% and new issuances amounted to $593.1 million with an all-in cost of 0.95%. Meanwhile, the average rate paid on non-brokered deposits, including interest-bearing checking accounts, savings and retail certificates of deposit (CDs), declined by 10 basis points to 1.03% during the third quarter of 2012. These factors combined with the full impact of transactions that occurred by the mid-point of the previous quarter, including the maturity of a $100 million repurchase agreement that carried a cost of 4.38% and the prepayment of a $15.4 million medium-term note that carried a cost of 6%, resulted in a 16 basis points reduction in the overall cost of funding.
 
The expanded net interest margin was also derived, to a lesser extent, by the reinvestment of low yielding maturing U.S. Treasury and agency securities into higher yielding MBS. Approximately $365 million of U.S. Treasury Notes with an average yield of 0.16% matured during the third quarter, while the Corporation completed purchases of approximately $443 million of U.S. agency MBS with an average yield of 1.87%.
 
The benefit derived from the aforementioned factors was partially offset by a decrease of $197.9 million in the average balance of commercial and construction loans mainly due to significant repayments, partially offset by a higher volume of auto and personal loans.
 
Provision for Loan and Lease Losses
 
The provision for loan and lease losses for the third quarter of 2012 was $29.0 million, up $4.1 million from the second quarter 2012 provision. The increase in the provision reflected primarily an allowance build related to the credit cards portfolio together with increased charges to the specific reserve of commercial and industrial (“C&I”) and construction loans. These factors were partially offset by: (i) a lower provision for commercial mortgage loans, driven by improvement in loss rates used for the general reserve determination and a decrease in the amount of adversely classified loans, and (ii) a decline in the provision for residential mortgage loans driven by improved trends in charge-offs and delinquency levels. The provision for loan and lease losses in the third quarter of 2012 was $11.6 million lower than net charge-offs, reflecting a continued improvement in credit quality (see “Credit Quality” section below for a full discussion).
 
 
 
 
 
Non-Interest Income
 
   
Quarter Ended
   
September 30,
  
June 30,
  
March 31,
  
December 31,
  
September 30,
(In thousands)
  
2012
  
2012
  
2012
  
2011
  
2011
                                         
Other service charges
  
$
1,098
    
$
1,226
    
$
1,519
    
$
2,116
    
$
1,485
  
Service charges on deposit accounts
    
3,267
      
3,240
      
3,247
      
2,988
      
3,098
  
Mortgage banking activities
    
4,728
      
4,057
      
4,475
      
3,717
      
3,676
  
(Loss) gain on sale of investments, net of impairments
    
(547
)
    
(143
)
    
(1,207
)
    
(1,014
)
    
12,156
  
Broker-dealer income
    
20
      
1,347
      
1,263
      
381
      
173
  
Other operating income
    
8,759
      
6,786
      
5,414
      
4,816
      
6,745
  
Loss on early extinguishment of borrowings
    
-
      
-
      
-
      
-
      
(9,012
)
Equity in (losses) earnings of unconsolidated entities
    
(2,199
)
    
(2,491
)
    
(6,236
)
    
1,666
      
(4,357
)
                                         
Non-interest income
  
$
15,126
    
$
14,022
    
$
8,475
    
$
14,670
    
$
13,964
  
                                         
Non-interest income increased $1.1 million from the 2012 second quarter primarily due to:
 
 
·
The full quarter impact of the recent credit cards portfolio acquisition that resulted in an increase of $2.0 million in interchange and other related fees included as part of “other operating income” in the table above.
 
 
·
A $0.7 million increase in revenues from mortgage banking activities, driven by both a higher volume of loan sales and securitizations and improved margins.
 
 
·
Non-cash charges associated with the equity in losses of unconsolidated entities of approximately $2.2 million recorded in the third quarter, a variance of $0.3 million compared to $2.5 million for the second quarter of 2012. This non-cash adjustment mainly relates to the Bank’s investment in CPG/GS PR NPL, LLC (“CPG/GS”), the entity that purchased $269.2 million of loans from FirstBank in 2011. The Bank holds a 35% subordinated ownership interest in CPG/GS.
 
Partially offset by:
 
 
·
A $1.3 million decrease in underwriting fees from the Corporation’s broker dealer activities due to fewer transactions.
 
 
·
An increase of $0.4 million in other-than-temporary impairment charges (OTTI) on private label MBS.
 
 
 
 
Non-Interest Expenses
 
   
Quarter Ended
  
   
September 30,
    
June 30,
    
March 31,
    
December 31,
    
September 30,
  
(In thousands)
  
2012
    
2012
    
2012
    
2011
    
2011
  
                               
Employees' compensation and benefits
   $ 31,058     $ 31,101     $ 31,611     $ 29,254     $ 29,375  
Occupancy and equipment
     15,208       15,181       15,676       15,603       15,468  
Deposit insurance premium
     11,657       11,982       11,987       12,411       13,602  
Other insurance and supervisory fees
     1,366       1,320       1,021       890       1,439  
Taxes, other than income taxes
     3,499       3,435       3,416       3,442       3,420  
Professional fees
     6,295       5,322       5,179       4,692       5,983  
Business promotion
     4,004       3,475       2,547       3,482       2,509  
Net loss on REO operations
     8,686       6,786       3,443       8,602       4,952  
Other
     10,070       8,340       10,313       7,450       6,183  
Total
   $ 91,843     $ 86,942     $ 85,193     $ 85,826     $ 82,931  
                                         
Non-interest expenses increased $4.9 million to $91.8 million in the third quarter of 2012, compared to the second quarter of 2012, substantially related to:
 
 
·
The full quarter impact of expenses related to the credit card portfolio that resulted in an aggregate increase of $3.1 million. Most of the increase, or $2.6 million, is included as part of “Other” in the table above and is mainly related to the servicing of the credit card portfolio, the amortization of the purchased credit card relationship intangible, and fees assessed by VISA and MasterCard. In addition, there was an increase of $0.4 million related to the credit cards portfolio rewards program, included as part of “Business promotion” expenses in the table above, and $0.1 million in professional service fees related to the operations of the credit card portfolio.
 
 
·
A $1.9 million increase in losses from REO activities primarily reflecting losses on the sale of certain commercial REO properties, higher write-downs and, to a lesser extent, increased tax expenses related to REO properties.
 
 
·
A $1.0 million increase in professional fees mainly related to appraisal services and consulting fees.
 
Partially offset by:
 
 
·
A $1.3 million decrease in the provision for off-balance sheet exposures, included as part of “Other” in the table above, mainly related to a decrease in the amount of unfunded commitments.
 
 
·
A $0.3 million decrease in the deposit insurance premium.
 
 
 
 
 
Income Taxes
 
The income tax expense for the third quarter of 2012 amounted to $0.8 million compared to an income tax expense of $1.5 million for the second quarter of 2012, a variance driven by lower taxable income of profitable subsidiaries. As of September 30, 2012, the deferred tax asset, net of a valuation allowance of $360.0 million, amounted to $4.6 million compared to $4.7 million as of June 30, 2012. Under the Puerto Rico Internal Revenue Code, the Corporation and its subsidiaries are treated as separate taxable entities and are not entitled to file consolidated tax returns; thus, losses of one entity cannot offset income of another entity.
 
CREDIT QUALITY
 
Consolidated Non-Performing Assets
                     
(Dollars in thousands)
  
September 30,
  
June 30,
  
March 31,
  
December 31,
  
September 30,
   
2012
  
2012
  
2012
  
2011
  
2011
Non-performing loans held for investment:
                                        
Residential mortgage
  
$
320,913
    
$
333,043
    
$
341,188
    
$
338,208
    
$
364,561
  
Commercial mortgage
    
231,163
      
239,881
      
244,391
      
240,414
      
188,326
  
Commercial and Industrial
    
230,459
      
255,253
      
263,604
      
270,171
      
315,360
  
Construction
    
189,458
      
202,133
      
231,071
      
250,022
      
270,411
  
Consumer and Finance leases
    
36,051
      
35,378
      
39,159
      
39,547
      
45,031
  
Total non-performing loans held for investment
    
1,008,044
      
1,065,688
      
1,119,413
      
1,138,362
      
1,183,689
  
                                         
REO
    
177,001
      
167,341
      
135,905
      
114,292
      
109,514
  
Other repossessed property
    
9,775
      
10,601
      
12,494
      
15,392
      
14,397
  
Other assets (1)
    
64,543
      
64,543
      
64,543
      
64,543
      
64,543
  
Total non-performing assets, excluding loans held for sale
  
$
1,259,363
    
$
1,308,173
    
$
1,332,355
    
$
1,332,589
    
$
1,372,143
  
                                         
Non-performing loans held for sale
    
-
      
-
      
-
      
4,764
      
5,107
  
Total non-performing assets, including loans held for sale (2)
  
$
1,259,363
    
$
1,308,173
    
$
1,332,355
    
$
1,337,353
    
$
1,377,250
  
                                         
Past due loans 90 days and still accruing
  
$
141,028
    
$
120,585
    
$
133,191
    
$
130,816
    
$
156,775
  
Non-performing loans held for investment to total loans held for investment
    
9.89
%
    
10.35
%
    
10.87
%
    
10.78
%
    
11.13
%
Non-performing assets, excluding non-performing loans held for sale, to total assets, excluding non-performing loans held for sale
    
9.58
%
    
10.13
%
    
10.18
%
    
10.15
%
    
10.19
%
Non-performing assets to total assets
    
9.58
%
    
10.13
%
    
10.18
%
    
10.19
%
    
10.22
%
                                         
(1) Collateral pledged with Lehman Brothers Special Financing, Inc.
 
(2) Amount excludes purchased credit impaired loans with a carrying value of approximately $12.7 million acquired as part of the credit card portfolio acquired from FIA.
                                         
 
Credit quality continued to improve at a slow but steady pace in the third quarter of 2012. Total non-performing loans decreased by $57.6 million led by foreclosures, charge-offs, modified loans with a sustained performance period, and a decrease in the inflows of non-performing loans. Total non-performing assets, which include repossessed assets, decreased by $48.8 million, or 4%. New non-performing loans inflows of $90.5 million decreased by $12.0 million, or 12%, compared to inflows of $102.5 million in the prior quarter. Total delinquencies, which include all loans 30 days or more past due and non-accrual loans, decreased by $31.8 million and the level of adversely classified commercial and construction loans decreased by $59.7 million, or 5% compared to the prior quarter. The initial fair value of purchased credit-impaired (PCI) loans includes an estimate of credit losses expected to be realized over the remaining lives of the loans, and, therefore, PCI loans with a carrying value of approximately $12.7 million purchased as part of the credit card portfolio acquired from FIA are excluded from delinquency and non-performing loan statistics. The net charge-off activity showed a decrease of $11.1 million.
 
 
 
 
 
Non-Performing Loans and Non-Performing Assets
Total non-performing loans were $1.01 billion at September 30, 2012, which represented 9.89% of total loans held for investment. This represents a decrease of $57.6 million, or 5%, from $1.07 billion, or 10.35% of total loans held for investment at June 30, 2012.
 
Non-performing construction loans decreased by $12.7 million, or 6%, from the end of the second quarter of 2012 primarily reflecting net charge-offs of $8.3 million, mainly in the Virgin Islands, and principal repayments in Puerto Rico. The inflows of non-performing construction loans decreased by $7.5 million from $8.8 million for the second quarter of 2012 to $1.3 million in the third quarter of 2012.
 
Non-performing C&I loans decreased by $24.8 million, or 10%, on a sequential quarter basis, reflecting primarily foreclosures of approximately $14.1 million and net charge-offs of $12.3 million. Loans brought current, modified loans that were restored to accrual status after a sustained period of performance and principal repayments also contributed to the decrease in non-performing C&I loans. The decrease was primarily in Puerto Rico. Total inflows of non-performing C&I loans decreased by $5.3 million from $20.6 million for the second quarter of 2012 to $15.3 million in the third quarter of 2012.
 
Non-performing residential mortgage loans decreased by $12.1 million, or 4%, from June 30, 2012. The decrease includes approximately $23.8 million of loans with cured delinquencies and also reflects reductions due to foreclosures of $14.0 million and the restoration to accrual status of approximately $9.5 million of modified loans that successfully completed a trial performance period. Borrowers’ payments and charge-offs also contributed to the decrease. Non-performing residential mortgage loans decreased by $10.5 million and $5.7 million in Puerto Rico and the United States, respectively, while non-performing residential mortgage loans in the Virgin Islands increased by $4.2 million. The level of inflows of non-performing residential mortgage loans decreased by 6% from $46.9 million for the second quarter of 2012 to $44.1 million in the third quarter. Approximately $157.4 million, or 49% of total non-performing residential mortgage loans, have been written down to their net realizable value.
 
Non-performing commercial mortgage loans decreased by $8.7 million, or 4%, from the end of the second quarter of 2012, primarily reflecting the restoration to accrual status after a sustained performance period of $7.5 million of modified loans in Puerto Rico, a $5.5 million loan paid-off in the United States, net charge-offs of $5.0 million and foreclosures of $2.1 million. Non-performing commercial mortgage loans decreased by $1.6 million and $7.2 million in Puerto Rico and the United States, respectively, while non-performing commercial mortgage loans in the Virgin Islands remained flat in comparison to the previous quarter. Total inflows of non-performing commercial mortgage loans increased by $1.2 million to $14.4 million for the third quarter of 2012.
 
The levels of non-performing consumer loans, including finance leases, showed a $0.7 million increase during the third quarter of 2012 mainly related to marine financings. The inflows of non-performing consumer loans increased 19% from $13.0 million for the second quarter of 2012 to $15.4 million for the third quarter of 2012.
 
As of September 30, 2012, approximately $216.7 million, or 22%, of total non-performing loans held for investment have been charged-off to their net realizable value. (See Allowance for Loan and Lease Losses discussion below for additional information.)
 
The REO portfolio, which is part of non-performing assets, increased by $9.7 million to $177.0 million, mainly reflecting increases in both residential and commercial properties foreclosures in Puerto Rico. We expect to see continued movement of credits in and out of REO as we progress in our loan resolution strategies.
 
 
 
 
 
The following table shows the activity during the third quarter of 2012 of the REO portfolio by geographic region and type of property:
 
(In thousands)
  
As of September 30, 2012
   
Puerto Rico
  
Virgin Islands
  
Florida
  
Consolidated
   
Residential
  
Commercial
  
Construction
  
Residential
  
Commercial
  
Construction
  
Residential
  
Commercial
  
Construction
        
Beginning Balance
  
$
56,195
    
$
44,266
    
$
22,716
    
$
4,708
    
$
4,201
  
$
17,752
    
$
3,998
    
$
9,764
    
$
3,741
  
$
167,341
  
Additions
    
13,297
      
15,490
      
1,294
      
-
            
-
      
724
      
797
      
-
    
31,603
  
Sales
    
(7,974
)
    
(1,465
)
    
(1,025
)
            
-
    
-
      
(2,212
)
    
(3,050
)
    
-
    
(15,726
)
Fair value adjustments
    
(2,169
)
    
(2,543
)
    
(206
)
    
(8
)
          
(11
)
    
(183
)
    
(1,096
)
    
-
    
(6,217
)
Ending balance
  
$
59,349
    
$
55,748
    
$
22,778
    
$
4,700
    
$
4,201
  
$
17,741
    
$
2,328
    
$
6,415
    
$
3,741
  
$
177,001
  
                                                                             
The over 90-days delinquent, but still accruing loans, excluding loans guaranteed by the U.S. Government, increased during the third quarter of 2012 by $12.5 million to $49.6 million, or 0.49% of total loans held for investment, at September 30, 2012. Loans 30 to 89 days delinquent increased by $5.4 million, to $283.0 million as of September 30, 2012.
 
Allowance for Loan and Lease Losses
 
The following table sets forth an analysis of the allowance for loan and lease losses during the periods indicated:
 
(Dollars in thousands)
  
September 30,
  
June 30,
  
March 31,
  
December 31,
  
September 30,
   
2012
  
2012
  
2012
  
2011
  
2011
                                         
Allowance for loan and lease losses, beginning of period
  
$
457,153
    
$
483,943
    
$
493,917
    
$
519,687
    
$
540,878
  
Provision (recovery) for loan and lease losses:
                                        
Residential mortgage
    
9,083
      
16,368
      
2,336
      
8,423
      
17,744
  
Commercial mortgage
    
(6,617
)
    
142
      
1,578
      
21,746
      
13,324
  
Commercial and Industrial
    
8,117
      
2,427
      
20,158
      
5,302
      
10,437
  
Construction
    
6,379
      
(666
)
    
7,716
      
(1,096
)
    
(2,547
)
Consumer and finance leases
    
11,990
      
6,613
      
4,409
      
7,612
      
7,488
  
Total provision for loan and lease losses
    
28,952
      
24,884
      
36,197
      
41,987
      
46,446
  
Loans net charge-offs:
                                        
Residential mortgage
    
(7,358
)
    
(14,211
)
    
(5,731
)
    
(9,077
)
    
(15,816
)
Commercial mortgage
    
(5,002
)
    
(6,271
)
    
(3,594
)
    
(13,555
)
    
(3,309
)
Commercial and Industrial
    
(12,261
)
    
(8,385
)
    
(12,669
)
    
(17,285
)
    
(22,526
)
Construction
    
(8,326
)
    
(15,186
)
    
(15,392
)
    
(19,492
)
    
(16,823
)
Consumer and finance leases
    
(7,627
)
    
(7,621
)
    
(8,785
)
    
(8,348
)
    
(9,163
)
Net charge-offs
    
(40,574
)
    
(51,674
)
    
(46,171
)
    
(67,757
)
    
(67,637
)
Allowance for loan and lease losses, end of period
  
$
445,531
    
$
457,153
    
$
483,943
    
$
493,917
    
$
519,687
  
                                         
Allowance for loan and lease losses to period end total loans held for investment
    
4.37
%
    
4.44
%
    
4.70
%
    
4.68
%
    
4.89
%
Net charge-offs (annualized) to average loans outstanding during the period
    
1.58
%
    
2.03
%
    
1.78
%
    
2.55
%
    
2.50
%
Provision for loan and lease losses to net charge-offs during the period
    
0.71
x
    
0.48
x
    
0.78
x
    
0.62
x
    
0.69
x
                                         
 
 
 
 
Provision for Loan and Lease Losses
 
The provision for loan and lease losses of $29.0 million in the third quarter of 2012 was $4.1 million higher than the provision recorded in the second quarter of 2012. The increase in the provision was principally related to an allowance build related to the credit card portfolio together with increased charges to the specific reserve of C&I and construction loans. These variances were partially offset by decreases in the provision for residential and commercial mortgage loans. It is important to note that, despite the total decrease of $11.6 million in the allowance for loan losses, the reserve coverage for non-performing loans increased. The allowance for loan losses to total non-performing loans ratio was 44.20% as of September 30, 2012, compared to 42.90% for the prior quarter.
 
In Puerto Rico, the Corporation recorded a provision for loan and lease losses of $26.3 million, a decrease of $0.6 million compared to the second quarter of 2012. The provision for all major loan categories showed variances including: (i) a reduction of $7.7 million in the provision of residential mortgage loans mainly related to improved trends in charge-offs, (ii) a $2.8 million decrease in the provision for commercial mortgage loans driven by improvement in the cumulative charge-off history used for the general reserve determination and a decrease in the amount of adversely classified loans, and (iii) a reserve release of $1.9 million related to construction loans reflecting lower charges to specific reserves for certain collateral dependent loans, a decrease in net charge-offs and the overall reduction in the size of the portfolio. These reductions were almost entirely offset by an increase of $6.8 million in the provision for consumer loans mainly in connection with the credit card portfolio, partially offset by a reduction in the provision for marine financings. In addition the provision for C&I loans increased by $4.8 million mainly due to higher charges to specific reserves.
 
The Corporation recorded a reserve release of $6.9 million in the United States for the third quarter of 2012, compared to a release of $0.5 million for the second quarter of 2012. The increase in the reserve release was mainly attributable to improved trends in charge-offs and a reduction in the amount of adversely classified loans.
 
With respect to the Virgin Islands portfolio, the Corporation recorded a provision for loan and lease losses of $9.5 million for the third quarter of 2012, compared to a reserve release of $1.6 million for the second quarter of 2012. Most of the increase was associated with two construction commercial projects.
 
The following table sets forth information concerning the ratio of the allowance to non-performing loans held for investment as of September 30, 2012, and June 30, 2012, by loan category:
 
(Dollars in thousands)
  
Residential
Mortgage Loans
  
Commercial
Mortgage Loans
  
C&I Loans
  
Construction
Loans
  
Consumer and
Finance Leases
  
Total
                                                 
As of September 30, 2012
                                                
                                                 
Non-performing loans held for investment charged-off to realizable value
  
$
157,399
    
$
8,722
    
$
25,102
    
$
24,330
    
$
1,175
    
$
216,728
  
Other non-performing loans held for investment
    
163,514
      
222,441
      
205,357
      
165,128
      
34,876
      
791,316
  
Total non-performing loans held for investment
  
$
320,913
    
$
231,163
    
$
230,459
    
$
189,458
    
$
36,051
    
$
1,008,044
  
                                                 
Allowance to non-performing loans held for investment
    
21.55
%
    
38.60
%
    
70.24
%
    
34.79
%
    
164.63
%
    
44.20
%
Allowance to non-performing loans held for investment, excluding non-performing loans charged-off to realizable value
    
42.30
%
    
40.11
%
    
78.83
%
    
39.92
%
    
170.18
%
    
56.30
%
                                                 
As of June 30, 2012
                                                
                                                 
Non-performing loans held for investment charged-off to realizable value
  
$
219,596
    
$
14,763
    
$
31,465
    
$
13,259
    
$
2,722
    
$
281,805
  
Other non-performing loans held for investment
    
113,447
      
225,118
      
223,788
      
188,874
      
32,656
      
783,883
  
Total non-performing loans held for investment
  
$
333,043
    
$
239,881
    
$
255,253
    
$
202,133
    
$
35,378
    
$
1,065,688
  
                                                 
Allowance to non-performing loans held for investment
    
20.25
%
    
42.04
%
    
65.04
%
    
33.57
%
    
155.43
%
    
42.90
%
Allowance to non-performing loans held for investment, excluding non-performing loans charged-off to realizable value
    
59.45
%
    
44.80
%
    
74.19
%
    
35.93
%
    
168.39
%
    
58.32
%
                                                 
 
 
 
 
The following table sets forth information concerning the composition of the Corporation’s allowance for loan and lease losses as of September 30, 2012 and June 30, 2012 by loan category and by whether the allowance and related provisions were calculated individually for impairment purposes or through a general valuation allowance.
 
(Dollars in thousands)
  
Residential
Mortgage Loans
  
Commercial
Mortgage Loans
  
C&I Loans
  
Construction
Loans
  
Consumer and
Finance Leases
  
Total
                                                 
As of September 30, 2012
                                                
                                                 
Impaired loans without specific reserves:
                                                
Principal balance of loans, net of charge-offs
  
$
106,554
    
$
50,043
    
$
31,047
    
$
38,863
    
$
1,647
    
$
228,154
  
                                                 
Impaired loans with specific reserves:
                                                
Principal balance of loans, net of charge-offs
    
488,234
      
313,490
      
207,465
      
139,599
      
23,196
      
1,171,984
  
Allowance for loan and lease losses
    
49,640
      
51,351
      
57,001
      
33,349
      
2,813
      
194,154
  
Allowance for loan and lease losses to principal balance
    
10.17
%
    
16.38
%
    
27.47
%
    
23.89
%
    
12.13
%
    
16.57
%
                                                 
PCI loans:
                                                
Carrying value of PCI loans
    
-
      
-
      
-
      
-
      
12,741
      
12,741
  
Allowance for PCI loans
    
-
      
-
      
-
      
-
      
-
      
-
  
Allowance for PCI loans to carrying value
    
-
      
-
      
-
      
-
      
-
      
-
  
                                                 
Loans with general allowance:
                                                
Principal balance of loans
    
2,167,630
      
1,095,585
      
3,389,134
      
174,429
      
1,948,507
      
8,775,285
  
Allowance for loan and lease losses
    
19,525
      
37,876
      
104,876
      
32,562
      
56,538
      
251,377
  
Allowance for loan and lease losses to principal balance
    
0.90
%
    
3.46
%
    
3.09
%
    
18.67
%
    
2.90
%
    
2.86
%
                                                 
Total loans held for investment:
                                                
Principal balance of loans
  
$
2,762,418
    
$
1,459,118
    
$
3,627,646
    
$
352,891
    
$
1,986,091
    
$
10,188,164
  
Allowance for loan and lease losses
    
69,165
      
89,227
      
161,877
      
65,911
      
59,351
      
445,531
  
Allowance for loan and lease losses to principal balance
    
2.50
%
    
6.12
%
    
4.46
%
    
18.68
%
    
2.99
%
    
4.37
%
                                                 
As of June 30, 2012
                                                
                                                 
Impaired loans without specific reserves:
                                                
Principal balance of loans, net of charge-offs
  
$
184,198
    
$
37,042
    
$
14,279
    
$
37,735
    
$
2,804
    
$
276,058
  
                                                 
Impaired loans with specific reserves:
                                                
Principal balance of loans, net of charge-offs
    
415,179
      
324,259
      
244,086
      
152,338
      
20,574
      
1,156,436
  
Allowance for loan and lease losses
    
49,111
      
52,591
      
70,936
      
34,938
      
2,284
      
209,860
  
Allowance for loan and lease losses to principal balance
    
11.83
%
    
16.22
%
    
29.06
%
    
22.93
%
    
11.10
%
    
18.15
%
                                                 
PCI loans:
                                                
Carrying value of PCI loans
    
-
      
-
      
-
      
-
      
15,001
      
15,001
  
Allowance for PCI loans
    
-
      
-
      
-
      
-
      
-
      
-
  
Allowance for PCI loans to carrying value
    
-
      
-
      
-
      
-
      
-
      
-
  
                                                 
Loans with general allowance:
                                                
Principal balance of loans
    
2,164,689
      
1,117,767
      
3,479,554
      
174,861
      
1,911,749
      
8,848,620
  
Allowance for loan and lease losses
    
18,329
      
48,255
      
95,085
      
32,920
      
52,704
      
247,293
  
Allowance for loan and lease losses to principal balance
    
0.85
%
    
4.32
%
    
2.73
%
    
18.83
%
    
2.76
%
    
2.79
%
                                                 
Total loans held for investment:
                                                
Principal balance of loans
  
$
2,764,066
    
$
1,479,068
    
$
3,737,919
    
$
364,934
    
$
1,950,128
    
$
10,296,115
  
Allowance for loan and lease losses
    
67,440
      
100,846
      
166,021
      
67,858
      
54,988
      
457,153
  
Allowance for loan and lease losses to principal balance
    
2.44
%
    
6.82
%
    
4.44
%
    
18.59
%
    
2.82
%
    
4.44
%
                                                 
 
 
 
 
Net Charge-Offs
 
Total net charge-offs for the third quarter of 2012 were $40.6 million, or 1.58% of average loans on an annualized basis, down from $51.7 million, or an annualized 2.03%, for the second quarter of 2012. Decreases in net charge-offs were reflected primarily in residential mortgage and construction loans.
 
Residential mortgage loans net charge-offs in the third quarter of 2012 were $7.4 million, or an annualized 1.05% of related average loans, down from $14.2 million, or an annualized 2.04%, in the second quarter, mainly reflecting a lower inventory of residential real estate properties subject to updated appraisals.
 
Commercial mortgage loans net charge-offs in the third quarter of 2012 were $5.0 million, or an annualized 1.36% of related average loans, down from $6.3 million, or an annualized 1.68% of related loans, in the second quarter of 2012. Substantially all of the charge-offs recorded in the third quarter were in Puerto Rico and include a $2.9 million charge-off on one relationship in Puerto Rico.
 
C&I loans net charge-offs in the third quarter of 2012 totaled $12.3 million, or an annualized 1.33% of related average loans, up from $8.4 million, or an annualized 0.88% of related loans, in the second quarter of 2012. Substantially all of the charge-offs recorded in the third quarter were in Puerto Rico and spread through several industries, including $10.0 million on three relationships with individual charge-offs in excess of $1 million.
 
Construction loans net charge-offs in the third quarter of 2012 were $8.3 million, or an annualized 9.11% of related average loans, down from $15.2 million, or an annualized 15.21% of related loans, in the second quarter of 2012. Construction loans net charge-offs include a $7.7 million charge-off on one commercial project in the Virgin Islands.
 
Net charge-offs on consumer loans and finance leases in the third quarter of 2012 were $7.6 million, or an annualized 1.55% of related average loans, compared to $7.6 million, or an annualized 1.81% of average loans in the second quarter of 2012. The improved ratio was impacted by a larger portfolio led by the full quarter impact of the credit card portfolio in the average balance.
 
The following table presents annualized net charge-offs to average loans held-in-portfolio:
 
   
Quarter Ended
   
September 30,
  
June 30,
  
March 31,
  
December 31,
  
September 30,
   
2012
  
2012
  
2012
  
2011
  
2011
                               
Residential mortgage
  
1.05
%
  
2.04
%
  
0.82
%
  
1.29
%
  
2.24
%
                               
Commercial mortgage
  
1.36
%
  
1.68
%
  
0.92
%
  
3.44
%
  
0.84
%
                               
Commercial and Industrial
  
1.33
%
  
0.88
%
  
1.25
%
  
1.64
%
  
2.09
%
                               
Construction
  
9.11
%
  
15.21
%
  
14.23
%
  
16.43
%
  
12.78
%
                               
Consumer and finance leases
  
1.55
%
  
1.81
%
  
2.26
%
  
2.13
%
  
2.30
%
                               
Total loans
  
1.58
%
  
2.03
%
  
1.78
%
  
2.55
%
  
2.50
%
                               
The ratios above are based on annualized net charge-offs and are not necessarily indicative of the results expected in subsequent periods.
 
 
 
 
 
The following table presents annualized net charge-offs to average loans by geographic segment:
 
   
Quarter Ended
   
September 30,
  
June 30,
  
March 31,
  
December 31,
  
September 30,
   
2012
  
2012
  
2011
  
2011
  
2011
PUERTO RICO:
                              
                               
Residential mortgage
  
1.33
%
  
2.42
%
  
0.95
%
  
1.15
%
  
2.50
%
                               
Commercial mortgage
  
2.08
%
  
1.18
%
  
0.98
%
  
4.25
%
  
0.99
%
                               
Commercial and Industrial
  
1.43
%
  
0.98
%
  
1.33
%
  
1.72
%
  
2.20
%
                               
Construction
  
2.28
%
  
3.63
%
  
15.78
%
  
19.45
%
  
15.02
%
                               
Consumer and finance leases
  
1.56
%
  
1.73
%
  
2.28
%
  
2.22
%
  
2.33
%
                               
Total loans
  
1.53
%
  
1.58
%
  
1.80
%
  
2.57
%
  
2.62
%
                               
VIRGIN ISLANDS:
                              
                               
Residential mortgage
  
-0.02
%
(1
)
0.08
%
  
0.08
%
  
0.27
%
  
0.19
%
                               
Commercial mortgage
  
0.00
%
  
0.00
%
  
0.00
%
  
0.00
%
  
0.00
%
                               
Commercial and Industrial
  
0.00
%
  
0.00
%
  
0.03
%
  
0.00
%
  
0.00
%
                               
Construction
  
26.04
%
  
42.57
%
  
19.29
%
  
12.92
%
  
9.78
%
                               
Consumer and finance leases
  
1.16
%
  
1.07
%
  
0.90
%
  
0.14
%
  
2.34
%
                               
Total loans
  
3.48
%
  
6.23
%
  
3.22
%
  
2.24
%
  
1.84
%
                               
FLORIDA:
                              
                               
Residential mortgage
  
0.30
%
  
1.91
%
  
0.90
%
  
3.76
%
  
3.27
%
                               
Commercial mortgage
  
-0.40
%
(2
)
3.32
%
  
0.93
%
  
1.98
%
  
0.62
%
                               
Commercial and Industrial
  
-0.01
%
(3
)
-3.38
%
(3
)
0.72
%
  
3.34
%
  
2.32
%
                               
Construction
  
-0.50
%
(4
)
-0.76
%
(4
)
-33.52
%
(4
)
0.92
%
  
6.38
%
                               
Consumer and finance leases
  
1.64
%
  
6.92
%
  
3.59
%
  
1.20
%
  
1.02
%
                               
Total loans
  
-0.04
%
(5
)
2.45
%
  
0.00
%
  
2.61
%
  
1.93
%
                               
                               
(1) For the third quarter of 2012, recoveries in residential mortgage loans in the Virgin Island exceeded charge-offs.
 
(2) For the third quarter of 2012, recoveries in commercial mortgage loans in Florida exceeded charge-offs.
 
(3) For the third and second quarter of 2012, recoveries in commercial and industrial loans in Florida exceeded charge-offs.
 
(4) For the third, second and first quarter of 2012, recoveries in construction loans in Florida exceeded charge-offs.
 
(5) For the third quarter of 2012, recoveries in total loans in Florida exceeded charge-offs.
                               
 
 
 
 
Balance Sheet
 
Total assets were approximately $13.1 billion as of September 30, 2012, up $226.1 million from June 30, 2012. The increase in assets is attributable to purchases of MBS and higher liquidity obtained through Federal Home Loan Bank (FHLB) advances and non-brokered deposits. Cash and cash equivalents increased by $244.8 million and total investment securities increased by $63.8 million. Total loans, net of the allowance for loan and lease losses, decreased by $88.4 million, led by significant repayments of commercial loans, charge-offs and foreclosures, partially offset by increases in auto and consumer personal loans.
 
The Corporation is experiencing continued loan demand and has continued with its targeted origination strategy. During the third quarter of 2012, total loan originations, including refinancings and draws from existing revolving and non-revolving commitments, amounted to approximately $660.2 million, down from $803.5 million in loan originations in the previous quarter, mainly reflecting decreases in C&I and government loan originations partially offset by an increase in the volume of consumer loan originations. C&I loan originations (excluding government loans) amounted to $227.5 million, a decrease of $69.5 million compared to the prior quarter. Government loan originations amounted to $15.6 million, a decrease of $68.3 million compared to the previous quarter. Originations of auto loans (including finance leases) amounted to $151.2 million for the third quarter of 2012 compared to $146.0 million for the second quarter of 2012 and other personal loan originations amounted to $57.7 million, an increase of $0.9 million compared to the prior quarter. The aforementioned figures exclude the utilization activity on outstanding credit cards of approximately $95.0 million for the third quarter of 2012 (full quarter impact) compared to $34 million in the second quarter.
 
As of September 30, 2012, liabilities totaled $11.7 billion, an increase of approximately $190.9 million from June 30, 2012. The increase in total liabilities is mainly attributable to an increase of $185.0 million in FHLB advances and $54.4 million in deposits, net of brokered CDs, partially offset by a decrease of $58.1 million in brokered CDs. The increase in non-brokered deposits is mainly attributable to commercial deposits, including deposits of public funds.
 
The Corporation’s total stockholders’ equity amounted to $1.48 billion as of September 30, 2012, an increase of $35.2 million from June 30, 2012, driven by internal capital generation including net income of $19.1 million and an increase of $15.9 million in other comprehensive income due to higher unrealized gains on available for sale securities.
 
The Corporation’s total capital, Tier 1 capital, and leverage ratios as of September 30, 2012, of 17.52%, 16.20% and 12.71%, respectively, were up from total capital, Tier 1 capital and leverage ratios of 17.30%, 15.98% and 12.51%, respectively, at the end of the prior quarter. Meanwhile, the total capital, Tier 1 capital, and leverage ratios as of September 30, 2012, of its banking subsidiary, FirstBank Puerto Rico, of 17.03%, 15.71% and 12.35%, respectively, were up from total capital, Tier 1 capital and leverage ratios of 16.80% and 15.48%, and 12.13%, respectively, at the end of the prior quarter. The increase in the total and Tier 1 capital ratios was driven by internal generation of capital and a decrease in risk-weighted assets mainly related to repayments of C&I loans. The increase in the leverage ratio is also attributable to the internal generation of capital. All of the regulatory capital ratios for the Bank are well above the minimum required under the Consent Order entered into with the Federal Deposit Insurance Corporation (FDIC) and the Office of the Commissioner of Financial Institutions of the Commonwealth of Puerto Rico. Given the Consent Order, however, the Bank cannot be considered to be a well-capitalized institution.
 
Although uncertainty exists regarding final capital rules, based on our current interpretation of the proposed Basel III capital rules we anticipate to exceed the fully phased-in minimum capital ratios as established in the current proposal. The proposed Basel III capital rules and our interpretations used in estimating our Basel III calculations are subject to change depending on the final Basel III capital rules.
 
Tangible Common Equity
 
The Corporation’s tangible common equity ratio increased to 10.39% as of September 30, 2012, from 10.29% as of June 30, 2012, and the Tier 1 common equity to risk-weighted assets ratio increased to 13.33% as of September 30, 2012, from 13.12% as of June 30, 2012.
 
 
 
 
 
The following table is a reconciliation of the Corporation’s tangible common equity and tangible assets over the last five quarters to the comparable GAAP items:
 
(In thousands, except ratios and per share information)
    
   
September 30,
  
June 30,
  
March 31,
  
December 31,
  
September 30,
   
2012
  
2012
  
2012
  
2011
  
2011
Tangible Equity:
                                        
Total equity - GAAP
  
$
1,484,117
    
$
1,448,959
    
$
1,433,023
    
$
1,444,144
    
$
986,847
  
Preferred equity
    
(63,047
)
    
(63,047
)
    
(63,047
)
    
(63,047
)
    
(430,498
)
Goodwill
    
(28,098
)
    
(28,098
)
    
(28,098
)
    
(28,098
)
    
(28,098
)
Purchased credit card relationship
    
(23,920
)
    
(24,342
)
    
-
      
-
      
-
  
Core deposit intangible
    
(9,923
)
    
(10,512
)
    
(11,100
)
    
(11,689
)
    
(12,277
)
                                         
Tangible common equity
  
$
1,359,129
    
$
1,322,960
    
$
1,330,778
    
$
1,341,310
    
$
515,974
  
                                         
Tangible Assets:
                                        
Total assets - GAAP
  
$
13,139,747
    
$
12,913,650
    
$
13,085,623
    
$
13,127,275
    
$
13,475,572
  
Goodwill
    
(28,098
)
    
(28,098
)
    
(28,098
)
    
(28,098
)
    
(28,098
)
Purchased credit card relationship
    
(23,920
)
    
(24,342
)
    
-
      
-
      
-
  
Core deposit intangible
    
(9,923
)
    
(10,512
)
    
(11,100
)
    
(11,689
)
    
(12,277
)
                                         
Tangible assets
  
$
13,077,806
    
$
12,850,698
    
$
13,046,425
    
$
13,087,488
    
$
13,435,197
  
                                         
Common shares outstanding
    
206,179
      
206,134
      
206,134
      
205,134
      
21,304
  
                                         
Tangible common equity ratio
    
10.39
%
    
10.29
%
    
10.20
%
    
10.25
%
    
3.84
%
Tangible book value per common share
  
$
6.59
    
$
6.42
    
$
6.46
    
$
6.54
    
$
24.22
  
                                         
 
The following table reconciles stockholders’ equity (GAAP) to Tier 1 common equity:
 
(Dollars in thousands)
  
As of
   
September 30,
  
June 30,
  
March 31,
  
December 31,
  
September 30,
   
2012
  
2012
  
2011
  
2011
  
2011
                                         
Tier 1 Common Equity:
                                        
Total equity - GAAP
  
$
1,484,117
    
$
1,448,959
    
$
1,433,023
    
$
1,444,144
    
$
986,847
  
Qualifying preferred stock
    
(63,047
)
    
(63,047
)
    
(63,047
)
    
(63,047
)
    
(430,498
)
Unrealized gain on available-for-sale securities (1)
    
(42,528
)
    
(26,623
)
    
(20,233
)
    
(19,234
)
    
(13,957
)
Disallowed deferred tax asset (2)
    
(40
)
    
(41
)
    
(25
)
    
-
      
(267
)
Goodwill
    
(28,098
)
    
(28,098
)
    
(28,098
)
    
(28,098
)
    
(28,098
)
Core deposit intangible
    
(9,923
)
    
(10,512
)
    
(11,100
)
    
(11,689
)
    
(12,277
)
Cumulative change gain in fair value of liabilities
                                        
accounted for under a fair value option
    
-
      
-
      
(2,434
)
    
(2,009
)
    
(952
)
Other disallowed assets
    
(4,155
)
    
(2,917
)
    
(807
)
    
(922
)
    
(907
)
Tier 1 common equity
  
$
1,336,326
    
$
1,317,721
    
$
1,307,279
    
$
1,319,145
    
$
499,890
  
                                         
Total risk-weighted assets
  
$
10,026,572
    
$
10,046,284
    
$
9,947,559
    
$
10,180,226
    
$
10,432,804
  
                                         
Tier 1 common equity to risk-weighted assets ratio
    
13.33
%
    
13.12
%
    
13.14
%
    
12.96
%
    
4.79
%
                                         
1- Tier 1 capital excludes net unrealized gains (losses) on available-for-sale debt securities and net unrealized gains on available-for-sale equity securities with readily determinable fair values, in accordance with regulatory risk-based capital guidelines. In arriving at Tier 1 capital, institutions are required to deduct net unrealized losses on available-for-sale equity securities with readily determinable fair values, net of tax.
 
2- Approximately $12 million of the Corporation's deferred tax assets at September 30, 2012 (June 30, 2012 - $12 million; March 31, 2012 - $12 million; December 31, 2011 - $13 million; September 30, 2011 - $12 million) was included without limitation in regulatory capital pursuant to the risk-based capital guidelines, while approximately $40k of such assets at September 30, 2012 (June 30, 2012 - $41k; March 31, 2012 - $25k; December 31, 2011 - $0; September 30, 2011 - $0.3 million) exceeded the limitation imposed by these guidelines and, as "disallowed deferred tax assets," was deducted in arriving at Tier 1 capital. According to regulatory capital guidelines, the deferred tax assets that are dependent upon future taxable income are limited for inclusion in Tier 1 capital to the lesser of: (i) the amount of such deferred tax asset that the entity expects to realize within one year of the calendar quarter end-date, based on its projected future taxable income for that year, or (ii) 10% of the amount of the entity's Tier 1 capital. Approximately $7 million of the Corporation's other net deferred tax liability at September 30, 2012 (June 30, 2012 - $7 million; March 31, 2012 - $7 million; December 31, 2011 - $8 million; September 30, 2011 - $7 million) represented primarily the deferred tax effects of unrealized gains and losses on available-for-sale debt securities, which are permitted to be excluded prior to deriving the amount of net deferred tax assets subject to limitation under the guidelines.
                                         
 
 
 
 
Conference Call / Webcast Information
 
First BanCorp’s senior management will host an earnings conference call and live webcast on Thursday, November 1, 2012, at 10:00a.m. (Eastern Time). The call may be accessed via a live Internet webcast through the investor relations section of the Corporation’s website: www.firstbankpr.com or through a dial-in telephone number at (877) 317-6789 or (412) 317–6789. Listeners are recommended to go to the website at least 15 minutes prior to the call to download and install any necessary software. A replay of the webcast will be archived in the investor relations section of First BanCorp’s website, www.firstbankpr.com, until November 1, 2013. A telephone replay will be available one hour after the end of the conference call through 9:00 a.m. Eastern time December 3, 2012, at (877) 344-7529 or (412) 317-0088. The conference number is 10018992.
 
Safe Harbor
 
This press release may contain “forward-looking statements” concerning the Corporation’s future economic performance. The words or phrases “expect,” “anticipate,” “look forward,” “should,” “believes” and similar expressions are meant to identify “forward-looking statements” within the meaning of Section 27A of the Private Securities Litigation Reform Act of 1995, and are subject to the safe harbor created by such section. The Corporation wishes to caution readers not to place undue reliance on any such “forward-looking statements,” which speak only as of the date made, and to advise readers that various factors, including, but not limited to, the following could cause actual results to differ materially from those expressed in, or implied by such forward-looking statements: uncertainty about whether the Corporation and FirstBank will be able to fully comply with the written agreement dated June 3, 2010, that the Corporation entered into with the Federal Reserve Bank of New York (the “Federal Reserve”) and the order dated June 2, 2010, that FirstBank entered into with the FDIC and the Office of the Commissioner of Financial Institutions of the Commonwealth of Puerto Rico (the “FDIC Order”) that, among other things, require FirstBank to maintain certain capital levels and reduce its special mention, classified, delinquent and non-performing assets; the risk of being subject to possible additional regulatory actions; uncertainty as to the availability of certain funding sources, such as brokered CDs; the Corporation’s reliance on brokered CDs and its ability to obtain, on a periodic basis, approval from the FDIC to issue brokered CDs to fund operations and provide liquidity in accordance with the terms of the FDIC Order; the risk of not being able to fulfill the Corporation’s cash obligations or resume paying dividends to the Corporation’s stockholders in the future due to the Corporation’s inability to receive approval from the Federal Reserve to receive dividends from FirstBank or FirstBank’s failure to generate sufficient cash flow to make a dividend payment to the Corporation; the strength or weakness of the real estate markets and of the consumer and commercial credit sectors and their potential impact on the credit quality of the Corporation’s loans and other assets, including the Corporation’s construction and commercial real estate loan portfolios, which have contributed and may continue to contribute to, among other things, the high levels of non-performing assets, charge-offs and the provision expense and may subject the Corporation to further risk from loan defaults and foreclosures; adverse changes in general economic conditions in the U.S. and in Puerto Rico, including the interest rate environment, market liquidity, housing absorption rates, real estate prices and disruptions in the U.S. capital markets, which may reduce interest margins, impact funding sources and affect demand for all of the Corporation’s products and services and reduce the Corporation’s revenues, earnings and the value of the Corporation’s assets; an adverse change in the Corporation’s ability to attract new clients and retain existing ones; a decrease in demand for the Corporation’s products and services and lower revenues and earnings because of the continued recession in Puerto Rico, the current fiscal problems and budget deficit of the Puerto Rico government and credit downgrades of the Puerto Rico government; uncertainty about regulatory and legislative changes for financial services companies in Puerto Rico, the U.S. and the U.S. and British Virgin Islands, which could affect the Corporation’s financial condition or performance and could cause the Corporation’s actual results for future periods to differ materially from prior results and anticipated or projected results; uncertainty regarding the timing and final substance of any capital or liquidity standards, including the Final Basel III requirements and their implementation through rulemaking by the Federal Reserve, including anticipated requirements to hold higher levels of regulatory capital and liquidity and meet higher regulatory capital ratios as a result of Final Basel III or other capital or liquidity standards; uncertainty about the effectiveness of the various actions undertaken to stimulate the U.S. economy and stabilize the U.S. financial markets, and the impact such actions may have on the Corporation's business, financial condition and results of operations; changes in the fiscal and monetary policies and regulations of the federal government, including those determined by the Federal Reserve, the FDIC, government-sponsored housing agencies and regulators in Puerto Rico and the U.S. and British Virgin Islands; the risk of possible failure or circumvention of controls and procedures and the risk that the Corporation’s risk management policies may not be adequate; the risk that the FDIC may further increase the deposit insurance premium and/or require special assessments to replenish its insurance fund, causing an additional increase in the Corporation’s non-interest expenses; the risks of not being able to recover the assets pledged to Lehman Brothers Special Financing, Inc.; the impact on the Corporation’s results of operations and financial condition of acquisitions and dispositions; a need to recognize additional impairments on financial instruments, goodwill or other intangible assets relating to acquisitions; the risks that downgrades in the credit ratings of the Corporation’s long-term senior debt will adversely affect the Corporation’s ability to access necessary external funds; the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act on the Corporation’s businesses, business practices and cost of operations; and general competitive factors and industry consolidation. The Corporation does not undertake, and specifically disclaims any obligation, to update any “forward-looking statements” to reflect occurrences or unanticipated events or circumstances after the date of such statements except as required by the federal securities laws.
 
 
 
 
 
Basis of Presentation
 
Use of Non-GAAP Financial Measures
 
This press release contains non-GAAP financial measures. Non-GAAP financial measures are set forth when management believes they will be helpful to an understanding of the Corporation’s results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in the text or in the attached tables to this earnings release.
 
Tangible Common Equity Ratio and Tangible Book Value per Common Share
 
The tangible common equity ratio and tangible book value per common share are non-GAAP measures generally used by the financial community to evaluate capital adequacy. Tangible common equity is total equity less preferred equity, goodwill, core deposit intangibles and other intangibles, such as the purchased credit card relationship intangible. Tangible assets are total assets less goodwill, core deposit intangibles and other intangibles, such as the purchased credit card relationship intangible. Management and many stock analysts use the tangible common equity ratio and tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, typically stemming from the use of the purchase method of accounting for mergers and acquisitions. Neither tangible common equity nor tangible assets, or the related measures should be considered in isolation or as a substitute for stockholders’ equity, total assets or any other measure calculated in accordance with GAAP. Moreover, the manner in which the Corporation calculates its tangible common equity, tangible assets and any other related measures may differ from that of other companies reporting measures with similar names.
 
Tier 1 Common Equity to Risk-Weighted Assets Ratio
 
The Tier 1 common equity to risk-weighted assets ratio is calculated by dividing (a) Tier 1 capital less non-common elements including qualifying perpetual preferred stock and qualifying trust preferred securities by (b) risk-weighted assets, which assets are calculated in accordance with applicable bank regulatory requirements. The Tier 1 common equity ratio is not required by GAAP or on a recurring basis by applicable bank regulatory requirements. Management is currently monitoring this ratio, along with the other ratios discussed above, in evaluating the Corporation’s capital levels and believes that, at this time, the ratio may be of interest to investors.
 
Adjusted Pre-Tax, Pre-Provision Income
 
A non-GAAP performance metric that management believes is useful in analyzing underlying performance trends, particularly in times of economic stress, is adjusted pre-tax, pre-provision income. Adjusted pre-tax, pre-provision income, as defined by management, represents net (loss) income excluding income tax expense (benefit), the provision for loan and lease losses, gains on sale and OTTI of investment securities, fair value adjustments on derivatives and liabilities measured at fair value, equity in earnings or losses of unconsolidated entities as well as certain items identified as unusual, non-recurring or non-operating.
 
From time to time, revenue and expenses are impacted by items judged by management to be outside of ordinary banking activities and/or by items that, while they may be associated with ordinary banking activities, are so unusually large that management believes that a complete analysis of its Corporation’s performance requires consideration also of results that exclude such amounts. These items result from factors originating outside the Corporation such as regulatory actions/assessments, and may result from unusual management decisions, such as the early extinguishment of debt.
 
Net Interest Income, Excluding Valuations and on a Tax-Equivalent Basis
 
Net interest income, interest rate spread and net interest margin are reported excluding the changes in the fair value of derivative instruments and financial liabilities elected to be measured at fair value on a tax-equivalent basis. The presentation of net interest income excluding valuations provides additional information about the Corporation’s net interest income and facilitates comparability and analysis. The changes in the fair value of derivative instruments and unrealized gains and losses on liabilities measured at fair value have no effect on interest due or interest earned on interest-bearing liabilities or interest-earning assets, respectively. The tax-equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes a marginal income tax rate. Income from tax-exempt earning assets is increased by an amount equivalent to the taxes that would have been paid if this income had been taxable at statutory rates. Management believes that it is a standard practice in the banking industry to present net interest income, interest rate spread and net interest margin on a fully tax-equivalent basis. This adjustment puts all earning assets, most notably tax-exempt securities and certain loans, on a common basis that facilitates comparison of results to results of peers.
 
 
 
 
                         
FIRST BANCORP
Condensed Consolidated Statements of Financial Condition
                         
                         
   
As of
   
September 30,
  
June 30,
  
December 31,
(In thousands, except for share information)
  
2012
  
2012
  
2011
ASSETS
                        
                         
Cash and due from banks
  
$
786,788
    
$
518,725
    
$
206,897
  
                         
Money market investments:
                        
Federal funds sold
    
-
      
-
      
2,603
  
Time deposits with other financial institutions
    
605
      
1,055
      
955
  
Other short-term investments
    
216,327
      
239,123
      
236,111
  
Total money market investments
    
216,932
      
240,178
      
239,669
  
                         
Investment securities available for sale, at fair value
    
1,597,847
      
1,541,525
      
1,923,268
  
                         
                         
Other equity securities
    
39,656
      
32,141
      
37,951
  
                         
Total investment securities
    
1,637,503
      
1,573,666
      
1,961,219
  
                         
Investment in unconsolidated entities
    
32,300
      
34,499
      
43,401
  
                         
Loans, net of allowance for loan and lease losses of $445,531 (June 30, 2012 - $457,153 ; December 31, 2011 - $493,917)
    
9,742,633
      
9,838,962
      
10,065,475
  
Loans held for sale, at lower of cost or market
    
68,349
      
60,393
      
15,822
  
Total loans, net
    
9,810,982
      
9,899,355
      
10,081,297
  
                         
Premises and equipment, net
    
182,733
      
185,721
      
194,942
  
Other real estate owned
    
177,001
      
167,341
      
114,292
  
Accrued interest receivable on loans and investments
    
53,216
      
51,958
      
49,957
  
Other assets
    
242,292
      
242,207
      
235,601
  
Total assets
  
$
13,139,747
    
$
12,913,650
    
$
13,127,275
  
                         
LIABILITIES
                        
                         
Deposits:
                        
Non-interest-bearing deposits
  
$
780,717
    
$
776,947
    
$
705,789
  
Interest-bearing deposits
    
9,115,685
      
9,123,226
      
9,201,965
  
Total deposits
    
9,896,402
      
9,900,173
      
9,907,754
  
                         
Securities sold under agreements to repurchase
    
900,000
      
900,000
      
1,000,000
  
Advances from the Federal Home Loan Bank (FHLB)
    
518,440
      
333,440
      
367,440
  
Notes payable
    
-
      
-
      
23,342
  
Other borrowings
    
231,959
      
231,959
      
231,959
  
Accounts payable and other liabilities
    
108,829
      
99,119
      
152,636
  
Total liabilities
    
11,655,630
      
11,464,691
      
11,683,131
  
                         
STOCKHOLDERS' EQUITY
                        
                         
                         
Preferred Stock, authorized 50,000,000 shares: issued 22,828,174 shares; outstanding 2,521,872; aggregate liquidation value $63,047
    
63,047
      
63,047
      
63,047
  
                         
Common stock, $0.10 par value, authorized 2,000,000,000 shares; issued 206,674,221 (June 30, 2012 - 206,629,311 shares issued ; December 31, 2011 - 205,794,024 shares issued)
    
20,667
      
20,663
      
20,579
  
Less: Treasury stock (at par value)
    
(49
)
    
(49
)
    
(66
)
                         
Common stock outstanding, 206,179,368 shares outstanding (June 30, 2012 - 206,134,458 shares outstanding ; December 31, 2011 - 205,134,171 shares outstanding)
    
20,618
      
20,614
      
20,513
  
Additional paid-in capital
    
885,327
      
885,130
      
884,002
  
Retained earnings
    
472,633
      
453,558
      
457,384
  
Accumulated other comprehensive income
    
42,492
      
26,610
      
19,198
  
Total stockholders' equity
    
1,484,117
      
1,448,959
      
1,444,144
  
Total liabilities and stockholders'equity
  
$
13,139,747
    
$
12,913,650
    
$
13,127,275
  
                         
                         

 
 
 
                                         
FIRST BANCORP
Condensed Consolidated Statements of Income (Loss)
                                         
                                         
 
   
Quarter Ended
  
Nine-Month Period Ended
(In thousands, except per share information)
  
September 30,
  
June 30,
  
September 30,
  
September 30,
  
September 30,
 
2012
  
2012
  
2011
  
2012
  
2011
                                         
Net interest income:
                                        
Interest income
  
$
166,964
    
$
153,652
    
$
158,542
    
$
472,723
    
$
502,863
  
Interest expense
    
41,461
      
44,947
      
64,287
      
136,649
      
207,894
  
Net interest income
    
125,503
      
108,705
      
94,255
      
336,074
      
294,969
  
Provision for loan and lease losses
    
28,952
      
24,884
      
46,446
      
90,033
      
194,362
  
Net interest income after provision for loan and lease losses
    
96,551
      
83,821
      
47,809
      
246,041
      
100,607
  
                                         
Non-interest income:
                                        
Other service charges
    
1,098
      
1,226
      
1,485
      
3,843
      
4,659
  
Service charges on deposit accounts
    
3,267
      
3,240
      
3,098
      
9,754
      
9,484
  
Mortgage banking activities
    
4,728
      
4,057
      
3,676
      
13,260
      
19,603
  
Net gain (loss) on investments and impairments
    
(547
)
    
(143
)
    
12,156
      
(1,897
)
    
52,839
  
Loss on early extinguishment of borrowings
    
-
      
-
      
(9,012
)
    
-
      
(10,835
)
Equiy in losses of unconsolidated entities
    
(2,199
)
    
(2,491
)
    
(4,357
)
    
(10,926
)
    
(5,893
)
Other non-interest income
    
8,779
      
8,133
      
6,918
      
23,589
      
23,454
  
Total non-interest income
    
15,126
      
14,022
      
13,964
      
37,623
      
93,311
  
                                         
Non-interest expenses:
                                        
Employees' compensation and benefits
    
31,058
      
31,101
      
29,375
      
93,770
      
89,221
  
Occupancy and equipment
    
15,208
      
15,181
      
15,468
      
46,065
      
46,321
  
Business promotion
    
4,004
      
3,475
      
2,509
      
10,026
      
8,801
  
Professional fees
    
6,295
      
5,322
      
5,983
      
16,796
      
17,192
  
Taxes, other than income taxes
    
3,499
      
3,435
      
3,420
      
10,350
      
9,953
  
Insurance and supervisory fees
    
13,023
      
13,302
      
15,041
      
39,333
      
44,622
  
Net loss on real estate owned (REO) operations
    
8,686
      
6,786
      
4,952
      
18,915
      
16,423
  
Other non-interest expenses
    
10,070
      
8,340
      
6,183
      
28,723
      
19,695
  
Total non-interest expenses
    
91,843
      
86,942
      
82,931
      
263,978
      
252,228
  
                                         
Income (loss) before income taxes
    
19,834
      
10,901
      
(21,158
)
    
19,686
      
(58,310
)
Income tax expense
    
(761
)
    
(1,545
)
    
(2,888
)
    
(4,439
)
    
(9,080
)
                                         
Net income (loss)
  
$
19,073
    
$
9,356
    
$
(24,046
)
  
$
15,247
    
$
(67,390
)
                                         
Net income (loss) attributable to common stockholders
  
$
19,073
    
$
9,356
    
$
(31,143
)
  
$
15,247
    
$
(88,785
)
                                         
                                         
Earnings (loss) per common share:
                                        
                                         
Basic
  
$
0.09
    
$
0.05
    
$
(1.46
)
  
$
0.07
    
$
(4.17
)
Diluted
  
$
0.09
    
$
0.05
    
$
(1.46
)
  
$
0.07
    
$
(4.17
)
                                         
                                         
 
 
 
 
About First BanCorp.
 
First BanCorp. is the parent corporation of FirstBank Puerto Rico, a state-chartered commercial bank with operations in Puerto Rico, the Virgin Islands and Florida, and of FirstBank Insurance Agency. First BanCorp. and FirstBank Puerto Rico operate within U.S. banking laws and regulations. The Corporation operates a total of 153 branches, stand-alone offices and in-branch service centers throughout Puerto Rico, the U.S. and British Virgin Islands, and Florida. Among the subsidiaries of FirstBank Puerto Rico are First Federal Finance Corp., a small loan company; FirstBank Puerto Rico Securities, a broker-dealer subsidiary; First Management of Puerto Rico; and FirstMortgage, Inc., a mortgage origination company. In the U.S. Virgin Islands, FirstBank operates First Express, a small loan company. First BanCorp’s common shares trade on the New York Stock Exchange under the symbol FBP. Additional information about First BanCorp. may be found at www.firstbankpr.com.
 
 
 
 
EXHIBIT A
 
Table 1 – Selected Financial Data
 
(In thousands, except for per share and financial ratios)
  
Quarter Ended
  
Nine-Month Period Ended
   
September 30,
  
June 30,
  
September 30,
  
September 30,
  
September 30,
   
2012
  
2012
  
2011
  
2012
  
2011
Condensed Income Statements:
                                        
Total interest income
  
$
166,964
    
$
153,652
    
$
158,542
    
$
472,723
    
$
502,863
  
Total interest expense
    
41,461
      
44,947
      
64,287
      
136,649
      
207,894
  
Net interest income
    
125,503
      
108,705
      
94,255
      
336,074
      
294,969
  
Provision for loan and lease losses
    
28,952
      
24,884
      
46,446
      
90,033
      
194,362
  
Non-interest income
    
15,126
      
14,022
      
13,964
      
37,623
      
93,311
  
Non-interest expenses
    
91,843
      
86,942
      
82,931
      
263,978
      
252,228
  
Income (loss) before income taxes
    
19,834
      
10,901
      
(21,158
)
    
19,686
      
(58,310
)
Income tax expense
    
(761
)
    
(1,545
)
    
(2,888
)
    
(4,439
)
    
(9,080
)
Net income (loss)
    
19,073
      
9,356
      
(24,046
)
    
15,247
      
(67,390
)
Net income (loss) attributable to common stockholders
    
19,073
      
9,356
      
(31,143
)
    
15,247
      
(88,785
)
                                         
Per Common Share Results:
                                        
Net earnings (loss) per share basic
  
$
0.09
    
$
0.05
    
$
(1.46
)
  
$
0.07
    
$
(4.17
)
Net earnings (loss) per share diluted
  
$
0.09
    
$
0.05
    
$
(1.46
)
  
$
0.07
    
$
(4.17
)
Cash dividends declared
  
$
-
    
$
-
    
$
-
    
$
-
    
$
-
  
Average shares outstanding
    
205,415
      
205,415
      
21,303
      
205,349
      
21,303
  
Average shares outstanding diluted
    
205,923
      
205,952
      
21,303
      
205,697
      
21,303
  
Book value per common share
  
$
6.89
    
$
6.72
    
$
26.12
    
$
6.89
    
$
26.12
  
Tangible book value per common share (1)
  
$
6.59
    
$
6.42
    
$
24.22
    
$
6.59
    
$
24.22
  
                                         
Selected Financial Ratios (In Percent):
                                        
                                         
Profitability:
                                        
Return on Average Assets
    
0.59
      
(0.29
)
    
(0.69
)
    
0.16
      
(0.62
)
Interest Rate Spread (2)
    
3.77
      
3.21
      
2.61
      
3.31
      
2.55
  
Net Interest Margin (2)
    
4.02
      
3.50
      
2.86
      
3.59
      
2.81
  
Return on Average Total Equity
    
5.19
      
2.62
      
(9.46
)
    
1.41
      
(8.78
)
Return on Average Common Equity
    
5.43
      
2.74
      
(21.33
)
    
1.47
      
(19.83
)
Average Total Equity to Average Total Assets
    
11.37
      
11.14
      
7.31
      
11.20
      
7.02
  
Total capital
    
17.52
      
17.30
      
12.39
      
17.52
      
12.39
  
Tier 1 capital
    
16.20
      
15.98
      
11.07
      
16.20
      
11.07
  
Leverage
    
12.71
      
12.51
      
8.41
      
12.71
      
8.41
  
Tangible common equity ratio (1)
    
10.39
      
10.29
      
3.84
      
10.39
      
3.84
  
Tier 1 common equity to risk-weight assets (1)
    
13.33
      
13.12
      
4.79
      
13.33
      
4.79
  
Dividend payout ratio
    
-
      
-
      
-
      
-
      
-
  
Efficiency ratio (3)
    
65.31
      
70.84
      
76.63
      
70.64
      
64.96
  
                                         
Asset Quality:
                                        
Allowance for loan and lease losses to loans held for investment
    
4.37
      
4.44
      
4.89
      
4.37
      
4.89
  
Net charge-offs (annualized) to average loans
    
1.58
      
2.03
      
2.50
      
1.79
      
2.72
  
Provision for loan and lease losses to net charge-offs
    
71.36
      
48.16
      
68.67
      
65.04
      
85.36
  
Non-performing assets to total assets
    
9.58
      
10.13
      
10.22
      
9.58
      
10.22
  
Non-performing loans held for investment to total loans held for investment
    
9.89
      
10.35
      
11.13
      
9.89
      
11.13
  
Allowance to total non-performing loans held for investment
    
44.20
      
42.90
      
43.90
      
44.20
      
43.90
  
Allowance to total non-performing loans held for investment excluding residential real estate loans
    
64.84
      
62.40
      
63.44
      
64.84
      
63.44
  
                                         
Other Information:
                                        
Common Stock Price: End of period
  
$
4.42
    
$
3.96
    
$
2.80
    
$
4.42
    
$
2.80
  
                                         
                                         
1- Non-GAAP measure. See pages 17-18 for GAAP to Non-GAAP reconciliations.
 
2- On a tax-equivalent basis. See page 4 for GAAP to Non-GAAP reconciliations and refer to discussions in Tables 2 and 3 below.
 
3- Non-interest expenses to the sum of net interest income and non-interest income. The denominator includes non-recurring income and changes in the fair value of derivative instruments and financial liabilities measured at fair value.
 
 
 
 
Table 2 – Quarterly Statement of Average Interest-Earning Assets and Average Interest-Bearing Liabilities (On a Tax-Equivalent Basis and Excluding Valuations)
 
(Dollars in thousands)
                                                      
   
Average volume
  
Interest income (1) / expense
  
Average rate (1)
   
September 30,
  
June 30,
  
September 30,
  
September 30,
  
June 30,
  
September 30,
  
September 30,
  
June 30,
  
September 30,
Quarter ended
  
2012
  
2012
  
2011
  
2012
  
2012
  
2011
  
2012
  
2012
  
2011
                                                       
Interest-earning assets:
                                                      
Money market & other short-term investments
  
$
553,283
  
$
656,642
  
$
482,057
  
$
395
  
$
456
  
$
325
  
0.28
%
  
0.28
%
  
0.27
%
Government obligations (2)
    
336,598
    
675,729
    
1,273,109
    
1,069
    
3,091
    
4,646
  
1.26
%
  
1.84
%
  
1.45
%
Mortgage-backed securities
    
1,313,353
    
1,082,175
    
988,900
    
10,705
    
8,366
    
8,771
  
3.24
%
  
3.11
%
  
3.52
%
Corporate bonds
    
959
    
1,876
    
2,000
    
16
    
31
    
29
  
6.64
%
  
6.65
%
  
5.75
%
FHLB stock
    
33,131
    
32,399
    
40,265
    
318
    
353
    
396
  
3.82
%
  
4.38
%
  
3.90
%
Equity securities
    
1,377
    
1,377
    
1,377
    
-
    
-
    
-
  
0.00
%
  
0.00
%
  
0.00
%
Total investments (3)
    
2,238,701
    
2,450,198
    
2,787,708
    
12,503
    
12,297
    
14,167
  
2.22
%
  
2.02
%
  
2.02
%
Residential mortgage loans
    
2,815,261
    
2,784,364
    
2,825,394
    
37,897
    
36,822
    
38,822
  
5.36
%
  
5.32
%
  
5.45
%
Construction loans
    
365,656
    
399,394
    
526,383
    
2,480
    
2,556
    
3,418
  
2.70
%
  
2.57
%
  
2.58
%
C&I and commercial mortgage loans
    
5,151,641
    
5,315,831
    
5,887,610
    
52,514
    
54,321
    
60,332
  
4.06
%
  
4.11
%
  
4.07
%
Finance leases
    
237,986
    
239,943
    
258,139
    
5,222
    
5,226
    
5,385
  
8.73
%
  
8.76
%
  
8.28
%
Consumer loans
    
1,727,291
    
1,443,697
    
1,334,900
    
57,641
    
44,097
    
38,893
  
13.28
%
  
12.28
%
  
11.56
%
Total loans (4) (5)
    
10,297,835
    
10,183,229
    
10,832,426
    
155,754
    
143,022
    
146,850
  
6.02
%
  
5.65
%
  
5.38
%
Total interest-earning assets
  
$
12,536,536
  
$
12,633,427
  
$
13,620,134
  
$
168,257
  
$
155,319
  
$
161,017
  
5.34
%
  
4.94
%
  
4.69
%
                                                       
Interest-bearing liabilities:
                                                      
Brokered CDs
  
$
3,400,984
  
$
3,473,457
  
$
4,887,851
  
$
15,435
  
$
17,803
  
$
26,286
  
1.81
%
  
2.06
%
  
2.13
%
Other interest-bearing deposits
    
5,589,449
    
5,587,225
    
5,308,927
    
14,516
    
15,686
    
19,855
  
1.03
%
  
1.13
%
  
1.48
%
Other borrowed funds
    
1,131,959
    
1,171,833
    
1,336,508
    
8,557
    
8,969
    
12,750
  
3.01
%
  
3.08
%
  
3.78
%
FHLB advances
    
395,777
    
344,539
    
411,168
    
2,953
    
3,028
    
3,795
  
2.97
%
  
3.53
%
  
3.66
%
Total interest-bearing liabilities (6)
  
$
10,518,169
  
$
10,577,054
  
$
11,944,454
  
$
41,461
  
$
45,486
  
$
62,686
  
1.57
%
  
1.73
%
  
2.08
%
Net interest income
                    
$
126,796
  
$
109,833
  
$
98,331
                  
Interest rate spread
                                      
3.77
%
  
3.21
%
  
2.61
%
Net interest margin
                                      
4.02
%
  
3.50
%
  
2.86
%
                                                       
1- On a tax-equivalent basis. The tax-equivalent yield was estimated by dividing the interest rate spread on exempt assets by 1 less the Puerto Rico statutory tax rate (30% for 2012; 30% for the Corporation's subsidiaries other than International Banking Entities (IBEs) and 25% for the Corporation's IBEs in 2011) and adding to it the cost of interest-bearing liabilities. When adjusted to a tax-equivalent basis, yields on taxable and exempt assets are comparable. Changes in the fair value of derivative instruments and unrealized gains or losses on liabilities measured at fair value are excluded from interest income and interest expense because the changes in valuation do not affect interest paid or received.
                                                       
2- Government obligations include debt issued by government sponsored agencies.
                                                       
3- Unrealized gains and losses on available-for-sale securities are excluded from the average volumes.
                                                       
4- Average loan balances include the average of total non-performing loans.
                                                       
5- Interest income on loans includes $3.7 million, $2.9 million and $2.5 million for the quarters ended September 30, 2012, June 30, 2012 and September 30, 2011, respectively, of income from prepayment penalties and late fees related to the Corporation's loan portfolio.
                                                       
6- Unrealized gains and losses on liabilities measured at fair value are excluded from the average volumes.
                                                       
                                                       
 
 
 
 
Table 3 – Year to Date Statement of Average Interest-Earning Assets and Average Interest-Bearing Liabilities (On a Tax-Equivalent Basis and Excluding Valuations)
 
(Dollars in thousands)
                                    
Nine-Month Period Ended
Average volume
  
Interest income (1) / expense
    
Average rate (1)
September 30,
  
September 30,
  
September 30,
  
September 30,
    
September 30,
  
September 30,
2012
  
2011
  
2012
  
2011
    
2012
  
2011
                                     
Interest-earning assets:
                                    
Money market & other short-term investments
   $ 570,639     $ 509,488     $ 1,220     $ 1,034       0.29 %     0.27 %
Government obligations (2)
     655,056       1,482,025       8,238       17,049       1.68 %     1.54 %
Mortgage-backed securities
     1,099,082       1,265,491       26,506       36,336       3.22 %     3.84 %
Corporate bonds
     1,609       2,000       76       87       6.31 %     5.82 %
FHLB stock
     34,057       45,512       1,072       1,561       4.20 %     4.59 %
Equity securities
     1,377       1,377       -       1       0.00 %     0.10 %
Total investments (3)
     2,361,820       3,305,893       37,112       56,068       2.10 %     2.27 %
Residential mortgage loans
     2,796,850       2,991,200       113,459       126,837       5.42 %     5.67 %
Construction loans
     399,078       664,889       7,695       14,063       2.58 %     2.83 %
C&I and commercial mortgage loans
     5,358,916       5,869,011       163,478       177,444       4.07 %     4.04 %
Finance leases
     240,415       268,124       15,760       16,649       8.76 %     8.30 %
Consumer loans
     1,494,873       1,371,146       139,588       118,935       12.47 %     11.60 %
Total loans (4) (5)
     10,290,132       11,164,370       439,980       453,928       5.71 %     5.44 %
Total interest-earning assets
   $ 12,651,952     $ 14,470,263     $ 477,092     $ 509,996       5.04 %     4.71 %
                                                 
Interest-bearing liabilities:
                                                
Brokered CDs
   $ 3,503,304     $ 5,481,742     $ 52,971     $ 88,751       2.02 %     2.16 %
Other interest-bearing deposits
     5,550,100       5,240,236       47,203       60,973       1.14 %     1.56 %
Other borrowed funds
     1,184,930       1,528,747       27,743       43,234       3.13 %     3.78 %
FHLB advances
     368,137       493,107       9,222       12,760       3.35 %     3.46 %
Total interest-bearing liabilities (6)
   $ 10,606,471     $ 12,743,832     $ 137,139     $ 205,718       1.73 %     2.16 %
Net interest income
                   $ 339,953     $ 304,278                  
Interest rate spread
                                     3.31 %     2.55 %
Net interest margin
                                     3.59 %     2.81 %
                                                 
1- On a tax-equivalent basis. The tax-equivalent yield was estimated by dividing the interest rate spread on exempt assets by 1 less the Puerto Rico statutory tax rate (30% for 2012; 30% for the Corporation's subsidiaries other than IBEs and 25% for the Corporation's IBEs in 2011) and adding to it the cost of interest-bearing liabilities. When adjusted to a tax-equivalent basis, yields on taxable and exempt assets are comparable. Changes in the fair value of derivative instruments and unrealized gains or losses on liabilities measured at fair value are excluded from interest income and interest expense because the changes in valuation do not affect interest paid or received.
                                                 
2- Government obligations include debt issued by government sponsored agencies.
                                                 
3- Unrealized gains and losses on available-for-sale securities are excluded from the average volumes.
                                                 
4- Average loan balances include the average of total non-performing loans.
                                                 
5- Interest income on loans includes $9.0 million and $7.2 million for the nine-month periods ended September 30, 2012 and 2011, respectively, of income from prepayment penalties and late fees related to the Corporation's loan portfolio.
                                                 
6- Unrealized gains and losses on liabilities measured at fair value are excluded from the average volumes.
 
 
 
 
 
 
Table 4 – Non-Interest Income
 
   
Quarter Ended
  
Nine-Month Period Ended
   
September 30,
  
June 30,
  
September 30,
  
September 30,
  
September 30,
(In thousands)
  
2012
  
2012
  
2011
  
2012
  
2011
                                         
Other service charges
  
$
1,098
    
$
1,226
    
$
1,485
    
$
3,843
    
$
4,659
  
Service charges on deposit accounts
    
3,267
      
3,240
      
3,098
      
9,754
      
9,484
  
Mortgage banking activities
    
4,728
      
4,057
      
3,676
      
13,260
      
19,603
  
Insurance income
    
1,429
      
1,312
      
1,058
      
4,221
      
3,454
  
Broker-dealer income
    
20
      
1,347
      
173
      
2,630
      
1,004
  
Other operating income
    
7,330
      
5,474
      
5,687
      
16,738
      
18,996
  
                                         
Non-interest income before net gain on investments, loss on early extinguishment of borrowings and equity in losses of unconsolidated entities
    
17,872
      
16,656
      
15,177
      
50,446
      
57,200
  
                                         
Proceeds from securities litigation settlement and other proceeds
    
10
      
-
      
-
      
36
      
679
  
Net gain on sale of investments
    
-
      
-
      
12,506
      
-
      
53,117
  
OTTI on debt securities
    
(557
)
    
(143
)
    
(350
)
    
(1,933
)
    
(957
)
Net (loss) gain on investments
    
(547
)
    
(143
)
    
12,156
      
(1,897
)
    
52,839
  
                                         
Loss on early extinguishment of borrowings
    
-
      
-
      
(9,012
)
    
-
      
(10,835
)
                                         
Equity in losses of unconsolidated entities
    
(2,199
)
    
(2,491
)
    
(4,357
)
    
(10,926
)
    
(5,893
)
   
$
15,126
    
$
14,022
    
$
13,964
    
$
37,623
    
$
93,311
  
                                         
                                         
 
 
 
 
Table 5 – Non-Interest Expenses
 
   
Quarter Ended
    
Nine-Month Period Ended
  
   
September 30,
    
June 30,
    
September 30,
    
September 30,
    
September 30,
  
(In thousands)
  
2012
    
2012
    
2011
    
2012
    
2011
  
                               
Employees' compensation and benefits
   $ 31,058     $ 31,101     $ 29,375     $ 93,770     $ 89,221  
Occupancy and equipment
     15,208       15,181       15,468       46,065       46,321  
Deposit insurance premium
     11,657       11,982       13,602       35,626       41,192  
Other insurance and supervisory fees
     1,366       1,320       1,439       3,707       3,430  
Taxes, other than income taxes
     3,499       3,435       3,420       10,350       9,953  
Professional fees
     6,295       5,322       5,983       16,796       17,192  
Servicing and processing fees
     5,305       3,017       2,329       10,482       6,691  
Business promotion
     4,004       3,475       2,509       10,026       8,801  
Communications
     1,797       1,758       1,651       5,276       5,393  
Net loss on REO operations
     8,686       6,786       4,952       18,915       16,423  
Other
     2,968       3,565       2,203       12,965       7,611  
Total
   $ 91,843     $ 86,942     $ 82,931     $ 263,978     $ 252,228  
                                         
                                         
 
 
 
 
Table 6 – Selected Balance Sheet Data
 
(In thousands)
  
As of
  
   
September 30,
    
June 30,
    
December 31,
  
   
2012
    
2012
    
2011
  
Balance Sheet Data:
                  
Loans, including loans held for sale
   $ 10,256,513     $ 10,356,508     $ 10,575,214  
Allowance for loan and lease losses
     445,531       457,153       493,917  
Money market and investment securities
     1,854,435       1,813,844       2,200,888  
Intangible assets
     61,941       62,952       39,787  
Deferred tax asset, net
     4,577       4,664       5,442  
Total assets
     13,139,747       12,913,650       13,127,275  
Deposits
     9,896,402       9,900,173       9,907,754  
Borrowings
     1,650,399       1,465,399       1,622,741  
Total preferred equity
     63,047       63,047       63,047  
Total common equity
     1,378,578       1,359,302       1,361,899  
Accumulated other comprehensive income, net of tax
     42,492       26,610       19,198  
Total equity
     1,484,117       1,448,959       1,444,144  
                         
                         
 
 
 
 
Table 7 – Loan Portfolio
 
Composition of the loan portfolio including loans held for sale at period end.
 
(In thousands)
  
As of
  
   
September 30,
    
June 30,
    
December 31,
  
   
2012
    
2012
    
2011
  
                   
Residential mortgage loans
   $ 2,762,418     $ 2,764,066     $ 2,873,785  
                         
Commercial loans:
                        
Construction loans
     352,891       364,934       427,863  
Commercial mortgage loans
     1,459,118       1,479,068       1,565,411  
Commercial and Industrial loans
     3,369,305       3,475,356       3,856,695  
Loans to local financial institutions collateralized by real estate mortgages
     258,341       262,563       273,821  
Commercial loans
     5,439,655       5,581,921       6,123,790  
                         
Finance leases
     239,556       240,589       247,003  
                         
Consumer loans
     1,746,535       1,709,539       1,314,814  
Loans held for investment
     10,188,164       10,296,115       10,559,392  
Loans held for sale
     68,349       60,393       15,822  
Total loans
   $ 10,256,513     $ 10,356,508     $ 10,575,214  
                         
                         
 
 
 
 
Table 8 – Loan Portfolio by Geography
 
(In thousands)
  
As of September 30, 2012
  
   
Puerto Rico
    
Virgin Islands
    
Florida
    
Consolidated
  
                         
Residential mortgage loans
   $ 2,100,210     $ 386,016     $ 276,192     $ 2,762,418  
                                 
Commercial loans:
                                
Construction loans
     229,636       100,612       22,643       352,891  
Commercial mortgage loans
     1,024,694       63,419       371,005       1,459,118  
Commercial and Industrial loans
     3,127,447       204,116       37,742       3,369,305  
Loans to a local financial institution collateralized by real estate mortgages
     258,341       -       -       258,341  
Commercial loans
     4,640,118       368,147       431,390       5,439,655  
                                 
Finance leases
     239,556       -       -       239,556  
                                 
Consumer loans
     1,661,497       52,940       32,098       1,746,535  
Loans held for investment
     8,641,381       807,103       739,680       10,188,164  
                                 
Loans held for sale
     64,037       4,312       -       68,349  
Total loans
   $ 8,705,418     $ 811,415     $ 739,680     $ 10,256,513  
                                 
                                 
 
 
 
 
Table 9 – Non-Performing Assets
 
(Dollars in thousands)
  
September 30,
  
June 30,
  
December 31,
   
2012
  
2012
  
2011
Non-performing loans held for investment:
                        
Residential mortgage
  
$
320,913
    
$
333,043
    
$
338,208
  
Commercial mortgage
    
231,163
      
239,881
      
240,414
  
Commercial and Industrial
    
230,459
      
255,253
      
270,171
  
Construction
    
189,458
      
202,133
      
250,022
  
Consumer and Finance leases
    
36,051
      
35,378
      
39,547
  
Total non-performing loans held for investment
    
1,008,044
      
1,065,688
      
1,138,362
  
                         
REO
    
177,001
      
167,341
      
114,292
  
Other repossessed property
    
9,775
      
10,601
      
15,392
  
Other Assets (1)
    
64,543
      
64,543
      
64,543
  
Total non-performing assets, excluding loans held for sale
  
$
1,259,363
    
$
1,308,173
    
$
1,332,589
  
                         
Non-performing loans held for sale
    
-
      
-
      
4,764
  
Total non-performing assets, including loans held for sale (2)
  
$
1,259,363
    
$
1,308,173
    
$
1,337,353
  
                         
Past due loans 90 days and still accruing
  
$
141,028
    
$
120,585
    
$
130,816
  
Allowance for loan and lease losses
    
445,531
    
$
457,153
    
$
493,917
  
Allowance to total non-performing loans held for investment
    
44.20
%
    
42.90
%
    
43.39
%
Allowance to total non-performing loans held for investment, excluding residential real estate loans
    
64.84
%
    
62.40
%
    
61.73
%
                         
(1) Collateral pledged to Lehman Brothers Special Financing, Inc.
 
(2) Amount excludes purchased credit impaired loans with a carrying value of approximately $12.7 million acquired as part of the credit card portfolio acquired from FIA.
                         
                         
 
 
 
 
Table 10– Non-Performing Assets by Geography
 
(In thousands)
  
September 30,
    
June 30,
    
December 31,
  
   
2012
    
2012
    
2011
  
Puerto Rico:
                  
Non-performing loans held for investment:
                  
Residential mortgage
   $ 285,994     $ 296,496     $ 297,595  
Commercial mortgage
     175,007       176,572       170,949  
Commercial and Industrial
     216,602       242,144       261,189  
Construction
     110,378       115,958       137,478  
Finance leases
     3,061       2,829       3,485  
Consumer
     30,005       29,879       34,888  
Total non-performing loans held for investment
     821,047       863,878       905,584  
                         
REO
     137,877       123,178       85,788  
Other repossessed property
     9,700       10,530       15,283  
Investment securities
     64,543       64,543       64,543  
Total non-performing assets, excluding loans held for sale
   $ 1,033,167     $ 1,062,129     $ 1,071,198  
Non-performing loans held for sale
     -       -       4,764  
Total non-performing assets, including loans held for sale (1)
   $ 1,033,167     $ 1,062,129     $ 1,075,962  
Past due loans 90 days and still accruing
   $ 138,431     $ 117,936     $ 118,888  
                         
Virgin Islands:
                        
Non-performing loans held for investment:
                        
Residential mortgage
   $ 18,559     $ 14,454     $ 11,470  
Commercial mortgage
     11,751       11,716       12,851  
Commercial and Industrial
     12,657       11,909       7,276  
Construction
     72,786       79,794       110,594  
Consumer
     921       830       518  
Total non-performing loans held for investment
     116,674       118,703       142,709  
                         
REO
     26,642       26,661       7,200  
Other repossessed property
     57       58       67  
Total non-performing assets, excluding loans held for sale
   $ 143,373     $ 145,422     $ 149,976  
Non-performing loans held for sale
     -       -       -  
Total non-performing assets, including loans held for sale
   $ 143,373     $ 145,422     $ 149,976  
Past due loans 90 days and still accruing
   $ 2,597     $ 2,649     $ 11,204  
                         
Florida:
                        
Non-performing loans held for investment:
                        
Residential mortgage
   $ 16,360     $ 22,093     $ 29,143  
Commercial mortgage
     44,405       51,593       56,614  
Commercial and Industrial
     1,200       1,200       1,706  
Construction
     6,294       6,381       1,950  
Consumer
     2,064       1,840       656  
Total non-performing loans held for investment
     70,323       83,107       90,069  
                         
REO
     12,482       17,502       21,304  
Other repossessed property
     18       13       42  
Total non-performing assets, excluding loans held for sale
   $ 82,823     $ 100,622     $ 111,415  
Non-performing loans held for sale
     -       -       -  
Total non-performing assets, including loans held for sale
   $ 82,823     $ 100,622     $ 111,415  
Past due loans 90 days and still accruing
   $ -     $ -     $ 724  
                         
(1) Amount excludes purchased credit impaired loans with a carrying value of approximately $12.7 million acquired as part of the credit card portfolio acquired from FIA.
  
                         
                         
 
 
 
 
Table 11 – Allowance for Loan and Lease Losses
 
   
Quarter Ended
  
Nine-Month Period Ended
(Dollars in thousands)
  
September 30,
  
June 30,
  
September 30,
  
September 30,
  
September 30,
   
2012
  
2012
  
2011
  
2012
  
2011
                                         
Allowance for loan and lease losses, beginning of period
  
$
457,153
    
$
483,943
    
$
540,878
    
$
493,917
    
$
553,025
  
Provision (recovery) for loan and lease losses:
                                        
Residential mortgage
    
9,083
      
16,368
      
17,744
      
27,787
      
36,916
  
Commercial mortgage
    
(6,617
)
    
142
      
13,324
      
(4,897
)
    
32,767
  
Commercial and Industrial
    
8,117
      
2,427
      
10,437
      
30,702
      
73,409
  
Construction
    
6,379
      
(666
)
    
(2,547
)
    
13,429
      
41,270
  
Consumer and finance leases
    
11,990
      
6,613
      
7,488
      
23,012
      
10,000
  
Total provision for loan and lease losses
    
28,952
      
24,884
      
46,446
      
90,033
      
194,362
  
Loans net charge-offs:
                                        
Residential mortgage
    
(7,358
)
    
(14,211
)
    
(15,816
)
    
(27,300
)
    
(29,914
)
Commercial mortgage
    
(5,002
)
    
(6,271
)
    
(3,309
)
    
(14,867
)
    
(37,563
)
Commercial and Industrial
    
(12,261
)
    
(8,385
)
    
(22,526
)
    
(33,315
)
    
(49,577
)
Construction
    
(8,326
)
    
(15,186
)
    
(16,823
)
    
(38,904
)
    
(81,268
)
Consumer and finance leases
    
(7,627
)
    
(7,621
)
    
(9,163
)
    
(24,033
)
    
(29,378
)
Net charge-offs
    
(40,574
)
    
(51,674
)
    
(67,637
)
    
(138,419
)
    
(227,700
)
Allowance for loan and lease losses, end of period
  
$
445,531
    
$
457,153
    
$
519,687
    
$
445,531
    
$
519,687
  
                                         
Allowance for loan and lease losses to period end total loans held for investment
    
4.37
%
    
4.44
%
    
4.89
%
    
4.37
%
    
4.89
%
Net charge-offs (annualized) to average loans outstanding during the period
    
1.58
%
    
2.03
%
    
2.50
%
    
1.79
%
    
2.72
%
Provision for loan and lease losses to net charge-offs during the period
    
0.71
x
    
0.48
x
    
0.69
x
    
0.65
x
    
0.85
x
                                         
                                         
 
 
 
 
Table 12 – Net Charge-Offs to Average Loans
 
   
Nine-month period ended
  
Year ended
   
September 30,
  
December 31,
  
December 31,
      
December 31,
  
December 31,
   
2012
  
2011
  
2010
      
2009
  
2008
                                   
Residential mortgage
     1.30 %     1.32 %     1.80 %   (1 )   0.82 %     0.19 %
                                             
Commercial mortgage
     1.32 %     3.21 %     5.02 %   (2 )   1.64 %     0.27 %
                                             
Commercial and Industrial
     1.15 %     1.57 %     2.16 %   (3 )   0.72 %     0.59 %
                                             
Construction
     13.00 %     16.33 %     23.80 %   (4 )   11.54 %     0.52 %
                                             
Consumer and finance leases
     1.85 %     2.33 %     2.98 %         3.05 %     3.19 %
                                             
Total loans
     1.79 %     2.68 %     4.76 %   (5 )   2.48 %     0.87 %
                                             
(1) Includes net charge-offs totaling $7.8 million associated with non-performing residential mortgage loans sold in a bulk sale.
 
(2) Includes net charge-offs totaling $29.5 million associated with loans transferred to held for sale. Commercial mortgage net charge-offs to average loans, excluding charge-offs associated with loans transferred to held for sale, was 3.38%.
 
(3) Includes net charge-offs totaling $8.6 million associated with loans transferred to held for sale. Commercial and Industrial net charge-offs to average loans, excluding charge-offs associated with loans transferred to held for sale, was 1.98%.
 
(4) Includes net charge-offs totaling $127.0 million associated with loans transferred to held for sale.Construction net charge-offs to average loans, excluding charge-offs associated with loans transferred to held for sale, was 18.93%.
 
(5) Includes net charge-offs totaling $165.1 million associated with loans transferred to held for sale. Total net charge-offs to average loans, excluding charge-offs associated with loans transferred to held for sale, was 3.60%.
 
CONTACT:
First BanCorp.
John B. Pelling, III, 305-577-6000, ext. 162
Investor Relations Officer
john.pelling@firstbankpr.com