BUSINESS COMBINATION

3 Months Ended

Mar. 31, 2015

Business Combination Description [Abstract]

Business Combination Disclosure [Text Block]

NOTE 2 – BUSINESS COMBINATION

OnFebruary27, 2015, FirstBank acquired 10 Puerto Rico branches of Doral Bank, assumed $522.7million in deposits related to such branches, acquired approximately $324.8 million in principal balance of loans, primarily residential mortgage loans, acquired $5.5 million of property, plant and equipment and received $217.7million of cash, through an alliance with BancoPopular of Puerto Rico (“Popular”), who was the successful lead bidder with the FDIC on the failed Doral Bank,as well as other co-bidders (the “Doral Bank Transaction”). This transaction solidified FirstBank as the second largest bank in Puerto Rico, enhanced FirstBank's presence in geographical areas in Puerto Rico with growth potential for deposits and mortgage originations, two of the main business strategies of the institution, and provides a stable source of low-cost deposits that are expected to supportand enhance future growth activities.

Under the FDIC's bidding format, Popular was the lead bidder and party to the purchase and assumption agreement with the FDIC covering all assets and deposits to be acquired by Popular and its alliance co-bidders. Popular entered into back to back purchase assumption agreements with the alliance co-bidders, includingFirstBank, for the transferred assets and deposits. There is no loss-share arrangement with the FDIC related to the acquired assets.

The Corporation accounted for this transaction as a business combination. The following table identifies the fair value of assets acquired and liabilities assumed from Doral Bank on February 27, 2015:
	Asset/Liabilities
	(at Fair Value)
	(In thousands)
ASSETS
Cash	$	217,659
Loans		311,410
Premises and equipment, net		5,450
Core Deposit Intangible		5,820
Other assets
Total assets acquired		540,339
LIABILITIES
Deposits		523,517
Other liabilities		3,379
Net assets - Bargain purchase gain	$	13,443

The application of the acquisition-method of accounting resulted in a bargain purchase gain of $13.4 million, which is included in non-interest income in the Corporation's consolidated statement of income for the quarter ended March 31, 2015, and a core deposit intangible of $5.8 million. The net after-tax gain of $8.2million represents the excess of the estimated fair value of the assets acquired (including cash payments received from the FDIC) over the estimated fair value of the liabilities assumed and is influenced significantly by the FDIC-assisted transaction process.

The following is a description of the methods used to determine the fair values of significant assets and liabilities presented above:

Cash and due from banks – The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets. This balance primarily represents the cash settlement received from Popular for the net equity received, assets discount bid and other customary closing adjustments.

Loans – Fair values for loans were based on a discounted cash flow methodology that uses market-driven assumptions such as prepayment rate, default rate, and loss severity on a loan level basis.  The forecasted cash flows are then discounted by yields observed in sales of similar portfolios in Puerto Rico and the continental U.S.

The Corporation evaluated the residential mortgage loans acquired and determined that $227.9 million are non-credit impaired purchased loans and have been accounted in accordance with the provisions of FASB ASC Topic 310-20, Nonrefundable Fees and Other Costs, and were recorded with a premium of $1.3 million. The remaining approximately $93.3 million of residential mortgage loans excluded were considered purchased credit impaired loans within the provisions of FASB ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, and were recorded with a $13.4million discount. These purchased credit impaired loans will recognize interest income through accretion of the difference between the fair value of the loans and the expected cash flows.

Core deposit intangible – This intangible asset represents the value of the relationships that Doral Bank had with its deposit customers. The fair value of this intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of the deposit base, and the net maintenance cost attributable to customer deposits. The Corporation recorded $5.8 million of core deposit intangible.

Deposits – The fair values used for the demand and savings deposits that comprise the transaction accounts acquired, by definition, equal the amount payable on demand at the acquisition date.  The fair value adjustment of $0.8 million was applied for time deposits because the estimated weighted average interest rate ofthe assumed certificates of deposits were estimated to be above the current market rates.

ASC Topic 805 requires the measurement of all recognized assets acquired and liabilities assumed in a business combination at their acquisition-date fair values. Accordingly, the Corporation initially recorded amounts for the fair values of the assets acquired and liabilities assumed based on the best information available at the acquisition date. The Corporation may retrospectively adjust these amounts to reflect new information obtained during the measurement period (not to exceed 12 months) about facts and circumstances that existed as of the acquisition date that, if known, would have affected the acquisition-date fair value measurements. Any retrospective adjustments to acquisition date fair values will affect the bargain purchase gain recognized. During the first quarter of 2015, the Corporation incurred $3.9 million of expenses related to this transaction, primarily included in professional fees expenses in the consolidated statement of income, of which $2.1 million represents acquisition and conversion costs that are considered non-recurring in nature.

The Corporation's operating results for the quarter ended March 31, 2015, include the operating results of the acquired assets and assumed liabilities subsequent to the acquisition date. The Corporation also considered the pro forma requirements of ASC 805 and deemed it not necessary to provide pro forma financial statements as required under the standard for the Doral Bank transaction as is was not material to the Corporation.