0001057706-15-000016.txt : 20151110 0001057706-15-000016.hdr.sgml : 20151110 20151109150858 ACCESSION NUMBER: 0001057706-15-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20150930 FILED AS OF DATE: 20151109 DATE AS OF CHANGE: 20151109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST BANCORP /PR/ CENTRAL INDEX KEY: 0001057706 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 660561882 STATE OF INCORPORATION: PR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14793 FILM NUMBER: 151215305 BUSINESS ADDRESS: STREET 1: 1519 PONCE DE LEON AVE STREET 2: SANTURCE CITY: SAN JUAN STATE: PR ZIP: 00908-0146 BUSINESS PHONE: 7877298200 MAIL ADDRESS: STREET 1: 1519 PONCE DE LEON AVE STREET 2: PO BOX 9146 CITY: SAN JUAN STATE: PR ZIP: 00908-0146 10-Q 1 fbp09302015x10q.htm 10Q  

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

____________

 

FORM 10-Q

(Mark One)

 

[X]         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2015

 

[   ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________________ to ___________________

 

COMMISSION FILE NUMBER 001-14793

 

First BanCorp.

 

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

 

Puerto Rico

 

66-0561882

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. employer

identification number)

 

 

 

1519 Ponce de León Avenue, Stop 23

Santurce, Puerto Rico

(Address of principal executive offices)

 

00908

(Zip Code)

 

 

 

 

       (787) 729-8200

 

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesþ    No ¨ 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 

 

Yesþ   No ¨ 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

                             Large accelerated filer ¨                                                                                              Accelerated filer þ 

                              

                             Non-accelerated filer ¨  (Do not check if a smaller reporting company)   Smaller reporting company ¨ 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 Yes ¨   No þ 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Common stock: 215,011,486 shares outstanding as of October 31, 2015.

 


 

 

FIRST BANCORP.

INDEX PAGE

 

 

PART I FINANCIAL INFORMATION 

PAGE

Item 1. Financial Statements:

 

Consolidated Statements of Financial Condition (Unaudited) as of September 30, 2015 and December 31, 2014 

 

5

Consolidated Statements of Income (Unaudited) – Quarters ended September 30, 2015 and 2014 and nine-month periods ended September 30, 2015 and 2014

 

6

Consolidated Statements of Comprehensive Income (Unaudited) – Quarters ended September 30, 2015 and 2014 and nine-month periods ended September 30, 2015 and 2014

 

7

Consolidated Statements of Cash Flows (Unaudited) – Nine-month periods ended September 30, 2015 and 2014

 

8

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) – Nine-month periods ended September 30, 2015 and 2014

 

9

   Notes to Consolidated Financial Statements (Unaudited)                                              

10

Item 2. Management's Discussion and Analysis of Financial Condition

 

            and Results of Operations                                                                          

78

Item 3. Quantitative and Qualitative Disclosures About Market Risk

136

Item 4. Controls and Procedures

136

 

 

PART II. OTHER INFORMATION

 

Item 1.    Legal Proceedings

137

Item 1A. Risk Factors

137

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

140

Item 3.    Defaults Upon Senior Securities

141

Item 4.    Mine Safety Disclosures 

141

Item 5.    Other Information

141

Item 6.    Exhibits

141

 

 

SIGNATURES           

 

 

2 

 


 

 

Forward Looking Statements

 

This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the safe harbors created by such sections.  When used in this Form 10-Q or future filings by First BanCorp. (the “Corporation”) with the U.S. Securities and Exchange Commission (“SEC”), in the Corporation’s press releases or in other public or stockholder communications, or in oral statements made with the approval of an authorized executive officer, the word or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “should,” “anticipate” and similar statements of a future or forward-looking nature that reflect our current views with respect to future events and financial performance are meant to identify “forward-looking statements.”

 

First BanCorp. 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 will be able to continue to fully comply with the written agreement dated June 3, 2010 (the “Written Agreement”) that the Corporation entered into with the Federal Reserve Bank of New York (the “New York FED” or “Federal Reserve”) that, among other things, requires the Corporation to serve as a source of strength to FirstBank Puerto Rico (“FirstBank” or “the Bank”) and that, except with the consent generally of the New York FED and the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), prohibits the Corporation from paying dividends to stockholders or receiving dividends from FirstBank, making payments on trust preferred securities or subordinated debt and incurring, increasing or guaranteeing debt or repurchasing any capital securities;

 

·         the ability of the Puerto Rico government or any of its public corporations or other instrumentalities to repay its respective debt obligations, including the effect of the recent payment default of a government public corporation, and recent and any future downgrades of the long-term and short-term debt ratings of the Puerto Rico government, which could exacerbate Puerto Rico’s adverse economic conditions;

 

·         a decrease in demand for the Corporation’s products and services and lower revenues and earnings because of the continued recession in Puerto Rico;

 

·         uncertainty as to the availability of certain funding sources, such as retail brokered certificates of deposit (“brokered CDs”);

 

·         the Corporation’s reliance on brokered CDs to fund operations and provide liquidity;

 

·         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 need to receive approval from the New York FED and the Federal Reserve Board to declare or pay any dividends and to take dividends or any other form of payment representing a reduction in capital 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 sectors and their impact on the credit quality of the Corporation’s loans and other assets, which has contributed and may continue to contribute to, among other things, high levels of non-performing assets, charge-offs and provisions for loan and lease losses and may subject the Corporation to further risk from loan defaults and foreclosures;

 

 

3 

 


 

 

·         the ability of FirstBank to realize the benefits of its deferred tax assets subject to the remaining valuation allowance;

 

·         adverse changes in general economic conditions in Puerto Rico, the United States (“U.S.”), and the U.S. Virgin Islands (“USVI”), and British Virgin Islands (“BVI”), including the interest rate environment, market liquidity, housing absorption rates, real estate prices, and disruptions in the U.S. capital markets, which have reduced interest margins and affected funding sources, and has affected demand for all of the Corporation’s products and services and reduced the Corporation’s revenues and earnings, and the value of the Corporation’s assets, and may once again have these effects;

 

·         an adverse change in the Corporation’s ability to attract new clients and retain existing ones;

 

·         the risk that additional portions of the unrealized losses in the Corporation’s investment portfolio is determined to be other-than-temporary, including additional impairments on the Puerto Rico government’s obligations;   

 

·         uncertainty about regulatory and legislative changes for financial services companies in Puerto Rico, the U.S., the USVI and the BVI, 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;

 

·         changes in the fiscal and monetary policies and regulations of the U.S. federal government and the Puerto Rico and other governments, including those determined by the Federal Reserve Board, the New York FED, the Federal Deposit Insurance Corporation (“FDIC”), government-sponsored housing agencies, and regulators in Puerto Rico, the USVI and the BVI;

 

·         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 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 impact on the Corporation’s results of operations and financial condition of acquisitions and dispositions, including the acquisition of loans and branches of Doral Bank as well as the assumption of deposits at the branches acquired from Doral during the first quarter of 2015;

 

·         a need to recognize impairments on financial instruments, goodwill or other intangible assets relating to acquisitions;

 

·         the risk 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 (the “Dodd-Frank 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.

 

Investors should refer to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2014, as well as “Part II, Item 1A, Risk Factors,” in this quarterly report on Form 10-Q, for a discussion of such factors and certain risks and uncertainties to which the Corporation is subject.

4 

 


 

 

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

 

  

September 30, 2015

  

December 31, 2014

  

(In thousands, except for share information)

ASSETS

  

  

  

  

  

Cash and due from banks

$

 742,251 

  

$

 779,147 

Money market investments:

  

  

  

  

  

   Time deposits with other financial institutions

  

 3,000 

  

  

 300 

   Other short-term investments

  

 216,486 

  

  

 16,661 

      Total money market investments

  

 219,486 

  

  

 16,961 

Investment securities available for sale, at fair value:

  

  

  

  

  

   Securities pledged that can be repledged

  

 796,998 

  

  

 1,025,966 

   Other investment securities

  

 1,110,869 

  

  

 939,700 

      Total investment securities available for sale

  

 1,907,867 

  

  

 1,965,666 

Other equity securities

  

 26,319 

  

  

 25,752 

Loans, net of allowance for loan and lease losses of $228,966

  

  

  

  

  

   (2014 - $222,395)

  

 9,072,979 

  

  

 9,040,041 

Loans held for sale, at lower of cost or market

  

 34,587 

  

  

 76,956 

      Total loans, net

  

 9,107,566 

  

  

 9,116,997 

Premises and equipment, net

  

 162,673 

  

  

 166,926 

Other real estate owned

  

 124,442 

  

  

 124,003 

Accrued interest receivable on loans and investments

  

 46,568 

  

  

 50,796 

Other assets

  

 483,817 

  

  

 481,587 

      Total assets

$

 12,820,989 

  

$

 12,727,835 

LIABILITIES

  

  

  

  

  

Non-interest-bearing deposits

$

 1,402,807 

  

$

 900,616 

Interest-bearing deposits

  

 8,313,654 

  

  

 8,583,329 

      Total deposits

  

 9,716,461 

  

  

 9,483,945 

Securities sold under agreements to repurchase

  

 700,000 

  

  

 900,000 

Advances from the Federal Home Loan Bank (FHLB)

  

 325,000 

  

  

 325,000 

Other borrowings

  

 226,492 

  

  

 231,959 

Accounts payable and other liabilities

  

 152,086 

  

  

 115,188 

      Total liabilities

  

 11,120,039 

  

  

 11,056,092 

STOCKHOLDERS' EQUITY

  

  

  

  

  

Preferred stock, authorized, 50,000,000 shares:

  

  

  

  

  

Non-cumulative Perpetual Monthly Income Preferred Stock: issued 22,004,000

  

  

  

  

  

 shares, outstanding 1,444,146 shares, aggregate liquidation value of $36,104

  

 36,104 

  

  

 36,104 

Common stock, $0.10 par value, authorized, 2,000,000,000 shares; 

  

  

  

  

  

    issued, 215,903,829 shares (2014 - 213,724,749 shares issued)

  

 21,590 

  

  

 21,372 

Less: Treasury stock (at par value)

  

(92)

  

  

(74)

Common stock outstanding, 214,982,131 shares outstanding (2014 - 212,984,700

  

  

  

  

  

   shares outstanding)

  

 21,498 

  

  

 21,298 

Additional paid-in capital

  

 925,063 

  

  

 916,067 

Retained earnings, includes legal surplus reserve of $40.0 million

  

 722,955 

  

  

 716,625 

Accumulated other comprehensive loss, net of tax of $7,752

  

 (4,670) 

  

  

 (18,351) 

    Total stockholders' equity

  

 1,700,950 

  

  

 1,671,743 

      Total liabilities and stockholders' equity

$

 12,820,989 

  

$

 12,727,835 

  

  

  

  

  

  

The accompanying notes are an integral part of these statements.

5 

 


 

 

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

  

Quarter Ended

  

Nine-Month Period Ended

  

September 30,

  

September 30,

  

2015 

  

2014 

  

2015 

  

2014 

  

  

  

  

  

  

  

  

  

  

  

  

(In thousands, except per share information)

  

  

  

  

  

  

  

  

  

  

  

  

Interest and dividend income:

  

  

  

  

  

  

  

  

  

  

  

   Loans

$

 138,417 

  

$

 144,295 

  

$

 417,641 

  

$

 433,379 

   Investment securities

  

 10,985 

  

  

 11,894 

  

  

 34,831 

  

  

 40,850 

   Money market investments

  

 410 

  

  

 473 

  

  

 1,457 

  

  

 1,427 

      Total interest income

 149,812 

  

 156,662 

  

 453,929 

  

 475,656 

Interest expense:

  

  

  

  

  

  

  

  

  

  

  

   Deposits

  

 16,851 

  

  

 19,344 

  

  

 51,525 

  

  

 59,109 

   Securities sold under agreements to repurchase

  

 5,216 

  

  

 6,857 

  

  

 16,997 

  

  

 19,655 

   Advances from FHLB

  

 955 

  

  

 949 

  

  

 2,833 

  

  

 2,606 

   Notes payable and other borrowings

  

 1,861 

  

  

 1,818 

  

  

 5,521 

  

  

 5,365 

      Total interest expense

 24,883 

  

 28,968 

  

 76,876 

  

 86,735 

         Net interest income

  

 124,929 

  

  

 127,694 

  

  

 377,053 

  

  

 388,921 

Provision for loan and lease losses

  

 31,176 

  

  

 26,999 

  

  

 138,412 

  

  

 85,658 

Net interest income after provision for loan and lease losses

 93,753 

  

 100,695 

  

 238,641 

  

 303,263 

Non-interest income:

  

  

  

  

  

  

  

  

  

  

  

   Service charges on deposit accounts

  

 5,082 

  

  

 4,205 

  

  

 14,856 

  

  

 12,554 

   Mortgage banking activities

  

 4,270 

  

  

 3,809 

  

  

 12,651 

  

  

 10,213 

   Net gain on sale of investments

  

 - 

  

  

 - 

  

  

 - 

  

  

 291 

   Other-than-temporary impairment losses on available-for-sale debt securities:

  

  

  

  

  

  

  

  

  

  

  

      Total other-than-temporary impairment losses

  

 - 

  

  

 - 

  

  

 (29,521) 

  

  

 - 

      Noncredit-related impairment portion on debt securities not expected to be sold

  

  

  

  

  

  

  

  

  

  

  

         (recognized in other comprehensive income)

  

 (231) 

  

  

 (245) 

  

  

 16,037 

  

  

 (245) 

   Net impairment losses on available-for-sale debt securities

  

 (231) 

  

  

 (245) 

  

  

(13,484)

  

  

 (245) 

   Equity in loss of unconsolidated entity

  

 - 

  

  

  

  

 - 

  

  

(7,280)

   Insurance commission income

  

 1,265 

  

  

 1,290 

  

  

 5,809 

  

  

 5,328 

   Bargain purchase gain

  

 - 

  

  

 - 

  

  

 13,443 

  

  

 - 

   Other non-interest income

  

 8,372 

  

  

 7,115 

  

  

 24,882 

  

  

 22,594 

      Total non-interest income

 18,758 

  

 16,174 

  

58,157 

  

 43,455 

Non-interest expenses:

  

  

  

  

  

  

  

  

  

  

  

   Employees' compensation and benefits

  

 37,284 

  

  

 33,877 

  

  

 110,883 

  

  

 101,568 

   Occupancy and equipment

  

 15,248 

  

  

 14,727 

  

  

 44,656 

  

  

 43,527 

   Business promotion

  

 4,097 

  

  

 3,925 

  

  

 10,899 

  

  

 12,040 

   Professional fees

  

 10,709 

  

  

 12,054 

  

  

 44,932 

  

  

 34,502 

   Taxes, other than income taxes

  

 3,065 

  

  

 4,528 

  

  

 9,197 

  

  

 13,607 

   Insurance and supervisory fees

  

 6,590 

  

  

 9,493 

  

  

 20,246 

  

  

 31,267 

   Net loss on other real estate owned (OREO) and OREO operations

  

 4,345 

  

  

 4,326 

  

  

 11,847 

  

  

 16,941 

   Credit and debit card processing expenses

  

 4,283 

  

  

 3,741 

  

  

 12,185 

  

  

 11,447 

   Communications

  

 2,189 

  

  

 2,143 

  

  

 5,842 

  

  

 5,916 

   Other non-interest expenses

  

 5,467 

  

  

 4,790 

  

  

 17,117 

  

  

 13,719 

      Total non-interest expenses

 93,277 

  

 93,604 

  

 287,804 

  

 284,534 

Income before income taxes

  

 19,234 

  

  

 23,265 

  

  

8,994 

  

  

 62,184 

Income tax expense

  

(4,476)

  

  

(64)

  

  

(2,664)

  

  

(675)

Net income

$

 14,758 

  

$

 23,201 

  

$

6,330 

  

$

 61,509 

Net income attributable to common stockholders

$

 14,758 

  

$

 23,201 

  

$

6,330 

  

$

 63,168 

Net earnings per common share:

  

  

  

  

  

  

  

  

  

  

  

   Basic

$

 0.07 

  

$

 0.11 

  

$

0.03 

  

$

 0.30 

   Diluted

$

 0.07 

  

$

 0.11 

  

$

0.03 

  

$

 0.30 

Dividends declared per common share

$

 - 

  

$

 - 

  

$

 - 

  

$

 - 

  

  

  

  

  

  

  

  

  

  

  

  

The accompanying notes are an integral part of these statements.

6 

 


 

 

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

  

Quarter Ended

  

Nine-Month Period Ended

  

September 30, 2015

  

September 30, 2014

  

September 30, 2015

  

September 30, 2014

(In thousands)

  

  

Net income

$

 14,758 

  

$

 23,201 

  

$

 6,330 

  

$

 61,509 

Available-for-sale debt securities on which an other-than-temporary

  

  

  

  

  

  

  

  

  

  

  

   impairment has been recognized:

  

  

  

  

  

  

  

  

  

  

  

      Subsequent unrealized (loss) gain on debt securities on which an

  

  

  

  

  

  

  

  

  

  

  

          other-than-temporary impairment has been recognized

  

 (457) 

  

  

 104 

  

  

 915 

  

  

 1,291 

      Reclassification adjustment for other-than-temporary impairment

  

  

  

  

  

  

  

  

  

  

  

          on debt securities included in net income

  

 231 

  

  

 245 

  

  

 13,484 

  

  

 245 

All other unrealized holding gains (losses) arising

  

  

  

  

  

  

  

  

  

  

  

      during the period

  

 16,935 

  

  

 (6,265) 

  

  

 (718) 

  

  

 43,168 

Reclassification adjustments for net gain included in net income

  

 - 

  

  

 - 

  

  

 - 

  

  

 (291) 

      Other comprehensive income (loss) for the period

  

 16,709 

  

  

 (5,916) 

  

  

 13,681 

  

  

 44,413 

         Total comprehensive income

$

 31,467 

  

$

 17,285 

  

$

20,011 

  

$

 105,922 

  

  

  

  

  

  

  

  

  

  

  

  

The accompanying notes are an integral part of these statements.

  

  

  

  

  

  

  

  

  

  

  

  

7 

 


 

 

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Unaudited) 

  

Nine-Month Period Ended

  

September 30,

  

September 30,

  

2015 

  

2014 

(In thousands)

  

  

  

  

  

Cash flows from operating activities:

  

  

  

  

  

   Net income

$

6,330 

  

$

 61,509 

Adjustments to reconcile net income to net cash provided by operating activities:

  

  

  

  

  

   Depreciation

  

 15,923 

  

  

 15,604 

   Amortization of intangible assets

  

 3,817 

  

  

 3,723 

   Provision for loan and lease losses

  

 138,412 

  

  

 85,658 

   Deferred income tax benefit

  

(102)

  

  

 (2,815) 

   Stock-based compensation

  

 4,535 

  

  

 2,962 

   Gain on sales of investments, net

  

 - 

  

  

 (291) 

   Bargain purchase gain

  

 (13,443) 

  

  

 - 

   Other-than-temporary impairments on debt securities

  

 13,484 

  

  

 245 

   Equity in loss of unconsolidated entity

  

 - 

  

  

 7,280 

   Unrealized gain on derivative instruments

  

(47)

  

  

(820)

   (Gain) loss on sales of premises and equipment and other assets

  

(137)

  

  

 20 

   Net gain on sales of loans

  

(5,312)

  

  

(5,498)

   Net amortization/accretion of premiums, discounts and deferred loan fees and costs

  

(4,244)

  

  

 (1,966) 

   Originations and purchases of loans held for sale

  

(323,565)

  

  

(223,602)

   Sales and repayments of loans held for sale

  

 329,635 

  

  

 234,698 

   Amortization of broker placement fees

  

 3,564 

  

  

 5,140 

   Net amortization/accretion of premium and discounts on investment securities

  

 6,431 

  

  

 3,348 

   Decrease in accrued interest receivable

  

3,894 

  

  

5,496 

   Increase in accrued interest payable

  

 3,297 

  

  

4,620 

   Decrease in other assets

  

 8,478 

  

  

 28,383 

   Increase in other liabilities

  

 8,175 

  

  

 13,206 

        Net cash provided by operating activities

  

 199,125 

  

  

 236,900 

  

  

  

  

  

  

Cash flows from investing activities:

  

  

  

  

  

   Principal collected on loans

  

 2,228,948 

  

  

 2,533,504 

   Loans originated and purchased

  

(2,184,863)

  

  

(2,410,182)

   Proceeds from sales of loans held for investment

  

 107,702 

  

  

 31,558 

   Proceeds from sales of repossessed assets

  

 48,195 

  

  

 51,399 

   Proceeds from sales of available-for-sale securities

  

 - 

  

  

 4,855 

   Purchases of available-for-sale securities

  

(161,366)

  

  

(133,596)

   Proceeds from principal repayments and maturities of available-for-sale securities

  

 212,972 

  

  

 171,016 

   Additions to premises and equipment

  

(9,594)

  

  

(17,863)

   Proceeds from sale of premises and equipment and other assets

  

 2,511 

  

  

 1,269 

   Net cash received from acquisition

  

 217,659 

  

  

 - 

   Net (purchases) redemptions/sales of other equity securities

  

 (567) 

  

  

2,939 

        Net cash provided by investing activities

  

461,597 

  

  

 234,899 

  

  

  

  

  

  

Cash flows from financing activities:

  

  

  

  

  

   Net decrease in deposits

  

 (294,126) 

  

  

(181,890)

   Change in securities sold under agreements to repurchase

  

 (200,000) 

  

  

 - 

   Net FHLB advances proceeds

  

  

  

 25,000 

   Repurchases of outstanding common stock

  

(967)

  

  

 (523) 

   Issuance costs of common stock issued in exchange for preferred stock Series A through E

  

 - 

  

  

 (62) 

        Net cash used in financing activities

  

(495,093)

  

  

 (157,475) 

  

  

  

  

  

  

   Net increase  in cash and cash equivalents

  

165,629 

  

  

 314,324 

Cash and cash equivalents at beginning of period

  

 796,108 

  

  

 655,671 

Cash and cash equivalents at end of period

$

 961,737 

  

$

 969,995 

  

  

  

  

  

  

Cash and cash equivalents include:

  

  

  

  

  

   Cash and due from banks

$

 742,251 

  

$

 953,038 

   Money market instruments

  

 219,486 

  

  

 16,957 

  

$

 961,737 

  

$

 969,995 

The accompanying notes are an integral part of these statements.

  

  

  

  

  

  

  

  

  

  

  

8 

 


 

 

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)

  

Nine-Month Period Ended

  

September 30,

  

September 30,

  

2015 

  

2014 

(In thousands)

  

  

  

  

  

  

  

  

  

  

Preferred Stock:

  

  

  

  

  

Balance at beginning of period

$

 36,104 

  

$

 63,047 

Exchange of preferred stock- Series A through E

  

 - 

  

  

 (26,943) 

      Balance at end of period

  

 36,104 

  

  

 36,104 

  

  

  

  

  

  

Common Stock outstanding:

  

  

  

  

  

Balance at beginning of period

  

 21,298 

  

  

 20,707 

Common stock issued as compensation

  

 33 

  

  

 23 

Common stock withheld for taxes

  

 (18) 

  

  

 (10) 

Common stock issued in exchange for Series A through E preferred stock

  

 - 

  

  

 459 

Common stock issued in exchange for trust preferred securities

  

 85 

  

  

 - 

Restricted stock grants

  

 102 

  

  

 122 

Restricted stock forfeited

  

 (2) 

  

  

 (3) 

      Balance at end of period

  

 21,498 

  

  

 21,298 

  

  

  

  

  

  

Additional Paid-In-Capital:

  

  

  

  

  

Balance at beginning of period

  

 916,067 

  

  

 888,161 

Stock-based compensation

  

 4,535 

  

  

 2,962 

Common stock withheld for taxes

  

 (949) 

  

  

 (513) 

Common stock issued in exchange for Series A through E preferred stock

  

 - 

  

  

 23,904 

Reversal of issuance costs of Series A through E preferred stock exchanged

  

 - 

  

  

 921 

Issuance costs of common stock issued in exchange for Series A through E preferred stock

  

 - 

  

  

 (62) 

Common stock issued in exchange for trust preferred securities

  

 5,543 

  

  

 - 

Restricted stock grants

  

 (102) 

  

  

 (122) 

Common stock issued as compensation

  

 (33) 

  

  

 (23) 

Restricted stock forfeited

  

 2 

  

  

 3 

      Balance at end of period

  

 925,063 

  

  

 915,231 

  

  

  

  

  

  

Retained Earnings:

  

  

  

  

  

Balance at beginning of period

  

 716,625 

  

  

 322,679 

Net income

  

 6,330 

  

  

 61,509 

Excess of carrying amount of Series A though E preferred stock exchanged over fair value of new

  

  

  

  

  

   shares of common stock

  

 - 

  

  

 1,659 

      Balance at end of period

  

 722,955 

  

  

 385,847 

  

  

  

  

  

  

Accumulated Other Comprehensive Income (Loss), net of tax:

  

  

  

  

  

 Balance at beginning of period

  

 (18,351) 

  

  

 (78,736) 

 Other comprehensive income

  

13,681 

  

  

 44,413 

      Balance at end of period

  

(4,670)

  

  

 (34,323) 

  

  

  

  

  

  

         Total stockholders' equity

$

 1,700,950 

  

$

 1,324,157 

  

  

  

  

  

  

The accompanying notes are an integral part of these statements.

  

  

  

  

  

9 

 


 

 

FIRST BANCORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

                            

The Consolidated Financial Statements (unaudited) of First BanCorp. (“the Corporation”) have been prepared in conformity with the accounting policies stated in the Corporation’s Audited Consolidated Financial Statements included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2014. Certain information and note disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted from these statements pursuant to the rules and regulations of the SEC and, accordingly, these financial statements should be read  in conjunction with the Audited Consolidated Financial Statements of the Corporation for the year ended December 31, 2014, which are included in the Corporation’s 2014 Annual Report on Form 10-K. All adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the statement of financial position, results of operations and cash flows for the interim periods have been reflected. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

The results of operations for the quarter and nine-month period ended September 30, 2015 are not necessarily indicative of the results to be expected for the entire year.

 

Adoption of new accounting requirements and recently issued but not yet effective accounting requirements

 

The Financial Accounting Standards Board (“FASB”) has issued the following accounting pronouncements and guidance relevant to the Corporation’s operations:

 

In January 2014, the FASB updated the Accounting Standards Codification (“ASC” or the “Codification”) to clarify when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan so that the loan should be derecognized and the real estate property recognized in the financial statements. The Update clarifies that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either: (i) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure, or (ii) the borrower conveying all interest in the residential real estate property to the creditor to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement.  In addition,  creditors are required to disclose on an annual and interim basis both (i) the amount of the foreclosed residential real estate property held and (ii) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments are effective for public business entities for annual periods beginning after December 15, 2014, and interim periods within those fiscal years. Early adoption is permitted. The guidance can be implemented using either a modified retrospective transition method or a prospective transition method. The Corporation adopted the provisions of this guidance on a prospective basis during the first quarter of 2015 without any material impact on the Corporation’s financial statements. Refer to Notes 7 and 10 for required disclosures.

 

In May 2014, the FASB updated the Codification to create a new, principle-based revenue recognition framework. The Update is the culmination of efforts by the FASB and the International Accounting Standards Board to develop a common revenue standard for GAAP and International Financial Reporting Standards. The core principal of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance describes a 5-step process that entities can apply to achieve the core principle of revenue recognition and requires disclosures sufficient to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers and the significant judgments used in determining that information. The new framework is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those reporting periods, as a result of the FASB’s recent amendment to the standard to defer the effective date by one year.  Early adoption is permitted for interim periods beginning after December 15, 2016. The Corporation is currently evaluating the impact that the adoption of this guidance will have on the presentation and disclosures in its financial statements.

 

 

10 

 


 

 

In June 2014, the FASB updated the Codification to respond to stakeholders’ concerns about current accounting and disclosures for repurchase agreements and similar transactions. This Update requires two accounting changes. First, the Update changes the accounting for repurchase-to-maturity transactions to secured borrowing accounting. Second, for repurchase financing arrangements, the Update requires separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement. Additionally, the Update introduces new disclosures to (i) increase transparency about the types of collateral pledged in secured borrowing transactions and (ii) enable users to better understand transactions in which the transferor retains substantially all of the exposure to the economic return on the transferred financial asset throughout the term of the transaction. For public business entities, the disclosure for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. All other accounting and disclosure amendments in the Update are effective for public business entities for the first interim or annual period beginning after December 15, 2014. The adoption of this guidance did not have a material effect on the Corporation’s financial statements.

 

In June 2014, the FASB updated the Codification to provide guidance for determining compensation cost under specific circumstances when an employee’s compensation award is eligible to vest regardless of whether the employee is rendering service on the date the performance target is achieved. This Update becomes effective for annual and interim periods beginning after December 15, 2015 with early adoption permitted. The Corporation is currently evaluating the impact that the adoption of this guidance will have on the presentation and disclosures in its financial statements, if any.

 

In August 2014, the FASB updated the Codification to reduce the diversity found in the classification of certain foreclosed mortgage loans held by creditors that are either fully or partially guaranteed under government programs. Consistency in classification upon foreclosure is expected in order to provide more decision-useful information. The amendments in this Update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if: (i) the loan has a government guarantee that is not separable from the loan before foreclosure; (ii) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under the claim, and (iii) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The Update is effective for public business entities for annual periods, and interim periods within those annual periods beginning after December 15, 2014. The guidance can be implemented using either a prospective transition method or a modified retrospective transition method. The Corporation adopted the provisions of this guidance on a prospective basis during the first quarter of 2015 without any material impact on the Corporation’s financial statements.

 

In August 2014, the FASB updated the Codification to provide guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, but the substantial doubt is alleviated as a result of consideration of management’s plans, the entity should disclose information that enables users of the financial statements to understand such determination.  The Update is effective for all business entities for annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Corporation expects the adoption of this guidance will have no impact on the Corporation’s financial position, results of operations, comprehensive income, cash flows and disclosures.

 

In November 2014, the FASB updated the Codification to clarify how current GAAP should be interpreted in evaluating the economic characteristics and risk of a host contract in a hybrid financial instrument that is issued in the form of a share. In addition, the Update was issued to clarify that, in evaluating the nature of a host contract, an entity should assess the substance of the relevant terms and features (that is, the relative strength of the debt-like or equity-like terms and features given the facts and circumstances) when considering how to weight those terms and features. The effects of initially adopting this Update should be applied on a modified retrospective basis to existing hybrid financial instruments issued in the form of a share as of the beginning of the fiscal year for which the amendments are effective. Retrospective application is permitted to all relevant prior periods. This Update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption in an interim period is permitted. The Corporation is currently evaluating the impact of the adoption of this guidance on its consolidated financial statements, if any.

 

In January 2015, the FASB updated the Codification to eliminate from GAAP the concept of extraordinary items as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative).  Under current GAAP, an event or transaction is presumed to be an ordinary and usual activity of the reporting entity unless evidence clearly supports its classification as an extraordinary item. In order to be classified as an extraordinary item, the event or transaction must be: (i) unusual in nature, and (ii) infrequent in occurrence.  Before the update was issued, an entity was required to segregate these items from the results of ordinary operations and show the items separately in the income statement, net of tax, after income from continuing operations. This Update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption in an

11 

 


 

 

interim period is permitted. The Corporation expects the adoption of this guidance will have no impact on the Corporation’s consolidated financial statements.

 

In February 2015, the FASB updated the Codification to eliminate the deferral of FAS 167, which has allowed reporting entities with interests in certain investment funds to follow the previous consolidation guidance in FIN 46(R), and to make other changes to both the variable interest model and the voting model. While the Update is aimed at asset managers, it will affect all reporting entities involved with limited partnerships or similar entities. In some cases, consolidation conclusions will change. In other cases, reporting entities will need to provide additional disclosure about entities that currently are not considered VIEs but will be considered VIEs under the new guidance when they have a variable interest in those VIEs.  Regardless of whether conclusions change or additional disclosure requirements are triggered, reporting entities will need to re-evaluate limited partnerships or similar entities for consolidation and revise their documentation. For public business entities, the Update is effective for annual and interim periods beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. A reporting entity must apply the amendments retrospectively. The Corporation is currently evaluating the impact of the adoption of this guidance on its consolidated financial statements, if any.

 

In April 2015, the FASB updated the Codification to clarify that customers should determine whether a cloud computing arrangement includes the license of software by applying the same guidance cloud service providers use to make this determination. Examples of cloud computing arrangements include software as a service, platform as a service, infrastructure as a service and other hosting arrangements. If a hosting arrangement includes a software license for internal use software, the software license should be accounted for by the customer under ASC 350-40. A license of software other than internal use software would be accounted for by the customer under other GAAP (e.g., a research and development cost and software to be sold, leased or otherwise marketed). If a hosting arrangement includes a software license, then that would be in addition to any service contract in the arrangement. Hosting arrangements that do not include software licenses should be accounted for as service contracts. The Update also eliminates the existing requirement for customers to account for software licenses they acquire by analogizing to the guidance on leases. Instead, customers will account for software licenses that are in the scope of ASC 350-40 in the same manner as licenses of other intangible assets. Entities have the option of applying the guidance (1) prospectively to all arrangements entered into or materially modified after the effective date or (2) retrospectively. Entities that elect prospective application are required to disclose the reason for the change in accounting principle, the transition method, and a description of the financial statement line items affected by the change. Entities that elect retrospective application must disclose the information required by ASC 250. For public business entities, the guidance is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted. The Corporation is currently evaluating the impact of the adoption of this guidance on its consolidated financial statements, if any.

 

In May 2015, the FASB updated the Codification to provide guidance in disclosures for investments in certain entities that calculate net asset value (NAV) per share (or its equivalent). This Update removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient and modifies certain disclosure requirements. This guidance is effective for interim and annual reporting periods in fiscal years beginning after December 31, 2015, and requires retrospective adoption. Early adoption is permitted. The adoption of this pronouncement is not expected to have an impact on the Corporation’s consolidated financial statements.

 

    In September 2015, the FASB updated the Codification to simplify the accounting for adjustments made to provisional amounts recognized in a business combination by eliminating the requirement to retrospectively account for those adjustments. This Update allows the acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquirer must record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. Also, this Update requires entities to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. Prior to this Update, GAAP required that, during the measurement period, the acquirer retrospectively adjust the provisional amounts recognized at the acquisition date with a corresponding adjustment to goodwill. The acquirer also had to revise comparative information for prior periods presented in financial statements as needed, including revising depreciation, amortization, or other income effects as a result of changes made to provisional amounts. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments in this Update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this Update with earlier application permitted for financial statements that have not been issued. The Corporation is currently evaluating the impact of the adoption of this guidance on its consolidated financial statements, if any.

12 

 


 

 

NOTE 2 – BUSINESS COMBINATION

 

On February 27, 2015, FirstBank acquired 10 Puerto Rico branches of Doral Bank, assumed $522.7 million 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 $217.7 million of cash, through an alliance with Banco Popular 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 FirstBank, and provides a stable source of low-cost deposits that are expected to support and 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, including FirstBank, 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 values 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 

  

   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 nine-month period ended September 30, 2015, and a core deposit intangible of $5.8 million ($5.3 million as of September 30, 2015). The net after-tax gain of $8.2 million 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, which have been accounted for 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 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 $13.4 million 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.

 

13 

 


 

 

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 at acquisition $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 amounts 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 of the assumed certificates of deposits was 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 nine months of 2015, the Corporation incurred $4.6 million on acquisition and conversion costs related to loans and deposit accounts acquired from Doral that are considered non-recurring in nature, and $3.6 million on interim servicing costs until the completion in May 2015 of the conversion to the FirstBank systems. These expenses are primarily included as part of professional fees in the consolidated statement of income.

 

The Corporation’s operating results for the nine-month period ended September 30, 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 information pursuant to that standard for the Doral Bank transaction as it was not material to the Corporation.

14 

 


 

 

NOTE 3 – EARNINGS PER COMMON SHARE

 

  

    The calculations of earnings per common share for the quarters and nine-month periods ended September 30, 2015 and 2014 are as follows:

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Quarter Ended

  

Nine-Month Period Ended

  

  

September 30,

  

September 30,

  

  

2015 

  

2014 

  

2015 

  

2014 

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

(In thousands, except per share information)

  

  

  

  

  

  

  

  

  

  

  

  

 Net income

$

 14,758 

  

$

 23,201 

  

$

6,330 

  

$

 61,509 

   Favorable impact from issuing common stock in

  

  

  

  

  

  

  

  

  

  

  

     exchange for Series A through E preferred stock (1)

  

 -   

  

  

 - 

  

  

  

  

 1,659 

 Net income  attributable to common stockholders

$

 14,758 

  

$

 23,201 

  

$

 6,330 

  

$

 63,168 

Weighted-Average Shares:

  

  

  

  

  

  

  

  

  

  

  

   Average common shares outstanding

  

 211,820 

  

  

 210,466 

  

  

 211,255 

  

  

 208,151 

   Average potential dilutive common shares

  

 1,963 

  

  

 1,893 

  

  

 1,341 

  

  

 1,660 

   Average common shares outstanding- assuming dilution

  

 213,783 

  

  

 212,359 

  

  

 212,596 

  

  

 209,811 

 Earnings per common share:

  

  

  

  

  

  

  

  

  

  

  

   Basic

$

 0.07 

  

$

 0.11 

  

$

0.03 

  

$

 0.30 

   Diluted

$

 0.07 

  

$

 0.11 

  

$

0.03 

  

$

 0.30 

  

  

(1)

 Excess of carrying amount of the Series A through E preferred stock exchanged over the fair value of new common shares issued in the first nine-months of 2014.

 

Earnings per common share is computed by dividing net income attributable to common stockholders by the weighted average number of common shares issued and outstanding. Net income attributable to common stockholders represents net income adjusted for any preferred stock dividends, including any dividends declared, and any cumulative dividends related to the current dividend period that have not been declared as of the end of the period. For the nine-month period ended September 30, 2014, net income attributable to common stockholders includes the one-time effect on retained earnings of the issuance of common stock in exchange for Series A through E preferred stock. These transactions are discussed in Note 19 to the unaudited consolidated financial statements. Basic weighted-average common shares outstanding excludes unvested shares of restricted stock.

    

    Potential common shares consist of common stock issuable under the assumed exercise of stock options, unvested shares of restricted stock, and outstanding warrants using the treasury stock method. This method assumes that the potential common shares are issued and the proceeds from the exercise, in addition to the amount of compensation cost attributable to future services, are used to purchase common stock at the exercise date. The difference between the number of potential shares issued and the shares purchased is added as incremental shares to the actual number of shares outstanding to compute diluted earnings per share. Stock options, unvested shares of restricted stock, and outstanding warrants that result in lower potential shares issued than shares purchased under the treasury stock method are not included in the computation of dilutive earnings per share since their inclusion would have an antidilutive effect on earnings per share. Stock options not included in the computation of outstanding shares because they were antidilutive amounted to 69,848 and 82,575 as of September 30, 2015 and 2014, respectively.

15 

 


 

 

NOTE 4 – STOCK-BASED COMPENSATION

 

 As of January 21, 2007, the Corporation’s 1997 stock option plan expired and no additional awards could be granted under that plan. All outstanding awards granted under this plan have continued in full force and effect since then, subject to their original terms.

 

    The activity of stock options granted under the 1997 stock option plan for the nine-month period ended September 30, 2015 is set forth below:

  

  

  

  

  

  

  

  

Weighted-Average

  

  

  

  

  

  

  

  

  

Remaining

  

  

Aggregate

  

Number of

  

  

Weighted-Average

  

Contractual Term

  

  

Intrinsic Value

  

Options

  

Exercise Price

  

(Years)

  

(In thousands)

Beginning of period outstanding and

  

  

  

  

  

  

  

  

  

     exercisable

 82,575 

  

$

 187.75 

  

  

  

  

  

Options expired

(11,395)

  

  

 358.80 

  

  

  

  

  

Options cancelled

(1,332)

  

  

 164.10 

  

  

  

  

  

End of period outstanding and exercisable

 69,848 

  

$

 160.30 

  

 0.8 

  

$

 - 

  

  

  

  

  

  

  

  

  

  

 

 On April 29, 2008, the Corporation’s stockholders approved the First BanCorp. 2008 Omnibus Incentive Plan (the “Omnibus Plan”).  The Omnibus Plan provides for equity-based compensation incentives (the “awards”) through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, and other stock-based awards.  The Omnibus Plan authorizes the issuance of up to 8,169,807 shares of common stock, subject to adjustments for stock splits, reorganizations and other similar events.  The Corporation’s Board of Directors, upon receiving the relevant recommendation of the Compensation Committee, has the power and authority to determine those eligible to receive awards and to establish the terms and conditions of any awards, subject to various limits and vesting restrictions that apply to individual and aggregate awards. 

 

Under the Omnibus Plan, during the first nine months of 2015, 219,531 shares of restricted stock were awarded to the Corporation’s independent directors subject to vesting periods that range from 1 to 5 years. In addition, during the first nine months of 2015, the Corporation issued 793,964 shares of restricted stock that will vest based on the employees’ continued service with the Corporation. For 40,000 of the 793,964 shares awarded to employees, the requisite service period was three months and already vested in 2015. For the remaining 753,964 shares granted to employees, fifty percent (50%) of those shares vest in two years from the grant date and the remaining 50% vest in three years from the grant date. Included in those 753,964 shares of restricted stock are 615,464 shares granted to certain senior officers consistent with the requirements of the Troubled Asset Relief Program (“TARP”) Interim Final Rule, which permit TARP recipients to grant “long-term restricted stock” without violating the prohibition on paying or accruing a bonus payment provided that: (i) the value of the grant may not exceed one-third of the amount of the employee’s annual compensation, (ii) no portion of the grant may vest before two years after the grant date, and (iii) the grant must be subject to a further restriction on transfer or payment as described below. Specifically, the stock that has otherwise vested may not become transferable at any time earlier than as permitted under the schedule set forth by TARP, which is based on the repayment in 25% increments of the aggregate financial assistance received, from the U.S. Department of Treasury (the “U. S. Treasury”). Hence, notwithstanding the vesting period mentioned above, the employees covered by TARP restrictions are restricted from transferring the shares. The U.S. Treasury confirmed that, effective March 2014, it has recovered more than a 25% of its investment in First BanCorp. Therefore, the restriction on transfer relating to 25% of the shares granted under TARP requirements was released.

 

    The fair value of the shares of restricted stock granted in 2015 was based on the market price of the Corporation’s outstanding common stock on the date of the grant. For the 615,464 shares of restricted stock granted under the TARP requirements, the market price was discounted to account for TARP transferability restrictions. For purposes of determining the awards’ fair values, the Corporation estimated an appreciation of 14% in the value of the common stock using the Capital Asset Pricing Model as a basis of what would be a market participant’s expected return on the Corporation’s stock and assumed that the Treasury would hold the common stock of the Corporation that it currently owns for a period not to exceed one year, resulting in a fair value per share of $3.18 for restricted shares granted under the TARP requirements. Also, the Corporation uses empirical data to estimate employee termination; separate groups of employees that have similar historical exercise behavior were considered separately for valuation purposes.

 

16 

 


 

 

    The following table summarizes the restricted stock activity in 2015 under the Omnibus Plan for both executive officers covered by the TARP requirements and other employees as well as for independent directors:

  

  

  

  

  

  

  

  

Nine-Month Period Ended

  

  

September 30, 2015

  

  

  

  

  

  

  

  

  Number of shares

  

  

Weighted-Average

  

  

of restricted

  

  

Grant Date

  

  

stock

  

  

 Fair Value

  

  

  

  

  

  

  

Non-vested shares at beginning of year

 2,327,156 

  

$

 3.39 

  

Granted

 1,013,495 

  

  

 3.86 

  

Forfeited

 (17,500) 

  

  

 5.48 

  

Vested

(349,190)

  

  

 5.02 

  

Non-vested shares at September 30, 2015

 2,973,961 

  

$

 3.34 

  

  

  

  

  

  

  

 

   For the quarter and nine-month period ended September 30, 2015, the Corporation recognized $0.9 million and $2.9 million, respectively, of stock-based compensation expense related to restricted stock awards, compared to $0.6 million and $1.8 million for the same periods in 2014. As of September 30, 2015, there was $4.9 million of total unrecognized compensation cost related to nonvested shares of restricted stock. The weighted average period over which the Corporation expects to recognize such cost is 1.9 years.

 

   During the first nine months of 2014, the Corporation awarded to its independent directors 379,573 shares of restricted stock subject to vesting periods that range from 1 to 5 years. In addition, during the first nine months of 2014, the Corporation issued 840,138 shares of restricted stock that will vest based on the employees’ continued service with the Corporation. Fifty percent (50%) of those shares vest in two years from the grant date and the remaining 50% vest in three years from the grant date. Included in those 840,138 shares of restricted stock are 653,138 shares granted to certain senior officers consistent with the requirements of TARP. The employees covered by TARP are restricted from transferring the shares, subject to certain conditions as explained above.

 

   The fair value of the shares of restricted stock granted in the first nine months of 2014 was based on the market price of the Corporation’s outstanding common stock on the date of the grant. For the 653,138 shares of restricted stock granted under the TARP requirements, the market price was discounted due to postvesting restrictions. For purposes of computing the discount, the Corporation estimated an appreciation of 16% in the value of the common stock using the Capital Asset Pricing Model as a basis of what would be a market participant’s expected return on the Corporation’s stock and assumed that the U.S. Treasury would hold the common stock of the Corporation that it owned as of the date of the grants for an additional two years, resulting in a fair value of $2.63 for restricted shares granted under the TARP requirements.

 

Stock-based compensation accounting guidance requires the Corporation to develop an estimate of the number of share-based awards that will be forfeited due to employee or director turnover. Quarterly changes in the estimated forfeiture rate may have a significant effect on share-based compensation, as the effect of adjusting the rate for all expense amortization is recognized in the period in which the forfeiture estimate is changed. If the actual forfeiture rate is higher than the estimated forfeiture rate, then an adjustment is made to increase the estimated forfeiture rate, which will result in a decrease in the expense recognized in the financial statements. If the actual forfeiture rate is lower than the estimated forfeiture rate, then an adjustment is made to decrease the estimated forfeiture rate, which will result in an increase in the expense recognized in the financial statements. When unvested options or shares of restricted stock are forfeited, any compensation expense previously recognized on the forfeited awards is reversed in the period of the forfeiture.  Approximately $36 thousand and $65 thousand of compensation expense was reversed during the first nine months of 2015 and 2014, respectively, related to forfeited awards.

 

   Also, under the Omnibus Plan, effective April 1, 2013, the Corporation’s Board of Directors determined to increase the salary amounts paid to certain executive officers primarily by paying the increased salary amounts in the form of shares of the Corporation’s common stock, instead of cash. During the first nine months of 2015, the Corporation issued 330,254 shares of common stock with a weighted average market value of $5.14 as salary stock compensation. This resulted in a compensation expense of $1.7 million recorded in the first nine months of 2015. 

 

For the first nine months of 2015, the Corporation withheld 108,731 shares from the common stock paid to certain senior officers as additional compensation and 72,918 shares of restricted stock that vested during the first nine months of 2015, to cover employees’ payroll and income tax withholding liabilities; these shares are held as treasury shares. The Corporation paid any fractional share of salary stock that the officer was entitled to in cash. In the consolidated financial statements, the Corporation treats shares withheld for tax purposes as common stock repurchases.

17 

 


 

 

NOTE 5 – INVESTMENT SECURITIES

 

Investment Securities Available for Sale

   

 The amortized cost, non-credit loss component of other-than-temporary impairment (“OTTI”) recorded in other comprehensive income (“OCI”), gross unrealized gains and losses recorded in OCI, approximate fair value, and weighted average yield of investment securities available for sale by contractual maturities as of September 30, 2015 and December 31, 2014 were as follows:

 

  

  

September 30, 2015

  

  

Amortized cost

  

Noncredit Loss Component of OTTI Recorded in OCI

  

  

  

Fair value

  

Weighted average yield%

  

  

  

Gross Unrealized

  

  

  

  

  

  

gains

  

losses

  

  

  

  

(Dollars in thousands)

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

U.S. Treasury securities:

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

After 1 to 5 years

$

 7,536 

  

$

 - 

  

$

 1 

  

$

 - 

  

$

 7,537 

  

 0.57 

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Obligations of U.S.

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  government-sponsored

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

   agencies:

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

   Due within one year

  

 5,000 

  

  

 - 

  

  

 8 

  

  

 - 

  

  

 5,008 

  

 0.66 

   After 1 to 5 years

  

 341,092 

  

  

 - 

  

  

 748 

  

  

 878 

  

  

 340,962 

  

 1.33 

   After 5 to 10 years

  

 64,718 

  

  

 - 

  

  

 1,074 

  

  

 - 

  

  

 65,792 

  

 2.35 

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Puerto Rico government

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

    obligations:

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

   After 1 to 5 years

  

 28,488 

  

  

 11,245 

  

  

 - 

  

  

 772 

  

  

 16,471 

  

 4.38 

   After 5 to 10 years

  

 865 

  

  

 - 

  

  

 - 

  

  

 - 

  

  

 865 

  

 5.20 

   After 10 years

  

 23,356 

  

  

 5,420 

  

  

 85 

  

  

 1,222 

  

  

 16,799 

  

 5.40 

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

United States and Puerto Rico

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

   government obligations

  

 471,055 

  

  

 16,665 

  

  

 1,916 

  

  

 2,872 

  

  

 453,434 

  

 1.84 

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Mortgage-backed securities:

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

 FHLMC certificates:

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

    After 1 to 5 years

  

 367 

  

  

 - 

  

  

 34 

  

  

 - 

  

  

 401 

  

 4.95 

    After 10 years

  

 299,407 

  

  

 - 

  

  

 3,041 

  

  

 204 

  

  

 302,244 

  

 2.15 

  

  

  

 299,774 

  

  

 - 

  

  

 3,075 

  

  

 204 

  

  

 302,645 

  

 2.15 

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

GNMA certificates:            

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

    Due within one year

  

 7 

  

  

 - 

  

  

 - 

  

  

 - 

  

  

 7 

  

 2.97 

    After 1 to 5 years

  

 119 

  

  

 - 

  

  

 6 

  

  

 - 

  

  

 125 

  

 4.25 

    After 5 to 10 years

  

 127,798 

  

  

 - 

  

  

 3,974 

  

  

 - 

  

  

 131,772 

  

 3.07 

    After 10 years

  

 172,754 

  

  

 - 

  

  

 13,978 

  

  

 15 

  

  

 186,717 

  

 4.39 

  

  

  

 300,678 

  

  

 - 

  

  

 17,958 

  

  

 15 

  

  

 318,621 

  

 3.83 

 FNMA certificates:

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

    After 1 to 5 years

  

 2,916 

  

  

 - 

  

  

 95 

  

  

 - 

  

  

 3,011 

  

 3.35 

    After 5 to 10 years

  

 21,684 

  

  

 - 

  

  

 693 

  

  

 10 

  

  

 22,367 

  

 2.73 

    After 10 years

  

 771,005 

  

  

 - 

  

  

 10,354 

  

  

 1,190 

  

  

 780,169 

  

 2.32 

    

  

  

 795,605 

  

  

 - 

  

  

 11,142 

  

  

 1,200 

  

  

 805,547 

  

 2.34 

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Other mortgage pass-through

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

     trust certificates:

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

   After 5 to 10 years

  

 96 

  

  

 - 

  

  

 - 

  

  

 - 

  

  

 96 

  

 7.26 

   After 10 years

  

 37,479 

  

  

 10,055 

  

  

 - 

  

  

 - 

  

  

 27,424 

  

 2.20 

  

  

  

 37,575 

  

  

 10,055 

  

  

 - 

  

  

 - 

  

  

 27,520 

  

 2.20 

Total mortgage-backed

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

    securities

  

 1,433,632 

  

  

 10,055 

  

  

 32,175 

  

  

 1,419 

  

  

 1,454,333 

  

 2.61 

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Other

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

    After 1 to 5 years

  

 100 

  

  

 - 

  

  

 - 

  

  

 - 

  

  

 100 

  

 1.50 

  

  

  

Total investment securities

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

    available for sale

$

 1,904,787 

  

$

 26,720 

  

$

 34,091 

  

$

 4,291 

  

$

 1,907,867 

  

 2.42 

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

 

18 

 


 

 

  

  

December 31, 2014

  

  

Amortized cost

  

Noncredit Loss Component of OTTI Recorded in OCI

  

  

  

Fair value

  

Weighted average yield%

  

  

  

  

Gross Unrealized

  

  

  

  

  

  

gains

  

losses

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

U.S. Treasury securities:

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Due within one year

$

 7,498 

  

$

 - 

  

$

 1 

  

$

 - 

  

$

 7,499 

  

 0.11 

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Obligations of U.S.

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

    government-sponsored

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

    agencies:

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

   After 1 to 5 years

  

 260,889 

  

  

 - 

  

  

 42 

  

  

 4,219 

  

  

 256,712 

  

 1.22 

  

   After 5 to 10 years

  

 78,234 

  

  

 - 

  

  

 246 

  

  

 2,077 

  

  

 76,403 

  

 1.72 

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Puerto Rico government

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

    obligations:

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

   After 1 to 5 years

  

 39,827 

  

  

 - 

  

  

 - 

  

  

 12,419 

  

  

 27,408 

  

 4.49 

  

   After 5 to 10 years

  

 886 

  

  

 - 

  

  

 1 

  

  

 - 

  

  

 887 

  

 5.20 

  

   After 10 years