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, 2017

[   ]         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.

Yes☑    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). 

Yes ☑    No ☐

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

                             Large accelerated filer ☐                                                                                              Accelerated filer ☑

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

                                                                                                                                                                   Emerging growth company    ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐

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

 Yes  ☐    No ☑

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

Common stock: 216,208,829 shares outstanding as of October 31, 2017.

FIRST BANCORP.

INDEX PAGE

PART I FINANCIAL INFORMATION	PAGE
Item 1. Financial Statements:
Consolidated Statements of Financial Condition (Unaudited) as of September 30, 2017 and December 31, 2016	6
Consolidated Statements of (Loss) Income (Unaudited) – Quarters ended September 30, 2017 and 2016 and nine-month periods ended September 30, 2017 and 2016	7
Consolidated Statements of Comprehensive (Loss) Income (Unaudited) – Quarters ended September 30, 2017 and 2016 and nine-month periods ended September 30, 2017 and 2016	8
Consolidated Statements of Cash Flows (Unaudited) – Nine-month periods ended September 30, 2017 and 2016	9
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) – Nine-month periods ended September 30, 2017 and 2016	10
Notes to Consolidated Financial Statements (Unaudited)	11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	84
Item 3. Quantitative and Qualitative Disclosures About Market Risk	157
Item 4. Controls and Procedures	157
PART II. OTHER INFORMATION
Item 1.    Legal Proceedings	158
Item 1A. Risk Factors	158
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds	159
Item 3.    Defaults Upon Senior Securities	160
Item 4.    Mine Safety Disclosures	160
Item 5.    Other Information	160
Item 6.    Exhibits	160
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 harbor 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 words or phrases “would,” “intends,” “will likely result,” “expect,” “should,” “anticipate,” “look forward,” “believes,” and other terms of similar meaning or import in connection with any discussion of future operating, financial or other 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 these forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties, estimates, and assumptions by us that are difficult to predict.  Various factors, some of which are beyond our control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements. 

    The two hurricanes that affected the Corporation’s service area during the third quarter of 2017 are discussed below in Note 2 to the financial statements, in the “Executive Summary” section and various other sections of “Management's Discussion and Analysis of Financial Condition and Results of Operations,” and in Part II, Item 1A, “Risk Factors.” There is pervasive uncertainty surrounding the future economic conditions that will emerge in the storm-affected areas. As a consequence, estimates of the financial impact of these disasters on the Corporation are subject to greater uncertainty than is inherent in other forward-looking statements. The more significant estimates are included in the discussion of the provision for loan and lease losses and the discussion of casualty and disaster response costs and related insurance coverages.

    These forward-looking statements include, but are not limited to, the risks described or referenced below in Part II, Item 1A, “Risk Factors,” and the following:

·the actual pace and magnitude of economic recovery in the regions impacted by the two hurricanes that affected the Corporation’s service areas during the third quarter of 2017 compared to Management’s current views on the economic recovery;

·uncertainties about how and when rebuilding will take place in the regions affected by the recent storms, including the rebuilding of the public infrastructure, such as Puerto Rico’s powergrid, what level of government, private of philanthropic funds will be invested in the affected communities, how many displaced individuals will return to their homes in both the short- and long-term, and what other demographic changes will take place, if any;

·uncertainty as to the ultimate outcomes of actions taken, or those that may be taken, by the Puerto Rico government, or the oversight board established by the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) to address Puerto Rico’s financial problems, including the filing of a form of bankruptcy under Title III of PROMESA that provides a court debt restructuring process similar to U.S. bankruptcy protection and the effect of measures included in the Puerto Rico government fiscal plan, or any revisions to it, on our clients and loan portfolios;

·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 payment defaults on the Puerto Rico government general obligations, bonds of the Government Development Bank for Puerto Rico (the “GDB”) and certain bonds of government public corporations, 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 and, in turn, further adversely impact the Corporation;

3

·uncertainty about whether the Federal Reserve Bank of New York (the “New York FED” or “Federal Reserve”) will provide approvals for receiving dividends from FirstBank Puerto Rico (“FirstBank” or the “Bank”) or for making payments of dividends on non-cumulative perpetual preferred stock, or payments on trust preferred securities or subordinated debt, incurring, increasing or guaranteeing debt or repurchasing any capital securities, despite the consents that have enabled the Corporation to pay quarterly interest payments on the Corporation’s subordinated debentures associated with its trust preferred securities since the second quarter of 2016, and to pay monthly dividends on the non-cumulative perpetual preferred stock since December 2016;

·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 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 common stockholders in the future due to the Corporation’s need to receive regulatory approvals 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 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 have 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;

·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 reduced interest margins and affected funding sources, and have 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 continue to 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 are determined to be other-than-temporary, including additional impairments on the Corporation’s remaining $8.0 million of the Puerto Rico government’s debt securities;

·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;

4

·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;

·a need to recognize impairments on the Corporation’s 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 on the Corporation’s businesses, business practices and results of operations of a potential higher interest rate environment;

·uncertainty as to whether FirstBank will be able to satisfy its regulators regarding, among other things, its asset quality, liquidity plans, maintenance of capital levels and compliance with applicable laws, regulations and related requirements; 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, 2016, 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.

5

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

	September 30, 2017		December 31, 2016
(In thousands, except for share information)
ASSETS
Cash and due from banks	$	726,779	$	289,591
Money market investments:
Time deposits with other financial institutions		3,126		2,800
Other short-term investments		7,289		7,294
Total money market investments		10,415		10,094
Investment securities available for sale, at fair value:
Securities pledged that can be repledged		348,724		339,390
Other investment securities		1,401,748		1,542,530
Total investment securities available for sale		1,750,472		1,881,920
Investment securities held to maturity, at amortized cost:
Securities pledged that can be repledged		-		-
Other investment securities		150,627		156,190
Total investment securities held to maturity, fair value of $130,125 (2016- $132,759)		150,627		156,190
Other equity securities		52,119		42,992
Loans, net of allowance for loan and lease losses of $230,870
(2016 - $205,603)		8,646,344		8,681,270
Loans held for sale, at lower of cost or market		27,576		50,006
Total loans, net		8,673,920		8,731,276
Premises and equipment, net		144,247		150,828
Other real estate owned		152,977		137,681
Accrued interest receivable on loans and investments		49,231		45,453
Other assets		462,861		476,430
Total assets	$	12,173,648	$	11,922,455
LIABILITIES
Non-interest-bearing deposits	$	1,586,198	$	1,484,155
Interest-bearing deposits		7,179,693		7,347,050
Total deposits		8,765,891		8,831,205
Securities sold under agreements to repurchase		300,000		300,000
Advances from the Federal Home Loan Bank (FHLB)		915,000		670,000
Other borrowings		208,639		216,187
Accounts payable and other liabilities		130,367		118,820
Total liabilities		10,319,897		10,136,212
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, 220,220,026 shares (2016 - 218,700,394 shares issued)		22,022		21,870
Less: Treasury stock (at par value)		(404)		(125)
Common stock outstanding, 216,175,003, shares outstanding (2016 - 217,446,205
shares outstanding)		21,618		21,745
Additional paid-in capital		935,231		931,856
Retained earnings, includes legal surplus reserve of $52,436		871,708		830,928
Accumulated other comprehensive loss, net of tax of $7,752		(10,910)		(34,390)
Total stockholders' equity		1,853,751		1,786,243
Total liabilities and stockholders' equity	$	12,173,648	$	11,922,455
The accompanying notes are an integral part of these statements.

6

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF (LOSS) INCOME

(Unaudited)

	Quarter Ended				Nine-Month Period Ended
	September 30,				September 30,
	2017		2016		2017		2016
(In thousands, except per share information)
Interest and dividend income:
Loans	$	134,593	$	131,017	$	398,732	$	398,267
Investment securities		12,109		11,894		39,361		40,065
Money market investments		1,293		662		2,504		3,006
Total interest income		147,995		143,573		440,597		441,338
Interest expense:
Deposits		16,898		16,742		49,218		51,223
Securities sold under agreements to repurchase		2,917		5,363		8,305		16,868
Advances from FHLB		3,209		1,474		7,623		4,416
Other borrowings		2,139		1,816		6,166		5,777
Total interest expense	25,163		25,395		71,312		78,284
Net interest income		122,832		118,178		369,285		363,054
Provision for loan and lease losses		75,013		21,503		118,551		63,542
Net interest income after provision for loan and lease losses	47,819		96,675		250,734		299,512
Non-interest income:
Service charges and fees on deposit accounts		5,797		5,788		17,390		17,206
Mortgage banking activities		3,117		5,485		11,579		15,131
Net gain on sale of investments		-		6,096		371		6,104
Other-than-temporary impairment (OTTI) losses on available-for-sale debt securities:
Total other-than-temporary impairment losses		-		-		(12,231)		(1,845)
Portion of other-than-temporary impairment
recognized in other comprehensive income (OCI)		-		-		-		(4,842)
Net impairment losses on available-for-sale debt securities		-		-		(12,231)		(6,687)
Gain on early extinguishment of debt		1,391		-		1,391		4,217
Insurance commission income		1,377		1,363		6,819		6,174
Other non-interest income		6,963		7,414		22,118		22,248
Total non-interest income	18,645		26,146		47,437		64,393
Non-interest expenses:
Employees' compensation and benefits		37,128		38,005		114,190		113,841
Occupancy and equipment		13,745		13,888		41,592		41,114
Business promotion		3,244		3,169		9,717		11,220
Professional fees		12,023		10,672		34,779		32,775
Taxes, other than income taxes		3,763		3,927		11,184		11,475
Insurance and supervisory fees		4,353		5,604		14,117		20,013
Net loss on other real estate owned (OREO) and OREO operations		1,351		2,603		8,796		9,134
Credit and debit card processing expenses		3,737		3,546		10,134		10,102
Communications		1,603		1,711		4,774		5,244
Other non-interest expenses		4,667		5,178		13,282		15,926
Total non-interest expenses	85,614		88,303		262,565		270,844
(Loss) income before income taxes		(19,150)		34,518		35,606		93,061
Income tax benefit (expense)		8,398		(10,444)		7,181		(23,690)
Net (loss) income	$	(10,752)	$	24,074	$	42,787	$	69,371
Net (loss) income attributable to common stockholders	$	(11,421)	$	24,074	$	40,780	$	69,371
Net (loss) income per common share:
Basic	$	(0.05)	$	0.11	$	0.19	$	0.33
Diluted	$	(0.05)	$	0.11	$	0.19	$	0.32
Dividends declared per common share	$	-	$	-	$	-	$	-
The accompanying notes are an integral part of these statements.

7

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)

	Quarter Ended				Nine-Month Period Ended
	September 30,				September 30,
		2017		2016	2017			2016
(In thousands)
Net (loss) income	$	(10,752)	$	24,074	$	42,787	$	69,371
Available-for-sale debt securities on which an other-than-temporary
impairment has been recognized:
Unrealized gain (loss) on debt securities on which an
other-than-temporary impairment has been recognized		647		(2,228)		(1,156)		(773)
Reduction of non-credit OTTI component on securities sold		-		-		5,678		-
Reclassification adjustments for net gain included in net income		-		-		(371)		-
Reclassification adjustment for other-than-temporary impairment
on debt securities included in net income		-		-		12,231		6,687
All other unrealized gains and losses on available-for-sale securities:
Reclassification adjustments for net gain included in net income		-		(6,096)		-		(6,104)
All other unrealized holding gains (losses) on available-for-sale
securities arising during the period		3,072		(3,833)		7,098		32,299
Other comprehensive income (loss) for the period		3,719		(12,157)		23,480		32,109
Total comprehensive (loss) income	$	(7,033)	$	11,917	$	66,267	$	101,480
The accompanying notes are an integral part of these statements.

8

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Unaudited) 

	Nine-Month Period Ended
	September 30,		September 30,
	2017		2016
(In thousands)
Cash flows from operating activities:
Net income	$	42,787	$	69,371
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		12,263		13,359
Amortization of intangible assets		3,325		3,669
Provision for loan and lease losses		118,551		63,542
Deferred income tax (benefit) expense		(18,094)		19,153
Stock-based compensation		5,423		5,132
Gain on sales of investments		(371)		(6,104)
Other-than-temporary impairments on debt securities		12,231		6,687
Gain on early extinguishment of debt		(1,391)		(4,217)
Unrealized (gain) loss on derivative instruments		(272)		19
Net gain on sales of premises and equipment and other assets		(146)		(686)
Impairment of fixed assets		640		-
Net gain on sales of loans		(5,348)		(7,794)
Net amortization/accretion of premiums, discounts and deferred loan fees and costs		(6,331)		(6,629)
Originations and purchases of loans held for sale		(257,997)		(354,006)
Sales and repayments of loans held for sale		275,855		355,636
Amortization of broker placement fees		1,461		2,300
Net amortization/accretion of premium and discounts on investment securities		1,283		4,503
(Increase) decrease in accrued interest receivable		(4,791)		7,258
Increase (decrease) in accrued interest payable		1,030		(27,865)
Decrease (increase) in other assets		4,926		(10,275)
Increase (decrease) in other liabilities		9,604		(13,944)
Net cash provided by operating activities		194,638		119,109
Cash flows from investing activities:
Principal collected on loans		1,920,088		2,174,933
Loans originated and purchased		(2,092,161)		(2,085,444)
Proceeds from sales of loans held for investment		53,245		20,186
Proceeds from sales of repossessed assets		28,004		43,093
Proceeds from sales of available-for-sale securities		23,408		219,780
Purchases of available-for-sale securities		(53,208)		(420,513)
Proceeds from principal repayments and maturities of available-for-sale securities		172,493		270,345
Proceeds from principal repayments and maturities of held-to-maturity securities		5,563		5,293
Additions to premises and equipment		(7,607)		(8,239)
Proceeds from sale of premises and equipment and other assets		2,040		2,265
Net purchase/sales of other equity securities		(9,127)		3,452
Net cash outflows from purchase/sale of insurance contracts		-		(960)
Net cash provided by investing activities		42,738		224,191
Cash flows from financing activities:
Net decrease in deposits		(34,754)		(358,930)
Change in securities sold under agreements to repurchase		-		(100,000)
Net FHLB advances proceeds (repayments)		245,000		(100,000)
Dividends paid on preferred stock		(2,007)		-
Repurchase of outstanding common stock		(2,176)		(860)
Repayment of junior subordinated debentures		(5,930)		(7,025)
Net cash provided by (used in) financing activities		200,133		(566,815)
Net increase (decrease) in cash and cash equivalents		437,509		(223,515)
Cash and cash equivalents at beginning of period		299,685		752,458
Cash and cash equivalents at end of period	$	737,194	$	528,943
Cash and cash equivalents include:
Cash and due from banks	$	726,779	$	518,835
Money market instruments		10,415		10,108
	$	737,194	$	528,943
The accompanying notes are an integral part of these statements.

9

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)

	Nine-Month Period Ended
	September 30,		September 30,
	2017		2016
(In thousands)
Preferred Stock	$	36,104	$	36,104
Common Stock outstanding:
Balance at beginning of period		21,745		21,509
Common stock issued as compensation		43		63
Common stock withheld for taxes		(39)		(26)
Restricted stock grants		109		193
Restricted stock forfeited		(240)		-
Balance at end of period		21,618		21,739
Additional Paid-In-Capital:
Balance at beginning of period		931,856		926,348
Stock-based compensation		5,423		5,132
Common stock withheld for taxes		(2,136)		(834)
Restricted stock grants		(109)		(193)
Common stock issued as compensation		(43)		(63)
Restricted stock forfeited		240		-
Balance at end of period		935,231		930,390
Retained Earnings:
Balance at beginning of period		830,928		737,922
Net income		42,787		69,371
Dividends on preferred stock		(2,007)		-
Balance at end of period		871,708		807,293
Accumulated Other Comprehensive Income (Loss), net of tax:
Balance at beginning of period		(34,390)		(27,749)
Other comprehensive income, net of tax		23,480		32,109
Balance at end of period		(10,910)		4,360
Total stockholders' equity	$	1,853,751	$	1,799,886
The accompanying notes are an integral part of these statements.

10

FIRST BANCORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 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, 2016. 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, 2016, which are included in the Corporation’s 2016 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, 2017 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 May 2014, the FASB updated the Accounting Standards Codification (the “Codification” or the “ASC”) to create a new, principles-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, with certain exceptions that are not SEC registrants provided recently by the SEC staff, for annual periods beginning after December 15, 2017, including interim periods within those reporting periods, as a result of the FASB’s 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 plans to adopt the revenue recognition guidance on January 1, 2018 using the modified retrospective method of adoption. The Corporation’s implementation efforts include the identification of revenue within the scope of the guidance, as well as the evaluation of revenue contracts and related accounting policies. Because the amended guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other U.S. GAAP, the Corporation’s has scoped out the majority of its revenue streams. While in scope of the new guidance, the Corporation does not expect a material change in the timing or measurement of revenues related to deposit fees. The Corporation has concluded that its credit cardholder fees and mortgage servicing fees standards are not subject to the new standard. Nonetheless, the Corporation continues to evaluate other revenue streams such as interchange fees, merchant fees and insurance commissions but does not expect material changes in the timing of when revenues are recognized upon the adoption of this standard.

In March 2016, the FASB updated the Codification to simplify certain aspects of the accounting for share-based payment transactions. The main provisions in this Update include: (i) recognition of all tax benefits and tax deficiencies (including tax benefits of dividends on share-base payment awards) as income tax expense or benefit in the income statement, (ii) classification of the excess tax benefit along with other income tax cash flows as an operating activity, (iii) an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur, (iv) a threshold to qualify for equity classification that permits withholding up to the maximum statutory tax rate in the applicable jurisdictions, and (v) classification of cash paid by an employer as a financing activity when the payment results from the withholding of shares for tax withholding purposes. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Corporation adopted the provisions during the first quarter of 2017 without any material impact on the Corporation’s consolidated financial statements.

In March 2016, the FASB updated the Codification to require an equity method investor to add the cost of acquiring an additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of

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the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. Also, this Update requires that an entity that has an available-for sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. The adoption of this guidance during the first quarter of 2017 did not have an impact on the Corporation’s consolidated financial statements.

    In June 2016, the FASB updated the Codification to introduce new guidance for the accounting for credit losses on instruments that includes an impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. The Corporation has developed a transition roadmap in order to comply with the timely implementation of this new accounting framework. The Corporation has created a Working Group with members from multiple areas across the organization that is responsible for assessing the impact of the standard, evaluating interpretative issues, and evaluating the current credit loss models against the new guidance to determine any changes necessary and other related implementation activities. The Working Group provides periodic updates to the Corporation’s CECL Management Committee, which has oversight responsibilities for the implementation efforts.

   In October 2016, the FASB updated the Codification to modify the criteria used by a reporting entity when determining if it is the primary beneficiary of a variable interest entity (“VIE”) when the entities are under common control and the reporting entity has indirect interests in the VIE through related parties. If the reporting entity meets the first criteria in that it has the power to direct the activities of the VIE that are most significant to its economic performance, it is required to consider all interests held indirectly through related entities on a proportionate basis in determining if it meets the second criterion, that is, the obligation to absorb losses of the VIE or the right to receive benefits from it that are potentially significant to the VIE. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The adoption of this guidance did not have an impact on the Corporation’s consolidated financial statements.

     In March 2017, the FASB updated the Codification to shorten the amortization period for certain purchased callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. With respect to securities held at a discount, the amendments do not require an accounting change; thus, the discount continues to be amortized to maturity. Under current GAAP, premiums and discounts on callable debt securities generally are amortized to the maturity date. An entity must have a large number of similar loans to consider estimates of future principal prepayments when applying the interest method. However, an entity that holds an individual callable debt security at a premium may not amortize that premium to the earliest call date. If that callable debt security is subsequently called, the entity records a loss equal to the unamortized premium. The amendments in this Update more closely align the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities. In most cases, market participants price securities to the call date that produces the worst yield when the coupon is above current market rates (that is, the security is trading at a premium) and price securities to maturity when the coupon is below market rates (that is, the security is trading at a discount) in anticipation that the borrower will act in its economic best interest. As a result, the amendments more closely align interest income recorded on bonds held at a premium or a discount with the economics of the underlying instrument. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The adoption of this guidance is not expected to have a material impact on the Corporation’s statement of financial condition or results of operations. As of September 30, 2017, the Corporation had $4.2 million of callable debt securities held at a premium (unamortized premium of $0.1 million).

   In May 2017, the FASB updated the codification to reduce the cost and complexity when applying ASC Topic 718 and standardize the practice of applying Topic 718 to financial reporting. Topic 718 prescribes the accounting treatment of a modification in the terms or conditions of a share-based payment award. The guidance clarifies what changes would qualify as a modification. This was done by better defining what does not constitute a modification. In order for a change to a share-based arrangement to not require Topic 718 modification treatment, all of the following must be met: (i) the fair value (or alternative measurement method used) of the modified award equals the fair value (or alternative measurement method used) of the original award immediately before the original award is modified, (ii) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified, and (iii) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under this Update. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The amendments in this Update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Corporation’s Omnibus Plan provides for equity based compensation incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, cash-based awards and other stock-based awards. If any change occurs in the future to awards issued under the Omnibus Plan, the Corporation will evaluate it under this guidance.

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     In August 2017, the FASB updated the Codification to: (i) expand hedge accounting for nonfinancial and financial risk components and amend measurement methodologies to more closely align hedge accounting with a company’s risk management activities, (ii) decrease the complexity of preparing and understanding hedge results by eliminating the separate measurement and reporting of hedge ineffectiveness, (iii) enhance transparency, comparability, and understanding of hedge results through enhanced disclosures and changing the presentation of hedge results to align the effects of the hedging instrument and the hedged item, and (iv) reduce the cost and complexity of applying hedge accounting by simplifying the manner in which assessments of hedge effectiveness may be performed. This Update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The guidance requires companies to apply requirements to existing hedging relationships on the date of adoption, and the effect of the adoption should be reflected as of the beginning of the fiscal year of adoption. As of September 30, 2017, all of the derivatives held by the Corporation were considered economic undesignated hedges. The adoption of this guidance is not expected to have a material impact on the Corporation’s statement of financial condition or results of operations.

NOTE 2 – NATURAL DISASTERS AFFECTING FIRST BANCORP. IN THIRD QUARTER 2017

Two strong hurricanes affected the Corporation’s service areas during the third quarter of 2017.  Early in September, Hurricane Irma hit ground through the eastern Caribbean as a Category 5 storm affecting several islands, including the U.S. Virgin Islands of St. Thomas and St. John and Tortola in the British Virgin Islands, with lesser impacts on St. Croix and Puerto Rico. After hitting the eastern Caribbean, Hurricane Irma made landfall along Florida’s southwest shoreline.  Two weeks after Hurricane Irma sideswiped Puerto Rico, Hurricane Maria made landfall in the south east corner of Puerto Rico as a Category 4 storm and exited on the northern coast at a point between the cities of Arecibo and Barceloneta after battering other islands in the Caribbean, including the U.S. Virgin Island of St. Croix.  These storms caused, among other things, widespread property damage, flooding, power outages, and water and communication services interruptions, and severely disrupted normal economic activity in all of these regions. 

The following summarizes the more significant financial repercussions of these natural disasters for the Corporation and for its major subsidiary, FirstBank.

Credit Quality and Allowance for Loan and Lease Losses

The Corporation established a $66.5 million allowance for loan and lease losses in the third quarter of 2017 directly related to the initial estimate, based on available information, of inherent losses resulting from the impact of the recent storms.  As the Corporation acquires additional information on overall economic prospects in the affected areas together with loan officers’ further assessments of the impact on individual borrowers, the loss estimate will be revised as needed, and these revisions could be material.  The Corporation’s approach to estimating the storms’ impact on credit quality is presented in Note 8 – “Allowance for Loan and Lease Losses.”

Interruptions in regular collection efforts caused by Hurricanes Irma and Maria adversely affected the Corporation’s non-performing loan statistics.  Non-performing residential mortgage loans increased in the third quarter by $23.2 million to $178.5 million as of September 30, 2017 and non-performing consumer loans and finance leases increased in the third quarter by $5.4 million to $26.5 million as of September 30, 2017.  Refer to Note 7 – “Loans Held For Investment” for additional information about early delinquency statistics and payment deferral programs established by the Corporation to assist individuals affected by the recent storms.

Disaster Response Plan Costs, Casualty Losses and Related Insurance

The Corporation implemented its disaster response plan as these storms approached its service areas.  To operate in disaster response mode, the Corporation incurred expenses for, among other things, buying diesel and generators for electric power, debris removal, security matters, and emergency communications with customers regarding the status of Bank operations.  The disaster response plan costs, combined with payroll and rental costs during the idle time caused by the storms, totaled $2.9 million as of September 30, 2017, including $0.6 million in donations and other storm relief efforts and employee assistance. The Corporation will incur additional costs through the end of 2017 as the Corporation addresses ongoing operational issues.  The Corporation maintains insurance for its disaster response costs, as well as for certain revenue lost through business interruption. 

The Bank was able to resume operations in Puerto Rico within a week after Hurricane Maria made landfall, but with some limitations.  Certain of the Corporation’s facilities and their contents were damaged by these storms.  The Corporation has recognized asset impairments of approximately $0.6 million as of September 30, 2017, and the Corporation may identify additional impairments through the end of 2017. The Corporation maintains insurance policies for casualty losses that provide for replacement value coverage.     

Management believes, based on its understanding of the insurance coverages, that recovery of $2.9 million of the $3.5 million above-mentioned costs and asset impairments identified as of September 30, 2017 is probable.  Accordingly, a receivable of $2.9

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million was included in “Other assets” as of September 30, 2017 for the expected recovery. The impairments, recoverable expenses and expected recoveries are included as part of “Other non-interest income” in the statement of (loss) income. Management also believes that there is a possibility that some gains will be recognized with respect to casualty and lost revenue claims in future periods, but this is contingent on reaching agreement on the Corporation’s claims with the insurance carriers.

NOTE 3 – EARNINGS PER COMMON SHARE

	The calculations of earnings (loss) per common share for the quarters and nine-month periods ended September 30, 2017 and 2016 are as follows:
		Quarter Ended				Nine-Month Period Ended
		September 30,				September 30,
		2017		2016		2017		2016
(In thousands, except per share information)
Net (loss) income		$	(10,752)	$	24,074	$	42,787	$	69,371
Less: Preferred stock dividends			(669)		-		(2,007)		-
Net (loss) income attributable to common stockholders		$	(11,421)	$	24,074	$	40,780	$	69,371
Weighted-Average Shares:
Average common shares outstanding			214,187		212,927		213,812		212,682
Average potential dilutive common shares			-		3,651		2,322		2,577
Average common shares outstanding - assuming dilution			214,187		216,578		216,134		215,259
(Loss) earnings per common share:
Basic		$	(0.05)	$	0.11	$	0.19	$	0.33
Diluted		$	(0.05)	$	0.11	$	0.19	$	0.32

Earnings (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares issued and outstanding. Net income (loss) attributable to common stockholders represents net income (loss) 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. Basic weighted-average common shares outstanding exclude unvested shares of restricted stock that do not contain non-forfeitable dividend rights.

    Potential dilutive common shares consist of common stock issuable under the assumed exercise of stock options, unvested shares of restricted stock that do not contain non-forfeitable dividend rights, and outstanding warrants using the treasury stock method. This method assumes that the potential dilutive common shares are issued and outstanding 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 numbers of potential dilutive 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 that do not contain non-forfeitable dividend rights, and outstanding warrants that result in lower potential dilutive 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. Warrants outstanding to purchase 1,285,899 shares of common stock and 1,815,904 unvested shares of restricted stock that do not contain non-forfeitable dividend rights were excluded from the computation of diluted earnings per share for the quarter ended September 30, 2017 because the Corporation reported a net loss attributable to common stockholders and their inclusion would have an antidilutive effect. Stock options not included in the computation of outstanding shares because they were antidilutive amounted to 34,989 as of September 30, 2016.

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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 continued in full force and effect since then, subject to their original terms. No awards of shares could be granted under the 1997 stock option plan as of its expiration. During the first quarter of 2017, all of the remaining outstanding awards granted under the 1997 stock option plan expired.

The activity of stock options granted under the 1997 stock option plan for the nine-month period ended September 30, 2017 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	34,989	$	138.00
Options expired	(34,989)		138.00
End of period outstanding and exercisable	-	$	-	-	$	-

On May 24, 2016, the Corporation’s stockholders approved the amendment and restatement of the First BanCorp. Omnibus Incentive Plan, as amended (the “Omnibus Plan”), to, among other things, increase the number of shares of common stock reserved for issuance under the Omnibus Plan, extend the term of the Omnibus Plan to May 24, 2026 and re-approve the material terms of the performance goals under the Omnibus Plan for purposes of Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended. 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, cash-based awards and other stock-based awards. The Omnibus Plan authorizes the issuance of up to14,169,807shares of common stock, subject to adjustments for stock splits, reorganizations, and other similar events. As of September 30, 2017, 7,713,767 authorized shares of common stock were available for issuance under the Omnibus Plan. The Corporation’s Board of Directors, based on the recommendation of the Corporation’s 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 2017, the Corporation awarded to its independent directors 140,360 shares of restricted stock that are subject to a one-year vesting period. In addition, during the first nine months of 2017, the Corporation awarded 951,332 shares of restricted stock to employees subject to vesting periods that range from 1 to 2 years. Included in those 951,332 shares of restricted stock were 838,332 shares granted in the first quarter of 2017 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, subject to limits on value and certain vesting and non-transferability requirements. On May 10, 2017, the United States Department of the Treasury (the “U.S. Treasury”) announced that it had sold all of its remaining 10,291,553 shares of the Corporation’s common stock. As a result of the U.S. Treasury’s sale, the Corporation is no longer subject to the compensation-related restrictions under TARP, which substantially limited the Corporation’s ability to award short-term and long-term incentives to the Corporation’s executives, and the Corporation’s senior officers are no longer subject to the transferability restrictions on their shares of restricted stock. However, since the U.S. Treasury did not recover the full amount of its original investment under TARP, the senior officers forfeited 2,370,571 of their outstanding shares of restricted stock, resulting in a reduction in the number of common shares outstanding. The U.S. Treasury continues to hold a warrant to purchase 1,285,899 shares of the Corporation’s common stock.

The Corporation accounted for the restricted stock that it granted in 2017 prior to the U.S. Treasury’s sale of its shares at a discount from the market price of the Corporation’s outstanding common stock on the date of the grant. For the 838,332 shares of restricted stock granted subject to the TARP requirements, the market price was discounted assuming that 50% of the shares of restricted stock would become freely transferable and the remaining 50% would be forfeited, resulting in a fair value of $2.71 for each share of restricted stock granted under TARP requirements. Since the assumption was correct, the forfeiture resulting from the U.S. Treasury’s sale did not have an impact on the Corporation’s operating results. Also, the Corporation used empirical data to estimate employee terminations; separate groups of employees that have similar historical exercise behavior were considered separately for valuation purposes.

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	The following table summarizes the restricted stock activity in the first nine months of 2017 under the Omnibus Plan:
		Nine-Month Period Ended
		September 30, 2017
		Number of shares		Weighted-Average
		of restricted		Grant Date
		stock		Fair Value
Non-vested shares at beginning of year		4,178,791	$	2.58
Granted		1,091,692		3.30
Forfeited (1)		(2,404,223)		2.33
Vested (2)		(1,050,356)		3.57
Non-vested shares at September 30, 2017		1,815,904	$	2.76
(1)	Includes 2,370,571 of outstanding shares of restricted stock, subject to TARP requirements, that were forfeited as a result of the U.S. Treasury's sale of its remaining shares of the Corporation's common stock.
(2)	Includes 743,021 shares of restricted stock released from TARP restrictions.

   For the quarter and nine-month period ended September 30, 2017, the Corporation recognized $1.0 million and $3.0 million, respectively, of stock-based compensation expense related to restricted stock awards, compared to $1.0 million and $2.9 million for the same periods in 2016, respectively. As of September 30, 2017, there was $4.0 million of total unrecognized compensation cost related to non-vested shares of restricted stock. The weighted average period over which the Corporation expects to recognize such cost is 1.2 years.

   During the first nine months of 2016, 130,873 shares of restricted stock were awarded to the Corporation’s independent directors subject to a one-year vesting period. Also, during the first nine months of 2016, the Corporation awarded 1,794,702 shares of restricted stock to employees subject to vesting periods that range from 2 to 3 years. Included in those 1,794,702 shares of restricted stock were 1,546,137 shares granted to certain senior officers consistent with the requirements of TARP. As explained above, the Corporation is no longer subject to the compensation-related restrictions under TARP as a result of the U.S. Treasury’s sale of its remaining shares of the Corporation’s common stock.

    The fair value of the shares of restricted stock granted in the first nine months of 2016 was based on the market price of the Corporation’s outstanding common stock on the date of the grant. For the 1,546,137 shares of restricted stock granted under the TARP requirements, the market price was discounted due to the post-vesting restrictions. For purposes of determining the awards’ fair value, the Corporation assumed that 50% of the shares of restricted stock would become freely transferable and the remaining 50% will be forfeited, resulting in a fair value of $1.43 for restricted shares granted under the TARP requirements.

   Stock-based compensation accounting guidance requires the Corporation to reverse compensation expense for any awards that are 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, an adjustment is made to decrease the estimated forfeiture rate, which will result in an increase in the expense recognized in the financial statements. The estimated forfeiture rate did not change as a result of the restricted shares forfeited in connection with the aforementioned U.S. Treasury’s sale of the Corporation’s common stock. Approximately $48 thousand of compensation expense was reversed during 2017 related to forfeitures upon resignation of two of the Corporation’s independent directors.

   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 2017, the Corporation issued 427,940 shares of common stock (first nine months of 2016 – 629,476 shares) with a weighted average market value of $5.88 (first nine months of 2016 – $3.60) as salary stock compensation. This resulted in a compensation expense of $2.5 million recorded in the first nine months of 2017 (first nine months of 2016 – $2.2 million). 

For the first nine months of 2017, the Corporation withheld 143,509 shares (first nine months of 2016 – 189,604 shares) from the common stock paid to certain senior officers as additional compensation and 243,102 shares of restricted stock that vested during the first nine months of 2017 (first nine months of 2016 – 65,498) 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.

On June 29, 2017, upon the recommendation of the Corporation’s Compensation and Benefits Committee, the Corporation’s Board of Directorsapproved a new executive compensation program that, as of July 1, 2017, applies to the Corporation’s executive officers

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as a result of the aforementioned sale by the U.S. Treasury of its remaining shares of the Corporation’s common stock. The new compensation program for executive officers maintains the current levels of cash salary through calendar year 2017. The payment of additional salary amounts currently paid in the form of stock will continue through the second quarter of 2018 and will be eliminated at such time.

In addition, as a long-term incentive, the new compensation program provides a variable pay opportunity for long-term performance through a combination of performance shares and restricted stock. The aggregate value of the performance shares and restricted stock will be determined based upon a qualitative assessment of the achievement by executives of their individual goals for the prior year and at three different possible aggregate equity valuation levels (minimum threshold, target and maximum). The Corporation’s Board of Directors has determined that 60% of the long-term incentive award value based upon prior year performance will be in performance shares and 40% will be in restricted stock with the following terms:

·Performance Shares— the payout of the performance shares will depend upon the achievement of a pre-established corporate tangible book value per share goal at the end of a three-year period. All of the performance shares will vest if performance is at the pre-established performance goal level or above. To the extent that performance is below the target but at or above a pre-defined minimum threshold, a proportionate amount of the performance shares will vest. No performance shares will vest if performance is below the threshold.

·Restricted Stock—Restricted stock will vest over a three-year period as follows: fifty percent (50%) of the shares will vest on the second anniversary date of the grant of the award and the remaining fifty percent (50%) will vest on the third anniversary date of the grant of the award.

The first awards of performance shares are expected to be made in early 2018.

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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, 2017 and December 31, 2016 were as follows:

		September 30, 2017
		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	$	7,450	$	-	$	-	$	18	$	7,432	1.29
Obligations of U.S.
government-sponsored
agencies:
Due within one year			97,465		-		-		160		97,305	1.05
After 1 to 5 years			334,476		-		138		1,873		332,741	1.39
After 5 to 10 years			16,943		-		29		164		16,808	2.01
After  10 years			41,833		-		-		193		41,640	1.60
Puerto Rico government
obligations:
After 10 years			7,994		-		72		1,295		6,771	5.01
United States and Puerto Rico
government obligations			506,161		-		239		3,703		502,697	1.42
Mortgage-backed securities:
FHLMC certificates:
After 5 to 10 years			20,074		-		115		-		20,189	2.15
After 10 years			267,081		-		550		3,555		264,076	2.17
			287,155		-		665		3,555		284,265	2.17
GNMA certificates:
After 1 to 5 years			91		-		2		-		93	3.07
After 5 to 10 years			75,270		-		1,621		-		76,891	3.05
After 10 years			150,231		-		7,683		56		157,858	3.81
			225,592		-		9,306		56		234,842	3.56
FNMA certificates:
Due within one year			12		-		-		-		12	1.85
After 1 to 5 years			19,563		-		418		20		19,961	2.61
After 5 to 10 years			56,234		-		6		489		55,751	1.86
After 10 years			579,082		-		4,761		4,944		578,899	2.42
			654,891		-		5,185		5,453		654,623	2.38
Collateralized mortgage obligations
guaranteed by the FHLMC
and GNMA:
After 5 to 10 years			18,874		-		28		-		18,902	1.88
After 10 years			36,814		-		181		-		36,995	1.90
			55,688		-		209		-		55,897	1.89
Other mortgage pass-through
trust certificates:
After 10 years			23,620		5,990		-		-		17,630	2.38
			23,620		5,990		-		-		17,630	2.38
Total mortgage-backed
securities			1,246,946		5,990		15,365		9,064		1,247,257	2.52
Other
Due within one year			100		-		-		-		100	1.49
Equity securities (1)			422		-		-		4		418	2.08
Total investment securities
available for sale		$	1,753,629	$	5,990	$	15,604	$	12,771	$	1,750,472	2.20
(1)	Equity securities consisted of an investment in a Community Reinvestment Act Qualified Investment Fund.

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		December 31, 2016
		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:
	Due within one year	$	7,508	$	-	$	1	$	-	$	7,509	0.57
Obligations of U.S.
government-sponsored
agencies:
	After 1 to 5 years		440,438		-		142		2,912		437,668	1.33
	After 5 to 10 years		16,942		-		9		256		16,695	1.91
	After 10 years		44,145		-		8		166		43,987	1.12
Puerto Rico government
obligations: