SAN JUAN, Puerto Rico--(BUSINESS WIRE)-- First BanCorp (the "Corporation") (NYSE:FBP) today reported net loss for the quarter ended June 30, 2009 of $78.7 million, compared to net income of $21.9 million for the quarter ended March 31, 2009, and net income of $33.0 million for the quarter ended June 30, 2008. For the six-month period ended June 30, 2009, the Corporation incurred net loss of $56.8 million, compared to net income of $66.6 million for the same period in 2008. The Corporation's tangible common equity ratio stood at 4.35% as of June 30, 2009 compared to 5.11% as of March 31, 2009 and 4.87% as of December 31, 2008. The Tier 1 common to risk-weighted assets ratio as of June 30, 2009 was 4.73% compared to 5.90% as of March 31, 2009 and 5.92% as of December 31, 2008. This press release should be read in conjunction with the accompanying tables (Exhibit A), which are an integral part of this press release.
Mr. Luis M. Beauchamp, Chairman and CEO of First BanCorp commented on First BanCorp's second quarter results, "This quarter's disappointing loss was the result of a substantial increase in the Corporation's provision for loan and lease losses, resulting from the effects of the unabated recession in the markets served by the Corporation, principally South Florida and Puerto Rico. In particular, the continued decline in values of residential and commercial real estate in the State of Florida, combined with the State's overall weakened economy, led the Corporation to take a very significant charge-off in the construction loan portfolio, as well as an increase in its non-performing construction loans. By the end of the quarter, 85% of the Florida construction loans portfolio had been individually reviewed for impairment purposes and recorded at its estimated realizable value. On the other hand, Puerto Rico has experienced a severe downturn in the housing market causing an oversupply of housing units and deceleration in absorption rates. This has impacted most developers on the Island, some of whom are our customers and to whom, in some cases, we have provided construction financing."
Regarding the Florida operation, Mr. Beauchamp noted, "The Corporation has taken several key actions in Florida, most importantly continuing to invest in its management talent. We have hired an Executive Vice President for the Florida Region and a Senior Vice President for Special Assets, both with extensive experience in the State. Also, we have consolidated the Florida operations into one operating unit which will result in operating synergies and efficiencies."
Mr. Beauchamp continued, "Despite the loss and the increase in loan loss reserves, in this past quarter First BanCorp's gross revenues grew, net interest margin expanded, core deposit base increased and controllable expenses were stable. The Corporation continues to find prudent lending and business opportunities in all of our markets. As an example, mortgage loan originations in Puerto Rico were approximately $150 million and we completed the securitization of approximately $114 million of FHA/VA mortgage loans into GNMA mortgage-backed securities."
Mr. Beauchamp commented on the discontinuance of dividend payments, "Considering the loss reported for this period, the Corporation has made the prudent, and very difficult, decision to suspend paying dividends on its common and preferred stock. We note that this is consistent with federal regulatory guidance and policy that states that a bank holding company should only pay dividends from current earnings." Mr. Beauchamp continued, "In the long term interest of our shareholders, the Corporation's focus must be on maintaining a healthy capital position as the duration and depth of this recession is uncertain. To the extent the Corporation returns to profitability, we will consider reinstating the payment of dividends."
"The Corporation continues to be well-capitalized, with approximately $600 million in excess of the requirement to be a well-capitalized institution. Preserving a strong capital base to weather these times is the primary focus for First BanCorp," concluded Mr. Beauchamp.
The following are the main factors that impacted the Corporation's financial results for the quarter ended June 30, 2009, compared to the previous quarter ended March 31, 2009:
Provision for Loan and Lease Losses and Credit Quality
The following table sets forth an analysis of the allowance for loan and lease losses during the periods indicated:
Quarter Ended Six-Month Period Ended June 30, March 31, June 30, June 30, (Dollars in 2009 2009 2008 2009 2008 thousands) Allowance for loan and lease losses, $ 302,531 $ 281,526 $ 210,495 $ 281,526 $ 190,168 beginning of period Provision for loan and 235,152 59,429 41,323 294,581 87,116 lease losses Loans net charge-offs: Residential (3,329 ) (7,162 ) (1,129 ) (10,491 ) (2,368 ) real estate Commercial (27,967 ) (7,907 ) (10,865 ) (35,874 ) (15,037 ) Construction (82,847 ) (8,523 ) (2,526 ) (91,370 ) (6,311 ) Finance (2,276 ) (1,920 ) (1,661 ) (4,196 ) (4,033 ) leases Consumer (13,518 ) (12,912 ) (13,365 ) (26,430 ) (27,263 ) Net (129,937 ) (38,424 ) (29,546 ) (168,361 ) (55,012 ) charge-offs Allowance for loan and $ 407,746 $ 302,531 $ 222,272 $ 407,746 $ 222,272 lease losses, end of period Allowance for loan and lease losses 3.11 % 2.24 % 1.82 % 3.11 % 1.82 % to period end total loans receivable Net charge-offs (annualized) to average 3.85 % 1.16 % 0.97 % 2.52 % 0.91 % loans outstanding during the period Provision for loan and lease losses to net 1.81x 1.55x 1.40x 1.75x 1.58x charge-offs during the period
The provision for loan and lease losses amounted to $235.2 million, or 181% of net charge-offs, for the second quarter of 2009, compared to $59.4 million, or 155% of net charge-offs, for the first quarter of 2009 and $41.3 million, or 140% of net charge-offs for the second quarter of 2008. Approximately $103.3 million, or 44%, of the provision recorded in the second quarter of 2009 is related to the migration of a substantial portion of loans to the substandard or doubtful category, thus, requiring a higher reserve. The increase also resulted from changes in reserve factors used to determine the general reserve for the Corporation's construction, commercial and residential mortgage loan portfolios, in both Puerto Rico and Florida portfolios, and specific reserves necessary for additional loans classified as impaired during the second quarter of 2009. The provision for loan losses related to the Corporation's Florida operations amounted to $85.7 million for the second quarter of 2009 compared to $15.1 million for the first quarter of 2009 and in respect to the Puerto Rico operations the provision for loan losses recorded for the second quarter of 2009 amounted to $141.2 million compared to $38.3 million for the first quarter of 2009, mainly for the construction and commercial loan portfolios.
The construction loan portfolio in Florida has been adversely affected by declining collateral values that resulted in increases in charge-offs (refer to net charge-offs discussion below for additional information). The construction and commercial loan portfolios in Puerto Rico continue to be negatively impacted by further deterioration of economic and housing conditions, reflected in a persistent decline in the volume of sales of new housing units in Puerto Rico and an unemployment rate of over 14%. The increase in general reserve factors was necessary to account for increases in charge-offs and delinquency levels. General reserves are established based on trends in charge-offs and delinquencies. The consumer loans general reserve is based on factors such as delinquency trends, credit bureau score bands, portfolio type, geographical location, bankruptcy trends, recent market transactions, and other environmental factors such as economic forecasts. The evaluation of residential mortgages is performed at the loan level and then aggregated to determine the expected loss ratio. The model is based on risk-adjusted prepayment curves, default curves, and severity curves. The severity is affected by the expected house price scenario based on the most recent house price historical trends. Default curves are used in the model to determine expected delinquency levels. The risk-adjusted timing of liquidation and associated costs are used in the model and are risk-adjusted for the area in which the property is located (Puerto Rico or Virgin Islands). For residential mortgages in Florida, the model is based on aggregate historical loss ratios adjusted by changes in appraisal values, delinquency factors, and other regional environmental factors. For commercial loans, including construction loans, the general reserve is based on delinquency trends, historical loss ratios, loan type, risk-rating, geographical location, changes in collateral values for collateral dependent loans and Gross National Product (GNP) data.
The Corporation's net charge-offs for the second quarter of 2009 were $129.9 million or 3.85% of average loans on an annualized basis, compared to $38.4 million or 1.16% of average loans for the first quarter of 2009 and $29.5 million or 0.97% for the second quarter of 2008. The increase is due mainly to the accelerated deterioration in the collateral values of construction loans, primarily in the Florida region. Florida's economy has been hampered by a deteriorated housing market since the second half of 2007. The overbuilding in the face of waning demand, among other things, has caused a decline in the housing prices. The Corporation has been obtaining appraisals and increasing its reserve, as necessary, with expectations for a gradual housing market recovery. Nonetheless, the passage of time has increase the possibility that the recovery of the market will not be in the near term. For these reasons, the Corporation decided to charge-off collateral deficiencies for a significant amount of collateral dependent loans based on current appraisals obtained. The deficiencies in the collateral may raise doubts about the potential to collect on the principal, but many of these borrowers are making interest payments. The Corporation is engaged in continuous efforts to identify alternatives that enable borrowers to repay their loans and protect the Corporation's investment. Construction loans net charge-offs increased by $74.3 million ($61.4 million for Florida operations) compared to the first quarter of 2009 and $80.3 million ($60.7 million for Florida operations) compared to the second quarter of 2008. Commercial loans net charge-offs increased by $20.1 million compared to the first quarter of 2009 and by $17.1 million compared to the second quarter of 2008, mainly in Puerto Rico. Residential loans net charge-offs decreased by $3.8 million compared to the first quarter of 2009 and increased by $2.2 million compared to the second quarter of 2008. The ratio of net charge-offs to average loans on the Corporation's residential mortgage loan portfolio was 0.39% for the quarter ended June 30, 2009, lower than the approximately 1.8% average charge-off rate for commercial banks in the U.S. mainland reported for the first quarter of 2009. The Puerto Rico housing market has not seen the dramatic decline in housing prices that is affecting the U.S. mainland; however, there is currently an oversupply of housing units compounded by a lower demand for housing due to diminished consumer purchasing power and confidence. Consumer loans net charge-offs (including finance leases) remained relatively stable, increasing by $1.0 million and $0.8 million in the second quarter of 2009, as compared to the first quarter of 2009 and second quarter of 2008, respectively.
The following table presents annualized charge-offs to average loans held-in-portfolio:
For the Quarter Ended June 30, 2009 March 31, December 31, September June 30, 2008 2009 2008 30, 2008 Residential mortgage 0.39 % 0.82 % 0.26 % 0.19 % 0.14 % loans Commercial 1.74 % 0.52 % 0.45 % 0.46 % 0.81 % loans Construction 20.38 % 2.21 % 0.11 % 0.27 % 0.68 % loans Consumer 3.12 % 2.84 % 3.54 % 2.98 % 3.02 % loans (1) Total loans 3.85 % 1.16 % 0.87 % 0.80 % 0.97 % (1) Includes lease financing.
The above ratios are based on annualized charge-offs and are not necessarily indicative of the results expected for the entire year or in subsequent periods.
The following table presents charge-offs (annualized) to average loans held-in-portfolio by geographic segment:
Quarter Ended Six-Month Period Ended June 30, March 31, June 30, June 30, June 30, 2009 2009 2008 2009 2008 PUERTO RICO: Residential mortgage 0.43 % 0.86 % 0.17 % 0.65 % 0.18 % loans Commercial loans 1.09 % 0.53 % 0.15 % 0.81 % 0.25 % Construction loans 8.33 % 3.17 % 0.08 % 5.88 % 0.04 % Consumer loans (1) 3.10 % 2.61 % 2.94 % 2.85 % 3.08 % Total loans 1.90 % 1.19 % 0.67 % 1.55 % 0.76 % VIRGIN ISLANDS: Residential mortgage 0.19 % 0.03 % 0.09 % 0.11 % 0.05 % loans Commercial loans 5.08 % 0.38 % 18.33 % 2.75 % 9.25 % Construction loans 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % Consumer loans 2.73 % 4.00 % 3.41 % 3.39 % 3.16 % Total loans 1.69 % 0.60 % 4.38 % 1.14 % 2.44 % FLORIDA OPERATIONS: Residential mortgage 0.32 % 1.43 % 0.00 % 0.88 % 0.02 % loans Commercial loans 7.11 % 0.43 % 0.02 % 3.82 % 0.01 % Construction loans 50.28 % 1.37 % 1.60 % 25.53 % 2.00 % Consumer loans 5.01 % 9.95 % 5.35 % 7.56 % 4.41 % Total loans 19.93 % 1.31 % 0.81 % 10.60 % 0.97 % (1) Includes lease financing.
Total non-performing assets as of June 30, 2009 amounted to $1.3 billion, compared to $773.5 million as of March 31, 2009 and $498.4 million as of June 30, 2008. The increase in non-performing assets since March 31, 2009 was led by an increase of $333.6 million in loans classified as non-performing in the state of Florida, an increase of $73.2 million in non-performing residential mortgage loans in Puerto Rico, an increase of $42.1 million in non-performing construction loans in Puerto Rico and an increase of $8.8 million in non-performing commercial loans in Puerto Rico. Also, during the second quarter of 2009, the Corporation classified as non-performing investment securities with a book value of $64.5 million that were pledged with Lehman Brothers Special Financing, Inc., in connection with several interest rate swap agreements entered into with that institution. Considering that the investment securities have not yet been recovered by the Corporation, despite its efforts in this regard, the Corporation has decided to classify such investments as non-performing. Other increases in non-performing assets mainly consist of additions to repossessed properties, mainly additions to the real estate owned portfolio, that increased by $9.3 million and an increase of $1.6 million in consumer loans (including finance leases).
The main reason for the increase in non-performing assets of the Florida operations was the construction loan portfolio. As of June 30, 2009, the Corporation classified approximately $348.5 million as non-performing construction loans in the state of Florida, an increase of $309.4 million compared to $39.1 million as of March 31, 2009. Collateral deficiencies on these loans may raise doubts about the ultimate ability to collect on the principal in the current economic environment, however, at the close of the second quarter of 2009 approximately $123.1 million of the loans comprising the increase in non-performing construction loans in Florida were current or with delinquencies under 90 days in their interest payments and expected collections will be recorded on a cash basis going forward. As sales continue to lag, some borrowers reverted to rental projects, as a result of which payment of principal and/or interest has come from rental income and other sources. In most of these loans cash collections cover interest plus property taxes, insurance and other operating costs associated with the projects. Declining sales of newly constructed housing or condo units and further deterioration of the Florida economy have depressed values of all real estate, both residential and commercial, requiring the Corporation to increase its reserves and to downgrade the classification of most of the loans to substandard.
Total non-performing assets in Puerto Rico amounted to $814.1 million as of June 30, 2009, compared to $617.0 million as of March 31, 2009. The increase is primarily related to the residential mortgage and construction loan portfolios. Since March 31, 2009, non-performing residential mortgage loans in Puerto Rico increased by $73.2 million, reflecting the recessionary conditions in Puerto Rico's economy. Additionally, $33.8 million of the increase in non-performing residential mortgage loans relates to loans that were part of a portfolio that was acquired during the quarter from R&G Financial Corporation ("R&G"), a Puerto Rican financial institution. The R&G transaction involved the purchase of approximately $205 million of residential mortgage loans that previously served as collateral for a commercial loan extended to R&G. The purchase price of the transaction was retained by the Corporation to fully pay off the loan, thereby significantly reducing the Corporation's exposure to a single borrower. This acquisition had the effect of improving the Corporation's regulatory capital ratios due to the lower risk-weighting of the assets acquired. Additionally, net interest income improves since the weighted-average effective yield of the mortgage loans acquired approximates 5.38% (including non-performing loans) compared to a yield of approximately 150 basis points over 3-month LIBOR in the commercial loan to R&G.
Meanwhile, the construction loan portfolio accounted for $42.1 million, or 34% of the total increase in non-performing loans in Puerto Rico since March 2009. Approximately $36.3 million, or 86%, of the increase pertained to two lending relationships in Puerto Rico, dedicated to the development of residential properties. The Corporation is evaluating restructuring alternatives to mitigate losses and enable borrowers to repay their loans under revised terms seeking to preserve the value of the Corporation's interests over the long-term.
The allowance to non-performing loans ratio as of June 30, 2009 was 34.81%, compared to 42.49% as of March 31, 2009 and 49.56% as of June 30, 2008. The decrease in the ratio is attributable in part to the amount of non-performing collateral dependent loans evaluated individually for impairment that, after charging-off any excess of the recorded investment in the loan over the fair value of the collateral, reflected limited impairment or no impairment at all, and other impaired loans that did not require specific reserves based on analyses conducted under SFAS 114. As of June 30, 2009 and March 31, 2009, impaired loans and their related allowance were as follows:
As of As of June 30, March 31, 2009 2009 (In thousands) Impaired loans with valuation allowance, net of $ 647,390 $ 583,161 charge-offs Impaired loans without valuation allowance, net of 288,199 157,632 charge-offs Total impaired loans $ 935,589 $ 740,793 Allowance for impaired loans $ 117,526 $ 103,128
About 85%, or $372.4 million of the Corporation's total exposure to construction loans in Florida, has been individually measured for impairment purposes and recorded at its realizable value as of June 30, 2009.
The following table sets forth information concerning the composition of the Corporation's allowance for loan and lease losses as of June 30, 2009 and March 31, 2009 by loan category and by whether the allowance and related provisions were calculated individually pursuant the requirements of SFAS 114 or through a general valuation allowance in accordance with the provisions of SFAS 5:
As of June 30, 2009 Construction Commercial Commercial Residential Consumer and Mortgage Mortgage (Dollars Finance in Loans Loans Loans Loans Leases Total thousands) SFAS 114 - Specific Reserves Principal balance of $ 552,331 $ 183,343 $ 130,958 $ 68,957 $ - $ 935,589 loans Allowance for loan 78,455 22,860 12,640 3,571 - 117,526 and lease losses Allowance for loan and lease 14.20 % 12.47 % 9.65 % 5.18 % - 12.56 % losses to principal balance SFAS 5 - General Allowance Principal balance of 1,027,876 4,155,263 1,433,975 3,552,539 1,997,529 12,167,182 loans Allowance for loan 56,824 103,886 19,981 30,861 78,668 290,220 and lease losses Allowance for loan and lease 5.53 % 2.50 % 1.39 % 0.87 % 3.94 % 2.39 % losses to principal balance Total portfolio, excluding loans held for sale Principal balance of $ 1,580,207 $ 4,338,606 $ 1,564,933 $ 3,621,496 $ 1,997,529 $ 13,102,771 loans Allowance for loan 135,279 126,746 32,621 34,432 78,668 407,746 and lease losses Allowance for loan and lease 8.56 % 2.92 % 2.08 % 0.95 % 3.94 % 3.11 % losses to principal balance As of March 31, 2009 Construction Commercial Commercial Residential Consumer and Mortgage Mortgage (Dollars Finance in Loans Loans Loans Loans Leases Total thousands) SFAS 114 - Specific Reserves Principal balance of $ 421,003 $ 169,102 $ 100,653 $ 50,035 $ - $ 740,793 loans Allowance for loan 66,272 24,302 11,546 1,008 - 103,128 and lease losses Allowance for loan and lease 15.74 % 14.37 % 11.47 % 2.01 % - 13.92 % losses to principal balance SFAS 5 - General Allowance Principal balance of 1,140,810 4,734,309 1,418,614 3,425,026 2,050,400 12,769,159 loans Allowance for loan 39,244 49,012 9,386 20,095 81,666 199,403 and lease losses Allowance for loan and lease 3.44 % 1.04 % 0.66 % 0.59 % 3.98 % 1.56 % losses to principal balance Total portfolio, excluding loans held for sale Principal balance of $ 1,561,813 $ 4,903,411 $ 1,519,267 $ 3,475,061 $ 2,050,400 $ 13,509,952 loans Allowance for loan 105,516 73,314 20,932 21,103 81,666 302,531 and lease losses Allowance for loan and lease 6.76 % 1.50 % 1.38 % 0.61 % 3.98 % 2.24 % losses to principal balance
The following table sets forth an analysis of the activity in the allowance for construction and commercial impaired loans for the periods presented:
For the quarter ended June 30, 2009 Construction Commercial Commercial Mortgage Loans Loans Loans (In thousands) Allowance for impaired loans, $ 66,272 $ 24,302 $ 11,546 beginning of period Provision for impaired loans 94,749 8,842 14,930 Charge-offs (82,566 ) (10,284 ) (13,836 ) Allowance for impaired loans, $ 78,455 $ 22,860 $ 12,640 end of period For the quarter ended March 31, 2009 Construction Commercial Commercial Mortgage Loans Loans Loans (In thousands) Allowance for impaired loans, $ 56,330 $ 18,343 $ 8,681 beginning of period Provision for impaired loans 18,436 10,621 2,865 Charge-offs (8,494 ) (4,662 ) - Allowance for impaired loans, $ 66,272 $ 24,302 $ 11,546 end of period
Given the discouraging economic outlook in the Corporation's main markets and in spite of the actions taken, the Corporation may experience further deterioration in its portfolios, which may result in higher credit losses and additions to reserve balances.
Non-interest expenses
Non-interest expenses increased to $96.0 million from $84.5 million for the first quarter of 2009 and $81.8 million for the second quarter of 2008. The Corporation recorded $8.9 million in the second quarter of 2009 for the accrual of the special assessment levied by the FDIC. The FDIC special assessment, together with an increase of $3.6 million in the regular deposit insurance premium, resulted in an increase of over $12 million in FDIC assessments as compared to the second quarter of 2008.
Property tax expenses were higher by approximately $2.6 million for the second quarter of 2009, compared to the first quarter of 2009 and to the second quarter of 2008, mainly attributable to accruals for the reassessed value of certain properties.
Losses on real estate owned ("REO") operations amounted to $6.6 million for the second quarter of 2009, compared to $5.4 million for the first quarter of 2009 and $3.2 million for the second quarter of 2008. Among the components of these increasing losses are expenses incurred in REO insurance, taxes and maintenance associated with a higher inventory and write-downs of the value of repossessed properties due to declining real estate prices, including a $1.5 million write-down during the second quarter of 2009 to a foreclosed condo-conversion project in the U.S. mainland.
All other operating expenses not detailed above remained stable, as reflected in slight increases of $0.2 million in employees' compensation and benefits and $0.2 million in professional service fees, as compared to the first quarter of 2009. Business promotion expenses increased by $0.7 million as compared to the first quarter of 2009, as a result of new marketing campaigns in Puerto Rico. Partially offsetting the aforementioned marginal increases in non-interest expenses was the favorable variance against the previous trailing quarter caused by the $3.7 million impairment of the core deposit intangible of FirstBankFlorida recorded in the first quarter of 2009 associated with decreases in the base of core deposits acquired.
The Corporation had other reductions in operating expenses, as compared to the second quarter of 2008, including a decrease of $1.6 million in professional service fees, a decrease of $1.0 million in business promotion expenses, a decrease of $0.7 million in occupancy and equipment expenses and a decrease of $0.5 million in employees' compensation and benefit expenses. The Corporation is committed to its Business Rationalization program, which includes revenue generating and cost-cutting initiatives. Refer to Table 4 of accompanying Exhibit A for additional details.
Non-interest income
Non-interest income decreased to $23.4 million for the second quarter of 2009 from $30.1 million for the first quarter of 2009. The decline in non-interest income is mainly related to a lower volume of sales and gains of investment securities. A realized gain of $10.3 million was recorded in the second quarter of 2009 on the sale of investment securities, compared to a realized gain of $17.8 million for the first quarter of 2009 on the sale of approximately $423 million in investment securities, mainly U.S. agency mortgage-backed securities ("MBS"). During the second quarter of 2009, the Corporation completed the sale of approximately $242 million of U.S. agency MBS realizing a gain of $9.4 million and also sold its remaining exposure to auto industry corporate bonds of $1.5 million realizing a gain of $0.9 million in the process. A high prepayment scenario for MBS is anticipated through the rest of the year. Given this outlook, and the fact that certain available-for-sale securities were trading at a substantial premium over par, the Corporation continued to re-structure its investment portfolio, rather than wait for the MBS to be pre-paid at par, which has resulted in the realization of gains on sales.
The Corporation adopted Financial Accountings Standards Board Staff Position No. ("FSP") FAS 115-2 and FAS 124-2 in the second quarter of 2009. FSP FAS 115-2 and FAS 124-2 amended the Other-than-Temporary Impairment ("OTTI") model for debt securities. Under the new guidance, OTTI loss must be recognized in earnings if an investor has the intent to sell the debt security or it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. However, even if an investor does not expect to sell a debt security, it must evaluate expected cash flows to be received and determine if a credit loss has occurred.
Debt securities issued by U.S. Government agencies, government-sponsored entities and the U.S. Treasury accounted for more than 95% of the total available-for-sale and held to maturity portfolio as of June 30, 2009 and do not have any credit losses, given the explicit and implicit guarantees provided by the U.S. federal government. The Corporation's assessment was concentrated mainly on the approximately $130 million private label MBS for which the Corporation evaluates for credit losses on a quarterly basis. The Corporation recorded a $1.1 million OTTI loss through earnings in the second quarter of 2009 that represents the credit loss of available-for-sale private label MBS. The non-credit component of the unrealized loss was $31.5 million as of June 30, 2009 recorded in comprehensive income. Since the Corporation does not have the intention to sell the securities and has sufficient capital and liquidity to hold these securities until a recovery of the fair value occurs, only the credit loss component was reflected in earnings and contributed to the decrease in non-interest income.
With respect to equity securities, no OTTI loss was recorded during the second quarter of 2009, compared to a charge of $0.4 million for the first quarter of 2009.
Despite the aforementioned unfavorable variances, non-interest income was positively affected by a $1.6 million increase in gains from mortgage banking activities, as compared to the first quarter of 2009, driven by a higher volume of loan sales and securitizations. Servicing rights recorded for loan sales and securitizations during the second quarter of 2009 amounted to $2.0 million, compared to $1.1 million for the first quarter of 2009. During the second quarter the Corporation completed the securitization of approximately $114 million of FHA/VA mortgage loans into GNMA MBS, compared to $73 million for the first quarter of 2009.
Non-interest income increased to $23.4 million for the second quarter of 2009 from $12.0 million for the second quarter of 2008. The increase was related to the aforementioned realized gains of $10.3 million on the sale of investment securities and the $1.6 million increase in gains from mortgage banking activities as, for the first time in several years, the Corporation has been engaged in the securitization of mortgage loans, as mentioned above. There were no sales of investment securities during the second quarter of 2008. Fee income from deposit accounts and non-deferrable loan fees remained stable. Despite an increase in the deposit base, service charges on deposits remained stable as a result of the decrease in the volume of transactions that require service charges. Customers engaged in fewer transactions because of the current economic environment.
Income Taxes
For the quarter ended June 30, 2009, the Corporation recognized an income tax benefit of $98.1 million, compared to an income tax benefit of $14.2 million recorded for the first quarter of 2009. The favorable variance in the financial results was mainly attributable to a lower taxable income and the reversal, during the second quarter of 2009, of approximately $16.1 million in Unrecognized Tax Benefits, including $5.3 million of related accrued interest, for positions taken on income tax returns recorded under the provisions of Financial Accounting Standard Board Interpretation No. ("FIN") 48 due to the lapse of the statute of limitations for the 2004 taxable year. The statute of limitations under the Puerto Rico Internal Revenue Code of 1994, as amended (the "PR Code"), is 4 years; and under the applicable law for Virgin Islands and U.S. income tax purposes is 3 years after a tax return is due or filed, whichever is later.
The income tax benefit recorded in the second quarter of 2009 increased by $88.6 million, compared to the second quarter of 2008, mainly as a result of lower taxable income and adjustments to deferred tax amounts, as a result of changes to the PR Code enacted rates. On March 9, 2009, the Government of Puerto Rico approved Act No. 7 (the "Act") to stimulate Puerto Rico's economy and to reduce the Puerto Rico Government's fiscal deficit. The Act imposes a series of temporary and permanent measures, including the imposition of a 5% surtax over the total income tax determined, which is applicable to corporations, among others, whose combined income exceeds $100,000. In addition, under the Act, all International Banking Entities ("IBEs") will be subject to a special 5% tax on their net income not otherwise subject to tax pursuant to the PR Code. These two temporary measures are effective for tax years that commenced after December 31, 2008 and before January 1, 2012. Accordingly, the Corporation recorded an additional income tax benefit of $1.6 million and $6.0 million for the quarter and six-month period ended June 30, 2009, respectively. Deferred tax amounts have been adjusted for the effect of the change in the income tax rate considering the enacted tax rate expected to apply to taxable income in the period in which the deferred tax asset or liability is expected to be settled or realized.
Net Interest Income
Net interest income was $131.0 million for the second quarter of 2009, an increase of $9.4 million compared to the first quarter of 2009. Net interest income included a net unrealized gain of $2.4 million for the second quarter of 2009, compared to a net unrealized gain of $3.6 million for the first quarter of 2009, related to the fair value of derivative instruments and financial liabilities elected to be measured at fair value under SFAS No. 159 ("SFAS 159 liabilities"). Net interest spread and margin on a tax-equivalent basis of 2.60% and 2.92%, respectively, for the second quarter of 2009 increased 13 and 7 basis points, respectively, compared to the first quarter of 2009. The increase in net interest income also resulted from lower funding costs and an increase in average earning assets. The decrease in the Corporation's average cost of funds is related to the current low level of short-term interest rates as well as the change in the mix of funding sources. Brokered certificates of deposit ("CDs") with original maturities over 6 months and issued when interest rates were higher matured or were called during the quarter and current short-term rates on repurchase agreements and Federal Home Loan Bank ("FHLB") and Federal Reserve ("FED") advances provided a cost effective funding alternative. Since approved to participate during the first quarter of 2009 in the Borrower-in-Custody Program ("BIC") of the FED, the Corporation has taken advantage of that alternative funding channel. Through the BIC program, a broad range of loans (including commercial, consumer and mortgages) are pledged as collateral for borrowings at the FED Discount Window. The Corporation has increased its use of this low-cost source of funding, and as of June 30, 2009, the Corporation had approximately $1.4 billion on assets pledged through the BIC program. Also, the current low interest rate levels made available the issuance of new short-term brokered CDs at rates significantly lower than those that matured. The Corporation increased its short-term borrowing as a measure of interest rate risk management to match the shortening in the average life of the investment portfolio and has been reducing the pricing of its core deposits given current market rates. Also contributing to the improvement was the continued increase in spreads charged on loans that began in prior quarters. Average interest-earning assets increased by $731.5 million for the second quarter of 2009 as compared to the first quarter of 2009, which was driven by a $469.8 million increase in average investment securities. Funds obtained through short-term borrowings as well as proceeds from the sales and prepayments of MBS were reinvested, in part, in the purchase of U.S. agency callable debentures having contractual maturities ranging from two to three years (approximately $600 million at a weighted-average yield of 2.00%), 7-10 Year U.S. Treasury Notes (approximately $96 million at a weighted-average yield of 3.54%) and 15-Year U.S. agency MBS (approximately $1.3 billion at a weighted-average rate of 3.85%). The Corporation sold approximately $240 million of fixed-rate U.S. agency MBS (mainly 30-Year 6% MBS coupons) and $100 million of 5.50% Puerto Rico Government Obligations during the second quarter of 2009. Approximately $717 million of U.S. agency debentures with an average yield of 5.83% were called during the second quarter of 2009.
Partially offsetting the aforementioned positive factors were lower yields in the Corporation's loan portfolio, which was adversely affected mainly by the increased levels of construction loans that entered into non-accrual status. Refer to the Non-Performing Assets section for additional information with respect to non-performing levels.
Net interest income decreased 3% to $131.0 million for the second quarter of 2009, from $134.6 million in the second quarter of 2008. Net interest income was adversely impacted by lower loan yields, resulting from the significant increase in non-accrual loans and from the repricing of variable-rate construction and commercial loans tied to short-term indexes. Net interest margin on a tax-equivalent basis decreased from 3.28% for the second quarter of 2008 to 2.92% for the second quarter of 2009. Lower loan yields more than offset the benefit of lower short-term rates in the average cost of funding and the increase in average interest-earning assets. The weighted-average yield on loans on a tax-equivalent basis decreased from 6.72% to 5.53%. The target for the Federal Funds rate was lowered between 200 and 225 basis points from March 31, 2008 to June 30, 2009 and the Prime Rate dropped to 3.25% from 5.25% as of March 31, 2008. The increase in average interest-earning assets was mainly driven by the growth of the Corporation's commercial loan portfolio in Puerto Rico. More than 40% of the increase in average commercial loans is related to the $500 million loan facility extended to the Puerto Rico Sales Tax Financing Corp. (COFINA under its Spanish acronym), an instrumentality of the Government of Puerto Rico, that was outstanding for almost the entire second quarter of 2009 until it was paid-off on June 18, 2009.
Financial Condition and Operating Data
Total assets increased to $20.0 billion as of June 30, 2009, up $303.7 million from $19.7 billion as of March 31, 2009. The increase in total assets was primarily a result of an increase of $816.1 million in investment securities, partially offset by a decrease of $397.4 million in gross loans. The decrease in total gross loans was mainly due to the repayment of the $500 million loan facility extended to COFINA and net charge-offs of $129.9 million in the second quarter of 2009, partially offset by loan originations. Loan originations, including purchases, for the second quarter of 2009 amounted to $900.4 million (excluding the unwinding transaction with R&G), including an increase of $38.2 million in mortgage loan originations through retail channels as compared to the first quarter of 2009. Approximately 50% of the residential mortgage loan originations during the second quarter of 2009 consisted of conforming mortgage loans. The Corporation increased its investment securities portfolio with the purchase of highly liquid securities, such as U.S. agency MBS and debt securities as well as U.S. Treasury investments, which contributed to the increase in net interest income. Refer to the Net Interest Income discussion above for additional information about securities acquired during the second quarter of 2009.
As of June 30, 2009, total liabilities amounted to $18.2 billion, an increase of approximately $440.3 million, as compared to $17.7 billion as of March 31, 2009. The increase in total liabilities was mainly attributable to an increase of $956.3 million in repurchase agreements, mainly new short-term repurchase agreements entered into to fund the growth of the investment portfolio. There was also an increase of $353.4 million in brokered CDs, mainly short-term brokered CDs issued during the quarter to finance investment activities. Core deposits increased by $62.7 million; mainly in Puerto Rico. The aforementioned increases were partially offset by a decrease of approximately $1.0 billion in advances from the FHLB and the FED.
The Corporation's stockholders' equity amounted to $1.8 billion as of June 30, 2009, a decrease of $136.6 million compared to the balance as of March 31, 2009, driven by a net loss of $78.7 million, a net unrealized loss of $36.3 million on the fair value of available-for-sale securities recorded as part of comprehensive income and dividends declared amounting to $21.6 million for the second quarter of 2009 ($6.5 million on common stock, or $0.07 per common share, and $15.1 million on preferred stock). As previously mentioned, the Corporation decided to suspend the payment of common and preferred dividends, effective with the preferred dividend for the month of August 2009.
The Corporation is well-capitalized having sound margins over minimum well-capitalized regulatory requirements. As of June 30, 2009, the total regulatory capital ratio is estimated to be close to 14.3% and the Tier 1 capital ratio is estimated to be close to 13.1%. This translates to approximately $600 million and $975 million of total capital and Tier 1 capital, respectively, in excess of the total capital and Tier 1 capital well capitalized requirements of 10% and 6%, respectively. The Corporation will use this capital to support customers' needs and, together with private and public sector initiatives, to support the local economy and the communities it serves.
The Corporation's tangible common equity ratio stands at 4.35% as of June 30, 2009, compared to 5.11% as of March 31, 2009, and the Tier 1 common equity to risk-weighted assets ratio as of June 30, 2009 was 4.73% compared to 5.90% as of March 31, 2009. The following table is a reconciliation of the Corporation's tangible common equity and tangible assets for the periods ended June 30, 2009, March 31, 2009 and June 30, 2008, respectively:
June 30, March 31, June 30, (In thousands) 2009 2009 2008 Total equity per consolidated $ 1,840,686 $ 1,977,240 $ 1,401,693 financial statements Preferred equity (926,259 ) (925,162 ) (550,100 ) Goodwill (28,098 ) (28,098 ) (28,098 ) Core deposit intangible (18,130 ) (19,273 ) (25,802 ) Tangible common equity $ 868,199 $ 1,004,707 $ 797,693 Total assets per consolidated $ 20,012,887 $ 19,709,150 $ 18,828,786 financial statements Goodwill (28,098 ) (28,098 ) (28,098 ) Core deposit intangible (18,130 ) (19,273 ) (25,802 ) Tangible assets $ 19,966,659 $ 19,661,779 $ 18,774,886 Tangible common equity ratio 4.35 % 5.11 % 4.25 %
Tier 1 common equity to risk-weighted assets ratio is calculated by dividing (a) tier 1 capital less non-common elements including qualifying perpetual preferred stock and qualifying trust preferred securities, by (b) risk-weighted assets, which assets are calculated in accordance with applicable bank regulatory requirements. The Tier 1 common equity ratio is not required by U.S. generally accepted accounting principles, or GAAP, or on a recurring basis by applicable bank regulatory requirements. However, this ratio was used by the Federal Reserve in connection with its stress test administered to the 19 largest U.S. bank holding companies under the Supervisory Capital Assessment Program ("SCAP"), the results of which were announced on May 7, 2009. Although we understand that the Federal Reserve does not intend to prospectively require calculation of the Tier 1 common equity ratio, due to the recent timing of the SCAP, management is currently monitoring this ratio, along with the other ratios set forth in the table above, in evaluating the Corporation's capital levels and believes that, at this time, the ratio may be of interest to investors.
The following table reconciles stockholders' equity (GAAP) to Tier 1 common equity:
June 30, March 31, June 30, (In thousands) 2009 2009 2008 Total equity per consolidated $ 1,840,686 $ 1,977,240 $ 1,401,693 financial statements Qualifying preferred stock (926,259 ) (925,162 ) (550,100 ) Unrealized (gain) loss on available-for-sale securities (46,382 ) (82,751 ) 78,765 (1) Disallowed deferred tax asset (172,187 ) (83,302 ) (57,328 ) (2) Goodwill (28,098 ) (28,098 ) (28,098 ) Core deposit intangible (18,130 ) (19,272 ) (25,802 ) Cumulative change loss (gain) in fair value of liabilities 2,604 (3,555 ) (1,566 ) elected to be measured at fair value under SFAS 159, net of tax Other disallowed assets (347 ) (625 ) (526 ) Tier 1 common equity $ 651,887 $ 834,475 $ 817,038 Total risk-weighted assets $ 13,785,093 $ 14,141,259 $ 13,049,833 Tier 1 common equity to 4.73 % 5.90 % 6.26 % risk-weighted assets ratio
Tier 1 capital excludes net unrealized gains (losses) on available-for-sale debt securities and net unrealized gains on available-for-sale equity securities with readily determinable fair values, in accordance with (1) regulatory risk-based capital guidelines. In arriving at Tier 1 capital, institutions are required to deduct net unrealized losses on available-for-sale equity securities with readily determinable fair values, net of tax. Approximately $49 million of the Corporation's $218 million of net deferred tax assets at June 30, 2009 (March 31, 2009 - $59 million of $141 million of net deferred tax assets; June 30, 2008 - $49 million of $106 million net deferred tax assets) were included without limitation in regulatory capital pursuant to the risk-based capital guidelines, while approximately $172 million of such assets at June 30, 2009 (March 31, 2009 - $83 million; June 30, 2008 - $57 million) exceeded the limitation imposed by these guidelines and, as "disallowed deferred tax assets," were deducted in arriving at Tier 1 capital. According to regulatory capital guidelines, the deferred tax (2) assets that are dependent upon future taxable income are limited for inclusion in Tier 1 capital to the lesser of: (i) the amount of such deferred tax asset that the entity expects to realize within one year of the calendar quarter end-date, based on its projected future taxable income for that year or (ii) 10% of the amount of the entity's Tier 1 capital. Approximately $3 million of the Corporation's other net deferred tax liability at June 30, 2009 (March 31, 2009 - $1 million; June 30, 2008 - $0) represented primarily the deferred tax effects of unrealized gains and losses on available-for-sale debt securities, which are permitted to be excluded prior to deriving the amount of net deferred tax assets subject to limitation under the guidelines.
Liquidity
The Corporation has maintained a basic surplus (cash, short-term assets minus short-term liabilities, and secured lines of credit) in excess of a self-imposed minimum limit of 5% of total assets. As of June 30, 2009, the estimated basic surplus ratio of approximately 8.7% included unpledged assets, FHLB lines of credit, collateral pledged at the FED Discount Window Program, and cash. Unpledged liquid securities as of June 30, 2009 mainly consisted of fixed-rate MBS and U.S. agency debentures totaling approximately $711 million, which can be sold under agreements to repurchase. The Corporation does not rely on uncommitted inter-bank lines of credit (federal funds lines) to fund its operations and does not include them in the basic surplus computation. The Corporation has taken direct actions to keep sound liquidity levels and to safeguard its access to credit. Such initiatives include, among other things, the posting of additional collateral, thereby increasing its borrowing capacity with the FHLB and the FED through the Discount Window Program. The Corporation will continue to monitor the different alternatives available under programs currently in place by the FED and the FDIC.
About First BanCorp
First BanCorp is the parent corporation of FirstBank Puerto Rico, a state-chartered commercial bank with operations in Puerto Rico, the Virgin Islands and Florida; of FirstBank Insurance Agency; and of Ponce General Corporation. First BanCorp, FirstBank Puerto Rico and FirstBankFlorida, the thrift subsidiary of Ponce General, all operate within U.S. banking laws and regulations. The Corporation operates a total of 186 branches, stand-alone offices and in-branch service centers throughout Puerto Rico, the U.S. and British Virgin Islands, and Florida. Among the subsidiaries of FirstBank Puerto Rico are Money Express, a finance company; First Leasing and Car Rental, a car and truck rental leasing company; and FirstMortgage, a mortgage origination company. In the U.S. Virgin Islands, FirstBank operates First Insurance VI, an insurance agency, and First Express, a small loan company. First BanCorp's common and publicly-held preferred shares trade on the New York Stock Exchange under the symbols FBP, FBPPrA, FBPPrB, FBPPrC, FBPPrD and FBPPrE. Additional information about First BanCorp may be found at www.firstbankpr.com.
Safe Harbor
This press release may contain "forward-looking statements" concerning the Corporation's future economic performance. The words or phrases "expect," "anticipate," "look forward," "should," "believes" and similar expressions are meant to identify "forward-looking statements" within the meaning of Section 27A of the Private Securities Litigation Reform Act of 1995, and are subject to the safe harbor created by such section. The Corporation wishes to caution readers not to place undue reliance on any such "forward-looking statements," which speak only as of the date made, and to advise readers that various factors, including, but not limited to, the risks arising from credit and other risks of the Corporation's lending and investment activities, including the condo conversion loans from its Miami Corporate Banking operations and the construction and commercial loan portfolios in Puerto Rico, which have affected and may continue to affect, among other things, the level of non-performing assets, charge-offs and the provision expense; an adverse change in the Corporation's ability to attract new clients and retain existing ones; a decrease in demand for the Corporation's products and services and lower revenues and earnings because of the recession in the United States, the continued recession in Puerto Rico and the current fiscal problems and budget deficit of the Puerto Rico government; adverse changes in general economic conditions in the state of Florida and Puerto Rico, including the interest rate scenario, market liquidity, rates and prices, and the disruptions in the U.S. capital markets, which may reduce interest margins, impact funding sources and affect demand for the Corporation's products and services and the value of the Corporation's assets, including the value of derivative instruments used for protection from interest rate fluctuations; uncertainty about the impact of measures adopted by the Puerto Rico government in response to its fiscal situation on the different sectors of the economy; uncertainty about the effectiveness and impact of the U.S. government's rescue plan, including the bailout of U.S. housing government-sponsored agencies, on the financial markets in general and on the Corporation's business, financial condition and results of operations; risks of not being able to recover all assets pledged to Lehman Brothers Special Financing, Inc.; changes in the Corporation's expenses associated with acquisitions and dispositions; risks associated with the soundness of other financial institutions; developments in technology; the impact of Doral Financial Corporation's financial condition on the repayment of its outstanding secured loans to the Corporation; the Corporation's ability to issue brokered certificates of deposit and fund operations; risks associated with downgrades in the credit ratings of the Corporation's securities; general competitive factors and industry consolidation; and risks associated with regulatory and legislative changes for financial services companies in Puerto Rico, the United States, and the U.S. and British Virgin Islands, which could affect the Corporation's financial performance and could cause the Corporation's actual results for future periods to differ materially from those anticipated or projected. 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.
EXHIBIT A Table 1. Selected Financial Data SELECTED FINANCIAL DATA (In thousands, except for per share and financial ratios) Quarter ended Six-month period ended June 30, March 31, June 30, June 30, 2009 2009 2008 2009 2008 Condensed Income Statements: Total interest $ 252,780 $ 258,323 $ 276,608 $ 511,103 $ 555,695 income Total interest 121,766 136,725 142,002 258,491 296,631 expense Net interest 131,014 121,598 134,606 252,612 259,064 income Provision for loan and lease 235,152 59,429 41,323 294,581 87,116 losses Non-interest 23,415 30,053 12,002 53,468 41,382 income Non-interest 95,988 84,528 81,763 180,516 163,950 expenses (Loss) Income before income (176,711 ) 7,694 23,522 (169,017 ) 49,380 taxes Income tax 98,053 14,197 9,472 112,250 17,203 benefit Net (loss) (78,658 ) 21,891 32,994 (56,767 ) 66,583 income Net (loss) income attributable (94,825 ) 6,773 22,925 (88,052 ) 46,445 to common stockholders Per Common Share Results: Net (loss) income per $ (1.03 ) $ 0.07 $ 0.25 $ (0.95 ) $ 0.50 share basic Net (loss) income per $ (1.03 ) $ 0.07 $ 0.25 $ (0.95 ) $ 0.50 share diluted Cash dividends $ 0.07 $ 0.07 $ 0.07 $ 0.14 $ 0.14 declared Average shares 92,511 92,511 92,505 92,511 92,505 outstanding Average shares outstanding 92,511 92,511 92,708 92,511 92,650 diluted Book value per $ 9.88 $ 11.37 $ 9.21 $ 9.88 $ 9.21 common share Tangible book value per $ 9.38 $ 10.86 $ 8.62 $ 9.38 $ 8.62 common share Selected Financial Ratios (In Percent): Profitability: Return on (1.57 ) 0.45 0.72 (0.58 ) 0.74 Average Assets Interest Rate 2.60 2.47 2.92 2.53 2.78 Spread (1) Net Interest 2.92 2.85 3.28 2.89 3.19 Margin (1) Return on Average Total (15.93 ) 4.66 9.16 (5.89 ) 9.26 Equity Return on Average Common (36.14 ) 2.65 10.29 (16.99 ) 10.46 Equity Average Total Equity to 9.85 9.73 7.91 9.79 8.04 Average Total Assets Tangible common equity 4.35 5.11 4.25 4.35 4.25 ratio Dividend (6.84 ) 95.72 28.25 (14.73 ) 27.88 payout ratio Efficiency 62.16 55.74 55.77 58.98 54.57 ratio (2) Asset Quality: Allowance for loan and lease losses to 3.11 2.24 1.82 3.11 1.82 loans receivable Net charge-offs (annualized) 3.85 1.16 0.97 2.52 0.91 to average loans Provision for loan and lease 180.97 154.66 139.86 174.97 158.36 losses to net charge-offs Non-performing assets to 6.53 3.92 2.65 6.53 2.65 total assets Non-accruing loans to total 8.94 5.27 3.67 8.94 3.67 loans receivable Allowance to total 34.81 42.49 49.56 34.81 49.56 non-accruing loans Allowance to total non-accruing loans 52.85 76.28 101.85 52.85 101.85 excluding residential real estate loans Other Information: Common Stock Price: End of $ 3.95 $ 4.26 $ 6.34 $ 3.95 $ 6.34 period As of As of As of June 30, March 31, December 31, 2009 2009 2008 Balance Sheet Data: Loans and loans held for $ 13,135,710 $ 13,533,087 $ 13,088,292 sale Allowance for loan and lease 407,746 302,531 281,526 losses Money market and investment 6,368,167 5,506,997 5,709,154 securities Intangible 46,228 47,371 52,083 assets Deferred tax 217,843 140,851 128,039 asset, net Total assets 20,012,887 19,709,150 19,491,268 Deposits 12,035,427 11,619,348 13,057,430 Borrowings 5,846,879 5,903,751 4,736,670 Total preferred 926,259 925,162 550,100 equity Total common 868,045 969,327 940,628 equity Accumulated other comprehensive income, net of 46,382 82,751 57,389 tax Total equity 1,840,686 1,977,240 1,548,117
1- On a tax equivalent basis (see discussion in Table 2 below). Non-interest expenses to the sum of net interest income and non-interest 2- income. The denominator includes non-recurring income and changes in the fair value of derivative instruments and financial instruments measured at fair value under SFAS 159.
Table 2. Statement of Average Interest-Earning Assets and Average Interest-Bearing Liabilities (On a Tax Equivalent Basis) Average volume Interest income(1)/ expense Average rate(1) June 30, March 31, June 30, June 30, March 31, June 30, June March June 30, 31, 30, Quarter ended 2009 2009 2008 2009 2009 2008 2009 2009 2008 (Dollars in thousands) Interest-earning assets: Money market & other short-term $ 101,819 $ 114,837 $ 374,559 $ 117 $ 91 $ 1,813 0.46 % 0.32 % 1.95 % investments Government 1,540,821 1,141,091 1,303,468 15,904 19,601 20,566 4.14 % 6.97 % 6.35 % obligations (2) Mortgage-backed 4,322,708 4,254,355 3,806,115 60,012 63,421 58,034 5.57 % 6.05 % 6.13 % securities Corporate bonds 7,458 7,711 6,103 202 33 141 10.86 % 1.74 % 9.29 % FHLB stock 86,509 71,119 66,703 788 360 1,140 3.65 % 2.05 % 6.87 % Equity 1,977 2,360 4,183 18 18 - 3.65 % 3.09 % 0.00 % securities Total 6,061,292 5,591,473 5,561,131 77,041 83,524 81,694 5.10 % 6.06 % 5.91 % investments (3) Residential real 3,425,235 3,496,429 3,308,950 51,717 54,049 54,239 6.06 % 6.27 % 6.59 % estate loans Construction 1,626,141 1,545,731 1,475,995 13,142 14,102 20,745 3.24 % 3.70 % 5.65 % loans Commercial loans 6,423,055 6,110,754 5,379,906 66,801 64,145 73,461 4.17 % 4.26 % 5.49 % Finance leases 347,732 360,276 376,007 7,111 7,582 8,108 8.20 % 8.53 % 8.67 % Consumer loans 1,678,057 1,725,350 1,613,563 47,436 48,594 46,479 11.34 % 11.42 % 11.59 % Total loans (4) 13,500,220 13,238,540 12,154,421 186,207 188,472 203,032 5.53 % 5.77 % 6.72 % (5) Total interest-earning $ 19,561,512 $ 18,830,013 $ 17,715,552 $ 263,248 $ 271,996 $ 284,726 5.40 % 5.86 % 6.46 % assets Interest-bearing liabilities: Brokered CDs $ 7,051,179 $ 7,461,148 $ 7,373,267 $ 56,677 $ 72,833 $ 72,218 3.22 % 3.96 % 3.94 % Other interest-bearing 4,146,552 4,027,725 3,671,865 23,443 25,192 26,077 2.27 % 2.54 % 2.86 % deposits Loans payable 768,505 297,556 - 614 346 - 0.32 % 0.47 % 0.00 % Other borrowed 3,862,885 3,651,695 3,724,955 31,646 32,922 32,351 3.29 % 3.66 % 3.49 % funds FHLB advances 1,450,478 1,246,373 1,151,861 8,317 8,292 9,572 2.30 % 2.70 % 3.34 % Total interest-bearing $ 17,279,599 $ 16,684,497 $ 15,921,948 $ 120,697 $ 139,585 $ 140,218 2.80 % 3.39 % 3.54 % liabilities (6) Net interest $ 142,551 $ 132,411 $ 144,508 income Interest rate 2.60 % 2.47 % 2.92 % spread Net interest 2.92 % 2.85 % 3.28 % margin
Average volume Interest income(1)/ Average rate(1) expense Six-Month Period 2009 2008 2009 2008 2009 2008 Ended June 30, (Dollars in thousands) Interest-earning assets: Money market & other short-term $ 108,314 $ 402,774 $ 208 $ 5,072 0.39 % 2.53 % investments Government 1,341,934 1,786,011 35,505 57,711 5.34 % 6.50 % obligations (2) Mortgage-backed 4,288,731 3,102,385 123,433 92,025 5.80 % 5.97 % securities Corporate bonds 7,584 6,185 235 282 6.25 % 9.17 % FHLB stock 78,856 64,274 1,148 2,261 2.94 % 7.07 % Equity 2,167 4,186 36 11 3.35 % 0.53 % securities Total 5,827,586 5,365,815 160,565 157,362 5.56 % 5.90 % investments (3) Residential real 3,460,647 3,249,913 105,766 105,959 6.16 % 6.56 % estate loans Construction 1,586,125 1,474,252 27,244 44,465 3.46 % 6.07 % loans Commercial loans 6,267,792 5,301,551 130,946 158,901 4.21 % 6.03 % Finance leases 353,969 377,004 14,693 16,396 8.37 % 8.75 % Consumer loans 1,701,580 1,633,598 96,030 94,535 11.38 % 11.64 % Total loans (4) 13,370,113 12,036,318 374,679 420,256 5.65 % 7.02 % (5) Total interest-earning $ 19,197,699 $ 17,402,133 $ 535,244 $ 577,618 5.62 % 6.67 % assets Interest-bearing liabilities: Brokered CDs $ 7,255,053 $ 7,286,442 $ 129,510 $ 157,921 3.60 % 4.38 % Other interest-bearing 4,087,541 3,492,825 48,635 52,350 2.40 % 3.03 % deposits Loans payable 534,331 - 960 - 0.36 % 0.00 % Other borrowed 3,609,918 3,697,892 64,568 70,845 3.61 % 3.85 % funds FHLB advances 1,496,949 1,109,465 16,609 20,720 2.24 % 3.76 % Total interest-bearing $ 16,983,792 $ 15,586,624 $ 260,282 $ 301,836 3.09 % 3.89 % liabilities (6) Net interest $ 274,962 $ 275,782 income Interest rate 2.53 % 2.78 % spread Net interest 2.89 % 3.19 % margin
On an adjusted tax equivalent basis. The adjusted tax equivalent yield was estimated by dividing the interest rate spread on exempt assets by (1 less Puerto Rico statutory tax rate (40.95% for the Corporation's subsidiaries other than IBEs in 2009, 35.95% for the Corporation's IBEs (1) in 2009 and 39% for all subsidiaries in 2008)) and adding to it the cost . of interest-bearing liabilities. When adjusted to a tax equivalent basis, yields on taxable and exempt assets are comparable. Changes in the fair value of derivative instruments and unrealized gains or losses on SFAS 159 liabilities are excluded from interest income and interest expense because the changes in valuation do not affect interest paid or received (2) Government obligations include debt issued by government sponsored agencies. (3) Unrealized gains and losses in available-for-sale securities are excluded from the average volumes. (4) Average loan balances include the average of non-accruing loans. Interest income on loans includes $2.7 million, $2.8 million and $2.9 million for the second quarter of 2009, first quarter of 2009 and second (5) quarter of 2008, respectively, and $5.5 million and $5.4 million for the six-month period ended June 30, 2009 and 2008, respectively, of income from prepayment penalties and late fees related to the Corporation's loan portfolio. (6) Unrealized gains and losses on SFAS 159 liabilities are excluded from the average volumes.
Table 3. Non-Interest Income Quarter Ended Six-month period ended June 30, March 31, June 30, June 30, 2009 2009 2008 2009 2008 (In thousands) Other service $ 1,523 $ 1,529 $ 1,418 $ 3,052 $ 2,731 charges on loans Service charges on 3,327 3,165 3,191 6,492 6,555 deposit accounts Mortgage banking 2,373 806 804 3,179 1,123 activities Rental income 407 449 579 856 1,122 Insurance income 2,229 2,370 2,551 4,599 5,279 Other operating 4,312 4,284 4,138 8,596 9,058 income Non-interest income before net gain on 14,171 12,603 12,681 26,774 25,868 investments Gain on VISA shares - - - - 9,342 Net gain on sale of 10,305 17,838 (190 ) 28,143 6,661 investments Other-than-temporary impairment on equity - (388 ) (489 ) (388 ) (489 ) securities Other-than-temporary impairment on debt (1,061 ) - - (1,061 ) - securities Net gain on 9,244 17,450 (679 ) 26,694 15,514 investments Total $ 23,415 $ 30,053 $ 12,002 $ 53,468 $ 41,382
Table 4. Non-Interest Expenses Quarter Ended Six-month period ended June 30, March 31, June 30, June 30, 2009 2009 2008 2009 2008 (In thousands) Employees' compensation and $ 34,472 $ 34,242 $ 34,994 $ 68,714 $ 71,320 benefits Occupancy and 14,824 14,774 15,541 29,598 30,520 equipment Deposit insurance 14,895 4,880 2,345 19,775 4,691 premium Other taxes, insurance and 8,368 5,793 5,588 14,161 11,252 supervisory fees Professional fees - 3,138 2,823 3,620 5,961 8,180 recurring Professional fees - 204 363 1,299 567 1,798 non-recurring Servicing and 2,246 2,312 2,381 4,558 4,969 processing fees Business promotion 3,836 3,116 4,802 6,952 9,067 Communications 2,018 2,127 2,250 4,145 4,523 Net loss on REO 6,626 5,375 3,172 12,001 6,428 operations Other (1) 5,361 8,723 5,771 14,084 11,202 Total $ 95,988 $ 84,528 $ 81,763 $ 180,516 $ 163,950 (1) Includes core deposit intangible impairment charge of $4.0 million for the six-month period ended June 30, 2009.
Table 5. Loan Portfolio Composition of the loan portfolio including loans held for sale at period-end. June 30, March 31, December 31, June 30, 2009 2009 2008 2008 (In thousands) Residential real $ 3,654,435 $ 3,498,196 $ 3,491,728 $ 3,393,934 estate loans Commercial loans: Construction loans 1,580,207 1,561,813 1,526,995 1,467,544 Commercial real estate 1,564,933 1,519,267 1,535,758 1,324,509 loans Commercial loans 4,002,306 4,346,552 3,857,728 3,502,929 Loans to local financial institutions 336,300 556,859 567,720 591,674 collateralized by real estate mortgages Commercial loans 7,483,746 7,984,491 7,488,201 6,886,656 Finance leases 341,119 352,247 363,883 373,588 Consumer and other 1,656,410 1,698,153 1,744,480 1,595,867 loans Total loans $ 13,135,710 $ 13,533,087 $ 13,088,292 $ 12,250,045
Table 6. Loan Portfolio by Geography Puerto Virgin As of June 30, 2009 Rico Islands Florida Total (In thousands) Residential real estate loans, including loans held $ 2,801,139 $ 452,588 $ 400,708 $ 3,654,435 for sale Construction loans (1) 965,944 176,392 437,871 1,580,207 Commercial real estate loans 957,835 77,522 529,576 1,564,933 Commercial loans 3,794,278 175,393 32,635 4,002,306 Loans to local financial institutions collateralized 336,300 - - 336,300 by real estate mortgages Total commercial loans 6,054,357 429,307 1,000,082 7,483,746 Finance leases 341,119 - - 341,119 Consumer loans 1,504,645 112,641 39,124 1,656,410 Total loans, gross $ 10,701,260 $ 994,536 $ 1,439,914 $ 13,135,710 (1) Construction loans of Florida operations include approximately $153.7 million of condo-conversion loans.
Table 7. Non-Performing Assets June 30, March 31, December 31, June 30, (Dollars in thousands) 2009 2009 2008 2008 Non-accruing loans: Residential real estate $ 399,844 $ 315,385 $ 274,923 $ 230,240 Commercial and commercial 219,409 197,238 144,301 127,158 real estate Construction 506,642 155,494 116,290 49,283 Finance leases 5,474 5,599 6,026 4,619 Consumer 39,979 38,295 45,635 37,175 1,171,348 712,011 587,175 448,475 REO 58,064 49,434 37,246 38,620 Other repossessed 12,732 12,088 12,794 11,270 property Investment securities (1) 64,543 - - - Total non-performing $ 1,306,687 $ 773,533 $ 637,215 $ 498,365 assets Past due loans 90 days $ 190,399 $ 208,339 $ 471,364 $ 124,078 and still accruing Allowance for loan and $ 407,746 $ 302,531 $ 281,526 $ 222,272 lease losses Allowance to total 34.81 % 42.49 % 47.95 % 49.56 % non-accruing loans Allowance to total non-accruing loans, 52.85 % 76.28 % 90.16 % 101.85 % excluding residential real estate loans (1) Collateral pledged with Lehman Brothers Special Financing, Inc.
Table 8. Non-Performing Assets by Geography PUERTO RICO June 30, March 31, December 31, June 30, (Dollars in thousands) 2009 2009 2008 2008 Non-accruing loans: Residential real estate $ 342,501 $ 269,311 $ 244,843 $ 206,759 Commercial and commercial real 157,322 148,481 116,027 93,122 estate Construction 156,112 114,029 71,127 35,288 Finance leases 5,474 5,599 6,026 4,619 Consumer 35,696 34,905 40,313 32,903 697,105 572,325 478,336 372,691 REO 40,164 33,144 22,012 18,002 Other repossessed property 12,261 11,553 12,221 10,755 Investment securities 64,543 - - - Total non-performing assets $ 814,073 $ 617,022 $ 512,569 $ 401,448 Past due loans 90 days and still $ 185,132 $ 135,905 $ 220,270 $ 123,113 accruing VIRGIN ISLANDS June 30, March 31, December 31, June 30, (Dollars in thousands) 2009 2009 2008 2008 Non-accruing loans: Residential real estate $ 7,381 $ 8,429 $ 8,492 $ 8,208 Commercial and commercial real 4,723 2,938 3,531 25,362 estate Construction 2,052 2,353 4,113 2,157 Finance leases - - - - Consumer 3,296 2,799 3,688 3,802 17,452 16,519 19,824 39,529 REO 599 662 430 819 Other repossessed property 400 411 388 334 Total non-performing assets $ 18,451 $ 17,592 $ 20,642 $ 40,682 Past due loans 90 days and still $ 3,346 $ 1,184 $ 27,471 $ 965 accruing FLORIDA OPERATIONS June 30, March 31, December 31, June 30, (Dollars in thousands) 2009 2009 2008 2008 Non-accruing loans: Residential real estate $ 49,962 $ 37,645 $ 21,588 $ 15,273 Commercial and commercial real 57,364 45,819 24,743 8,674 estate Construction 348,478 39,112 41,050 11,838 Finance leases - - - - Consumer 987 591 1,634 470 456,791 123,167 89,015 36,255 REO 17,301 15,628 14,804 19,799 Other repossessed property 71 124 185 181 Total non-performing assets $ 474,163 $ 138,919 $ 104,004 $ 56,235 Past due loans 90 days and still $ 1,921 $ 71,250 $ 223,623 $ - accruing
Table 9. Ratios of Net Charge-Offs to Average Loans Six-Months Ended June 30, Year Ended December 31, 2009 2008 2007 2006 2005 Residential real estate loans 0.61 % 0.19 % 0.03 % 0.04 % 0.05 % Commercial loans 1.14 % 0.51 % 0.22 % 0.05 % 0.10 % Construction loans 11.52 % 0.52 % 0.26 % 0.00 % 0.00 % Consumer loans (1) 2.98 % 3.19 % 3.48 % 2.90 % 2.06 % Total loans 2.52 % 0.87 % 0.79 % 0.55 % 0.39 % (1) Includes lease financing
Source: First BanCorp