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Form 8-K FIRST BANCORP /PR/ For: Oct 30

October 30, 2020 9:42 AM
Exhibit 99.1

First Bancorp. Announces Earnings for the Quarter Ended September 30, 2020

  • Net income of $28.6 million, or $0.13 per diluted share, for the third quarter of 2020, compared to $21.3 million, or $0.09 per diluted share, for the second quarter of 2020. First BanCorp. (the “Corporation”) completed the acquisition of Banco Santander Puerto Rico (“BSPR”) effective September 1, 2020. The Corporation’s financial statements reflect $5.6 billion in total assets, $2.6 billion in gross loans, and $4.2 billion in total deposits acquired in the BSPR acquisition. The net income for the third and second quarters of 2020 included the following items of note:

- Provision for credit losses on loans, finance leases and debt securities of $46.9 million for the third quarter of 2020, compared to a provision of $39.0 million for the second quarter of 2020. Approximately $38.9 million ($25.9 million after-tax, or $(0.12) per diluted share) of the provision for the third quarter was a result of the Day 1 reserves required by the current expected credit losses (“CECL”) methodology for non-purchased credit deteriorated (“non-PCD”) loans acquired in the acquisition of BSPR.

- Merger and restructuring costs of $10.4 million ($6.5 million after-tax, or $(0.03) per diluted share) for the third quarter of 2020 associated with the acquisition of BSPR, compared to $2.9 million ($1.8 million after-tax, or $(0.01) per diluted share) for the second quarter of 2020.

- Income tax benefit of $8.0 million, or $0.04 per diluted share, resulting from a partial reversal of the deferred tax asset valuation allowance.

- Tax-exempt gains of $5.3 million in the third quarter of 2020, or $0.02 per diluted share, consisting of a $5.1 million gain on sales of $116.6 million of U.S. agencies mortgage-backed securities (“MBS”) and a $0.2 million gain on sales of $803.3 million of U.S. Treasury Notes. The U.S. Treasury Notes sold were part of the investment securities portfolio acquired from BSPR.

- For the second quarter of 2020, a benefit from business interruption insurance recovery of $5.0 million ($3.1 million after-tax, or $0.01 per diluted share) related to lost profits caused by Hurricanes Irma and Maria in 2017.

  • Income before income taxes of $24.2 million for the third quarter of 2020, compared to $27.3 million for the second quarter of 2020.
  • On a non-GAAP basis, adjusted pre-tax, pre-provision income of $77.1 million for the third quarter of 2020, compared to $67.3 million for the second quarter of 2020.
  • Net interest income increased by $13.5 million to $148.7 million for the third quarter of 2020, compared to $135.2 million for the second quarter of 2020. Approximately $14.0 million of the increase was related to the acquisition of BSPR which at closing added $2.5 billion of loans and $1.2 billion of investment securities, partially offset by lower average loan and investment yields.
  • Net interest margin was 3.93% for the third quarter of 2020, compared to 4.22% for the second quarter of 2020, reflecting, among other things, the effects of a lower interest rate environment on variable-rate commercial loans and MBS prepayment rates, and a higher proportion of low-yielding assets to total interest-earning assets, partially offset by a lower cost of deposits and higher loan accretion income. The acquisition of BSPR had a one basis point dilutive impact on the net interest margin in the third quarter of 2020, as the adverse impact of low yields on acquired investment securities and interest-bearing cash balances was offset by loan accretion income.
  • Non-interest income increased by $9.0 million to $29.9 million for the third quarter of 2020, compared to $20.9 million for the second quarter of 2020, primarily due to the $5.3 million gain on sales of investment securities and a $3.4 million increase in revenues from mortgage banking activities, driven by a higher volume of loan originations and sales. Approximately $2.0 million of the total increase in non-interest income is attributable to the contribution of the BSPR acquisition, primarily reflected in service charges on deposits, and transactional interchange and merchant fee income.
  • Non-interest expenses increased by $17.7 million to $107.5 million for the third quarter of 2020, compared to $89.8 million for the second quarter of 2020. Non-interest expenses for the third quarter of 2020 included $10.4 million of merger and restructuring costs, compared to $2.9 million for the second quarter of 2020, and $1.0 million of COVID-19 pandemic-related expenses, compared to $3.0 million, for the second quarter of 2020. Approximately $10.7 million of the total increase in non-interest expenses is related to expenses of the acquired operations as well as the amortization of intangible assets acquired.
  • Income tax benefit of $4.4 million for the third quarter of 2020, compared to income tax expense of $6.0 million for the second quarter of 2020. The variance was primarily related to an $8.0 million tax benefit related to the partial reversal of the deferred tax asset valuation allowance.
  • Credit quality variances:

- Non-performing assets decreased by $10.5 million to $293.3 million as of September 30, 2020, compared to $303.8 million as of June 30, 2020. The decrease was primarily related to a $7.3 million decrease in the other real estate owned (“OREO”) portfolio balance, driven by sales of residential properties, and a $3.2 million decrease in nonaccrual consumer loans, primarily reflected in the auto loan portfolio. The Corporation did not acquire any of BSPR’s non-performing assets as established in the stock purchase agreement.

- An annualized net charge-offs to average loans ratio of 0.45% for the third quarter of 2020, compared to 0.43% for the second quarter of 2020.

  • Total deposits, excluding brokered deposits and government deposits, increased by $3.7 billion to $12.5 billion as of September 30, 2020, which reflects $3.4 billion of deposits (net of brokered and government deposits) resulting from the acquisition of BSPR. Organic deposit growth was $216.4 million during the third quarter, primarily demand deposits, which grew by 6%, or $250.4 million.
  • Brokered certificates of deposits (“CDs”) decreased by $87.2 million during the third quarter to $276.2 million as of September 30, 2020. Meanwhile, non-maturity brokered deposits increased in the quarter by $31.2 million to $278.4 million as of September 30, 2020 primarily reflecting $56.1 million of non-maturity brokered deposits resulting from the acquisition of BSPR.
  • Government deposits increased in the quarter by $899.3 million and totaled $2.1 billion as of September 30, 2020, reflecting increases of $782.9 million, $115.7 million, and $0.7 million in the Puerto Rico, Virgin Islands, and Florida regions, respectively. The increase in the Puerto Rico region during the third quarter reflects primarily $670.5 million of government deposits resulting from the acquisition of BSPR. The remaining $228.8 million of organic growth reflects an increase in balances of transactional accounts of certain municipalities in Puerto Rico, primarily related to the collection of municipal license taxes, and higher balances on transactional accounts of the central government in the U.S. Virgin Islands driven by collection of income taxes.
  • Total loans increased in the quarter by $2.5 billion to $11.9 billion as of September 30, 2020. The increase reflects primarily $2.6 billion in loans resulting from the acquisition of BSPR, consisting of $1.5 billion in commercial and construction loans, $821.9 million in residential mortgage loans and $210.9 million in consumer loans. As of September 30, 2020, loans held for investment include a net purchase accounting discount of $66.9 million related to the acquisition of BSPR. The decrease in the legacy loan portfolio of $60.5 million during the third quarter consisted of a $65.8 million decrease in residential mortgage loans, and a $60.7 million decrease in commercial and construction loans, partially offset by a $66.0 million increase in consumer loans, primarily auto loans.
  • Total loan originations, including refinancings, renewals and draws from existing commitments (other than credit card utilization activity), amounted to $971.1 million in the third quarter of 2020, compared to $902.9 million in the second quarter of 2020. Total loan originations in the third quarter included $15.1 million of Small Business Administration Paycheck Protection Program (“SBA PPP”) loans, compared to $375.2 million originated in the second quarter of 2020. Excluding SBA PPP loans, total loan originations of $956.0 million in the third quarter of 2020, up $428.3 million from $527.7 million in the second quarter of 2020.
  • Liquidity levels have remained high with the cash and liquid securities to total assets ratio exceeding 19.2% as of September 30, 2020, compared to 21.0% as of June 30, 2020.
  • Core deposits and other intangible assets of $39.2 million and goodwill of $6.3 million recorded in connection with the acquisition of BSPR.
  • Capital ratios remained strong compared to regulatory levels for well capitalized banks. Preliminary estimated Total capital, Common equity Tier 1 capital (“CET1”), Tier 1 capital, and Leverage ratios of 20.32%, 17.22%, 17.53%, and 13.04%, respectively, as of September 30, 2020. The tangible common equity ratio was 11.36% as of September 30, 2020.

SAN JUAN, Puerto Rico--(BUSINESS WIRE)--October 30, 2020--First BanCorp. (the “Corporation”) (NYSE: FBP), the bank holding company for FirstBank Puerto Rico (“FirstBank” or “the Bank”), today reported net income of $28.6 million, or $0.13 per diluted share, for the third quarter of 2020, compared to $21.3 million, or $0.09 per diluted share, for the second quarter of 2020, and $46.3 million, or $0.21 per diluted share, for the third quarter of 2019. Financial results for the third quarter of 2020 reflected a current period provision for credit losses of $46.9 million, of which $38.9 million ($25.9 million after-tax, or $(0.12) per diluted share) was a result of the initial establishment of the Day 1 reserves required by CECL in connection with non-PCD loans acquired in the BSPR acquisition. Additionally, in the third quarter of 2020, the Corporation incurred merger and restructuring related costs of $10.4 million ($6.5 million after-tax, or $(0.03) per diluted share) in connection with the closing of the BSPR acquisition, recognized an $8.0 million tax benefit related to a partial reversal of the deferred tax asset valuation allowance, or $0.04 per diluted share, and recorded a tax-exempt gain from sales of investment securities of $5.3 million, or $0.02 per diluted share.

The Corporation completed the acquisition of BSPR effective September 1, 2020. The Corporation’s financial statements for the third quarter include 30 days of BSPR operations, post-acquisition, which have an effect on the comparability of the current quarter’s results to prior periods. The Corporation’s statement of financial condition as of September 30, 2020 reflects $5.6 billion in total assets, $2.6 billion in gross loans, and $4.2 billion in total deposits acquired in the BSPR acquisition. BSPR operated 27 banking branches in Puerto Rico.

The following table summarizes the composition of the earnings reported for the third quarter of 2020:









 
    First
BanCorp.
Legacy
Operations
  BSPR
Acquired
Operation
  Other
Transactions
  Total
                 
Net Interest Income  

 $

      134,659

 

 

 $

        14,037

 

 

 $

                  -

 

 

 $

         148,696

 

                 
Provision for Credit Losses (legacy operations)  

 

            8,032

 

 

 

                 -

 

 

 

                     -

 

 

 

                8,032

 

Day 1 Reserves Required for Acquired Non-PCD Loans and related commitments  

 

                 -

 

 

 

                 -

 

 

 

              38,882

 

 

 

              38,882

 

Provision for Credit Losses   

 

            8,032

 

 

 

                 -

 

 

 

              38,882

 

 

 

              46,914

 

                 
Net interest income after provision for credit losses  

 

         126,627

 

 

 

          14,037

 

 

 

             (38,882

)

 

 

            101,782

 

                 
Non-interest Income  

 

          22,861

 

 

 

            1,785

 

 

 

                     -

 

 

 

              24,646

 

Gain on sale of investment securities  

 

                 -

 

 

 

                 -

 

 

 

                5,288

 

 

 

                5,288

 

Total non-interest income  

 

          22,861

 

 

 

            1,785

 

 

 

                5,288

 

 

 

              29,934

 

                 
Non interest expenses  

 

          86,390

 

 

 

          10,677

 

 

 

                     -

 

 

 

              97,067

 

Merger and Restructuring costs   

 

                 -

 

 

 

                 -

 

 

 

              10,441

 

 

 

              10,441

 

Total non-interest expenses  

 

          86,390

 

 

 

          10,677

 

 

 

              10,441

 

 

 

            107,508

 

                 
Income before income taxes  

 

          63,098

 

 

 

            5,145

 

 

 

             (44,035

)

 

 

              24,208

 

Income tax (expense) benefit  

 

         (18,801

)

 

 

           (1,692

)

 

 

              16,898

 

 

 

              (3,595

)

Partial reversal of deferred tax asset valuation allowance  

 

                 -

 

 

 

                 -

 

 

 

                8,000

 

 

 

                8,000

 

                 
Net Income (Loss)  

 $

        44,297

 

 

 $

         3,453

 

 

 $

          (19,137

)

 

 $

           28,613

 

                 

Aurelio Alemán, President and Chief Executive Officer of First BanCorp., commented: “We are very pleased with the closing of the strategic acquisition of Banco Santander Puerto Rico solidifying our position on the island and strengthening our competitiveness in commercial, retail and residential lending. The acquisition brings us greater reach and market share gains across the island, as well as new levers to improve our efficiency metrics. This acquisition contributed $4.2 billion in deposits and $2.6 billion in loans, the acquired loan portfolio complements our loan book nicely, and the deposit book significantly improves our funding. Our loan to deposit ratio now stands at 78% and our expanded customer base should drive future growth. We welcome the former Banco Santander employees and customers to our family and look forward to exceeding their expectations with an expanded branch network, service channels and enhanced technological offerings. Our existing customers will also benefit from this expansion.

There is still over $60 billion of remaining estimated hurricane and pandemic relief funding in Puerto Rico which will contribute to the economic recovery already underway in our main market. Employment figures continue to trend positive now at 92% of August 2019 levels and lending activity continues to improve in most products. We are optimistic for the prospects of growth for the island and are well prepared to support increased economic activity. We remain vigilant to potential economic hurdles related to future COVID-19 restrictions. We have worked hard to build a fortress balance sheet and even following the completed acquisition our liquidity levels, reserve coverage, and capital position are among the highest in the banking sector and have positioned us well to take advantage of growth opportunities.

We generated net income of $28.6 million during the quarter, including only one month of earnings contribution from the acquired operations; on a non-GAAP basis, pre-tax pre-provision income for the quarter was over $77 million, an increase of 14.6% over the prior quarter. The enhanced funding profile of our combined institution and greater customer reach should help to drive additional loan growth and net interest income, which will improve further our outsized capital position. Capital deployment opportunities remain a priority as our economic environment stabilizes.

The integration efforts are well underway, I am very proud of what the combined team has been able to accomplish thus far and we are excited for the future growth prospects of our institution.”

NON-GAAP DISCLOSURES

This press release includes certain non-GAAP financial measures, including adjusted net income, adjusted pre-tax, pre-provision income, adjusted net interest income and margin, adjusted non-interest expenses, tangible common equity, tangible book value per common share, certain capital ratios, and certain other financial measures that exclude the effect of items that management believes are not reflective of core operating performance, are not expected to reoccur with any regularity or may reoccur at uncertain times and in uncertain amounts (the “Special Items”), and should be read in conjunction with the discussion below in Basis of Presentation – Use of Non-GAAP Financial Measures and the accompanying tables (Exhibit A), which are an integral part of this press release.


BSPR ACQUISITION

Effective September 1, 2020, the Corporation completed the acquisition of BSPR pursuant to a stock purchase agreement dated as of October 21, 2019. The transaction was structured as an all-cash acquisition of all of the issued and outstanding common stock of Santander Bancorp, the sole shareholder of BSPR, a corporation incorporated under the laws of the Commonwealth of Puerto Rico and sole shareholder of Santander Insurance Agency, Inc. (collectively referred to as “BSPR”). In consideration for the acquisition, the Corporation paid cash in an amount of approximately (i) $394.8 million for 117.5% of BSPR’s core tangible common equity, comprised of a $58.8 million premium on $336 million of core tangible common equity, plus (ii) $882.8 million for BSPR’s excess capital (paid at par), which represents the estimated closing payment pursuant to the terms of the stock purchase agreement.

The following table summarizes the estimated fair value of assets acquired and liabilities assumed of BSPR as of September 1, 2020 under the acquisition method of accounting:



   
(In thousands)       
Total purchase price consideration (cash)   $

  1,277,626

       
Fair value of assets acquired:     Fair Value
Cash and cash equivalents   $

  1,684,252

Investment securities available for sale    

  1,167,225

Loans, net    

  2,514,916

Premises and equipment, net    

       12,499

Intangible assets    

       39,232

Other assets    

     189,131

Total assets and identifiable intangible assets acquired   $

  5,607,255

       
Fair value of liabilities assumed:      
Deposits  

  4,194,940

Other liabilities    

     140,992

Total liabilities assumed    

  4,335,932

       
Fair value of net assets and identifiable intangible assets acquired   $

  1,271,323

       
Goodwill   $

         6,303

       

As of September 30, 2020, the purchase price remains subject to final adjustments and fair value measurements remain preliminary due to the timing of the acquisition. The Corporation continues to review information relating to events or circumstances existing at the acquisition date and expects to finalize its analysis of the acquired assets and assumed liabilities over the next few months, but not later than one year after the acquisition.


SPECIAL ITEMS

The financial results for the third and second quarters of 2020 and the third quarter of 2019 included the following significant Special Items:

Quarter ended September 30, 2020

  • Merger and restructuring costs of $10.4 million ($6.5 million after-tax) in connection with the acquisition of BSPR and related restructuring initiatives. Merger and restructuring costs in the third quarter of 2020 primarily included consulting, legal, system conversions and other integration related efforts.
  • An $8.0 million tax benefit related to a partial reversal of the deferred tax asset valuation allowance.
  • A $5.3 million aggregate gain on sales of approximately $116.6 million of U.S. agencies MBS and $803.3 million of U.S. Treasury Notes executed in the latter part of September. The gain on tax-exempt securities or realized at the tax-exempt international banking entity subsidiary level had no effect in the income tax expense recorded in the third quarter of 2020.
  • Costs of $1.0 million ($0.6 million after-tax) related to the COVID-19 pandemic response efforts, primarily costs related to additional cleaning, safety materials, and security matters.

Quarter ended June 30, 2020

  • A $5.0 million ($3.1 million after-tax) benefit resulting from the final settlement of the Corporation’s business interruption insurance claim related to lost profits caused by Hurricanes Irma and Maria in 2017.
  • Merger and restructuring costs of $2.9 million ($1.8 million after-tax) in connection with the acquisition of BSPR and related restructuring initiatives. Merger and restructuring costs in the second quarter of 2020 primarily included consulting, legal, and other pre-conversion related efforts.
  • Costs of $3.0 million ($1.9 million after-tax) related to the COVID-19 pandemic response efforts, including approximately $1.7 million in bonuses paid to branch personnel and other essential employees for working during the pandemic, as well as other employee-related expenses, including expenses for the administration of COVID-19 tests and purchases of personal protective equipment.
  • A $0.2 million loss realized on sales of U.S. agencies MBS. The loss, realized at the tax-exempt international banking entity subsidiary, had no effect on the income tax expense recorded in the second quarter of 2020.

Quarter ended September 30, 2019

  • A $3.0 million ($1.8 million after-tax) positive effect in earnings related to the acceleration of the discount accretion from the payoff of an acquired commercial mortgage loan.
  • A $0.4 million ($0.2 million after-tax) benefit resulting from hurricane-related insurance recoveries related to repairs and maintenance costs incurred on facilities in the U.S. Virgin Islands.

NET INCOME AND RECONCILIATION TO ADJUSTED NET INCOME (NON-GAAP)

Net income was $28.6 million for the third quarter of 2020, compared to $21.3 million for the second quarter of 2020. Adjusted net income was $22.4 million, or $0.10 per diluted share, for the third quarter of 2020, compared to $22.0 million, or $0.10 per diluted share, for the second quarter of 2020. The following table reconciles for the third and second quarters of 2020 and the third quarter of 2019 the net income to adjusted net income and adjusted earnings per share, which are non-GAAP financial measures that exclude the significant Special Items identified above, as well as a non-significant gain realized on the repurchase and cancellation of trust preferred securities in the third quarter of 2020.








 
    Quarter Ended   Quarter Ended     Quarter Ended
(In thousands, except per share information)   September 30, 2020   June 30, 2020     September 30, 2019
               
Net income, as reported (GAAP)  

 $

                      28,613

 

 

 $

                      21,256

 

   

 $

                       46,327

 

Adjustments:              
Merger and restructuring costs  

 

                         10,441

 

 

 

                            2,902

 

   

 

                               592

 

Partial reversal of deferred tax asset valuation allowance  

 

                          (8,000

)

 

 

                                  -

 

   

 

                                  -

 

Accelerated discount accretion due to early payoff of acquired loan   

 

                                  -

 

 

 

                                  -

 

   

 

                          (2,953

)

Benefit from hurricane-related insurance recoveries  

 

                                  -

 

 

 

                          (5,000

)

   

 

                             (379

)

(Gain) loss on sales of investment securities  

 

                          (5,288

)

 

 

                               155

 

   

 

                                  -

 

Gain on early extinguishment of debt  

 

                               (94

)

 

 

                                  -

 

   

 

                                  -

 

COVID-19 pandemic-related expenses  

 

                               962

 

 

 

                            2,961

 

   

 

                                  -

 

Income tax impact of adjustments (1)  

 

                          (4,276

)

 

 

                             (324

)

   

 

                            1,028

 

Adjusted net income (Non-GAAP)  

 $

                      22,358

 

 

 $

                      21,950

 

   

 $

                       44,615

 

Preferred stock dividends  

 

                             (669

)

 

 

                             (669

)

   

 

                             (669

)

Adjusted net income attributable to common stockholders (Non-GAAP)  

 $

                      21,689

 

 

 $

                      21,281

 

   

 $

                       43,946

 

               
Weighted-average diluted shares outstanding  

 $

                    217,715

 

 

 

                       217,570

 

   

 $

                    217,227

 

               
Earnings Per Share - diluted (GAAP)  

 $

                           0.13

 

 

 $

                           0.09

 

   

 $

                           0.21

 

               
Adjusted Earnings Per Share - diluted (Non-GAAP)  

 $

                           0.10

 

 

 $

                           0.10

 

   

 $

                           0.20

 

           
 
(1) See Basis of Presentation for the individual tax impact related to reconciling items.  
 







 

INCOME (LOSS) BEFORE INCOME TAXES AND RECONCILIATION TO ADJUSTED PRE-TAX, PRE-PROVISION INCOME (NON-GAAP)

Income before income taxes was $24.2 million for the third quarter of 2020, compared to $27.3 million for the second quarter of 2020. Adjusted pre-tax, pre-provision income was $77.1 million for the third quarter of 2020, up $9.8 million from the second quarter of 2020. The following table reconciles income (loss) before income taxes to adjusted pre-tax, pre-provision income for the last five quarters:



 
(Dollars in thousands)   Quarter Ended
    September 30,   June 30,   March 31,   December 31,   September 30,
   

 

2020

 

 

 

2020

 

 

 

2020

 

 

 

2019

 

 

 

2019

 

                     
Income (loss) before income taxes   

 $

                  24,208

 

 

 $

                  27,302

 

 

 $

                      (701

)

 

 $

            53,547

 

 

 $

                    65,595

 

Add: Provision for credit losses  

 

                     46,914

 

 

 

39,014

 

 

 

77,366

 

 

 

                  8,473

 

 

 

                         7,398

 

Less/Add: Net (gain) loss on sales of investment securities  

 

                      (5,288

)

 

 

                          155

 

 

 

                      (8,247

)

 

 

                        -

 

 

 

                                -

 

Add: Credit loss impairment on debt securities (1)  

 

                              -

 

 

 

                              -

 

 

 

                               -

 

 

 

                        -

 

 

 

                            497

 

Less: Accelerated discount accretion due to early payoff of acquired loan   

 

                              -

 

 

 

                              -

 

 

 

                               -

 

 

 

                        -

 

 

 

                       (2,953

)

Less: Benefit from hurricane-related insurance recoveries  

 

                              -

 

 

 

                     (5,000

)

 

 

                      (1,153

)

 

 

                   (727

)

 

 

                           (379

)

Less: Gain on early extinguishment of debt  

 

                           (94

)

 

 

                              -

 

 

 

                               -

 

 

 

                        -

 

 

 

                                -

 

Add: COVID-19 pandemic-related expenses  

 

                           962

 

 

 

                       2,961

 

 

 

                           363

 

 

 

                        -

 

 

 

                                -

 

Add: Merger and restructuring costs  

 

                     10,441

 

 

 

                       2,902

 

 

 

                           845

 

 

 

               10,850

 

 

 

                            592

 

Adjusted pre-tax, pre-provision income (2)  

 $

                  77,143

 

 

 $

                  67,334

 

 

 $

                   68,473

 

 

 $

            72,143

 

 

 $

                    70,750

 

               
   
Change from most recent prior quarter (amount)  

 $

                    9,809

 

 

 $

                  (1,139

)

 

 $

                   (3,670

)

 

 $

              1,393

 

 

 $

                       (262

)

Change from most recent prior quarter (percentage)  

 

14.6

%

 

 

-1.7

%

 

 

-5.1

%

 

 

2.0

%

 

 

-0.4

%

                     
(1) ASC 326, which became effective on January 1, 2020, requires credit losses on available-for-sale debt securities to be presented as an allowance rather than as a write-down. Thus, credit losses on debt securities recorded prior to January 1, 2020 are presented as credit loss impairment on debt securities in the table above, while credit losses on debt securities recorded after January 1, 2020 are presented as part of provision for credit losses in the table above.
(2) Non-GAAP financial measure. See Basis of Presentation below for definition and additional information about this non-GAAP financial measure.

Adjusted pre-tax, pre-provision income for the third quarter of 2020 included $5.1 million related to the operations of BSPR from the acquisition date to the end of the third quarter.


NET INTEREST INCOME

The following table sets forth information concerning net interest income during the periods indicated:

                     
(Dollars in thousands)   Quarter Ended
    September 30, 2020   June 30, 2020   March 31, 2020   December 31, 2019   September 30, 2019
Net Interest Income     







Interest income   

 $

170,402

 


 $

158,616

 


 $

165,264

 


 $

167,620

 


 $

172,295

 

Interest expense   

 

21,706

 


 

23,406

 


 

26,615

 


 

27,691

 


 

27,870

 

     
 
 
 
 
Net interest income   

 $

148,696

 


 $

135,210

 


 $

138,649

 

 

 $

139,929

 


 $

144,425

 

     
 
 
 
 
Average Balances     
 
 
 
 
Loans and leases  

 $

10,163,671

 


 $

9,247,878

 


 $

8,997,418

 


 $

8,952,209

 


 $

9,026,725

 

Total securities, other short-term investments and interest-bearing cash balances   

 

4,871,710

 


 

3,636,532

 


 

3,055,546

 


 

2,865,530

 


 

2,691,584

 

Average interest-earning assets  

 $

15,035,381

 


 

$

 

12,884,410

 

 


 $

12,052,964

 


 $

11,817,739

 


 $

11,718,309

 

     
 
 
 
 
Average interest-bearing liabilities  

 $

9,732,691

 


 $

8,436,511

 


 $

8,099,199

 


 $

7,845,104

 


 $

7,819,008

 

     
 
 
 
 
Average Yield/Rate    
 
 
 
 
Average yield on interest-earning assets - GAAP  

 

4.51

%


 

4.95

%


 

5.51

%


 

5.63

%


 

5.83

%

Average rate on interest-bearing liabilities - GAAP  

 

0.89

%


 

1.12

%


 

1.34

%


 

1.40

%


 

1.41

%

Net interest spread - GAAP  

 

3.62

%


 

3.83

%


 

4.17

%


 

4.23

%


 

4.42

%

Net interest margin - GAAP  

 

3.93

%


 

4.22

%


 

4.63

%


 

4.70

%


 

4.89

%





















 

Net interest income amounted to $148.7 million for the third quarter of 2020, an increase of $13.5 million, compared to net interest income of $135.2 million for the second quarter of 2020. The increase in net interest income was mainly due to:

  • A $5.1 million increase in interest income on commercial and construction loans, primarily due to a $539.9 million increase in the average commercial and construction loan balance. The BSPR acquisition added $1.5 billion of commercial and construction loans, contributing to an increase of $498.1 million in the average balance and $7.8 million in interest income during the third quarter. Total discount accretion related to commercial and construction loans acquired from BSPR amounted to $1.8 million in the third quarter of 2020. In addition, there was a $0.6 million increase in interest income on commercial and construction loans related to the effect of one additional day in the third quarter. These variances were partially offset by the downward repricing of the legacy variable-rate commercial and construction loans portfolio, which resulted in a decrease in interest income of approximately $1.3 million.

    The interest rate on approximately 38% of the Corporation’s commercial and construction loans, excluding SBA PPP loans, is based upon LIBOR indexes and 16% is based upon the Prime rate index. For the third quarter of 2020, the average one-month LIBOR declined 20 basis points, and the average three-month LIBOR declined 36 basis points, compared to the average rates for such indexes during the second quarter of 2020.
  • A $3.8 million increase in interest income on residential mortgage loans, primarily due to a $269.9 million increase in the average balance of this portfolio. The BSPR acquisition added $821.9 million of residential mortgage loans, contributing to an increase of $265.2 million in the average balance and $4.1 million in interest income during the third quarter. Total discount accretion related to residential mortgage loans acquired from BSPR amounted to $0.2 million in the third quarter of 2020.
  • A $3.5 million increase in interest income on consumer loans, primarily due to a $106.1 million increase in the average balance of this portfolio. The BSPR acquisition added $210.9 million of consumer loans, contributing to an increase of $69.9 million in the average balance and $2.5 million in interest income during the third quarter. Total discount accretion related to consumer loans acquired from BSPR amounted to $0.1 million in the third quarter of 2020. The remaining increase was primarily related to both an increase of $36.2 million in the average balance of the legacy consumer loan portfolio, predominantly auto loans, which resulted in an increase in interest income of approximately $0.8 million, and a $0.6 million increase in interest income related to the effect of one additional day in the third quarter.
  • A $1.7 million decrease in interest expense, including a reduction of $0.7 million related to the downward repricing of junior subordinated debentures and variable-rate repurchase agreements tied to the decrease in the three-month LIBOR index, and a $0.9 million decrease in interest expense on interest-bearing deposits. The decrease in interest expense on interest-bearing deposits reflects a reduction of approximately $2.3 million attributable to the lower average rates paid on legacy interest-bearing checking, savings, and non-brokered time deposits, partially offset by an increase of approximately $1.3 million related to an increase of $1.3 billion in the average balance of interest-bearing deposits. The BSPR acquisition added $2.9 billion of interest-bearing deposits, contributing to an increase of $977.2 million in the average balance and $0.8 million in interest expense during the third quarter (net of a $0.3 million premium accretion). The average cost of interest-bearing deposits assumed from BSPR was 0.34% during the month of September, which was below the average cost of 0.72% for the legacy non-brokered interest-bearing deposits for the third quarter of 2020.

Partially offset by:

  • A $0.7 million decrease in interest income on investment securities, primarily due to a $2.7 million increase in U.S. agencies MBS premium amortization expense (including $0.7 million related to U.S, agencies MBS acquired in the BSPR transaction) affected by the low interest rate environment. This variance was partially offset by an $859.1 million increase in the average balance of total investment securities.

    Purchases of U.S. agencies MBS and callable debentures during the last two quarters contributed to an increase of approximately $520.1 million in the average balance of investment securities, which resulted in an increase in interest income of approximately $1.2 million. Purchases of U.S. agencies callable debentures and MBS during the third quarter amounting to $850.7 million carries an average yield of 0.90%, which is a lower yield compared to yields on securities that were called prior to maturity and MBS prepayments. This, together with the low yields on the investment securities portfolio acquired from BSPR had an adverse effect in the net interest margin for the third quarter.

    The BSPR acquisition added $308 million of U.S. agencies MBS, $803 million of U.S. Treasury Notes, and $56 million of Puerto Rico municipal bonds at acquisition date. This accounted for $339.2 million of the total increase in the average balance of investment securities and contributed $0.4 million in interest income, net of a $1.4 million amortization of the premium resulting from the new amortized cost basis of securities acquired from BSPR. As a result of the purchase accounting requirements, the acquired U.S. Treasury Notes were booked at a yield of 0.15%, therefore, in the latter part of the third quarter, the Corporation sold all the U.S. Treasury Notes acquired from BSPR and reinvested the proceeds in U.S. agency securities at an approximate average yield of 0.94%. The average yield of the U.S. agencies MBS acquired from BSPR was 0.42% for the month of September.

Net interest margin was 3.93%, compared to 4.22% for the second quarter of 2020. The decrease was primarily attributable to the effect of the low interest rate environment in the repricing of variable rate commercial loans and the acceleration of the U.S. agencies MBS premium amortization, as well as a higher proportion of low-yielding assets, such as U.S. agencies MBS, callable debentures and interest-bearing cash balances, to total interest-earning assets, partially offset by the lower cost of deposits and higher loan accretion income.

The acquisition of BSPR had a one basis point dilutive impact on the net interest margin in the third quarter of 2020, primarily due to the above-mentioned low yields on acquired investment securities and interest-bearing cash balances that more than offset the benefit of higher yields on acquired loans and lower average cost of assumed deposits as compared to the legacy portfolios. The results for the third quarter include the effect of acquisition marks and related accretion for the BSPR acquisition. Net interest income benefited from $0.7 million of net loan and investment securities accretion income and $0.3 million of deposits premium accretion, which added two basis points of net interest margin on a combined basis.

The third quarter results also include the effect of SBA PPP loans. Interest income includes $2.2 million on average SBA PPP loan balances of $399.9 million, which had a 5 basis points dilutive impact on net interest margin.

NON-INTEREST INCOME

The following table sets forth information concerning non-interest income during the periods indicated:



 
    Quarter Ended
    September 30,   June 30,   March 31,   December 31,   September 30,
(In thousands)

 

2020

 

 

2020

 

 

 

2020

 

 

2019

 

 

2019

 

       
           
  Service charges on deposit accounts

 $

                        5,848

 

 $

                   4,475

 

 

 $

                   5,957

 

 $

                        6,205

 

 $

                        6,108

 

  Mortgage banking activities

 

                           7,099

 

 

                      3,686

 

 

 

                      3,788

 

 

                           4,640

 

 

                           4,396

 

  Net gain (loss) on investments and impairments

 

                           5,288

 

 

                       (155

)

 

 

                      8,247

 

 

                                 -  

 

 

                            (497

)

  Gain on early extinguishment of debt

 

                                94

 

 

                            -

 

 

 

                            -  

 

 

                                 -  

 

 

                                 -

 

  Other operating income

 

                         11,605

 

 

                    12,886

 

 

 

                    12,208

 

 

                         13,560

 

 

                         11,394

 

  Non-interest income

 $

                      29,934

 

 $

                 20,892

 

 

 $

                 30,200

 

 $

                      24,405

 

 $

                      21,401

 


















 

Non-interest income amounted to $29.9 million for the third quarter of 2020, compared to $20.9 million for the second quarter of 2020. The $9.0 million increase in non-interest income was primarily due to:

  • The $5.3 million gain on sales of approximately $116.6 million of available-for-sale U.S. agencies MBS and $803.3 million of available-for-sale U.S. Treasury Notes. The Corporation realized a $5.1 million gain on the U.S. agencies MBS sold, which carried an increased prepayment risk given the low market interest rate environment, and a $0.2 million gain on the sale of the U.S. Treasury Notes that were acquired in the BSPR transaction.
  • A $3.4 million increase in revenues from mortgage banking activities, driven by a $4.5 million increase in realized gains on sales of residential mortgage loans in the secondary market, driven by both a higher volume of conforming loan originations and sales and higher gain margins, and a $0.6 million increase in servicing fee income, partially offset by a $0.7 million decrease related to the net change in mark-to-market gains and losses from both interest rate lock commitments and To-Be-Announced (“TBA”) MBS forward contracts, and a $0.7 million increase in the servicing assets amortization expense. Total loans sold in the secondary market to U.S. government-sponsored agencies during the third quarter of 2020 amounted to $161.8 million, with a related net gain of $5.9 million (net of realized losses of $0.4 million on TBA hedges), compared to total loans sold in the secondary market during the second quarter of 2020 of $63.8 million, with a related net gain of $1.4 million (net of realized losses of $1.1 million on TBA hedges). Revenues from mortgage banking activities from BSPR included in the third quarter financial results amounted to approximately $0.1 million. The BSPR acquisition added $1.0 billion to the residential mortgage loan servicing portfolio.
  • A $2.8 million increase in transactional fee income from credit and debit cards, automated teller machines (ATMs), and Point-of-Sale (POS) and merchant-related activity, primarily reflecting higher sales volume associated with the gradual reopening of businesses and resumption of economic activity. Approximately $0.3 million of the increase is related to transactional fee income generated by the BSPR operations from the date of acquisition to the end of the third quarter of 2020. These amounts are included as part of “Other operating income” in the table above.
  • A $1.4 million increase in service charges on deposits, including an increase of $1.1 million related to deposit accounts acquired from BSPR of which $0.6 million relates to cash management fee income. The remaining increase was primarily related to a higher number of cash management fee transactions in the legacy portfolio as a result of increased customer activity since the gradual reopening of business activities after the COVID-19 related lockdowns and quarantines.
  • A $0.4 million increase in fees and commissions from other banking services, such as mail and cable transmission, official checks, safe deposits and insurance referrals, among others, reflecting increased customer activity. These fees are included as part of “Other operating income” in the table above.
  • A $0.2 million gain on the sale of a land lot during the third quarter of 2020, included as part of “Other operating income” in the table above.

Partially offset by:

  • The $5.0 million benefit recorded in the second quarter of 2020 resulting from the final settlement of the Corporation’s business interruption insurance claim related to lost profits caused by Hurricanes Irma and Maria in 2017, included as part of “Other operating income” in the table above.

NON-INTEREST EXPENSES

The following table sets forth information concerning non-interest expenses during the periods indicated:



 
    Quarter Ended
    September 30,   June 30,   March 31,   December 31,   September 30,
(In thousands)

2020

 

2020

 

2020

 

2019

 

2019

                     
  Employees' compensation and benefits

$

                          43,063

 

$

                  39,532


 $

                42,859


 $

                     40,856


 $

                         41,409

  Occupancy and equipment

 

19,064

 

 

16,376


 

15,127


 

16,151


 

15,129

  Deposit insurance premium

 

1,630

 

 

1,436


 

1,522


 

1,674


 

1,465

  Other insurance and supervisory fees

 

1,389

 

 

1,129


 

1,087


 

919


 

960

  Taxes, other than income taxes

 

4,510

 

 

3,577


 

3,880


 

3,864


 

3,904

  Professional fees:      
 
 
 
  Collections, appraisals and other credit-related fees

 

1,262

 

 

1,387


 

1,696


 

2,345


 

1,797

  Outsourcing technology services

 

6,949

 

 

7,672


 

6,829


 

6,036


 

6,206

  Other professional fees

 

3,352

 

 

2,909


 

3,268


 

3,652


 

3,872

  Credit and debit card processing expenses

 

4,859

 

 

3,938


 

3,950


 

3,734


 

4,764

  Business promotion

 

3,046

 

 

2,314


 

3,622


 

4,060


 

4,004

  Communications

 

2,246

 

 

1,852


 

1,877


 

1,591


 

1,834

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

 

1,019

 

 

811


 

1,188


 

3,280


 

2,578

  Merger and restructuring costs

 

10,441

 

 

2,902


 

845


 

10,850


 

                                  592

  Other

 

4,678

 

 

3,951


 

4,434


 

3,302


 

4,319

  Total

 $

                       107,508

 

 $

                 89,786


 $

                 92,184


 $

                    102,314


 $

                         92,833
















 

Non-interest expenses amounted to $107.5 million in the third quarter of 2020, an increase of $17.7 million from $89.8 million in the second quarter of 2020. Included in non-interest expenses are the following Special Items:

  • Merger and restructuring costs associated with the acquisition of BSPR of $10.4 million for the third quarter of 2020, compared to $2.9 million for the second quarter of 2020. The increase was primarily related to higher legal and financial consultant fees as well as expenses incurred in integration efforts during the third quarter.
  • COVID-19 pandemic-related expenses of $1.0 million for the third quarter of 2020, compared to $3.0 million for the second quarter of 2020. COVID-19 pandemic-related expenses for the third quarter of 2020, primarily consist of $0.8 million of expenses associated with cleaning and security protocols, included as part of “Occupancy and equipment” in the table above, compared to $0.9 million in the second quarter of 2020. For the second quarter of 2020, COVID-19 pandemic-related expenses also include $1.7 million incurred in employee-related expenses primarily related to bonuses paid to branch personnel and other essential employees for working during the pandemic, as well as expenses for the administration of COVID-19 tests and purchases of personal protective equipment, both recorded as part of “Employees’ compensation and benefits” in the table above.

On a non-GAAP basis, adjusted non-interest expenses, excluding the effect of the Special Items mentioned above, amounted to $96.1 million for the third quarter of 2020, compared to $83.9 million for the second quarter of 2020. The $12.2 million increase in adjusted non-interest expenses reflects, among other things, the effect of both a $10.7 million increase resulting from the addition of operations, personnel and branches retained from the acquisition of BSPR and volume-related expense increases related to the reopening of business activities. The most significant variances were:

  • A $5.2 million increase in adjusted employees’ compensation and benefits expenses, driven by a $3.0 million increase related to personnel retained from the acquisition of BSPR and a $1.6 million decrease in deferred loan origination costs primarily in connection with a lower amount of SBA PPP loans originated during the third quarter.
  • A $2.8 million increase in adjusted occupancy and equipment costs, including approximately $2.7 million incremental expenses related to the acquired operations.
  • A $1.0 million increase in adjusted business promotion expenses, driven by a $0.6 million increase in direct and digital marketing expenses and a $0.3 million increase in the cost of credit and debit card reward programs. Approximately $0.5 million of the total increase in business promotion expenses is related to incremental expenses of the acquired operations.
  • A $0.9 million increase in adjusted taxes, other than income taxes, primarily related to a $0.5 million increase in business to business sales and use tax expenses due to the effect in the second quarter of legislation that provided for a temporary exemption of the 4% tax associated with business to business services up to June 30, 2020, and approximately $0.5 million incremental expenses related to the acquired operations, primarily municipal license taxes and personal property taxes.
  • A $0.9 million increase in credit and debit card processing expenses related to higher transactions volume, including a $0.4 million incremental expense related to the acquired operations.
  • A $0.7 million increase in “Other” in the table above including incremental expenses of approximately $1.1 million related to the acquired operations, partially offset by reductions of $0.3 million in printing expenses and $0.2 million in labor-related legal reserves. Incremental expenses include $0.8 million related to the amortization of core deposit and purchased credit card relationship intangible assets recorded in connection with the acquisition of BSPR.
  • A $0.4 million increase in adjusted communications-related expenses, primarily due to higher telephone and mailing expenses. Approximately $0.2 million is related to incremental expenses of the acquired operations.

Partially offset by:

  • A $0.4 million decrease in adjusted professional service fees, primarily due to a $0.7 million decrease in outsourced technology fees, driven by lower costs incurred in connection with the platform used for the origination of SBA PPP loans, partially offset by a $0.3 million increase in consulting fees. Incremental professional service fees related to acquired operations amounted to $1.8 million, representing temporary technology processing costs of the acquired operations while system conversions is completed.

The adjusted financial metrics presented above are non-GAAP financial measures. See Basis of Presentation for additional information and the reconciliation of total non-interest expenses and certain non-interest expenses components to adjusted total non-interest expenses and certain adjusted non-interest expense components.

INCOME TAXES

The Corporation recorded an income tax benefit of $4.4 million for the third quarter of 2020, compared to an income tax expense of $6.0 million for the second quarter of 2020. The variance was primarily related to the $8.0 million benefit resulting from the partial reversal of the deferred tax asset valuation allowance.

The Corporation’s estimated effective tax rate, excluding entities with pre-tax losses from which a tax benefit cannot be recognized and discrete items, decreased to 21.4%, compared to 25.2% as of the end of the second quarter of 2020, primarily due to a decrease of taxable income proportionate to pre-tax income. As of September 30, 2020, the Corporation had a deferred tax asset of $347.5 million (net of a valuation allowance of $99.6 million, including a valuation allowance of $62.1 million against the deferred tax assets of the Corporation’s banking subsidiary, FirstBank). The BSPR acquisition added $32.5 million of net deferred tax assets at the acquisition date.


CREDIT QUALITY

Non-Performing Assets










 
(Dollars in thousands) September 30,   June 30,   March 31,   December 31,   September 30,
   

 

2020

 

 

 

2020

 

 

 

2020

 

 

 

2019

 

 

 

2019

 

Nonaccrual loans held for investment:                  
  Residential mortgage

 $

122,797

 


 $

122,249

 

 

 $

122,903

 

 

 $

121,408

 

 

 $

127,040

 

  Commercial mortgage

 

29,651

 


 

34,109

 

 

 

35,953

 

 

 

40,076

 

 

 

42,525

 

  Commercial and Industrial

 

20,882

 


 

19,995

 

 

 

19,734

 

 

 

18,773

 

 

 

20,725

 

  Construction 

 

13,090

 


 

9,574

 

 

 

9,663

 

 

 

9,782

 

 

 

6,358

 

  Consumer and Finance leases

 

14,870

 


 

18,047

 

 

 

24,042

 

 

 

20,629

 

 

 

19,579

 

  Total nonaccrual loans held for investment

 

201,290

 

 

 

203,974

 

 

 

212,295

 

 

 

210,668

 

 

 

216,227

 

                     
OREO

 

89,049

 

 

 

96,319

 

 

 

99,674

 

 

 

101,626

 

 

 

103,033

 

Other repossessed property

 

3,006

 


 

3,554

 

 

 

5,832

 

 

 

5,115

 

 

 

5,932

 

  Total non-performing assets, excluding nonaccrual loans held for sale

 $

293,345

 


 $

303,847

 

 

 $

317,801

 

 

 $

317,409

 

 

 $

325,192

 

     
             
Nonaccrual loans held for sale 

 

-

 


 

-

 

 

 

-

 

 

 

-

 

 

 

6,906

 

  Total non-performing assets, including nonaccrual loans held for sale (1)

 $

293,345

 

 

 $

303,847

 

 

 $

317,801

 

 

 $

317,409

 

 

 $

332,098

 

                     
Past-due loans 90 days and still accruing (2) 

 $

160,066

 

 

 $

164,519

 

 

 $

132,058

 

 

 $

135,490

 

 

 $

144,787

 

Nonaccrual loans held for investment to total loans held for investment

 

1.70

%

 

 

2.18

%

 

 

2.35

%

 

 

2.34

%

 

 

2.41

%

Nonaccrual loans to total loans

 

1.69

%

 

 

2.17

%

 

 

2.35

%

 

 

2.33

%

 

 

2.48

%

Non-performing assets, excluding nonaccrual loans held for sale, to total assets, excluding nonaccrual loans held for sale

 

1.57

%

 

 

2.16

%

 

 

2.44

%

 

 

2.52

%

 

 

2.60

%

Non-performing assets to total assets

 

1.57

%

 

 

2.16

%

 

 

2.44

%

 

 

2.52

%

 

 

2.65

%

         





                 

(1)


Excludes purchased-credit deteriorated ("PCD") loans previously accounted for under Accounting Standards Codification ("ASC") 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans accounted for under ASC 310-30 as "units of account" both at the time of adoption of ASC 326 and on an ongoing basis for credit loss measurement. These loans accrete interest income based on the effective interest rate of the loan pools determined at the time of adoption of ASC 326 and will continue to be excluded from nonaccrual loan statistics as long as the Corporation can reasonably estimate the timing and amount of cash flows expected to be collected on the loan pools. The amortized cost of such loans as of September 30, 2020, June 30, 2020, March 31, 2020, December 31, 2019, and September 30, 2019 amounted to $133.2 million, $134.4 million, $134.0 million, $136.7 million, and $139.3 million, respectively.

(2)


These include loans rebooked, which were previously pooled into GNMA securities amounting to $17.7 million (June 30, 2020 - $69.9 million; March 31, 2020 - $34.8 million; December 31, 2019 - $35.3 million; September 30, 2019 - $37.8 million). Under the GNMA program, the Corporation has the option but not the obligation to repurchase loans that meet GNMA's specified delinquency criteria. For accounting purposes, these loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting liability. During the third quarter of 2020, the Corporation repurchased, pursuant to the aforementioned repurchase option,  $52.0 million of loans previously sold to GNMA.
                

Variances in credit quality metrics:

  • Total non-performing assets decreased by $10.5 million to $293.3 million as of September 30, 2020, compared to $303.8 million as of June 30, 2020. Total nonaccrual loans decreased by $2.7 million to $201.3 million as of September 30, 2020, compared to $204.0 million as of June 30, 2020.
    The decrease in non-performing assets consisted of:
    - A $7.3 million decrease in the OREO portfolio balance. The decrease was driven by sales of $6.9 million, primarily residential OREO properties in the Puerto Rico region, and approximately $1.5 million of fair value and other adjustments that reduced the OREO carrying value, partially offset by additions of $1.1 million.
    - A $3.2 million decrease in nonaccrual consumer loans, primarily auto loans and finance leases, driven by charge-offs and collections recorded in the third quarter, partially offset by inflows of $8.4 million.
    - A $0.5 million decrease in non-real estate repossessed assets, primarily repossessed automobiles.
    - A $0.1 million decrease in nonaccrual commercial and construction loans, primarily due to a $3.1 million charge-off taken on a nonaccrual commercial mortgage loan in the Puerto Rico region and collections recorded in the third quarter, partially offset by the inflow of a $3.5 million construction loan in the Puerto Rico region.
    - A $0.5 million increase in nonaccrual residential mortgage loans, reflecting inflows of $5.4 million primarily resulting from the failure of certain borrowers that were delinquent prior to the COVID-19 payment moratorium relief to resume monthly payments after the end of their payment moratorium period. The increase related to inflows was partially offset by collections, charge-offs, and loans brought current or with a sustained performance period and restored to accrual status during the third quarter.
  • Inflows to nonaccrual loans held for investment were $18.4 million, a $7.7 million increase compared to inflows of $10.7 million in the second quarter of 2020. Inflows to nonaccrual residential mortgage loans were $5.4 million in the third quarter of 2020, an increase of $2.4 million compared to inflows of $3.0 million in the second quarter of 2020. Inflows to nonaccrual consumer loans were $8.4 million, an increase of $1.3 million compared to inflows of $7.1 million in the second quarter of 2020. Inflows to nonaccrual commercial and construction loans were $4.6 million in the third quarter of 2020, an increase of $3.9 million compared to inflows of $0.7 million in the second quarter of 2020, driven by the aforementioned inflow of a $3.5 million construction loan in the Puerto Rico region. See Early Delinquency, Payment Deferral Programs, and SBA PPP Loans below for additional information.
  • Adversely classified commercial and construction loans increased by $39.8 million to $157.3 million as of September 30, 2020, primarily related to the downgrade of two commercial relationships in the Florida region engaged in the transportation industry totaling $38.8 million.
  • Total Troubled Debt Restructured (“TDR”) loans held for investment were $488.6 million as of September 30, 2020, down $7.6 million from June 30, 2020. Approximately $399.7 million of total TDR loans held for investment were in accrual status as of September 30, 2020. These figures exclude $58.8 million of TDR residential mortgage loans guaranteed by the U.S. federal government (i.e., Federal Housing Administration and Veterans Administration loans).

Early Delinquency, Payment Deferral Programs, and SBA PPP Loans

Total loans in early delinquency (i.e., 30-89 days past due loans, as defined in regulatory report instructions) amounted to $110.4 million as of September 30, 2020, an increase of $18.8 million, compared to $91.6 million as of June 30, 2020. The statement of financial condition as of September 30, 2020 reflects $14.1 million of 30-89 days past due loans resulting from the BSPR acquisition. The variances by major portfolio categories were as follow:

  • Residential mortgage loans in early delinquency increased by $4.7 million to $44.5 million as of September 30, 2020, and consumer loans in early delinquency increased by $0.1 million to $35.7 million as of September 30, 2020. The early delinquency residential mortgage loans as of September 30, 2020 reflect $4.0 million and $2.9 million of 30-89 past due residential mortgage and consumer loans, respectively, resulting from the BSPR acquisition.
  • Commercial and construction loans in early delinquency increased in the third quarter by $13.9 million to $30.1 million as of September 30, 2020, including as a result of the migration of a commercial mortgage loan that is delinquent for over 30 days with respect to a $5.0 million final balloon payment but with respect to which the Corporation continues to receive from the borrower interest and principal payments. In addition, there was an increase of $7.2 million related to loans acquired in the BSPR transaction, primarily a $6.1 million matured commercial and industrial loan.

In working with borrowers affected by the COVID-19 pandemic, the Corporation has agreed to let consumer borrowers (i.e., borrowers under residential mortgages, personal loans, auto loans, finance leases and small loans) that were current in their payments or no more than 2 payments in arrears (not having exceeded 89 days past due as of March 16, 2020) to defer payments on their loans in some cases for up to six months but not beyond September 30, 2020, with few exceptions. In the case of credit cards and individual lines of credit, the borrowers were required to be current or less than 29 days past due in their payments as of March 16, 2020 to qualify for the payment deferral program providing for payment deferrals in some cases up to August 31, 2020. For both consumer and residential mortgage loans subject to the deferral programs, each borrower is required to begin making their regularly scheduled loan payment at the end of the deferral period and the deferred amounts were moved to the end of the loan. The payment deferral programs were applied prospectively beginning, in some instances, with the scheduled contractual payment due in March. For commercial loans, any request for payment deferral is analyzed on a case by case basis. Most of these deferred repayment arrangements have been done under the provisions of the Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act of 2020”) or the Revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus. In Puerto Rico, the moratoriums for consumer and residential mortgage products were mandated by local law.


As of September 30, 2020, the Corporation had under deferred repayment arrangements 25,173 loans, totaling $1.2 billion, or 10% of its total loan portfolio held for investment, as shown in the following table:





 
Payment Deferral Programs



(Dollars in thousands)        
           
      As of September 30, 2020
      Count   Balance
Residential mortgage loans  

                          3,227

 

 $

                              511,878

           
Commercial and Construction loans  

                              196

 

 

                                 540,772

           
Consumer loans  

                        21,750

 

 

                                 168,679

  Loans held for investment  

                        25,173

 

 $

                           1,221,329

Loans held for sale  

                                 -  

 

 

                                            -  

  Total loans  

                        25,173

 

 $

                           1,221,329






 

As of October 21, 2020, approximately $83.7 million, or 1%, of the total loan portfolio held for investment balance continue to be under deferment programs, primarily commercial and construction loans. The $83.7 million of loans under deferred payment agreements as of October 21, 2020 consisted of 69 residential mortgage loans, totaling $18.4 million, 52 commercial and construction loans, totaling $62.9 million, and 160 consumer loans, totaling $2.3 million.

As a certified SBA lender, the Corporation is participating in the SBA Paycheck Protection Program (PPP) to help provide loans to the Corporation’s small business customers to provide them with additional working capital. During the third quarter of 2020, the Corporation originated 636 loans under this program, totaling $15.1 million. Together with originations closed in the second quarter, the Corporation has executed over 6,000 loans for approximately $390.3 million in the two rounds of the program. The acquisition of BSPR added $77.6 million of SBA PPP loans as of September 30, 2020. As of September 30, 2020, the total amount of SBA PPP loans carried on books amounted to $453.4 million (outstanding balance - $462.3 million).


Allowance for Credit Losses

Effective January 1, 2020, the Corporation adopted the CECL impairment model required by the Accounting Standards Codification Topic 326 (“ASC 326”). The adoption of this standard replaced the incurred loss methodology with a methodology, which is referred to as CECL, to estimate the allowance for credit losses (“ACL”) for the remaining estimated life of a financial asset carried at amortized cost and certain off-balance sheet credit exposures considering, among other things, expected future changes in macroeconomic conditions. ASC 326 does not require restatement of comparative period financial statements; as such, results for the first nine months of 2020 reflect the adoption of ASC 326, while prior periods reflect results under the previously required incurred loss methodology.

The following table summarizes the activity of the ACL for on-balance sheet and off-balance sheet exposures during the third quarter and nine-month period ended September 30, 2020:




 



Quarter Ended September 30, 2020



Loans and   Unfunded Loan   Held-to-Maturity   Availabe-for-Sale    
Allowance for Credit Losses
 Finance Leases   Commitments   Debt Securities   Debt Securities   Total
(Dollars in thousands)
       
 


Allowance for credit losses, beginning balance 

 $

              319,297

 

 

 $

                   7,084

 

 

 $

                   9,268

 

 

 $

                   1,631

 

 

 $

              337,280

 

Provision for credit losses 

 

48,078

 

 

 

                       (803

)

 

 

                       (361

)

 

 

                            -

 

 

 

46,914

 

Initial allowance on PCD assets

 

                    28,744

 

 

 

                            -

 

 

 

                      1,269

 

 

 

                            -

 

 

 

                    30,013

 

Net charge-offs

 

                  (11,401

)

 

 

                            -

 

 

 

                            -

 

 

 

                       (245

)

 

 

                  (11,646

)

Allowance for credit losses, end of period

 $

              384,718

 

 

 $

                   6,281

 

(1

)

 $

                 10,176

 

 

 $

                   1,386

 

 

 $

              402,561

 

   
                 
(1) Included in accounts payable and other liabilities.
                 











 











 











 











 



Nine-Month Period Ended  September 30, 2020



Loans and   Unfunded Loan   Held-to-Maturity   Availabe-for-Sale    
Allowance for Credit Losses
 Finance Leases   Commitments   Debt Securities   Debt Securities   Total
(Dollars in thousands)
       
 


Allowance for credit losses, beginning balance prior to adoption of CECL

 $

              155,139

 

 

 $

                         -

 

 

 $

                         -

 

 

 $

                         -

 

 

 $

              155,139

 

Impact of adopting CECL (cumulative transition adjustment) (2)

 

                    81,165

 

 

 

                      3,922

 

 

 

                      8,134

 

 

 

                            -

 

 

 

                    93,221

 

Allowance for credit losses, January 1, 2020

 

                  236,304

 

 

 

                      3,922

 

 

 

                      8,134

 

 

 

                            -

 

 

 

                  248,360

 

Provision for credit losses 

 

158,531

 

 

 

2,359

 

 

 

773

 

 

 

                      1,631

 

 

 

163,294

 

Initial allowance on PCD assets

 

                    28,744

 

 

 

                            -

 

 

 

                      1,269

 

 

 

                            -

 

 

 

                    30,013

 

Net charge-offs

 

                  (38,861

)

 

 

                            -

 

 

 

                            -

 

 

 

                       (245

)

 

 

                  (39,106

)

Allowance for credit losses, end of period

 $

              384,718

 

 

 $

                   6,281

 

(1

)

 $

                 10,176

 

 

 $

                   1,386

 

 

 $

              402,561

 











 
(1) Included in accounts payable and other liabilities.
(2) Cumulative effect judgement recorded on January 1, 2020.










 

The main variances of the total ACL by main categories follow:

Allowance for Credit Losses for Loans and Finance Leases

The following table sets forth information concerning the allowance for credit losses for loans and finance leases during the periods indicated:




 
      Quarter Ended
(Dollars in thousands)   September 30,   June 30,   March 31,   December 31,   September 30,
     

 

2020

 

 

2020

 

 

2020

 

 

 

2019

 

 

 

2019

 



                   
Allowance for credit losses, beginning balance 

 $

319,297

 


 $

292,774

 


 $

155,139

 

 

 $

165,575

 

 

 $

172,011

 

Impact of adopting ASC 326

 

-

 


 

                                  -

 


 

81,165

 


 

-

 


 

-

 

Allowance for credit losses on loans and finance leases, beginning balance after CECL adoption 

 

319,297

 


 

292,774

 


 

236,304

 


 

165,575

 


 

172,011

 

Provision for credit losses 

 

48,078

 


 

36,408

 


 

74,045

 


 

8,473

 


 

7,398

 

Initial allowance on PCD loans

 

28,744

 


 

-

 


 

-

 


 

-

 


 

-

 

Net (charge-offs) recoveries of loans:
 
 
 
 
 

Residential mortgage

 

(2,283

)


 

(1,794

)


 

(3,779

)


 

(5,930

)


 

(4,414

)


Commercial mortgage

 

(3,104

)


 

25

 


 

(84

)


 

(103

)


 

(717

)


Commercial and Industrial

 

(70

)


 

5

 


 

(10

)


 

208

 


 

1,439

 


Construction

 

36

 


 

(54

)


 

24

 


 

(8

)


 

211

 


Consumer and finance leases

 

(5,980

)


 

(8,067

)


 

(13,726

)


 

(13,076

)


 

(10,353

)

Net charge-offs

 

(11,401

)


 

(9,885

)


 

(17,575

)


 

(18,909

)


 

(13,834

)

Allowance for credit losses on loans and finance leases, end of period

 $

384,718

 


 $

319,297

 


 $

292,774

 


 $

155,139

 


 $

165,575

 




 
 
 
 
 
Allowance for credit losses on loans and finance leases to period end total loans held for investment 

 

3.25

%


 

3.41

%


 

3.24

%


 

1.72

%


 

1.85

%

Net charge-offs (annualized) to average loans outstanding during the period

 

0.45

%


 

0.43

%


 

0.78

%


 

0.84

%


 

0.61

%

Provision for credit losses on loans and finance leases to net charge-offs during the period

4.22

x



3.68

x



4.21

x



0.45

x



0.53

x














  • As of September 30, 2020, the ACL for loans and finance leases was $384.7 million, up $65.4 million from June 30, 2020. The increase was primarily due to the initial ACL required with respect to loans from the acquisition of BSPR. The CECL accounting standard requires the Corporation to provide for an ACL for non-PCD loans at the time of acquisition through a direct charge to earnings, in addition to any fair value adjustments on these loans. Accordingly, the Corporation recorded approximately $37.5 million in provision for credit losses for non-PCD loans acquired in the BSPR acquisition. In addition, for purchased credit deteriorated (“PCD”) loans totaling $785 million, the Corporation established a $28.7 million ACL representing the fair value credit marks on these loans. The initial ACL for PCD loans is not established through a charge to the provision for credit losses, but, rather, through an initial adjustment to the loan’s amortized cost.
  • The provision for credit losses on loans and finance leases was $48.1 million for the third quarter of 2020, up $11.7 million from $36.4 million in the second quarter of 2020. The increase reflects the effect of the aforementioned charge of $37.5 million recorded in the third quarter with respect to non-PCD loans acquired in the BSPR transaction, partially offset by lower reserve builds for the legacy loan portfolio in the third quarter. The following table shows the breakdown of the provision for credit losses by portfolio for the third and second quarters of 2020:

       

 
            Quarter Ended September 30, 2020
        (Dollars in thousands)   Residential
Mortgage
Loans
  Commercial Loans
(including Commercial
Mortgage, C&I, and
Construction)
  Consumer
and Finance
Leases
  Total
                         
        Provision for credit losses on loans and finance leases (legacy operations)  

 $

          (3,730

)

 

 $

                      11,147

 

 $

        3,167

 

 $

10,584

        Day 1 reserves required for acquired non-PCD loans   

 

             13,605

 

 

 

                         13,769

 

 

         10,120

 

 

   37,494

        Provision for credit losses on loans and finance leases   

 $

            9,875

 

 

 $

                      24,916

 

 $

      13,287

 

 $

48,078

                         
                         
            Quarter Ended June 30, 2020
        (Dollars in thousands)   Residential
Mortgage
Loans
  Commercial Loans
(including Commercial
Mortgage, C&I, and
Construction)
  Consumer
and Finance
Leases
  Total
                         
        Provision for credit losses on loans and finance leases   

 $

            6,162

 

 

 $

                      18,035

 

 $

      12,211

 

 $

36,408

       












 

- Provision for credit losses for the legacy commercial and construction loans portfolio of $11.1 million, compared to $18.0 million in the second quarter of 2020, reflecting lower reserve builds compared to the more significant increase in reserves in the second quarter. Notwithstanding, a reserve build of $5.8 million for the legacy commercial and construction loan portfolio was recorded in the third quarter of 2020 primarily reflecting adverse changes in the economic forecast used in the Corporation’s CECL model affecting the retail real estate industry.

- Release of credit losses for the legacy residential mortgage loans portfolio of $3.7 million, compared to a provision of $6.2 million in the second quarter of 2020. The reserve release for the legacy portfolio in the third quarter reflects the effect of favorable changes in the economic forecast used in the Corporation’s CECL model, primarily in the regional home price index, and the overall decrease in size of the legacy portfolio.

- Provision for credit losses for the legacy consumer loans and finance leases portfolio of $3.2 million, compared to $12.2 million in the second quarter of 2020. The decrease primarily reflects the effect of lower reserve builds for the legacy auto loan portfolio in the third quarter compared to the more significant increase in the reserve in the second quarter, and a decrease in charge-offs taken on small personal loans. In addition, there were reserve releases recorded for the legacy credit card and personal loan portfolios, primarily related to the decrease in the overall size of these components of the consumer loan portfolio and changes in economic forecast employed in the Corporation’s CECL model.


  • The ratio of the ACL for loans and finance leases to total loans held for investment was 3.25% as of September 30, 2020, compared to 3.41% as of June 30, 2020. No ACL was allocated to SBA PPP loans as they are fully guaranteed. On a non-GAAP basis, excluding SBA PPP loans, the ratio of the ACL for loans and finance leases to adjusted total loans held for investment was 3.38% as of September 30, 2020 compared to 3.55% as of June 30, 2020. The ratio of the total allowance for credit losses for loans and finance leases to nonaccrual loans held for investment was 191.15% as of September 30, 2020, compared to 156.54% as of June 30, 2020. The total ACL established for loans acquired in the BSPR acquisition was $66.2 million, or 2.68% of the total loans held for investment acquired from BSPR (excluding SBA PPP loans), as of September 30, 2020.

The following table sets forth information concerning the composition of the Corporation’s ACL for loans and finance leases as of September 30, 2020 and June 30, 2020 by loan category:








 
(Dollars in thousands) Residential
Mortgage Loans
  Commercial Loans
(including Commercial
Mortgage, C&I, and
Construction)
  Consumer and
Finance Leases
  Total
   
As of September 30, 2020              
Total loans held for investment:               
Amortized cost

 $           3,636,713

 

 $                      5,638,476

 

 $           2,572,086

 

 $         11,847,275

Allowance for credit losses on loans

131,781

 

128,876

 

124,061

 

                  384,718

Allowance for credit losses on loans to amortized cost

3.62%

 

2.29%

 

4.82%

 

3.25%

               
As of June 30, 2020              

 
Total loans held for investment:               
Amortized cost

 $           2,890,301

 

 $                      4,180,672

 

 $           2,295,243

 

 $           9,366,216

Allowance for credit losses on loans

111,450

 

95,545

 

112,302

 

                  319,297

Allowance for credit losses on loans to amortized cost

3.86%

 

2.29%

 

4.89%

 

3.41%








 

Net Charge-Offs

The following table presents ratios of annualized net charge-offs to average loans held-in-portfolio:



 
    Quarter Ended
    September 30,   June 30,   March 31,   December 31,   September 30,
   

2020 

 

2020 

 

 2020

 

2019 

 

2019 

                     
Residential mortgage  

0.29%

 

0.25%

 

0.52%

 

0.80%

 

0.58%

                     
Commercial mortgage  

0.73%


-0.01%


0.02%


0.03%


0.19%

     
 
 
 
 
Commercial and Industrial  

0.01%


0.00%


0.00%


-0.04%


-0.26%

     
 
 
 
 
Construction  

-0.08%


0.13%


-0.08%


0.03%


-0.81%

     
 
 
 
 
Consumer and finance leases  

1.00%


1.41%


2.38%


2.34%


1.92%

     
 
 
 
 
Total loans  

0.45%


0.43%


0.78%


0.84%


0.61%











 

The ratios above are based on annualized net charge-offs and are not necessarily indicative of the results expected in subsequent periods.

Net charge-offs were $11.4 million for the third quarter of 2020, or an annualized 0.45% of average loans, compared to $9.9 million, or an annualized 0.43% of average loans, in the second quarter of 2020. The increase of $1.5 million in net charge-offs consisted of:

  • A $3.2 million increase in commercial and construction loan net charge-offs, primarily due to the $3.1 million charge-off taken on a commercial mortgage loan in the Puerto Rico region.
  • A $2.1 million decrease in consumer loan net charge-offs, primarily reflecting decreases in charge-offs taken on small personal loans and credit cards.
  • A $0.4 million increase in residential mortgage loan net charge-offs, primarily related to charge-offs taken on delinquent loans repurchased from GNMA pools.

Allowance for Credit Losses for Unfunded Loan Commitments

The Corporation estimates expected credit losses over the contractual period in which the Corporation is exposed to credit risk as a result of a contractual obligation to extend credit, such as pursuant to unfunded loan commitments and standby letters of credit for commercial and construction loans, unless the obligation is unconditionally cancellable by the Corporation. The ACL for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. As of September 30, 2020, the ACL for off-balance sheet credit exposures was $6.3 million, down $0.8 million from $7.1 million as of June 30, 2020. The decrease consisted of a $2.1 million release recorded as a reduction of the provision for credit losses related to unfunded loan commitments of the legacy portfolio, mainly in connection with a construction loan facility, partially offset by a $1.3 million charge recorded in connection with unfunded loan commitments assumed in the BSPR acquisition.

Allowance for Credit Losses for Held-to-Maturity Debt Securities

As of September 30, 2020, the held-to-maturity securities portfolio consisted of Puerto Rico municipal bonds. As of September 30, 2020, the ACL for held-to-maturity debt securities was $10.2 million, up $0.9 million from $9.3 million as of June 30, 2020. The $0.9 million increase consisted of a $1.3 million initial ACL established for PCD debt securities acquired in the BSPR acquisition, partially offset by a $0.4 million release related to the repayment of certain bonds of the legacy debt securities portfolio during the third quarter. The initial ACL for PCD debt securities is not established through a charge to the provision for credit losses, but rather through an initial adjustment to the debt securities’ amortized cost.

Allowance for Credit Losses for Available-for-Sale Debt Securities

As of September 30, 2020, the ACL for available-for-sale debt securities was $1.4 million, down $0.2 million from $1.6 million as of June 30, 2020. The $0.2 million decrease was related to a charge-off taken against the previously-established reserve for private label MBS.


STATEMENT OF FINANCIAL CONDITION

Total assets were approximately $18.7 billion as of September 30, 2020, up $4.6 billion from June 30, 2020. The statement of financial condition as of September 30, 2020 includes $2.6 billion in loans and $354.8 million in investment securities related to the acquisition of BSPR. In addition, there was a $1.2 billion increase in cash and cash equivalents, reflecting both the effect of proceeds from the aforementioned sales of U.S. Treasury Notes acquired from BSPR amounting to $803.3 million and a $406.6 million increase related to the excess of the cash acquired in the BSPR acquisition over the cash consideration paid at closing.

The following variances within the main components of total assets are noted:

  • A $2.5 billion increase in total loans. The increase reflects primarily $2.6 billion of loans (including $77.6 million of SBA PPP loans) resulting from the BSPR acquisition in the Puerto Rico region, partially offset by a $60.5 million decrease in the legacy portfolio. Loans held for investment include a net purchase accounting discount of $66.9 million as of September 30, 2020 related to the acquisition of BSPR. The decrease of $60.5 million in the legacy portfolio during the third quarter consisted of reductions of $60.3 million in the Puerto Rico region and $3.4 million in the Virgin Islands region, partially offset by a $3.2 million increase in the Florida region. On a portfolio basis, the decrease of the legacy portfolio consisted of reductions of $65.8 million in residential mortgage loans and $60.7 million in commercial and construction loans (net of a $16.2 million increase in SBA PPP loans), partially offset by a $66.0 million increase in consumer loans.

    The following table provides additional information about the decrease/increase on loans:













 
        (In thousands)             Change Composition    
            September 30,   June 30,       Balance   Organic
Organic
           

2020

 

2020

  Change   Acquired   Growth/(Loss)
Growth/(Loss) %  
           
               
 
        Residential mortgage loans

 $

3,636,713

 

 $

2,890,301

 

 $

746,412

 

 $

816,608

 

 $

(70,196

)


-2.43

%

           
 
 
 
   
 
        Commercial loans:
 
 
 
   
 
          Construction loans 

 

                       191,356

 

 

                       177,777

 

 

               13,579

 

 

                              -  

 

 

                        13,579

 


7.64

%

          Commercial mortgage loans 

 

                   2,220,277

 

 

                   1,455,083

 

 

             765,194

 

 

                   762,663

 

 

                          2,531

 


0.17

%

          Commercial and Industrial loans  

 

                   3,226,843

 

 

                   2,547,812

 

 

             679,031

 

 

                   755,852

 

 

                      (76,821

)


-3.02

%

        Commercial loans

 

                   5,638,476

 

 

                   4,180,672

 

 

         1,457,804

 

 

                1,518,515

 

 

                      (60,711

)


-1.45

%

           
 
 
 
   
 
        Finance leases

 

                       458,381

 

 

                       438,851

 

 

               19,530

 

 

                              -  

 

 

                        19,530

 


4.45

%

           
 
 

 

                       -  

 
   
 
        Consumer loans

 

                   2,113,705

 

 

                   1,856,392

 

 

             257,313

 

 

                   210,860

 

 

                        46,453

 


2.50

%

          Loans held for investment

 

                 11,847,275

 

 

                   9,366,216

 

 

         2,481,059

 

 

                2,545,983

 

 

                      (64,924

)


-0.69

%

        Loans held for sale

 

                         48,670

 

 

                         38,986

 

 

                 9,684

 

 

                        5,272

 

 

                          4,412

 


11.32

%

          Total loans

 $

11,895,945

 

 $

9,405,202

 

 $

2,490,743

 

 $

2,551,255

 

 $

(60,512

)


-0.64

%


















 



The decrease in the legacy loan portfolio related to the Puerto Rico region consisted of a decrease of $81.1 million in commercial and construction loans and a $48.6 million decrease in residential mortgage loans, partially offset by a $69.4 million increase in consumer loans, primarily auto loans. The decrease in the legacy commercial and construction loan portfolio reflects a $43.1 million reduction in exposure to three large commercial and industrial relationships, a $26.6 million decrease in the balance of floor plan lines of credit, and other reductions in revolving lines of credits, partially offset by a $14.6 million increase in SBA PPP loans. The decline in the legacy residential mortgage loan portfolio in the Puerto Rico region reflects the effect of collections and charge-offs, which more than offset the volume of non-conforming loan originations. Approximately 92% of the $136.3 million in residential mortgage loan originations in the Puerto Rico region during the third quarter of 2020 consisted of conforming loan originations and refinancings. The growth in consumer loans was driven by new loan originations, primarily auto loans and finance leases.

The decrease in total loans in the Virgin Islands region consisted of a $3.8 million decrease in residential mortgage loans, partially offset by a $0.4 million increase in the balance of commercial and construction loans. The increase in commercial and construction loans included an increase of $0.8 million in SBA PPP loans.

The increase in total loans in the Florida region consisted of a $20.0 million increase in the balance of commercial and construction loans, driven by the origination of two large commercial loans totaling $29.9 million, partially offset by reductions of $13.4 million in residential mortgage loans and $3.4 million in consumer loans.

Total loan originations, including refinancings, renewals and draws from existing commitments (excluding credit card utilization activity), amounted to $971.1 million in the third quarter of 2020, compared to $902.9 million in the second quarter of 2020. Total loan originations in the third quarter included $15.1 million of SBA PPP loan originations, compared to $375.2 million originated in the second quarter of 2020. Excluding SBA PPP loans, total loan originations of $956.0 million in the third quarter of 2020 increased by $428.3 million from $527.7 million in the second quarter of 2020 consisting of: (i) a $217.0 million increase in commercial and construction loan originations, driven by higher utilization of commercial lines of credit, an increased volume of loan renewals and refinancings, and a higher volume of new commercial loan originations in the Florida region; (ii) a $135.6 million increase in consumer loan originations as the auto and finance leases originations picked up after the reopening of the auto retail industry in the latter part of the second quarter; and (iii) a $75.8 million increase in residential mortgage loan originations, driven by a higher volume of refinancings and conforming loan originations due to the lower mortgage loan interest rate environment.

Total loan originations in the Puerto Rico region amounted to $760.0 million in the third quarter of 2020, compared to $618.6 million in the second quarter of 2020. Total loan originations in the Puerto Rico region during the third quarter of 2020 included $14.0 million of SBA PPP loan originations, compared to $252.0 million originated in the second quarter of 2020. Excluding SBA PPP loans, total loan originations of $746.0 million in the Puerto Rico region during the third quarter of 2020 increased by $379.4 million from $366.6 million in the second quarter of 2020, consisting of a $181.9 million increase in commercial and construction loan originations, driven by higher utilization of commercial lines of credit and an increased volume of loan renewals and refinancings, a $134.5 million increase in consumer loan originations, and a $63.0 million increase in residential mortgage loan originations. The increase in residential mortgage loans was driven by refinancings and conforming loan originations sold in the secondary market, while the increase in consumer loan originations primarily reflects the effect of the reopening of the auto retail industry in the latter part of the second quarter after disruptions caused by the COVID-19 pandemic-related lockdowns and quarantines.

Total loan originations in the Virgin Islands region amounted to $31.0 million in the third quarter of 2020, compared to $40.8 million in the second quarter of 2020. Total loan originations in the Virgin Islands region during the third quarter of 2020 included $0.7 million of SBA PPP loan originations, compared to $29.7 million originated in the second quarter of 2020. Excluding SBA PPP loans, total loan originations of $30.4 million in the Virgin Islands region during the third quarter of 2020 increased by $19.3 million from $11.1 million in the second quarter of 2020, consisting of a $19.3 million increase in commercial and construction loan originations, driven by the refinancing and renewal of certain government loans, and a $1.1 million increase in consumer loan originations, partially offset by a $1.1 million decrease in residential mortgage loan originations.

Total loan originations in the Florida region amounted to $180.0 million in the third quarter of 2020, compared to $243.4 million in the second quarter of 2020. Total loan originations in the Florida region during the third quarter of 2020 included $0.4 million of SBA PPP loan originations, compared to $93.5 million originated in the second quarter of 2020. Excluding SBA PPP loans, total loan originations of $179.6 million in the Florida region during the third quarter of 2020 increased by $29.7 million from $149.9 million in the second quarter of 2020, consisting of a $15.7 million increase in commercial and construction loan originations, driven by the aforementioned origination of two large commercial loans totaling $29.9 million, and a $14.0 million increase in residential mortgage loan originations.


  • A $624.2 million increase in investment securities, mainly driven by purchases of $850.7 million of U.S. agencies MBS and callable debentures during the third quarter, and the acquisition of BSPR, which added $294.7 million of U.S. agencies residential pass-through MBS, $56.9 million of Puerto Rico municipal bonds accounted for as held-to-maturity investment securities, and $3.0 million of FHLB stock as of September 30, 2020. These variances were partially offset by approximately $205.9 million of U.S. agencies bonds that were called prior to maturity during the third quarter, prepayments of $179.9 million of U.S. agencies residential pass-through MBS, and the sales of $116.6 million of U.S. agencies MBS. The sales of $116.6 million have settlement dates in October; thus, as of September 30, 2020, the decrease in the investment securities portfolio was offset by a corresponding increase in accounts receivable on unsettled investment sales included as part of Other assets in the consolidated statement of financial condition.
  • A $65.4 million increase in the ACL for loans and finance leases, reflecting a provision of $48.1 million and an initial ACL of $28.7 million with respect to PCD loans from the acquisition of BSPR. The provision was primarily a result of the BSPR acquisition and reserves build for the legacy commercial and construction loan portfolio.
  • A $1.2 billion increase in cash and cash equivalents attributable, among other things, to proceeds from sales of U.S. Treasury Notes acquired from BSPR and the $406.6 million increase related to the excess of the cash acquired in the BSPR acquisition over the cash consideration paid at closing.
  • Core deposits and other intangible assets of $38.5 million as of September 30, 2020 related to the acquisition of BSPR.
  • A $41.4 million increase in net deferred tax assets, primarily related to the acquisition of BSPR.

Total liabilities were approximately $16.4 billion as of September 30, 2020, up $4.6 billion from June 30, 2020. The increase was mainly the result of the acquisition of BSPR, which added $4.2 billion in total deposits as of September 30, 2020.

The increase in total liabilities was mainly due to:

  • A $3.7 billion increase in total deposits, excluding brokered deposits and government deposits, consisting of a growth of $3.7 billion in the Puerto Rico region, partially offset by decreases of $30.3 million and $14.5 million in the Florida and Virgin Islands regions, respectively. The increase in the Puerto Rico region reflects primarily $3.4 billion of deposits (net of brokered and government deposits) resulting from the BSPR acquisition. Organic deposit growth was $216.4 million during the third quarter, primarily demand deposits, which grew by 6%, or $250.4 million.
  • An $899.3 million increase in government deposits, reflecting increases of $782.9 million, $115.8 million, and $0.7 million in the Puerto Rico, Virgin Islands, and Florida regions, respectively. The increase in the Puerto Rico region during the third quarter reflects primarily $670.5 million of government deposits resulting from the BSPR acquisition. The remaining $228.8 million of organic growth reflects an increase in balances of transactional accounts of certain municipalities in Puerto Rico, related to the collection of municipal license taxes, and higher balances on transactional accounts of the central government in the U.S. Virgin Islands driven by collection of income taxes.

Partially offset by:

  • A $56.0 million decrease in brokered deposits, reflecting the effect of the maturity of approximately $87.3 million of brokered CDs, with an all-in cost of 2.15%, that were paid off during the third quarter, partially offset by an increase of $31.2 million in the balance of non-maturity brokered money market deposit accounts maintained by a deposit broker. The BSPR acquisition added $56.1 million in non-maturity brokered deposits as of September 30, 2020.

The following table provides additional information about the increase/decrease on deposits:

(In thousands)





 Change Composition 



September 30,
June 30,       Balance   Organic
Organic


2020


2020

  Change   Acquired   Growth/(Loss)
Growth/(Loss) %












 
Demand Deposits

 $

6,619,389


 $

4,163,889


 $

2,455,500

 


 $

2,205,143


 $

250,357

 


6.01

%

Savings Accounts

 

3,226,685


 

2,229,684


 

997,001

 


 

975,420


 

21,581

 


0.97

%

Government Deposits

 

2,116,867


 

1,217,529


 

899,338

 


 

670,493


 

228,845

 


18.80

%

Certificates of Deposits

 

2,685,413


 

2,475,030


 

210,383

 


 

265,890


 

(55,507

)


-2.24

%

Brokered Deposits

 

554,544


 

610,554


 

(56,010

)


 

56,087


 

(112,097

)


-18.36

%


Total Deposits

 $

15,202,898


 $

10,696,686


 $

4,506,212

 


 $

4,173,033


 $

333,179

 


3.11

%

Total stockholders’ equity amounted to $2.2 billion as of September 30, 2020, an increase of $10.4 million from June 30, 2020. The increase was driven by earnings generated in the third quarter, partially offset by common and preferred stock dividends declared in the second quarter totaling $11.0 million.

The Corporation implemented the CECL model commencing January 1, 2020 and elected to phase in the full effect of CECL on regulatory capital over the five-year transition period. As of September 30, 2020, capital ratios remained strong compared to regulatory levels for well capitalized banks. The Corporation’s preliminary estimated common equity tier 1 capital, tier 1 capital, total capital and leverage ratios under the Basel III rules were 17.22%, 17.53%, 20.32% and 13.04%, respectively, as of September 30, 2020, compared to common equity tier 1 capital, tier 1 capital, total capital and leverage ratios of 21.52%, 21.90%, 25.08%, and 15.23%, respectively, as of June 30, 2020.

Meanwhile, the preliminary estimated common equity tier 1 capital, tier 1 capital, total capital and leverage ratios of our banking subsidiary, FirstBank Puerto Rico, were 15.94%, 18.60%, 19.86%, and 13.85%, respectively, as of September 30, 2020, compared to common equity tier 1 capital, tier 1 capital, total capital and leverage ratios of 20.02%, 23.32%, 24.59% and 16.23%, respectively, as of June 30, 2020.

The acquired assets and off-balance sheet items of BSPR have been fully included and risk weighted in the regulatory capital position determination of the Corporation and FirstBank Puerto Rico as of September 30, 2020. However, following regulatory capital requirements, the quarterly average asset calculation used for the leverage ratio includes the dollar amounts of the acquired assets from the acquisition date through the end of the third quarter, and the denominator for the number of days in the entire quarter, which resulted in a diluted quarterly average asset balance for the quarter ended September 30, 2020. The full effect in the leverage ratio of the assets acquired in the transaction will be reflected in the regulatory capital position determination as of December 31, 2020.


Tangible Common Equity

The Corporation’s tangible common equity ratio decreased to 11.36% as of September 30, 2020, compared to 15.25% as of June 30, 2020.

The following table presents a reconciliation of the Corporation’s tangible common equity and tangible assets over the last five quarters to the comparable GAAP items:










 
(In thousands, except ratios and per share information)                  
    September 30,   June 30,   March 31,   December 31,   September 30,
   

 

2020

 

 

 

2020

 

 

 

2020

 

 

 

2019

 

 

 

2019

 

Tangible Equity:                  
  Total equity - GAAP

 $

           2,225,282

 

 

 $

           2,214,834

 

 

 $

           2,199,751

 


 $

           2,228,073

 


 $

              2,200,595

 

  Preferred equity

 

                  (36,104

)

 

 

                  (36,104

)

 

 

                  (36,104

)


 

                  (36,104

)


 

                     (36,104

)

  Goodwill

 

                  (34,401

)

 

 

                  (28,098

)

 

 

                  (28,098

)


 

                  (28,098

)


 

                     (28,098

)

  Purchased credit card relationship intangible

 

                    (5,789

)

 

 

                    (2,668

)

 

 

                    (3,141

)


 

                    (3,615

)


 

                       (4,137

)

  Core deposit intangible

 

                  (37,749

)

 

 

                    (3,086

)

 

 

                    (3,287

)


 

                    (3,488

)


 

                       (3,695

)

  Insurance customer relationship intangible

 

                       (355

)

 

 

                       (394

)

 

 

                       (432

)


 

                       (470

)


 

                          (508

)

             
 
 
  Tangible common equity

 $

           2,110,884

 

 

 $

           2,144,484

 

 

 $

           2,128,689

 


 $

           2,156,298

 


 $

              2,128,053

 

             
 
 
Tangible Assets:          
 
 
  Total assets - GAAP

 $

         18,659,768

 

 

 $

         14,096,406

 

 

 $

         13,047,977

 


 $

         12,611,266

 


 $

            12,530,713

 

  Goodwill

 

                  (34,401

)

 

 

                  (28,098

)

 

 

                  (28,098

)


 

                  (28,098

)


 

                     (28,098

)

  Purchased credit card relationship intangible

 

                    (5,789

)

 

 

                    (2,668

)

 

 

                    (3,141

)


 

                    (3,615

)


 

                       (4,137

)

  Core deposit intangible

 

                  (37,749

)

 

 

                    (3,086

)

 

 

                    (3,287

)


 

                    (3,488

)


 

                       (3,695

)

  Insurance customer relationship intangible

 

                       (355

)

 

 

                       (394

)

 

 

                       (432

)


 

                       (470

)


 

                          (508

)

             
 
 
  Tangible assets

 $

         18,581,474

 

 

 $

         14,062,160

 

 

 $

         13,013,019

 


 $

         12,575,595

 


 $

            12,494,275

 

             
 
 
  Common shares outstanding

 

                  218,229

 

 

 

                  218,158

 

 

 

                  218,161

 


 

                  217,359

 


 

                    217,361

 

             
 
 
  Tangible common equity ratio

 

11.36

%

 

 

15.25

%

 

 

16.36

%


 

17.15

%


 

17.03

%

  Tangible book value per common share

 $

                     9.67

 

 

 $

                     9.83

 

 

 $

                     9.76

 


 $

                     9.92

 


 $

                        9.79

 











 

Exposure to Puerto Rico Government

As of September 30, 2020, the Corporation had $400.6 million of direct exposure to the Puerto Rico Government, its municipalities and public corporations, compared to $203.5 million as of June 30, 2020. The direct exposure to the Puerto Rico government as of September 30, 2020 reflects $216.6 million in Puerto Rico government loans and bonds resulting from the BSPR acquisition. As of September 30, 2020, approximately $270.2 million of the exposure consisted of loans and obligations of municipalities in Puerto Rico that are supported by assigned property tax revenues and for which, in most cases, the good faith, credit and unlimited taxing power of the applicable municipality have been pledged to their repayment, and $65.4 million consisted of municipal revenue or special obligation bonds. The Corporation’s total direct exposure to the Puerto Rico Government also included $13.8 million in loans extended to an affiliate of a public corporation, $43.2 million in loans of an agency of the Puerto Rico central government, and obligations of the Puerto Rico Government, specifically bonds of the PRHFA, at an amortized cost of $8.0 million (fair value of $6.9 million as of September 30, 2020), included as part of the Corporation’s available-for-sale investment securities portfolio. These bonds include a residential pass-through MBS issued by the PRHFA that is collateralized by certain second mortgages with a fair value of $2.9 million, which had an unrealized loss of $1.1 million as of September 30, 2020, of which $0.3 million is due to credit deterioration and was charged against earnings through an ACL during the second quarter of 2020.

The aforementioned exposure to municipalities in Puerto Rico included $189.3 million of financing arrangements with Puerto Rico municipalities that were issued in bond form, but underwritten as loans with features that are typically found in commercial loans. These bonds are accounted for as held-to-maturity investment securities. Included in these Puerto Rico municipal bonds are $56.9 million of Puerto Rico municipal bonds resulting from the acquisition of BSPR. As of September 30, 2020, the ACL for these securities was $10.2 million, up $0.9 million from $9.3 million as of June 30, 2020.

As of September 30, 2020, the Corporation had $1.7 billion of public sector deposits in Puerto Rico, compared to $920.1 million as of June 30, 2020. These public sector deposits include $670.5 million in government deposits resulting from the BSPR acquisition. Approximately 25% of the public sector deposits as of September 30, 2020 is from municipalities and municipal agencies in Puerto Rico and 75% is from public corporations, the Puerto Rico central government and agencies, and U.S. federal government agencies in Puerto Rico.

Conference Call / Webcast Information

First BanCorp’s senior management will host an earnings conference call and live webcast on Friday, October 30, 2020, at 10:00 a.m. (Eastern Time). The call may be accessed via a live Internet webcast through the investor relations section of the Corporation’s web site: www.1firstbank.com or through a dial-in telephone number at (877) 506-6537 or (412) 380–2001 for international callers. The Corporation recommends that listeners go to the web site at least 15 minutes prior to the call to download and install any necessary software. Following the webcast presentation, a question and answer session will be made available to research analysts and institutional investors. A replay of the webcast will be archived in the investor relations section of First BanCorp’s website, www.1firstbank.com, until October 30, 2021. A telephone replay will be available one hour after the end of the conference call through November 30, 2020 at (877) 344-7529 or (412) 317-0088 for international callers. The replay access code is 10149354.


Safe Harbor

This press release may contain “forward-looking statements” concerning the Corporation’s future economic, operational and financial performance. The words or phrases “expect,” “anticipate,” “intend,” “should,” “would,” “believe” and similar expressions are meant to identify “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by such sections. The Corporation cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and advises readers that various factors, including, but not limited to, the following could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements: uncertainties relating to the impact of the COVID-19 pandemic, including recent increases in, and any additional waves of, COVID-19 cases and the development and availability of a vaccine and treatments for the disease, on the Corporation’s business, operations, employees, credit quality, financial condition and net income, including because of uncertainties as to the extent and duration of the pandemic and the impact of the pandemic on consumer spending, borrowing and saving habits, the underemployment and unemployment rates, which can adversely affect repayment patterns, the Puerto Rico economy and the global economy, as well as the risk that COVID-19 may exacerbate any other factor that could cause our actual results to differ materially from those expressed in or implied by any forward-looking statements; the success of our preventative actions to protect the Corporation’s information and that of its customers in response to the cyber incident that we recently experienced, including the integrity of our data and data security systems, increased mitigation costs or an adverse effect to our reputation; risks related to the effect on the Corporation and its customers of governmental, regulatory, or central bank responses to COVID-19 and the Corporation’s participation in any such responses or programs, such as the Paycheck Protection Program established by the CARES Act of 2020, including any judgments, claims, damages, penalties, fines or reputational damage resulting from claims or challenges against the Corporation by governments, regulators, customers or otherwise, relating to the Corporation’s participation in any such responses or programs; the risk that costs, expenses, and resources associated with the Corporation’s recent acquisition of BSPR may be higher than expected; the ability to successfully complete the integration of systems, procedures, and personnel of BSPR into FirstBank that are necessary to make the transaction economically successful; the risk that the Corporation may not be able to effectively integrate BSPR into the Corporation’s internal control over financial reporting; the risk that the cost savings and any other synergies from the acquisition may not be fully realized or may take longer to realize than expected, such as the risk that deposit attrition, customer loss and/or revenue loss following the acquisition may exceed expectations, including because of the impact of the COVID-19 pandemic on customers; 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 the Commonwealth of Puerto Rico’s financial problems, including a court-supervised debt restructuring process similar to U.S. bankruptcy protection undertaken pursuant to Title III of PROMESA, the designation by the PROMESA oversight board of Puerto Rico municipalities as instrumentalities covered under PROMESA, the effects of measures included in the Puerto Rico government fiscal plan, or any revisions to it, on our clients and loan portfolios, and any potential impact from future economic or political developments in Puerto Rico; changes in economic and business conditions, including those caused by the COVID-19 pandemic, including recent increases in, and any additional waves of, COVID-19 cases, or other global or regional health crises as well as past or future natural disasters, such as the earthquakes affecting Puerto Rico’s southern coast, that directly or indirectly affect the financial health of the Corporation’s customer base in the geographic areas we serve and may result in increased costs or losses of property and equipment and other assets; the impact that a slowing economy and increased unemployment or underemployment may have on the performance of our loan and lease portfolio, the market price of our investment securities, the availability of sources of funding and the demand for our products; a decrease in demand for the Corporation’s products and services, resulting in lower revenues and earnings because of the continued economic recession in Puerto Rico; uncertainty as to the availability of certain funding sources, such as brokered CDs; the deteriorating weakness of the real estate markets and of the consumer and commercial sectors, which may be exacerbated by unemployment and underemployment and government restrictions imposed as a result of the COVID-19 pandemic, including recent increases in, and any additional waves of, COVID-19 cases, 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, higher than targeted levels of non-performing assets, charge-offs and provisions for credit losses, and may subject the Corporation to further risk from loan defaults and foreclosures; the impact of changes in accounting standards or assumptions in applying those standards, including the impact of the COVID-19 pandemic on the determination of the allowance for credit losses required by the new CECL accounting standard effective since January 1, 2020; the ability of FirstBank to realize the benefits of its net deferred tax assets; the ability of FirstBank to generate sufficient cash flow to make dividend payments to the Corporation; adverse changes in general economic conditions in Puerto Rico, the U.S., the U.S. Virgin Islands, and the British Virgin Islands, including the interest rate environment, market liquidity, housing absorption rates, real estate prices, and disruptions in the U.S. capital markets, including as a result of the COVID-19 pandemic and recent increases in, and any additional waves of, COVID-19 cases, which may further reduce interest margins, affect funding sources and demand for all of the Corporation’s products and services, and reduce the Corporation’s revenues and earnings and the value of the Corporation’s assets; uncertainty related to the effect of the discontinuation of the London Interbank Offered Rate at the end of 2021; 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 credit-related, including additional charges to the provision for credit losses on the Corporation’s remaining $8.0 million exposure to the Puerto Rico government’s debt securities held as part of the available-for-sale securities portfolio; uncertainty about legislative, tax or regulatory changes that affect financial services companies in Puerto Rico, the U.S., and the U.S. and British Virgin Islands, which could affect the Corporation’s financial condition or performance and could cause the Corporation’s actual results for future periods to differ materially from prior results and anticipated or projected results; 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 FDIC, government-sponsored housing agencies, and regulators in Puerto Rico and the U.S. and British Virgin Islands; the risk of possible failure or circumvention of the Corporation’s internal controls and procedures and the risk that the Corporation’s risk management policies may not be adequate; the Corporation’s ability to identify and prevent cyber-security incidents, such as data security breaches, malware, “denial of service” attacks, “hacking” and identity theft, a failure of which most recently caused a cyber incident, and which may result in misuse or misappropriation of confidential or proprietary information, and could result in the disruption or damage to our systems, increased costs and losses or an adverse effect to our reputation; 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 business acquisitions, such as the recent acquisition of BSPR, and dispositions; a need to recognize impairments on the Corporation’s financial instruments, goodwill and other intangible assets relating to business acquisitions, including as a result of the COVID-19 pandemic; the effect of changes in the interest rate environment, including as a result of the impact of the COVID-19 pandemic, including recent increases in, and any additional waves of, COVID-19 cases, on the global economy, on the Corporation’s businesses, business practices and results of operations; the risk that the impact of the occurrence of any of these uncertainties on the Corporation’s capital would preclude further growth of the Bank and preclude the Corporation’s Board of Directors from declaring dividends; uncertainty as to whether FirstBank will be able to continue 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.


Basis of Presentation

Use of Non-GAAP Financial Measures

This press release contains non-GAAP financial measures. Non-GAAP financial measures are used when management believes they will be helpful to an investor’s understanding of the Corporation’s results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation of the non-GAAP financial measure to the comparable GAAP financial measure, can be found in the text or in the tables in or attached to this earnings release. Any analysis of these non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP.

Tangible Common Equity Ratio and Tangible Book Value per Common Share

The tangible common equity ratio and tangible book value per common share are non-GAAP financial measures that management believes are generally used by the financial community to evaluate capital adequacy. Tangible common equity is total equity less preferred equity, goodwill, core deposit intangibles, and other intangibles, such as the purchased credit card relationship intangible and the insurance customer relationship intangible. Tangible assets are total assets less goodwill, core deposit intangibles, and other intangibles, such as the purchased credit card relationship intangible and the insurance customer relationship intangible. Management and many stock analysts use the tangible common equity ratio and tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, typically stemming from the use of the purchase method of accounting for mergers and acquisitions. Accordingly, the Corporation believes that disclosure of these financial measures may be useful to investors. Neither tangible common equity nor tangible assets, or the related measures, should be considered in isolation or as a substitute for stockholders’ equity, total assets, or any other measure calculated in accordance with GAAP. Moreover, the manner in which the Corporation calculates its tangible common equity, tangible assets, and any other related measures may differ from that of other companies reporting measures with similar names.

Adjusted Pre-Tax, Pre-Provision Income

Adjusted pre-tax, pre-provision income is a non-GAAP performance metric that management uses and believes that investors may find useful in analyzing underlying performance trends, particularly in times of economic stress, including as a result of natural catastrophes, such as the hurricanes that affected the Corporation’s service areas in 2017 and the earthquakes experienced in Puerto Rico in early 2020, or health epidemics, such as the COVID-19 pandemic in 2020. Adjusted pre-tax, pre-provision income, as defined by management, represents income before income taxes adjusted to exclude the provisions for credit losses on loans, finance leases and debt securities and any gains or losses on sales of investment securities. In addition, from time to time, earnings are also adjusted for certain items regarded as Special Items, such as hurricane-related insurance recoveries, costs incurred in connection with the COVID-19 pandemic response efforts, merger and restructuring costs in connection with the acquisition of BSPR, and the accelerated discount from the early payoff of an acquired commercial mortgage loan reflected above, because management believes these items are not reflective of core operating performance, are not expected to reoccur with any regularity or may reoccur at uncertain times and in uncertain amounts.

Net Interest Income, Excluding Valuations, and on a Tax-Equivalent Basis

Net interest income, interest rate spread, and net interest margin are reported excluding the changes in the fair value of derivative instruments and on a tax-equivalent basis in order to provide to investors additional information about the Corporation’s net interest income that management uses and believes should facilitate comparability and analysis of the periods presented. The changes in the fair value of derivative instruments have no effect on interest due or interest earned on interest-bearing liabilities or interest-earning assets, respectively. The tax-equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes a marginal income tax rate. Income from tax-exempt earning assets is increased by an amount equivalent to the taxes that would have been paid if this income had been taxable at statutory rates. Management believes that it is a standard practice in the banking industry to present net interest income, interest rate spread, and net interest margin on a fully tax-equivalent basis. This adjustment puts all earning assets, most notably tax-exempt securities and tax-exempt loans, on a common basis that facilitates comparison of results to the results of peers.


The following table reconciles net interest income in accordance with GAAP to net interest income excluding valuations, and net interest income on a tax-equivalent basis for third and second quarters of 2020, the third quarter of 2019 and the nine-month periods ended September 30, 2020 and 2019. The table also reconciles net interest spread and net interest margin to these items excluding valuations, and on a tax-equivalent basis.





 
(Dollars in thousands)   Quarter Ended   Nine-Month Period Ended
    September 30,
2020
  June 30,
2020
  September 30,
2019
  September 30,
2020

September 30,
2019
Net Interest Income     




 

Interest income - GAAP  

 $

                                 170,402

 


 $

                                   158,616

 


 $

                                 172,295

 


 $

                                   494,282

 


 $

                                   508,277

 

Unrealized loss on    
 
 
 

derivative instruments   

 

                                            (18

)


 

                                                 -

 


 

                                                1

 


 

                                               (18

)


 

                                                   6

 

Interest income excluding valuations  

 

                                    170,384

 


 

                                      158,616

 


 

                                    172,296

 


 

                                       494,264

 


 

                                       508,283

 

Prepayment penalty income on a commercial mortgage loan tied to an interest rate swap   

 

                                               -

 


 

                                                 -

 


 

                                               -

 


 

                                                 -

 


 

                                                 -

 

Interest income excluding valuations and a $2.5 million prepayment penalty collected   

 

                                    170,384

 


 

                                      158,616

 


 

                                    172,296

 


 

                                       172,296

 


 

                                       169,511

 

Tax-equivalent adjustment  

 

                                         4,964

 


 

                                           5,135

 


 

                                         4,964

 


 

                                         15,751

 


 

                                         15,215

 

Interest income on a tax-equivalent basis and excluding valuations  

 $

                                 175,348

 


 $

                                   163,751

 


 $

                                 177,260

 


 $

                                   510,015

 


 $

                                   523,498

 

     
 
 
 

Interest expense - GAAP  

 

                                      21,706

 


 

                                         23,406

 


 

                                       27,870

 


 

                                         71,727

 


 

                                         81,125

 

     
 
 
 

Net interest income - GAAP  

 $

                                 148,696

 


 $

                                   135,210

 


 $

                                 144,425

 

 

 $

                                   422,555

 


 $

                                   427,152

 

     
 
 
 

Net interest income excluding valuations   

 $

                                 148,678

 


 $

                                   135,210

 


 $

                                 144,426

 


 $

                                   422,537

 


 $

                                   427,158

 

     
 
 
 

Net interest income on a tax-equivalent basis and excluding valuations  

 $

                                 153,642

 


 $

                                   140,345

 


 $

                                 149,390

 


 $

                                   438,288

 


 $

                                   442,373

 

     
 
 
 

Average Balances     
 
 
 

Loans and leases  

 $

                            10,163,671

 


 $

                                9,247,878

 


 $

                              9,026,725

 


 $

                                9,472,189

 


 $

                                8,992,156

 

Total securities, other short-term investments and interest-bearing cash balances   

 

                                 4,871,710

 


 

                                   3,636,532

 


 

                                 2,691,584

 


 

                                   3,859,381

 


 

                                   2,655,820

 

Average interest-earning assets  

 $

                            15,035,381

 


 $

                              12,884,410

 


 $

                            11,718,309

 


 $

                              13,331,570

 


 $

                              11,647,976

 

     
 
 
 

Average interest-bearing liabilities  

 $

                              9,732,691

 


 $

                                8,436,511

 


 $

                              7,819,008

 


 $

                                8,729,809

 


 $

                                7,716,951

 

     
 
 
 

Average Yield/Rate    
 
 
 

Average yield on interest-earning assets - GAAP  

 

4.51

%


 

4.95

%


 

5.83

%


 

4.95

%


 

5.83

%

Average rate on interest-bearing liabilities - GAAP  

 

0.89

%


 

1.12

%


 

1.41

%


 

1.10

%


 

1.41

%

Net interest spread - GAAP  

 

3.62

%


 

3.83

%


 

4.42

%


 

3.85

%


 

4.42

%

Net interest margin - GAAP  

 

3.93

%


 

4.22

%


 

4.89

%


 

4.23

%


 

4.90

%

     
 
 
 

Average yield on interest-earning assets excluding valuations   

 

4.51

%


 

4.95

%


 

5.83

%


 

4.95

%


 

5.83

%

Average rate on interest-bearing liabilities excluding valuations  

 

0.89

%


 

1.12

%


 

1.41

%


 

1.10

%


 

1.41

%

Net interest spread excluding valuations   

 

3.62

%


 

3.83

%


 

4.42

%


 

3.85

%


 

4.42

%

Net interest margin excluding valuations   

 

3.93

%


 

4.22

%


 

4.89

%


 

4.23

%


 

4.90

%

     
 
 
 

Average yield on interest-earning assets on a tax-equivalent basis and excluding valuations  

 

4.64

%


 

5.11

%


 

6.00

%


 

5.11

%


 

6.01

%

Average rate on interest-bearing liabilities excluding valuations  

 

0.89

%


 

1.12

%


 

1.41

%


 

1.10

%


 

1.41

%

Net interest spread on a tax-equivalent basis and excluding valuations  

 

3.75

%


 

3.99

%


 

4.59

%


 

4.01

%


 

4.60

%

Net interest margin on a tax-equivalent basis and excluding valuations  

 

4.07

%


 

4.38

%


 

5.06

%


 

4.39

%


 

5.08

%





















 

Financial measures adjusted to exclude the effect of Special Items that management believes are not reflective of core operating performance, are not expected to reoccur with any regularity or may reoccur at uncertain times and in uncertain amounts.

To supplement the Corporation’s financial statements presented in accordance with GAAP, the Corporation uses, and believes that investors would benefit from disclosure of, non-GAAP financial measures that reflect adjustments to net income and non-interest expenses to exclude items that management identifies as Special Items because management believes they are not reflective of core operating performance, are not expected to reoccur with any regularity or may reoccur at uncertain times and in uncertain amounts. This press release includes the following non-GAAP financial measures for the third and second quarters of 2020 and the third quarter of 2019 that reflect the described items that were excluded for one of those reasons:

  • Adjusted net income for the third and second quarters of 2020 and the third quarter of 2019 reflect the following exclusions:

- Gain of $5.3 million and loss of $0.2 million on the sales of U.S. agencies MBS and U.S. Treasury Notes recorded in the third quarter of 2020 and second quarter of 2020, respectively.

- Merger and restructuring costs of $10.4 million, $2.9 million, and $0.6 million recorded in the third quarter of 2020, second quarter of 2020, and third quarter of 2019, respectively, related to transaction costs and restructuring initiatives in connection with the acquisition of BSPR.

- The $8.0 million benefit related to the partial reversal of the deferred tax asset valuation allowance.

- COVID-19 pandemic-related expenses of $1.0 million and $3.0 million in the third quarter of 2020 and second quarter of 2020, respectively.

- A $0.1 million gain on the repurchase and cancellation of $0.4 million in trust preferred securities in the third quarter of 2020 reflected in the statement of income set forth above as “Gain on early extinguishment of debt.”

- Benefit of $5.0 million and $0.4 million recorded in the second quarter of 2020 and third quarter of 2019, respectively, resulting from insurance recoveries associated with business interruption and hurricane-related expenses and impairments related to Hurricanes Irma and Maria.

- The accelerated discount accretion of $3.0 million resulting from the early payoff of an acquired commercial mortgage loan in the third quarter of 2019.

- The tax-related effects of all of the pre-tax items mentioned in the above bullets as follows:

  • Tax benefit of $3.9 million, $1.1 million and $0.2 million in the third quarter of 2020, second quarter of 2020, and third quarter of 2019, respectively, related to merger and restructuring costs in connection with the pending acquisition of BSPR (calculated based on the statutory tax rate of 37.5%).
  • Tax benefit of $0.4 million and $1.1 million in the third quarter of 2020 and second quarter of 2020, respectively, in connection with the COVID-19 pandemic-related expenses (calculated based on the statutory tax rate of 37.5%)
  • Tax expense of $1.9 million and $0.1 million in the second quarter of 2020 and third quarter of 2019, respectively, related to the benefit of hurricane-related insurance recoveries (calculated based on the statutory tax rate of 37.5%).
  • Tax expense of $1.1 million in the third quarter of 2019 related to the accelerated discount accretion from the payoff of an acquired commercial mortgage loan (calculated based on the statutory tax rate of 37.5% for 2019).
  • No tax expense/benefit was recorded for the gain/loss on sales of U.S. agencies MBS and U.S. Treasury Notes in the third and second quarters of 2020. Those sales consisted of tax-exempt securities or were recorded at the tax-exempt international banking entity subsidiary level.
  • The gain realized on the repurchase and cancellation of trust-preferred securities in the third quarter of 2020 recorded at the holding company level had no effect on the income tax expense in 2020.
  • Adjusted non-interest expenses – The following tables reconcile for the third and second quarters of 2020 the non-interest expenses to adjusted non-interest expenses, which is a non-GAAP financial measure that excludes some of the Special Items identified above:








 
(Dollars in thousands)  
           
Third Quarter 2020   Non-Interest Expenses
(GAAP)
  Merger and
Restructuring Costs
  COVID-19 Pandemic-
Related Expenses
  Adjusted (Non-GAAP)
                 
Non-interest expenses   

 $

                     107,508


 $

                          10,441


 $

                                    962


 $

                             96,105

Employees' compensation and benefits  

 

                          43,063


 

                                     -  

 

 

                                         18


 

                                43,045

Occupancy and equipment  

 

                          19,064


 

                                     -  

 

 

                                       768


 

                                18,296

Business promotion  

 

                            3,046


 

                                     -  

 

 

                                         71


 

                                  2,975

Professional service fees  

 

                          11,563


 

                                     -  

 

 

                                           2


 

                                11,561

Taxes, other than income taxes  

 

                            4,510


 

                                     -  

 

 

                                         82


 

                                  4,428

Insurance and supervisory fees  

 

                            3,019


 

                                     -  

 

 

                                          -  


 

                                  3,019

Net loss on other real estate owned operations  

 

                            1,019


 

                                     -  

 

 

                                       -  


 

                                  1,019

Merger and restrucuring costs  

 

                          10,441


 

                             10,441

 

 

                                          -  


 

                                        -  

Other non-interest expenses  

 

                          11,783


 

                                     -  

 

 

                                         21


 

                                11,762

   

     

   






(Dollars in thousands)  






                 
Second Quarter 2020   Non-Interest Expenses (GAAP)   Merger and Restructuring Costs   COVID-19 Pandemic-Related Expenses   Adjusted (Non-GAAP)
                 
Non-interest expenses   

 $

                       89,786

 

 $

                            2,902

 

 $

                                 2,961

 

 $

                             83,923

Employees' compensation and benefits  

 

                          39,532

 

 

                                     -  

 

 

                                    1,695

 

 

                                37,837

Occupancy and equipment  

 

                          16,376

 

 

                                     -  

 

 

                                       851

 

 

                                15,525

Business promotion  

 

                            2,314

 

 

                                     -  

 

 

                                       295

 

 

                                  2,019

Professional service fees  

 

                          11,968

 

 

                                     -  

 

 

                                           5

 

 

                                11,963

Taxes, other than income taxes  

 

                            3,577

 

 

                                     -  

 

 

                                         77

 

 

                                  3,500

Insurance and supervisory fees  

 

                            2,565

 

 

                                     -  

 

 

                                          -  

 

 

                                  2,565

Net loss on other real estate owned operations  

 

                               811

 

 

                                     -  

 

 

                                       -  

 

 

                                     811

Merger and restrucuring costs  

 

                            2,902

 

 

                               2,902

 

 

                                          -  

 

 

                                        -  

Other non-interest expenses  

 

                            9,741

 

 

                                     -  

 

 

                                         38

 

 

                                  9,703









 


  • Allowance for credit losses on loans and finance leases to adjusted total loans held for investment ratio - The following table reconciles the ratio of the allowance for credit losses on loans and finance leases to adjusted total loans held for investment, excluding SBA PPP loans, as of September 30, 2020 and June 30, 2020:
      Allowance for credit losses for loans and finance leases to
Loans Held for Investment (GAAP to Non-GAAP
reconciliation)
           
      As of September 30, 2020
           
(In thousands)     Allowance for Credit Losses for
Loans and Finance Leases
  Loans Held for Investment
           
Allowance for credit losses for loans and finance leases and loans held for investment (GAAP)    

 $

                                  384,718

 

 

 $

                      11,847,275

Less:          
SBA PPP loans    

 

                                             -

 

 

 

                             453,358

Allowance for credit losses for loans and finance leases and adjusted loans held for investment, excluding SBA PPP loans (Non-GAAP)    

 $

                                  384,718

 

 

 $

                      11,393,917

           
Allowance for credit losses for loans and finance leases to loans held for investment (GAAP)    

 

3.25

%

   
Allowance for credit losses for loans and finance leases to adjusted loans held for investment, excluding SBA PPP loans (Non-GAAP)    

 

3.38

%

   
           
           
           


       
      Allowance for credit losses for loans and finance leases to
Loans Held for Investment (GAAP to Non-GAAP
reconciliation)
           
      As of June 30, 2020
           
(In thousands)     Allowance for Credit Losses for
Loans and Finance Leases
  Loans Held for Investment
           
Allowance for credit losses for loans and finance leases and loans held for investment (GAAP)    

 $

                                  319,297

 

 

 $

                        9,366,216

Less:          
SBA PPP loans    

 

                                             -

 

 

 

                             359,572

Allowance for credit losses for loans and finance leases and adjusted loans held for investment, excluding SBA PPP loans (Non-GAAP)    

 $

                                  319,297

 

 

 $

                        9,006,644

           
Allowance for credit losses for loans and finance leases to loans held for investment (GAAP)    

 

3.41

%

   
Allowance for credit losses for loans and finance leases to adjusted loans held for investment, excluding SBA PPP loans (Non-GAAP)    

 

3.55

%

   


  • Adjusted provision for credit losses on loans to net charge-offs ratios - The following table reconciles the ratio of the provision for credit losses on loans and finance leases to net charge-offs to the ratio of adjusted provision for credit losses on loans and finance leases to net charge-offs for the nine-month period ended September 30, 2019 excluding the hurricane-related qualitative reserve releases, which the Corporation regards as a Special Item:



 
      Provision for credit losses for loans and finance leases  to
Net Charge-Offs  (GAAP to Non-GAAP reconciliation)
           
      Nine-Month Period Ended September 30, 2019
           
(In thousands)     Provision for Credit Losses for
Loans and Finance Leases
  Net Charge-Offs
           
Provision for credit losses for loans and finance leases and net charge-offs (GAAP)    

 $

                                    31,752

 

 

 $

                         62,539

Less Special Item:          
Hurrricane-related qualitative reserve release     

 

                                        6,425

 

 

 

                                   -  

Provision for credit losses for loans and finance leases and net charge-offs, excluding special item (Non-GAAP)    

 $

                                    38,177

 

 

 $

                         62,539

           
Provision for credit losses for loans and finnace leases to net charge-offs (GAAP)    

 

50.77

%

   
Provision for credit losses for loans and finance leases to net charge-offs, excluding special item (Non-GAAP)    

 

61.05

%

   







 

Management believes that the presentation of adjusted net income, adjusted non-interest expenses and adjustments to the various components of non-interest expenses, the ratio of allowance for credit losses to adjusted total loans held for investment, and the ratio of adjusted provision for credit losses for loans and finance leases to net charge-offs enhances the ability of analysts and investors to analyze trends in the Corporation’s business and understand the performance of the Corporation. In addition, the Corporation may utilize these non-GAAP financial measures as guides in its budgeting and long-term planning process.




 

FIRST BANCORP   


CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION    


           
    As of
    September 30,   June 30,   December 31,
(In thousands, except for share information)  

 

2020

 

 

 

2020

 

 

 

2019

 

ASSETS          
           
Cash and due from banks  

 $

                 2,360,524

 

 

 $

               1,203,791

 

 

 $

                         546,391

 

             
Money market investments:            
Time deposits with other financial institutions  

 

                               300

 

 

 

                             300

 

 

 

                                    300

 

Other short-term investments  

 

                        108,683

 

 

 

                       97,392

 

 

 

                              97,408

 

Total money market investments  

 

                        108,983

 

 

 

                       97,692

 

 

 

                              97,708

 

             
Investment securities available for sale, at fair value (allowance for credit losses of $1,078 as of September 30, 2020; $1,631 as of June 30, 2020)  

 

                     3,294,649

 

 

 

                  2,723,171

 

 

 

                         2,123,525

 

             
Investment securities held to maturity, at amortized cost, net of allowance for credit losses of $10,176 as of September 30, 2020 and $9,268 as of June 30, 2020  

 

                        178,980

 

 

 

                     129,265

 

 

 

                            138,675

 

             
Equity securities  

 

                          39,290

 

 

 

                       36,262

 

 

 

                              38,249

 

             
Total investment securities  

 

                     3,512,919

 

 

 

                  2,888,698

 

 

 

                         2,300,449

 

             
             
             
Loans, net of allowance for credit losses of $384,718            
(June 30, 2020 - $319,297; December 31, 2019 - $155,139)  

 

                  11,462,557

 

 

 

                  9,046,919

 

 

 

                         8,847,066

 

Loans held for sale, at lower of cost or market  

 

                          48,670

 

 

 

                       38,986

 

 

 

                              39,477

 

Total loans, net   

 

                  11,511,227

 

 

 

                  9,085,905

 

 

 

                         8,886,543

 

             
Premises and equipment, net  

 

                        159,772

 

 

 

                     148,054

 

 

 

                            149,989

 

Other real estate owned  

 

                          89,049

 

 

 

                       96,319

 

 

 

                            101,626

 

Accrued interest receivable on loans and investments  

 

                          77,240

 

 

 

                       62,983

 

 

 

                              50,205

 

Deferred tax asset, net  

 

                        347,543

 

 

 

                     306,175

 

 

 

                            264,842

 

Goodwill  

 

                          34,401

 

 

 

                       28,098

 

 

 

                              28,098

 

Intangible assets  

 

                          43,893

 

 

 

                         5,754

 

 

 

                                7,103

 

Other assets  

 

                        414,217

 

 

 

                     172,937

 

 

 

                            178,312

 

Total assets  

 $

               18,659,768

 

 

 $

            14,096,406

 

 

 $

                   12,611,266

 

             
LIABILITIES            
             
Deposits:            
Non-interest-bearing deposits  

 $

                 4,467,041

 

 

 $

               3,081,936

 

 

 $

                      2,367,856

 

Interest-bearing deposits   

 

                  10,735,857

 

 

 

                  7,614,750

 

 

 

                         6,980,573

 

Total deposits  

 

                  15,202,898

 

 

 

                10,696,686

 

 

 

                         9,348,429

 

Securities sold under agreements to repurchase  

 

                        300,000

 

 

 

                     300,000

 

 

 

                            100,000

 

Advances from the Federal Home Loan Bank (FHLB)  

 

                        490,000

 

 

 

                     490,000

 

 

 

                            570,000

 

Other borrowings  

 

                        183,762

 

 

 

                     184,150

 

 

 

                            184,150

 

Accounts payable and other liabilities  

 

                        257,826

 

 

 

                     210,736

 

 

 

                            180,614

 

Total liabilities  

 

                  16,434,486

 

 

 

                11,881,572

 

 

 

                       10,383,193

 

             
STOCKHOLDERS' EQUITY            
             
Preferred Stock, authorized 50,000,000 shares; issued 22,828,174 shares; outstanding 1,444,146 shares; aggregate liquidation value of $36,104  

 

                          36,104

 

 

 

                       36,104

 

 

 

                              36,104

 

             
Common stock, $0.10 par value, authorized 2,000,000,000 shares; issued, 223,028,185 shares (June 30, 2020 - 222,955,394 shares issued; December 31, 2019 - 222,103,721 shares issued)  

 

                          22,303

 

 

 

                       22,296

 

 

 

                              22,210

 

Less: Treasury stock (at par value)  

 

                              (480

)

 

 

                           (480

)

 

 

                                  (474

)

             
Common stock outstanding, 218,228,901 shares outstanding (June 30, 2020 - 218,157,639 shares outstanding; December 31, 2019 - 217,359,337 shares outstanding)  

 

                          21,823

 

 

 

                       21,816

 

 

 

                              21,736

 

Additional paid-in capital  

 

                        945,213

 

 

 

                     943,816

 

 

 

                            941,652

 

Retained earnings  

 

                     1,176,815

 

 

 

                  1,159,828

 

 

 

                         1,221,817

 

Accumulated other comprehensive income   

 

                          45,327

 

 

 

                       53,270

 

 

 

                                6,764

 

Total stockholders' equity  

 

                     2,225,282

 

 

 

                  2,214,834

 

 

 

                         2,228,073

 

Total liabilities and stockholders' equity  

 $

               18,659,768

 

 

 $

            14,096,406

 

 

 $

                   12,611,266

 

 








 
FIRST BANCORP
 



CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 



           
 



    Quarter Ended   Nine-Month Period Ended
    September 30,   June 30,   September 30,   September 30,   September 30,  
(In thousands, except per share information)  

 

2020

 

 

 

2020

 

 

 

2019

 

 

 

2020

 

 

2019

 

 
           
     
 
Net interest income:      


     
 
Interest income  

 $

                  170,402

 

 

 $

                      158,616

 


 $

                  172,295

 

 

 $

                      494,282

 

 $

                     508,277

 

 
Interest expense  

 

                        21,706

 

 

 

                            23,406

 


 

                       27,870

 

 

 

                           71,727

 

 

                           81,125

 

 
Net interest income  

 

                     148,696

 

 

 

                         135,210

 


 

                     144,425

 

 

 

                         422,555

 

 

                        427,152

 

 
Provision for credit losses:
     

     
 
   Loans  

 

                        48,078

 

 

 

                            36,408

 

 

 

                         7,398

 

 

 

                         158,531

 

 

                           31,752

 

 
   Unfunded loan commitments  

 

                           (803

)

 

 

                              1,343

 

 

 

                                -

 

 

 

                             2,359

 

 

                              (412

)

 
   Debt securities  

 

                           (361

)

 

 

                              1,263

 

 

 

                                -

 

 

 

                             2,404

 

 

                                   -

 

 
        Provision for credit losses  

 

                        46,914

 

 

 

                            39,014

 

 

 

                         7,398

 

 

 

                         163,294

 

 

                           31,340

 

 
Net interest income after provision for credit losses

 

                     101,782

 

 

 

                            96,196

 


 

                     137,027

 

 

 

                         259,261

 

 

                        395,812

 

 
         

     
 
Non-interest income:        

     
 
Service charges on deposit accounts  

 

                          5,848

 

 

 

                              4,475

 


 

                         6,108

 

 

 

                           16,280

 

 

                           17,711

 

 
Mortgage banking activities  

 

                          7,099

 

 

 

                              3,686

 


 

                         4,396

 

 

 

                           14,573

 

 

                           12,418

 

 
Net (loss) gain on  investments  

 

                          5,288

 

 

 

                               (155

)


 

                           (497

)

 

 

                           13,380

 

 

                              (497

)

 
Gain on early extinguishment of debt  

 

                               94

 

 

 

                                    -

 


 

                                -

 

 

 

                                   94

 

 

                                   -

 

 
Other non-interest income

 

                        11,605

 


 

                            12,886

 


 

                       11,394

 


 

                           36,699

 

 

                           36,535

 


Total non-interest income 

 

                        29,934

 


 

                            20,892

 


 

                       21,401

 


 

                           81,026

 

 

                           66,167

 


         

     
 
Non-interest expenses:        

             
Employees' compensation and benefits  

 

                        43,063

 

 

 

                            39,532

 


 

                       41,409

 

 

 

                         125,454

 

 

                        121,518

 

 
Occupancy and equipment  

 

                        19,064

 

 

 

                            16,376

 


 

                       15,129

 

 

 

                           50,567

 

 

                           47,018

 

 
Business promotion  

 

                          3,046

 

 

 

                              2,314

 


 

                         4,004

 

 

 

                             8,982

 

 

                           11,650

 

 
Professional service fees  

 

                        11,563

 

 

 

                            11,968

 


 

                       11,875

 

 

 

                           35,324

 

 

                           33,856

 

 
Taxes, other than income taxes  

 

                          4,510

 

 

 

                              3,577

 


 

                         3,904

 

 

 

                           11,967

 

 

                           11,461

 

 
Insurance and supervisory fees  

 

                          3,019

 

 

 

                              2,565

 


 

                         2,425

 

 

 

                             8,193

 

 

                             7,322

 

 
Net loss on other real estate owned operations  

 

                          1,019

 

 

 

                                 811

 


 

                         2,578

 

 

 

                             3,018

 

 

                           11,364

 

 
Merger and restructuring costs  

 

                        10,441

 

 

 

                              2,902

 


 

                            592

 

 

 

                           14,188

 

 

                                592

 

 
Other non-interest expenses  

 

                        11,783

 

 

 

                              9,741

 

 

 

                       10,917

 

 

 

                           31,785

 

 

                           31,373

 

 
Total non-interest expenses  

 

                     107,508

 

 

 

                            89,786

 

 

 

                       92,833

 

 

 

                         289,478

 

 

                        276,154

 

 
                       
Income before income taxes  

 

                        24,208

 

 

 

                            27,302

 

 

 

                       65,595

 

 

 

                           50,809

 

 

                        185,825

 

 
Income tax benefit (expense)  

 

                          4,405

 

 

 

                            (6,046

)

 

 

                     (19,268

)

 

 

                             1,326

 

 

                         (54,897

)

 
                       
Net income   

 $

                    28,613

 

 

 $

                        21,256

 

 

 $

                    46,327

 

 

 $

                        52,135

 

 $

                     130,928

 

 
                       
Net income attributable to common stockholders   

 $

                    27,944

 

 

 $

                        20,587

 

 

 $

                    45,658

 

 

 $

                        50,128

 

 $

                     128,921

 

 
         

     
 
Earnings per common share:        

     
 
         

     
 
Basic  

 $

                         0.13

 

 

 $

                             0.09

 


 $

                        0.21

 

 

 $

                            0.23

 

 $

                            0.60

 

 
Diluted  

 $

                         0.13

 

 

 $

                             0.09

 


 $

                        0.21

 

 

 $

                            0.23

 

 $

                            0.59

 

 

About First BanCorp.

First BanCorp. is the parent corporation of FirstBank Puerto Rico, a state-chartered commercial bank with operations in Puerto Rico, the U.S. and the British Virgin Islands and Florida, and of FirstBank Insurance Agency. Among the subsidiaries of FirstBank Puerto Rico are First Federal Finance Corp. and First Express, both small loan companies. First BanCorp’s shares of common stock trade on the New York Stock Exchange under the symbol FBP. Additional information about First BanCorp. may be found at www.1firstbank.com.

EXHIBIT A

Table 1 – Selected Financial Data




 
(In thousands, except per share amounts and financial ratios) Quarter Ended
Nine-Month Period Ended
    September 30,   June 30,   September 30,   September 30,
September 30,  
   

2020

 

2020

 

2019

 

2020


2019

 
Condensed Income Statements:        
   

 
  Total interest income

 $

              170,402

 

 $

              158,616

 

 

 $

                  172,295

 

 

 $

              494,282


 $

              508,277

 

 
  Total interest expense

 

21,706

 

 

23,406

 

 

 

27,870

 

 

 

71,727


 

81,125

 

 
  Net interest income

 

148,696

 

 

135,210

 

 

 

144,425

 

 

 

422,555


 

427,152

 

 
  Provision for credit losses

 

46,914

 

 

39,014

 

 

 

7,398

 

 

 

                  163,294

 

 

31,340

 

 
  Non-interest income 

 

29,934

 

 

20,892

 

 

 

21,401

 

 

 

81,026


 

66,167

 

 
  Non-interest expenses

 

107,508

 

 

89,786

 

 

 

92,833

 

 

 

289,478


 

276,154

 

 
  Income before income taxes

 

24,208

 

 

27,302

 

 

 

65,595

 

 

 

50,809


 

185,825

 

 
  Income tax expense 

 

                      4,405

 

 

                    (6,046

)

 

 

                      (19,268

)

 

 

                      1,326


 

                  (54,897

)

 
  Net income 

 

28,613

 

 

21,256

 

 

 

46,327

 

 

 

52,135


 

130,928

 

 
  Net income attributable to common stockholders 

 

27,944

 

 

20,587

 

 

 

45,658

 

 

 

50,128


 

128,921

 

 
                 

 
                 


Per Common Share Results:              


  Net earnings per share - basic

 $

                     0.13

 

 $

                     0.09

 

 

 $

                         0.21

 

 

 $

                     0.23


 $

                     0.60

 


  Net earnings per share - diluted

 $

                     0.13

 

 $

                     0.09

 

 

 $

                         0.21

 

 

 $

                     0.23


 $

                     0.59

 


  Cash dividends declared

 $

                     0.05

 

 $

                     0.05

 

 

 $

                         0.03

 

 

 $

                     0.15


 $

                     0.09

 


  Average shares outstanding

 

216,922

 

 

216,920

 

 

 

216,690

 

 

 

216,876


 

                  216,569

 


  Average shares outstanding diluted

 

217,715

 

 

217,570

 

 

 

217,227

 

 

 

217,533


 

                  217,053

 


  Book value per common share

 $

                   10.03

 

 $

                     9.99

 

 

 $

                         9.96

 

 

 $

                   10.03


 $

                     9.96

 


  Tangible book value per common share (1)

 $

                     9.67

 

 $

                     9.83

 

 

 $

                         9.79

 

 

 $

                     9.67


 $

                     9.79

 


                 

 
Selected Financial Ratios (In Percent):              

 
                 

 
Profitability:              

 
  Return on Average Assets

 

0.72

 

 

0.63

 

 

 

                            1.47

 

 

 

0.50


 

                        1.41

 

 
  Interest Rate Spread (2)

 

                        3.75

 

 

                        3.99

 

 

 

                            4.59

 

 

 

                        4.01


 

                        4.60

 

 
  Net Interest Margin (2)

 

                        4.07

 

 

                        4.38

 

 

 

                            5.06

 

 

 

                        4.39


 

                        5.08

 

 
  Return on Average Total Equity

 

                        5.07

 

 

                        3.86

 

 

 

                            8.39

 

 

 

                        3.13


 

                        8.19

 

 
  Return on Average Common Equity

 

5.03

 

 

3.80

 

 

 

                            8.53

 

 

 

3.06


 

                        8.33

 

 
  Average Total Equity to Average Total Assets

 

14.22

 

 

16.32

 

 

 

                          17.55

 

 

 

15.84


 

                      17.22

 

 
  Total capital

 20.32

 

 

25.08

 

 

 

                          25.27

 

 

 

20.32

 

                      25.27

 

 
  Common equity Tier 1 capital

 17.22

 

 

21.52

 

 

 

                          21.61

 

 

 

17.22

 

                      21.61

 

 
  Tier 1 capital

 17.53

 

 

21.90

 

 

 

                          22.02

 

 

 

17.53

 

                      22.02

 

 
  Leverage

 13.04

 

 

15.23

 

 

 

                          16.04

 

 

 

13.04

 

                      16.04

 

 
  Tangible common equity ratio (1)

 

11.36

 

 

                      15.25

 

 

 

                          17.03

 

 

 

                      11.36


 

                      17.03

 

 
  Dividend payout ratio

 

                      38.81

 

 

                      52.68

 

 

 

                          14.24

 

 

 

                      64.90


 

                      15.12

 

 
  Efficiency ratio (3)

 

60.18

 

 

                      57.52

 

 

 

55.98

 

 

 

57.48


 

55.98

 

 
                 

 
Asset Quality:              

 
  Allowance for credit losses on loans and finance leases to loans held for investment 

 

3.25

 

 

3.41

 

 

 

1.85

 

 

 

                        3.25


 

                        1.85

 

 
  Net charge-offs (annualized) to average loans 

 

0.45

 

 

0.43

 


 

0.61

 

 

 

                        0.55


 

                        0.93

 

 
  Provision for credit losses for loans and finance leases to net charge-offs (4)

 

421.70

 

 

368.31

 


 

53.48

 

 

 

                    407.94


 

                      50.77

 

 
  Non-performing assets to total assets

 

1.57

 

 

2.16

 

 

 

2.65

 

 

 

                        1.57


 

                        2.65

 

 
  Nonaccrual loans held for investment to total loans held for investment

 

1.70

 

 

2.18

 

 

 

2.41

 

 

 

                        1.70


 

                        2.41

 

 
  Allowance for credit losses on loans and finance leases to total nonaccrual loans held for investment 

 

191.13

 

 

156.54

 

 

 

76.57

 

 

 

                    191.13


 

                      76.57

 

 
  Allowance for credit losses on loans and finance leases to total nonaccrual loans held for investment,              

 
  excluding residential real estate loans

 

490.13

 

 

390.70

 

 

 

185.65

 

 

 

                    490.13


 

                    185.65

 

 
        .        

 
Other Information:              

 
  Common Stock Price: End of period

 $

                     5.22

 

 $

                     5.59

 

 

 $

                         9.98

 

 

 $

                     5.22


 $

                     9.98

 

 
       
       

 
       
 
   

 
1- Non-GAAP financial measure. See page 24 for GAAP to Non-GAAP reconciliations.
2- On a tax-equivalent basis and excluding changes in the fair value of derivative instruments (Non-GAAP financial measure). See page 28 for GAAP to Non-GAAP reconciliations and refer to discussions in Table 2 and 3 below.
3- Non-interest expenses to the sum of net interest income and non-interest income.  The denominator includes non-recurring income and changes in the fair value of derivative instruments.
4- The ratio of the provision for credit losses for loans and finance leases to net charge-offs, excluding the hurricane-related qualitative reserve release was 61.05% for the nine-month period ended September 30, 2019.  






         

Table 2 – Quarterly Statement of Average Interest-Earning Assets and Average Interest-Bearing Liabilities (On a Tax-Equivalent Basis)


















 
(Dollars in thousands)









 






Average volume
Interest income (1) / expense
Average rate (1)
  September 30,   June 30,   September 30,   September 30,   June 30,   September 30,   September 30,   June 30,   September 30,
Quarter ended

2020

 

2020

 

2019

 

2020

 

2020

 

2019

 

2020

 

2020

 

2019

         
   

             
Interest-earning assets:  
   
   

             
Money market & other short-term investments

 $

           1,450,669


 $

          1,073,669

 

 $

              762,934

 

 $

                       405


 $

                      283

 

 $

              4,081

 

0.11

%

 

0.11

%

 

2.12

%

Government obligations (2)

 

              1,129,976


 

                 737,301

 

 

                  588,287

 

 

                       4,890


 

                      5,263

 

 

                  6,752

 

1.72

%

 

2.87

%

 

4.55

%

Mortgage-backed securities

 

              2,253,121


 

             1,787,611

 

 

              1,295,189

 

 

                     11,525


 

                    12,340

 

 

                  9,820

 

2.03

%

 

2.78

%

 

3.01

%

FHLB stock

 

                    31,635


 

                   31,684

 

 

                    41,779

 

 

                          441


 

                         490

 

 

                     660

 

5.55

%

 

6.22

%

 

6.27

%

Other investments

 

                      6,309


 

                     6,267

 

 

                      3,395

 

 

                             10


 

                           10

 

 

                         7

 

0.63

%

 

0.64

%

 

0.82

%

Total investments (3)

 

              4,871,710


 

             3,636,532

 

 

              2,691,584

 

 

                     17,271


 

                    18,386

 

 

               21,320

 

1.41

%

 

2.03

%

 

3.14

%

Residential mortgage loans

 

              3,117,021


 

             2,847,192

 

 

              3,018,603

 

 

                     41,577


 

                    37,812

 

 

               40,610

 

5.31

%

 

5.34

%

 

5.34

%

Construction loans

 

                  185,359


 

                 169,508

 

 

                  104,816

 

 

                       2,453


 

                      2,185

 

 

                  1,691

 

5.26

%

 

5.18

%

 

6.40

%

C&I and commercial mortgage loans

 

              4,468,614


 

             3,944,614

 

 

              3,748,186

 

 

                     51,902


 

                    46,755

 

 

               55,543

 

4.62

%

 

4.77

%

 

5.88

%

Finance leases

 

                  447,854


 

                 429,286

 

 

                  378,866

 

 

                       8,349


 

                      7,747

 

 

                  7,192

 

7.42

%

 

7.26

%

 

7.53

%

Consumer loans

 

              1,944,823


 

             1,857,278

 

 

              1,776,254

 

 

                     53,796


 

                    50,866

 

 

               50,904

 

11.00

%

 

11.02

%

 

11.37

%

Total loans (4) (5)

 

            10,163,671


 

             9,247,878

 

 

              9,026,725

 

 

                   158,077


 

                  145,365

 

 

             155,940

 

6.19

%

 

6.32

%

 

6.85

%

Total interest-earning assets

 $

         15,035,381


 $

        12,884,410

 

 $

         11,718,309

 

 $

                175,348


 $

              163,751

 

 $

          177,260

 

4.64

%

 

5.11

%

 

6.00

%

   
   
   
   
           
Interest-bearing liabilities:  
   
   
   
           
Brokered CDs

 $

              332,429


 $

             418,246

 

 $

              502,569

 

 $

                    1,850


 $

                   2,270

 

 $

              2,843

 

2.21

%

 

2.18

%

 

2.24

%

Other interest-bearing deposits

 

              8,412,342


 

             6,987,301

 

 

              6,290,767

 

 

                     14,238


 

                    14,727

 

 

               17,498

 

0.67

%

 

0.85

%

 

1.10

%

Loans payable

 

                            -  


 

                   29,451

 

 

                            -  


 

                              -  


 

                           18


 

                        -  

 

0.00

%

 

0.25

%

 

                        -

 

Other borrowed funds

 

                  493,572


 

                 484,150

 

 

                  284,150

 

 

                       2,840


 

                      3,521

 

 

                  3,651

 

2.29

%

 

2.92

%

 

5.10

%

FHLB advances

 

                  494,348


 

                 517,363

 

 

                  741,522

 

 

                       2,778


 

                      2,870

 

 

                  3,878

 

2.24

%

 

2.23

%

 

2.07

%

Total interest-bearing liabilities 

 $

           9,732,691


 $

          8,436,511

 

 $

           7,819,008

 

 $

                  21,706


 $

                 23,406

 

 $

            27,870

 

0.89

%

 

1.12

%

 

1.41

%

Net interest income  

 
 

 $

                153,642


 $

              140,345

 

 $

          149,390

           
Interest rate spread    
 
             

3.75

%

 

3.99

%

 

4.59

%

Net interest margin    
 
             

4.07

%

 

4.38

%

 

5.06

%

         
                     
 1- On a tax-equivalent basis. The tax-equivalent yield was estimated by dividing the interest rate spread on exempt assets by 1 less the Puerto Rico statutory tax rate of 37.5% 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 are excluded from interest income because the changes in valuation do not affect interest paid or received. See page 28 for GAAP to Non-GAAP reconciliations.
 2- Government obligations include debt issued by government-sponsored agencies.
 3- Unrealized gains and losses on available-for-sale securities are excluded from the average volumes.
4- Average loan balances include the average of non-performing loans. 
5- Interest income on loans includes $1.5 million, $0.9 million and $2.4 million for the quarters ended September 30, 2020, June 30, 2020, and September 30, 2019, respectively, of income from prepayment penalties and late fees related to the Corporation's loan portfolio.

         


     

Table 3 – Year-to-Date Statement of Average Interest-Earning Assets and Average Interest-Bearing Liabilities (On a Tax-Equivalent Basis)












 
(Dollars in thousands)                      
  Average volume   Interest income (1) / expense   Average rate (1)
  September 30,   September 30,   September 30,   September 30,   September 30,   September 30,
Nine-Month Period Ended

2020

 

2019

 

2020

 

2019

 

2020

 

2019

                       
Interest-earning assets:                      
Money market & other short-term investments

 $

           1,099,634

 

 $

              615,499

 

 $

                    2,950

 

 $

             10,350

 

0.36

%

 

2.25

%

Government obligations (2)

 

                  784,348

 

 

                  690,566

 

 

                     15,454

 

 

                 21,482

 

2.63

%

 

4.16

%

Mortgage-backed securities

 

              1,937,083

 

 

              1,304,777

 

 

                     37,874

 

 

                 32,033

 

2.61

%

 

3.28

%

FHLB stock

 

                    32,234

 

 

                    41,809

 

 

                       1,527

 

 

                   2,013

 

6.33

%

 

6.44

%

Other investments

 

                      6,082

 

 

                      3,169

 

 

                             31

 

 

                        20

 

0.68

%

 

0.84

%

Total investments (3)

 

              3,859,381

 

 

              2,655,820

 

 

                     57,836

 

 

                 65,898

 

2.00

%

 

3.32

%

Residential mortgage loans

 

              2,952,278

 

 

              3,071,624

 

 

                   118,044

 

 

              123,779

 

5.34

%

 

5.39

%

Construction loans

 

                  159,092

 

 

                    94,075

 

 

                       6,519

 

 

                   4,531

 

5.47

%

 

6.44

%

C&I and commercial mortgage loans

 

              4,032,497

 

 

              3,760,878

 

 

                   146,629

 

 

              163,518

 

4.86

%

 

5.81

%

Finance leases

 

                  433,014

 

 

                  360,429

 

 

                     24,015

 

 

                 20,313

 

7.41

%

 

7.54

%

Consumer loans

 

              1,895,308

 

 

              1,705,150

 

 

                   156,972

 

 

              145,459

 

11.06

%

 

11.41

%

Total loans (4) (5)

 

              9,472,189

 

 

              8,992,156

 

 

                   452,179

 

 

              457,600

 

6.38

%

 

6.80

%

Total interest-earning assets

 $

         13,331,570

 

 $

         11,647,976

 

 $

                510,015

 

 $

           523,498

 

5.11

%

 

6.01

%

                       
Interest-bearing liabilities:                      
Brokered CDs

 $

              393,038

 

 $

              511,567

 

 $

                    6,572

 

 $

                8,312

 

2.23

%

 

2.17

%

Other interest-bearing deposits

 

              7,330,643

 

 

              6,166,594

 

 

                     46,167

 

 

                 48,624

 

0.84

%

 

1.05

%

Loans payable

 

                    11,241

 

 

                            -  

 

 

                             21

 

 

                         -  

 

0.25

%

 

                         -

 

Other borrowed funds

 

                  472,715

 

 

                  298,277

 

 

                     10,311

 

 

                 12,699

 

2.91

%

 

5.69

%

FHLB advances

 

                  522,172

 

 

                  740,513

 

 

                       8,656

 

 

                 11,490

 

2.21

%

 

2.07

%

Total interest-bearing liabilities 

 $

           8,729,809

 

 $

           7,716,951

 

 $

                  71,727

 

 $

             81,125

 

1.10

%

 

1.41

%

Net interest income        

 $

                438,288

 

 $

           442,373

       
Interest rate spread
     
     

4.01

%

 

4.60

%

Net interest margin
     
     

4.39

%

 

5.08

%

 
     
           
1- On a tax-equivalent basis. The tax-equivalent yield was estimated by dividing the interest rate spread on exempt assets by 1 less the Puerto Rico statutory tax rate of 37.5% 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 are excluded from interest income because the changes in valuation do not affect interest paid or received. See page 28 for GAAP to Non-GAAP reconciliation.
 2- Government obligations include debt issued by government-sponsored agencies.
 3- Unrealized gains and losses on available-for-sale securities are excluded from the average volumes.
 4- Average loan balances include the average of non-performing loans. 
 5- Interest income on loans includes $4.6 million and $6.7 million for the nine-month periods ended September 30, 2020 and 2019, respectively, of income from prepayment penalties and late fees related to the Corporation's loan portfolio.

       

Table 4 – Non-Interest Income

        Quarter Ended   Nine-Month Period Ended
        September 30,   June 30,   September 30,   September 30,
September 30,
(In thousands)    

 

2020

 

 

2020

 

 

 

2019

 

 

 

2020


 

2019

 

           
 
   

  Service charges on deposit accounts    

 $

                            5,848

 

 $

                         4,475

 

 

 $

                            6,108

 

 

 $

                         16,280


 $

                            17,711

 

  Mortgage banking activities    

 

                               7,099

 

 

3,686

 

 

 

4,396

 

 

 

14,573


 

12,418

 

  Insurance income    

 

                               1,473

 

 

1,381

 

 

 

1,983

 

 

 

7,436


 

8,258

 

  Other operating income    

 

                             10,132

 

 

11,505

 

 

 

9,411

 

 

 

29,263


 

28,277

 

                     
 
 


             
 
 
                 
 
  Non-interest income before net gain on sales of investments and gain on early extinguishment of debt    

 

24,552

 

 

21,047

 

 

 

21,898

 

 

 

67,552


 

66,664

 

                     
 
  Net gain (loss) on sales of investments    

 

                               5,288

 

 

                              (155

)

 

 

                                      -

 

 

 

                             13,380


 

                                       -

 

  OTTI on debt securities    

 

                                     -  

 

 

                                   -

 

 

 

                                 (497

)

 

 

                                     -  


 

                                  (497

)

  Net gain (loss) on investments    

 

                               5,288

 

 

                              (155

)

 

 

                                 (497

)

 

 

                             13,380


 

                                  (497

)

                     
 
  Gain on early extinguishment of debt    

 

                                    94

 

 

                                   -

 

 

 

                                      -

 

 

 

                                    94


 

                                       -

 

       

 $

                         29,934

 

 $

                       20,892

 

 

 $

                          21,401

 

 

 $

                         81,026


 $

                            66,167

 


Table 5 – Non-Interest Expenses

 


Quarter Ended
Nine-Month Period Ended
        September 30,   June 30,   September 30,   September 30,
September 30,
(In thousands)    

 

2020

 

 

2020

 

 

2019

 

 

2020


 

2019

           
 
   

  Employees' compensation and benefits    

 $

                         43,063

 

 $

                       39,532

 

 $

                          41,409

 

 $

                       125,454


 $

                         121,518

  Occupancy and equipment    

 

                             19,064

 

 

16,376

 

 

15,129

 

 

50,567


 

47,018

  Deposit insurance premium    

 

                               1,630

 

 

                            1,436

 

 

                               1,465

 

 

4,588


 

4,645

  Other insurance and supervisory fees    

 

                               1,389

 

 

1,129

 

 

960

 

 

3,605


 

2,677

  Taxes, other than income taxes    

 

                               4,510

 

 

3,577

 

 

3,904

 

 

11,967


 

11,461

  Collections, appraisals and other credit related fees    

 

                               1,262

 

 

                            1,387

 

 

1,797

 

 

                               4,345


 

                                 5,460

  Outsourcing technology services    

 

                               6,949

 

 

                            7,672

 

 

6,206

 

 

                             21,450


 

                               17,524

  Other professional fees    

 

                               3,352

 

 

                            2,909

 

 

3,872

 

 

                               9,529


 

                               10,872

  Credit and debit card processing expenses    

 

                               4,859

 

 

3,938

 

 

4,764

 

 

12,747


 

12,738

  Business promotion    

 

                               3,046

 

 

2,314

 

 

4,004

 

 

8,982


 

11,650

  Communications    

 

                               2,246

 

 

1,852

 

 

1,834

 

 

5,975


 

5,300

  Net loss on OREO operations    

 

                               1,019

 

 

811

 

 

2,578

 

 

3,018


 

11,364


Merger and restructuring costs

 

                             10,441


 

                            2,902


 

                                   592


 

                             14,188


 

                                    592

  Other    

 

                               4,678

 

 

                            3,951

 

 

                               4,319

 

 

                             13,063


 

                               13,335

  Total    

 $

                       107,508

 

 $

                       89,786

 

 $

                          92,833

 

 $

                       289,478


 $

                         276,154

Table 6 – Selected Balance Sheet Data

(In thousands) As of
    September 30,   June 30,   December 31,
   

 

2020

 

 

2020

 

 

2019

Balance Sheet Data:        
  Loans, including loans held for sale

 $

       11,895,945

 

 $

      9,405,202

 

 $

        9,041,682

  Allowance for credit losses for loans and finance leases

 

384,718

 

 

319,297

 

 

155,139

  Money market and investment securities, net of allowance for credit losses for debt securities

 

3,621,902

 

 

2,986,390

 

 

2,398,157

  Intangible assets

 

78,294

 

 

34,246

 

 

35,671

  Deferred tax asset, net

 

347,543

 

 

306,175

 

 

264,842

  Total assets

 

18,659,768

 

 

14,096,406

 

 

12,611,266

  Deposits

 

15,202,898

 

 

10,696,686

 

 

9,348,429

  Borrowings

 

973,762

 

 

974,150

 

 

854,150

  Total preferred equity

 

36,104

 

 

36,104

 

 

36,104

  Total common equity

 

2,143,851

 

 

2,125,460

 

 

2,185,205

  Accumulated other comprehensive income, net of tax

 

45,327

 

 

53,270

 

 

                   6,764

  Total equity

 

2,225,282

 

 

2,214,834

 

 

2,228,073


Table 7 – Loan Portfolio

Composition of the loan portfolio including loans held for sale at period-end.

(In thousands)   As of
      September 30,   June 30,   December 31,
     

 

2020

 

 

2020

 

 

2019

               
Residential mortgage loans  

 $

                3,636,713

 

 $

                2,890,301

 

 $

             2,933,773

               
Commercial loans:            
  Construction loans   

 

191,356

 

 

177,777

 

 

111,317

  Commercial mortgage loans   

 

2,220,277

 

 

1,455,083

 

 

1,444,586

  Commercial and Industrial loans    

 

3,226,843

 

 

2,547,812

 

 

2,230,876

Commercial loans  

 

5,638,476

 

 

4,180,672

 

 

3,786,779

               
Finance leases  

 

458,381

 

 

438,851

 

 

414,532

               
Consumer loans  

 

2,113,705

 

 

1,856,392

 

 

1,867,121

  Loans held for investment  

 

                 11,847,275

 

 

                   9,366,216

 

 

                9,002,205

Loans held for sale  

 

                         48,670

 

 

                         38,986

 

 

                     39,477

  Total loans  

 $

              11,895,945

 

 $

                9,405,202

 

 $

             9,041,682

Table 8 – Loan Portfolio by Geography

(In thousands)   As of September 30, 2020
      Puerto Rico   Virgin Islands   United States   Consolidated
                   
Residential mortgage loans  

 $

                2,881,533

 

 $

                   218,826

 

 $

                536,354

 

 $

              3,636,713

                   
Commercial loans:                
  Construction loans  

 

                         58,555

 

 

                         11,451

 

 

                   121,350

 

 

                    191,356

  Commercial mortgage loans  

 

                   1,772,648

 

 

                         61,633

 

 

                   385,996

 

 

                 2,220,277

  Commercial and Industrial loans   

 

                   2,154,786

 

 

                       132,809

 

 

                   939,248

 

 

                 3,226,843

Commercial loans  

 

                   3,985,989

 

 

                       205,893

 

 

                1,446,594

 

 

                 5,638,476

                   
Finance leases  

 

                       458,381

 

 

                                 -  

 

 

                              -  

 

 

                    458,381

                   
Consumer loans  

 

                   2,032,421

 

 

                         51,158

 

 

                     30,126

 

 

                 2,113,705

Loans held for investment  

 

                   9,358,324

 

 

                       475,877

 

 

                2,013,074

 

 

               11,847,275

                   
Loans held for sale    

 

                    39,958

 

 

                           -  

 

 

                   8,712

 

 

                  48,670

  Total loans  

 $

             9,398,282

 

 $

                475,877

 

 $

          2,021,786

 

 $

         11,895,945

                   



             
(In thousands)   As of June 30, 2020
      Puerto Rico   Virgin Islands   United States   Consolidated
                   
Residential mortgage loans  

 $

                2,117,708

 

 $

                   222,581

 

 $

                550,012

 

 $

              2,890,301

                   
Commercial loans:                
  Construction loans  

 

                         51,294

 

 

                         11,512

 

 

                   114,971

 

 

                    177,777

  Commercial mortgage loans  

 

                   1,022,185

 

 

                         62,600

 

 

                   370,298

 

 

                 1,455,083

  Commercial and Industrial loans   

 

                   1,475,110

 

 

                       131,419

 

 

                   941,283

 

 

                 2,547,812

Commercial loans  

 

                   2,548,589

 

 

                       205,531

 

 

                1,426,552

 

 

                 4,180,672

                   
Finance leases  

 

                       438,851

 

 

                                 -  

 

 

                              -  

 

 

                    438,851

                   
Consumer loans  

 

                   1,771,659

 

 

                         51,163

 

 

                     33,570

 

 

                 1,856,392

Loans held for investment  

 

                   6,876,807

 

 

                       479,275

 

 

                2,010,134

 

 

                 9,366,216

                   
Loans held for sale    

 

                    30,525

 

 

                           -  

 

 

                   8,461

 

 

                  38,986

  Total loans  

 $

             6,907,332

 

 $

                479,275

 

 $

          2,018,595

 

 $

           9,405,202

                   



             
(In thousands)
As of December 31, 2019



Puerto Rico   Virgin Islands   United States   Consolidated



             
Residential mortgage loans

 $

                2,136,818

 

 $

                   230,769

 

 $

                566,186

 

 $

              2,933,773




             
Commercial loans:
             

Construction loans

 

                         36,102

 

 

                         12,144

 

 

                     63,071

 

 

                    111,317


Commercial mortgage loans

 

                   1,012,523

 

 

                         67,377

 

 

                   364,686

 

 

                 1,444,586


Commercial and Industrial loans 

 

                   1,285,594

 

 

                       105,819

 

 

                   839,463

 

 

                 2,230,876

Commercial loans

 

                   2,334,219

 

 

                       185,340

 

 

                1,267,220

 

 

                 3,786,779




             
Finance leases

 

                       414,532

 

 

                                 -  

 

 

                              -  

 

 

                    414,532




             
Consumer loans

 

                   1,776,675

 

 

                         49,924

 

 

                     40,522

 

 

                 1,867,121

Loans held for investment

 

                   6,662,244

 

 

                       466,033

 

 

                1,873,928

 

 

                 9,002,205




             
Loans held for sale

 

                    33,709

 

 

                         350

 

 

                   5,418

 

 

                  39,477


Total loans

 $

             6,695,953

 

 $

                466,383

 

 $

          1,879,346

 

 $

           9,041,682


Table 9 – Non-Performing Assets

    As of
(Dollars in thousands) September 30,   June 30,   December 31,
   

 

2020

 

 

 

2020

 

 

 

2019

 

Nonaccrual loans held for investment:        
  Residential mortgage

 $

                   122,797

 

 

 $

                     122,249

 

 

 $

                 121,408

 

  Commercial mortgage

 

                         29,651

 

 

 

                          34,109

 

 

 

                       40,076

 

  Commercial and Industrial

 

                         20,882

 

 

 

                          19,995

 

 

 

                       18,773

 

  Construction 

 

                         13,090

 

 

 

                            9,574

 

 

 

                         9,782

 

  Consumer and Finance leases

 

                         14,870

 

 

 

                          18,047

 

 

 

                       20,629

 

  Total nonaccrual loans held for investment

 

                       201,290

 

 

 

                        203,974

 

 

 

                    210,668

 

             
OREO

 

                         89,049

 

 

 

                          96,319

 

 

 

                    101,626

 

Other repossessed property

 

                           3,006

 

 

 

                            3,554

 

 

 

                         5,115

 

  Total non-performing assets, excluding nonaccrual loans held for sale

 $

                293,345

 

 

 $

                  303,847

 

 

 $

              317,409

 

             
Nonaccrual loans held for sale 

 

                              -

 

 

 

                                -

 

 

 

                            -

 

  Total non-performing assets, including nonaccrual loans held for sale (1)

 $

                293,345

 

 

 $

                  303,847

 

 

 $

              317,409

 

             
Past-due loans 90 days and still accruing (2) 

 $

                   160,066

 

 

 $

                     164,519

 

 

 $

                 135,490

 

Allowance for credit losses on loans

 $

                   384,718

 

 

 $

                     319,297

 

 

 $

                 155,139

 

Allowance for credit losses on loans to total nonaccrual loans held for investment 

 

191.13

%

 

 

156.54

%

 

 

73.64

%

Allowance for credit losses on loans to total nonaccrual loans held for investment, excluding residential real estate loans 

 

490.13

%

 

 

390.70

%

 

 

173.81

%

           
(1) Excludes purchased-credit deteriorated ("PCD") loans previously accounted for under Accounting Standards Codification ("ASC") 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans accounted for under ASC 310-30 as "units of account" both at the time of adoption of ASC 326 and on an ongoing basis for credit loss measurement. These loans accrete interest income based on the effective interest rate of the loan pools determined at the time of adoption of ASC 326 and will continue to be excluded from nonaccrual loan statistics as long as the Corporation can reasonably estimate the timing and amount of cash flows expected to be collected on the loan pools. The amortized cost of such loans as of September 30, 2020, June 30, 2020, and December 31, 2019 amounted to $133.2 million, $134.4 million, and $136.7 million, respectively.
 (2) These include loans rebooked, which were previously pooled into GNMA securities amounting to $17.7 million (June 30, 2020 - $69.9 million; December 31, 2019 - $35.3 million). Under the GNMA program, the Corporation has the option but not the obligation to repurchase loans that meet GNMA's specified delinquency criteria. For accounting purposes, these loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting liability. During the third quarter of 2020, the Corporation repurchased, pursuant to the aforementioned repurchase option,  $52.0 million of loans previously sold to GNMA.





Table 10 – Non-Performing Assets by Geography



As of  

(In thousands) September 30,   June 30,   December 31,


   

2020

 

2020

 

2019




Puerto Rico:        
 

Nonaccrual loans held for investment:        
 

  Residential mortgage

 $

                     98,473

 

 $

                      97,715

 

 $

                  97,214




  Commercial mortgage

 

                        18,291

 

 

                         22,354

 

 

                      23,963




  Commercial and Industrial

 

                        18,464

 

 

                         18,283

 

 

                      16,155




  Construction

 

                          5,430

 

 

                           1,910

 

 

                        2,024




  Finance leases

 

                              879

 

 

                           1,521

 

 

                        1,354




  Consumer

 

                        13,290

 

 

                         15,480

 

 

                      18,129




  Total nonaccrual loans held for investment

 

                      154,827

 

 

                       157,263

 

 

                   158,839




               

OREO

 

                        83,712

 

 

                         90,688

 

 

                      96,585




Other repossessed property

 

                          2,790

 

 

                           3,404

 

 

                        4,810




  Total non-performing assets, excluding nonaccrual loans held for sale

 $

                   241,329

 

 $

                   251,355

 

 $

                260,234




Nonaccrual loans held for sale

 

                                 -  

 

 

                                 -  

 

 

                              -  




  Total non-performing assets, including nonaccrual loans held for sale (1)

 $

                   241,329

 

 $

                   251,355

 

 $

                260,234




Past-due loans 90 days and still accruing (2)

 $

                   157,829

 

 $

                   161,959

 

 $

                129,463




               

Virgin Islands:            

Nonaccrual loans held for investment:            

  Residential mortgage

 $

                       9,824

 

 $

                      10,295

 

 $

                  10,903




  Commercial mortgage

 

                        11,360

 

 

                         11,755

 

 

                      16,113




  Commercial and Industrial

 

                          1,425

 

 

                           1,443

 

 

                        2,303




  Construction 

 

                          7,660

 

 

                           7,664

 

 

                        7,758




  Consumer

 

                              229

 

 

                              204

 

 

                           467




  Total nonaccrual loans held for investment

 

                        30,498

 

 

                         31,361

 

 

                      37,544




               

OREO

 

                          5,273

 

 

                           5,420

 

 

                        4,909




Other repossessed property

 

                              143

 

 

                              119

 

 

                           146




  Total non-performing assets, excluding nonaccrual loans held for sale

 $

                     35,914

 

 $

                      36,900

 

 $

                  42,599




Nonaccrual loans held for sale 

 

                                 -  

 

 

                                 -  

 

 

                              -  




  Total non-performing assets, including nonaccrual loans held for sale

 $

                     35,914

 

 $

                      36,900

 

 $

                  42,599




Past-due loans 90 days and still accruing

 $

                       1,986

 

 $

                        2,310

 

 $

                     5,898




               

United States:            

Nonaccrual loans held for investment:            

  Residential mortgage

 $

                     14,500

 

 $

                      14,239

 

 $

                  13,291




  Commercial mortgage

 

                                 -  

 

 

                                 -  

 

 

                              -  




  Commercial and Industrial

 

                              993

 

 

                              269

 

 

                           315




  Construction

 

                                 -  

 

 

                                 -  

 

 

                              -  




  Consumer

 

                              472

 

 

                              842

 

 

                           679




  Total nonaccrual loans held for investment

 

                        15,965

 

 

                         15,350

 

 

                      14,285




               

OREO

 

                                64

 

 

                              211

 

 

                           132




Other repossessed property

 

                                73

 

 

                                31

 

 

                           159




  Total non-performing assets, excluding nonaccrual loans held for sale

 $

                     16,102

 

 $

                      15,592

 

 $

                  14,576




Nonaccrual loans held for sale

 

                                 -  

 

 

                                 -  

 

 

                              -  




  Total non-performing assets, including nonaccrual loans held for sale

 $

                     16,102

 

 $

                      15,592

 

 $

                  14,576




Past-due loans 90 days and still accruing

 $

                          251

 

 $

                           250

 

 $

                        129




           
   
(1) Excludes purchased-credit deteriorated ("PCD") loans previously accounted for under Accounting Standards Codification ("ASC") 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans accounted for under ASC 310-30 as "units of account" both at the time of adoption of ASC 326 and on an ongoing basis for credit loss measurement. These loans accrete interest income based on the effective interest rate of the loan pools determined at the time of adoption of ASC 326 and will continue to be excluded from nonaccrual loan statistics as long as the Corporation can reasonably estimate the timing and amount of cash flows expected to be collected on the loan pools. The amortized cost of such loans as of September 30, 2020, June 30, 2020, and December 31, 2019 amounted to $133.2 million, $134.4 million, and $136.7 million, respectively.
(2) These include loans rebooked, which were previously pooled into GNMA securities amounting to $17.7 million (June 30, 2020 - $69.9 million; December 31, 2019 - $35.3 million). Under the GNMA program, the Corporation has the option but not the obligation to repurchase loans that meet GNMA's specified delinquency criteria. For accounting purposes, these loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting liability. During the third quarter of 2020, the Corporation repurchased, pursuant to the aforementioned repurchase option,  $52.0 million of loans previously sold to GNMA.  


   





Table 11 – Allowance for Credit Losses for Loans and Finance Leases




Quarter Ended   Nine-Month Period Ended  
(Dollars in thousands)
September 30,   June 30,   September 30,   September 30,   September 30,  



 

2020

 

 

 

2020

 

 

 

2019

 

 

 

2020

 

 

 

2019

 

 



       
         
Allowance for credit losses on loans and finance leases, beginning balance 

 $

              319,297

 

 

 $

              292,774

 

 

 $

              172,011

 

 

 $

              155,139

 

 

 $

              196,362

 

 
Impact of adopting ASC 326

 

                            -

 

 

 

                            -

 

 

 

                            -

 

 

 

                    81,165

 

 

 

                            -

 

 
Allowance for credit losses on loans and finance leases, beginning balance after CECL adoption

 

                  319,297

 

 

 

                  292,774

 

 

 

                  172,011

 

 

 

                  236,304

 

 

 

                  196,362

 

 
Provision for credit losses on loans and finance leases

 

                    48,078

 


 

                    36,408

 


 

                      7,398

 


 

                  158,531

 

 

 

                    31,752

 

(1

)

Initial allowance on PCD loans

 

                    28,744

 


 

                            -

 


 

                            -

 


 

                    28,744

 

 

 

                            -

 

 
Net (charge-offs) recoveries of loans:
 
 
     
   

Residential mortgage

 

                    (2,283

)


 

                    (1,794

)


 

                    (4,414

)

 

 

                    (7,856

)


 

                  (14,149

)

 

Commercial mortgage

 

                    (3,104

)


 

                           25

 


 

                       (717

)

 

 

                    (3,163

)


 

                  (14,587

)

 

Commercial and Industrial

 

                          (70

)

 

 

                              5

 

 

 

                      1,439

 

 

 

                          (75

)


 

                    (3,860

)

 

Construction

 

                           36

 


 

                          (54

)


 

                         211

 

 

 

                              6

 


 

                         282

 

 

Consumer and finance leases

 

                    (5,980

)


 

                    (8,067

)


 

                  (10,353

)

 

 

                  (27,773

)


 

                  (30,225

)

 
Net charge-offs

 

                  (11,401

)


 

                    (9,885

)


 

                  (13,834

)

 

 

                  (38,861

)


 

                  (62,539

)

 
Allowance for credit losses on loans and finance leases, end of period  

 $

              384,718

 

 

 $

              319,297

 

 

 $

              165,575

 

 

 $

              384,718

 

 

 $

              165,575

 

 



                   
Allowance for credit losses on loans and finance leases to period end total loans held for investment 

 

3.25

%


 

3.41

%


 

1.85

%

 

 

3.25

%


 

1.85

%


Net charge-offs (annualized) to average loans outstanding during the period

 

0.45

%

 

 

0.43

%


 

0.61

%

 

 

0.55

%


 

0.93

%


Provision for credit losses on loans and finance leases to net charge-offs during the period
 4.22x    3.68x
0.53x
 4.08x 
0.51x
Provision for credit losses on loans and finance leases to net charge-offs during the period, excluding effect of the hurricane-related qualitative reserve releases inthe first nine months of 2019
 4.22x    3.68x
0.53x
 4.08x 
0.61x
   
   



 





           



(1) Net of a $6.4 million net credit loss reserve release on loans associated with the effect of Hurricanes Irma and Maria.



Table 12 – Net Charge-Offs to Average Loans

 

    Nine-Month                 


Period Ended   Year Ended


September 30, 2020   December 31,    December 31,    December 31,   December 31,


(annualized)  

2019

 

2018

 

2017

 

2016



 







Residential mortgage

0.35%

 

0.66%

 

0.67%

 

0.79%


0.93%



             

Commercial mortgage

0.27%


0.97%

 

1.03%

 

2.42%


1.28%



             

Commercial and Industrial

0.00%

 

0.16%

 

0.38%

 

0.66%


1.11%



             

Construction

-0.01%


-0.28%

 

6.75%

 

2.05%


1.02%



             

Consumer and finance leases

1.59%

 

2.05%

 

2.31%

 

2.12%


2.63%



             

Total loans

0.55%


0.91%

 

1.09%

 

1.33%


1.37%

 

Contacts

First BanCorp.
John B. Pelling III
Investor Relations Officer
[email protected]
(787) 729-8003

Exhibit 99.2

 Financial Results  3Q 2020 
 

 Forward-Looking Statement  This presentation may contain “forward-looking statements” concerning the Corporation’s future economic, operational and financial performance. The words or phrases “expect,” “anticipate,” “intend,” “should,” “would,” “believe” and similar expressions are meant to identify “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by such sections. The Corporation cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and advises readers that various factors, including, but not limited to, the following could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements: uncertainties relating to the impact of the COVID-19 pandemic, including recent increases in, and any additional waves of, COVID-19 cases and the development and availability of a vaccine and treatments for the disease, on the Corporation’s business, operations, employees, credit quality, financial condition and net income, including because of uncertainties as to the extent and duration of the pandemic and the impact of the pandemic on consumer spending, borrowing and saving habits, the underemployment and unemployment rates, which can adversely affect repayment patterns, the Puerto Rico economy and the global economy, as well as the risk that COVID-19 may exacerbate any other factor that could cause our actual results to differ materially from those expressed in or implied by any forward-looking statements; the success of our preventative actions to protect the Corporation’s information and that of its customers in response to the cyber incident that we recently experienced, including the integrity of our data and data security systems, increased mitigation costs or an adverse effect to our reputation; risks related to the effect on the Corporation and its customers of governmental, regulatory, or central bank responses to COVID-19 and the Corporation’s participation in any such responses or programs, such as the Paycheck Protection Program established by the CARES Act of 2020, including any judgments, claims, damages, penalties, fines or reputational damage resulting from claims or challenges against the Corporation by governments, regulators, customers or otherwise, relating to the Corporation’s participation in any such responses or programs; the risk that costs, expenses, and resources associated with the Corporation’s recent acquisition of BSPR may be higher than expected; the ability to successfully complete the integration of systems, procedures, and personnel of BSPR into FirstBank that are necessary to make the transaction economically successful; the risk that the Corporation may not be able to effectively integrate BSPR into the Corporation’s internal control over financial reporting; the risk that the cost savings and any other synergies from the acquisition may not be fully realized or may take longer to realize than expected, such as the risk that deposit attrition, customer loss and/or revenue loss following the acquisition may exceed expectations, including because of the impact of the COVID-19 pandemic on customers; 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 the Commonwealth of Puerto Rico’s financial problems, including a court-supervised debt restructuring process similar to U.S. bankruptcy protection undertaken pursuant to Title III of PROMESA, the designation by the PROMESA oversight board of Puerto Rico municipalities as instrumentalities covered under PROMESA, the effects of measures included in the Puerto Rico government fiscal plan, or any revisions to it, on our clients and loan portfolios, and any potential impact from future economic or political developments in Puerto Rico; changes in economic and business conditions, including those caused by the COVID-19 pandemic, including recent increases in, and any additional waves of, COVID-19 cases, or other global or regional health crises as well as past or future natural disasters, such as the earthquakes affecting Puerto Rico’s southern coast, that directly or indirectly affect the financial health of the Corporation’s customer base in the geographic areas we serve and may result in increased costs or losses of property and equipment and other assets; the impact that a slowing economy and increased unemployment or underemployment may have on the performance of our loan and lease portfolio, the market price of our investment securities, the availability of sources of funding and the demand for our products; a decrease in demand for the Corporation’s products and services, resulting in lower revenues and earnings because of the continued economic recession in Puerto Rico; uncertainty as to the availability of certain funding sources, such as brokered CDs; the deteriorating weakness of the real estate markets and of the consumer and commercial sectors, which may be exacerbated by unemployment and underemployment and government restrictions imposed as a result of the COVID-19 pandemic, including recent increases in, and any additional waves of, COVID-19 cases, 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, higher than targeted levels of non-performing assets, charge-offs and provisions for credit losses, and may subject the Corporation to further risk from loan defaults and foreclosures; the impact of changes in accounting standards or assumptions in applying those standards, including the impact of the COVID-19 pandemic on the determination of the allowance for credit losses required by the new CECL accounting standard effective since January 1, 2020; the ability of FirstBank to realize the benefits of its net deferred tax assets; the ability of FirstBank to generate sufficient cash flow to make dividend payments to the Corporation; adverse changes in general economic conditions in Puerto Rico, the U.S., the U.S. Virgin Islands, and the British Virgin Islands, including the interest rate environment, market liquidity, housing absorption rates, real estate prices, and disruptions in the U.S. capital markets, including as a result of the COVID-19 pandemic and recent increases in, and any additional waves of, COVID-19 cases, which may further reduce interest margins, affect funding sources and demand for all of the Corporation’s products and services, and reduce the Corporation’s revenues and earnings and the value of the Corporation’s assets; uncertainty related to the effect of the discontinuation of the London Interbank Offered Rate at the end of 2021; 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 credit-related, including additional charges to the provision for credit losses on the Corporation’s remaining $8.0 million exposure to the Puerto Rico government’s debt securities held as part of the available-for-sale securities portfolio; uncertainty about legislative, tax or regulatory changes that affect financial services companies in Puerto Rico, the U.S., and the U.S. and British Virgin Islands, which could affect the Corporation’s financial condition or performance and could cause the Corporation’s actual results for future periods to differ materially from prior results and anticipated or projected results; 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 FDIC, government-sponsored housing agencies, and regulators in Puerto Rico and the U.S. and British Virgin Islands; the risk of possible failure or circumvention of the Corporation’s internal controls and procedures and the risk that the Corporation’s risk management policies may not be adequate; the Corporation’s ability to identify and prevent cyber-security incidents, such as data security breaches, malware, “denial of service” attacks, “hacking” and identity theft, a failure of which most recently caused a cyber incident, and which may result in misuse or misappropriation of confidential or proprietary information, and could result in the disruption or damage to our systems, increased costs and losses or an adverse effect to our reputation; 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 business acquisitions, such as the recent acquisition of BSPR, and dispositions; a need to recognize impairments on the Corporation’s financial instruments, goodwill and other intangible assets relating to business acquisitions, including as a result of the COVID-19 pandemic; the effect of changes in the interest rate environment, including as a result of the impact of the COVID-19 pandemic, including recent increases in, and any additional waves of, COVID-19 cases, on the global economy, on the Corporation’s businesses, business practices and results of operations; the risk that the impact of the occurrence of any of these uncertainties on the Corporation’s capital would preclude further growth of the Bank and preclude the Corporation’s Board of Directors from declaring dividends; uncertainty as to whether FirstBank will be able to continue 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. 
 

 Agenda  Third Quarter 2020 Highlights Aurelio Alemán, President & Chief Executive OfficerThird Quarter 2020 Results of Operations Orlando Berges, Executive Vice President & Chief Financial OfficerQuestions & Answers  3 
 

   Third Quarter 2020 Highlights 
 

 Third Quarter Highlights  Improved Strategic Positioning Successful acquisition of Banco Santander Puerto Rico on September 1, 2020, securing FBP’s position as the 2nd largest banking institution in a consolidated market  Fortress Balance Sheet Liquidity, reserve coverage and capital levels remain among the highest in the banking industry with ample coverage to weather the impact of disruptions caused by the pandemic  Economic Recovery Underway Unprecedented local and federal stimulus programs (~$15 billion) have bolstered liquidity in the system, in addition to over $60 billion of estimated remaining hurricane relief funding  Strong Capital Position Capital ratios remain among the highest in the banking sector. Capital actions remain a top priority as the economic environment stabilizes  Strong Core Operating Performance Pre-tax, pre-provision income over $77 million in 3Q20, up over 14% compared to 2Q 2020. Total loans grew $2.5 billion, or 26%, and deposits increased $4.5 billion, or 42%, compared to 2Q20            5 
 

 Improved Strategic Positioning  Source: S&P Global Market Intelligence, Company Filings. Market share data as of or for the quarter ending June 30, 2020, Commissioner of Financial Institutions of Puerto Rico.  Creates a stronger competitor with greater customer penetration in Puerto Rico with 73 branches and over $12bn in deposits in Puerto Rico and the scale and breadth to better serve retail and commercial customers    FBP      AcquiredOperation  Transaction Highlights  Earnings Per Share (EPS) Accretion  Tang Book Val Per Share (TBVPS) Dilution  Cost Savings  Transaction Structure  Goodwill & Intangibles  Restructuring Expenses  At Announcement  At Closing  35% to Consensus 2020  7% dilutive to TBVPS2.5-year earnback  $48 million (pre-tax)50% 2021; 100% thereafter  No NPL ($171mm) or OREO ($46mm) acquired  CDI 1.5% amortized over 7 years SYD  $76 million (pre-tax)50% Close; 50% 2021  4% dilutive to TBVPSLess than 2-year earnback  Same; $2 mm to date; 100% over next 4 quarters  Same; $76 million (pre-tax)$25mm as of Sept; remaining over next 4 quarters  6  Same; additional $29mm reserves delivered at close  CDI 1.1% amortized over 6 years straight line  Loans  $3.1 billion  $2.6 billion  Deposits  $5.0 billion  $4.1 billion  Pro Forma Market Share / Ranking (2Q 2020)  Same 
 

 Loan & Deposit Composition  FBP Standalone Loan Portfolio  BSPR Loan Portfolio  FBP Loan Portfolio  Commentary  FBP Standalone Deposit Mix  BSPR Deposit Mix  FBP Deposit Mix  Geographic distribution: 79% PR; 17% FL; 4% ECRNPA/Assets ratio of 1.57%NPL/Loans 1.69%  Loan to deposit ratio 78%Lower cost of interest-bearing deposits and improved funding mixGreatly expanded and enhanced customer base  $9.4bn  $2.6bn  $11.9bn  $11.0bn  $4.2bn  $15.2bn  Source: S&P Global Market Intelligence, Company Filings. Financial data as of or for the quarter ending September 30, 2020.1 3Q Information for FBP; BSPR information based on month of September and includes amortization of fair value discounts.  7  3Q 2020 Loan Yield1  3Q 2020 Total Deposit Cost1  6.05%  6.11%  6.85%  0.72%  0.47%  0.33% 
 

 Economic Recovery Underway  1 Source: Fiscal Plan for Commonwealth of Puerto Rico May 27, 20202 United States Department of Labor. Bureau of Labor Statistics, Establishment Survey  Government stimulus continues to play and important role in mitigating impact to businessesUnprecedented local and federal stimulus programs bolstering liquidity; core deposits increased $3.7 billion, or 42% in 3Q 2020Over $60 billion of hurricane & COVID relief funding  Relief Funds and Reopening Trends  August 2020 Payroll Employment2 figures at 92% of 2019 average  100% FBP corporate banking and 99% FBP business banking clients reopened   FBP Puerto Rico hotels portfolio at 25-45% occupancy rate as of Sept 30th   SJU passenger movement is increasing; 300k in September from 42K in April; still down 48% vs. Sept 2019   FBP Hospital portfolio occupancy ranging at 53-76% as of Sept 30th   FBP Puerto Rico Merchant/POS weekly sales up 237% during last week of Sept vs. last week March 2020; June-Sept 2020 outpacing same period in 2019  Retail Lending Activity near pre-pandemic levels:Originations reactivated in late-May after full lockdown in PR$69MM in auto loan originations in September, 12% above the 2019 average$45MM in mortgage loan originations in September, 36% above 2019 average Small/personal loans application still lagging 2019 performance  8 
 

 Payment Deferral Programs  Relief Program Monitoring  9  ($ in millions)  Jul  Oct  Jun  May  Mar  Aug  Apr  Sep  $85.1  $470.5  $1,311.2  $1,574.9  $1,467.5  $818.0  $556.8  $48.0  Puerto Rico  $1.2  $45.9  $30.4  $54.3  $43.9  $48.4  $53.9  $14.9  ECR  $0.0  $26.3  $94.8  $178.0  $220.8  $92.7  $224.1  $0.0  Florida  #: 11k | $: 3,982  #: 821 | $: 186.1  #: 1,477 | $: 1,447  1%  8%  0%  Commercial Portfolio  Aug  $217.8  May  $852.5  Jun  Jul  Mar  Oct  $198.1  Sep  $946.0  Apr  $773.2  $232.9  $165.8  $2.0  Puerto Rico1  $10.0  $10.3  $0.0  $0.0  $2.6  $16.4  $2.5  $2.7  ECR2  $8.0  $1.2  $2.6  $0.8  $2.2  $0.3  $5.8  $0.2  Florida3  #: 347k | $: 2,491  #: 5,978 | $: 51.1  #: 2,296 | $: 30.1  0.1%  0.1%  1%  Consumer Portfolios  May  Mar  Jun  Apr  Jul  Aug  Oct  Sep  $202.9  $532.1  $813.8  $752.9  $514.7  $536.4  $414.6  $11.6  Puerto Rico  $67.5  $82.2  $33.1  $49.0  $88.8  $1.2  $85.6  $86.1  ECR  $7.9  $82.5  $5.6  $103.1  $10.1  $22.7  $40.1  $29.8  Florida  #: 35.6K | $: 2,931  #: 1,892 | $: 218.8  #: 2,420 | $: 545.1  0.4%  0.6%  1%  Residential Mortgage  Notes: October Relief as of 10-21 | Counts and Balances as of 9-30 (RI)  1Auto, Leases, Personal Loans, Small Loans, Credit Cards, Boats | 2Auto, Personal Loans | 3Auto  Active moratoriums reduced to 0.8% of the loan portfolio as of Oct 21 98.9% of commercial borrowers and 94.3% of retail borrowers remain current after relief expiration, and are back to pre-pandemic payment pattern as of Oct 21As a result of the effects that COVID-19, certain borrowers in industries with expected longer recovery time, mostly in the Hospitality, Retail & Entertainment, could need additional relief during the stabilization period considering terms provided under Section 4013 of CARES ActExposures being evaluated for potential modifications  Hotels  Retail  Entertainment  Other Real Estate  $205.2  $80.7  $31.4  $33.5 
 

 Fortress Balance Sheet  Ample liquidity to drive loan demand as economy continues reopening effortsStrong reserve coverage on a well-diversified loan portfolioCapital ratios remain among the highest in the banking sector; pro forma capital ratios remain 600-800 basis points, or $800-900 million, above regulatory “Well-Capitalized” guidelinesCapital deployment opportunities remain a priority  Ample liquidity, reserve coverage and capital post acquisition to support growth initiatives and capital deployment  1) Peer group consists of U.S. banks with assets between $10 billion and $25 billion (63 institutions). Top quartile as of 2Q 2020 as per S&P Market Intelligence.   10 
 

 Strong Operating Metrics During Pandemic  $9,052  $9,405  $9,345  $2,551  $11,896  Loan Portfolio ($ in millions)  Loan Originations($ in millions)  Core Deposits($ in millions)  $8,887   $10,086  $10,531  $4,117  $14,648  $887  $962  $1,053  Net Interest Income($ in millions)  Pre-tax Pre-provision Income($ in millions)  Net Income($ in millions)      11 
 

   Results of Operations 
 

 Third Quarter Highlights  ($ in thousands, except per share data)  13                                                    FBP   Standalone  Acquired  Operation  Other  Transactions  Consolidated  Results  Net Interest Income  134,659  $      14,037  $      -  $      148,696  $      135,210  $      13,486  $      Provision for Credit Losses  8,032        -        -        8,032        39,014        (30,982)        Provision for Acquired Non-PCD Portfolio  -        -        38,882        38,882        -        38,882         Net Interest Income after Provision  126,627        14,037        (38,882)        101,782        96,196        5,586        Non Interest Income  22,861        1,785        -        24,646        21,047        3,599        Gain on Sale of Securities  -        -        5,288        5,288        (155)        5,443         Non Interest Income  22,861        1,785        5,288        29,934        20,892        9,042        Non Interest Expenses  86,390        10,677        -        97,067        86,884        10,183        Merger & Restructuring Costs  -        -        10,441        10,441        2,902        7,539         Non Interest Expenses  86,390        10,677        10,441        107,508        89,786        17,722        Net Income before Taxes  63,098        5,145        (44,035)        24,208        27,302        (3,094)        Income Tax (Expense) Benefit  (18,801)        (1,692)        16,898        (3,595)        (6,046)        2,451        DTA Valuation Allowance Reversal  -        -        8,000        8,000        -        Net income (loss)  44,297  $      3,453  $      (19,137)  $      28,613  $      21,256  $      7,357  $      Select Financial Information  3Q 2020  2Q 2020  Variance  Adjusted net income  22,358  $      21,950  $      408  $      Adjusted EPS  0.10  $      0.10  $      -  $      Adjusted Pre-tax, pre-provision income  77,143  $      67,334  $      9,809  $      Fully diluted EPS  0.13  $      0.09  $      0.04  $      Book value per share  10.03  $      9.99  $      0.04  $      Tangible book value per share  9.67  $      9.83  $      (0.16)  $      Common stock price  5.22  $      5.59  $      (0.37)  $      Net Interest Margin (GAAP)  3.93%  4.22%  -0.29%  Efficiency ratio  60.2%  57.5%  2.7%  3Q 2020  2Q 2020  Variance                                                                                                                 
 

 Net Interest Income  Key Highlights  Net Interest Income ($ millions)  3Q 2020 net interest income increased by $13.5 million to $148.7 millionApproximately $14.0 million of the increase was related to the acquisition of BSPR which added $2.6 billion of loans and $1.1 billion of investment securities, partially offset by lower average loan and investment yieldsNIM was 3.93% for 3Q 2020, compared to 4.22% 2Q 2020, reflecting, among other things, the effects of a lower interest rate environment on variable-rate commercial loans, MBS accelerated prepayment rates, and a higher proportion of low-yielding assets to total interest-earning assets, partially offset by a lower cost of deposits and higher loan accretion income The acquisition of BSPR had a one basis point dilutive impact to NIM, as the adverse impact of low yields on acquired investment securities and interest-bearing cash balances was offset by loan accretion income  14 
 

 Non-Interest Income  Non-interest income for 3Q 2020 amounted to $29.9 million, compared to $20.9 million for 2Q 2020. The $9.0 million increase was primarily due to: A $5.3 million gain on sales of approximately $116.6 million of available-for-sale U.S. agencies MBS and $803.3 million of available-for-sale U.S. Treasury NotesA $3.4 million increase in revenues from mortgage banking activities, driven by a $4.5 million increase in realized gains on sales of residential mortgage loans in the secondary marketA $2.8 million increase in transactional fee income from credit and debit cards activity, primarily reflecting higher volume associated with the gradual reopening of businesses and resumption of economic activityA $1.4 million increase in service charges on deposits, including an increase of $1.1 million related to deposit accounts acquired from BSPRPartially offset by the $5.0 million benefit recorded in the second quarter of 2020 resulting from the final settlement of the Corporation’s business interruption insurance claim related to lost profits caused by Hurricanes Irma and Maria in 2017  Non-Interest Income ($ millions)  $20.9  $24.4  $30.2  $28.0  $21.4  Key Highlights  $2.0  $29.9  15 
 

 Non-Interest Expense  Non-interest expenses amounted to $107.5 million in 3Q 2020, an increase of $17.7 million from $89.8 million in 2Q 2020Merger and restructuring costs associated with the acquisition of BSPR of $10.4 million for 3Q 2020, compared to $2.9 million for 2Q 2020 COVID-19 pandemic-related expenses of $1.0 million for 3Q 2020, compared to $3.0 million for 2Q 2020 Credit Related expenses (OREO & Collections, Appraisals and Other) amounted to $2.3 million in 3Q 2020 compared to $2.2 million in 2Q 2020On a non-GAAP basis, adjusted non-interest expenses, excluding the effect of the items mentioned above, amounted to $93.8 million for 3Q 2020, compared to $81.7 million for 2Q 2020. The $12.1 million increase in adjusted non-interest expenses reflects a $10.7 million increase resulting from the acquisition of BSPR and volume-related expense increases related to the reopening of business activities  Non-Interest Expense ($ millions)  $107.5  $92.2  $89.8  $92.8  $102.3  Key Highlights  16  $96.8 
 

 Significant ACL Levels  Evolution of ACL ($ in millions) & ACL on Loans to Total Loans (%)  The allowance for credit losses (ACL) on loans increased by $65 million during 3Q 2020 to $385 million$66 million of this increase was related to the CECL impact of the BSPR acquisition. $29 million impact was related to the gross-up of the credit discount on the purchase credit deteriorated (PCD) loans, while $37 million was related to the non-PCD day-1 CECL impactThe ratio of the ACL for loans and finance leases to total loans held for investment was 3.25% as of September 30, 2020, compared to 3.41% as of June 30, 2020. Excluding PPP loans the ACL to loans was 3.38%The ratio of the allowance to NPLs held for investment was 191.2% as of 3Q 2020 compared to 156.5% as of 2Q 2020  Key Highlights  17 
 

 Asset Quality  Non-Performing Assets ($ millions)  Total nonaccrual loans decreased by $2.7 million to $201.3 million as of 3Q 2020, compared to $204.0 million as of 2Q 2020The decrease in NPAs was driven by:$7.3 million decrease in the OREO portfolio balance. The decrease was driven by sales of $6.9 million, primarily residential OREO properties in the Puerto Rico region$3.2 million decrease in nonaccrual consumer loans, primarily auto loans and small personal loans, driven by charge-offs and collections recorded in 3Q 2020Inflows to nonaccrual loans held for investment were $18.4 million, a $7.7 million increase compared to inflows of $10.7 million in 2Q 2020.   Total NPAs decreased by $10.5 million to $293 million or 1.57% of assets  Migration Trend ($ millions)  18 
 

 Capital Ratios  Total stockholders’ equity amounted to $2.2 billion as of September 30, 2020, an increase of $10.4 million from June 30, 2020. The increase was driven by earnings generated in the third quarter, partially offset by common and preferred stock dividends declared in the second quarter totaling $11.0 million.   Key Highlights  19 
 

   Exhibits 
 

 Third Quarter 2020 Highlights: PR Government Exposure      ($ in millions)  As of September 30, 2020, the Corporation had $400.3 million of direct exposure to the Puerto Rico Government, its municipalities and public corporations, compared to $203.5 million as of June 30, 202084% of direct government exposure is to municipalities, which are supported by assigned property tax revenuesAs of September 30, 2020, the Corporation had $1,702.9 million of public sector deposits in Puerto Rico, compared to $920.1 million as of June 30, 2020Approximately 25% is from municipalities in Puerto Rico and 75% is from public corporations and the central government and agencies in Puerto Rico  21 
 

 ($ in 000)  Third Quarter 2020 Highlights: NPL Migration  22 
 

 Use of Non-GAAP Financial Measures  Basis of PresentationUse of Non-GAAP Financial Measures This presentation contains non-GAAP financial measures. Non-GAAP financial measures are used when management believes they will be helpful to an understanding of the Corporation’s results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation of the non-GAAP financial measure to the comparable GAAP financial measure, can be found in the text or in the attached tables to this earnings release. Any analysis of these non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP. Tangible Common Equity Ratio and Tangible Book Value per Common Share The tangible common equity ratio and tangible book value per common share are non-GAAP financial measures generally used by the financial community to evaluate capital adequacy. Tangible common equity is total equity less preferred equity, goodwill, core deposit intangibles, and other intangibles, such as the purchased credit card relationship intangible and the insurance customer relationship intangible. Tangible assets are total assets less goodwill, core deposit intangibles, and other intangibles, such as the purchased credit card relationship intangible and the insurance customer relationship intangible. Management and many stock analysts use the tangible common equity ratio and tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, typically stemming from the use of the purchase method of accounting for mergers and acquisitions. Accordingly, the Corporation believes that disclosures of these financial measures may be useful also to investors. Neither tangible common equity nor tangible assets, or the related measures should be considered in isolation or as a substitute for stockholders’ equity, total assets, or any other measure calculated in accordance with GAAP. Moreover, the manner in which the Corporation calculates its tangible common equity, tangible assets, and any other related measures may differ from that of other companies reporting measures with similar names.  23 
 

 Use of Non-GAAP Financial Measures  Basis of PresentationUse of Non-GAAP Financial Measures This presentation contains non-GAAP financial measures. Non-GAAP financial measures are used when management believes they will be helpful to an understanding of the Corporation’s results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation of the non-GAAP financial measure to the comparable GAAP financial measure, can be found in the text or in the attached tables to this earnings release. Any analysis of these non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP. Adjusted Pre-Tax, Pre-Provision IncomeAdjusted pre-tax, pre-provision income is a non-GAAP performance metric that management uses and believes that investors may find useful in analyzing underlying performance trends, particularly in times of economic stress. Adjusted pre-tax, pre-provision income, as defined by management, represents net income (loss) excluding income tax expense (benefit), the provision for loan and lease losses, as well as certain items that management believes are not reflective of core operating performance or that are not expected to reoccur with any regularity or reoccur at uncertain times and amounts. This metric is income before income taxes adjusted to exclude the provision for loan and lease losses, gains or losses on sales of investment securities and impairments, and fair value adjustments on derivatives. In addition, from time to time, earnings are adjusted also for items that management believes are not reflective of core operating performance or that are not expected to reoccur with any regularity or reoccur at uncertain times and amounts.  24 
 

 Use of Non-GAAP Financial Measures  Basis of PresentationUse of Non-GAAP Financial Measures This presentation contains non-GAAP financial measures. Non-GAAP financial measures are used when management believes they will be helpful to an understanding of the Corporation’s results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation of the non-GAAP financial measure to the comparable GAAP financial measure, can be found in the text or in the attached tables to this earnings release. Any analysis of these non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP. The financial results include the following significant items that management believes are not reflective of core operating performance, are not expected to reoccur with any regularity or may reoccur at uncertain times and in uncertain amounts (the “Special Items”):Quarter ended September 30, 2020Merger and restructuring costs of $10.4 million ($6.5 million after-tax) in connection with the acquisition of BSPR and related restructuring initiatives. Merger and restructuring costs in the third quarter of 2020 primarily included consulting, legal, system conversions and other integration related efforts.An $8.0 million tax benefit related to a partial reversal of the deferred tax asset valuation allowance.A $5.3 million aggregate gain on sales of approximately $116.6 million of U.S. agencies MBS and $803.3 million of U.S. Treasury Notes executed in the latter part of September. The gain on tax-exempt securities or realized at the tax-exempt international banking entity subsidiary level had no effect in the income tax expense recorded in the third quarter of 2020. Costs of $1.0 million ($0.6 million after-tax) related to the COVID-19 pandemic response efforts, primarily costs related to additional cleaning, safety materials, and security matters.   25 
 

 Use of Non-GAAP Financial Measures  Basis of PresentationUse of Non-GAAP Financial Measures This presentation contains non-GAAP financial measures. Non-GAAP financial measures are used when management believes they will be helpful to an understanding of the Corporation’s results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation of the non-GAAP financial measure to the comparable GAAP financial measure, can be found in the text or in the attached tables to this earnings release. Any analysis of these non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP. The financial results include the following significant items that management believes are not reflective of core operating performance, are not expected to reoccur with any regularity or may reoccur at uncertain times and in uncertain amounts (the “Special Items”):Quarter ended June 30, 2020A $5.0 million ($3.1 million after-tax) benefit resulting from the final settlement of the Corporation’s business interruption insurance claim related to lost profits caused by Hurricanes Irma and Maria in 2017.Merger and restructuring costs of $2.9 million ($1.8 million after-tax) in connection with the previously announced stock purchase agreement with Santander Holdings USA, Inc. relating to the Corporation’s acquisition of BSPR and related restructuring initiatives. Merger and restructuring costs in the second quarter of 2020 primarily included consulting, legal, and other pre-conversion related efforts associated with the pending acquisition of BSPR.Costs of $3.0 million ($1.9 million after-tax) related to the COVID-19 pandemic response efforts, including approximately $1.7 million in bonuses paid to branch personnel and other essential employees for working during the pandemic, as well as other employee-related expenses such as expenses for the administration of COVID-19 tests and purchases of personal protective equipment.A $0.2 million loss realized on sales of U.S. agencies MBS. The loss, realized at the tax-exempt international banking entity subsidiary, had no effect on the income tax expense recorded in the second quarter of 2020.Quarter ended September 30, 2019A $3.0 million ($1.8 million after-tax) positive effect in earnings related to the acceleration of the discount accretion from the payoff of an acquired commercial mortgage loan. A $0.4 million ($0.2 million after-tax) benefit resulting from hurricane-related insurance recoveries related to repairs and maintenance costs incurred on facilities in the U.S. Virgin Islands.   26 
 

 Use of Non-GAAP Financial Measures  Basis of PresentationUse of Non-GAAP Financial Measures This presentation contains non-GAAP financial measures. Non-GAAP financial measures are used when management believes they will be helpful to an understanding of the Corporation’s results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation of the non-GAAP financial measure to the comparable GAAP financial measure, can be found in the text or in the attached tables to this earnings release. Any analysis of these non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP. The following table the reported net income to adjusted net income, a non-GAAP financial measure that excludes the Special Items identified on prior pages as well as gains or losses on sales of investment securities and impairments:Adjusted net income (Non-GAAP)  27 
 

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