Full-time equivalent employees (“FTEs”) were 8,074 as of September 30, 2012, compared with 8,093 as of June 30, 2012 and 8,329 as of December 31, 2011.For a breakdown of operating expenses by category refer to table B. Income taxes Income tax expense amounted to $15.4 million for the quarter ended September 30, 2012, compared with an income tax benefit of $77.9 million for the second quarter of 2012, when the Corporation recognized an income tax benefit of $72.9 million as a result of the agreement signed with the P.R. Treasury which stated that covered loans are capital assets and will be taxed at the capital gain tax rate of 15%. Excluding the effect of extraordinary items, the Corporation expects an effective tax rate of approximately 16% for its Puerto Rico banking operations for 2012. Credit Quality:
|Total non-performing loans held-in-portfolio, excluding covered loans||$1,550,500||$1,562,818||$1,731,671|
|Non-performing loans held-for-sale||108,886||178,652||259,776|
|Other real estate owned (“OREO”), excluding covered OREO||252,024||226,629||175,785|
|Total non-performing assets, excluding covered assets||1,911,410||1,968,099||2,167,232|
|Covered loans and OREO||208,235||209,793||86,301|
|Total non-performing assets||2,119,645||2,177,892||2,253,533|
|Net charge-offs for the quarter (excluding covered loans)||95,791||97,976||135,175|
|Ratios (excluding covered loans):|
|Non-performing loans held-in-portfolio to loans held-in-portfolio||7.47%||7.56%||8.38%|
|Allowance for loan losses to loans held-in-portfolio||3.07||3.14||3.35|
|Allowance for loan losses to non-performing loans, excluding loans held-for-sale||41.04||41.50||39.99|
- Net charge-offs in the third quarter were at the lowest level since the first quarter of 2008. Annualized net charge-offs to average non-covered loans held-in-portfolio decreased 6 basis points to 1.87% for the third quarter from 1.93% for the second quarter of 2012. The reduction was principally driven by lower net charge-offs in practically all loan portfolios, partially offset by an increase of $6.9 million in commercial net charge-offs, mainly in the BPPR reportable segment. This increase was mainly the result of the ongoing portfolio review. Refer to Table J for further information on net charge-offs and related ratios.
- Non-performing loans held-for-sale decreased by $70 million, or 39%, mainly driven by $59 million of certain construction loans in the BPPR reportable segment which were resolved, as part of the Company’s strategic efforts to reduce non-performing loans, and the transfer of $17 million of other construction loans to other real estate owned.
- Non-performing loans (NPL) held-in-portfolio declined by $12 million from the second quarter of 2012 and were 34% lower than peak levels in the third quarter of 2010. The decline was primarily driven by a reduction of $18 million in non-performing construction loans, partially offset by an increase in consumer non-performing loans. Overall NPL levels continued to decline, reflecting continued improvement in the levels of problem loans.
- Inflows of commercial, construction, and legacy non-performing loans held-in-portfolio increased by $33 million from the second quarter, mainly associated with four commercial real estate borrowers with aggregate outstanding of $28 million in the BPPR reportable segment. Inflows to mortgage non-performing loans held-in-portfolio decreased by $5 million.
- OREO, excluding covered OREO, increased by $25 million from the second quarter, reflecting continuing efforts to aggressively resolve non-performing loans.
- The ratio of allowance for loan losses to loans held-in-portfolio, excluding covered loans, stood at 3.07% as of September 30, 2012 compared with 3.14% as of June 30, 2012. The general and specific reserves related to non-covered loans totaled $529 million and $107 million at quarter-end, compared with $561 million and $88 million, respectively, as of June 30, 2012. The decrease in the general reserve component reflects improvements in credit quality metrics, particularly in the commercial, legacy and consumer loan portfolios. The increase in the specific reserve component was mainly driven by one commercial real estate borrower and higher volume of residential mortgage troubled debt restructured loans in the BPPR reportable segment.
|Credit Quality by Segment|
|BPPR (non-covered loans)||30-Sep-12||30-Jun-12||30-Sep-11|
|Provision for loan losses||$ 69,738||$ 66,443||$ 131,058|
|Total non-performing loans held-in-portfolio||1,284,026||1,276,294||1,336,918|
|Provision for loan losses||$ 13,851||$ 15,300||$ 19,645|
|Total non-performing loans held-in-portfolio||266,474||286,524||394,753|
- The provision for loan losses for the non-covered loan portfolio increased by $3.3 million from the second quarter 2012 mainly due to higher net charge-offs in the commercial loan portfolio.
- Net charge-offs, excluding covered loans, increased by $3.6 million from the second quarter 2012, principally due to an $8.5 million increase in commercial net charge-offs. This increase was mainly the result of the ongoing portfolio review, partly offset by declines in the mortgage, construction, and consumer loan portfolios.
- Total non-performing loans held in portfolio, excluding covered loans, increased by $8 million from the second quarter 2012. This increase mainly reflects higher commercial and consumer NPLs by $21 million and $6 million, respectively, partly offset by a reduction of $18 million in the construction portfolio. This increase in commercial NPLs was largely driven by four commercial real estate relationships.
- The allowance for loan losses as a percent of non-covered loans held in portfolio decreased to 2.96% from 2.99% in second quarter 2012, reflecting reserve reductions across all loan portfolios, except residential mortgage loans, for which the reserve-to-loans ratio increased to 2.54% at September 30, 2012 compared to 2.50% at June 30, 2012.
- The provision for loan losses decreased by $1.4 million from second quarter 2012, reflecting lower net charge-offs, partly offset by a lower reserve release compared with the second quarter of 2012.
- Net charge-offs decreased by $5.8 million from the second quarter of 2012, mainly driven by reductions from the consumer, commercial, and legacy loan portfolios.
- Total non-performing loans held in portfolio decreased by $20 million from the second quarter of 2012, mainly related to the resolution of a certain large commercial loan relationship, as well as overall improvements in credit performance, particularly in the commercial and legacy portfolios.
- The allowance for loan losses as a percent of loans held in portfolio decreased to 3.35% from 3.51% in second quarter 2012, reflecting continued improvements in credit trends, particularly in the commercial and legacy loan portfolios.
|Financial Condition Highlights|
|Total assets||$ 36,503,366||$ 36,612,179||$ 38,275,323|
|Total loans held-in-portfolio (net)||23,896,548||23,916,109||24,413,388|
- Total loans held-in-portfolio, excluding covered loans, increased by $88 million from June 30, 2012, driven by performing mortgage loan purchases at BPNA of $67 million and loans purchased and originated by the Puerto Rico operations, offset by charge-offs amounting to $95.8 million and by the normal amortization of the portfolios. Refer to Table G for a breakdown by loan categories.
- Total loans held-for- sale decreased by $27 million, driven mainly by $59 million of certain construction loans in the BPPR reportable segment which were resolved, and the transfer of $17 million of other construction loans to other real estate owned. These decreases were offset by an increase in mortgage loans of approximately $44 million in the BPPR reportable segment related to loans originated or purchased with the intent to be sold or securitized.
- Trading securities decreased by approximately $191 million, driven mainly by more mortgage pool production sales and an additional sale of approximately $141 million in trading securities during the third quarter, resulting in a gain on sale of approximately $3.4 million, net of hedging costs. The Corporation executed a higher volume of mortgage-backed securities sales during the third quarter in order to take advantage of current mortgage spreads in Puerto Rico originated pools.
- Deposits decreased by $1.1 billion from June 30, 2012, reflecting the Corporation’s substitution of maturing brokered deposits with cheaper short-term borrowings. Brokered deposits amounted to $2.6 billion as of September 30, 2012, compared to $3.1 billion as of June 30, 2012. Also, non-brokered time deposits decreased by $336 million, driven mainly by retail certificates of deposit. Demand deposits declined by $288 million, driven mainly by public funds received during the second quarter. Table G presents a breakdown of deposits by major categories.
- Borrowings increased by $1.4 billion as the Corporation replaced maturing brokered deposits and time deposits with short term advances and repurchase agreements at a lower cost.
- Stockholders’ equity increased by $48 million from June 30, 2012, mainly as a result of the net income for the quarter. Refer to Table A for capital ratios and Table N for Non-GAAP reconciliations.