Stockholders' Equity and Earnings Per Common Share

6 Months Ended

Jun. 30, 2014

NOTE 14 — STOCKHOLDERS' EQUITY AND EARNINGS PER COMMON SHARE

Regulatory Capital Requirements

The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by federal and Puerto Rico banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Pursuant to the Dodd-Frank Act, federal banking regulators have adopted new capital rules that became effective January 1, 2014 for advanced approaches banking organizations and will become effective January 1, 2015 for all other covered organizations (subject to certain phase-in periods through January 1, 2019) and that will replace their general risk-based capital rules, advanced approaches rule, market risk rule, and leverage rules.

Quantitative measures established by regulation to ensure capital adequacy currently require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined in the regulations) and of Tier 1 capital to average total assets (as defined in the regulations). As of June 30, 2014 and December 31, 2013, the Company and the Bank met all capital adequacy requirements to which they are subject. As of June 30, 2014 and December 31, 2013, the Bank is “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” an institution must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the tables presented below.

The Company's and the Bank's actual capital amounts and ratios as of June 30, 2014 and December 31, 2013 are as follows

				Minimum Capital			Minimum to be Well
	Actual			Requirement			Capitalized
	Amount		Ratio	Amount		Ratio		Amount	Ratio
	(Dollars in thousands)
Company Ratios
As of June 30, 2014
Total capital to risk-weighted assets	$	863,790	17.30%	$	399,550	8.00%	$	499,438	10.00%
Tier 1 capital to risk-weighted assets	$	773,824	15.49%	$	199,775	4.00%	$	299,663	6.00%
Tier 1 capital to average total assets	$	773,824	10.26%	$	301,829	4.00%	$	377,286	5.00%
As of December 31, 2013
Total capital to risk-weighted assets	$	827,460	16.16%	$	409,514	8.00%	$	511,893	10.00%
Tier 1 capital to risk-weighted assets	$	736,930	14.35%	$	204,757	4.00%	$	307,136	6.00%
Tier 1 capital to average total assets	$	736,930	9.11%	$	324,910	4.00%	$	406,138	5.00%



				Minimum Capital			Minimum to be Well
	Actual			Requirement			Capitalized
	Amount		Ratio	Amount		Ratio	Amount		Ratio
	(Dollars in thousands)
Bank Ratios
As of June 30, 2014
Total capital to risk-weighted assets	$	812,267	16.34%	$	397,593	8.00%	$	496,991	10.00%
Tier 1 capital to risk-weighted assets	$	722,603	14.54%	$	198,796	4.00%	$	298,195	6.00%
Tier 1 capital to average total assets	$	722,603	9.65%	$	299,657	4.00%	$	374,571	5.00%
As of December 31, 2013
Total capital to risk-weighted assets	$	779,413	15.30%	$	407,637	8.00%	$	509,547	10.00%
Tier 1 capital to risk-weighted assets	$	688,350	13.51%	$	203,819	4.00%	$	305,728	6.00%
Tier 1 capital to average total assets	$	688,350	8.54%	$	322,395	4.00%	$	402,993	5.00%

Additional Paid-in Capital

Additional paid-in capital represents contributed capital in excess of par value of common and preferred stock net of the costs of issuance. As of June 30, 2014, accumulated issuance costs charged against additional paid in capital amounted to $10.1 million and $13.6 million for preferred and common stock, respectively.

Earnings Per Common Share

The calculation of earnings per common share for the quarters and six-month periods ended June 30, 2014 and 2013 is as follows:

	Quarter ended June 30 ,				Six-Month Period Ended June 30,
	2014		2013		2014		2013
	(In thousands, except per share data)
Net income	$	21,309	$	37,539	$	45,056	$	58,731
Less: Dividends on preferred stock
Non-convertible preferred stock (Series A, B, and D)		(1,628)		(1,628)		(3,256)		(3,256)
Convertible preferred stock (Series C)		(1,838)		(1,838)		(3,675)		(3,675)
Income available to common shareholders	$	17,843	$	34,073	$	38,125	$	51,800
Effect of assumed conversionof the convertible ' ' preferred stock		1,838		1,838		3,675		3,675
Income available to common shareholders assuming conversion	$	19,681	$	35,911	$	41,800	$	55,475

Weighted average common shares and share equivalents:
Average common shares outstanding		45,014		45,630		45,170		45,613
Effect of dilutive securities:
Average potential common shares-options		200		200		168		178
Average potential common shares-assuming ' ' conversion of convertible preferred stock		7,138		7,138		7,138		7,138
Total weighted average common shares ' 'outstanding and equivalents		52,352		52,968		52,476		52,929
Earnings per common share - basic	$	0.40	$	0.75	$	0.84	$	1.14
Earnings per common share - diluted	$	0.38	$	0.68	$	0.80	$	1.05

In computing diluted earnings per common share, the 84,000 shares of convertible preferred stock, which remain outstanding at June 30, 2014, with a conversion rate, subject to certain conditions, of 84.9798 shares of common stock per share, were included as average potential common shares from the date they were issued and outstanding. Moreover, in computing diluted earnings per common share, the dividends declared during the quarters ended June 30, 2014 and 2013 on the convertible preferred stock were added back as income available to common shareholders.

For the quarters ended June 30, 2014 and 2013, weighted-average stock options with an anti-dilutive effect on earnings per share not included in the calculation amounted to 364,604 and 243,721, respectively. For the six-month periods ended June 30, 2014 and 2013, weighted-average stock options with an anti-dilutive effect on earnings per share not included in the calculation amounted to 304,491 and 578,393, respectively.

Treasury Stock

Under the Company's current stock repurchase program it is authorized to purchase in the open market up to $70 million of its outstanding shares of common stock, of which approximately $23.1 million of authority remains. The shares of common stock repurchased are to be held by the Company as treasury shares. During the six-month period ended June 30, 2014, the Company purchased 707,400 shares under this program for a total of $10.4 million, at an average price of $14.66 per share. There were no repurchases during 2013.

The following table presents the shares repurchased for each month in the six-month period ended June 30, 2014, excluding the months of March, April, May, and June of 2014, during which no shares were purchased as part of the stock repurchase program:

	Total number of				Dollar amount of
	shares purchased as		Average		shares repurchased
		part of stock	price paid		(excluding
	repurchase programs		per share		commissions paid)
						(In thousands)
Period
January 2014		57,700	$	14.73	$	850
February 2014		649,700	$	14.66	$	9,522
Six-Month Period Ended June 30, 2014		707,400		14.66		10,372

The number of shares that may yet be purchased under the $70 million program is estimated at 1,252,136 and was calculated by dividing the remaining balance of $23.1 million by $18.41 (closing price of the Company common stock at June 30, 2014). The Company did not purchase any shares of its common stock other than through its publicly announced stock repurchase program during the six-months ended June 30, 2014.

The activity in connection with common shares held in treasury by the Company for the six-month periods ended June 30, 2014 and 2013 is set forth below:

	Six-Month Period Ended June 30,
	2014			2013
		Dollar			Dollar
	Shares	Amount		Shares	Amount
	(In thousands, except shares data)
Beginning of period	7,030,101	$	80,642	7,090,597	$	81,275
Common shares used upon lapse of restricted stock units	(30,552)		(323)	(34,800)		(364)
Common shares repurchased as part of the stock repurchase program	707,400		10,393	-		-
Common shares used to match defined contribution plan, net	-		-	(7,318)		(77)
End of period	7,706,949	$	90,712	7,048,479	$	80,834

Accumulated Other Comprehensive Income

Accumulated other comprehensive income, net of income tax, as of June 30, 2014 and December 31, 2013 consisted of:

	June 30,		December 31,
	2014		2013
	(In thousands)
Unrealized gain on securities available-for-sale which are not other-than-temporarily impaired	$	33,404	$	13,267
Income tax effect of unrealized gain on securities available-for-sale		(3,645)		(1,834)
Net unrealized gain on securities available-for-sale which are not other-than-temporarily impaired		29,759		11,433
Unrealized loss on cash flow hedges		(10,515)		(10,907)
Income tax effect of unrealized loss on cash flow hedges		2,511		2,665
Net unrealized loss on cash flow hedges		(8,004)		(8,242)
Accumulated other comprehensive income, net of taxes	$	21,755	$	3,191

The following table presents changes in accumulated other comprehensive income by component, net of taxes, for the quarters and six-month periods ended June 30, 2014 and 2013:

	Quarter Ended June 30,
	2014						2013
	Net unrealized		Net unrealized		Accumulated		Net unrealized		Net unrealized		Accumulated
	gains on		loss on		other		gains on		loss on		other
	securities		cash flow		comprehensive		securities		cash flow		comprehensive
	available-for-sale		hedges		income		available-for-sale		hedges		income
	(In thousands)
Beginning balance	$	16,035	$	(8,013)	$	8,022	$	58,393	$	(11,342)	$	47,051
Other comprehensive income (loss) before reclassifications		13,714		(1,633)		12,081		(33,036)		292		(32,744)
Amounts reclassified out of accumulated other comprehensive income		10		1,642		1,652		43		1,416		1,459
Other comprehensive income (loss)		13,724		9		13,733		(32,993)		1,708		(31,285)
Ending balance	$	29,759	$	(8,004)	$	21,755	$	25,400	$	(9,634)	$	15,766


	Six-Month Period Ended June 30,
	2014						2013
	Net unrealized		Net unrealized		Accumulated		Net unrealized		Net unrealized		Accumulated
	gains on		loss on		other		gains on		loss on		other
	securities		cash flow		comprehensive		securities		cash flow		comprehensive
	available-for-sale		hedges		income		available-for-sale		hedges		income
	(In thousands)
Beginning balance	$	11,433	$	(8,242)	$	3,191	$	68,245	$	(12,365)	$	55,880
Other comprehensive income before reclassifications		18,179		(3,025)		15,154		(42,934)		(21)		(42,955)
Amounts reclassified out of accumulated other comprehensive income		147		3,263		3,410		89		2,752		2,841
Other comprehensive income (loss)		18,326		238		18,564		(42,845)		2,731		(40,114)
Ending balance	$	29,759	$	(8,004)	$	21,755	$	25,400	$	(9,634)	$	15,766

The following table presents reclassifications out of accumulated other comprehensive income for the quarter and six-month period ended June 30, 2014:

	Amount reclassified out of accumulated
	other comprehensive income

		Quarter Ended		Six-Month Period	Affected Line Item in
		June 30, 2014		Ended June 30, 2014	Consolidated Statement
					of Operations
	(In thousands)
Cash flow hedges:
Interest-rate contracts	$	1,642	$	3,263	Net interest expense
Available-for-sale securities:
Residual tax effect from OIB's change in applicable tax rate		10		147	Income tax expense
	$	1,652	$	3,410