SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 001-12647
ORIENTAL FINANCIAL GROUP INC.
INCORPORATED IN THE COMMONWEALTH OF PUERTO RICO
IRS EMPLOYER IDENTIFICATION NO. 66-0538893
PRINCIPAL EXECUTIVE OFFICES:
Monacillos Ward
1000 San Roberto Street
Rio Piedras, Puerto Rico 00926
Telephone Number: (787) 771-6800
- --------------------------------------------------------------------------------
NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK, AS OF THE LAST
PRACTICABLE DATE:
13,808,252 COMMON SHARES ($1.00 PAR VALUE PER SHARE) OUTSTANDING AS OF
DECEMBER 31, 2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No .
----- -----
TABLE OF CONTENTS
PAGE
- ---------------------------------------------------------------------------------------------------------------
PART - 1
- ---------------------------------------------------------------------------------------------------------------
ITEM - 1 FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AT DECEMBER 31,
2000 (UNAUDITED) AND JUNE 30, 2000 2
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME FOR THE QUARTER AND
SIX-MONTH PERIODS ENDED DECEMBER 31, 2000 AND 1999 3
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME FOR THE SIX-MONTH PERIODS ENDED
DECEMBER 31, 2000 AND 1999 4
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX-MONTH
PERIODS ENDED DECEMBER 31, 2000 AND 1999 5
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM - 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 12-30
PART - 2
- ---------------------------------------------------------------------------------------------------------------
ITEM - 1 LEGAL PROCEEDINGS 30
ITEM - 2 CHANGE IN SECURITIES 30
ITEM - 3 DEFAULTS UPON SENIOR SECURITIES 30
ITEM - 4 SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS 30
ITEM - 5 OTHER INFORMATION 30
ITEM - 6 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K 30
SIGNATURES 31
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2000 (UNAUDITED) AND JUNE 30, 2000
(IN THOUSANDS)
DECEMBER 31, JUNE 30,
2000 2000
------------ --------
ASSETS
- --------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks $ 5,422 $ 10,322
------------ ----------
INVESTMENTS:
Money market investments 44,887 23,511
Trading securities, at fair value 27,486 64,443
Investment securities available-for-sale, at fair value 1,139,306 282,900
Investment securities held-to-maturity, at amortized cost
(fair value June 30, 2000 - $770,851) - 797,484
Federal Home Loan Bank (FHLB) stock, at cost 11,146 11,146
------------ ----------
TOTAL INVESTMENTS 1,222,825 1,179,484
------------ ----------
LOANS:
Loans held-for-sale, at lower of cost or market 45,786 180,788
Loans receivable, net 404,845 420,091
------------ ----------
TOTAL LOANS, NET 450,631 600,879
------------ ----------
Accrued interest receivable 16,756 13,485
Foreclosed real estate, net 1,079 398
Premises and equipment, net 21,436 21,706
Other assets, net 29,783 23,960
------------ ----------
TOTAL ASSETS $1,747,932 $1,850,234
------------ ----------
------------ ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
DEPOSITS:
Savings and demand $ 124,400 $ 130,919
Time and IRA accounts 538,504 587,931
Accrued interest 4,277 4,831
------------ ----------
TOTAL DEPOSITS 667,181 723,681
------------ ----------
BORROWINGS:
Securities sold under agreements to repurchase 826,299 816,493
Advances and borrowings from FHLB 20,000 70,000
Term notes and other borrowings 80,000 86,500
------------ ----------
TOTAL BORROWINGS 926,299 972,993
------------ ----------
Accrued expenses and other liabilities 44,347 35,691
------------ ----------
TOTAL LIABILITIES 1,637,827 1,732,365
------------ ----------
------------ ----------
COMMITMENTS AND CONTINGENCIES - -
------------ ----------
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value; 5,000,000 shares authorized; $25 liquidation 33,500 33,500
value; shares issued and outstanding 1,340,000
Common stock, $1 par value; 20,000,000 shares authorized; shares
issued 13,808,252 (June 30, 2000 - 13,805,135) 13,808 13,805
Additional paid-in capital 23,803 23,786
Legal surplus 10,684 10,578
Retained earnings 77,381 79,809
Treasury stock, at cost, 1,271,799 shares (June 30, 2000 - 1,107,799) (29,180) (27,116)
Accumulated other comprehensive loss, net of deferred taxes of $76
(June 30, 2000 - $1,413) (19,891) (16,493)
------------ ----------
TOTAL STOCKHOLDERS' EQUITY 110,105 117,869
------------ ----------
------------ ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,747,932 $1,850,234
------------ ----------
------------ ----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
Page 2
CONSOLIDATED STATEMENTS OF INCOME
QUARTER AND SIX-MONTH PERIOD ENDED DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT FOR PER SHARE INFORMATION)
2ND QUARTER SIX-MONTH PERIOD
-----------------------------------------------------------
AS RESTATED AS RESTATED
2000 1999 2000 1999
------------ --------------- ------------- --------------
INTEREST INCOME:
Loans and leases $9,482 $14,195 $18,629 $28,100
Mortgage-backed securities 15,375 13,254 30,481 25,332
Investment securities 3,181 3,940 6,821 7,640
Money market investments 523 66 2,998 121
------------ --------------- ------------- --------------
TOTAL INTEREST INCOME 28,561 31,455 58,929 61,193
------------ --------------- ------------- --------------
INTEREST EXPENSE:
Deposits 9,155 7,606 18,765 14,840
Securities sold under agreements to repurchase 11,794 9,811 24,589 17,940
Other borrowed funds 1,525 2,329 3,004 4,787
------------ --------------- ------------- --------------
TOTAL INTEREST EXPENSE 22,474 19,746 46,358 37,567
------------ --------------- ------------- --------------
NET INTEREST INCOME 6,087 11,709 12,571 23,626
Provision for loan losses 500 1,500 1,900 3,250
------------ --------------- ------------- --------------
NET CREDIT INCOME 5,587 10,209 10,671 20,376
------------ --------------- ------------- --------------
NON-INTEREST INCOME:
Trust, money management and brokerage fees 2,676 2,779 5,503 5,406
Mortgage banking activities 2,353 1,419 3,904 3,377
Banking service revenues 1,038 1,398 2,054 2,324
Net gain (loss) on sale of securities available-for-sale 510 60 (3,195) 659
Derivatives activities income (loss) (721) - (2,794) -
Trading net activity 105 198 92 65
Leasing revenues 13 367 63 635
------------ --------------- ------------- --------------
TOTAL NON-INTEREST INCOME 5,974 6,221 5,627 12,466
------------ --------------- ------------- --------------
NON-INTEREST EXPENSES:
Compensation and benefits 3,423 3,702 6,798 7,523
Occupancy and equipment, net 1,778 1,568 3,496 3,060
Advertising and business promotion 1,003 549 1,784 1,272
Professional and service fees 1,083 1,129 1,641 1,794
Communications 407 374 827 778
Taxes other than on income 488 477 976 955
Insurance, including deposit insurance 132 138 227 272
Printing, postage, stationery and supplies 141 218 304 415
Other 657 642 1,245 1,267
------------ --------------- ------------- --------------
TOTAL NON-INTEREST EXPENSE 9,112 8,797 17,298 17,336
------------ --------------- ------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES 2,449 7,633 (1,000) 15,506
Income taxes (credit) (269) 298 (1,726) 929
------------ --------------- ------------- --------------
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE, NET OF TAXES 2,718 7,335 726 14,577
Cumulative effect of change in accounting principle, net of taxes - - 1,930 -
------------ --------------- ------------- --------------
NET INCOME 2,718 7,335 2,656 14,577
Less: Dividends on preferred stock (597) (597) (1,193) (1,193)
------------ --------------- ------------- --------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $2,121 $6,738 $1,463 $13,384
------------ --------------- ------------- --------------
------------ --------------- ------------- --------------
INCOME (LOSS) PER COMMON SHARE:
Basic before cumulative effect of change in GAAP $0.17 $0.53 $(0.04) $1.05
------------ --------------- ------------- --------------
Diluted before cumulative effect of change in GAAP $0.17 $0.51 $(0.04) $1.01
------------ --------------- ------------- --------------
Basic after cumulative effect of change in GAAP $0.17 $0.53 $0.12 $1.05
------------ --------------- ------------- --------------
Diluted after cumulative effect of change in GAAP $0.17 $0.51 $0.11 $1.01
------------ --------------- ------------- --------------
Average common shares outstanding 12,551 12,777 12,600 12,806
Average potential common share options 148 443 153 499
------------ --------------- ------------- --------------
12,699 13,220 12,753 13,305
------------ --------------- ------------- --------------
------------ --------------- ------------- --------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
Page 3
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY AND OF COMPREHENSIVE INCOME
SIX-MONTH PERIOD ENDED DECEMBER 31, 2000 AND 1999
(IN THOUSANDS)
AS RESTATED
2000 1999
--------------------- --------------------------
CHANGES IN STOCKHOLDERS' EQUITY:
- -------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK:
Balance at beginning of year $33,500 $33,500
Issuance of preferred stock - -
--------------------- --------------------------
BALANCE AT END OF YEAR 33,500 33,500
--------------------- --------------------------
COMMON STOCK:
Balance at beginning of year 13,805 13,739
Stock options exercised 3 25
--------------------- --------------------------
BALANCE AT END OF YEAR 13,808 13,764
--------------------- --------------------------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of year 23,786 23,313
Stock options exercised 17 114
--------------------- --------------------------
BALANCE AT END OF YEAR 23,803 23,427
--------------------- --------------------------
LEGAL SURPLUS:
Balance at beginning of year 10,578 8,673
Transfer from retained earnings 106 804
--------------------- --------------------------
BALANCE AT END OF YEAR 10,684 9,477
--------------------- --------------------------
RETAINED EARNINGS:
Balance at beginning of year - as previously reported - 79,920
Amount of restatement, net of taxes - (7,734)
Beginning balance - as restated 79,809 72,186
Net income 2,656 14,577
Dividends declared on common stock (3,785) (3,834)
Dividends declared on preferred stock (1,193) (1,193)
Transfer to legal surplus (106) (804)
--------------------- --------------------------
BALANCE AT END OF YEAR 77,381 80,932
--------------------- --------------------------
TREASURY STOCK:
Balance at beginning of year (27,116) (23,401)
Treasury stock purchased (2,064) (1,900)
--------------------- --------------------------
BALANCE AT END OF YEAR (29,180) (25,301)
--------------------- --------------------------
ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF DEFERRED TAXES:
Balance at beginning of year (16,493) (11,712)
Other comprehensive gain (loss) for the period ended, net of taxes (3,398) (8,434)
--------------------- --------------------------
BALANCE AT END OF YEAR (19,891) (20,146)
--------------------- --------------------------
TOTAL STOCKHOLDERS' EQUITY $110,105 $115,653
--------------------- --------------------------
--------------------- --------------------------
COMPREHENSIVE INCOME:
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME $2,656 $14,577
--------------------- --------------------------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
NET CHANGE IN FAIR VALUE OF SECURITIES AVAILABLE-FOR-SALE, NET OF TAXES
Unrealized gain (loss) on securities arising during the period 13,563 (8,986)
Realized (loss) gains included in net income (3,195) 659
Income tax effect (1,337) (107)
--------------------- --------------------------
9,030 (8,434)
--------------------- --------------------------
--------------------- --------------------------
NET CHANGE IN FAIR VALUE OF DERIVATIVES, NET OF TAXES
Unrealized (loss) on derivatives arising during the period (12,428) -
Income tax effect - -
--------------------- --------------------------
(12,428) -
--------------------- --------------------------
--------------------- --------------------------
OTHER COMPREHENSIVE GAIN (LOSS) FOR THE PERIOD ENDED, NET OF TAXES (3,398) (8,434)
--------------------- --------------------------
COMPREHENSIVE INCOME (LOSS) $(742) $6,143
--------------------- --------------------------
--------------------- --------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
Page 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX-MONTH PERIOD ENDED DECEMBER 31, 2000 AND 1999
(IN THOUSANDS)
AS RESTATED
2000 1999
------------------- --------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,656 $14,577
------------------- --------------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of deferred loan origination fees and costs (151) 186
Amortization of premiums and accretion of discounts on investment securities (58) (91)
Depreciation and amortization of premises and equipment 2,160 1,668
Provision for loan losses 1,900 3,250
Loss (gain) on sale of securities available-for-sale 3,195 (659)
Derivatives activities 2,794 -
Mortgage banking activities (3,904) (3,377)
Proceeds from sale of loans held-for-sale 14,800 27,795
Increase (decrease) in accrued expenses and other liabilities 8,680 (18,390)
Net (increase) decrease in:
Trading securities 36,957 (3,567)
Accrued interest receivable (3,271) (2,179)
Deferred taxes (3,743) -
Other assets (5,555) (1,579)
------------------- --------------------------
TOTAL ADJUSTMENTS 53,804 3,057
------------------- --------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 56,460 17,634
------------------- --------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities available-for-sale (290,875) (124,100)
Maturities and redemptions of investment securities available-for-sale 17,564 38,329
Maturities and redemptions of investment securities held-to-maturity 30,303 40,741
Proceeds from sales of investment securities available-for-sale 237,332 34,383
Proceeds from sale of consumer loans and leases portfolios 167,900 -
Loans production (origination and purchases), net (90,078) (66,289)
Capital expenditures (1,890) (2,357)
------------------- --------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 70,256 (169,993)
------------------- --------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in:
Deposits (56,500) (11,478)
Securities sold under agreements to repurchase 9,806 143,123
Advances and borrowings from FHLB (50,000) 12,800
Repayments of term notes and other borrowings (6,500) (10,000)
Proceeds from exercise of stock options 20 139
Treasury stock acquired (2,064) (1,900)
Dividends paid (5,002) (5,047)
------------------- --------------------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (110,240) 127,637
------------------- --------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 16,476 (24,722)
Cash and cash equivalents at beginning of year 33,833 36,051
------------------- --------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $50,309 $11,329
------------------- --------------------------
------------------- --------------------------
CASH AND CASH EQUIVALENTS INCLUDE:
Cash and due from banks $5,422 $9,349
Money market investments 44,887 1,980
------------------- --------------------------
$50,309 $11,329
------------------- --------------------------
------------------- --------------------------
SUPPLEMENTAL CASH FLOW DISCLOSURE AND SCHEDULE OF NONCASH ACTIVITIES:
Interest paid $ 47,220 $ 36,920
------------------- --------------------------
Income taxes paid $ - $ 1,050
------------------- --------------------------
Investment securities available-for-sale transferred to held-to-maturity $ - $263,793
------------------- --------------------------
Investment securities held-to-maturity transferred to available-for-sale $766,848 $ -
------------------- --------------------------
Real estate loans securitized into mortgage-backed securities $ 59,780 $ 47,600
------------------- --------------------------
------------------- --------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
Page 5
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ORIENTAL FINANCIAL
GROUP INC.
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting and reporting policies of Oriental Financial Group Inc. (the
"Group") conform with U.S. generally accepted accounting principles ("GAAP") and
financial services industry practices. The following is a description of the
Group's most significant accounting policies:
NATURE OF OPERATIONS AND USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL
STATEMENTS
The Group is a financial holding company incorporated under the laws of the
Commonwealth of Puerto Rico, which provides a variety of financial services
through its subsidiaries. The Group is subject to regulation and supervision by
the Federal Reserve Board. Oriental Bank and Trust (the "Bank"), the Group's
banking subsidiary, is a full-service commercial bank with its main office
located in San Juan, Puerto Rico, and with nineteen branches located throughout
the island. The Group through its banking and broker-dealer subsidiaries, offers
mortgage, commercial and consumer lending, financial planning, money management
and investment brokerage services, as well as corporate and individual trust
services. The Bank is also subject to the regulations of the Federal Deposit
Insurance Corp. ("FDIC") and the Office of the Commissioner of Financial
Institutions of Puerto Rico.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with instructions for Form 10-Q. Complete information regarding
the financial statements can be found in the notes to the financial statements
for the year ended June 30, 2000 contained the Group's 2000 Annual Report and
Form 10-K.
In management's opinion, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting mainly of normal recurring
adjustments) necessary to present fairly, in all material respects, the
financial position of the Group at December 31, 2000 and June 30, 2000, and the
results of operations and cash flows for the second quarter and six-month period
ended December 31, 2000 and 1999, in conformity with GAAP.
NOTE 2 - INVESTMENTS AND SECURITIES:
The Group's securities are classified as held-to-maturity, available-for-sale or
trading. Securities for which the Group has the positive intent and ability to
hold to maturity are classified as held-to-maturity and are carried at amortized
cost. Securities that might be sold prior to maturity because of interest rate
changes, to meet liquidity needs, or to better match the repricing
characteristics of funding sources are classified as available-for-sale. These
securities are reported at fair value, with unrealized gains and losses excluded
from earnings and reported net of deferred taxes in other comprehensive income.
The Group classifies as trading those securities that are acquired and held
principally for the purpose of selling them in the near term. These securities
are carried at estimated fair value with realized and unrealized changes in
market value included in earnings in the period in which the changes occur.
Interest revenue arising from trading instruments is included in the statement
of income as part of net interest income rather than in the trading profit or
loss account. The Group's investment in the Federal Home Loan Bank ("FHLB") of
New York has no readily determinable fair value and can only be sold to the FHLB
at par value. Therefore, this investment is carried at cost and its redemption
value represents its fair value.
Premiums and discounts are amortized to interest income over the life of the
related securities using the interest method. Net realized gains or losses on
sales of investment securities and unrealized loss valuation adjustments
considered other than temporary, if any, on securities classified as either
available-for-sale or held-to-maturity are reported separately in the statement
of income. The cost of securities is determined using the specific
identification method.
MONEY MARKET INVESTMENTS
At December 31, 2000 and June 30, 2000 the Group's money market investments were
comprised of:
(IN THOUSANDS)
-------------------------------------------
DECEMBER 31, JUNE 30,
-------------------- -------------------
Securities purchased under agreements to resell $ - $ -
Time deposits with other banks 13,887 1,350
Money market accounts and other short-term investments 31,000 22,161
-------------------- -------------------
$44,887 $23,511
-------------------- -------------------
-------------------- -------------------
Page 6
TRADING SECURITIES
A summary of trading securities owned by the Group at December 31, 2000 and
June 30, 2000 is as follows:
(IN THOUSANDS)
-------------------------------------------
DECEMBER 31, JUNE 30,
-------------------- -------------------
U.S. Treasury securities $2,555 $42,734
P.R. Government securities 11,651 13,513
Mortgage-backed securities 11,284 6,058
CMO residuals, interest only 1,996 2,138
-------------------- -------------------
$27,486 $64,443
-------------------- -------------------
-------------------- -------------------
At December 31, 2000, the Group's trading portfolio weighted average yield was
7.88% (June 30, 2000 - 7.49%).
INVESTMENT SECURITIES
With the adoption of Statement No. 133 (See Note 1), "Accounting for Derivative
Instruments and Hedging Activities", management reclassified the portfolio of
investments Held-to-Maturity to the Available-for-Sale investment category. The
amortized cost, gross unrealized gains and losses, estimated fair value, and
weighted average yield of the securities owned by the Group at December 31, 2000
and June 30, 2000, were as follows:
DECEMBER 31, 2000 (IN THOUSANDS)
---------------- ----------------- --------------- ---------------- ---------------
GROSS GROSS AVERAGE
AMORTIZED UNREALIZED UNREALIZED FAIR WEIGHTED
COST GAINS LOSSES VALUE YIELD
---------------- ----------------- --------------- ---------------- ---------------
AVAILABLE-FOR-SALE AND FHLB STOCK
US Treasury securities $24,385 $73 $150 $24,308 6.44%
US Government agencies securities 95,495 389 317 95,567 6.83%
Other debt securities 9,285 - - 9,285 8.33%
PR Government securities 4,466 25 91 4,400 7.52%
CMOs 125,385 8 2,883 122,510 6.72%
FNMA and FHLMC certificates 531,306 3,894 1,683 533,517 6.89%
GNMA certificates 348,113 2,708 1,102 349,719 7.21%
---------------- ----------------- --------------- ---------------- ---------------
1,138,435 7,097 6,226 1,139,306 6.97%
FHLB stock 11,146 - - 11,146 7.55%
$1,149,581 $7,097 $6,226 $1,150,452 6.98%
---------------- ----------------- --------------- ---------------- ---------------
---------------- ----------------- --------------- ---------------- ---------------
JUNE 30, 2000 (IN THOUSANDS)
---------------- ----------------- --------------- ---------------- ---------------
GROSS GROSS AVERAGE
AMORTIZED UNREALIZED UNREALIZED FAIR WEIGHTED
COST GAINS LOSSES VALUE YIELD
---------------- ----------------- --------------- ---------------- ---------------
AVAILABLE-FOR-SALE AND FHLB STOCK
US Treasury securities $87,710 $3 $4,979 $82,734 5.18%
US Government agencies securities 104,482 - 3,842 100,640 6.81%
Other debt securities 4,417 - 66 4,351 8.32%
PR Government securities 465 5 19 451 6.19%
CMOs 212 - - 212 5.78%
FNMA and FHLMC certificates 56,743 100 99 56,744 8.00%
GNMA certificates 37,875 154 261 37,768 7.62%
---------------- ----------------- --------------- ---------------- ---------------
291,904 262 9,266 282,900 6.68%
FHLB stock 11,146 - - 11,146 6.27%
---------------- ----------------- --------------- ---------------- ---------------
$303,050 $262 $9,266 $294,046 6.66%
---------------- ----------------- --------------- ---------------- ---------------
---------------- ----------------- --------------- ---------------- ---------------
HELD-TO-MATURITY
PR Government securities 3,551 3 24 3,530 7.89%
US Government agencies securities 9,993 - 457 9,536 6.46%
CMOs 110,967 - 6,316 104,651 6.52%
Other debt securities 4,864 - - 4,864 8.32%
FNMA and FHLMC certificates 295,039 54 11,601 283,492 6.61%
GNMA certificates 373,070 469 8,761 364,778 7.19%
---------------- ----------------- --------------- ---------------- ---------------
797,484 526 27,159 770,851 6.88%
---------------- ----------------- --------------- ---------------- ---------------
---------------- ----------------- --------------- ---------------- ---------------
$1,100,534 $788 $36,425 $1,064,897 6.82%
---------------- ----------------- --------------- ---------------- ---------------
---------------- ----------------- --------------- ---------------- ---------------
The amortized cost and estimated fair value of the Group's investment securities
at December 31, 2000, by contractual maturity, are shown in the next table.
Expected maturities may differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
Page 7
(IN THOUSANDS)
----------------------------------------------------------------------------------------------------
AVAILABLE-FOR-SALE HELD-TO-MATURITY TOTAL
----------- ------------ ------------- -------------- ------------- --------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
----------- ------------ ------------- -------------- ------------- --------------
Due within 1 year $71,055 $70,832 $ - $ - $71,055 $70,832
After 1 year to 5 years 4,420 4,497 - - 4,420 4,497
After 5 years to 10 years 119,888 120,103 - - 119,888 120,103
Due after 10 years 943,072 943,874 - - 943,072 943,874
FHLB stock - - - - 11,146 11,146
----------- ------------ ------------- -------------- ------------- --------------
$1,138,435 $1,139,306 $ - $ - $1,149,581 $1,150,452
----------- ------------ ------------- -------------- ------------- --------------
----------- ------------ ------------- -------------- ------------- --------------
Proceeds from the sale of investment securities available-for-sale during the
first six months of fiscal 2001 totaled $237,332,000 (2000 - $34,383,000). Gross
realized gains and losses on those sales were $547,143 and $3,732,000
respectively (2000 - $690,000 and $31,000).
NOTE 3 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES:
LOANS RECEIVABLE
The Group's business activity is with consumers located in Puerto Rico. The
Group's loan transactions include a diversified number of industries and
activities such as individuals, sole proprietorships, partnerships,
manufacturing, tourism, government, insurance and not-for-profit organizations,
all of which are encompassed within three main categories: mortgage, commercial
and consumer. The Group's loan portfolio has a higher concentration of loans to
consumers such as residential mortgage loans. The composition of the Group's
loan portfolio at December 31, 2000 and June 30, 2000 was as follows:
(IN THOUSANDS)
----------------------------------------
DECEMBER 31, JUNE 30,
--------------------- ------------------
LOANS SECURED BY REAL ESTATE:
Residential $299,180 $331,150
Non-residential real estate loans 4,584 4,974
Home equity loans and personal loans collateralized by real estate 63,395 40,306
--------------------- ------------------
367,159 376,430
Less: net deferred loan fees (2,825) (2,103)
--------------------- ------------------
364,334 374,327
--------------------- ------------------
--------------------- ------------------
OTHER LOANS:
Commercial 16,735 24,117
Personal consumer loans and credit lines 22,909 19,698
Financing leases, net of unearned interest 3,865 8,785
--------------------- ------------------
43,509 52,600
--------------------- ------------------
--------------------- ------------------
LOANS RECEIVABLE 407,843 426,927
Allowance for loan losses (2,998) (6,837)
--------------------- ------------------
LOANS RECEIVABLE, NET 404,845 420,090
Loans held-for-sale 45,786 180,788
-------------------- ------------------
TOTAL LOANS, NET $450,631 $600,878
--------------------- ------------------
--------------------- ------------------
ALLOWANCE FOR LOAN LOSSES
The Group maintains an allowance for loan losses at a level that management
considers adequate to provide for potential losses based upon an evaluation of
known and inherent risks. The Group's allowance for loan losses policy provides
for a detailed quarterly analysis of possible losses. The analysis includes a
review of historical loan loss experience, value of underlying collateral,
current economic conditions, financial condition of borrowers and other
pertinent factors.
While management uses available information in estimating possible loan losses,
future additions to the allowance may be necessary based on factors beyond the
Group's control, such as factors affecting economic conditions in Puerto Rico.
Refer to Table 5 of the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for the changes in the allowance for loan
losses for the second quarter and six-month period ended December 31, 2000 and
1999.
The Group evaluates all loans, some individually and other as homogeneous
groups, for purposes of determining impairment. At December 31, 2000 and June
30, 2000, the Group determined that no impairment reserve was necessary.
Page 8
NOTE 4 - PLEDGED ASSETS:
At December 31, 2000, residential mortgage loans and investment securities
amounting to $252,666,000 (June 30, 2000 - $254,312,000), and $975,877,000 (June
30, 2000 - $1,062,000,000), respectively, were pledged to secure public fund
deposits, investment securities sold under agreements to repurchase, letters of
credit, advances and borrowings from the FHLB of New York, term notes and
interest rate swap agreements.
NOTE 5 - INTEREST RATE RISK MANAGEMENT:
The Group uses interest rate swaps and caps as an interest rate risk hedging
mechanism. Under the swaps, the Group pays a fixed annual cost and receives a
floating payment based on LIBOR. Floating rate payments received from the swap
counterpart correspond to the floating rate payments made on the borrowings or
notes thus resulting in a net fixed rate cost to the Group. Under the caps, The
Group pays an up front premium or fee for the right to receive cash flow
payments in excess of the predetermined cap rate; thus, effectively capping its
interest rate cost for the duration of the agreement. The Group's swaps and caps
outstanding and their terms at December 31, 2000 and June 30, 2000 are set forth
in the table below:
(DOLLARS IN THOUSANDS)
---------------------------------------
DECEMBER 31, JUNE 30,
----------------- -----------------
SWAPS:
Pay fixed swaps notional amount $250,000 $100,000
Weighted average pay rate - fixed 7.02% 7.07%
Weighted average receive rate - floating 6.65% 6.76%
Maturity in months 17 - 118 24
Floating rate as a percent of LIBOR 100% 100%
CAPS:
Cap agreements notional amount $250,000 $250,000
Cap rate 7.00% 7.00%
Maturity in months 19 23
The agreements were signed to convert the rollover program of short-term
borrowings into fixed rate liabilities for longer periods and provide protection
against increases in interest rates. The amounts potentially subject to credit
loss are the net streams of payments under the agreements and not the notional
principal amounts used to express the volume of the swaps. The Group controls
the credit risk of its interest rate swap agreements through approvals, limits,
monitoring procedures and collateral, where considered necessary. The Group does
not anticipate nonperformance by the counter parties.
The Bank offers its customers certificates of deposit tied to the performance of
the Standard & Poor's 500 Composite Stock Index. At the end of five years, the
depositor will receive a specified percent of the average increase of the
month-end value of the corresponding stock index. If such index decreases, the
depositor receives the principal without any interest. The Group uses interest
rate swap agreements with major money center banks to manage its exposure to the
stock market. Under the terms of the agreements, the Group will receive the
average increase in the month-end value of the corresponding index in exchange
for a semiannual fixed interest cost. At December 31, 2000, the notional amount
of these agreements totaled $147,975,000 (June 30, 2000 - $132,975,000) at a
weighted average rate of 5.85% (June 30, 2000 - 5.84%).
The Group offers its customers certificates of deposit with high interest rates
and therefore uses interest rate swap agreements to lower the cost of these
deposits. Under the terms of the agreements the Group pays a floating rate (90
days LIBOR less a spread) and receives a fixed payment (the cost of the
certificates of deposit). These swaps mature in seven years with an option to
cancel after the third year. This option is at the counterpart's call. The
certificates of deposit are issued with this same option, the Group has the
right to call and consequently cancel the certificates of deposit. At December
31, 2000, the notional amount of these agreements totaled $30,000,000 (June 30,
2000 - $40,000,000) at a weighted average rate of 6.14% (June 30, 2000- 5.82%).
DERIVATIVES AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities". The Statement
requires the Group to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If derivatives meet the criteria and qualify as a hedge, depending on
the nature of the hedge, changes in the fair value of derivatives are either
offset against the change in fair value of assets, liabilities, or firm
commitments through earnings, or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value is immediately recognized in earnings. The
adoption of Statement No. 133 on July 1, 2000 resulted in the cumulative effect
of a change in accounting principle of $3.2 million ($1.9 million net of tax
effect) being recognized as income in the Consolidated Statement of Income.
Changes (unrealized loss) of $721,000 and $2.8 million were recognized against
operations for the quarter and six-months ended December 31, 2000, respectively,
and presented as "Derivatives Activities Income (loss)" in the Consolidated
Statement of Income of those charges, $642,000 and $1.3 million, respectively,
relates to the recognition of hedges ineffectiveness. As of December 31, 2000,
an unrealized loss of $12.4 million was recognized directly to "Other
Comprehensive Income" for the effective portion of hedges. The aggregated fair
value of derivatives at December 31, 2000, was $10.3 million (liability) and was
recognized as "Other Liabilities" on the Consolidated Statement of Financial
Condition.
Page 9
NOTE 6 - SEGMENT REPORTING:
The Group operates three major reportable segments: Financial Services, Mortgage
Banking and Retail Banking. Management determined the reportable segments based
on the internal reporting used to evaluate performance and to assess where to
allocate resources. Other factors such as the Group's organizational chart,
nature of products, distribution channels and economic characteristics of the
products were also considered in the determination of the reportable segments.
The Group monitors the performance of these reportable segments, based on
pre-established goals of different financial parameters such as net income,
interest spread, loan production, fees generated, and increase in market share.
The Group's largest business segment is retail banking, which is mainly
comprised of the Bank's branches and loan centers with such retail products as
deposits and consumer loans. Commercial and finance leases are also considered
in the retail business. This segment is also responsible for the Bank's mortgage
loans portfolio, and the Group's investment portfolios and treasury functions.
The Group's second largest business segment is the financial services, which is
comprised of the Bank's trust division, Oriental Trust, and the Group's
registered broker-dealer subsidiary, Oriental Financial Services Corp. The core
operations of this segment are financial planning, money management and
investment brokerage services, as well as corporate and individual trust
services. The last business segment is mortgage banking. it consists of Oriental
Mortgage, whose principal activity is to originate and purchase mortgage loans
and subsequently sell them in the secondary market. Following are the results of
operations and the selected financial information by operating segment for each
of the second quarter and six-month period ended December 31:
SIX-MONTH PERIOD ENDED DECEMBER 31, 2000 (DOLLARS IN THOUSANDS)
-----------------------------------------------------------------------------------
RETAIL FINANCIAL MORTGAGE
BANKING SERVICES BANKING ELIMINATIONS TOTAL
--------------- -------------- --------------- --------------- --------------
FISCAL 2001
Net interest income $12,376 $195 $ - $ - $12,571
Non-interest income (charges) 541 1,896 3,904 (714) 5,627
Non-interest expenses 14,185 1,268 2,559 (714) 17,298
Provision for loan losses 1,900 - - - 1,900
--------------- -------------- --------------- --------------- --------------
INCOME (LOSS) BEFORE TAXES $(3,168) $823 $1,345 $ $(1,000)
--------------- -------------- --------------- --------------- --------------
--------------- -------------- --------------- --------------- --------------
--------------- -------------- --------------- --------------- --------------
Total assets $1,743,642 $5,458 $2,000 $(3,168) $1,747,932
--------------- -------------- --------------- --------------- --------------
--------------- -------------- --------------- --------------- --------------
FISCAL 2000
Net interest income 23,401 $225 $ - $ - $23,626
Non-interest income (charges) 7,412 1,926 3,377 (249) 12,466
Non-interest expenses 14,072 1,084 2,429 (249) 17,336
Provision for loan losses 3,250 - - - 3,250
--------------- -------------- --------------- --------------- --------------
INCOME BEFORE TAXES $13,491 $1,067 $948 $ - $15,506
--------------- -------------- --------------- --------------- --------------
--------------- -------------- --------------- --------------- --------------
Total assets $1,706,703 $10,945 $2,000 $(2,148) $1,717,500
--------------- -------------- --------------- --------------- --------------
--------------- -------------- --------------- --------------- --------------
SECOND QUARTER ENDED RESULTS DECEMBER 31, 2000 (DOLLARS IN THOUSANDS)
-----------------------------------------------------------------------------------
RETAIL FINANCIAL MORTGAGE
BANKING SERVICES BANKING ELIMINATIONS TOTAL
--------------- -------------- --------------- --------------- --------------
FISCAL 2001
Net interest income $5,952 $135 $ - $ - $6,087
Non-interest income(charges) 2,983 991 2,353 (353) 5,974
Non-interest expenses 7,488 661 1,316 (353) 9,112
Provision for loan losses 500 - - - 500
--------------- -------------- --------------- --------------- --------------
INCOME (LOSS) BEFORE TAXES $947 $465 $1,037 $ - $2,449
--------------- -------------- --------------- --------------- --------------
--------------- -------------- --------------- --------------- --------------
--------------- -------------- --------------- --------------- --------------
Total assets $1,743,642 $5,458 $2,000 $(3,168) $1,747,932
--------------- -------------- --------------- --------------- --------------
--------------- -------------- --------------- --------------- --------------
FISCAL 2000
Net interest income 11,596 $113 $ - $ - $11,709
Non-interest income(charges) 3,803 1,104 1,419 (104) 6,222
Non-interest expenses 7,136 558 1,210 (104) 8,800
Provision for loan losses 1,500 - - - 1,500
--------------- -------------- --------------- --------------- --------------
INCOME BEFORE TAXES $6,763 $659 $513 $ - $7,631
--------------- -------------- --------------- --------------- --------------
--------------- -------------- --------------- --------------- --------------
--------------- -------------- --------------- --------------- --------------
Total assets $1,706,703 $10,945 $2,000 $(2,148) $1,717,500
--------------- -------------- --------------- --------------- --------------
--------------- -------------- --------------- --------------- --------------
Page 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE QUARTER AND SIX-MONTH PERIOD ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
DESCRIPTION PAGE #
- ---------------------------------------------------------------------------------------------------------
Selected Financial Data:
Earnings, Dividends Declared and Per Share Information 12
Period End Balances 12
Selected Financial Ratios (in percent) and Other Information 12
Table 1 Analysis of Interest Income and Changes due to Volume / Rate 13
Table 2 Non-Interest Income Summary and Composition 15
Table 3 Non-Interest Expenses Summary and Composition 15
Table 4 Non-0perating Activities 15
Table 5 Allowance for Loan Losses Summary 16
Table 6 Net Credit Losses Statistics 16
Table 7 Loan Loss Reserve Breakdowns 17
Table 8 Non-Performing Assets 17
Table 9 Non-Performing Loans 17
Table 10 Bank Assets Summary and Composition 18
Table 11 Liabilities Summary and Composition 18
Table 12 Capital, Dividends and Stock Data 19
Table 13 Financial Assets Summary 19
Overview of Financial Performance 20
Page 11
SELECTED FINANCIAL DATA
QUARTER AND SIX-MONTH PERIOD ENDED DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT FOR PER SHARE RESULTS)
QUARTERLY RESULTS
--------------------------------------------------------------------
AS RESTATED
--------------------------------------------------------------------
2000 1999 VARIANCE %
---------------------- ---------------------- -----------------
EARNINGS, PER SHARE AND DIVIDENDS DATA:
- -------------------------------------------------------------------------------------------------------------------------
Interest income $28,561 $31,455 -9.2%
Interest expense 22,474 19,746 13.8%
---------------------- ---------------------- -----------------
NET INTEREST INCOME 6,087 11,709 -48.0%
Provision for loan losses 500 1,500 -66.7%
---------------------- ---------------------- -----------------
NET CREDIT INCOME 5,587 10,209 -45.3%
Recurrent non-interest income 6,067 5,596 8.4%
---------------------- ---------------------- -----------------
NET CORE REVENUES 11,654 15,805 -26.3%
Recurrent non-interest expenses 8,689 8,342 4.2%
---------------------- ---------------------- -----------------
CORE OPERATING ACTIVITIES 2,965 7,463 -60.3%
---------------------- ---------------------- -----------------
---------------------- ---------------------- -----------------
Non operating non-interest income (charges) (93) 625 -114.9%
Non operating non-interest expenses (424) (455) -6.8%
---------------------- ---------------------- -----------------
TOTAL OPERATING ACTIVITIES (517) 170 -404.1%
---------------------- ---------------------- -----------------
---------------------- ---------------------- -----------------
INCOME BEFORE TAXES 2,448 7,633 -67.9%
Income taxes (credit) (269) 298 -190.3%
---------------------- ---------------------- -----------------
NET INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 2,717 7,335 -63.0%
Cumulative effect of change in
accounting principle, net of taxes - - 0.0%
---------------------- ---------------------- -----------------
NET INCOME 2,717 7,335 -63.0%
Less: dividends on preferred stock (597) (597) 0.0%
---------------------- ---------------------- -----------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $2,120 $6,738 -68.5%
---------------------- ---------------------- -----------------
---------------------- ---------------------- -----------------
EARNINGS (LOSS) PER SHARE:
Basic before cumulative effect of change in GAAP $0.17 $0.53 -67.9%
---------------------- ---------------------- -----------------
Basic after cumulative effect of change in GAAP $0.17 $0.53 -67.9%
---------------------- ---------------------- -----------------
Diluted before cumulative effect of change in GAAP $0.17 $0.51 -66.7%
---------------------- ---------------------- -----------------
Diluted after cumulative effect of change in GAAP $0.17 $0.51 -66.7%
---------------------- ---------------------- -----------------
AVERAGE SHARES AND POTENTIAL SHARES 12,699 13,219 -3.9%
---------------------- ---------------------- -----------------
Book value $6.11 $6.43 -5.0%
---------------------- ---------------------- -----------------
Market price at end of period $13.31 $22.75 -41.5%
---------------------- ---------------------- -----------------
Dividends declared per share $0.15 $0.15 0.0%
---------------------- ---------------------- -----------------
Dividends declared $3,785 $3,833 -1.3%
---------------------- ---------------------- -----------------
YEAR-TO-DATE RESULTS
------------------------------------------------------------------
AS RESTATED
------------------------------------------------------------------
2000 1999 VARIANCE %
---------------------- ---------------------- -----------------
EARNINGS, PER SHARE AND DIVIDENDS DATA:
- ----------------------------------------------------------------------------------------------------------------------
Interest income $58,929 $61,193 -3.7%
Interest expense 46,358 37,567 23.4%
---------------------- ---------------------- -----------------
NET INTEREST INCOME 12,571 23,626 -46.8%
Provision for loan losses 1,900 3,250 -41.5%
---------------------- ---------------------- -----------------
NET CREDIT INCOME 10,671 20,376 -47.6%
Recurrent non-interest income 11,461 11,107 3.2%
---------------------- ---------------------- -----------------
NET CORE REVENUES 22,132 31,483 -29.7%
Recurrent non-interest expenses 16,822 17,091 -1.6%
---------------------- ---------------------- -----------------
CORE OPERATING ACTIVITIES 5,310 14,392 -63.1%
---------------------- ---------------------- -----------------
---------------------- ---------------------- -----------------
Non operating non-interest income (charges) (5,834) 1,359 -529.3%
Non operating non-interest expenses (476) (245) 94.3%
---------------------- ---------------------- -----------------
TOTAL OPERATING ACTIVITIES (6,310) 1,114 -666.4%
---------------------- ---------------------- -----------------
---------------------- ---------------------- -----------------
INCOME BEFORE TAXES (1,000) 15,506 -106.4%
Income taxes (credit) (1,726) 929 -285.8%
---------------------- ---------------------- -----------------
NET INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 726 14,577 -95.0%
Cumulative effect of change in
accounting principle, net of taxes 1,930 - 100.0%
---------------------- ---------------------- -----------------
NET INCOME 2,656 14,577 -81.8%
Less: dividends on preferred stock (1,193) (1,193) 0.0%
---------------------- ---------------------- -----------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $1,463 $13,384 -89.1%
---------------------- ---------------------- -----------------
---------------------- ---------------------- -----------------
EARNINGS (LOSS) PER SHARE:
Basic before cumulative effect of change in GAAP $(0.04) $1.05 -103.8%
---------------------- ---------------------- -----------------
Basic after cumulative effect of change in GAAP $0.12 $1.05 -88.6%
---------------------- ---------------------- -----------------
Diluted before cumulative effect of change in GAAP $(0.04) $1.01 -104.0%
---------------------- ---------------------- -----------------
Diluted after cumulative effect of change in GAAP $0.11 $1.01 -89.1%
---------------------- ---------------------- -----------------
AVERAGE SHARES AND POTENTIAL SHARES 12,753 13,305 -4.1%
---------------------- ---------------------- -----------------
Book value $6.11 $6.43 -5.0%
---------------------- ---------------------- -----------------
Market price at end of period $13.31 $22.75 -41.5%
---------------------- ---------------------- -----------------
Dividends declared per share $0.30 $0.30 0.0%
---------------------- ---------------------- -----------------
Dividends declared $3,785 $3,833 -1.3%
---------------------- ---------------------- -----------------
PERIOD END BALANCES (AS OF DECEMBER 31,) AND FINANCIAL RATIOS:
- ------------------------------------------------------------------------------------------------------------------------
TOTAL FINANCIAL ASSETS
Trust assets managed $1,405,775 $1,412,964 -0.5%
Broker-dealer assets gathered 925,377 872,500 6.1%
-----------------------------------------
ASSETS MANAGED 2,331,152 2,285,464 2.0%
Group total assets 1,747,932 1,702,652 2.7%
-----------------------------------------
$4,079,084 $3,988,116 2.3%
-----------------------------------------
-----------------------------------------
INTEREST-EARNING ASSETS
Investments $1,222,825 $1,069,823 14.3%
Loans and leases (including held-for-sale) 450,631 561,777 -19.8%
-----------------------------------------
$1,673,456 $1,631,600 2.6%
-----------------------------------------
-----------------------------------------
INTEREST-BEARING LIABILITIES
Deposits $667,181 $644,375 3.5%
Repurchase agreements 826,299 739,349 11.8%
Borrowings 100,000 177,700 -43.7%
-----------------------------------------
$1,593,480 $1,561,424 2.1%
-----------------------------------------
-----------------------------------------
STOCKHOLDERS' EQUITY
Preferred equity $33,500 $33,498 0.0%
Common equity 76,605 82,155 -6.8%
-----------------------------------------
$110,105 $115,653 -4.8%
-----------------------------------------
-----------------------------------------
CAPITAL RATIOS
Leverage capital 7.72% 8.72%
----------------------------
Total risk-based capital 23.38% 24.74%
----------------------------
Tier 1 risk-based capital 22.80% 23.48%
----------------------------
FINANCIAL RATIOS (IN PERCENT)
Return on average assets (ROA) 0.63% 1.83% 0.30% 1.78%
---------------------------------------------------
Return on average common equity (ROE) 10.50% 30.80% 3.48% 29.86%
---------------------------------------------------
Efficiency ratio 74.89% 49.78% 71.81% 49.02%
---------------------------------------------------
Expense ratio 0.78% 0.70% 0.71% 0.71%
---------------------------------------------------
Interest rate margin 1.60% 2.93% 1.58% 3.03%
---------------------------------------------------
Number of banking offices 19 19 19 19
---------------------------------------------------
Page 12
SELECTED FINANCIAL DATA
SIX-MONTH PERIOD ENDED DECEMBER 31, 2000 AND 1999
(DOLLARS IN THOUSANDS)
TABLE 1 - FISCAL YEAR-TO-DATE ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO
VOLUME/RATE:
- --------------------------------------------------------------------------------
-------------------------------------------------------
INTEREST
-------------------------------------------------------
VARIANCE
2000 1999 IN %
-------------------------------------------------------
- ---------------------------------------------------------------------
A -- TAX EQUIVALENT SPREAD
- ---------------------------------------------------------------------
Interest-earning assets $58,929 $61,193 -3.70%
Tax equivalent adjustment 17,000 16,804 1.17%
------------------------------------------------------
INTEREST-EARNING ASSETS -- TAX EQUIVALENT 75,929 77,997 -2.65%
Interest-bearing liabilities 46,358 37,567 23.40%
------------------------------------------------------
NET INTEREST INCOME / SPREAD $29,571 $40,430 -26.86%
------------------------------------------------------
------------------------------------------------------
- ---------------------------------------------------------------------
B - NORMAL SPREAD
- ---------------------------------------------------------------------
INTEREST-EARNING ASSETS:
INVESTMENTS:
Investment securities $36,081 $32,036 12.6%
Trading securities 1,228 936 31.2%
Money market investments 2,991 121 2371.9%
------------------------------------------------------
40,300 33,093 21.8%
------------------------------------------------------
------------------------------------------------------
LOANS:
Real estate (1) 15,724 12,691 23.9%
Consumer 1,411 8,491 -83.4%
Financing leases 1,193 1,335 -10.6%
Commercial and auto loans 301 5,583 -94.6%
------------------------------------------------------
18,629 28,100 -33.7%
------------------------------------------------------
------------------------------------------------------
58,929 61,193 -3.7%
------------------------------------------------------
------------------------------------------------------
INTEREST-BEARING LIABILITIES:
DEPOSITS:
Savings and demand 1,551 1,500 3.4%
Time and IRA accounts 17,214 13,340 29.0%
------------------------------------------------------
18,765 14,840 26.4%
------------------------------------------------------
------------------------------------------------------
BORROWINGS:
Repurchase agreements 23,714 18,188 30.4%
FHLB funds, term notes and other borrowings 3,879 4,539 -14.5%
------------------------------------------------------
27,593 22,727 21.4%
------------------------------------------------------
------------------------------------------------------
46,358 37,567 23.4%
------------------------------------------------------
------------------------------------------------------
NET INTEREST INCOME / SPREAD $12,571 $23,626 -46.8%
------------------------------------------------------
------------------------------------------------------
INTEREST RATE MARGIN
EXCESS OF INTEREST-EARNING ASSETS OVER INTEREST-BEARING LIABILITIES
INTEREST-EARNING ASSETS OVER INTEREST-BEARING LIABILITIES RATIO
- ---------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------
AVERAGE RATE
------------------------------------------------------
VARIANCE
2000 1999 IN BP
------------------------------------------------------
- ---------------------------------------------------------------------
A -- TAX EQUIVALENT SPREAD
- ---------------------------------------------------------------------
Interest-earning assets 7.22% 7.77% -0.55%
Tax equivalent adjustment 2.09% 2.14% -0.05%
------------------------------------------------------
INTEREST-EARNING ASSETS -- TAX EQUIVALENT 9.31% 9.91% -0.60%
Interest-bearing liabilities 5.89% 5.04% 0.85%
------------------------------------------------------
NET INTEREST INCOME / SPREAD 3.42% 4.87% -1.45%
------------------------------------------------------
------------------------------------------------------
- ---------------------------------------------------------------------
B - NORMAL SPREAD
- ---------------------------------------------------------------------
INTEREST-EARNING ASSETS:
INVESTMENTS:
Investment securities 6.85% 6.56% 0.29%
Trading securities 7.98% 8.36% -0.38%
Money market investments 6.03% 5.21% 0.82%
------------------------------------------------------
6.81% 6.60% 0.21%
------------------------------------------------------
------------------------------------------------------
LOANS:
Real estate (1) 7.82% 7.88% -0.06%
Consumer 16.58% 13.43% 3.15%
Financing leases 10.76% 13.28% -2.52%
Commercial and auto loans 8.27% 10.95% -2.68%
------------------------------------------------------
8.30% 9.84% -1.54%
------------------------------------------------------
------------------------------------------------------
7.22% 7.77% -0.55%
------------------------------------------------------
------------------------------------------------------
INTEREST-BEARING LIABILITIES:
DEPOSITS:
Savings and demand 2.34% 2.04% 0.30%
Time and IRA accounts 6.13% 5.30% 0.83%
------------------------------------------------------
5.41% 4.56% 0.85%
------------------------------------------------------
------------------------------------------------------
BORROWINGS:
Repurchase agreements 6.25% 5.43% 0.82%
FHLB funds, term notes and other borrowings 6.34% 5.28% 1.06%
------------------------------------------------------
6.26% 5.40% 0.86%
------------------------------------------------------
------------------------------------------------------
5.89% 5.04% 0.85%
------------------------------------------------------
------------------------------------------------------
NET INTEREST INCOME / SPREAD 1.33% 2.73% -1.40%
------------------------------------------------------
------------------------------------------------------
INTEREST RATE MARGIN 1.58% 3.03% -1.45%
------------------------------------------------------
------------------------------------------------------
EXCESS OF INTEREST-EARNING ASSETS OVER INTEREST-BEARING LIABILITIES
INTEREST-EARNING ASSETS OVER INTEREST-BEARING LIABILITIES RATIO
- ---------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------
AVERAGE BALANCE
------------------------------------------------------
VARIANCE
2000 1999 IN %
------------------------------------------------------
- ---------------------------------------------------------------------
A -- TAX EQUIVALENT SPREAD
- ---------------------------------------------------------------------
Interest-earning assets $1,630,428 $1,570,723 3.80%
Tax equivalent adjustment - - 0.00%
------------------------------------------------------
INTEREST-EARNING ASSETS -- TAX EQUIVALENT 1,630,428 1,570,723 3.80%
Interest-bearing liabilities 1,562,363 1,479,910 5.57%
------------------------------------------------------
NET INTEREST INCOME / SPREAD $68,065 $90,813 -25.05%
------------------------------------------------------
------------------------------------------------------
- ---------------------------------------------------------------------
B - NORMAL SPREAD
- ---------------------------------------------------------------------
INTEREST-EARNING ASSETS:
INVESTMENTS:
Investment securities $1,052,259 $974,901 7.93%
Trading securities 30,793 22,406 37.43%
Money market investments 99,133 4,650 2031.89%
------------------------------------------------------
1,182,185 1,001,957 17.99%
------------------------------------------------------
------------------------------------------------------
LOANS:
Real estate (1) 402,153 322,260 24.79%
Consumer 16,882 125,455 -86.54%
Financing leases 7,218 101,102 -92.86%
Commercial and auto loans 21,990 19,950 10.23%
------------------------------------------------------
448,243 568,767 -21.19%
------------------------------------------------------
------------------------------------------------------
1,630,428 1,570,724 3.80%
------------------------------------------------------
------------------------------------------------------
INTEREST-BEARING LIABILITIES:
DEPOSITS:
Savings and demand 131,390 145,726 -9.84%
Time and IRA accounts 557,280 499,670 11.53%
------------------------------------------------------
688,670 645,396 6.71%
------------------------------------------------------
------------------------------------------------------
BORROWINGS:
Repurchase agreements 752,292 664,024 13.29%
FHLB funds, term notes and other borrowings 121,400 170,489 -28.79%
------------------------------------------------------
873,692 834,513 4.69%
------------------------------------------------------
------------------------------------------------------
1,562,362 1,479,909 5.57%
------------------------------------------------------
------------------------------------------------------
NET INTEREST INCOME / SPREAD
INTEREST RATE MARGIN
EXCESS OF INTEREST-EARNING ASSETS OVER INTEREST-BEARING LIABILITIES $68,066 $90,815 -25.05%
------------------------------------------------------
------------------------------------------------------
INTEREST-EARNING ASSETS OVER INTEREST-BEARING LIABILITIES RATIO 104.36% 106.14%
------------------------------------
------------------------------------
- --------------------------------------------------------------------- -------------------------------------
CHANGES IN NET INTEREST INCOME DUE TO: VOLUME RATE TOTAL
- --------------------------------------------------------------------- -------------------------------------
INTEREST INCOME:
Loans (1) $(9,148) $ (323) $ (9,471)
Investments 5,766 1,441 7,207
-------------------------------------
(3,382) 1,118 (2,264)
-------------------------------------
-------------------------------------
INTEREST EXPENSE:
Deposits 1,501 2,424 $ 3,925
Borrowings 1,017 3,849 4,866
-------------------------------------
2,518 6,273 8,791
-------------------------------------
-------------------------------------
NET INTEREST INCOME $(5,900) $(5,155) $(11,055)
-------------------------------------
-------------------------------------
(1) - Real estate averages include loans held-for-sale.
Page 13
SELECTED FINANCIAL DATA
THREE-MONTH PERIOD ENDED DECEMBER 31, 2000 AND 1999
(DOLLARS IN THOUSANDS)
TABLE 1A - QUARTERLY ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO
VOLUME/RATE:
- -----------------------------------------------------------------------
-------------------------------------------------------
INTEREST
-------------------------------------------------------
VARIANCE
2000 1999 IN %
-------------------------------------------------------
- ---------------------------------------------------------------------
A -- TAX EQUIVALENT SPREAD
- ---------------------------------------------------------------------
Interest-earning assets $28,561 $31,455 -9.20%
Tax equivalent adjustment 8,289 8,679 -4.49%
------------------------------------------------------
INTEREST-EARNING ASSETS -- TAX EQUIVALENT 36,850 40,134 -8.18%
Interest-bearing liabilities 22,474 19,746 13.82%
------------------------------------------------------
NET INTEREST INCOME / SPREAD $14,376 $20,388 -29.49%
------------------------------------------------------
------------------------------------------------------
- ---------------------------------------------------------------------
B - NORMAL SPREAD
- ---------------------------------------------------------------------
INTEREST-EARNING ASSETS:
INVESTMENTS:
Investment securities $17,867 $16,653 7.3%
Trading securities 695 541 28.5%
Money market investments 517 66 683.3%
------------------------------------------------------
19,079 17,260 34.0%
------------------------------------------------------
------------------------------------------------------
LOANS:
Real estate (1) 8,054 6,577 22.5%
Consumer 740 4,275 -82.7%
Financing leases 563 576 -2.3%
Commercial and auto loans 125 2,767 -95.5%
------------------------------------------------------
9,482 14,195 -33.2%
------------------------------------------------------
------------------------------------------------------
28,561 31,455 -9.2%
------------------------------------------------------
------------------------------------------------------
INTEREST-BEARING LIABILITIES:
DEPOSITS:
Savings and demand 765 736 3.9%
Time and IRA accounts 8,390 6,870 22.1%
------------------------------------------------------
9,155 7,606 20.4%
------------------------------------------------------
------------------------------------------------------
BORROWINGS:
Repurchase agreements 11,489 9,723 18.2%
FHLB funds, term notes and other borrowings 1,830 2,417 -24.3%
------------------------------------------------------
13,319 12,140 9.7%
------------------------------------------------------
------------------------------------------------------
22,474 19,746 13.8%
------------------------------------------------------
------------------------------------------------------
NET INTEREST INCOME / SPREAD $ 6,087 $11,709 -48.0%
------------------------------------------------------
------------------------------------------------------
INTEREST RATE MARGIN
EXCESS OF INTEREST-EARNING ASSETS OVER INTEREST-BEARING LIABILITIES
INTEREST-EARNING ASSETS OVER INTEREST-BEARING LIABILITIES RATIO
- ---------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------
AVERAGE RATE
------------------------------------------------------
VARIANCE
2000 1999 IN BP
------------------------------------------------------
- ---------------------------------------------------------------------
A -- TAX EQUIVALENT SPREAD
- ---------------------------------------------------------------------
Interest-earning assets 7.32% 7.80% -0.48%
Tax equivalent adjustment 2.13% 2.16% -0.03%
------------------------------------------------------
INTEREST-EARNING ASSETS -- TAX EQUIVALENT 9.45% 9.96% -0.51%
Interest-bearing liabilities 5.84% 5.15% 0.69%
------------------------------------------------------
NET INTEREST INCOME / SPREAD 3.61% 4.81% -1.20%
------------------------------------------------------
------------------------------------------------------
- ---------------------------------------------------------------------
B - NORMAL SPREAD
- ---------------------------------------------------------------------
INTEREST-EARNING ASSETS:
INVESTMENTS:
Investment securities 6.89% 6.59% 0.30%
Trading securities 8.09% 8.45% -0.36%
Money market investments 6.19% 5.83% 0.36%
------------------------------------------------------
6.91% 6.63% 0.28%
------------------------------------------------------
------------------------------------------------------
LOANS:
Real estate (1) 7.89% 8.24% -0.35%
Consumer 13.52% 13.20% 0.32%
Financing leases 11.44% 10.81% 0.63%
Commercial and auto loans 9.01% 10.94% -1.93%
------------------------------------------------------
8.32% 9.93% -1.61%
------------------------------------------------------
------------------------------------------------------
7.32% 7.80% -0.48%
------------------------------------------------------
------------------------------------------------------
INTEREST-BEARING LIABILITIES:
DEPOSITS:
Savings and demand 2.32% 2.00% 0.32%
Time and IRA accounts 6.17% 5.42% 0.75%
------------------------------------------------------
5.42% 4.65% 0.77%
------------------------------------------------------
------------------------------------------------------
BORROWINGS:
Repurchase agreements 6.16% 5.52% 0.64%
FHLB funds, term notes and other borrowings 6.36% 5.52% 0.84%
------------------------------------------------------
6.18% 5.52% 0.66%
------------------------------------------------------
------------------------------------------------------
5.84% 5.15% 0.69%
------------------------------------------------------
------------------------------------------------------
NET INTEREST INCOME / SPREAD 1.48% 2.65% -1.17%
------------------------------------------------------
------------------------------------------------------
INTEREST RATE MARGIN 1.60% 2.93% -1.33%
------------------------------------------------------
------------------------------------------------------
EXCESS OF INTEREST-EARNING ASSETS OVER INTEREST-BEARING LIABILITIES
INTEREST-EARNING ASSETS OVER INTEREST-BEARING LIABILITIES RATIO
- ---------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------
AVERAGE BALANCE
------------------------------------------------------
VARIANCE
2000 1999 IN %
------------------------------------------------------
- ---------------------------------------------------------------------
A -- TAX EQUIVALENT SPREAD
- ---------------------------------------------------------------------
Interest-earning assets $1,558,906 $1,608,701 -3.10%
Tax equivalent adjustment - - 0.00%
------------------------------------------------------
INTEREST-EARNING ASSETS -- TAX EQUIVALENT 1,558,906 1,608,701 -3.10%
Interest-bearing liabilities 1,525,818 1,523,276 0.17%
------------------------------------------------------
NET INTEREST INCOME / SPREAD $33,088 $85,425 -61.27%
------------------------------------------------------
------------------------------------------------------
- ---------------------------------------------------------------------
B - NORMAL SPREAD
- ---------------------------------------------------------------------
INTEREST-EARNING ASSETS:
INVESTMENTS:
Investment securities $1,036,250 $1,009,135 2.69%
Trading securities 34,331 25,635 33.92%
Money market investments 33,377 4,550 633.56%
------------------------------------------------------
1,103,958 1,039,320 6.22%
------------------------------------------------------
------------------------------------------------------
LOANS:
Real estate (1) 408,226 319,393 27.81%
Consumer 21,714 128,469 -83.10%
Financing leases 5,492 100,371 -94.53%
Commercial and auto loans 19,516 21,148 -7.72%
------------------------------------------------------
454,948 569,381 -20.10%
------------------------------------------------------
------------------------------------------------------
1,558,906 1,608,701 -3.10%
------------------------------------------------------
------------------------------------------------------
INTEREST-BEARING LIABILITIES:
DEPOSITS:
Savings and demand 130,838 146,257 -10.54%
Time and IRA accounts 539,662 503,051 7.28%
------------------------------------------------------
670,500 649,308 3.26%
------------------------------------------------------
------------------------------------------------------
BORROWINGS:
Repurchase agreements 740,304 698,850 5.93%
FHLB funds, term notes and other borrowings 115,014 175,118 -34.32%
------------------------------------------------------
855,318 873,968 -2.13%
------------------------------------------------------
------------------------------------------------------
1,525,818 1,523,276 0.17%
------------------------------------------------------
------------------------------------------------------
NET INTEREST INCOME / SPREAD
INTEREST RATE MARGIN
EXCESS OF INTEREST-EARNING ASSETS OVER INTEREST-BEARING LIABILITIES $33,088 $85,425 -61.27%
------------------------------------------------------
------------------------------------------------------
INTEREST-EARNING ASSETS OVER INTEREST-BEARING LIABILITIES RATIO 102.17% 105.61%
------------------------------------
------------------------------------
- --------------------------------------------------------------------- -------------------------------------
CHANGES IN NET INTEREST INCOME DUE TO: VOLUME RATE TOTAL
- --------------------------------------------------------------------- -------------------------------------
INTEREST INCOME:
Loans (1) $(4,332) $ (381) $ (4,713)
Investments 1,398 421 $ 1,819
-------------------------------------
(2,934) 40 (2,894)
-------------------------------------
-------------------------------------
INTEREST EXPENSE:
Deposits 473 1,076 $ 1,549
Borrowings (250) 1,429 $ 1,179
-------------------------------------
223 2,505 2,728
-------------------------------------
-------------------------------------
NET INTEREST INCOME $(3,157) $(2,465) $ (5,622)
-------------------------------------
-------------------------------------
(1) - Real estate averages include loans held-for-sale.
Page 14
SELECTED FINANCIAL DATA
QUARTER AND SIX-MONTH PERIOD ENDED DECEMBER 31, 2000 AND 1999
-------------------------------------------------------
2ND QUARTER
-------------------------------------------------------
AS RESTATED
-------------------------------------------------------
2000 1999 VARIANCE %
-------------------------------------------------------
TABLE 2 - NON-INTEREST INCOME SUMMARY
---------------------------------------------------------------------------------------------------------------
Trust, money management and brokerage fees $2,676 $2,779 -3.7%
Mortgage banking activities 2,353 1,419 65.8%
------------------ ----------------- ----------------
NON-BANKING SERVICE REVENUES 5,029 4,198 19.8%
------------------ ----------------- ----------------
------------------ ----------------- ----------------
Fees on deposit accounts 561 561 0.0%
Bank service charges and commissions 409 656 -37.7%
Other operating revenues 68 181 -62.4%
------------------ ----------------- ----------------
BANK SERVICE REVENUES 1,038 1,398 -25.8%
------------------ ----------------- ----------------
------------------ ----------------- ----------------
RECURRENT NON-INTEREST INCOME $6,067 $5,596 8.4%
------------------ ----------------- ----------------
------------------ ----------------- ----------------
RECURRENT NON-INTEREST INCOME TO EXPENSES RATIO 69.82% 67.08% 4.1%
------------------ ----------------- ----------------
TABLE 3 - NON-INTEREST EXPENSES SUMMARY
---------------------------------------------------------------------------------------------------------------
Fixed compensation $2,669 $2,812 -5.1%
Variable compensation 754 890 -15.3%
------------------ ----------------- ----------------
COMPENSATION AND BENEFITS 3,423 3,702 -7.5%
------------------ ----------------- ----------------
------------------ ----------------- ----------------
Occupancy and equipment 1,778 1,568 13.4%
Advertising and business promotion 1,003 549 82.7%
Professional and service fees (1) 660 674 -2.1%
Communications 407 374 8.8%
Municipal and other general taxes 488 477 2.3%
Insurance, including deposits insurance 132 138 -4.3%
Printing, postage, stationery and supplies 141 218 -35.3%
Other operating expenses 657 642 2.3%
------------------ ----------------- ----------------
OTHER NON-INTEREST EXPENSES 5,266 4,640 13.5%
------------------ ----------------- ----------------
------------------ ----------------- ----------------
RECURRENT NON-INTEREST EXPENSES $8,689 $8,342 4.2%
------------------ ----------------- ----------------
------------------ ----------------- ----------------
RELEVANT RATIOS AND DATA:
Efficiency ratio 74.89% 49.78%
------------------ -----------------
Expense ratio 0.78% 0.70%
------------------ -----------------
Compensation to recurrent non-interest expenses 65.0% 79.8%
------------------ -----------------
Variable compensation to total compensation 22.0% 24.0%
------------------ -----------------
Compensation to total average assets 0.79% 0.94%
------------------ -----------------
Average compensation per employee $40.3 $40.9
------------------ -----------------
Average number of full-time employees 340 367
------------------ -----------------
Bank assets per employee
TOTAL WORK FORCE:
Banking operations
Trust operations
Brokerage operations
-------------------------------------------------------
SIX-MONTH PERIOD
-------------------------------------------------------
AS RESTATED
-------------------------------------------------------
2000 1999 VARIANCE %
-------------------------------------------------------
TABLE 2 - NON-INTEREST INCOME SUMMARY
---------------------------------------------------------------------------------------------------------------
Trust, money management and brokerage fees $5,503 $5,406 1.8%
Mortgage banking activities 3,904 3,377 15.6%
------------------ ----------------- ----------------
NON-BANKING SERVICE REVENUES 9,407 8,783 7.1%
------------------ ----------------- ----------------
------------------ ----------------- ----------------
Fees on deposit accounts 1,109 924 20.0%
Bank service charges and commissions 843 1,215 -30.6%
Other operating revenues 102 185 -44.9%
------------------ ----------------- ----------------
BANK SERVICE REVENUES 2,054 2,324 -11.6%
------------------ ----------------- ----------------
------------------ ----------------- ----------------
RECURRENT NON-INTEREST INCOME $11,461 $11,107 3.2%
------------------ ----------------- ----------------
------------------ ----------------- ----------------
RECURRENT NON-INTEREST INCOME TO EXPENSES RATIO 68.13% 64.99% 4.8%
------------------ ----------------- ----------------
TABLE 3 - NON-INTEREST EXPENSES SUMMARY
---------------------------------------------------------------------------------------------------------------
Fixed compensation $5,364 $5,556 -3.5%
Variable compensation 1,434 1,967 -27.1%
------------------ ----------------- ----------------
COMPENSATION AND BENEFITS 6,798 7,523 -9.6%
------------------ ----------------- ----------------
------------------ ----------------- ----------------
Occupancy and equipment 3,496 3,060 14.2%
Advertising and business promotion 1,784 1,272 40.3%
Professional and service fees (1) 1,165 1,549 -24.8%
Communications 827 778 6.3%
Municipal and other general taxes 976 955 2.2%
Insurance, including deposits insurance 227 272 -16.5%
Printing, postage, stationery and supplies 304 415 -26.7%
Other operating expenses 1,245 1,267 -1.7%
------------------ ----------------- ----------------
OTHER NON-INTEREST EXPENSES 10,024 9,568 4.8%
------------------ ----------------- ----------------
------------------ ----------------- ----------------
RECURRENT NON-INTEREST EXPENSES $16,822 $17,091 -1.6%
------------------ ----------------- ----------------
------------------ ----------------- ----------------
RELEVANT RATIOS AND DATA:
Efficiency ratio 71.81% 49.02%
------------------ -----------------
Expense ratio 0.71% 0.71%
------------------ -----------------
Compensation to recurrent non-interest expenses 67.8% 78.6%
------------------ -----------------
Variable compensation to total compensation 21.1% 26.1%
------------------ -----------------
Compensation to total average assets 0.77% 0.90%
------------------ -----------------
Average compensation per employee $ 40.0 $ 40.8
------------------ -----------------
Average number of full-time employees 340 362
------------------ -----------------
Bank assets per employee $ 6,073 $ 5,175
------------------ -----------------
TOTAL WORK FORCE:
Banking operations 288 329 -12.5%
Trust operations 27 28 -3.6%
Brokerage operations 14 12 16.7%
------------------ ----------------- ----------------
329 369 -10.8%
------------------ ----------------- ----------------
------------------ ----------------- ----------------
(1) EXCLUDES NON-OPERATING CHARGES SHOWN ON TABLE 4.
TABLE 4 - NON-OPERATING ACTIVITIES
---------------------------------------------------------------------------------------------------------------
Securities net activity $ 510 $ 60 750.0%
Trading net activity 105 198 -47.0%
Derivatives activity (721) - -100.0%
------------------ ----------------- ----------------
SECURITIES, DERIVATIVES AND TRADING NET ACTIVITIES (106) 258 -141.1%
------------------ ----------------- ----------------
------------------ ----------------- ----------------
Leasing revenues (discontinued June 2000) 13 367 -96.5%
Other (expenses) (423) (455) -7.0%
------------------ ----------------- ----------------
OTHER ACTIVITIES (410) (88) 365.9%
------------------ ----------------- ----------------
------------------ ----------------- ----------------
TOTAL NON-OPERATING ACTIVITIES $(516) $ 170 -403.5%
------------------ ----------------- ----------------
------------------ ----------------- ----------------
TABLE 4 - NON-OPERATING ACTIVITIES
---------------------------------------------------------------------------------------------------------------
Securities net activity $(3,195) $ 659 -584.8%
Trading net activity 92 65 41.5%
Derivatives activity (2,794) - -100.0%
------------------ ----------------- ----------------
SECURITIES, DERIVATIVES AND TRADING NET ACTIVITIES (5,897) 724 -914.5%
------------------ ----------------- ----------------
------------------ ----------------- ----------------
Leasing revenues (discontinued June 2000) 63 635 -90.1%
Other (expenses) (476) (245) 94.3%
------------------ ----------------- ----------------
OTHER ACTIVITIES (413) 390 -205.9%
------------------ ----------------- ----------------
------------------ ----------------- ----------------
TOTAL NON-OPERATING ACTIVITIES $(6,310) $1,114 -666.4%
------------------ ----------------- ----------------
------------------ ----------------- ----------------
Page 15
SELECTED FINANCIAL DATA
QUARTER AND SIX-MONTH PERIOD ENDED DECEMBER 31, 2000 AND 1999
(DOLLARS IN THOUSANDS)
QUARTERLY RESULTS YEAR-TO-DATE RESULTS
---------------------------------------- -------------------------------
2000 1999 2000 1999
---------------------- -------------- ----------- ----------------
TABLE 5 - ALLOWANCE FOR LOAN LOSSES SUMMARY
- -----------------------------------------------------------------------------------------------------------------------
BEGINNING BALANCE $6,972 $8,731 $6,837 $9,002
Provision for loan losses 500 1,500 1,900 3,250
Net credit losses -- see table 6 (4,474) (2,572) (5,739) (4,593)
---------------------- -------------- ----------- ----------------
ENDING BALANCE $2,998 $7,659 $2,998 $7,659
---------------------- -------------- ----------- ----------------
---------------------- -------------- ----------- ----------------
SELECTED DATA AND RATIOS:
Outstanding loans $453,629 $569,436 $453,629 $569,436
---------------------- -------------- ----------- ----------------
Recoveries to net charge-off's 11.7% 28.6% 16.6% 27.8%
---------------------- -------------- ----------- ----------------
Allowance coverage ratio
Total loans 0.66% 1.35% 0.66% 1.35%
---------------------- -------------- ----------- ----------------
Non-performing loans 20.07% 48.73% 20.07% 42.75%
---------------------- -------------- ----------- ----------------
Non-real estate non-performing loans 99.11% 85.79% 99.11% 85.79%
---------------------- -------------- ----------- ----------------
TABLE 6 - NET CREDIT LOSSES STATISTICS
- -----------------------------------------------------------------------------------------------------------------------
REAL ESTATE
Charge-offs $(35) $(24) $(35) $(24)
Recoveries - - - -
---------------------- -------------- ----------- ----------------
(35) (24) (35) (24)
---------------------- -------------- ----------- ----------------
---------------------- -------------- ----------- ----------------
CONSUMER
Charge-offs (416) (2,015) (1,490) (3,766)
Recoveries 364 597 671 979
---------------------- -------------- ----------- ----------------
(52) (1,418) (819) (2,787)
---------------------- -------------- ----------- ----------------
---------------------- -------------- ----------- ----------------
LEASING
Charge-offs (3,684) (1,429) (4,171) (2,403)
Recoveries 170 375 370 662
---------------------- -------------- ----------- ----------------
(3,514) (1,054) (3,801) (1,741)
---------------------- -------------- ----------- ----------------
---------------------- -------------- ----------- ----------------
OTHERS
Charge-offs (932) (134) (1,183) (168)
Recoveries 59 59 99 127
---------------------- -------------- ----------- ----------------
(873) (75) (1,084) (41)
---------------------- -------------- ----------- ----------------
---------------------- -------------- ----------- ----------------
NET CREDIT LOSSES
Total charge-offs (5,067) (3,602) (6,879) (6,361)
Total recoveries 593 1,031 1,140 1,768
---------------------- -------------- ----------- ----------------
$(4,474) $(2,571) $(5,739) $(4,593)
---------------------- -------------- ----------- ----------------
---------------------- -------------- ----------- ----------------
NET CREDIT LOSSES RATIO:
Real estate 0.03% 0.03% 0.02% 0.01%
---------------------- -------------- ----------- ----------------
Consumer 0.96% 4.38% 9.70% 4.40%
---------------------- -------------- ----------- ----------------
Leasing 255.94% 3.94% 105.32% 0.00%
---------------------- -------------- ----------- ----------------
Commercial and others 10.08% 1.34% 13.08% 0.77%
---------------------- -------------- ----------- ----------------
TOTAL 3.93% 1.75% 2.56% 1.57%
---------------------- -------------- ----------- ----------------
AVERAGE LOANS:
Real estate $408,226 $328,382 $402,153 $331,249
Consumer 21,714 129,541 16,882 126,676
Leasing 5,492 107,006 7,218 107,737
Commercial and others 19,516 22,369 21,990 21,171
---------------------- -------------- ----------- ----------------
TOTAL $454,948 $587,298 $448,243 $586,833
---------------------- -------------- ----------- ----------------
---------------------- -------------- ----------- ----------------
Page 16
SELECTED FINANCIAL DATA
QUARTER AND SIX-MONTH PERIOD ENDED DECEMBER 31, 2000 AND 1999
(DOLLARS IN THOUSANDS)
YEAR-TO-DATE RESULTS
-------------------------------
2000 1999
----------- ----------------
TABLE 7 - LOAN LOSS RESERVE BREAKDOWN (AS OF DECEMBER 31,):
- -----------------------------------------------------------------------------------------------------------------------
Consumer $ 1,337 $ 2,468
Financing leases 731 4,241
Commercial and other 215 570
----------- ----------------
Non-real estate 2,283 7,279
Real estate 715 380
----------- ----------------
Total $ 2,998 $ 7,659
----------- ----------------
----------- ----------------
TABLE 8 - NON-PERFORMING ASSETS (AS OF DECEMBER 31,):
- -----------------------------------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS
Non-performing loans $14,936 $17,917
Foreclosed real estate 1,079 383
Repossessed autos 50 347
Repossessed equipment - 26
----------- ----------------
$16,065 $18,673
----------- ----------------
----------- ----------------
NON-PERFORMING LOANS TO
Total loans 3.29% 3.15%
----------- ----------------
Total assets 0.85% 1.05%
----------- ----------------
Total capital 13.57% 15.49%
----------- ----------------
TABLE 9 - NON-PERFORMING LOANS (AS OF DECEMBER 31,):
- -----------------------------------------------------------------------------------------------------------------------
NON-PERFORMING LOANS
Consumer $ 723 $ 1,072
Financing leases 1,269 6,635
Commercial 1,033 1,221
----------- ----------------
NON-REAL ESTATE 3,025 8,928
Real estate 11,911 8,989
----------- ----------------
TOTAL $14,936 $17,917
----------- ----------------
----------- ----------------
NON-PERFORMING LOANS COMPOSITION
Consumer 4.8% 6.0%
Financing leases 8.5% 37.0%
Commercial 6.9% 6.8%
----------- ----------------
NON-REAL ESTATE 20.3% 49.8%
Real estate 79.7% 50.2%
----------- ----------------
TOTAL 100.0% 100.0%
----------- ----------------
----------- ----------------
Page 17
SELECTED FINANCIAL DATA
AS OF DECEMBER 31, 2000 AND 1999 AND JUNE 30, 2000
(DOLLARS IN THOUSANDS)
AS RESTATED
------------------------------------------------------- -----------------
DECEMBER 31, DECEMBER 31, VARIANCE JUNE 30,
2000 1999 % 2000
---------------- ----------------- ----------------- -----------------
TABLE 10 - ASSETS SUMMARY AND COMPOSITION
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS:
Mortgage-backed securities and CMOs $ 994,117 $831,819 19.5% $882,455
U.S. and P.R. Government securities 172,675 222,886 -22.5% 262,372
FHLB stock and other investments 56,033 15,118 270.6% 34,657
---------------- ----------------- ----------------- -----------------
1,222,825 1,069,823 14.3% 1,179,484
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
LOANS:
Real estate 410,119 319,528 28.4% 387,629
Consumer 22,909 132,599 -82.7% 19,699
Financing leases 3,866 96,707 -96.0% 8,785
Commercial and auto 16,735 20,602 -18.8% 24,117
---------------- ----------------- ----------------- -----------------
453,629 569,436 -20.3% 440,230
Consumer loans and leases under contract-to-sell - - 0.0% 167,486
---------------- ----------------- ----------------- -----------------
453,629 569,436 -20.3% 607,716
Allowance for loan losses (2,998) (7,659) -60.9% (6,837)
---------------- ----------------- ----------------- -----------------
450,631 561,777 -19.8% 600,879
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
TOTAL INTEREST-EARNING ASSETS 1,673,456 1,631,600 2.6% 1,780,363
Non-interest earning assets 74,476 71,052 4.8% 69,871
---------------- ----------------- ----------------- -----------------
TOTAL ASSETS $1,747,932 $1,702,652 2.7% $1,850,234
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
INVESTMENTS PORTFOLIO COMPOSITION:
Mortgage-backed securities and CMOs 81.3% 77.8% 74.8%
U.S. and P.R. Government securities 14.1% 20.8% 22.2%
FHLB stock and other investments 4.6% 1.4% 3.0%
---------------- ----------------- -----------------
100.0% 100.0% 100.0%
---------------- ----------------- -----------------
---------------- ----------------- -----------------
LOAN PORTFOLIO COMPOSITION:
Real Estate 90.4% 56.1% 63.8%
Consumer 5.1% 23.3% 3.2%
Financing leases 0.9% 17.0% 1.4%
Commercial and auto 3.6% 3.6% 31.6%
---------------- ----------------- -----------------
100.0% 100.0% 100.0%
---------------- ----------------- -----------------
---------------- ----------------- -----------------
TABLE 11 - LIABILITIES SUMMARY AND COMPOSITION
- --------------------------------------------------------------------------------------------------------------------------------
DEPOSITS:
Savings and demand deposits $ 124,400 $ 143,263 -13.2% $ 130,919
Time deposits and IRA accounts 538,504 497,200 8.3% 587,931
---------------- ----------------- ----------------- -----------------
662,904 640,463 3.5% 718,850
Accrued interest 4,277 3,912 9.3% 4,831
---------------- ----------------- ----------------- -----------------
667,181 644,375 3.5% 723,681
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
BORROWINGS:
Repurchase agreements 826,299 739,349 11.8% 816,493
FHLB funds 20,000 81,200 -75.4% 70,000
Term notes and other sources of funds 80,000 96,500 -17.1% 86,500
---------------- ----------------- ----------------- -----------------
926,299 917,049 1.0% 972,993
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
TOTAL INTEREST-BEARING LIABILITIES 1,593,480 1,561,424 2.1% 1,696,674
Non interest-bearing liabilities 44,347 25,575 73.4% 35,691
---------------- ----------------- ----------------- -----------------
TOTAL LIABILITIES $1,637,827 $1,586,999 3.2% $1,732,365
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
DEPOSITS PORTFOLIO COMPOSITION:
Savings and demand deposits 18.6% 22.2% 18.1%
Time deposits and IRA accounts 80.7% 77.2% 81.2%
Accrued interest and manager checks 0.7% 0.6% 0.7%
---------------- ----------------- -----------------
100.0% 100.0% 100.0%
---------------- ----------------- -----------------
---------------- ----------------- -----------------
BORROWINGS PORTFOLIO COMPOSITION:
Repurchase agreements 89.2% 80.6% 83.9%
FHLB funds 2.2% 8.9% 7.2%
Term notes and other sources of funds 8.6% 10.5% 8.9%
---------------- ----------------- -----------------
100.0% 100.0% 100.0%
---------------- ----------------- -----------------
---------------- ----------------- -----------------
Page 18
SELECTED FINANCIAL DATA
AS OF DECEMBER 31, 2000 AND 1999 AND JUNE 30, 2000
(DOLLARS IN THOUSANDS)
AS RESTATED
-------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, VARIANCE JUNE 30,
2000 1999 % 2000
------------ ------------ -------- --------
TABLE 12 - CAPITAL, DIVIDENDS AND STOCK DATA
- -------------------------------------------------------------------------------------------------------------------------------
CAPITAL DATA:
Stockholders' equity $110,105 $115,653 -4.8% $117,869
------------ ------------ -------- --------
Leverage Capital (minimum required - 4.00%) 7.72% 8.72% -11.5% 7.49%
------------ ------------ -------- --------
Total Risk-Based Capital (minimum required - 8.00%) 23.38% 24.74% -5.5% 29.29%
------------ ------------ -------- --------
Tier 1 Risk-Based capital (minimum required - 4.00%) 22.80% 23.48% -2.9% 30.54%
------------ ------------ -------- --------
STOCK DATA:
Outstanding common shares, net of treasury 12,536 12,776 -1.9% 12,697
------------ ------------ -------- --------
Book value $6.11 $6.43 -5.0% $6.64
------------ ------------ -------- --------
Market Price at end of period $13.31 $22.75 -41.5% $14.44
------------ ------------ -------- --------
Market capitalization $166,894 $290,657 -42.6% $183,345
------------ ------------ -------- --------
COMMON DIVIDEND DATA:
Common dividends declared ytd $3,785 $3,833 -1.3% $7,657
------------ ------------ -------- --------
Common dividends declared per share ytd $0.300 $0.300 0.0% $0.600
------------ ------------ -------- --------
Payout ratio 258.71% 28.64% 803.4% 50.36%
------------ ------------ -------- --------
Dividend yield 4.75% 2.55% 86.2% 2.99%
------------ ------------ -------- --------
The following provides the high and low prices and dividend per share of the
Group's stock for each quarter of the last three fiscal periods. Common stock
prices were adjusted to give retroactive effect to the stock splits declared on
the Group's common stock.
----------------------------------------------------------- -----------------
PRICE
----------------------------------------------------------- DIVIDEND
HIGH LOW PER SHARE
---------------------------- ---------------------------- -----------------
FISCAL 2001:
December 31, 2000 $15.06 $11.00 $0.150
---------------------------- ---------------------------- -----------------
September 30, 2000 $15.50 $11.68 $0.150
---------------------------- ---------------------------- -----------------
FISCAL 2000:
June 30, 2000 $19.31 $13.18 $0.150
---------------------------- ---------------------------- -----------------
March 31, 2000 $26.00 $17.75 $0.150
---------------------------- ---------------------------- -----------------
December 31, 1999 $23.87 $19.69 $0.150
---------------------------- ---------------------------- -----------------
September 30, 1999 $28.00 $21.50 $0.150
---------------------------- ---------------------------- -----------------
FISCAL 1999:
June 30, 1999 $29.87 $24.13 $0.150
---------------------------- ---------------------------- -----------------
March 31, 1999 $29.63 $27.50 $0.150
---------------------------- ---------------------------- -----------------
December 31, 1998 $32.00 $28.00 $0.150
---------------------------- ---------------------------- -----------------
September 30, 1998 $32.26 $28.84 $0.113
---------------------------- ---------------------------- -----------------
TABLE 13 - FINANCIAL ASSETS SUMMARY
- -------------------------------------------------------------------------------------------------------------------------
FINANCIAL ASSETS:
Trust assets managed $1,405,775 $1,412,964 -0.5% $1,456,500
Assets gathered by broker-dealer 925,377 872,500 6.1% 914,900
---------- ---------- ----- ----------
MANAGED ASSETS 2,331,152 2,285,464 2.0% 2,371,400
Group assets 1,747,932 1,702,652 2.7% 1,850,234
---------- ---------- ----- ----------
$4,079,084 $3,988,116 2.3% $4,221,634
---------- ---------- ----- ----------
---------- ---------- ----- ----------
Page 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE QUARTER AND SIX-MONTH PERIOD ENDED DECEMBER 31, 2000
OVERVIEW OF FINANCIAL PERFORMANCE
Reflecting a rapid return to profitability, the Group posted net income of $2.7
million ($0.17 per share) in the second fiscal quarter ended December 31, 2000,
compared with a $62,000 loss ($0.05 per share) in the previous quarter ended
September 30, 2000.
Management's focus on fee-based income and asset quality has been instrumental
in overcoming the pressure on earnings created by increases in the cost of funds
and various non-recurring events. Quarterly revenues from mortgage-banking
activities increased almost 52 percent during the December quarter and the
provision for loan losses was significantly reduced, helping counter a
six-percent decline in interest income. The Group continues to be one of the
best-capitalized institutions among its peers.
Specifically, the provision for loan losses in the quarter ended December 31st
was $500,000, a reduction of 64 percent from the $1.4 million provision in the
first quarter ended September 30, 2000, and 85 percent below the $3.4 million
provision for the quarter ended June 30, 2000. Management worked diligently in
recent quarters to reduce the Company's exposure to credit risks. The reduction
in loan losses is gratifying as it runs counter to recent industry trends.
Net credit income increased nearly 10 percent during the quarter despite the
decline in interest income, which fell from $30.4 million in the quarter ended
September 30, 2000 to $28.6 million in the second fiscal quarter. Interest
expenses declined six percent to $22.5 million in the quarter compared with
$23.9 million for the September 2000 quarter.
Recurrent non-interest income -- trust, money management, brokerage, banking
service and mortgage-related fees -- for the December 2000 quarter was $6.1
million, increasing nearly 13 percent from $5.4 million in the September 2000
quarter. This increase was fueled by the 52-percent rise in income from
mortgage-banking activities, which garnered $2.4 million in the quarter versus
$1.6 million in the September 2000 quarter. Overall, recurrent non-interest
revenues have steadily increased their contribution to results throughout the
past quarters, reaching 52 percent of core revenues versus 35 percent for the
quarter ended December 31, 1999.
For the quarter ended December 31, 2000, the Group booked a $721,000 loss
related to Statement of Financial Accounting Standards (SFAS) No. 133. This is
in addition to a $2.1 million charge for derivative activities and a $1.9
million favorable adjustment for the cumulative effect of a change in accounting
principle that were recorded in the first quarter ended September 30, 2000 when
SFAS 133 was adopted.
The December 2000 quarterly net income of $2.7 million ($0.17 per share)
compares with net income of $7.3 million ($0.51 per share) in the quarter ended
December 31, 1999. This 63-percent decline is mainly caused by a 45-percent
decrease in net credit income from $10.2 million to $5.6 million. This drop
results from increases in the cost of funds and the previously reported sale of
approximately $180 million in leases and unsecured loans. On the other hand,
when comparing both December quarters, recurring non-interest income increased
8.4 percent, helped by mortgage-banking revenues, which increased 66 percent.
For the six-month period ended December 31, 2000, net income was $2.7 million
(including the $62,000 loss posted in the September quarter) or an 82-percent
decline from the $14.6 million net income reported in the six-month period ended
December 31, 1999. Interest expense increased 23 percent from $37.6 million to
$46.4 million and interest income decreased four percent from $61.2 million to
$58.9 million this
Page 20
past semester. The effects of these variances were partially mitigated by a
42-percent reduction in the provision for loan losses and a 16-percent
increase in mortgage-banking revenues.
The Company's total financial assets (banking assets plus assets managed by the
trust and broker-dealer divisions) increased two percent to $4.079 billion as of
December 31, 2000, from $4 billion as of December 31, 1999. The Company's bank
assets increased three percent to $1.748 billion, up from $1.703 billion the
year before. Assets managed by the trust and broker-dealer divisions increased
two percent to $2.331 billion as of December 31, 2000, from $2.285 billion a
year earlier.
NET INTEREST INCOME
Table 1 analyzes the major categories of interest-earning assets and
interest-bearing liabilities, their respective interest income, expenses, yields
and costs, and their impact on net interest income due to changes in volume and
rates.
Net interest income is affected by the difference between rates earned on the
Group's interest-earning assets and rates paid on its interest-bearing
liabilities (interest rate spread) and the relative amounts of its
interest-earning assets and interest-bearing liabilities (interest rate margin).
As further discussed in the Risk Management section of this report, the Group
constantly monitors the composition and repricing of its assets and liabilities
to maintain its net interest income at adequate levels and to avoid undertaking
highly sensitive positions that could affect its earnings capacity in a volatile
interest rate environment.
For the second quarter of fiscal 2001, the Group's net interest income amounted
to $6.1 million, down 48 percent from $11.7 million in the same period of fiscal
2000. For the six-month period ended December 31, 2000, net interest income
amounted to $12.6 million, down 46.8 percent from $23.6 million for the
six-month period ended December 31, 1999. As reflected in Table 1, the impact of
the reduction of net interest income was substantially lower on a tax-equivalent
basis.
The reduction in quarterly net interest income was mainly due to a negative rate
variance of $2.5 million as result of a higher average cost of funds (5.84
percent in December 2000 quarter versus 5.15 percent in December 1999) in line
with interest-rate hikes by the Fed, combined with a negative volume variance of
$3.2 million in interest income, which stems from the previously reported sale
of leases and unsecured loans. Likewise, when comparing both six-month periods
ended in December, the negative rate variance was $5.2 million, given a higher
average cost of funds (5.89 percent versus 5.04 percent), combined with a
negative volume variance of $5.9 million, thus considerably impacting
year-to-date net interest income.
The interest-rate spread narrowed 117-basis points during the second quarter of
fiscal 2001 to 1.48 percent from 2.65 percent in the December 1999 quarter. For
the six-month period ended December 31, 2000, the interest rate spread fell 140
basis points when compared with the same period of fiscal 2000. This was mainly
due to an increase in the average cost of funds and a change in the mix of
interest-earning assets to focus on lower-risk loans and tax-free investments.
The Group's interest income for the second quarter of fiscal 2001 totaled $28.6
million, down 9.2 percent from $31.5 million posted in the same period of fiscal
2000. For the six-month periods ended December 31, interest income declined 3.7
percent from $61.2 million to $58.9 million. These decreases in interest income
result from a lower volume of average interest-earning assets ($1.559 billion
versus $1.609 billion when comparing quarters) compounded by a decline in their
yield performance (7.32 percent versus 7.80 percent, for the December quarters).
The yield reduction was mainly related to: (i) the expansion of the Group's
investment portfolio, which carries a lower yield than the loan portfolio but
provides less risk and generates a significant amount of tax-exempt interest;
and (ii) the reduction in the loan portfolio yield, which decreased 161-basis
points
Page 21
(8.32 percent versus 9.93 percent) when comparing both December quarters,
reflecting the previously reported sale of almost $180 million of leases and
unsecured loans.
Most of the decrease in interest-earning assets was due to the aforementioned
sale of leases and unsecured loans. The funds from this transaction were used to
repay debt and invest in higher-quality securities. For the second quarter of
fiscal 2001, the average volume of total investments grew by 6.22 percent
($1.104 billion versus $1.039 billion) when compared to the same period a year
earlier. However, the average volume of total loans decreased 20.1 percent ($455
million versus $569 million) when comparing both quarters, as a result of the
previously mentioned sale of loans.
Interest expense for the second quarter of fiscal 2001 rose 13.8 percent to
$22.5 million from $19.7 million reported in the comparable period of fiscal
2000. For the six-month period ended December 31, 2000, interest expense rose
23.4 percent from $37.6 million in the December 1999 to $46.4 million. A larger
base of interest-bearing liabilities ($1.562 billion versus $1.480 billion, when
comparing both six-month periods) used to fund the growth of the Group's
interest-earning assets, combined with a higher average cost of funds (5.89
percent versus 5.04 percent) drove the increase. Larger volumes of repurchase
agreements and deposits, which were necessary to fund the growth of the Group's
investment portfolio, drove this increase in interest-bearing liabilities. The
cost of short-term financing substantially increased during calendar year 2000
as a result of interest rate hikes made by the Fed. For the six-month period
ended December 31, 2000, the cost of borrowings increased 86-basis points (6.26
percent versus 5.40 percent) when compared to the same period in fiscal 2000.
NON-INTEREST INCOME
Table 2 sets forth recurrent revenues derived from non-interest income
activities. As a diversified financial services provider, the Group's earnings
now enjoy a recurrent inflow of significant fees and other non-interest income,
which for the first time represents approximately half of the recurrent revenue
mix. In addition, the Group enjoys a 70-percent coverage ratio when comparing
recurrent non-interest income with non-interest expenses. Non-interest income is
affected by the activity of trust assets under management, transactions
generated by the broker-dealer subsidiary, the level of mortgage-banking
activities, and service fees generated from loans and deposit accounts.
For the quarter ended December 31, 2000, recurrent non-interest revenues
increased 8.4 percent to $6.1 million from $5.6 million in the December 1999.
For the six-month period, the increase was 3.2 percent when compared to the same
period in fiscal 2000. This growth was achieved through increases in
mortgage-banking activities, which offset marginal declines in brokerage and
bank service fees.
Trust, money management and brokerage fees, the principal component of recurrent
non-interest income, remained stable at $2.7 million for the December 2000
quarter versus $2.8 million in the December 1999 quarter, notwithstanding a
bearish U.S. securities market and public concern over the global economic
outlook that influenced the volume of investments managed. For the six-month
periods ended December 31st, these revenues were $5.5 million (2000) and $5.4
million.
The second largest component of non-interest revenues is mortgage-banking
activities, which increased 65.8 percent to reach $2.4 million in the quarter
ended December 31, 2000. When comparing six-month periods ended in December 2000
and 1999, mortgage-banking activities increased 15.6 percent from $3.3 million
to $3.9 million. The increases are mostly a result of management's previously
reported strategy of focusing resources on secured lending operations that
provide an attractive source of fees and lower credit risks. The strategy has
improved the origination of fees and servicing rights.
Bank services fees and other operating revenues consist primarily of fees
generated by depository accounts, electronic banking and customer services.
These revenues totaled $1.0 million in the second
Page 22
quarter of fiscal 2001, a 25.8 percent decline from $1.4 million in the same
quarter of fiscal 2000. However, this decline is mostly related to fewer late
payment fees following the discontinuation of leasing and unsecured lending
activities and the sale of related receivables. When comparing both six-month
periods, these revenues dropped 11.6 percent to $2.1 million.
NON-INTEREST EXPENSES
Table 3 details non-interest expenses (excluding non-operating charges), which
increased just 4.2 percent from $8.3 million in the quarter ended December 31,
1999 to $8.7 million in the December 2000. This increase is mostly due to the
launching of a local media campaign in October 2000, created by the Group's new
advertising agency, which seeks to reposition the Group as a diversified
financial services provider by leveraging its leadership in retirement planning
services.
Non-interest expenses (excluding non-operating charges) for the six-month period
ended December 31, 2000 reflect a decline of 1.6 percent, from $17.1 million to
$16.8 million, when compared with the similar period in fiscal 2000. Employee
compensation and benefits (the Group's largest expense category) decreased 7.5
percent from $3.7 million to $3.4 million, when comparing both December
quarters, and 9.6 percent when comparing both six-month periods. The decrease
reflects savings from leasing operations discontinued in June 2000.
Non-interest expenses other than compensation increased 13.5 percent to $5.3
million for the second quarter of fiscal 2001, compared to $4.6 million for the
December 1999 quarter, and increased 4.8 percent when comparing the six-month
periods ended each December. A $450,000 increase in quarterly advertising
expense, from implementing the new marketing strategy, was mainly responsible
for this increase. Additionally, a $210,000 increase in occupancy and equipment
costs for improving the Group's service capabilities and long-term performance
was also part of the increase in non-interest expenses.
NON-OPERATING ACTIVITIES
As seen in Table 4, the Group reported derivative activities related to
Statement of Financial Accounting Standards 133 (please see Note 1 to the
Unaudited Consolidated Financial Statements). This new accounting principle
requires the recognition of derivatives on the balance sheet at fair value,
while derivatives that are not hedges must be recognized in the statement of
income based upon the difference between fair value and the carrying amount. The
SFAS 133 valuation resulted in a $721,000 loss for the quarter ended December
31, 2000; added to the $2.1 million loss in the September 2000 quarter brings
the year-to-date total to $2.8 million. The Group had reported a $1.9 million
favorable adjustment in the first quarter of fiscal 2001 to book the cumulative
effect of the change in accounting principle.
As reported in the quarter ended September 30, 2000, The Group incurred a $3.7
million loss in the sale of treasury securities following the recommendation of
its external consultants to place these funds in higher-yielding securities to
improve their long-term performance.
PROVISION FOR LOAN LOSSES
The provision for loan losses in the second quarter of fiscal 2001 totaled
$500,000, down 66.7 percent from the $1.5 million reported in the same period of
fiscal 2000. For the six-month period ended December 31, 2000, the provision for
loan losses declined 41.5 percent from $3.3 million in the same period for
fiscal 2000 to $1.9 million. A lower level of net credit losses and
non-performing assets made this decline possible, which is attributable to the
sale of unsecured personal loans and finance leases in July 2000. Please refer
to the allowance for loan losses and non-performing assets section for a more
detailed analysis of the allowances for loan losses, net credit losses and
credit quality statistics.
Page 23
PROVISION (CREDIT) FOR INCOME TAXES
Income taxes for the second quarter of fiscal 2001 reflect a credit of $269,000
compared with a $298,000 provision made in the same quarter of fiscal 2000. The
credit resulted from losses related to the aforementioned non-operating
activities. In addition, the difference between the tax credit and the maximum
statutory tax rate for the Group, which is 39 percent, is primarily due to
tax-exempt interest income earned on certain investments and loans, net of the
disallowance of related expenses attributable to the exempt income.
FINANCIAL CONDITION
GROUP'S ASSETS
As of December 31, 2000, the Group's total assets amounted to $1.748 billion, an
increase of 2.7 percent when compared to $1.703 billion a year ago. At the same
date, interest-earning assets reached $1.673 billion, up 2.6 percent versus
$1.632 billion a year earlier.
As detailed in Table 10, investments are the Group's largest interest-earning
assets component. They mainly consist of money market investments,
mortgage-related securities, U.S. and Puerto Rico governmental bonds. As of
December 31, 2000, the Group's investment portfolio was of high quality,
generated significant amount of tax-exempt interest income and lowered the
Group's tax obligations. Note 2 to the Consolidated Financial Statements further
explains the Group's investments.
A strong growth in mortgage-backed securities drove the investment portfolio
expansion, increasing 19.5 percent to $994 million (81.3 percent of the total
portfolio) from $831.9 million (77.8 percent of the total portfolio) the year
before, in part reflecting the Group's strategy of pooling residential real
estate loans to create mortgage-backed securities.
Also detailed in Table 10, the Group's loan portfolio, the second largest
category of the Bank's interest-earning assets, amounted to $450.6 million, 19.8
percent lower than the $562.8 million a year ago. As previously reported, the
Group refocused its lending strategy during fiscal year 2000 to concentrate on
collateralized originations (primarily, mortgage loans and personal loans with
mortgage collateral) and eventually discontinued leasing operations on June 30,
2000. On July 7, 2000, the Group sold almost $180 million of leases and
unsecured loans in its portfolio.
The Group's real estate loan portfolio is mainly comprised of residential loans,
home equity loans and personal loans collateralized by real estate. As shown in
Table 10, the real estate loans portfolio amounted to $410 million or 90.4
percent of the loan portfolio as of December 31, 2000, which is an extremely
positive increase from its 56-percent share of a year ago.
The second largest component of the Group's loan portfolio is consumer loans,
representing just above five percent of the portfolio versus 23.3 percent a year
before - an amount expected to remain at a minimum. Commercial loans, mostly
collateralized by real estate, are the Group's third largest category with $16.7
million or 3.6 percent of the portfolio. The Group expects to increase its
efforts in originating low-risk commercial loans. On the other hand, the Group
discontinued originating leases on June 30, 2000; finance leases remaining in
the portfolio represent less than one percent of the total portfolio.
LIABILITIES AND FUNDING SOURCES
As shown in Table 11, as of December 31, 2000, the Group's total liabilities
reached $1.638 billion, 3.2 percent higher than the $1.587 billion reported a
year earlier. Interest-bearing liabilities, the Group's principal funding
source, amounted to $1.593 billion at the end of the second quarter of fiscal
2001 versus
Page 24
$1.561 billion the year before, a 2.1 percent increase. The rise in deposits,
mainly time deposits and IRA accounts, helped drive this growth.
Borrowings, the Group's largest interest-bearing liability component, consist
mainly of diversified funding sources, such as FHLB of New York (FHLB) advances
and borrowings, repurchase agreements, term notes, notes payable and lines of
credit. As of December 31, 2000, borrowings amounted to $926.3 million; one
percent more than the $917 million reported a year before. Almost 90 percent of
these borrowings are repurchase agreements.
The Group also uses the FHLB system, an alternative source of funding for
financial institutions that are members of a regional Federal Home Loan Bank. As
a member of the FHLB, the Group can obtain advances from the FHLB, secured by
FHLB stock owned by the Group plus certain of the Group's mortgages and
investment securities. As of December 31, 2000, the Group had $20 million in
FHLB advances, 75 percent less than the previous year.
As of December 31, 2000, deposits (the second largest category of the Group's
interest-bearing liabilities) reached $667.2 million, up 3.5 percent versus
$644.4 million a year ago. A 36.5 percent increase in IRA accounts (from $158
million last year to $216 million) plus a 17.1 increase in retail deposits (from
$164 million to $192 million) helped offset a 25.2 percent decline in wholesale
deposits, which went from $175.7 million to $131.5 million.
STOCKHOLDERS' EQUITY
Stockholders' equity data is provided in Table 12. As of December 31, 2000,
total stockholders' equity was $110.1 million from $115.7 million at December
1999. The main reasons for this decrease were the mark-to-market effect of SFAS
133 (see Note 1 to the Unaudited Consolidated Financial Statements) combined
with dividends paid and the repurchase of over 280,000 common shares. The
effects of these items were partially offset by earnings posted during the
quarter and a positive change in the market value of securities
available-for-sale. Please see the Group's "Consolidated Statements of Changes
in Stockholder's Equity and of Comprehensive Income" for more details.
During the second quarter of fiscal 2001, the Group repurchased 35,300 common
shares bringing to 1,271,799 shares (with a cost of $29.2 million) the number of
treasury shares. As of December 31, 2000, the Group's market value for its
outstanding common stock, traded in the New York Stock Exchange ("NYSE") under
the symbol OFG, was $166.9 million or $13.31 per share.
During the six-month period ended December 31, 2000, the Group declared
dividends amounting to $3.8 million ($0.30 per share). The dividend yield was
4.75 percent and 2.55 percent for the six-month periods ended December 31, 2000
and 1999, respectively. Despite the loss posted in the quarter ended September
30, 2000, management and the Board of Directors did not consider necessary to
reduce or cease declaring dividends, given the solid capitalization of the Group
and the non-operational nature of the loss.
Financial holding companies are considered well capitalized under the regulatory
framework for prompt corrective action if they meet or exceed a Tier I
risk-based capital ratio of 6 percent, a total risk-based capital ratio of 10
percent and a leverage capital ratio of 5 percent. As shown in Table 12, the
Group comfortably exceeds these benchmarks due to the high level of capital and
the quality and conservative nature of its assets.
GROUP'S FINANCIAL ASSETS
Table 13 shows the Group's total financial assets, which include the Group's
assets plus client assets managed by the trust and brokerage business. As of
December 31, 2000, total financial assets reached
Page 25
$4.079 billion - up 2.2 percent from $4.000 billion a year ago. Assets owned
by the Group (of which 99 percent are owned by the Group's banking
subsidiary) are the main component of the Group's financial assets. These
assets are explained in a previous section entitled Group's Assets.
The Group's second largest financial asset component is managed by the trust
division, which includes various types of IRA products, 401(K) and Keogh
retirement plans, custodian and corporate trust accounts. As of December 31,
2000, total assets managed by the Group's trust amounted $1.406 billion, less
than one percent below $1.413 billion a year ago. The bearish market experienced
in calendar year 2000 affected the valuation of assets under management. This
decrease in valuation was partially offset by the Groups' extremely successful
IRA campaign, as IRAS managed by the trust increased from $548 million to $576
million in during the year.
The other financial asset component is assets gathered by the broker-dealer. The
Group's broker-dealer subsidiary offers a wide array of investment alternatives
to its clients, such as fixed and variable annuities, tax-advantaged fixed
income securities, mutual funds, stocks and bonds. As of December 31, 2000,
total assets gathered by the broker-dealer from its customer investment accounts
reached $925 million, up 5.7 percent from $872.5 million a year ago.
ALLOWANCE FOR LOAN LOSSES AND NON-PERFORMING ASSETS
As of December 31, 2000, the allowance for loan losses (see Tables 5 through 7)
amounted to $3.0 million, or 0.66 percent of total loans, versus $7.7 million,
or 1.33 percent of total loans a year earlier. The reduction is directly related
to the significant decline in credit risk achieved through management's
previously reported strategy of focusing on collateralized lending and the
aforementioned sale of leases and unsecured loans. Excluding real estate loans,
which carry minimum risks due to their collateral, the allowance for loan losses
amounted to 99.11% of non-real estate loans.
The Group maintains an allowance for loan losses at a level that management
considers adequate to provide for potential losses based upon an evaluation of
known and inherent risks. The Group's allowance for loan losses policy provides
for a detailed quarterly analysis of possible losses.
The principal factors that the Group uses to determine the level of allowance
for loan losses are the Group's historical and current credit loss experience.
These factors are combined with qualitative factors such as: the growth of the
loan portfolio, concentrations of credit (e.g., local industries, etc.) that
might affect loss experience across one or more components of the portfolio,
delinquencies, effects of any changes in lending policies and procedures
(including underwriting standards), collections, general economic conditions and
unusual events such as hurricanes.
The methodology that the Group uses follows a loan credit risk rating process
that involves dividing loans into risk categories and is based on aging. The
following are credit-risk categories used and established by the FDIC
Interagency Policy Statement of 1993:
1. PASS - loans considered highly collectible due to their repayment
history or current status (to be in this category a loan cannot be more
than 90 days past due).
2. SPECIAL MENTION - loans with potential weaknesses that deserve
management's close attention. If left uncorrected, these potential
weaknesses may result in deterioration of the repayment prospects of
the loan.
3. SUBSTANDARD - loans inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged, if any.
They are characterized by the distinct possibility that the institution
will sustain some loss if the deficiencies are not corrected.
Page 26
4. DOUBTFUL - loans that have all the weaknesses inherent in substandard,
with the added characteristic that collection or liquidation in full is
highly questionable and improbable.
5. LOSS - loans considered uncollectible and of such little value that
their continuance as bankable assets is not warranted.
The Group, using an aging-based rating system, applies an overall reserve
percentage to each loan portfolio category based on historical credit losses
adjusted for current or expected conditions and trends. This delinquency-based
calculation is the starting point for management's determination of the required
level of the allowance for loan losses. Other data considered in this
determination include:
1. Vintage analysis generated from the credit scoring system, which
provides historical credit losses by credit-score strata, plus loss
projections for the remaining portfolio,
2. Overall historical loss trends (one year and three years), and
3. Other information including underwriting standards, economic trends and
unusual events such as hurricanes.
Loan loss ratios and credit risk categories are updated on an annual basis and
applied in the context of GAAP and following the Joint Interagency Guidance on
the importance of depository institutions having prudent, conservative, but not
excessive loan loss allowances that fall within an acceptable range of estimated
losses. While management uses available information in estimating possible loan
losses, future changes to the allowance may be necessary based on factors beyond
the Group's control, such as factors affecting general economic conditions.
Net credit losses for the second quarter of fiscal 2001, detailed in Table 6,
totaled $4.5 million or 3.93 percent of average loans, which is 74-percent
higher than $2.6 million or 1.75 percent of average loans for the same period of
fiscal 2000. However, excluding $3.5 million in net credit losses during the
quarter related to the write-off of certain leases that were in portfolio, net
credit losses have actually decreased considerably, representing less than one
percent of the quarterly average of loans other than leases. The lower level of
net credit losses experienced was primarily associated to a reduction in
consumer loans and financing leases as a result of the sale of the related
portfolios.
As shown in Table 8, the Group's non-performing assets include non-performing
loans, foreclosed real estate owned and other repossessed assets. As mentioned,
the Group's asset quality improved as non-performing assets totaled just $16.1
million (0.85 percent of total assets) as of December 31, 2000, versus $18.7
million (1.05 percent of total assets) at the same date of fiscal 2000. The
decrease was principally due to approximately $5.9 million less in
non-performing loans other than real estate.
REAL ESTATE LOANS - are placed on non-accrual basis when they become 90 days or
more past due, except well-secured residential loans, and are charged-off based
on the specific evaluation of the underlying collateral. As of December 31,
2000, the Group's non-performing real estate loans totaled $11.9 million (79.7
percent of non-performing loans). Based on the value of the underlying
collateral and the loan-to-value ratios, management considers that no
significant losses will be incurred on this portfolio.
COMMERCIAL BUSINESS LOANS - are placed on non-accrual basis when they become 90
days or more past due and are charged-off based on the specific evaluation of
the underlying collateral. As of December 31, 2000, the Group's non-performing
commercial business loans amounted to $1 million (6.9 percent of non-performing
loans). Most of this portfolio is also collateralized by real estate and no
significant losses are expected.
Page 27
FINANCE LEASES - are placed on non-accrual status when they become 90 days past
due. As of December 31, 2000, the Group's non-performing financing leases
portfolio amounted to $1.3 million (8.5 percent of the Group's total
non-performing loans). The underlying collateral secures these financing leases.
As reported, the Group discontinued leasing operations on June 30, 2000.
CONSUMER LOANS - are placed on non-accrual status when they become 90 days past
due and charged-off when payments are delinquent 120 days. As of December 31,
2000, the Group's non-performing consumer loans amounted to $723,000 (4.8
percent of the Group's total non-performing loans).
FORECLOSED REAL ESTATE - initially recorded at the lower of the related loan
balance or fair value at the date of foreclosure, any excess of the loan balance
over the estimated fair market value of the property is charged against the
allowance for loan losses. Subsequently, any excess of the carrying value over
the estimated fair market value less disposition cost is charged to operations.
Management is actively seeking prospective buyers for these foreclosed real
estate properties. As of December 31, 2000, foreclosed real estate balance was
$1.1 million.
OTHER REPOSSESSED ASSETS - initially recorded at estimated net realizable value.
At the time of disposition, any additional losses incurred are charged against
the allowance for loan losses. As of December 31, 2000, the repossessed assets
amounted to $50,000.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK AND ASSET/LIABILITY MANAGEMENT
The Group's interest-rate risk and asset/liability management is the
responsibility of the Asset and Liability Management Committee ("ALCO"), which
reports to the Board of Directors and is composed of members of the Group's
senior management. The principal objective of ALCO is to enhance profitability
while maintaining an appropriate level of interest rate and liquidity risks.
ALCO is also involved in formulating economic projections and strategies used by
the Group in its planning and budgeting process, and oversees the Group's
sources, uses and pricing of funds.
Interest rate risk can be defined as the exposure of the Group's operating
results or financial position to adverse movements in market interest rates,
which mainly occurs when assets and liabilities reprice at different times and
at different rates. This difference is commonly referred to as a "maturity
mismatch" or "gap". The Group employs various techniques to assess the degree of
interest rate risk.
The Group is liability sensitive due to its fixed rate and medium to long-term
asset composition being funded with shorter-term repricing liabilities. As a
result, the Group uses interest rate swaps and caps as a mechanism to offset
said mismatch and control exposures of interest rate risk. Under the swaps, the
Group pays a fixed annual cost and receives a floating ninety-day payment based
on LIBOR. Floating rate payments received from the swap counterpart correspond
to the floating rate payments made on the borrowings or notes thus resulting in
a net fixed rate cost to the Group. Interest rate caps provide protection
against increases in interest rates above cap rates. Additional information on
this subject can be found in Note 5 to the Unaudited Consolidated Financial
Statements.
LIQUIDITY RISK MANAGEMENT
Liquidity refers to the level of cash, eligible investments easily converted
into cash and lines of credit available to meet unanticipated requirements. The
objective of the Group's liquidity management is to meet operating expenses and
ensure sufficient cash flow to fund the origination and acquisition of assets,
Page 28
the repayment of deposit withdrawals and the maturities of borrowings. Other
objectives pursued in the Group's liquidity management are the diversification
of funding sources and the control of interest rate risk. Management tries to
diversify the sources of financing used by the Group to avoid undue reliance on
any particular source.
As of December 31, 2000, the Group's liquidity was deemed appropriate, as liquid
assets amounted to $1.314 billion or 44 percent more than the previous year when
they were $914 million. In addition, the Group has $63 million available from
unused lines of credit with other financial institutions and $174 million of
borrowing potential with the FHLB of New York. The Group's liquidity position is
reviewed and monitored by the ALCO Committee on a regular basis. Management
believes that the Group will continue to maintain adequate liquidity levels in
the future.
The Group's principal sources of funds are net deposit inflows, loan repayments,
mortgage-backed and investment securities principal and interest payments,
reverse repurchase agreements, FHLB of New York advances and other borrowings.
The Group has obtained long-term funding through the issuance of notes and
long-term repurchase agreements. The Group's principal uses of funds are the
origination and purchase of loans, the purchase of mortgage-backed and
investment securities, the repayment of maturing deposits and borrowings.
PART - 2
ITEM 1. LEGAL PROCEEDINGS
On August 11, 2000, the Group filed a lawsuit in the United States District
Court for the District of Puerto Rico against Federal Insurance Company, Inc., a
stock insurance corporation organized under the laws of the State of Indiana,
seeking payment of its $9.5 million insurance claim and the payment of
consequential damages of no less than $13 million resulting from the denial of
the claim. The Court has set an Initial Scheduling Conference for the month of
February.
In addition, the Group and its subsidiaries are defendants in a number of legal
claims under various theories of damages arising out of, and incidental to, its
business. The Group is vigorously contesting those claims. Based upon a review
with legal counsel and the development of these matters to date, management is
of the opinion that the ultimate aggregate liability, if any, resulting from
these claims will not have a material adverse effect on the Group's financial
position or results of operations.
ITEM 2. CHANGES IN SECURITIES - NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS - NONE
Three matters were submitted and approved at the annual meeting of stockholders
held on December 15, 2000 in San Juan, Puerto Rico, where 12,556,135 shares were
entitled to vote. The first proposal, approved by 86 percent of voting shares,
was the nomination of three directors, Jose E. Fernandez, Efrain Archilla and
Julian S. Inclan, for three-year terms expiring in 2003. The other members of
the Board of Directors are: Pablo I. Altieri, Diego Perdomo, Francisco Arrivi,
Emilio Rodriguez, Jr., and Alberto Richa. The second matter considered was the
Group's 2000 Incentive Stock Option Plan, approved by approximately 80 percent
of voting shares. The third matter, approved by 86 percent of voting shares, was
the appointment of the Group's external auditors, PricewaterhouseCoopers LLP.
ITEM 5. OTHER INFORMATION
Page 29
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A - FINANCIAL STATEMENTS SCHEDULES
No schedules are presented because the information is not applicable or is
included in the Consolidated Financial Statements or in the notes thereto.
B - REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended December 31, 2000.
C - EXHIBITS
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ORIENTAL FINANCIAL GROUP INC.
(REGISTRANT)
By: /s/ Jose E. Fernandez Date: February 14, 2001
------------------------------------------
Jose E. Fernandez, Chairman of the Board
of Directors, President and
Chief Executive Officer
By: /s/ Rafael Valladares Date: February 14, 2001
------------------------------------------
Rafael Valladares, Senior Vice-President
and Principal Financial Officer
Page 30