UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 130
of the Securities Exchange Act of 1934
For the Quarter ended Commission File 001-14793
March 31, 2000
First BanCorp.
(Exact name of Corporation as specified in its charter)
Puerto Rico 66-0561882
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1519 Ponce de Leon Avenue, Stop 23
Santurce, Puerto Rico 00908
(Address of principal office) (Zip Code)
Corporation's telephone number, including area code:
(787) 729-8200
Indicate by check mark whether the Corporation (1) has filed all reports
required by Section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Corporation was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Number of shares of the Corporation's Common Stock outstanding as of May 8, 2000
27,048,352
FIRST BANCORP
CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Statements of Financial
Condition as of March 31, 2000 and
December 31, 1999.................................................................3
Consolidated Statements of Income for the
three months ended on March 31, 2000 and 1999....................................4
Consolidated Statements of Cash Flows
for the three months ended on March 31, 2000 and 1999.............................5
Consolidated Statements of Changes in
Stockholders' Equity..............................................................6
Consolidated Statements of Comprehensive Income for the
three months ended on March 31, 2000 and 1999....................................7
Notes to Consolidated Financial Statements...........................................8
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations.................................................17
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................................31
Item 2. Changes in Securities.......................................................31
Item 3. Defaults Upon Senior Securities.............................................31
Item 4. Submission of Matters to a Vote
of Security Holders.......................................................31
Item 5. Other Information...........................................................32
Item 6. Exhibits and Report on Form 8-K.............................................32
SIGNATURES............................................................................................33
FIRST BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 2000 December 31, 1999
Assets ........ (Unaudited)
Cash and due from banks $ 59,402,311 $ 58,267,929
------------------ ---------------
Money market instruments 7,941,440 35,217,064
-------------------- ----------------
Investment securities available for sale, at market:
United States and Puerto Rico Government obligations 437,663,276 340,356,015
Mortgage backed securities 1,189,216,790 1,017,176,782
Other investments 65,310,768 96,541,374
------------------- -----------------
Total investment securities available for sale 1,692,190,834 1,454,074,171
----------------- ---------------
Investment securities held to maturity, at cost:
United States and Puerto Rico Government obligations 98,967,985 97,349,381
Mortgage backed securities 206,778,132 206,696,658
------------------ ----------------
Total investment securities held to maturity 305,746,117 304,046,039
------------------ ----------------
Federal Home Loan Bank (FHLB) stock 17,826,500 17,826,500
------------------- -----------------
Loans held for sale 48,733,430 37,794,078
Loans receivable 2,827,042,934 2,707,574,019
----------------- ---------------
Total loans 2,875,776,364 2,745,368,097
Allowance for loan losses (73,504,320) (71,784,237)
------------------ -----------------
Total loans - net 2,802,272,044 2,673,583,860
----------------- ---------------
Other real estate owned 1,706,737 517,405
Premises and equipment - net 63,899,429 61,947,817
Accrued interest receivable 18,202,589 17,917,526
Due from customers on acceptances 2,496,107 2,738,176
Other assets 97,957,566 95,431,678
------------------- -----------------
Total assets $ 5,069,641,674 $4,721,568,165
================= ==============
Liabilities and Stockholders' Equity
Liabilities:
Non-interest bearing deposits $ 202,334,352 $ 211,896,459
Interest bearing deposits 2,551,057,582 2,353,525,177
Federal funds purchased and securities
sold under agreements to repurchase 1,751,386,122 1,452,151,222
Other short-term borrowings 152,484,084
Advances from FHLB 45,800,000 50,000,000
Notes payable 55,500,000 55,500,000
Bank acceptances outstanding 2,496,107 2,738,176
Accounts payable and other liabilities 69,985,008 54,776,718
------------------- ----------------
4,678,559,171 4,333,071,836
----------------- ---------------
Subordinated notes 93,611,080 93,594,080
------------------- -----------------
Stockholders' equity:
Preferred Stock, authorized 50,000,000 shares: issued and
outstanding 3,600,000 shares at $25.00 liquidation value
per share 90,000,000 90,000,000
----------------- ----------------
Common stock, $1.00 par value, authorized 250,000,000 shares;
issued 29,612,552 shares 29,612,552 29,612,552
Less: Treasury Stock (at par value) (2,431,000) (1,552,000)
------------------ -----------------
Common stock outstanding 27,181,552 28,060,552
----------------- ----------------
Additional paid-in capital 19,423,966 19,863,466
Capital reserve 40,000,000 40,000,000
Legal surplus 126,792,514 126,792,514
Retained earnings 55,989,321 58,834,676
Accumulated other comprehensive income - unrealized loss
on securities available for sale, net of tax (61,915,930) (68,648,959)
------------------ -----------------
297,471,423 294,902,249
----------------- ----------------
Contingencies and commitments _____________ _____________
Total liabilities and stockholders' equity $5,069,641,674 $4,721,568,165
============== ==============
The accompanying notes are an integral part of these statements.
33
FIRST BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31, March 31,
2000 1999
------------------- -----------
Interest income:
Loans $ 75,429,444 $ 59,876,115
Investments 29,462,106 27,083,716
Dividends on FHLB stock 289,500 182,998
-------------- ---------------
Total interest income 105,181,050 87,142,829
------------ -------------
Interest expense:
Deposits 31,366,188 18,293,988
Borrowings 25,494,429 24,251,376
------------ -------------
Total interest expense 56,860,617 42,545,364
------------ -------------
Net interest income 48,320,433 44,597,465
------------ -------------
Provision for loan losses 12,020,000 13,800,000
------------ -------------
Net interest income after provision
for loan losses 36,300,433 30,797,465
------------ -------------
Other income:
Service charges on deposit accounts 2,407,383 1,904,744
Fees on loans serviced for others 159,251 267,550
Other fees on loans 3,407,507 2,841,330
Mortgage banking activities 30
Trading income 419,367 75,000
Gain on sale of investments 2,512,682 1,280,511
Other operating income 2,541,299 1,799,209
------------ -------------
Total other income 11,447,519 8,168,344
------------ ------------
Other operating expenses
Employees' compensation and benefits 12,460,281 11,221,819
Occupancy and equipment 5,439,731 4,699,386
Taxes and insurance 1,588,948 1,631,481
Other 8,214,257 6,133,008
------------ -------------
Total other operating expenses 27,703,217 23,685,694
------------ ------------
Income before income tax provision 20,044,735 15,280,115
Income tax provision 3,693,650 1,138,900
------------- -----------
Net income $16,351,085 $14,141,215
=========== ===========
Earnings per common share-basic $0.53 $0.48
===== =====
Earnings per common share-diluted $0.53 $0.48
===== =====
The accompanying notes are an integral part of these statements.
FIRST BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
2000 1999
Cash flows from operating activities:
Net income $16,351,085 $14,141,215
----------- -----------
Adjustments to reconcile net income to net cash:
Depreciation 2,066,630 3,385,114
Provision for loan losses 12,020,000 13,800,000
(Decrease) increase in taxes payable (4,556,114) 2,489,373
Increase in deferred tax assets (1,725,974) (1,435,771)
Increase in accrued interest receivable (285,063) (1,854,299)
Increase in accrued interest payable 846,196 374,210
Amortization of deferred net loan fees 33,614 130,297
Gain on sale of investments (2,512,682) (1,280,511)
Net originations of loans available for sale (10,939,352) (4,539,630)
Decrease in other assets 1,521,230 9,211,175
Increase in other liabilities 17,548,823 1,700,030
----------- -------------
Total adjustments 14,017,308 21,979,988
------------ -------------
Net cash provided by operating activities 30,368,393 36,121,203
Cash flows from investing activities:
Principal collected on loans 137,763,725 166,742,185
Loans originated (273,724,196) (221,854,370)
Purchase of loans (345,081)
Proceeds from sale of investments 21,646,474 7,290,174
Purchase of securities held to maturity (1,700,078) (44,798,050)
Purchases of securities available for sale (2,010,517,278) (1,050,379,305)
Principal repayments and maturities of securities held to maturity 54,338
Principal repayments of securities available for sale 1,762,244,191 1,093,732,985
Additions to premises and equipment - net (4,018,242) (3,361,654)
Purchase of FHLB stock (7,555,900)
--------------- ----------------
Net cash used in investing activities (368,305,404) (60,474,678)
--------------- ----------------
Cash flows from financing activities:
Net increase in deposits 187,970,297 71,981,568
Net increase (decrease) in federal funds purchased and securities sold under
repurchase agreements 300,362,217 (23,735,048)
FHLB-NY advances taken (paid) (4,200,000) 5,800,000
Payments of notes payable 17,000 (3,077,054)
Decrease in other borrowings (152,484,084) (6,531,758)
Decrease in debt securities issuance cost 645,280 380,933
Dividends (4,598,214) (2,623,101)
Exercise of stock options 176,313
Treasury stock acquired (15,916,727) (10,060,449)
------------ -------------
Net cash provided by financing activities 311,795,769 32,311,404
------------ --------------
Net increase (decrease) in cash and cash equivalents (26,141,242) 7,957,929
Cash and cash equivalents at beginning of period 93,484,993 39,941,766
------------ --------------
Cash and cash equivalents at end of period $ 67,343,751 $ 47,899,695
============= ==============
Cash and cash equivalents include:
Cash and due from banks $ 59,402,311 $ 42,069,514
Money market instruments 7,941,440 5,830,181
------------- ---------------
$ 67,343,751 $ 47,899,695
============ =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $56,014,421 $ 42,171,154
The accompanying notes are an integral part of these statements.
FIRST BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Unrealized
gain(loss)
Additional on securities
Preferred Common paid-in Capital Legal Retained available
stock stock capital reserve surplus earnings for sale
December 31, 1997 $ $14,901,826 $38,453,561 $20,000,000 $53,454,469 $97,537,900 $12,031,444
Net income 51,812,387
Change in valuation of
securities available for sale (3,281,513)
Addition to capital reserve 10,000,000 (10,000,000)
Repurchase of common stock (108,800) (217,600) (3,330,024)
Treasury stock (100,000) (50,000) (2,061,250)
Stock option exercised 10,000 186,501
Cash dividends-common stock (8,870,832)
Common stock split
on May 29, 1998 14,796,526 (14,796,526) __________ __________ ___________ __________
----------------- ------------ -----------
December 31, 1998 29,499,552 23,575,936 30,000,000 53,454,469 125,088,180 8,749,931
Net income 62,074,949
Change in valuation of
securities available for sale (77,398,890)
Issuance of preferred stock 90,000,000 (3,149,783)
Addition to legal surplus 73,338,045 (73,338,045)
Addition to capital reserve 10,000,000 (10,000,000)
Treasury stock (1,452,000) (726,000) (30,332,611)
Stock options exercised 13,000 163,313
Cash dividends:
Common stock (10,382,797)
Preferred stock _________ _________ _________ _________ __________ (4,275,000) __________
-------------
December 31, 1999 90,000,000 28,060,552 19,863,466 40,000,000 126,792,514 58,834,676 (68,648,959)
Net income 16,351,084
Change in valuation of
securities available for sale 6,733,029
Treasury stock (879,000) (439,500) (14,598,227)
Cash dividends:
Common stock (2,995,086)
Preferred stock __________ __________ __________ __________ ___________ (1,603,128) __________
------------
March 31, 2000 $90,000,000 $27,181,552 $19,423,966 $40,000,000 $126,792,514 $55,989,319 $(61,915,930)
=========== =========== =========== =========== ============ =========== ============
The accompanying notes are an integral part of these statements.
FIRST BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
March 31, March 31,
2000 1999
---------------- -----------
Net income $16,351,085 $14,141,215
----------- -----------
Other comprehensive income net of tax:
Unrealized gain (losses) on securities:
Unrealized holding gains (losses) 8,070,178 (21,826,703)
arising during the period
Less: reclassification adjustment
for gains included in net income 1,337,149 931,738
----------- ----------
Total other comprehensive income (loss) 6,733,029 (22,758,441)
----------- ------------
Comprehensive income (loss) $23,084,114 $ (8,617,226)
=========== ============
The accompanying notes are an integral part of these statements.
FIRST BANCORP
PART I - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - NATURE OF BUSINESS
First BanCorp (the Corporation) is a bank holding company subject to
the Federal Bank Holding Company Act and to the regulations, supervision, and
examination of the Federal Reserve Board.
FirstBank Puerto Rico (FirstBank or the Bank), the Corporation's
subsidiary, is a commercial bank chartered under the laws of the Commonwealth of
Puerto Rico. Its main office is located in San Juan, Puerto Rico, and has 45
full service banking branches in Puerto Rico and three in the U.S. Virgin
Islands. It also has loan origination offices in Puerto Rico focusing on
consumer loans. Early in the year 2000 the Bank began offering brokerage
services in selected branches through a new alliance with Painne Webber of
Puerto Rico, the largest brokerage firm in the Island. In addition, through its
wholly owned subsidiaries, FirstBank operates other offices in Puerto Rico
specializing in small personal loans, finance leases and vehicle rental. The
Bank is subject to the supervision, examination and regulation of the Office of
the Commissioner of Financial Institutions of Puerto Rico and the Federal
Deposit Insurance Corporation (FDIC), which insures its deposits through the
Savings Association Insurance Fund (SAIF).
2 - ACCOUNTING POLICIES
The accounting and reporting policies of the Corporation and its
subsidiaries conform with generally accepted accounting principles, and, as
such, include amounts based on judgments, estimates and assumptions made by
Management that affect the reported amounts of assets and liabilities and
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates. The accompanying unaudited
financial statements have been prepared in accordance with the 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 December 31, 1999
contained in the annual report of the Corporation.
In the opinion of Management, the accompanying unaudited consolidated
statements of financial condition and the related consolidated statements of
income, of comprehensive income, of cash flows, and of changes in stockholders'
equity include all adjustments (principally consisting of normal recurring
accruals) necessary for a fair presentation of the Corporation's financial
position at March 31, 2000, and the results of operations and the cash flows for
the three months ended on March 31, 2000 and 1999. The results of operations for
the three months ended on March 31, 2000 are not necessarily indicative of the
results to be expected for the entire year.
3 - STOCKHOLDERS' EQUITY
Authorized common stock shares at March 31, 2000 and December 31, 1999 were
250,000,000, with a par value of $1.00. The Corporation has 27,181,552 shares
issued and outstanding of common stock.
Preferred stock
The Corporation has 50,000,000 shares of authorized preferred stock
with a par value of $1. This stock may be issued in series and the shares of
each series shall have such rights and preferences as shall be fixed by the
Board of Directors when authorizing the issuance of that particular series. On
April 30, 1999, the Corporation issued 3,600,000 shares of preferred stock. The
liquidation value per share is $25.00. Annual dividends of $1.78125 per share,
are payable monthly, if declared by the board of directors.
4 - EARNINGS PER COMMON SHARE
The calculations of earnings per common share for the three months ended on
March 31, 2000 and 1999 are as follows:
Three months ended
March 31,
2000 1999
---- ----
(In thousands, except per share data)
Net income $16,351 $14,141
Less: Preferred stock dividend (1,603)
-------- --------
Net income - attributable to common stockholders $14,748 $14,141
======= =======
Earnings per common share - basic:
Weighted average common shares outstanding 27,587 29,259
------- -------
Earnings per common share - basic $ 0.53 $ 0.48
======== ========
Earnings per common share - diluted:
Weighted average common shares and share equivalents:
Average common shares outstanding 27,587 29,259
Common stock equivalents - Options 190 282
--------- --------
Total 27,777 29,541
------- --------
Earnings per common share - diluted $ 0.53 $ 0.48
======= =========
Stock options outstanding under the Corporation's stock option plan for
officers are common stock equivalents and, therefore, considered in the
computation of earnings per common share - diluted. Common stock equivalents
were computed using the treasury stock method.
The stock option plan must be recognized either by the fair value based
method or the intrinsic value based method. The Corporation uses the intrinsic
value based method of accounting. Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of the stock
at grant date or other measurement date over the amount an employee must pay to
acquire the stock. If material, entities using the intrinsic value based method
on awards granted to employees must make pro forma disclosures of net income and
earnings per share, as if the fair value based method of accounting had been
applied. Under the fair value based method, compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period.
During the three month period ended on March 31, 1999, the Corporation
granted 2,000 options to buy shares of the Corporation's common stock. Each
option granted during the first quarter of 1999 has an exercise price of $25.94,
equal to the quoted market price of the stock at the grant date, therefore no
compensation cost was recognized on the options granted. No options were granted
during the first quarter of 2000.
Had compensation cost for the stock options granted been determined
based on the fair value at the grant date the Corporation's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
Pro forma earnings per common share: Three months ended
March 31,
(In thousands except per share data) 2000 1999
---- ----
Net income - attributable to common stockholders $14,748 $14,118
Earnings per common share - basic $ 0.53 $ 0.48
Earnings per common share - diluted $ 0.53 $ 0.48
The Corporation uses the binomial model for the computation of the fair
value of each option granted to buy shares of the Corporation's common stock.
The fair value of each option granted during the three month period ended on
March 31, 1999 was estimated using the following assumptions: dividend growth of
21.2%; expected life of 10 years; expected volatility of 35.15% and risk-free
interest rate of 5.0%. The estimated fair value of the options granted was
$11.62 per option.
5- INVESTMENT SECURITIES HELD FOR TRADING
At March 31, 2000 and December 31, 1999, there were no securities held
for trading purposes or options on such securities.
The net gain from the sale of trading securities amounted to $419,367 and
$75,000 during the three months ended on March 31, 2000 and 1999, respectively.
These earnings were included as trading income.
6 - INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses, approximate
market value, weighted average yield and maturities of investment securities
were as follows:
Investment securities available for sale
(Dollars in thousands)
March 31, 2000 December 31, 1999
Weighted Weighted
Amortized Unrealized Market Average Amortized Unrealized Market average
cost gains (losses) value yield% cost gains( losses) value yield%
U.S. Treasury Securities:
After 5 to 10 years $39,589 $(3,576) $36,013 4.90 $39,577 $(4,302) $35,275 4.90
After 10 years 67,490 (4,646) 62,844 5.51 67,468 (9,621) 57,847 5.51
Obligations of other U.S.
Government Agencies:
Within 1 year 276,993 (111) 276,882 5.86 219,065 $53 (58) 219,060 5.68
After 1 to 5 years 34,090 34,090 7.16
After 10 years 27,937 (5,553) 22,384 7.05 27,457 (5,127) 22,330 7.05
Puerto Rico Government
Obligations:
After 10 years 5,853 (402) 5,451 6.83 5,880 ___ (36) 5,844 6.83
----------- ---------- ---------- ----------- ----- ----------
Total $451,952 $(14,288) $437,664 5.90 $359,447 $53 $(19,144) $340,356 5.69
======== ======== ======== ======== === ======== ========
Mortgage backed securities- Federal Home Loan Mortgage Corporation (FHLMC)
certificates:
After 1 to 5 years $ 925 $(22) $ 903 6.88 $ 997 $ (25) $ 972 6.87
After 5 to 10 years 9,445 (318) 9,127 6.23 9,905 (255) 9,650 6.23
After 10 years 21,945 $8 (341) 21,612 7.64 22,872 $11 (155) 22,728 6.38
---------- -- -------- ------ ------ --- ---- ------
32,315 8 (681) 31,642 7.20 33,774 11 (435) 33,350 6.35
---------- --- -------- ------ ------ ---- ---- ------
Government National
Mortgage Association
(GNMA) certificates:
After 5 to 10 years 5,083 (11) 5,072 6.22 3,674 (46) 3,628 5.85
After 10 years 1,206,015 1,015 (68,540) 1,138,490 6.47 1,039,069 1,410 (76,054) 964,425 6.19
--------- ----- ------- --------- --------- ----- ------- -------
1,211,098 1,015 (68,551) 1,143,562 6.46 1,042,743 1,410 (76,100) 968,053 6.19
---------- ----- ------- --------- --------- ----- ------ -------
Federal National
Mortgage Association
(FNMA) certificates:
After 1 to 5 years 566 (2) 564 7.24 644 (7) 637 7.29
After 5 to 10 years 178 (3) 175 6.87 188 (6) 182 6.88
After 10 years 10,573 228 (56) 10,745 8.30 11,109 299 (46) 11,362 8.26
------------ ----- -------- --------- -------- ----- ----- --------
11,317 228 (61) 11,484 8.22 11,941 299 (59) 12,181 8.19
------------ ----- -------- --------- -------- ----- ----- --------
Mortgage pass through
certificates:
After 10 years 2,433 96 2,529 9.01 2,463 757 3,220 9.09
------------ ------ ------- --------- --------- ----- ------- --------
Real Estate Mortgage
Interest Conduit:
Within 1 year _________ _____ _______ _________ 361 12 373 12.52
-------------- ------- ------- -----
Total $1,257,163 $1,347 $(69,293) $1,189,217 6.50 $1,091,282 $2,489 $(76,594) $1,017,177 6.23
========== ====== ======== ========== ========== ====== ======== ==========
Other investment:
Within 1 year $ 32,641 $ 40 $ (260) $32,421 3.66 $ 67,359 $1,914 $69,273 6.03
After 1 to 5 years 20,361 180 (44) 20,498 7.71 14,750 $ (88) 14,662 7.76
After 5 to 10 years 11,787 (233) 11,554 7.25 11,779 (162) 11,617 7.25
After 10 years 842 (4) 838 7.06 990 990 7.06
-------------- ---- ------- --------- -------------- ------ ------ ---------
Total $ 65,631 $220 $(541) $65,311 5.60 $ 94,878 $1,914 $(250) $96,542 6.46
=========== ==== ===== ======= =========== ====== ===== =======
Maturities for mortgage backed securities are based upon contractual
terms assuming no repayments. The weighted average yield on investment
securities held for sale is based on amortized cost, therefore it does not give
effect to changes in fair value.
Investment securities held to maturity
(Dollars in thousands)
March 31, 2000 December 31, 1999
Weighted Weighted
Amortized Unrealized Market Average Amortized Unrealized Market average
cost gains (losses) value yield% cost gains( losses) value yield%
Obligations of U.S.
Government Agencies:
After 5 to 10 years $10,000 $(253) $9,747 7.04 $10,000 $ (166) $9,834 7.04
After 10 years 85,317 (10,520) 74,797 7.53 83,756 (9,255) 74,501 7.53
Puerto Rico Government
Obligations:
After 10 years 3,651 (110) 3,541 6.50 3,593 $57 ______ 3,650 6.50
--------- ---------- --------- --------- --- ---------
Total $98,968 $(10,883) $88,085 7.44 $97,349 $57 $(9,421) $87,985 7.44
======= ======== ======= ======= === ======= =======
Mortgage backed securities:
Government National
Mortgage Association
(GNMA) certificates
After 10 years $206,778 $(7,180) $199,598 6.94 $206,697 $(7,851) $198,845 6.94
======== ======= ======== ======== ======= ========
Expected maturities of mortgage backed securities and certain other
securities might differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
7 - INVESTMENT IN FHLB STOCK
At March 31, 2000 and December 31, 1999, there were investments in FHLB
stock with book value of $17,826,500. The estimated market value of such
investments is its redemption value.
8- IMPAIRED LOANS
At March 31, 2000, the Corporation had $3.7 million ($4.4 million at
December 31, 1999) in commercial and real estate loans over $1,000,000
considered impaired with an allowance of $1.8 million ($1.3 million at December
31, 1999). As of both periods, no increases in the provision for loan losses
were necessary, since the allowance provided already covered the estimated
impairment. There were no consumer loans over $1,000,000 considered impaired as
of March 31, 2000 and December 31, 1999. The average recorded investment in
impaired loans amounted to $4.1 million for the three months ended on March 31,
2000 (1999 - $9.4 million). Interest income in the amount of approximately
$38,500 and $302,000 was recognized on impaired loans for the period ended on
March 31, 2000 and 1999, respectively.
9 - LOANS RECEIVABLE
The following is a detail of the loan portfolio:
March 31, December 31,
2000 1999
--------------- --------------
Residential real estate loans:
Secured by first mortgages:
Conventional $423,033,918 $ 395,884,613
Insured by government agencies:
Federal Housing Administration and Veterans
Administration 5,377,391 6,543,487
Puerto Rico Housing Bank and Finance Agency 31,639,392 32,928,102
Secured by second mortgages 5,971,635 5,706,225
-------------- --------------
466,022,336 441,062,427
Deferred net loan fees (5,307,237) (5,293,370)
--------------- --------------
Residential real estate loans 460,715,099 435,769,057
-------------- -------------
Commercial loans:
Construction, land acquisition and land improvements 321,398,622 288,301,904
Undisbursed portion of loans in process (168,865,538) (156,233,791)
-------------- --------------
Construction loans 152,533,084 132,068,113
Commercial loans 704,045,136 655,417,037
Commercial mortgage 389,643,818 371,642,698
-------------- --------------
Commercial loans 1,246,222,038 1,159,127,848
------------- -------------
Finance leases 93,601,193 85,692,482
---------------- ---------------
Consumer and other loans:
Personal 412,871,671 422,722,624
Personal lines of credit 12,014,916 13,029,258
Auto 537,838,441 532,242,160
Boat 40,630,375 37,018,313
Credit card 167,333,289 168,045,087
Home equity reserve loans 2,500,491 2,656,713
Other 103,278 106,292
Unearned interest (146,787,857) (148,835,815)
---------------- ---------------
Consumer and other loans 1,026,504,604 1,026,984,632
--------------- --------------
Loans receivable 2,827,042,934 2,707,574,019
Loans held for sale 48,733,430 37,794,078
----------------- ----------------
Total loans 2,875,776,364 2,745,368,097
Allowance for loan losses (73,504,320) (71,784,237)
----------------- -----------------
Total loans-net $2,802,272,044 $2,673,583,860
============== ==============
10 - SEGMENT INFORMATION
The Corporation has three reportable segments: Retail business,
Treasury and Investments, and Commercial Corporate business. 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 Corporation's organizational chart, nature of the products,
distribution channels and the economic characteristics of the products were also
considered in the determination of the reportable segments.
The Retail business segment is composed of the Corporation's branches
and loan centers together with the retail products of deposits and consumer
loans. Certain small commercial loans originated by the branches are included in
the Retail business. Consumer loans include loans such as personal, residential
real estate, auto, credit card and small loans. Finance leases are also included
in Retail business. The Commercial Corporate segment is composed of commercial
loans and corporate services such as letters of credit and cash management. The
Treasury and Investment segment is responsible for the Corporation investment
portfolio and treasury functions.
The accounting policies of the segments are the same as those described in
Note 2 - "Summary of Significant Accounting Policies."
The Corporation evaluates the performance of the segments based on net
interest income after the estimated provision for loan losses. The segments are
also evaluated based on the average volume of its earning assets less the
allowance for loan losses.
The only intersegment transaction is the net transfer of funds between
the segments and the Treasury and Investment segment. The Treasury and
Investment segment sells funds to the Retail and Commercial Corporate segments
to finance their lending activities and purchases funds gathered by those
segments. The interest rates charge or credit by Investment and Treasury is
based on market rates.
The following table presents information about the reportable segments
(in thousands):
Treasury and Commercial
Retail Investments Corporate Total
For the quarter ended March 31, 2000:
Interest income $52,527 $29,745 $22,909 $105,181
Net (charge) credit for transfer of funds (1,818) 16,565 (14,747)
Interest expense (16,859) (40,002) (56,861)
Net interest income 33,850 6,308 8,162 48,320
Provision for loan losses (5,846) (6,174) (12,020)
Segment income 28,004 6,308 1,988 36,300
Average earning assets 1,736,877 1,785,723 976,166 4,498,766
For the quarter ended March 31, 1999:
Interest income $44,519 $27,269 $15,355 $87,143
Net (charge) credit for transfer of funds (906) 10,424 (9,518)
Interest expense (13,331) (29,215) (42,546)
Net interest income 30,282 8,478 5,837 44,597
Provision for loan losses (12,765) (1,035) (13,800)
Segment income 17,517 8,478 4,802 30,797
Average earning assets 1,377,444 1,762,643 690,410 3,830,496
The following table presents a reconciliation of the reportable segment
financial information to the consolidated totals (in thousands):
Three months ended March 31,
2000 1999
----------------------------------------
Net income:
Total income for segments $ 36,300 $ 30,797
Other income 11,448 8,168
Operating expenses (27,702) (23,685)
Income taxes (3,694) (1,139)
-------------- -------------
Total consolidated net income $ 16,352 $ 14,141
============ ============
Average assets:
Total average earning assets for segments $4,498,766 $3,830,496
Average non earning assets 225,910 158,736
------------ ------------
Total consolidated average assets $4,724,676 $3,989,232
========== ==========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
SELECTED FINANCIAL DATA
Three months ended March 31,
2000 1999
---- ----
Condensed income statements (in thousands):
Interest income $105,181 $87,143
Interest expense 56,861 42,545
--------- --------
Net interest income 48,320 44,597
Provision for loan losses 12,020 13,800
--------- --------
Net interest income after provision
for loan losses 36,300 30,797
Other income 8,935 6,887
Gain on sale of investments 2,513 1,281
Other operating expenses 27,703 23,686
-------- --------
Net income before income tax expense 20,045 15,280
Income tax expense 3,694 1,139
--------- ---------
Net income $16,351 $14,141
======= =======
Per common share results:
Net income per common share-basic $0.53 $0.48
Net income per common share-diluted $0.53 $0.48
Cash dividends declared $0.11 $0.09
Selected financial ratios (in percent):
Average yield on earning assets (1) 9.30 9.48
Cost of interest bearing liabilities 5.44 4.91
Interest rate spread (1) 3.86 4.57
Net interest margin (1) 4.42 5.06
Net income to average total assets 1.38 1.42
Net income to average equity 23.01 21.78
Net income to average common equity 30.38 21.78
Average equity to average total assets 6.02 6.51
Dividend payout ratio 20.31 18.55
Efficiency ratio (2) 46.35 46.01
March 31, December 31,
2000 1999
---- ----
Regulatory capital ratios (in percent):
Total capital to risk weighted assets 15.22 16.16
Tier 1 capital to risk weighted assets 10.88 11.64
Tier 1 capital to average assets 6.93 7.47
Balance sheet data (in thousands):
Loans and loans held for sale $2,875,776 $2,745,368
Allowance for loan losses 73,504 71,784
Investments 2,023,705 1,811,164
Total assets 5,069,642 4,721,568
Deposits 2,753,392 2,565,422
Borrowings 1,946,297 1,803,729
Total capital 297,471 294,902
Number of full service branches 48 48
Loan origination offices 41 41
(1) On a taxable equivalent basis.
(2) Other operating expenses to the sum of net interest income and other
income.
RESULTS OF OPERATIONS
First BanCorp's results of operations depend primarily upon its net
interest income, which is the difference between the interest income earned on
its earning assets, including investment securities and loans, and the interest
expense on its interest bearing liabilities including deposits and borrowings.
The Corporation's results of operations also depend on the provision for loan
losses; other income, mainly service charges and fees on loans; operating
expenses, such as personnel, occupancy and other costs; and on gains on sales of
securities.
For the quarter ended on March 31, 2000, the Corporation recorded
earnings of $16,351,085 or $0.53 per common share (basic and diluted), a per
share increase of 10% as compared to earnings of $14,141,215 or $0.48 per common
share (basic and diluted) for the first quarter of 1999.
Net Interest Income
Net interest income for the three months ended on March 31, 2000
increased by $3.7 million, as compared with the same period in 1999; or by $2.6
million on a taxable equivalent basis. The interest rate spread and net interest
margin, on a taxable equivalent basis, amounted to 3.86% and 4.42%,
respectively, for the first quarter of 2000 as compared to 4.57% and 5.06%,
respectively, for the first quarter of 1999.
Part I of the following table presents average volumes and rates on a
taxable equivalent basis and Part II describes the respective extent to which
changes in interest rates and changes in volume of interest-related assets and
liabilities have affected the Corporation's interest income and interest expense
during the periods indicated. For each category of earning assets and interest
bearing liabilities, information is provided on changes attributable to (i)
changes in volume (changes in volume multiplied by old rates), (ii) changes in
rate (changes in rate multiplied by old volumes). Rate-volume variances (changes
in rate multiplied by the changes in volume) have been allocated to the changes
in volume and changes in rate based upon their respective percentage of the
combined totals.
PART I Three months ended March 31,
Interest income (1) /
Average volume Average rate (1) expense
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
(Dollars in Thousands)
Earning assets:
Deposits at banks and other
short-term investments $ 14,678 $ 6,579 $ 177 $ 47 4.85% 2.90%
Government obligations 479,870 301,307 7,778 4,323 6.52% 5.82%
Mortgage backed securities 1,325,705 1,441,511 22,961 26,136 6.97% 7.35%
FHLB stock 17,827 11,110 290 183 6.54% 6.68%
Other investment 50,494 1,964 1,038 80 8.27% 16.49%
-------------- -------------- ---------- -----------
Total investments 1,888,574 1,762,471 32,244 30,769 6.87% 7.08%
------------ ----------- --------- --------
Residential real estate loans 481,009 306,049 10,305 8,007 8.62% 10.61%
Construction 144,025 62,859 3,572 1,375 9.98% 8.87%
Commercial loans 1,048,881 707,712 24,056 15,264 9.22% 8.75%
Finance leases 88,428 55,997 2,691 1,838 12.24% 13.31%
Consumer loans 1,026,120 1,009,104 35,336 34,033 13.85% 13.68%
------------ ----------- ---------- --------
Total loans (2) 2,788,463 2,141,721 75,960 60,517 10.96% 11.46%
----------- ----------- ---------- --------
Total earning assets $4,677,037 $3,904,192 $108,205 $91,285 9.30% 9.48%
========== ========== ======== =======
Interest-bearing liabilities:
Deposits $2,477,291 $1,613,746 $ 31,366 $18,293 5.09% 4.60%
Other borrowed funds 1,680,776 1,894,915 24,804 24,224 5.94% 5.18%
FHLB advances 45,859 2,319 691 28 6.06% 4.90%
------------- --------------- ---------- ----------
Total interest-bearing liabilities $4,203,926 $3,510,980 $56,861 $42,545 5.44% 4.91%
========== ========== ======= =======
Net interest income $51,344 $48,740
======= =======
Interest rate spread 3.86% 4.57%
Net interest margin 4.42% 5.06%
(1) On a tax equivalent basis. The tax equivalent yield was computed dividing
the interest rate spread on exempt assets by (1- statutory tax rate) and adding
to it the cost of interest bearing liabilities. When adjusted to a tax
equivalent basis, yields on taxable and exempt assets are comparative.
(2)Non-accruing loans are included in the average balances.
PART II Three months ended March 31,
2000 compared to 1999
Variance Variance
due to due to Total
volume rate variance
Interest income on earning assets: (In thousands)
Deposits at banks and other
short-term investments $ 84 $ 46 $ 130
Government obligations 2,871 584 3,455
Mortgage backed securities (1,918) (1,257) (3,175)
FHLB stock 112 (5) 107
Other investment 1,482 (524) 958
------- --------- --------
Total investment 2,631 (1,156) 1,475
-------- --------- -------
Residential real estate loans 4,233 (1,935) 2,298
Construction loans 2,004 193 2,197
Commercial loans 7,898 894 8,792
Finance leases 1,041 (188) 853
Consumer loans 746 557 1,303
-------- -------- -------
Total loans 15,922 (479) 15,443
------- ------- --------
Total interest income 18,552 (1,634) 16,918
------ ------ ------
Interest expense on interest bearing liabilities:
Deposits 10,883 2,190 13,073
Other borrowed funds (2,877) 3,457 580
FHLB advances 654 9 663
-------- --------- --------
Total interest expense 8,661 5,655 14,316
------- ------- -------
Change in net interest income $9,891 $(7,289) $2,602
====== ======= ======
Total interest income includes tax equivalent adjustments based on the
Puerto Rico income tax rate of $3.0 million for the three months ended on March
31, 2000, and of $4.1 million for the three months ended on March 31, 1999. The
adjustments have been made on debt securities (primarily United States and
Puerto Rico government obligations) and on loans guaranteed by United States and
Puerto Rico government agencies. The computation considers the interest expense
disallowance as required by the Puerto Rico tax law.
Interest Income
Interest income increased by $18.0 million for the three months ended on
March 31, 2000 as compared to the same period for 1999. When adjusted to a
taxable equivalent basis, interest income increased by $16.9 million for the
three months ended on March 31, 2000 as compared to the same period in 1999. The
yield on earning assets, on a taxable equivalent basis, amounted to 9.30% and
9.48% for the three months ended on March 31, 2000 and 1999, respectively. The
improvement in the interest income for the periods analyzed was due to the
increase in the average volume of earning assets. The average volume of earning
assets increased by $772.8 million for the three months ended on March 31, 2000,
as compared to the same period in 1999.
The average volume of total investments increased by $126.1 million for
the three months period ended on March 31, 2000 as compared with the same period
in 1999, mostly concentrated in government obligations.
The average volume of the loan portfolio increased by $646.7 million for
the three months ended on March 31, 2000 as compared with the same period in
1999, due to an increase in real estate and commercial loans. Residential real
estate, construction loans, commercial loans, finance leases and consumer loans
increased by $175.0 million, $81.2 million, $341.2 million, $32.4 million and
$17.0 million, respectively, for the three months ended on March 31, 2000 as
compared to the same period in 1999. The increase in construction and commercial
loans was the result of the Corporation's strategy of diversifying its asset
base, which was concentrated in consumer loans.
Interest Expense
Interest expense increased by $14.3 million for the three months ended
on March 31, 2000 as compared with the amount recorded in the same period of
1999. The increase in interest expense due to volume and due to rate amounted to
$8.7 million and $5.7 million, respectively, for the three months ended on March
31, 2000 as compared to the same period ended on March 31, 1999. The cost of
interest bearing liabilities increased from 4.91% for the three months period
ended on March 31, 1999 to 5.44% for the three months period ended on March 31,
2000.
Provision for Loan Losses
For the three months ended on March 31, 2000, the Corporation provided
$12.0 million, for possible loan losses as compared to $13.8 million, for the
same period of 1999. The provision for loan losses recorded during 2000 reflects
a lower provision need due to an improvement in the credit quality of the loan
portfolio.
The Corporation maintains an allowance for loan losses on its portfolio
at a level that Management considers adequate to provide for potential losses in
the portfolio based upon an evaluation of known and inherent risks. The
Corporation establishes a quarterly allowance for loan losses based on the asset
classification report to cover the total amount of any assets classified as a
"loss," the potential loss exposure of other classified assets, and a percentage
of the assets not classified. The adequacy of the allowance for loan losses is
also based upon a number of additional factors including historical loan loss
experience, current economic conditions, value of the underlying collateral,
financial condition of the borrowers and other pertinent factors. Although
Management believes that the allowance for loan losses is adequate, factors
beyond the Corporation's control, including factors affecting the Puerto Rico
economy, may contribute to delinquencies and defaults thus necessitating
additional reserves.
The following table sets forth an analysis of the activity in the allowance
for loan losses during the periods indicated:
Three months ended March 31,
2000 1999
---- ----
(Dollars in thousands)
Allowance for loan losses, beginning of period $ 71,784 $67,854
Provision for loan losses 12,020 13,800
--------- --------
Loans charged-off:
Residential real estate
Commercial (798) (536)
Finance leases (504) (497)
Consumer (11,872) (13,260)
Other assets (3) (296)
------------ ----------
Total charge-offs (13,177) (14,589)
-------- --------
Recoveries of loans previously charged-off:
Residential real estate
Construction
Commercial 42 24
Finance leases 55 27
Consumer 2,775 1,492
Other assets 5 109
------------ ----------
Total recoveries 2,877 1,652
--------- ---------
Net charge-offs (10,300) (12,937)
------- ---------
Allowance for loan losses, end of period $73,504 $68,717
======= =======
Allowance for loan losses to total loans and
loans held for sale 2.56% 3.18%
Net charge-offs annualized to average loans
outstanding during the period 1.49% 2.42%
Other Income
Three months ended
March 31,
2000 1999
Service charges on deposit accounts $2,407,383 $1,904,744
Other fees on loans 3,407,507 2,841,330
Fees on loans serviced for others 159,251 267,550
Mortgage banking activities 30
Rental income 497,928 641,597
Other operating income 2,043,371 1,157,612
------------- -----------
Subtotal 8,515,470 6,812,833
Gain on sale of investments 2,512,682 1,280,511
Trading income 419,367 75,000
-------------- -------------
Total $11,447,519 $8,168,344
=========== ==========
Other income primarily consists of service charges on deposit accounts,
fees on loans, commissions derived from various banking activities, the results
of trading activities and gains on sale of investments. Service charges on
deposit accounts represent an important and stable source of other income for
the Corporation. Other fees on loans consist mainly of credit card fees and late
charges collected on loans. The increase in this source of income to $3.4
million for the three months ended on March 31, 2000 from $2.8 million and
during the same period in 1999 was due to fees generated on the increased
portfolio of commercial loans. Fees on loans serviced for others primarily
reflect servicing fees on residential mortgage loans originated by the
Corporation and subsequently securitized.
The Corporation's second tier subsidiary, First Leasing and Rental
Corporation, generates income on the rental of various types of motor vehicles.
The other operating income category is composed of miscellaneous fees
such as check fees and rental of safe deposit boxes.
The Corporation recorded $2.5 million during the three months ended
March 31, 2000 and $1.3 million during the three months ended March 31, 1999
from gains on sale of investments securities. These gains reflect market
opportunities that arose and that are in consonance to the Corporation's
investment policies.
Other Operating Expenses
The following table presents the detail of other operating expenses for
the periods indicated:
For the three months ended
March 31,
2000 1999
---------------- ----------
Employees' compensation and benefits $12,460,281 $11,221,819
Occupancy and equipment 5,439,731 4,699,386
Taxes and insurance 1,588,948 1,631,481
Net cost of operations and
disposition of other real estate owned 35,987 4,786
Amortization of debt issuance costs 87,254 158,945
Professional fees 718,728 547,572
Servicing and processing fees 1,513,049 992,388
Communications 1,362,746 1,131,071
Supplies and printing 336,848 253,351
Other 4,159,645 3,044,895
------------- -------------
Total $27,703,217 $23,685,694
=========== ===========
Operating expenses increased to $27.7 million for the three months
ended March 31, 2000 as compared to $23.7 million for the same period in 1999.
Management's goal has been to make only expenditures that contribute clearly and
directly to increase the efficiency and profitability of the Corporation. This
control over other operating expenses has been an important factor contributing
to the improvement in earnings in recent years. The best measure of the success
of this program is the efficiency ratio, which is the ratio of other operating
expenses to the sum of net interest income and other income. The Corporation's
efficiency ratio has been maintained in approximately 46% (46.35% and 46.01% for
the three months period ended on March 31, 2000 and 1999, respectively).
The increase in operating expenses for 2000 is mainly the result of the
investments made in new technology, the expansion of the Corporation's branch
network, the acquisition of new business and branches and the staffing of the
commercial lending business to support the growth in the portfolio. During 1999
the Corporation opened a new full-service branch and two in-store branches. In
July of 1999, the Corporation acquired the Royal Bank's operations in Puerto
Rico including its full service branch in the financial district of Hato Rey. In
August of 1999, the Corporation acquired the credit card portfolio of Western
Auto. In December of 1999, the Corporation acquired four branches from CitiBank.
To emphasize the commercial lending area, the Corporation recruited new officers
for the origination of loans to the middle market throughout selected branches.
Provision for Income Tax
The provision for income tax amounted to $3.7 million (or 18.43% of
pretax earnings) for the three months ended on March 31, 2000 as compared to
$1.1 million (or 7.45% of pretax earnings) for the same period in 1999. The
Corporation has effectively reduced the enacted tax rate of 39%, through the
strategy of investing in tax exempt securities.
FINANCIAL CONDITION
Assets
Total assets as of March 31, 2000 amounted to $5,069.6 million, an
increase of $348 million as compared to total assets as of December 31, 1999 of
$4,721.6 million. The increase was mainly the result of an increase of $212.5
million in total investments and $130.4 million in total loans.
The composition of loans receivable and loans available for sale:
March 31, December 31, Increase
2000 1999 (Decrease)
-------------- -------------------- --------
(In thousands)
Residential real estate loans $ 509,449 $ 473,563 $ 35,886
---------- ----------- --------
Commercial real estate loans 389,644 371,643 18,001
Construction loans 152,533 132,068 20,465
Commercial loans 704,045 655,417 48,628
----------- ------------ ---------
Total commercial 1,246,222 1,159,128 87,094
---------- ----------- ---------
Finance leases 93,601 85,692 7,909
Consumer and other loans 1,026,505 1,026,985 (480)
----------- ----------- -----------
Total $2,875,777 $2,745,368 $130,409
========== ========== ========
The fluctuation in the loans receivable category was the net result of
total loan origination of $284.7 million and repayments and other adjustments of
$154.3 million. The Corporation continued its strategy of diversifying its loan
portfolio composition through the origination of commercial loans. This resulted
in an increase of $87.1 million in the commercial loan portfolio. Residential
real estate loans increased by $35.9 million as a result of new resources added
to this line of business. Finance leases, which are mostly composed of loans to
individuals to finance the acquisition of an auto, increased by $7.9 million.
Non-performing Assets
Total non-performing assets are the sum of non-accruing loans, OREO's
and other repossessed properties. Non-accruing loans are loans as to which
interest is no longer being recognized. When loans fall into non-accruing
status, all previously accrued and uncollected interest is charged against
interest income.
At March 31, 2000, total non-performing assets amounted to $53.6
million (1.06% of total assets) as compared to $57.4 million (1.22% of total
assets) at December 31, 1999 and $62.9 million (1.57% of total assets) at
December 31, 1998. The Corporation's reserve to non-performing loans ratio was
150.7% at March 31, 2000 as compared to 133.4% and 119.1% at December 31, 1999
and 1998, respectively.
Past due loans are loans delinquent 90 days or more as to principal
and/or interest and still accruing interest.
The following table presents non-performing assets at the dates
indicated:
March 31, December 31,
2000 1999 1998
----------- ---------- --------
(Dollars in thousands)
Non-accruing loans:
Residential real estate $11,020 $ 8,633 $ 9,151
Commercial and commercial real estate 17,216 17,975 19,355
Finance leases 2,092 2,482 1,716
Consumer 18,453 24,726 26,736
------ ------ --------
48,781 53,816 56,958
Other real estate owned (OREO) 1,707 517 3,642
Other repossessed property 3,144 3,112 2,277
--------- --------- ---------
Total non-performing assets $53,632 $57,445 $62,877
======= ======= =======
Past due loans $10,954 $13,781 $15,110
Non-performing assets to total assets 1.06% 1.22% 1.57%
Non-performing loans to total loans 1.70% 1.96% 2.69%
Allowance for loan losses $73,504 $71,784 $67,854
Allowance to total non-performing loans 150.68% 133.39% 119.13%
Non-accruing Loans
Residential Real Estate Loans - The Corporation classifies all
residential real estate loans delinquent 90 days or more in non-accruing status.
Even though these loans are in non-accruing status, Management considers based
on the value of the underlying collateral and the loan to value ratios, that no
material losses will be incurred in this portfolio. Management's understanding
is based on the historical experience of the Corporation. Non-accruing
residential real estate loans amounted to $11.0 million (2.16% of total
residential real estate loans) at March 31, 2000, as compared to $8.6 million
(1.82% of total residential real estate loans) and $9.2 million (3.02% of total
residential real estate loans) at December 31, 1999 and 1998, respectively.
Commercial Loans - The Corporation places all commercial loans
(including commercial real estate and construction loans) 90 days delinquent as
to principal and interest in non-accruing status. The risk exposure of this
portfolio is diversified. Non-accruing commercial loans amounted to $17.2
million (1.38% of total commercial loans) at March 31, 2000 as compared to $18.0
million (1.55% of total commercial loans) and $19.4 million (2.53% of total
commercial loans) at December 31, 1999 and 1998, respectively. At March 31,
2000, there was only one non-accruing commercial loan of over $1 million, which
is a $2.6 million loan, partially secured by inventory, accounts receivable and
real estate collateral.
Finance Leases - Finance leases are classified as non-accruing status
when they are delinquent 90 days or more. Non-accruing finance leases amounted
to $2.1 million (2.24% of total finance leases) at March 31, 2000, as compared
to $2.5 million (2.90% of total finance leases) and $1.7 million (3.29% of total
finance leases) at December 31, 1999 and 1998, respectively.
Consumer Loans - Consumer loans are classified as non-accruing when
they are delinquent 90 days in auto, boat and home equity reserve loans, 120
days in personal loans (including small loans) and 180 days in credit cards and
personal lines of credit.
Non-accruing consumer loans amounted to $18.5 million (1.80% of the
total consumer loan portfolio) at March 31, 2000, $24.7 million (or 2.41% of the
total consumer loan portfolio) at December 31, 1999 and $26.7 million (or 2.67%
of the total consumer loan portfolio) at December 31, 1998. The decrease in the
ratio and amount of non-accruing loans was the result of the improvement on the
credit quality of the portfolio.
Other Real Estate Owned (OREO)
OREO acquired in settlement of loans is carried at the lower of cost
(carrying value of the loan) or fair value less estimated cost to sell off the
real estate at the date of acquisition.
Other Repossessed Property
The other repossessed property category includes repossessed boats and
autos acquired in settlement of loans. Repossessed boats are recorded at the
lower of cost or estimated fair value. Repossessed autos are recorded at the
principal balance of the loans less an estimated loss on the disposition of
certain units.
Past Due Loans
Past due loans are accruing commercial and consumer loans, which are
contractually delinquent 90 days or more. Past due commercial loans are current
as to interest but delinquent in the payment of principal. Past due consumer
loans include personal lines of credit and credit card loans delinquent 90 days
up to 179 days and personal loans (including small loans) delinquent 90 days up
to 119 days.
Sources of Funds
As of March 31, 2000, total liabilities amounted to $4,772.2 million,
an increase of $345.5 million as compared to $4,426.7 million as of December 31,
1999. The increase in total liabilities was mainly due to: (1) an increase in
total deposits of $188.0 million; (2) an increase in federal funds and
securities sold under agreements to repurchase of $299.2 million; (3) an
increase in accounts payable and other liabilities of $15.0 million; net of (4)
a decrease in advances from FHLB - NY of $4.2 million; and (5) a decrease in
other short term borrowings of $152.5 million.
The Corporation maintains unsecured standby lines of credit with other
banks. At March 31, 2000, the Corporation's total unused lines of credit with
these banks amounted to approximately $102,000,000 (1999 - $123,500,000). At
March 31, 2000, the Corporation has an available line of credit with the FHLB
guaranteed with excess collateral, in the amount of $60,419,916 (1999 -
$2,812,126).
Capital
Total stockholders' equity as of March 31, 2000 amounted to $297.5
million, increasing by $2.6 million from the amount as of December 31, 1999. The
increase was mainly the result of the net income generated for the period ended
on March 31, 2000 of $16.4 million, an increase in the valuation on securities
available for sale of $6.7 million, dividends paid of $4.6 million, and the
repurchase of 879,000 shares of common stock at a total cost of $15.9 million.
The Corporation is subject to various regulatory capital requirements
imposed by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Corporation must meet specific capital guidelines that involve quantitative
measures of the Corporation's assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. The Corporation's
capital amounts and classification are also subject to qualitative judgment by
the regulators about components, risk weightings and other factors.
Capital standards established by regulations require the Corporation to
maintain minimum amounts and ratios of Tier 1 capital to total average assets
(leverage ratio) and ratios of Tier 1 and total capital to risk-weighted assets,
as defined in the regulations. The total amount of risk-weighted assets is
computed by applying risk weighting factors to the Corporation's assets, which
vary from 0% to 100% depending on the nature of the asset.
At March 31, 2000 and December 31, 1999, the Corporation exceeded the
requirements for an adequately capitalized institution.
At March 31, 2000 and December 31, 1999, the Corporation also was a
well capitalized institution under the regulatory framework for prompt
corrective action. To be categorized as well capitalized the Corporation must
maintain minimum total risk based, Tier 1 risk based and Tier 1 leverage ratios
as set forth in the following table. Management believes that there are no
conditions or events that have changed that classification.
The Corporation's regulatory capital position was as follows:
Regulatory requirements
For capital
Actual adequacy purposes To be well capitalized
Amount Ratio Amount Ratio Amount Ratio
At March 31, 2000 (Dollars in thousands)
Total Capital (to Risk-Weighted Assets):
First BanCorp $462,864 15.22% $243,282 8% $304,102 10%
FirstBank 416,457 13.82% 241,160 8% 301,450 10%
Tier I Capital (to Risk-Weighted Assets):
First BanCorp $330,885 10.88% $121,641 4% $182,461 6%
FirstBank 284,824 9.45% 120,580 4% 180,870 6%
Tier I Capital (to Average Assets):
First BanCorp $330,885 6.93% $143,234 3% $238,723 5%
FirstBank 284,824 6.00% 142,322 3% 237,203 5%
At December 31, 1999
Total Capital (to Risk-Weighted Assets):
First BanCorp $468,261 16.16% $231,758 8% $289,697 10%
FirstBank 409,173 14.26% 229,608 8% 287,010 10%
Tier I Capital (to Risk-Weighted Assets):
First BanCorp $337,284 11.64% $115,879 4% $173,818 6%
FirstBank 279,383 9.73% 114,804 4% 172,206 6%
Tier I Capital (to Average Assets):
First BanCorp $337,284 7.47% $135,473 3% $225,789 5%
FirstBank 279,383 6.26% 133,953 3% 223,255 5%
Dividends
During the period ended March 31, 1999, the Corporation declared a cash
dividend of $0.11 per common share representing a 22% increase over the cash
dividend of $0.09 per common share declared for the same period in 1999. Total
dividends declared per common share for the period ended on March 31, 2000
amounted to $3.0 million for an annualized dividend payout ratio of 20.31% as
compared to $2.6 million for the period ended March 31, 1999 (or a 18.55%
dividend payout ratio). Dividend declared on preferred stock amounted $1,603,125
for the period ended on March 31, 2000.
Liquidity
Liquidity refers to the level of cash and eligible investments readily
available to meet loan and investment commitments, potential deposit outflows
and debt repayments. The Corporation's liquidity position and liquidity targets
are reviewed on a weekly basis by the Asset Liability Management and Investment
Committee, using measures of liquidity developed by Management.
The Corporation's principal sources of short-term funds are loan
repayments, deposits, securities sold under agreements to repurchase, and lines
of credit with the FHLB and other financial institutions. The Investment
Committee reviews credit availability on a regular basis. In addition, the
Corporation has securitized and sold auto and mortgage loans as a supplementary
source of funding. The Corporation has obtained long-term funding through the
issuance of notes and long-term institutional certificates of deposit. The
Corporation's principal uses of funds are the origination of loans and
investments, and the repayment of maturing deposit accounts and borrowings.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required herein is incorporated by reference from page 33
of the annual report to security holders for the year ended December 31, 1999.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Corporation is a defendant in a number of legal proceedings arising
out of, and incidental to its business. Based on its review with counsel on the
development of these matters to date, Management is of the opinion that the
ultimate aggregate liability, if any, resulting from these pending proceedings
will not have a material adverse effect on the accompanying consolidated
financial statements.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 27, 2000 First BanCorp held its annual meeting of
stockholders. The number of shares present in person and/or by proxy at such
meeting were 25,090,089 representing 91.87% of the 27,310,652 shares of common
stock issued and outstanding on March 15, 2000. March 15, 2000 was the record
date for the determination of the stockholders entitled to vote at the meeting.
The following was voted upon at the Annual Meeting of Stockholders:
(a) The election of the following directors:
For Withheld
Jose Julian Alvarez 23,839,187 1,250,902
Jorge L. Diaz 23,832,854 1,257,235
Hector M. Nevarez 25,052,714 37,375
Jose Teixidor 25,053,534 36,555
The following are the directors whose terms of office continue:
Angel Alvarez-Perez
Annie Astor de Carbonell
Rafael Bouet - Souffront
Francisco D. Fernandez
German E. Malaret
Antonio Pavia Villamil
Angel L. Umpierre
(b) Ratification of the appointment of PricewaterhouseCoopers as
the Corporation's Independent Accountants for fiscal year
2000.
The appointment of PricewaterhouseCoopers was ratified as follows:
For 23,857,553
Against 1,223,730
Abstain 8,806
ITEM 5. OTHER INFORMATION
First BanCorp announced on April 26, 2000 the signing of a definitive
merger agreement by and between its wholly owned subsidiary, FirstBank, and
First Virgin Islands Federal Savings Bank, a savings bank headquartered in St.
Thomas, United States Virgin Islands with assets of $55 million. The merger is
subject to regulatory and shareholder approval.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Bank has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized:
First BanCorp.
Name of the Corporation
Date: May 11, 2000 By: /s/ Angel Alvarez-Perez, Esq.
------------------------------
Angel Alvarez-Perez, Esq.
Chairman, President and Chief
Executive Officer
Date: May 11, 2000 By:/s/ Annie Astor de Carbonell
-----------------------------
Annie Astor de Carbonell
Senior Executive Vice President
and Chief Financial Officer
33
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Bank has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized:
First BanCorp.
Name of the Corporation
Date: May 11, 2000 By: Angel Alvarez-Perez, Esq.
Chairman, President and Chief
Executive Officer
Date: May 11, 2000 By: Annie Astor de Carbonell
Senior Executive Vice President
and Chief Financial Officer