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
June 30, 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 August
9, 2000
26,818,252
FIRST BANCORP
CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Statements of Financial
Condition as of June 30, 2000 and
December 31, 1999.................................................................3
Consolidated Statements of Income for the
three and six months ended on June 30, 2000 and 1999.............................4
Consolidated Statements of Cash Flows
for the six months ended on June 30, 2000 and 1999................................5
Consolidated Statements of Changes in
Stockholders' Equity..............................................................6
Consolidated Statements of Comprehensive Income for the
three and six months ended on June 30, 2000 and 1999.............................7
Notes to Consolidated Financial Statements...........................................8
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations.................................................18
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................32
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................................33
Item 2. Changes in Securities.......................................................33
Item 3. Defaults Upon Senior Securities.............................................33
Item 4. Submission of Matters to a Vote
of Security Holders.......................................................33
Item 5. Other Information...........................................................33
Item 6. Exhibits and Report on Form 8-K.............................................33
SIGNATURES............................................................................................34
FIRST BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 2000 December 31, 1999
Assets ........ (Unaudited)
Cash and due from banks $ 65,601,676 $ 58,267,929
----------------- ---------------
Money market instruments 5,591,387 35,217,064
----------------- ----------------
Investment securities available for sale, at market:
United States and Puerto Rico Government obligations 416,530,026 340,356,015
Mortgage backed securities 1,194,118,667 1,017,176,782
Other investments 92,108,575 96,541,374
------------------ -----------------
Total investment securities available for sale 1,702,757,268 1,454,074,171
---------------- ---------------
Investment securities held to maturity, at cost:
United States and Puerto Rico Government obligations 100,616,718 97,349,381
Mortgage backed securities 206,859,606 206,696,658
----------------- ----------------
Total investment securities held to maturity 307,476,324 304,046,039
----------------- ----------------
Federal Home Loan Bank (FHLB) stock 17,826,500 17,826,500
------------------ -----------------
Loans held for sale 50,137,262 37,794,078
Loans receivable 3,013,815,710 2,707,574,019
---------------- ---------------
Total loans 3,063,952,972 2,745,368,097
Allowance for loan losses (74,100,412) (71,784,237)
------------------ -----------------
Total loans - net 2,989,852,560 2,673,583,860
---------------- ---------------
Other real estate owned 1,811,471 517,405
Premises and equipment - net 66,766,366 61,947,817
Accrued interest receivable 20,275,561 17,917,526
Due from customers on acceptances 2,625,065 2,738,176
Other assets 100,030,124 95,431,678
---------------- -----------------
Total assets $5,280,614,302 $4,721,568,165
============== ==============
Liabilities and Stockholders' Equity
Liabilities:
Non-interest bearing deposits $ 214,019,872 $ 211,896,459
Interest bearing deposits 2,773,272,513 2,353,525,177
Federal funds purchased and securities
sold under agreements to repurchase 1,726,121,904 1,452,151,222
Other short-term borrowings 12,130,669 152,484,084
Advances from FHLB 43,500,000 50,000,000
Notes payable 55,500,000 55,500,000
Bank acceptances outstanding 2,625,065 2,738,176
Accounts payable and other liabilities 49,544,001 54,776,718
----------------- ----------------
4,876,714,024 4,333,071,836
--------------- ---------------
Subordinated notes 92,856,146 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) (2,723,100) (1,552,000)
---------------- -----------------
Common stock outstanding 26,889,452 28,060,552
--------------- ----------------
Additional paid-in capital 19,277,916 19,863,466
Capital reserve 40,000,000 40,000,000
Legal surplus 126,792,514 126,792,514
Retained earnings 63,120,156 58,834,676
Accumulated other comprehensive income - unrealized loss
on securities available for sale, net of tax (55,035,906) (68,648,959)
----------------- -----------------
311,044,132 294,902,249
---------------- ----------------
Contingencies and commitments _____________ _____________
Total liabilities and stockholders' equity $5,280,614,302 $4,721,568,165
============== ==============
The accompanying notes are an integral part of these statements.
34
FIRST BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
Interest income:
Loans $ 79,220,471 $63,054,556 $154,649,915 $122,930,672
Investments 32,917,669 23,901,459 62,379,775 50,985,175
Dividends on FHLB stock 308,857 299,553 598,357 482,551
--------------- -------------- -------------- ---------------
Total interest income 112,446,997 87,255,568 217,628,047 174,398,398
------------- ------------ ----------- -----------
Interest expense:
Deposits 35,913,033 20,553,161 67,279,221 38,847,149
Short term borrowings 25,530,842 16,965,078 48,343,558 37,632,867
Long term borrowings 2,665,912 3,396,666 5,347,625 6,980,253
-------------- ------------- ------------- -------------
Total interest expense 64,109,787 40,914,905 120,970,404 83,460,269
-------------- ------------ ----------- ------------
Net interest income 48,337,210 46,340,663 96,657,643 90,938,129
------------- ------------ ------------ ------------
Provision for loan losses 11,158,000 12,949,500 23,178,000 26,749,500
------------ ------------ ------------ ------------
Net interest income after provision
for loan losses 37,179,210 33,391,163 73,479,643 64,188,629
----------- ------------ ----------- ------------
Other income:
Service charges on deposit accounts 2,207,445 2,056,634 4,614,828 3,961,378
Fees on loans serviced for others 125,080 220,757 284,331 488,307
Other fees on loans 4,335,171 3,075,093 7,742,678 5,916,423
Mortgage banking activities 11,549 11,549
Trading income 167,821 587,188 75,000
Gain on sale of investments 2,276,901 27,775 4,789,583 1,308,286
Other operating income 2,671,978 2,134,101 5,213,306 3,933,310
------------ ------------ ------------- -------------
Total other income 11,784,396 7,525,909 23,231,914 15,694,253
------------ ------------ ------------ ------------
Other operating expenses:
Employees' compensation and benefits 12,952,655 11,346,767 25,412,936 22,568,586
Occupancy and equipment 5,735,584 4,744,522 11,175,315 9,443,908
Taxes and insurance 1,607,388 1,631,492 3,196,336 3,262,973
Other 8,269,692 6,489,777 16,483,949 12,622,786
------------- -------------- ------------ -------------
Total other operating expenses 28,565,319 24,212,558 56,268,536 47,898,253
------------- ------------- ------------ -------------
Income before income tax provision 20,398,287 16,704,514 40,443,021 31,984,629
Income tax provision 3,920,932 1,311,000 7,614,582 2,449,900
------------ ------------- ------------- -------------
Net income $16,477,355 $15,393,514 $32,828,439 $29,534,729
=========== =========== =========== ===========
Net income per common share - basic $0.55 $0.49 $1.08 $0.97
===== ===== ===== =====
Net income per common share - diluted $0.55 $0.49 $1.08 $0.97
===== ===== ===== =====
The accompanying notes are an integral part of these statements.
FIRST BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Six Months
Ended Ended
June 30, 2000 June 30, 1999
Cash flows from operating activities:
Net income $ 32,828,439 $ 29,534,730
--------------- -------------
Adjustments to reconcile net income to net cash:
Depreciation 4,396,159 3,589,147
Provision for loan losses 23,176,000 26,749,000
Decrease in taxes payable (17,339,301) (48,990)
Increase in deferred tax asset (2,121,569) (1,510,326)
Decrease in accrued interest receivable (2,358,035) (7,426,893)
Increase in accrued interest payable 841,051 1,570,289
Amortization of deferred net loan fees (181,006) (480,835)
Gain on sale of investments (4,789,584) (1,308,286)
Net originations of loans available for sale (12,343,184) (8,991,026)
Decrease in other assets 1,851,080 15,735,410
Increase in other liabilities 9,907,505 3,055,392
---------------------------------
Total adjustments 1,039,116 30,932,882
--------------------------------
Net cash provided by operating activities 33,867,555 60,467,612
-------------------------------
Cash flows from investing activities:
Principal collected on loans 248,206,732 289,531,014
Loans originated (586,328,886) (539,634,665)
Purchase of loans (196,247)
Proceeds from sale of investments 38,683,351 9,499,081
Purchase of securities held to maturity (3,430,285) (233,734,085)
Purchase of securities available for sale (3,012,021,586) (5,137,242,270)
Principal repayments and maturities of securities held to maturity (109,552)
Principal repayments of securities available for sale 2,747,595,456 5,381,732,712
Additions to premises and equipment - net (9,214,708) (8,190,485)
Purchase of FHLB stock (7,555,900)
--------------- --------------
Net cash used in investing activities (576,509,926) (245,900,397)
--------------- --------------
Cash flows from financing activities:
Net increase in deposits 421,870,748 437,253,807
Net increase (decrease) in federal funds purchased and securities
sold under repurchase agreements 284,215,600 (192,359,740)
FHLB-NY advances taken (paid) (6,500,000) (2,600,000)
Payments of notes payable (737,934) (23,035,750)
Increase payment in other borrowings (149,353,415) (16,579,949)
Increase in debt securities issuance cost 1,155,051 479,641
Dividends (9,168,659) (6,314,951)
Exercise of stock options 176,313
Issuance of preferred stock 86,819,350
Treasury stock acquired (21,130,950) (10,496,407)
------------------ ----------------
Net cash provided by financing activities 520,350,441 273,342,314
----------------------------------
Net increase (decrease) in cash and cash equivalents (22,291,930) 87,909,529
Cash and cash equivalents at beginning of period 93,484,993 39,941,766
----------------------------------
Cash and cash equivalents at end of period $ 71,193,063 $ 127,851,295
=================================
Cash and cash equivalents include:
Cash and due from banks $ 65,601,676 $ 66,401,610
Money market instruments 5,591,387 61,449,685
---------------- -----------------
$ 71,193,063 $ 127,851,295
============== ===============
- ---------------------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $120,129,353 $81,889,980
Income taxes 19,826,538 3,745,558
The accompanying notes are an integral part of these statements.
FIRST BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Unrealized
gain (loss)on
Additional 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 (8,870,833)
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 32,828,439
Change in valuation of
securities available for sale 13,613,053
Treasury stock (1,171,100) (585,550) (19,374,300)
Cash dividends:
Common stock (5,962,409)
Preferred stock __________ __________ __________ __________ ___________ (3,206,250) __________
-------------
June 30, 2000 $90,000,000 $26,889,452 $19,277,916 $40,000,000 $126,792,514 $63,120,156 $(55,035,906)
=========== =========== =========== =========== ============ =========== ============
The accompanying notes are an integral part of these statements.
FIRST BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
Net Income $16,477,355 $15,393,514 $32,828,439 $29,534,729
----------- ----------- ----------- -----------
Other comprehensive income net of tax:
Unrealized gain (losses) on securities:
Unrealized holding gains (losses)
arising during the period 8,031,621 (29,059,069) 14,950,202 (50,885,772)
Less: reclassification adjustment
for gains (losses) included in
net income 1,151,597 (34,520) 1,337,149 897,218
------------ ------------- ------------ ------------
Total other comprehensive income (loss) 6,880,024 (29,024,549) 13,613,053 (51,782,990)
------------ ------------- ------------ -------------
Comprehensive income (loss) $23,357,379 $(13,631,035) $46,441,492 $(22,248,261)
=========== ============ =========== ============
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 financial 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 Paine 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 June 30, 2000, and the results of operations and the cash flows for
the three and six months ended on June 30, 2000 and 1999. The results of
operations for the three and six months ended on June 30, 2000 are not
necessarily indicative of the results to be expected for the entire year.
Accounting for derivative instruments and hedging activities
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including
derivative instruments that are embedded in other contracts, and for hedging
activities. SFAS No. 133 standardizes accounting for derivative instruments,
including those embedded in other contracts, by requiring the recognition of all
derivatives (both assets and liabilities) in the statement of financial position
at fair value. In accordance with SFAS No. 133, changes in the fair value of
derivative instruments are generally accounted for as current income or other
comprehensive income, depending on their designation.
SFAS No. 133 generally provides for the matching of the timing of gain
or loss recognition on the hedging instruments with the recognition of either
the changes in the fair value of the hedged asset or liability, or the earnings
effect of the hedged forecasted transaction.
On July 7, 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133". SFAS No. 137 delays the effective date of SFAS No. 133. SFAS
No. 133 would be effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. On June 19, 2000, the FASB issued SFAS No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities an Amendment
of FASB Statement No. 133", which amends certain of the provisions of SFAS No.
133. Based on current volumes, Management expects that the adoption of SFAS No.
133 will not have a significant impact on the Corporation's financial position
and results of operations.
3 - STOCKHOLDERS' EQUITY
Authorized common stock shares at June 30, 2000 and December 31, 1999
were 250,000,000, with a par value of $1.00. At June 30, 2000 the Corporation
had 26,889,452 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 and six months
ended on June 30, 2000 and 1999 are as follows:
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
(In thousands, except per share data)
Net income $16,477 $15,394 $32,828 $29,535
Less: Preferred stock dividend (1,603) (1,069) (3,206) (1,069)
-------- -------- -------- --------
Net income - attributable to common stockholders $14,874 $14,325 $29,622 $28,466
======= ======= ======= =======
Earnings per common share - basic:
Weighted average common shares outstanding 27,042 29,144 27,315 29,201
-------- -------- ------- -------
Earnings per common share - basic $ 0.55 $ 0.49 $ 1.08 $ 0.97
========= ========= ======= ========
Earnings per common share - diluted:
Weighted average common shares and share equivalents:
Average common shares outstanding 27,042 29,144 27,315 29,201
Common stock equivalents - Options 185 268 187 275
--------- --------- -------- --------
Total 27,227 29,412 27,502 29,476
------- -------- ------- -------
Earnings per common share - diluted $ 0.55 $ 0.49 $ 1.08 $ 0.97
======== ======== ======== =======
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 and six months periods ended on June 30, 1999, the
Corporation granted 3,500 and 5,500 options, respectively, to buy shares of the
Corporation's common stock. Each option granted in 1999 has an exercise price of
$26.44 (quarter) and $26.26 (semester), 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 semester 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 Six months ended
June 30, June 30,
(In thousands except per share data) 2000 1999 2000 1999
---- ------- ---- ----
Net income attributable to common stockholders $14,874 $14,287 $29,622 $28,404
Earnings per common share - basic $0.55 $0.49 $1.08 $0.97
Earnings per common share - diluted $0.55 $0.49 $1.08 $0.96
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 and six month period
ended on June 30, 1999 was estimated using the following assumptions: dividend
growth of 22.4% (quarter) and 22.0% (semester); expected life of 10 years;
expected volatility of 36.6% (quarter) and 36.1% (semester) and risk-free
interest rate of 5.2% (quarter) and 5.1% (semester). The estimated fair value of
the options granted was $10.98 (quarter) and $11.21 (semester) per option.
5- INVESTMENT SECURITIES HELD FOR TRADING
At June 30, 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 $167,821
and $587,188 during the three and six months ended on June 30, 2000. The net
gain from the sale of trading securities amounted to $75,000 during the six
months ended on June 30, 1999. These earnings were included as trading income.
No net revenue from the sale of trading securities was recorded during the
second quarter of 1999.
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)
June 30, 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 $ 39,600 $(3,262) $36,338 4.90 $39,577 $(4,302) $35,275 4.90
After 10 years 67,512 (5,442) 62,070 5.51 67,468 (9,621) 57,847 5.51
Obligations of other U.S.
Government Agencies:
Within 1 year 222,389 (114) 222,275 6.55 219,065 $53 (58) 219,060 5.68
After 1 to 5 years 66,135 $ 71 66,206 7.41
After 10 years 28,425 (5,785) 22,640 7.05 27,457 (5,127) 22,330 7.05
Puerto Rico Government
Obligations:
After 10 years 7,387 ____ (386) 7,001 6.46 5,880 ___ (36) 5,844 6.83
-------- --------- ----------- ----------- ----- ----------
Total $431,448 $ 71 $(14,989) $416,530 6.40 $359,447 $53 $(19,144) $340,356 5.69
======== ==== ========= ======== ======== === ======== ========
Mortgage backed securities -
Federal Home Loan Mortgage Corporation (FHLMC) certificates:
After 1 to 5 years $ 837 $(17) $ 820 6.86 $ 997 $ (25) $ 972 6.87
After 5 to 10 years 9,069 (246) 8,823 6.23 9,905 (255) 9,650 6.23
After 10 years 20,783 $ 6 (254) 20,535 7.63 22,872 $11 (155) 22,728 6.38
-------- --- ------ -------- ------ --- ---- ------
30,689 6 (517) 30,178 7.20 33,774 11 (435) 33,350 6.35
------ - ---- ------ ------ -- ---- ------
Government National
Mortgage Association
(GNMA) certificates:
After 5 to 10 years 4,728 (14) 4,714 6.23 3,674 (46) 3,628 5.85
After 10 years 1,204,111 840 (59,072) 1,145,879 6.47 1,039,069 1,410 (76,054) 964,425 6.19
--------- ---- ------- --------- --------- ----- ------- -------
1,208,839 840 (59,086) 1,150,593 6.47 1,042,743 1,410 (76,100) 968,053 6.19
---------- ---- -------- --------- --------- ----- ------ -------
Federal National
Mortgage Association
(FNMA) certificates:
After 1 to 5 years 488 (3) 485 7.21 644 (7) 637 7.29
After 5 to 10 years 167 (3) 164 6.86 188 (6) 182 6.88
After 10 years 10,069 214 (55) 10,228 8.31 11,109 299 (46) 11,362 8.26
---------- ----- ------ -------- -------- ----- ----- --------
10,724 214 (61) 10,877 8.24 11,941 299 (59) 12,181 8.19
---------- ----- ------ -------- -------- ----- ----- --------
Mortgage pass through
certificates:
After 10 years 2,399 72 ______ 2,471 8.99 2,463 757 ____ 3,220 9.09
-------------------- ------- --------- ----- --------
Real Estate Mortgage
Interest Conduit:
Within 1 year _________ _____ _______ _________ 361 12 _______ ___ 373 12.52
-------------- ------- ------------
Total $1,252,651 $1,132 $(59,664) $1,194,119 6.51 $1,091,282 $2,489 $(76,594) $1,017,177 6.23
========== ====== ======== ========== ========== ====== ======== ==========
Other investments:
Within 1 year $ 49,137 $ 162 $ 49,299 3.13 $ 67,359 $1,914 $69,273 6.03
After 1 to 5 years 30,266 177 $ (1) 30,442 7.96 14,750 $ (88) 14,662 7.76
After 5 to 10 years 11,795 (260) 11,535 7.24 11,779 (162) 11,617 7.25
After 10 years 842 _____ (9) 833 7.06 990 _____ ____ 990 7.06
------------- ----------- ------------ -------------- ---------
Total $ 92,040 $ 339 $ (270) $ 92,109 5.28 $ 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)
June 30, 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 1 to 5 years $ 10,000 $(177) $9,823 7.04
After 5 to 10 years $10,000 $ (166) $9,834 7.04
After 10 years 86,906 (11,149) 75,757 7.53 83,756 (9,255) 74,501 7.53
Puerto Rico Government
Obligations:
After 10 years 3,710 (164) 3,546 6.50 3,593 $57 ______ 3,650 6.50
----------- ---------- --------- --------- --- ---------
Total $100,616 $(11,490) $89,126 7.44 $97,349 $57 $(9,421) $87,985 7.44
======== ======== ======= ======= === ======= =======
Mortgage backed securities:
Government National
Mortgage Association
(GNMA) certificates
After 10 years $206,860 $(5,772) $201,088 7.00 $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 June 30, 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 June 30, 2000, the Corporation had $2.5 million ($4.4 million at
December 31, 1999) in commercial and real estate loans over $1,000,000
considered impaired with an allowance of approximately $674,000 ($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 June 30, 2000 and December 31, 1999. The average recorded
investment in impaired loans amounted to $3.5 million for the six months ended
on June 30, 2000 (1999 - $9.4 million). Interest income in the amount of
approximately $77,000 and $164,000 were recognized on impaired loans for the
period ended on June 30, 2000 and 1999, respectively.
9 - LOANS RECEIVABLE
The following is a detail of the loan portfolio:
June 30, December 31,
2000 1999
------------------ --------------
Residential real estate loans:
Secured by first mortgages:
Conventional $456,337,948 $ 395,884,613
Insured by government agencies:
Federal Housing Administration and Veterans
Administration 7,588,614 6,543,487
Puerto Rico Housing Bank and Finance Agency 30,287,207 32,928,102
Secured by second mortgages 6,416,225 5,706,225
-------------- --------------
500,629,994 441,062,427
Deferred net loan fees (5,413,246) (5,293,370)
-------------- --------------
Residential real estate loans 495,216,748 435,769,057
------------- -------------
Commercial loans:
Construction, land acquisition and land improvements 361,668,531 288,301,904
Undisbursed portion of loans in process (173,024,544) (156,233,791)
-------------- --------------
Construction loans 188,643,987 132,068,113
Commercial loans 800,084,870 655,417,037
Commercial mortgage 401,128,450 371,642,698
--------------- --------------
Commercial loans 1,389,857,307 1,159,127,848
------------- -------------
Finance leases 104,706,341 85,692,482
--------------- ---------------
Consumer and other loans:
Personal 406,968,531 422,722,624
Personal lines of credit 11,925,738 13,029,258
Auto 528,564,039 532,242,160
Boat 34,675,119 37,018,313
Credit card 170,219,185 168,045,087
Home equity reserve loans 2,564,526 2,656,713
Other 94,914 106,292
Unearned interest (130,976,738) (148,835,815)
--------------- ---------------
Consumer and other loans 1,024,035,314 1,026,984,632
-------------- --------------
Loans receivable 3,013,815,710 2,707,574,019
Loans held for sale 50,137,262 37,794,078
---------------- ----------------
Total loans 3,063,952,972 2,745,368,097
Allowance for loan losses (74,100,412) (71,784,237)
---------------- -----------------
Total loans-net $2,989,852,560 $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 June 30, 2000:
Interest income $54,637 $33,226 $24,584 $112,447
Net (charge) credit for transfer of funds (2,407) 19,720 (17,313)
Interest expense (17,912) (46,198) (64,110)
Net interest income 34,318 6,748 7,271 48,337
Provision for loan losses (8,747) (2,411) (11,158)
Segment income $25,571 $6,748 $4,860 $37,179
Average earning assets $1,827,790 $1,953,546 $1,053,111 $4,834,447
For the period ended June 30, 2000:
Interest income $107,164 $62,971 $47,493 $217,628
Net (charge) credit for transfer of funds (4,225) 36,285 (32,060)
Interest expense (34,771) (86,200) (120,971)
Net interest income 68,168 13,056 15,433 96,657
Provision for loan losses (14,593) (8,585) (23,178)
Segment income $53,575 $13,056 $6,848 $73,479
Average earning assets $1,782,291 $1,869,635 $1,014,639 $4,666,565
Treasury and Commercial
Retail Investments Corporate Total
For the quarter ended June 30, 1999:
Interest income $42,176 $24,203 $20,876 $87,255
Net (charge) credit for transfer of funds 1,897 7,911 (9,808)
Interest expense (14,159) (26,756) (40,915)
Net interest income 29,914 5,358 11,068 46,340
Provision for loan losses (12,472) (478) (12,950)
Segment income $17,442 $5,358 $10,590 $33,390
Average earning assets $1,320,395 $1,570,105 $837,868 $3,728,368
For the period ended June 30, 1999:
Interest income $88,689 $51,473 $34,237 $174,399
Net (charge) credit for transfer of funds (1,369) 20,070 (18,701)
Interest expense (27,490) (55,970) (83,460)
Net interest income 59,830 15,573 15,536 90,939
Provision for loan losses (25,237) (1,513) (26,750)
Segment income $34,593 $15,573 $14,023 $64,189
Average earning assets $1,314,811 $1,661,486 $800,981 $3,777,278
The following table presents a reconciliation of the reportable segment
financial information to the consolidated totals (in thousands):
Three months ended Six months ended
June 30, June 30,
--------------------------------- ------------------------
2000 1999 2000 1999
------------- ----------- ----------- --------
Net income:
Total income for segments $37,179 $33,390 $73,479 $64,189
Other income 11,784 7,526 23,232 15,694
Operating expenses (28,565) (24,212) (56,267) (47,898)
Income taxes (3,921) (1,311) (7,615) (2,450)
Total consolidated net income $16,477 $15,393 $32,829 $29,535
Average assets:
Total average earning assets for segments $4,834,447 $3,728,368 $4,666,565 $3,777,278
Average non earning assets 256,608 191,227 241,302 177,135
Total consolidated average assets $5,091,055 $3,919,595 $4,907,867 $3,954,413
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
SELECTED FINANCIAL DATA
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Condensed income statements (in thousands):
Interest income $112,447 $87,256 $217,628 $174,398
Interest expense 64,110 40,915 120,970 83,460
--------- -------- -------- ---------
Net interest income 48,337 46,341 96,658 90,938
Provision for loan losses 11,158 12,950 23,178 26,750
--------- -------- -------- ---------
Net interest income after provision
for loan losses 37,179 33,391 73,480 64,189
Other income 9,507 7,498 18,442 14,386
Gain on sale of investments 2,277 28 4,790 1,308
Other operating expense 28,565 24,213 56,269 47,898
-------- -------- -------- --------
Net income before income tax expense 20,398 16,705 40,443 31,985
Income tax expense 3,921 1,311 7,615 2,450
--------- --------- --------- ---------
Net income $16,477 $15,394 $32,828 $29,535
======= ======= ======= =======
Per common share results:
Net income per common share - basic $0.55 $0.49 $1.08 $0.97
Net income per common share - diluted $0.55 $0.49 $1.08 $0.97
Cash dividends declared $0.11 $0.09 $0.22 $0.18
Selected financial ratios (in percent):
Average yield on earning assets (1) 9.28 9.38 9.29 9.43
Cost of interest bearing liabilities 5.68 4.87 5.57 4.89
Interest rate spread (1) 3.60 4.51 3.72 4.54
Net interest margin (1) 4.13 5.10 4.27 5.08
Net income to average total assets 1.29 1.57 1.34 1.49
Net income to average total equity 22.57 20.20 22.79 20.92
Net income to average common equity 29.46 23.53 29.91 22.64
Average equity to average total assets 5.73 7.78 5.87 7.14
Dividend payout ratio 19.95 18.31 20.13 18.43
Efficiency ratio (2) 47.51 44.97 46.93 45.48
June 30, December 31,
2000 1999
---- ----
Regulatory capital ratios (in percent):
Total capital to risk weighted assets 14.48 16.16
Tier 1 capital to risk weighted assets 10.37 11.64
Tier 1 capital to average assets 6.58 7.47
Balance sheet data (in thousands):
Loans and loans held for sale $3,063,953 $2,745,368
Allowance for loan losses 74,100 71,784
Investments 2,033,651 1,811,164
Total assets 5,280,614 4,721,568
Deposits 2,987,292 2,565,422
Borrowings 1,930,109 1,803,729
Total capital 311,044 294,902
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 June 30, 2000, the Corporation recorded
earnings of $16,477,355 or $0.55 per common share (basic and diluted), a per
share increase of 12% as compared to earnings of $15,393,514 or $0.49 per common
share (basic and diluted) for the second quarter of 1999. Earnings for the six
months ended on June 30, 2000 amounted to $32,828,439 or $1.08 per common share
(basic and diluted), as compared to earnings of $29,534,729 or $0.97 per common
share (basic and diluted) for the same period of 1999. On a per share basis,
earnings for the six months ended on June 30, 2000 increased by 11% as compared
to earnings for the six months ended on June 30, 1999.
Net Interest Income
Net interest income for the three and six months ended on June 30, 2000
increased by $2.7 million and $5.3 million, respectively, as compared with the
same periods in 1999, on a taxable equivalent basis. The interest rate spread
and net interest margin, on a taxable equivalent basis, amounted to 3.60% and
4.13%, respectively, for the second quarter of 2000 as compared to 4.51% and
5.10%, respectively, for the second quarter of 1999. The interest rate spread
and net interest margin, on a taxable equivalent basis, amounted to 3.72% and
4.27%, respectively, for the six months ended on June 30, 2000 as compared to
4.54% and 5.08%, respectively, for the six months ended on June 30, 1999. The
reduction in the interest rate spread and net interest margin is primarily
attributed to the increase in the average volume of total investments and total
commercial loans when compared to the increase in the average volume of consumer
loans. The interest rate spread for investments and commercial loans is lower
than the spread for consumer loans.
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 June 30,
Average volume Interest income (1) / expense Average rate (1)
---------------------------- ----------------------------- -----------------
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
(Dollars in thousands)
Earning assets:
Deposits at banks and other
short-term investments $ 8,630 $ 14,100 $ 125 $ 168 5.81% 4.78%
Government obligations 519,694 432,089 8,801 6,264 6.81% 5.81%
Mortgage backed securities 1,460,981 1,136,197 25,708 19,150 7.08% 6.76%
FHLB stock 17,827 17,827 308 300 6.95% 6.75%
Other investment 39,477 1,958 856 83 8.72% 17.04%
------------- -------------- ----------- -----------
Total investments 2,046,609 1,602,170 35,797 25,965 7.03% 6.50%
----------- ----------- --------- --------
Residential real estate loans 517,452 316,297 11,179 7,799 8.69% 9.89%
Construction 168,982 76,100 4,196 1,656 9.99% 8.73%
Commercial loans 1,150,400 768,742 25,953 18,550 9.07% 9.68%
Finance leases 98,610 63,985 3,005 2,085 12.26% 13.07%
Consumer loans 1,023,575 1,002,878 35,381 33,544 13.90% 13.42%
----------- ----------- ---------- --------
Total loans (2) 2,959,019 2,228,003 79,714 63,634 10.83% 11.46%
----------- ----------- ---------- --------
Total earning assets $5,005,628 $3,830,173 $115,512 $89,598 9.28% 9.38%
========== ========== ======== =======
Interest-bearing liabilities:
Deposits $2,686,233 $1,787,296 $35,913 $20,554 5.38% 4.61%
Other borrowed funds 1,825,318 1,585,331 27,772 20,354 6.12% 5.15%
FHLB advances 26,351 663 425 8 6.49% 4.84%
------------- --------------- ---------- ------------
Total interest-bearing liabilities $4,537,902 $3,373,289 $64,110 $40,916 5.68% 4.87%
========== ========== ======= =======
Net interest income $51,402 $48,682
======= =======
Interest rate spread 3.60% 4.51%
Net interest margin 4.13% 5.10%
Six months ended June 30,
Average volume Interest income (1) / expense Average rate (1)
---------------------------- ----------------------------- -----------------
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
(Dollars in thousands)
Earning assets:
Deposits at banks and other
short-term investments $ 11,654 $ 11,360 $ 298 $ 215 5.14% 3.82%
Government obligations 499,782 367,059 16,580 10,581 6.68% 5.81%
Mortgage backed securities 1,393,343 1,288,010 48,676 45,295 7.03% 7.09%
FHLB stock 17,827 14,487 598 483 6.75% 6.72%
Other investment 44,986 1,961 1,892 163 8.46% 16.77%
----------- -------------- --------- -----------
Total investments 1,967,591 1,682,877 68,044 56,738 6.95% 6.80%
---------- ----------- -------- --------
Residential real estate loans 499,230 311,201 21,484 15,806 8.65% 10.24%
Construction 156,503 69,516 7,768 3,031 9.98% 8.79%
Commercial loans 1,103,412 738,395 50,009 33,814 9.11% 9.23%
Finance leases 93,519 60,014 5,696 3,923 12.26% 13.18%
Consumer loans 1,021,075 1,005,974 70,717 67,577 13.90% 13.55%
----------- ----------- ---------- ----------
Total loans (2) 2,873,740 2,185,100 155,674 124,151 10.83% 11.46%
----------- ----------- --------- ----------
Total earning assets $4,841,332 $3,867,978 $223,718 $180,889 9.28% 9.43%
========== ========== ======== ========
Interest-bearing liabilities:
Deposits $2,581,762 $1,701,000 $ 67,279 $38,847 5.38% 4.61%
Other borrowed funds 1,753,204 1,739,268 52,576 44,578 6.12% 5.17%
FHLB advances 36,105 1,486 1,116 36 6.49% 4.88%
------------- --------------- ----------- ------------
Total interest-bearing liabilities $4,371,071 $3,441,754 $120,971 $83,461 5.68% 4.89%
========== ========== ======== =======
Net interest income $102,747 $97,428
======== =======
Interest rate spread 3.72% 4.54%
Net interest margin 4.27% 5.08%
(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 on June 30, Six months ended on June 30,
2000 compared to 1999 2000 compared to 1999
--------------------------------------------- -------------------------------
Variance Variance Variance Variance
due to due to Total due to due to Total
volume rate variance volume rate variance
(In thousands)
Interest income on earning assets:
Deposits at banks and other
short-term investments $ (72) $ 29 $ (43) $ 6 $ 77 $ 83
Government obligations 1,375 1,162 2,537 4,259 1,739 5,998
Mortgage backed securities 5,634 924 6,558 3,772 (391) 3,381
FHLB stock 0 8 8 113 2 115
Other investment 1,993 (1,220) 773 2,699 (957) 1,742
------ ------ ------- ------- ------- -------
Total investments 8,930 903 9,833 10,849 470 11,319
------ ------- ------ ------- ------- -------
Consumer loans 666 1,171 1,837 1,093 2,047 3,140
Real estate loans 4,651 (1,271) 3,380 8,889 (3,211) 5,678
Construction loans 2,272 268 2,540 4,275 462 4,737
Commercial loans 8,901 (1,498) 7,403 16,747 (552) 16,195
Finance leases 1,091 (171) 920 2,131 (358) 1,773
------- -------- -------- -------- ------- -------
Total loans 17,581 (1,501) 16,080 33,135 (1,612) 31,523
------ ------- ------- ------- ------ -------
Total interest income 26,511 (598) 25,913 43,984 (1,142) 42,842
------ -------- ------- ------- ------ -------
Interest expense on interest bearing liabilities:
Deposits 11,552 3,807 15,359 22,452 5,980 28,432
Other borrowed funds 3,306 4,112 7,418 366 7,632 7,998
FHLB advances 413 4 417 1,067 13 1,080
---------- ---------- -------- -------- ---------- --------
Total interest expense 15,271 7,923 23,194 23,885 13,625 37,510
-------- ------- ------- ------- ------- -------
Change in net interest income $11,240 $(8,521) $ 2,719 $20,099 $(14,767) $ 5,332
======= ======= ======= ======= ======== =======
Total interest income includes tax equivalent adjustments based on the
Puerto Rico income tax rate of $3.1 million and $6.1 million for the three and
six months ended on June 30, 2000, and of $2.3 million and $6.5 million for the
three and six months ended on June 30, 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 $25.2 million and $43.2 million for the
three and six months ended on June 30, 2000 as compared to the same periods for
1999. When adjusted to a taxable equivalent basis, interest income increased by
$25.9 million and $42.8 million for the three and six months ended on June 30,
2000 as compared to the same periods in 1999. The yield on earning assets, on a
taxable equivalent basis, amounted to 9.28% and 9.38% for the three months ended
on June 30, 2000 and 1999, respectively, and 9.29% and 9.43% for the six months
ended on June 30, 2000 and 1999, respectively. The growth in 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 $1,175.5 million and
$973.4 million for the three and six months ended on June 30, 2000, as compared
to the same periods in 1999.
The average volume of total investments increased by $444.4 million and
$284.7 million for the three and six months period ended on June 30, 2000 as
compared with the same periods in 1999, mostly concentrated in mortgage backed
securities and government obligations.
The average volume of the loan portfolio increased by $731.0 million and
$688.6 million for the three and six months ended on June 30, 2000 as compared
with the same periods in 1999, due to an increase in real estate, construction
and commercial loans. Residential real estate, construction loans, commercial
loans, finance leases and consumer loans increased by $188.0 million, $87.0
million, $365.0 million, $33.5 million and $15.1 million, respectively, for the
six months ended on June 30, 2000 as compared to the same period in 1999.
Interest Expense
Interest expense increased by $23.2 million and $37.5 million for the
three and six months ended on June 30, 2000 as compared with the amounts
recorded in the same periods of 1999. The increase in interest expense due to
volume amounted to $15.3 million and $23.9 million for the three and six months
ended on June 30, 2000 as compared to the same periods ended on June 30, 1999.
The cost of interest bearing liabilities increased from 4.87% and 4.89% for the
three and six months period ended on June 30, 1999 to 5.68% and 5.57% for the
three and six months period ended on June 30, 2000.
Provision for Loan Losses
For the three and six months ended on June 30, 2000, the Corporation
provided $11.2 million and $23.2 million, respectively, for possible loan losses
as compared to $12.9 million and $26.7 million, for the same periods 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 Six months ended
June 30, June 30,
2000 1999 2000 1999
--------------- -------------- ------------- -------------
(Dollars in thousands)
Allowance for loan losses, beginning of period $73,504 $68,717 $71,784 $67,854
Provision for loan losses 11,158 12,950 23,178 26,750
-------- -------- -------- -------
Loans charged-off:
Residential real estate (25) (41)
Commercial (1,003) (182) (1,800) (702)
Finance leases (721) (535) (1,225) (1,032)
Consumer (11,476) (12,491) (23,348) (25,751)
Other assets (28) (117) (32) (413)
---------- --------- ------------ ---------
Total charge-offs (13,229) (13,350) (26,406) (27,939)
------- -------- --------- -------
Recoveries of loans previously charged-off:
Commercial 95 51 137 75
Finance leases 61 590 116 618
Consumer 2,499 1,691 5,273 3,183
Other assets 12 112 18 222
---------- ---------- ---------- ----------
Total recoveries 2,667 2,444 5,544 4,098
-------- --------- -------- ---------
Net charge-offs (10,562) (10,905) (20,862) (23,842)
-------- -------- -------- ---------
Allowance for loan losses, end of period $74,100 $70,762 $74,100 $70,762
======= ======= ======= =======
Allowance for loan losses to total loans
and loans held for sale 2.42% 3.01% 2.42% 3.01%
Net charge-offs annualized to average loans
outstanding during the period 1.43% 1.96% 1.45% 2.18%
Other Income
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
--------------- -------------- ------------- -------------
Service charges on deposit accounts $2,207,445 $2,056,634 $4,614,828 $3,961,378
Other fees on loans 4,335,171 3,075,093 7,742,678 5,916,423
Fees on loans serviced for others 125,080 220,757 284,331 488,307
Mortgage banking activities 11,549 11,549
Rental income 536,685 595,110 1,034,613 1,236,707
Other operating income 2,135,293 1,538,991 4,178,693 2,696,603
------------ ----------- ----------- ------------
Subtotal 9,339,674 7,498,134 17,855,143 14,310,967
Gain on sale of investments 2,276,901 27,775 4,789,583 1,308,286
Trading income 167,821 ________ 587,188 75,000
------------- ------------- ---------------
Total $11,784,396 $7,525,909 $23,231,914 $15,694,253
=========== ========== =========== ===========
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. Total other income also increased due to the fees
generated by the new business acquired during the second semester of 1999. (See
following section on Other Operating Expenses).
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 $2.3 million and $4.8 million during the three
and six months ended June 30, 2000 and $27,775 and $1.3 million during the three
and six months ended June 30, 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:
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
------------- --------------- --------------- ----------
Employees' compensation and benefits $12,952,655 $11,346,767 $25,412,936 $22,568,586
Occupancy and equipment 5,735,584 4,744,521 11,175,315 9,443,908
Taxes and insurance 1,607,388 1,631,492 3,196,336 3,262,973
Net cost (gain) of operations and
disposition of other real estate owned 18,634 (305,162) 54,621 (300,376)
Amortization of debt issuance costs 87,588 152,911 174,842 311,856
Professional fees 628,913 509,374 1,347,641 1,056,946
Servicing and processing fees 1,444,454 1,092,270 2,957,503 2,084,658
Communications 1,374,147 1,075,023 2,736,893 2,206,092
Supplies and printing 281,525 445,344 618,373 698,695
Other 4,434,431 3,520,018 8,594,076 6,564,915
------------- ------------- ------------- ------------
Total $28,565,319 $24,212,558 $56,268,536 $47,898,253
=========== =========== =========== ===========
Operating expenses increased to $28.6 million and $56.3 million for the
three and six months ended June 30, 2000 as compared to $24.2 million and $47.9
million for the same periods 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 was 46.9% and 45.5% for the
six months period ended on June 30, 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 $7.6 million (or 18.8% of pretax
earnings) for the six months ended on June 30, 2000 as compared to $2.4 million
(or 7.66% of pretax earnings) for the same period in 1999. The increase in the
efective tax rate is attributed to the growth in the loan portfolio resulting in
an increase in taxable income. 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 amounted to $5,280.6 million as of June 30, 2000, an
increase of $559 million as compared to total assets of $4,721.6 million as of
December 31, 1999. This increase was primarily attributed to an increase of
$222.5 million in total investments and $318.6 million in total loans.
The composition of loans receivable and loans available for sale:
June 30, December 31, Increase
2000 1999 (Decrease)
-------------- -------------------- --------
(In thousands)
Residential real estate loans $ 545,355 $ 473,563 $ 71,792
----------- ----------- ---------
Commercial real estate loans 401,128 371,643 29,485
Construction loans 188,644 132,068 56,576
Commercial loans 800,085 655,417 144,668
----------- ------------ ---------
Total commercial 1,389,857 1,159,128 230,729
---------- ----------- ---------
Finance leases 104,706 85,692 19,014
Consumer and other loans 1,024,035 1,026,985 (2,950)
----------- ----------- -----------
Total $3,063,953 $2,745,368 $318,585
========== ========== ========
The fluctuation in the loans receivable category represents the net
effect of total loan origination of $598.7 million and repayments and other
adjustments of $280.1 million. The Corporation continued its strategy of
diversifying its loan portfolio composition through the origination of
commercial loans, resulting in an increase of $230.7 million in the commercial
loan portfolio. Residential real estate loans increased by $71.8 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 $19.0 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 June 30, 2000, total non-performing assets amounted to $54.6 million
(1.03% 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 continues to
improve to 148.9% at June 30, 2000 from 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:
June 30, December 31,
2000 1999 1998
----------- ---------- --------
(Dollars in thousands)
Non-accruing loans:
Residential real estate $11,377 $ 8,633 $ 9,151
Commercial and commercial real estate 19,417 17,975 19,355
Finance leases 1,879 2,482 1,716
Consumer 17,106 24,726 26,736
------ ------ --------
49,779 53,816 56,958
Other real estate owned (OREO) 1,811 517 3,642
Other repossessed property 3,053 3,112 2,277
-------- --------- ---------
Total non-performing assets $54,643 $57,445 $62,877
======= ======= =======
Past due loans $15,735 $13,781 $15,110
Non-performing assets to total assets 1.03% 1.22% 1.57%
Non-performing loans to total loans 1.62% 1.96% 2.69%
Allowance for loan losses $74,100 $71,784 $67,854
Allowance to total non-performing loans 148.86% 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 $11.4 million (2.09% of total
residential real estate loans) at June 30, 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 $19.4
million (1.40% of total commercial loans) at June 30, 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.
Finance Leases - Finance leases are classified as non-accruing status
when they are delinquent 90 days or more. Non-accruing finance leases amounted
to $1.9 million (1.79% of total finance leases) at June 30, 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 $17.1 million (1.67% of the
total consumer loan portfolio) at June 30, 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
Total liabilities amounted to $4,969.6 million as of June 30, 2000, an
increase of $542.9 million as compared to $4,426.7 million as of December 31,
1999. The increase in total liabilities was primarily due to: (1) an increase in
total deposits of $421.9 million; (2) an increase in federal funds and
securities sold under agreements to repurchase of $274.0 million; net of (3) a
decrease in other short term borrowings of $140.4 million.
The Corporation maintains unsecured standby lines of credit with other
banks. At June 30, 2000, the Corporation's total unused lines of credit with
these banks amounted to approximately $100,500,000 (1999 - $123,500,000). At
June 30, 2000, the Corporation has an available line of credit with the FHLB
guaranteed with excess collateral, in the amount of $62,044,801 (1999 -
$2,812,126).
Capital
Total stockholders' equity amounted to $311.0 million as of June 30,
2000, an increase of $16.1 million from the balance as of December 31, 1999.
This increase was primarily attributed to $32.8 million in net income generated
for the period ended on June 30, 2000 of $32.8 million, an increase in the
valuation on securities available for sale of $13.6 million, dividends paid of
$9.2 million, and the repurchase of 1,171,000 shares of common stock at a total
cost of $21.1million.
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 June 30, 2000 and December 31, 1999, the Corporation exceeded the
requirements for an adequately capitalized institution.
At June 30, 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 June 30, 2000 (Dollars in thousands)
Total Capital (to Risk-Weighted Assets):
First BanCorp $471,510 14.48% $260,483 8% $325,603 10%
FirstBank 425,995 13.26% 257,056 8% 321,321 10%
Tier I Capital (to Risk-Weighted Assets):
First BanCorp $337,566 10.37% $130,241 4% $195,362 6%
FirstBank 292,650 9.11% 128,528 4% 192,792 6%
Tier I Capital (to Average Assets):
First BanCorp $337,566 6.58% $154,017 3% $256,695 5%
FirstBank 292,650 5.76% 152,503 3% 254,171 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 on June 30, 2000, the Corporation declared two
quarterly cash dividends of $0.11 per common share representing a 22% increase
over the two quarterly cash dividends of $0.09 per common share declared during
the same period ended on June 30, 1999. Total dividends declared per common
share amounted to $6.0 million for the period ended on June 30, 2000 for an
annualized dividend payout ratio of 20.13% as compared to $5.2 million for the
period ended June 30, 1999 (or a 18.43% dividend payout ratio). Dividends
declared on preferred stock amounted $3,206,250 for the period ended on June 30,
2000 as compared to $1,068,750 for the period ended on June 30, 1999.
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
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
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 Corporation has duly caused this report to be signed on
its behalf by
the undersigned thereunto duly authorized:
First BanCorp.
Name of the Corporation
Date: August 11, 2000 By: /s/ Angel Alvarez-Perez, Esq.
------------------------------
Angel Alvarez-Perez, Esq.
Chairman, President and Chief
Executive Officer
Date: August 11, 2000 By: /s/ Annie Astor de Carbonell
-----------------------------
Annie Astor de Carbonell
Senior Executive Vice President
and Chief Financial Officer