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, 2001
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
11, 2001
26,596,852
----------
FIRST BANCORP
CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Statements of Financial
Condition as of March 31, 2001 and
December 31, 2000.................................................................3
Consolidated Statements of Income for the
three months ended on March 31, 2001 and 2000....................................4
Consolidated Statements of Cash Flows
for the three months ended on March 31, 2001 and 2000.............................5
Consolidated Statements of Changes in
Stockholders' Equity..............................................................6
Consolidated Statements of Comprehensive Income for the
three months ended on March 31, 2001 and 2000....................................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
3
FIRST BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
March 31, 2001 December 31, 2000
Assets
Cash and due from banks $ 71,406,803 $ 63,372,591
---------------- -----------------
Money market instruments 1,049,335 2,020,348
---------------- -----------------
Investment securities available for sale, at market:
Securities pledged that can be repledged 1,756,382,573 1,621,457,451
Other investment securities 469,237,327 280,205,723
---------------- -----------------
Total investment securities available for sale 2,225,619,900 1,901,663,174
---------------- -----------------
Investment securities held to maturity, at cost:
Securities pledged that can be repledged 50,994,269 268,432,581
Other investment securities 5,670,772 42,562,921
---------------- -----------------
Total investment securities held to maturity 56,665,041 310,995,502
---------------- -----------------
Federal Home Loan Bank (FHLB) stock 22,890,600 18,536,500
---------------- -----------------
Loans receivable 3,680,680,432 3,498,198,207
Allowance for loan losses (77,639,131) (76,918,973)
---------------- -----------------
Total loans - net 3,603,041,301 3,421,279,234
---------------- -----------------
Other real estate owned 2,625,650 2,981,472
Premises and equipment - net 73,983,080 72,087,346
Accrued interest receivable 32,082,031 27,969,551
Due from customers on acceptances 2,402,158 2,177,043
Other assets 148,077,531 96,573,820
--------------- ----------------
Total assets $ 6,239,843,430 $ 5,919,656,581
=============== ================
Liabilities and Stockholders' Equity
Liabilities:
Non-interest bearing deposits $ 223,240,940 $ 232,164,469
Interest bearing deposits 3,300,686,234 3,113,819,927
Federal funds purchased and securities
sold under agreements to repurchase 1,737,190,487 1,856,436,127
Advances from FHLB 295,589,784 67,000,000
Notes payable 55,500,000 55,500,000
Bank acceptances outstanding 2,402,158 2,177,043
Accounts payable and other liabilities 72,579,609 67,550,152
--------------- -----------------
5,687,189,212 5,394,647,718
--------------- -----------------
Subordinated notes 90,564,749 90,548,314
--------------- -----------------
Stockholders' equity:
Preferred stock, authorized 50,000,000 shares; issued and
outstanding 6,600,000 at $25.00 liquidation value per share 165,000,000 165,000,000
--------------- -----------------
Common stock, $1.00 par value, authorized 250,000,000 shares;
issued 29,852,552 shares (2000 - 29,618,552 shares) 29,852,552 29,618,552
Less: Treasury stock (at par value) (3,255,700) (3,194,400)
--------------- -----------------
Common stock outstanding 26,596,852 26,424,152
--------------- -----------------
Additional paid-in capital 17,658,077 16,567,516
Capital reserve 50,000,000 50,000,000
Legal surplus 126,792,514 126,792,514
Retained earnings 80,210,210 69,275,152
Accumulated other comprehensive income - unrealized loss
on securities available for sale, net of tax (4,168,184) (19,598,785)
--------------- ----------------
462,089,469 434,460,549
--------------- ----------------
Contingencies and commitments
--------------- ----------------
Total liabilities and stockholders' equity $ 6,239,843,430 $ 5,919,656,581
=============== ================
The accompanying notes are an integral part of these statements.
4
FIRST BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
-----------------------------------------
March 31, March 31,
2001 2000
----------- -------------
Interest income:
Loans $ 91,237,301 $ 75,429,444
Investments 37,171,893 29,462,106
Dividends on FHLB stock 341,072 289,500
----------- -----------
Total interest income 128,750,266 105,181,050
----------- -----------
Interest expense:
Deposits 44,265,034 31,366,188
Borrowings 32,010,943 25,494,429
------------- ------------
Total interest expense 76,275,977 56,860,617
------------ ------------
Net interest income 52,474,289 48,320,433
------------ ------------
Provision for loan losses 15,000,000 12,020,000
------------ ------------
Net interest income after provision
for loan losses 37,474,289 36,300,433
------------ ------------
Other income:
Service charges on deposit accounts 2,385,603 2,407,383
Fees on loans serviced for others 112,855 159,251
Other fees on loans 4,623,581 3,407,507
Mortgage banking activities 6,147 30
Trading income 419,367
Gain on sale of investments 6,588,889 2,512,682
Other operating income 2,766,487 2,541,299
----------- -----------
Total other income 16,483,562 11,447,519
----------- -----------
Other operating expenses
Employees' compensation and benefits 13,130,472 12,460,281
Occupancy and equipment 5,810,258 5,439,731
Taxes and insurance 1,882,098 1,588,948
Other 8,996,157 8,214,257
----------- -----------
Total other operating expenses 29,818,984 27,703,217
----------- -----------
Income before income tax provision and
cumulative effect of accounting change 24,138,867 20,044,735
Income tax provision 4,338,171 3,693,650
----------- -----------
Income before cumulative effect of accounting change 19,800,696 16,351,085
Cumulative effect of accounting change, net of tax (1,014,889)
----------- -----------
Net income $ 18,785,807 $ 16,351,085
============= =============
Net income per common share (basic and diluted):
Income before cumulative effect of accounting change $ 0.63 $ 0.53
Cumulative effect of accounting change (0.04)
------------- -------------
Earnings per common share $ 0.59 $ 0.53
============= =============
Dividends declared per common share $ 0.13 $ 0.11
============= =============
The accompanying notes are an integral part of these statements.
5
FIRST BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
2001 2000
Cash flows from operating activities:
Net income $ 18,785,804 $ 16,351,085
------------- -------------
Adjustments to reconcile net income to net cash:
Depreciation 2,191,412 2,066,630
Provision for loan losses 15,000,000 12,020,000
Increase (decrease) in taxes payable 5,161,350 (4,556,114)
Increase in deferred tax assets (2,476,415) (1,725,974)
Increase in accrued interest receivable (4,112,480) (285,063)
Increase in accrued interest payable 6,776,636 846,196
Amortization of deferred net loan fees 77,668 33,614
Decrease in debt securities issuance cost 156,540 662,280
Gain on sale of investments (6,588,889) (2,512,682)
Net origination of loans available for sale - (10,939,352)
Decrease in other assets 4,241,503 1,521,230
(Decrease) increase in other liabilities (6,565,902) 17,548,823
------------- ------------
Total adjustments 13,861,423 14,679,588
------------- ------------
Net cash provided by operating activities 32,647,227 31,030,673
------------- ------------
Cash flows from investing activities:
Principal collected on loans 193,993,006 137,763,725
Loans originated (335,767,853) (273,724,196)
Purchase of loans (60,591,374)
Proceeds from sale of securities available for sale 194,606,739 21,646,474
Purchase of securities held to maturity (29,012,587) (1,700,078)
Purchases of securities available for sale (2,126,214,781) (2,010,517,278)
Principal repayments and maturities of securities held to maturity 76,354,381
Principal repayments of securities available for sale 1,841,800,004 1,762,244,191
Additions to premises and equipment (4,087,146) (4,018,242)
Purchase of FHLB stock (4,354,100)
--------------- --------------
Net cash used in investing activities (253,273,711) (368,305,404)
--------------- --------------
Cash flows from financing activities:
Net increase in deposits 125,050,541 187,970,297
Net (decrease) increase in federal funds purchased and securities sold under
repurchase agreements (119,363,153) 300,362,217
FHLB-NY advances taken (paid) 228,589,784 (4,200,000)
Decrease in other borrowings - (152,484,084)
Dividends (6,625,311) (4,598,214)
Exercise of stock options 1,355,210 -
Treasury stock acquired (1,317,388) (15,916,727)
-------------- -------------
Net cash provided by financing activities 227,689,683 311,133,489
-------------- -------------
Net increase (decrease) in cash and cash equivalents 7,063,199 (26,141,242)
-------------- -------------
Cash and cash equivalents at beginning of period 65,392,939 93,484,993
-------------- -------------
Cash and cash equivalents at end of period $ 72,456,138 $ 67,343,751
============== ============
Cash and cash equivalents include:
Cash and due from banks $ 71,406,803 $ 59,402,311
Money market instruments 1,049,335 7,941,440
------------- -------------
$ 72,456,138 $ 67,343,751
============ =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $69,499,341 $56,014,421
The accompanying notes are an integral part of these statements.
6
FIRST BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
Accumulated
Additional other
Preferred Common paid-in Capital Legal Retained comprehensive
stock stock capital reserve surplus earnings income
------------ ---------- ------------ ------------ ---------- ------------ --------------
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
Other comprehensive income (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 acquired (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 67,275,609
Other comprehensive income 49,050,174
Issuance of preferred stock 75,000,000 (2,562,500)
Addition to capital reserve 10,000,000 (10,000,000)
Treasury stock acquired (1,642,400) (821,200) (27,622,992)
Stock options exercised 6,000 87,750
Cash dividends:
Common stock (11,804,599)
Preferred stock (7,407,542)
----------- ---------- ---------- ---------- ----------- ------------ ------------
December 31, 2000 165,000,000 26,424,152 16,567,516 50,000,000 126,792,514 69,275,152 (19,598,785)
Net income 18,785,807
Other comprehensive income 14,436,101
Cumulative effect of
accounting change 994,500
Treasury stock acquired (61,300) (30,650) (1,225,438)
Stock options exercised 234,000 1,121,211
Cash dividends:
Common stock (3,456,561)
Preferred stock (3,168,750)
------------ ----------- ----------- ----------- ------------ ----------- ----------
March 31, 2001 $165,000,000 $26,596,852 $17,658,077 $50,000,000 $126,792,514 $80,210,210 $(4,168,184)
============ =========== =========== =========== ============ =========== ===========
The accompanying notes are an integral part of these statements.
7
FIRST BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
March 31, March 31,
2001 2000
--------- ---------
Net income $18,785,804 $16,351,085
----------- -----------
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains 19,377,768 8,617,541
arising during the period
Less: reclassification adjustment
for gains included in net income (4,941,667) (1,884,512)
Cumulative effect of accounting change, net of tax 994,500
----------- -----------
Total other comprehensive income 15,430,601 6,733,029
----------- -----------
Comprehensive income $34,216,405 $23,084,114
=========== ===========
The accompanying notes are an integral part of these statements.
8
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 44
full-service banking branches in Puerto Rico and four 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. 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, 2000
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 (consisting only of normal recurring accruals)
necessary for a fair statement of the Corporation's financial position at
March 31, 2001, and the results of operations and the cash flows for the three
months ended on March 31, 2001 and 2000. The results of operations for the three
months ended on March 31, 2001 are not necessarily indicative of the results to
be expected for the entire year.
3 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Corporation adopted Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities"
on January 1, 2001. 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, as amended, standardizes accounting for derivative
instruments by requiring the recognition of all derivatives (both assets and
liabilities) in the statement of financial position at fair value. Under SFAS
No. 133, changes in the fair value of derivative instruments are accounted for
in current income or other comprehensive income, depending on their intended use
and designation. Since the swaps are used to
9
convert the cost of the certificates of deposit from fixed to variable,
with a hedge relationship which is 100 percent effective, there was no impact on
the statement of income nor on comprehensive income, considering that the gain
or loss on the swap agreements completely offset the loss or gain on the
certificates of deposit. The adoption of SFAS No. 133 resulted in a grossing up
of the statement of financial condition to reflect the swaps and the
certificates of deposit at fair value. At January 1, 2001, a swap asset of $49.6
million was recognized with a corresponding increase in certificates of deposit
by the same amount. At March 31, 2001, the swap asset was adjusted to $52.9
million with the corresponding increase in certificates of deposit.
For transactions that qualify for hedge accounting, SFAS No. 133
provides for a matching of the timing of gain or loss recognition on the hedging
instrument with the recognition in earnings of (a) the changes in the fair value
of the hedged asset, liability, or a firm commitment that are attributable to
the hedged risk or (b) the effect of the exposure to the variability of cash
flows from the hedged asset, liability, or forecasted transaction. The
Corporation issues interest rate protection agreements (Caps) to limit its
exposure to rising interest rates on its borrowings. Under these agreements, the
Corporation pays an up front premium or fee for the right to receive cash flow
payments in excess of the predetermined cap rate; thus, effectively capping its
interest rate cost for the duration of the agreement. In accordance with SFAS
No. 133, Management designated these caps as cash-flow hedges. For a qualifying
cash flow hedge, an interest rate cap is carried on the statement of financial
condition at fair value with the time value change reflected through the current
statement of income. The intrinsic value, if any, is reflected through
comprehensive income and is reflected in future statements of income when
payments are received from the counterparty. On January 1, 2001 a loss of $1
million (net of its estimated income tax effect) was recognized in the statement
of income as a cumulative effect of the adoption of SFAS No. 133. For the
quarter ended on March 31, 2001, a loss of $156,000 was recognized in interest
expense on borrowings to adjust the fair value of the caps as of March 31, 2001.
SFAS No. 133 also provides that at the date of the initial application, a
corporation may transfer any held to maturity security into the available for
sale category or the trading category. At January 1, 2001, the Corporation
transferred a portfolio of $207 million of securities held to maturity into the
available for sale category. The unrealized gain on this portfolio at the date
of transfer is presented in stockholders' equity as a cumulative effect of the
adoption of SFAS No. 133.
4 - STOCKHOLDERS' EQUITY
Common stock
Authorized common stock shares at March 31, 2001 and December 31, 2000
were 250,000,000, with a par value of $1.00. At March 31, 2001 the Corporation
had 26,596,852 shares issued and outstanding of common stock (December 31, 2000
- - 26,424,152).
Preferred stock
The Corporation has 50,000,000 shares of authorized non-cumulative and
non-convertible preferred stock with a par value of $1, redeemable at the
Corporation's option subject to certain terms. 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. During 2000, the Corporation issued 3,000,000 shares of
preferred stock (3,600,000 shares-1999). The liquidation value per share is $25.
Annual dividends of $2.0875 per share (issuance of 2000) and of $1.78125 per
share (issuance of 1999), are payable monthly, if declared by the Board of
Directors.
10
5 - EARNINGS PER COMMON SHARE
The calculations of earnings per common share for the three months ended on
March 31, 2001 and 2000 are as follows:
Three months ended March 31,
2001 2000
---- ----
(In thousands, except per share data)
Income before cumulative effect of accounting change $19,801 $16,351
Dividend on preferred stock (3,169) (1,603)
------- -------
Income before cumulative effect of accounting change 16,632 14,748
Cumulative effect of accounting change (1,015)
------- -------
Net income attributable to common stockholders $15,617 $14,748
======= =======
Earnings per common share - basic:
Weighted average common shares outstanding 26,504 27,587
======= =======
Income before cumulative effect of accounting change $ 0.63 $ 0.53
Cumulative effect of accounting change (0.04) -
------- ------
Earnings per common share - basic $ 0.59 $ 0.53
======= ======
Earnings per common share - diluted:
Weighted average common shares and share equivalents:
Average common shares outstanding 26,504 27,587
Common stock equivalents - Options 143 190
--------- ---------
Total 26,647 27,777
======= =======
Income before cumulative effect of accounting change $ 0.63 $ 0.53
Cumulative effect of accounting change (0.04) -
--------- ---------
Earnings per common share-diluted $ 0.59 $ 0.53
========= =========
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 periods ended on March 31, 2001 and 2000, no
options were granted to buy shares of the Corporation's common stock.
11
6- INVESTMENT SECURITIES HELD FOR TRADING
At March 31, 2001 and December 31, 2000, there were no securities held
for trading purposes or options on such securities.
During the three months ended on March 31, 2001, there was no net
revenue from the sale of trading securities. During the three months ended on
March 31, 2000, the net gain from the sale of trading securities amounted to
$419,367. These earnings were included as trading income.
7 - INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses, approximate
market value, weighted average yield and maturities of investment securities
were as follows:
12
Investment securities available for sale
March 31, 2001 December 31, 2000
--------------------------------------------------------------------------------------------------------
Weighted Weighted
Amortized Unrealized Market average Amortized Unrealized Market average
cost gain (losses) value yield% cost gains (losses) value yield%
--------- ------ -------- ------- ------- --------- ------- -------- ------ ---------
U.S. Treasury Securities: (Dollars in thousands)
Within 1 year $ 499 $ 2 $ 501 6.04
After 1 to 5 years $ 2,530 $57 $ 2,587 6.50 2,630 33 2,663 6.49
After 5 to 10 years 39,624 $ (718) 38,906 4.89
After 10 years 20,023 $(1,008) 19,016 5.24 67,555 (455) 67,100 5.50
Obligations of other U.S.
Government Agencies:
Within 1 year 245,473 (434) 245,039 5.05 240,341 46 240,387 6.76
After 1 to 5 years 27,615 86 27,701 7.99 31,705 144 31,849 7.86
After 5 to 10 years 29,988 332 30,320 7.81 29,988 217 30,205 7.81
After 10 years 105,495 (1,373) 104,122 7.71 53,593 322 (3,302) 50,613 7.66
Puerto Rico Government
Obligations:
After 1 to 5 years 20,000 20,000 5.89 20,000 20,000 7.41
After 5 to 10 years 436 19 454 6.65 429 (11) 418 6.65
After 10 years 7,896 135 8,031 6.51 8,840 39 (254) 8,625 6.51
-------- ---- -------- -------- -------- ---- -------- --------
United States and Puerto Rico
Government Obligations $459,456 $629 $(2,815) $457,270 6.10 $495,204 $803 $(4,740) $491,267 6.69
======== ==== ======== ======== ======== ==== ======== ========
Mortgage backed securities:
FHLMC certificates:
After 1 to 5 years $ 706 $ 12 $ 717 6.99 $ 834 $ 6 $ 840 7.02
After 5 to 10 years 15,671 363 16,034 7.30 8,088 27 8,115 6.22
After 10 years 10,051 144 10,195 6.99 18,829 282 19,111 7.00
---------- ----- ------- --------- ----- --------
26,428 519 26,946 7.17 27,751 315 28,066 6.77
---------- ----- ------- --------- --------
GNMA certificates:
After 5 to 10 years 4,300 46 4,346 6.19 4,484 $ (81) 4,403 6.22
After 10 years 1,382,352 1,370 1,383,721 6.11 1,291,460 593 (13,229) 1,278,824 6.50
---------- ----- --------- --------- ---- -------- ----------
1,386,652 1,416 1,388,067 6.11 1,295,944 593 (13,310) 1,283,227 6.50
---------- ----- --------- --------- ---- -------- ----------
FNMA certificates:
After 1 to 5 years 319 5 324 7.06 375 2 377 7.29
After 5 to 10 years 109 2 111 6.83 125 1 126 6.84
After 10 years 8,958 384 9,342 8.35 9,402 270 (14) 9,658 8.16
----- --- ----- ---------- ----- ------- ----------
9,386 391 9,777 8.29 9,902 273 (14) 10,161 8.11
----- --- ----- ---------- ----- ------- ----------
Mortgage pass through
certificates:
After 10 years 2,238 66 2,304 8.92 2,286 66 2,352 8.96
----- ---- ----- ----------- ----- ----------
Mortgage Backed
Securities $1,424,704 $2,392 $1,427,094 6.15 $1,335,883 $1,247 $(13,324) $1,323,806 6.52
========== ====== ========== ========== ====== ========= ==========
Other investments:
Within 1 year $ 19,672 $ 111 $ 19,783 7.23 $ 19,645 $ 84 $ 19,729 7.29
After 1 to 5 years 27,425 593 28,018 7.95 27,416 295 $(105) 27,606 7.97
After 5 to 10 years 238,812 3,466 242,278 7.36 10,522 76 10,598 7.21
After 10 years 10,444 146 10,590 7.32 3,211 (60) 3,151 6.31
-------- ----- --------- --------- ------- ------ ---------
Other investments $296,353 $4,316 $300,669 6.15 $ 60,794 $ 455 $(165) $ 61,084 7.53
======== ====== ========= ========== ======= ====== ==========
Equity securities (without
contractual maturity) $ 50,665 $(10,078) $ 40,587 1.37 $ 35,914 $(10,408) $ 25,506 1.91
======== ========= ========= ========== ========= ==========
Total Investments Securities
Available for Sale $2,231,178 $7,337 $(12,893) $2,225,620 6.03 $1,927,795 $ 2,505 $(28,637) $1,901,663 6.51
========== ====== ========= ========== ========== ======= ========= ==========
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.
13
Investment securities held to maturity
March 31, 2001 December 31, 2000
------------------------------------------------ ----------------------------------------------------
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 $ (12) $ 9,988 7.04
After 10 years $52,772 $(2,379) $50,394 7.15 90,176 $1,340 (5,119) 86,397 7.53
Puerto Rico Government
Obligations:
After 10 years 3,893 $112 4,005 6.50 3,831 (56) 3,775 6.50
------- ---- ------- ------- -------- ------ ------- -------
United States and Puerto
Rico Government obligations $56,665 $112 $(2,379) $54,399 7.11 $104,007 $1,340 $(5,187) $100,160 7.44
======= ==== ======== ======= ======== ====== ======= =======
Mortgage backed securities:
GNMA certificates
After 10 years $206,989 $1,326 $208,315 6.94
-------- ------ --------
Mortgage backed securities $206,989 $1,326 $208,315 6.94
======== ====== ========
Total Investment Securities
Held to Maturity $56,665 $112 $(2,379) $54,399 7.11 $310,996 $2,666 $(5,187) $308,475 7.11
======= ==== ======== ======= ======== ====== ======== ========
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. As permitted by SFAS No. 133, as of January, 1, 2001, the Corporation
transferred a portfolio of $207 million of GNMA certificates held to maturity
into the available for sale category.
8 - INVESTMENT IN FHLB STOCK
At March 31, 2001 and December 31, 2000, there were investments in FHLB
stock with book value of $22,890,600 and $18,536,500, respectively. The
estimated market value of such investments is its redemption value.
9- IMPAIRED LOANS
At March 31, 2001, the Corporation had $8.5 million ($13.1 million at
December 31, 2000) in commercial and real estate loans over $1,000,000
considered impaired with an allowance of $3.5 million ($7.8 million at December
31, 2000). 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, 2001 and December 31, 2000. The average recorded investment in
impaired loans amounted to $10.8 million for the three months ended on March 31,
2001 (2000 - $8.8 million). Interest income in the amount of approximately
$41,911 and $38,500 was recognized on impaired loans for the period ended on
March 31, 2001 and 2000, respectively.
14
10 - LOANS RECEIVABLE
The following is a detail of the loan portfolio:
March 31, December 31,
2001 2000
-------------- --------------
(In thousands)
Residential real estate loans:
Secured by first mortgages:
Conventional $ 747,768 $ 695,344
Insured by government agencies:
Federal Housing Administration and Veterans
Administration 20,594 20,004
Puerto Rico Housing Bank and Finance Agency 27,033 28,037
Secured by second mortgages 9,451 8,964
------------- -------------
804,846 752,349
Deferred net loan fees (5,592) (5,557)
------------- -------------
Residential real estate loans 799,254 746,792
------------- -------------
Commercial loans:
Construction loans 219,278 203,955
Commercial loans 1,055,991 947,709
Commercial mortgage 441,954 438,321
------------ -------------
Commercial loans 1,717,223 1,589,985
------------ -------------
Finance leases 127,485 122,883
------------ -------------
Consumer and other loans:
Personal 379,337 388,696
Personal lines of credit 12,936 12,852
Auto 528,759 530,534
Boat 33,759 33,954
Credit card 173,513 174,797
Home equity reserve loans 2,038 2,134
Unearned interest (93,624) (104,429)
------------- -----------
Consumer and other loans 1,036,718 1,038,538
------------- -----------
Loans receivable 3,680,680 3,498,198
Allowance for loan losses (77,639) (76,919)
------------- -----------
Total loans-net $ 3,603,041 $ 3,421,279
============= ===========
15
11 - 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. 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
(including commercial real estate and construction loans) and corporate services
such as letters of credit and cash management. Certain small commercial loans
originated by the branches were included in the Retail business for the period
ended on March 31, 2000. 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.
16
The following table presents information about the reportable segments (in
thousands):
Treasury and Commercial
Retail Investments orporate Total
For the quarter ended March 31, 2001:
Interest income $ 53,996 $ 37,513 $ 37,241 $ 128,750
Net (charge) credit for transfer of funds (1,538) 28,402 (26,864)
Interest expense (20,106) (56,170) (76,276)
Net interest income 32,352 9,745 10,377 52,474
Provision for loan losses (12,453) (2,547) (15,000)
Segment income 19,899 9,745 7,830 37,474
Average earning assets $1,862,977 $2,270,553 $1,661,734 $5,795,263
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
The following table presents a reconciliation of the reportable segment
financial information to the consolidated totals (in thousands):
Three months ended March 31,
2001 2000
--------------------------------------------
Net income:
Total income for segments $ 37,474 $ 36,300
Other income 16,484 11,448
Operating expenses (29,819) (27,702)
Income taxes (4,338) (3,694)
Income before cumulative effect of
accounting change 19,801 16,352
Cumulative effect of accounting change (1,015)
--------- ---------
Total consolidated net income $ 18,786 $ 16,352
========= =========
Average assets:
Total average earning assets for segments $ 5,795,263 $ 4,498,766
Average non earning assets 289,408 225,910
----------- -----------
Total consolidated average assets $ 6,084,671 $ 4,724,676
=========== ===========
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
SELECTED FINANCIAL DATA
Three months ended March 31,
2001 2000
---- ----
Condensed income statements (in thousands):
Interest income $128,750 $105,181
Interest expense 76,276 56,861
-------- --------
Net interest income 52,474 48,320
Provision for loan losses 15,000 12,020
-------- --------
Net interest income after provision
for loan losses 37,474 36,300
Other income 9,895 8,935
Gain on sale of investments 6,589 2,513
Other operating expenses 29,819 27,703
-------- --------
Income before income tax expense and cumulative
effect of accounting change 24,139 20,045
Income tax expense 4,338 3,694
-------- --------
Income before cumulative effect of accounting change 19,801 16,351
Cumulative effect of accounting change (1,015)
-------- --------
Net income $ 18,786 $ 16,351
======== ========
Per common share results (basic and diluted):
Income before cumulative effect of accounting change $ 0.63 $ 0.53
Cumulative effect of accounting change (0.04)
---------- ----------
Net income per common share (basic and diluted) $ 0.59 $ 0.53
========== ==========
Cash dividends declared $ 0.13 $ 0.11
Selected financial ratios (in percentage):
Average yield on earning assets (1) 9.12 9.30
Cost of interest bearing liabilities 5.78 5.44
Interest rate spread (1) 3.34 3.86
Net interest margin (1) 3.86 4.42
Net income to average total assets 1.23 1.38
Net income to average equity 16.60 23.01
Net income to average common equity 21.72 30.38
Average equity to average total assets 7.44 6.02
Dividend payout ratio 22.13 20.31
Efficiency ratio (2) 43.24 46.35
March 31, December 31,
2001 2000
---- ----
Regulatory capital ratios (in percent):
Total capital to risk weighted assets 13.53 14.43
Tier 1 capital to risk weighted assets 10.50 11.23
Tier 1 capital to average assets 7.07 7.28
Balance sheet data (in thousands, except for per share data):
Loans and loans held for sale $3,680,680 $3,498,198
Allowance for loan losses 77,639 76,919
Investments 2,306,225 2,233,216
Total assets 6,239,843 5,919,657
Deposits 3,523,927 3,345,984
Borrowings 2,178,845 2,069,484
Total common equity 297,089 269,461
Total equity 462,089 434,461
Book value per common share $11.17 $10.20
Number of full service branches 48 48
Loan origination offices 37 38
(1) On a taxable equivalent basis. (2) Other operating expenses to the sum
of net interest income and other income.
18
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, 2001, the Corporation recorded
earnings of $18,785,804 or $0.59 per common share (basic and diluted), a per
share increase of 11.3% as compared to earnings of $16,351,085 or $0.53 per
common share (basic and diluted) for the first quarter of 2000.
Net Interest Income
Net interest income for the three months ended on March 31, 2001
increased by $4.2 million, as compared with the same period in 2000; or by $4.6
million on a taxable equivalent basis. The interest rate spread and net interest
margin, on a taxable equivalent basis, amounted to 3.34% and 3.86%,
respectively, for the first quarter of 2001 as compared to 3.86% and 4.42%,
respectively, for the first quarter of 2000. The reduction in the interest rate
spread and net interest margin is mainly due to the increase in the average
volume of lower yielding investments, commercial loans and residential real
estate loans when compared to the average volume of higher yielding consumer
loans. Yield of interest earnings assets decreased 18 basis points while the
cost of bearing liabilities increased by 34 basis points.
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.
19
PART I Three months ended March 31,
Average volume Interest income (1) / expense
-------------------------------- -----------------------------
Average rate (1)
2001 2000 2001 2000 2001 2000
---- ---- ---- ---- ---- ----
(Dollars in thousands)
Earning assets:
Deposits at banks and other
short-term investments $ 5,177 $ 14,678 $ 68 $ 177 5.33% 4.85%
Government obligations 564,262 479,870 9,963 7,778 7.16% 6.52%
Mortgage backed securities 1,487,801 1,325,705 25,691 22,961 7.00% 6.97%
FHLB stock 18,633 17,827 341 290 7.42% 6.54%
Other investment 197,270 50,494 4,133 1,038 8.50% 8.27%
--------- --------- -------- --------
Total investments 2,273,143 1,888,574 40,196 32,244 7.17% 6.87%
--------- --------- -------- --------
Residential real estate loans 755,763 481,009 15,614 10,305 8.38% 8.62%
Construction 212,417 144,025 5,148 3,572 9.83% 9.98%
Commercial loans 1,471,375 1,048,881 32,158 24,056 8.86% 9.22%
Finance leases 124,626 88,428 3,676 2,691 11.96% 12.24%
Consumer loans 1,043,069 1,026,120 35,443 35,336 13.78% 13.85%
--------- --------- -------- --------
Total loans (2) 3,607,250 2,788,463 92,039 75,960 10.35% 10.96%
--------- --------- -------- --------
Total earning assets $5,880,393 $4,677,037 $132,235 $108,204 9.12% 9.30%
========== ========== ======== ========
Interest-bearing liabilities:
Deposits $3,205,325 $2,477,291 $ 44,265 $ 31,366 5.60% 5.09%
Other borrowed funds 2,027,897 1,680,776 30,440 24,804 6.09% 5.94%
FHLB advances 114,667 45,859 1,571 691 5.56% 6.06%
---------- ---------- --------- ---------
Total interest-bearing liabilities $5,347,889 $4,203,926 $ 76,276 $ 56,861 5.78% 5.44%
========== ========== ========= =========
Net interest income $ 55,959 $ 51,343
========= =========
Interest rate spread 3.34% 3.86%
Net interest margin 3.86% 4.42%
(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.
20
PART II Three months ended March 31,
2001 compared to 2000
-----------------------------------------------------
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 $ (121) $ 12 $ (109)
Government obligations 1,401 784 2,185
Mortgage backed securities 2,616 113 2,729
FHLB stock 13 38 51
Other investments 3,065 29 3,094
------- ------- -------
Total investment 6,974 976 7,950
------- ------- -------
Residential real estate loans 5,757 (449) 5,308
Construction loans 1,671 (95) 1,576
Commercial loans 9,300 (1,198) 8,102
Finance leases 1,077 (92) 985
Consumer loans 488 (381) 107
------- ------- -------
Total loans 18,293 (2,215) 16,078
------- ------- -------
Total interest income 25,267 (1,239) 24,028
------- ------- -------
Interest expense on interest bearing liabilities:
Deposits 9,633 3,266 12,899
Other borrowed funds 5,013 623 5,636
FHLB advances 990 (110) 880
------- -------- -------
Total interest expense 15,636 3,779 19,415
------- -------- -------
Change in net interest income $ 9,631 $ (5,018) $ 4,613
========= ========= =========
Total interest income includes tax equivalent adjustments based on the
Puerto Rico income tax rate of $3.5 million for the three months ended on March
31, 2001, and of $3.0 million for the three months ended on March 31, 2000. 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 $23.6 million for the three months ended on
March 31, 2001 as compared to the same period for 2000. When adjusted to a
taxable equivalent basis, interest income increased by $24 million for the three
months ended on March 31, 2001 as compared to the same period in 2000. The yield
on earning assets, on a taxable equivalent basis, amounted to 9.12% and 9.30%
for the three months ended on March 31, 2001 and 2000, 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 $1,203.4 million for the three months ended on March 31,
2001, as compared to the same period in 2000.
The average volume of total investments increased by $384.6 million for
the three months period ended on March 31, 2001 as compared with the same period
in 2000, mostly concentrated in mortgage backed securities and other
investments.
The average volume of the loan portfolio increased by $818.8 million for
the three months ended on March 31, 2001 as compared with the same period in
2000, mostly concentrated in real estate and commercial loans. Residential real
estate, construction loans, commercial loans, finance leases and consumer loans
increased by $274.8 million, $68.4 million, $422.5 million, $36.2 million and
$16.9 million, respectively, for the three months ended on March 31, 2001 as
compared to the same period in 2000. The increase in the commercial real estate,
construction and commercial loans portfolio resulted from the Corporation's
strategy of diversifying its asset base, which was concentrated in higher risk
consumer loans.
21
Interest Expense
Interest expense increased by $19.4 million for the three months ended
on March 31, 2001 as compared with the amount recorded in the same period of
2000. The increase in interest expense due to volume and due to rate amounted to
$15.6 million and $3.8 million, respectively, for the three months ended on
March 31, 2001 as compared to the same period ended on March 31, 2000. The cost
of interest bearing liabilities increased from 5.44% for the three months period
ended on March 31, 2000 to 5.78% for the three months period ended on March 31,
2001.
Provision for Loan Losses
For the three months ended on March 31, 2001, the Corporation provided
$15 million for possible loan losses, as compared to $12 million for the same
period of 2000.
The Corporation maintains an allowance for loan losses on its portfolio at
a level that Management considers adequate to provide for probable 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 probable 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.
22
The following table sets forth an analysis of the activity in the allowance
for loan losses during the periods indicated: For the three months ended March
31, 2001 2000 --------- ---------
(Dollars in thousands)
Allowance for loan losses, beginning of period $ 76,919 $ 71,784
Provision for loan losses 15,000 12,020
-------- --------
Loans charged-off:
Residential real estate (114)
Commercial (5,025) (798)
Finance leases (663) (504)
Consumer (10,117) (11,875)
-------- --------
Total charge-offs (15,919) (13,177)
--------- --------
Recoveries of loans previously charged-off:
Commercial 61 42
Finance leases 54 55
Consumer 1,524 2,780
-------- --------
Total recoveries 1,639 2,877
--------- --------
Net charge-offs (14,280) (10,300)
--------- --------
Allowance for loan losses, end of period $ 77,639 $ 73,504
========= =========
Allowance for loan losses to total loans and
loans held for sale 2.11% 2.56%
Net charge-off annualized to average loans
outstanding during the period 1.58% 1.49%
23
Other Income
For the three months ended
March 31,
2001 2000
---------------- ---------------
(In thousands)
Service charges on deposit accounts $ 2,386 $ 2,407
Other fees on loans 4,624 3,408
Fees on loans serviced for others 113 159
Rental income 537 498
Other commissions 100 483
Other operating income 2,135 1,561
-------- --------
Subtotal 9,895 8,516
Gain on sale of investments 6,589 2,513
Trading income 419
-------- --------
Total $ 16,484 $ 11,448
======== ========
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 $4.6
million for the three months ended on March 31, 2001 from $3.4 million during
the same period in 2000 was due to fees generated on the increased portfolio of
loans, and to the elimination on the prohibition of certain credit card fees in
Puerto Rico. Fees on loans serviced for others 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.
Other commissions income is the result of an agreement with Goldman,
Sachs & Co. to participate in bond issues by the Government Development Bank of
Puerto Rico.
The other operating income category is composed of miscellaneous fees
such as check fees and rental of safe deposit boxes. Other operating income also
includes earned discounts on tax credits purchased and utilized against income
tax payments, and other fees generated on the increased portfolio of commercial
loans.
The Corporation recorded $6.6 million during the three months ended
March 31, 2001 and $2.5 million during the three months ended March 31, 2000
from gains on sale of investment securities. These gains reflect market
opportunities that arose and that are in consonance to the Corporation's
investment policies.
24
Other Operating Expenses
The following table presents the detail of other operating expenses for
the periods indicated:
For the three months ended
March 31,
2001 2000
---------------- ------------------
(In thousands)
Employees' compensation and benefits $ 13,130 $ 12,460
Occupancy and equipment 5,810 5,440
Taxes and insurance 1,882 1,589
Net cost of operations and
disposition of other real estate owned 101 36
Professional fees 545 719
Servicing and processing fees 1,315 1,513
Communications 1,291 1,363
Supplies and printing 333 337
Other 5,412 4,247
--------- --------
Total $ 29,819 $ 27,703
========= ========
Operating expenses increased to $29.8 million for the three months
ended March 31, 2001 as compared to $27.7 million for the same period in 2000.
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 Corporation's efficiency
ratio, which is the ratio of other operating expenses to the sum of net interest
income and other income, was 43.24% for the three months period ended on March
31, 2001 as compared to 46.35% for the same period last year.
The increase in operating expenses for 2001 is mainly the result of the
investments made in new technology, the general growth in the subsidiary Bank's
operations and the acquisition of a new branch in U.S. Virgin Islands (FVI).
Provision for Income Tax
The provision for income tax amounted to $4.3 million (or 18% of pretax
earnings) for the three months ended on March 31, 2001 as compared to $3.7
million (or 18% of pretax earnings) for the same period in 2000. The Corporation
has maintained an effective tax rate lower than the statutory rate of 39% mainly
by investing in obligations and loans exempt from federal and Puerto Rico income
tax.
FINANCIAL CONDITION
Assets
Total assets as of March 31, 2001 amounted to $6,240 million, an
increase of $320 million as compared to total assets as of December 31, 2000 of
$5,920 million. The increase was mainly the result of an increase of $74 million
in total investments and $182 million in total loans.
25
The composition of loans receivable:
March 31, December 31, Increase
2001 2000 (Decrease)
-------------- ---------------- --------
(In thousands)
Residential real estate loans $ 799,254 $ 746,792 $ 52,462
----------- ---------- ----------
Commercial real estate loans 441,954 438,321 3,633
Construction loans 219,278 203,955 15,323
Commercial loans 1,055,991 947,709 108,282
----------- ---------- ----------
Total commercial 1,717,223 1,589,985 127,238
----------- ---------- ----------
Finance leases 127,485 122,883 4,602
Consumer and other loans 1,036,718 1,038,538 (1,820)
----------- ---------- ----------
Total $ 3,680,680 $3,498,198 $ 182,482
=========== ========== ===========
The fluctuation in the loans receivable category was the net result of
total loan origination and purchases of $396.4 million and repayments and other
adjustments of $213.9 million. The Corporation continued its strategy of
diversifying its loan portfolio composition through the origination of
commercial loans and residential real estate loans. This resulted in an increase
of $127.2 million in the commercial loan portfolio and of $52.5 million in
residential real estate loans. Finance leases, which are mostly composed of
loans to individuals to finance the acquisition of an auto, increased by $4.6
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, 2001, total non-performing assets amounted to $69.6
million (1.11% of total assets) as compared to $74.1 million (1.25% of total
assets) at December 31, 2000 and $57.4 million (1.22% of total assets) at
December 31, 1999. The Corporation's reserve to non-performing loans ratio was
123.3% at March 31, 2001 as compared to 113.6% and 133.4% at December 31, 2000
and 1999, respectively.
Past due loans are loans delinquent 90 days or more as to principal
and/or interest and still accruing interest.
26
The following table presents non-performing assets at the dates
indicated:
March 31, December 31,
2001 2000 1999
----------- ---------- -----------
(Dollars in thousands)
Non-accruing loans:
Residential real estate $15,806 $15,977 $ 8,633
Commercial and commercial real estate 27,282 31,913 17,975
Finance leases 1,954 2,032 2,482
Consumer 17,929 17,794 24,726
------- ------- ------- --
62,971 67,716 53,816
------- ------- -------
Other real estate owned (OREO) 2,626 2,981 517
Other repossessed property 3,959 3,374 3,112
------- ------- -------
Total non-performing assets $69,556 $74,071 $57,445
======= ======= =======
Past due loans $14,513 $16,358 $13,781
Non-performing assets to total assets 1.11% 1.25% 1.22%
Non-performing loans to total loans 1.71% 1.94% 1.96%
Allowance for loan losses $77,639 $76,919 $71,784
Allowance to total non-performing loans 123.29% 113.59% 133.39%
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 $15.8 million (1.98% of total
residential real estate loans) at March 31, 2001, as compared to $16 million
(2.14% of total residential real estate loans) and $8.6 million (1.82% of total
residential real estate loans) at December 31, 2000 and 1999, respectively. The
increase for the period ended on March 31, 2001 and the year 2000 is due to the
portfolio acquired from FVI.
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 $27.3
million (1.59% of total commercial loans) at March 31, 2001 as compared to $31.9
million (2.01% of total commercial loans) and $18 million (1.55% of total
commercial loans) at December 31, 2000 and 1999, respectively. At March 31,
2001, there was only one non-accruing commercial loan of over $1 million, which
is a $5 million loan.
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 million (1.53% of total finance leases) at March 31, 2001, as compared to
$2 million (1.65% of total finance leases) and $2.5 million (2.90% of total
finance leases) at December 31, 2000 and 1999, 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 $17.9 million (1.73% of the
total consumer loan portfolio) at March 31, 2001, $17.8 million (or 1.71% of the
total consumer loan portfolio) at December 31, 2000 and $24.7
27
million (or 2.41% of the total consumer loan portfolio) at December 31,
1999. 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, 2001, total liabilities amounted to $5,778 million, an
increase of $293 million as compared to $5,485 million as of December 31, 2000.
The increase in total liabilities was mainly due to: (1) an increase in total
deposits of $178 million; (2) an increase in advances from FHLB - NY of $229
million; (3) an increase in accounts payable and other liabilities of $5
million; net of (4) a decrease in federal funds and securities sold under
agreements to repurchase of $119 million.
The Corporation maintains unsecured standby lines of credit with other
banks. At March 31, 2001, the Corporation's total unused lines of credit with
these banks amounted to approximately $108,500,000 (2000 - $133,500,000). At
March 31, 2001, the Corporation has an available line of credit with the FHLB
guaranteed with excess collateral, in the amount of $25,796,454 (2000 -
$66,841,562).
Capital
Total stockholders' equity as of March 31, 2001 amounted to $462
million, increasing by $28 million from the amount as of December 31, 2000. The
increase was mainly the result of earnings for the period ended on March 31,
2001 of $19 million, a positive fluctuation in the valuation on securities
available for sale of $15 million, the issuance of 234,000 shares of common
stock through the exercise of stock options at a total cost of $1,355,211,
reduced by dividends paid of $7 million, and the repurchase of 61,300 shares of
common stock at a total cost of $1,317,388.
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.
28
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, 2001 and December 31, 2000, the Corporation 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 since that date that have changed that classification.
29
The Corporation's and its banking subsidiary's regulatory capital
positions were as follows:
Regulatory requirements
For capital
Actual adequacy purposes To be well capitalized
---------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
--------------------------------------------------------------------------
At March 31, 2001 (Dollars in thousands) Total Capital (to Risk-Weighted
Assets):
First BanCorp $551,284 13.53% $325,963 8% $407,453 10%
FirstBank 482,545 11.99% 321,918 8% 402,398 10%
Tier I Capital (to Risk-Weighted Assets):
First BanCorp $427,657 10.50% $162,981 4% $244,472 6%
FirstBank 359,543 8.94% 160,959 4% 241,439 6%
Tier I Capital (to Average Assets):
First BanCorp $427,657 7.07% $181,341 3% $302,235 5%
FirstBank 359,543 6.01% 179,598 3% 299,331 5%
At December 31, 2000
Total Capital (to Risk-Weighted Assets):
First BanCorp $536,402 14.43% $297,280 8% $371,600 10%
FirstBank 469,774 12.76% 294,516 8% 368,145 10%
Tier I Capital (to Risk-Weighted Assets):
First BanCorp $417,203 11.23% $148,640 4% $222,960 6%
FirstBank 351,001 9.53% 147,258 4% 220,887 6%
Tier I Capital (to Average Assets):
First BanCorp $417,203 7.28% $172,042 3% $286,736 5%
FirstBank 351,001 6.18% 170,307 3% 283,846 5%
Dividends
During the period ended March 31, 2001, the Corporation declared a cash
dividend of $0.13 per common share representing a 18% increase over the cash
dividend of $0.11 per common share declared for the same period in 2000. Total
dividends declared per common share for the period ended on March 31, 2001
amounted to $3.5 million for an annualized dividend payout ratio of 22.13% as
compared to $3 million for the period ended March 31, 2000 (or a 20.31% dividend
payout ratio). Dividends declared on preferred stock amounted to $3.2 million
for the period ended on March 31, 2001 as compared to $1.6 million for the same
period last year, because the Corporation has $75 million more in preferred
stock outstanding when compared to March 31, 2000.
30
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. Commercial paper had also provided additional 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
40 of the annual report to security holders for the year ended December 31,
2000.
31
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 26, 2001 First BanCorp held its annual meeting of
stockholders. The number of shares present in person and/or by proxy at such
meeting were 24,166,888 representing 90.65% of the 26,658,152 shares of common
stock issued and outstanding on March 15, 2001. March 15, 2001 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
Angel Alvarez-Perez 22,978,820 1,188,068
Juan Acosta Reboyras 22,905,893 1,260,995
Jose L. Ferrer Canals 22,901,307 1,265,581
The following are the directors whose terms of office continue:
Jose Julian Alvarez
Annie Astor-Carbonell
Rafael Bouet-Souffront
Jorge L. Diaz
Francisco D. Fernandez
German E. Malaret
Hector M. Nevarez
Jose Teixidor
(b) Ratification of the appointment of PricewaterhouseCoopers as the
Corporation's Independent Accountants for fiscal year 2001.
32
The appointment of PricewaterhouseCoopers was ratified as follows:
For 22,905,937
Against 1,130,641
Abstain 130,310
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
Not applicable.
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 , 2001 By: /s/ Angel Alvarez-Perez, Esq.
----- -----------------------------
Angel Alvarez-Perez, Esq.
Chairman, President and Chief
Executive Officer
Date: May , 2001 By: /s/ Annie Astor-Carbonell
---- -----------------------------
Annie Astor-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 , 2001 By:
----- ---------------------------------------
Angel Alvarez-Perez, Esq.
Chairman, President and Chief
Executive Officer
Date: May , 2001 By:
----- ---------------------------------------
Annie Astor-Carbonell
Senior Executive Vice President
and Chief Financial Officer