3
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, 1999
First BanCorp.
(Exact name of bank 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)
Bank'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, 1999
29,145,552
FIRST BANCORP
CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Statements of Financial
Condition as of March 31, 1999 and
December 31, 1998.................................................................3
Consolidated Statements of Income for the
three months ended on March 31, 1999 and 1998 4
Consolidated Statements of Comprehensive Income for the
three months ended on March 31, 1999 and 1998....................................5
Consolidated Statements of Cash Flows
for the three months ended on March 31, 1999 and 1998.............................6
Consolidated Statements of Changes in
Stockholders' Equity..............................................................7
Notes to Consolidated Financial Statements...........................................8
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations.................................................16
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 8K..............................................32
SIGNATURES............................................................................................33
FIRST BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, December 31,
1999 1998
----------------------------------
(Unaudited)
Assets
Cash and due from depository institutions $ 42,069,514 $ 39,416,097
---------------- --------------
Money market instruments -
Deposits at interest with banks 5,830,181 525,669
----------------- -------------------
Debt securities available for sale, at market:
United States and Puerto Rico Government obligations 568,987,628 268,611,106
Mortgage backed securities 1,112,205,778 1,492,538,909
Other investment 1,760,000 1,620,000
------------------ -------------------
Total debt securities available for sale 1,682,953,406 1,762,770,015
--------------- ----------------
Debt securities held to maturity, at cost -
United States and Puerto Rico Government obligations 71,774,224 26,921,836
--------------- -----------------
Federal Home Loan Bank (FHLB) stock 17,826,500 10,270,600
--------------- -----------------
Loans held for sale 25,526,339 20,641,628
Loans receivable 2,136,221,694 2,099,412,756
--------------- ---------------
Total loans 2,161,748,033 2,120,054,384
Allowance for loan losses (68,717,146) (67,854,066)
---------------- ----------------
Total loans - net 2,093,030,887 2,052,200,318
--------------- ---------------
Other real estate owned 3,830,868 3,642,525
Premises and equipment - net 51,513,732 51,537,192
Accrued interest receivable 12,592,371 10,738,072
Due from customers on acceptances 2,761,647 2,392,338
Other assets 61,045,605 56,937,413
---------------- -----------------
Total assets $4,045,228,935 $4,017,352,075
============== ==============
Liabilities and Stockholders' Equity
Liabilities:
Non-interest bearing deposits $175,551,439 $ 173,103,709
Interest bearing deposits 1,671,475,025 1,601,941,185
Federal funds purchased and securities
sold under agreements to repurchase 1,599,864,076 1,623,697,988
Other short-term borrowings 80,062,952 86,594,710
Advances from FHLB 8,400,000 2,600,000
Notes payable 116,000,000 118,100,000
Bank acceptances outstanding 2,761,647 2,392,338
Accounts payable and other liabilities 43,351,415 39,058,247
--------------- -----------------
3,697,466,554 3,647,488,177
Subordinated notes 98,518,776 99,495,830
---------------- -----------------
Stockholders' equity:
Common stock, $1.00 par value, authorized 250,000,000 shares;
issued 29,612,552 shares 29,612,552 29,599,552
Less: Treasury Stock (467,000 shares at par) (467,000) (100,000)
--------------- --------------
Common stock outstanding 29,145,552 29,499,552
Additional paid-in capital 23,555,749 23,575,936
Capital reserve 30,000,000 30,000,000
Legal surplus 53,454,469 53,454,469
Retained earnings 127,096,345 125,088,180
Accumulated other comprehensive income - unrealized gain (loss)
on securities available for sale, net of tax (14,008,510) 8,749,931
----------------- ------------------
249,243,605 270,368,068
---------------- ----------------
Contingencies and commitments ____________ ____________
Total liabilities and stockholders' equity $4,045,228,935 $4,017,352,075
============== ==============
The accompanying notes are an integral part of these statements.
6
FIRST BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31, March 31,
1999 1998
---------------- ------------------
Interest income:
Loans $ 59,876,115 $ 56,508,065
Investments 27,083,716 20,703,490
Dividends on FHLB stock 182,998 186,086
--------------- ----------------
Total interest income 87,142,829 77,397,641
------------- --------------
Interest expense:
Deposits 18,293,988 17,031,936
Borrowings 24,251,376 19,757,717
------------- -------------
Total interest expense 42,545,364 36,789,653
------------- -------------
Net interest income 44,597,465 40,607,988
------------- -------------
Provision for loan losses 13,800,000 21,738,000
------------- -------------
Net interest income after provision
for loan losses 30,797,465 18,869,988
------------- -------------
Other income:
Service charges on deposit accounts 1,904,744 2,013,382
Fees on loans serviced for others 267,550 494,216
Other fees on loans 2,841,330 2,649,554
Mortgage banking activities 2,478
Trading income 75,000
Gain on sale of investments 1,280,511 10,118,373
Other operating income 1,799,209 1,474,204
------------- -------------
Total other income 8,168,344 16,752,207
------------ ------------
Other operating expenses
Employees' compensation and benefits 11,221,819 10,200,074
Occupancy and equipment 4,699,386 3,972,882
Taxes and insurance 1,631,481 1,705,261
Other 6,133,008 5,713,297
------------- -------------
Total other operating expenses 23,685,694 21,591,514
------------ ------------
Income before income tax provision 15,280,115 14,030,681
Income tax provision 1,138,900 1,670,000
----------- ------------
Net income $14,141,215 $12,360,681
=========== ===========
Earnings per common share-basic $0.48 $0.42
===== =====
Earnings per common share-diluted $0.48 $0.42
===== =====
The accompanying notes are an integral part of these statements.
FIRST BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
March 31, March 31,
1999 1998
---------------- -----------
Net Income $14,141,215 $12,360,681
----------- -----------
Other comprehensive income net of tax:
Unrealized gain (losses) on securities:
Unrealized holding gains (losses) (24,038,952) (16,418,597)
arising during the period
Less: reclassification adjustment
for gains included in net income (1,280,511) (10,118,373)
------------- --------------
Total other comprehensive income (22,758,441) (6,300,224)
------------ --------------
Comprehensive income $ (8,617,226) $ 6,060,457
============ ============
The accompanying notes are an integral part of these statements.
FIRST BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
1999 1998
Cash flows from operating activities:
Net income $14,141,215 $12,360,684
----------- -----------
Adjustments to reconcile net income to net cash:
Depreciation 3,385,114 1,764,228
Provision for loan losses 13,800,000 21,738,000
Decrease in taxes payable 2,489,373 4,019,819
Increase in deferred tax assets (1,435,771) (3,091,063)
Decrease (increase) in accrued interest receivable (1,854,299) 6,357,432
Increase in accrued interest payable 374,210 2,371,009
Amortization of deferred net loan fees 130,297 (25,155)
Gain on sale of investments (1,280,511) (10,118,373)
Originations of loans available for sale (4,539,630) (1,193,708)
Decrease in other assets 5,022,507 1,261,412
Increase in other liabilities 1,700,030 77,460
Total adjustments 17,791,320 23,161,061
--------------- --------------
Net cash provided by operating activities 31,932,535 35,521,745
--------------- --------------
Cash flows from investing activities:
Principal collected on loans 166,742,185 174,687,018
Loans originated (221,854,370) (203,551,377)
Purchase of loans (345,081) (970,086)
Proceeds from sale of investments 7,290,174 111,880,980
Maturities of investment securities and money market instruments 1,529,884,891 1,619,626,881
Purchases of investment securities and money market instruments (1,536,579,435) (1,802,394,813)
Additions to premises and equipment - net (3,361,654) (2,380,633)
Proceeds from sale of real estate owned 38,000 118,021
Proceeds from sale of auto repossessions 4,150,668 10,812,590
Redemption of FHLB stock (7,555,900) (120,300)
---------------- ----------------
Net cash used in investing activities (61,590,522) (92,291,719)
---------------- --------------
Cash flows from financing activities:
Proceeds from issuance of certificates of deposits and savings
accounts 413,007,982 305,127,384
Payments for maturing certificates of deposits and withdrawals
of savings accounts (327,321,373) (266,235,813)
Interest credited to deposits (14,983,560) (13,226,974)
Proceeds from federal funds purchased and securities sold under
repurchase agreements 4,773,822,029 6,258,625,026
Payment/maturities of federal funds purchased and securities sold
under repurchase agreements (4,797,557,077) (6,177,676,059)
FHLB-NY advances taken (paid) 5,800,000 (29,000,000)
Payments of term and notes payable (3,077,054) (6,250,000)
Increase in other borrowings (6,531,758) (6,725,191)
Net decrease in demand deposit accounts 1,278,519 (4,544,065)
Decrease in debt securities issuance cost 380,931 (482,291)
Repurchase of common stock 0 (3,656,420)
Dividends (2,623,101) (2,218,955)
Exercise of stock options 176,313
Treasury Stock acquired (10,060,449) ____________
---------------
Net cash provided by financing activities 32,311,404 53,736,642
--------------- ----------------
Net increase (decrease) in cash and cash equivalents 2,653,417 (3,033,332)
---------------------------------
Cash and cash equivalents at beginning of period 39,416,097 37,666,068
--------------- ----------------
Cash and cash equivalents at end of period $ 42,069,514 $ 34,632,736
============== ===============
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest $42,171,154 $34,418,644
Income taxes $1,872,779
The accompanying notes are an integral part of these statements.
FIRST BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Unrealized
gain on
Additional securities
Common paid-in Capital Legal Retained available
stock capital reserve surplus earnings for sale
Balance at December 31, 1996 $ 15,116,651 $ 38,599,962 $10,000,000 $49,106,995 $ 77,711,586 $ 607,119
Net income 47,527,552
Change in valuation of
securities available for sale 11,424,325
Addition to legal surplus 4,347,474 (4,347,474)
Addition to capital reserve 10,000,000 (10,000,000)
Repurchase of common stock (247,825) (495,650) (6,156,347)
Stock option exercised 33,000 349,249
Cash dividends (7,197,417)
---------- ---------- ---------- ---------- ---------- ----------
Balance at 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 (8,870,832)
Common stock split
on May 29, 1998 14,796,526 (14,796,526)
------------ ----------- ----------- ---------- ----------- ---------
Balance at December 31, 1998 29,499,552 23,575,936 30,000,000 53,454,469 125,088,180 8,749,931
(Unaudited)
Net income for the period ended
March 31, 1999 14,141,215
Change in valuation of
securities available for sale (22,758,441)
Treasury stock (367,000) (183,500) (9,509,949)
Stock option exercised 13,000 163,313
Cash dividends (2,623,101)
---------- ----------- ---------- ---------- ------------ ------------
Balance at March 31, 1999 $29,145,552 $23,555,749 $30,000,000 $53,454,469 $127,096,345 $(14,008,510)
=========== =========== =========== =========== ============ =============
The accompanying notes are an integral part of these statements.
FIRST BANCORP
PART I - NOTES TO FINANCIAL STATEMENTS
1 - NATURE OF BUSINESS
First BanCorp (the Corporation) was organized on October 1st, 1998
under the laws of the Commonwealth of Puerto Rico to serve as the bank holding
company for FirstBank Puerto Rico (FirstBank or the Bank). As a result of this
reorganization each of the Bank's outstanding shares of common stock was
converted into one share of common stock of the new bank holding company. First
BanCorp is subject to the Federal Bank Holding Company Act and to the
regulations, supervision, and examination of the Federal Reserve Board.
FirstBank, 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 38 full service banking branches in Puerto Rico
and two in the U.S. Virgin Islands. It also has loan origination offices in
Puerto Rico focusing on consumer loans. 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 by 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 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, 1998 contained in the annual report of the
Corporation.
In the opinion of Management, the accompanying unaudited consolidated
statements of condition and the related consolidated statements of income, of
comprehensive income, of cash flows, and of changes in stockholders' equity
include all adjustments (principally consisting of normal recurring accruals)
necessary for a fair presentation of the Corporation's financial position at
March 31, 1999, and the results of operations and the cash flows for the three
months ended on March 31, 1999 and 1998. The results of operations for the three
months ended on March 31, 1999 are not necessarily indicative of the results to
be expected for the entire year.
3 - STOCKHOLDERS' EQUITY
Authorized common stock shares at March 31, 1999 and December 31, 1998
were 250,000,000, with a par value of $1.00.
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. At
March 31, 1999, no shares of preferred stock were outstanding.
4 - EARNINGS PER COMMON SHARE
The calculations of earnings per common share for the three months ended on
March 31, 1999 and 1998 are as follows:
- ---- ---- (In thousands, except per share data) Three months ended March 31,
1999 1998
Earnings per common share - basic:
Net income - available to common stockholders $14,141 $12,361
------- -------
Weighted average common shares outstanding 29,259 29,638
------- -------
Earnings per common share - basic $ 0.48 $ 0.42
======== ========
Earnings per common share - diluted:
Net income - available to common stockholders $14,141 $12,361
------- -------
Weighted average common shares and share equivalents:
Average common shares outstanding 29,259 29,638
Common stock equivalents - Options 282 208
-------- ----------
Total 29,541 29,846
-------- --------
Earnings per common share - diluted $ 0.48 $ 0.42
========= =========
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 months periods ended on March 31, 1999 and 1998, the
Corporation granted 2,000 and 60,000 options, respectively, to buy shares of the
Corporation's common stock. Each option granted in 1999 has an exercise price of
$25.94 (1998 - $19.19), equal to the quoted market price of the stock at the
grant date, therefore no compensation cost was recognized on the options
granted.
Had compensation cost for the stock options granted been determined
based on the fair value at the grant date the Corporation's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
Pro forma earnings per common share: Three months ended
March 31,
(In thousands except per share data)
1999 1998
---- ----
Net income $14,118 $12,032
Earnings per common share - basic $ 0.48 $0.41
Earnings per common share - diluted $ 0.48 $0.41
The Corporation uses the binomial model for the computation of the fair
value of each option granted to buy shares of the Corporation's common stock.
The fair value of each option granted during the three month periods ended on
March 31, 1999 and 1998 was estimated using the following assumptions: dividend
growth of 21.2% (1999) and 20% (1998); expected life of 10 years; expected
volatility of 35.15% (1999) and 29.6% (1998) and risk-free interest rate of 5.0%
(1999) and 5.3% (1998). The estimated fair value of the options granted was
$11.62 (1999) and $5.47 (1998) per option.
5- DEBT SECURITIES HELD FOR TRADING
At March 31, 1999 and December 31, 1998, there were no securities held for
trading purposes or options on such securities.
All trading instruments are subject to market risk, the risk that
future changes in market conditions, such as fluctuations in market prices or
interest rates, may make an instrument less valuable or more onerous. The
instruments are accounted for at market value, and their changes are reported
directly in earnings.
The Corporation may write options on trading securities as part of its
trading activities. These options are carried at market value. Net gains and
losses resulting from these transactions are recorded in the trading income or
loss account.
The net gain from the sale of trading securities amounted to $75,000
for the quarter ended on March 31, 1999 and were included in earnings as trading
income. No trading income was recorded during the three months ended on March
31, 1998.
6 - DEBT SECURITIES
The amortized cost and market value of debt securities available for
sale and held to maturity, by category, are shown below. The market value of
debt securities is based on quoted market prices and dealer quotes.
Debt securities available for sale
(Dollars in thousands)
March 31, 1999 December 31,1998
Weighted Weighted
Amortized Unrealized Market average Amortized Unrealized Market average
cost gains (losses) value yield% cost gain (losses) value yield%
U.S. Treasury Securities:
After 5 to 10 years $39,541 $(991) $38,550 4.81
After 10 years 39,901 (2,301) 37,600 5.48
Obligations of other U.S.
Government Agencies:
Within 1 year 465,246 (67) 465,179 4.78 $240,040 $ 51 $240,091 5.00
After 10 years 26,067 (1,442) 24,625 8.42 25,619 $(159) 25,460 8.32
Puerto Rico Government
Obligations:
After 10 years 2,964 $70 _____ 3,034 7.29 2,964 96 ____ 3,060 7.18
----------- --- ---------- ----------- ------ -------
Total $573,719 $70 $(4,801) $568,988 5.01 $268,623 $147 $(159) $268,611 5.35
======== === ======== ======== ======== ==== ===== ========
Mortgage backed securities
Federal Home Loan Mortgage
Corporation (FHLMC)
certificates:
Within 1 year $3,369 $ 12 $ 3,381 8.12 $ 4,564 $ 19 $ 4,583 7.84
After 1 to 5 years 920 5 925 8.22 1,001 9 1,010 8.14
After 5 to 10 years 11,545 88 11,633 7.60 10,169 149 10,318 7.68
After 10 years 28,308 688 _____ 28,996 9.30 32,363 802 33,166 9.07
-------- ----- -------- ----------- ------ -------- ----------
44,143 793 _____ 44,935 8.73 48,098 979 49,077 8.64
-------- ----- -------- --------- ------- ------- ----------
Government National
Mortgage Association
(GNMA) certificates:
After 10 years 1,062,473 2,065 $(17,967) 1,046,571 6.88 1,411,369 9,936 $(357) 1,420,947 6.91
--------- ----- -------- --------- --------- ----- ----- ---------
Federal National
Mortgage Association
(FNMA) certificates:
Within 1 year 1,561 7 1,568 8.34 157 1 158 8.23
After 1 to 5 years 733 12 745 8.91 2,691 30 2,721 8.40
After 5 to 10 years 615 31 646 10.65 274 11 285 10.28
After 10 years 13,111 562 (10) 13,663 10.39 14,299 605 (10) 14,894 10.35
----------- ------ -------- -------- -------- ----- ----- ----------
16,020 612 (10) 16,622 10.14 17,422 646 (10) 18,058 10.02
----------- ------ -------- -------- -------- ----- ----- ----------
Mortgage pass through
certificates:
After 10 years 2,652 731 _____ 3,383 9.40 2,764 767 _____ 3,530 9.33
Real Estate Mortgage
Interest Conduit:
After 1 to 5 years 660 35 _____ 695 11.80 865 62 927 11.63
---------- ------- ---------- ---------- ------- ------ ---------
Total $1,125,948 $4,236 $(17,977) $1,112,206 7.01 $1,480,516 $12,390 $(367) $1,492,539 7.02
========== ====== ========= ========== ========== ======= ===== ==========
Other Investment:
After 5 to 10 years $1,965 $(205) $1,760 15.84 $1,964 $(344) $1,620 15.76
====== ===== ====== ====== ===== ======
Debt securities held to maturity
(Dollars in thousands)
March 31, 1999 December 31, 1998
------------------------------------------------ ----------------------------------------
Weighted Weighted
Amortized Unrealized Market average Amortized Unrealized Market average
cost gains (losses) value yield% cost gains (losses) value yield%
Obligations of other U.S.
Government Agencies:
Within 1 year $ 500 $ (3)$ 498 3.37 $ 500 $ (2) $ 498 3.37
After 10 years 67,849 (3,052) 64,797 9.21 23,051 $569 23,620 10.20
Puerto Rico Government
Obligations:
After 10 years 3,425 150 _____ 3,575 7.52 3,371 204 3,575 7.41
--------- ----- -------- --------- ------------- --------
Total $71,774 $150$(3,055) $68,869 9.09 $26,922 $ 773 $ (2) $27,693 9.73
======= ==== ====== ======= ======= ===== ==== =======
7 - INVESTMENT IN FHLB STOCK
At March 31, 1999 and December 31, 1998, there were investments in FHLB
stock with book value and estimated market value of $17,826,500 and $10,270,600,
respectively. The estimated market value of such investments are their
redemption values.
8- IMPAIRED LOANS
At March 31, 1999, the Corporation had $14.7 million ($14.3 million at
December 31, 1998) in commercial and real estate loans over $1,000,000
considered impaired with an allowance of $4.2 million ($3.8 million at December
31, 1998). 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, 1999 and December 31, 1998. The average recorded investment in
impaired loans amounted to $14.5 million for the three months ended on March 31,
1999 (1998 - $10.8 million). Interest income in the amount of approximately
$302,000 was recognized on impaired loans for the period ended on March 31,
1999. No interest income was recognized in the period ended on March 31, 1998 on
the portfolio of impaired loans during the period they were impaired.
9 - LOANS RECEIVABLE
The following is a detail of the loan portfolio:
March 31, December 31,
1999 1998
------------------ --------------
Real estate loans:
Secured by first mortgages:
Residential $244,354,874 $237,560,711
Insured by government agencies:
Federal Housing Administration and Veterans
Administration 5,571,414 8,185,232
Puerto Rico Housing Bank and Finance Agency 37,159,688 38,515,744
Secured by second mortgages 5,405,975 4,956,196
------------- ------------
292,491,951 289,217,883
Deferred loan and commitment fees - net ( 6,857,227) ( 6,848,311)
-------------- ------------
Real estate loans 285,634,724 282,369,572
------------- ------------
Construction, land acquisition and land improvements 163,762,960 161,498,219
Undisbursed portion of loans in process (99,046,453) (98,535,025)
---------------- --------------
Construction loans 64,716,507 62,963,194
---------------- --------------
Commercial loans:
Commercial loans 378,552,598 368,548,532
Commercial mortgage 343,084,961 332,219,186
--------------- --------------
Commercial loans 721,637,559 700,767,718
--------------- --------------
Finance leases 60,879,660 52,214,183
--------------- --------------
Consumer and other loans:
Personal 458,711,065 463,052,946
Personal lines of credit 9,514,333 9,535,354
Auto 520,765,767 512,116,471
Boat 35,592,929 32,208,879
Credit card 122,423,845 125,955,592
Home equity reserve loans 3,184,354 3,385,220
Unearned interest (146,964,349) (145,284,440)
--------------- ---------------
1,003,227,944 1,000,970,022
Agency for International Development 125,300 128,066
------------------- ------------------
Consumer and other loans 1,003,353,244 1,001,098,088
--------------- --------------
Loans receivable 2,136,221,694 2,099,412,756
Loans held for sale 25,526,339 20,641,628
----------------- -----------------
Total loans 2,161,748,033 2,120,054,384
Allowance for loan losses (68,717,146) (67,854,066)
----------------- -----------------
Total loans-net $2,093,030,887 $2,052,200,318
============== ==============
10 - SEGMENT INFORMATION
The Corporation has three reportable segments: Retail business,
Treasury and Investments, and Commercial Corporate business. Management
determined the reportable segments based on the internal reporting used to
evaluate performance and to assess where to allocate resources. Other factors
such as the Corporation's organizational chart, nature of the products,
distribution channels and the economic characteristics of the products were also
considered in the determination of the reportable segments.
The Retail business segment is composed of the Corporation's branches
and loan centers together with the retail products of deposits and consumer
loans. Certain small commercial loans originated by the branches are included in
the Retail business. Consumer loans include loans such as personal, residential
real estate, auto, credit card and small loans. Finance leases are also included
in Retail business. The Commercial Corporate segment is composed of commercial
loans and corporate services such as letters of credit and cash management. The
Treasury and Investment segment is responsible for the Corporation investment
portfolio and treasury functions.
The accounting policies of the segments are the same as those described in
Note 2 - "Summary of Significant Accounting Policies."
The Corporation evaluates the performance of the segments based on net
interest income after the estimated provision for loan losses. The segments are
also evaluated based on the average volume of its earning assets less the
allowance for loan losses.
The only intersegment transaction is the net transfer of funds between
the segments and the Treasury and Investment segment. The Treasury and
Investment segment sells funds to the Retail and Commercial Corporate segments
to finance their lending activities and purchases funds gathered by those
segments. The interest rates charge or credit by Investment and Treasury is
based on market rates.
The following table presents information about the reportable segments
(in thousands):
Treasury and Commercial
Retail Investments Corporate Total
For the quarter ended March 31, 1999:
Interest income $44,519 $27,269 $15,355 $87,143
Net (charge) credit for transfer of funds (906) 10,424 (9,518)
Interest expense (13,331) (29,215) (42,546)
Net interest income 30,282 8,478 5,837 44,597
Provision for loan losses (12,765) (1,035) (13,800)
Segment income 17,517 8,478 4,802 30,797
Average earning assets $1,377,444 $1,762,643 $690,410 $3,830,496
For the quarter ended March 31, 1998:
Interest income $43,956 $20,890 $12,383 $77,229
Net (charge) credit for transfer of funds 559 6,402 (6,961) 0
Interest expense (14,631) (22,158) (36,789)
Net interest income 29,884 5,134 5,422 40,440
Provision for loan losses (20,968) (770) (21,738)
Segment income 8,916 5,134 4,652 18,702
Average earning assets $1,394,552 $1,304,050 $508,423 $3,207,025
The following table presents a reconciliation of the reportable
segment financial information to the consolidated totals (in thousands):
Three months ended March 31,
1999 1998
----------------------------------------
Interest income :
Total interest income for segments $ 87,143 $ 77,229
Interest income credited to expense accounts _________ 169
--------------
Total consolidated interest income $ 87,143 $ 77,398
============ ===========
Net income:
Total income for segments $ 30,797 $ 18,702
Other income 8,168 16,752
Operating expenses (23,685) (21,423)
Income taxes (1,139) (1,670)
------------- -------------
Total consolidated net income $ 14,141 $ 12,361
============ ===========
Average assets:
Total average earning assets for segments $3,830,496 $3,207,025
Average non earning assets 158,736 144,382
------------ ------------
Total consolidated average assets $3,989,232 $3,351,407
========== ==========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Three months ended March 31,
1999 1998
---- ----
Condensed income statements (in thousands):
Interest income $87,143 $77,398
Interest expense 42,545 36,790
-------- --------
Net interest income 44,597 40,608
Provision for loan losses 13,800 21,738
-------- --------
Net interest income after provision
for loan losses 30,797 18,870
Other income 8,168 16,752
Other operating expenses 23,686 21,592
-------- --------
Net income before income tax expense 15,280 14,031
Income tax expense 1,139 1,670
--------- ---------
Net income $14,141 $12,361
======= =======
Per common share results:
Net income per common share-basic $0.48 $0.42
Net income per common share-diluted $0.48 $0.42
Cash dividends declared $0.09 $0.075
Selected financial ratios (in percent):
Average yield on earning assets (1) 9.48 10.07
Cost of interest bearing liabilities 4.91 5.09
Interest rate spread (1) 4.57 4.98
Net interest margin (1) 5.06 5.48
Net income to average total assets 1.42 1.48
Net income to average equity 21.78 20.27
Average equity to average total assets 6.51 7.28
Dividend payout ratio 18.55 17.95
Efficiency ratio (2) 46.01 45.70
Average data (in thousands):
Total assets $3,989,232 $3,351,407
Total equity 259,657 243,946
March 31, December 31,
1999 1998
---- ----
Regulatory Capital Ratios (in percent):
Total Capital to risk weighted assets 16.93 17.39
Tier 1 Capital to risk weighted assets 11.26 11.55
Tier 1 Capital to average assets 6.33 6.59
Balance sheet data (in thousands):
Loans and loans held for sale (net of unearned interest) $2,161,748 $2,120,054
Allowance for possible loan losses 68,717 67,854
Investments 1,778,384 1,800,489
Total assets 4,045,229 4,017,352
Deposits 1,847,026 1,775,045
Borrowings 1,902,846 1,930,488
Total capital (100% common equity) 249,244 270,368
Number of full service branches 40 40
Loan origination offices 45 45
(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 or losses
on sales of securities.
For the quarter ended on March 31, 1999, the Corporation recorded
earnings of $14,141,215 or $0.48 per common share (basic and diluted), a per
share increase of 14% as compared to earnings of $12,360,681 or $0.42 per common
share (basic and diluted) for the first quarter of 1998.
Net Interest Income
Net interest income for the three months ended on March 31, 1999
increased by $4.0 million, respectively, as compared with the same period in
1998; or by $4.7 million on a taxable equivalent basis. The interest rate spread
and net interest margin, on a taxable equivalent basis, amounted to 4.57% and
5.06%, respectively, for the first quarter of 1999 as compared to 4.98% and
5.48%, respectively, for the first quarter of 1998.
Part I of the following table presents average volumes and rates on a
taxable equivalent basis and Part II describes the respective extent to which
changes in interest rates and changes in volume of interest-related assets and
liabilities have affected the Corporation's interest income and interest expense
during the periods indicated. For each category of earning assets and interest
bearing liabilities, information is provided on changes attributable to (i)
changes in volume (changes in volume multiplied by old rates), (ii) changes in
rate (changes in rate multiplied by old volumes). Rate-volume variances (changes
in rate multiplied by the changes in volume) have been allocated to the changes
in volume and changes in rate based upon their respective percentage of the
combined totals.
PART I Three months ended March 31,
Average volume Interest income (1) /expense Average rate (1)
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
(Dollars in thousands)
Earning assets:
Deposits at banks and other
short-term investments $ 6,579 $ 10,974 $ 47 $ 129 2.90% 4.77%
Government obligations 301,307 399,991 4,323 6,403 5.82% 6.49%
Mortgage backed securities 1,441,511 866,087 26,136 16,862 7.35% 7.90%
FHLB stock 11,110 10,197 183 186 6.68% 7.40%
Other investment 1,964 80 16.49%
------------ ----------- --------- --------
Total investments 1,762,470 1,287,249 30,769 23,580 7.08% 7.43%
----------- ----------- -------- --------
Residential real estate loans 306,049 284,576 8,007 7,705 10.61% 10.98%
Construction 62,859 9,844 1,375 237 8.87% 9.76%
Commercial loans 707,712 569,471 15,264 13,403 8.75% 9.55%
Finance leases 55,997 40,758 1,838 1,214 13.31% 12.08%
Consumer loans 1,009,104 1,062,443 34,033 34,659 13.68% 13.23%
----------- ----------- -------- --------
Total loans (2) 2,141,720 1,967,092 60,517 57,218 11.46% 11.80%
----------- ----------- -------- --------
Total earning assets $3,904,191 $3,254,341 $91,285 $80,798 9.48% 10.07%
========== ========== ======= =======
Interest-bearing liabilities:
Deposits $1,613,746 $1,461,189 $18,293 $17,032 4.60% 4.73%
Other borrowed funds 1,894,915 1,467,018 24,224 19,699 5.18% 5.45%
FHLB advances 2,319 4,021 28 58 4.90% 5.85%
------------ ------------ ---------- -----------
Total interest-bearing liabilities $3,510,980 $2,932,228 $42,545 $36,789 4.91% 5.09%
========== ========== ======= =======
Net interest income $48,740 $44,009
======= =======
Interest rate spread 4.57% 4.98%
Net interest margin 5.06% 5.48%
(1) On a tax equivalent basis. The tax equivalent yield was computed dividing
the interest rate spread on exempt assets by (1- statutory tax rate) and adding
to it the cost of interest bearing liabilities. When adjusted to a tax
equivalent basis, yields on taxable and exempt assets are comparative.
(2)Non-accruing loans are included in the average balances.
PART II Three Months Ended March 31,
1999 compared to 1998
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 $ (41) $ (41) $ (82)
Government obligations (1,465) (615) (2,080)
Mortgage backed securities 10,904 (1,630) 9,274
FHLB stock 16 (19) (3)
Other investment 80 0 80
-------- --------- --------
Total investment 9,494 (2,305) 7,189
------ -------- ------
Residential real estate loans 577 (275) 302
Construction loans 1,227 (89) 1,138
Commercial loans 3,148 (1,287) 1,861
Finance leases 491 133 624
Consumer loans (1,790) 1,164 (626)
------ ------- --------
Total loans 3,653 (354) 3,298
------- ------- -------
Total interest income 13,147 (2,659) 10,487
------ ------ ------
Interest expense on interest bearing liabilities:
Deposits 1,770 (509) 1,261
Other borrowed funds 5,655 (1,130) 4,525
FHLB advances (21) (9) (30)
-------- ---------- --------
Total interest expense 7,404 (1,648) 5,756
------- -------- -------
Change in net interest income $5,743 $(1,011) $4,732
====== ======= ======
Total interest income includes tax equivalent adjustments based on the
Puerto Rico income tax rate of $4.1 million for the three months ended on March
31, 1999, and of $3.4 million for the three months ended on March 31, 1998. 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 $9.7 million for the three months ended on
March 31, 1999 as compared to the same period for 1998. When adjusted to a
taxable equivalent basis, interest income increased by $10.5 million for the
three months ended on March 31, 1999 as compared to the same period in 1998. The
yield on earning assets, on a taxable equivalent basis, amounted to 9.48% and
10.07% for the three months ended on March 31, 1999 and 1998, 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 $649.9 million for the three months ended on March 31, 1999
as compared to the same period in 1998. Most of the increase in earning assets
was recorded on the investment portfolio. The average volume of total
investments increased by $475.2 million for the three months period ended on
March 31, 1999 as compared with the same period in 1998. This increase was
concentrated in mortgage backed securities.
Interest income was also positively affected by an increase in the
volume of loans. The average volume of loans increased by $174.6 million for the
three months ended on March 31, 1999 as compared with the same period in 1998,
due to an increase in real estate and commercial loans. Residential real estate,
construction loans and commercial loans increased by $21.5 million, $53.0
million and $138.2 million, respectively, for the three months ended on March
31, 1999 as compared to the same period in 1998, partially offset by a decrease
of $53.3 million in consumer loans. The increase in construction and commercial
loans was the result of the Corporation's strategy of diversifying its asset
base, which was concentrated in consumer loans. The decrease in consumer loans
was due to the tightening of the underwriting standards effective in 1997 as a
way of improving the credit quality of the portfolio.
Interest Expense
Interest expense increased by $5.8 million for the three months ended on
March 31, 1999 as compared with the amounts recorded in the same period of 1998.
The increase was the result of a higher volume of interest bearing liabilities
used to fund the increase on interest earning assets. The increase in interest
expense due to volume amounted to $7.4 million for the three months ended on
March 31, 1999 as compared to the same period ended on March 31, 1998. The cost
of interest bearing liabilities decreased from 5.09% for the three months period
ended on March 31, 1998 to 4.91% for the three months period ended on March 31,
1999.
Provision for Loan Losses
For the three months ended on March 31, 1999, the Corporation provided
$13.8 million for possible loan losses as compared to $21.7 million for the same
period of 1998. The provision for loan losses recorded during 1999 reflects a
lower provision need due to an improvement in the credit quality of the loan
portfolio.
The Corporation maintains an allowance for possible 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 possible loan losses during the periods indicated:
For the three months ended March 31,
(Dollars in thousands)
1999 1998
---------- ----------
Allowance for loan losses, beginning of period $67,854 $ 57,712
Provision for loan losses 13,800 21,738
-------- ---------
Loans charged-off:
Residential real estate
Construction
Commercial (536) (103)
Finance leases (497) (730)
Consumer (13,260) (20,270)
Other assets (296) (267)
---------- ---------
Total charge-offs (14,589) (21,371)
-------- -------
Recoveries of loans previously charged-off:
Residential real estate
Construction
Commercial 24 62
Finance leases 27 30
Consumer 1,492 1,387
Other assets 109 70
---------- -----------
Total recoveries 1,652 1,549
--------- ---------
Net charge-offs 12,937 19,822
-------- --------
Allowance for loan losses, end of period $68,717 $59,628
======= =======
Allowance for loan losses to total loans and
loans held for sale 3.18% 3.04%
Net charge-offs annualized to average loans
outstanding during the period (1) 2.42% 3.34%
(1) For 1998 ratio excludes the annualization of $4.5 million special
one-time write off of personal unsecured loans in bankruptcy status as
the result of the change in the write-off policy from the regulatory
requirement of 120 days to 30 days.
Other Income
For the three months ended March 31,
1999 1998
Service charges on deposit accounts $1,904,744 $ 2,013,382
Fees on loans serviced for others 267,550 494,216
Other fees on loans 2,841,330 2,649,554
Mortgage banking activities 2,478
Rental income 641,597 467,168
Other operating income 1,157,612 1,007,036
----------- -------------
Subtotal 6,812,833 6,633,834
Gain on sale of investments 1,280,511 10,118,373
Trading income 75,000
------------- ------------
Total $8,168,344 $16,752,207
========== ===========
Other income primarily consists of service charges on deposit accounts,
fees on loans, servicing income, commissions derived from various banking
activities, the results of trading activities and gains on sale of investments.
Other income before gains on the sale of investments and trading
activities increased by $179,000 for the three months ended on March 31, 1999 as
compared to the same period in 1998.
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 $2.8 million for
the quarter ended on March 31, 1999 from $2.6 million during the same period in
1998 was due to fees generated on the increased portfolio of commercial loans.
Fees on loans serviced for others primarily reflect the servicing fees
for the auto loan securitizations closed in 1995. It also includes servicing
fees on residential mortgage loans originated by the Corporation and
subsequently securitized. Due to the repayment of the auto loan portfolio
securitized in 1995, the related servicing income decreased during the period
ended on March 31, 1999 as compared to the same period in 1998.
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 $1.3 million during the three months ended
March 31, 1999 and $10.1 million during the three months ended March 31, 1998
from gains on sale of investments securities. These sales of investments were
realized as the market opportunities arose and in response to the Corporation's
investment policies.
Other Operating Expenses
The following table presents the detail of other operating expenses for
the periods indicated:
For the three months ended March 31,
1999 1998
---------------- --------------
Employees' compensation and benefits $11,221,819 $10,200,074
Occupancy and equipment 4,699,386 3,972,882
Taxes and insurance 1,631,481 1,705,261
Net cost of operations and
disposition of other real estate owned 4,786 18,470
Amortization of debt issuance costs 158,945 185,756
Professional fees 547,572 439,241
Servicing and processing fees 992,388 1,045,255
Communications 1,131,071 1,001,513
Supplies and printing 253,351 238,144
Other 3,044,895 2,784,918
------------- -------------
Total $23,685,694 $21,591,514
=========== ===========
Operating expenses increased to $23.7 million for the three months
ended March 31, 1999 as compared to $21.6 million for the same period in 1998.
Management's goal has been to make only expenditures that contribute clearly and
directly to increasing 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 recurring income. The
Corporation's efficiency ratio has been maintained in approximately 46% (46.01%
and 45.7% for the three months period ended on March 31, 1999 and 1998,
respectively).
For the first quarter of 1999 as compared to the same period in 1998,
salary increases, incentive compensation and increases in fringe benefits
affected the salaries and benefits category for all employees. Additional
employees were hired to staff two full service branches and two in-store
branches that opened in 1998, to strengthen the commercial lending business, the
support areas of consumer lending such as credit and collection, and other
support areas of the Corporation.
The occupancy and equipment category consists of expenses associated
with premises, office and computer equipment, and other automated banking
equipment. The increase was mainly affected by enhancements of hardware and
software through system conversions, which have enabled the Corporation to offer
new products, and to improve customer service and portfolio servicing. In
addition, the increase was also due to the expansion of the branch network
mentioned above. Expenses related to the year 2000 issue also affected this
category (see Year 2000 section).
Provision for Income Tax
The provision for income tax amounted to $1.1 million (or 7.45% of
pretax earnings) for the three months ended on March 31, 1999 as compared to
$1.7 million (or 11.9% of pretax earnings) for the same period in 1998. The
decrease in income tax expense of $.6 million for the period ended on March 31,
1999 as compared to the same period in 1998 was due to the increase in the
portfolio of tax exempt debt securities.
FINANCIAL CONDITION
Assets
Total assets as of March 31, 1999 amounted to $4,045.2 million, an
increase of $27.8 million as compared to total assets as of December 31, 1998 of
$4,017.4 million. The increase was mainly the result of an increase of $40.8
million in total loans (net of the allowance) net of a decrease of $22.1 million
in total investments.
The composition of loans receivable and loans available for sale after
deducting the allowance for loan losses follows:
March 31, December 31, Increase
1999 1998 (Decrease)
-------------- -------------------- --------
(In thousands)
Residential real estate loans $ 311,160 $ 303,011 $ 8,149
Construction and land loans 64,717 62,963 1,754
Commercial loans 721,638 700,768 20,870
Finance leases 60,880 52,214 8,666
Consumer and other loans 1,003,353 1,001,098 2,255
----------- ---------- ---------
Total 2,161,748 2,120,054 41,694
Allowance for loan losses (68,717) (67,854) (863)
------------- ------------ ----------
Total net $2,093,031 $2,052,200 $40,831
========== ========== =======
The fluctuation in the loans receivable category was the net result of
total loan origination of $226.4 million and repayments and other adjustments of
$184.7 million. The consumer loans portfolio increased slightly due to the
tightening of the Corporation's underwriting policies in placed since 1997. The
increase of $20.9 million in commercial loans responded to the strategy of
emphasizing this line of business.
Non-performing Assets
Total non-performing assets are the sum of non-accruing loans, past due
loans, OREO's and other repossessed properties. Past due loans are loans
delinquent 90 days or more as to principal and/or interest, and still accruing
interest. 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, 1999, total non-performing assets amounted to $67.8
million (1.68% of total assets) as compared to $78.0 million (1.94% of total
assets) at December 31, 1998 and $74.3 million (2.23% of total assets) at
December 31, 1997. The Corporation's reserve to non-performing loans ratio was
114.7% at March 31, 1999 as compared to 94.2% and 89.5% at December 31, 1998 and
1997, respectively.
The following table presents non-performing assets at the dates indicated:
March 31, December 31,
1999 1998 1997
----------- ---------- --------
(Dollars in thousands)
Past due loans $11,614 $ 15,110 $ 11,544
------- -------- --------
Non-accruing loans:
Residential real estate 8,104 9,151 6,963
Construction 1,043
Commercial 17,012 19,355 16,869
Finance leases 789 1,716 4,561
Consumer 21,377 26,736 24,547
-------- -------- --------
48,325 56,958 52,939
-------- -------- --------
Non-performing loans 59,940 72,068 64,483
-------- --------- --------
Other real estate owned (OREO) 3,831 3,642 1,132
Other repossessed auto 2,720 1,929 7,354
Other repossessed boat 1,305 348 1,348
--------- ---------- ---------
Total non-performing assets $67,795 $77,987 $74,317
======= ======= =======
Non-performing assets to total assets 1.68% 1.94% 2.23%
Non-performing loans to total loans 2.86% 3.40% 3.29%
Allowance for loan losses $68,717 $67,854 $57,712
Allowance to total non-performing loans 114.65% 94.15% 89.50%
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.
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 $8.1 million (2.60% of total
residential real estate loans) at March 31, 1999, as compared to $9.2 million
(3.02% of total residential real estate loans) and $7.0 million (2.45% of total
residential real estate loans) at December 31, 1998 and 1997, respectively.
Construction Loans - Construction loans are classified as non-accruing
when they are delinquent 90 days or more. Non-accruing construction loans
amounted to $1.0 million (1.61% of total construction loans) at March 31, 1999.
Commercial Loans - The Corporation places all commercial loans 90 days
delinquent as to principal and interest in non-accruing status. The risk
exposure of this portfolio is diversified and a portion of the portfolio is
collateralized by liens on real property. Non-accruing commercial loans amounted
to $17.0 million (2.36% of total commercial loans) at March 31, 1999 as compared
to $19.4 million (2.76% of total commercial loans) and $16.9 million (3.06% of
total commercial loans) at December 31, 1998 and 1997, respectively. At March
31, 1999, there were 7 non accruing loans in excess of $1.0 million with an
average balance of $2.1 million.
Finance Leases - Finance leases are classified as non-accruing status
when they are delinquent 90 days or more. Non-accruing finance leases amounted
to $789,000 (1.30% of total finance leases) at March 31, 1999, as compared to
$1.7 million (3.29% of total finance leases) and $4.6 million (10.73% of total
finance leases) at December 31, 1998 and 1997, respectively. The decrease in the
ratio and amount of non accruing loans was the result of the improvement on the
credit quality of the portfolio.
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 $21.4 million (2.13% of the
total consumer loan portfolio) at March 31, 1999, $26.7 million (or 2.67% of the
total consumer loan portfolio) at December 31, 1998 and $24.5 million (or 2.29%
of the total consumer loan portfolio) at December 31, 1997. 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. Therefore, the Corporation does not
expect to incur significant losses on the disposition of OREO's at March 31,
1999.
Repossessed Property
The 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 were recorded at the principal
balance of the loans less an estimated loss on the disposition of the units.
Sources of Funds
As of March 31, 1999, total liabilities amounted to $3,796.0 million,
an increase of $49.0 million as compared to $3,747.0 million as of December 31,
1998. The increase in total liabilities was mainly due to: (1) an increase in
total deposits of $72.0 million; (2) an increase in accounts payable and other
liabilities of $4.7 million; (3) an increase in advances from FHLB - NY of $5.8
million; (4) a decrease in federal funds and securities sold under agreements to
repurchase of $23.8 million; (5) a decrease in other short term borrowings of
$6.5 million; (6) a decrease in term notes of $2.1 million; and (7) a decrease
of $1.0 million in subordinated notes.
The Corporation maintains unsecured standby lines of credit with other
banks. At March 31, 1999, the Corporation's total unused lines of credit with
these banks amounted to approximately $60,000,000 (1998 - $69,500,000). At March
31, 1999, the Corporation has an available line of credit with the FHLB
guaranteed with excess collateral, in the amount of $2,117,495 (1998 -
$20,808,133); and a commercial paper availability collateralized with personal
loans owned by the Corporation in the amount of $93,915,666 (1998 -
$95,254,992).
Capital
Total stockholders' equity as of March 31, 1999 amounted to $249.2
million, decreasing by $21.2 million from the amount as of December 31, 1998.
The decrease was the result of a decrease in the valuation on securities
available for sale of $22.8 million, dividends paid of $2.6 million and the
repurchase of 367,000 shares of common stock at a total cost of $10.1 million,
net of the net income generated for the period ended on March 31, 1999 of $14.1
million, and the issuance of 13,000 shares of common stock through exercise of
stock options at $176,313.
The Corporation is subject to various regulatory capital requirements
imposed by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Corporation must meet specific capital guidelines that involve quantitative
measures of the Corporation's assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. The Corporation's
capital amounts and classification are also subject to qualitative judgment by
the regulators about components, risk weightings and other factors.
Capital standards established by regulations require the Corporation to
maintain minimum amounts and ratios of Tier 1 capital to total average assets
(leverage ratio) and ratios of Tier 1 and total capital to risk-weighted assets,
as defined in the regulations. The total amount of risk-weighted assets is
computed by applying risk weighting factors to the Corporation's assets, which
vary from 0% to 100% depending on the nature of the asset.
At March 31, 1999 and December 31, 1998, the Corporation exceeded the
requirements for an adequately capitalized institution.
At March 31, 1999 and December 31, 1998, 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 To be
Actual adequacy purposes well capitalized
Amount Ratio Amount Ratio Amount Ratio
At March 31, 1999 (Dollars in thousands)
Total Capital (to Risk-Weighted Assets):
First BanCorp $378,759 16.93% $178,968 8% $223,709 10%
FirstBank 375,376 16.78% 178,950 8% 223,688 10%
Tier I Capital (to Risk-Weighted Assets):
First BanCorp $251,858 11.26% $89,484 4% $134,226 6%
FirstBank 248,478 11.11% 89,475 4% 134,213 6%
Tier I Capital (to Average Assets):
First BanCorp $251,858 6.33% $119,341 3% $198,902 5%
FirstBank 248,478 6.25% 119,335 3% 198,892 5%
Regulatory requirements
For capital To be
Actual adequacy purposes well capitalized
Amount Ratio Amount Ratio Amount Ratio
At December 31, 1998 (Dollars in thousands)
Total Capital (to Risk-Weighted Assets):
First BanCorp $377,939 17.39% $173,835 8% $217,294 10%
FirstBank 372,015 17.12% 173,817 8% 217,271 10%
Tier I Capital (to Risk-Weighted Assets):
First BanCorp $250,910 11.55% $86,917 4% $130,376 6%
FirstBank 244,989 11.28% 86,909 4% 130,363 6%
Tier I Capital (to Average Assets):
First BanCorp $250,910 6.59% $152,272 4% $190,340 5%
FirstBank 244,989 6.44% 152,272 4% 190,340 5%
Dividends
During the period ended March 31, 1999, the Corporation declared a cash
dividend of $0.09 per common share representing a 20% increase over the cash
dividend of $0.075 per common share declared for the same period in 1998.
Dividends per share were adjusted to retroactively consider the common stock
split declared on April 30, 1998. The dividend declared for the period ended on
March 31, 1999 amounted to $2.6 million for an annualized dividend payout ratio
of 18.55% as compared to $2.2 million for the period ended March 31, 1998 (or a
17.95% dividend payout ratio).
Year 2000
The year 2000 issue concerns the inability of information systems to
properly recognize and process date-sensitive information beyond January 1,
2000. The Corporation recognizes the need to ensure that its operations will not
be adversely impacted by Year 2000 problem and has established a plan to address
Year 2000 risks.
The Corporation continues its program of improving its information
systems through the systematic wholesale replacement of certain hardware and
software. Since October 1996, it has been the practice to install new systems
that are already year 2000 enabled. Therefore, there are no additional costs
associated with changes or modifications to accommodate the year 2000 issue on
these new systems. All the related costs associated with the replacement of
these systems are recorded as assets and amortized. Any year 2000 expenditure is
expensed as incurred.
Based on the Corporation's final action plan addressing the Year 2000
issue, Management estimates that the expenses required to modify existing
computer systems enabling them for the year 2000 will be between $1.5 million
and $2.0 million for 1998 and 1999. Accordingly, the amounts to be expensed will
not have a significant impact on the Corporation's financial position or results
of operations. For the period ended on March 31, 1999, a total of $300,000 in
expenses was related to the year 2000. For 1998, a total of $650,000 in expenses
was related to the year 2000 effort.
The year 2000 action plan uses clearly articulated program criteria
that is being implemented by the Corporation for compliance. Management named a
Project Team, responsible for the plan implementation. The plan guides the
planning and execution of all activities related to: (1) information and
computerized systems, including related hardware and software; (2) non
information systems (i.e., environmental, communication and security equipment);
(3) credit customers; and (4) service providers who participate in the project
testing. The Corporation completed the assessment phase on these project risk
areas.
Management has substantially completed the renovation phase of the
information and computerized systems risk area composed of: business
applications, data center hardware, operating systems software and end-user and
desktop computing.
The Corporation expects to complete the renovation by May 1999.
Unit test and validation of the mission critical applications and was
substantially completed at December 31, 1998. Integration test and validation of
all information systems should be completed by June 30, 1999.
The Corporation completed the organizational planning guidelines and
business impact analysis of the Year 2000 business resumption contingency
planning for all the Corporation's mission critical functions. The
documentation, testing and validation of the plan is expected to be completed by
June 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 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, lines of
credit with the FHLB and other financial institutions, and other borrowings. The
Investment Committee reviews credit availability on a regular basis. In the
past, 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, and has also obtained short term borrowings using its personal loan
portfolio as collateral. 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
Not applicable.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Corporation is a defendant in a number of legal proceedings arising
out of, and incidental to its business. Based on its review with counsel on the
development of these matters to date, Management is of the opinion that the
ultimate aggregate liability, if any, resulting from these pending proceedings
will not have a material adverse effect on the accompanying consolidated
financial statements.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 27, 1999 First BanCorp held its annual meeting of
stockholders. The number of shares present in person and/or by proxy at such
meeting were 25,567,469 representing 87.72% of the 29,145,552 shares of common
stock issued and outstanding on March 15, 1999. March 15, 1999 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
Annie Astor de Carbonell 25,484,239 83,230
Rafael Bouet-Souffront 25,484,805 82,664
Francisco D. Fernandez 25,548,997 18,472
German E. Malaret 25,549,805 17,664
The following are the directors whose terms of office continue:
Angel Alvarez-Perez
Jose Julian Alvarez
Armando Lopez Ortiz
Hector M. Nevares
Antonio Pavia Villamil
Jose Teixidor
Angel L. Umpierre
(b) Ratification of the appointment of PricewaterhouseCoopers as
the Corporation's Independent Accountants for fiscal year
1999.
The appointment of PricewaterhouseCoopers was ratified as follows:
For 25,522,368
Against 32,845
Abstain 12,256
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 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: By: /s/ Angel Alvarez-Perez, Esq.
Angel Alvarez-Perez, Esq.
Chairman, President and Chief
Executive Officer
Date: By: /s/ Annie Astor de Carbonell
Annie Astor de Carbonell
Senior Executive Vice President
and Chief Financial Officer