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
September 30, 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
November 11, 1999
28,496,452
FIRST BANCORP
CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Statements of Financial
Condition as of September 30, 1999 and
December 31, 1998.................................................................3
Consolidated Statements of Income for the
three and nine months ended on September 30, 1999 and 1998.......................4
Consolidated Statements of Comprehensive Income for the
three and nine months ended on September 30, 1999 and 1998.......................5
Consolidated Statements of Cash Flows
for the nine months ended on September 30, 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.................................................17
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................31
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................................32
Item 2. Changes in Securities.......................................................32
Item 3. Defaults Upon Senior Securities.............................................32
Item 4. Submission of Matters to a Vote
of Security Holders.......................................................32
Item 5. Other Information...........................................................32
Item 6. Exhibits and Report on Form 8-K.............................................32
SIGNATURES............................................................................................33
FIRST BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, December 31,
1999 1998
----------------------------------
(Unaudited)
Assets
Cash and due from depository institutions $ 43,460,680 $ 39,416,097
---------------- --------------
Money market instruments
Deposits at interest with banks 2,213,243 525,669
Securities purchased under agreement to resell 17,421,000 ____________
-----------------
19,634,243 525,669
----------------- -------------------
Debt securities available for sale, at market:
United States and Puerto Rico Government obligations 319,222,900 268,611,106
Mortgage backed securities 1,042,336,905 1,492,538,909
Other investment 16,958,431 1,620,000
----------------- -------------------
Total debt securities available for sale 1,378,518,236 1,762,770,015
--------------- ----------------
Debt securities held to maturity, at cost:
United States and Puerto Rico Government obligations 95,760,355 26,921,836
Mortgage backed securities 206,615,183 ____________
----------------
302,375,538 26,921,836
---------------- -----------------
Federal Home Loan Bank (FHLB) stock 17,826,500 10,270,600
----------------- -----------------
Loans held for sale 32,532,750 20,641,628
Loans receivable 2,492,844,653 2,099,412,756
--------------- ---------------
Total loans 2,525,377,403 2,120,054,384
Allowance for loan losses (72,135,828) (67,854,066)
---------------- ----------------
Total loans - net 2,453,241,575 2,052,200,318
--------------- ---------------
Other real estate owned 484,859 3,642,525
Premises and equipment - net 56,906,520 51,537,192
Accrued interest receivable 18,308,865 10,738,072
Due from customers on acceptances 3,160,237 2,392,338
Other assets 79,865,480 56,937,413
----------------- -----------------
Total assets $ 4,373,782,734 $ 4,017,352,075
=============== ===============
Liabilities and Stockholders' Equity
Liabilities:
Non-interest bearing deposits $ 173,487,125 $ 173,103,709
Interest bearing deposits 2,156,826,877 1,601,941,185
Federal funds purchased and securities
sold under agreements to repurchase 1,442,366,311 1,623,697,988
Other short-term borrowings 50,032,928 86,594,710
Advances from FHLB 2,600,000
Notes payable 85,500,000 118,100,000
Bank acceptances outstanding 3,160,237 2,392,338
Accounts payable and other liabilities 60,818,836 39,058,247
----------------- -----------------
3,972,192,315 3,647,488,177
Subordinated notes 93,577,080 99,495,830
----------------- -----------------
Stockholders' equity:
Preferred stock, authorized 50,000,000 shares; issued and
outstanding 3,600,000 shares at $25.00 liquidation value per share 90,000,000 __________
---------------
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 (1,043,900 shares at par) (1,043,900) (100,000)
---------------- -----------------
Common stock outstanding 28,568,652 29,499,552
--------------- ---------------
Additional paid-in capital 20,086,649 23,575,936
Capital reserve 30,000,000 30,000,000
Legal surplus 126,792,514 53,454,469
Retained earnings 66,085,854 125,088,180
Accumulated other comprehensive income - unrealized gain (loss)
on securities available for sale, net of tax (53,520,330) 8,749,931
---------------- -------------------
308,013,339 270,368,068
---------------- ----------------
Contingencies and commitments ____________ ____________
Total liabilities and stockholders' equity $4,373,782,734 $4,017,352,075
============== ==============
The accompanying notes are an integral part of these statements.
34
FIRST BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
Interest income:
Loans $66,682,290 $56,962,765 $189,612,961 $171,246,717
Investments 27,477,878 22,699,050 78,463,053 63,167,241
Dividends on FHLB stock 314,978 185,096 797,529 561,948
-------------- ------------- ---------------- ------------
Total interest income 94,475,146 79,846,911 268,873,543 234,975,906
------------ ------------ ------------- -------------
Interest expense:
Deposits 24,845,841 17,782,569 63,692,990 52,049,176
Short term borrowings 19,622,306 18,551,123 57,255,173 49,992,440
Long term borrowings 3,217,907 3,700,889 10,198,160 11,320,082
------------- -------------- -------------- --------------
Total interest expense 47,686,054 40,034,581 131,146,323 113,361,698
------------ ------------- ------------- -------------
Net interest income 46,789,092 39,812,330 137,727,220 121,614,208
Provision for loan losses 11,016,500 21,420,000 37,766,000 57,087,000
----------- ------------ ------------ ------------
Net interest income after provision
for loan losses 35,772,592 18,392,330 99,961,220 64,527,208
------------ ------------ ------------ ------------
Other income:
Service charges on deposit accounts 2,310,283 2,028,851 6,271,661 5,944,199
Fees on loans serviced for others 193,839 380,270 682,146 1,315,338
Other fees on loans 3,524,951 2,903,122 9,441,374 8,344,659
Mortgage banking activities (5,796) (2,380) 5,753 98
Trading income 2,364,063 75,000 2,614,063
Gain on sale of investments 40,297 9,703,028 1,348,583 21,386,097
Other operating income 2,457,510 1,543,263 6,390,820 4,915,913
------------- ------------- ------------- -------------
Total other income 8,521,084 18,920,217 24,215,337 44,520,367
------------- ------------ ------------ ------------
Other operating expenses:
Employees' compensation and benefits 12,069,042 11,220,248 34,637,628 31,959,419
Occupancy and equipment 5,216,581 4,593,668 14,660,489 12,653,728
Taxes and insurance 1,632,098 1,621,421 4,895,071 5,037,303
Other 6,965,808 5,945,092 19,588,595 17,693,602
------------- -------------- ------------- --------------
Total other operating expenses 25,883,529 23,380,429 73,781,783 67,344,052
------------ ------------- ------------- -------------
Income before income tax provision 18,410,146 13,932,118 50,394,774 41,703,523
Income tax provision 2,202,000 867,500 4,651,900 3,577,500
------------ --------------- ------------- -------------
Net income $ 16,208,146 $ 13,064,618 $45,742,874 $ 38,126,023
============ ============= =========== =============
Net income per common share - basic $ 0.50 $ 0.44 $ 1.48 $ 1.29
=============== ================= ============== =============
Net income per common share - diluted $ 0.50 $ 0.44 $ 1.47 $ 1.28
=============== ================= ============== =============
The accompanying notes are an integral part of these statements.
FIRST BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
Net income $ 16,208,146 $13,064,618 $ 45,742,874 $38,126,023
------------ ----------- ------------ -----------
Other comprehensive income net of tax:
Unrealized gain (losses) on securities:
Unrealized holding gains (losses) (10,487,271) 16,368,603 (61,373,043) 19,775,710
arising during the period
Less: reclassification adjustment
for gains included in net income _________ 4,375,138 897,218 10,255,551
------------ -------------- ------------
Total other comprehensive income (10,487,271) 11,993,465 (62,270,261) 9,520,159
----------- ------------ ----------- -------------
Comprehensive income $5,720,875 $25,058,083 $(16,527,387) $47,646,182
========== =========== ============ ===========
The accompanying notes are an integral part of these statements.
FIRST BANCORP
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Nine Months
Ended Ended
September 30, 1999 September 30, 1998
Cash flows from operating activities:
Net income $ 45,742,874 $ 38,126,023
------------- -------------
Adjustments to reconcile net income to net cash:
Depreciation 5,573,257 5,251,295
Provision for loan losses 37,766,000 57,087,000
Increase (decrease) in taxes payable 3,556,881 (579,551)
Increase in deferred tax assets (5,650,996) (7,929,823)
Increase (decrease) in accrued interest receivable (7,570,793) 5,135,487
Increase in accrued interest payable 6,231,229 1,495,339
Amortization of deferred net loan fees (776,174) (186,419)
Net gain on sale of investments securities (1,348,583) (21,386,097)
Originations of loans available for sale (12,961,662) (4,920,412)
Proceeds from sale of loans 1,266,787
Decrease (increase) in other assets 1,973,497 (3,035,119)
Increase in other liabilities 13,089,273 3,975,397
------------ ----------
Total adjustments 41,148,716 34,907,097
------------- ------------
Net cash provided by operating activities 86,891,590 73,033,120
------------ ----------
Cash flows from investing activities:
Principal collected on loans 513,486,123 523,058,759
Loans originated (952,964,932) (664,004,860)
Purchase of loans (196,247) (1,330,497)
Proceeds from sale of investments 9,570,777 188,049,948
Maturities of investment securities and money market instruments 5,192,189,558 5,312,445,640
Purchases of investment securities and money market instruments (5,193,749,261) (5,610,247,904)
Additions to premises and equipment - net (10,942,585) (7,679,344)
Proceeds from sale of real estate owned 3,594,699 347,000
Proceeds from sale of auto repossessions 12,816,815 17,633,912
Investment in FHLB stock (7,555,900) (120,300)
---------------- ----------------
Net cash used in investing activities (433,750,953) (241,847,646)
-------------- --------------
Cash flows from financing activities:
Proceeds from issuance of certificates of deposits and savings
accounts 2,458,029,865 894,940,758
Payments for maturing certificates of deposits and withdrawals
of savings accounts (1,839,737,366) (759,407,677)
Interest credited to deposits (66,734,505) (38,803,082)
Proceeds from federal funds purchased and securities sold under
repurchase agreements 12,632,698,893 10,342,345,938
Payment/maturities of federal funds purchased and securities sold
under repurchase agreements (12,814,379,466) (10,128,442,465)
FHLB-NY advances paid (2,600,000) (2,000,000)
Payments of term and notes payable (38,518,750) (14,250,000)
Proceeds from term notes and notes payable issued 54,255
Decrease in other borrowings (36,561,782) (125,061,139)
Net decrease in demand deposit accounts 3,711,113 8,789,688
Decrease in debt securities issuance cost 823,284 (1,050,930)
Repurchase of common stock (3,656,420)
Dividends (10,518,154) (6,658,365)
Exercise of stock options 176,313 196,501
Issuance of preferred stock 86,819,350
Treasury stock acquired (22,304,851)
------------ --------------
Net cash provided by financing activities 350,903,946 166,997,062
------------ --------------
Net increase (decrease) in cash and cash equivalents 4,044,583 (1,817,464)
Cash and cash equivalents at beginning of period 39,416,097 37,666,068
------------ --------------
Cash and cash equivalents at end of period $ 43,460,680 $ 35,848,604
============= =============
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest $124,915,094 $111,866,359
Income taxes 5,618,337 600,000
The accompanying notes are an integral part of these statements.
FIRST BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Unrealized
gain(loss)
Additional on securities
Preferred Common paid-in Capital Legal Retained available
stock stock capital reserve surplus earnings for sale
December 31, 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)
------------ ---------- --------- ------------- ----------- ---------- ----------
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) __________ __________ ___________ __________
----------------- ------------ -----------
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
September 30, 1999 45,742,874
Change in valuation of
securities available for sale (62,270,261)
Issuance of preferred stock 90,000,000 (3,180,650)
Addition to legal surplus 73,338,045 (73,338,045)
Treasury stock (943,900) (471,950) (20,889,002)
Stock options exercised 13,000 163,313
Cash dividends:
Common stock (7,846,278)
Preferred stock __________ __________ __________ __________ __________ (2,671,875) _________
-------------
September 30, 1999 $90,000,000 $28,568,652 $20,086,649 $30,000,000 $126,792,514 $ 66,085,854 $(53,520,330)
=========== =========== =========== =========== ============ ============ =============
The accompanying notes are an integral part of these statements.
FIRST BANCORP
PART I - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - NATURE OF BUSINESS
First BanCorp (the Corporation) 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 42 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
September 30, 1999, and the results of operations and the cash flows for the
three and nine months ended on September 30, 1999 and 1998. The results of
operations for the three and nine months ended on September 30, 1999 are not
necessarily indicative of the results to be expected for the entire year.
3 - STOCKHOLDERS' EQUITY
Authorized common stock shares at September 30, 1999 and December 31,
1998 were 250,000,000, with a par value of $1.00. The Corporation has 28,568,652
shares issued and outstanding of common stock.
Preferred stock
The Corporation has 50,000,000 shares of authorized preferred stock
with a par value of $1. This stock may be issued in series and the shares of
each series shall have such rights and preferences as shall be fixed by the
Board of Directors when authorizing the issuance of that particular series. On
April 30, 1999, the Corporation issued 3,600,000 shares of preferred stock. The
liquidation value per share is $25.00. Annual dividends of $1.78125 per share,
are payable monthly, if declared by the board of directors.
4 - EARNINGS PER COMMON SHARE
The calculations of earnings per common share for the three and nine months
ended on September 30, 1999 and 1998 are as follows:
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
(In thousands, except per share data)
Net income $16,208 $13,065 $45,743 $38,126
Less: Preferred stock dividend (1,603) ______ (2,672) ______
-------- --------
Net income - attributable to common stockholders $14,605 $13,065 $43,071 $38,126
======= ======= ======= =======
Earnings per common share - basic:
Weighted average common shares outstanding 28,971 29,597 29,123 29,608
-------- ------- ------- -------
Earnings per common share - basic $ 0.50 $ 0.44 $ 1.48 $ 1.29
========= ======== ======== ========
Earnings per common share - diluted:
Weighted average common shares and share equivalents:
Average common shares outstanding 28,971 29,597 29,123 29,608
Common stock equivalents - Options 243 295 265 267
--------- ---------- -------- ---------
Total 29,214 29,892 29,388 29,875
-------- -------- ------- -------
Earnings per common share - diluted $ 0.50 $ 0.44 $ 1.47 $ 1.28
======== ========= ======= =======
Stock options outstanding under the Corporation's stock option plan for
officers are common stock equivalents and, therefore, considered in the
computation of earnings per common share - diluted. Common stock equivalents
were computed using the treasury stock method.
The stock option plan must be recognized either by the fair value based
method or the intrinsic value based method. The Corporation uses the intrinsic
value based method of accounting. Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of the stock
at grant date or other measurement date over the amount an employee must pay to
acquire the stock. If material, entities using the intrinsic value based method
on awards granted to employees must make pro forma disclosures of net income and
earnings per share, as if the fair value based method of accounting had been
applied. Under the fair value based method, compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period.
During the three and nine months periods ended on September 30, 1999,
the Corporation granted 15,000 and 20,500 options, respectively, to buy shares
of the Corporation's common stock. Each option granted during the three and nine
months ended on September 30, 1999 has an exercise price of $22.56 and $23.55,
respectively, equal to the quoted market price of the stock at the grant date,
therefore no compensation cost was recognized on the options granted. During the
nine months period ended on September 30, 1998, the Corporation granted 117,000
options to buy shares of the Corporation's common stock. Each option granted in
1998 has a weighted exercise price of $23.36, equal to the quoted market price
of the stock at the grant date, therefore no compensation cost was recognized on
the options granted. No options were granted during the third quarter of 1998.
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 Nine months ended
September 30, September 30,
(In thousands except per share data) 1999 1998 1999 1998
--------- -------- --------- -------
Net income - attributable to common stockholders $14,482 $13,065 $42,887 $37,205
Earnings per common share - basic $0.50 $0.44 $1.47 $1.26
Earnings per common share - diluted $0.50 $0.44 $1.46 $1.25
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 third quarter of 1999 was
estimated using the following assumptions: dividend growth of 22.4%; expected
life of 10 years; expected volatility of 31.8% and risk-free interest rate of
5.8%. The estimated fair value of the options granted was $8.17 per option.
The fair value of each option granted during the nine month periods
ended on September 30, 1999 and 1998 was estimated using the following
assumptions: weighted dividend growth of 22.3% (1999) and 21.2% (1998); expected
life of 10 years; weighted expected volatility of 33.0% (1999) and 28.6% (1998)
and weighted risk-free interest rate of 5.6% (1999) and 5.4% (1998). The
weighted estimated fair value of the options granted was $8.98 (1999) and $7.87
(1998) per option.
5- DEBT SECURITIES HELD FOR TRADING
At September 30, 1999 and December 31, 1998, there were no securities held
for trading purposes or options on such securities.
The net gain from the sale of trading securities amounted to $75,000
during the nine months ended on September 30, 1999, and $2,364,063 and
$2,614,063 during the three and nine months ended September 30, 1998,
respectively. These earnings were included as trading income. No net revenue
from the sale of trading securities was recorded during the third quarter of
1999.
6 - DEBT SECURITIES
The amortized cost, gross unrealized gains and losses, approximate
market value, taxable equivalent weighted average yield and maturities of debt
securities were as follows:
Debt securities available for sale
Debt securities available for sale
(Dollars in thousands)
September 30, 1999 December 31, 1998
Weighted Weighted
Amortized Unrealized Market Average Amortized Unrealized Market average
cost gains (losses) value yield% cost gains( losses) value yield%
U.S. Treasury Securities:
After 5 to 10 years $39,565 $(3,102) $36,463 4.90
After 10 years 67,446 (6,325) 61,122 5.89
Obligations of other U.S.
Government Agencies:
Within 1 year 193,134 $78 193,213 5.57 $240,040 $ 51 $240,091 5.00
After 10 years 26,986 (3,636) 23,350 8.42 25,619 $(159) 25,460 8.32
Puerto Rico Government
Obligations:
After 10 years 5,328 ___ (252) 5,076 6.98 2,964 96 ____ 3,060 7.18
----------- ----------- ----------- ----------- ------ -----------
Total $332,459 $78 $(13,315) $319,224 5.81 $268,623 $147 $(159) $268,611 5.35
======== === ======== ======== ======== ==== ===== ========
Mortgage backed securities- Federal Home Loan Mortgage Corporation (FHLMC)
certificates:
Within 1 year $ 976 $ (2) $ 974 5.78 $ 4,564 $ 19 $ 4,583 7.84
After 1 to 5 years 1,114 (10) 1,104 8.22 1,001 9 1,010 8.14
After 5 to 10 years 9,936 (170) 9,767 7.04 10,169 149 10,318 7.68
After 10 years 24,340 $106 _____ 24,445 9.42 32,363 802 33,166 9.07
----------- ---- -------- ----------- ------ -------- ----------
36,366 106 (182) 36,290 8.64 48,097 979 49,077 8.64
----------- ----- ------ -------- ----------- ------ ------- ----------
Government National
Mortgage Association
(GNMA) certificates:
After 5 to 10 years 3,759 8 3,767 6.47
After 10 years 1,043,669 1,266 (60,301) 984,634 7.07 1,411,369 9,936 $(357) 1,420,947 6.91
--------- ----- -------- ------- --------- ----- ----- ---------
1,047,428 1,274 (60,301) 988,401 7.07 1,411,369 9,936 (357) 1,420,947 6.91
--------- ------ -------- ------- --------- ----- ------ ---------
Federal National
Mortgage Association
(FNMA) certificates:
Within 1 year 1,040 (4) 1,036 4.96 157 1 158 8.23
After 1 to 5 years 732 3 736 8.89 2,691 30 2,721 8.40
After 5 to 10 years 211 (3) 208 8.16 274 11 285 10.28
After 10 years 11,796 392 (48) 12,139 10.39 14,299 605 (10) 14,894 10.35
----------- ------ ----- -------- -------- ----- ----- ----------
13,779 395 (55) 14,119 9.86 17,421 646 (10) 18,058 10.02
----------- ------ ----- -------- -------- ----- ----- ----------
Mortgage pass through
certificates:
After 10 years 2,478 676 ______ 3,154 9.43 2,764 767 _____ 3,530 9.33
------------- ------ ----------- --------- -------- -----------
Real Estate Mortgage
Interest Conduit:
Within 1 year 359 8 368 17.53
After 1 to 5 years ________ _____ _______ _________ 865 62 927 11.63
------------- --------------------------
Total $1,100,410 $2,459 $(60,538) $1,042,332 7.17 $1,480,516 $12,390 $(367) $1,492,539 7.02
========== ====== ======== ========== ========== ======= ===== ==========
Other Investment:
Within 1 year $ 367 $ (3) $ 364
After 1 to 5 years 4,870 $ 21 (156) 4,736 10.04
After 5 to 10 years 11,771 88 ____ 11,859 8.75 $1,964 $(344) $1,620 15.76
-------- ------ -------- ------ ----- ------
$17,008 $109 $(159) $16,959 8.93 $1,964 $(344) $1,620 15.76
======= ==== ===== ======= ====== ===== ======
Debt securities available for sale
(Dollars in thousands)
September 30, 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 $ (2) $ 498 3.37
After 5 to 10 years $10,000 $ (47) $ 9,953 8.40
After 10 years 82,224 (7,891) 74,333 9.21 23,051 $569 23,620 10.20
Puerto Rico Government
Obligations:
After 10 years 3,536 (78) 2,750 7.52 3,371 204 3,575 7.41
--------- ------- --------- --------- ------------- --------
Total $95,760 $(8,016) $87,036 9.06 $26,922 $ 773 $ (2) $27,693 9.73
======= ======= ======= ======= ===== ==== =======
Mortgage backed securities:
Government National
Mortgage Association
(GNMA) certificates
After 10 years $206,615 $ (3,692)$202,923 8.25
======== ======== ========
Maturities for mortgage backed securities are based upon contractual
terms assuming no repayments. The weighted average yield on debt securities held
for sale is based on amortized cost, therefore it does not give effect to
changes in fair value.
7 - INVESTMENT IN FHLB STOCK
At September 30, 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 September 30, 1999, the Corporation had $5.7 million ($14.3 million
at December 31, 1998) in commercial and real estate loans over $1,000,000
considered impaired with an allowance of $1.1 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 September 30, 1999 and December 31, 1998. The average recorded investment in
impaired loans amounted to $10.0 million for the nine months ended on September
30, 1999 (1998 - $13.0 million). Interest income in the amount of approximately
$267,000 and $675,000 was recognized on impaired loans for the period ended on
September 30, 1999 and 1998, respectively.
9 - LOANS RECEIVABLE
The following is a detail of the loan portfolio:
September 30, December 31,
1999 1998
------------------ --------------
Real estate loans:
Secured by first mortgages:
Residential $ 263,837,438 $ 237,560,711
Insured by government agencies:
Federal Housing Administration and Veterans
Administration 6,510,574 8,185,232
Puerto Rico Housing Bank and Finance Agency 34,239,293 38,515,744
Secured by second mortgages 5,743,045 4,956,196
-------------- ---------------
310,330,350 289,217,883
Deferred loan and commitment fees - net (6,098,468) ( 6,848,311)
--------------- ---------------
Real estate loans 304,231,882 282,369,572
------------- -------------
Construction, land acquisition and land improvements 245,223,949 161,498,219
Undisbursed portion of loans in process (125,891,633) (98,535,025)
------------- --------------
Construction loans 119,332,316 62,963,194
------------- --------------
Commercial loans:
Commercial loans 586,573,243 368,548,532
Commercial mortgage 378,989,771 332,219,186
-------------- --------------
Commercial loans 965,563,014 700,767,718
-------------- --------------
Finance leases 77,976,885 52,214,183
--------------- --------------
Consumer and other loans:
Personal 439,048,800 463,052,946
Personal lines of credit 9,153,557 9,535,354
Auto 524,732,745 512,116,471
Boat 34,443,593 32,208,879
Credit card 165,662,616 125,955,592
Home equity reserve loans 2,666,246 3,385,220
Unearned interest (150,081,510) (145,284,440)
-------------- ---------------
1,025,626,043 1,000,970,022
Agency for International Development 114,513 128,066
----------------- ------------------
Consumer and other loans 1,025,740,556 1,001,098,088
-------------- --------------
Loans receivable 2,492,844,653 2,099,412,756
Loans held for sale 32,532,750 20,641,628
---------------- -----------------
Total loans 2,525,377,403 2,120,054,384
Allowance for loan losses (72,135,828) (67,854,066)
---------------- -----------------
Total loans-net $2,453,241,575 $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 September 30, 1999:
Interest income $47,155 $27,795 $19,525 $94,475
Net (charge) credit for transfer of funds 2,185 9,682 (11,868)
Interest expense (16,094) (31,591) (47,685)
Net interest income 33,246 5,886 7,657 46,790
Provision for loan losses (10,323) (694) (11,017)
Segment income 22,923 5,886 6,963 35,773
Average earning assets $1,511,691 $1,720,446 $883,674 $4,115,811
For the period ended September 30, 1999:
Interest income $133,850 $79,267 $55,756 $268,873
Net (charge) credit for transfer of funds 3,176 28,017 (31,194)
Interest expense (43,584) (87,562) (131,146)
Net interest income 93,442 19,722 24,562 137,727
Provision for loan losses (35,560) (2,207) (37,767)
Segment income 57,882 19,722 22,355 99,960
Average earning assets $1,427,073 $1,682,673 $780,189 $3,889,935
Treasury and Commercial
Retail Investments Corporate Total
For the quarter ended September 30, 1998:
Interest income $43,415 $22,884 $13,332 $79,631
Net (charge) credit for transfer of funds 2,416 4,761 (7,177)
Interest expense (15,347) (24,687) (40,034)
Net interest income 30,484 2,958 6,155 39,597
Provision for loan losses (20,952) (468) (21,420)
Segment income 9,532 2,958 5,687 18,177
Average earning assets $1,373,719 $1,442,970 $529,503 $3,346,192
For the period ended September 30, 1998:
Interest income $132,398 $63,729 $38,302 $234,429
Net (charge) credit for transfer of funds 4,308 16,815 (21,123)
Interest expense (45,024) (68,335) (113,359)
Net interest income 91,682 12,209 17,179 121,070
Provision for loan losses (55,804) (1,283) (57,087)
Segment income 35,878 12,209 15,896 63,983
Average earning assets $1,371,767 $1,328,127 $537,489 $3,237,383
The following table presents a reconciliation of the reportable segment
financial information to the consolidated totals (in thousands):
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
Interest income:
Total interest income for segments $94,475 $79,631 $268,873 $234,429
Interest income credited to expense accounts 216 547
Total consolidated interest income $94,475 $79,847 $268,873 $234,976
Net income:
Total income for segments $35,773 $18,177 $99,960 $63,983
Other income 8,521 18,920 24,215 44,520
Operating expenses (25,884) (23,164) (73,782) (66,800)
Income taxes (2,202) (868) (4,652) (3,578)
Total consolidated net income $16,209 $13,065 $45,741 $38,125
Average assets:
Total average earning assets for segments $4,115,811 $3,346,192 $3,889,935 $3,237,383
Average non earning assets 190,322 174,056 181,718 144,564
Total consolidated average assets $4,306,133 $3,520,248 $4,071,653 $3,381,947
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
SELECTED FINANCIAL DATA
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Condensed income statements (in thousands):
Interest income $94,475 $79,847 $268,874 $234,976
Interest expense 47,686 40,035 131,146 113,362
-------- ------- -------- --------
Net interest income 46,789 39,812 137,727 121,614
Provision for loan losses 11,017 21,420 37,766 57,087
-------- ------- --------- ----------
Net interest income after provision
for loan losses 35,773 18,392 99,961 64,527
Other income 8,481 9,217 22,866 23,134
Gain on sale of investments 40 9,703 1,349 21,386
Other operating expenses 25,884 23,380 73,782 67,344
-------- ------- -------- -------
Net income before income tax expense 18,410 13,932 50,395 41,704
Income tax expense 2,202 868 4,652 3,578
--------- --------- --------- ---------
Net income $16,208 $13,065 $45,743 $38,126
======= ======= ======= =======
Per common share results:
Net income per common share - basic $0.50 $0.44 $1.48 $1.29
Net income per common share - diluted $0.50 $0.44 $1.47 $1.28
Cash dividends declared $0.09 $0.075 $0.27 $0.225
Selected financial ratios (in percent):
Average yield on earning assets (1) 9.13 9.60 9.36 9.94
Cost of interest bearing liabilities 4.94 5.16 4.91 5.12
Interest rate spread (1) 4.19 4.44 4.45 4.82
Net interest margin (1) 4.70 4.97 4.98 5.33
Net income to average total assets 1.51 1.48 1.50 1.50
Net income to average equity 21.02 20.15 20.95 20.42
Net income to average common equity 26.74 20.15 23.89 20.42
Average equity to average total assets 7.16 7.37 7.15 7.36
Dividend payout ratio 17.80 16.99 18.22 17.46
Efficiency ratio (2) 46.83 47.69 45.94 46.52
September 30, December 31,
1999 1998
---- ----
Regulatory Capital Ratios (in percent):
Total Capital to risk weighted assets 17.75 17.39
Tier 1 Capital to risk weighted assets 12.96 11.55
Tier 1 Capital to average assets 7.92 6.59
Balance sheet data (in thousands):
Loans and loans held for sale (net of unearned interest) $2,525,377 $2,120,054
Allowance for possible loan losses 72,136 67,854
Investments 1,718,355 1,800,489
Total assets 4,373,783 4,017,352
Deposits 2,330,314 1,775,045
Borrowings 1,671,476 1,930,488
Total capital 308,013 270,368
Number of full service branches 44 40
Loan origination offices 38 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 September 30, 1999, the Corporation recorded
earnings of $16,208,146 or $0.50 per common share (basic and diluted), a per
share increase of 14% as compared to earnings of $13,064,618 or $0.44 per common
share (basic and diluted) for the third quarter of 1998. Earnings for the nine
months ended on September 30, 1999 amounted to $45,742,874 or $1.48 per common
share (basic) and $1.47 per common share (diluted), as compared to earnings of
$38,126,023 or $1.29 per common share (basic) and $1.28 per common share
(diluted) for the same period of 1998. On a per share basis-diluted, earnings
for the nine months ended on September 30, 1999 increased by 15% as compared to
earnings for the nine months ended on September 30, 1998.
Net Interest Income
Net interest income for the three and nine months ended on September 30,
1999 increased by $7.0 million and $16.1 million, respectively, as compared with
the same periods in 1998; or by $7.6 million and $17.7 million, respectively, on
a taxable equivalent basis. The interest rate spread and net interest margin, on
a taxable equivalent basis, amounted to 4.19% and 4.70%, respectively, for the
third quarter of 1999 as compared to 4.44% and 4.97%, respectively, for the
third quarter of 1998. The interest rate spread and net interest margin, on a
taxable equivalent basis, amounted to 4.45% and 4.98%, respectively, for the
nine months ended on September 30, 1999 as compared to 4.82% and 5.33%,
respectively, for the nine months ended on September 30, 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 September 30,
Interest income (1) /
Average volume Average rate (1) expense
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
(Dollars in Thousands)
Earning assets:
Deposits at banks and other
short-term investments $ 14,277 $ 75,304 $ 138 $ 945 3.83% 4.98%
Government obligations 454,848 302,908 7,012 4,651 6.12% 6.09%
Mortgage backed securities 1,300,171 1,038,405 23,285 19,502 7.11% 7.45%
FHLB stock 17,827 10,271 315 185 7.01% 7.15%
Other investment 9,667 1,961 231 80 9.46% 16.27%
------------- ------------- --------- -----------
Total investments 1,796,789 1,428,849 30,980 25,363 6.84% 7.04%
---------- ---------- -------- ---------
Residential real estate loans 330,821 309,793 8,061 7,365 9.67% 9.43%
Construction loans 113,753 14,525 2,406 413 8.39% 11.28%
Commercial loans 938,913 607,143 20,142 14,258 8.51% 9.32%
Finance leases 72,855 43,509 2,292 1,355 12.48% 12.36%
Consumer loans 1,015,549 1,024,621 34,351 34,238 13.42% 13.26%
---------- ---------- ------- -------
Total loans (2) 2,471,890 1,999,591 67,252 57,629 10.79% 11.43%
----------- ----------- -------- -------
Total earning assets $4,268,680 $3,428,440 $98,232 $82,992 9.13% 9.60%
========== ========== ======= =======
Interest-bearing liabilities:
Deposits 2,120,869 1,492,105 $24,846 $17,782 4.65% 4.73%
Other borrowed funds 1,710,421 1,584,214 22,839 22,214 5.30% 5.56%
FHLB advances 43 2,588 _______ 38 0.00% 5.83%
----------------- -------------- ----------
Total interest-bearing liabilities $3,831,333 $3,078,907 $47,685 $40,034 4.94% 5.16%
=========== ========== ======= =======
Net interest income $50,547 $42,958
======= =======
Interest rate spread 4.19% 4.44%
Net interest margin 4.70% 4.97%
Nine months ended September 30,
Average volume Average rate (1) Interest income (1) /
expense
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
(Dollars in Thousands)
Earning assets:
Deposits at banks and other
short-term investments $ 10,068 $ 29,497 $ 346 $ 1,104 4.59% 5.00%
Government obligations 396,644 351,496 17,595 16,563 5.93% 6.30%
Mortgage backed securities 1,292,108 922,826 69,560 52,975 7.20% 7.68%
FHLB stock 15,612 10,246 798 562 6.83% 7.33%
Other investment 4,552 876 381 106 11.19% 16.24%
------------- -------------- ---------- -----------
Total investments 1,718,985 1,314,941 88,680 71,311 6.90% 7.25%
---------- ---------- -------- ---------
Residential real estate loans 317,813 294,942 23,867 23,094 10.04% 10.47%
Construction loans 84,424 12,031 5,437 944 8.61% 10.49%
Commercial loans 805,969 588,524 53,956 41,630 8.95% 9.46%
Finance leases 64,341 40,895 6,215 4,424 12.91% 14.46%
Consumer loans 1,009,201 1,039,854 101,928 103,222 13.50% 13.27%
---------- ----------- -------- --------
Total loan (2) 2,281,747 1,976,246 191,403 173,314 11.22% 11.73%
----------- ----------- -------- ---------
Total earning assets $4,000,732 $3,291,187 $ 280,083 $244,625 9.36% 9.94%
========== ========== ========= ========
Interest-bearing liabilities:
Deposits $1,842,494 $1,473,852 $ 63,693 $ 52,049 4.62% 4.72%
Other borrowed funds 1,729,546 1,480,072 67,417 61,134 5.21% 5.52%
FHLB advances 1,000 4,134 36 179 4.81% 5.79%
-------------- -------------- ------------- -----------
Total interest-bearing liabilities $3,573,041 $2,958,058 $131,146 $113,362 4.91% 5.12%
========== ========== ======== ========
Net interest income $148,937 $131,263
======== ========
Interest rate spread 4.45% 4.82%
Net interest margin 4.98% 5.33%
(1) On a tax equivalent basis. The tax equivalent yield was computed dividing
the interest rate spread on exempt assets by (1- statutory tax rate) and
adding to it the cost of interest bearing liabilities. When adjusted to a
tax equivalent basis, yields on taxable and exempt assets are comparative.
(2) Non-accruing loans are included in the average balances.
PART II Three months ended on September 30, Nine months ended on September 30,
1999 compared to 1998 1999 compared to 1998
-------------------------------------------- -------------------------------
Variance Variance Variance Variance
due to due to Total due to due to Total
volume rate variance volume rate variance
(In thousands)
Interest income on earning assets:
Deposits at banks and other
short-term investments $ (628) $ (179) $ (807) $ (674) $ (84) $ (758)
Government obligations 2,342 17 2,359 2,070 (1,039) 1,031
Mortgage backed securities 4,778 (1,000) 3,778 20,573 (3,993) 16,580
FHLB stock 134 (4) 130 285 (49) 236
Other investment 181 (92) 89 270 (91) 179
------- ------- ------- -------- -------- ---------
Total investments 6,807 (1,258) 5,549 22,524 (5,256) 17,268
------ ------ ----- ------ ------ -------
Consumer loans (302) 415 113 (3,076) 1,782 (1,294)
Real estate loans 509 187 696 1,758 (985) 773
Construction loans 2,448 (455) 1,993 5,180 (687) 4,493
Commercial loans 7,418 (1,534) 5,884 14,994 (2,668) 12,326
Finance leases 923 14 937 2,405 (614) 1,791
-------- -------- ------ ------- ------- -------
Total loans 10,996 (1,373) 9,623 21,261 (3,172) 18,089
------ ------- ----- ------ ------ ------
Total interest income 17,803 (2,631) 15,172 43,785 (8,428) 35,357
------- ------ ------ ------ ------ ------
Interest expense on interest bearing liabilities:
Deposits 7,379 (315) 7,064 12,881 (1,237) 11,644
Other borrowed funds 1,716 (1,091) 625 10,034 (3,751) 6,283
FHLB advances (19) (19) (38) (117) (26) (143)
-------- -------- ------- -------- -------- -------
Total interest expense 9,076 (1,425) 7,651 22,798 (5,014) 17,784
------- ------- ------- -------- ------- -------
Change in net interest income $8,727 $(1,206) $7,521 $20,987 $(3,414) $17,573
====== ======= ====== ======= ======= =======
Total interest income includes tax equivalent adjustments based on the
Puerto Rico income tax rate of $3.8 million and $11.2 million for the three and
nine months ended on September 30, 1999, and of $3.1 million and $9.6 million
for the three and nine months ended on September 30, 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 $14.6 million and $33.9 million for the
three and nine months ended on September 30, 1999 as compared to the same
periods for 1998. When adjusted to a taxable equivalent basis, interest income
increased by $15.2 million and $35.5 million for the three and nine months ended
on September 30, 1999 as compared to the same periods in 1998. The yield on
earning assets, on a taxable equivalent basis, amounted to 9.13% and 9.60% for
the three months ended on September 30, 1999 and 1998, respectively, and 9.36%
and 9.94% for the nine months ended on September 30, 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 $840.2 million and $709.5 million for the
three and nine months ended on September 30, 1999, respectively, as compared to
the same periods in 1998. Most of the increase in earning assets was recorded on
the investment portfolio. The average volume of total investments increased by
$367.9 million and $404.0 million for the three and nine months period ended on
September 30, 1999 as compared with the same periods 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 $472.3 million and
$305.5 million for the three and nine months ended on September 30, 1999 as
compared with the same periods in 1998, due to an increase in real estate and
commercial loans. Residential real estate, construction loans, commercial loans
and finance leases increased by $22.9 million, $72.4 million, $217.4 million and
$23.4 million, respectively, for the nine months ended on September 30, 1999 as
compared to the same period in 1998, partially offset by a decrease of $30.7
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 $7.7 million and $17.8 million for the
three and nine months ended on September 30, 1999 as compared with the amounts
recorded in the same periods 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 $9.1
million and $22.8 million for the three and nine months ended on September 30,
1999 as compared to the same periods ended on September 30, 1998. The cost of
interest bearing liabilities decreased from 5.16% and 5.12% for the three and
nine months period ended on September 30, 1998 to 4.94% and 4.91% for the three
and nine months period ended on September 30, 1999.
Provision for Loan Losses
For the three and nine months ended on September 30, 1999, the
Corporation provided $11.0 million and $37.8 million, respectively, for possible
loan losses as compared to $21.4 million and $57.1 million, respectively, for
the same periods 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:
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in thousands)
Allowance for loan losses, beginning of period $70,762 $59,578 $67,854 $57,712
Provision for loan losses 11,017 21,420 37,766 57,087
------- --------- ------- ---------
Loans charged-off:
Real estate (1) (29) (41) (164)
Commercial (1,181) (1,168) (2,315)
Consumer (12,876) (13,884) (38,627) (49,576)
Other assets (155) (317) (569) (798)
--------- --------- --------- --------
Total charge-offs (13,032) (15,411) (40,405) (52,854)
------- ------- ------- --------
Recoveries of loans previously charged-off:
Real estate 1
Commercial 210 252 336 605
Consumer 2,346 1,229 5,529 4,082
Other assets 46 33 267 137
Other adjustment 787 787 332
--------- -------- ---------- ---------
Total recoveries 3,389 1,514 6,134 5,156
-------- --------- ---------- --------
Net charge-offs ( 9,643) (13,897) (33,485) (47,698)
------- ------- ------- -------
Allowance for loan losses, end of period $72,136 $67,101 $72,136 $67,101
======= ======= ======= =======
Allowance for loan losses to total loans and loans held for sale2.86% 3.28% 2.86% 3.28%
Net charge-offs annualized to average loans
outstanding during the period (1) 1.56% 2.77% 1.96% 3.13%
(1) The ratio for the nine months ended on September 30, 1998 excludes the
annualization of $5.1 million special one-time write off of personal unsecured
loans in bankruptcy status as a result of the change in policy during the first
quarter of 1998.
Other Income
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
Service charges on deposit accounts $2,310,283 $2,028,851 $6,271,661 $5,944,199
Other fees on loans 3,524,951 2,903,122 9,441,374 8,344,659
Fees on loans serviced for others 193,839 380,270 682,146 1,315,338
Mortgage banking activities (5,796) 5,753
Rental income 665,816 569,326 1,902,523 1,568,542
Other operating income 1,791,694 971,557 4,488,297 3,347,469
----------- ------------ ------------ -------------
Subtotal 8,480,787 6,853,126 22,791,754 20,520,206
Gain on sale of investments 40,297 9,703,028 1,348,583 21,386,097
Trading income ________ 2,364,063 75,000 2,614,063
------------- --------------- -------------
Total $8,521,084 $18,920,217 $24,215,337 $44,520,367
========== =========== =========== ===========
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 $1.6 million and $2.3 million for the three and nine
months ended on September 30, 1999 as compared to the same periods 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 $3.5 million and
$9.4 million for the three and nine months ended on September 30, 1999 from $2.9
million and $8.3 million during the same periods 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 periods
ended on September 30, 1999 as compared to the same periods 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 $40,297 and $1.3 million during the three and
nine months ended September 30, 1999 and $9.7 million and $21.4 million during
the three and nine months ended September 30, 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:
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
------------- --------- ------------ -----------
Employees' compensation and benefits $12,069,042 $11,220,248 $34,637,628 $31,959,419
Occupancy and equipment 5,216,582 4,593,668 14,660,489 12,653,728
Taxes and insurance 1,632,098 1,621,421 4,895,071 5,037,303
Net cost (gain) of operations and
disposition of other real estate owned 14,715 41,455 (285,661) 57,171
Amortization of debt issuance costs 159,701 173,791 471,557 536,843
Professional fees 550,781 269,247 1,607,727 1,033,560
Servicing and processing fees 1,206,360 1,223,073 3,291,018 3,265,854
Communications 1,228,700 1,117,986 3,434,792 3,217,935
Supplies and printing 295,772 310,144 994,467 871,322
Other 3,509,777 2,809,396 10,074,695 8,710,917
------------- ------------- ------------ ------------
Total $25,883,529 $23,380,429 $73,781,783 $67,344,052
=========== =========== =========== ===========
Operating expenses increased to $25.9 million and $73.8 million for the
three and nine months ended September 30, 1999 as compared to $23.4 million and
$67.3 million for the same periods 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% (45.9% and 46.5% for the nine
months period ended on September 30, 1999 and 1998, respectively).
Provision for Income Tax
The provision for income tax amounted to $4.7 million (or 9.23% of
pretax earnings) for the nine months ended on September 30, 1999 as compared to
$3.6 million (or 8.58% of pretax earnings) for the same period in 1998. The
Corporation has effectively reduced the enacted tax rate of 39%, through the
strategy of investing in tax exempt securities.
FINANCIAL CONDITION
Assets
Total assets as of September 30, 1999 amounted to $4,373.8 million, an
increase of $356.4 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 $401.0
million in total loans (net of the allowance).
The composition of loans receivable and loans available for sale after
deducting the allowance for loan losses follows:
September 30, December 31, Increase
1999 1998 (Decrease)
-------------- -------------------- --------
(In thousands)
Residential real estate loans $336,765 $ 303,011 $33,754
Construction and land loans 119,332 62,963 56,369
Commercial loans 965,563 700,768 264,795
Finance leases 77,977 52,214 25,763
Consumer and other loans 1,025,741 1,001,098 24,643
---------- ---------- ----------
Total 2,525,377 2,120,054 405,323
Allowance for loan losses (72,136) (67,854) (4,282)
------------ ------------ ----------
Total net $2,453,242 $2,052,200 $401,042
========== ========== ========
The fluctuation in the loans receivable category was the net result of
total loan origination of $965.9 million and repayments and other adjustments of
$560.6 million. The consumer loans portfolio increased slightly due to the
tightening of the Corporation's underwriting policies in placed since 1997. The
increase in commercial and construction loans responded to the strategy of
emphasizing this line of business and to the acquisition of $90 million in
commercial and construction loans from the operations of Royal Bank in Puerto
Rico.
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 September 30, 1999, total non-performing assets amounted to $71.8
million (1.64% 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
105.6% at September 30, 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:
September 30, December 31,
1999 1998 1997
----------- ---------- --------
(Dollars in thousands)
Past due loans $ 14,233 $ 15,110 $ 11,544
-------- -------- --------
Non-accruing loans:
Residential real estate 9,029 9,151 6,963
Construction 1,065
Commercial 16,566 19,355 16,869
Finance leases 2,455 1,716 4,561
Consumer 24,973 26,736 24,547
--------- -------- --------
54,088 56,958 52,939
--------- -------- --------
Non-performing loans 68,321 72,068 64,483
--------- --------- --------
Other real estate owned (OREO) 485 3,642 1,132
Other repossessed auto 2,458 1,929 7,354
Other repossessed boat 553 348 1,348
---------- ---------- ---------
Total non-performing assets $71,817 $77,987 $74,317
======= ======= =======
Non-performing assets to total assets 1.64% 1.94% 2.23%
Non-performing loans to total loans 2.71% 3.40% 3.29%
Allowance for loan losses $72,136 $67,854 $57,712
Allowance to total non-performing loans 105.58% 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 $9.0 million (2.68% of total
residential real estate loans) at September 30, 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 $1.1 million (.89% of total construction loans) at September 30,
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 $16.6 million (1.72% of total commercial loans) at September 30, 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.
Finance Leases - Finance leases are classified as non-accruing status
when they are delinquent 90 days or more. Non-accruing finance leases amounted
to $2.5 million (3.15% of total finance leases) at September 30, 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 $25.0 million (2.43% of the
total consumer loan portfolio) at September 30, 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 September 30,
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 September 30, 1999, total liabilities amounted to $4,065.8
million, an increase of $318.8 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 $555.3 million; (2) an increase in accounts
payable and other liabilities of $22.5 million; (3) a decrease in advances from
FHLB - NY of $2.6 million; (4) a decrease in federal funds and securities sold
under agreements to repurchase of $181.3 million; (5) a decrease in other short
term borrowings of $36.6 million; (6) a decrease in term notes of $32.6 million;
and (7) a decrease of $5.9 million in subordinated notes.
The Corporation maintains unsecured standby lines of credit with other
banks. At September 30, 1999, the Corporation's total unused lines of credit
with these banks amounted to approximately $113,500,000 (1998 - $69,500,000). At
September 30, 1999, the Corporation has an available line of credit with the
FHLB guaranteed with excess collateral, in the amount of $30,820,062 (1998 -
$20,808,133); and a commercial paper availability collateralized with personal
loans owned by the Corporation in the amount of $103,903,623 (1998 -
$95,254,992).
Capital
Total stockholders' equity as of September 30, 1999 amounted to $308.0
million, increasing by $37.6 million from the amount as of December 31, 1998.
The increase was mainly the result of the net income generated for the period
ended on September 30, 1999 of $45.7 million, the issuance of 3,600,000 shares
of preferred stock at $86.8 million, the issuance of 13,000 shares of common
stock through exercise of stock options at a cost of $176,313, net of a decrease
in the valuation on securities available for sale of $62.3 million, dividends
paid of $10.5 million, and the repurchase of 943,900 shares of common stock at a
total cost of $22.3 million.
The Corporation is subject to various regulatory capital requirements
imposed by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Corporation must meet specific capital guidelines that involve quantitative
measures of the Corporation's assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. The Corporation's
capital amounts and classification are also subject to qualitative judgment by
the regulators about components, risk weightings and other factors.
Capital standards established by regulations require the Corporation to
maintain minimum amounts and ratios of Tier 1 capital to total average assets
(leverage ratio) and ratios of Tier 1 and total capital to risk-weighted assets,
as defined in the regulations. The total amount of risk-weighted assets is
computed by applying risk weighting factors to the Corporation's assets, which
vary from 0% to 100% depending on the nature of the asset.
At September 30, 1999 and December 31, 1998, the Corporation exceeded
the requirements for an adequately capitalized institution.
At September 30, 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
Actual adequacy purposes To be well capitalized
Amount Ratio Amount Ratio Amount Ratio
At September 30, 1999 (Dollars in thousands)
Total Capital (to Risk-Weighted Assets):
First BanCorp $471,369 17.75% $212,446 8% $265,558 10%
FirstBank 399,603 15.16% 210,829 8% 263,536 10%
Tier I Capital (to Risk-Weighted Assets):
First BanCorp 344,236 12.96% 106,223 4% 159,335 6%
FirstBank 272,719 10.35% 105,414 4% 158,122 6%
Tier I Capital (to Average Assets):
First BanCorp 344,236 7.92% 173,817 4% 217,271 5%
FirstBank 272,719 6.31% 172,994 4% 216,242 5%
Regulatory requirements
For capital
Actual adequacy purposes To be 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 September 30, 1999, the Corporation declared
three quarterly cash dividends of $0.09 per common share representing a 20%
increase over the three quarterly cash dividends of $0.075 per common share
declared for the same periods in 1998. Dividends per share were adjusted to
retroactively consider the common stock split declared on April 30, 1998. Total
dividends declared per common share for the period ended on September 30, 1999
amounted to $7.8 million for an annualized dividend payout ratio of 18.22% as
compared to $6.7 million for the period ended September 30, 1998 (or a 17.46%
dividend payout ratio). Dividends declared on preferred stock amounted to
$2,671,875 for the period ended on September 30, 1999.
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 approximately $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 September 30, 1999, a total of $980,000 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 a Project Team. 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.
As of September 1999, the renovation of the Corporation's mission
critical applications such as business applications, data center hardware and
operating systems software, and end-user and desktop computing was 100%
complete.
Unit test and validation of the mission critical applications is also
100% complete. Unit and the second cycle of integration tests of the
Corporation's mission critical applications and their implementation were
completed on September 30, 1999.
The Corporation completed the Organization Planning Guidelines, the
Business Impact Analysis and the Year 2000 Business Resumption Contingency Plan
for all the mission critical functions of the Corporation. The testing and
validation of the plan was also completed.
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
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the 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: November 12, 1999 By: /s/ Angel Alvarez-Perez, Esq.
------------------------------
Angel Alvarez-Perez, Esq.
Chairman, President and Chief
Executive Officer
Date: November 12, 1999 By: /s/ Annie Astor de Carbonell
-----------------------------
Annie Astor de Carbonell
Senior Executive Vice President
and Chief Financial Officer