<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
----------------------------------------
COMMISSION FILE NO. 001-12647
-----------------------------
ORIENTAL FINANCIAL GROUP INC.
-----------------------------
INCORPORATED IN THE COMMONWEALTH OF PUERTO RICO
-----------------------------------------------
IRS EMPLOYER IDENTIFICATION NO. 66-0259436
------------------------------------------
PRINCIPAL EXECUTIVE OFFICES:
----------------------------
68 MUNOZ RIVERA AVENUE
501 HATO REY TOWER
HATO REY, PUERTO RICO 00918
TELEPHONE NUMBER: (787) 766-1986
- --------------------------------------------------------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
COMMON STOCK ($1.00 PAR VALUE)
------------------------------
10,154,358 SHARES OUTSTANDING AS OF SEPTEMBER 30, 1998
------------------------------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports),and (2) has been subject to such filing
requirements for the past 90 days. Yes x No .
----- -----
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PART - 1
- -------------------------------------------------------------------------------
ITEM - 1 FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AT
SEPTEMBER 30, 1998 (UNAUDITED) AND JUNE 30, 1998. 1
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME FOR THE
QUARTER ENDED SEPTEMBER 30, 1998 AND 1997. 2
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE QUARTER ENDED SEPTEMBER 30, 1998 AND 1997. 3
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
QUARTER ENDED SEPTEMBER 30, 1998 AND 1997. 4
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 5-9
ITEM - 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 10-23
PART - 2
- -------------------------------------------------------------------------------
ITEM - 1 LEGAL PROCEEDINGS 23
ITEM - 2 CHANGE IN SECURITIES - NONE 23
ITEM - 3 DEFAULTS UPON SENIOR SECURITIES - NONE 23
ITEM - 4 SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS 23-24
ITEM - 5 OTHER INFORMATION 24
ITEM - 6 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K 24
SIGNATURES 24
</TABLE>
<PAGE>
ORIENTAL FINANCIAL GROUP INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1998 (UNAUDITED) AND JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
- ------------------------------------------------------------------------------
SEP-98 JUN-98
------------ ------------
<S> <C> <C>
Cash and due from banks $ 6,343 $ 8,831
------------ ------------
MONEY MARKET INVESTMENTS:
Securities purchased under agreements to resell 10,513 5,000
Time deposits with other banks - 2,000
Other short-term investments, at cost 2,369 3,658
------------ ------------
TOTAL MONEY MARKET INVESTMENTS 12,882 10,658
------------ ------------
INVESTMENT SECURITIES AND OTHER INVESTMENTS:
Trading securities, at fair value 41,043 42,440
Investment securities available-for-sale, at
fair value 535,975 481,360
Investment securities held-to-maturity, at
amortized cost, with a fair value of
$153,648 at September 30, 1998 and
$164,404 at June 30, 1998 151,002 162,151
Federal Home Loan Bank (FHLB) stock, at cost 10,043 10,043
------------ ------------
TOTAL INVESTMENT SECURITIES AND OTHER
INVESTMENTS 738,063 695,994
------------ ------------
LOANS:
Loans held-for-sale, at lower of cost or market 34,901 36,359
Loans receivable 545,236 514,719
------------ ------------
TOTAL LOANS 580,137 551,078
Allowance for loan losses (5,683) (5,658)
------------ ------------
TOTAL LOANS, NET 574,454 545,420
------------ ------------
Accrued interest receivable 15,541 14,926
Foreclosed real estate, net 316 413
Premises and equipment, net 19,710 19,555
Other assets, net 20,314 15,591
------------ ------------
TOTAL ASSETS $ 1,387,623 $ 1,311,388
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 613,102 $ 571,431
Securities sold under agreements to repurchase 446,394 416,171
Advances and borrowings from Federal Home Loan Bank 60,400 74,800
Term notes and bonds payable 114,500 114,588
Accrued expenses and other liabilities 32,664 27,368
------------ ------------
TOTAL LIABILITIES 1,267,060 1,204,358
------------ ------------
Commitments and contingencies - -
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, no par value; 5,000,000 shares
authorized; none issued Common stock, $1 par
value; 20,000,000 shares authorized;
10,154,358 issued and outstanding at
September 30, 1998 and 10,149,358 issued and
outstanding at June 30, 1998 10,154 10,149
Additional paid-in capital 27,307 27,261
Legal surplus 6,468 5,908
Retained earnings 67,763 63,756
Treasury stock, at cost, 311,700 at
September 30, 1998 and 221,500 shares at
June 30, 1998 (9,555) (6,199)
Accumulated other comprehensive income, net
of taxes 18,426 6,155
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 120,563 107,030
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,387,623 $ 1,311,388
------------ ------------
------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
1
<PAGE>
ORIENTAL FINANCIAL GROUP INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE FIRST QUARTER ENDED ON SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS, EXCEPT FOR PER SHARE INFORMATION)
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
SEPTEMBER 30,
-------------------------
1998 1997
------------ ----------
<S> <C> <C>
INTEREST INCOME:
Loans $ 15,564 $ 14,334
Mortgage-backed securities 6,738 5,246
Investment securities 4,510 3,480
Other interest-earning assets 298 394
------------ ----------
TOTAL INTEREST INCOME 27,110 23,454
------------ ----------
INTEREST EXPENSE:
Deposits 7,271 6,356
Securities sold under agreements to repurchase 5,945 4,025
Other borrowed funds and interest rate risk
management 2,712 3,188
------------ ----------
TOTAL INTEREST EXPENSE 15,928 13,569
------------ ----------
NET INTEREST INCOME 11,182 9,885
Provision for loan losses 2,600 1,300
------------ ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 8,582 8,585
NON-INTEREST INCOME:
Bank service charges and fees 794 1,024
Trust, money management and brokerage fees 2,315 2,148
Mortgage banking activities 794 960
Rent and other operating income 176 186
Gain on sale of investment securities 1,606 111
Trading account income (loss) 49 110
Servicing income - 571
Gain on sale of servicing rights - -
------------ ----------
TOTAL NON-INTEREST INCOME 5,734 5,110
------------ ----------
NON-INTEREST EXPENSES:
Compensation and benefits 3,474 3,897
Occupancy and equipment 1,280 1,130
Professional and service fees 341 339
Advertising and business promotion 560 669
Insurance, including deposits insurance 91 122
Real estate owned expenses 7 30
Communications 345 378
Municipal and other general taxes 429 410
Printing, postage, stationery and supplies 156 169
Other 723 646
------------ ----------
TOTAL NON-INTEREST EXPENSE 7,406 7,790
------------ ----------
INCOME BEFORE INCOME TAXES 6,910 5,905
Provision for income taxes 851 968
------------ ----------
NET INCOME $ 6,059 $ 4,937
------------ ----------
------------ ----------
INCOME PER COMMON SHARE:
Basic $ 0.61 $ 0.50
------------ ----------
------------ ----------
Diluted $ 0.60 $ 0.48
------------ ----------
------------ ----------
ADJUSTED FOR THE 33.3% STOCK SPLIT
DISTRIBUTED IN OCTOBER 15, 1998:
Basic $ 0.46 $ 0.38
------------ ----------
------------ ----------
Diluted $ 0.45 $ 0.36
------------ ----------
------------ ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
2
<PAGE>
ORIENTAL FINANCIAL GROUP INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND OF COMPREHENSIVE INCOME
FOR THE FIRST QUARTER ENDED ON SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CHANGES IN STOCKHOLDERS' EQUITY:
COMMON STOCK:
Balance at beginning of period $ 10,149 $ 7,990
Stock split - 1,912
Stock options exercised 5 64
Common stock repurchased and retired - -
----------- ----------
BALANCE AT END OF PERIOD 10,154 9,966
----------- ----------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of period 27,261 28,631
Stock split - (1,912)
Stock options exercised 46 271
Common stock repurchased and retired - -
----------- ----------
BALANCE AT END OF PERIOD 27,307 26,990
----------- ----------
LEGAL SURPLUS:
Balance at beginning of period 5,908 4,002
Transfer from retained earnings 560 427
----------- ----------
BALANCE AT END OF PERIOD 6,468 4,429
----------- ----------
RETAINED EARNINGS:
Balance at beginning of period 63,756 49,693
Net income 6,059 4,937
Dividends declared and cash paid on
fractional shares (1,492) (1,228)
Transfer to legal surplus (560) (427)
----------- ----------
BALANCE AT END OF PERIOD 67,763 52,975
----------- ----------
TREASURY STOCK:
Balance at beginning of period (6,199) -
Treasury stock purchased (3,356) (1,836)
----------- ----------
BALANCE AT END OF PERIOD (9,555) (1,836)
----------- ----------
ACCUMULATED OTHER COMPREHENSIVE INCOME,
NET OF TAXES:
Balance at beginning of period 6,155 913
Net change in fair value of securities
available-for-sale, net of taxes 12,271 1,319
----------- ----------
BALANCE AT END OF PERIOD 18,426 2,232
----------- ----------
TOTAL STOCKHOLDERS' EQUITY $ 120,563 $ 94,756
----------- ----------
----------- ----------
COMPREHENSIVE INCOME:
NET INCOME $ 6,059 $ 4,937
----------- ----------
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized net gains on securities arising
during the period 13,877 1,430
----------- ----------
Less: reclass adjustment for gains and losses
included in net income (1,606) (111)
----------- ----------
NET CHANGE IN FAIR VALUE OF SECURITIES
AVAILABLE-FOR-SALE, NET OF TAXES 12,271 1,319
----------- ----------
COMPREHENSIVE INCOME $ 18,330 $ 6,256
----------- ----------
----------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
3
<PAGE>
ORIENTAL FINANCIAL GROUP INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FIRST QUARTER ENDED ON SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 6,059 $ 4,937
-------- ---------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of deferred loan origination fees
and costs (1,145) (807)
Amortization of premiums and accretion of
discounts on investment securities 555 219
Depreciation and amortization of premises and
equipment 709 597
Provision for loan losses 2,600 1,300
Gain on sale of available-for-sale securities (1,606) (111)
Gain on sale of loans held-for-sale 35 421
Decrease (increase) in trading securities 1,397 (9,880)
Increase in accrued interest receivable (615) (1,746)
(Increase) decrease in other assets (4,723) 1,713
Increase in accrued expenses and liabilities 6,608 1,784
-------- ---------
TOTAL ADJUSTMENTS 3,915 (6,510)
-------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 9,974 (1,573)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in securities purchased
under agrrements to resell (5,513) 10,541
Purchases of investment securities available-for-sale (75,068) (49,401)
Sales of investment securities available-for-sale 47,935 12,495
Maturities of investment securities available-for-sale 1,186 23,580
Purchases of investment securities held-to-maturity - (36,424)
Maturities and redemptions of investment securities
held-to-maturity 11,027 4,191
Proceeds from sale of loans held-for-sale 6,900 -
Net origination of loans (53,964) (59,111)
Capital expenditures (864) (690)
-------- ---------
NET CASH USED IN INVESTING ACTIVITIES $(68,361) $(94,819)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in:
Deposits 41,671 28,067
Securities sold under agreements to repurchase 30,223 55,731
Borrowings under lines of credit - -
Advances and borrowings from FHLB (14,400) 1,900
Principal payments of bonds payable (88) (124)
Proceeds from exercise of stock options 51 335
Repurchase of common stock and purchases of
treasury stock (3,356) -
Dividends and cash paid on fractional shares (1,491) (1,064)
-------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 52,610 84,845
-------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,777) (11,547)
Cash and cash equivalents at beginning of period 14,489 26,036
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,712 $ 14,489
-------- ---------
-------- ---------
SUPPLEMENTAL DISCLOSURE AND SCHEDULE OF NONCASH ACTIVITIES:
Interest paid $ 15,290 $ 13,200
-------- ---------
Income taxes - -
-------- ---------
Real estate loans securitized into mortgage-backed
securities $ 16,600 $ 38,700
-------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
4
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ORIENTAL FINANCIAL
GROUP INC.
- -------------------------------------------------------------------------------
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION:
Oriental Financial Group (the "Group" or, "Oriental") is a bank holding
company incorporated under the laws of the Commonwealth of Puerto Rico which
provides a wide variety of financial services through its subsidiaries.
Oriental Bank and Trust, the Group's bank subsidiary, is a full-service
commercial bank with its main office located in San Juan, Puerto Rico and
with seventeen branches located throughout the island. The Bank directly or
through its wholly-owned, broker-dealer subsidiary, Oriental Financial
Services Corp., offers mortgage, commercial and consumer lending, auto and
equipment lease financing, financial planning, money management and
investment brokerage services, corporate and individual trust services. The
Bank is subject to the regulations of certain federal and local agencies.
The accounting and reporting policies of Oriental Financial Group (the
"Group", "Oriental") and its subsidiaries conform with generally accepted
accounting principles and with general practices within the banking
industry. The preparation of financial statements with these principles
requires management to make estimates and assumptions that affect the
reported amount of assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
reporting period and, as such, these statements include amounts based on
judgments and estimates made by Management. Actual results could differ from
those estimates.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with 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 June 30, 1998 contained in Oriental's annual
report. Certain reclassifications have been made to the September 30, 1997
and June 30, 1998 consolidated financial statements to conform with the
presentation of the current period consolidated financial statements.
In the opinion of management, such unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position at September
30, 1998 and June 30, 1998 as well as the results of operations and cash
flows for the first quarter ended September 30, 1998 and 1997.
NOTE 2 - STOCK SPLIT
On August 11, 1998, the Group declared a four-for-three (33.3%) stock split
on its 10,052,358 shares of common stock outstanding at September 30, 1998.
As a result, 3,452,932 shares of common stock were issued on October 15,
1998, thus increasing shares to 13,505,290 at such date. The pro-forma effect
of this stock split on income per common share is disclosed in the
Consolidated Statements of Income and on Note 3.
NOTE 3 - INCOME PER COMMON SHARE:
Earnings per share for all periods presented in the Consolidated Statements
of Income are computed in accordance with the provisions of Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"),
which replaces the presentation of primary earnings per share with the
presentation of basic earnings per share and requires the dual presentation
of basic and diluted earnings per share computation on the face of the income
statement for all entities with complex capital structures.
Basic earnings per share excludes potential dilution and is calculated by
dividing net income by the weighted average number of outstanding common
shares. Diluted earnings per share is similar to the computation of basic
earnings per share except that the weighted average common shares are
increased to include the number of additional common shares that would have
been outstanding if the dilutive potential common shares had been issued.
Exercisable stock options outstanding under the Group's stock option plan
were considered in the diluted earnings per share.
Weighted average common shares and potential common stock options outstanding
at September 30, follow:
<TABLE>
<CAPTION>
(IN THOUSANDS) BEFORE 33.3% STOCK SPLIT ADJUSTED FOR 33.3 % SPLIT (*)
-------------- ------------------------ -----------------------------
(IN THOUSANDS) 1998 1997 1998 1997
- -------------- ----------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
AVERAGE COMMON SHARES OUTSTANDING 9,880 9,903 13,170 13,201
AVERAGE POTENTIAL COMMON STOCK OPTIONS 301 325 401 433
------ ------ ------ ------
TOTAL 10,181 10,228 13,571 13,634
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
(*) - DISTRIBUTED IN OCTOBER 15, 1998.
5
<PAGE>
NOTE 4 - INVESTMENT SECURITIES:
Oriental classifies its investments in debt and equity securities into one of
the following three categories:
- - HELD-TO-MATURITY: Debt securities which the Group has the positive intent
and ability to hold to maturity are carried at amortized cost. The Group
may not sell or transfer held-to-maturity securities without calling into
question its intent to hold other debt securities to maturity, unless a
non-recurring or unusual event that could not have been reasonably foreseen
occurs.
- - TRADING: Debt and equity securities that are bought and held principally
for the purpose of selling them in the near term are carried at estimated
fair value with realized and unrealized changes in market value are
included in earnings in the period in which the changes occur. Interest
revenue arising from trading instruments is included in the statement of
income as part of net interest income rather than in the trading profit or
loss account.
- - AVAILABLE-FOR-SALE: Debt and equity securities which may be sold prior to
maturity because of interest rate changes, to meet liquidity needs, or to
better match the repricing characteristics of funding sources are included
in this category. These securities are reported at fair value, with
unrealized gains and losses excluded from earnings and reported net of
deferred taxes as a separate component of stockholders' equity.
The investment in the Federal Home Loan Bank (FHLB) of New York stock has no
readily determinable fair value and can only be sold back to the FHLB at its
par value. Such investment is carried at cost and its redemption value
represents its fair value.
Premiums and discounts are amortized to interest income over the life of the
related securities using the interest method. Net realized gains or losses on
sales of investment securities and unrealized loss valuation adjustments
considered other than temporary, if any, on securities classified as either
available-for-sale or held-to-maturity are reported separately in the statement
of income. Cost of securities is determined on the specific identification
method.
TRADING SECURITIES:
The fair value of trading securities is based on quoted market prices. At
September 30, 1998 and June 30, 1998, the Group's trading portfolio was
comprised primarily of securities collateralized by real estate assets
located in Puerto Rico or issued by U.S. government entities and pass-through
interest only certificates (IO's) with a fair market value of $41,043,000 and
$42,440,000, respectively. The trading portfolio's weighted average yield at
such dates was 7.48% and 7.40%, respectively.
AVAILABLE-FOR-SALE:
The estimated fair value of investment securities available-for-sale is based
on quoted market prices. The amortized cost, estimated fair value, and
weighted average yield of debt and equity securities available-for-sale by
category at September 30, 1998 and June 30, 1998 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) SEPTEMBER 30, 1998 JUNE 30, 1998
----------------------------------------- ----------------------------------------
AVERAGE AVERAGE
AMORTIZED FAIR WEIGHTED AMORTIZED FAIR WEIGHTED
COST VALUE YIELD COST VALUE YIELD
----------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
US GOVERNMENT SECURITIES $219,553 $232,892 6.37% $244,225 $250,219 6.37%
---------- -------- -------- --------- -------- --------
PR GOVERNMENT SECURITIES 24,788 25,182 8.72% 26,074 25,881 8.72%
---------- -------- -------- --------- -------- --------
MORTGAGE-BACKED SECURITIES:
GNMA 61,087 62,926 6.81% 35,517 36,471 7.14%
FNMA 152,004 154,708 6.62% 128,956 129,890 6.74%
FHLMC 59,347 60,201 6.69% 38,317 38,833 6.99%
PASS-THROUGH CERTIFICATES 65 66 7.69% 65 66 7.69%
---------- -------- -------- --------- -------- --------
272,503 277,901 6.68% 202,855 205,260 6.86%
---------- -------- -------- --------- -------- --------
$516,844 $535,975 6.64% $473,154 $481,360 6.71%
---------- -------- -------- --------- -------- --------
---------- -------- -------- --------- -------- --------
</TABLE>
6
<PAGE>
At September 30, 1998, gross unrealized gains and gross unrealized losses
amounted to $19,676,000 and $545,000, respectively. At June 30, 1998, gross
unrealized gains and gross unrealized losses amounted to $8,593,000 and
$387,000, respectively. At September 30, 1998 and June 30, 1998, unrealized
gains on securities available-for-sale of $18,426,000 and $6,155,000,
respectively, net of deferred income taxes of $705,000 and $2,051,000,
respectively, were reported as a separate component of stockholders' equity.
The amortized cost and estimated fair value of available-for-sale securities
at September 30, 1998 and June 30, 1998, by contractual maturity, are shown
in the next table. Expected maturities will differ from contractual
maturities because issuers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
(IN THOUSANDS) SEPTEMBER 30, 1998 JUNE 30, 1998
------------------------ ------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
------------------------ ------------------------
<S> <C> <C> <C> <C>
AFTER ONE YEAR TO FIVE YEARS $ 37,520 $ 38,641 $ 47,537 $ 48,219
AFTER FIVE YEARS TO TEN YEARS 184,147 196,353 188,927 194,173
DUE AFTER TEN YEARS 295,177 300,981 236,690 238,968
-------- -------- -------- --------
$516,844 $535,975 $473,154 $481,360
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Available-for-sale securities in the due after ten years category include an
AAA-rated mortgage-backed Puerto Rico municipal bond with a fair value of
$23,099,000, which commenced paying down principal on August 1, 1994, and is
expected to be fully collected within the next two fiscal years.
Proceeds from the sale of investment securities available-for-sale during the
first quarter of fiscals 1999 and 1998 were $47,935,000 and $12,495,000,
respectively. Gross realized gains and losses on those sales during the first
quarter of fiscal 1999 were $1,606,000 and $0, respectively. These were
$157,000 and $46,000, respectively, in the same period of fiscal 1998.
HELD-TO-MATURITY:
The estimated fair value of investment securities held-to-maturity is based
on quoted market prices. The amortized cost, estimated fair value, and
weighted average yield of debt and equity securities held-to-maturity by
category at September 30, 1998 and June 30, 1998 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) SEPTEMBER 30, 1998 JUNE 30, 1998
---------------------------------------- ---------------------------------------
AVERAGE AVERAGE
AMORTIZED FAIR WEIGHTED AMORTIZED FAIR WEIGHTED
COST VALUE YIELD COST VALUE YIELD
---------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PR GOVERNMENT SECURITIES $ 3,572 $ 3,570 7.40% $ 3,575 $ 3,576 7.40%
-------- -------- ------- -------- -------- --------
MORTGAGE-BACKED SECURITIES:
GNMA 116,059 117,689 6.46% 125,415 126,805 6.80%
FNMA 27,242 28,122 7.25% 28,732 29,453 7.25%
FHLMC 4,129 4,267 7.00% 4,429 4,570 7.00%
-------- -------- ------- -------- -------- --------
147,430 150,648 6.66% 158,576 160,828 6.89%
-------- -------- ------- -------- -------- --------
$151,002 $153,648 6.67% $162,151 $164,404 6.87%
-------- -------- ------- -------- -------- --------
-------- -------- ------- -------- -------- --------
</TABLE>
Gross unrealized gains and gross unrealized losses at September 30, 1998
amounted to $3,043,000 and $397,000, respectively. These amounted to
$2,696,000 and $443,000, respectively, at June 30, 1998.
The amortized cost and estimated fair value of held-to-maturity securities at
September 30, 1998 and June 30, 1998, by contractual maturity, are shown in
the next table. Expected maturities will differ from contractual maturities
because issuers may have the right to call or prepay obligations with or
without call or prepayment penalties.
7
<PAGE>
<TABLE>
<CAPTION>
(IN THOUSANDS) SEPTEMBER 30, 1998 JUNE 30, 1998
----------------------- -------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------------------- --------------------------
<S> <C> <C> <C> <C>
DUE WITHIN ONE YEAR $ 10 $ 10 $ 10 $ 10
AFTER ONE YEAR TO FIVE YEARS 1,041 1,055 1,061 1,074
AFTER FIVE YEARS TO TEN YEARS 7,791 7,938 8,067 8,221
DUE AFTER TEN YEARS 142,160 144,645 153,013 155,099
--------- --------- ---------- ----------
$ 151,002 $ 153,648 $ 162,151 $ 164,404
--------- --------- ---------- ----------
--------- --------- ---------- ----------
</TABLE>
The held-to-maturity securities due after ten years category includes
approximately $55,200,000 of the short end of certain Puerto Rico GNMA
tax-exempt serial certificates with an average expected life of 4 to 6 years.
FEDERAL HOME LOAN BANK STOCK:
At September 30, 1998 and June 30, 1998 there was an investment in Federal
Home Loan Bank (FHLB) of New York stock with a book and fair value of
$10,043,000. The fair value of such investment is its redemption value.
NOTE 5 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES:
The Group's lending activity is with borrowers located in Puerto Rico.
Oriental's loan transactions include a diversified number of industries and
activities such as individuals, sole proprietorships, partnerships,
manufacturing, tourism, government, insurance and not-for-profit
organizations, all of which are encompassed within four main categories:
mortgage, commercial, consumer and leasing. Oriental's loan portfolio has a
higher concentration of loans to consumers such as auto leases, personal
loans, and residential mortgage loans. The composition of the Group's loan
portfolio at September 30, 1998 and June 30, 1998 was as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) SEPTEMBER 30, JUNE 30,
------------- ------------
<S> <C> <C>
LOANS SECURED BY REAL ESTATE:
RESIDENTIAL $266,644 $233,161
COMMERCIAL 6,901 7,007
HOME EQUITY LOANS 2,922 3,184
CONSTRUCTION, LAND ACQUISITION AND
LAND IMPROVEMENTS 661 909
------------- ------------
277,128 245,384
LESS: NET DEFERRED LOAN FEES AND
SERVICING RIGHTS SOLD (2,622) (2,363)
------------- ------------
274,506 241,898
------------- ------------
------------- ------------
OTHER LOANS:
COMMERCIAL LOANS 10,421 9,428
AUTO LOANS 6,184 7,340
PERSONAL LOANS UNSECURED 98,723 92,682
PERSONAL LOANS MORTGAGE COLLATERAL 13,383 13,273
PERSONAL LINES OF CREDIT 9,209 7,126
CASH COLLATERAL AND MARGIN LOANS 2,119 2,764
FINANCING LEASES 157,733 170,525
------------- ------------
297,772 303,138
LESS: UNEARNED INTEREST (27,042) (30,317)
------------- ------------
270,730 272,821
------------- ------------
------------- ------------
LOANS RECEIVABLE 545,236 514,719
ALLOWANCE FOR LOAN LOSSES (5,683) (5,658)
------------- ------------
LOANS RECEIVABLE, NET 539,553 509,061
LOANS HELD-FOR-SALE 34,901 36,359
------------- ------------
TOTAL LOANS, NET $574,454 $545,420
------------- ------------
------------- ------------
</TABLE>
8
<PAGE>
At September 30, 1998 and June 30, 1998 mortgage loans held-for-sale amounted
$34,901,000 and $36,359,000 respectively. All mortgage loans originated and
sold during the first three months of fiscals 1998 and 1997 were sold based
on pre-established commitments or at market values which in both situations
equal or exceeded the carrying value of the loans. Net gains on those sales
during the first quarter of fiscal years 1999 and 1998 were $135,000 and
$421,000, respectively, and are included in the statement of income as part
of mortgage banking activities.
The Group measures impairment of a loan based on the present value of
expected future cash flows discounted at the loan's effective interest rate,
or as a practical expedient, at the observable market price of the loan or
the fair value of the collateral, if the loan is collateral dependent. All
loans are evaluated for impairment, except large groups of small balance,
homogenous loans that are collectively evaluated for impairment, leases and
loans that are recorded at fair value or at the lower of cost or fair value.
The Group measures for impairment all commercial loans and leases over
$250,000. The portfolios of mortgage and consumer loans and auto loans and
leases are considered homogeneous and are evaluated collectively for
impairment. Over 95% of the Group's loan portfolio is composed of smaller
homogenous loans which are evaluated collectively for impairment.
Accordingly, the balance of impaired commercial loans and leases at
September 30, 1998 and 1997 and their average for the first three months of
the fiscal year is not significant.
Refer to Table 15 at page 21 of the management's discussion and analysis of
financial condition and results of operations for the changes in the
allowance for loan losses for the first quarter ended September 30, 1998 and
1997.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- -------------------------------------------------------------------------------
OVERVIEW OF FINANCIAL PERFORMANCE
The Group reported an increase of 23% in net income for the first quarter of
fiscal 1999. The Group's net income for the first quarter ended on September
30, 1998 increased to $6.06 million or $.61 per share (basic) from $4.9
million or $.50 per share (basic) in the same period of fiscal 1998. On a
diluted basis the quarter's earning per share was $.60 versus $.48 in the
same period of fiscal 1998, an increase of 25%. The Group's earnings growth
reflects an increase interest income, driven by a solid growth in
interest-earning assets, combined with a reduction in non-interest expenses.
The Group's profitability ratios for the first quarter of fiscal 1999 reflect
returns of 1.78% on assets (ROA) and 21.28% on stockholder's equity (ROE)
versus 1.71% and 21.19%, respectively, in fiscal 1998. Reflecting
management's strict cost-control policy recurring non-interest expenses for
the first quarter of fiscal 1998 decreased 7% to $7.3 million as compared to
$7.8 million during the same period of fiscal 1998. The efficiency ratio and
the expense ratio for fiscal 1999 improved to 47.69% and 1.02%, respectively,
from 52.52% and 1.11%, respectively, the year before.
Oriental's diversified asset base (excluding mortgage servicing division
which servicing rights were sold on October 1997) experienced a growth of 22%
during the first quarter of fiscal 1999 that contributed to a large extent to
income expansion across its business lines. At September 30, 1998, total
financial assets owned or managed grew to $3.4 billion from the $2.8 billion
owned or managed one year ago. Total financial assets at September 30, 1998,
consisted of $1.39 billion owned by the Bank, $1.3 billion managed by the
trust and $736 million gathered by the broker-dealer.
Net interest income for the first quarter of fiscal 1998 rose 13% to $11.2
million versus $9.9 million reported in the same period of fiscal 1998. The
improvement was achieved through the growth in the Group's loans and
securities portfolios. Average interest-earning assets for the first quarter
of fiscal 1999 reached $1.26 billion an increase of 20% compared with $1.05
billion for the same quarter of fiscal 1998.
For the first quarter of fiscal 1998, trust, money management and brokerage
fees increased by 8% to $2.3 million, compared to $2.1 million in the same
quarter of fiscal 1998. Mortgage banking activities (excluding servicing
income) decreased 17% to $794,000 compared to $960,000 for the same period of
fiscal 1998. Bank services fees and charges and other income amounted to
$970,000 million compared to $1.2 million in fiscal 1998, a decrease of 20%.
The decline was attributable to a decrease in the Group's leasing activity.
The decrease in recurring non-interest income during the first quarter of
fiscal 1999 reflects the fact that on September 21, 1998 the island was
directly hit by Hurricane George which temporarily disrupted our operations.
Operations were back to normal on October 2, 1998.
For the first quarter of fiscal 1999 the Group provided $2.6 million for loan
losses compared with $1.3 million for the same period of fiscal 1998. The
higher provision for fiscal 1998 was primarily due to a response to the rise
in net charge-offs experienced by the Group's consumer and leasing portfolios
and to current and expected economic conditions.
Stockholders' equity at September 30, 1998 totaled $121 million compared to
$95 million the year before, an increase of 27%. The Group continues to be a
"well capitalized" institution, the highest classification available under
the capital standards set by the Federal Deposit Insurance Corporation for
bank or bank holding companies. Total risk-based and leverage capital ratios
as of September 30, 1998 were 20.87% and 7.46%, respectively, which are well
above the minimum capital ratios required by regulatory agencies. As part of
the Group's stock repurchase program, a total number of 90,200 common shares,
all of which are held by the Group's treasury at September 30, 1998, were
repurchased during the first fiscal 1999 quarter.
The following pages discuss in detail the different components that resulted
in the Group's continued profitability.
RESULT OF OPERATIONS
As a diversified financial services provider, the Group's earnings depend not
only on the net interest income generated from its banking activity, but also
from fees and other non-interest income generated from the wide array of
financial services offered. Net interest income, the Group's main source of
earnings, is affected by the difference between rates of interest earned on
the Group's interest-earning assets and rates paid on its interest-bearing
liabilities (interest rate spread) and the relative amounts of its
interest-earning assets and interest-bearing liabilities (interest rate
margin). As further discussed in the Risk Management section, the Group
constantly monitors the composition and repricing of its assets and
liabilities to maintain its net interest income at adequate levels and to
avoid undertaking highly sensitive positions that could affect its earnings
capacity in a volatile interest rate environment. Non-interest income, the
second largest source of earnings, is affected by the level of trust assets
under management, transactions generated by gathering of financial assets by
the broker-dealer subsidiary, the level of mortgage banking activities, and
fees generated from loans and deposit accounts.
10
<PAGE>
SELECTED FINANCIAL DATA
FOR THE FIRST QUARTER ENDED ON SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS, EXCEPT FOR PER SHARE RESULTS)
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
SEPTEMBER 30,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
CONDENSED EARNINGS REPORT:
INTEREST INCOME $ 27,110 $ 23,454
INTEREST EXPENSE 15,928 13,569
---------- ----------
NET INTEREST INCOME 11,182 9,885
PROVISION FOR LOAN LOSSES 2,600 1,300
RECURRING NON-INTEREST INCOME 4,079 4,318
NON-RECURRING NON-INTEREST INCOME 1,655 792
RECURRING NON-INTEREST EXPENSES 7,278 7,790
NON-RECURRING NON-INTEREST EXPENSES 128 -
PROVISION FOR INCOME TAXES 851 968
---------- ----------
NET INCOME $ 6,059 $ 4,937
---------- ----------
INCOME PER SHARE:
BASIC $ 0.61 $ 0.50
---------- ----------
DILUTED $ 0.60 $ 0.48
---------- ----------
DIVIDENDS DECLARED PER SHARE $ 0.15 $ 0.13
---------- ----------
AVERAGE COMMON SHARES OUTSTANDING 9,880 9,903
AVERAGE POTENTIAL COMMON STOCK OPTIONS 301 325
---------- ----------
TOTAL AVERAGES SHARES AND EQUIVALENTS 10,181 10,228
---------- ----------
BOOK VALUE $ 11.86 $ 9.51
---------- ----------
MARKET PRICE AT PERIOD END $ 38.44 $ 28.80
---------- ----------
PERIOD END BALANCES: (SEPTEMBER 30, )
TOTAL BANK ASSETS $1,387,600 $1,161,800
TRUST ASSETS MANAGED 1,292,500 1,104,300
ASSETS GATHERED BY BROKER-DEALER 736,500 543,500
---------- ----------
TOTAL FINANCIAL ASSETS BEFORE SERVICING 3,416,600 2,809,600
LOANS SERVICED TO THIRD PARTIES - 533,300
---------- ---------
TOTAL FINANCIAL ASSETS $3,416,600 $3,342,900
---------- ----------
INVESTMENT AND TRADING SECURITIES $ 750,945 $ 541,071
LOANS AND LOANS HELD-FOR-SALE, NET 574,454 552,542
---------- ----------
INTEREST-EARNING ASSETS $1,325,399 $1,093,613
---------- ----------
DEPOSITS $ 613,102 $ 525,609
REPURCHASE AGREEMENTS 446,394 303,646
BORROWINGS 174,900 206,592
---------- ----------
INTEREST-BEARING LIABILITIES $1,234,396 $1,035,847
---------- ----------
CAPITAL $ 120,563 $ 94,756
---------- ----------
REGULATORY CAPITAL RATIOS (IN PERCENT):
LEVERAGE CAPITAL 7.46% 7.72%
---------- ----------
TOTAL RISK-BASED CAPITAL 20.87% 18.47%
---------- ----------
TIER 1 RISK-BASED CAPITAL 19.79% 17.39%
---------- ----------
SELECTED FINANCIAL RATIOS (IN PERCENT):
RETURN ON AVERAGE EQUITY (ROE) 1.78% 1.71%
---------- ----------
RETURN ON AVERAGE ASSETS (ROA) 21.28% 21.19%
---------- ----------
EFFICIENCY RATIO 47.69% 52.52%
---------- ----------
EXPENSE RATIO 1.02% 1.11%
---------- ----------
AVERAGE EQUITY TO AVERAGE TOTAL ASSETS 8.69% 8.16%
---------- ----------
OTHER INFORMATION:
NUMBER OF BANKING OFFICES 17 16
---------- ----------
</TABLE>
11
<PAGE>
NET INTEREST INCOME
Net interest income for the first quarter fiscal 1999 reached $11.2 million,
13% or $1.3 million higher than the $9.9 million reported in fiscal 1998.
This improvement in net interest income reflects an increase of $1.4 million
due to a higher volume of net interest-earning assets; partially offset by
an unfavorable effect in rate of $98,000, as a result of a reduction of 20
basis points in the interest rate margin. In the first quarter of fiscal
1999, interest rate spread and net interest margin were 3.36% and 3.59%, as
compared to 3.57% and 3.79%, respectively, in fiscal 1998. Based on the
Group's asset/liability structure at September 30, 1998 it is expected that
its spread and margin should improve in the forthcoming months, when it is
anticipated that the interest rates will remain stable or decline.
Table 1 presents a comparative analysis of the net interest income and rates,
excluding income tax effect, for the periods analyzed. It also presents for
the last two years an analysis of the major categories of interest-earning
assets and interest-bearing liabilities and their impact on the net interest
income variances due to (1) changes in volume (changes in volume multiplied
by old rates) and (2) changes in rate (changes in rate multiplied by old
volume). Rate-volume variances (changes in rates multiplied by the changes in
volume) have been proportionally allocated to the changes in volume and
changes in rate based upon their respective percentage of the combined total.
The Group's interest income for the first quarter of fiscal of 1999 increased
by 16% or $3.6 million to $27.1 million from $23.5 million posted in the
first quarter of fiscal 1998. The growth in interest income was driven by a
positive volume variance of $3.9 million due to a larger average volume of
interest-earning assets, offset by a negative rate variance of $277,000
resulting from a reduction of 30 basis points in the interest-earning assets
yield performance.
For the first quarter of fiscal 1999 average interest-earning assets
increased to $1.26 billion compared with $1.05 billion in fiscal 1998, a 20%
increase. The principal contributor to the growth in average interest-earning
assets was a rise of 36% in average investment securities followed by an
increase of 4% in average loans.
This average investment volume growth was fueled by increases in investment
and mortgage-backed securities which volume rose to $405 million and $277
million, respectively, from $293 million and $205 million, respectively, a
year ago. The additional loan volume was another contributor to the rise in
the Group's interest income. This volume growth relates mainly to increases
in the real estate and consumer loans portfolios, which increased to $291
million and $125 million, respectively, from $274 million and $90 million,
respectively, the year before.
The average yield on interest-earning assets for the first quarter of fiscal
1999 was 8.62% or 30 basis points lower than the 8.92% attained in fiscal
1998. The main reason for this reduction was the proportionately higher
increase in the total average investments portfolio, which carries a lower
yield than the loan portfolio but generates a significant amount of
tax-exempt interest which lowers the Group's effective tax rate. The average
yield on investments securities fell to 6.56% or 47 basis points lower than
the 7.03% attained in fiscal 1998, due to a general reduction on market
rates. The yield on loans for fiscal 1999 improved to 11.24%, or 48 basis
points higher than the 10.76% reported in fiscal 1998, mostly due to the
significant growth in average consumer loans, which yield performance
improved to 13.47%, 4 basis points higher than the 13.43% reported in fiscal
1998.
Interest expense for the first quarter fiscal 1999 rose 17% or $2.3 million
to $15.9 million from $13.6 million reported in fiscal 1998. The increase
was driven by a higher volume of interest-bearing liabilities used to fund
the Group's interest-earning assets growth, as previously explained.
Average interest-bearing liabilities for the first quarter of fiscal 1999
reached $1.2 billion versus $1 billion in fiscal 1998, a 20% increase. The
growth in interest-bearing liabilities average volume reflect strong
increases in the average volume of deposits and repurchase agreements which
rose $73 million and $142 million, respectively. In the first quarter of
fiscal 1999 average deposits rose to $581 million from $509 million in fiscal
1998, a 14% increase. IRA accounts were the main contributor to the rise,
increasing $34 million or 43%, followed by certificates of deposits and
savings and demand accounts, which increased by $28 million or 8% and $13 or
13% million, respectively. The average volume of repurchase agreements rose
by 48% to $437 million from $295 million in fiscal 1998. The rise was
necessary to fund the Group's total interest-earning asset growth.
The average cost of funds on interest-bearing liabilities for the first
quarter of fiscal 1999 was 5.26% or 9 basis points lower than the 5.35%
attained in fiscal 1998. This decrease was mostly related to a decline of 8
basis points in the cost of other borrowings, mainly in term notes and FHLB
funds, enhanced by a reduction in the cost of interest-hedging activities
(swaps and caps) of 14 basis points. The overall reduction in cost of funds
was triggered by a favorable lower interest rate scenario.
12
<PAGE>
SPREAD TABLE
TABLE 1 - ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30,
---------------------------------------------------------------------------
INTEREST AVERAGE BALANCE AVERAGE RATE
----------------------- ----------------------- ---------------------
DESCRIPTION 1998 1997 1998 1997 1998 1997
- --------------------------- ---------- ---------- ---------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
REAL ESTATE LOANS (2) $ 7,265 $ 6,493 $ 291,992 $ 273,577 9.95% 9.49%
CONSUMER LOANS 4,242 3,050 124,923 90,099 13.47% 13.43%
COMMERCIAL LOANS 275 293 8,784 9,599 12.52% 12.20%
FINANCING LEASES 3,782 4,498 126,820 158,455 11.92% 11.35%
---------- ---------- ---------- ---------- ------- -------
TOTAL LOANS (1) 15,564 14,334 552,519 531,730 11.24% 10.76%
---------- ---------- ---------- ---------- ------- -------
MORTAGE-BACKED SECURITIES 6,738 5,246 405,595 292,723 6.65% 7.17%
INVESTMENT SECURITIES 4,510 3,480 277,631 204,871 6.50% 6.79%
OTHER INTEREST-EARNING ASSETS 298 394 20,351 20,844 5.72% 7.40%
---------- ---------- ---------- ---------- ------- -------
TOTAL INVESTMENTS 11,546 9,120 703,577 518,438 6.56% 7.03%
---------- ---------- ---------- ---------- ------- -------
TOTAL INTEREST-EARNING ASSETS $ 27,110 $ 23,454 $1,256,096 $1,050,168 8.62% 8.92%
---------- ---------- ---------- ---------- ------- -------
INTEREST-BEARING LIABILITIES:
SAVINGS AND DEMAND ACCOUNTS $ 744 $ 672 $ 114,970 $ 102,270 2.57% 2.61%
CERTIFICATES OF DEPOSIT 4,875 4,481 353,819 328,034 5.47% 5.42%
IRA'S AND ZERO COUPON BONDS 1,652 1,203 112,560 78,477 5.82% 6.08%
---------- ---------- ---------- ---------- ------- -------
TOTAL DEPOSITS 7,271 6,356 581,349 508,781 4.96% 4.96%
---------- ---------- ---------- ---------- ------- -------
REPURCHASE AGREEMENTS 5,945 4,025 436,806 294,823 5.40% 5.42%
LINES OF CREDIT 2 14 - - 0.00% 0.00%
FHLB ADVANCES 796 902 55,508 61,506 5.69% 5.82%
FHLB BORROWINGS 200 398 12,860 25,578 6.18% 6.17%
BONDS PAYABLE 1 11 42 482 10.97% 8.77%
TERM NOTES 1,498 1,518 114,500 114,500 5.19% 5.26%
---------- ---------- ---------- ---------- ------- -------
TOTAL BASIC OTHER BORROWINGS 8,442 6,868 619,716 496,889 5.41% 5.48%
INTEREST RATE RISK MANAGEMENT 215 345 - - 0.14% 0.28%
---------- ---------- ---------- ---------- ------- -------
TOTAL ADJUSTED OTHER BORROWINGS 8,657 7,213 619,716 496,889 5.54% 5.76%
---------- ---------- ---------- ---------- ------- -------
TOTAL INTEREST-BEARING LIABILITIES $ 15,928 $ 13,569 $1,201,065 $1,005,670 5.26% 5.35%
---------- ---------- ---------- ---------- ------- -------
NET INTEREST INCOME $ 11,182 $ 9,885 3.36% 3.57%
---------- ---------- ------- -------
NET INTEREST EARNING ASSETS $ 55,031 $ 44,498
---------- ----------
INTEREST RATE MARGIN 3.59% 3.79%
------- -------
INTEREST-EARNING ASSETS TO INTEREST BEARING
LIABILITIES RATIO 104.58% 104.42%
---------- ----------
</TABLE>
CHANGE IN NET INTEREST INCOME DUE TO VOLUME/RATE:
<TABLE>
<CAPTION>
VOLUME RATE TOTAL
--------- --------- ---------
<S> <C> <C> <C>
INTEREST INCOME
REAL ESTATE LOANS (2) $ 437 $ 335 $ 772
CONSUMER LOANS 1,169 23 1,192
COMMERCIAL LOANS (25) 7 (18)
FINANCING LEASES (898) 182 (716)
-------- ------- -------
TOTAL LOANS (1) 683 547 1,230
-------- ------- -------
MORTAGE-BACKED SECURITIES 2,023 (531) 1,492
INVESTMENT SECURITIES 1,236 (206) 1,030
OTHER INTEREST-EARNING ASSETS (9) (87) (96)
-------- ------- -------
TOTAL INVESTMENTS 3,250 (824) 2,426
-------- ------- -------
TOTAL INTEREST INCOME $ 3,933 $ (277) $ 3,656
-------- ------- -------
INTEREST EXPENSE
SAVINGS AND DEMAND ACCOUNTS $ 83 $ (11) $ 72
CERTIFICATES OF DEPOSIT 349 45 394
IRA'S AND ZERO COUPON BONDS 518 (69) 449
-------- ------- -------
TOTAL DEPOSITS 950 (35) 915
-------- ------- -------
REPURCHASE AGREEMENTS 1,922 (2) 1,920
LINES OF CREDIT - (12) (12)
FHLB ADVANCES (87) (19) (106)
FHLB BORROWINGS (196) (2) (198)
BONDS PAYABLE (10) - (10)
TERM NOTES - (20) (20)
-------- ------- -------
TOTAL BASIC OTHER BORROWINGS 1,629 (55) 1,574
INTEREST RATE RISK MANAGEMENT (41) (89) (130)
-------- ------- -------
TOTAL ADJUSTED OTHER BORROWINGS 1,588 (144) 1,444
-------- ------- -------
TOTAL INTEREST EXPENSE 2,538 (179) 2,359
-------- ------- -------
NET INTEREST INCOME $ 1,395 $ (98) $ 1,297
-------- ------- -------
</TABLE>
NOTES:
(1) - LOANS AVERAGE BALANCES EXCLUDE NON-PERFORMING LOANS.
(2) - REAL ESTATE AVERAGE BALANCES INCLUDE LOANS-HELD-FOR-SALE.
13
<PAGE>
PROVISION FOR LOAN LOSSES
For the first quarter of fiscal 1999 the Group provided $2.6 million for
loan losses, an increase of $1.3 million or 100% as compared to the $1.3
million of fiscal 1998. The higher provision for fiscal 1999 was primarily
due to a response to the significant rise in net charge-offs experienced by
the Group's consumer and leasing portfolios. This increase was mainly due to
a record level of personal bankruptcies experienced in Puerto Rico. Please
refer to the allowance for loan losses and non-performing assets section for
a more detailed analysis of the allowance for loan losses, net charge-offs
and credit quality statistics.
NON-INTEREST INCOME
During the first quarter of fiscal 1999 non-interest income continued to be a
major driver of the Group's earnings improvement as it rose 12% to $5.7
million from $5.1 million in the same period of fiscal 1998, see Table 2.
Recurring non-interest income for the first quarter of fiscal 1999 totaled $4
million, which represents a decrease of 6% from the $4.3 million reported in
the same period of fiscal 1998. However, the ratio of recurring non-interest
income to recurring non-interest expenses improved to 56.05% in fiscal 1999
from 55.43% in the same period fiscal 1998, showing that recurring
non-interest income has become an important contributor to the growth in the
Group's revenues, in line with the Group's business strategy. The decrease
in recurring non-interest income during the first quarter of fiscal 1999
reflects the fact that on September 21, 1998 the island was directly hit by
Hurricane George which temporarily disrupted our operations. Operations were
back to normal on October 2, 1998.
Trust, money management and brokerage fees, the principal component of
recurring non-interest income, reflected strong results during the first
quarter of fiscal 1999. For the first quarter of fiscal 1999 totaled $2.3
million which represents an increase of 8% from the $2.1 million recorded in
the same period the year before. This increase was possible to a larger
volume of accounts and assets managed by the trust department and a
significant growth in the assets gathered by the broker-dealer subsidiary,
see "Financial Condition" section.
Recurring mortgage banking activities, which exclude fees on loans serviced
to third parties, amounted to $794,000 in the first quarter of fiscal 1999,
$166 million or 17% lower than the $960,000 earned in the same period of
fiscal 1998. This net decrease was a combination of a decrease in gains
realized on sale of mortgage loans in the secondary market, partially offset
by a 22% increase in fees generated from servicing assets sold driven by a
greater volume of mortgage originations. The decrease is servicing income is
directly related to the divestiture of mortgage servicing division on October
1997.
Bank services fees and charges, which consist primarily of service charges on
deposit accounts, leasing fees and late charges collected on loans, amounted
to $794,000 for the first quarter fiscal 1999, a decrease of 22% when
compared to the $1 million reported a year earlier. This decrease was a
combination of a decrease in leasing fees, as result of Group's a lower
leasing's lending activity, enhanced by decline in fees on deposit accounts
and other service fees.
Gains on sale of securities were $1.6 million in the first quarter fiscal
1999, a significant increase from the $111,000 reported in the same period of
fiscal 1998. Also, in the first quarter of fiscal 1999 trading activities
reflected profits of $49,000, a decline from the $110,000 realized in fiscal
1998. All securities sales were from the available-for-sale portfolio and
were made in connection with the Group's asset/liability management
activities. Net gains from the sale of investment securities varies from year
to year based on, among other things, the interest rate environment,
alternative investment opportunities and the Group's goals in managing its
available-for-sale portfolio. For further discussion of the Group's
investment securities, see Note 4 of the attached Consolidated Financial
Statements.
NON-INTEREST EXPENSES
As shown on Table 3, recurring non-interest expenses for the first quarter of
fiscal 1999 decreased 7% to $7.3 million, as compared to $7.8 million in the
same period fiscal 1998. The efficiency ratio and the expense ratio for the
first quarter of fiscal 1999 improved to 47.69% and 1.02%, respectively, from
52.52% and 1.11%, respectively, the year before; reflecting management's
strict cost-control policy.
Employee compensation and benefits, the Group's largest expense category,
amounted to $3.5 million for the first quarter of fiscal 1999, a 11% decrease
when compared to the $3.9 million reported in the same period of fiscal 1998.
This decrease was driven by a 10% reduction in Group's personnel as result
of the divestiture of the mortgage servicing department and reengineering of
some of the Group's support departments. Compensation and benefits as a
percentage of total average assets ratio for the first quarter of fiscal 1999
improved to 1.02% versus 1.34% the in the same period of the year before.
Table 4 presents the composition of the Group's employee compensation and
benefits at the end of the periods analyzed. All other recurring non-interest
expenses for fiscal 1999 decreased 2% to $3.8 million as compared to $3.9
million in fiscal 1998 which also reflects the strict cost control policy.
14
<PAGE>
NON-INTEREST INCOME/EXPENSES
ORIENTAL FINANCIAL GROUP
SELECTED FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
SEPTEMBER 30,
---------------------
1998 1997
-------- ---------
<S> <C> <C>
TABLE 2 - NON-INTEREST INCOME SUMMARY
BANK SERVICE FEES AND CHARGES $ 794 $ 1,024
TRUST, MONEY MANAGEMENT AND BROKERAGE FEES 2,315 2,148
RECURRING MORTGAGE BANKING ACTIVITIES 794 960
RENT AND OTHER OPERATING INCOME 176 186
-------- --------
RECURRING NON-INTEREST INCOME 4,079 4,318
-------- --------
NET GAIN ON SALE OF INVESTMENTS 1,606 111
TRADING ACCOUNT INCOME 49 110
FEES FROM MORTGAGE LOANS SERVICED FOR OTHERS, NET - 571
-------- --------
NON RECURRING NON-INTEREST INCOME 1,655 792
-------- --------
TOTAL NON-INTEREST INCOME $ 5,734 $ 5,110
-------- --------
-------- --------
RECURRING NON-INTEREST INCOME TO NON-INTEREST
EXPENSES RATIO 56.05% 55.43%
-------- --------
TABLE 3 - NON-INTEREST EXPENSES SUMMARY
COMPENSATION AND BENEFITS $ 3,474 $ 3,897
OCCUPANCY AND EQUIPMENT 1,280 1,130
PROFESSIONAL FEES 341 339
ADVERTISING AND PROMOTION 560 669
INSURANCE, INCLUDING DEPOSITS INSURANCE 91 122
REAL ESTATE OWNED EXPENSES 7 30
COMMUNICATIONS 345 378
MUNICIPAL AND PROPERTY TAXES 429 410
PRINTING, STATIONERY, POSTAGE AND SUPPLIES 156 169
OTHER OPERATING EXPENSES 595 646
-------- --------
TOTAL RECURRING NON-INTEREST EXPENSES 7,278 7,790
OTHER NON-RECURRING EXPENSES 128 -
-------- --------
TOTAL NON-INTEREST EXPENSES $ 7,406 $ 7,790
-------- --------
-------- --------
RELEVANT RATIOS:
EFFICIENCY RATIO 47.69% 52.52%
-------- --------
EXPENSE RATIO 1.02% 1.11%
-------- --------
TABLE 4 - COMPENSATION AND BENEFITS SUMMARY
FIXED COMPENSATION $ 1,987 $ 2,222
VARIABLE COMPENSATION 1,172 1,305
OTHER COMPENSATION AND BENEFITS 315 370
-------- --------
TOTAL COMPENSATION $ 3,474 $ 3,897
-------- --------
-------- --------
RELEVANT RATIOS:
COMPENSATION TO TOTAL RECURRING NON-INTEREST EXPENSES 47.73% 50.03%
-------- --------
VARIABLE COMPENSATION OF TOTAL COMPENSATION 37.10% 37.00%
-------- --------
COMPENSATION TO TOTAL AVERAGE ASSETS 1.02% 1.34%
-------- --------
AVERAGE COMPENSATION PER EMPLOYEE $ 37.3 $ 37.4
-------- --------
BANK ASSETS PER EMPLOYEE $ 4,205 $ 2,912
-------- --------
GROUP'S WORK FORCE:
BANK STAFF 330 368
TRUST STAFF 24 24
BROKERAGE STAFF 10 7
-------- --------
364 399
-------- --------
AVERAGE # OF FULL TIME EMPLOYEES 373 412
-------- --------
</TABLE>
15
<PAGE>
PROVISION FOR INCOME TAXES
The provision for income taxes for the first quarter of fiscal 1999
amounted to $851,000 million compared with $968,000 million in the first
quarter of fiscal 1998, down 12%. The decrease in fiscal 1999 was primarily
attributable to larger level of tax-exempt interest, partially offset by
higher pre-tax earnings. The effective tax rate for the first quarter fiscals
1999 and 1998 were 12.3% and 16.4%, respectively. The Group has maintained an
effective tax rate lower than the statutory rate of 39% mainly due to
interest income earned on certain investments and loans which are exempt from
income taxes, net of the disallowance of expenses attributable to the exempt
income.
FINANCIAL CONDITION
As shown on Table 5, Oriental's diversified asset base (excluding the
mortgage servicing division which servicing rights were sold on October 1997)
experienced an impressive growth of 22% that contributed to a large extent to
income expansion across its business lines. At september 30, 1998, total
financial assets owned or managed grew to $3.4 billion from the $2.8 billion
owned or managed one year ago. Total financial assets at September 30, 1998,
consisted of $1.39 billion owned by the Bank, $1.3 billion managed by the
trust and $737 million gathered by the broker-dealer. Detailed information
concerning each of the items that comprise the Group's financial assets
managed follows:
GROUP'S OWNED ASSETS
At the end of the first quarter of fiscal 1999 the Bank's total assets
amounted $1.39 billion, an increase of 19% when compared to the $1.16 billion
at the end of the first quarter of fiscal 1998. At the same date,
interest-earning assets reached $1.33 billion, an increase of $240 million or
22% versus the $1.09 billion at the end of the of fiscal 1997. This increase
reflects a significant growth in total investments of $210 million or 39%
combined with a $21 million or 4% increase in loans receivable, which
includes loans held-for-sale and is net of the allowance for loan losses.
Refer to Table 6 for the Bank's assets summary.
Total investments is Oriental's largest interest-earning assets component. It
mainly consists mainly of money market investments, U.S. Treasury notes, U.S.
Government agencies bonds, mortgage-backed securities and P.R. Government
municipal bonds. The investment portfolio is of a high quality, approximately
98% is rated AAA at the end of the first quarter of fiscal 1999, and
generates a significant amount of tax-exempt interest which lowers the
Group's effective tax rate, see Table 7.
The increase of $210 million in investment portfolio was driven by a strong
growth in mortgage-backed securities which grew 46% to $425 million or 57% of
the total portfolio from $291 million or 54% the year before as Oriental
continues its strategy of pooling guaranteed real estate loans into
mortgage-backed securities. Also, debt securities increased 29% to $262
million from $203 million a year ago, contributing to the increase in this
interest-earning asset component. This growth reflects a significant increase
in U.S. government and agency obligations, which generate a higher after-tax
yield, since they are exempt from Puerto Rico taxes. Refer to Table 7 for
the Group's investments summary and composition.
At September 30, 1998, Oriental's loan portfolio, the second largest category
of the Bank's interest-earning assets, amounted to $574 million for an
increase of $22 million or 4% over the $552 million a year ago. This rise
was led by an increase in the consumer portfolio of 30% or $30 million,
followed by real estate loans which increased $27 million or 10%, partially
offset by reductions in lease financing and commercial loans portfolios of
$35 million or 21% and $1.1 million or 11%, respectively. Table 8 presents
the Bank's loan portfolio composition and mix at the end of the periods
analyzed.
At the end of the first quarter of fiscal 1999, the consumer loans portfolio
totaled $129 million or 22% of the Group's loan portfolio, a 30% growth
versus the $99 million or 18% of the Group's loan portfolio a year ago.
Personal loans which amounted to $98 million at the end of fiscal 1998, or
38% over the $71 million reported at the end of fiscal 1997, was the largest
contributor to this growth. The increase in personal loans was mainly
attained through strong marketing efforts and the launching of new products
while controlling credit risk through prudent underwriting standards and
credit scoring system.
The Bank's real estate loans portfolio amounted to $309 million or 53% of the
loan portfolio of the at September 30, 1998, a 10% increase versus $282
million or 51% of the loan's portfolio the year before. The increase was
mostly caused by an increase in originations due to the lower interest rate
environment which increased the demand for mortgage loans for home purchases,
as well as the demand for refinancing existing mortgages.
The Bank's leasing portfolio amounted to $131 million or 23% of the loan
portfolio at the at the end of the first quarter of fiscal 1999, a 15%
decrease versus $166 million or 30% of the loan portfolio a year ago. The
decrease was due to a decline in the volume of originations largely
attributed to the strengthening of the underwriting standards in response to
credit losses experienced during the past year, see Provision for Loan Losses
under Results of Operations.
16
<PAGE>
ASSET TABLE
ORIENTAL FINANCIAL GROUP
SELECTED FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEP-98 SEP-97 JUN-98
------------ ------------- -------------
<S> <C> <C> <C>
TABLE 5 - FINANCIAL ASSETS SUMMARY
TOTAL GROUP ASSETS OWNED $ 1,387,600 $ 1,161,800 $ 1,311,400
TRUST ASSETS MANAGED 1,292,500 1,104,300 1,310,000
ASSETS GATHERED BY BROKER-DEALER 736,500 543,500 741,400
------------ ------------ ------------
TOTAL FINANCIAL ASSETS BEFORE SERVICING 3,416,600 2,809,600 3,362,800
(A) LOANS SERVICED TO THIRD PARTIES - 533,300 -
------------ ------------ ------------
TOTAL FINANCIAL ASSETS $ 3,416,600 $ 3,342,900 $ 3,362,800
------------ ------------ ------------
(A) SERVICING WAS SOLD TO A LOCAL FINANCIAL
INSTITUTION IN OCTOBER 1997.
TABLE 6 - ASSETS OWNED SUMMARY
TOTAL INVESTMENTS $ 750,945 $ 541,071 $ 706,652
TOTAL LOANS, NET 574,454 552,542 545,420
------------ ------------ ------------
INTEREST-EARNING ASSETS 1,325,399 1,093,613 1,252,072
NON INTEREST-EARNING ASSETS 62,224 68,151 59,316
------------ ------------ ------------
TOTAL ASSETS $ 1,387,623 $ 1,161,764 $ 1,311,388
------------ ------------ ------------
</TABLE>
TABLE 7 - INVESTMENTS SUMMARY AND COMPOSITION
<TABLE>
<CAPTION>
% % %
--- --- ---
<S> <C> <C> <C> <C> <C> <C>
TRADING SECURITIES $ 41,043 5.5% $ 31,518 5.8% $ 42,440 6.0%
MORTGAGE-BACKED SECURITIES 425,331 56.6% 291,265 53.8% 363,836 51.5%
INVESTMENT SECURITIES 261,646 34.8% 203,175 37.6% 279,675 39.6%
FHLB STOCK 10,043 1.3% 10,043 1.9% 10,043 1.4%
MONEY MARKET INVESTMENTS 12,882 1.8% 5,070 0.9% 10,658 1.5%
----------- ------- ----------- ------ ----------- -------
TOTAL INVESTMENTS $ 750,945 100.0% $ 541,071 100.0% $ 706,652 100.0%
----------- ------- ----------- ------ ----------- -------
</TABLE>
TABLE 8 - LOANS SUMMARY AND COMPOSITION
<TABLE>
<CAPTION>
% % %
--- --- ---
<S> <C> <C> <C> <C> <C> <C>
REAL ESTATE LOANS $ 309,336 53.3% $ 281,912 50.5% $ 278,256 50.5%
CONSUMER LOANS 129,454 22.3% 98,656 17.7% 122,281 22.2%
COMMERCIAL LOANS 9,900 1.7% 11,129 2.0% 9,428 1.7%
CONSTRUCTION LOANS - 0.0% - 0.0% - 0.0%
FINANCING LEASES 131,447 22.7% 166,299 29.8% 141,113 25.6%
----------- ------- ----------- ------ ----------- -------
TOTAL LOANS AND LOANS HELD FOR SALE 580,137 100.0% 557,996 100.0% 551,078 100.0%
------- ------ -------
ALLOWANCE FOR LOAN LOSSES (5,683) (5,454) (5,658)
----------- ----------- -----------
TOTAL LOANS, NET $ 574,454 $ 552,542 $ 545,420
----------- ----------- -----------
</TABLE>
TABLE 9 - LIABILITIES SUMMARY
<TABLE>
<S> <C> <C> <C>
DEPOSITS $ 613,102 $ 525,609 $ 571,431
REPURCASE AGREEMENTS 446,394 303,646 416,171
OTHER BORROWINGS 174,900 206,592 189,388
----------- ----------- -----------
INTEREST-BEARING LIABILITIES 1,234,396 1,035,847 1,176,990
NON-INTEREST BEARING LIABILITES 32,664 31,161 27,368
----------- ----------- -----------
TOTAL LIABILITIES $1,267,060 $1,067,008 $1,204,358
----------- ----------- -----------
</TABLE>
17
<PAGE>
TOTAL ASSETS MANAGED BY THE TRUST
Total assets managed by the Group's trust increased 17% to $1.3 billion at
the end of fiscal 1998, up from $1.1 billion reported a year ago. The most
significant assets managed are individual retirement accounts (IRA) which
increased to $460 million at the end of the period analyzed from $346
million a year ago. Oriental Trust offers various different type of IRA
products and manages 401(K) and Keogh retirement plans, custodian and
corporate trust accounts.
TOTAL ASSETS GATHERED BY BROKER-DEALER
Total assets gathered by the broker-dealer from its customer investment
accounts increased an impressive 36% to $737 million from $544 million a year
ago. The Group's broker-dealer subsidiary offers a wide array of investment
alternatives to its clients base such as fixed and variable annuities,
tax-advantaged fixed income securities, mutual funds, stocks and bonds.
LIABILITIES
As shown in Table 9, at September 30, 1998, Oriental's total liabilities
reached $1.27 billion, reflecting an increase of $200 million or 19% when
compared to $1.07 billion a year ago. Interest-bearing liabilities, the
Group's sources of funding, amounted to $1.23 billion at the end of the first
quarter of fiscal 1999 versus $1.04 billion the year before, a 21% increase.
This growth was driven by increases in deposits and repurchase agreements of
17% or $87 million and 47% or $143 million, respectively.
Deposits at the end of the first quarter of fiscal 1999, the largest category
of the Group's interest-bearing liabilities and a cost effective source of
funding, reached $613 million, up 17% versus the $526 million a year ago.
This growth was fueled by significant increases in certificate of deposits of
$33 million or 10% and IRA accounts of $35 million or 44% followed by a
growth of $17 million or 16% in savings, demand and NOW accounts. Table 10
presents the composition of the Group's deposits at the end of the periods
analyzed.
In addition to deposits, Oriental has a diversified source of funding through
the use of FHLB advances and borrowings, repurchase agreements, term notes,
notes payable and lines of credit. At September 30, 1998, repurchase
agreements and other borrowings amounted to $446 million and $175 million,
respectively, compared to $303 million and $207 million, respectively, at the
end of the first quarter of fiscal 1998.
The increase in repurchase agreements and other borrowings was necessary to
fund the increase in interest-earning assets, particularly investment
securities, experienced during the period. The increase in other borrowings
was mainly due to increases in advances from the Federal Home Bank of New
York ("FHLB-NY"). The FHLB system functions as a source of credit to
financial institutions which are members of a regional Federal Home Loan
Bank. As a member of the of the FHLB-NY the Group can obtain advances from
the FHLB-NY, secured by the FHLB-NY stock owned by the Group, certain of the
Group's mortgages and other assets. Table 14 presents the composition of the
Group's other borrowings at the end of the periods analyzed.
CAPITAL, STOCK DATA AND DIVIDENDS
At September 30, 1998, Oriental's total capital increased by $26 million or
27% to $121 million, from $95 million a year ago. This increase was mainly
attained through earnings of $22.5 million posted during the past 12 months,
combined with a positive change in the valuation account for investment
securities available-for-sale, partially offset by dividends paid and stock
repurchase.
As authorized by the board of directors, during the first quarter of fiscal
1999 the Group repurchased 90,200 of its common stock at a cost of
$3,356,000. Of a total of 864,050 shares (adjusted for the 33.3% stock split
distributed on October 15, 1998) repurchased up to September 30, 1998,
448,555 shares were retired from circulation, as required by the Puerto Rico
Banking law, in fiscal 1997 and 415,496 shares with a cost of $9,555 million
are held in treasury by the Group.
During fiscal the first quarter of fiscal 1999, the Group declared dividends
amounting to $1.5 million compared to $1.2 million in the same period of
fiscal 1998, an increase of $300,000 or 25%. this represents total dividends
declared per common share of $0.15 for the first quarter of fiscal 1999 and
$0.125 for the same period of fiscal 1998. The Group increased its quarterly
dividend from $0.125 to $.015 per share, a 20% increase, during the third
quarter of fiscal 1998. For the first quarter of fiscal 1999, the dividend
payout ratio and dividend yield were 24.36% and 1.56%, respectively, compared
to 24.9% and 1.78%, respectively, in the preceding fiscal year.
The Group continues to be a "well capitalized" institution, the highest
classification available under the capital standards set by the Federal
Deposit Insurance Corporation. To be in a "well capitalized" position, bank
or bank holding companies must meet or exceed a leverage ratio of 5%, a Tier
1 risk-based capital ratio of 6% and a total risk-based capital ratio of 10%.
At September 30, 1998, the Group had a leverage ratio of 7.46%; a Tier 1
risk-based ratio of 19.79%; and a total risk-based capital ratio of 20.87%
compared to 7.72%, 17.39% and 18.47%, respectively, at the same date in
fiscal 1998.
18
<PAGE>
ORIENTAL FINANCIAL GROUP
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEP-98 SEP-97 JUN-98
--------- -------- --------
TABLE 10 - DEPOSITS SUMMARY AND COMPOSITION
% % %
--- --- ---
<S> <C> <C> <C> <C> <C> <C>
SAVINGS ACCOUNTS $ 78,976 12.9% $ 73,723 14.0% $ 76,523 13.4%
DEMAND AND NOW ACCOUNTS 43,418 7.1% 30,923 5.9% 36,005 6.3%
CERTIFICATES OF DEPOSIT 372,876 60.8% 339,053 64.5% 342,439 59.9%
IRA ACCOUNTS 113,548 18.5% 79,049 15.0% 112,622 19.7%
ACCRUED INTEREST 4,284 0.7% 2,861 0.6% 3,842 0.7%
--------- ------ --------- ------ --------- ------
TOTAL DEPOSITS $ 613,102 100.0% $ 525,609 100.0% $ 571,431 100.0%
--------- ------ --------- ------ --------- ------
DEPOSITS AS % OF TOTAL INTEREST-BEARING
LIABILITES 49.7% 50.7% 48.6%
--------- --------- ---------
</TABLE>
TABLE 11 - OTHER BORROWINGS SUMMARY AND COMPOSITION
<TABLE>
<S> <C> <C> <C>
FHLB FUNDS $ 60,400 $ 91,700 $ 74,800
BONDS PAYABLE - 392 88
TERM NOTES 114,500 114,500 114,500
LINES OF CREDIT - - -
--------- --------- ---------
TOTAL OTHER BORROWINGS $ 174,900 $ 206,592 $ 189,388
--------- --------- ---------
</TABLE>
TABLE 12 - CAPITAL AND DIVIDENDS
<TABLE>
<S> <C> <C> <C>
CAPITAL $ 120,563 $ 94,756 $ 107,030
--------- --------- ---------
OUTSTANDING SHARES (SPLIT ADJUSTED
IN 1997 AND 1996) 10,154 9,987 9,950
--------- --------- ---------
CAPITAL TO ASSETS RATIO 8.69% 8.16% 8.16%
--------- --------- ---------
DIVIDENDS DECLARED $ 1,492 $ 1,228 $ 5,442
--------- --------- ---------
DIVIDEND PER SHARE $ 0.15 $ 0.13 $ 0.55
--------- --------- ---------
</TABLE>
TABLE 13 - CAPITAL REGULATORY RATIOS (IN PERCENT):
<TABLE>
<S> <C> <C> <C>
LEVERAGE CAPITAL ( minimum required - 3.00%) 7.46% 7.72% 7.70%
--------- --------- ---------
TOTAL RISK-BASED CAPITAL (minimum required -
8.00%) 20.87% 18.47% 21.68%
--------- --------- ---------
TIER 1 RISK-BASED CAPITAL (minimum required -
4.00%) 19.79% 17.39% 20.45%
--------- --------- ---------
</TABLE>
TABLE 14 - MARKET PRICES AND STOCK DATA
<TABLE>
<CAPTION>
PRICE INFORMATION:
<S> <C> <C> <C>
CLOSING PRICE $ 38.44 $ 28.80 $ 36.88
--------- --------- ---------
HIGH $ 43.00 $ 29.70 $ 46.13
--------- --------- ---------
LOW $ 36.25 $ 22.60 $ 36.88
--------- --------- ---------
BOOK VALUE $ 11.86 $ 9.51 $ 10.65
--------- --------- ---------
RELEVANT RATIOS:
PAYOUT RATIO 24.36% 24.90% 25.42%
--------- --------- ---------
DIVIDEND YIELD 1.56% 1.78% 1.69%
--------- --------- ---------
</TABLE>
The following provides the high and low prices and dividend per share of the
Group's stock for each quarter of the last three fiscal periods. Common
stock prices were adjusted to give retroactive effect to the stock splits
declared on the Group's common stock.
<TABLE>
<CAPTION>
HIGH LOW DIVIDEND
QUARTER ENDED: PRICE PRICE PER SHARE
-------------------------- --------- --------- ----------
<S> <C> <C> <C>
FISCAL 1999
SEPTEMBER 1998 $ 43.00 $ 38.44 $ 0.150
--------- --------- ---------
FISCAL 1998
JUNE 1998 $ 46.13 $ 36.88 $ 0.150
--------- --------- ---------
MARCH 1998 $ 39.13 $ 33.13 $ 0.150
--------- --------- ---------
DECEMBER1997 $ 31.50 $ 24.50 $ 0.125
--------- --------- ---------
SEPTEMBER 1997 $ 29.70 $ 22.60 $ 0.125
--------- --------- ---------
FISCAL 1997
JUNE 1997 $ 22.60 $ 18.20 $ 0.120
--------- --------- ---------
MARCH 1997 $ 21.60 $ 16.70 $ 0.120
--------- --------- ---------
DECEMBER1996 $ 17.60 $ 14.60 $ 0.100
--------- --------- ---------
SEPTEMBER 1996 $ 13.08 $ 14.60 $ 0.100
--------- --------- ---------
</TABLE>
19
<PAGE>
On August 18, 1998, the Group declared a four-for-three (33.3%) stock split
on its 10,052,358 shares of common stock outstanding at September 30, 1998.
As a result, 3,452,932 shares of common stock were issued on October 15, 1998
thus increasing shares to 13,505,290 at such date.
The Group's common stock is traded in the New York Stock Exchange (NYSE)
under the symbol OFG. Refer to Table 14 for the high, low and closing prices
of the Group's stock for each quarter of the last three fiscal periods. The
price per share on the reported last sale price on the NYSE on September 30,
1988 was $38.44. This represents an increase of 33% from the last sale price
a year ago of $28.80. The book value per share at September 30, 1998, rose
to $11.86 from $9.51 a year earlier.
ALLOWANCE FOR LOAN LOSSES AND NON-PERFORMING ASSETS:
At September 30, 1998, the Group's allowance for loan losses amounted to $5.7
million or .98% of total loans versus $5.4 million or .98% a year earlier.
The Group maintains an allowance for loan losses on its portfolio at a level
that management considers adequate to provide for potential losses based upon
an evaluation of known and inherent risks. Oriental's allowance for loan
losses policy provides for a detailed quarterly analysis of possible losses.
The analysis includes a review of historical loan loss experience, value of
underlying collateral, current economic conditions, financial condition of
borrowers and other pertinent factors.
While management uses available information in estimating possible loan
losses, future additions to the allowance may be necessary based on factors
beyond Oriental's control, such as factors affecting Puerto Rico economic
conditions. In addition, various regulating agencies, as an integral part of
their examination process, periodically review the Group's allowance for loan
losses. Such agencies may require the Group to recognize additions to the
allowance based on their judgment of information available to them at the
time of their examinations.
Net charge-offs for the first quarter of fiscal 1999, totaled $2.6 million or
1.8% of average loans, compared to $1.3 million or 0.91%, respectively, in
the same period of fiscal 1998. The level of net charge-offs recorded in the
first quarter of fiscal 1999 was primarily associated to the losses
experienced in the consumer loans and financing leases portfolios, see
Provision for Loan Losses under Results of Operations. Table 15 sets forth an
analysis of activity in the allowance for loan losses and presents selected
loan loss statistics.
As shown on Table 16, at September 30, 1998 30, 1998, the Group's
non-performing assets consisted of non-performing loans, foreclosed real
estate owned and other repossessed assets. At the end of the first quarter of
fiscal 1999, the Group's non-performing assets reached $20.4 million or
1.47% of total assets, an increase of $700,000 or 4% when compared to the
$19.7 million or 1.69% of total assets a year earlier. However,
non-performing assets to total assets decreased to 1.47% from 1.69%. The
increase was principally due to an increase in non-performing loans. The
increase in non-performing loans was mainly on real estate loans, consisting
primarily of residential mortgage loans well secured by collateral. Detailed
information concerning each of the items that comprise non-performing assets
follows:
- - REAL ESTATE LOANS - Oriental places real estate loans delinquent 90 days
or more in non-accruing status, unless well secured bt real estate
collateral. Non-performing loans in this category are primarily residential
mortgage loans. Based on the value of the underlying collateral and the
loan to value ratios, management considers that no material losses will be
incurred on this portfolio. Real estate loans are charged-off based on the
specific evaluation of the collateral underlying the loan.
- - COMMERCIAL BUSINESS LOANS - Commercial business loans are placed on
non-accrual basis when they become 90 days or more past due. At the date
of our analysis, the Group's non-performing commercial business loans
consisted of eighteen loans amounting to $998,000 (average of $55,450). Of
the total balance, $741,600 or nine loans are guaranteed by real estate.
Commercial loans are charged-off based on the specific evaluation of the
collateral underlying the loan.
- - FINANCE LEASES - Leases are placed on non-accrual status when they become
90 days past due. At the date of our analysis, Oriental's non-performing
leases consisted of three hundred and forty-six auto leases amounting to
$6.1 million (average of $17,600), and three hundred twenty-four equipment
leases amounting to $2.8 million (average of $7,400). Such loans are
particulary secured by the underlying collateral.
- - CONSUMER LOANS - Consumer loans are placed on non-accrual status when they
become 90 days past due. The Group's non-performing consumer loans
consisted of eighty-six loans amounting to $765,000 (Average of $8,895).
- - FORECLOSED REAL ESTATE - Foreclosed real estate is initially recorded at
the lower of the related loan balance or fair value at the date of
foreclosure, any excess of the loan balance over the estimated fair market
value of the property is charged against the allowance for loan losses.
Subsequently, any excess of the carrying value over the estimated fair
market value less disposition cost is charged to operations. Therefore, no
material losses are expected on the final disposition. Management is
actively seeking prospective buyers for these foreclosed real estate
properties.
20
<PAGE>
ORIENTAL FINANCIAL GROUP
SELECTED FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
SEPTEMBER 30,
-------------------------
1998 1997
---------- ----------
TABLE 15 - ALLOWANCE FOR LOAN LOSSES SUMMARY AND LOAN LOSSES STATISTICS
<S> <C> <C>
BALANCE AT BEGINNING OF FISCAL PERIOD $ 5,658 $ 5,408
---------- --------
PROVISION FOR LOAN LOSSES 2,600 1,300
---------- --------
CHARGE-OFFS (3,027) (1,653)
---------- --------
RECOVERIES 452 399
---------- --------
NET CHARGE OFF'S (2,575) (1,254)
---------- --------
BALANCE AT END OF FISCAL PERIOD $ 5,683 $ 5,454
---------- --------
CHARGE-OFFS:
CONSUMER $ (1,586) $ (580)
OVERDRAFT (86) -
REAL ESTATE (2) (61)
AUTO LEASES (1,083) (898)
EQUIPMENT LEASES (220) (85)
COMMERCIAL AND OTHERS (50) (29)
---------- --------
(3,027) (1,653)
---------- --------
RECOVERIES:
CONSUMER 118 76
OVERDRAFT 19 1
REAL ESTATE 16 -
AUTO LEASES 258 217
EQUIPMENT LEASES 24 105
COMMERCIAL AND OTHERS 17 -
---------- --------
452 399
---------- --------
NET CHARGE-OFFS:
CONSUMER (1,468) (504)
OVERDRAFT (67) 1
REAL ESTATE 14 (61)
AUTO LEASES (825) (681)
EQUIPMENT LEASES (196) 20
COMMERCIAL AND OTHERS (33) (29)
---------- --------
$ (2,575) $ (1,254)
---------- --------
LOANS:
OUTSTANDING AT SEPTEMBER 30, $ 580,137 $557,996
---------- --------
AVERAGE $ 571,377 $549,067
---------- --------
RATIOS:
RECOVERIES TO CHARGE-OFF'S 14.9% 24.1%
---------- --------
NET CHARGE-OFFS TO AVERAGE LOANS 1.80% 0.91%
---------- --------
ALLOWANCE FOR LOAN LOSSES TO TOTAL LOANS 0.98% 0.98%
---------- --------
</TABLE>
TABLE 16 - NON-PERFORMING ASSETS ( AT SEPTEMBER 30, )
<TABLE>
<S> <C> <C>
NON-PERFORMING ASSETS:
-REAL ESTATE LOANS $ 8,211 $ 5,258
-CONSUMER LOANS 765 2,593
-COMMERCIAL LOANS 998 944
-CONSTRUCTION LOANS - -
-FINANCING LEASES 8,884 8,542
---------- --------
NON-PERFORMING LOANS 18,858 17,337
FORECLOSED REAL ESTATE 316 779
REPOSSESSED VEHICLES 946 1,091
REPOSSESSED EQUIPMENT 323 465
---------- --------
$ 20,443 $ 19,672
---------- --------
RATIOS:
NON-PERFORMING LOANS TO TOTAL LOANS 3.25% 3.11%
---------- --------
ALLOWANCE TO NON-PERFORMING LOANS 30.14% 31.46%
---------- --------
NON-PERFORMING ASSETS TO TOTAL ASSETS 1.47% 1.69%
---------- --------
NON-PERFORMING ASSETS TO TOTAL CAPITAL 16.96% 20.76%
---------- --------
</TABLE>
21
<PAGE>
- - OTHER REPOSSESSED ASSETS - Other repossessed assets are initially recorded
at estimated net realizable value. Any additional losses on the
disposition of such assets are charged against the allowance for loan
losses at the time of disposition. The estimated loss on disposition of
such assets has been considered in the determination of the allowance for
loan losses. At September 30, 1998, the inventory of repossessed
automobiles consisted of sixty-two units amounting to $946,000 (average of
$15,260) and the inventory of repossessed equipment consisted of
twenty-nine units amounting to $323,000 (Average of $11,140).
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK AND ASSET/LIABILITY MANAGEMENT
The group's interest rate risk and asset/liability management are the
responsibility of the Asset and Liability Management Committee ("ALCO"),
which reports to the Board of Directors and is comprised of members of the
Group's senior management. The principal objective of ALCO is to enhance
profitability while maintaining an appropriate level of interest rate risk.
ALCO is also involved in the formulating economic projections and strategies
used by the Group in its planning and budgeting process; and oversees the
Group's sources, uses and pricing of funds.
Interest rate risk can be defined as the exposure of the Group's operating
results or financial position to adverse movements in market interest rates
which mainly occurs when assets and liabilities reprice at different times
and at different rates. This difference is commonly referred to as a
"maturity mismatch" or "gap". The Group employs various techniques to assess
the degree of interest rate risk.
The Group is liability sensitive due to its fixed rate and medium-term asset
composition being funded with shorter-term repricing liabilities. As a
result, the Group utilizes interest rate swaps and caps as a hedging
mechanism to offset said mismatch and control exposures of interest rate
risk. Under the swaps, the Group pays a fixed annual cost and receives a
floating ninety-day payment based on LIBOR. Floating rate payments received
from the swap counterparty correspond to the floating rate payments made on
the borrowings or notes thus resulting in a net fixed rate cost to the
Group. Interest rate caps provide protection against increases in interest
rates above cap rates.
The Group is exposed to a reduction in the level of Net Interest Income
("NII") in a rising interest rate environment. NII will fluctuate pursuant to
changes in the levels of interest rates and of interest sensitive assets and
liabilities. If (1) the weighted average rates in effect at September 30,
1998 remained constant, or increased or decreased on an instantaneous and
sustained change of plus or minus 200 basis points, and (2) all scheduled
repricing, reinvestments and estimated prepayments, and reissuances are at
such constant, or increased or decrease accordingly; NII will fluctuate as
shown on the table below:
<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------------------------------------------------------------------
CHANGE IN EXPECTED AMOUNT PERCENT
INTEREST RATE NII (1) CHANGE CHANGE
----------------------- ------------------ ---------------- -------------
<S> <C> <C> <C>
Base Scenario $43,495 $ - -
+ 200 Basis Points 38,878 (4,617) -10.62%
- 200 Basis Points 47,446 $ 3,951 9.08%
</TABLE>
NOTE:
- -----
1. The NII Figures showed exclude the effect of the amortization of loan fees.
LIQUIDITY RISK MANAGEMENT
Liquidity refers to the level of cash, eligible investments easily converted
into cash and available lines of credit available to meet unanticipated
requirements. The objective of the Group's liquidity management is to ensure
sufficient cash flow to fund the origination and acquisition of assets, the
repayment of deposit withdrawals and the wholesale borrowings maturities, and
meet operating expenses. Other objectives pursued in the Group's liquidity
management are the diversification of funding sources and the control of
interest rate risk. Management tries to diversify the sources of financing
used by the Group to avoid undue reliance on any particular source.
At the end of the first quarter of fiscal 1999, the Group's liquidity was
deemed appropriate. It included $59.3 million available from unused lines of
credit with other financial institutions and $34.9 million of borrowing
potential with the FHLB. The Group's liquidity position is reviewed and
monitored by the ALCO committee on a regular basis. Management believes that
the Group will continue to maintain adequate liquidity levels in the future.
22
<PAGE>
The Group's principal sources of funds are net deposit inflows, loan
repayments, mortgage-backed and investment securities principal and interest
payments, reverse repurchase agreements, FHLB advances and other borrowings.
The Group has obtained long-term funding through the issuance of notes and
long-term reverse repurchase agreements. The Group's principal uses of funds
are the origination and purchase of loans, the purchase of mortgage-backed
and investment securities, the repayment of maturing deposits and borrowings.
YEAR 2000 COMPLIANCE
The Group has a Year 2000 compliance committee that consists of senior
management, MIS and internal audit personnel and two outside consultants.
This committee has organized a contingency plan to identify and correct all
of the Group's computer applications and softwares that were designed and
develop without considering the impact of the upcoming change in the century.
The committee determined that all of the Group's systems are Year 2000
compliant with the exception of a portion of the trust (expected June 1999)
and the broker-dealer (expected December 1999). The Group began its testing
to insure compliance in May 1998.
The process is well under way and management estimates that the costs of
addressing the Year 2000 issues will not exceed $2.5 million. Most of this
cost first relates to the purchase of equipment and software, the cost of
which will be amortized over the useful life of the investment, and to the
assignment of internal staff rather than hiring of outside consultants or
additional staff. Management therefore does not anticipate a material impact
to the Group's results of operations or financial position.
PART - 2
ITEM 1. LEGAL PROCEEDINGS
The Group and its subsidiaries are defendants in a number of legal claims
under various theories of damages arising out of, and incidental to its
business. The Group is vigorously contesting those claims. Based upon a
review with legal counsel and the development of these matters to date,
management is of the opinion that the ultimate aggregate liability, if any,
resulting from these claims will not have a material adverse effect on the
Group's financial position or the result of operations.
ITEM 2. CHANGES IN SECURITIES - NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
On October 26, 1998, the annual stockholders meeting of the Bank was held.
A quorum was obtained with 9,372,023 votes in person or by proxy, which
represented 94.8% of all votes eligible to be cast. The following proposals
were voted upon at the meeting with the following results:
- - PROPOSAL 1: To elect two directors to three-year terms expiring with the
2001 Annual Meeting or until their successors have been elected and
qualified.
<TABLE>
<CAPTION>
NOMINEES FOR THREE-YEAR TERM VOTES FOR VOTES AGAINST VOTES WITHHOLD
- ---------------------------- ------------------- ------------- --------------
<S> <C> <C> <C>
EMILIO RODRIGUEZ, JR. 9,339,478 - (94.5%) - 32,545
ALBERTO RICHA 9,339,478 - (94.5%) - 32,545
</TABLE>
- - PROPOSAL 2 : To consider and approve the adoption of the Oriental Financial
Group "1998 Incentive Stock Option Plan", which would, upon approval,
reserve the issuance 750,000 shares of the Group's common stock, $1.00 par
value, or approximately 5.7% of the Group's issued and outstanding common
stock as of the voting date of September 10, 1998 (taking into
consideration the effect of a four-for-three stock split payable on
October 15, 1998 to stockholders of record as of september 30, 1998), for
issuance pursuant to the terms thereof.
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTAIN VOTES WITHHOLD
----------------- ------------- ------------- ---------------
<S> <C> <C> <C>
5,095,879 - (52%) 510,407 4,218 -
</TABLE>
23
<PAGE>
- - PROPOSAL 3 : To amend Article Fourth of Incorporation of the Group to
increase the authorized number of shares of common stock, par value
$1.00 per share, from 20,000,000 to 40,000,000.
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTAIN VOTES WITHHOLD
------------------ ------------- ------------ --------------
<S> <C> <C> <C>
8,950,794 - (91%) 415,249 5,979 -
</TABLE>
- - PROPOSAL 4: Ratify the appointment of Pricewaterhouse Coopers LLP as
the Group's independent auditors for the year ending June 30, 1999.
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTAIN VOTES WITHHOLD
------------------ ------------- ------------ --------------
<S> <C> <C> <C>
9,341,132 - (94%) 21,639 9,252 -
</TABLE>
ITEM 5. OTHER INFORMATION - NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A- FINANCIAL STATEMENTS SCHEDULES
No schedules are presented because the information is not applicable or is
included in the Consolidated Financial Statements or in the notes thereto
described in 6(c) below.
B - REPORTS ON FORM 8-K
No current reports on Form 8-K were filed with the Securities and Exchange
commission during the quarter ended September 30,1998.
C - EXHIBITS
Exhibits filed as part of this Form 10-Q
<TABLE>
<CAPTION>
NO. EXHIBITS PAGE
- --------------- --------------------------------- --------------
<S> <C> <C>
27.0 FINANCIAL DATA SCHEDULE E-1
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ORIENTAL FINANCIAL GROUP INC.
Date: November 11, 1998 By: /s/ Jose E. Fernandez
----------------- -----------------------
Jose E. Fernandez
Chairman of the Board, President, and CEO
Date: November 11, 1998 By: /s/ Rafael Valladares
----------------- -----------------------
Rafael Valladares, CPA
Senior Vice President and Controller
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 8,831
<INT-BEARING-DEPOSITS> 2,000
<FED-FUNDS-SOLD> 5,000
<TRADING-ASSETS> 42,440
<INVESTMENTS-HELD-FOR-SALE> 481,360
<INVESTMENTS-CARRYING> 162,151
<INVESTMENTS-MARKET> 164,404
<LOANS> 551,078
<ALLOWANCE> 5,658
<TOTAL-ASSETS> 1,311,388
<DEPOSITS> 571,431
<SHORT-TERM> 490,971
<LIABILITIES-OTHER> 27,368
<LONG-TERM> 114,588
0
0
<COMMON> 10,047
<OTHER-SE> 96,983
<TOTAL-LIABILITIES-AND-EQUITY> 1,311,388
<INTEREST-LOAN> 60,654
<INTEREST-INVEST> 39,737
<INTEREST-OTHER> 1,189
<INTEREST-TOTAL> 101,580
<INTEREST-DEPOSIT> 26,197
<INTEREST-EXPENSE> 58,139
<INTEREST-INCOME-NET> 43,441
<LOAN-LOSSES> 9,545
<SECURITIES-GAINS> 1,945
<EXPENSE-OTHER> 31,281
<INCOME-PRETAX> 25,260
<INCOME-PRE-EXTRAORDINARY> 25,260
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,410
<EPS-PRIMARY> 2.15
<EPS-DILUTED> 2.08
<YIELD-ACTUAL> 3.57
<LOANS-NON> 15,895
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,408
<CHARGE-OFFS> (11,484)
<RECOVERIES> 2,189
<ALLOWANCE-CLOSE> 5,658
<ALLOWANCE-DOMESTIC> 5,658
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
