<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 MARCH 31, 1999
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:
268 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)
13,624,834 SHARES OUTSTANDING AS OF MARCH 31, 1999
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>
<CAPTION>
TABLE OF CONTENTS
PAGE
- ----------------------------------------------------------------------------------------------------------------------------
PART - 1
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Item - 1 FINANCIAL STATEMENTS
Consolidated statements of Financial condition at March 31,
1999 (unaudited) and June 30, 1998. 1
Unaudited consolidated statements of income for the quarter
and nine months period ended March 31, 1999 and 1998. 2
Unaudited consolidated statements of stockholders' equity and
comprehensive income for the nine months period ended
March 31, 1999 and 1998. 3
Unaudited consolidated statements of cash flows for the
nine months period ended March 31, 1999 and 1998. 4
Notes to unaudited consolidated financial statements 5-8
Item - 2 Management's discussion and analysis of financial condition
and results of operations 9-23
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 - None 23
Item - 5 Other Information 23
Item - 6 Exhibits, Financial Statement Schedules, and Reports on Form 8-K
23
Signatures 23
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1999 (UNAUDITED) AND JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
- ---------------------------------------------------------------------------------------------------------------------------------
March 31, 1999 June 30, 1998
-------------------------- -------------------
<S> <C> <C>
Cash and due from banks $ 9,816 $ 8,831
-------------------------- -------------------
INVESTMENTS AND SECURITIES:
Money market investments 3,978 10,658
Trading securities, at fair value 34,831 42,440
Investment securities available-for-sale, at fair value 732,131 481,360
Investment securities held-to-maturity, at cost, with a fair value of
$113,218 at March 31, 1999 and $164,404 at June 30, 1998 111,533 162,151
Federal Home Loan Bank (FHLB) stock, at cost 13,257 10,043
-------------------------- -------------------
TOTAL INVESTMENTS AND SECURITIES 895,730 706,652
-------------------------- -------------------
LOANS:
Loans held-for-sale, at lower of cost or market 47,872 36,359
Loans receivable, net 521,976 509,061
-------------------------- -------------------
TOTAL LOANS, NET 569,848 545,420
-------------------------- -------------------
Accrued interest receivable 16,554 14,926
Foreclosed real estate, net 316 413
Premises and equipment, net 21,322 19,555
Other assets, net 18,870 15,591
-------------------------- -------------------
TOTAL ASSETS $ 1,532,456 $ 1,311,388
-------------------------- -------------------
-------------------------- -------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
DEPOSITS:
Savings and demand $ 146,087 $ 112,533
Time and IRA accounts 487,632 455,061
Accrued interest 5,291 3,837
-------------------------- -------------------
TOTAL DEPOSITS 639,010 571,431
-------------------------- -------------------
BORROWINGS:
Securities sold under agreements to repurchase 581,520 416,171
Advances and borrowings from Federal Home Loan Bank 61,600 74,800
Term notes and other short-term borrowings 106,500 114,588
-------------------------- -------------------
TOTAL BORROWINGS 749,620 605,559
-------------------------- -------------------
Accrued expenses and other liabilities 38,849 27,368
-------------------------- -------------------
TOTAL LIABILITIES 1,427,479 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; 13,624,834
and 10,149,358 shares issued and outstanding, respectively 13,625 10,149
Additional paid-in capital 24,170 27,261
Legal surplus 8,630 5,908
Retained earnings 74,640 63,756
Treasury stock, at cost, 555,486 and 221,500 shares, respectively (13,710) (6,199)
Accumulated other comprehensive income, net of taxes (2,378) 6,155
-------------------------- -------------------
TOTAL STOCKHOLDERS' EQUITY 104,977 107,030
-------------------------- -------------------
Total liabilities and stockholders' equity $ 1,532,456 $ 1,311,388
-------------------------- -------------------
-------------------------- -------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
1
<PAGE>
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE QUARTER AND NINE MONTHS PERIOD ENDED ON MARCH 31, 1999 AND 1998
(IN THOUSANDS, EXCEPT FOR PER SHARE INFORMATION)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
----------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
INTEREST INCOME:
Loans $ 15,853 $ 15,432
Mortgage-backed securities and collateralized mortgage obligations 10,451 6,107
Investment securities 2,881 4,277
Money market investments and FHLB stock 329 263
------------------ ------------------
TOTAL INTEREST INCOME 29,514 26,079
------------------ ------------------
INTEREST EXPENSE:
Deposits 7,091 6,425
Securities sold under agreements to repurchase 6,793 5,192
Other borrowed funds and interest rate risk management 2,433 3,182
------------------ ------------------
TOTAL INTEREST EXPENSE 16,317 14,799
------------------ ------------------
NET INTEREST INCOME 13,197 11,280
------------------ ------------------
Provision for loan losses 3,200 1,900
------------------ ------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 9,997 9,380
------------------ ------------------
NON-INTEREST INCOME:
Trust, money management and brokerage fees 2,440 2,021
Mortgage banking activities 726 985
Bank service charges and fees and other operating income 842 1,088
Gain on sale of investment securities 2,017 210
Trading net activity (68) 139
Servicing income - -
Gain on sale of servicing assets - -
------------------ ------------------
TOTAL NON-INTEREST INCOME 5,957 4,443
------------------ ------------------
NON-INTEREST EXPENSES:
Compensation and benefits 3,776 3,629
Occupancy and equipment 1,245 1,167
Professional and service fees 581 290
Advertising and business promotion 846 695
Insurance, including deposits insurance 120 238
Communications 349 326
Municipal and other general taxes 427 405
Printing, postage, stationery and supplies 204 161
Other 713 649
------------------ ------------------
TOTAL NON-INTEREST EXPENSE 8,261 7,560
------------------ ------------------
INCOME BEFORE INCOME TAXES 7,693 6,263
Provision for income taxes 1,070 825
------------------ ------------------
NET INCOME $ 6,623 $ 5,438
------------------- -----------------
------------------- -----------------
INCOME PER COMMON SHARE:
Basic $ 0.51 $ 0.41
------------------ ------------------
Diluted $ 0.50 $ 0.40
------------------ ------------------
Average shares outstanding 13,034 13,282
Average shares equivalents 325 443
------------------ ------------------
13,359 13,725
------------------ ------------------
<CAPTION>
NINE MONTHS PERIOD ENDED
MARCH 31,
---------------------------------------
1999 1998
------------------- -----------------
<S> <C> <C>
INTEREST INCOME:
Loans $ 46,648 $ 44,968
Mortgage-backed securities and collateralized mortgage obligations 25,781 17,142
Investment securities 10,992 11,381
Money market investments and FHLB stock 965 919
------------------- -----------------
TOTAL INTEREST INCOME 84,386 74,410
------------------- -----------------
INTEREST EXPENSE:
Deposits 21,632 19,177
Securities sold under agreements to repurchase 19,036 13,747
Other borrowed funds and interest rate risk management 7,637 9,829
------------------- -----------------
TOTAL INTEREST EXPENSE 48,305 42,753
------------------- -----------------
NET INTEREST INCOME 36,081 31,657
------------------- -----------------
Provision for loan losses 12,950 6,900
------------------- -----------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 23,131 24,757
------------------- -----------------
NON-INTEREST INCOME:
Trust, money management and brokerage fees 7,035 6,034
Mortgage banking activities 2,759 2,584
Bank service charges and fees and other operating income 2,725 3,454
Gain on sale of investment securities 10,464 586
Trading net activity 1 307
Servicing income - 690
Gain on sale of servicing assets - 2,707
------------------- -----------------
TOTAL NON-INTEREST INCOME 22,984 16,362
------------------- -----------------
NON-INTEREST EXPENSES:
Compensation and benefits 11,049 11,260
Occupancy and equipment 3,671 3,441
Professional and service fees 1,576 943
Advertising and business promotion 2,108 1,830
Insurance, including deposits insurance 313 625
Communications 1,123 1,031
Municipal and other general taxes 1,284 1,226
Printing, postage, stationery and supplies 562 493
Other 2,175 2,029
------------------- -----------------
TOTAL NON-INTEREST EXPENSE 23,861 22,878
------------------- -----------------
INCOME BEFORE INCOME TAXES 22,254 18,241
Provision for income taxes 3,205 2,650
------------------- -----------------
NET INCOME $ 19,049 $ 15,591
------------------- -----------------
------------------- -----------------
INCOME PER COMMON SHARE:
Basic $ 1.46 $ 1.18
------------------- -----------------
Diluted $ 1.42 $ 1.14
------------------- -----------------
Average shares outstanding 13,095 13,249
Average shares equivalents 373 448
------------------- -----------------
13,468 13,697
------------------- -----------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
2
<PAGE>
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY AND OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS PERIOD ENDED ON MARCH 31, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
--------------- ------------
CHANGES IN STOCKHOLDERS' EQUITY:
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK:
Balance at beginning of period $ 10,149 $ 7,990
Stock split 3,385 1,912
Stock options exercised 91 102
--------------- ------------
BALANCE AT END OF PERIOD 13,625 10,004
--------------- ------------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of period 27,261 28,631
Stock split (3,385) (1,912)
Stock options exercised 294 407
--------------- ------------
BALANCE AT END OF PERIOD 24,170 27,126
--------------- ------------
LEGAL SURPLUS:
Balance at beginning of period 5,908 4,002
Transfer from retained earnings 2,722 1,382
--------------- ------------
BALANCE AT END OF PERIOD 8,630 5,384
--------------- ------------
RETAINED EARNINGS:
Balance at beginning of period 63,756 49,694
Net income 19,049 15,591
Dividends declared and cash paid on fractional shares (5,443) (3,956)
Transfer to legal surplus (2,722) (1,382)
--------------- ------------
BALANCE AT END OF PERIOD 74,640 59,947
--------------- ------------
TREASURY STOCK:
Balance at beginning of period (6,199) -
Treasury stock purchased (7,511) (1,836)
--------------- ------------
BALANCE AT END OF PERIOD (13,710) (3,227)
--------------- ------------
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 (8,533) 1,319
--------------- ------------
BALANCE AT END OF PERIOD (2,378) 4,733
--------------- ------------
TOTAL STOCKHOLDERS' EQUITY $ 104,977 $ 103,967
--------------- ------------
--------------- ------------
COMPREHENSIVE INCOME:
- ------------------------------------------------------------------------------------------------------------------
NET INCOME $ 19,049 $ 15,591
--------------- ------------
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized net gains on securities arising during the period 1,931 1,905
Less: reclass adjustment for gains and losses included in net income (10,464) (586)
--------------- ------------
NET CHANGE IN FAIR VALUE OF SECURITIES AVAILABLE-FOR-SALE, NET OF TAXES (8,533) 1,319
--------------- ------------
COMPREHENSIVE INCOME $ 10,516 $ 16,910
--------------- ------------
--------------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS PERIOD ENDED ON MARCH 31, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
--------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 19,049 $ 15,591
--------------- -------------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Amortization of deferred loan origination fees and costs (3,994) (2,764)
Amortization of premiums and accretion of discounts on investment securities 1,602 761
Depreciation and amortization of premises and equipment 2,087 1,815
Provision for loan losses 12,950 6,900
Gain on sale of investment securities available-for-sale (10,464) (586)
Gain on sale of servicing assets - (2,707)
Gain on sale of loans held-for-sale (471) (1,005)
Decrease in trading securities 7,609 1,095
Increase in accrued interest receivable (1,628) (2,394)
Increase in other assets (3,182) (2,652)
Increase in accrued expenses and other liabilities 12,232 1,128
--------------- -------------
TOTAL ADJUSTMENTS 16,741 (409)
--------------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 35,790 15,182
--------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities available-for-sale (475,246) (181,806)
Sales of investment securities available-for-sale 242,121 31,103
Maturities of investment securities available-for-sale 21,670 23,580
Purchases of investment securities held-to-maturity - (914)
Maturities and redemptions of investment securities held-to-maturity 50,406 12,175
Increase in Federal Home Loan Bank of New York stock (3,214) -
Proceeds from sale of loans held-for-sale 90,586 32,504
Proceeds from sale of servicing assets - 11,855
Net origination of loans (164,111) (136,110)
Capital expenditures (3,854) (1,895)
--------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (241,642) (209,508)
--------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in:
Deposits 67,579 53,941
Securities sold under agreements to repurchase 165,349 132,842
Advances and borrowings from FHLB (13,200) (10,800)
Repayments of term notes and other short-term borrowings (8,088) (367)
Proceeds from exercise of stock options 385 509
Treasury stock acquired (7,511) (1,391)
Dividends and cash paid on fractional shares (4,357) (3,702)
--------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 200,157 171,032
--------------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,695) (23,294)
Cash and cash equivalents at beginning of period 19,489 41,036
--------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,794 $ 17,742
--------------- -------------
--------------- -------------
CASH AND CASH EQUIVALENTS INCLUDE:
Cash and due from banks $ 9,816 $ 13,194
Money market investments 3,978 4,548
--------------- -------------
$ 13,794 $ 17,742
--------------- -------------
SUPPLEMENTAL DISCLOSURE AND SCHEDULE OF NONCASH ACTIVITIES:
Interest paid $ 88,050 $ 40,600
--------------- -------------
Income taxes 3,946 1,516
--------------- -------------
Real estate loans securitized into mortgage-backed securities $ 40,700 $ 76,100
--------------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED ORIENTAL FINANCIAL GROUP INC.
- -------------------------------------------------------------------------------
FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION:
The accounting and reporting policies of Oriental Financial Group (the
"Group", "Oriental") and its subsidiaries conform with generally accepted
accounting principles and banking industry general practices. These
principles require 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 Group is a bank holding company that 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 a delivery system of 19
branches located throughout Puerto Rico. The Bank directly or through its
wholly-owned, broker-dealer subsidiary, Oriental Financial Services Corp.,
offers mortgage, consumer and commercial 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 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 1998
Annual Report. Certain reclassifications have been made to the March 31, 1998
and June 30, 1998 consolidated financial statements to conform to the
presentation of the current period consolidated financial statements.
In management's opinion, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting mainly of normal recurring
adjustments) necessary to present fairly, in all material respects, the
financial position of the Group at March 31, 1999 and June 30, 1998, and the
results of operations and cash flows for the quarter and nine months ended
March 31, 1999 and 1998, in conformity with generally accepted accounting
principles.
NOTE 2 - INVESTMENT AND SECURITIES:
The Group's securities are classified as held-to-maturity, available-for-sale
or trading. Securities for which the Group has the positive intent and
ability to hold to maturity are classified as held-to-maturity and are
carried at amortized cost. Securities that might 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 classified as
available-for-sale. 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 Group classifies as trading those securities that are acquired and held
principally for the purpose of selling them in the near term. These
securities are carried at estimated fair value with realized and unrealized
changes in market value 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.
The Group's 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. As a result, this 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.
MONEY MARKET INVESTMENTS:
At March 31, 1999 and June 30, 1998, the Group's money market investments
were comprised of:
<TABLE>
<CAPTION>
( IN THOUSANDS)
-----------------------------------------
MARCH 31, JUNE 30,
------------------ -------------------
<S> <C> <C>
Securities purchased under agreements to resell $ - $ 5,000
Time deposits with other banks - 2,000
Money market accounts and other short-term investments 3,978 3,658
------------------ -------------------
$3,978 $10,658
------------------ -------------------
</TABLE>
5
<PAGE>
TRADING SECURITIES:
A summary of trading securities owned by the Group at March 31, 1999 and June
30, 1998, is as follows:
<TABLE>
<CAPTION>
( IN THOUSANDS)
-----------------------------------------
MARCH 31, JUNE 30,
------------------ -------------------
<S> <C> <C>
US Treasury securities $ 3,600 $ 3,574
Mortgage-backed securities 28,629 35,903
Pass-through certificates 2,602 2,963
------------------ -------------------
$34,831 $42,440
------------------ -------------------
</TABLE>
The Group's trading portfolio weighted average yield at the dates above was
6.65% and 7.40%, respectively.
INVESTMENT SECURITIES:
The amortized cost, gross unrealized gains and losses, estimated fair value, and
weighted average yield of the securities owned by the Group at March 31, 1999
and June 30, 1998, were as follows:
<TABLE>
<CAPTION>
MARCH 31, 1999 ( IN THOUSANDS)
-----------------------------------------------------------------------------------
GROSS GROSS AVERAGE
AMORTIZED UNREALIZED UNREALIZED FAIR WEIGHTED
COST GAINS LOSS VALUE YIELD
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
US Treasury securities $ 76,327 $ 523 $ 1,184 $ 75,666 5.14%
US Government agencies securities 80,875 638 23 81,490 6.84%
PR Government securities 21,705 468 16 22,157 7.93%
Mortgage-backed securities 432,432 1,694 3,489 430,637 6.74%
Collateralized mortgage obligations 122,956 99 874 122,181 6.53%
---------------- -------------- ------------- ------------- ------------
$734,295 3,422 5,586 $732,131 6.58%
---------------- -------------- ------------- ------------- ------------
HELD-TO-MATURITY
PR Government securities 3,566 4 35 3,535 7.40%
Mortgage-backed securities 107,967 2,011 295 109,683 6.67%
---------------- -------------- ------------- ------------- ------------
111,533 2,015 330 113,218 6.69%
---------------- -------------- ------------- ------------- ------------
FHLB stock 13,257 - - 13,257 6.75%
---------------- -------------- ------------- ------------- ------------
$859,085 $ 5,437 $ 5,916 $858,606 6.60%
---------------- -------------- ------------- ------------- ------------
---------------- -------------- ------------- ------------- ------------
<CAPTION>
JUNE 30, 1998 ( IN THOUSANDS)
-----------------------------------------------------------------------------------
GROSS GROSS AVERAGE
AMORTIZED UNREALIZED UNREALIZED FAIR WEIGHTED
COST GAINS LOSS VALUE YIELD
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
US Treasury securities $158,606 $ 4,753 152 $163,207 6.08%
US Government agencies securities 85,619 1,393 - 87,012 6.89%
PR Government securities 26,074 1 194 25,881 8.72%
Mortgage-backed securities 202,855 2,446 41 205,260 6.86%
---------------- -------------- ------------- ------------- ------------
473,154 8,593 387 481,360 6.71%
---------------- -------------- ------------- ------------- ------------
HELD-TO-MATURITY
PR Government securities 3,575 1 - 3,576 7.40%
Mortgage-backed securities 158,576 2,695 443 160,828 6.89%
---------------- -------------- ------------- ------------- ------------
162,151 2,696 443 164,404 6.90%
---------------- -------------- ------------- ------------- ------------
FHLB stock 10,043 - - 10,043 7.15%
---------------- -------------- ------------- ------------- ------------
$645,348 $11,289 $ 830 $655,807 6.72%
---------------- -------------- ------------- ------------- ------------
---------------- -------------- ------------- ------------- ------------
</TABLE>
6
<PAGE>
The amortized cost and estimated fair value of the Group's investment
securities at March 31, 1999, 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>
AVAILABLE-FOR-SALE HELD-TO-MATURITY TOTAL
----------------------------- ----------------------------- --------------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
------------- ------------- ------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Due within one year $ 2,066 $ 2,050 $ - $ - $ 2,066 $ 2,050
After one year to five years 25,350 25,724 1,052 1,058 26,402 26,782
After five years to ten years 132,081 131,659 8,733 8,849 140,814 140,508
Due after ten years 574,798 572,698 101,748 103,311 676,546 676,009
FHLB stock - - - - 13,257 13,257
------------- ------------- ------------- -------------- ------------ ------------
$734,295 $732,131 $111,533 $113,218 $859,085 $858,606
------------- ------------- ------------- -------------- ------------ ------------
</TABLE>
Securities in the due after ten years category, include an AAA-rated
mortgage-backed Puerto Rico municipal bond with a fair value of $19,986,000
which commenced paying down principal on August 1, 1994, and is expected to
be fully collected within the next two fiscal years. This category also
includes $60,641,000 of the short-end of certain Puerto Rico GNMA tax-exempt
serial certificates with an average expected life of 4 to 6 years.
Proceeds from the sale of investment securities available-for-sale during the
first nine months of fiscals 1999 and 1998 were $242,121,000 and $31,103,000,
respectively. Gross realized gains and losses on those sales during the first
nine months of fiscal 1999 were $10,515,000 and $51,000, respectively. These
were $878,000 and $292,000, respectively, in the same period of fiscal 1998.
NOTE 3 - 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 non-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 personal loans, and
residential mortgage loans. The composition of the Group's loan portfolio at
March 31,1999 and June 30, 1998 was as follows:
<TABLE>
<CAPTION>
( IN THOUSANDS) MARCH 31, JUNE 30,
---------------- -------------
<S> <C> <C>
LOANS SECURED BY REAL ESTATE:
Residential $264,486 $233,161
Construction and non-residential real estate loans 6,926 7,916
Home equity loans and personal loans collateralized by real estate 16,087 16,457
---------------- -------------
287,499 257,534
Less: net deferred loan fees and servicing rights sold (3,463) (2,363)
---------------- -------------
284,036 255,171
---------------- -------------
OTHER LOANS:
Commercial and auto loans 12,473 16,768
Personal consumer loans and credit lines 117,492 102,572
Financing leases, net of unearned interest 117,583 140,208
---------------- -------------
247,548 259,548
---------------- -------------
LOANS RECEIVABLE 531,584 514,719
Allowance for loan losses (9,608) (5,658)
---------------- -------------
LOANS RECEIVABLE, NET 521,976 509,061
Loans held-for-sale 47,872 36,359
---------------- -------------
TOTAL LOANS, NET $569,848 $545,420
---------------- -------------
---------------- -------------
</TABLE>
7
<PAGE>
At March 31, 1999 and June 30, 1998 residential mortgage loans held-for-sale
amounted $47,872,000 and $36,359,000 respectively. All mortgage loans
originated and sold during the first nine months of fiscal 1999 and 1998 were
sold based on pre-established commitments or at market values. Net gains on
those sales during the first nine months of fiscal years 1999 and 1998 were
$471,200 and $1,005,000 respectively, and are included in the statement of
income as part of mortgage banking activities.
Refer to Table 9 at page 20 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 third quarter and nine months ended March
31, 1999 and 1998.
NOTE 4 - INTEREST RATE RISK MANAGEMENT
The Group utilizes interest rate swaps and caps as an interest rate risk
hedging mechanism. 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. Under the caps, Oriental pays an up front premium or fee
for the right to receive cash flow payments in excess of the predetermined
cap rate; thus, effectively capping its interest rate cost for the duration
of the agreement.
The following table indicates the types of swaps and caps outstanding and
their terms at March 31, 1999:
<TABLE>
<CAPTION>
(DOLLARS N THOUSANDS):
<S> <C>
INTEREST RATE SWAPS
Notional amount $205,000
Weighted average pay rate - fixed 5.71%
Weighted average receive rate - floating 5.08%
Maturity in months 2 to 29
Floating rate in percent of Libor 85 to 100%
CAPS
Notional amount $120,000
Cap rate 6.00-6.50%
Current 90 day Libor 5.07%
Maturity in months 1 to 18
</TABLE>
The caps and interest rate swaps were entered to convert short-term
borrowings into fixed rate liabilities for longer periods of time and provide
protection against increases in interest rates. The amounts potentially
subject to credit loss are the net streams of payments under the agreements
and not the notional principal amounts used to express the volume of the
swaps. The Group controls the credit risk of its interest rate swap
agreements through approvals, limits, monitoring procedures and collateral,
where considered necessary. The Group does not anticipate nonperformance by
the counterparties.
The Group offers its customers certificates of deposit which yields are tied
to the performance of one of the following stock market indexes, Standard &
Poor's 500, Dow Jones Industrial Average and Russell 2000. At the end of five
years, the depositor will receive a specified percent of the average increase
of the month-end value of the corresponding stock index. If such index
decreases, the depositor receives the principal without any interest. The
Group utilizes interest rate swap/hedge agreements with major money center
banks to manage its exposure to the stock market. Under the terms of the
agreements, the Group will receive the average increase of the month-end
value of the corresponding index in exchange for a semiannual fixed interest
cost. At March 31, 1999, the notional amount of these agreements totaled
$55,255,000.
NOTE 7- INCOME PER COMMON SHARE AND STOCK SPLIT
On August 18, 1998, the Group declared a four-for-three (33.3%) stock split
on its 10,154,358 shares of common stock outstanding at September 30, 1998.
As a result, 3,384,674 shares of common stock were issued on October 15, 1998
thus increasing shares to 13,539,032 at such date.
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").
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.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- -------------------------------------------------------------------------------
OVERVIEW OF FINANCIAL PERFORMANCE
Oriental reported an increase of 25% in diluted earnings per share for the
third quarter of fiscal 1999, as net income rose to $6.6 million or $.50 per
share from $5.4 million or $.40 per share in the same period of fiscal 1998.
The Group's profitability ratios for the third quarter of fiscal 1999 reflect
annualized returns of 1.76% on assets (ROA) and 25.02% on stockholder's
equity (ROE) versus 1.72% and 20.95%, respectively, in the comparable fiscal
1998 period.
For the first nine months of fiscal 1999, the Group's diluted earnings per
share also climbed 25%, as net income reached $19.0 million or $1.42 per
share compared with $15.6 million or $1.14 per share in the same period of
fiscal 1998. The ROA and ROE for the first nine months of fiscal 1999 were
1.78% and 22.78%, respectively, up from 1.73% and 21.04%, respectively, in
the same period of fiscal 1998. The Group's earnings growth was driven by
increases in net interest income and non-interest income; partially offset by
a rise in the provision for loan losses. A solid growth in interest-earning
assets and strong performances by the Group's trust, brokerage and money
management and treasury business units fueled the Group's operating income
improvement.
At March 31, 1999, the Group's total financial assets owned or managed, which
consists of Bank assets, assets managed by the trust and assets gathered by
the broker-dealer, reached $3.7 billion, an increase of 16% when compared to
the $3.2 billion a year ago. At March 31, 1999, Bank assets reached $1.532
billion from $1.262 billion a year ago, an increase of 21%. Assets managed by
the trust grew 8% to $1.338 billion versus $1.243 billion a year ago, and
assets gathered by the broker-dealer increased 21% to $831.7 million from
$686 million the year before.
See "Selected Financial Data" on page 10 for more details. The different
components that resulted in the Group's continued profitability are discussed
in detail in the following pages.
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.
NET INTEREST INCOME
For the third quarter of fiscal 1999, the Group's net interest income grew
17% to $13.2 million from $11.3 million reported in the same period of fiscal
1998 and the interest rate spread remained flat at 3.53% versus the same
period of fiscal 1998. For the first nine months of fiscal 1999, net interest
income rose 14% to $36.1 million from $31.7 million in the same period a year
ago and the interest rate spread narrowed 14 basis points to 3.43% from 3.57%
in the same period of fiscal 1998. These rises in net interest income were
propelled by the larger volume of interest-earning assets and a modest
reduction in the Group's cost of funds. Tables 1 and 1-A analyzes the major
categories of interest-earning assets and interest-bearing liabilities, and
their respective interest income and expenses and yields and costs, and their
impact on net interest income due to their changes in volume and rates.
The Group's interest income for the third quarter of fiscal of 1999 increased
by 13% or $3.4 million to $29.5 million from $26.1 million posted in the
third quarter of fiscal 1998. For the first nine months of fiscal 1999,
interest income totaled $84.4 million, up 13% from the $74.4 million posted
in fiscal 1998. These growths in interest income were driven by larger
average volume of interest-earning assets, partially offset by a decline in
the yield performance of interest-earning assets.
Average interest-earning assets for the third quarter of fiscal 1999 reached
$1.402 billion an increase of 19% compared with $1.179 billion for the same
quarter of fiscal 1998. For the first nine months of fiscal 1999, average
interest-earning assets grew 19% to $1.321 billion from $1.111 million a year
ago. These volume increase were fueled by a solid growth on the Group's
investment portfolios, mainly mortgage-backed securities as Oriental
continues its strategy of securiticizing its larger mortgage loan production.
9
<PAGE>
SELECTED FINANCIAL DATA
FOR THE QUARTER AND NINE MONTHS PERIOD ENDED ON MARCH, 31 1999 AND 1998
(IN THOUSANDS, EXCEPT FOR PER SHARE RESULTS)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS PERIOD ENDED
MARCH 31, MARCH 31,
--------------------------------------- -------------------------------------
Inc. / INC./
1999 1998 (dec.) 1999 1998 (dec.)
------------- ------------- ------- -------------- ----------- -----
EARNINGS AND DIVIDENDS DECLARED:
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income $ 29,514 $ 26,079 13% $ 84,386 $ 74,410 13%
Interest expense 16,317 14,799 10% 48,305 42,753 13%
------------- ------------- ------- -------------- ------------ -----
NET INTEREST INCOME 13,197 11,280 17% 36,081 31,657 14%
Provision for loan losses 3,200 1,900 68% 12,950 6,900 88%
Recurring non-interest income 4,008 4,094 (2)% 12,519 12,072 4%
Non recurring non-interest income 1,949 349 458% 10,465 4,290 144%
Recurring non-interest expenses 8,261 7,478 10% 23,524 22,745 3%
Non recurring non-interest expenses - 82 (100)% 337 133 153%
Provision for income taxes 1,070 825 30% 3,205 2,650 21%
------------- ------------- ------- -------------- ------------ -----
NET INCOME $ 6,623 $ 5,438 22% $ 19,049 $ 15,591 22%
------------- ------------- ------- -------------- ------------ -----
------------- ------------- ------- -------------- ------------ -----
Dividends declared $ 1,960 $ 1,482 32% $ 5,443 $ 3,956 38%
------------- ------------- ------- -------------- ------------ -----
Dividends declared per share $ 0.150 $ 0.113 33% $ 0.413 $ 0.300 38%
------------- ------------- ------- -------------- ------------ -----
PER SHARE INFORMATION:
- ---------------------------------------------------------------------------------------------------------------------------------
Basic $ 0.51 $ 0.41 24% $ 1.46 $ 1.18 24%
------------- ------------- ------- -------------- ------------ -----
Diluted $ 0.50 $ 0.40 25% $ 1.42 $ 1.14 25%
------------- ------------- ------- -------------- ------------ -----
Average shares and equivalents 13,359 13,725 (3)% 13,468 13,697 (2)%
------------- ------------- ------- -------------- ------------ -----
Book value $ 7.70 $ 7.80 (1)%
-------------- ------------ -----
Market price at end of period $ 27.94 $ 27.85 0%
-------------- ------------ -----
PERIOD END BALANCES: ( MARCH 31, )
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL FINANCIAL ASSETS
Total Bank assets $ 1,532,500 $ 1,261,500 21%
Trust assets managed 1,337,700 1,242,900 8%
Assets gathered by broker-dealer 831,700 686,000 21%
-------------- ------------ -----
$ 3,701,900 $ 3,190,400 16%
-------------- ------------ -----
INTEREST-EARNING ASSETS
Investments and securities $ 895,730 $ 640,608 40%
Loans and loans held-for-sale 569,848 557,733 2%
-------------- ------------ -----
$ 1,465,578 $ 1,198,341 22%
-------------- ------------ -----
INTEREST-BEARING LIABILITIES
Deposits $ 639,010 $ 551,483 16%
Repurchase agreements 581,520 380,757 53%
Borrowings 168,100 193,649 (13)%
-------------- ------------ -----
$ 1,388,630 $ 1,125,889 23%
-------------- ------------ -----
CAPITAL AND RELATED REGULATORY RATIOS:
Stockholders' equity $ 104,977 $ 103,967 1%
-------------- ------------ -----
Leverage capital 7.04% 7.82% (10)%
-------------- ------------ -----
Total risk-based capital 20.07% 19.79% 1%
-------------- ------------ -----
Tier 1 risk-based capital 18.82% 18.54% 1%
-------------- ------------ -----
SELECTED FINANCIAL RATIOS (IN PERCENT):
- ---------------------------------------------------------------------------------------------------------------------------------
Return on average assets (ROA) 1.76% 1.72% 1.78% 1.73%
------------- ------------- -------------- ------------
Return on average equity (ROE) 25.02% 20.95% 22.77% 21.04%
------------- ------------- -------------- ------------
Efficiency ratio 48.02% 48.52% 48.40% 50.99%
------------- ------------- -------------- ------------
Expense ratio 1.21% 1.15% 1.11% 1.20%
------------- ------------- -------------- ------------
Interest rate spread 3.53% 3.53% 3.43% 3.57%
------------- ------------- -------------- ------------
OTHER INFORMATION:
- ---------------------------------------------------------------------------------------------------------------------------------
Number of banking offices 19 18
-------------- ------------
</TABLE>
10
<PAGE>
TABLE 1 - ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE:
<TABLE>
<CAPTION>
(IN THOUSANDS) THIRD QUARTER OF FISCAL,
- -------------------------------------------------- -------------------------------------------------------------------------
INTEREST AVERAGE RATE AVERAGE BALANCE
----------------------- -------------------- ----------------------------
DESCRIPTION 1999 1998 1999 1998 1999 1998
- -------------------------------------------------- ----------- ---------- ---------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
LOANS:
Real Estate $ 7,692 $ 6,861 10.14% 9.67% $ 303,330 $ 283,705
Consumer 4,515 3,753 14.04% 13.74% 130,457 110,776
Commercial 173 257 9.67% 10.54% 7,168 9,754
Financing Leases 3,472 4,560 12.38% 12.30% 112,194 148,257
------------ --------- ----------- ------- -------------- ------------
15,852 15,431 11.51% 11.21% 553,149 552,492
------------ --------- ----------- ------- -------------- ------------
INVESTMENTS:
Mortgage-backed securities and CMO's 10,451 6,107 6.48% 6.96% 644,902 350,909
Investment Securities 2,881 4,277 6.32% 6.67% 182,459 256,598
Other-interest earning assets 329 264 6.03% 5.57% 22,147 19,202
------------ --------- ----------- ------- -------------- -------------
13,661 10,648 6.43% 6.80% 849,508 626,709
------------ --------- ----------- ------- -------------- -------------
TOTAL INTEREST-EARNING ASSETS $ 29,513 $ 26,079 8.44% 8.87% $ 1,402,657 $1,179,201
------------ --------- ----------- ------- -------------- -------------
DEPOSITS:
Savings and demand $ 721 $ 693 2.08% 2.66% $ 140,641 $ 105,749
Time deposits and IRA accounts 6,370 5,731 5.33% 5.57% 484,564 417,641
------------ --------- ----------- ------- -------------- -------------
7,091 6,424 4.60% 4.98% 625,205 523,390
------------ --------- ----------- ------- -------------- -------------
BORROWINGS:
Repurchase agreements 6,793 5,192 4.95% 5.40% 556,367 389,590
FHLB funds 825 1,385 5.65% 5.84% 59,203 96,155
Term notes and other sources of funds 1,248 1,516 4.75% 5.36% 106,500 114,723
Interest rate risk management 361 282 0.20% 0.19% - -
------------ --------- ----------- ------- -------------- -------------
9,227 8,375 5.18% 5.66% 722,070 600,468
------------ --------- ----------- ------- -------------- -------------
TOTAL INTEREST-BEARING LIABILITIES $ 16,318 $ 14,799 4.91% 5.34% $ 1,347,275 $1,123,858
------------ --------- ----------- ------- -------------- -------------
NET INTEREST INCOME $ 13,195 $ 11,280 3.53% 3.53%
------------ --------- ----------- -------
------------ --------- ----------- -------
INTEREST RATE MARGIN 3.72% 3.78%
----------- -------
----------- -------
EXCESS OF INTEREST-EARNING ASSETS OVER INTEREST-BEARING LIABILITIES $ 55,382 $ 55,343
-------------- -------------
-------------- -------------
INTEREST-EARNING ASSETS OVER INTEREST-BEARING LIABILITIES RATIO 104.11% 104.92%
-------------- -------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------
BASIS
CHANGE IN NET INTEREST INCOME DUE TO: VOLUME RATE TOTAL POINTS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans (1) (2) $ (26) $ 447 $ 421 0.30%
Investments 3,921 (908) 3,013 (0.36)%
------------ --------- ----------- -------
$ 3,895 $ (461) $ 3,434 (0.43)%
------------ --------- ----------- -------
INTEREST EXPENSE:
Deposits $ 1,163 $ (496) $ 667 (0.38)%
Borrowings 1,555 (703) 852 (0.48)%
------------ --------- ----------- -------
2,718 (1,199) 1,519 (0.43)%
------------ --------- ----------- -------
NET INTEREST INCOME $ 1,177 $ 738 $ 1,915 0.00%
------------ --------- ----------- -------
------------ --------- ----------- -------
</TABLE>
(1) - Loans averages exclude non-performing loans.
(2) - Real-estate averages include loans held-for-sale.
11
<PAGE>
TABLE 1A - ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE:
<TABLE>
<CAPTION>
(IN THOUSANDS) FIRST NINE MONTHS OF FISCAL,
- --------------------------------------------------- ---------------------------------------------------------------------------
INTEREST AVERAGE RATE AVERAGE BALANCE
------------------------- ------------------ ----------------------------
DESCRIPTION 1999 1998 1999 1998 1999 1998
- --------------------------------------------------- ------------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
LOANS:
Real Estate $ 21,929 $20,089 10.03% 9.57% $ 291,534 $ 280,001
Consumer 13,228 10,246 13.77% 13.65% 127,979 100,031
Commercial 705 818 10.85% 11.11% 8,670 9,824
Financing Leases 10,786 13,815 12.09% 12.04% 118,945 153,001
------------- ---------- -------- -------- ------------- --------------
46,648 44,968 11.36% 11.04% 547,128 542,857
------------- ---------- -------- -------- ------------- --------------
Investments:
Mortgage-backed securities and CMO's 25,781 17,142 6.53% 7.08% 526,698 322,874
Investment Securities 10,992 11,381 6.50% 6.73% 225,445 225,531
Other-interest earning assets 965 920 5.83% 6.13% 22,049 19,979
------------- ---------- -------- -------- ------------- --------------
37,738 29,443 6.50% 6.91% 774,192 568,384
------------- ---------- -------- -------- ------------- --------------
TOTAL INTEREST-EARNING ASSETS $ 84,386 $74,411 8.51% 8.93% $ 1,321,320 $ 1,111,241
------------- ---------- -------- -------- ------------- --------------
DEPOSITS:
Savings and demand $ 2,166 $ 2,052 2.27% 2.63% $ 127,132 $ 103,755
Time and IRA accounts 19,466 17,125 5.43% 5.56% 477,465 410,585
------------- ---------- -------- -------- ------------- --------------
21,632 19,177 4.77% 4.97% 604,597 514,340
------------- ---------- -------- -------- ------------- --------------
BORROWINGS:
Repurchase agreements 19,036 13,747 5.19% 5.44% 488,625 336,891
FHLB funds 2,698 4,235 5.73% 5.87% 62,756 96,148
Term notes and other sources of funds 4,115 4,611 4.99% 5.34% 109,754 115,114
Interest rate risk management 824 982 0.17% 0.24% - -
------------- ---------- -------- -------- ------------- --------------
26,673 23,575 5.37% 5.73% 661,135 548,153
------------- ---------- -------- -------- ------------- --------------
TOTAL INTEREST-BEARING LIABILITIES $ 48,305 $42,752 5.08% 5.36% $ 1,265,732 $ 1,062,493
------------- ---------- -------- -------- ------------- --------------
NET INTEREST INCOME $ 36,081 $31,659 3.43% 3.57%
------------- ---------- -------- --------
------------- ---------- -------- --------
INTEREST RATE MARGIN 3.64% 3.80%
-------- --------
-------- --------
EXCESS OF INTEREST-EARNING ASSETS OVER INTEREST-BEARING LIABILITIES $ 55,588 $ 48,748
------------- --------------
------------- --------------
INTEREST-EARNING ASSETS OVER INTEREST-BEARING LIABILITIES RATIO 104.39% 104.59%
------------- --------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------
BASIS
CHANGE IN NET INTEREST INCOME DUE TO: VOLUME RATE TOTAL POINTS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME: Loans (1) (2) $ 516 $ 1,164 $ 1,680 0.32%
Investments 10,912 (2,617) 8,295 -0.41%
---------- ---------- --------- -------
$ 11,428 $(1,453) $ 9,975 -0.42%
---------- ---------- --------- -------
INTEREST EXPENSE:
Deposits $ 3,249 $ (794) $ 2,455 -0.20%
Borrowings 4,345 (1,247) 3,098 -0.36%
---------- ---------- --------- -------
7,594 (2,041) 5,553 -0.28%
---------- ---------- --------- -------
Net Interest Income $ 3,834 $ 588 $ 4,422 -0.14%
---------- ---------- --------- -------
---------- ---------- --------- -------
</TABLE>
(1) - Loans averages exclude non-performing loans.
(2) - Real-estate averages include loans held-for-sale.
12
<PAGE>
The average yield on interest-earning assets for the third quarter of fiscal
1999 was 8.43% or 43 basis points lower than the 8.86% attained in fiscal
1998. For the first nine months of fiscal 1999 was to 8.51% or 41 basis
points lower than the 8.92% reported a year ago. Both declines result from
the strong expansion of Group's investment portfolio, which carries a lower
yield than the loan portfolio but generates a significant amount of
tax-exempt interest, coupled by a slight decline in the investment portfolio
yield performance due to general market conditions.
Interest expense for the third quarter fiscal 1999 rose 10% or $1.5 million
to $16.3 million from $14.8 million reported in fiscal 1998. For the first
nine months of fiscal 1999, interest expense totaled $48.3 million, up 13%
from $42.8 million posted in fiscal 1998. These increases were driven by a
higher volume of interest-bearing liabilities used to fund the Group's
interest-earning assets growth, as previously explained; tempered by a
decline in the average cost of funds.
Average interest-bearing liabilities for the third quarter of fiscal 1999
reached $1.347 billion, up 20% from the $1.124 billion for the same quarter
of fiscal 1998. For the first nine months of fiscal 1999, interest-bearing
liabilities climbed 19% to $1.266 billion from $1.062 million a year ago.
These increases in volume reflect strong growths in repurchase agreements and
deposits, mainly time deposits and IRA accounts. These rises were necessary
to fund the Group's total interest-earning asset growth.
The average cost of funds on interest-bearing liabilities for the third
quarter of fiscal 1999 was 4.91% or 43 basis points lower than the 5.34%
attained in fiscal 1998. For the first nine months of fiscal 1999, was 5.08%
or 28 basis points lower than the 5.36% attained in fiscal 1998. Both
decreases were principally related to a decline in the cost of repurchase
agreements, time deposits and IRA accounts and term notes; enhanced by a
reduction in the cost of interest-hedging activities (swaps and caps). A
favorable lower interest rate scenario resulting from short-term interest
rate cuts by the federal reserve triggered the overall reduction in cost of
funds.
PROVISION FOR LOAN LOSSES
The Group's provision for loans losses for the third quarter of fiscal 1999
increased to $3.2 million from $1.9 million for the same period of fiscal
1998. For the first nine months of fiscal 1999, the provision for loan losses
amounted to $13 million versus $6.9 million in the same period the year
before. The main reason for the increase in the provision was management's
goal of further boosting the Group's coverage ratio of reserve to total
loans, which increased to 1.66% from 1.21% a year ago. Also to respond to
the higher level of credit losses in the consumer and leasing portfolios 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
Recurring non-interest income for the third quarter totaled $4.0 million, a
2% drop versus the $4.1 million in the same period of fiscal 1998. This
slight decrease stems from declines in mortgage banking activities and bank
service fees and other operating revenues, partially tempered by higher
trust, brokerage and money management revenues, see Table 2. For the first
nine months of fiscal 1999 rose $12.5 million, 4% higher than the $12.1
million in the same period of fiscal 1998. This improvement reflects
increases in mortgage banking activities and trust, brokerage and money
management revenues offset partially by lower bank service fees and other
operating revenues.
Trust, money management and brokerage fees, the principal component of
recurring non-interest income, reflected strong results during fiscal 1999.
For the third quarter and first nine months of fiscal 1999, this fees totaled
$2.4 million and $7.0 million, respectively, versus the $2.0 million and $6.0
million recorded in the same period the year before, up 21% and 17%,
respectively. These increases were 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.
Mortgage banking activities for the third quarter of fiscal 1999 amounted to
$726,000, 26% lower than the $985,000 earned in the same period of fiscal
1998. The net decrease experienced during the past quarter results mainly
from losses the Group incurred on the sale of mortgage loans in the secondary
market. This losses reflect management's decision of selling a large group of
real estate loans with a 5.50% yield, that were hindering the loans portfolio
yield performance, to improve the Group's yield performance and interest rate
risk exposure. For the first nine months of fiscal 1999, mortgage banking
activities totaled $2.8 million, an increase of 7% versus the $2.6 million a
year ago. This increase was driven by a higher volume of loan origination
combined with gains realized on sale of mortgage loans in the secondary
market. This increase reflects the robust home finance market in Puerto Rico
as Oriental's consolidates as the third largest mortgage origination producer.
Bank services fees and other operating revenues, which consist primarily of
service charges on deposit accounts, leasing fees, late charges collected on
loans and rental revenues, amounted to $842,000 for the third quarter fiscal
1999, 23% lower when compared to the $1.1 million reported on the same period
a year earlier. They totaled $2.7 million for the first nine months of fiscal
1999, a 21% drop versus the $3.5 million on the same period in fiscal 1998.
Both decreases were a combination of a decline in leasing fees and rental
revenues, partially offset by higher service charges on deposit accounts and
late charges collected on loans.
13
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
------------------------------ -------------------------------
QUARTER ENDED NINE MONTHS PERIOD ENDED
MARCH 31, MARCH 31,
------------------------------ -------------------------------
1999 1998 % 1999 1998 %
------------------------------ -------------------------------
TABLE 2 - NON-INTEREST INCOME SUMMARY
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RECURRING NON-INTEREST INCOME:
Trust, money management and brokerage fees $ 2,440 $ 2,021 21% $ 7,035 $ 6,034 17%
Mortgage banking activities 726 985 -26% 2,759 2,584 7%
Bank service fees and other operating revenues 842 1,088 -23% 2,725 3,454 -21%
------------ ----------- ------ -------- -------- ------
4,008 4,094 -2% 12,519 12,072 4%
------------ ----------- ------ -------- -------- ------
NON RECURRING NON-INTEREST INCOME:
Securities and trading net activity 1,949 349 458% 10,465 893 1072%
Servicing income - - 0% - 690 -100%
Net gain on sale of servicing assets - - 0% - 2,707 -100%
------------ ----------- ------ -------- -------- ------
1,949 349 458% 10,465 4,290 144%
------------ ----------- ------ -------- -------- ------
TOTAL NON-INTEREST INCOME $ 5,957 $ 4,443 34% $22,984 $16,362 40%
------------ ----------- ------ -------- -------- ------
------------ ----------- ------ -------- -------- ------
RECURRING NON-INTEREST INCOME TO NON-INTEREST EXPENSES RATIO 48.52% 54.75% 53.22% 53.08%
------------ ----------- -------- --------
TABLE 3 - NON-INTEREST EXPENSES SUMMARY
- ---------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSES:
Compensation and benefits $ 3,776 $ 3,629 4% $11,049 $11,260 -2%
Occupancy and equipment 1,245 1,167 7% 3,671 3,441 7%
Professional fees 581 290 100% 1,576 943 67%
Advertising and business promotion 846 695 22% 2,108 1,830 15%
Insurance, including deposits insurance 120 238 -50% 313 625 -50%
Real estate owned expenses 12 16 -25% 24 56 -57%
Communications 349 326 7% 1,123 1,031 9%
Municipal and property taxes 427 405 5% 1,284 1,226 5%
Printing, stationery, postage and supplies 204 161 27% 562 493 14%
Other operating expenses 701 551 27% 1,814 1,840 -1%
------------ ----------- ------ -------- -------- ------
RECURRING NON-INTEREST EXPENSES 8,261 7,478 10% 23,524 22,745 3%
Other non-recurring expenses - 82 -100% 337 133 153%
------------ ----------- ------ -------- -------- ------
TOTAL NON-INTEREST EXPENSES $ 8,261 $ 7,560 9% $23,861 $22,878 4%
------------ ----------- ------ -------- -------- ------
RELEVANT RATIOS:
Efficiency ratio 48.02% 48.52% 48.40% 50.99%
------------ ----------- -------- --------
Expense ratio 1.21% 1.15% 1.11% 1.20%
------------ ----------- -------- --------
TABLE 4 - COMPENSATION AND BENEFITS SUMMARY
- ---------------------------------------------------------------------------------------------------------------------------------
COMPENSATION AND BENEFITS:
Fixed $ 2,247 $ 2,158 4% $ 6,595 $ 6,763 -2%
Variable 1,529 1,471 4% 4,454 4,497 -1%
------------ ----------- ------ -------- -------- ------
$ 3,776 $ 3,629 4% $11,049 $11,260 -2%
------------ ----------- ------ -------- -------- ------
RELEVANT RATIOS:
Compensation and benefits to recurring non-interest expenses 45.71% 48.53% 46.97% 49.51%
------------ ----------- -------- --------
Variable compensation to total compensation 40.49% 40.53% 40.31% 39.94%
------------ ----------- -------- --------
Compensation to total average assets 1.00% 1.13% 1.03% 1.23%
------------ ----------- -------- --------
Average compensation per employee $ 40.6 $ 38.1
-------- --------
Bank assets per employee $ 4,715 $ 3,721
-------- --------
GROUP'S WORK FORCE:
Bank 325 339
Trust 28 22
Brokerage 11 6
-------- --------
364 367
-------- --------
</TABLE>
14
<PAGE>
For the third quarter of fiscal 1999, securities and trading gains amounted
to $1.9 million versus $349,000 in the same period of fiscal 1998. For the
first nine months of fiscal 1999, they increased to $10.5 million from
$893,000 reported in the same period a year ago. As result of the favorable
market opportunities, during the past two quarters the Group sold a
significant quantity of investment securities as part of its asset/liability
management. The gains realized resulted from favorable market conditions as
interest rates declined during the latter part of 1998. For further
discussion of the Group's investment securities, see Note 2 of the attached
Consolidated Financial Statements.
During the second quarter of fiscal 1998, in a move to strengthen its future
earnings, the Group sold its mortgage loans servicing portfolio, including
$550 million serviced to others, to Doral Financial Corporation. The Group
recorded a net gain of $2.7 million on this transaction. The divestiture of
the mortgage servicing operation is indicative of a wider strategy guiding
the Group to concentrate on mortgage origination, trust, money management,
brokerage, personal loans and deposit accounts with the highest earnings
potential. The decrease in servicing income is directly related to the
divestiture mentioned above.
NON-INTEREST EXPENSES
Recurring non-interest expenses for the third quarter of fiscal 1999,
increased 11% to $8.3 million from $7.5 million during the same period of
fiscal 1998, see Table 3. Notwithstanding the above increase, the annualized
efficiency ratio and the expense ratio for the third quarter of fiscal 1999
were 48.02% and 1.21%, respectively, versus 48.52% and 1.15%, respectively,
the year before. For the first nine months of fiscal 1999 recurring
non-interest expenses amounted to $23.5 million versus $22.7 million, up 3%.
The efficiency ratio and the expense ratio for the first nine months of
fiscal 1999 substantially improved to 48.40% and 1.11%, respectively, from
50.99% and 1.20%, respectively, a year earlier.
Employee compensation and benefits, the Group's largest expense category,
amounted to $3.8 million or 1.0 % of total average assets for the third
quarter of fiscal 1999, 4% higher than the $3.6 million or 1.13 % of total
average assets reported in the same period of fiscal 1998. This increase
results from modest growths in both fixed and variable compensation. The rise
in fixed compensation reflects salary merit increases and the climb in
variable compensation stems from larger commissions and bonuses paid as
result of the increased real estate loan and brokerage productivity. For the
first nine months of fiscal 1999 totaled $11.0 million or 1.03 % of total
average assets, 2% lower than $11.3 million or 1.23 % of total average assets
reported in fiscal 1998. This reduction results mainly from lower employment
levels during the first months of fiscal 1999 as result of the divestiture of
the mortgage servicing department and reengineering of some of the Group's
support departments. The composition of the Group's employee compensation and
benefits for the periods analyzed remained similar as variable compensation
represented about 40% of the total compensation, see table 4.
All other recurring non-interest expenses for the third quarter of fiscal
1998 increased 16% to $4.5 million as compared to $3.9 million during the
same period of fiscal 1998. For the first nine months of fiscal 1999, they
totaled $12.5 million or 9% higher than $11.5 million reported in fiscal
1998. These rises were led by increases in professional and service fees,
advertising and business promotion and occupancy and equipment. The larger
amount of professional and service fees reflect the Group's higher
expenditures related with consulting and technical support. The advertising
and promotion growth results mainly from the ongoing campaign to promote the
Group's image and the launching of new products and services. The main
contributors in the growth of occupancy and equipment costs were increases in
depreciation from leasehold improvements and EDP equipment. This result from
the additional banking offices opened during the past 18 months and the
enhancements made to the Group's systems to enable them expand its electronic
delivery capabilities and improve the customers' service delivery.
PROVISION FOR INCOME TAXES
The provision for income taxes for the third quarter of fiscal 1999 amounted
to $1.1 million or 13.9% of pre-tax earnings compared with $825,000 or 13.2%
of pre-tax earnings a year ago, up 30%. For the first nine months of fiscal
1999, they totaled $3.2 or 14.4% of pre-tax earnings versus with $2.7
million or 14.5% of pre-tax earnings a year ago, an increase of 21%. The
increase in fiscal 1999 was mainly due to higher pre-tax earnings. 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.
15
<PAGE>
FINANCIAL CONDITION
GROUP'S ASSETS
At the end of the third quarter of fiscal 1999, the Group's total assets
amounted to $1.532 billion, an increase of 21% when compared to the $1.261
billion a year ago. At the same date, interest-earning assets reached $1.466
billion, an increase of $267 million or 22% versus the $1.198 billion a year
earlier. This robust assets growth reflects a significant gain in the
investment portfolio of $255 million or 40% see Table 5.
Total investments are Oriental's largest interest-earning assets component.
It consists mainly of money market investments, U.S. Treasury notes, U.S.
Government agencies bonds, mortgage-backed securities, collateralized
mortgage obligations and PR Government municipal bonds. The investment
portfolio is of a high quality, approximately 98% is rated AAA at the end of
the third quarter of fiscal 1999, and generates a significant amount of
tax-exempt interest which lowers the Group's effective tax rate, see Table 5
and note 2 of the attached financial statements.
The investment portfolio expansion was driven by a strong growth in
mortgage-backed securities and CMO's, which increased to $692 million or 77%
of the total portfolio from $364 million or 57% the year before, as Oriental
continues its strategy of pooling guaranteed real estate loans into
mortgage-backed securities. However, investment securities decreased 29% to
$186 million or 21% of the total portfolio from $262 million or 41% a year
ago. This reduction reflects the significant quantity of US Government
securities sold during the past two quarters as part of the Group's
asset/liability management, as previously explained. All of the investment
securities sold were replenished with mortgage-backed securities and CMO's
that provide the Group a better yield performance and liquidity position, see
Table 5 for the Group's investments summary and composition
At March 31,1998, Oriental's loan portfolio, the second largest category of
the Bank's interest-earning assets, amounted to $570 million, 2% higher than
the $558 million a year ago. This growth was led by increases in the real
estate and consumer portfolios of 14% and 13%, respectively. These were
partially offset by a downsize in the leasing and commercial portfolio's and
an increase in the allowance for loan losses of $2.8 million or 41%. Table 5
presents the Group's loan portfolio composition and mix at the end of the
periods analyzed.
The Bank's real estate loans portfolio amounted to $318 million or 55% of the
loan portfolio at March 31, 1999, a 14% increase versus $280 million or 50%
of the loan's portfolio the year before. The rise results from a sharp growth
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.
At the end of the third quarter of fiscal 1999, the consumer loans portfolio
totaled $135 million or 23% of the Group's loan portfolio, a 13% growth
versus the $119 million or 21% of the Group's loan portfolio a year ago.
Personal loans which amounted to $104 million at the end of the third quarter
of fiscal 1999, or 16% over the $90 million reported the year before, 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 leasing portfolio amounted to $118 million or 20% of the loan
portfolio at the end of the third quarter of fiscal 1999, a 24% decrease
versus $154 million or 27% of the loan portfolio a year ago. The downsize
reflects the Group's intentional slowdown in lease 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".
LIABILITIES AND SOURCES OF FUNDS
As shown in Table 6, at March 31, 1999, Oriental's total liabilities reached
$1.427 billion, 23% higher than the $1.157 billion reported a year ago.
Interest-bearing liabilities, the Group's sources of funding, amounted to
$1.389 billion at the end of the third quarter of fiscal 1999 versus $1.126
billion the year before, a 23% increase. This growth was driven by increases
in deposits and repurchase agreements of 16% or $88 million and 53% or $201
million, respectively.
Deposits at the end of the third quarter of fiscal 1999, the second largest
category of the Group's interest-bearing liabilities and a cost effective
source of funding, reached $639 million, up 16% versus the $551 million a
year ago. This rise, driven by a 11% growth in time deposits and IRA
accounts, reflects the inflow of assistance and insurance payments from
Hurricane Georges as well as a long-term trend toward greater usage of banks
in the Puerto Rican economy. Table 6 presents the composition of the Group's
deposits at the end of the periods analyzed.
Total borrowings are Oriental's largest interest-bearing liability component.
It consists mainly of diversified sources of funding through the use of FHLB
advances and borrowings, repurchase agreements, term notes, notes payable and
lines of credit. At March 31, 1999, they amounted to $750 million, 31% higher
than the $574 million a year ago. This increase reflects a strong growth in
repurchase agreements, which was necessary to fund the increase in
interest-earning assets experienced during the period, particularly
investment securities.
16
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
----------- ----------- -------------- ----------
MARCH-99 MARCH-98 INC. / (DEC.) JUNE-98
----------- ----------- -------------- ----------
TABLE 5 - BANK ASSETS SUMMARY AND COMPOSITION
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENTS
Mortgage-backed securities and CMO's 692,022 363,904 90% 402,703
Investment securities 186,473 262,113 -29% 283,248
FHLB stock and money market investments 17,235 14,591 18% 20,701
----------- ----------- -------------- ----------
895,730 $ 640,608 40% $ 706,652
----------- ----------- -------------- ----------
LOANS:
Real Estate 318,347 280,457 14% 278,256
Consumer 134,844 119,340 13% 122,281
Financing leases 117,583 154,181 -24% 141,113
Commercial 8,682 10,571 -18% 9,428
----------- ----------- -------------- ----------
579,456 564,549 3% 551,078
Allowance for loan losses (9,608) (6,816) 41% (5,658)
----------- ----------- -------------- ----------
569,848 557,733 2% 545,420
----------- ----------- -------------- ----------
TOTAL INTEREST-EARNING ASSETS 1,465,578 1,198,341 22% 1,252,072
----------- ----------- -------------- ----------
Non-interest earning assets 66,878 $ 63,099 6% 59,316
----------- ----------- -------------- ----------
TOTAL ASSETS $ 1,532,456 $ 1,261,440 21% $ 1,311,388
----------- ----------- -------------- ----------
----------- ----------- -------------- ----------
INVESTMENTS PORTFOLIO COMPOSITION:
Mortgage-backed securities and CMO's 77.3% 56.8% 57.0%
Investment securities 20.8% 40.9% 40.1%
FHLB stock and money market investments 1.9% 2.3% 2.9%
----------- ----------- ----------
100.0% 100.0% 100.0%
----------- ----------- ----------
LOAN PORTFOLIO COMPOSITION:
Real Estate 54.9% 49.7% 50.5%
Consumer 23.3% 21.1% 22.2%
Financing leases 20.3% 27.3% 25.6%
Commercial 1.5% 1.9% 1.7%
----------- ----------- ----------
100.0% 100.0% 100.0%
----------- ----------- ----------
TABLE 6 - LIABILITIES SUMMARY AND COMPOSITION
- -----------------------------------------------------------------------------------------------------------------------------
DEPOSITS:
Savings and demand deposits $ 146,087 $ 108,183 35% $ 112,533
Time deposits and IRA accounts 487,632 439,862 11% 455,061
Accrued Interest 5,291 3,438 54% 3,837
----------- ----------- -------------- ----------
639,010 $ 551,483 16% $ 571,431
----------- ----------- -------------- ----------
BORROWINGS:
Repurchase agreements 581,520 $ 380,757 53% $ 416,171
FHLB funds 61,600 79,000 -22% 74,800
Term notes and other sources of funds 106,500 114,649 -7% 114,588
----------- ----------- -------------- ----------
749,620 $ 574,406 31% $ 605,559
----------- ----------- -------------- ----------
TOTAL INTEREST-BEARING LIABILITIES 1,388,630 1,125,889 23% 1,176,990
----------- ----------- -------------- ----------
Non interest-bearing liabilities 38,849 $ 31,584 23% 27,368
----------- ----------- -------------- ----------
TOTAL LIABILITIES $ 1,427,479 $ 1,157,473 23% $ 1,204,358
----------- ----------- -------------- ----------
----------- ----------- -------------- ----------
DEPOSITS PORTFOLIO COMPOSITION:
Savings and demand deposits 22.9% 19.6% 19.7%
Time deposits and IRA accounts 76.3% 79.8% 79.6%
Accrued Interest 0.8% 0.6% 0.7%
----------- ----------- ----------
100.0% 100.0% 100.0%
----------- ----------- ----------
BORROWINGS PORTFOLIO COMPOSITION:
Repurchase agreements 77.6% 66.3% 68.7%
FHLB funds 8.2% 13.8% 12.4%
Term notes and other sources of funds 14.2% 20.0% 18.9%
----------- ----------- ----------
100.0% 100.1% 100.0%
----------- ----------- ----------
</TABLE>
17
<PAGE>
The FHLB system functions as a source of credit to financial institutions
that 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 7 presents the composition of the Group's other borrowings at
the end of the periods analyzed.
STOCKHOLDERS' EQUITY
At March 31, 1999, Oriental's total stockholders' equity reached $105
million, a 1% increase from $104 million a year ago. This lack of
stockholders' equity growth reflects earnings of $24.9 million posted during
the past 12 months offset by a negative change in the valuation account for
investment securities available-for-sale and increases in declared dividends
and treasury stock repurchases. During the first nine months of fiscal 1999,
the Group continued its aggressive repurchase program, as authorized by the
board of directors, and repurchased 260,226 shares of its common stock. Of a
total of 944,041 shares repurchased up to March 31, 1999, 448,555 shares were
retired from circulation in fiscal 1997, as required by the Puerto Rico
Banking law, and 555,486 shares with a cost of $13.7 million are held in
treasury by the Group.
The Group's common stock is traded in the New York Stock Exchange (NYSE)
under the symbol OFG. The market value of the Group's common stock on the
NYSE at March 31, 1999 was $27.94 per share versus $27.85 per share a year
earlier, as a result the Group's market capitalization increased to $381
million as compared to $371 million a year ago. The book value per share at
March 31, 1999 fell to $7.70 from $7.80 a year ago.
During the first nine months of fiscal 1999, the Group declared dividends
amounting to $5.4 million or $0.413 per share versus $4.0 million or $0.30
per share in fiscal 1998, up 38%. For the first nine months of fiscal 1999,
the dividend payout ratio and dividend yield were 28.57% and 1.86%,
respectively, compared to 25.37% and 1.81%, 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 March 31, 1999, the Group had a leverage ratio of 7.04%; a Tier 1
risk-based ratio of 20.07%; and a total risk-based capital ratio of 18.82%
compared to 7.82%, 19.79% and 18.54%, respectively, a year ago.
GROUP'S FINANCIAL ASSETS
At March 31, 1999, the Group's total financial assets owned or managed, which
consists of Bank assets, assets managed by the trust and assets gathered by
the broker-dealer, reached $3.7 billion, an increase of 16% when compared to
the $3.2 billion a year ago. At March 31, 1999, Bank assets reached $1.532
billion from $1.262 billion a year ago, an increase of 21%. Assets managed by
the trust grew 8% to $1.338 billion versus $1.243 billion a year ago, and
assets gathered by the broker-dealer increased 21% to $832 million from $686
million the year before, see Table 8
The first and main component of the Group's financial assets is the assets
owned by the Group, of which 99% are owned by the Group's banking subsidiary.
For more on this refer to Group's assets owned section on page 17.
The second component of the Group's financial assets is assets managed by the
trust. The Group's trust offers various different types of IRA products and
manages 401(K) and Keogh retirement plans, custodian and corporate trust
accounts. At March 31, 1999, total assets managed by the Group's trust
amounted $1.338 billion, 8% higher than the $1.243 billion a year ago. This
increase was fueled by a solid 18% growth in individual retirement accounts
(IRA), the most significant asset managed, which totaled $493 million versus
the $417 million a year ago, followed by a 23% growth in 401(K) and Keogh
retirement plans managed.
The last component of the Group's financial assets is assets gathered by the
broker-dealer. The Group's broker-dealer subsidiary offers a wide array of
investment alternatives to its client's base such as fixed and variable
annuities, tax-advantaged fixed income securities, mutual funds, stocks and
bonds. At March 31, 1999, total assets gathered by the broker-dealer from its
customer investment accounts reached $832 million, up 21% from $686 million a
year ago.
18
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
----------- ---------- ----------- ----------
MARCH-99 MARCH-99 INC./(DEC.) JUNE-98
----------- ---------- ----------- ----------
TABLE 7 - CAPITAL, DIVIDENDS AND STOCK DATA
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CAPITAL DATA:
Stockholders' equity $ 104,977 $ 103,967 1% $ 107,030
----------- ---------- ----------- ----------
Leverage Capital ( minimum required - 3.00%) 7.04% 7.82% -10% 7.70%
----------- ---------- ----------- ----------
Total Risk-Based Capital (minimum required - 8.00%) 20.07% 19.79% 1% 21.68%
----------- ---------- ----------- ----------
Tier 1 Risk-Based capital (minimum required - 4.00%) 18.82% 18.54% 1% 20.45%
----------- ---------- ----------- ----------
STOCK DATA:
Outstanding common shares 13,625 13,335 2% 13,529
----------- ---------- ----------- ----------
Book value $ 7.70 $ 7.80 -1% $ 7.91
----------- ---------- ----------- ----------
Market Price at end of period $ 27.94 $ 27.85 0% $ 27.66
----------- ---------- ----------- ----------
Market capitalization $ 380,683 $ 371,380 3% $ 374,202
----------- ---------- ----------- ----------
DIVIDEND DATA:
Dividends declared $ 5,443 $ 3,956 38% $ 5,442
----------- ---------- ----------- ----------
Dividends declared per share $ 0.413 $ 0.300 38% $ 0.413
----------- ---------- ----------- ----------
Payout ratio 28.57% 25.37% 13% 25.42%
----------- ---------- ----------- ----------
Dividend yield 1.86% 1.81% 3% 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>
PRICE -----------
- -------------------------------------------------------- --------------------------- DIVIDEND
QUARTER ENDED: HIGH LOW PER SHARE
- -------------------------------------------------------- ------- -------- -----------
<S> <C> <C> <C>
FISCAL 1999:
March 1999 $ 29.63 $ 27.50 $ 0.150
--------------------------- -------
December 1998 $ 32.00 $ 28.00 $ 0.150
--------------------------- -------
September 1998 $ 32.26 $ 28.84 $ 0.113
--------------------------- -------
FISCAL 1998:
June 1998 $ 34.60 $ 27.67 $ 0.113
--------------------------- -------
March 1998 $ 29.35 $ 24.85 $ 0.113
--------------------------- -------
December 1997 $ 23.63 $ 18.38 $ 0.094
--------------------------- -------
September 1997 $ 22.28 $ 16.95 $ 0.094
--------------------------- -------
FISCAL 1997:
June 1997 $ 16.95 $ 13.65 $ 0.090
--------------------------- -------
March 1997 $ 16.20 $ 12.53 $ 0.090
--------------------------- -------
December 1996 $ 13.20 $ 10.95 $ 0.075
--------------------------- -------
September 1996 $ 9.81 $ 10.95 $ 0.075
--------------------------- -------
TABLE 8 - FINANCIAL ASSETS SUMMARY
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL ASSETS
Group assets $ 1,532,500 $ 1,261,500 21% $ 1,311,400
Trust assets managed 1,337,700 1,242,900 8% 1,310,000
Assets gathered by broker-dealer 831,700 686,000 21% 741,400
-------------------------------- -------- ------------
$ 3,701,900 $ 3,190,400 16% $ 3,362,800
-------------------------------- -------- ------------
</TABLE>
19
<PAGE>
ALLOWANCE FOR LOAN LOSSES AND NON-PERFORMING ASSETS:
At March 31, 1999, the Group's allowance for loan losses amounted to $9.6
million or 1.66% of total loans versus $6.8 million or 1.21% 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 at the time of
their examinations.
Net credit losses for the third quarter of fiscal 1999, totaled $3.3 million
or 2.29% of average loans, compared to $2.2 million or 1.55%, respectively,
in the same period of fiscal 1998. For the first nine months of fiscal 1999,
net credit losses amounted to $9.0 million or 1.66% of average loans versus
$5.5 million or 1.21% of average loans in fiscal 1998. The higher level of
credit losses experienced during the third quarter and first nine months of
fiscal 1999 was primarily associated to a rise in consumer loans and
financing leases net credit losses, see Provision for Loan Losses under
Results of Operations. Table 9 sets forth an analysis of activity in the
allowance for loan losses and presents selected loan loss statistics.
As shown on Table 10, at March 31, 1999, the Group's non-performing assets
consisted of non-performing loans, foreclosed real estate owned and other
repossessed assets. At the end of the third quarter of fiscal 1999, the
Group's asset quality remained stable as non-performing assets totaled $21
million or 1.40% of total assets versus $22 million or 1.77% of total assets
a year earlier, 4% lower. The reduction was principally due to a decline in
repossessed assets and non-performing loans. The decrease in non-performing
loans was mainly on consumer and finance leases as the Group continues to
improve the quality of these portfolios through stricter credit standards. It
is worth noting that the health of the consumer sector in Puerto Rico appears
to be improving, as such management expects the level of credit losses in
these portfolios to stabilize during the rest of fiscal 1999.
At March 31, 1999, the allowance for loan losses to non-performing loans
coverage ratio improved to 47.08% from 32.97% a year ago; excluding the
lesser risk real estate loans, the ratio substantially improved to 102.61%
from 50.15% for the respective periods. Detailed information concerning each
of the items that comprise non-performing assets follows:
- - REAL ESTATE LOANS - are placed on non-accrual basis when they become 90
days or more past due, unless they are well secured by real estate
collateral. At the date of our analysis, the Group's non-performing real
estate loans totaled $11.0 million or 54% of the Group's non-performing
loans. 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 - 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 amounted to $1.1 million or 5% of
the Group's non-performing loans. Of the total balance, $696,000 or 9
loans are guaranteed by real estate. Commercial loans are charged-off based
on the specific evaluation of the collateral underlying the loan.
- - FINANCE LEASES - are placed on non-accrual status when they become 90 days
past due. At the date of our analysis, the Group's non-performing auto and
equipment leases portfolio amounted to $7.7 million or 38% of the Group's
total non-performing loans and was comprised of 651 units. The underlying
collateral particularly secures these financing leases.
- - CONSUMER LOANS - are placed on non-accrual status when they become 90 days
past due. At the date of our analysis, the Group's non-performing consumer
loans amounted to 560,000 or 3% of the Group's total non-performing loans.
Consumer loans are charged-off when payments are delinquent 120 days.
- - 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.
- - 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 March
31, 1999, the inventory of repossessed automobiles and equipment consisted
of 39 units and 12 units, respectively, amounting to $634,000 or $16,250
average per unit and $68,000 or $5,660 average per unit, respectively.
20
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS PERIOD ENDED
MARCH 31, MARCH 31,
-------------------------------------- --------------------------------------------
1999 1998 1999 1998
------------- ---------------- ----------- --------------
TABLE 9 - ALLOWANCE FOR LOAN LOSSES SUMMARY AND LOAN LOSSES STATISTICS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BEGINNING BALANCE $ 9,693 $ 7,131 $ 5,658 $ 5,408
------------- ---------------- ----------- ---------------
Provision for loan losses 3,200 1,900 12,950 6,900
Net charge-off's (3,285) (2,214) (9,000) (5,491)
------------- ---------------- ----------- ---------------
NET INCREASE (DECREASE) (85) (314) 3,950 1,409
------------- ---------------- ----------- ---------------
ENDING BALANCE $ 9,608 $ 6,817 $ 9,608 $ 6,817
------------- ---------------- ----------- ---------------
CHARGE-OFF'S:
Real estate $ - $ (16) $ (2) $ (127)
Consumer (1,446) (935) (4,628) (2,683)
Leasing (2,266) (1,424) (5,577) (3,497)
Commercial and others (718) (511) (1,002) (598)
------------- ---------------- ----------- ---------------
(4,430) (2,886) (11,209) (6,905)
------------- ---------------- ----------- ---------------
RECOVERIES:
Real estate - - 16 -
Consumer 630 126 1,120 264
Leasing 279 367 779 970
Commercial and others 236 179 294 180
------------- ---------------- ----------- ---------------
1,145 672 2,209 1,414
------------- ---------------- ----------- ---------------
NET CHARGE-OFF'S:
Real estate - (16) 14 (127)
Consumer (816) (809) (3,508) (2,419)
Leasing (1,987) (1,057) (4,798) (2,527)
Commercial and others (482) (332) (708) (418)
------------- ---------------- ----------- ---------------
$ (3,285) $ (2,214) $ (9,000) $ (5,491)
------------- ---------------- ----------- ---------------
LOANS:
Outstanding $579,456 $564,549 $579,456 $564,549
------------- ---------------- ----------- ---------------
Average loans $573,556 $573,171 $567,535 $563,536
------------- ---------------- ----------- ---------------
RATIOS:
Recoveries to net-charge-off's 25.8% 23.3% 19.7% 20.5%
------------- ---------------- ----------- ---------------
Net charge-off's to average loans 2.29% 1.55% 2.11% 1.30%
------------- ---------------- ----------- ---------------
Allowance coverage ratio 1.66% 1.21% 1.66% 1.21%
------------- ---------------- ----------- ---------------
TABLE 10 - NON-PERFORMING ASSETS ( AT MARCH 31, )
- ----------------------------------------------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS: % %
----- -----
Non-performing loans $ 20,407 95.2% $ 20,679 92.7%
Foreclosed real estate 316 1.5% 405 1.8%
Repossessed autos 634 3.0% 1,003 4.5%
Repossessed equipment 68 0.3% 215 1.0%
----------- -------- ----------- --------
$ 21,425 100.0% $ 22,302 100.0%
----------- -------- ----------- --------
NON-PERFORMING LOANS:
Real estate $ 11,043 54.1% $ 7,087 34.3%
Consumer 560 2.7% 1,994 9.6%
Financing leases 7,697 37.8% 10,134 49.0%
Commercial 1,107 5.4% 1,464 7.1%
----------- -------- ----------- --------
$ 20,407 100.0% $ 20,679 100.0%
----------- -------- ----------- --------
RATIOS:
Non-performing loans to total loans 3.52% 3.66%
----------- -----------
Non-performing loans reserve coverage ratio 47.08% 32.97%
----------- -----------
Non-performing loans reserve coverage ratio (excluding real estate loans) 102.61% 50.15%
----------- -----------
Non-perfoming assets to total assets 1.40% 1.77%
----------- -----------
Non-perfoming assets to total capital 20.41% 21.45%
----------- -----------
</TABLE>
21
<PAGE>
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 and
liquidity risks. ALCO is also involved in 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 March 31, 1999
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 $48,437 $ - -
+ 200 Basis points 42,381 (6,057) -12.5%
- 200 Basis points 53,932 $5,495 11.3%
</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 third quarter of fiscal 1999, the Group's liquidity was
deemed appropriate. It included $58.6 million available from unused lines of
credit with other financial institutions and $31.9 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.
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.
22
<PAGE>
YEAR 2000 READINESS DISCLOSURE
As discussed on page 28 in the Group's Fiscal 1998 Annual Report on Form
10-K, the Group initiated a firm-wide program (the "Year 2000 Program") to
prepare its computer programs, applications and infrastructure for properly
processing dates after December 31, 1999. The Group's Year 2000 Program is
in progress and it is the Group's expectation that it will have its firm-wide
Year 2000 solution in place by June 30, 1999, in accordance with regulatory
guidelines.
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 - NONE
ITEM 5. OTHER INFORMATION
On May 5, 1999, the Group closed the sale of 1,225,000 shares of its 7.125%
Noncumulative Monthly Income Preferred Stock, Series A, through a group of
underwriters led by Santander Securities Corporation of Puerto Rico at a
price to the public of $25.00 per share. The Group received proceeds of
approximately $30.6 million from the offering, before deducting the expenses
of the offering.
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
Before the issuance of this report on Form 10-Q two reports on Form 8-K (the
"Reports") related to the sale of 7.125% Noncumulative Monthly Income
Preferred Stock, Series A, mentioned on Item 5 above were filed. These
Reports were filed with Securities and Exchange Commission on April 8, 1999
and May 5, 1999,respectively, and are incorporated herein by reference.
C - EXHIBITS
No exhibits were filed as part of this Form 10-Q
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: May 13, 1999 By: /s/ Jose E. Fernandez
------------- ------------------------------------
Jose E. Fernandez
Chairman of the Board, President,
and CEO
Date: May 13, 1999 By: /s/ Rafael Valladares
------------- ------------------------------------
Rafael Valladares, CPA
Senior Vice President and
Controller
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 9,816
<INT-BEARING-DEPOSITS> 3,978
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 34,831
<INVESTMENTS-HELD-FOR-SALE> 732,131
<INVESTMENTS-CARRYING> 111,533
<INVESTMENTS-MARKET> 0
<LOANS> 569,848
<ALLOWANCE> 9,608
<TOTAL-ASSETS> 1,532,456
<DEPOSITS> 639,010
<SHORT-TERM> 41,600
<LIABILITIES-OTHER> 27,368
<LONG-TERM> 126,500
0
0
<COMMON> 13,625
<OTHER-SE> 91,352
<TOTAL-LIABILITIES-AND-EQUITY> 1,532,456
<INTEREST-LOAN> 46,648
<INTEREST-INVEST> 36,773
<INTEREST-OTHER> 965
<INTEREST-TOTAL> 84,386
<INTEREST-DEPOSIT> 21,632
<INTEREST-EXPENSE> 48,305
<INTEREST-INCOME-NET> 36,081
<LOAN-LOSSES> 12,950
<SECURITIES-GAINS> 10,464
<EXPENSE-OTHER> 23,861
<INCOME-PRETAX> 22,254
<INCOME-PRE-EXTRAORDINARY> 22,254
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,049
<EPS-PRIMARY> 1.46
<EPS-DILUTED> 1.42
<YIELD-ACTUAL> 8.51
<LOANS-NON> 15,651
<LOANS-PAST> 4,756
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,658
<CHARGE-OFFS> 11,209
<RECOVERIES> 2,209
<ALLOWANCE-CLOSE> 9,608
<ALLOWANCE-DOMESTIC> 9,608
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
