34
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 130
of the Securities Exchange Act of 1934
For the Quarter ended Commission File 001-14793
June 30, 1999
First BanCorp.
(Exact name of bank as specified in its charter)
Puerto Rico 66-0561882
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1519 Ponce de Leon Avenue, Stop 23
Santurce, Puerto Rico 00908
(Address of principal office) (Zip Code)
Bank's telephone number, including area code:
(787) 729-8200
Indicate by check mark whether the Corporation (1) has filed all reports
required by Section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Corporation was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Number of shares of the Corporation's Common Stock outstanding as of August 10,
1999
28,998,552
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
FIRST BANCORP
CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Statements of Financial
Condition as of June 30, 1999 and
December 31, 1998.................................................................3
Consolidated Statements of Income for the
three and six months ended on June 30, 1999 and 1998.............................4
Consolidated Statements of Comprehensive Income for the
three and six months ended on June 30, 1999 and 1998.............................5
Consolidated Statements of Cash Flows
for the six months ended on June 30, 1999 and 1998................................6
Consolidated Statements of Changes in
Stockholders' Equity..............................................................7
Notes to Consolidated Financial Statements...........................................8
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations.................................................18
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................33
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................................34
Item 2. Changes in Securities.......................................................34
Item 3. Defaults Upon Senior Securities.............................................34
Item 4. Submission of Matters to a Vote
of Security Holders.......................................................34
Item 5. Other Information...........................................................34
Item 6. Exhibits and Report on Form 8-K.............................................34
SIGNATURES............................................................................................35
</TABLE>
<PAGE>
FIRST BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
June 30, December 31,
1999 1998
----------------------------------
(Unaudited)
Assets
Cash and due from depository institutions $ 66,401,610 $ 39,416,097
----------------- --------------
Deposits at interest with banks 61,449,685 525,669
------------------ -------------------
Debt securities available for sale, at market:
United States and Puerto Rico Government obligations 372,061,439 268,611,106
Mortgage backed securities 1,067,187,728 1,492,538,909
Other investment 1,795,625 1,620,000
------------------ -------------------
Total debt securities available for sale 1,441,044,792 1,762,770,015
--------------- ----------------
Debt securities held to maturity, at cost:
United States and Puerto Rico Government obligations 186,636,059 26,921,836
Mortgage backed securities 74,129,414 ____________
----------------
260,765,473 26,921,836
--------------- -----------------
Federal Home Loan Bank (FHLB) stock 17,826,500 10,270,600
---------------- -----------------
Loans held for sale 29,828,901 20,641,628
Loans receivable 2,317,420,524 2,099,412,756
--------------- ---------------
Total loans 2,347,249,425 2,120,054,384
Allowance for loan losses (70,761,579) (67,854,066)
----------------- ----------------
Total loans - net 2,276,487,846 2,052,200,318
--------------- ---------------
Other real estate owned 370,512 3,642,525
Premises and equipment - net 56,138,530 51,537,192
Accrued interest receivable 18,164,965 10,738,072
Due from customers on acceptances 1,701,337 2,392,338
Other assets 72,191,930 56,937,413
----------------- -----------------
Total assets $4,272,543,180 $4,017,352,075
============== ==============
Liabilities and Stockholders' Equity
Liabilities:
Non-interest bearing deposits $ 205,060,429 $ 173,103,709
Interest bearing deposits 2,007,238,274 1,601,941,185
Federal funds purchased and securities
sold under agreements to repurchase 1,431,652,234 1,623,697,988
Other short-term borrowings 70,014,761 86,594,710
Advances from FHLB 2,600,000
Notes payable 101,000,000 118,100,000
Bank acceptances outstanding 1,701,337 2,392,338
Accounts payable and other liabilities 44,011,953 39,058,247
----------------- -----------------
3,860,678,988 3,647,488,177
Subordinated notes 93,560,080 99,495,830
----------------- -----------------
Stockholders' equity:
Preferred stock, authorized 50,000,000 shares; issued and
outstanding 3,600,000 shares at $25.00 liquidation value per share 90,000,000
Common stock, $1.00 par value, authorized 250,000,000 shares; ----------- ----------------
issued 29,612,552 shares 29,612,552 29,599,552
Less: Treasury Stock (486,600 shares at par) (486,600) (100,000)
------------------ -----------------
Common stock outstanding 29,125,952 29,499,552
---------------- ---------------
Additional paid-in capital 20,365,299 23,575,936
Capital reserve 30,000,000 30,000,000
Legal surplus 60,454,469 53,454,469
Retained earnings 131,391,451 125,088,180
Accumulated other comprehensive income - unrealized gain (loss)
on securities available for sale, net of tax (43,033,059) 8,749,931
------------------ -------------------
318,304,112 270,368,068
------------------ ----------------
Contingencies and commitments _____________ ____________
Total liabilities and stockholders' equity $4,272,543,180 $4,017,352,075
============== ==============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
34
FIRST BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
Interest income:
Loans $63,054,556 $57,775,887 $122,930,672 $114,283,953
Investments 23,901,459 19,764,701 50,985,175 40,468,191
Dividends on FHLB stock 299,553 190,766 482,551 376,852
-------------- --------------- --------------- ---------------
Total interest income 87,255,568 77,731,354 174,398,398 155,128,996
------------ ------------- ----------- ------------
Interest expense:
Deposits 20,553,161 17,234,671 38,847,149 34,266,607
Short term borrowings 16,965,078 15,561,695 37,632,867 31,441,318
Long term borrowings 3,396,666 3,741,099 6,980,253 7,619,193
------------- ------------- ------------- -------------
Total interest expense 40,914,905 36,537,465 83,460,269 73,327,118
------------ ------------ ------------ ------------
Net interest income 46,340,663 41,193,889 90,938,129 81,801,878
------------ ------------ ------------ ------------
Provision for loan losses 12,949,500 13,929,000 26,749,500 35,667,000
------------ ------------ ------------ ------------
Net interest income after provision
for loan losses 33,391,164 27,264,889 64,188,629 46,134,878
------------ ------------ ------------ -----------
Other income:
Service charges on deposit accounts 2,056,634 1,901,966 3,961,378 3,915,348
Fees on loans serviced for others 220,757 440,852 488,307 935,068
Other fees on loans 3,075,093 2,791,983 5,916,423 5,441,537
Mortgage banking activities 11,549 11,549 2,478
Trading income 250,000 75,000 250,000
Gain on sale of investments 27,775 1,564,696 1,308,286 11,683,069
Other operating income 2,134,101 1,898,446 3,933,310 3,372,650
------------ ------------- ------------- ------------
Total other income 7,525,909 8,847,943 15,694,253 25,600,150
------------ ------------- ------------ ------------
Other operating expenses:
Employees' compensation and benefits 11,346,767 10,539,097 22,568,586 20,739,171
Occupancy and equipment 4,744,522 4,087,178 9,443,908 8,060,060
Taxes and insurance 1,631,492 1,710,622 3,262,973 3,415,883
Other 6,489,777 6,035,212 12,622,786 11,748,509
-------------- ------------- ------------- ------------
Total other operating expenses 24,212,558 22,372,109 47,898,253 43,963,623
------------- ------------ ------------- -----------
Income before income tax provision 16,704,514 13,740,723 31,984,629 27,771,405
Income tax provision 1,311,000 1,040,000 2,449,900 2,710,000
------------- ------------- ------------- ------------
Net income $15,393,514 $12,700,723 $29,534,729 $25,061,405
=========== =========== =========== ===========
Net income per common share - basic $0.49 $0.43 $0.97 $0.85
===== ===== ===== =====
Net income per common share - diluted $0.49 $0.43 $0.97 $0.84
===== ===== ===== ======
</TABLE>
<PAGE>
FIRST BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
Net Income $15,393,514 $12,700,723 $29,534,729 $25,061,405
----------- ----------- ----------- -----------
Other comprehensive income net of tax:
Unrealized gain (losses) on securities:
Unrealized holding gains (losses)
arising during the period (29,059,069) 4,605,300 (50,885,772) (10,840,468)
Less: reclassification adjustment
for gains included in net income (34,520) 778,382 897,218 (8,367,162)
------------- ------------ ------------ -------------
Total other comprehensive income (29,024,549) 3,826,918 (51,782,990) (2,473,306)
------------- ------------ ------------- -------------
Comprehensive income $(13,631,035) $16,527,641 $(22,248,261) $22,588,099
============ =========== ============ ===========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
FIRSTBANK PUERTO RICO
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Six Months Six Months
Ended Ended
June 30, 1999 June 30, 1998
Cash flows from operating activities:
Net income $ 29,534,730 $ 25,061,405
-------------- -------------
Adjustments to reconcile net income to net cash:
Depreciation 3,589,147 4,181,233
Provision for loan losses 26,749,000 35,665,000
Decrease in taxes payable (48,990) (5,679,910)
Increase in deferred tax asset (1,510,326) (3,323,383)
Decrease (increase) in accrued interest receivable (7,426,893) 2,311,196
Increase in accrued interest payable 1,570,289 504,005
Amortization of deferred net loan fees (480,835) (147,135)
Gain on sale of investments (1,308,286) (11,683,069)
Originations of loans available for sale (8,991,026) (1,238,518)
Decrease (increase) in other assets 3,742,802 (2,530,367)
Increase in other liabilities 3,055,391 2,021,213
---------------------------------
Total adjustments 18,940,274 20,080,266
---------------- ---------------
Net cash provided by operating activities 48,475,004 45,141,671
---------------- ---------------
Cash flows from investing activities:
Principal collected on loans 289,531,014 367,636,625
Loans originated (539,634,665) (414,498,441)
Purchase of loans (196,247) (1,205,373)
Proceeds from sale of investments 9,499,081 112,810,563
Maturities of investment securities and money market instruments 6,069,411,536 3,363,200,348
Purchases of investment securities and money market instruments (6,119,688,746) (3,601,408,302)
Additions to premises and equipment - net (8,190,485) (5,483,858)
Proceeds from sale of real estate owned 3,594,699 226,000
Proceeds from sale of auto repossessions 8,397,909 10,964,414
Purchase of FHLB stock (7,555,900) (120,300)
------------------ -----------------
Net cash used in investing activities (294,831,804) (167,878,323)
---------------- --------------
Cash flows from financing activities:
Proceeds from issuance of certificates of deposits and savings
accounts 1,001,959,704 588,321,778
Payments for maturing certificates of deposits and withdrawals
of savings accounts (547,832,221) (547,993,024)
Interest credited to deposits (41,291,330) (26,079,659)
Proceeds from federal funds purchased and securities sold under
repurchase agreements 9,526,556,394 7,215,528,869
Payment/maturities of federal funds purchased and securities sold
under repurchase agreements (9,718,916,134) (6,987,340,343)
FHLB-NY advances taken (paid) (2,600,000) 2,000,000
Payments of term and notes payable (23,035,750) (14,250,000)
Increase payment in other borrowings (16,579,949) (106,432,502)
Increase (decrease) in debt securities issuance cost 479,641 (467,356)
Net increase in demand deposit accounts 24,417,654 9,047,760
Dividends (6,314,951) (4,438,435)
Exercise of stock options 176,313 94,935
Repurchase of common stock (3,656,420)
Issuance of preferred stock 86,819,350
Treasury stock acquired (10,496,408)
------------------ -----------
Net cash provided by financing activities 273,342,313 124,335,603
---------------------------------
Net increase (decrease) in cash and cash equivalents 26,985,513 1,598,951
Cash and cash equivalents at beginning of period 39,416,097 37,666,068
-----------------------------------
Cash and cash equivalents at end of period $ 66,401,610$ 39,265,019
=================================
- ---------------------------
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $81,889,980 $72,823,113
Income taxes 3,745,558
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
FIRST BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Unrealized
gain(loss)
Additional on securities
Preferred Common paid-in Capital Legal Retained available
stock stock capital reserve surplus earnings for sale
Balance at December 31, 1996 $ $ 15,116,651 $ 38,599,962 $10,000,000 $49,106,995 $77,711,586 $ 607,119
Net income 47,527,552
Change in valuation of
securities available for sale 11,424,325
Addition to legal surplus 4,347,474 (4,347,474)
Addition to capital reserve 10,000,000 (10,000,000)
Repurchase of common stock (247,825) (495,650) (6,156,347)
Stock option exercised 33,000 349,249
Cash dividends (7,197,417)
Balance at December 31, 1997 14,901,826 38,453,561 20,000,000 53,454,469 97,537,900 12,031,444
Net income 51,812,387
Change in valuation of
securities available for sale (3,281,513)
Addition to capital reserve 10,000,000 (10,000,000)
Repurchase of common stock (108,800) (217,600) (3,330,024)
Treasury stock (100,000) (50,000) (2,061,250)
Stock option exercised 10,000 186,501
Cash dividends (8,870,832)
Common stock split
on May 29, 1998 14,796,526 (14,796,526) __________ __________ ___________ __________
----------------- ------------ -----------
Balance at December 31, 1998 29,499,552 23,575,936 30,000,000 53,454,469 125,088,180 8,749,931
(Unaudited)
Net income for the period ended
June 30, 1999 29,534,729
Change in valuation of
securities available for sale (51,782,990)
Issuance of preferred stock 90,000,000 (3,180,650)
Addition to legal surplus 7,000,000 (7,000,000)
Treasury stock (386,600) (193,300) (9,916,508)
Stock options exercised 13,000 163,313
Cash dividends:
Common stock (5,246,199)
Preferred stock __________ __________ __________ __________ __________ (1,068,750) _________
---------------
- ---------- ----------- ---------- ---------- ----------
Balance at June 30, 1999 $90,000,000 $29,125,952 $20,365,299 $30,000,000 $60,454,469 $131,391,452 $(43,033,059)
=========== =========== =========== =========== =========== ============ =============
The accompanying notes are an integral part of these statements.
<PAGE>
</TABLE>
FIRST BANCORP
PART I - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - NATURE OF BUSINESS
First BanCorp (the Corporation) was organized on October 1st, 1998
under the laws of the Commonwealth of Puerto Rico to serve as the bank holding
company for FirstBank Puerto Rico (FirstBank or the Bank). As a result of this
reorganization each of the Bank's outstanding shares of common stock was
converted into one share of common stock of the new bank holding company. First
BanCorp is subject to the Federal Bank Holding Company Act and to the
regulations, supervision, and examination of the Federal Reserve Board.
FirstBank, the Corporation's subsidiary, is a commercial bank chartered
under the laws of the Commonwealth of Puerto Rico. Its main office is located in
San Juan, Puerto Rico, and has 41 full service banking branches in Puerto Rico
and two in the U.S. Virgin Islands. It also has loan origination offices in
Puerto Rico focusing on consumer loans. In addition, through its wholly owned
subsidiaries, FirstBank operates other offices in Puerto Rico specializing in
small personal loans, finance leases and vehicle rental. The Bank is subject to
the supervision, examination and regulation by the Office of the Commissioner of
Financial Institutions of Puerto Rico and the Federal Deposit Insurance
Corporation (FDIC), which insures its deposits through the Savings Association
Insurance Fund (SAIF).
2 - ACCOUNTING POLICIES
The accounting and reporting policies of the Corporation and its
subsidiaries conform with generally accepted accounting principles, and, as
such, include amounts based on judgments, estimates and assumptions made by
Management that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates. The accompanying unaudited financial statements have been prepared in
accordance with the instructions for Form 10-Q. Complete information regarding
the financial statements can be found in the notes to the financial statements
for the year ended December 31, 1998 contained in the annual report of the
Corporation.
In the opinion of Management, the accompanying unaudited consolidated
statements of condition and the related consolidated statements of income, of
comprehensive income, of cash flows, and of changes in stockholders' equity
include all adjustments (principally consisting of normal recurring accruals)
necessary for a fair presentation of the Corporation's financial position at
June 30, 1999, and the results of operations and the cash flows for the three
and six months ended on June 30, 1999 and 1998. The results of operations for
the three and six months ended on June 30, 1999 are not necessarily indicative
of the results to be expected for the entire year.
3 - STOCKHOLDERS' EQUITY
Authorized common stock shares at June 30, 1999 and December 31, 1998
were 250,000,000, with a par value of $1.00. The Corporation has 29,125,952
shares issued and outstanding of common stock.
Preferred stock
The Corporation has 50,000,000 shares of authorized preferred stock
with a par value of $1. This stock may be issued in series and the shares of
each series shall have such rights and preferences as shall be fixed by the
Board of Directors when authorizing the issuance of that particular series. On
April 30, 1999, the Corporation issued 3,600,000 shares of preferred stock. The
liquidation value per share is $25.00. Annual dividends of $1.78125 per share,
are payable monthly, if declared by the board of directors.
4 - EARNINGS PER COMMON SHARE
The calculations of earnings per common share for the three and six months
ended on June 30, 1999 and 1998 are as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
(In thousands, except per share data)
Net income $15,394 $12,701 $29,535 $25,061
Less: Preferred stock dividend (1,069) ______ (1,069) ______
-------- --------
Net income - attributable to common stockholders $14,325 $12,701 $28,466 $25,061
======= ======= ======= =======
Earnings per common share - basic:
Weighted average common shares outstanding 29,144 29,589 29,201 29,614
-------- ------- ------- -------
Earnings per common share - basic $ 0.49 $ 0.43 $ 0.97 $ 0.85
========= ======== ======== ========
Earnings per common share - diluted:
Weighted average common shares and share equivalents:
Average common shares outstanding 29,144 29,589 29,201 29,614
Common stock equivalents - Options 268 297 275 253
--------- ---------- -------- ---------
Total 29,412 29,887 29,476 29,867
-------- -------- ------- -------
Earnings per common share - diluted $ 0.49 $ 0.43 $ 0.97 $ 0.84
======== ========= ======= =======
</TABLE>
Stock options outstanding under the Corporation's stock option plan for
officers are common stock equivalents and, therefore, considered in the
computation of earnings per common share - diluted. Common stock equivalents
were computed using the treasury stock method.
The stock option plan must be recognized either by the fair value based
method or the intrinsic value based method. The Corporation uses the intrinsic
value based method of accounting. Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of the stock
at grant date or other measurement date over the amount an employee must pay to
acquire the stock. If material, entities using the intrinsic value based method
on awards granted to employees must make pro forma disclosures of net income and
earnings per share, as if the fair value based method of accounting had been
applied. Under the fair value based method, compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period.
During the three and six months periods ended on June 30, 1999, the
Corporation granted 3,500 and 5,500 options, respectively, to buy shares of the
Corporation's common stock. Each option granted in 1999 has an exercise price of
$26.44 (quarter) and $26.26 (semester), equal to the quoted market price of the
stock at the grant date, therefore no compensation cost was recognized on the
options granted. During the three and six months period ended on June 30, 1998,
the Corporation granted 57,000 and 117,000 options, respectively, to buy shares
of the Corporation's common stock. Each option granted in 1998 has a weighted
exercise price of $27.75 (quarter) and $23.36 (semester), equal to the quoted
market price of the stock at the grant date, therefore no compensation cost was
recognized on the options granted.
Had compensation cost for the stock options granted been determined
based on the fair value at the grant date the Corporation's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Pro forma earnings per common share Three months ended Six months ended
June 30, June 30,
(In thousands except per share data) 1999 1998 1999 1998
---- ------ ---- ----
Net income attributable to common stockholders $14,287 $12,108 $28,404 $24,141
Earnings per common share - basic $0.49 $0.41 $0.97 $0.82
Earnings per common share - diluted $0.49 $0.41 $0.96 $0.81
</TABLE>
The Corporation uses the binomial model for the computation of the fair
value of each option granted to buy shares of the Corporation's common stock.
The fair value of each option granted during the second quarter of 1999 and 1998
was estimated using the following assumptions: dividend growth of 22.4% (1999)
and 22.5% (1998); expected life of 10 years; expected volatility of 36.6% (1999)
and 27.6% (1998) and risk-free interest rate of 5.2% (1999) and 5.6% (1998). The
estimated fair value of the options granted was $10.98 (1999) and $10.39 (1998)
per option.
The fair value of each option granted during the first semester of 1999
and 1998 was estimated using the following assumptions: weighted dividend growth
of 22.0% (1999) and 21.2% (1998); expected life of 10 years; weighted expected
volatility of 36.1% (1999) and 28.6% (1998) and weighted risk-free interest rate
of 5.1% (1999) and 5.4% (1998). The weighted estimated fair value of the options
granted was $11.21 (1999) and $7.87 (1998) per option.
<PAGE>
5- DEBT SECURITIES HELD FOR TRADING
At June 30, 1999 and December 31, 1998, there were no securities held for
trading purposes or options on such securities.
The net gain from the sale of trading securities amounted to $75,000
during the six months ended on June 30, 1999 and $250,000 during the three and
six months ended June 30, 1998. These earnings were included as trading income.
No net revenue from the sale of trading securities was recorded during the
second quarter of 1999.
6 - DEBT SECURITIES
The amortized cost, gross unrealized gains and losses, approximate
market value, taxable equivalent weighted average yield and maturities of debt
securities were as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Debt securities available for sale
(Dollars in thousands)
June 30, 1999 December 31, 1998
Weighted Weighted
Amortized Unrealized Market Average Amortized Unrealized Market average
cost gains (losses) value yield% cost gains( losses) value yield%
U.S. Treasury Securities:
After 5 to 10 years $ 39,553 $(2,728) $36,825 4.91
After 10 years 67,424 (5,124) 62,300 5.91
Obligations of other U.S.
Government Agencies:
Within 1 year 243,368 (56) 243,313 4.71 $240,040 $ 51 $240,091 5.00
After 10 years 26,522 (2,210) 24,313 8.43 25,619 $(159) 25,460 8.32
Puerto Rico Government
Obligations:
After 10 years 5,296 $15 _______ 5,311 6.99 2,964 96 ____ 3,060 7.18
---------- ---- ----------- ----------- ------ -----------
Total $382,163 $15 $(10,118) $372,062 5.23 $268,623 $147 $(159) $268,611 5.35
======== === ======== ======== ======== ==== ===== ========
Mortgage backed securities- Federal Home Loan Mortgage Corporation (FHLMC)
certificates:
Within 1 year $ 2,885 $ 2,885 6.35 $ 4,564 $ 19 $ 4,583 7.84
After 1 to 5 years 83 $ 2 85 10.28 1,001 9 1,010 8.14
After 5 to 10 years 11,677 $(123) 11,554 7.17 10,169 149 10,318 7.68
After 10 years 26,198 336 _____ 26,534 9.45 32,363 802 33,166 9.07
-------- ---- ------- ----------- ------ -------- ----------
40,844 338 (123) 41,059 8.56 48,098 979 49,077 8.64
-------- ---- ------ ------- ----------- ------ ------------------
Government National
Mortgage Association
(GNMA) certificates:
After 5 to 10 years 3,969 (74) 3,894 6.48
After 10 years 1,051,305 1,432 (49,905) 1,002,833 7.12 1,411,369 9,936 $(357) 1,420,947 6.91
--------- ----- ------- --------- --------- ----- ----- ---------
1,055,274 1,432 (49,979) 1,006,727 7.11 1,411,369 9,936 (357) 1,420,947 6.91
--------- ----- ------- --------- --------- ----- ----- ---------
<PAGE>
Federal National
Mortgage Association
(FNMA) certificates:
Within 1 year 1,290 (1) 1,289 6.63 157 1 158 8.23
After 1 to 5 years 835 8 843 8.94 2,691 30 2,721 8.40
After 5 to 10 years 274 11 285 10.28
After 10 years 12,860 472 (39) 13,294 10.33 14,299 605 (10) 14,894 10.35
----------- ----------------- ----------- -------- ----- ----- ----------
14,985 480 (40) 15,426 10.10 17,422 646 (10) 18,058 10.02
----------- ----------------- ----------- -------- ----- ----- ----------
Mortgage pass through
certificates:
After 10 years 2,582 703 _______ 3,285 9.51 2,764 767 _____ 3,530 9.33
-------------------- ------------ --------- -------- -----------
Real Estate Mortgage
Interest Conduit:
Within 1 year 651 40 _______ 691 18.17
----------------------- --------------
After 1 to 5 years 865 62 927 11.63
------------- --------------------------
Total $1,114,336 $2,993 $(50,142) $1,067,188 7.22 $1,480,516 $12,390 $(367) $1,492,539 7.02
========== ====== ======== ========== ========== ======= ===== ==========
Other Investment:
After 5 to 10 years $1,922 $(127) $1,795 17.23 $1,964 $(344) $1,620 15.76
====== ===== ====== ====== ===== ======
Debt securities held to maturity
(Dollars in thousands)
June 30, 1999 December 31, 1998
Weighted Weighted
Amortized Unrealized Market Average Amortized Unrealized Market average
cost gains (losses) value yield% cost gains( losses) value yield%
Obligations of other U.S.
Government Agencies:
Within 1 year $ 500 $ (2) $ 498 3.37
After 10 years $70,649 $(4,545) $66,104 9.12 23,051 $569 23,620 10.20
Puerto Rico Government
Obligations:
After 10 years 3,480 $ 200 _____ 3,680 7.53 3,371 204 3,575 7.41
--------- ----- --------- --------- ------------- --------
Total $74,129 $ 200$(4,545) $69,784 9.04 $26,922 $ 773 $ (2) $27,693 9.73
======= ============ ======= ======= ===== ==== =======
Mortgage backed securities:
Government National
Mortgage Association
(GNMA) certificates
After 10 years $186,636 $(2,451) $184,185 7.87
======== ======= ========
</TABLE>
Maturities for mortgage backed securities are based upon contractual
terms assuming no repayments. The weighted average yield on debt securities held
for sale is based on amortized cost, therefore it does not give effect to
changes in fair value.
<PAGE>
7 - INVESTMENT IN FHLB STOCK
At June 30, 1999 and December 31, 1998, there were investments in FHLB
stock with book value and estimated market value of $17,826,500 and $10,270,600,
respectively. The estimated market value of such investments are their
redemption values.
8- IMPAIRED LOANS
At June 30, 1999, the Corporation had $4.3 million ($14.3 million at
December 31, 1998) in commercial and real estate loans over $1,000,000
considered impaired with an allowance of $1.0 million ($3.8 million at December
31, 1998). As of both periods, no increases in the provision for loan losses
were necessary, since the allowance provided already covered the estimated
impairment. There were no consumer loans over $1,000,000 considered impaired as
of June 30, 1999 and December 31, 1998. The average recorded investment in
impaired loans amounted to $9.3 million for the six months ended on June 30,
1999 (1998 - $13.0 million). Interest income in the amount of approximately
$164,000 and $373,000 was recognized on impaired loans for the period ended on
June 30, 1999 and 1998, respectively.
<PAGE>
9 - LOANS RECEIVABLE
The following is a detail of the loan portfolio:
<TABLE>
<S> <C> <C>
June 30, December 31,
1999 1998
------------------ --------------
Real estate loans:
Secured by first mortgages:
Residential $250,639,934 $237,560,711
Insured by government agencies:
Federal Housing Administration and Veterans
Administration 6,555,612 8,185,232
Puerto Rico Housing Bank and Finance Agency 35,812,190 38,515,744
Secured by second mortgages 5,523,788 4,956,196
----------------- ---------------
298,531,524 289,217,883
Deferred loan and commitment fees - net (6,093,639) ( 6,848,311)
----------------- ---------------
Real estate loans 292,437,885 282,369,572
--------------- -------------
Construction, land acquisition and land improvements 214,397,767 161,498,219
Undisbursed portion of loans in process (123,780,835) (98,535,025)
--------------- --------------
Construction loans 90,616,932 62,963,194
---------------- --------------
Commercial loans:
Commercial loans 471,211,126 368,548,532
Commercial mortgage 392,678,043 332,219,186
--------------- --------------
Commercial loans 863,889,169 700,767,718
--------------- --------------
Finance leases 69,609,534 52,214,183
---------------- --------------
Consumer and other loans:
Personal 454,062,877 463,052,946
Personal lines of credit 9,178,048 9,535,354
Auto 526,085,991 512,116,471
Boat 33,909,401 32,208,879
Credit card 123,968,105 125,955,592
Home equity reserve loans 2,946,220 3,385,220
Unearned interest (149,401,038) (145,284,440)
---------------- ---------------
1,000,749,604 1,000,970,022
Agency for International Development 117,400 128,066
------------------- ------------------
Consumer and other loans 1,000,867,004 1,001,098,088
--------------- --------------
Loans receivable 2,317,420,524 2,099,412,756
Loans held for sale 29,828,901 20,641,628
----------------- -----------------
Total loans 2,347,249,425 2,120,054,384
Allowance for loan losses (70,761,579) (67,854,066)
----------------- -----------------
Total loans-net $2,276,487,846 $2,052,200,318
============== ==============
</TABLE>
<PAGE>
10 - SEGMENT INFORMATION
The Corporation has three reportable segments: Retail business,
Treasury and Investments, and Commercial Corporate business. Management
determined the reportable segments based on the internal reporting used to
evaluate performance and to assess where to allocate resources. Other factors
such as the Corporation's organizational chart, nature of the products,
distribution channels and the economic characteristics of the products were also
considered in the determination of the reportable segments.
The Retail business segment is composed of the Corporation's branches
and loan centers together with the retail products of deposits and consumer
loans. Certain small commercial loans originated by the branches are included in
the Retail business. Consumer loans include loans such as personal, residential
real estate, auto, credit card and small loans. Finance leases are also included
in Retail business. The Commercial Corporate segment is composed of commercial
loans and corporate services such as letters of credit and cash management. The
Treasury and Investment segment is responsible for the Corporation investment
portfolio and treasury functions.
The accounting policies of the segments are the same as those described in
Note 2 - "Summary of Significant Accounting Policies."
The Corporation evaluates the performance of the segments based on net
interest income after the estimated provision for loan losses. The segments are
also evaluated based on the average volume of its earning assets less the
allowance for loan losses.
The only intersegment transaction is the net transfer of funds between
the segments and the Treasury and Investment segment. The Treasury and
Investment segment sells funds to the Retail and Commercial Corporate segments
to finance their lending activities and purchases funds gathered by those
segments. The interest rates charge or credit by Investment and Treasury is
based on market rates.
<PAGE>
The following table presents information about the reportable segments
(in thousands):
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Treasury and Commercial
Retail Investments Corporate Total
For the quarter ended June 30, 1999:
Interest income $42,176 $24,203 $20,876 $87,255
Net (charge) credit for transfer of funds 1,897 7,911 (9,808)
Interest expense (14,159) (26,756) (40,915)
Net interest income 29,914 5,358 11,068 46,340
Provision for loan losses (12,472) (478) (12,950)
Segment income 17,442 5,358 10,590 33,390
Average earning assets $1,320,395 $1,570,105 $837,868 $3,728,368
For the period ended June 30, 1999:
Interest income $88,689 $51,473 $34,237 $174,399
Net (charge) credit for transfer of funds (1,369) 20,070 (18,701)
Interest expense (27,490) (55,970) (83,460)
Net interest income 59,830 15,573 15,536 90,939
Provision for loan losses (25,237) (1,513) (26,750)
Segment income 34,593 15,573 14,023 64,189
Average earning assets $1,314,811 $1,661,486 $800,981 $3,777,278
Treasury and Commercial
Retail Investments Corporate Total
For the quarter ended June 30, 1998:
Interest income $45,027 $19,955 $12,587 $77,569
Net (charge) credit for transfer of funds 1,333 5,652 (6,985)
Interest expense (15,046) (21,490) (36,536)
Net interest income 31,314 4,117 5,602 41,033
Provision for loan losses (13,884) (45) (13,929)
Segment income 17,430 4,117 5,557 27,104
Average earning assets $1,304,242 $1,223,149 $597,856 $3,125,247
For the period ended June 30, 1998:
Interest income $88,983 $40,845 $24,970 $154,798
Net (charge) credit for transfer of funds 1,892 12,054 (13,946)
Interest expense (29,677) (43,648) (73,325)
Net interest income 61,198 9,252 11,023 81,473
Provision for loan losses (34,852) (815) (35,667)
Segment income 26,346 9,252 10,208 45,806
Average earning assets $1,319,541 $1,248,241 $593,232 $3,161,014
<PAGE>
The following table presents a reconciliation of the reportable segment
financial information to the consolidated totals (in thousands):
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
------------- ----------- ----------- --------
Interest income:
Total interest income for segments $87,255 $77,569 $174,399 $154,798
Interest income credited to expense accounts 162 331
Total consolidated interest income $87,255 $77,731 $174,399 $155,129
Net income:
Total income for segments $33,390 $27,104 $64,189 45,806
Other income 7,526 8,848 15,694 25,600
Operating expenses (24,212) (22,211) (47,898) (43,635)
Income taxes (1,311) (1,040) (2,450) (2,710)
Total consolidated net income $15,393 $12,701 $29,535 $25,061
Average assets:
Total average earning assets for segments $3,728,368 $3,125,247 $3,777,278 $3,161,014
Average non earning assets 191,227 148,939 177,135 151,783
Total consolidated average assets $3,919,595 $3,274,186 $3,954,413 $3,312,797
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
SELECTED FINANCIAL DATA
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---------- -------- --------- ------
Condensed income statements (in thousands):
Interest income $87,256 $77,731 $174,398 $155,129
Interest expense 40,915 36,537 83,460 73,327
-------- ------- --------- --------
Net interest income 46,341 41,194 90,938 81,802
Provision for loan losses 12,950 13,929 26,750 35,667
-------- ------- --------- --------
Net interest income after provision
for loan losses 33,391 27,265 64,189 46,135
Other income 7,498 7,283 14,386 13,917
Gain on sale of investments 28 1,565 1,308 11,683
Other operating expense 24,213 22,372 47,898 43,964
-------- -------- -------- --------
Net income before income tax expense 16,705 13,741 31,985 27,771
Income tax expense 1,311 1,040 2,450 2,710
--------- -------- --------- ---------
Net income $15,394 $12,701 $29,535 $25,061
======= ======= ======= =======
Per common share results:
Net income per common share - basic $0.49 $0.43 $0.97 $0.85
Net income per common share - diluted $0.49 $0.43 $0.97 $0.84
Cash dividends declared $0.09 $0.075 $0.18 $0.15
Selected financial ratios (in percent):
Average yield on earning assets (1) 9.38 10.17 9.43 10.12
Cost of interest bearing liabilities 4.87 5.12 4.89 5.10
Interest rate spread (1) 4.51 5.05 4.54 5.02
Net interest margin (1) 5.10 5.57 5.08 5.53
Net income to average total assets 1.57 1.55 1.49 1.51
Net income to average total equity 20.20 20.88 20.92 20.57
Net income to average common equity 23.53 20.88 22.64 20.57
Average equity to average total assets 7.78 7.43 7.14 7.35
Dividend payout ratio 18.31 17.48 18.43 17.71
Efficiency ratio (2) 44.97 46.15 45.48 45.93
June 30, December 31,
1999 1998
---- ----
Regulatory Capital Ratios (in percent):
Total Capital to risk weighted assets 19.75 17.39
Tier 1 Capital to risk weighted assets 14.57 11.55
Tier 1 Capital to average assets 8.87 6.59
Balance sheet data (in thousands):
Loans and loans held for sale (net of unearned interest) $2,347,249 $2,120,054
Allowance for possible loan losses 70,762 67,854
Investments 1,781,087 1,800,489
Total assets 4,272,543 4,017,352
Deposits 2,212,299 1,775,045
Borrowings 1,696,227 1,930,488
Total capital 318,304 270,368
Number of full service branches 43 40
Loan origination offices 43 45
(1) On a taxable equivalent basis.
(2) Other operating expenses to the sum of net interest income and other
income.
</TABLE>
<PAGE>
RESULTS OF OPERATIONS
First BanCorp's results of operations depend primarily upon its net
interest income, which is the difference between the interest income earned on
its earning assets, including investment securities and loans, and the interest
expense on its interest bearing liabilities including deposits and borrowings.
The Corporation's results of operations also depend on the provision for loan
losses; other income, mainly service charges and fees on loans; operating
expenses, such as personnel, occupancy and other costs; and on gains or losses
on sales of securities.
For the quarter ended on June 30, 1999, the Corporation recorded
earnings of $15,393,514 or $0.49 per common share (basic and diluted), a per
share increase of 14% as compared to earnings of $12,700,723 or $0.43 per common
share (basic and diluted) for the second quarter of 1998. Earnings for the six
months ended on June 30,1999 amounted to $29,534,729 or $0.97 per common share
(basic and diluted), as compared to earnings of $25,061,405 or $0.85 per common
share (basic) and $0.84 per common share (diluted) for the same period of 1998.
On a per share basis-diluted, earnings for the six months ended on June 30, 1999
increased by 15.5% as compared to earnings for the six months ended on June 30,
1998.
Net Interest Income
Net interest income for the three and six months ended on June 30, 1999
increased by $5.1 million and $9.1 million, respectively, as compared with the
same periods in 1998; or by $4.4 million and $9.1 million, respectively, on a
taxable equivalent basis. The interest rate spread and net interest margin, on a
taxable equivalent basis, amounted to 4.51% and 5.10%, respectively, for the
second quarter of 1999 as compared to 5.05% and 5.57%, respectively, for the
second quarter of 1998. The interest rate spread and net interest margin, on a
taxable equivalent basis, amounted to 4.54% and 5.08%, respectively, for the six
months ended on June 30, 1999 as compared to 5.02% and 5.53%, respectively, for
the six months ended on June 30, 1998.
Part I of the following table presents average volumes and rates on a
taxable equivalent basis and Part II describes the respective extent to which
changes in interest rates and changes in volume of interest-related assets and
liabilities have affected the Corporation's interest income and interest expense
during the periods indicated. For each category of earning assets and interest
bearing liabilities, information is provided on changes attributable to (i)
changes in volume (changes in volume multiplied by old rates), (ii) changes in
rate (changes in rate multiplied by old volumes). Rate-volume variances (changes
in rate multiplied by the changes in volume) have been allocated to the changes
in volume and changes in rate based upon their respective percentage of the
combined totals.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
PART I Three months ended June 30,
Average volume Interest income (1) /expense Average rate (1)
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
(Dollars in thousands)
Earning assets:
Deposits at banks and other
short-term investments $ 14,100 $ 1,508 $ 168 $ 30 4.78% 7.98%
Government obligations 432,089 352,657 6,264 5,516 5.81% 6.27%
Mortgage backed securities 1,136,197 862,091 19,150 16,604 6.76% 7.73%
FHLB stock 17,827 10,271 300 191 6.75% 7.46%
Other investment 1,958 646 83 19 17.04% 11.80%
-------------- ---------------- ----------- -----------
Total investments 1,602,170 1,227,173 25,965 22,360 6.50% 7.31%
----------- ----------- -------- --------
Residential real estate loans 316,297 285,388 7,799 8,024 9.89% 11.28%
Construction 76,100 11,672 1,656 294 8.73% 10.10%
Commercial loans 768,742 593,336 18,550 13,969 9.68% 9.44%
Finance leases 63,985 38,388 2,085 1,855 13.07% 19.38%
Consumer loans 1,002,878 1,032,914 33,544 34,325 13.42% 13.33%
----------- ----------- -------- --------
Total loans (2) 2,228,003 1,961,699 63,634 58,467 11.46% 11.95%
----------- ----------- -------- --------
Total earning assets $3,830,173 $3,188,872 $89,598 $80,826 9.38% 10.17%
========== ========== ======= =======
Interest-bearing liabilities:
Deposits $1,787,296 $1,467,922 $20,554 $17,235 4.61% 4.71%
Other borrowed funds 1,585,331 1,387,694 20,354 19,221 5.15% 5.56%
FHLB advances 663 5,810 8 83 4.84% 5.73%
--------------- -------------- ------------ -----------
Total interest-bearing liabilities $3,373,289 $2,861,426 $40,916 $36,539 4.87% 5.12%
========== ========== ======= =======
Net interest income $48,682 $44,287
======= =======
Interest rate spread 4.51% 5.05%
Net interest margin 5.10% 5.57%
Six months ended June 30,
Average volume Interest income (1) /expense Average rate (1)
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
(Dollars in thousands)
Earning assets:
Deposits at banks and other
short-term investments $ 11,360 $ 6,214 $ 215 $ 159 3.82% 5.16%
Government obligations 367,059 376,193 10,581 11,918 5.81% 6.39%
Mortgage backed securities 1,288,010 864,079 45,295 33,466 7.09% 7.81%
FHLB stock 14,487 10,234 483 377 6.72% 7.43%
Other investment 1,961 325 163 26 16.77% 16.06%
-------------- ---------------- ----------- -----------
Total investments 1,682,877 1,257,045 56,738 45,946 6.80% 7.37%
----------- ----------- -------- --------
Residential real estate loans 311,201 283,984 15,806 15,729 10.24% 11.17%
Construction 69,516 11,763 3,031 531 8.79% 9.10%
Commercial loans 738,395 581,469 33,814 27,372 9.23% 9.49%
Finance leases 60,014 39,567 3,923 3,069 13.18% 15.64%
Consumer loans 1,005,974 1,047,597 67,577 68,984 13.55% 13.28%
----------- ----------- ---------- ----------
Total loans (2) 2,185,100 1,964,380 124,151 115,685 11.46% 11.88%
----------- ----------- ---------- ---------
Total earning assets $3,867,978 $3,221,425 $180,889 $161,631 9.43% 10.12%
========== ========== ======== ========
Interest-bearing liabilities:
Deposits $1,701,000 $1,464,574 $38,847 $34,267 4.61% 4.72%
Other borrowed funds 1,739,268 1,427,137 44,578 38,920 5.17% 5.50%
FHLB advances 1,486 4,920 36 141 4.88% 5.78%
--------------- -------------- ------------ -----------
Total interest-bearing liabilities $3,441,754 $2,896,631 $83,461 $73,328 4.89% 5.10%
========== ========== ======= =======
Net interest income $97,428 $88,303
======= =======
Interest rate spread 4.54% 5.02%
Net interest margin 5.08% 5.53%
(1) On a tax equivalent basis. The tax equivalent yield was computed
dividing the interest rate spread on exempt assets by (1- statutory tax rate)
and adding to it the cost of interest bearing liabilities. When adjusted to a
tax equivalent basis, yields on taxable and exempt assets are comparative.
(2) Non-accruing loans are included in the average balances.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
PART II Three months ended on June 30, Six months ended on June 30,
1999 compared to 1998 1999 compared to 1998
------------------------------------- -------------------------------
Variance Variance Variance Variance
due to due to Total due to due to Total
volume rate variance volume rate variance
(In thousands)
Interest income on earning assets:
Deposits at banks and other
short-term investments $201 $ (63) $ 138 $ 116 $ (60) $ 56
Government obligations 1,200 (452) 748 (284) (1,053) (1,337)
Mortgage backed securities 4,960 (2,414) 2,546 15,745 (3,916) 11,829
FHLB stock 134 (25) 109 150 (44) 106
Other investment 53 11 64 133 1 134
--------- --------- -------- --------- -------- ----------
Total investments 6,548 (2,943) 3,605 15,860 (5,072) 10,788
------- -------- ------ ------- ------ ------
Consumer loans (1,003) 222 (781) (2,786) 1,379 (1,406)
Real estate loans 818 (1,043) (225) 1,457 (1,380) 77
Construction loans 1,515 (153) 1,362 2,574 (74) 2,500
Commercial loans 4,225 356 4,581 7,321 (879) 6,442
Finance leases 1,036 (806) 230 1,470 (616) 854
------- -------- -------- -------- ------- --------
Total loans 6,591 (1,424) 5,167 10,036 1,570 8,466
------- ------- -------- ------- ------ -------
Total interest income 13,139 (4,367) 8,772 25,896 (6,642) 19,254
------ ------- -------- ------- ------ ------
Interest expense on interest bearing liabilities:
Deposits 3,717 (398) 3,319 5,492 (912) 4,580
Other borrowed funds 2,643 (1,510) 1,133 8,301 (2,643) 5,658
FHLB advances (64) (11) (75) (86) (19) (105)
---------- -------- ---------- ---------- ---------- ---------
Total interest expense 6,296 (1,919) 4,377 13,707 (3,574) 10,133
-------- ---------- -------- -------- -------- -------
Change in net interest income $ 6,842 $(2,447) $ 4,395 $12,189 $(3,065) $9,124
======= ======= ======= ======= ======= ======
</TABLE>
Total interest income includes tax equivalent adjustments based on the
Puerto Rico income tax rate of $2.3 million and $6.5 million for the three and
six months ended on June 30, 1999, and of $3.1 million and $6.5 million for the
three and six months ended on June 30, 1998. The adjustments have been made on
debt securities (primarily United States and Puerto Rico government obligations)
and on loans guaranteed by United States and Puerto Rico government agencies.
The computation considers the interest expense disallowance as required by the
Puerto Rico tax law.
Interest Income
Interest income increased by $9.5 million and $19.3 million for the
three and six months ended on June 30, 1999 as compared to the same periods for
1998. When adjusted to a taxable equivalent basis, interest income increased by
$8.8 million and $19.3 million for the three and six months ended on June 30,
1999 as compared to the same periods in 1998. The yield on earning assets, on a
taxable equivalent basis, amounted to 9.38% and 10.17% for the three months
ended on June 30, 1999 and 1998, respectively and 9.43% and 10.12% for the six
months ended on June 30, 1999 and 1998, respectively. The improvement in the
interest income for the periods analyzed was due to the increase in the average
volume of earning assets. The average volume of earning assets increased by
$641.3 million and $646.6 million for the three and six months ended on June 30,
1999 respectively as compared to the same periods in 1998. Most of the increase
in earning assets was recorded on the investment portfolio. The average volume
of total investments increased by $375.0 million and $425.8 million for the
three and six months period ended on June 30, 1999 as compared with the same
periods in 1998. This increase was concentrated in mortgage backed securities.
Interest income was also positively affected by an increase in the
volume of loans. The average volume of loans increased by $266.3 million and
$220.7 million for the three and six months ended on June 30, 1999 as compared
with the same periods in 1998, due to an increase in real estate and commercial
loans. Residential real estate, construction loans, commercial loans and finance
leases increased by $27.2 million, $57.8 million, $156.9 million and $20.4
million, respectively, for the six months ended on June 30, 1999 as compared to
the same period in 1998, partially offset by a decrease of $41.6 million in
consumer loans. The increase in construction and commercial loans was the result
of the Corporation's strategy of diversifying its asset base, which was
concentrated in consumer loans. The decrease in consumer loans was due to the
tightening of the underwriting standards effective in 1997 as a way of improving
the credit quality of the portfolio.
Interest Expense
Interest expense increased by $4.4 million and $10.1 million for the
three and six months ended on June 30, 1999 as compared with the amounts
recorded in the same periods of 1998. The increase was the result of a higher
volume of interest bearing liabilities used to fund the increase on interest
earning assets. The increase in interest expense due to volume amounted to $6.3
million and $13.7 million for the three and six months ended on June 30, 1999 as
compared to the same periods ended on June 30, 1998. The cost of interest
bearing liabilities decreased from 5.12% and 5.10% for the three and six months
period ended on June 30, 1998 to 4.87% and 4.89% for the three and six months
period ended on June 30, 1999.
Provision for Loan Losses
For the three and six months ended on June 30, 1999, the Corporation
provided $12.9 million and $26.7 million, respectively, for possible loan losses
as compared to $13.9 million and $35.7 million, respectively, for the same
periods of 1998. The provision for loan losses recorded during 1999 reflects a
lower provision need due to an improvement in the credit quality of the loan
portfolio.
The Corporation maintains an allowance for possible loan losses on its
portfolio at a level that Management considers adequate to provide for potential
losses in the portfolio based upon an evaluation of known and inherent risks.
The Corporation establishes a quarterly allowance for loan losses based on the
asset classification report to cover the total amount of any assets classified
as a "loss," the potential loss exposure of other classified assets, and a
percentage of the assets not classified. The adequacy of the allowance for loan
losses is also based upon a number of additional factors including historical
loan loss experience, current economic conditions, value of the underlying
collateral, financial condition of the borrowers and other pertinent factors.
Although Management believes that the allowance for loan losses is adequate,
factors beyond the Corporation's control, including factors affecting the Puerto
Rico economy, may contribute to delinquencies and defaults thus necessitating
additional reserves.
<PAGE>
The following table sets forth an analysis of the activity in the
allowance for possible loan losses during the periods indicated:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
--------- --------- --------- ---------
(Dollars in thousands)
Allowance for loan losses, beginning of period $68,717 $59,628 $67,854 $57,712
Provision for loan losses 12,950 13,929 26,750 35,667
-------- -------- ------- --------
Loans charged-off:
Residential real estate (25) (41)
Construction (51) (121)
Commercial (182) (134) (702) (168)
Finance leases (535) (251) (1,032) (981)
Consumer (12,491) (15,422) (25,751) (35,692)
Other assets (117) (214) (413) (481)
--------- --------- --------- --------
Total charge-offs (13,350) (16,072) (27,939) (37,443)
-------- ------- ------- --------
Recoveries of loans previously charged-off:
Residential real estate 1 1
Construction
Commercial 51 232 75 295
Finance leases 590 29 618 59
Consumer 1,691 1,466 3,183 2,853
Other assets 111 35 221 104
---------- ---------- ---------- ----------
Total recoveries 2,444 1,762 4,098 3,311
--------- -------- --------- -----------
Net charge-offs (10,905) (14,310) (23,842) (34,132)
-------- -------- --------- ---------
Other adjustment ______ 331 331
--------- ------------- ----------
Allowance for loan losses, end of period $70,762 $59,578 $70,762 $59,578
======= ======= ======= =======
Allowance for loan losses to total loans
and loans held for sale 3.01% 3.03% 3.01% 3.03%
Net charge-offs annualized to average loans
outstanding during the period (1) 1.96% 2.92% 2.20% 3.27%
(1) The ratio for the six months ended on June 30, 1998 excludes the
annualization of $4.5 million special one - time write off of personal
unsecured loan in bankruptcy status as the result of the change in policy
during the first quarter of 1998.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Other Income
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
---------------- -------------- ------------- --------
Service charges on deposit accounts $2,056,634 $1,901,966 $3,961,378 $ 3,915,348
Other fees on loans 3,075,093 2,791,983 5,916,423 5,441,537
Fees on loans serviced for others 220,757 440,852 488,307 935,068
Mortgage banking activities 11,549 11,549 2,478
Rental income 595,110 532,047 1,236,707 999,215
Other operating income 1,538,991 1,366,399 2,696,603 2,373,435
----------- ---------- ------------ -------------
Subtotal 7,498,134 7,033,247 14,310,967 13,667,081
Gain on sale of investments 27,775 1,564,696 1,308,286 11,683,069
Trading income _________ 250,000 75,000 250,000
------------ --------------- --------------
Total $7,525,909 $8,847,943 $15,694,253 $25,600,150
========== ========== =========== ===========
</TABLE>
Other income primarily consists of service charges on deposit accounts,
fees on loans, servicing income, commissions derived from various banking
activities, the results of trading activities and gains on sale of investments.
Other income before gains on the sale of investments and trading
activities increased by $464,887 and $643,886 for the three and six months ended
on June 30, 1999 as compared to the same periods in 1998.
Service charges on deposit accounts represent an important and stable
source of other income for the Corporation.
Other fees on loans consist mainly of credit card fees and late charges
collected on loans. The increase in this source of income to $3.1 million and
$5.9 million for the three and six months ended on June 30, 1999 from $2.8
million and $5.4 million during the same periods in 1998 was due to fees
generated on the increased portfolio of commercial loans.
Fees on loans serviced for others primarily reflect the servicing fees
for the auto loan securitizations closed in 1995. It also includes servicing
fees on residential mortgage loans originated by the Corporation and
subsequently securitized. Due to the repayment of the auto loan portfolio
securitized in 1995, the related servicing income decreased during the periods
ended on June 30, 1999 as compared to the same periods in 1998.
The Corporation's second tier subsidiary, First Leasing and Rental
Corporation, generates income on the rental of various types of motor vehicles.
The other operating income category is composed of miscellaneous fees
such as check fees and rental of safe deposit boxes.
The Corporation recorded $27,775 and $1.3 million during the three and
six months ended June 30, 1999 and $1.6 million and $11.7 million during the
three and six months ended June 30, 1998 from gains on sale of investments
securities. These sales of investments were realized as the market opportunities
arose and in response to the Corporation's investment policies.
Other Operating Expenses
The following table presents the detail of other operating expenses for
the periods indicated:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
------------- --------------- ------------ ----------
Employees' compensation and benefits $11,346,767 $10,539,097 $22,568,586 $20,739,171
Occupancy and equipment 4,744,521 4,087,178 9,443,908 8,060,060
Taxes and insurance 1,631,492 1,710,622 3,262,973 3,415,883
Net cost (gain) of operations and
disposition of other real estate owned (305,162) (2,754) (300,376) 15,716
Amortization of debt issuance costs 152,911 177,296 311,856 363,052
Professional fees 509,374 325,072 1,056,946 764,313
Servicing and processing fees 1,092,270 997,526 2,084,658 2,042,781
Communications 1,075,023 1,098,436 2,206,092 2,099,949
Supplies and printing 445,344 323,034 698,695 561,178
Other 3,520,018 3,116,602 6,564,914 5,901,520
------------- ------------- ------------ -------------
Total $24,212,558 $22,372,109 $47,898,253 $43,963,623
=========== =========== =========== ===========
</TABLE>
Operating expenses increased to $24.2 million and $47.9 million for the
three and six months ended June 30, 1999 as compared to $22.4 million and $44.0
million for the same periods in 1998. Management's goal has been to make only
expenditures that contribute clearly and directly to increasing the efficiency
and profitability of the Corporation. This control over other operating expenses
has been an important factor contributing to the improvement in earnings in
recent years. The best measure of the success of this program is the efficiency
ratio, which is the ratio of other operating expenses to the sum of net interest
income and other recurring income. The Corporation's efficiency ratio has been
maintained in approximately 46% (45.5% and 45.9% for the six months period ended
on June 30, 1999 and 1998, respectively).
For the three and six months ended on June 30, 1999 as compared to the
same periods in 1998, salary increases, incentive compensation and increases in
fringe benefits affected the salaries and benefits category for all employees.
Additional employees were hired to staff two full service branches and two
in-store branches that opened in 1998, to strengthen the commercial lending
business, the support areas of consumer lending such as credit and collection,
and other support areas of the Corporation.
The occupancy and equipment category consists of expenses associated
with premises, office and computer equipment, and other automated banking
equipment. The increase was mainly affected by enhancements of hardware and
software through system conversions, which have enabled the Corporation to offer
new products, and to improve customer service and portfolio servicing. In
addition, the increase was also due to the expansion of the branch network
mentioned above. Expenses related to the year 2000 issue also affected this
category (see Year 2000 section).
Provision for Income Tax
The provision for income tax amounted to $2.4 million (or 7.66% of
pretax earnings) for the six months ended on June 30, 1999 as compared to $2.7
million (or 9.8% of pretax earnings) for the same period in 1998. The decrease
in income tax expense of $.3 million for the period ended on June 30, 1999 as
compared to the same period in 1998 was due to the increase in the portfolio of
tax exempt debt securities.
FINANCIAL CONDITION
Assets
Total assets as of June 30, 1999 amounted to $4,272.5 million, an
increase of $255.1 million as compared to total assets as of December 31, 1998
of $4,017.4 million. The increase was mainly the result of an increase of $224.3
million in total loans (net of the allowance).
The composition of loans receivable and loans available for sale after
deducting the allowance for loan losses follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
June 30, December 31, Increase
1999 1998 (Decrease)
-------------- -------------------- --------
(In thousands)
Residential real estate loans $ 322,267 $ 303,011 $ 19,256
Construction and land loans 90,617 62,963 27,654
Commercial loans 863,889 700,768 163,121
Finance leases 69,610 52,214 17,396
Consumer and other loans 1,000,867 1,001,098 (231)
----------- ---------- ------------
Total 2,347,250 2,120,054 227,196
Allowance for loan losses (70,762) (67,854) (2,908)
------------- ------------ -----------
Total net $2,276,488 $2,052,200 $224,288
========== ========== ========
</TABLE>
The fluctuation in the loans receivable category was the net result of
total loan origination of $548.6 million and repayments and other adjustments of
$321.4 million. The consumer loans portfolio decreased slightly due to the
tightening of the Corporation's underwriting policies in placed since 1997. The
increase in commercial and construction loans responded to the strategy of
emphasizing this line of business.
Non-performing Assets
Total non-performing assets are the sum of non-accruing loans, past due
loans, OREO's and other repossessed properties. Past due loans are loans
delinquent 90 days or more as to principal and/or interest, and still accruing
interest. Non-accruing loans are loans as to which interest is no longer being
recognized. When loans fall into non-accruing status, all previously accrued and
uncollected interest is charged against interest income.
At June 30, 1999, total non-performing assets amounted to $65.4 million
(1.53% of total assets) as compared to $78.0 million (1.94% of total assets) at
December 31, 1998 and $74.3 million (2.23% of total assets) at December 31,
1997. The Corporation's reserve to non-performing loans ratio was 113.2% at June
30, 1999 as compared to 94.2% and 89.5% at December 31, 1998 and 1997,
respectively.
The following table presents non-performing assets at the dates
indicated:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
June 30, December 31,
1999 1998 1997
----------- ---------- --------
(Dollars in thousands)
Past due loans $ 11,120 $ 15,110 $ 11,544
-------- -------- --------
Non-accruing loans:
Residential real estate 9,195 9,151 6,963
Construction 1,065
Commercial 16,770 19,355 16,869
Finance leases 1,241 1,716 4,561
Consumer 23,100 26,736 24,547
--------- -------- --------
51,373 56,958 52,939
--------- -------- --------
Non-performing loans 62,493 72,068 64,483
--------- --------- --------
Other real estate owned (OREO) 371 3,642 1,132
Other repossessed auto 2,007 1,929 7,354
Other repossessed boat 498 348 1,348
---------- ---------- ---------
Total non-performing assets $65,369 $77,987 $74,317
======= ======= =======
Non-performing assets to total assets 1.53% 1.94% 2.23%
Non-performing loans to total loans 2.66% 3.40% 3.29%
Allowance for loan losses $70,762 $67,854 $57,712
Allowance to total non-performing loans 113.23% 94.15% 89.50%
</TABLE>
Past Due Loans
Past due loans are accruing commercial and consumer loans, which are
contractually delinquent 90 days or more. Past due commercial loans are current
as to interest but delinquent in the payment of principal. Past due consumer
loans include personal lines of credit and credit card loans delinquent 90 days
up to 179 days and personal loans (including small loans) delinquent 90 days up
to 119 days.
Non-accruing Loans
Residential Real Estate Loans - The Corporation classifies all
residential real estate loans delinquent 90 days or more in non-accruing status.
Even though these loans are in non-accruing status, Management considers based
on the value of the underlying collateral and the loan to value ratios, that no
material losses will be incurred in this portfolio. Management's understanding
is based on the historical experience of the Corporation. Non-accruing
residential real estate loans amounted to $9.2 million (2.85% of total
residential real estate loans) at June 30, 1999, as compared to $9.2 million
(3.02% of total residential real estate loans) and $7.0 million (2.45% of total
residential real estate loans) at December 31, 1998 and 1997, respectively.
Construction Loans - Construction loans are classified as non-accruing
when they are delinquent 90 days or more. Non-accruing construction loans
amounted to $1.1 million (1.18% of total construction loans) at June 30, 1999.
Commercial Loans - The Corporation places all commercial loans 90 days
delinquent as to principal and interest in non-accruing status. The risk
exposure of this portfolio is diversified and a portion of the portfolio is
collateralized by liens on real property. Non-accruing commercial loans amounted
to $16.8 million (1.94% of total commercial loans) at June 30, 1999 as compared
to $19.4 million (2.76% of total commercial loans) and $16.9 million (3.06% of
total commercial loans) at December 31, 1998 and 1997, respectively.
Finance Leases - Finance leases are classified as non-accruing status
when they are delinquent 90 days or more. Non-accruing finance leases amounted
to $1.2 million (1.78% of total finance leases) at June 30, 1999, as compared to
$1.7 million (3.29% of total finance leases) and $4.6 million (10.73% of total
finance leases) at December 31, 1998 and 1997, respectively. The decrease in the
ratio and amount of non accruing loans was the result of the improvement on the
credit quality of the portfolio.
Consumer Loans - Consumer loans are classified as non-accruing when
they are delinquent 90 days in auto, boat and home equity reserve loans, 120
days in personal loans (including small loans) and 180 days in credit cards and
personal lines of credit.
Non-accruing consumer loans amounted to $23.1 million (2.31% of the
total consumer loan portfolio) at June 30, 1999, $26.7 million (or 2.67% of the
total consumer loan portfolio) at December 31, 1998 and $24.5 million (or 2.29%
of the total consumer loan portfolio) at December 31, 1997. The decrease in the
ratio and amount of non-accruing loans was the result of the improvement on the
credit quality of the portfolio.
Other Real Estate Owned (OREO)
OREO acquired in settlement of loans is carried at the lower of cost
(carrying value of the loan) or fair value less estimated cost to sell off the
real estate at the date of acquisition. Therefore, the Corporation does not
expect to incur significant losses on the disposition of OREO's at June 30,
1999.
Repossessed Property
The Repossessed Property category includes repossessed boats and autos
acquired in settlement of loans. Repossessed boats are recorded at the lower of
cost or estimated fair value. Repossessed autos were recorded at the principal
balance of the loans less an estimated loss on the disposition of the units.
Sources of Funds
As of June 30, 1999, total liabilities amounted to $3,954.2 million, an
increase of $207.2 million as compared to $3,747.0 million as of December 31,
1998. The increase in total liabilities was mainly due to: (1) an increase in
total deposits of $437.3 million; (2) an increase in accounts payable and other
liabilities of $4.3 million; (3) a decrease in advances from FHLB - NY of $2.6
million; (4) a decrease in federal funds and securities sold under agreements to
repurchase of $192.0 million; (5) a decrease in other short term borrowings of
$16.6 million; (6) a decrease in term notes of $17.1 million; and (7) a decrease
of $5.9 million in subordinated notes.
The Corporation maintains unsecured standby lines of credit with other
banks. At June 30, 1999, the Corporation's total unused lines of credit with
these banks amounted to approximately $89,500,000 (1998 - $69,500,000). At June
30, 1999, the Corporation has an available line of credit with the FHLB
guaranteed with excess collateral, in the amount of $2,950,067 (1998 -
$20,808,133); and a commercial paper availability collateralized with personal
loans owned by the Corporation in the amount of $89,176,537 (1998 -
$95,254,992).
Capital
Total stockholders' equity as of June 30, 1999 amounted to $318.3
million, increasing by $47.9 million from the amount as of December 31, 1998.
The increase was mainly the result of the net income generated for the period
ended on June 30, 1999 of $29.5 million, the issuance of 3,600,000 shares of
preferred stock at $86.8 million, net of a decrease in the valuation on
securities available for sale of $51.8 million, dividends paid of $6.3 million
and the repurchase of 386,600 shares of common stock at a total cost of $10.5
million.
The Corporation is subject to various regulatory capital requirements
imposed by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Corporation must meet specific capital guidelines that involve quantitative
measures of the Corporation's assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. The Corporation's
capital amounts and classification are also subject to qualitative judgment by
the regulators about components, risk weightings and other factors.
Capital standards established by regulations require the Corporation to
maintain minimum amounts and ratios of Tier 1 capital to total average assets
(leverage ratio) and ratios of Tier 1 and total capital to risk-weighted assets,
as defined in the regulations. The total amount of risk-weighted assets is
computed by applying risk weighting factors to the Corporation's assets, which
vary from 0% to 100% depending on the nature of the asset.
At June 30, 1999 and December 31, 1998, the Corporation exceeded the
requirements for an adequately capitalized institution.
At June 30, 1999 and December 31, 1998, the Corporation also was a well
capitalized institution under the regulatory framework for prompt corrective
action. To be categorized as well capitalized the Corporation must maintain
minimum total risk based, Tier 1 risk based and Tier 1 leverage ratios as set
forth in the following table. Management believes that there are no conditions
or events that have changed that classification.
<PAGE>
The Corporation's regulatory capital position was as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Regulatory requirements
For capital To be well
Actual adequacy purposes capitalized
Amount Ratio Amount Ratio Amount Ratio
At June 30, 1999 (Dollars in thousands)
Total Capital (to Risk-Weighted Assets):
First BanCorp $472,239 19.75% $191,330 8% $239,162 10%
FirstBank 385,292 16.24% 189,821 8% 237,276 10%
Tier I Capital (to Risk-Weighted Assets):
First BanCorp $348,487 14.57% $95,665 4% $143,497 6%
FirstBank 261,672 11.03% 94,911 4% 142,366 6%
Tier I Capital (to Average Assets):
First BanCorp $348,487 8.87% $117,900 3% $196,500 5%
FirstBank 261,672 6.81% 115,359 3% 192,265 5%
Regulatory requirements
For capital To be well
Actual adequacy purposes capitalized
Amount Ratio Amount Ratio Amount Ratio
At December 31, 1998 (Dollars in thousands)
Total Capital (to Risk-Weighted Assets):
First BanCorp $377,939 17.39% $173,835 8% $217,294 10%
FirstBank 372,015 17.12% 173,817 8% 217,271 10%
Tier I Capital (to Risk-Weighted Assets):
First BanCorp $250,910 11.55% $86,917 4% $130,376 6%
FirstBank 244,989 11.28% 86,909 4% 130,363 6%
Tier I Capital (to Average Assets):
First BanCorp $250,910 6.59% $152,272 4% $190,340 5%
FirstBank 244,989 6.44% 152,272 4% 190,340 5%
</TABLE>
Dividends
During the period ended June 30, 1999, the Corporation declared two
quarterly cash dividends of $0.09 per common share representing a 20% increase
over the two quarterly cash dividends of $0.075 per common share declared for
the same periods in 1998. Dividends per share were adjusted to retroactively
consider the common stock split declared on April 30, 1998. Total dividends
declared per common share for the period ended on June 30, 1999 amounted to $5.2
million for an annualized dividend payout ratio of 18.43% as compared to $4.4
million for the period ended June 30, 1998 (or a 17.71% dividend payout ratio).
Dividends declared on preferred stock amounted to $1,068,750 for the period
ended on June 30, 1999.
<PAGE>
Year 2000
The year 2000 issue concerns the inability of information systems to
properly recognize and process date-sensitive information beyond January 1,
2000. The Corporation recognizes the need to ensure that its operations will not
be adversely impacted by Year 2000 problem and has established a plan to address
Year 2000 risks.
The Corporation continues its program of improving its information
systems through the systematic wholesale replacement of certain hardware and
software. Since October 1996, it has been the practice to install new systems
that are already year 2000 enabled. Therefore, there are no additional costs
associated with changes or modifications to accommodate the year 2000 issue on
these new systems. All the related costs associated with the replacement of
these systems are recorded as assets and amortized. Any year 2000 expenditure is
expensed as incurred.
Based on the Corporation's final action plan addressing the Year 2000
issue, Management estimates that the expenses required to modify existing
computer systems enabling them for the year 2000 will be between $1.5 million
and $2.0 million for 1998 and 1999. Accordingly, the amounts to be expensed will
not have a significant impact on the Corporation's financial position or results
of operations. For the period ended on June 30, 1999, a total of $510,000 in
expenses was related to the year 2000. For 1998, a total of $650,000 in expenses
was related to the year 2000 effort.
The year 2000 action plan uses clearly articulated program criteria
that is being implemented by the Corporation for compliance. Management named a
Project Team, responsible for the plan implementation. The plan guides the
planning and execution of all activities related to: (1) information and
computerized systems, including related hardware and software; (2) non
information systems (i.e., environmental, communication and security equipment);
(3) credit customers; and (4) service providers who participate in the project
testing. The Corporation completed the assessment phase on these project risk
areas.
The Corporation completed the renovation phase of the information
systems risk area composed of: business applications, data center hardware and
operating systems software, and end-user and desktop computing. As of June 1999,
the renovation of the Corporation's mission critical applications was 94%
complete. The Corporation expects to complete the renovation phase by August
1999.
Unit test and validation of the mission critical applications is 100%
complete. Unit and the second cycle of integration tests of the Corporation's
mission critical applications were completed on June 30, 1999 and, their
implementation, substantially completed.
The Corporation completed the Phases 1 and 2 ("Organization Planning
Guidelines and the Business Impact Analysis") of the Year 2000 business
resumption contingency planning for all the mission critical functions of the
Corporation. The documentation and testing of the plan is expected to be
completed by August 30, 1999.
<PAGE>
Liquidity
Liquidity refers to the level of cash and eligible investments readily
available to meet loan and investment commitments, potential deposit outflows
and debt repayments. The Corporation's liquidity position and liquidity targets
are reviewed on a weekly basis by the Investment Committee, using measures of
liquidity developed by Management.
The Corporation's principal sources of short-term funds are loan
repayments, deposits, securities sold under agreements to repurchase, lines of
credit with the FHLB and other financial institutions, and other borrowings. The
Investment Committee reviews credit availability on a regular basis. In the
past, the Corporation has securitized and sold auto and mortgage loans as a
supplementary source of funding. The Corporation has obtained long-term funding
through the issuance of notes and long-term institutional certificates of
deposit, and has also obtained short term borrowings using its personal loan
portfolio as collateral. The Corporation's principal uses of funds are the
origination of loans and investments, and the repayment of maturing deposit
accounts and borrowings.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Corporation is a defendant in a number of legal proceedings arising
out of, and incidental to its business. Based on its review with counsel on the
development of these matters to date, Management is of the opinion that the
ultimate aggregate liability, if any, resulting from these pending proceedings
will not have a material adverse effect on the accompanying consolidated
financial statements.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Effective July 9, 1999, FirstBank Puerto Rico, the Corporation's
subsidiary, acquired the assets and liabilities of Royal Bank of Canada's
business unit in Puerto Rico.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
a) None
b) Reports on Form 8-K:
On April 14,1999, the Corporation filed a report on Form 8-K,
reporting under Item 5, the announcement that the Corporation had
executed a plan to simplify its operations to make it more
efficient and responsive to clients. In addition, under Item 7 of
this report, the Corporation included Press Releases dated 3/23/99
and 4/12/99, reporting the new efficiency plans and earnings for
the first quarter of 1999, respectively.
On April 28, 1999, the Corporation filed a report on Form 8-K,
reporting under Item 5, the announcement that the Corporation's
subsidiary, FirstBank Puerto Rico, signed a Definitive Agreement to
acquire Royal Bank of Canada's business unit in Puerto Rico. In
addition, under Item 7 of this report, the Corporation included
Press Release dated 4/26/99, concerning that announcement.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Bank has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized:
First BanCorp
Name of the Corporation
Date: August 11, 1999 By: /s/ Angel Alvarez-Perez, Esq.
------------------------------
Angel Alvarez-Perez, Esq.
Chairman, President and Chief
Executive Officer
Date: August 11, 1999 By: /s/ Annie Astor de Carbonell
-----------------------------
Annie Astor de Carbonell
Senior Executive Vice President
and Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> JUN-30-1999
<CASH> 66,401,610
<INT-BEARING-DEPOSITS> 61,449,685
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,441,044,792
<INVESTMENTS-CARRYING> 260,765,473
<INVESTMENTS-MARKET> 253,969,033
<LOANS> 2,347,249,425
<ALLOWANCE> 70,761,579
<TOTAL-ASSETS> 4,272,543,180
<DEPOSITS> 2,212,298,703
<SHORT-TERM> 1,501,666,995
<LIABILITIES-OTHER> 45,713,290
<LONG-TERM> 194,560,080
0
90,000,000
<COMMON> 29,612,552
<OTHER-SE> 198,691,560
<TOTAL-LIABILITIES-AND-EQUITY> 4,272,543,180
<INTEREST-LOAN> 122,930,672
<INTEREST-INVEST> 50,985,175
<INTEREST-OTHER> 482,551
<INTEREST-TOTAL> 174,398,398
<INTEREST-DEPOSIT> 38,847,149
<INTEREST-EXPENSE> 83,460,269
<INTEREST-INCOME-NET> 90,938,129
<LOAN-LOSSES> 26,749,500
<SECURITIES-GAINS> 1,308,286
<EXPENSE-OTHER> 47,898,253
<INCOME-PRETAX> 31,984,629
<INCOME-PRE-EXTRAORDINARY> 31,984,629
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,534,729
<EPS-BASIC> .97
<EPS-DILUTED> .97
<YIELD-ACTUAL> 5.08
<LOANS-NON> 51,373,000
<LOANS-PAST> 11,120,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 67,854,066
<CHARGE-OFFS> 27,939,638
<RECOVERIES> 4,097,651
<ALLOWANCE-CLOSE> 70,761,579
<ALLOWANCE-DOMESTIC> 70,761,579
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
