able of
able of
TTTTTable of
able of
able of
Contents
Contents
Contents
Contents
Contents
Financial Highlights ............................................. 2
Business Profile ................................................... 5
President’s Letter ................................................. 7
Achievements in 1999 ....................................... 10
Puerto Rico Economy ......................................... 13
Board of Directors ............................................. 14
Officers ............................................................ 15
Financial Review ............................................... 17
Stockholders’ Information ................................... 76
Financial
Financial
Financial
Financial
Financial
Highlights
Highlights
Highlights
Highlights
Highlights
In Thousands (Except for per share results)
1999
1998
O p e r a t i n g R e s u l t s :
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Net interest income
Provision for loan losses
Other income
Other operating expenses
Income tax provision
Net income
Per common share:
Net income - basic
Net income - diluted
$
$
185,733
47,960
32,862
101,272
7,288
62,075
2.00
1.98
166,168
76,000
58,240
91,798
4,798
51,812
1.75
1.74
We i g h t e d A v e r a g e S h a r e s :
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Basic
Diluted
A t Ye a r E n d :
28,941
29,199
29,586
29,858
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Assets
Loans
Allowance for loan losses
Investments
Deposits
Borrowings
Capital
$ 4,721,568
2,745,368
71,784
1,811,164
2,565,422
1,803,729
294,902
$ 4,017,352
2,120,054
67,854
1,800,489
1,775,045
1,930,488
270,368
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
2
3
PPPPPuerueruerueruertototototo
RicoRicoRicoRicoRico
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
Aguada
Aguadilla
Isabela
San Sebastián
Arecibo
Manatí
Vega Baja
Dorado
Toa Baja
Bayamón
Guaynabo
San Juan
Carolina
Río Grande
Fajardo
Humacao
Yabucoa
Caguas
Aguas Buenas
Cidra
Guayama
Cayey
Barranquitas
Ponce
Utuado
Yauco
Cabo Rojo
Mayagüez
Saint Thomas
Saint Croix
BRANCH
48 OFFICES
MONEY EXPRESS
27 OFFICES
FIRST LEASING & RENTAL CORP.
6 OFFICES
AUTO LOAN CENTER
2 OFFICES
LOAN CENTER
2 OFFICES
MORTGAGE LOAN CENTER
4 OFFICES
TOTAL
89 OFFICES
4
Business
Business
Business
Business
Business
Profile
Profile
Profile
Profile
Profile
October 1, 1998 the Bank reorganized,
making FirstBank a subsidiary of the
holding company First BanCorp.
First BanCorp, which is a well-
capitalized institution under federal
standards, operates 48 full service
branches including three offices in the
U.S. Virgin Islands. The Corporation
also has two auto loan centers, two
personal loan centers and four mort-
gage loan centers in Puerto Rico. A
second tier subsidiary, Money Express,
operates 27 offices dedicated to small
loans throughout Puerto Rico. First
BanCorp also has a second tier subsid-
iary known as First Leasing and Rental
Corp., which rents and leases motor
vehicles from its six offices in Puerto
Rico.
5
First BanCorp (the Corporation),
incorporated in Puerto Rico, is the holding
company for FirstBank (the Bank), the
second largest locally owned commercial
bank in Puerto Rico. First BanCorp had
total assets of $4.722 billion as of Decem-
ber 31, 1999. The Corporation operates
primarily in the Puerto Rico banking
market, offering a wide selection of
financial services to a growing number of
consumer and commercial customers.
Commercial loans, consumer loans,
mortgage loans and investment securities
are the most important areas of business.
The Corporation has a $1.2 billion
portfolio of commercial loans, commercial
mortgages, construction loans and other
related commercial products. Its commer-
cial clients include businesses of all sizes
covering a wide range of economic
activities. First BanCorp has a $474 million
portfolio of residential mortgages. The
institution has $1.1 billion in consumer
loans, concentrated in auto loans and
leases, personal loans and credit cards. Its
$1.8 billion investment portfolio consists
mostly of U.S. government securities and
mortgage backed securities. Through a
strategic alliance with Paine Webber, the
Corporation offers full brokerage services
in selected branches. Approximately
1,700 full time professionals and a sophisti-
cated computer system support the
business activities of the Corporation.
First chartered in 1948, First
BanCorp was the first savings bank
established in Puerto Rico, under the
name of “First Federal Savings Bank”. It
has been a stockholder owned institution
since 1987. In October 1994 it became a
Puerto Rico chartered commercial bank
and was renamed “FirstBank”. Effective
First BanCorp has distinguished itself
by providing innovative marketing
strategies and novel products to attract
clients. Besides its main branches and
specialized lending offices, the Corpora-
tion has offered a telephone information
service called “Telebanco” since 1983.
This was the first telebanking service
offered in Puerto Rico. First BanCorp
clients have access to an extensive ATM
network all over the world. The Corpo-
ration was the first in Puerto Rico to open
on weekends and the first to offer in-
store branches to its clients. First
BanCorp was the first banking institution
in Puerto Rico with a presence on the
internet. During 2000, First BanCorp will
launch a new, interactive web site where
clients will be able to perform all types of
banking transactions.
First BanCorp and its subsidiaries
are subject to supervision, examination
and regulation of the Federal Reserve
Board, the Federal Deposit Insurance
Corporation and the Commissioner of
Financial Institutions of Puerto Rico.
First BanCorp is committed to
provide the most efficient and cost
effective banking services possible.
Management’s goal is to be the premier
financial institution in financial products
and services in Puerto Rico. First
BanCorp’s Management will work
constantly to exceed the expectations of
our stockholders, clients and employees.
6
President’s
President’s
President’s
President’s
President’s
Letter
Letter
Letter
Letter
Letter
TTTTTo our stockholders:
o our stockholders:
o our stockholders:
o our stockholders:
o our stockholders:
On behalf of the Board of Directors
and staff of First BanCorp I am pleased to
submit our annual report for 1999,
another record year. In 1999 First
BanCorp earned $62.1 million, repre-
senting $2.00 per share (basic) or $1.98
per share (diluted). These earnings
compared favorably with 1998, when the
Corporation earned $51.8 million, which
came to $1.75 per share (basic) or $1.74
per share (diluted). Net income increased
19.8 percent and diluted earnings per
share rose 13.8 percent in 1999. These
achievements continue our record of
consistent earnings growth.
During 1999 we concentrated on
investing in new technology and diversify-
ing our services. The pace of change in
First BanCorp accelerated with a series of
targeted purchases and strategic alliances
that laid the foundation for future growth.
Growth and Diversification
Growth and Diversification
Growth and Diversification
Growth and Diversification
Growth and Diversification
Last year we worked hard to
increase commercial and construction
lending. In consumer lending the Corpo-
ration continued to improve the quality of
the portfolio through improved underwrit-
ing processes.
At midyear we acquired the Puerto
Rico operations of Royal Bank of Canada.
This acquisition added $90 million of high
quality commercial loans, while giving us a
well-located branch facility in the Hato
Rey financial district. In August we
acquired the $42 million private label
credit card business of Western Auto in
Puerto Rico. This acquisition substantially
increased our important credit card
business.
The largest acquisition occurred at
year-end. We acquired four branches
from Citibank’s Caribbean operations.
One of these branches in St. Thomas
will strengthen our existing business in
the U.S. Virgin Islands. The three
Puerto Rico branches will add to our
business in San Juan, Ponce and
Mayaguez. This acquisition included $83
million in retail deposits.
Aside from all these acquisitions,
we have moved quickly to take advan-
tage of the Gramm-Leach-Bliley Act,
passed by Congress in November
1999. This legislation removed the
barriers separating the banking, insur-
ance and brokerage industries. We
expect the Puerto Rico legislature will
quickly enact legislation to harmonize
local and Federal banking laws in this
area. We have recruited an Executive
Vice President with many years of
experience in local securities markets to
oversee our entry into brokerage and
investment banking business.
Through an agreement with
Goldman, Sachs & Co., First BanCorp
7
now participates in bond issues by the
Government of Puerto Rico. The
Corporation has also arranged a strategic
alliance with Paine Webber of Puerto
Rico, the largest brokerage firm in the
Island with thirty five years of local
experience. Early in the year 2000 Paine
Webber opened offices in eleven of our
branches. This arrangement gives the
Corporation’s clients the widest range of
investment advice, brokerage services,
and money management experience
available in Puerto Rico, while our officers
are also available to sell our products and
services to Paine Webber’s 32,000 clients
in Puerto Rico.
New Investments in
New Investments in
New Investments in
New Investments in
New Investments in
acilities and
acilities and
echnology, F, F, F, F, Facilities and
echnology
echnology
TTTTTechnology
acilities and
acilities and
echnology
raining
raining
TTTTTraining
raining
raining
First BanCorp has been investing
heavily in technology, particularly in the
area of commercial banking services.
During the first half of 2000 we are
upgrading the computer systems in our
branches. These changes will allow
greater efficiency, while helping our
employees develop and strengthen
relationships with our clients. Also
internet banking will be available by the
midyear 2000.
First BanCorp will provide an
internet service while maintaining all
existing banking services available to our
clients. For this reason we are continuing
our plans to expand First BanCorp’s
branch network. During 1999 we added
three new branches while acquiring five
more from other institutions. We plan to
open more branches this year.
Our employees are the key to our
success. We have reorganized our sales
and distribution system, adding a newly
recruited Senior Vice President with vast
experience in marketing and sales to help
make our branches more sales-oriented.
In addition, the larger branches in the
metropolitan area have two managers:
one for regular clients and the other for
commercial relationships. We have
recruited a Senior Vice President with a
long track record in commercial lending
to administer this middle market strategy.
We have completely restructured
our branch-based deposits, introducing a
new product which pays bonuses for
clients with multiple relationships. We
have created a corporate professional
image by providing uniforms to all our
branch employees and offered extended
branch hours. To facilitate these changes
we are expanding employee training in all
areas of the Corporation.
We have planned and coordinated
these changes under a special project
designed to simplify operations while
making our services more efficient,
responsive and convenient. We named
the project “The Next Fifty” because we
launched it in 1998, the Corporation’s
50th anniversary year, as a way to initiate
our second fifty years of growth. Forty
five employees participated full time in
the project, generating more than 500
ideas for improvement. We expect “The
Next Fifty” to add $12 million in annual-
ized earnings through cost reductions
and revenue enhancements. We are
reinvesting most of these earnings in new
technology. “The Next Fifty” will continue
through into 2001.
8
As First BanCorp embarks on
another year of growth and service to
the Puerto Rican community, we are
confident that our Corporation is
stronger and better positioned than
ever. We have a truly outstanding group
of employees, officers and directors. I
am confident that we can meet the
challenges ahead, and that we will
continue to provide outstanding service
to our clients, while benefiting employ-
ees and stockholders in the years to
come.
Angel Alvarez-Pérez
Chairman
President
Chief Executive Officer
We expect these initiatives to favor
continued low operating costs. During the
past year our efficiency ratio averaged
46.6%, almost the same as the 46.5% of
1998.
Enhancing
Enhancing
Enhancing
Enhancing
Enhancing
Shareholder Valuealuealuealuealue
Shareholder V
Shareholder V
Shareholder V
Shareholder V
Our efforts have paid off in strong
earnings growth for 1999, with a return
on equity of 21.06%, compared with
20.54% in 1998. Our stock price has not
reflected these strong results during
1999. Nevertheless, investors who held
First BanCorp stock over the ten year
period from year-end 1989 to year-end
1999 received a cumulative total return of
1,661%, for an average annual growth
rate of 33.2% on their investment.
The Corporation began a stock
repurchase program four years ago.
During 1999 we repurchased 1,452,000
shares. This brought total activity over the
course of our share repurchase program
to 3,115,450 shares, adjusted for splits,
representing a total investment of $54.3
million. In addition, officers and directors
of First BanCorp own approximately 19
percent of its shares. This shows their
confidence in First BanCorp’s future and
their commitment to keep its fundamen-
tals sound.
During 1999 the magazine U.S.
Banker mentioned First BanCorp’s
outstanding performance in its annual
survey of America’s 100 largest banks.
During 1998 First BanCorp ranked fourth
among all U.S. banks in cost control and in
return on equity First BanCorp ranked
tenth. We are confident that in the
course of time our stock price will reflect
this outstanding performance.
9
Achievements in
Achievements in
Achievements in
Achievements in
Achievements in
19991999199919991999
Record profits made 1999 a very
successful year for First BanCorp. The
company made exceptional progress.
Besides making heavy investments in
new computer systems, improving
employee training and expanding
commercial and construction loans, the
Corporation launched several important
strategic alliances.
Profits continued their healthy
growth as First BanCorp earned $62.1
million, which comes to $2.00 per share
(basic) or $1.98 per share (diluted). In
1998 the Corporation earned $51.8
million, the equivalent of $1.75 (basic) or
$1.74 (diluted) in per share terms. Net
income increased by 19.8%, or 13.8%
per share on a diluted basis. Net interest
income, the main source of the
Corporation’s earnings, grew by $19.5
million from $166.2 million in 1998 to
$185.7 million in 1999. Gains on sale of
investments contributed $1.4 million to
net income in 1999, while in 1998 these
sales contributed $26.8 million.
First BanCorp’s assets grew by
$705 million during 1999, ending the
year at $4.722 billion. Loans increased
by $625 million for the year, mainly from
commercial loans growth of approxi-
mately $400 million. The Corporation
successfully issued $90 million in pre-
ferred stock in April 1999.
First BanCorp made three impor-
tant acquisitions last year. At midyear
FirstBank, the Corporation’s banking
subsidiary, acquired the Puerto Rico
operations of Royal Bank of Canada. This
purchase included a $90 million portfolio
of high quality commercial loans and an
attractive branch in the Hato Rey
financial district. In August, the Bank
acquired the credit card business of
Western Auto, the largest auto parts
retailer in Puerto Rico with 38 stores.
This transaction brought FirstBank a $42
million credit card portfolio distributed
among roughly 100,000 clients.
At year-end FirstBank also acquired
four offices from Citibank. One of these
branches is located in St. Thomas, U.S.
Virgin Islands, and the other three are
located in Puerto Rico. Besides the
facilities and deposits, the Bank acquired
approximately $30 million in loans as a
part of this transaction.
An Expanding Role
An Expanding Role
An Expanding Role
An Expanding Role
An Expanding Role
for a Growing Branch
for a Growing Branch
for a Growing Branch
for a Growing Branch
for a Growing Branch
Network
Network
Network
Network
Network
During 1999 deposits grew from
$1.775 billion to $2.565 billion, an
increase of $790 million. Management
worked intensively to lay the groundwork
for future deposit growth by expanding
the branch network and improving its
products. Besides purchasing the five
branches mentioned above, the Corpo-
ration also opened three new branches
during the year. The Corporation plans
to open more branches during the year
2000. As the Corporation moves
increasingly toward relationship banking,
Management is placing loan centers in
selected branches to increase originations
of mortgages and commercial loans.
Management restructured the
Corporation’s deposit products, introduc-
ing an innovative new product called the
“Bonus Account”. This account rewards
clients who have multiple relationships
10
with FirstBank (e.g. a checking account, a
mortgage and an auto loan). At the same
time, Management is holding back or
eliminating some older products which are
less popular than they were in past years.
These changes will complement the
development of the branch network.
Management is also opening
specialized offices in selected branches.
Four branches now have mortgage loan
centers, which will provide financing for
new homes in the San Juan metropolitan
area. In addition, several branches now
include a commercial loan officer, aside
from the traditional branch manager.
Early in the year 2000 First BanCorp
began offering brokerage services in
selected branches through a new alliance
with Paine Webber. This arrangement will
give the Corporation’s clients the broadest
range of brokerage and financial manage-
ment services available in Puerto Rico.
Previously First BanCorp formed an
alliance with Goldman Sachs to participate
in the underwriting of Puerto Rico
government securities. During the year
2000, the Corporation will begin offering
internet services for those clients who like
the convenience of banking from their
homes along with the security of having
branch officers available.
Improvements in Efficiency
Improvements in Efficiency
Improvements in Efficiency
Improvements in Efficiency
Improvements in Efficiency
In 1998 Management began a
comprehensive re-design plan to stream-
line all corporate operations. The Corpo-
ration named the project “The Next Fifty”
because Management launched it in the
Corporation’s 50th anniversary year as a
way to initiate the second fifty years of
growth. Management has invested most
of the savings from this project in new
technology. Largely because of this
program First BanCorp was able to
maintain an efficiency ratio of only
46.6% during 1999, almost equal to the
46.5% in 1998. Overall operating
expenses were held to only $101.3
million for 1999 compared with $91.8
million in the previous year. Manage-
ment achieved this in spite of significant
increases in the size of the branch
network and heavy investments in new
computer systems. First BanCorp’s
efficiency ratio compares very favorably
with that of other commercial banks
throughout the U.S.
Improvements in the
Improvements in the
Improvements in the
Improvements in the
Improvements in the
Balance Sheet
Balance Sheet
Balance Sheet
Balance Sheet
Balance Sheet
Contributing to higher profits in
1999 was a significant improvement in
asset quality. Two years ago Manage-
ment substantially improved its system
of underwriting consumer loans,
introduced tighter underwriting proce-
dures and improved the Corporation’s
computer systems. As a result, the
quality of the loan portfolio has im-
proved. During 1999 First BanCorp
provided $48 million for loan losses as
compared with $76 million in 1998. This
represents a reduction of 37 percent.
Loan quality has improved
according to other measures as well.
On December 31, 1999 non-perform-
ing loans totaled $53.8 million, com-
pared to $57.0 million on the same date
in 1998 and $52.9 million on a smaller
portfolio at the end of 1997. By the end
of 1999, the ratio of non-performing
loans to total loans had fallen to 1.96%,
compared with 2.69% at the end of
11
1998 and 2.70% at year-end 1997. The
reserve coverage ratio (allowance for
loan losses as a percentage of non-
performing loans) reached 133.3% by
the end of 1999, well above its earlier
levels of 119.1% at year-end 1998 and
109.0% at the end of 1997. Manage-
ment is committed to continuing these
improvements in loan quality in coming
years.
During the early part of 1999
Management strengthened the capital
structure of First BanCorp by issuing $90
million in preferred stock. This transaction
will help the Corporation to maintain a
solid capital structure. Although assets
grew substantially during 1999, the
Corporation’s capital ratios remained
strong. The core capital ratio was 7.5%
and the risk based capital ratio was
16.2% as of December 31, 1999.
Increasing
Increasing
Increasing
Increasing
Increasing
Shareholder Valuealuealuealuealue
Shareholder V
Shareholder V
Shareholder V
Shareholder V
The financial results continue a
trend of earnings growth that has
produced excellent value for sharehold-
ers. First BanCorp’s return on average
equity was 21.06% in 1999, while
average asset yield was 1.49%. Divi-
dends increased in 1999, and reached a
payout ratio of 17.96% compared with
17.12% in 1998. During 1999 the
Corporation repurchased 1,452,000
common shares.
While the stock price has not
reflected these strong results during
1999, investors who held First BanCorp
stock over the ten year period from
year-end 1989 to year-end 1999
received a cumulative total return of
1,661%. This is equivalent to an average
annual growth rate of 33.2% on the
original investment.
Management is optimistic about the
future of First BanCorp. The range of
services it offers, its effective network of
offices and branches supplemented by
new sales methods, its dedicated staff
and its quality reputation with clients will
all contribute to future earnings growth.
Management will continue its efforts to
improve First BanCorp’s excellent
performance in 2000 and in the years to
come.
12
to Rico
to Rico
PPPPPuerueruerueruerto Rico
to Rico
to Rico
Economy
Economy
Economy
Economy
Economy
The island of Puerto Rico is a U.S.
Commonwealth with a population of 3.8
million, located in the Caribbean approxi-
mately 1,600 miles southeast of New
York. Puerto Rico has been enjoying solid
economic growth over most of the
1990’s. Real GNP grew by over 4% in
the 1999 fiscal year. Private economists
are forecasting 2% to 3% real growth in
the fiscal year 2000. Management expects
recent growth patterns on the Island to
continue, with some slowdown during the
coming fiscal year.
Puerto Rico’s economic perfor-
mance is a natural result of its increasing
integration into the U.S. economy. Puerto
Ricans are U.S. citizens and serve in the
United States armed forces. The Island
uses U.S. currency and forms a part of
the U.S. financial system. Federal courts
enforce U.S. laws in Puerto Rico. Since
Puerto Rico falls within the U.S. for
purposes of customs and migration, there
is full mobility of funds, people and goods
between Puerto Rico and the U.S.
mainland. Puerto Rico banks are subject
to the same Federal laws, regulations and
supervision as other financial institutions in
the rest of the U.S. The Federal Deposit
Insurance Corporation insures the
deposits of Puerto Rico chartered com-
mercial banks, including FirstBank, the
banking subsidiary of First BanCorp.
Puerto Rico made a rapid transi-
tion from poverty in the immediate
postwar period to prosperity today.
Throughout this process the Island has
attracted industry using tax exemption.
Many multinational corporations have
substantial operations here. During
1996 Congress repealed Section 936 of
the Internal Revenue Code, which
provided Federal tax exemption for
companies operating in Puerto Rico.
However, Congress also provided a ten
year grandfather clause for companies
already operating here. Because Puerto
Rico has a fiscal system independent
from that of the U.S., it can fashion local
tax incentives to attract or retain
industry. A new law broadening and
strengthening local tax incentives went
into effect on January 1, 1998.
Puerto Rico is becoming some-
what less dependent on manufacturing
than it was in the early postwar period.
Manufacturing attracted by tax exemp-
tion is still an important part of the
Island’s economy. Nevertheless, Puerto
Rico has been diversifying its economic
base to include tourism, business
services and transportation. As part of
these changes the Island has been
receiving U.S. private investment in
diverse areas such as hotels, financial
services and large retail stores. During
the past year a slowdown in manufac-
turing growth was balanced by strong
construction activity, both private and
public. Management is optimistic about
Puerto Rico’s economic future.
13
Angel Alvarez-Pérez, Esq.
Chairman
Board of
Board of
Board of
Board of
Board of
Directors
Directors
Directors
Directors
Directors
Annie Astor de Carbonell, C.P.A.
Angel L. Umpierre, C.P.A.
José Teixidor
Germán E. Malaret, M.D.
Armando López Ortiz, Eng.
Héctor M. Nevares, Esq.
José Julián Alvarez
Jorge Díaz
Antonio Pavía Villamil, M.D.
Francisco D. Fernández, Eng.
Rafael Bouet, Eng.
14
PRESIDENT
Angel Alvarez-Pérez
Chief Executive Officer
Chairman
SENIOR EXECUTIVE
VICE PRESIDENTS
Annie Astor de Carbonell
Chief Financial Officer
Luis M. Beauchamp
Chief Lending Officer
Wholesale Banking
EXECUTIVE
VICE PRESIDENTS
Aurelio Alemán
Consumer Banking
Fernando L. Batlle
Sales & Distribution,
Mortgage Banking
Francisco Cortés
Administrative Services
Ricardo Ramos
First Securities
Randolfo Rivera
Corporate Banking
FirstFirstFirstFirstFirst
BanCorp
BanCorp
BanCorp
BanCorp
BanCorp
Officers
Officers
Officers
Officers
Officers
Standing from left to right:
Aida García,
Francisco Cortés,
Aurelio Alemán,
Randolfo Rivera,
Fernando L. Batlle,
Luis Cabrera,
Josianne M. Rosselló.
Seated from left to right:
Luis Beauchamp,
Angel Alvarez-Pérez,
Annie Astor de Carbonell.
Not present:
Miguel Mejías
Ricardo Ramos
Laura Villarino
SENIOR
VICE PRESIDENTS
Miguel Babilonia
Consumer Credit Policy
& Portfolio Management
Luis Cabrera
Treasury & Investments
Eva Candelario
Corporate Business
Development
José Cerame
Middle Market &
Community Banking
Aida M. García
Human Resources
Michael García
Consumer Collection
Fernando Iglesias
Special Loans & Credit
Administration
Roger Lay
Internal Auditing
Miguel Mejías
Information Systems
John Ortiz
Consumer Lending,
Sales & Services
Haydeé Rivera
Branch Banking Operations
Julio Rivera
Construction Lending
Josianne M. Rosselló
Marketing & Public Relations
Demetrio Santiago
Auto Wholesale Business
Héctor Santiago
Auto Business
Denise Segarra
Sales & Distribution
Laura Villarino
Controller
Miguel Pimentel
Corporate Business
Development
Carlos Power
Next Fifty Project
Rolando Quevedo
Legal Counsel
Jorge Rendón
Operational Support
Migdalia Rivera
Community Banking
Sandra Rivera
Auto Collection
Belinda Rodríguez
Consumer Sales
José L. Rodríguez
Information Systems
Elizabeth Sánchez
Marine Financing
Roberto Sánchez
Credit Risk
Miguel Santin
Corporate Banking
Carmen Torres
Capacity Planning Manager
Raphael Torres
Regional Sales Manager
VICE PRESIDENTS
William Alvarez
Indirect Business
Development
José H. Aponte
Commercial Mortgage
Beverly Bachetti
Private Banking
Juan E. Barnés
Branch Manager
Ana Colón
Centralized Accounting
David González
Corporate Business
Development
Nelson González
Corporate Business
Development
Eric López
Corporate Banking
Marcelo López
Regional Sales Manager
Juanita Marrero
Mortgage Banking
Iván Martínez
Project Manager
José Negrón
Auto Asset & Disposition
Luis Orengo
Commercial Loans
Eduardo Ortiz
Auto Wholesale
Osvaldo Padilla
Corporate Business
Reynaldo Padilla
Auto Finance
15
FIRST FEDERAL
FINANCE CORPORATION
DBA MONEY EXPRESS
“LA FINANCIERA”
Angel Alvarez-Pérez
Chief Executive Officer
Fernando L. Batlle
President and Chief Operating Officer
Orlando Vélez
Vice President and
Operations Manager
FIRST LEASING
AND RENTAL CORPORATION
Angel Alvarez-Pérez
Chief Executive Officer
Aurelio Alemán
President and Chief Operating Officer
William Vélez
Vice President and General Manager
16
SELECTED
SELECTED
SELECTED
SELECTED
SELECTED
FINANCIAL DAAAAATTTTTAAAAA
FINANCIAL D
FINANCIAL D
FINANCIAL D
FINANCIAL D
Year ended December 31,
1999
1998
1997
1996
1995
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
(In thousands except for per share results)
Condensed Income Statements:
Total interest income
Total interest expense
Net interest income
Provision for loan losses
Other income
Other operating expenses
Unusual item - SAIF assessment
Income before income tax provision
Provision for income tax
Net income
Per Common Share Results (1):
Net income per common share - diluted
Cash dividends declared
Average shares outstanding
Average shares-diluted
Balance Sheet Data:
$369,063
183,330
185,733
47,961
32,862
101,272
69,363
7,288
62,075
$1.98
$0.36
28,941
29,199
Loans and loans held for sale
Allowance for possible loan losses
Investments
Total assets
Deposits
Borrowings
Total capital
Book value per common share, end of year (1)
$ 2,745,368
71,784
1,811,164
4,721,568
2,565,422
1,803,729
294,902
7.30
Regulatory Capital Ratios (In Percent):
Total capital to risk weighted assets
Tier 1 capital to risk weighted assets
Tier 1 capital to average assets
Selected Financial Ratios (In Percent):
Net income to average total assets
Interest rate spread (2)
Net interest income to average earning assets (2)
Yield on average earning assets (2)
Cost on average interest bearing liabilities
Net income to average total equity
Net income to average common equity
Average total equity to average total assets
Dividend payout ratio
Efficiency ratio (3)
Offices:
Number of full service branches
Loan origination offices
16.16
11.64
7.47
1.49
4.29
4.85
9.29
5.00
21.06
24.68
7.07
17.96
46.62
48
41
$321,298
155,130
166,168
76,000
58,240
91,798
56,610
4,798
51,812
$1.74
$0.30
29,586
29,858
$ 2,120,054
67,854
1,800,489
4,017,352
1,775,045
1,930,488
270,368
9.17
17.39
11.55
6.59
1.48
4.76
5.27
9.83
5.07
20.54
20.54
7.22
17.12
46.46
40
45
$285,160
130,429
154,731
55,676
39,866
83,268
55,653
8,125
47,528
$1.58
$0.24
30,036
30,204
$1,959,301
57,712
1,276,900
3,327,436
1,594,635
1,458,148
236,379
7.93
17.26
11.07
7.44
1.63
5.30
5.83
10.45
5.15
22.30
22.30
7.32
15.14
45.45
36
44
$256,523
113,027
143,496
31,582
29,614
82,498
9,115
49,915
12,281
37,634
$1.22
$0.20
30,794
30,952
$208,488
96,838
111,650
30,894
48,268
65,628
63,396
14,295
49,101
$1.58
$0.08
30,592
31,118
$ 1,896,074
55,254
830,980
2,822,147
1,703,926
884,741
191,142
6.32
$ 1,556,606
55,009
785,747
2,432,816
1,518,367
698,097
171,202
5.51
15.25
9.32
6.65
1.48
5.46
6.03
10.63
5.17
20.49
20.49
7.23
16.32
49.03
36
47
16.17
9.93
6.82
2.22
5.07
5.59
10.12
5.05
33.19
33.19
6.68
5.06
47.96
36
43
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
(1) Amounts presented were recalculated, when applicable, to retroactively consider the effect of common stock splits.
(2) Ratios were computed on a taxable equivalent basis.
(3) Other operating expenses to the sum of net interest income and other income (excluding gain on sale of investments).
17
MANAGEMENT’S DISCUSSION AND
MANAGEMENT’S DISCUSSION AND
MANAGEMENT’S DISCUSSION AND
MANAGEMENT’S DISCUSSION AND
MANAGEMENT’S DISCUSSION AND
YSIS OF FINANCIAL CONDITION
YSIS OF FINANCIAL CONDITION
ANALANALYSIS OF FINANCIAL CONDITION
ANALANAL
YSIS OF FINANCIAL CONDITION
YSIS OF FINANCIAL CONDITION
ANAL
TIONS
TIONS
TS OF OPERA
TS OF OPERA
AND RESUL
AND RESUL
TIONS
TS OF OPERATIONS
AND RESULTS OF OPERA
TIONS
TS OF OPERA
AND RESUL
AND RESUL
FINANCIAL REVIEW SUMMARY
For the year 1999, First BanCorp (the Corporation) recorded earnings of
$62,074,949 or $2.00 per common share (basic) and $1.98 per common share (diluted),
compared to $51,812,387 or $1.75 per common share (basic) and $1.74 per common
share (diluted) for 1998, and $47,527,552 or $1.58 per common share (basic and diluted)
for 1997.
The Corporation’s earnings are attributed to the net interest income earned on the
growing portfolio of earning assets, improvements in asset quality resulting in a lower provision
for loan losses, and controls over operating expenses. For 1999 as compared to 1998, net
income increased by $10,262,562 or $0.24 per common share (diluted), and for 1998 as
compared to 1997, by $4,284,835 or $0.16 per common share (diluted).
Return on average assets was 1.49% for 1999, 1.48% for 1998 and 1.63% for
1997. Return on average equity was 21.06% for 1999, 20.54% for 1998 and 22.30% for
1997.
RESULTS OF OPERATIONS
The Corporation’s results of operations depend primarily on its net interest income,
which is the difference between the interest income earned on interest earning assets, including
investment securities and loans, and the interest expense paid on interest bearing liabilities,
including deposits and borrowings. Also, the results of operations depend on the provision for
loan losses, operating expenses (such as personnel, occupancy and other costs), other income
(mainly service charges and fees on loans), and gains on sale of investments.
Net Interest Income
Net interest income increased to $185.7 million for 1999 from $166.2 million in
1998 and $154.7 million in 1997. This improvement results from the continuous increase in
the average volume of interest earning assets together with a higher available capital and non-
interest bearing liabilities to fund those assets. This is reflected in an increase in the average
volume of interest earning assets of $721.2 million for 1999 as compared to 1998 and of
$582.7 million for 1998 as compared to 1997. Interest bearing liabilities increased by $606
million for 1999 as compared to 1998 and by $528 million for 1998 as compared to 1997.
The following table includes a detailed analysis of net interest income. Part I presents
average volumes and rates on a tax equivalent basis and Part II presents the extent to which
changes in interest rates and changes in volume of interest related assets and liabilities have
affected the Corporation’s net interest income. For each category of earning assets and interest
bearing liabilities, information is provided on changes attributable to changes in volume (changes
in volume multiplied by old rates), and changes in rate (changes in rate multiplied by old vol-
umes). Rate-volume variances (changes in rate multiplied by changes in volume) have been
allocated to the changes in volume and changes in rate based upon their respective percentage of
the combined totals.
18
PPPPPararararart It It It It I
Year ended December 31,
1999
Average volume
1998
1997
Interest income (1) / expense
1997
1998
1999
Average rate (1)
1999 1998 1997
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
(Dollars in thousands)
Earning Assets:
Deposits at banks and other
short-term investments
Government obligations
Mortgage backed securities
Other investment
FHLB stock
Total investments
Consumer loans (2)
Residential real estate loans (2)
Construction loans (2)
Commercial loans (2)
Finance leases (2)
Total loans
Total earning assets
Interest Bearing Liabilities:
Interest bearing checking accounts
Savings accounts
Certificate accounts
Interest bearing deposits
Other borrowed funds
FHLB advances
Total interest bearing
liabilities
Net interest income (1)
Interest rate spread (1)
Net interest margin (1)
$
27,344 $
40,766 $
67,969
404,517
319,777
415,742
428,804
1,032,632
1,294,195
519
1,150
18,646
10,150
10,252
16,170
911,959
1,404,577
1,772,097
1,090,991
1,032,704
1,013,782
283,799
290,564
327,700
10,488
19,169
94,940
473,093
613,697
847,917
50,823
43,108
68,577
1,909,194
1,999,242
2,352,916
$4,125,013 $ 3,403,819 $2,821,153
$
450
24,997
92,157
1,598
1,101
120,303
138,130
30,754
9,216
75,879
9,080
263,059
$383,362
$
2,028 $ 3,708
26,949
34,942
21
670
66,290
1.65% 4.97% 5.45%
6.01% 6.25% 6.66%
19,984
7.12% 7.50% 8.15%
77,463
8.57% 16.14% 4.24%
186
6.81% 7.25% 6.60%
743
6.79% 7.15% 7.27%
100,404
147,100 13.63% 13.49% 13.48%
139,309
9.38% 10.60% 10.39%
29,485
30,807
9.71% 9.66% 9.57%
1,004
1,852
44,770
8.95% 9.16% 9.46%
56,239
6,220 13.24% 13.97% 12.24%
6,022
228,579 11.18% 11.72% 11.97%
234,229
$334,633 $294,869 9.29% 9.83% 10.45%
$140,690
413,662
1,373,263
1,927,615
1,728,913
8,451
$123,847
398,249
972,433
1,494,529
1,559,892
4,515
$116,852
400,998
985,124
1,502,974
1,012,757
15,157
$4,931
12,381
73,177
90,489
92,370
471
$ 4,487
11,717
54,214
70,418
84,460
252
$4,167
12,155
55,827
72,149
57,418
864
3.50% 3.62% 3.57%
2.99% 2.94% 3.03%
5.33% 5.58% 5.67%
4.69% 4.71% 4.80%
5.34% 5.41% 5.67%
5.57% 5.58% 5.70%
$3,664,979 $ 3,058,936 $2,530,888
$183,330
$155,130 $130,431 5.00% 5.07% 5.15%
$200,032
$179,503 $164,438
4.29% 4.76% 5.30%
4.85% 5.27% 5.83%
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
(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.
19
t IIt II
t IIt II
PPPPPararararart II
○
○
○
○
1999 compared to 1998
Increase (decrease)
Due to:
Rate
○
○
○
○
○
○
○
○
○
○
○
○
1998 compared to 1997
○
○
○
○
○
○
○
○
○
○
○
○
Total
Volume
Increase (decrease)
Due to:
Rate
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Total
Volume
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
(In thousands)
Earning assets:
Deposits at banks and other
short-term investments
Government obligations
Mortgage backed securities
Other investment
FHLB stock
Total investments
Consumer loans
Residential real estate loans
Construction loans
Commercial loans
Finance leases
Total loans
Total interest income
Interest bearing liabilities:
Deposits
Other borrowed funds
FHLB advances
Total interest expense
Change in net interest income
$
(521)
5,884
19,123
2,143
416
27,045
(2,565)
3,711
7,355
21,212
3,465
33,178
60,223
20,368
9,091
219
29,678
$ 30,545
$ (1,057)
(871)
(4,429)
(731)
(58)
(7,146)
1,386
(3,765)
9
(1,572)
(406)
(4,348)
(11,494)
(297)
(1,181)
0
(1,478)
$(10,016)
$ (1,578)
5,013
14,694
1,412
358
19,899
(1,179)
(54)
7,364
19,640
3,059
28,830
48,729
20,071
7,910
219
28,200
$ 20,529
$ (1,377)
(5,375)
47,250
50
7
40,555
(7,861)
711
839
13,096
(1,011)
5,774
46,329
(403)
30,323
(594)
29,326
$ 17,003
$
(303)
(1,589)
(4,729)
114
66
(6,441)
70
612
9
(1,628)
811
(126)
(6,567)
(1,327)
(3,282)
(18)
(4,627)
$ (1,940)
$ (1,680)
(6,964)
42,521
164
73
34,114
(7,791)
1,323
848
11,468
(200)
5,648
39,762
(1,730)
27,041
(612)
24,699
$15,063
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Total interest income includes tax equivalent adjustments of $14.3 million, $13.3 million
and $9.7 million for 1999, 1998, and 1997, respectively. On a tax equivalent basis, net interest
income increased to $200 million for 1999 from $179.5 million for 1998, and $164.4 million
for 1997. The interest rate spread and net interest margin amounted to 4.29% and 4.85%,
respectively, for 1999, as compared to 4.76% and 5.27%, respectively, for 1998 and to 5.30%
and 5.83%, respectively, for 1997. The reduction in the interest rate spread and net interest
margin for 1999 is mainly due to the increase of $367.5 million in the average volume of total
investments when compared to the average volume recorded for 1998. These investments have
a lower spread than loans without considering the effects of credit risk. In addition, there was a
reduction of $18.9 million in the average volume of consumer loans, which provide the highest
spread, but have the highest credit risk in the portfolio.
1999 compared to 1998
On a tax equivalent basis interest income increased by $48.6 million for 1999 as
compared to 1998. On a tax equivalent basis the yield on earning assets was 9.29% for 1999 as
compared to 9.83% for 1998. The increase in interest income results from the growth in the
average of interest earning assets of $721.2 million in 1999.
For the loan portfolio, the growth in 1999 of $234.2 million in the average volume of
commercial loans (including commercial real estate loans) represented an increase of $21.2 million
in income due to volume, partially offset by a reduction of $1.6 million in interest income due to
rate. The average portfolio of construction loans increased by $75.8 million for 1999, represent-
ing a positive volume variance of $7.4 million. The average portfolio of residential mortgage loans
increased by $37.1 million for 1999, representing a positive volume variance of $3.7 million. The
average finance lease portfolio (mostly composed of consumer loans) increased by $25.5 million
in 1999, representing a positive volume variance of $3.5 million. The decrease of $18.9 million
20
in the average volume of consumer loans in 1999 caused a negative variance in interest income
due to volume of $2.6 million. The increase in the commercial real estate, construction and
commercial loans portfolio resulted from the Corporation’s strategy to diversify its asset base,
which was concentrated in consumer loans. The consumer loan portfolio decreased as a result of
the tighter underwriting policies implemented during 1997.
For the investment portfolio, the average volume of mortgage backed securities
increased by $261.6 million in 1999. The tax equivalent yield on mortgage backed securities was
7.12% in 1999 and 7.50% in 1998. The portfolio of mortgage backed securities contributed
$19.1 million in interest income due to volume net of $4.4 million decrease in interest income
due to rate. The average volume of government obligations increased by $96 million for 1999 as
compared to 1998, causing a total increase in interest income of $5 million.
Interest expense increased by $28.2 million for 1999 as compared to 1998. This was
the result of the increase in the average volume of interest bearing liabilities of $606 million for
1999 as compared to 1998 with a volume variance of $29.7 million. However, the negative
variance was partially offset by a decrease in the cost of interest bearing liabilities from 5.07% for
1998 to 5.00% for 1999 causing a positive rate variance of $1.5 million for 1999 as compared
to 1998.
1998 compared to 1997
On a tax equivalent basis interest income increased by $39.8 million for 1998 as
compared to 1997. On a tax equivalent basis the yield on earning assets was 9.83% for 1998 as
compared to 10.45% for 1997. The improvement in interest income was due to the increase in
the average volume of interest earning assets of $582.7 million.
For the investment portfolio, the average volume of mortgage backed securities
increased by $603.8 million in 1998. The tax equivalent yield on mortgage backed securities was
7.50% in 1998 and 8.15% in 1997. The portfolio of mortgage backed securities contributed
$47.3 million in interest income due to volume net of a $4.7 million decrease in interest income
due to rate. The average volume of government obligations decreased by $84.7 million for 1998
as compared to 1997, resulting in a total decrease in interest income of $7 million.
For the loan portfolio, the growth in the average volume of commercial loans (including
commercial real estate loans) of $140.6 million in 1998 represented an increase of $13.1 million
in income due to volume, partially offset by a reduction of $1.6 million in interest income due to
rate. In 1998 the average volume of residential real estate and construction loans increased by
$6.8 million and $8.7 million, respectively, representing an increase in interest income of $1.3
million and $.8 million, respectively. The decrease of $58.3 million in the average volume of
consumer loans caused a negative variance in interest income due to volume of $7.9 million. The
increase in the commercial real estate and commercial loans portfolio was the result of the
Corporation’s strategy of diversifying its asset base, which was concentrated in consumer loans.
The consumer loan portfolio decreased as a result of the tighter underwriting policies implemented
during 1997.
Interest expense increased by $24.7 million for 1998 as compared to 1997. This
results from the increase in the average volume of interest bearing liabilities of $528 million for
1998 as compared to 1997 with a volume variance of $29.3 million. However, interest expense
was affected by a decrease of eight basis points in the cost of interest bearing liabilities from 5.15%
for 1997 to 5.07% for 1998 causing a positive rate variance of $4.6 million for 1998 as
compared to 1997.
21
Provision for Loan Losses
During 1999, the Corporation provided $48 million for loan losses, a significant
decrease compared to $76 million in 1998 and $55.7 million in 1997. The provision for loan
losses recorded in 1999 reflects the improvements in the credit quality of the loan portfolio. Net
charge offs for 1999 amounted to $44 million, a significant reduction compared to net charge offs
for 1998 of $65.9 million and of $53.2 million for 1997. Net charge offs to average loans
outstanding has significantly improved to 1.87% as compared to 3.29% and 2.79% for 1998 and
1997, respectively.
The allowance activity for 1999, and previous four years was as follows:
Year ended December 31,
1999
1998
1997
1996
1995
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Allowance for loan losses, beginning of period
Provision for loan losses
Loans charged off:
Commercial real estate
Commercial
Finance leases
Consumer
Recoveries and other adjustments
Net charge offs
Allowance for loan losses, end of period
Allowance for loan losses to year end total
loans and loans held for sale
Net charge offs to average loans
outstanding during the period
$67,854
47,960
(51)
(774)
(793)
(52,047)
9,634
(44,031)
$71,784
(Dollars in thousands)
$55,254
55,675
$55,009
31,582
$57,712
76,000
(168)
(712)
(3,438)
(67,906)
6,366
(65,858)
$67,854
(284)
(597)
(1,399)
(57,311)
6,374
(53,217)
$57,712
(492)
(781)
(161)
(33,295)
3,392
(31,337)
$55,254
$37,413
30,894
(403)
(3,299)
(10,821)
1,225
(13,298)
$55,009
2.61%
3.20%
2.95%
2.91%
3.53%
1.87%
3.29%
2.79%
1.80%
.93%
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
The Corporation maintains the allowance for loan losses at a level that Management
considers adequate to absorb losses inherent in the loan portfolio. The adequacy of the allowance
for loan losses is reviewed on a quarterly basis as part of the continuing evaluation of the quality of
the assets. This evaluation is based upon a number of factors, including the followings: historical
loan loss experience, projected loan losses, loan portfolio composition, current economic
conditions, fair value of the underlying collateral, financial condition of the borrowers, and, as such,
includes amounts based on judgments and estimates made by Management
Other Income
The following table presents the composition of other income.
Year ended December 31,
1999
1998
1997
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Other fees on loans
Service charges on deposit accounts
Fees on loans serviced for others
Rental income
Other operating income
Other income before gain on
sale of investments and trading
Gain on sale of investments
Trading (loss) income
Total
$12,887
8,540
864
2,610
6,592
31,493
1,377
(8)
$32,862
(In thousands)
$11,158
7,844
1,617
2,292
5,137
28,048
26,827
3,365
$58,240
$ 10,899
7,363
2,670
1,935
4,866
27,733
11,388
745
$ 39,866
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
22
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 fees on loans consist mainly of credit card fees and late charges collected on loans.
The increase in this source of income to $12.9 million in 1999 from $11.2 million in 1998 and
$10.9 million in 1997 was due to fees generated on the increased portfolio of commercial loans.
Service charges on deposit accounts represent an important and stable source of other
income for the Corporation. This source of income increased to $8.5 million in 1999 from $7.8
million in 1998 and $7.4 million in 1997.
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 and subsequently securitized. The decrease in this account is due to the continued
repayment of the auto loan portfolio.
The Corporation’s second tier subsidiary, First Leasing and Rental Corporation,
generates income on the rental of various types of motor vehicles. This source of income has
averaged approximately $2 million in the past three years.
The other operating income category is composed of various types of service fee such
as check fees and rental of safe deposit boxes. Other operating income also includes earned
discounts on tax credits purchased and utilized against income tax payments.
Gains on sale of investment securities amounted to $1.4 million in 1999, $26.8 million
in 1998 and $11.4 million in 1997. These gains reflect market opportunities that arose and that
are in consonance to the Corporation’s investment policies.
Other Operating Expense
Other operating expenses amounted to $101.3 million for 1999 as compared to
$91.8 million for 1998 and $83.3 million for 1997. The following table presents the compo-
nents of other operating expenses.
Year ended December 31,
1999
1998
1997
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Salaries and benefits
Occupancy and equipment
Deposit insurance premium
Other taxes and insurance
Professional and service fees
Business promotion
Communications
Real estate owned operations
Amortization of debt issue costs
Expense of rental equipment
Other
Total
$ 48,546
20,137
1,096
5,683
6,672
5,896
4,667
(303)
612
1,478
6,789
$101,273
(In thousands)
$ 43,185
18,155
971
5,607
5,820
5,922
4,330
42
691
1,226
5,849
$ 91,798
$38,644
16,101
1,040
5,536
4,883
4,993
4,364
(21)
788
1,184
5,756
$83,268
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
23
Management’s goal has been to make expenditures that directly contribute to increase the
efficiency and profitability of the Corporation. This control over other operating expenses has been
an important factor contributing to the increase in earnings in recent years. In 1999, the Corpora-
tion started the implementation of a cost restructuring project, which has transformed the opera-
tions and processes toward a more cost efficient institution. The savings generated by this effort
have been invested mainly in new technology. The Corporation’s efficiency ratio, which is the ratio
of other operating expenses to the sum of net interest income and other recurring income, was
46.62% for 1999 as compared to 46.46% and 45.45% for 1998 and 1997, respectively.
The increase in operating expenses for 1999 is mainly the result of the investments
made in new technology, the expansion of the Corporation’s branch network, the acquisition of
new business and branches and the staffing of the commercial lending business to support the
growth in the portfolio. During 1999 the Corporation opened a new full-service branch and two
in-store branches. In July of 1999, the Corporation acquired the Royal Bank’s operations in Puerto
Rico including its full service branch in the financial district of Hato Rey. In August of 1999, the
Corporation acquired the credit card portfolio of Western Auto. In December of 1999, the
Corporation acquired four branches from CitiBank. To emphasize the commercial lending area, the
Corporation recruited new officers for the origination of loans to the middle market throughout
selected branches. The salary and benefits category was also affected by increases in salary and
fringe benefits.
The occupancy and equipment category consists of expenses associated with premises,
office and computer equipment, and other automated banking equipment. The increase in the past
three years was the result of the enhancement of hardware and software through system conver-
sions, which have enabled the Corporation to offer new products, and improve customer service
and portfolio servicing. Expenses related to the year 2000 issue also affected this category (see
Year 2000 section).
The increase in the professional and service fee category for 1999 is primarily attributed
to the credit card processing and assessment fees resulting from the increase in the credit card
portfolio and the increase in the number of accounts managed due to the acquisition of the
Western Auto portfolio. The increase in credit card fee income exceeded the related processing
costs.
Business promotion costs amounted to $5.9 million for 1999 as compared to $5.9
million in 1998, and $5 million for 1997. Business promotion expenses have been incurred to
increase loan and deposit volumes. In addition, in 1999 the Corporation launched a distinct
publicity campaign to promote its new “Bonus account” and a corporate image.
Income Tax Expense
The provision for income tax amounted to $7.3 million (or 11% of pre-tax earnings) for
1999 as compared to $4.8 million (or 8% of pre-tax earnings) in 1998, and $8.1 million (or
15% of pre-tax earnings) in 1997. The Corporation has maintained an effective tax rate lower
than the statutory rate of 39% mainly by investing in obligations and loans exempt from federal and
Puerto Rico income tax. For additional information relating to taxes, see Note 28 of the
Corporation’s financial statements - “Income Taxes.”
24
FINANCIAL CONDITION
The following table presents an average balance sheet as of the dates indicated:
December 31,
1999
1998
1997
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Assets
Interest earning assets:
Deposits at banks and other
short-term investments
Government obligations
Mortgage backed securities
Other investment
FHLB stock
Total investments
Consumer loans
Residential real estate loans
Construction loans
Commercial loans
Finance leases
Total loans
Total interest earning assets (1)
Total non-interest earning assets
Total assets
Liabilities and stockholders’ equity
Interest bearing liabilities:
Interest bearing checking accounts
Savings accounts
Certificate accounts
Interest bearing deposits
Other borrowed funds
FHLB advances
Total interest bearing liabilities
Total non-interest bearing liabilities
Total liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
(In thousands)
$
40,766
319,777
1,032,632
1,150
10,252
1,404,577
1,032,704
290,564
19,169
613,697
43,108
1,999,242
3,403,819
89,717
$3,493,536
$ 123,847
398,249
972,433
1,494,529
1,559,892
4,515
3,058,936
182,369
3,241,305
252,231
$3,493,536
$
67,969
404,517
428,804
519
10,150
911,959
1,090,991
283,799
10,488
473,093
50,823
1,909,194
2,821,153
91,355
$2,912,508
$ 116,852
400,998
985,124
1,502,974
1,012,757
15,157
2,530,888
168,515
2,699,403
213,105
$2,912,508
$
27,344
415,742
1,294,195
18,646
16,170
1,772,097
1,013,782
327,700
94,940
847,917
68,577
2,352,916
4,125,013
47,768
$ 4,172,781
$ 140,690
413,662
1,373,263
1,927,615
1,728,913
8,451
3,664,979
212,993
3,877,972
294,809
$ 4,172,781
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
(1) Net of the allowance for loan losses and the valuation on investments securities available for sale.
25
Assets
The Corporation’s total assets at December 31, 1999 amounted to $4,722 million,
$704 million over the $4,017 million at December 31, 1998. The increase in total assets results
primarily from the growth in total loans receivable (net of the allowance for loan losses) of $621
million.
The following table presents the composition of the loan portfolio at year-end for each of the last five years.
December 31,
% of
Total
% of
Total
1998
1999
% of
Total
% of
Total
1996
1997
1995
% of
Total
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
(Dollars in thousands)
Residential real estate loans
Commercial real
estate loans
Construction loans
Commercial loans
Total commercial
Finance leases
Consumer loans
Total
$ 473,563
17 $ 303,011
14
$ 292,604
15
$ 297,246
16 $ 319,758
21
371,643
132,068
655,417
1,159,128
85,692
1,026,985
$ 2,745,368
332,219
14
62,963
5
368,549
24
763,731
43
52,214
3
37
1,001,098
100 $2,120,054
16
3
17
36
3
47
100
306,734
9,279
235,571
551,584
42,500
1,072,613
$1,959,301
15
1
12
28
2
55
100
256,227
10,209
174,770
441,206
58,481
1,099,141
$1,896,074
13
210,645
14
1
9,233
1
10
156,369
9
24
376,247
24
2
32,965
3
57
53
827,636
100 $1,556,606 100
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
During 1999 the Corporation continued its strategy of diversifying its loan portfolio
composition through the origination and purchase of commercial loans. This resulted in a significant
increase of $395.4 million in the commercial loan portfolio. This increase includes approximately
$90 million in commercial loans purchased from Royal Bank of Puerto Rico. Residential real estate
loans increased in 1999 by $170.6 million as a result of new resources added to this line of
business. Finance leases, which are mostly composed of loans to individuals to finance the
acquisition of an auto, increased by $33.5 million. Consumer loans increased by $25.9 million in
1999 as a result of the acquisition of a $42 million credit card portfolio from Western Auto, offset
by a decrease in the rest of the portfolio of $16.1 million.
26
The Corporation’s investment portfolio at December 31, 1999 amounted to $1,811
million, in line with the investment portfolio of $1,801 million at December 31, 1998.
The composition and tax equivalent weighted average interest rates of the Corporation’s
earning assets at December 31, 1999 were as follows:
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Amount
(In thousands)
Weighted
Average Rate
Money market instruments
Government obligations
Mortgage backed securities
FHLB of N.Y. stock
Other investment
Total investments
Consumer loans
Residential real estate loans
Construction loans
Commercial and commercial real estate loans
Finance leases
Total loans(1)
Total earning assets
$
35,217
437,705
1,223,873
17,827
96,541
1,811,163
1,026,985
473,563
132,068
1,027,060
85,692
2,745,368
$ 4,556,531
4.64%
6.74%
7.20%
6.81%
7.33%
7.04%
15.02%
8.94%
8.88%
8.15%
12.41%
11.02%
9.44%
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
(1) Excludes the reserve for loan losses. Generally, non-accruing loans were included in this
analysis as if they were accruing interest.
27
Non-performing Assets
Total non-performing assets are the sum of non-accruing loans, OREO’s and other
repossessed properties. 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 December 31, 1999, total non-performing assets amounted to $57 million (1.22%
of total assets) as compared to $63 million (1.57% of total assets) at December 31, 1998 and
$63 million (1.89% of total assets) at December 31, 1997. The Corporation’s reserve to non-
performing loans was 133.4% at December 31, 1999 as compared to 119.1% and 109.0% at
December 31, 1998 and 1997, respectively.
Past due loans are loans delinquent 90 days or more as to principal and/or interest, and
still accruing interest.
The following table presents non-performing assets at the dates indicated. The presentation of non-performing assets was changed for
1999 and previous four years to exclude past due and still accruing loans to conform it to the industry practice.
December 31,
1999
1998
1997
1996
1995
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Non-accruing loans:
Residential real estate
Commercial and commercial real estate
Finance leases
Consumer
Other real estate owned (OREO)
Other repossessed property
Total non-performing assets
Past due loans
Non-performing assets to total assets
Non-performing loans to total loans
Allowance for loan losses
Allowance to total non-performing loans
$ 8,633
17,975
2,482
24,726
53,816
517
3,112
$ 57,445
$ 13,781
1.22%
1.96%
$ 71,784
133.39%
$
9,151
19,355
1,716
26,736
56,958
3,642
2,277
$ 62,877
$ 15,110
1.57%
2.69%
$ 67,854
119.13%
(Dollars in thousands)
$ 6,963
16,869
4,560
24,547
52,939
1,132
8,702
$ 62,773
$ 11,544
1.89%
2.70%
$ 57,712
109.02%
$ 8,814
11,568
5,125
25,655
51,162
1,696
7,566
$60,424
$ 9,752
2.14%
2.70%
$55,254
108.00%
$
9,309
18,979
297
26,085
54,670
2,991
3,132
$ 60,793
5,544
$
2.50%
3.51%
$ 55,009
100.62%
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
28
Non-accruing Loans
Residential Real Estate Loans-
The Corporation classifies all 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 real estate loans amounted to $8.6 million (1.82% of total residential real estate
loans) at December 31, 1999, as compared to $9.2 million (3.02% of total residential real estate
loans) and $7 million (2.38% of total residential real estate loans) at December 31, 1998 and
1997, respectively.
Commercial Loans - The Corporation places all commercial loans (including commercial real
estate and construction loans) 90 days delinquent as to principal and interest in non-accruing status.
The risk exposure of this portfolio is diversified. Non-accruing commercial loans amounted to
$18 million (1.55% of total commercial loans) at December 31, 1999 as compared to $19.4
million (2.53% of total commercial loans) and $16.9 million (3.06% of total commercial loans) at
December 31, 1998 and 1997, respectively. At December 31, 1999, there was only one non-
accruing commercial loan of over $1 million, which is a $2.6 million loan, partially secured by
inventory, accounts receivable and real estate collateral.
Finance Leases - Finance leases are classified as non-accruing when they are delinquent 90 days
or more. Non-accruing finance leases amounted to $2.5 million (2.90% of total finance leases) at
December 31, 1999, compared to $1.7 million (3.29% of total finance leases) at December 31,
1998, and $4.6 million (10.73% of total finance leases) at December 31, 1997.
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 $24.7 million (2.41% of the total con-
sumer loan portfolio) at December 31, 1999, $26.7 million (or 2.67% of the total consumer
loan portfolio) at December 31, 1998 and $24.5 million (or 2.29% of the total consumer loan
portfolio) at December 31, 1997. The decrease in the ratio and amount of non-accruing loans
was the result of the improvement on the credit quality of the portfolio. This improvement
resulted in a decrease in charge off of consumer loans to $52 million in 1999 from $67.9 million
in 1998, and $57.3 million in 1997.
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.
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 are recorded at the principal balance of the loans less an estimated loss on the
disposition of certain units.
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.
29
Sources of Funds
The Corporation’s principal funding sources are branch-based deposits, institutional
deposits, federal funds purchased, securities sold under agreements to repurchase, and notes.
Deposits
Total deposits amounted to $2,565 million at December 31, 1999, as compared to
$1,775 million and $1,595 million at December 31, 1998 and 1997, respectively.
Total deposits are composed of branch-based deposits and institutional deposits.
The following table presents the composition of total deposits.
December 31,
1999
1998
1997
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Savings accounts
Interest bearing checking accounts
Certificates of deposit
Interest bearing deposits
Non-interest bearing deposits
Total
Weighted average rate during the
period on interest bearing deposit
Interest bearing deposits:
Average balance outstanding
Non-interest bearing deposits:
Average balance outstanding
(Dollars in thousands)
$ 447,946
162,601
1,742,978
2,353,525
211,896
$2,565,421
$ 416,424
130,883
1,054,634
1,601,941
173,104
$ 1,775,045
$ 403,129
121,452
929,955
1,454,536
140,099
$1,594,635
4.69%
4.71%
4.80%
$1,927,614
$ 1,494,529
$1,502,975
179,478
145,357
127,256
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Institutional deposits include brokered certificates of deposits and certificates issued to agencies of
the Government of Puerto Rico.
Total interest bearing deposits increased by $751.6 million at December 31, 1999
when compared to December 31, 1998. This fluctuation was mainly due to: (1) an increase in
branch-based deposits of $206.7 million; (2) an increase of $560 million in brokered certificates of
deposits; net of (3) a decrease of $10 million in certificates issued to corporations operating under
Internal Revenue Code Section 936; and (4) a decrease of $5.0 million in certificates issued to the
agencies of the Government of Puerto Rico.
Non-interest bearing deposits increased by $38.8 million in 1999. The increase in total
branch based deposits includes the deposits of the five branches acquired from other financial
institutions.
Borrowings
At December 31, 1999 total borrowings amounted to $1,804 million as compared to
$1,931 million and $1,458 million at December 31, 1998 and 1997, respectively. The following
table presents the composition of borrowings.
December 31,
1999
1998
1997
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
(Dollars in thousands)
Federal funds purchased and securities
sold under agreements to repurchase
Other short term borrowings
Advances from FHLB
Notes payable
Subordinated notes
Total
$1,452,151
152,484
50,000
55,500
93,594
$1,803,729
$1,623,698
86,595
2,600
118,100
99,496
$1,930,489
$ 965,869
231,505
29,000
132,350
99,423
$1,458,147
Weighted average rate during the period
5.34%
5.41%
5.67%
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
30
The Corporation uses federal funds purchased, repurchase agreements, advances from
FHLB and notes payable as additional funding sources. The borrowings of the Corporation consist
primarily of federal funds purchased and securities sold under agreements to repurchase (repur-
chase agreements) which at December 31, 1999 amounted to $1,452.2 million or 81% of total
borrowings. Repurchase agreements had a total weighted average cost of 5.07%, during the year
ended December 31, 1999. For more information on borrowings please refer to Notes 20
through 24 of the Corporation’s financial statements.
The composition and weighted average interest rates of interest bearing liabilities at
December 31, 1999, were as follows:
Amount
(In thousands)
Weighted
Average rate
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Interest bearing deposits
Borrowed funds
$ 2,353,525
1,803,729
4.94%
5.60%
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Capital
During 1999, the Corporation increased its total capital from $270.4 million at Decem-
ber 31, 1998 to $294.9 million at December 31, 1999. Total capital increased by $24.5 million
due to earnings of $62.1 million, the issuance of 3,600,000 shares of preferred stock at $86.9
million, the issuance of 13,000 shares of common stock through the exercise of stock options at a
cost of $176,313, reduced by the repurchased shares of common stock at a total cost of $32.5
million, an unrealized loss on investment securities available for sale of $77.4 million and cash
dividends of $14.7 million.
The Corporation’s objective is to maintain a solid capital position above the “well
capitalized” classification under the federal banking regulations. The Corporation continues to
exceed the well capitalized guidelines. To be in a “well capitalized” position, an institution should
have: (i) a leverage ratio of 5% or greater; (ii) a total risk based capital ratio of 10% or greater; and
(iii) a Tier 1 risk-based capital ratio of 6% or greater. At December 31, 1999 the Corporation had
a leverage ratio of 7.47%; a total risk based capital ratio of 16.16%; and a Tier 1 risk-based capital
ratio of 11.64%.
Dividends
In 1999, 1998 and 1997 the Corporation declared four quarterly cash dividends of
$0.09, $0.075 and $0.06 per common share, respectively, for an annual dividend of $0.36,
$0.30 and $0.24, respectively. Total cash dividends paid on common shares amounted to $10.4
million for 1999 (or a 17.96% dividend payout ratio), $8.9 million for 1998 (or a 17.12%
dividend payout ratio) and $7.2 million for 1997 (or a 15.14% dividend payout ratio). Dividends
declared on preferred stock amounted to $4.3 million in 1999.
Year 2000
The transition to the year 2000 occurred as expected without any significant problems
on the Corporation’s computer systems or any other date sensitive operating equipment. The
expenses incurred to comply with the year 2000 date change amounted to approximately $1.4
million for the year 1999 and $650,000 for the year 1998.
Asset/Liability Management
The Corporation has a formal system of interest rate risk management. Management
recognizes that it may sometimes be necessary to forego earning opportunities in order to maintain
a stable stream of net interest income as interest rates rise and fall.
Management monitors the Corporation’s interest rate risk position primarily through
computer simulations of the effect of rising and falling interest rates on net interest income. Two
sets of simulations are carried out, both of which cover a two year time horizon: one assuming a
flat balance sheet with a constant asset/liability mix and another assuming a balance sheet which
grows according to expected loan originations and funding. These simulations also incorporate
expected changes in prepayment rates as interest rates rise or fall, repricing characteristics of
variable rate assets and liabilities, current and expected lending rates, funding sources and costs.
Other factors, which may be potentially important in determining the future growth of net interest
income (i.e. planned securitizations and liquidity requirements), are considered in these simulations.
31
Management also uses one year GAP analysis as a secondary technique for evaluating
interest rate risk. The Corporation’s one year GAP fluctuated between a negative 2% and a
negative 27% of assets during 1999. Management considers that the ranges of the GAP ratio
achieved during 1999 are adequate, considering the Corporation’s net interest margin and capital
ratios.
The Corporation’s interest rate risk position is measured on a quarterly basis and is
evaluated by the Asset Liability Management and Investment Committee. This Committee is in
charge, among other things, of informing Management as to the current levels of interest rate risk
and, when necessary, managing the repricing of the Corporation’s assets, liabilities and off balance
sheet contracts to maintain that risk at reasonable and prudent levels.
Liquidity
Liquidity refers to the level of cash and eligible investments to meet loan and investment
commitments, potential deposit outflows and debt repayments. The Asset Liability Management
and Investment Committee, using measures of liquidity developed by Management reviews the
Corporation’s liquidity position and liquidity targets on a weekly basis.
The principal sources of short-term funds are loan repayments, deposits, securities sold
under agreements to repurchase, and lines of credit with the FHLB and other financial institutions.
The Investment Committee reviews credit availability on a regular basis. In addition, the Corpora-
tion has securitized and sold auto and mortgage loans as supplementary sources of funding.
Commercial paper has also provided additional funding. The Corporation has obtained long-term
funding through the issuance of notes and long-term institutional certificates of deposit. The
Corporation’s principal uses of funds are the origination of loans and the repayment of maturing
deposit accounts and borrowings.
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been prepared in
conformity with generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars without considering changes in
the relative purchasing power of money over time due to inflation.
Unlike most industrial companies, substantially all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates have a greater impact on a financial
institution’s performance than the effects of general levels of inflation. Interest rate movements are
not necessarily correlated with changes in the prices of goods and services.
Market Prices and Stock Data
Quarter ended
High
Low
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
The Corporation’s common stock is
traded in the New York Stock Exchange
(NYSE) under the symbol FBP. On Decem-
ber 31, 1999, there were 641 holders of
record of the Corporation’s common stock.
The following table sets forth the
high and low prices of the Corporation’s
common stock for the periods indicated as
reported by the NYSE. Common stock prices
were adjusted to give retroactive effect to the
stock split declared in May 1998.
1999:
December
September
June
March
1998:
December
September
June
March
1997:
December
September
June
March
$22.81
24.75
28.50
30.38
$30.50
29.50
29.63
23.88
$18.82
17.75
13.63
14.38
$19.25
19.75
22.00
22.69
$21.38
23.63
22.72
16.50
$15.13
12.53
11.69
12.50
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
32
TIVE AND QUALITALITALITALITALITAAAAATIVETIVETIVETIVETIVE
TIVE AND QU
TIVE AND QU
ANTITAAAAATIVE AND QU
ANTIT
ANTIT
QUQUQUQUQUANTIT
TIVE AND QU
ANTIT
DISCLOSURES ABOUT MARKET RISK
DISCLOSURES ABOUT MARKET RISK
DISCLOSURES ABOUT MARKET RISK
DISCLOSURES ABOUT MARKET RISK
DISCLOSURES ABOUT MARKET RISK
First BanCorp manages its asset/liability position in order to limit the effects of changes in
interest rates on net interest income, subject to other goals of Management and within guidelines
set forth by the Board of Directors.
The day-to-day management of interest rate risk, as well as liquidity management and
other related matters, is assigned to the Asset Liability Management and Investment Committee
(ALCO). The ALCO is composed of the following officers: President and CEO, Senior Executive
Vice President/Chief Financial Officer, Senior Executive Vice President/Chief Lending Officer,
Executive Vice President and President of Money Express, Senior Vice President/Investments, and
the Economist. The ALCO meets on a weekly basis. The Economist also acts as secretary,
keeping minutes of all meetings.
Committee meetings focus on, among other things, current and expected conditions in
world financial markets, competition and prevailing rates in the local deposit market, reviews of
liquidity, unrealized gains and losses in securities, recent or proposed changes to the investment
portfolio, alternative funding sources and their costs, hedging and the possible purchase of
derivatives such as swaps and caps, and any tax or regulatory issues which may be pertinent to
these areas. The ALCO approves pricing and funding decisions in the light of the Corporation’s
overall growth strategies and objectives. On a quarterly basis the ALCO performs a comprehen-
sive asset/liability review, examining the measures of interest rate risk described below together
with other matters such as liquidity and capital.
The Corporation uses simulations to measure the effects of changing interest rates on
net interest income. These measures are carried out in two ways, assuming upward and
downward interest rate movements of 200 basis points:
(1) using a balance sheet which is assumed to be flat at the levels existing on the simulation date,
and
(2) using a balance sheet which has growth patterns and strategies similar to those which have
occurred in the recent past.
Assuming a flat balance sheet, tax equivalent net interest income for the twelve months
following December 31, 1999 and 1998 would be $203.3 million and $207.1 million, respec-
tively, under flat rates, $183.5 million and $185.4 million, respectively, under rising rates, and
$222.3 million and $211.0 million, respectively, under falling rates. Assuming a growing balance
sheet, tax equivalent net interest income for 1999 would be $213.5 million under flat rates (1998
- $209.1 million), $192.9 million under rising rates (1998 - $188.3 million) and $228.4 million
under falling rates (1998 - $212.5 million). These simulations do not represent what actual
results would be, since interest rate risk management is dynamic, and can be adjusted depending on
the committee’s interest rate outlook.
These simulations assume gradual upward or downward movements of interest rates
over one year, with the change totaling 200 basis points at the end of the twelve month period.
The balance sheet is divided into groups of similar assets and liabilities in order to simplify the
process of carrying out these projections. As interest rates rise or fall, these simulations incorpo-
rate expected future lending rates, current and expected future funding sources and cost, the
possible exercise of options, liquidity requirements, and other factors which may be important in
determining the future growth of net interest income. Only interest and fee income is included in
these projections; profits on the sale of assets are excluded. All computations are done on a tax
equivalent basis, including the effects of the changing cost of funds on the tax-exempt spreads of
certain investments. The projections are carried out for First BanCorp on a fully consolidated
basis.
These simulations are highly complex, and they use many simplifying assumptions which
are intended to reflect the general behavior of the Corporation over the period in question, but
there can be no assurance that actual events will parallel these assumptions in all cases. For this
reason, the results of these simulations are only approximations of the true sensitivity of net
interest income to changes in market interest rates.
33
35
FIRST BANCORP
FIRST BANCORP
FIRST BANCORP
FIRST BANCORP
FIRST BANCORP
TEMENTS OF
TEMENTS OF
TED STAAAAATEMENTS OF
TED ST
TED ST
CONSOLIDAAAAATED ST
CONSOLID
CONSOLID
TEMENTS OF
TEMENTS OF
TED ST
CONSOLID
CONSOLID
FINANCIAL CONDITION
FINANCIAL CONDITION
FINANCIAL CONDITION
FINANCIAL CONDITION
FINANCIAL CONDITION
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
December 31,
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
1999
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
1998
○
○
○
○
○
○
Assets
Cash and due from banks
Money market instruments
Investment securities available for sale, at market:
United States and Puerto Rico Government obligations
Mortgage backed securities
Other investments
Total investment securities available for sale
Investment securities held to maturity, at cost:
United States and Puerto Rico Government obligations
Mortgage backed securities
Total investment securities held to maturity
Federal Home Loan Bank (FHLB) stock
Loans held for sale
Loans receivable
Total loans
Allowance for loan losses
Total loans - net
Other real estate owned
Premises and equipment - net
Accrued interest receivable
Due from customers on acceptances
Other assets
Total assets
Liabilities and Stockholders’ Equity
Liabilities:
Non-interest bearing deposits
Interest bearing deposits
Federal funds purchased and securities
sold under agreements to repurchase
Other short-term borrowings
Advances from FHLB
Notes payable
Bank acceptances outstanding
Accounts payable and other liabilities
Subordinated notes
Stockholders’ equity:
Preferred Stock, authorized 50,000,000 shares: issued and
outstanding 3,600,000 shares at $25.00 liquidation value
per share
Common stock, $1.00 par value, authorized 250,000,000 shares;
issued 29,612,552 shares
Less: Treasury Stock (at par value)
Common stock outstanding
Additional paid-in capital
Capital reserve
Legal surplus
Retained earnings
Accumulated other comprehensive income - unrealized gain (loss)
on securities available for sale, net of tax
$
58,267,929
35,217,064
340,356,015
1,017,176,782
96,541,374
1,454,074,171
97,349,381
206,696,658
304,046,039
17,826,500
37,794,078
2,707,574,019
2,745,368,097
(71,784,237)
2,673,583,860
517,405
61,947,817
17,917,526
2,738,176
95,431,678
$ 4,721,568,165
$
211,896,459
2,353,525,177
1,452,151,222
152,484,084
50,000,000
55,500,000
2,738,176
54,776,718
4,333,071,836
93,594,080
90,000,000
29,612,552
(1,552,000)
28,060,552
19,863,466
40,000,000
126,792,514
58,834,676
(68,648,959)
294,902,249
$
39,416,097
525,669
268,611,106
1,492,538,909
1,620,000
1,762,770,015
26,921,836
26,921,836
10,270,600
20,641,628
2,099,412,756
2,120,054,384
(67,854,066)
2,052,200,318
3,642,525
51,537,192
10,738,072
2,392,338
56,937,413
$ 4,017,352,075
$
173,103,709
1,601,941,185
1,623,697,988
86,594,710
2,600,000
118,100,000
2,392,338
39,058,247
3,647,488,177
99,495,830
29,599,552
(100,000)
29,499,552
23,575,936
30,000,000
53,454,469
125,088,180
8,749,931
270,368,068
Contingencies and commitments
Total liabilities and stockholders’ equity
$ 4,721,568,165
$ 4,017,352,075
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
The accompanying notes are an integral part of these statements.
37
FIRST BANCORP
FIRST BANCORP
FIRST BANCORP
FIRST BANCORP
FIRST BANCORP
TEMENTS
TEMENTS
TED STAAAAATEMENTS
TED ST
TED ST
CONSOLIDAAAAATED ST
CONSOLID
CONSOLID
TEMENTS
TEMENTS
TED ST
CONSOLID
CONSOLID
OF INCOME
OF INCOME
OF INCOME
OF INCOME
OF INCOME
1999
Year ended December 31,
1998
○
○
○
○
○
○
○
○
○
○
○
○
○
1997
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Interest income:
Loans
Investment securities
Short-term investments
Dividends on FHLB stock
Total interest income
Interest expense:
Deposits
Short-term borrowings
Notes payable
Advances from FHLB
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Other income:
Other fees on loans
Service charges on deposit accounts
Trading (loss) income
Fees on loans serviced for others
Gain on sale of investments
Rental income
Other operating income
Total other income
Other operating expenses:
Employees’ compensation and benefits
Occupancy and equipment
Taxes and insurance
Net (gain) cost of operations and disposition of
other real estate owned
Amortization of debt issuance costs
Other
Total other operating expenses
Income before income tax provision
Income tax provision
Net income
Earnings per common share - basic
Earnings per common share - diluted
$ 260,741,177
106,770,856
450,248
1,100,823
369,063,104
$ 231,513,730
88,312,096
729,417
743,161
321,298,404
$ 225,524,452
55,310,691
3,654,806
670,156
285,160,105
90,489,121
79,455,499
12,914,538
470,590
183,329,748
185,733,356
47,960,500
137,772,856
12,886,541
8,540,291
(7,946)
864,278
1,376,672
2,609,657
6,592,940
32,862,433
48,545,839
20,137,354
6,778,354
(303,359)
612,404
25,501,303
101,271,895
69,363,394
7,288,445
62,074,949
2.00
1.98
$
$
$
70,418,359
69,494,151
14,965,751
251,707
155,129,968
166,168,436
76,000,000
90,168,436
11,157,852
7,843,837
3,364,843
1,617,292
26,827,417
2,291,814
5,136,795
58,239,850
43,185,324
18,154,663
6,577,894
42,359
691,411
23,146,048
91,797,699
56,610,587
4,798,200
$ 51,812,387
$
$
1.75
1.74
$
$
$
72,147,084
39,460,518
17,958,092
863,599
130,429,293
154,730,812
55,675,500
99,055,312
10,898,586
7,363,369
744,789
2,669,673
11,388,137
1,935,169
4,865,788
39,865,511
38,644,042
16,101,054
6,575,896
(21,128)
787,745
21,180,662
83,268,271
55,652,552
8,125,000
47,527,552
1.58
1.58
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
The accompanying notes are an integral part of these statements.
38
FIRST BANCORP
FIRST BANCORP
FIRST BANCORP
FIRST BANCORP
FIRST BANCORP
TEMENTS OF CASH
TEMENTS OF CASH
TED STAAAAATEMENTS OF CASH
TED ST
TED ST
CONSOLIDAAAAATED ST
CONSOLID
CONSOLID
TEMENTS OF CASH
TEMENTS OF CASH
TED ST
CONSOLID
CONSOLID
FLOWS
FLOWS
FLOWS
FLOWS
FLOWS
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
1999
○
Year ended December 31,
1998
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
1997
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Cash flows from (for) operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation
Provision for loan losses
Increase in taxes payable
Increase in deferred tax asset
(Increase) decrease in accrued interest receivable
Increase (decrease) in accrued interest payable
Amortization of deferred loan fees (costs)
Net gain on sale of investments securities
Originations of loans held for sale
Proceeds from sale of loans
Decrease in other assets
Increase (decrease) in other liabilities
Total adjustments
Net cash provided by operating activities
Cash flows from (for) investing activities:
Principal collected on loans
Loans originated
Purchase of loans
Sales of investment securities
Purchase of securities held-to-maturity
Purchases of securities available-for-sale
Principal repayments and maturities of securities held-to-maturity
Principal repayments of securities available-for-sale
Additions to premises and equipment
Purchase of FHLB stock
Net cash used by investing activities
Cash flows from (for) financing activities:
Net increase (decrease) in deposits
Net increase (decrease) in federal funds purchased and
securities sold under repurchase agreements
Net increase (decrease) in other short-term borrowings
FHLB-N.Y. advances taken/paid
Payments of notes payable
Decrease (increase) in debt securities issuance cost
Dividends
Repurchase of common stock
Issuance of preferred stock
Treasury stock acquired
Exercise of stock options
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Cash and cash equivalents include:
Cash and due from banks
Money market instruments
$
62,074,949
$
51,812,387
$
47,527,552
7,645,035
47,960,500
2,345,647
(6,702,849)
(7,179,454)
10,056,988
(680,735)
(1,376,673)
(18,222,990)
1,266,787
12,950,921
5,012,929
53,076,106
115,151,055
719,964,127
(1,270,442,873)
(118,603,000)
9,630,866
(277,624,203)
(6,069,805,410)
500,000
6,267,048,544
(18,055,660)
(7,555,900)
(764,943,509)
7,827,866
76,000,000
3,454,049
(11,454,033)
2,297,862
1,072,485
881,411
(26,827,417)
(9,086,622)
20,776,413
1,718,242
66,660,256
118,472,643
559,726,839
(797,256,751)
(1,330,497)
302,128,585
(6,899,653,771)
34,782,596
6,061,838,410
(10,917,891)
(120,300)
(750,802,780)
7,281,936
55,675,500
1,464,869
(1,765,992)
(3,843,610)
(2,371,552)
(30,868)
(11,388,137)
(7,668,575)
1,249,543
48,813,231
(3,157,333)
84,259,012
131,786,564
661,129,038
(819,802,988)
118,004,497
(18,837,919)
(8,185,668,960)
27,591,758
7,518,487,101
(6,739,859)
(705,837,332)
790,376,740
180,410,210
(109,290,923)
(172,898,023)
65,889,375
47,400,000
(68,501,750)
1,211,219
(14,657,799)
86,850,217
(32,510,611)
176,313
703,335,681
53,543,227
39,941,766
$ 93,484,993
$ 58,267,929
35,217,064
$ 93,484,993
654,760,505
(144,910,185)
(26,400,000)
(14,177,660)
(1,049,270)
(8,870,832)
(3,656,420)
(2,211,250)
196,501
634,091,599
1,761,462
38,180,304
$ 39,941,766
$ 39,416,097
525,669
$ 39,941,766
381,012,600
231,504,896
14,900,000
(54,010,993)
957,972
(7,197,417)
(6,899,822)
382,249
451,358,562
(122,692,206)
160,872,510
38,180,304
37,666,068
514,236
38,180,304
$
$
$
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
The accompanying notes are integral part of these statements.
39
FIRST BANCORP
FIRST BANCORP
FIRST BANCORP
FIRST BANCORP
FIRST BANCORP
TEMENTS
TEMENTS
TED STAAAAATEMENTS
TED ST
TED ST
CONSOLIDAAAAATED ST
CONSOLID
CONSOLID
TEMENTS
TEMENTS
TED ST
CONSOLID
CONSOLID
OF CHANGES IN STOCKHOLDERS’ EQUITY
OF CHANGES IN STOCKHOLDERS’ EQUITY
OF CHANGES IN STOCKHOLDERS’ EQUITY
OF CHANGES IN STOCKHOLDERS’ EQUITY
OF CHANGES IN STOCKHOLDERS’ EQUITY
Preferred
stock
Common
stock
Additional
paid-in
capital
Capital
reserve
Legal
surplus
Retained
earnings
Unrealized
gain (loss) on
securities
available
for sale
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
December 31, 1996
Net income
Change in valuation of
securities available for sale
Addition to legal surplus
Addition to capital reserve
Repurchase of common stock
Stock option exercised
Cash dividends-common stock
December 31, 1997
Net income
Change in valuation of
securities available for sale
Addition to capital reserve
Repurchase of common stock
Treasury stock
Stock option exercised
Cash dividends-common stock
Common stock split
on May 29, 1998
December 31, 1998
Net income
Change in valuation of
securities available for sale
Issuance of preferred stock
Addition to legal surplus
Addition to capital reserve
Treasury stock
Stock options exercised
Cash dividends:
Common stock
Preferred stock
December 31, 1999
$
$15,116,651 $38,599,962
$10,000,000 $49,106,995 $77,711,586
47,527,552
$607,119
4,347,474
10,000,000
(247,825)
33,000
(495,650)
349,249
14,901,826
38,453,561
20,000,000
53,454,469
10,000,000
(108,800)
(100,000)
10,000
(217,600)
(50,000)
186,501
11,424,325
12,031,444
(3,281,513)
(4,347,474)
(10,000,000)
(6,156,347)
(7,197,417)
97,537,900
51,812,387
(10,000,000)
(3,330,024)
(2,061,250)
(8,870,832)
14,796,526
29,499,552
(14,796,526)
23,575,936
30,000,000
53,454,469
125,088,180
8,749,931
90,000,000
(3,149,783)
(1,452,000)
13,000
(726,000)
163,313
73,338,045
10,000,000
(77,398,890)
62,074,949
(73,338,045)
(10,000,000)
(30,332,611)
(10,382,797)
(4,275,000)
$90,000,000 $28,060,552 $19,863,466
$40,000,000 $126,792,514 $58,834,676 $(68,648,959)
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
The accompanying notes are an integral part of these statements.
40
FIRST BANCORP
FIRST BANCORP
FIRST BANCORP
FIRST BANCORP
FIRST BANCORP
TEMENTS OF
TEMENTS OF
TED STAAAAATEMENTS OF
TED ST
TED ST
CONSOLIDAAAAATED ST
CONSOLID
CONSOLID
TEMENTS OF
TEMENTS OF
TED ST
CONSOLID
CONSOLID
COMPREHENSIVE INCOME
COMPREHENSIVE INCOME
COMPREHENSIVE INCOME
COMPREHENSIVE INCOME
COMPREHENSIVE INCOME
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
1999
$ 62,074,949
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Year ended December 31,
1998
$ 51,812,387
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
1997
47,527,552
○
○
○
○
○
○
○
$
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Net income
Other comprehensive income net of tax:
Unrealized (losses) gains on securities:
Unrealized holding (losses) gains
arising during the period
Less: reclassification adjustment
for gains included in net income
Total other comprehensive (loss) income
(76,501,672)
8,102,283
12,081,362
897,218
(77,398,890)
11,383,796
(3,281,513)
657,037
11,424,325
Comprehensive (loss) income
$ (15,323,941)
$ 48,530,874
$
58,951,877
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
The accompanying notes are an integral part of these statements.
41
NOTES TO CONSOLIDAAAAATEDTEDTEDTEDTED
NOTES TO CONSOLID
NOTES TO CONSOLID
NOTES TO CONSOLID
NOTES TO CONSOLID
TEMENTS
TEMENTS
FINANCIAL STAAAAATEMENTS
FINANCIAL ST
FINANCIAL ST
TEMENTS
TEMENTS
FINANCIAL ST
FINANCIAL ST
Note 1 - Nature of Business
First BanCorp (the Corporation) was incorporated 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 reorga-
nization 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 45 full service banking branches in Puerto Rico and three
in the U.S. Virgin Islands. It also has loan origination offices in Puerto Rico focusing on
consumer loans and residential mortgage 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 supervi-
sion, examination and regulation of 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).
Note 2 - Summary of Significant 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 and contingent 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.
Following is a description of the more significant accounting policies followed by the
Corporation:
Principles of consolidation
The consolidated financial statements include the accounts of the Corpora-
tion and its subsidiaries, all of which are wholly owned. All significant intercompany
balances and transactions have been eliminated in consolidation.
Statement of cash flows
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks and money market instruments.
42
Segments of the Corporation and related information
Operating segments are components of the Corporation about which
separate financial information is available based on which Management makes
operating decisions and assesses performance.
Securities purchased under agreements to resell
The Corporation enters into purchases of securities under agreements to
resell the same securities. Amounts advanced under these agreements represent
short-term loans and are reflected as assets in the statements of financial condition.
The Corporation monitors the market value of the underlying securities as compared
to the related receivable, including accrued interest, and requests additional collateral
where deemed appropriate.
Investment securities
The Corporation classifies its investments in debt and equity securities into
one of three categories:
Held to maturity - Securities for which the entity has the positive intent and
ability to hold to maturity. These securities are carried at amortized cost.
Trading - Securities that are bought and held principally for the purpose of
selling them in the near term. These securities are carried at fair value, with unreal-
ized gains and losses reported in earnings.
Available for sale - Securities not classified as trading or as held to maturity.
These securities are carried at fair value, with unrealized holding gains and losses net
of estimated tax effect, excluded from earnings and reported in other comprehensive
income as a separate component of stockholders’ equity.
Premiums and discounts are amortized as an adjustment to interest income
over the life of the related securities using a method that approximates the interest
method. Realized gains or losses on securities are reported in earnings. When
computing realized gains or losses, the cost of securities is determined on the specific
identification method.
43
Loans and allowance for loan losses
Loans are stated at their outstanding balance less unearned interest and net
deferred loan origination fees and costs. Unearned interest on installment loans (i.e.,
personal and auto) is recognized as income under a method which approximates the
interest method.
Loans on which the recognition of interest income has been discontinued are
designated as non-accruing. When loans are placed on non-accruing status, any
accrued but uncollected interest income is reversed and charged against interest
income.
Consumer loans are classified as non-accruing when they are delinquent: 90
days or more for auto, boat and home equity reserve loans, 120 days or more for
personal loans, and 180 days or more for credit cards and personal lines of credit.
Commercial and mortgage loans are classified as non-accruing when they are
delinquent 90 days or more. This policy is also applied to all impaired loans.
The Corporation provides for estimated losses on mortgage, commercial and
consumer loans upon an evaluation of the risk characteristics of said loans, loss
experience, economic conditions and other pertinent factors. Loan losses are
charged and recoveries are credited to the allowance for loan losses.
Loan origination fees and costs
Loan origination fees and costs incurred in the origination of loans are
deferred and amortized using the interest method or under a method that approxi-
mates the interest method over the life of the loans as an adjustment to interest
income. When a loan is paid off or sold, any unamortized net deferred fee (cost)
balance is credited (charged) to income.
Other real estate owned
Other real estate owned, acquired in settlement of loans, is carried at the
lower of cost (carrying value of the loan) or fair value minus estimated cost to sell of
the real estate at the date of acquisition. Subsequent to foreclosure, gains or losses
resulting from the sale of these properties and losses recognized on the periodic
reevaluations of these properties are credited or charged to net cost (gain) of
operations and disposition of other real estate owned. The cost of maintaining and
operating these properties is expensed as incurred.
44
Premises and equipment
Premises and equipment are carried at cost less accumulated depreciation.
Depreciation is provided on the straight-line method over the estimated useful lives of
the individual assets without exceeding 40 years. Depreciation of leasehold improve-
ments is computed on the straight-line method over the terms of the leases or
estimated useful lives of the improvements, whichever is shorter. Costs of mainte-
nance and repairs which do not improve or extend the life of the respective assets
are expensed as incurred. Costs of renewals and betterments are capitalized.
When assets are sold or disposed of, their cost and related accumulated depreciation
are removed from the accounts and any gain or loss is reflected in earnings.
Intangible assets
Intangible assets consist of core deposits values which are amortized using
straight line method over ten years.
Securities sold under agreements to repurchase
The Corporation enters into sales of securities under agreements to repur-
chase the same or similar securities. Generally, similar securities are securities from
the same issuer, with identical form and type, similar maturity, identical contractual
interest rates, similar assets as collateral and the same aggregate unpaid principal
amount. The securities underlying the agreements remain in the asset accounts.
Amortization of debt issuance costs
Costs related to the issuance of debt are amortized under a method which
approximates the interest method.
Treasury stock
The Corporation accounts for treasury stock at par value. Under this
method, the treasury stock account is increased by the par value of each share of
common stock reacquired. Any excess paid per share over the par value is debited
to additional paid-in capital for the amount per share that it was originally credited.
Any remaining excess is charged to retained earnings.
45
Stock option plan
The cost associated with stock option plan under which certain employees
receive options to buy shares of stock of the Corporation 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.
Earnings per common share
Earnings per share-basic is calculated by dividing income available to common
stockholders by the weighted average number of outstanding common shares. The
computation of earnings per share-diluted is similar to the computation of earnings per
share-basic 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. Stock options outstanding
under the Corporation’s stock option plan are considered in the earnings per share-
diluted by application of the treasury stock method. Any stock splits or stock divi-
dends are retroactively recognized in all periods presented in financial statements.
Reporting comprehensive income
Comprehensive income includes net income and several other items that
current accounting standards require to be recognized outside of net income. This
statement was implemented in 1998 and affected only financial statements’ presenta-
tion. Reclassification of financial statements for earlier periods was presented for
comparative purposes.
Reclassifications
Certain amounts in the 1998 and 1997 financial statements have been
reclassified to conform with the 1999 presentation.
46
Accounting for derivative instruments and hedging activities
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133 “Accounting for Deriva-
tive Instruments and Hedging Activities.” This statement establishes accounting and
reporting standards for derivative instruments, including derivative instruments that
are embedded in other contracts, and for hedging activities. SFAS No. 133 standard-
izes accounting for derivative instruments, including those embedded in other
contracts, by requiring the recognition of all derivatives (both assets and liabilities) in
the statement of financial position at fair value. In accordance with SFAS No. 133,
changes in the fair value of derivative instruments are generally accounted for as
current income or other comprehensive income, depending on their designation.
SFAS No. 133 generally provides for the matching of the timing of gain or loss
recognition on the hedging instruments with the recognition of either the changes in
the fair value of the hedged asset or liability, or the earnings effect of the hedged
forecasted transaction.
On July 7, 1999, the FASB issued SFAS No. 137, “Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement
No. 133”. SFAS No. 137 delays the effective date of SFAS No. 133. SFAS No. 133
would be effective for all fiscal quarters of all fiscal years beginning after June 15, 2000.
Based on current volumes, Management expects that the adoption of SFAS No. 133
will not have a significant impact on the Corporation’s financial position and results of
operations.
Note 3 - Stockholders’ Equity
Common stock
On April 30, 1998, the Corporation declared a two for one stock split on its
then outstanding 14,796,526 shares of common stock. As a result, a total of
14,796,526 additional shares of common stock were issued on May 29, 1998. In
addition, 10,000 and 13,000 shares of common stock were issued during 1998 and
1999 as part of the exercise of stock options under the Corporation’s stock option
plan.
The Corporation declared a cash dividend on its common stock of $0.24 per
share in 1997, of $0.30 per share in 1998, and of $0.36 per share in 1999.
47
Stock repurchase plan and treasury stock
In 1996 a stock repurchase program was established (the 1996 Program)
where the Corporation is authorized to repurchase in the open market, and retire
from circulation or hold as treasury stock, up to ten percent of the 31,083,502 issued
and outstanding shares of common stock at the time the program was approved by
the stockholders. Under this program the Corporation repurchased a total of
1,452,000 shares of common stock at a cost of $32,510,611 during 1999, 317,600
shares of common stock at a cost of $5,867,674 during 1998, and 495,650 shares of
common stock at a cost of $6,899,822 during 1997. The number of shares were
adjusted to recognize the May 1998 stock split. From the total amount of stocks
repurchased, 1,552,000 shares were held as treasury stock at December 31, 1999
(1998 - 100,000 shares) and were available for general corporate purposes.
In 1997 an additional stock repurchase program was established whereby
the Corporation may repurchase in the open market shares of common stock, which
amount represents 10% of the issued and outstanding shares after all shares autho-
rized under the 1996 Program have been repurchased.
Preferred stock
The Corporation has 50,000,000 shares of authorized non-cumulative and
non-convertible 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. Annual dividends of $1.78125 per share, are
payable monthly, if declared by the board of directors. At December 31, 1998, no
shares of preferred stock were outstanding.
Capital reserve
The capital reserve account was established to comply with certain regula-
tory requirements of the Office of the Commissioner of Financial Institutions of Puerto
Rico related to the issuance of subordinated notes by FirstBank in 1995. An amount
equal to 10% of the principal of the notes is set aside each year from retained
earnings until the reserve equals the total principal amount. At the notes repayment
date the balance in capital reserve is to be transferred to the legal surplus account or
retained earnings after the approval of the Commissioner of Financial Institutions of
Puerto Rico.
48
Legal surplus
The Banking Act of the Commonwealth of Puerto Rico requires FirstBank
that a minimum of 10% of the net income for the year be transferred to legal
surplus, until such surplus equals the total of paid in capital on common and preferred
stock. Amounts transferred to the legal surplus account from the retained earnings
account are not available for distribution to the stockholders.
Dividend restrictions
The Corporation is subject to certain restrictions generally imposed on
Puerto Rico corporations (i.e., that dividends may be paid out only from the
Corporation’s net assets in excess of capital or in the absence of such excess, from
the Corporation’s net earnings for such fiscal year and/or the preceding fiscal year).
The Federal Reserve Board has also issued a policy statement that provides that bank
holding companies should generally pay dividends only out of current operating
earnings.
Note 4 - Regulatory Capital
Requirement
The Corporation is subject to various regulatory capital requirements
imposed by the federal banking agencies. Failure to meet minimum capital require-
ments 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.
49
Capital standards established by regulations require the Corporation to
maintain minimum amounts and ratios of Tier 1 capital to total average assets (lever-
age 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% depend-
ing on the nature of the asset.
At December 31, 1999 and 1998, the Corporation exceeded the require-
ments for an adequately capitalized institution.
At December 31, 1999 and 1998, the Corporation also was a well capitalized
institution under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Corporation must maintain minimum total risk
based, Tier 1 risk based and Tier 1 leverage ratios as set forth in the following table.
Management believes that there are no conditions or events that have changed that
classification.
The Corporation’s and its banking subsidiary’s regulatory capital positions were as follows:
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Regulatory requirements
Actual
Amount
Ratio
For capital
adequacy purposes
Ratio
Amount
To be well capitalized
Amount
Ratio
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
At December 31, 1999
Total Capital (to Risk-Weighted Assets):
First BanCorp
FirstBank
Tier I Capital (to Risk-Weighted Assets):
First BanCorp
FirstBank
Tier I Capital (to Average Assets):
First BanCorp
FirstBank
$468,261
409,173
16.16%
14.26%
$337,284
279,383
11.64%
9.73%
$337,284
279,383
7.47%
6.26%
(Dollars in thousands)
$231,758
229,608
$115,879
114,804
$135,473
133,953
8%
8%
4%
4%
3%
3%
$289,697
287,010
10%
10%
$173,818
172,206
$225,789
223,255
6%
6%
5%
5%
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Regulatory requirements
Actual
Amount
Ratio
For capital
adequacy purposes
Ratio
Amount
To be well capitalized
Amount
Ratio
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
At December 31, 1998
Total Capital (to Risk-Weighted Assets):
First BanCorp
FirstBank
Tier I Capital (to Risk-Weighted Assets):
First BanCorp
FirstBank
Tier I Capital (to Average Assets):
First BanCorp
FirstBank
(Dollars in thousands)
$377,939
372,015
17.39%
17.12%
$173,835
173,817
$250,910
244,989
11.55%
11.28%
$ 86,917
86,909
$250,910
244,989
6.59%
6.44%
$114,204
114,204
8%
8%
4%
4%
3%
3%
$217,294
217,271
10%
10%
$130,376
130,363
$190,340
190,340
6%
6%
5%
5%
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
50
Note 5 - Stock Option Plan
The Corporation has a stock option plan covering certain employees. The
options granted under the plan cannot exceed 20% of the number of common
shares outstanding. Each option provides for the purchase of one share of common
stock at a price not less than the fair market value of the stock on the date the option
is granted. The maximum term to exercise the options is ten years. The stock
option plan provides for a proportionate adjustment in the exercise price and the
number of shares that can be purchased in the event of a stock dividend, stock split,
reclassification of stock, merger or reorganization and certain other issuance and
distributions.
Following is a summary of the activity related to stock options as adjusted
retroactively for the May 1998 stock split:
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Number
of Options
Weighted Average
Exercise Price per Option
At December 31, 1996
Granted
Exercised
Expired or canceled
At December 31, 1997
Granted
Exercised
At December 31, 1998
Granted
Exercised
At December 31, 1999
325,714
240,000
(66,000)
(25,714)
474,000
296,000
(13,500)
756,500
223,000
(13,000)
966,500
$ 6.15
15.45
5.79
10.20
10.68
24.85
14.56
16.16
19.99
13.56
17.07
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
The options outstanding at December 31, 1999 have an original expiration
term of ten years and all of them are exercisable. The exercise price of the options
outstanding at December 31, 1999 ranges from $5.79 to $28.38 and the weighted
average remaining contractual life is approximately eight years.
Following is additional information concerning the stock options outstanding at
December 31, 1999. The data included herein have been adjusted to reflect the
May 1998 stock split.
Number of
Options
Exercise
Price per Option
Contractual
Maturity
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
234,000
213,500
60,000
7,000
40,000
12,000
177,000
2,000
3,500
15,000
202,500
966,500
$ 5.79
15.63
19.19
28.38
27.09
26.56
26.00
25.94
26.44
22.56
19.63
November 2004
November 2007
February 2008
April 2008
May 2008
June 2008
November 2008
February 2009
April 2009
August 2009
November 2009
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
51
Note 6 - Earnings Per Common Share
The calculations of earnings per common share for the years ended Decem-
ber 31, 1999, 1998 and 1997 follow (in thousands, except per share data):
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Net income
Less: Preferred stock dividend
Net income - attributable to common stockholders
$62,075 $ 51,812 $47,528
(4,275)
$57,800 $ 51,812 $47,528
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Year ended December 31,
1999
1998
1997
Year ended December 31,
1999
1998
1997
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Earnings per common share-basic:
Net income - available to common stockholders
Weighted average common shares outstanding
Earnings per common share-basic
Earnings per common share-diluted:
$57,800 $51,812
29,586
1.75
2.00 $
28,941
$
$47,528
30,036
$ 1.58
Net income - available to common stockholders
Weighted average common shares and share equivalents:
Average common shares outstanding
Common stock equivalents - Options
Total
Earnings per common share-diluted
$57,800 $51,812
$47,528
28,941
258
29,199
$ 1.98
29,586
272
29,858
$ 1.74
30,036
168
30,204
$ 1.58
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Had compensation cost for the stock options granted been determined based
on the fair value at the grant date (as a result of the requirement explained in Note 2
- Stock option plan), the Corporation’s net income and earnings per common share
would have been reduced to the pro forma amounts indicated, as follow (in thou-
sands, except per share data):
Year ended December 31,
1999
1998
1997
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Pro forma earnings per common share:
Net income - available to common stockholders
Earnings per common share-basic
Earnings per common share-diluted
$56,341
$1.95
$1.93
$48,592 $46,354
$1.55
$1.54
$1.64
$1.63
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Management 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 1999, 1998 and 1997 was estimated using the following
assumptions: weighted dividend growth of 22.38% (1999) and 21.97% (1998);
expected life of 10 years; weighted expected volatility of 29.46% (1999), 36.08%
(1998), and 29.8% (1997), and weighted risk-free interest rate of 6.04% (1999),
5.10% (1998) and 5.76% (1997). The weighted estimated fair value of the options
granted was $6.54 (1999), $10.95 (1998) and $4.89 (1997) per option.
Note 7 - Cash and Due from Banks
The Corporation is required by law to maintain average reserve balances.
The amount of those reserve average balances was approximately $40,975,700 at
December 31, 1999 (1998 - $34,867,200).
52
Note 8 - Securities Purchased Under Agreements To Resell
At December 31, 1999 and 1998, there were no securities purchased
under agreements to resell. The maximum aggregate balance outstanding at any
month-end during 1999 was approximately $17,421,000 (1998 - $209,232,000).
The average aggregate balance during 1999 was $1,577,504 (1998 - $15,009,052).
The securities underlying these agreements are kept under the Corporation’s control
or held by the dealers through which the agreements were transacted. These
securities are not recorded as assets of the Corporation.
Note 9 - Investment Securities Held For Trading
At December 31, 1999 and 1998, there were no securities held for trading
purposes or options on such securities.
All trading instruments are subject to market risk, the risk that future changes
in market conditions, such as fluctuations in market prices or interest rates, may make
an instrument less valuable or more onerous. The instruments are accounted for at
market value, and their changes are reported directly in earnings. The Corporation
may write options on trading securities as part of its trading activities. Also the
Corporation may enter in securities sold not yet purchased transactions for trading
purposes. These transactions are carried at market value. Net gains and losses
resulting from these transactions are recorded in the trading income or loss account.
The net loss from the sale of trading securities amounted to $7,946 for the
year ended December 31, 1999 (a gain of $3,364,843 for 1998 and a gain of
$744,789 for 1997), and were included in earnings as trading income.
Note 10 - Investment Securities Held
To Maturity
The amortized cost, unrealized gains and losses, approximate market value,
taxable equivalent weighted average yield and maturities of investment securities held
to maturity at December 31, 1999 and 1998 were as follows (dollars in thousands):
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
December 31, 1999
December 31, 1998
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Amortized
cost
Unrealized
gains
(losses)
Market
value
Weighted
average
yield%
Amortized
cost
Unrealized
gains (losses)
Market
value
Weighted
average
yield%
Obligations of U.S.
Government Agencies:
Within 1 year
After 5 to 10 years
After 10 years
Puerto Rico Government
Obligations:
After 10 years
Total
Mortgage backed securities:
Government National
Mortgage Association
(GNMA) certificates
After 10 years
$10,000
83,756
$ (166)
(9,255)
$9,834
74,501
8.34
9.15
$ 500
$(2)
$ 498
3.37
23,051
$569
23,620
10.20
3,593
$97,349
$57
3,650
$57 $(9,421) $87,985
7.46
9.00
3,371
$26,922
204
$ 773
3,575
$(2) $27,693
7.41
9.73
$206,697
$(7,851) $198,845
8.18
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Expected maturities of mortgage backed securities and certain other securi-
ties might differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
53
Note 11 -Investment Securities Held For Sale
The amortized cost, gross unrealized gains and losses, approximate market
value, taxable equivalent weighted average yield and maturities of investment securi-
ties held for sale at December 31, 1999 and 1998 were as follows (dollars in thou-
sands):
December 31, 1999
December 31, 1998
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Amortized
cost
Unrealized
gains
(losses)
Market
value
Weighted
average Amortized
yield%
cost
Unrealized
gains (losses)
Market
value
Weighted
average
yield%
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
$
39,577
67,468
$ (4,302)
(9,621)
$
35,275
57,847
4.90
5.84
219,065
27,457
$
53
(58)
(5,127)
219,060
22,330
6.11
8.36
$ 240,040
25,619
$
51
$ (159)
$ 240,091
25,460
5,880
$ 359,447
(36)
53 $(19,144)
5,844
$ 340,356
$
8.00
6.13
2,964
$ 268,623
96
$
147 $ (159)
3,060
$ 268,611
$
997
9,905
22,872
33,774
$
$
(25)
(255)
(155)
(435)
972
9,650
22,728
33,350
$
11
11
3,674
1,039,069
1,042,743
1,410
1,410
(46)
(76,054)
(76,100)
3,628
964,425
968,053
8.07
7.02
7.26
7.21
6.39
6.95
6.95
$
4,564
1,001
10,169
32,363
48,097
$
19
9
149
802
979
$
4,583
1,010
10,318
33,166
49,077
1,411,369
1,411,369
9,936
9,936
$(357)
(357)
1,420,947
1,420,947
6.91
6.91
644
188
11,109
11,941
299
299
(7)
(6)
(46)
(59)
637
182
11,362
12,181
8.75
8.08
10.34
10.22
157
2,691
274
14,299
17,421
1
30
11
605
647
(10)
(10)
158
2,721
285
14,894
18,058
8.23
8.40
10.28
10.35
10.02
2,463
757
3,220
11.70
2,764
767
3,530
9.33
361
12
373
17.33
$1,091,282
$2,489 $(76,594)
$1,017,177
7.01
865
62
$1,480,516 $12,391
$ (367)
927
$1,492,539
11.63
7.02
$ 67,359
14,750
11,779
990
94,878
$
$1,914
$
$
(88)
(162)
$1,914 $
(250)
$
69,273
14,662
11,617
990
96,542
6.73
8.91
8.69 $
8.38
7.33
$
1,964
1,964
$ (344)
$ (344)
$
$
1,620
15.76
1,620
15.76
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
54
U.S. Treasury Securities:
After 5 to 10 years
After 10 years
Obligations of other U.S.
Government Agencies:
Within 1 year
After 10 years
Puerto Rico Government
Obligations:
After 10 years
Total
Mortgage backed securities-
Federal Home Loan
Mortgage Corporation
(FHLMC) certificates:
Within 1 year
After 1 to 5 years
After 5 to 10 years
After 10 years
Government National
Mortgage Association
(GNMA) certificates:
After 5 to 10 years
After 10 years
Federal National
Mortgage Association
(FNMA) certificates:
Within 1 year
After 1 to 5 years
After 5 to 10 years
After 10 years
Mortgage pass through
certificates:
After 10 years
Real Estate Mortgage
Interest Conduit:
Within 1 year
After 1 to 5 years
Total
Other investment:
Within 1 year
After 1 to 5 years
After 5 to 10 years
After 10 years
Total
5.00
8.32
7.18
5.35
7.84
8.14
7.68
9.07
8.64
Maturities for mortgage backed securities are based upon contratual terms
assuming no repayments. The weighted average yield on investment securities held
for sale is based on amortizet cost, therefore it does not give effect to changes in fair
value.
At December 31, 1999, the net unrealized loss of $68,648,959 (1998 - net
unrealized gain of $8,749,931) on securities available for sale after the estimated
income tax of $22,882,986 (1998 - $2,916,644) was reported as a separate
component of stockholders’ equity. For 1999, the change in the net unrealized
holding gain/loss on the available for sale securities amounted to a loss of
$103,198,520 (1998 - a loss of $4,375,351) before estimated income taxes.
For 1999, proceeds from the sale of securities amounted to $9.6 million
(1998 - $302.1 million, 1997 - $118.0 million) resulting in a realized gain of $1.4
million (1998 - $26.8 million, 1997 -$11.4 million). No losses were recognized on
those sales.
Note 12 - Federal Home Loan Bank (FHLB) Stock
At December 31, 1999 and 1998, there were investments in FHLB stock
with book value of $17,826,500 and $10,270,600, respectively. The estimated
market value of such investments is its redemption value.
Note 13 - Interest and Dividend on
Investments
A detail of interest and dividend income on investments follows (in thousands):
○
○
○
○
○
○
○
○
○
○
○
Mortgage-backed securities:
Taxable
Exempt
○
○
Other investment securities:
Taxable
Exempt
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Year ended December 31,
1999
1998
1997
$ 4,137
77,900
$82,037
$ 1,528
24,758
$26,286
$ 5,230
63,131
$68,361
$
801
20,621
$21,422
$ 6,239
24,481
$30,720
$ 1,372
27,544
$28,916
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
55
Note 14 - Loans Receivable
The following is a detail of the loan portfolio:
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
December 31,
1999
December 31,
1998
Residential real estate loans:
Secured by first mortgages:
Conventional
Insured by government agencies:
Federal Housing Administration and Veterans
Administration
Puerto Rico Housing Bank and Finance Agency
Secured by second mortgages
Deferred loan and commitment fees - net
Residential real estate loans
$395,884,613
$237,560,711
6,543,487
32,928,102
5,706,225
441,062,427
(5,293,370)
435,769,057
8,185,232
38,515,744
4,956,196
289,217,883
( 6,848,311)
282,369,572
161,498,219
(98,535,025)
62,963,194
Construction, land acquisition and land improvements
Undisbursed portion of loans in process
Construction loans
288,301,904
(156,233,791)
132,068,113
Commercial loans:
Commercial loans
Commercial mortgage
Commercial loans
Finance leases
Consumer and other loans:
Personal
Personal lines of credit
Auto
Boat
Credit card
Home equity reserve loans
Unearned interest
Other
Consumer and other loans
Loans receivable
Loans held for sale
Total loans
Allowance for loan losses
Total loans-net
655,417,037
371,642,698
1,027,059,735
368,548,532
332,219,186
700,767,718
85,692,482
52,214,184
422,722,624
13,029,258
532,242,160
37,018,313
168,045,087
2,656,713
(148,835,815)
1,026,878,340
106,292
1,026,984,632
2,707,574,019
37,794,078
2,745,368,097
(71,784,237)
$2,673,583,860
463,052,946
9,535,354
512,116,471
32,208,879
125,955,592
3,385,220
(145,284,440)
1,000,970,022
128,066
1,001,098,088
2,099,412,756
20,641,628
2,120,054,384
(67,854,066)
$2,052,200,318
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
The Corporation’s primary lending area is Puerto Rico. At December 31,
1999 and 1998 there is no significant concentration of credit risk in any specific industry
on the loan portfolio.
At December 31, 1999, loans in which the accrual of interest income had
been discontinued amounted to $53,816,000 (1998 - $56,958,000; 1997 -
$52,939,000). If these loans had been accruing interest, the additional interest income
realized would have been approximately $4,544,000 (1998 - $4,970,000; 1997 -
$5,246,000). There are no material commitments to lend additional funds to borrow-
ers whose loans were in non-accruing status at these dates.
At December 31, 1999 and 1998 mortgage loans held for sale amounted to
$37,794,078 and $20,641,628, respectively. All mortgage loans originated and sold
during 1999 and 1998 were sold based on pre-established commitments or at market
values, which in both situations were equal or exceeded the carrying value of the loans.
56
At December 31, 1999, the Corporation was servicing mortgage loans
owned by others aggregating approximately $134,348,000 (1998 - $147,439,000;
1997 - $168,416,000). As a result of the securitization of auto loans, at December
31, 1998 the Corporation was servicing auto loans aggregating approximately
$19,567,000 (1997 - $59,049,000). During 1999 the auto loans securitized were
paid off.
Various loans secured by first mortgages were assigned as collateral for term
notes, certificates of deposit, advances from the Federal Home Loan Bank of New
York, and unused lines of credit. The mortgage loans pledged as collateral amounted
to $157,612,921 and $222,732,275 at December 31, 1999 and 1998, respectively.
A portfolio of personal loans was assigned as collateral for short-term borrowings as
explained in Note 21 - “Other Short-Term Borrowings.” The personal loans pledged
as collateral amounted to $186,417,700 and $220,443,511 at December 31, 1999
and 1998, respectively.
Note 15 - Allowance for Loan Losses
The changes in the allowance for loan losses were as follows:
1999
Year ended December 31,
1998
1997
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Balance at beginning of period
Provision charged to income
Losses charged against the allowance
Recoveries credited to the allowance
Other adjustments
Balance at end of period
$67,854,066
47,960,500
(53,664,742)
9,047,548
586,865
$71,784,237
$ 57,711,927
76,000,000
(72,223,389)
6,033,922
331,606
$ 67,854,066
$55,253,546
55,675,500
(59,590,916)
6,373,797
$57,711,927
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
At December 31, 1999, $4.4 million ($14.3 million at December 31, 1998) in
commercial and real estate loans over $1,000,000 was considered impaired with an
allowance of $1.3 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 at December 31, 1999 and 1998. The
average recorded investment in impaired loans amounted to $9.4 million for 1999
(1998 - $10.8 million). Interest income in the amount of approximately $428,470
was recognized on impaired loans for 1999 (1998 - approximately $736,000). No
interest income was recognized in 1997 on the portfolio of impaired loans during the
period they were impaired.
Note 16 - Related Party Transactions
The Corporation granted loans to its directors, executive officers and to
certain related individuals or entities in the ordinary course of business. The move-
ment and balance of these loans were as follows:
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Amount
Balance at December 31, 1997
New loans
Payments
Balance at December 31, 1998
New loans
Payments
Balance at December 31, 1999
$ 8,902,326
21,006,257
(8,379,759)
21,528,824
2,105,812
(541,851)
$ 23,092,785
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
57
Note 17 - Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation as follows:
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
December 31,
1999
1998
Land
Buildings and improvements
Leasehold improvements
Furniture and equipment
Accumulated depreciation
Projects in progress
Total premises and equipment - net
$ 6,853,249
33,433,031
14,222,676
50,531,481
105,040,437
(48,232,875)
56,807,562
5,140,255
$61,947,817
$ 5,825,249
30,976,673
10,807,734
41,330,835
88,940,491
(42,167,391)
46,773,100
4,764,092
$51,537,192
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Note 18 - Other Assets
Following is a detail of other assets:
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
December 31,
1999
1998
Deferred tax asset
Accounts receivable
Prepaid expenses
Revenue earning vehicles
Other repossessed property
Insurance claims
Other
Total
$54,645,143
8,202,865
9,243,210
5,679,920
2,709,258
1,618,037
13,333,245
$95,431,678
$22,142,665
10,023,555
10,219,939
4,465,609
2,276,766
1,778,133
6,030,746
$56,937,413
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Note 19 - Deposits and Related Interest
Deposits and related interest consist of the following:
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
December 31,
1999
1998
Type of account and interest rate at:
Savings accounts - 2.75% to 4.00%
(1998 - 2.75% to 4.00%)
Interest bearing checking accounts -
2.75% to 4.50% (1998 - 2.90% to 4.50%)
Non-interest bearing checking accounts
Certificate accounts - 3.80% to 8.00%
(1998 - 3.80% to 7.15%)
$ 447,945,723
$ 416,423,889
162,601,169
211,896,459
130,883,438
173,103,709
1,742,978,285
$2,565,421,636
1,054,633,858
$1,775,044,894
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
58
The weighted average interest rate on total deposits at December 31,
1999 and 1998 was 4.94% and 4.57%, respectively.
At December 31, 1999, the aggregate amount of demand deposits that
were reclassified as loan amounted to $6,939,685 (1998 - $8,180,802).
The following table presents a summary of certificates of deposits with
remaining term of more than one year at December 31, 1999 (in thousands):
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Total
Over one year to two years
Over two years to three years
Over three years to four years
Over four years to five years
Over five years
Total
$ 75,329
58,647
94,766
50,702
153,346
$432,790
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
At December 31, 1999 time deposits in denominations of $100,000 or
higher amounted to $1,283,083,091 (1998 - $667,373,511) including brokered
certificates of deposit of $843,217,222 (1998 - $283,249,222) at a weighted average
rate of 5.84% (1998 - 5.63%).
At December 31, 1999, certificates of deposits aggregating $49,000,000
(1998 - $59,000,000) were guaranteed by irrevocable standby letters of credit
issued by the Federal Home Loan Bank of New York and other banks. At Decem-
ber 31, 1999 specific mortgage loans with a carrying value of $71,165,714 (1998 -
$137,483,494) and estimated market value of $58,992,705 (1998 - $141,951,708)
and securities with a book value of $5,401,047 (1998 - $6,877,563) and approxi-
mate market value of $5,351,690 (1998 - $7,041,301) were pledged to the Federal
Home Loan Bank of New York as part of the agreements covering the letters of
credit.
At December 31, 1999, deposit accounts issued to government agencies
with a carrying value of $62,378,476 (1998 - $67,306,284) were collateralized by
securities with a carrying value of $78,782,695 (1998 - $70,892,236) and estimated
market value of $75,677,459 (1998 - $72,177,444) and specific mortgage loans with
a carrying value of $3,947,207 (1998 - $4,838,781) and estimated market value of
$3,758,925 (1998 - $5,684,600).
A table showing interest expense on deposits follows:
Year ended December 31,
1998
1999
1997
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Savings
Interest bearing checking accounts
Certificates
Total
$12,380,515
4,931,452
73,177,154
$90,489,121
$11,716,764
4,486,582
54,215,013
$70,418,359
$12,155,192
4,167,371
55,824,521
$72,147,084
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
59
Note 20 - Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
Federal funds purchased and securities sold under agreements to repurchase (repurchase agreements) consist of the following:
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
December 31,
1999
1998
Federal funds purchased, interest
rate (1998 - 5.32%)
Repurchase agreements, interest
ranging from 4.50% to 6.35%
(1998 - 4.65% to 5.80%)
Accrued interest payable
Total
$ 1,447,732,029
1,447,732,029
4,419,193
$ 1,452,151,222
$
15,000,000
1,605,630,051
1,620,630,051
3,067,937
$1,623,697,988
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Federal funds purchased and repurchase agreements mature as follows:
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
December 31,
1999
1998
Federal funds purchased:
One to thirty days
Repurchase agreements:
One to thirty days
Over thirty to ninety days
Over ninety days
Total
$ 1,229,448,029
8,450,000
209,834,000
1,447,732,029
$ 1,447,732,029
$
15,000,000
1,158,520,676
247,109,375
200,000,000
1,605,630,051
$ 1,620,630,051
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
60
The following securities were sold under agreements to repurchase:
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
December 31, 1999
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Amortized
cost of
underlying
securities
Balance of
borrowing
Approximate
market value
of underlying
securities
Weighted
average
interest
rate
Underlying securities
U.S. Treasury Securities and
obligations of other U.S.
Government Agencies
Mortgage backed securities
Total
$ 325,528,692
1,233,633,232
$1,559,161,924
$ 296,719,958
1,151,012,071
$1,447,732,029
$ 303,107,211
1,150,557,955
$1,453,665,166
5.77%
6.16%
Accrued interest receivable
$ 3,152,900
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
December 31, 1998
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Amortized
cost of
underlying
securities
Balance of
borrowing
Approximate
market value
of underlying
securities
Weighted
average
interest
rate
Underlying securities
U.S. Treasury Securities and
obligations of other U.S.
Government Agencies
Mortgage backed securities
Total
$ 216,073,870
1,393,322,895
$1,609,396,765
$ 214,716,114
1,390,913,937
$1,605,630,051
$ 216,111,108
1,403,729,265
$1,619,840,373
5.13%
6.08%
Accrued interest receivable
$ 4,321,371
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
The weighted average interest rates of federal funds purchased and repurchase agreements at December 31, 1999 and
1998 was 5.38% and 5.03%, respectively.
At December 31, 1999, the securities underlying such agreements were delivered to, and are being held by the dealers
with which the repurchase agreements were transacted, except for transactions where the Corporation has agreed to repurchase
similar but not identical securities. The maximum aggregate balance outstanding at any month-end during 1999 was
$1,631,913,357 (1998 - $1,648,513,898). The average balance during 1999 was approximately $1,441,486,000 (1998 -
$1,225,726,000).
Note 21 - Other Short-Term Borrowings
On March 31, 1997, the Corporation entered into a $250,000,000 financing arrangement administered by Credit Suisse
First Boston to be renewed annually within a term of three years. At December 31, 1999 borrowings through this arrangement
amounted to $152,484,084 (1998 - $86,594,710). Interest periods under the financing agreement cannot exceed 100 days. The
rate of interest for this type of financing, in which advances may be repaid or reborrowed at the option of the Corporation, is
equivalent to A-1+/P-1 rated commercial paper. The weighted average maturity at December 31, 1999 was 36 days (1998 - 21
days).
The weighted average interest rate of these borrowings at December 31, 1999 and 1998 was 6.20% and 6.38%,
respectively. The maximum aggregate balance outstanding at any month-end was approximately $152,484,084 (1998 -
$224,780,000). The average aggregate balance outstanding during the year was approximately $97,373,301 (1998 -
$111,236,888).
Under this arrangement, the Corporation is required to maintain eligible collateral consisting of personal loans owned by
the Corporation to secure this borrowing. The Corporation has to maintain at all times the aggregate outstanding balance of the
borrowing at a maximum of 85% of the aggregate book value of the personal loans placed as collateral. The aggregate book value
of the loans pledged as collateral at December 31, 1999 amounted to $186,417,700 (1998 - $220,443,511).
61
Note 22 - Advances From The Federal Home Loan Bank of New York
(FHLB-N.Y.)
Following is a detail of the advances from the FHLB-NY:
December 31,
Maturity
Interest rate
1999
1998
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
February 3, 2000
February 28, 2000
January 4, 1999
Total
5.86%
6.03%
5.13%
$20,000,000
30,000,000
$50,000,000
$2,600,000
$2,600,000
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Advances are received from the FHLB-N.Y. under an Advances, Collateral
Pledge and Security Agreement (the Collateral Agreement). Under the Collateral
Agreement, the Corporation is required to maintain a minimum amount of qualifying
mortgage collateral with a market value at least 110% of the outstanding advances.
At December 31, 1999, specific mortgage loans with an estimated market value of
$56,303,500 (1998 - $3,155,152) were pledged to the FHLB-N.Y. as part of the
Collateral Agreement. The carrying value of such loans at December 31, 1999
amounted to $55,000,000 (1998 - $2,860,000).
Note 23 - Notes Payable
Following is a detail of notes payable outstanding:
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Issue date (footnote)
Maturity
Interest rate
1999
1998
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
December 31, 1999
December 31,
February 11, 1994 (b)
May 13, 1994 (b)
May 26, 1994 (b)
September 7, 1994 (a)
September 29, 1994 (a)
September 12, 1996 (b)
September 20, 1996 (b)
September 20, 1996 (a)
Total
1999
1999
1999
1999
1999
2001
2001
2001
5.44%
6.19%
6.09%
4.33%
6.40%
5.82%
5.61%
5.49%
$
2,100,000
10,000,000
5,000,000
15,500,000
30,000,000
10,000,000
20,500,000
25,000,000
$118,100,000
$10,000,000
20,500,000
25,000,000
$55,500,000
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Footnotes:
a.These notes have the benefit of a firm commitment issued by the FHLB-N.Y.
whereby it will make advances to pay the principal and interest on the notes as they
become due if the Corporation fails to do so. The Corporation is required to maintain
as collateral with the FHLB-N.Y. securities having an aggregate market value, deter-
mined monthly, equal to 110% of the aggregate outstanding principal amount of the
notes plus interest. The collateral securities may consist of a combination of all or
some of the following: (i) home mortgage loans owned by the Corporation and
secured by first mortgages on real properties in Puerto Rico; (ii) obligations of, or
guaranteed by, the United States Government or certain agencies; (iii) fully-modified
pass-through mortgage backed certificates guaranteed by GNMA; (iv) mortgage
participation certificates issued by FHLMC; (v) guaranteed mortgage pass-through
certificates issued by FNMA; and (vi) certain certificates of deposit issued by banks
approved by the FHLB-N.Y.
62
At December 31, 1999, specific mortgage loans with a book value of
$27,500,000 (1998 - $77,550,000) and an estimated market value of $28,459,750
(1998 - $88,887,810) were pledged to the FHLB-N.Y. as part of the agreement
covering the above mentioned firm commitment. The estimated market value was
computed based on parameters given by the Federal Home Loan Bank.
b.The Corporation is required to maintain with the holder of these notes, cash or
securities with a market value of at least 105% of the aggregate amount of the notes.
The aggregate estimated market value and carrying value of the eligible collateral at
December 31, 1999 amounted to $30,152,980 (1998 - $46,162,955) and
$29,793,954 (1998 - $45,328,289), respectively.
Note 24 - Subordinated Notes
On December 20, 1995, the Bank issued 7.63% subordinated capital notes
in the amount of $100,000,000 maturing in 2005. The notes were issued at a
discount. At December 31, 1999 the outstanding balance net of the unamortized
discount and notes repurchased in 1999 was $93,594,080 (1998 - $99,495,830).
Interest on the notes is payable semiannually and at maturity. The notes represent
unsecured obligations of the Bank ranking subordinate in right of payment to all
existing and future senior debt including the claims of depositors and other general
creditors. The notes may not be redeemed prior to their maturity. At December
31, 1999, the Bank has transferred to capital reserves from the retained earnings
account $40,000,000, as a result of the requirement explained in Note 3 - “Stock-
holders’ Equity.”
Note 25 - Unused Lines Of Credit
The Corporation maintains unsecured standby lines of credit with other
banks. At December 31, 1999, the Corporation’s total unused lines of credit with
these banks amounted to approximately $123,500,000 (1998 - $69,500,000). At
December 31, 1999, the Corporation has an available line of credit with the FHLB
guaranteed with excess collateral, in the amount of $2,812,126 (1998 -
$20,808,133).
Note 26 - Employees’ Benefit Plan
FirstBank has a defined contribution retirement plan (the Plan) qualified under
the provisions of the Puerto Rico Internal Revenue Code Section 1165(e). All
employees (excluding the Bank’s subsidiaries) are eligible to participate in the Plan after
one year of service. Under the provisions of the Plan, the Bank is required to make a
contribution of a quarter of the first 4% of each participant’s compensation. Partici-
pants are permitted to contribute up to 10% of their annual compensation, limited to
$8,000 per year. Additional contributions to the Plan are voluntarily made by the
Bank as determined by its Board of Directors. The Bank made a total contribution of
$625,375, $575,000 and $540,000 during 1999, 1998 and 1997, respectively, to the
Plan.
63
Note 27 - Other Expenses
A detail of other expenses follows:
Year ended December 31,
1998
1999
1997
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Professional and service fees
Advertising and business promotion
Communications
Revenue earning equipment
Supplies and printing
Other
Total
$ 6,672,254
5,896,265
4,666,698
1,478,492
1,361,374
5,426,220
$25,501,303
$ 5,819,978
5,922,039
4,330,023
1,225,689
1,314,131
4,534,188
$23,146,048
$ 4,883,088
4,993,392
4,363,802
1,183,557
1,128,672
4,628,151
$21,180,662
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Note 28 - Income Taxes
The Corporation is subject to Puerto Rico income tax on its income from all
sources. For United States income tax purposes, the Corporation is treated as a
foreign corporation. Accordingly, it is generally subject to United States income tax
only on its income from sources within the United States or income effectively
connected with the conduct of a trade or business within the United States. Any
United States income tax paid by the Corporation is creditable, within certain condi-
tions and limitations, as a foreign tax credit against its Puerto Rico tax liability.
The provision for income taxes was as follows (in thousands):
Year ended December 31,
1998
1997
1999
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Current
Deferred
Total
$13,991
(6,703)
$ 7,288
$17,845
(13,047)
$ 4,798
$16,364
(8,239)
$ 8,125
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Income tax expense applicable to income before provision for income tax
differs from the amount computed by applying the Puerto Rico statutory rate of 39%
as follows (dollars in thousands):
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Year ended December 31,
1999
Amount
% of
pre-tax
income
1998
Amount
% of
pre-tax
income
1997
Amount
% of
pre-tax
income
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Computed income tax at statutory rate
Benefit of net exempt income
Other-net
Total income tax provision
$27,052
(13,959)
(5,805)
$ 7,288
39
(20)
(8)
11
$22,078
(22,078)
4,798
$ 4,798
39
(39)
8
8
$21,705
(13,137)
(443)
$ 8,125
39
(24)
15
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
64
Accounting for income taxes
Deferred taxes arise because certain transactions affect the determination of
taxable income for financial reporting purposes in periods different from the period in
which the transactions affect taxable income for tax return purposes. Deferred taxes
have been recorded based upon the Puerto Rico enacted tax rate of 39%. Current
tax expense has been provided based upon the estimated tax liability to be incurred
for tax return purposes.
The components of the deferred tax asset and liability were as follows
(in thousands):
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
December 31,
1999
1998
Deferred tax asset:
Adjustment to charge-off method
Unrealized loss on available for sale securities
Other
Deferred tax asset
Deferred tax liability:
Unrealized gain on available for sale securities
Other
Deferred tax liability
$27,995
22,883
4,114
$54,992
$ (347)
$ (347)
$25,460
1,232
$26,692
$ (2,917)
(1,633)
$ (4,550)
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Due to the above temporary differences, a net deferred tax asset resulted
amounting to $54.6 million at December 31, 1999 (1998 - $22.1 million). The
primary timing difference was the effect of future deductions under the charge-offs
method for deducting bad debt losses. No valuation allowance was considered
necessary.
The tax effect of the unrealized holding gain or loss for securities available for
sale is included as a part of stockholders’ equity in other comprehensive income.
Note 29 - Commitments
At December 31, 1999 certain premises are leased with terms expiring
through the year 2011. The Corporation has the option to renew or extend certain
leases from two to ten years beyond the original term. Some of these leases require
the payment of insurance, increases in property taxes and other incidental costs. At
December 31, 1999, the obligation under various leases was follows:
Year
Amount
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
2000
2001
2002
2003
2004 and later years
Total
$ 3,012,850
2,403,792
1,964,048
1,176,557
4,631,265
$13,188,512
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Rental expense included in occupancy and equipment expense was $3,390,786
in 1999 (1998 - $3,158,156; 1997 - $2,933,798).
65
Note 30 - Fair Value of Financial Instruments
The information about the estimated fair values of financial instruments as
required by generally accepted accounting principles, is presented hereunder
including some items not recognized in the statement of financial condition. The
disclosure requirements exclude certain financial instruments and all non financial
instruments. Accordingly, the aggregate fair value amounts presented do not repre-
sent Management’s estimation of the underlying value of the Corporation. A sum-
mary table of estimated fair values and carrying values of financial instruments at
December 31, 1999 and 1998 follows (in thousands):
December 31,
1999
1998
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Estimated
fair value
Carrying
value
Estimated
fair value
Carrying
value
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Assets:
Money market instruments
Investment securities
FHLB stock
Loans receivable - net
Liabilities:
Deposits
Federal funds, securities sold
under agreements to repurchase
and other short-term borrowings
Advances from FHLB
Debt security borrowings
$ 35,217
1,740,905
17,827
2,753,597
$ 35,217
1,758,120
17,827
2,673,584
$
526
1,790,463
10,271
2,146,003
$
526
1,789,692
10,271
2,052,200
2,554,429
2,565,422
1,776,811
1,775,045
1,604,635
50,000
145,994
1,604,635
50,000
149,094
1,710,293
2,600
231,923
1,710,293
2,600
217,596
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
The estimated fair values were based on judgments regarding current and
future economic conditions. The estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore, cannot be deter-
mined with precision. Changes in the underlying assumptions used in calculating the
fair values could significantly affect the results. In addition, the fair value estimates are
based on outstanding balances without attempting to estimate the value of anticipated
future business. Therefore, the estimated fair values may materially differ from the
values that could actually be realized on a sale.
The estimated fair values were calculated using certain facts and assumptions
which vary depending on the specific financial instrument, as follows:
Money market instruments
The carrying amounts of money market instruments are reasonable esti-
mates of their fair values.
Investment securities
The fair values of investment securities are the market values based on
quoted market prices and dealer quotes.
FHLB stock
Investments in FHLB stock are valued at their redemption values.
66
Loans receivable - net
The fair value of all loans was estimated by discounting loans with similar
financial characteristics. Loans were classified by type such as commercial, residential
mortgage, credit card and automobile. These asset categories were further seg-
mented into fixed and adjustable rate categories and by accruing and non-accruing
groups. Performing floating rate loans were valued at book if they reprice at least
once every three months. The fair value of fixed rate performing loans was calcu-
lated by discounting expected cash flows through the estimated maturity date.
Recent prepayment experience was assumed to continue for mortgage loans, credit
cards, auto loans and personal loans. Other loans assumed little or no prepayment.
Prepayment estimates were based on the Corporation’s historical data for similar
loans. Discount rates were based on the Treasury Yield Curve at the date of the
analysis, with an offset which reflects the risk and other costs inherent in the loan
category. In certain cases, where recent experience was available regarding the sale
of loans, this information was also incorporated into the fair value estimates.
Non-accruing loans covered by a specific loan loss reserve were viewed as
immediate losses and were valued at zero. Other non-accruing loans were arbitrarily
assumed to be repaid after one year. Presumably this would occur either because
loan is repaid, collateral has been sold to satisfy the loan or because general reserves
are applied to it. The value of non-accruing loans not covered by specific reserves
was discounted for one year at the going rate for new loans.
Deposits
The estimated fair values of demand deposits and savings accounts, which
are the deposits with no defined maturities, are the amount payable on demand at
the reporting date. For deposits with stated maturities, but that reprice at least
quarterly, the fair values are estimated to be the amount payable at the reporting
date.
The fair values of fixed rate deposits with stated maturities, are based on the
discounted value of the future cash flows expected to be paid on deposits. The cash
flows are based on contractual maturities; no early repayments are assumed. Dis-
count rates are based on the broker certificate of deposit yield curve. The estimated
fair values of total deposits exclude the fair value of core deposits intangible, which
represent the value of the customer relationship measured by the values of demand
deposits and savings deposits that bear a low or zero rate of interest and do not
fluctuate in response to changes in interest rates.
Federal funds, securities sold under agreements to repurchase and other short-
term borrowings
Federal funds purchased, repurchase agreements and other short-term
borrowings are commitments to borrow funds which reprice at least quarterly.
Therefore, their outstanding balances are estimated to be their fair values.
Advances from FHLB
The fair value of advances was determined using book value, due to its short
time to maturity.
Debt security borrowings
The fair value of debt security borrowings with fixed maturities was deter-
mined using discounted cash flow analysis over the full term of the borrowings. The
cash flows assumed no early repayment of the borrowings. Discount rates were
based on the broker CD yield curve. Variable rate debt securities reprice at intervals
of three months or less, therefore, their outstanding balances are estimated to be
their fair values.
67
Note 31 - Supplemental Cash Flow Information
Supplemental cash flow information follows (in thousands):
Year ended December 31,
1998
1997
1999
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Cash paid for:
Interest
Income tax
Non cash investing and financing activities:
Mortgage loans exchanged for mortgage
backed securities
Additions to other real estate owned
$173,273
6,271
$153,645
1,494
$132,801
1,089
639
2,975
4,046
541
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Note 32 - Financial Instruments With Off-Balance Sheet Risk, Commitments to Extend
Credit and Standby Letters of Credit
The following table presents a detail of commitments to extend credit and
standby letters of credit (in thousands):
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
December 31,
1999
1998
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit:
To originate loans
Unused credit card lines
Unused personal lines of credit
Commercial lines of credit
Commercial letters of credit
Standby letters of credit
$465,902
253,463
10,362
244,135
12,345
13,754
$245,257
132,867
10,536
96,874
19,101
1,575
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
The Corporation’s exposure to credit loss in the event of nonperformance
by the other party to the financial instrument on commitments to extend credit and
standby letters of credit is represented by the contractual amount of those instru-
ments. Management uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract. These
commitments generally expire within one year. Since certain commitments are
expected to expire without being drawn upon, the total commitment amount does
not necessarily represent future cash requirements. In the case of credit cards and
personal lines of credit, the Corporation can at any time and without cause, cancel
the unused credit facility. The amount of collateral, obtained if deemed necessary by
the Corporation upon extension of credit, is based on Management’s credit evaluation
of the borrower. Rates charged on the loans that are finally disbursed is the rate
being offered at the time the loans are closed, therefore, no fee is charged on these
commitments. The fee is the amount which is used as the estimate of the fair value
of commitments.
68
In general, commercial and standby letters of credit are issued to facilitate
foreign and domestic trade transactions. Normally, commercial and standby letters of
credit are short-term commitments used to finance commercial contracts for the
shipment of goods. The collateral for these letters of credit include cash or available
commercial lines of credit. The fair value of commercial and standby letters of credit
is based on the fees currently charged for such agreements, which at December 31,
1999 is not significant.
Interest rate risk management
The operations of the Corporation are subject to interest rate fluctuations to
the extent that interest-earning assets and interest-bearing liabilities mature or reprice
at different times or in different amounts. As part of the interest rate risk manage-
ment, the Corporation has entered into a series of interest rate swap agreements.
Under the interest rate swaps, the Corporation agrees with other parties to ex-
change, at specified intervals, the difference between fixed-rate and floating-rate
interest amounts calculated by reference to an agreed notional principal amount. Net
interest settlements on interest rate swaps are recorded as an adjustment to interest
expense on deposit accounts.
The following table indicates the types of swaps used (in thousands):
Notional amount
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Pay-fixed swaps:
Balance at December 31, 1997, 1998 and 1999
Receive-fixed swaps:
Balance at December 31, 1997
Expired contracts
Balance at December 31, 1998
Expired contracts
New contracts
Balance at December 31, 1999
$ 50,000
$ 80,000
40,000
40,000
40,000
185,000
$ 185,000
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Pay-fixed swaps at December 31, 1999, have a fixed weighted average rate
payment of 6.48% (1998 - 5.41%) and a floating weighted average rate receiving of
6.07% (1998 - 6.48%). Receive-fixed swaps at December 31, 1999, have a floating
weighted average rate payment of 6.09% (1998 - 5.13%) and a fixed weighted
average rate receiving of 7.05% (1998 - 7.15%). Floating rates are based on an 85%
to 100% of the average of the last three months LIBOR rate.
For swap transactions, 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. At December 31, 1999 the
Corporation had total net receivable of $1,286,445 (1998 - $876,949) related to the
swap transactions. The Corporation controls the credit risk of its interest rate swap
agreements through approvals, limits, and monitoring procedures. The Corporation
does not anticipate non-performance by the counterparties. As part of the swap
transactions, the Corporation is required to pledge collateral in the form of deposits in
banks or securities. The book value and aggregate market value of securities pledged
as collateral for interest rate swaps at December 31, 1999 was approximately $6.6
69
million and $6.7 million, respectively (1998 - $1.8 million and $1.9 million, respec-
tively). The period to maturity of the swaps at December 31, 1999 ranged from five
months through fifteen years (1998 - from one year and four months through eight
years and two months).
At December 31, 1999, the estimated fair value to liquidate the
Corporation’s interest rate swaps was approximately $192,000 (1998 - $2,760,000).
Options
From time to time the Corporation may enter into put and call options with
the intention of enhancing the yield of its investment portfolio. The aggregate amount
permitted to be outstanding under this program is limited by resolution of the Board
of Directors. During 1999 and 1998 there was no activity under the program.
Interest Rate Protection Agreements (Caps)
The Corporation also issues interest rate protection agreements (Caps) to
limit its exposure to rising interest rates on its deposits. Under these agreements, the
Corporation 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 premium is amortized as
an adjustment to interest expense on deposits. The following table indicates the
agreements outstanding at December 31, 1999 (dollars in thousands):
Cap agreements notional amount
Cap Rate
Current 90 day LIBOR
Maturity
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
$50,000
200,000
200,000
6.00%
6.50%
6.50%
6.00%
6.00%
6.00%
March 27, 2000
June 4, 2000
October 2, 2000
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
70
Note 33 - Segment Information
In 1998, the Corporation implemented SFAS No. 131 “Disclosures about
Segments of an Enterprise and Related 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 Invest-
ment 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.
71
The following table presents information about the reportable segments (in thousands):
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Retail
Treasury and
Investments
Commercial
Corporate
Total
For the year ended December 31, 1999:
Interest income
Net (charge) credit for transfer of funds
Interest expense
Net interest income
Provision for loan losses
Segment income
Average earning assets
For the year ended December 31, 1998:
Interest income
Net (charge) credit for transfer of funds
Interest expense
Net interest income
Provision for loan losses
Segment income
Average earning assets
For the year ended December 31, 1997:
Interest income
Net (charge) credit for transfer of funds
Interest expense
Net interest income
Provision for loan losses
Segment income
Average earning assets
$ 186,224
(4,018)
(58,665)
123,541
(46,802)
76,739
1,462,311
$ 178,251
7,683
(60,003)
125,931
(74,837)
51,094
1,364,803
$ 184,761
(4,396)
(58,553)
121,812
(52,343)
69,469
1,443,982
$ 108,332
48,737
(124,665)
32,404
32,404
1,726,719
$ 89,785
20,698
(95,127)
15,356
15,356
1,418,791
$ 59,263
27,534
(71,876)
14,921
14,921
909,457
$ 74,508
(44,719)
29,789
(1,159)
28,630
815,569
$ 52,499
(28,381)
24,118
(1,163)
22,955
561,612
$ 40,246
(23,138)
17,108
(3,332)
13,776
415,427
$ 369,064
(183,330)
185,734
(47,961)
137,773
4,004,599
$ 320,535
(155,130)
165,405
(76,000)
89,405
3,345,206
$ 284,270
(130,429)
153,841
(55,675)
98,166
2,768,866
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
The following table presents a reconciliation of the reportable segment financial information to the consolidated totals
(in thousands):
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
1999
Year ended December 31,
1998
1997
Interest income:
Total interest income for segments
Interest income credited to expense accounts
Total consolidated interest income
Net income:
Total income for segments
Other income
Operating expenses
Income taxes
Total consolidated net income
Average assets:
Total average earning assets for segments
Average non earning assets
Total consolidated average assets
$ 369,064
$ 369,064
$ 320,535
763
$ 321,298
$ 284,270
890
$ 285,160
$ 137,773
32,862
(101,272)
(7,288)
62,075
$
$
$
89,405
58,240
(91,035)
(4,798)
51,812
$
$
98,166
39,866
(82,379)
(8,125)
47,528
$4,004,599
168,182
$4,172,781
$3,345,206
148,331
$3,493,537
$2,768,866
143,643
$2,912,509
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
72
Note 34 - Litigation
The Corporation is a defendant in a number of legal proceedings arising in
the normal course of business. Management believes, based on the opinion of legal
counsel, that the final disposition of these matters will not have a material adverse
effect on the Corporation’s financial position or results of operations.
Note 35 - Selected Quarterly
Financial Data (Unaudited)
Financial data showing results of the 1999 and 1998 quarters is presented
below. These results are unaudited. In the opinion of Management, all adjustments
necessary for a fair presentation have been included:
March 31
June 30
Sept. 30
Dec. 31
1999
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Interest income
Net interest income
Provision for loan losses
Net income
Earnings per common
share-basic
Earnings per common
share-diluted
$87,142,829
44,597,465
13,800,000
14,141,215
$87,255,568
46,340,663
12,949,500
15,393,514
$94,475,146 $100,189,561
48,006,136
10,194,500
16,332,074
46,789,092
11,016,500
16,208,146
$0.48
$0.48
$0.49
$0.49
$0.50
$0.50
$0.52
$0.51
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
March 31
June 30
Sept. 30
Dec. 31
1998
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Interest income
Net interest income
Provision for loan losses
Net income
Earnings per common
share-basic
Earnings per common
share-diluted
$77,397,641
40,607,988
21,738,000
12,360,681
$77,731,354
41,193,889
13,929,000
12,700,723
$79,846,911 $ 86,322,498
44,554,228
39,812,331
18,913,000
21,420,000
13,686,365
13,064,618
$0.42
$0.42
$0.43
$0.43
$0.44
$0.43
$0.46
$0.46
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Note 36 - First BanCorp (Holding Company Only) Financial Information
The following condensed financial information presents the financial position of
the Holding Company only at December 31, 1999 and 1998 and the results of its
operations and its cash flows for the period ended on December 31, 1999 and from
October 1st, 1998 through December 31, 1998.
73
Statements of
Statements of
Statements of
Statements of
Statements of
Financial Condition
Financial Condition
Financial Condition
Financial Condition
Financial Condition
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
December 31, 1999
December 31,1998
Assets:
Cash and due from depository institutions
Money market instruments
Investment securities available for sale, at market value:
United States Government obligations
Other investments
Total investment securities available for sale
Investment in FirstBank Puerto Rico, at equity
Other assets
Total assets
Liabilities & Stockholders’ Equity:
Other borrowings
Accounts payable and other liabilities
Total liabilities
Stockholders’ equity
Contingencies and commitments
Total liabilities and stockholders’ equity
$ 13,159,737
1,777,750
24,890,139
21,291,774
46,181,913
235,637,500
348,337
$297,105,237
$ 865,360
1,337,628
2,202,988
294,902,249
$
5,702,362
264,447,053
218,653
$ 270,368,068
$ 270,368,068
$297,105,237
$ 270,368,068
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Statements of Income
Statements of Income
Statements of Income
Statements of Income
Statements of Income
and of Comprehensive Income
and of Comprehensive Income
and of Comprehensive Income
and of Comprehensive Income
and of Comprehensive Income
Year ended
December 31, 1999
Period from
October 1, 1998 through
December 31,1998
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Income:
Interest income on investment securities
Interest income on other investments
Dividend from subsidiary
Other income
Expenses:
Other operating expenses
Income before income taxes and equity in
undistributed earnings of subsidiary
Income taxes
Equity in undistributed earnings of subsidiary
Net income
Other comprehensive (loss) income, net of tax
Comprehensive (loss) income
$ 1,536,930
1,140,656
10,000,000
61,161
12,738,747
$10,359,843
10,359,843
242,178
15,110
12,496,569
374,245
49,952,625
62,074,949
(77,398,890)
$(15,323,941)
10,344,733
3,341,632
13,686,365
8,749,931
$22,436,296
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
The principal source of income for the Holding Company consists of earnings from FirstBank.
74
Statements of
Statements of
Statements of
Statements of
Statements of
Cash Flows
Cash Flows
Cash Flows
Cash Flows
Cash Flows
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Year ended
December 31, 1999
Period from
October 1, 1998 through
December 31, 1998
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed earnings of subsidiary
Net increase in other assets
Net increase in other liabilities
Total adjustments
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of securities available
for sale
Net cash used by investing activities
Cash flows from financing activities:
Proceeds from other borrowings
Proceeds from issuance on preferred stock
Exercise of stock options
Cash dividends paid
Treasury stock acquired
Net cash provided by financing activities
Net increase in cash
Cash and cash equivalents the beginning of period
Cash and cash equivalents at the end of period
Cash and cash equivalents include:
Cash and due from banks
Money market instruments
$ 62,074,949
$ 13,686,365
(49,952,625)
(129,686)
883,201
(49,199,110)
12,875,839
(44,364,194)
(44,364,194)
865,360
86,850,217
176,313
(14,657,799)
(32,510,611)
40,723,480
9,235,125
5,702,362
$ 14,937,487
$ 13,159,737
1,777,750
$ 14,937,487
(3,341,632)
(218,654)
(3,560,286)
10,126,079
(2,212,467)
(2,211,250)
(4,423,717)
5,702,362
$ 5,702,362
$ 5,702,362
$ 5,702,362
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
75
Stockholders’
Stockholders’
Stockholders’
Stockholders’
Stockholders’
Information
Information
Information
Information
Information
Independent Certified Public Accountants
PricewaterhouseCoopers LLP
Annual Meeting:
The annual meeting of stockholders will be held on April
27, 2000, at 2:00 p.m., at the main office of the
Corporation located at 1519 Ponce de León Avenue,
Santurce, Puerto Rico.
Telephone
(787) 729-8200
Internet
http://www.1bankpr.com
Additional Information and Form 10-K:
Additional financial information about First BanCorp may
be requested to Mrs. Laura Villarino, Senior Vice
President and Controller, PO Box 9146, Santurce,
Puerto Rico 00908. Copies of First BanCorp’s Form
10K filed with the SEC, will be provided to stockholders
upon written request to Mrs. Laura Villarino at the same
mailing address.
Transfer Agent and Registrar:
The Bank of New York, 101 Barclay Street 12W,
New York, NY 10286
General Counsels:
Fiddler, González & Rodríguez, LLP
Látimer, Biaggi, Rachid & Godreau
Meléndez Pérez, Morán & Santiago
76