first investment bank - bulgaria

Research: Return to Regular FormatFirst Investment Bank Publication Date: 02-Jul -2001Analyst: Emmanuel Volland, Paris (33) 1-4420-6719; Magar Kouyoumdjian, London (44) 20-7847-7217

Credit Rating B/Stable/--

Rationale

Outlook

The rating on First Investment Bank (FIB) reflects the bank's commercial dynamism and flexibility, quality of staff, and adequate asset quality. These elements are offset by FIB's limited franchise and capital base, its aggressive expansion, and the high-risk economic environment in the Republic of Bulgaria (foreign currency rating B+/Positive/B).

FIB is a privately owned bank formed in 1993. It counts among its shareholders the European Bank for Reconstruction and Development (EBRD; AAA/Stable/A -1+), which holds a 20% stake. While FIB has quickly grown to rank among the 10 largest banks in Bulgaria--with total assets of Bulgarian lev (BL) 338.3 million (US$161 million, at BL2.1 to US$1) at Dec. 31, 2000--it is small by international standards. FIB's clients are primarily small and midsize companies, but include several large, state-owned and private companies, and an increasing number of affluent individuals. Aggressive loan growth since its inception (except for a brief period during the Russian and Kosovo crises, when lending was more cautious) has left the bank vulnerable to a deterioration in asset quality in the event of an economic downturn. FIB has managed to maintain adequate asset quality, reflected in a low level of problem loans. Nonperforming loans had shrunk to 4.0% of total loans at Dec. 31, 2000, and were well covered by provisions. While the limited size of the loan book allows for close scrutiny of customers, it leads to high concentration by borrower: the 20 largest loans represented about 44% of the portfolio at Dec. 31, 2000. This level of concentration is gradually being reduced, however.

High margins and relatively low loan losses have resulted in FIB reporting adequate levels of profitability. Return on equity reached 21% in 2000.

The bank's funding profile is improving, but remains relatively weak. Its small branch network leaves it predominantly wholesale funded and therefore vulnerable to investor sentiment. Nevertheless, the proportion of individuals in the bank's total deposits increased rapidly to 41% at Dec. 31, 2000, from 17% in 1998. This is a result of management's decision in 1999 to develop the bank's retail business.

While FIB's capitalization is currently at an adequate level for the rating--with adjusted common equity to loans of 31% at Dec. 31, 2000--it will come under downward pressure if the bank grows at speed without a corresponding injection of capital. Furthermore, FIB's capital is small in absolute terms, leaving the bank vulnerable to risk concentrations.

FIB should be able to maintain its current level of profitability owing to tight management controls and the continuing stabilization of the Bulgarian economy. If the economic environment in Bulgaria improves and FIB broadens its customer and equity base, the bank's rating could be raised. Conversely, if FIB excessively increases loan leverage, or if its asset quality significantly deteriorates, the rating could be lowered.

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Profile

Ownership and Legal Status

FIB was formed in August 1993 and, following a period of fast growth, now ranks among the 10 largest banks in the country, and was the seventh-largest private bank in terms of total assets at Dec. 31, 2000. While by domestic standards FIB is a midsize bank, in a global context it is very small, with total capital of BL49.1 million and total assets of BL338.3 million at year-end 2000. FIB's limited size means that it has a close relationship with each of its clients, enabling it to more easily assess their creditworthiness and financial needs. Additionally, the bank can provide customers with good-quality service and quick responses to their requirements. Most other banks in Bulgaria currently cannot provide these services. As the result of a dynamic commercial strategy and marketing efforts, FIB has been able to successfully expand its customer franchise.

The bank was formed to service the corporate market in Bulgaria--primarily the midsize segment, but a small, select number of large corporate customers are also part of the customer base. The ability to service these customers is limited, however, given the bank's absolute size and capital base. FIB had a total of about 5,600 corporate clients at March 31, 2001, the vast majority of which are midsize, privately owned companies that have been either recently privatized or formed after the introduction of the market-led economy that followed the previous communist-command economy. FIB also has in its customer base several of the more profitable and more economically viable state-owned enterprises, which are likely to be privatized in the future. In addition, it is a banker to private individuals and is increasingly providing banking services to long-term contract employees of its corporate clients. The bank had about 47,000 individual customers at March 31, 2001. FIB is an active player in the growing card-payments business in Bulgaria, having issued almost 50,000 cards and accounting for about 15% of card transactions. It has also started providing mortgage loans to diversify its portfolio.

FIB operates from its head office in Sofia, Bulgaria's capital, and currently employs about 320 staff (of which about 50% are at the head office). It has 11 local branches in major cities across the country and plans to open four new branches in 2001 in conjunction with an agreement with the Health Insurance Agency to service the latter's payments to about 6,000 doctors, amounting to some BL500 million annually. It also has a branch in Cyprus, which acts as an international banking unit, booking loans and servicing offshore foreign companies conducting business in Bulgaria. The bank has also had a branch in Albania since 1999.

FIB is a fully privately owned bank and, as such, is free from state-influenced lending and government cronyism. Its ownership is spread between Bulgarian nationals and corporations and foreign-owned investment vehicles. At Dec. 31, 2000, FIB's ownership was as follows:

l EPIC (Austria), 39.00%; l EBRD, 20.00%; l First Financial Brokerage House (Bulgarian), 13.89%; l Mr. I. Mutafchiev, 12.33%; l Mr. T. Minev, 10.73%; l Legnano Enterprises Ltd., 2.45%; and l Mr. E. Dimitrov, 1.60%.

Mr. Mutafchiev and Mr. Minev were the bank's original founders in 1993. Vienna-based EPIC (European Privatization and Investment Corp.), which purchased its 39% stake in 1996, is an investment vehicle that has been active in recent years in purchasing stakes in privatized companies in central and eastern Europe. EPIC is a portfolio investor and its investment in FIB is passive.

The EBRD became acquainted with FIB in 1996, providing the bank with a US$4 million five-year loan for financing medium- and long-term projects. The EBRD was interested in investing in the Bulgarian financial system, but the viable opportunities at the time were very limited. Nevertheless, the EBRD was satisfied with both FIB's management and operations, and in June 1997 increased its investment in the bank by purchasing a 20% holding through a share issue, while maintaining the term loan. As a prerequisite to this equity investment, the founding shareholders agreed not to sell their shareholdings for a period of three years. The EBRD appears to be very "hands-on" in this investment, taking an active role in approving large loans and agreeing strategy. Management is interested in broadening



Strategy

Asset Quality

FIB's shareholder base, primarily to provide the bank with long-term funds to on -lend to its corporate clients for investment purposes. Considering that the bank still has growth potential on its own merit, however, the shareholders are not rushing into any decision in this regard.

FIB's strategic aim was to remain a midsize bank (by domestic standards), offering banking services to a select number of privately owned Bulgarian companies and wealthy private individuals. This strategy was somewhat distorted in 2000, when FIB entered the bidding for the privatization of several larger banks, together with the EBRD. This strategy has since been abandoned and the bank is now seeking to grow organically. Management, although ambitious with regard to its growth strategy, recognizes both its financial limitations and the vulnerabilities of operating in a volatile environment. Nevertheless, the Bulgarian economy is stabilizing at a better rate than many countries in the Balkans, and has recently secured further funding from the IMF based on the progress it has made so far. The imposition of the currency board in 1997, whereby the lev was pegged to the German mark, has helped stability, and inflation is now relatively low. Financial intermediation remains modest and most Bulgarian banks are being very cautious in providing credit. The ratio of total loans to GDP stood at about 17% at Dec. 31, 2000. As the country stabilizes and banks become stronger, so the trust in banks will grow and financial intermediation will increase. In this context, the bank has decided to accelerate its growth.

Management has a very hands-on approach to business, which is positive in the current operating environment. FIB has a well-educated staff and has been more dynamic compared with many of its larger competitors. Nevertheless, with several of these banks acquiring foreign strategic investors, they will quickly catch up and represent tougher competition in the future. Systems are up-to-date and the bank is on-line, enabling management to keep a close eye on finances. Lending is centralized, operating to tight criteria. Problems may arise, however, as the bank grows and takes on more customers, and management becomes stretched.

Having only been established in 1993, FIB has a short operating history. Lending initially grew at a modest rate owing to limited resources and the extreme economic volatility following the country's decision to transform to a market-oriented system from the previous communist-led regime. A financial crisis in Bulgaria in 1996-1997 led to a huge devaluation of the lev and hyperinflation. As the economy has stabilized and FIB's customer base has grown--driven by good service quality--demand for FIB to lend has increased. At the same time, the bank has been securing additional resources, in particular longer term funds, to help satisfy customer demand.

FIB appears to be a cautious lender. It has developed a prudent lending policy based on the cash flow and track record of its customers, who must hold an account with the bank for a certain period so that it can monitor their finances before lending to them. The bank's primary lending criterion is the customer's cash flow. It will not lend if this is in doubt, even if there is more than sufficient collateral. The legal procedure in the region for banks wanting to secure their claims against collateral, especially real estate, remains slow and cumbersome. Most of the loans are secured primarily against easily enforceable collateral, such as cash or government paper. In most cases, loans are also secured by promissory notes, which can be enforced within weeks and allow the bank to be proactive in disposing of assets to satisfy its claims.

Owing to the bank's limited medium- and long-term resources, it mainly lends on a short-term basis. At the end of 2000, three-quarters of lending was scheduled to mature within one year; the remainder is contracted to mature within between one and five years. FIB has experienced aggressive growth in assets since its inception, except for a brief period during the Russian and Kosovo crises, when lending was cautious. Assets increased by 53.9% in 2000, to BL338.3 million. This reflects the increasing stability in the country and growing demand. Lending was the largest component of the bank's balance sheet at Dec. 31, 2000, at 46.8% (on a gross basis). This is a significantly higher loan leverage than that of the system as a whole (about 30%). One of the main reasons for the EBRD's involvement in FIB was its belief that FIB was one of the only banks in the country capable of prudent lending and thus able to increase investment in the fragile but developing Bulgarian economy. The bank's loan portfolio is almost exclusively made up of private companies, while individuals represent less than 0.3%. Regarding the composition of the loan portfolio by industry sector, the largest exposures at Dec. 31,



Profitability

2000, were to trade, 39.9%; industry, 31.5%; transport, 6.4%; and services, 6.1%. The bank's loan portfolio shows a high level of concentration by borrower--a common feature for Bulgarian banks. Many of these large exposures have been brought about by the privatization of the borrower. The 20 largest loans represented about 44% (down from 60% in the previous year) of the bank's portfolio at Dec. 31, 2000. This creates potential risks as the size of the largest exposures compared to the bank's equity is still relatively high; the five largest exposures represented about one-third of the bank's total equity (down from three-quarters in the previous year).

FIB's loan portfolio is relatively clean, especially in comparison with those of most banks in the region. Nonperforming loans (over 90 days past due) represented about 4% of gross lending at Dec. 31, 2000, and are adequately covered by specific and general provisions. In accordance with domestic regulation No.9, FIB allocates a general provision of 2.5% for its performing loans.

At Dec. 31, 2000, cash and amounts due from banks was the second-largest item on the balance sheet, amounting to BL89.2 million, or 26.4% of total assets, with securities held for dealing purposes representing a further BL40 million, or 11.8% of assets. Balances with the Bulgarian National Bank were BL9.2 million at the same date.

Since its inception, FIB has been audited by KPMG Bulgaria. The bank's accounts are based on International Accounting Standards (IAS), using historical cost convention, and are unqualified. Since 1999, the accounts have been denominated in Bulgarian lev, with accounts for previous years being restated.

In 1996 and 1997, FIB was operating in a hyperinflationary environment, which led to the bank and its auditors deeming it more representative to present assets and liabilities in dollar terms. IAS 29 was not applied to the bank's statements prepared in lev prior to their translation into dollars. According to KPMG, the devaluation of the lev against the U.S. dollar for this period diverged significantly from the inflation index. A fairer presentation of the financial statements was therefore given by presenting them in U.S. dollars without making prior adjustments, in accordance with IAS 29. This is no longer the case and justifies FIB's choice of publishing its accounts in lev since 1999.

FIB's performance has been satisfactory in the context of a short operating history and a turbulent environment. The bank has used the turbulence to its own advantage and made significant profits from its foreign exchange activities before the currency board came into effect. In addition, the bank is small and flexible and has not suffered from the asset-quality problems that have burdened most other banks in Bulgaria. Currency fluctuations have subsided since the Bulgarian lev was pegged and, as such, the bank is experiencing more stable revenues.

The bank is growing its lending and the bulk of its revenues derive from net interest income--53.4% in 2000, up from only 22% in 1996. Net interest income was BL15.0 million in 2000, up from BL11.6 million in 1999, which, due to decreasing margins, does not fully reflect the sharp increase in lending. The ratio of net interest income to average assets stood at a high 8.9% in 2000, down from 10.6% the previous year. Most banks in Bulgaria are beginning to change their very cautious lending policies and therefore competition is intensifying, especially following the sale of state-owned banks to more wealthy and experienced foreign banks.

FIB's noninterest income is good, at BL13.5 million in 2000, of which the main components were: fees and commissions (BL8.1 million), net gains on dealing securities (BL1.8 million), and foreign exchange gains (BL3.6 million).

The bank has a limited branch network, but the costs involved in running its infrastructure are fairly high in comparison with the size of the bank. The increase in expenses since 1998 was mainly a result of the opening and equipping of new branches, and advertising costs. As the bank grows, so its fixed costs will have less of an effect on profitability, and therefore efficiency ratios are likely to improve. FIB's cost-to-income ratio already improved significantly in 2000--to 52.6%, from 60.4% in the previous year. Further investment is likely, which is expected to keep efficiency ratios at similar levels in the short term.

Despite high cost ratios, FIB is still very profitable, achieving net profit of BL9.3 million in 2000. Its



Asset-Liability Management

Capital

return on average assets for 2000 was a high 5.52%, and return on equity was 21% (up from 16.4% the previous year).

FIB remains primarily wholesale funded, with a limited branch network and retail franchise. It is therefore more exposed to market confidence than retail banks. FIB's management is aware of the bank's funding weakness and is therefore aiming to increase its sources of long-term funds through borrowings in the international markets. In parallel, the bank is increasing its retail deposits. It has been very successful in this field, with deposits from individuals to total deposits increasing to 40.9% in 2000, from 32% the previous year, and only 17% in 1998.

At Dec. 31, 2000, total customer deposits stood at BL135 million, representing a 33% increase over 1999. Following the loss of deposits in 1999, linked to the transfer of budget accounts to the Bulgarian National Bank, FIB managed to attract a significant amount of primary deposits in 2000. This growth in deposits, coupled with several new foreign credit lines, enabled aggressive loan growth in 2000 without undermining liquidity. Customer deposits made up 40% of total liabilities at the same date. Currently, BL87.7 million--or 64.9% of deposits--is considered to be on demand, with the rest classified as time deposits. In addition, BL79.4 million was in foreign currency deposits (mainly in U.S. dollars), with BL55.7 million denominated in lev.

Other sources of funding were derived from the interbank market and other borrowed funds. Interbank deposits were BL36.4 million at Dec. 31, 2000, up from BL27.5 million at the end of 1999. Other borrowed funds of BL69.1 million--as opposed to less than BL15 million at Dec. 31, 1997--came entirely from financial institutions (BL49.8 million from foreign institutions, including 15 million syndicated by the EBRD). In 2000, FIB received a new five-year loan of 6.6 million from DEG (German Investment and Development Company). In the first quarter of 2001, it received a two-year 10 million facility syndicated by Bayerische Landesbank Girozentrale, and a loan facility from the Black Sea Trade and Development Bank of up to US$5 million on a revolving basis. Management is aiming to increase these funds, in particular term facilities, to on-lend to customers.

Risk management is relatively simple given the bank's short operating life and limited operations, but growing investments will increase its sophistication in the future. The bank's systems are all on-line, enabling dynamic management of the balance sheet, and management has, with the help of consultants, been developing software packages to perform basic asset and liability management. Trading limits, even in the context of the bank's size, are low, and management and the EBRD do not wish to take on excessive market risk.

The EBRD has imposed a minimum limit of 25% of assets in liquid form and has limited currency exposures. For net open positions, FIB cannot exceed 10% of capital for any one currency and 20% for all currencies. Furthermore, the maximum securities trading position allowed to be held overnight is US$2.5 million. The majority of the dealing portfolio is composed of Bulgarian government securities. Of the rest, the bank holds some emerging market bonds, including Albanian government securities, but these are not in significant quantities.

Capital ratios are falling due to the bank's aggressive growth. At the end of 2000, FIB's total capital base was BL49.1 million, representing a 23% increase over the previous year. The increase in equity resulted from the full retention of net profits. FIB did not declare any dividends since its inception. Following a period of limited growth during 1999, a sharp increase in the bank's balance sheet in 2000 caused capitalization to decrease, with the ratio of adjusted common equity to assets slipping to 14.5% at Dec 31, 2000, from 18.1% at the end of 1999. On a regulatory basis, capitalization is high, although it has been normalized from previously very high positions. The total Bank for International Settlements (BIS) ratio had fallen to 22% at Dec. 31, 2000 (from 31% a year earlier)--still well above the minimum regulatory requirement, but approaching the bank's own minimum target of 20%. This was due to the rapid growth in lending.

While FIB's capitalization currently is at an adequate level for the rating, it will come under downward pressure if the bank grows at speed without a corresponding injection of capital. The bank's



shareholders require a minimum capital adequacy ratio of 15%, although at the moment there are no plans to raise additional capital. Standard and Poor's considers that, while the economy in Bulgaria has stabilized somewhat, banks are still operating in a vulnerable environment. Capitalization should therefore be maintained at a high level to absorb potential losses.

Table 1 First Investment Bank Balance Sheet Statistics

--Year ended Dec. 31 -- Breakdown as a % of assets (adj.)

(Mil. BL) 2000 1999 1998 1997 1996 2000 1999 1998 1997 1996

ASSETS Cash and money market instruments 115 78 82 58 17 34.07 35.45 35.30 47.23 68.37

Securities 40 29 37 17 0 11.83 13.04 16.04 14.06 1.02

Trading securities (marked to market) 40 29 37 15 0 11.83 13.04 16.04 12.50 1.02

Nontrading securities 0 0 0 2 0 0.00 0.00 0.00 1.56 0.00

Customer loans (gross) 169 97 98 37 5 49.82 43.92 42.09 30.27 19.90

Other consumer loans 1 0 0 0 0 0.25 0.00 0.00 0.00 0.00

Commercial/corporate loans 168 0 0 0 0 49.56 0.00 0.00 0.00 0.00

All other loans 0 97 98 37 5 0.00 43.92 42.09 30.27 19.90 Loan loss reserves 10 7 4 3 1 3.00 3.14 1.69 2.03 2.35

Customer loans (net) 158 90 94 35 4 46.81 40.78 40.40 28.24 17.55

Earning assets 225 188 193 104 21 66.63 85.22 83.08 84.32 81.39

Fixed assets 18 18 15 11 3 5.36 8.22 6.52 9.08 10.95

All other assets 6 5 4 1 0 1.85 2.40 1.66 1.07 1.80

Total reported assets 338 220 233 123 26 100.00 100.00 100.00 100.00 100.00

Adjusted assets 338 220 233 123 26 100.00 100.00 100.00 100.00 100.00

2000 1999 1998 1997 1996 2000 1999 1998 1997 1996

LIABILITIES Breakdown as a % of liabilities + equity Total deposits 171 132 158 76 18 50.69 59.93 67.74 61.47 71.77

Noncore deposits 36 30 42 17 13 10.75 13.85 18.12 13.52 49.45 Core/customer deposits 135 101 115 59 6 39.94 46.08 49.63 47.95 22.32

Other borrowings 69 41 32 11 2 20.41 18.40 13.96 8.55 7.54

Other liabilities 49 8 9 8 0 14.37 3.74 3.77 6.14 0.39

Total liabilities 289 181 199 94 20 85.47 82.08 85.48 76.15 79.71

Total shareholders' equity 49 40 34 29 5 14.52 18.08 14.53 23.83 20.29

Common shareholders' equity (reported) 49 40 34 29 5 14.52 18.08 14.53 23.83 20.29

Share capital and surplus 65 65 65 30 7 19.13 29.40 27.83 24.49 28.30

Reserves (including inflation revaluations) (16) (25) (31) (1) (2) (4.61) (11.32) (13.30) (0.66) (8.01) Total liabilities and equity 338 220 233 123 26 100.00 100.00 100.00 100.00 100.00

Tangible common equity 49 40 34 29 5

Adjusted common equity 49 40 34 29 5

Tangible total equity 49 40 34 29 5

Adjusted total equity 49 40 34 29 5

Table 2 First Investment Bank Profit and Loss Statement Statistics

--Year ended Dec. 31-- Adj. avg. assets (%)

(Mil. BL) 2000 1999 1998 1997 1996 2000 1999 1998 1997 1996

PROFITABILITY



Interest income 22.7 16.9 17.0 9.5 4.6 8.14 7.49 9.56 12.64 28.63

Interest expense 7.7 5.3 5.1 4.8 3.0 2.76 2.33 2.85 6.40 19.00 Net interest income 15.0 11.7 11.9 4.7 1.6 5.38 5.15 6.70 6.24 9.63

Operating noninterest income 13.1 9.6 1.7 5.9 5.6 4.70 4.40 0.94 7.85 34.81

Fees and commissions 8.1 4.9 3.7 2.9 0.5 2.91 2.16 2.07 3.88 3.25

Trading gains 5.4 5.0 (1.0) 3.1 5.1 1.92 2.33 (0.58) 4.08 32.13

Other noninterest income (0.4) (0.2) (1.0) (0.1) (0.1) (0.14) (0.09) (0.56) (0.11) (0.56) Operating revenues 28.1 21.3 13.6 10.6 7.1 10.07 9.55 7.64 14.09 44.44

Noninterest expenses 14.8 12.9 9.3 7.4 1.8 5.30 5.69 5.20 9.89 11.19

Personnel expenses 3.8 3.1 2.4 2.2 0.5 1.34 1.39 1.33 2.87 2.88

Other general and administrative expenses 8.5 7.7 5.3 5.3 1.3 3.06 3.37 2.78 7.03 8.31

Depreciation and amortization - other 2.5 2.1 1.6 N.A. N.A. 0.90 0.93 1.09 0.00 0.00 Net operating income before loss provisions 13.4 8.4 4.3 3.2 5.3 4.77 3.87 2.44 4.20 33.25

Credit loss provisions (net new) 3.2 2.5 1.7 0.7 (1.9) 1.16 1.50 0.93 0.92 (11.56)

Net operating income after loss provisions 10.1 6.0 2.7 2.5 7.2 3.61 2.36 1.51 3.28 44.81

Nonrecurring/special expense 0.0 0.0 0.0 (6.3) 5.4 0.00 0.00 0.00 (8.45) 33.56

Pretax profit 10.1 6.0 2.7 8.8 1.8 3.61 2.36 1.51 11.73 11.25

Tax expense/credit 0.8 0.1 (0.7) 5.0 0.1 0.28 (0.15) (0.40) 6.59 0.44

Net income before minority interests 9.3 6.0 3.4 3.9 1.8 3.33 2.51 1.91 5.15 10.81

Net income before extraordinaries 9.3 6.0 3.4 3.9 1.8 3.34 2.51 1.91 5.17 10.94

Net operating income 9.3 6.0 3.4 1.4 7.1 3.34 2.51 1.91 1.47 43.20

2000 1999 1998 1997 1996

ASSET QUALITY Nonperforming assets 7 4 N.A. N.A. N.A.

Nonaccrual loans 7 4 N.A. N.A. N.A.

AVERAGE BALANCE SHEET Average customer loans 129 92 64 20 3

Average earning assets 207 190 149 62 13

Average assets 279 226 178 75 16

Average total deposits 152 145 117 47 12

Average interest-bearing liabilities 206 181 138 53 13

Average common equity 44 37 32 17 3

Average adjusted assets 279 226 178 75 16

OTHER DATA Number of employees (end of period) 316 297 255 224 172

Number of branches 11 10 10 10 N.A.

Off-balance-sheet credit equivalents 61 51 51 18 2

N.A. --Not available.

Table 3 First Investment Bank Ratio Analysis

--Year ended Dec. 31 --

2000 1999 1998 1997 1996

ANNUAL GROWTH (%)



Customer loans (gross) 74.31 (1.25) 162.00 634.18 520.73

Loss reserves 46.82 75.63 56.97 318.33 122.22

Adjusted assets 53.68 (5.36) 88.40 382.64 322.81

Customer deposits 33.20 (12.12) 94.98 936.78 273.20

Tangible common equity 23.44 17.83 14.84 466.86 339.83

Total equity 23.44 17.83 14.84 466.86 339.83

Operating revenues 30.29 58.75 28.67 48.66 464.29

Noninterest expense 15.18 38.85 24.72 314.53 517.24

Net operating income before provisions 52.50 101.13 37.97 (40.79) 448.45

Loan loss provisions (4.71) 106.06 139.13 (137.30) (811.54)

Net operating income after provisions 88.92 98.11 9.59 (65.69) 909.86

Pretax profit 88.92 98.11 (69.36) 388.89 414.29

Net income 63.88 66.79 (11.76) 123.12 476.67

2000 1999 1998 1997 1996

PROFITABILITY (%) Interest Margin Analysis

Net int. income (taxable equiv.)/avg. earning assets 7.27 6.13 8.01 7.55 11.85

Net int. spread 7.27 6.00 7.74 6.30 11.05

Int. income (taxable equiv.)/avg. earning assets 11.01 8.91 11.42 15.29 35.23

Int. exp./average int. -bearing liabilities 3.73 2.91 3.67 8.99 24.18 Revenue Analysis

Net int. income/revenues 53.39 53.96 87.72 44.28 21.66

Fee income/revenues 28.87 22.60 27.13 27.53 7.31

Market -sensitive income/revenues 19.09 24.36 (7.57) 28.95 72.29

Noninterest income/revenues 46.61 46.04 12.28 55.72 78.34

Personnel expense/revenues 13.33 14.53 17.47 20.34 6.47

Noninterest expenses/revenues 52.61 59.51 68.04 70.20 25.18

Noninterest exp./revenues less investment gains 52.61 59.51 68.04 70.20 25.18

Expense less amortization of intangibles/revenues 52.61 59.51 68.04 70.20 25.18

Expense less all amortizations/revenues 43.69 49.81 53.80 70.20 25.18

Net operating income before provisions/revenues 47.39 40.49 31.96 29.80 74.82

Net operating income after provisions/revenues 35.87 24.74 19.82 23.27 100.84

New loan loss provisions/revenues 11.52 15.75 12.13 6.53 (26.02)

Net nonrecurring/abnormal income/revenues 0 0 0 59.98 (75.53)

Pretax profit/revenues 35.87 24.74 19.82 83.25 25.32

Tax/pretax profit 7.73 (6.37) (26.34) 56.14 3.89

Net income/revenues 33.10 26.31 25.04 36.52 24.33



2000 1999 1998 1997 1996

Other Returns

Pretax profit/average risk assets (%) 5.76 4.38 3.16 N.A. N.A.

Net income/average risk assets (%) 5.31 4.66 4.00 N.A. N.A.

Net income/average assets + securitized assets 3.33 2.51 1.91 5.15 10.81

Net income/employee (BL) 30,326 20,583 14,192 19,495 N.A.

Personnel expense/employee (BL) 12,215 11,366 9,900 10,859 N.A.

Personnel expense/branch (Mil. BL) 0.36 0.31 0.24 N.A. N.A.

Noninterest expense/branch (Mil. BL) 1.41 1.28 0.93 1.48 N.A.

Net income/avg. tang. common equity (ROE) (%) 20.93 15.44 10.78 22.31 54.32

2000 1999 1998 1997 1996

FUNDING AND LIQUIDITY (%)

Customer deposits/funding base 56.17 58.83 60.74 68.49 28.14

Total loans/customer deposits 124.73 95.32 84.82 63.13 89.14

Total loans/customer deposits + long-term funds 91.47 56.87 57.02 37.68 39.67

Customer loans (net)/assets (adj) 46.81 40.78 40.40 28.24 17.55

2000 1999 1998 1997 1996

CAPITALIZATION (%)

Adjusted common equity/adjusted assets 14.52 18.08 14.53 23.83 20.29

Adjusted common equity/adjusted assets + securitization 14.52 18.08 14.53 23.83 20.29

Adjusted common equity/risk assets 21.87 31.66 28.59 56.30 N.A.

Adjusted common equity/customer loans (net) 31.03 44.35 35.96 84.39 115.59

Internal capital generation/prior year's equity 23.44 16.81 11.56 74.76 148.31

Regulatory total capital ratio 22.00 31.00 26.00 58.00 78.00

Adjusted total equity/adjusted assets 14.52 18.08 14.53 23.83 20.29

Adjusted total equity/risk assets 21.87 31.66 28.59 56.30 N.A.

Adjusted total equity/adjusted assets + securitizations 14.52 18.08 14.53 23.83 20.29

Adjusted total equity plus LLR (specific)/customer loans (gross) 35.18 48.33 38.53 85.44 113.75

2000 1999 1998 1997 1996

ASSET QUALITY (%)

New loan loss provisions/average customer loans 2.51 3.70 2.58 3.45 (61.67)

Loan loss reserves/customer loans (gross) 6.03 7.16 4.02 6.72 11.79

Credit-loss reserves/risk assets 4.52 5.50 3.33 4.80 N.A.

Nonperforming assets (NPA)/customer loans + ORE 4.27 3.92 N.A. N.A. N.A.

NPA (excl. delinquencies)/customer loans + ORE 4.27 3.92 N.A. N.A. N.A.

Net NPA/customer loans (net) + ORE (1.87) (3.49) (4.19) (7.20) (13.36)



NPA (net specifics)/customer loans (net specifics) (1.87) (3.49) (4.19) (7.20) (13.36)

Loan loss reserves/NPA (gross) 141.19 182.59 N.M. N.M. N.M. N.A. --Not available. N.M.Not meaningful.

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