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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
- - - - - --- THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1993
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
- - - - - --- THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
Commission File No. 0-13818
BANPONCE CORPORATION
Incorporated in the Commonwealth of Puerto Rico
IRS Employer Identification No. 66-0416582
Principal Executive Offices:
209 Munoz Rivera Avenue
Hato Rey, Puerto Rico 00918
Telephone Number: (809) 765-9800
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock ($6.00 par value)
Series A Participating Cumulative Preferred
Stock Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. / /
As of March 11, 1994 the Corporation had 32,756,219 shares of common stock
outstanding. The aggregate market value of the common stock held by
non-affiliates of the Corporation was $1,044,104,000 based upon the reported
closing price of $31.875 on the NASDAQ National Market System, on that date.
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DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Corporation's Annual Report to shareholders for
the fiscal year ended December 31, 1993 are incorporated herein by reference in
response to Item 1 of Part I, Items 5 through 8 of Part II and Item 14 of Part
IV.
(2) Portions of the Corporation's Proxy Statement relating to the 1994
Annual Meeting of Stockholders of the Corporation are incorporated herein by
reference to Items 10 through 13 of Part III.
<TABLE>
<CAPTION>
10-K CROSS-REFERENCE INDEX DOCUMENT & PAGE NUMBER
- - - - - -------------------------- ----------------------
PART I
- - - - - ------
<S> <C> <C> <C>
Form 10-K 3 - 11
Item 1 Business ........................Annual Report 25-27;31-42
Item 2 Properties ......................Form 10-K 11 - 12
Item 3 Legal Proceedings ...............Form 10-K 12
Item 4 Submission of Matters
to a Vote of Security
Holders .........................Form 10-K 12
PART II
- - - - - -------
Item 5 Market for Registrant's
Common Stock and Related Form 10-K 13 - 14
Stockholder Matters .............Annual Report(*) 19 - 20
Item 6 Selected Financial Data .........Annual Report(*) 4 - 5
Item 7 Management's Discussion
and Analysis of Financial
Condition and Results of Form 10-K 15
Operations ......................Annual Report(*) 2 - 26
Item 8 Financial Statements and
Supplementary Data...............Annual Report(*) 27 - 47
Item 9 Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure........Form 10-K 16
PART III
- - - - - --------
3 - 8;9
Item 10 Directors and Executive..........Proxy Statement 9 - 11
Officers of the Registrant
Item 11 Executive Compensation ..........Proxy Statement 11-15; 16
Item 12 Security Ownership of
Certain Beneficial Owners
and Management ..................Proxy Statement 2;3 - 4
Item 13 Certain Relationships and
Related Transactions ............Proxy Statement 11
PART IV
- - - - - -------
Item 14 Exhibits, Financial
Statement Schedules, and
Reports on Form 8-K .............Form 10-K 17 - 21
</TABLE>
(*)Financial review section of the Corporation's Annual Report to
Shareholders for the year ended December 31, 1993.
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PART I
ITEM 1 BUSINESS
BANPONCE CORPORATION is a diversified, publicly owned
bank holding company (NASDAQ symbol: BPOP), incorporated under the General
Corporation Law of Puerto Rico in November 1984. It provides a wide variety of
financial services through its principal subsidiaries: Banco Popular de Puerto
Rico ("Banco Popular"), Vehicle Equipment Leasing Company, Inc. ("VELCO") and
Popular International Bank, Inc. (PIB). BanPonce Corporation is subject to the
provisions of the U.S. Bank Holding Company Act of 1956 (the "BHC Act") and,
accordingly, subject to the supervision and regulation of the Board of
Governors of the Federal Reserve System. BANCO POPULAR DE PUERTO RICO is a
member of the Federal Reserve System and is also subject to the supervision of
the Office of the Commissioner of Financial Institutions of the Commonwealth of
Puerto Rico and the Superintendent of Banks of the State of New York. Deposits
of Banco Popular are insured by the Federal Deposit Insurance Corporation.
Banco Popular is the Corporation's full-service commercial banking subsidiary
and Puerto Rico's largest banking institution, with $11.5 billion in assets,
$8.5 billion in deposits, and a delivery system of 165 branches throughout
Puerto Rico, 30 branches in New York City, one in Chicago, one in Los Angeles,
7 branches in the U.S. Virgin Islands and one in the British Virgin Islands. In
addition, Banco Popular has two subsidiaries, POPULAR LEASING & RENTAL, INC.,
Puerto Rico's second largest vehicle leasing and daily rental company, and
POPULAR CONSUMER SERVICES, INC., a small-loans company with 26 offices
operating under the name of Best Finance. VELCO is a wholly owned subsidiary
of BanPonce Corporation engaged in finance leasing and daily rental of motor
vehicles to corporations and professionals. It is the leading leasing
operation in Puerto Rico. PIB, incorporated under the Puerto Rico International
Banking Center Act, owns all issued and outstanding stock of BANPONCE FINANCIAL
CORP.("FINANCIAL"), a Delaware Corporation. SPRING FINANCIAL SERVICES, INC.,
also a Delaware Corporation and a wholly owned subsidiary of Financial, is a
diversified consumer finance company engaged in the business of making personal
and mortgage loans, and dealer finance through 58 offices located in 14 states.
The Corporation took on its present form at the end of
1990 when Banco Popular, with assets of $5.9 billion, acquired the "old"
BanPonce Corporation (including its main subsidiary bank, Banco de Ponce), with
assets of $3.1 billion (the "Merger"). The name of BanPonce was used for the
parent company, while the name of Banco Popular de Puerto Rico was used for the
subsidiary bank. While Banco Popular had long been the leading bank in Puerto
Rico, its acquisition of "old" BanPonce Corporation at year-end 1990 increased
its assets by 50% and widened its market share as the Merger joined the
institutions that held the first and third positions in many market segments.
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The Corporation is a legal entity separate and distinct from its subsidiaries.
There are various legal limitations governing the extent to which the
Corporation's banking subsidiaries may extend credit, pay dividends or
otherwise supply funds to, or engage in transactions with, the Corporation or
certain of its other subsidiaries. The rights of the Corporation to
participate in any distribution of assets of any subsidiary upon its
liquidation or reorganization or otherwise are subject to the prior claims of
creditors of that subsidiary, except to the extent that the Corporation may
itself be a creditor of that subsidiary and its claims are recognized. Claims
on the Corporation's subsidiaries by creditors other than the Corporation
include long-term debt and substantial obligations with respect to deposit
liabilities, federal funds purchased, securities sold under repurchase
agreements and commercial paper, as well as various other liabilities.
The Corporation's business is described on pages 25
through 27 and pages 31 through 42 of the Business Review Section of the Annual
Report to shareholders for the fiscal year ended December 31, 1993, which
information is incorporated herein by reference, and in the following
paragraphs.
REGULATION AND SUPERVISION
GENERAL
The Corporation is a bank holding company subject to
supervision and regulation by the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") under the Bank Holding Company Act. As a
bank holding company, the Corporation's activities and those of its banking and
nonbanking subsidiaries are limited to the business of banking and activities
closely related or incidental to banking, and the Corporation may not directly
or indirectly acquire the ownership or control of more than 5% of any class of
voting shares or substantially all of the assets of any company, including a
bank, without the prior approval of the Federal Reserve Board.
Banco Popular is considered a foreign bank for purposes
of the International Banking Act of 1978 (the "IBA"). Under the IBA and the
BHC Act, the Corporation and Banco Popular are not permitted to operate a
branch or agency, or acquire more than 5% of any class of the voting shares of,
or substantially all the assets of, or control of an additional bank or bank
holding company that is located outside of their "home state", except that (i)
the Corporation may acquire control of a bank in a state if the laws of that
state explicitly authorize a bank holding company from such bank holding
company's home state to do so and (ii) Banco Popular may continue to operate a
"grandfathered" branch or agency. The Commonwealth of Puerto Rico is not
considered a state for purposes of these geographic limitations. Banco Popular
has designated the state of New York as its home state. In addition, some
states have laws prohibiting or restricting foreign banks from acquiring banks
located in such states and treat Puerto Rico's banks and bank holding companies
as foreign banks for such purposes.
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Banco Popular operates branches in Chicago and Los
Angeles that are not grandfathered for purposes of the IBA. The Federal
Reserve Board has required that Banco Popular conform their existence to the
legal requirements set forth above. Banco Popular has petitioned the Federal
Reserve Board for a period of four years from December 31, 1990 to conform
these activities to the requirements of the IBA and to obtain the necessary
approvals of Illinois and California regulatory authorities to maintain these
two facilities. There can be no assurance that the Federal Reserve Board will
grant Banco Popular's request or that Banco Popular will be able to obtain the
regulatory approvals of California and Illinois authorities necessary to
maintain these two facilities.
Banco Popular is subject to supervision and examination
by applicable federal, state and Puerto Rican banking agencies, including the
Federal Reserve Board. Banco Popular is insured by, and therefore subject to
the regulations of, the Federal Deposit Insurance Corporation (the "FDIC"), and
to the requirements and restrictions under federal, state and Puerto Rican law,
including requirements to maintain reserves against deposits, restrictions on
the types and amounts of loans that may be granted and the interest that may be
charged thereon, and limitations on the types of investments that may be made
and the types of services that may be offered. Various consumer laws and
regulations also affect the operations of Banco Popular. In addition to the
impact of regulation, commercial banks are affected significantly by the
actions of the Federal Reserve Board as it attempts to control the money supply
and credit availability in order to influence the economy.
As a result of the enactment of the Financial
Institutions Reform, Recovery and Enforcement Act on August 9, 1989, a
depository institution insured by the FDIC can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC after August 9,
1989, in connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to a
commonly controlled depository institution in danger of default.
The Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA") was enacted on December 19, 1991. FDICIA substantially
revises the depository institutions regulatory and funding provisions of the
Federal Deposit Insurance Act and makes revisions to several other federal
banking statutes.
Among other things, FDICIA requires the federal banking
regulators to take prompt corrective action in respect of depository
institutions that do not meet minimum capital requirements. FDICIA established
five capital tiers: "well capitalized", "adequately capitalized,"
"undercapitalized", "significantly undercapitalized", and "critically
undercapitalized".
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A depository institution is considered "well capitalized"
if it has (i) a total risk-based capital ratio of 10% or greater, (ii) a Tier 1
risk-based capital ratio of 6% or greater, (iii) a leverage ratio of 5% or
greater and (iv) is not subject of any order or written directive to meet and
maintain a specific capital level. An "adequately capitalized" depository
institution is one that has (i) a total risk-based capital ratio of 8% or
greater, (ii) a Tier 1 risk-based capital ratio of 4% or greater and (iii) a
leverage ratio of 4% or greater (or, in the case of a bank with the highest
examination rating, 3%). A depository institution is considered (A)
"undercapitalized" if it does not meet any of the above definitions; (B)
"significantly undercapitalized" if it has (i) a total risk-based capital ratio
of less than 6%, (ii) a Tier 1 risk-based capital ratio of less than 3% and
(iii) a leverage ratio of less than 3%; and (C) "critically undercapitalized"
if it has a ratio of tangible equity to total assets less than or equal to 2%.
A depository institution may be deemed to be in a capitalization category that
is lower than is indicated by its actual capital position if it receives a less
than satisfactory examination rating in any one of the four rating categories.
As of the date hereof, Banco Popular is considered "well-capitalized".
FDICIA generally prohibits a depository institution from
making any capital distribution (including payment of a dividend) or paying any
management fee to its holding company if the depository institution would
thereafter be undercapitalized. Undercapitalized depository institutions are
subject to restrictions on borrowing from the Federal Reserve System. In
addition, undercapitalized depository institutions are subject to growth
limitations and are required to submit capital restoration plans. A depository
institution's holding company must guarantee the capital plan, up to an amount
equal to the lesser of five percent of the depository institution's assets at
the time it becomes undercapitalized or the amount of the capital deficiency
when the institution fails to comply with the plan. The federal banking
agencies may not accept a capital plan without determining, among other things,
that the plan is based on realistic assumptions and is likely to succeed in
restoring the depository institution's capital. If a depository institution
fails to submit an acceptable plan, it is treated as if it is significantly
undercapitalized.
Significantly undercapitalized depository institutions
may be subject to a number of requirements and restrictions, including orders
to sell sufficient stock to become adequately capitalized, requirements to
reduce total assets, and cessation of receipt of deposits from correspondent
banks. Critically undercapitalized depository institutions are subject to
appointment of a receiver or conservator.
Under FDICIA, a depository institution that is not well
capitalized is generally prohibited from accepting brokered deposits and
offering interest rates on deposits higher than the prevailing rates in its
market.
Under FDICIA, the FDIC is permitted to provide financial
assistance to an insured bank before appointment of a conservator or
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receiver only under limited circumstances. The FDIC's policy is that for such
assistance to be provided, existing shareholders and debt holders must make
substantial concessions.
HOLDING COMPANY STRUCTURE
Banco Popular is subject to restrictions under federal
law that limit the transfer of funds by Banco Popular to the Corporation and
its nonbanking subsidiaries, whether in the form of loans, other extensions of
credit, investments or asset purchases. Such transfers by Banco Popular to the
Corporation or any nonbanking subsidiary of the Corporation are limited in
amount to 10% of Banco Popular's capital and surplus and, with respect to the
Corporation and all nonbanking subsidiaries, to an aggregate of 20% of Banco
Popular's capital and surplus. Furthermore, such loans and extensions of
credit are required to be secured in specified amounts.
Under Federal Reserve Board policy, a bank holding
company is expected to act as a source of financial strength to each of its
subsidiary banks and to commit resources to support each such subsidiary bank.
This support may be required at times when, absent such policy, the bank
holding company might not otherwise provide such support. Any capital loans by
a bank holding company to any of its subsidiary banks are subordinated in right
of payment to deposits and to certain other indebtedness of such subsidiary
bank. In the event of a bank holding company's bankruptcy, any commitment by
the bank holding company to a federal bank regulatory agency to maintain the
capital of a subsidiary bank will be assumed by the bankruptcy trustee and
entitled to a priority of payment.
Because the Corporation is a holding company, its right to
participate in the assets of any subsidiary upon the latter's liquidation or
reorganization will be subject to the prior claims of the subsidiary's
creditors (including depositors in the case of bank subsidiaries) except to the
extent that the Corporation itself is a creditor with recognized claims against
the subsidiary.
DIVIDEND RESTRICTIONS
Various statutory provisions limit the amount of
dividends Banco Popular can pay to the Corporation without regulatory approval.
The principal source of cash flow for the Corporation is dividends from Banco
Popular.
As a member bank subject to the regulations of the
Federal Reserve Board, Banco Popular must obtain the approval of the Federal
Reserve Board for any dividend if the total of all dividends declared by the
member bank in any calendar year would exceed the total of its net profits, as
defined by the Federal Reserve Board, for that year, combined with its retained
net profits for the preceding two years. In addition, a member bank may not
pay a dividend in an amount greater than its undivided profits then on hand
after deducting its losses and bad debts. For this purpose, bad debts are
generally defined to
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include the principal amount of loans that are in arrears with respect to
interest by six months or more unless such loans are fully secured and in the
process of collection. Moreover, for purposes of this limitation, a member
bank is not permitted to add the balance in its allowance for loan losses
account to its undivided profits then on hand, however, it may net the sum of
its bad debts as so defined against the balance in its allowance for loan
losses account and deduct from undivided profits only bad debts as so defined
in excess of that account. At December 31, 1993, Banco Popular could have
declared a dividend of approximately $123,794,000 without the approval of the
Federal Reserve Board.
The payment of dividends by Banco Popular may also be
affected by other regulatory requirements and policies, such as the maintenance
of adequate capital. If, in the opinion of the applicable regulatory
authority, a bank under its jurisdiction is engaged in, or is about to engage
in, an unsafe or unsound practice (which, depending on the financial condition
of the bank, could include the payment of dividends), such authority may
require, after notice and hearing, that such bank cease and desist from such
practice. The Federal Reserve Board and the FDIC have issued policy statements
that provide that insured bank and bank holding companies should generally pay
dividends only out of current operating earnings. In addition, all insured
depository institutions are subject to the capital-based limitations described
under FDICIA.
FDIC INSURANCE ASSESSMENTS
Banco Popular is subject to FDIC deposit insurance
assessments for the Bank Insurance Fund (the "BIF"). Pursuant to FDICIA, the
FDIC has adopted a risk-based assessment system, under which the assessment
rate for an insured depository institution varies according to the level of
risk incurred in its activities. An institution's risk category is based
partly upon whether the institution is well capitalized, adequately capitalized
or less that adequately capitalized. Each insured depository institution is
also assigned to one of the following "supervisory subgroups": "A", "B" or "C".
Group "A" institutions are financially sound institutions with only a few minor
weaknesses; Group "B" institutions are institutions that demonstrate weaknesses
which, if not corrected, would result in significant deterioration; and Group
"C" institutions are institutions for which there is a substantial probability
that the FDIC will suffer a loss in connection with the institution unless
effective action is taken to correct the areas of weakness. Based on its
capital and supervisory subgroups, each BIF member institution is assigned an
annual FDIC assessment rate varying between 0.23% and 0.31%. It remains
possible that assessments may be raised to higher levels in the future.
CAPITAL ADEQUACY
The information in Table N, "Capital Adequacy Data", on
page 19 of the Financial Review Section of the Corporation's Annual Report to
shareholders for the year ended December 31, 1993, is incorporated
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herein by reference.
The Federal Reserve Board has adopted risk-based capital
guidelines for bank holding companies. Under the guidelines the minimum ratio
of qualifying total capital to risk-weighted assets (including certain
off-balance sheet items, such as standby letters of credit) is 8%. At least
half of the total capital is to be comprised of stockholders' common equity,
retained earnings, non-cumulative perpetual preferred stock, and a limited
amount of cumulative perpetual preferred stock less goodwill ("Tier 1
Capital"). The remainder ("Tier 2 Capital") may consist of a limited amount of
subordinated debt, other preferred stock, certain other instruments, and a
limited amount of loan and lease loss reserves.
In addition, the Federal Reserve Board has established
minimum leverage ratio (Tier 1 Capital to quarterly average assets) guidelines
for bank holding companies. These guidelines provide for a minimum leverage
ratio of 3% for bank holding companies that meet certain specified criteria,
including that they have the highest regulatory rating. All other bank holding
companies are required to maintain a leverage ratio of 3% plus an additional
cushion of at least 100 to 200 basis points. The guidelines also provide that
banking organizations experiencing internal growth or making acquisitions are
expected to maintain strong capital positions substantially above the minimum
supervisory levels, without significant reliance on intangible assets.
Furthermore, the guidelines indicate that the Federal Reserve Board will
continue to consider a "tangible Tier 1 leverage ratio" in evaluating proposals
for expansion or new activities. The tangible Tier 1 leverage ratio is the
ratio of a banking organization's Tier 1 Capital, less all intangibles, to
total assets, less all intangibles. The Federal Reserve Board has not advised
the Corporation of any specific minimum leverage ratio applicable to it.
Effective for the periods ending on or after March
15, 1993, the Federal Reserve Board adopted regulations with respect to
risk-based and leverage capital ratios that would require most intangibles,
including core deposit intangibles, to be deducted from Tier 1 capital. The
regulations, however, permit the inclusion of a limited amount of intangibles
related to purchased mortgage servicing rights and purchased credit card
relationships and includes a "grandfather" provision permitting the continued
inclusion of certain existing intangibles.
Banco Popular is subject to similar risk-based and
leverage capital requirements adopted by the Federal Reserve Board. As of
December 31, 1993, Banco Popular had a tier 1 capital ratio of 11.85%, a total
capital ratio of 13.72% and a leverage ratio of 6.96%.
Failure to meet capital guidelines could subject a bank to
a variety of enforcement remedies, including the termination of deposit
insurance by the FDIC, and to certain restrictions on its business.
Bank regulators continue to indicate their desire to
raise capital
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requirements applicable to banking organizations beyond their current levels.
However, management is unable to predict whether and when higher capital
requirements would be imposed and, if so, at what levels and on what schedule.
The following table reflects the capital position of the
Corporation as of December 31, 1993 and December 31, 1992.
<TABLE>
<CAPTION>
December 31, Minimum Regulatory
1993 1992 Requirements
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<S> <C> <C> <C>
Tier 1 Leverage Ratio 6.95% 7.26% 3.00%
Risk-Based Capital Ratio(1)
Tier 1 12.29% 12.88% 4.00%
Total Capital 13.95% 14.85% 8.00%
</TABLE>
The table below describes the components of the
Corporations' Tier 1 and Tier 2 Capital.
<TABLE>
<CAPTION>
December 31,
(in millions) 1993 1992
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<S> <C> <C>
Tier 1 Capital
- - - - - ---------------
Stockholders' Equity $845 $763
Less:
Goodwill (58) (41)
------ ------
Tier 1 Capital $787 $722
------ ------
Tier 2 Capital
- - - - - ---------------
Subordinated Notes $ 25 $ 40
Allowance for Loan Losses 81 71
------ ------
Tier 2 Capital $106 $111
------ ------
Total Capital $893 $833
====== ======
</TABLE>
Puerto Rico Regulation
As a commercial bank organized under the laws of the
Commonwealth of Puerto Rico (the "Commonwealth"), Banco Popular is subject to
supervision, examination and regulation by the Office of the Commissioner of
Financial Institutions of the Commonwealth (the "Office of the Commissioner"),
pursuant to the Puerto Rico Banking Act of 1933, as amended (the "Banking
Law").
Section 27 of the Banking Law requires that at least ten
percent (10%) of the yearly net income of the Bank be credited annually to a
reserve fund. This apportionment shall be done every year until the
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reserve fund shall be equal to ten percent (10%) of the total deposits or the
total paid-in capital, whichever is greater. At the end of its most recent
fiscal year, the Bank had an adequate reserve fund established.
Section 27 of the Banking Law also provides that when the
expenditures of a bank are greater than the receipts, the excess of the former
over the latter shall be charged against the undistributed profits of the bank,
and the balance, if any, shall be charged against the reserve fund, as a
reduction thereof. If there is no reserve fund sufficient to cover such
balance in whole or in part, the outstanding amount shall be charged against
the capital account and no dividend shall be declared until said capital has
been restored to its original amount and the reserve fund to 20% of the
original capital.
Section 16 of the Banking Law requires every bank to
maintain a legal reserve which shall not be less than 20% of its demand
liabilities, except government deposits (federal, state and municipal) which
are secured by actual collateral. However, if a bank becomes a member of the
Federal Reserve System, the 20% legal reserve shall not be effective and the
reserve requirements demanded by the Federal Reserve System shall be
applicable. Pursuant to an order of the Board of Governors dated November 24,
1982, the Bank has been exempted from such reserve requirements with respect to
deposits payable in Puerto Rico.
Section 14 of the Banking Law authorizes the Bank to
conduct certain financial and related activities directly or through
subsidiaries, including finance leasing of personal property and operating a
small loans company. Banco Popular engages in these activities through its
wholly-owned subsidiaries, Popular Leasing & Rental, Inc. and Popular Consumer
Services, Inc., respectively, both of which are organized and operate solely in
Puerto Rico.
Employees
At December 31, 1993, the Corporation employed 7,439
persons. None of its employees are represented by a collective bargaining
group.
ITEM 2. PROPERTIES
As of December 31, 1993, the Bank owned (and wholly or
partially occupied) approximately 65 branches and other facilities throughout
the Commonwealth, 15 branches in New York, and a branch in Los Angeles. In
addition, as of such date, the Bank leased properties for branch operations in
approximately 105 locations in Puerto Rico, 15 locations in New York, 7
locations in the U.S Virgin Islands, one location in British Virgin Islands and
one location in Chicago . The Corporation's management believes that each of
its facilities is well-maintained and suitable for its purpose. The principal
properties owned by the Bank for banking operations and other services are
described below:
Popular Center, the metropolitan area headquarters
building, located at 209 Munoz Rivera Avenue, Hato Rey, Puerto Rico, a 20 story
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office building. Approximately 60% of the office space is leased to outside
tenants.
Hato Rey Center, a 23 story office structure located at
268 Munoz Rivera Avenue, Hato Rey, Puerto Rico. The office space is mostly
rented to outside tenants.
Cupey Center Complex, two buildings of three and two
stories, respectively, located at Cupey, Rio Piedras, Puerto Rico. The
computer center, operational and support services, and a recreational and
training center for employees are some of the main activities conducted at
these facilities.
Stop 22 - Santurce building, a twelve story structure
located in Santurce, Puerto Rico. A branch, the accounting department, the
human resources division, the auditing department and the international
division are the main activities conducted at this facility.
San Juan building, a twelve story structure located at
Old San Juan, Puerto Rico. The Bank occupies 50% of the basement, the entire
ground floor, the mezzanine and the 10th floor. Most of the rest of the
building is rented to outside tenants.
Mortgage Loan Center, a seven story building located at
153 Ponce de Leon Avenue, Hato Rey, Puerto Rico, is fully occupied by the
mortgage loans and mortgage servicing departments.
Los Angeles building, a nine story structure located at
354 South Spring Street, Los Angeles, California in which office space is
mostly rented to outside tenants.
New York building, a nine story structure with two
underground levels located at 7 West 51th Street, New York City, where
approximately 54% of the office space is used for banking operations. The
remaining space is rented or available for rent to outside tenants.
ITEM 3. LEGAL PROCEEDINGS
The Corporation and its subsidiaries are defendants in
various lawsuits arising in the ordinary course of business. Management is of
the opinion that the aggregate liabilities, if any, arising from such actions
would not have a material adverse effect in the financial position of the
Corporation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The information contained under Table 0, "Stock Performance", on page 20,
and under the captions "Common Stock" and "Dividends", on page 19 of the
Financial Review Section of the Corporation's Annual Report to shareholders for
the year ended December 31, 1993, is incorporated herein by reference.
Information concerning legal or regulatory restrictions on the payment of
dividends by the Corporation and the Bank is contained under the caption
"Regulation and Supervision" in Item 1 herein. In addition, the information
contained in Notes 13 and 14 to the Consolidated Financial Statements
describing various contractual restrictions on the payments of dividends by the
Corporation and the Bank is incorporated herein by reference.
The Corporation currently has outstanding Senior Notes due January 14,
1997 in the aggregate principal amount of $30,000,000 (the "1997 Senior
Notes"). The 1997 Senior Notes contain various covenants, which, among others,
restrict the payment of dividends. The 1997 Senior Notes prohibit the
Corporation from paying dividends or making any other distributions with
respect to the Corporation's Common Stock if such aggregate distribution
exceeds $50,000,000 plus 50% of consolidated net income (or minus 100% of
consolidated net loss), computed on a cumulative basis from January 1, 1992 to
the date of payment of any such dividends or other distributions or if an event
of default has occurred and is continuing.
Banco Popular has outstanding $12,000,000 in subordinated notes due in
June 28, 1996 (the "1996 Subordinated Notes") which contain certain restrictive
covenants, including restrictions on the ability of Banco Popular to pay
dividends to the Corporation. Pursuant to the covenants contained in the 1996
Subordinated Notes, Banco Popular may not pay dividends or other distribution
on its common stock unless the sum of (i) 100% of its capital stock, (ii) its
unimpaired reserve fund, and (iii) its undivided profits equals or exceeds the
sum of (x) $80,000,000 and (y) the cumulative amount of all cash dividends or
other distributions declared or paid after June 30, 1989.
As of December 31, 1993, the sum of (i) the capital stock of Banco
Popular, (ii) its unimpaired reserve fund, and (iii) its undivided profits was
$759,260,753. Dividends and other distributions made with respect to the
common stock since June 30, 1989 amounted to $82,937,419 for purposes of the
1996 Subordinated Notes.
In addition, the 1996 Subordinated Notes provide that Banco Popular may
not pay any dividend or other distributions on its common
13
<PAGE> 14
stock except out of undivided profits and only if, after giving effect to such
distribution, the following conditions are satisfied: (i) funded debt (as
defined in the agreements governing the 1996 Subordinated Notes) of Banco
Popular would not exceed the sum of (a) 100% of its capital stock and (b) 50%
of its reserve fund; (ii) undivided profits of Banco Popular would not be less
than $1,000,000; (iii) certain amounts are transferred as required for
redemption of the Subordinated Notes at maturity; and (iv) certain amounts are
transferred as required for the redemption of other funded debt at maturity.
As of December 31, 1993, funded debt of Banco Popular was approximately
$91.5 million, and the sum of 100% of its capital stock and 50% of its reserve
fund is $264,233,274.
As of March 11, 1994, the Corporation had 5,306 stockholders of record,
not including beneficial owners whose shares are held in record names of
brokers or other nominees. The last sales price for the Corporation's Common
Stock on such date, as quoted on the National Association of Securities Dealers
Automated Quotation National Market System, was $31.875 per share.
The Puerto Rico Income Tax Act of 1954, as amended, generally imposes a
withholding tax on the amount of any dividends paid by corporations to
individuals, whether residents of Puerto Rico or not, trusts, estates and
special partnerships at a special 20% withholding tax rate. The rate of
withholding is 25% if the recipient is a foreign corporation or partnership not
engaged in trade or business within Puerto Rico.
Prior to the first dividend distribution for the taxable year, individuals
who are residents of Puerto Rico may elect to be taxed on the dividends at the
regular rates, in which case the special 20% tax will not be withheld from such
year's distributions.
United States citizens who are non-residents of Puerto Rico may also make
such an election, and will not be subject to Puerto Rico tax on dividends, if
said individual's gross income from sources within Puerto Rico during the
taxable year does not exceed $1,300 if single, or $3,000 if married.
U.S. income tax law permits a credit against U.S. income tax liability,
subject to certain limitations, for certain foreign income taxes paid or deemed
paid with respect to such dividends.
ITEM 6. SELECTED FINANCIAL DATA
The information in Table C, "Selected Financial Data", for only the years
1993, 1992, 1991, 1990 and 1989, on pages 4 and 5 and the text under the
caption "Earnings Analysis", on pages 3 and 6 of the Financial Review Section
of the Annual Report to shareholders, is incorporated herein by reference, and
in the following paragraphs.
14
<PAGE> 15
The Corporation's ratio of earnings to fixed charges on a
consolidated basis for each of the last five years is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
<S> <C> <C> <C> <C> <C>
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Excluding Interest on Deposits 3.0 2.9 2.1 3.6 2.4
Including Interest on Deposits 1.5 1.3 1.2 1.3 1.2
</TABLE>
For purposes of computing these consolidated ratios,
earnings represent income before income taxes, plus fixed charges excluding
capitalized interest. Fixed charges represent all interest expense (ratios are
presented both excluding and including interest on deposits), the portion of
net rental expense which is deemed representative of the interest factor, the
amortization of debt issuance expense and capitalized interest.
The Corporation's long term senior debt and preferred
stock on a consolidated basis for each of the last five years ended December
31, is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
(In thousands) 1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Long term obligation
(excludes deposits) $283,855 $120,062 $103,752 $38,018 $2,245
Cumulative perpetual
preferred stock of
subsidiary bank $ 11,000 $ 11,000 $ 11,000 $11,000 -
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations", on
pages 2 through 26 of the Financial Review Section of the Annual Report to
shareholders, is incorporated herein by reference.
Table K, "Maturity Distribution of Earning Assets", on
page 16 of the Financial Review Section of the Annual Report to shareholders,
has been prepared on the basis of contractual maturities. The Corporation does
not have a policy with respect to rolling over maturing loans but rolls over
loans only on a case-by-case basis after review of such loans in accordance
with the Corporation's lending criteria.
15
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of the independent accountants, the Consolidated Financial
Statements of the Corporation and its subsidiaries, together with the notes, on
pages 27 through 47 of the Financial Review Section of the Annual Report to
shareholders, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the captions "Shares Beneficially Owned by
Directors, Nominees and Executive Officers of the Corporation", and "Board of
Directors and Committees" on pages 3 through 8 and "Nominees for Election as
Directors" on page 9 of the Corporation's definitive proxy statement filed with
the Securities and Exchange Commission on March 18, 1994 (the "Proxy
Statement"), and under the caption "Executive Officers", on pages 9 through 11
of the Proxy Statement, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the caption "Executive Compensation Program", on
pages 11 through 15 and under the caption "BanPonce Corporation Performance
Graph" on page 16 of the Proxy Statement, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information under the captions "Principal Stockholders", on page 2
and under "Shares Beneficially Owned by Directors, Nominees and Officers of the
Corporation", on pages 3 and 4 of the Proxy Statement, is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Family Relationships" and "Other
relationships and transactions", on page 11 of the Proxy Statement, is
incorporated herein by reference.
16
<PAGE> 17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
A.1 The following financial statements and reports included on
pages 27 through 47 of the financial review section of the
Corporation's Annual Report to Shareholders, have been
incorporated herein by reference:
Report of Independent Auditors.
Consolidated Statements of Condition as of December 31, 1993
and 1992.
Consolidated Statements of Income for each of the years in the
three-year period ended December 31, 1993.
Consolidated Statements of Cash Flows for each of the years in
the three-year period ended December 31, 1993.
Consolidated Statements of Changes in Stockholders' Equity for
each of the years in the three-year period ended December 31,
1993.
Notes to Consolidated Financial Statements.
A.2 Financial Statement Schedules: No schedules are presented
because the information is not applicable or is included in the
Consolidated Financial Statements described in A.1 above or in
the notes thereto.
A.3 Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C> <C>
3.1 Restated certificate of Incorporation
and By-Laws of BanPonce Corporation (1)
4.1 Form of certificate for common stock (1a)
4.2 Certificates of Resolution of the Board of
Directors of BanPonce Corporation dated August 11,
1988 creating a series of Preferred Stock of
the Corporation designated as Series A
Participating Cumulative Preferred Stock
Purchase rights and the designation and amount
of such series, the voting power preferences,
and relative, participating, optional, or other
special rights of the shares of such series, and
the qualifications, limitations or restrictions
thereof. Rights Agreement dated as of August 11,
1988 by and between BanPonce Corporation and
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C> <C>
Manufacturers Hanover Trust Company regarding
the issuance of certain Rights to the
Corporation's shareholders. (2)
4.3 Amendment to Rights Agreement dated as of
December 11, 1990. (3)
4.4 Indenture, dated as of October 1, 1991, among
BanPonce Financial Corp., BanPonce Corporation
and Citibank, N.A. relating to the debt
securities of BanPonce Financial guaranteed
by BanPonce Corporation. (2a)
4.5 Form of medium-term fixed rate note of BanPonce
Financial Corp. guaranteed by BanPonce
Corporation. (2b)
4.6 Form of medium-term floating rate note of
BanPonce Financial Corp. guaranteed by BanPonce
Corporation. (2c)
10.1 Certificate of Designation dated June 7,
1984 for Treasury Indexed Preferred
Stock of Banco Popular de Puerto Rico.
("Banco Popular"), as successor of
Banco de Ponce. (4)
10.2 Form of 8-A Filing filed in connection with
the Series A Participating Cumulative
Preferred Stock Purchase Rights. (5)
10.3 Senior Note Agreement dated as of January 15,
1992, between BanPonce Corporation and New
York Life Insurance Company regarding
the issuance by BanPonce Corporation of
$30,000,000 Senior Notes due January 15, 1997. (12)
10.3.1 Amended and Restated Senior Notes Agreement dated
June 11, 1993 by and among BanPonce Corporation,
New York Life Insurance Company and New York Life
Insurance Company and Annuity Company.
10.4 Reimbursement Agreement dated October 24,
1989 between BanPonce Corporation and Barclays
Bank PLC; Underwriting Agreement dated October
20, 1989 by and between Vehicle Equipment
Leasing Company Inc., BanPonce Corporation and
the First Boston Corporation. (6)
10.5 Note Purchase Agreement dated June 28, 1989
relating to $12,000,000 principal amount of
Capital Notes of Banco de Ponce; Letter of
Credit and Reimbursement Agreement dated
June 28, 1989 between Banco de Ponce and
The Bank of Nova Scotia; Issuing Bank Fee
Agreement dated June 28, 1989. (7)
10.6 Amended and Restated Agreement and Plan of
Merger dated as of January 10, 1990 by and
among BanPonce Corporation, Banco de Ponce,
Banco Popular de P.R. and the Interim
Corporation. (8)
10.7 Note Purchase Agreement dated March 15,
1989 for $50,000,000 of senior subordinated
</TABLE>
18
<PAGE> 19
<TABLE>
<S> <C> <C>
Capital Notes, maturing on June 15, 1996 by
and between Banco Popular de Puerto Rico and
Chase Manhattan Capital Markets Corporation
of Puerto Rico. (9)
10.8 Management Incentive Plan for certain Division
Supervisors approved in January 1987.
10.9 Letter of Credit and Reimbursement Agreement
dated November 22, 1991 between BanPonce Corporation
and Barclays Bank PLC relating to Velco 1991-A Grantor
Trust, Assets Backed Certificates; Underwriting
Agreement dated November 21, 1991 by and between
Vehicle Equipment Leasing Company, Inc., BanPonce
Corporation and the First Boston Corporation. (11)
10.10 Revolving loan agreement executed by and
between Vehicle Equipment Leasing and BanPonce
Corporation as of January 15, 1992 in the
aggregate principal amount of $30,000,000. (13)
10.11 $85,785,000 Banco Popular de Puerto Rico 1992
Grantor Trust 1 Mortgage Pass - Through
Certificates, Class A, offering memorandum dated
June 25, 1992. Underwriting Agreement by and
between Merril Lynch, Pierce, Ferrer & Smith
Incorporated, acting through its Puerto Rico
branch office and Lehman Brothers Puerto Rico, Inc.
and Banco Popular de Puerto Rico dated June 25, 1992;
Insurance Agreement by and between Municipal Bond
Investors Assurance Corporation as Insurer, Banco
Popular de Puerto Rico as Settlor, Banco Popular
de Puerto Rico as Servicer, Banco Central as
Collateral Agent and Banco Central as Trustee
dated June 25, 1992. (14)
10.12 Credit Agreement by and between BanPonce Corporation,
BanPonce Financial Corp., Vehicle Equipment Leasing,
Company, Inc. ("The Companies") and Citibank, N.A.
for borrowing up to the principal amount of
$35,000,000 dated as of May 22, 1992; Credit Agreement
by and between the Companies and Barclays Bank PLC,
acting through its Miami Agency for borrowings up to
the principal amount $25,000,000 dated as of May 19,
1992; Credit Agreement by and between the Companies
and The First National Bank of Chicago, acting
individually and as agent, for borrowings up to
the aggregate amount of $40,000,000 dated as of
May 1, 1992. (15)
10.12.1 First and Second Amendments to Credit Agreement
by and between BanPonce Corporation, BanPonce Financial
Corp., Vehicle Equipment Leasing,Company,Inc. ("The
Companies") and Citibank,N.A. for borrowings up to the
principal amount of $50,000,000 dated as of April 8,
</TABLE>
19
<PAGE> 20
<TABLE>
<S> <C>
1993 and May 21, 1993, respectively. First and Second
Amendments to Credit Agreement by and between the Companies
and Barclays Bank PLC, acting through its Miami Agency for
borrowings up to the principal amount of $45,000,000 both
dated as of April 2, 1993. First and Second Amendments to
Credit Agreement by and between the companies and the First
National Bank of Chicago, acting individually and as agent,
for borrowings up to $60,000,000 dated April 1, 1993 and
June 1, 1993 respectively.
10.12.2 Credit Agreement by and between BanPonce Corporation,
BanPonce Financial Corp., Vehicle Equipment
Leasing,Company,Inc. and Chemical Bank for borrowings up to
the principal amount of $25,000,000 dated as of April 1,
1993 as amended on June 1, 1993.
12.0 Computation of ratio of earnings to fixed charges.
13.1 Registrant's Annual Report to Shareholders for the year
ended December 31, 1993.
21.1 Schedule of Subsidiaries
23.1 Consent of Independent Auditors
99.1 Registrant's Proxy Statement for the April 22, 1994 Annual
Meeting of Stockholders
</TABLE>
B. No report on Form 8-K was filed for the year ended December 31,
1993.
(1) Incorporated by reference to Exhibit 4.1 of Registration
Statement No. 33-39028.
(1a)Incorporated by reference to exhibit 4.1 of the Corporation's
Annual Report on Form 10-K for the year ended December 31, 1990
(the "1990 Form 10-K").
(2) Incorporated by reference to Exhibit 4.3 of Registration Statement
No. 33-39028.
(2a) Incorporated by reference to Exhibit 4(c) to Registration
Statement No. 33-41686.
(2b) Incorporated by reference to Exhibit 2 on Form 8-K filed on
October 8, 1991.
(2c) Incorporated by reference to Exhibit 3 on Form 8-K filed on
October 8, 1991.
(3) Incorporated by reference to Exhibit 4.4 of Registration
Statement No. 33-39028.
(4) Incorporated by reference to Exhibit number 10.2 of Registration
Statement No. 33-00497.
20
<PAGE> 21
(5) Incorporated by reference to Exhibit 10.3 of the 1991
Form 10-K.
(6) Incorporated by reference to Exhibit 10.8 of the 1991
Form 10-K.
(7) Incorporated by reference to Exhibit 10.9 of the 1991
Form 10-K.
(8) Incorporated by reference to Exhibit 10.10 of the 1991
Form 10-K.
(9) Incorporated by reference to Exhibit 10.12 of the 1991
Form 10-K.
(10) Incorporated by reference to Exhibit 10.13 of the 1991
Form 10-K.
(11) Incorporated by reference to Exhibit 10.14 of the 1991
Form 10-K.
(12) Incorporated by reference to Exhibit 10.19 of the 1991
Form 10-K.
(13) Incorporated by reference to Exhibit 10.6 of the 1991
Form 10-K.
(14) Incorporated by reference to Exhibit 10.14 of the 1992
Form 10-K.
(15) Incorporated by reference to Exhibit 10.15 of the 1992
Form 10-K.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
BANPONCE CORPORATION
(Registrant)
By: /s/ Richard L. Carrion
--------------------------------
Richard L. Carrion
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
By: /s/ David H. Chafey, Jr.
--------------------------------
David H. Chafey, Jr.
Executive Vice President
(Principal Executive Officer)
By: /s/ Orlando Berges
--------------------------------
Orlando Berges
Treasurer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Titles Dates
---------- ------ -----
<S> <C> <C>
/s/ Richard L. Carrion Chairman of the Board,
- - - - - -------------------------------- President and Chief
Richard L. Carrion Executive Officer 3-10-94
--------
/s/ Alfonso F. Ballester Vice Chairman of
- - - - - -------------------------------- the Board 3-10-94
Alfonso F. Ballester --------
/s/ Manuel L. Del Valle Vice Chairman of
- - - - - -------------------------------- the Board 3-10-94
Manuel L. Del Valle --------
/s/ Antonio Luis Ferre Vice Chairman of
- - - - - --------------------------------- the Board 3-10-94
Antonio Luis Ferre --------
</TABLE>
22
<PAGE> 23
<TABLE>
<S> <C> <C>
/s/Juan J. Bermudez
- - - - - ----------------------------------
Juan J. Bermudez Director 3-10-94
--------
/s/Sila M. Calderon
- - - - - ----------------------------------
Sila M. Calderon Director 3-10-94
--------
/s/Francisco J. Carreras
- - - - - ----------------------------------
Francisco J. Carreras Director 3-10-94
--------
/s/Waldemar Del Valle
- - - - - ----------------------------------
Waldemar Del Valle Director 3-10-94
--------
/s/Luis E. Dubon, Jr.
- - - - - ----------------------------------
Luis E. Dubon, Jr. Director 3-10-94
--------
/s/Roberto W. Esteves
- - - - - ----------------------------------
Roberto W. Esteves Director 3-10-94
--------
/s/Hector R. Gonzalez
- - - - - ----------------------------------
Hector R. Gonzalez Director 3-10-94
--------
/s/Franklin A. Mathias
- - - - - ----------------------------------
Franklin A. Mathias Director 3-10-94
--------
/s/Hugh G. McComas
- - - - - ----------------------------------
Hugh G. McComas Director 3-10-94
--------
/s/Manuel Morales, Jr.
- - - - - ----------------------------------
Manuel Morales, Jr. Director 3-10-94
--------
/s/Alberto M. Paracchini
- - - - - ----------------------------------
Alberto M. Paracchini Director 3-10-94
--------
- - - - - ----------------------------------
Francisco Perez, Jr. Director
--------
/s/Francisco M. Rexach, Jr.
- - - - - ----------------------------------
Francisco M. Rexach, Jr. Director 3-10-94
--------
</TABLE>
23
<PAGE> 24
<TABLE>
<S> <C> <C>
/s/Felix J. Serralles, Jr.
- - - - - ----------------------------------
Felix J. Serralles, Jr. Director 3-10-94
--------
/s/Emilio Jose Venegas
- - - - - -----------------------------------
Emilio Jose Venegas Director 3-10-94
--------
/s/Julio E. Vizcarrondo, Jr.
- - - - - -----------------------------------
Julio E. Vizcarrondo, Jr. Director 3-10-94
--------
</TABLE>
24
<PAGE> 25
EXHIBIT INDEX
Exhibit No. DESCRIPTION
<TABLE>
<S> <C> <C>
3.1 Restated certificate of Incorporation
and By-Laws of BanPonce Corporation (1)
4.1 Form of certificate for common stock (1a)
4.2 Certificates of Resolution of the Board of
Directors of BanPonce Corporation dated August 11, 1988
creating a series of Preferred Stock
of the Corporation designated as Series A
Participating Cumulative Preferred Stock
Purchase rights and the designation and amount
of such series, the voting power preferences,
and relative, participating, optional, or other
special rights of the shares of such series, and
the qualifications, limitations or restrictions
thereof. Rights Agreement dated as of August 11,
1988 by and between BanPonce Corporation and
Manufacturers Hanover Trust Company regarding
the issuance of certain Rights to the
Corporation's shareholders. (2)
4.3 Amendment to Rights Agreement dated as of
December 11, 1990. (3)
4.4 Indenture, dated as of October 1, 1991, among
BanPonce Financial Corp., BanPonce Corporation
and Citibank, N.A. relating to the debt
securities of BanPonce Financial guaranteed
by BanPonce Corporation. (2a)
4.5 Form of medium-term fixed rate note of BanPonce
Financial Corp. guaranteed by BanPonce
Corporation. (2b)
4.6 Form of medium-term floating rate note of
BanPonce Financial Corp. guaranteed by BanPonce
Corporation. (2c)
10.1 Certificate of Designation dated June 7,
1984 for Treasury Indexed Preferred
Stock of Banco Popular de Puerto Rico.
("Banco Popular"), as successor of
Banco de Ponce. (4)
10.2 Form of 8-A Filing filed in connection with
the Series A Participating Cumulative
Preferred Stock Purchase Rights. (5)
10.3 Senior Note Agreement dated as of January 15,
1992, between BanPonce Corporation and New
York Life Insurance Company regarding
the issuance by BanPonce Corporation of
$30,000,000 Senior Notes due January 15, 1997. (12)
10.3.1 Amended and Restated Senior Notes Agreement dated
June 11, 1993 by and among BanPonce Corporation,
New York Life Insurance Company and New York Life
</TABLE>
25
<PAGE> 26
<TABLE>
<S> <C> <C>
Insurance Company and Annuity Company.
10.4 Reimbursement Agreement dated October 24,
1989 between BanPonce Corporation and Barclays
Bank PLC; Underwriting Agreement dated October
20, 1989 by and between Vehicle Equipment
Leasing Company Inc., BanPonce Corporation and
the First Boston Corporation. (6)
10.5 Note Purchase Agreement dated June 28, 1989
relating to $12,000,000 principal amount of
Capital Notes of Banco de Ponce; Letter of
Credit and Reimbursement Agreement dated
June 28, 1989 between Banco de Ponce and
The Bank of Nova Scotia; Issuing Bank Fee
Agreement dated June 28, 1989. (7)
10.6 Amended and Restated Agreement and Plan of
Merger dated as of January 10, 1990 by and
among BanPonce Corporation, Banco de Ponce,
Banco Popular de P.R. and the Interim
Corporation. (8)
10.7 Note Purchase Agreement dated March 15,
1989 for $50,000,000 of senior subordinated
Capital Notes, maturing on June 15, 1996 by
and between Banco Popular de Puerto Rico and
Chase Manhattan Capital Markets Corporation
of Puerto Rico. (9)
10.8 Management Incentive Plan for certain
Division Supervisors approved in January
1987. (10)
10.9 Letter of Credit and Reimbursement
Agreement dated November 22, 1991
between BanPonce Corporation and
Barclays Bank PLC relating to Velco
1991-A Grantor Trust, Assets Backed
Certificates; Underwriting Agreement
dated November 21, 1991 by and between
Vehicle Equipment Leasing Company, Inc.,
BanPonce Corporation and the First Boston
Corporation. (11)
10.10 Revolving loan agreement executed by and
between Vehicle Equipment Leasing and BanPonce
Corporation as of January 15, 1992 in the
aggregate principal amount of $30,000,000. (13)
10.11 $85,785,000 Banco Popular de Puerto Rico 1992
Grantor Trust 1 Mortgage Pass - Through
Certificates, Class A, offering memorandum dated
June 25, 1992. Underwriting Agreement by and
between Merrill Lynch, Pierce, Ferrer & Smith
Incorporated, acting through its Puerto Rico
branch office and Lehman Brothers Puerto Rico, Inc.
and Banco Popular de Puerto Rico dated June 25, 1992;
Insurance Agreement by and between Municipal Bond
Investors Assurance Corporation as Insurer, Banco
Popular de Puerto Rico as Settlor, Banco Popular
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C> <C>
de Puerto Rico as Servicer, Banco Central as
Collateral Agent and Banco Central as Trustee
dated June 25, 1992. (14)
10.12 Credit Agreement by and between BanPonce Corporation,
BanPonce Financial Corp., Vehicle Equipment Leasing,
Company, Inc. ("The Companies") and Citibank, N.A.
for borrowing up to the principal amount of
$35,000,000 dated as of May 22, 1992; Credit Agreement
by and between the Companies and Barclays Bank PLC,
acting through its Miami Agency for borrowings up to
the principal amount $25,000,000 dated as of May 19,
1992; Credit Agreement by and between the Companies
and The First National Bank of Chicago, acting
individually and as agent, for borrowings up to
the aggregate amount of $40,000,000 dated as of
May 1, 1992. (15)
10.12.1 First and Second Amendments to Credit Agreement
by and between BanPonce Corporation, BanPonce Financial
Corp., Vehicle Equipment Leasing,Company,Inc. ("The Companies")
and Citibank,N.A. for borrowings up to the
principal amount of $50,000,000 dated as of April 8, 1993
and May 21, 1993, respectively. First and Second
Amendments to Credit Agreement by and between the
Companies and Barclays Bank PLC, acting through its
Miami Agency for borrowings up to the principal amount
of $45,000,000 both dated as of April 2, 1993. First and
Second Amendments to Credit Agreement by and between the
companies and the First National Bank of Chicago, acting
individually and as agent, for borrowings up to
$60,000,000 dated April 1, 1993 and June 1, 1993
respectively.
10.12.2 Credit Agreement by and between BanPonce Corporation,
BanPonce Financial Corp., Vehicle Equipment
Leasing,Company,Inc. and Chemical Bank for borrowings up
to the principal amount of $25,000,000 dated as of April 1, 1993
as amended on June 1, 1993.
12.0 Computation of ratio of earnings to fixed
charges.
13.1 Registrant's Annual Report to Shareholders for
the year ended December 31, 1993.
21.1 Schedule of Subsidiaries
23.1 Consent of Independent Auditors
99.1 Registrant's Proxy Statement for the April 22,
1994 Annual Meeting of Stockholders
- - - - - --------------------
</TABLE>
(1) Incorporated by reference to Exhibit 4.1 of Registration
Statement No. 33-39028.
(1a)Incorporated by reference to exhibit 4.1 of the Corporation's
Annual Report on Form 10-K for the year ended December 31, 1990
(the "1990 Form 10-K").
27
<PAGE> 28
(2) Incorporated by reference to Exhibit 4.3 of Registration Statement
No. 33-39028.
(2a) Incorporated by reference to Exhibit 4(c) to Registration
Statement No. 33-41686.
(2b) Incorporated by reference to Exhibit 2 on Form 8-K filed on
October 8, 1991.
(2c) Incorporated by reference to Exhibit 3 on Form 8-K filed on
October 8, 1991.
(3) Incorporated by reference to Exhibit 4.4 of Registration
Statement No. 33-39028.
(4) Incorporated by reference to Exhibit number 10.2 of Registration
Statement No. 33-00497.
(5) Incorporated by reference to Exhibit 10.3 of the 1991
Form 10-K.
(6) Incorporated by reference to Exhibit 10.8 of the 1991
Form 10-K.
(7) Incorporated by reference to Exhibit 10.9 of the 1991
Form 10-K.
(8) Incorporated by reference to Exhibit 10.10 of the 1991
Form 10-K.
(9) Incorporated by reference to Exhibit 10.12 of the 1991
Form 10-K.
(10) Incorporated by reference to Exhibit 10.13 of the 1991
Form 10-K.
(11) Incorporated by reference to Exhibit 10.14 of the 1991
Form 10-K.
(12) Incorporated by reference to Exhibit 10.19 of the 1991
Form 10-K.
(13) Incorporated by reference to Exhibit 10.6 of the 1991
Form 10-K.
(14) Incorporated by reference to Exhibit 10.14 of the 1992
Form 10-K.
(15) Incorporated by reference to Exhibit 10.15 of the 1992
Form 10-K.
28
<PAGE> 1
10.3.1
BANPONCE CORPORATION
Banco de Ponce Building
268 Munoz Rivera Avenue
Hato Rey, Puerto Rico 00918
June 11, 1993
New York Life Insurance Company
and Annuity Company
51 Madison Avenue
New York, New York 10010
Gentlemen:
With reference to the Note Agreement, dated as of January 15, 1992
(the "Note Agreement"), between you and BanPonce Corporation, a corporation
organized under the laws of the Commonwealth of Puerto Rico (the "Company"),
relating to $15,000,000 aggregate principal amount of the Company's 8.25%
Senior Notes Due January 15, 1997, the Company agrees with you that Section
5.4(a)(3) of the Note Agreement be, and hereby is, amended and restated in its
entirety as follows:
"(3) (i) unsecured Funded Debt of the Company, (ii)
unsecured Funded Debt consisting of debt securities issued
by BanPonce Financial Corp., a Restricted Subsidiary
("Financial"), and guarantied by the Company having an
aggregate initial offering price of up to $250,000,000
issued pursuant to the Registration Statement (No. 33-
41686) on Form S-3, filed by the Company and Financial with
the Securities and Exchange Commission, as such may be
amended from time to time in accordance with the Rules of
such Commission, as such may be amended from time to time
in accordance with the Rules of such Commission, (iii)
unsecured Funded Debt consisting of debt securities issued
either by Financial or by Popular International Bank, Inc.,
a Restricted Subsidiary ("PIB"), and guarantied by the
Company, having an aggregate initial offering price of up
to $400,000,000 issued pursuant to the Registration
Statement (No. 33-57038) on Form S-3, filed by the Company,
PIB and Financial with the Securities and Exchange
Commission, as such may be amended from time to time in
accordance with the Rules of such Commission, and (iv)
Funded Debt of the Company and its Restricted Subsidiaries
secured by liens permitted by Section 5.5(i), provided
<PAGE> 2
that at the time of issuance of any Indebtedness referred
to in clauses (i), (ii), (iii) or (iv) and after giving
effect thereto and to the application of the proceeds
thereof, Consolidated Funded Debt shall not exceed 50% of
Consolidated Total Capitalization; and"
The execution hereof by you shall constitute a contract between us,
and this amendment agreement may be executed in any number of counterparts,
each executed counterpart constituting an original but all together only one
agreement. Except as specifically provided hereinabove, the terms and
provisions of the Note Agreement and the Notes have not been amended, waived or
modified. From and after the date hereof, any references in the Note Agreement
to "the Agreement," "this Agreement", "hereunder," or "hereof" or similar
references shall be deemed to include the foregoing amendment of Section 5.4
(a)(3). This amendment agreement shall be governed by and construed in
accordance with the laws of the State of New York.
BANPONCE CORPORATION
By:
Its:
Accepted as of the date first above written.
NEW YORK LIFE INSURANCE
AND ANNUITY COMPANY
By:
Its:
<PAGE> 3
EXHIBIT 10.3.1
BANPONCE CORPORATION
Banco de Ponce Building
268 Munoz Rivera Avenue
Hato Rey, Puerto Rico 00918
June 11, 1993
New York Life Insurance Company
51 Madison Avenue
New York, New York 10010
Gentlemen:
With reference to the Note Agreement, dated as of January 15, 1992 (the
"Note Agreement"), between you and BanPonce Corporation, a corporation
organized under the laws of the Commonwealth of Puerto Rico (the "Company"),
relating to $15,000,000 aggregate principal amount of the Company's 8.25%
Senior Notes Due January 15, 1997, the Company agrees with you that sec.5.4(a)
(3) of the Note Agreement be, and hereby is, amended and restated in its
entirety as follows:
"(3) (i) unsecured Funded Debt of the Company, (ii) unsecured
Funded Debt consisting of debt securities issued by BanPonce Financial
Corp., a Restricted Subsidiary ("Financial"), and guarantied by the
Company having an aggregate initial offering price of up to $250,000,000
issued pursuant to the Registration Statement (No. 33-41686) on Form
S-3, filed by the Company and Financial with the Securities and Exchange
Commission, as such may be amended from time to time in accordance with
the Rules of such Commission, as such may be amended from time to time
in accordance with the Rules of such Commission, (iii) unsecured Funded
Debt consisting of debt securities issued either by Financial or by
Popular International Bank, Inc., a Restricted Subsidiary ("PIB"), and
guarantied by the Company, having an aggregate initial offering price of
up to $400,000,000 issued pursuant to the Registration Statement (No.
33-57038) on Form S-3, filed by the Company, PIB and Financial with the
Securities and Exchange Commission, as such may be amended from time to
time in accordance with the Rules of such Commission, and (iv) Funded
Debt of the Company and its Restricted Subsidiares secured by liens
permitted by sec.5.5(i), provided that at the time of issuance of any
Indebtedness referred to
<PAGE> 4
in clauses (i), (ii), (iii) or (iv) and after giving
effect thereto and to the application of the proceeds
thereof, Consolidated Funded Debt shall not exceed 50%
of Consolidated Total Capitalization; and"
The execution hereof by you shall constitute a contract between us, and
this amendment agreement may be executed in any number of counterparts, each
executed counterpart constituting an original but all together only one
agreement. Except as specifically provided hereinabove, the terms and
provisions of the Note Agreement and the Notes have not been amended, waived or
modified. From and after the date hereof, any references in the Note Agreement
to "the Agreement," "this Agreement", "hereunder," or "hereof" or similar
references shall be deemed to include the foregoing amendment of sec.5.4(a)(3).
This amendment agreement shall be governed by and construed in accordance with
the laws of the State of New York.
BANPONCE CORPORATION
By:
Its:
Accepted as of the date first above written.
NEW YORK LIFE
INSURANCE COMPANY
By:
Its:
<PAGE> 1
EXHIBIT 10.12.1
FIRST AMENDMENT TO CREDIT AGREEMENT
This First Amendment to Credit Agreement (the "Amendment"), dated as
of the 2nd day of April, 1993, is among BanPonce Corporation, a Puerto Rico
corporation ("BanPonce"), BanPonce Financial Corp., a Delaware corporation
("Financial"), Vehicle Equipment Leasing Company, Inc. ("VELCO"), a Puerto Rico
corporation, (BanPonce, Financial and VELCO are sometimes collectively
referred to herein as the "Companies" and individually as a "Company"),
Barclays Bank PLC, acting through its Miami Agency (the "Lender") and is to
that certain Credit Agreement dated as of May 19, 1992 the ("Credit Agreement")
among the Companies and the Lender. Capitalized terms used herein and not
otherwise defined shall have the meanings given to such terms in the Credit
Agreement.
WHEREAS, pursuant to the Credit Agreement, the Lender has agreed to
provide certain financing to the Companies upon the terms and conditions set
forth in the Credit Agreement;
WHEREAS, the Companies and the Lender have agreed to an amendment of
the terms and provisions of the Credit Agreement in the manner hereinafter set
forth.
NOW, THEREFORE, in consideration of the foregoing premises, the
following provisions and for other good and valuable consideration, the receipt
of which is hereby acknowledged, the parties hereby agree as follows:
1. Amendment to Credit Agreement. Subject to the conditions precedent
described in Section 2 hereby agrees as follows:
1.1 Section 1 of the Credit Agreement is hereby amended to and
to delete the date "May 18, 1992" in the third line thereof and to replace
therefor "April 1, 1994" and to delete the number "$25,000,000" in the sixth
line thereof and to replace therefor the number "$45,000,000".
1.2 Section 3.4 of the Credit Agreement is hereby amended to
delete the fraction "3/8 of 1%" and to substitute it for "7/20 of 1% (.35%)".
This change is effective as of April 2, 1993, as provided in Section 4 of this
Amendment.
2. Representations and Warranties.
2.1 The Companies hereby represent and warrant to the Lender
that each representation and warranty as set forth in the Credit Agreement is
true and correct as if made as of the date of this Amendment.
<PAGE> 2
Insofar as each representation and warranty set forth in
the Credit Agreement specifically refers to December 31, 1991, the Companies
hereby represent and warrant to the Lender that each such representation and
warranty is equally true and correct as of December 31, 1992.
2.2 Each of the Companies hereby represent that this Amendment
constitutes a legal, valid and binding obligation of such Company enforceable
against such Company in accordance with its terms.
3. References to and Effect Upon the Credit Agreement. Upon the
effectiveness of this Amendment, each reference in the Credit Agreement to
"this Credit Agreement", "this Agreement", "hereunder", "hereof", "herein", or
words of like import shall mean and be a reference to the Credit Agreement as
amended hereby amended, all of the terms, covenants and conditions of the
Credit Agreement shall remain in full force and effect. As amended and
modified by this Amendment, the Credit Agreement is hereby ratified and
confirmed in all respects. The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver
of any right, power or remedy of any of the Lenders of the Agent, nor
constitute a waiver of any provision of the Credit Agreement, or any other
documents, instruments and agreements executed and/or delivered in connection
therewith.
4. Conditions Precedent. This Amendment shall be deemed effective as of
April 2nd, 1993 (the "Amendment Closing Date") upon the satisfaction of the
following conditions precedent:
(a) The Lender shall have received the following documents in
form and substance satisfactory to the Lender and its legal counsel:
(i) Certified copies of: (A) all necessary legal
authorizations required for the Companies to enter into
this Amendment and to perform in full its obligations
hereunder; (B) articles of incorporation and by-laws of the
Corporation; and (C) evidence of the authority of each
Person authorized to execute this Amendment and any other
documents to be executed and delivered in behalf of the
Companies in connection with this Amendment.
(ii) A written opinion of Brunilda Santos de Alvarez,
legal counsel to each of the Companies, addressed to the
Lender in form and substantially similar to Exhibit 1;
(iii) certified copies of any government authorizations,
consents, approvals and licenses as may be required under
any applicable law and regulations for the Companies to
make and perform its obligations pursuant to this
Amendment, if any;
(iv) two (2) duly executed copies of this Amendment, in
form and substance satisfactory to the Bank and its legal
counsel; and
<PAGE> 3
(v) a Note in the form of Exhibit 2 hereto made by the
Companies in favor of the Lender in the principal amount of
$45,000,000;
(vi) the Guarantor's written ratification of the Guaranty
in the form of Exhibit 3 hereto; and
(vii) such other documents and certificates as the Bank or
its legal counsel may reasonably request.
5. Counterparts. This Amendment may be executed by one or more of the
parties to this Amendment in any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument.
6. Paragraph Titles. The paragraph titles contained in this Amendment
are used for convenience only and shall be without substance, meaning or
content of any kind whatsoever and are not a part of this agreement between the
parties hereto.
IN WITNESS WHEREOF, this Amendment has been duly executed and
delivered by proper and duly authorized officers of the respective party as of
the date and year first above written.
BANPONCE CORPORATION
By:
________________________________
Title: Senior Vice President
By:
________________________________
Title: Chairman of the Board
BANPONCE FINANCIAL CORPORATION
By:
________________________________
Title: Senior Vice President
VEHICLE EQUIPMENT LEASING COMPANY, INC.
By:
________________________________
Title: Chairman of the Board
BARCLAYS BANK, PLC, ACTING THROUGH ITS
MIAMI AGENCY
By:
________________________________
Title: _____________________________
<PAGE> 4
EXHIBIT 1
April 12, 1993
Barclays Bank PLC (acting through its Miami Agency)
801 Brichell Avenue
Miami, Florida 33131
Gentlemen:
We are counsel for BanPonce Corporation ("BanPonce"), a corporation
organized and existing under the laws of the Commonwealth of Puerto Rico,
BanPonce Financial Corp. ("BPFC"), a corporation organized and existing under
the laws of the State of Delaware and Vehicle Equipment Leasing Company, Inc.
("VELCO"), a corporation organized and existing under the laws of the
Commonwealth of Puerto Rico, (the "Companies") and have represented the
Companies in connection with its execution and delivery of the First Amendment
(the "Amendment") dated as of April 2, 1993, providing for Loans in an
aggregate principal amount not exceeding $45,000,000 at any one time
outstanding and a Note and Ratification of Guaranty (the "Related Documents")
to a certain Credit Agreement (the "Agreement") executed by and between the
Companies and Barclays Bank PLC, (acting through its Miami Agency) (the
"Lender"), dated as of May 19, 1992. All capitalized terms used in this
opinion shall have the meanings attributed to them in the Agreement.
We have examined the Companies' articles of incorporation, by-laws,
resolutions, the Agreement and such other matters of fact and law which we
deemed necessary in order to render this opinion. Based upon the foregoing, it
is our opinion that:
1. The Companies are corporations duly incorporated, validly
existing and in good standing under the laws of their respective jurisdictions
of incorporation and have all requisite authority to conduct their business in
each jurisdiction in which their business is conducted.
2. The execution and delivery of the Amendment and the Related
Documents by BanPonce and BPFC and the performance by the said entities of
their respective obligations have been duly authorized by all necessary
corporate action and proceedings on the part of BanPonce and BPFC and will not:
(a) require any consent of the Companies shareholders;
(b) violate any applicable law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on BanPonce and BPFC or any
subsidiary or the BanPonce and BPFC or any Subsidiary's article or
incorporation of by-laws or any indenture, instrument or agreement binding upon
BanPonce and BPFC or any Subsidiary; or
<PAGE> 5
-2-
(c) result in, or require, the creation or imposition of
any lien pursuant to the provisions of any indenture, instrument or agreement
binding upon BanPonce and BPFC or any Subsidiary.
3. The Amendment and Related Documents have been duly executed and
delivered by BanPonce and BPFC and constitute the legal, valid and binding
obligation of BanPonce and BPFC enforceable in accordance with their terms
except to the extent the enforcement thereof may be limited by bankruptcy,
insolvency, fraudulent transfer moratorium and similar laws of general
applicability relating to or affecting the enforcement of creditors' rights and
subject also to the availability of equitable remedies if equitable remedies
are sought.
4. There is no litigation or proceeding against the Companies or any
Subsidiary which, if adversely determined, would materially adversely affect
the business or condition of the Companies or any Subsidiary.
5. No approval, authorization, consent adjudication or order of any
governmental authority, which has not been obtained by the Companies or any
Subsidiary, is required to be obtained by the Companies or any Subsidiary in
connection with the execution and delivery of the Amendment or the Related
Documents, the borrowings under the Amendment or in connection with the
performance by the Companies of their respective Obligation(s) under the
Amendment and Related Documents.
VELCO has informed the Lender that it intends to submit for
consideration and approval at the next meeting of the Board of Directors
scheduled to be held on April 30th, 1993 a resolution approving the borrowings
contemplated in the Amendment and Related Documents at which time the
undersigned shall deliver an opinion as to matters covered in paragraph 2 and 3
of this opinion with regards to VELCO.
The foregoing opinion is limited to the Federal laws of the United
States and the laws of the Commonwealth of Puerto Rico and Delaware's corporate
law with regards to the incorporation and existence of BanPonce Financial Corp.
and I am expressing no opinion as to the effect of the laws of any other
jurisdiction.
Very truly yours,
______________________________
Brunilda Santos de Alvarez
Legal Counsel
<PAGE> 6
EXHIBIT 2
FORM OF NOTE
$45,000,000 April 2, 1993
BanPonce Corporation, a Puerto Rico corporation, BanPonce Financial Corp., a
Delaware corporation, and Vehicle Equipment Leasing Company, Inc., a Puerto
Rico corporation (the "Companies"), promises to pay to the order of Barclays
Bank PLC (acting through its Miami Agency) (the "Lender") the principal sum of
US$45,000,000 or the aggregate unpaid principal amount of all Loans made by the
Bank to the Company Pursuant to Section 1 of the Credit Agreement dated as of
May 19, 1992, as amended, among the companies and Barclays Bank PLC, acting
through its Miami Agency (the "Agreement"), whichever is less, in immediately
available funds at the Miami Agency of the Lender, together with interest on
the unpaid principal amount hereof. Interest and principal shall be payable at
the rates and on the dates set forth in the Agreement free and clear of any set
off, counterclaim, deduction or withholding for any reason whatsoever. The
Company shall pay each Loan in full in accordance with the terms and provisions
of the Agreement.
The Lender shall, and is hereby authorized to, record on the schedule
attached hereto, or to otherwise record in accordance with its usual practice,
the date and amount of each Loan and the date and amount of each principal
payment.
This Note is issued pursuant to the provisions of the Agreement, to
which Agreement, as it may be amended from time to time, reference is hereby
made for the definitions of capitalized terms used herein which are not
otherwise defined and for a statement of the terms and conditions under which
this Note may be prepaid or its maturity date accelerated. This Note is in
substitution for, and represents a continuation of, the indebtedness incurred
under a prior Note issued pursuant to the Agreement. Presentment, demand,
protest and notice, other than as provided in Section 9.1 of the Agreement, are
hereby waived. This Note is governed by the laws of the State of Florida.
This Note was executed and delivered in San Juan, Puerto Rico.
BANPONCE CORPORATION
By:
________________________________
Title: Senior Vice President
By:
_________________________________
Title: Chairman of the Board
<PAGE> 7
BANPONCE FINANCIAL CORP.
By: _________________________________
Title: Senior Vice President
VEHICLE EQUIPMENT LEASING COMPANY, INC.
By: _________________________________
Title: Chairman of the Board
<PAGE> 8
EXHIBIT 3
FORM OF GUARANTY RATIFICATION
Barclays Bank PLC
801 Brickell Avenue
Miami, Florida 33131
Re: Guaranty of BanPonce Corporation dated as of May 19, 1992
Dear Sirs:
Reference is hereby made to that certain Guaranty dated as of May 19,
1992 (the "Guaranty") made and delivered by BanPonce Corporation, a Puerto Rico
corporation ("BanPonce") to the Lender (as defined in the Guaranty).
Capitalized terms used herein not otherwise defined shall have the meanings
given to such terms in the Guaranty. Pursuant to the Guaranty, BanPonce
guaranteed the obligations of BanPonce Financial Corp., a Delaware Corporation
("Financial") and/or Vehicle Equipment Leasing Company, Inc., a Puerto Rico
corporation ("VELCO") arising under the Credit Agreement.
BanPonce, Financial and VELCO have requested the Lenders to increase
their Commitment (as defined in the Credit Agreement) pursuant to that certain
First Amendment to Credit Agreement dated as of April 2, 1993 (the "Amendment")
among BanPonce, Financial, VELCO, and the Lender. The Lender has agreed to do
so provided BanPonce ratifies that such increase in their Commitment evidenced
by the Amendment is guaranteed by BanPonce pursuant to the Guaranty. Thus,
BanPonce hereby ratifies that the Guaranty remains in full force and effect
with respect to the Credit Agreement as amended by the Amendment and that all
terms, covenants and conditions of the Guaranty shall remain in full force and
effect with respect to the Credit Agreement as amended by the Amendment.
Without limiting the foregoing, the maximum aggregate principal amount extended
under the Credit Agreement for which the undersigned shall be liable under the
Guaranty is hereby increased to US$45,000,000. The execution, delivery and
acceptance of this letter shall not act as a waiver of any right, power or
remedy of the Lender, nor constitutes a waiver of any provision of the
Guaranty, or any other documents, instruments and agreements executed and/or
delivered in connection therewith.
BANPONCE CORPORATION
By: _________________________________
Name: Jose Luis Lopez Calderon
Title: Senior Vice President
By: _________________________________
Name: Alberto M. Paracchini
Title: Chairman of the Board
<PAGE> 9
EXHIBIT 10.12.1
SECOND AMENDMENT TO CREDIT AGREEMENT
This Second Amendment to Credit Agreement (the "Amendment"), dated as
of the 2nd day of April, 1993, is among BanPonce Corporation, a Puerto Rico
corporation ("BanPonce"), BanPonce Financial Corp., a Delaware corporation
("Financial"), Vehicle Equipment Leasing Company, Inc. ("VELCO"), a Puerto Rico
corporation, (BanPonce, Financial and VELCO are sometimes collectively referred
to herein as the "Companies" and individually as a "Company"), Barclays Bank
PLC acting through its Miami Agency (the "Lender"), and is to a certain Credit
Agreement dated May 19, 1992 as amended by First Amendment to Credit Agreement
dated as of April 2, 1993 (the "Credit Agreement") among the Companies and the
Lender. Capitalized terms used herein and not otherwise defined shall have the
meanings given to such terms in the Credit Agreement.
WHEREAS, pursuant to the Credit Agreement, the Lender has agreed to
provide certain financing to the Companies upon the terms and conditions set
forth in the Credit Agreement;
WHEREAS, the Companies and the Lender have agreed to an amendment of
the terms and provisions of the Credit Agreement in the manner hereinafter set
forth.
NOW, THEREFORE, in consideration of the foregoing premises, the
following provisions and for other good and valuable consideration, the receipt
of which is hereby acknowledged, the parties hereby agree as follows:
1. Amendment to Credit Agreement.
1.1 Section 2 of the Credit Agreement is hereby amended to include at
the end of the tenth line of the definition of "Indebtedness" the following
language "excluding liabilities of Banco Popular de Puerto Rico which are
defined as deposits pursuant to Section 3(1) of the Federal Deposit Insurance
Act, as amended, 12 U.S.C. Section 1813 (l), and to include at the end of the
definition of "Long-Term Indebtedness" "for purposes of this definition current
liabilities shall mean such Indebtedness with a maturity date of one year or
less."
<PAGE> 10
2. Representations and Warranties.
2.1 The Companies hereby represent and warrant to the Lender that
each representation and warranty as set forth in the Credit Agreement is true
and correct as if made as of the date of this Amendment.
2.2 Each of the Companies hereby represent that this Amendment
constitutes a legal, valid and binding obligation of such Company enforceable
against such Company in accordance with its terms.
2.3 No event has occurred and is continuing which constitutes an
Event of Default or would constitute an Event of Default, but for the
requirement that notice be given or time elapse or both.
3. References to and Effect Upon the Credit Agreement. Upon the
effectiveness of this Amendment, each reference in the Credit Agreement to
"this Credit Agreement", "this Agreement", "hereunder", "hereof", "herein", or
words of like import referring to the Credit Agreement, and each reference in
the other Loan Documents to the "Credit Agreement", "thereunder", "thereof", or
words of like import referring to the Credit Agreement shall mean and be a
reference to the Credit Agreement as amended hereby, and each reference in the
other Loan Documents to "the Note", "thereunder", "thereof" or words of like
import referring to the Note, shall mean and be a reference to the Note, as
amended by the Allonge referred to below. All of the terms, covenants and
conditions of the Credit Agreement shall remain in full force and effect. As
amended and modified by this Amendment, the Credit Agreement is hereby ratified
and confirmed in all respects. The execution, delivery and effectiveness of
this Amendment shall not operate as a waiver of any right, power or remedy of
the Lender, nor constitute a waiver of any provision of the Credit Agreement,
or any other documents, instruments and agreements executed and/or delivered in
connection therewith.
4. Counterparts. This Amendment may be executed by one or more of the
parties to this Amendment in any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument.
5. Paragraph Titles. The paragraph titles contained in this Amendment
are used for convenience only and shall be without substance, meaning or
content of any kind whatsoever and are not a part of this agreement between the
parties hereto.
IN WITNESS WHEREOF, this Amendment has been duly executed and
delivered by proper and duly authorized officers of the respective party as of
the date and year first above written.
<PAGE> 11
BANPONCE CORPORATION
By: _________________________________
Title: ______________________________
By: _________________________________
Title: ______________________________
BANPONCE FINANCIAL CORPORATION
By: _________________________________
Title: ______________________________
VEHICLE EQUIPMENT LEASING COMPANY, INC.
By: _________________________________
Title: ______________________________
BARCLAYS BANK, PLC, ACTING THROUGH ITS
MIAMI AGENCY
By: _________________________________
Title: ______________________________
<PAGE> 12
EXHIBIT 10.12.1
FIRST AMENDMENT TO CREDIT AGREEMENT
This First Amendment to Credit Agreement (the "Amendment"), dated as
of the 8th day of April, 1993, is among BanPonce Corporation, a Puerto Rico
corporation ("BanPonce"), BanPonce Financial Corp., a Delaware corporation
("Financial"), Vehicle Equipment Leasing Company, Inc. ("VELCO"), a Puerto Rico
corporation, (BanPonce, Financial and VELCO are sometimes collectively referred
to herein as the "Companies" and individually as a "Company"), Citibank, N.A.
(the "Lender"), and is to a certain Credit Agreement dated May 22, 1992 the
("Credit Agreement") among the Companies and the Lender. Capitalized terms
used herein and not otherwise defined shall have the meanings given to such
terms in the Credit Agreement.
WHEREAS, pursuant to the Credit Agreement, the Lender has agreed to
provide certain financing to the Companies upon the terms and conditions set
forth in the Credit Agreement;
WHEREAS, the Companies and the Lender have agreed to an amendment of
the terms and provisions of the Credit Agreement in the manner hereinafter set
forth.
NOW, THEREFORE, in consideration of the foregoing premises, the
following provisions and for other good and valuable consideration, the receipt
of which is hereby acknowledged, the parties hereby agree as follows:
1. Amendment to Credit Agreement. Subject to the conditions precedent
described in Section 4, the Lender and each of the Companies hereby agree as
follows:
1.1 Section 1 of the Credit Agreement is hereby amended to delete the
number "$35,000,000" in the eighth line thereof and to replace therefor the
number "$50,000,000".
2. Representations and Warranties.
2.1 The Companies hereby represent and warrant to the Lender that
each representation and warranty as set forth in the Credit Agreement is true
and correct as if made as of the date of this Amendment.
2.2 Each of the Companies hereby represent that this Amendment
constitutes a legal, valid and binding obligation of such Company enforceable
against such Company in accordance with its terms.
<PAGE> 13
2.3 No event has occurred and is continuing which constitutes an
Event of Default or would constitute an Event of Default, but for the
requirement that notice be given or time elapse or both.
3. References to and Effect Upon the Credit Agreement. Upon the
effectiveness of this Amendment, each reference in the Credit Agreement to
"this Credit Agreement", "this Agreement", "hereunder", "hereof", "herein", or
words of like import referring to the Credit Agreement, and each reference in
the other Loan Documents to the "Credit Agreement", "thereunder", "thereof", or
words of like import referring to the Credit Agreement shall mean and be a
reference to the Credit Agreement as amended hereby, and each reference in the
other Loan Documents to "the Note", "thereunder", "thereof" or words of like
import referring to the Note, shall mean and be a reference to the Note, as
amended by the Allonge referred to below. All of the terms, covenants and
conditions of the Credit Agreement shall remain in full force and effect. As
amended and modified by this Amendment, the Credit Agreement is hereby ratified
and confirmed in all respects. The execution, delivery and effectiveness of
this Amendment shall not operate as a waiver of any right, power or remedy of
the Lender, nor constitute a waiver of any provision of the Credit Agreement,
or any other documents, instruments and agreements executed and/or delivered in
connection therewith.
4. Conditions Precedent. This Amendment shall be deemed effective as of
April 8th, 1993 (the "Amendment Closing Date") upon the satisfaction of the
following conditions precedent:
(a) The Lender shall have received the following documents in form
and substance satisfactory to the Lender and its legal counsel:
(i) Certified copies of: (A) all necessary legal
authorizations required for each of the Companies to enter into
this Amendment and to perform in full its obligations hereunder;
(B) articles of incorporation and by-laws of each of the
Companies; and (C) evidence of the authority of each Person
authorized to execute this Amendment and any other documents to
be executed and delivered in behalf of each of the Companies in
connection with this Amendment.
(ii) A written opinion of Brunilda Santos de Alvarez, legal
counsel to each of the Companies and the Guarantor, addressed to
the Lender in form and substantially similar to Exhibit 1;
(iii) certified copies of any government authorizations,
consents, approvals and licenses as may be required under any
applicable law and regulations for the Companies to make and
perform its obligations pursuant to this Amendment, if any;
(iv) two (2) duly executed copies of this Amendment, in
form and substance satisfactory to the Bank and its legal
counsel; and
(v) an Allonge in the form of Exhibit 2 hereto made by each
of the Companies in favor of the Lender in the principal amount
of $50,000,000;
<PAGE> 14
(vi) the Guarantor's written ratification of
the Guaranty in the form of Exhibit 3 hereto; and
(vii) such other documents and certificates as the Bank or its
legal counsel may reasonably request.
5. Counterparts. This Amendment may be executed by one or more of the
parties to this Amendment in any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument.
6. Paragraph Titles. The paragraph titles contained in this Amendment
are used for convenience only and shall be without substance, meaning or
content of any kind whatsoever and are not a part of this agreement between the
parties hereto.
7. No Novation. This Amendment shall not affect any of the existing
obligations of any of the Companies under the Credit Agreement, and it is not
the intention of the parties that this Amendment constitute a novation of such
obligations.
IN WITNESS WHEREOF, this Amendment has been duly executed and
delivered by proper and duly authorized officers of the respective party as of
the date and year first above written.
BANPONCE CORPORATION
By: ____________________________________
Title: _________________________________
By: ____________________________________
Title: _________________________________
BANPONCE FINANCIAL CORPORATION
By: ____________________________________
Title: _________________________________
<PAGE> 15
VEHICLE EQUIPMENT LEASING COMPANY, INC.
By: ____________________________________
Title: __________________________________
CITIBANK, N.A.
By: _____________________________________
Title: __________________________________
Affidavit No. __________
Acknowledged and subscribed to before me by Alberto M. Paracchini, of
legal age, married, banker and resident of San Juan, Puerto Rico, in his
capacity as Chairman of the Board of BanPonce Corporation, BanPonce Financial
Corp. and Vehicle Equipment Leasing Company, Inc. and Jose Luis Lopez Calderon,
of legal age, married, banker and resident of Guaynabo, Puerto Rico, in his
capacity as Senior Vice President of BanPonce Corporation, who are personally
known to me. In San Juan, Puerto Rico, this 8th day of April 1993.
_________________________________________
Notary Public
Affidavit No. ___________
Acknowledged and subscribed to before me by Ricardo James, of legal
age, married, banker and resident of Rio Piedras, Puerto Rico, in his capacity
as Vice President of Citibank, N.A. In San Juan, Puerto Rico, this 8th day of
April 1993.
_________________________________________
Notary Public
<PAGE> 16
EXHIBIT 1
April 8, 1993
Citibank, N.A.
252 Ponce de Leon Avenue
8th Floor
Hato Rey, Puerto Rico 00918
Gentlemen:
We are counsel for BanPonce Corporation ("BanPonce"), a corporation
organized and existing under the laws of the Commonwealth of Puerto Rico,
BanPonce Financial Corp. ("BPFC"), a corporation organized and existing under
the laws of the State of Delaware and Vehicle Equipment Leasing Company, Inc.
("VELCO"), a corporation organized and existing under the laws of the
Commonwealth of Puerto Rico, (the "Companies") and have represented the
Companies in connection with its execution and delivery of the First Amendment
(the "Amendment") dated as of April 2, providing for Loans in an aggregate
principal amount not exceeding $50,000,000 at any one time outstanding and an
Allonge and Ratification of Guaranty (collectively, the "Related Documents") to
a certain Credit Agreement (the "Agreement") executed by and between the
Companies and Citibank, N.A. (the "Lender"), dated as of May 22, 1992. All
capitalized terms used in this opinion shall have the meanings attributed to
them in the Agreement.
We have examined the Companies' articles of incorporation, by-laws,
resolutions, the Agreement and such other matters of fact and law which we deem
necessary in order to render this opinion. Based upon the foregoing, it is our
opinion that:
1. The Companies are corporations duly incorporated, validly
existing and in good standing under the laws of their respective jurisdictions
of incorporation and have all requisite authority to conduct their business in
each jurisdiction in which their business is conducted.
2. BanPonce and BPFC have the corporate power and authority and
legal right to execute and deliver the Amendment and the Related Documents to
which each is a party and to perform their respective obligations thereunder.
The execution and delivery of the Amendment and the Related Documents by
BanPonce and BPFC and the performance by the said entities of their respective
obligations have been duly authorized by all necessary corporate action and
proceedings on the part of BanPonce and BPFC and will not:
(a) require any consent of the Companies' shareholders;
(b) violate any applicable law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on BanPonce and BPFC or any
subsidiary or the BanPonce and BPFC or any
<PAGE> 17
Subsidiary's articles of incorporation of by-laws or any indenture, instrument
or agreement binding upon BanPonce and BPFC or any Subsidiary; or
(c) result in, or require, the creation or imposition of
any lien pursuant to the provisions of any indenture, instrument or agreement
binding upon BanPonce and BPFC or any Subsidiary.
3. The Amendment and Related Documents have been duly executed and
delivered by BanPonce and BPFC and constitute the legal, valid and binding
obligation of BanPonce and BPFC enforceable against BanPonce and BPFC in
accordance with their terms except to the extent the enforcement thereof may be
limited by bankruptcy, insolvency, fraudulent transfer, moratorium and similar
laws of general applicability relating to or affecting the enforcement of
creditors' rights and subject also to the availability of equitable remedies if
equitable remedies are sought.
4. There is no litigation or proceeding against the Companies or any
Subsidiary which, if adversely determined, would materially adversely affect
the business or condition of the Companies or any Subsidiary.
5. No approval, authorization, consent, adjudication or order of any
governmental authority, which has not been obtained by the Companies or any
Subsidiary, is required to be obtained by the Companies or any Subsidiary in
connection with the execution and delivery of the Amendment or the Related
Documents, the borrowings under the Amendment or in connection with the payment
by the Companies of the Obligations.
VELCO has informed the Lender that it intends to submit for
consideration and approval at the next meeting of the Board of Directors
scheduled to be held on April 30th, 1993 a resolution approving the borrowings
contemplated in the Amendment and Related Documents at which time the
undersigned shall deliver an opinion as to matters covered in paragraph 2 and 3
of this opinion with regards to VELCO.
The foregoing opinion is limited to the Federal laws of the United
States and the laws of the Commonwealth of Puerto Rico and Delaware's corporate
law with regards to the incorporation and existence of BanPonce Financial Corp.
and I am expressing no opinion as to the effect of the laws of any other
jurisdiction.
Very truly yours,
______________________________
Brunilda Santos de Alvarez
Legal Counsel
<PAGE> 18
EXHIBIT 2
ALLONGE
The terms of that certain Promissory Note (the "Note") in the maximum
principal amount of $35,000,000 issued by BANPONCE CORPORATION, BANPONCE
FINANCIAL CORPORATION and VEHICLE EQUIPMENT LEASING CORPORATION, INC.
(collectively, the "Borrowers") to the order of CITIBANK, N.A. (the "Lender")
dated May 22, 1992, under Affidavit Number 1,982 before Notary Brunilda Santos
de Alvarez, are hereby amended as of April 8, 1993, as follows:
1. The maximum principal amount of the Note is hereby increased to
FIFTY MILLION DOLLARS ($50,000,000).
2. The first paragraph of the Note is hereby deleted and substituted
by the following paragraph:
"FOR VALUE RECEIVED, the undersigned, BANPONCE
CORPORATION, a Puerto Rico corporation ("BanPonce"), BANPONCE
FINANCIAL CORPORATION, a Delaware corporation ("Financial"), and
VEHICLE EQUIPMENT LEASING CORPORATION, INC., a Puerto Rico
corporation ("Velco"; Velco, BanPonce and Financial each
hereinafter referred to singly as a "Borrower"), each HEREBY
PROMISES TO PAY to the order of CITIBANK, N.A., a national
banking association (the "Lender"), the principal amount of FIFTY
MILLION DOLLARS ($50,000,000) in lawful money of the United
States of America, or, if less, the principal amount of each Loan
(as defined below) made by the Lender to such Borrower pursuant
to the Credit Agreement referred to below (the "Credit
Agreement"). The principal amount of each Loan shall be payable
in full on the last day of the Interest Period (as defined in the
Credit Agreement) for such Loan. The liability of each Borrower
hereunder shall be several and not joint and several (solidaria)
as to each Loan made to such Borrower under this Promissory
Note".
3. It is not the intention of the parties that this Allonge
constitute a novation of the indebtedness evidenced by the Note.
<PAGE> 19
4. Except as amended hereby, all terms and conditions of the Note
shall remain in full force and effect.
Executed in San Juan, Puerto Rico as of the 8th day of April, 1993.
BANPONCE CORPORATION BANPONCE FINANCIAL CORPORATION
By:__________________________ By:___________________________
By: _________________________
VEHICLE EQUIPMENT LEASING CORPORATION
By: ___________________________
Affidavit No. _________
Acknowledged and subscribed to before me by Alberto M. Paracchini, of
legal age, married, banker and resident of San Juan, Puerto Rico, in his
capacity as Chairman of the Board of BanPonce Corporation, BanPonce Financial
Corp. and Vehicle Equipment Leasing Company, Inc. and Jose Luis Lopez Calderon,
of legal age, married, banker and resident of Guaynabo, Puerto Rico, in his
capacity as Senior Vice President of BanPonce Corporation, who are personally
known to me. In San Juan, Puerto Rico, this 8th day of April 1993.
_________________________________
Notary Public
AGREED AND ACCEPTED:
CITIBANK, N.A.
By:
<PAGE> 20
EXHIBIT 3
FORM OF GUARANTY RATIFICATION
Citibank, N.A.
252 Ponce de Leon Avenue
8th Floor
Hato Rey, PR 00918
Re: Guaranty of BanPonce Corporation dated as of May 22, 1992
Dear Sirs:
Reference is hereby made to that certain Guaranty dated as of May 22,
1992 (the "Guaranty") made and delivered by BanPonce Corporation, a Puerto Rico
corporation ("BanPonce") to the Lender (as defined in the Guaranty).
Capitalized terms used herein not otherwise defined shall have the meanings
given to such terms in the Guaranty. Pursuant to the Guaranty, BanPonce
guaranteed the obligations of BanPonce Financial Corp., a Delaware corporation
("Financial") and/or Vehicle Equipment Leasing Company, Inc., a Puerto Rico
corporation ("VELCO") arising under the Credit Agreement.
BanPonce, Financial and VELCO have requested the Lender to increase
the Aggregate Commitment (as defined in the Credit Agreement) pursuant to that
certain First Amendment to Credit Agreement dated as of April 2, 1993 (the
"Amendment") among BanPonce, Financial, VELCO, and the Lender. The Lender has
agreed to do so provided BanPonce ratifies that such increase in the Aggregate
Commitment evidenced by the Amendment is guaranteed by BanPonce pursuant to the
Guaranty. Thus, BanPonce hereby ratifies that the Guaranty remains in full
force and effect with respect to the Credit Agreement as amended by the
Amendment and, therefore, that the limitation in the amount of the Guaranteed
Debt set forth in the first paragraph of the Guaranty is hereby increased from
$35,000,000 to $50,000,000 (provided, that such limitation shall not apply to
interest or other non-principal amounts which may become due under the Credit
Agreement). All terms, covenants and conditions of the Guaranty shall remain
in full force and effect with respect to the Credit Agreement as amended by the
Amendment.
<PAGE> 21
-2-
The execution, delivery and acceptance of this letter shall not act as a waiver
of any right, power or remedy of the Lender, nor constitutes a waiver of any
provision of the Guaranty, or any other documents, instruments and agreements
executed and/or delivered in connection therewith.
BANPONCE CORPORATION
By:________________________________
Name: _____________________________
Title: ____________________________
By:________________________________
Name: _____________________________
Title: ____________________________
Affidavit No. __________
Acknowledged and subscribed to before me by Alberto M. Paracchini, of
legal age, married, banker and resident of San Juan, Puerto Rico, in his
capacity as Chairman of the Board of BanPonce Corporation, BanPonce Financial
Corp. and Vehicle Equipment Leasing Company, Inc. and Jose Luis Lopez Calderon,
of legal age, married, banker and resident of Guaynabo, Puerto Rico, in his
capacity as Senior Vice President of BanPonce Corporation, who are personally
known to me. In San Juan, Puerto Rico, this 8th day of April 1993.
____________________________________
Notary Public
<PAGE> 22
EXHIBIT 10.12.1
SECOND AMENDMENT TO CREDIT AGREEMENT
This Second Amendment to Credit Agreement (the "Second Amendment"),
dated as of the 21st day of May, 1993 is among BanPonce Corporation, a Puerto
Rico corporation ("BanPonce"), BanPonce Financial Corp., a Delaware corporation
("Financial"), Vehicle Equipment Leasing Company, Inc. ("VELCO"), a Puerto Rico
corporation, (BanPonce, Financial and VELCO are sometimes collectively referred
to herein as the "Companies" and individually as a "Company"), Citibank, N.A.
(the "Lender"), and is to a certain Credit Agreement dated May 22, 1992 the
("Credit Agreement") among the Companies and the Lender as amended by a First
Amendment to Credit Agreement executed among the Companies and the Lender as of
the 8th day of April 1993 (the "First Amendment"). Capitalized terms used
herein and not otherwise defined shall have the meanings given to such terms in
the Credit Agreement.
WHEREAS, pursuant to the Credit Agreement and the First Amendment, the
Lender has agreed to provide certain financing to the Companies upon the terms
and conditions set forth in the Credit Agreement and the First Amendment;
WHEREAS, the financing facilities made available to the Companies
under the Credit Agreement, as amended by the First Amendment, expire as of May
21, 1993;
WHEREAS, the Lender, after conducting a new credit evaluation of the
Companies, has agreed to renew the financing facilities made under the Credit
Agreement, as amended by the First Amendment, for a separate succesive period
of 364 days expiring on May 20, 1994 under the same terms and conditions set
forth in the Credit Agreement, as amended by the First Amendment;
NOW, THEREFORE, in consideration of the foregoing premises, the
following provisions and for other good and valuable consideration, the receipt
of which is hereby acknowledged, the parties hereby agree as follows:
1. Amendment to Credit Agreement. Subject to the conditions precedent
described in Section 4, the Lender and each of the Companies hereby agree as
follows:
1.1 Section 1 of the Credit Agreement is hereby amended to read as
follows: "Subject to the terms of this Agreement, the Lender agrees to make
loans (the "Loans") to each of the Companies on any Business Day from the date
hereof to and including May 20, 1994 (such date, or the earlier date of
termination of the Aggregate Commitment pursuant to Section 8, being the
"Termination Date"). Each Company may borrow, repay and reborrow Loans from
time to time prior to the Termination Date, provided that the principal amount
of all Loans outstanding shall not exceed $50,000,000 (the "Aggregate
Commitment") at any time for all of the Companies in the aggregate. Each loan
shall be in an amount of not less than $500,000 or an integral
<PAGE> 23
multiple thereof, except that a Loan may be equal to the entire unused
Aggregate Commitment. The Loans shall be evidenced by a note (the "Note") duly
executed and delivered by each Company to the order of Lender in the form
attached hereto as Exhibit "A". This Agreement, the Note and the Guaranty
referred to below are herein called the "Loan Documents"."
1.2 Exhibit A of the Credit Agreement is hereby deleted and
substituted by Exhibit 2 hereto.
2. Representations and Warranties.
2.1 The Companies hereby represent and warrant to the Lender that
each representation and warranty as set forth in the Credit Agreement is true
and correct as if made as of the date of this Second Amendment.
2.2 Each of the Companies hereby represent that this Second Amendment
constitutes a legal, valid and binding obligation of such Company enforceable
against such Company in accordance with its terms.
2.3 No event has occurred and is continuing which constitutes an
Event of Default or would constitute an Event of Default, but for the
requirement that notice be given or time elapse or both.
3. References to and Effect Upon the Credit Agreement. Upon the
effectiveness of this Amendment, each reference in the Credit Agreement to
"this Credit Agreement", "this Agreement", "hereunder", "hereof", "herein", or
words of like import referring to the Credit Agreement, and each reference in
the other Loan Documents to the "Credit Agreement", "thereunder", "thereof", or
words of like import referring to the Credit Agreement shall mean and be a
reference to the Credit Agreement as amended by the First Amendment and as
amended hereby, and each reference in the other Loan Documents to "the Note",
"thereunder", "thereof" or words of like import referring to the Note, shall
mean and be a reference to the Note referred to below. All of the terms,
covenants and conditions of the Credit Agreement and the First Amendment shall
remain in full force and effect. As amended and modified by this Second
Amendment, the Credit Agreement and the First Amendment are hereby ratified and
confirmed in all respects. The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of the
Lender, nor constitute a waiver of any provision of the Credit Agreement and
the First Amendment, or any other documents, instruments and agreements
executed and/or delivered in connection therewith.
4. Conditions Precedent. This Second Amendment shall be deemed effective
as of May 21st, 1993 (the "Second Amendment Closing Date") upon the
satisfaction of the following conditions precedent:
(a) The Lender shall have received the following documents in form
and substance satisfactory to the Lender and its legal counsel:
<PAGE> 24
(i) Certified copies of: (A) all necessary legal
authorizations required for each of the Companies to enter into
this Second Amendment and to perform in full its obligations
hereunder; (B) articles of incorporation and by-laws of each of
the Companies; and (C) evidence of the authority of each Person
authorized to execute this Second Amendment and any other
documents to be executed and delivered in behalf of each of the
Companies in connection with this Second Amendment.
(ii) A written opinion of Brunilda Santos de Alvarez, legal
counsel to each of the Companies and the Guarantor, addressed to
the Lender in form and substantially similar to Exhibit 1;
(iii) certified copies of any government authorizations,
consents, approvals and licenses as may be required under any
applicable law and regulations for the Companies to make and
perform its obligations pursuant to this Amendment, if any;
(iv) two (2) duly executed copies of this Second Amendment,
in form and substance satisfactory to the Bank and its legal
counsel; and
(v) a promissory note (the "Note") in the form of Exhibit 2
hereto made by each of the Companies in favor of the Lender in
the principal amount of $50,000,000, dated as of May 21st, 1993
and with a maturity date as of May 20, 1994.
(vi) the Guarantor's written ratification of the Guaranty in
the form of Exhibit 3 hereto; and
(vii) such other documents and certificates as the Bank or its
legal counsel may reasonably request.
5. Counterparts. This Amendment may be executed by one or more of the
parties to this Amendment in any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument.
6. Paragraph Titles. The paragraph titles contained in this Amendment
are used for convenience only and shall be without substance, meaning or
content of any kind whatsoever and are not a part of this agreement between the
parties hereto.
7. No Novation. This Amendment shall not affect any of the existing
obligations of any of the Companies under the Credit Agreement and the First
Amendment, and it is not the intention of the parties that this Amendment
constitute a novation of such obligations.
<PAGE> 25
IN WITNESS WHEREOF, this Second Amendment has been duly executed and
delivered by proper and duly authorized officers of the respective party as of
the date and year first above written.
BANPONCE CORPORATION
By:________________________________
Title: ____________________________
By:________________________________
Title: ____________________________
BANPONCE FINANCIAL CORPORATION
By:________________________________
Title: ____________________________
VEHICLE EQUIPMENT LEASING COMPANY, INC.
By:________________________________
Title: ____________________________
CITIBANK, N.A.
By:________________________________
Title: ____________________________
<PAGE> 26
Affidavit No. ___________
Acknowledged and subscribed to before me by
__________________________________
Notary Public
Affidavit No. ___________
Acknowledged and subscribed to before me by Ricardo James, of legal
age, married, banker and resident of Rio Piedras, Puerto Rico, in his capacity
as Vice President of Citibank, N.A. In San Juan, Puerto Rico, this ___ day of
June 1993.
__________________________________
Notary Public
<PAGE> 27
May __, 1993
Citibank, N.A.
252 Ponce de Leon Avenue
8th Floor
Hato Rey, Puerto Rico 00918
Gentlemen:
We are counsel for BanPonce Corporation ("BanPonce"), a corporation
organized and existing under the laws of the Commonwealth of Puerto Rico,
BanPonce Financial Corp. ("BPFC"), a corporation organized and existing under
the laws of the State of Delaware and Vehicle Equipment Leasing Company, Inc.
("VELCO"), a corporation organized and existing under the laws of the
Commonwealth of Puerto Rico, (the"Companies") and have represented the
Companies in connection with its execution and delivery of the Second Amendment
(the "Second Amendment") dated as of May 21st, 1993 to a certain Credit
Agreement (the "Agreement") executed by and between the Companies and Citibank,
N.A. (the "Lender"), dated as of May 22, 1992 and the Note and Ratification of
Guaranty referred to therein (collectively, the "Related Documents"). All
capitalized terms used in this opinion shall have the meanings attributed to
them in the Agreement, as amended by the First Amendment and the Second
Amendment.
We have examined the Companies' articles of incorporation, by-laws,
resolutions, the Agreement and such other matters of fact and law which we deem
necessary in order to render this opinion. Based upon the foregoing, it is our
opinion that:
1. The Companies are corporations duly incorporated, validly
existing and in good standing under the laws of their respective jurisdictions
of incorporation and have all requisite authority to conduct their business in
each jurisdiction in which their business is conducted.
2. The Companies have the corporate power and authority and legal
right to execute and deliver the Amendment and the Related Documents to which
each is a party and to perform their respective obligations thereunder. The
execution and delivery of the Second Amendment and the Related Documents by the
Companies and the performance by the said entities of their respective
obligations have been duly authorized by all necessary corporate action and
proceedings on the part of the Companies and will not:
(a) require any consent of the Companies' shareholders;
(b) violate any applicable law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on the Companies or any
subsidiary of the Companies or any Subsidiary's articles of incorporation of
by-laws or any indenture, instrument or agreement binding upon the Companies or
any Subsidiary; or
<PAGE> 28
(c) result in, or require, the creation or imposition of
any lien pursuant to the provisions of any indenture, instrument or agreement
binding upon the Companies or any Subsidiary.
3. The Second Amendment and Related Documents have been duly
executed and delivered by the Companies and constitute the legal, valid and
binding obligation of the Companies enforceable against the Companies in
accordance with their terms except to the extent the enforcement thereof may be
limited by bankruptcy, insolvency, fraudulent transfer, moratorium and similar
laws of general applicability relating to or affecting the enforcement of
creditors' rights and subject also to the availability of equitable remedies if
equitable remedies are sought.
4. There is no litigation or proceeding against the Companies or any
Subsidiary which, if adversely determined, would materially adversely affect
the business or condition of the Companies or any Subsidiary.
5. No approval, authorization, consent, adjudication or order of any
governmental authority, which has not been obtained by the Companies or any
Subsidiary, is required to be obtained by the Companies or any Subsidiary in
connection with the execution and delivery of the Amendment or the Related
Documents, the borrowings under the Amendment or in connection with the payment
by the Companies of the Obligations.
The foregoing opinion is limited to the Federal laws of the United
States and the laws of the Commonwealth of Puerto Rico and Delaware's corporate
law with regards to the incorporation and existence of BanPonce Financial Corp.
and I am expressing no opinion as to the effect of the laws of any other
jurisdiction.
Very truly yours,
______________________________
Brunilda Santos de Alvarez
Legal Counsel
<PAGE> 29
FORM OF GUARANTY RATIFICATION
Citibank, N.A.
252 Ponce de Leon Avenue
8th Floor
Hato Rey, PR 00918
Re: Guaranty of BanPonce Corporation dated as of May 22, 1992
Dear Sirs:
Reference is hereby made to that certain Guaranty dated as of May 22,
1992, as amended on April 8, 1993 (the "Guaranty") made and delivered by
BanPonce Corporation, a Puerto Rico corporation ("BanPonce") to the Lender (as
defined in the Guaranty). Capitalized terms used herein not otherwise defined
shall have the meanings given to such terms in the Guaranty. Pursuant to the
Guaranty, BanPonce guaranteed the obligations of BanPonce Financial Corp., a
Delaware corporation ("Financial") and Vehicle Equipment Leasing Company, Inc.,
a Puerto Rico corporation ("VELCO") arising under the Credit Agreement.
BanPonce, Financial and VELCO and the Lender increased the Aggregate
Commitment (as defined in the Credit Agreement) pursuant to that certain First
Amendment to Credit Agreement dated as of April 8, 1993 to BanPonce, Financial,
VELCO, and BanPonce ratified such increase in the Aggregate Commitment
evidenced by the First Amendment.
BanPonce, BanPonce Financial and VELCO have requested the Lender, and
the Lender has agreed, to renew the credit facility made available to them
under the Credit Agreement, as amended by the First Amendment, for a period of
364 days expiring on May 20, 1994, all pursuant to a Second Amendment to Credit
Agreement dated as of May 21, 1993 (the "Second Amendment"). Thus, BanPonce
hereby ratifies that the Guaranty remains in full force and effect with respect
to the Credit Agreement as amended by the First Amendment and the Second
Amendment (the "Amendments") and the Note issued by BanPonce, BanPonce
Financial and VELCO pursuant to the Second Amendment. All terms, covenants and
conditions of the Guaranty shall remain in full force and effect with respect
to the Credit Agreement as amended by the Amendments.
The execution, delivery and acceptance of this letter shall not act as
a waiver of any right, power or remedy of the Lender, nor constitutes a waiver
of any provision of the Guaranty, or any other documents, instruments and
agreements executed and/or delivered in connection therewith.
<PAGE> 30
BANPONCE CORPORATION
By:____________________________________
Name: _________________________________
Title: ________________________________
By:____________________________________
Name: _________________________________
Title: ________________________________
Affidavit Number _______________
Acknowledged and suscribed to before me by David H. Chafey, Jr. of
legal age, married, banker and resident of San Juan, Puerto Rico as Executive
Vice President of BanPonce Corporation and Director of Vehicle Equipment
Leasing Company, Inc. and Jose Luis Lopez Calderon, or legal age, married and
resident of Guaynabo, Puerto Rico, in his capacity as Senior Vice President of
BanPonce Corporation and BanPonce Financial Corp. and to me personally known in
San Juan, Puerto Rico this 14th day of June, 1993.
___________________________________
Notary Public
<PAGE> 31
PROMISSORY NOTE
$50,000,000 Dated: May 21, 1993
FOR VALUE RECEIVED, the undersigned, BANPONCE CORPORATION, a Puerto
Rico corporation ("BanPonce"), BANPONCE FINANCIAL CORPORATION, a Delaware
corporation ("Financial"), and VEHICLE EQUIPMENT LEASING COMPANY, INC., a
Puerto Rico corporation ("VELCO"); (BanPonce, Velco and Financial each
hereinafter sometimes referred to singly as a "Borrower"), each HEREBY PROMISES
TO PAY to the order of CITIBANK, N.A., a national banking association (the
"Lender") the principal amount of each Loan (as defined below) made by the
Lender to such Borrower on the last day of the Interest Period (as defined in
the Credit Agreement referred to below) for such Loan. The liability of each
Borrower hereunder shall be several and not joint and several (solidaria) as to
each Loan made to such Borrower under this Promissory Note.
Each Borrower promises to pay interest on the principal amount of each
Loan made to it by the Lender from the date of such Loan until such principal
amount is paid in full, at such interest rates, and payable at such times, as
are specified in the Credit Agreement referred to below.
Both principal and interest payable in lawful money of the United
States of America to the Lender at 252 Ponce de Leon Avenue, Hato Rey, Puerto
Rico (or at such other address as the Lender may designate in writing) in same
day funds. Each Loan made by the Lender to a Borrower, the interest thereon
and the maturity thereof, and all payments made on account of the principal
amount thereof, shall be entered by the Lender in its records and prior to any
transfer hereof, the amount and maturity of any outstanding Loans shall be
endorsed on the grid attached hereto which is a part of this Promissory Note.
This Promissory Note is the Note referred to in, and is entitled to
the benefits of, the Credit Agreement dated as of May 21, 1992 as amended by a
First Amendment dated as of April 8, 1993 and a Second Amendment dated as of
May 21, 1993 (the "Credit Agreement"), between Financial, VELCO, BanPonce
Corporation and the Lender. The Credit Agreement, among other things, (i)
provides for the making of advances (the "Loans") by the Lender to the
Borrowers from time to time in an aggregate amount not to exceed at any time
outstanding in the U.S. dollar amount first above mentioned, the indebtedness
of the Borrowers resulting from each such Loan being evidenced by this
Promissory Note, and (ii) contains provisions for acceleration of the maturity
hereof upon the happening of certain stated events and also for prepayments on
account of principal hereof prior to the maturity hereof upon the terms and
conditions therein specified.
<PAGE> 32
BANPONCE CORPORATION
By: _________________________________
Title: ______________________________
By: _________________________________
Title: ______________________________
BANPONCE FINANCIAL CORPORATION
By: _________________________________
Title: ______________________________
VEHICLE EQUIPMENT LEASING COMPANY, INC.
By: _________________________________
Title: ______________________________
Affidavit Number _______________
Acknowledged and suscribed to before me by David H. Chafey, Jr. of
legal age, married, banker and resident of San Juan, Puerto Rico as Executive
Vice President of BanPonce Corporation and Director of Vehicle Equipment
Leasing Company, Inc. and Jose Luis Lopez Calderon, or legal age, married and
resident of Guaynabo, Puerto Rico, in his capacity as Senior Vice President of
BanPonce Corporation and BanPonce Financial Corp. and to me personally known in
San Juan, Puerto Rico this 14th day of June, 1993.
_____________________________________
Notary Public
<PAGE> 33
EXHIBIT 10.12.1
FIRST AMENDMENT TO CREDIT AGREEMENT
This First Amendment to Credit Agreement (the "Amendment"), dated as
of the 1st day of April, 1993, is among BanPonce Corporation, a Puerto Rico
corporation ("BanPonce"), BanPonce Financial Corp., a Delaware corporation
("Financial"), Vehicle Equipment Leasing Company, Inc. ("VELCO") (BanPonce,
Financial and VELCO are sometimes collectively referred to herein as the
"Companies" and individually as a "Company"), The First National Bank of
Chicago and Societe Generale (collectively, the "Lenders", and individually,
"Lender"), and The First National Bank of Chicago as agent for the Lenders (the
"Agent") and is to that certain Credit Agreement dated as of May 1, 1992 the
("Credit Agreement") among the Companies, the Lender and the Agent.
Capitalized terms used herein and not otherwise defined shall have the meanings
given to such terms in the Credit Agreement.
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to
provide certain financing to the Companies upon the terms and conditions set
forth in the Credit Agreement;
WHEREAS, the Companies, the Lenders and the Agent have agreed to an
amendment of the terms and provisions of the Credit Agreement in the manner
hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises, the
following provisions and for other good and valuable consideration, the receipt
of which is hereby acknowledged, the parties hereby agree as follows:
1. AMENDMENT TO CREDIT AGREEMENT. Subject to the conditions
precedent described in Section 6 hereof, the Credit Agreement is hereby amended
as follows:
1.1 Section 1 of the Loan agreement is hereby amended to delete
the number "$40,000,000" in the sixth line thereof and to replace therefor the
number "$60,000,000" and to delete the date "April 30, 1993" and to replace
therefor March 31, 1994".
1.2 The amount of each Lender's Commitment referred to in
Section 1 of the Agreement is modified to read as set forth opposite each
Lender's signature to this Agreement.
2. REPRESENTATIONS AND WARRANTIES.
2.1 The Companies hereby represent and warrant to each Lender
that each representation and warranty as set forth in the Credit Agreement is
true and correct as if made as of the date of this Amendment.
<PAGE> 34
2
2.2 Each of the Companies hereby represents that this Amendment
constitutes a legal, valid and binding obligation of such Company enforceable
against such Company in accordance with its terms.
3. COSTS AND EXPENSES. The Companies jointly and severally shall
reimburse the Agent for all costs and expenses (including time charges of the
Agent's attorneys who may be employees of the Agent) incurred by the Agent in
the negotiation, preparation, execution and delivery of this Amendment and any
other documents prepared in connection herewith.
4. REFERENCES TO AND EFFECT UPON THE CREDIT AGREEMENT. Upon the
effectiveness of this Amendment, each reference in the Credit Agreement to
"this Credit Agreement", "this Agreement", "hereunder", "hereof", "herein", or
words of like import shall mean and be a reference to the Credit Agreement as
amended hereby. Except as specifically hereby amended, all of the terms,
covenants and conditions of the Credit Agreement shall remain in full force and
effect. As amended and modified by this Amendment, the Credit Agreement is
hereby ratified and confirmed in all respects. The execution, delivery and
effectiveness of this Amendment shall not, except as expressly provided herein,
operate as a waiver of any right, power or remedy of the any of the Lenders of
the Agent, nor constitute a waiver of any provision of the Credit Agreement, or
any other documents, instruments and agreements executed and/or delivered in
connection therewith.
5. GOVERNING LAW. This Amendment shall be deemed to have been made
at Chicago, Illinois, U.S.A., and shall be governed by and construed in
accordance with the other remaining terms of the Credit Agreement and the
internal laws of the State of Illinois.
6. CONDITIONS PRECEDENT. This Amendment shall be deemed effective
as of April 1, 1993 (the "Amendment Closing Date") upon the satisfaction of the
following conditions precedent:
(a) The Agent shall have received the following documents
in form and substance satisfactory to the Agent and its legal counsel:
(i) Certified copies of: (A) all necessary legal
authorizations required for the Companies to enter into this Amendment
and to perform in full its obligations hereunder; (B) articles of
incorporation and by-laws of the Companies; and (C) evidence of the
authority of each Person authorized to execute this Amendment and any
other documents to be executed and delivered on behalf of the
Companies in connection with this Amendment, each of which is to be
certified by a duly authorized representative of the Companies within
five (5) days prior to the Amendment Closing Date.
<PAGE> 35
3
(ii) A written opinion of Brunilda Santos de Alvarez,
legal counsel to each of the Companies, dated on or within five (5)
days prior to the Amendment Closing Date addressed to the Lenders in
form and substance satisfactory to the Agent;
(iii) certified copies of any government
authorizations, consents, approvals and licenses as may be required
under any applicable law and regulations for the Companies to make and
perform its obligations pursuant to this Amendment;
(iv) Six (6) duly executed copies of this Amendment,
in form and substance satisfactory to the Bank and its legal counsel;
and
(v) a Note in the form of Exhibit 1 hereto made by
each of the Companies in favor of each of the Lenders in the principal
amount of each Lender's Commitment;
(vi) the Guarantor's written ratification of the
Guaranty in the form of Exhibit 2 hereto; and
(vii) such other documents and certificates as the
Bank or its legal counsel may reasonably request.
(b) Each of the Lenders shall have received a closing fee
of $10,000 from BanPonce.
7. COUNTERPARTS. This Amendment may be executed by one or more of
the parties to this Amendment in any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument.
8. PARAGRAPH TITLES. The paragraph titles contained in this
Amendment are used for convenience only and shall be without substance, meaning
or content of any kind whatsoever and are not a part of this agreement between
the parties hereto.
<PAGE> 36
4
IN WITNESS WHEREOF, this Amendment has been duly executed and
delivered by proper and duly authorized officers of the respective party as of
the date and year first above written.
BANPONCE CORPORATION
By:______________________________
Title:______________________________
By:______________________________
Title:______________________________
BANPONCE FINANCIAL CORPORATION
By:______________________________
Title:______________________________
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
By:______________________________
Title:______________________________
THE FIRST NATIONAL BANK OF CHICAGO
By:______________________________
Title:______________________________
<PAGE> 37
5
Commitment
$35,000,000
$25,000,000
- - - - - -----------
$60,000,000
<PAGE> 38
EXHIBIT 1
FORM OF NOTE
[____________________] ____________________, 1993
____________________, a ____________ corporation (the "Company"),
promises to pay to the order of (the "Lender") the aggregate unpaid principal
amount of all Loans made by the Lender to the Company pursuant to Section 1 of
the Credit Agreement dated as of May 1, 1992, as amended, among BanPonce
Corporation, a Puerto Rico corporation, BanPonce Financial Corp., a Delaware
corporation, Vehicle Equipment Leasing Company, Inc., a Puerto Rico
corporation, The First National Bank of Chicago and Societe Generale, and The
First National Bank of Chicago, as Agent (the "Agreement"), whichever is less,
in immediately available funds at the main office of the Agent in Chicago,
Illinois, together with interest on the unpaid principal amount hereof.
Interest and principal shall be payable at the rates and on the dates set forth
in the Agreement. The Company shall pay each Loan in full in accordance with
the terms and provisions of the Agreement.
The Lender shall, and is hereby authorized to, record on the schedule
attached hereto, or to otherwise record in accordance with its usual practice,
the date and amount of each Loan and the date and amount of each principal
payment.
This Note is issued pursuant to, and is entitled to the benefits of,
the Agreement, as it may be amended from time to time, to which Agreement
reference is hereby made for a statement of the terms and conditions under
which the Note may be prepaid or its maturity date accelerated. This Note is
in substitution for, and represents a continuation of, the indebtedness
incurred under a prior Note issued pursuant to the Agreement. Capitalized
terms used herein and not otherwise defined herein have the meanings ascribed
to such terms in the Agreement.
This Note is governed by the internal law (and not the law of
conflicts) of the State of Illinois.
By:______________________________
Title:______________________________
<PAGE> 39
EXHIBIT 2
FORM OF GUARANTY RATIFICATION
The First National Bank of Chicago,
as Agent for the Lenders
One First National Plaza
Chicago, Illinois 60670
RE: GUARANTY OF BANPONCE CORPORATION
DATED AS OF MAY 1, 1991
Dear Sirs:
Reference is hereby made to that certain Guaranty dated as of May 1,
1992 (the "Guaranty") made and delivered by BanPonce Corporation, a Puerto Rico
corporation ("BanPonce") to the Lenders (as defined in the Guaranty).
Capitalized terms used herein not otherwise defined shall have the meanings
given to such terms in the Guaranty. Pursuant to the Guaranty, BanPonce
guaranteed the obligations of BanPonce Financial Corp., a Delaware corporation
("Financial") and/or Vehicle Equipment Leasing Company, Inc., a Puerto Rico
corporation ("VELCO") arising under the Credit Agreement.
BanPonce, Financial and VELCO have requested the Lenders to increase
the Aggregate Commitment (as defined in the Credit Agreement) pursuant to that
certain First Amendment to Credit Agreement dated as of April 1, 1993 (the
"Amendment") among BanPonce, Financial, VELCO, the Lenders and the Agent. The
Lenders have agreed to do so provided BanPonce ratifies that such increase in
each Lender's Commitment evidenced by the Amendment is guaranteed by BanPonce
pursuant to the Guaranty. Thus, BanPonce hereby ratifies that the Guaranty
remains in full force and effect with respect to the Credit Agreement as
amended by the Amendment and that all terms, covenants and conditions of the
Guaranty shall remain in full force and effect with respect to the Credit
Agreement as amended by the Amendment. The execution, delivery and acceptance
of this letter shall not act as a waiver of any right, power or remedy of the
Lenders or the Agent, nor constitute a waiver of any provision of the Guaranty,
or any other documents, instruments and agreements executed and/or delivered in
connection therewith.
BANPONCE CORPORATION
By:______________________________
Name:______________________________
Title:______________________________
By:______________________________
Name:______________________________
Title:______________________________
<PAGE> 40
2
Accepted this ____ day
of April, 1993
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
By:______________________________
Name:______________________________
Title:______________________________
<PAGE> 41
FORM OF GUARANTY RATIFICATION
The First National Bank of Chicago,
as Agent for the Lenders
One First National Plaza
Chicago, Illinois 60670
RE: GUARANTY OF BANPONCE CORPORATION
DATED AS OF MAY 1, 1991
Dear Sirs:
Reference is hereby made to that certain Guaranty dated as of May 1,
1992 (the "Guaranty") made and delivered by BanPonce Corporation, a Puerto Rico
corporation ("BanPonce") to the Lenders (as defined in the Guaranty).
Capitalized terms used herein not otherwise defined shall have the meanings
given to such terms in the Guaranty. Pursuant to the Guaranty, BanPonce
guaranteed the obligations of BanPonce Financial Corp., a Delaware corporation
("Financial") and/or Vehicle Equipment Leasing Company, Inc., a Puerto Rico
corporation ("VELCO") arising under the Credit Agreement.
BanPonce, Financial and VELCO have requested the Lenders to increase
the Aggregate Commitment (as defined in the Credit Agreement) pursuant to that
certain First Amendment to Credit Agreement dated as of April 1, 1993 (the
"Amendment") among BanPonce, Financial, VELCO, the Lenders and the Agent. The
Lenders have agreed to do so provided BanPonce ratifies that such increase in
each Lender's Commitment evidenced by the Amendment is guaranteed by BanPonce
pursuant to the Guaranty. Thus, BanPonce hereby ratifies that the Guaranty
remains in full force and effect with respect to the Credit Agreement as
amended by the Amendment and that all terms, covenants and conditions of the
Guaranty shall remain in full force and effect with respect to the Credit
Agreement as amended by the Amendment. The execution, delivery and acceptance
of this letter shall not act as a waiver of any right, power or remedy of the
Lenders or the Agent, nor constitute a waiver of any provision of the Guaranty,
or any other documents, instruments and agreements executed and/or delivered in
connection therewith.
BANPONCE CORPORATION
By:______________________________
Name:______________________________
Title:______________________________
By:______________________________
Name:______________________________
Title:______________________________
<PAGE> 42
2
Accepted this ____ day
of April, 1993
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
By:______________________________
Name:______________________________
Title:______________________________
<PAGE> 43
EXHIBIT 10.12.1
SECOND AMENDMENT TO CREDIT AGREEMENT
This Second Amendment to Credit Agreement (the "Amendment"), dated as
of the 1st day of June, 1993, is among BanPonce Corporation, a Puerto Rico
corporation ("BanPonce"), BanPonce Financial Corp., a Delaware corporation
("Financial"), Vehicle Equipment Leasing Company, Inc. ("VELCO"), a Puerto Rico
corporation, (BanPonce, Financial and VELCO are sometimes collectively referred
to herein as the "Companies" and individually as a "Company"), The First
National Bank of Chicago and Societe Generale (collectively referred as "the
Lenders") and the First National Bank of Chicago acting Agent for the Lenders
and is to a certain Credit Agreement dated May 19, 1992 as amended by First
Amendment to Credit Agreement dated as of April 2, 1993 (the "Credit
Agreement") among the Companies and the Lender, as amended by First Amendment
to credit Agreement executed as of the 2nd day of April, 1993. Capitalized
terms used herein and not otherwise defined shall have the meanings given to
such terms in the Credit Agreement.
WHEREAS, pursuant to the Credit Agreement, the Lender has agreed to
provide certain financing to the Companies upon the terms and conditions set
forth in the Credit Agreement;
WHEREAS, the Companies and the Lender have agreed to an amendment of
the terms and provisions of the Credit Agreement in the manner hereinafter set
forth.
NOW, THEREFORE, in consideration of the foregoing premises, the
following provisions and for other good and valuable consideration, the receipt
of which is hereby acknowledged, the parties hereby agree as follows:
1. Amendment to Credit Agreement.
1.1 Section 2.1 of the Credit Agreement is hereby amended to include
at the end of the tenth line of the definition of "Indebtedness" the following
language "excluding liabilities of Banco Popular de Puerto Rico which are
defined as deposits pursuant to Section 3(1) of the Federal Deposit Insurance
Act, as amended, 12 U.S.C. Section 1813 (1), and to include at the end of the
definition of "Long-Term Indebtedness" "for purposes of this definition current
liabilities shall mean such Indebtedness with a maturity date of one year or
less."
<PAGE> 44
2. Representations and Warranties.
2.1 The Companies hereby represent and warrant to the Lender that
each representation and warranty as set forth in the Credit Agreement is true
and correct as if made as of the date of this Amendment.
2.2 Each of the Companies hereby represent that this Amendment
constitutes a legal, valid and binding obligation of such Company enforceable
against such Company in accordance with its terms.
2.3 No event has occurred and is continuing which constitutes an
Event of Default or would constitute an Event of Default, but for the
requirement that notice be given or time elapse or both.
3. References to and Effect Upon the Credit Agreement. Upon the
effectiveness of this Amendment, each reference in the Credit Agreement to
"this Credit Agreement", "this Agreement", "hereunder", "hereof", "herein", or
words of like import referring to the Credit Agreement, and each reference in
the other Loan Documents to the "Credit Agreement", "thereunder", "thereof", or
words of like import referring to the Credit Agreement shall mean and be a
reference to the Credit Agreement as amended hereby. All of the terms,
covenants and conditions of the Credit Agreement shall remain in full force and
effect. As amended and modified by this Amendment, the Credit Agreement is
hereby ratified and confirmed in all respects. The execution, delivery and
effectiveness of this Amendment shall not operate as a waiver of any right,
power or remedy of the Lender, nor constitute a waiver of any provision of the
Credit Agreement, or any other documents, instruments and agreements executed
and/or delivered in connection therewith.
4. Counterparts. This Amendment may be executed by one or more of the
parties to this Amendment in any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument.
5. Paragraph Titles. The paragraph titles contained in this Amendment
are used for convenience only and shall be without substance, meaning or
content of any kind whatsoever and are not a part of this agreement between the
parties hereto.
IN WITNESS WHEREOF, this Amendment has been duly executed and
delivered by proper and duly authorized officers of the respective party as of
the date and year first above written.
<PAGE> 45
SOCIETE GENERALE
By: ___________________________________
Title:_________________________________
<PAGE> 1
EXHIBIT 10.12.2
FIRST AMENDMENT TO CREDIT AGREEMENT
This First Amendment to Credit Agreement (the "Amendment"), dated as
of the st day of June, 1993, is among BanPonce Corporation, a Puerto Rico
corporation ("BanPonce"), BanPonce Financial Corp., a Delaware corporation
("Financial"), Vehicle Equipment Leasing Company, Inc. ("VELCO"), a Puerto Rico
corporation, (BanPonce, Financial and VELCO are sometimes collectively referred
to herein as the "Companies" and individually as a "Company"), Chemical Bank
(the "Lender"), and is to a certain Credit Agreement dated April 1st, 1993 (the
"Credit Agreement") among the Companies and the Lender. Capitalized terms used
herein and not otherwise defined shall have the meanings given to such terms in
the Credit Agreement.
WHEREAS, pursuant to the Credit Agreement, the Lender has agreed to
provide certain financing to the Companies upon the terms and conditions set
forth in the Credit Agreement;
WHEREAS, the Companies and the Lender have agreed to an amendment of
the terms and provisions of the Credit Agreement in the manner hereinafter set
forth.
NOW, THEREFORE, in consideration of the foregoing premises, the
following provisions and for other good and valuable consideration, the receipt
of which is hereby acknowledged, the parties hereby agree as follows:
1. Amendment to Credit Agreement.
1.1 Section 2 of the Credit Agreement is hereby amended to include at
the end of the tenth line of the definition of "Indebtedness" the following
language "excluding liabilities of Banco Popular de Puerto Rico which are
defined as deposits pursuant to Section 3(1) of the Federal Deposit Insurance
Act, as amended, 12 U.S.C. Section 1813 (1), and to include at the end of the
definition of "Long-Term Indebtedness" "for purposes of this definition current
liabilities shall mean such Indebtedness with a maturity date of one year or
less."
2. Representations and Warranties.
2.1 The Companies hereby represent and warrant to the Lender that
each representation and warranty as set forth in the Credit Agreement is true
and correct as if made as of the date of this Amendment.
<PAGE> 2
2.2 Each of the Companies hereby represent that this Amendment
constitutes a legal, valid and binding obligation of such Company enforceable
against such Company in accordance with its terms.
2.3 No event has occurred and is continuing which constitutes an
Event of Default or would constitute an Event of Default, but for the
requirement that notice be given or time elapse or both.
3. References to and Effect Upon the Credit Agreement. Upon the
effectiveness of this Amendment, each reference in the Credit Agreement to
"this Credit Agreement", "this Agreement", "hereunder", "hereof", "herein", or
words of like import referring to the Credit Agreement, and each reference in
the other Loan Documents to the "Credit Agreement", "thereunder", "thereof", or
words of like import referring to the Credit Agreement shall mean and be a
reference to the Credit Agreement as amended hereby, and each reference in the
other Loan Documents to "the Note", "thereunder", "thereof" or words of like
import referring to the Note, shall mean and be a reference to the Note, as
amended by the Allonge referred to below. All of the terms, covenants and
conditions of the Credit Agreement shall remain in full force and effect. As
amended and modified by this Amendment, the Credit Agreement is hereby ratified
and confirmed in all respects. The execution, delivery and effectiveness of
this Amendment shall not operate as a waiver of any right, power or remedy of
the Lender, nor constitute a waiver of any provision of the Credit Agreement,
or any other documents, instruments and agreements executed and/or delivered in
connection therewith.
4. Counterparts. This Amendment may be executed by one or more of the
parties to this Amendment in any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument.
5. Paragraph Titles. The paragraph titles contained in this Amendment
are used for convenience only and shall be without substance, meaning or
content of any kind whatsoever and are not a part of this agreement between the
parties hereto.
IN WITNESS WHEREOF, this Amendment has been duly executed and
delivered by proper and duly authorized officers of the respective party as of
the date and year first above written.
BANPONCE CORPORATION
By: /s/ Jose L. Lopez Calderon
--------------------------
Title: Senior Vice President
<PAGE> 3
By: /s/ David H. Chafey, Jr.
----------------------------
Title: Executive Vice President
BANPONCE FINANCIAL CORPORATION
By: /s/ Jose L. Lopez Calderon
--------------------------
Title: Senior Vice President
VEHICLE EQUIPMENT LEASING COMPANY,
INC.
By: /s/ David H. Chafey, Jr.
----------------------------
Title: Executive Vice President
CHEMICAL BANK
By: /s/ Charles R. Le Febure
------------------------
Title: Vice President
Affidavit No. __________
Acknowledged and subscribed to before me by
___________________________________
Notary Public
<PAGE> 4
BANPONCE CORPORATION
By: ________________________________
Title:______________________________
By: ________________________________
Title:______________________________
BANPONCE FINANCIAL CORPORATION
By: _________________________________
Title:_______________________________
VEHICLE EQUIPMENT LEASING COMPANY,
INC.
By: __________________________________
Title:________________________________
THE FIRST NATIONAL BANK OF CHICAGO
By: __________________________________
Title:________________________________
<PAGE> 5
EXHIBIT 10.12.2
CREDIT AGREEMENT
This Credit Agreement, dated as of April 1, 1993 (the "Agreement"), is
among BanPonce Corporation, a Puerto Rico corporation ("BanPonce"), BanPonce
Financial Corp., a Delaware corporation ("Financial"), Vehicle Equipment
Leasing Company, Inc., a Puerto Rico corporation ("VELCO"), (BanPonce,
Financial and VELCO are sometimes collectively referred to herein as the
"Companies" and, singly, as a "Company"), and Chemical Bank, acting through its
New York head office (the "Lender").
1. COMMITMENT
Subject to the terms of this Agreement, the Lender agrees to make
loans (the "Loans") to each of the Companies from the date hereof to and
including March 31, 1994 (the "Termination Date"). Each Company may borrow,
repay and reborrow from time to time prior to the Termination Date, provided
that the principal amount of all Loans outstanding at any one time shall not
exceed U.S. $25,000,000 (the "Aggregate Commitment") for all of the Companies.
The Loans shall be evidenced by notes (each, a "Note") duly executed and
delivered by each Company to the Lender in the form attached hereto as Exhibit
"A." This Agreement, the Notes and the Guaranty (as defined below) are herein
called the "Loan Documents."
2. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the meanings ascribed to them below:
"BASE RATE" means the higher of (i) the rate designated by the
Lender from time to time as its prime rate in the United States, and (ii) .50%
(1/2%) plus the overnight federal funds rate as published by the Federal
Reserve Bank of New York. The Base Rate is a variable rate which will change
as and when such rates change.
<PAGE> 6
2
"BUSINESS DAY" means a day other than a Saturday or Sunday on
which commercial banks are open for the conduct of general banking business in
New York and San Juan, Puerto Rico.
"CONSOLIDATED TANGIBLE NEW WORTH" shall mean as at any date the
sum of the capital stock and paid-in surplus, plus preferred stock plus
retained earnings (or minus accumulated deficit) of BanPonce and its
Subsidiaries (as defined in Section 6.1 below) on a consolidated basis minus
intangible assets (including, without limitation, franchises, goodwill,
trademarks, unamortized debt discount and expenses and all write-ups in book
value of any asset).
"INDEBTEDNESS" means each Company's and each Subsidiary's: (i)
obligations for borrowed money; (ii) obligations representing the deferred
purchase price of property other than accounts payable arising in connection
with the purchase of inventory on terms customary in the trade; (iii)
obligations, whether or not assumed, secured by liens or encumbrances on, or
payable out of the proceeds or production from, property now or hereafter owned
or acquired by the Companies or any Subsidiary; (iv) obligations which are
evidenced by notes, acceptances, or other instruments; and (v) capitalized
lease obligations.
"LONG-TERM INDEBTEDNESS" as of any date shall mean all
Indebtedness which is not a current liability as of such date.
"MAXIMUM DOUBLE LEVERAGE" shall mean BanPonce's equity
investments in its Subsidiaries plus intangibles divided by the difference
between BanPonce's equity and goodwill.
"NON-PERFORMING ASSETS" shall consist of the sum of: (i) loans
which are ninety (90) days past due as to interest or principal; (ii) loans
which have been placed on non-accrual status by the primary regulator of the
relevant Company; (iii) loans that bear a rate of interest that has been
reduced below market rates due to the deteriorating financial condition of the
<PAGE> 7
3
borrower; and (iv) assets that either have been acquired in satisfaction of
debt or have been classified as "in-substance foreclosures".
"TOTAL CAPITALIZATION" shall mean the sum of BanPonce's total
Equity Capital plus Long-Term Indebtedness.
"TOTAL EQUITY CAPITAL" means BanPonce's total equity capital
determined in a manner consistent with that used in preparing BanPonce's
consolidated financial statements as of December 31, 1992 plus any other
securities or forms of capital that is included as Tier 1 Capital of BanPonce
on a consolidated basis.
3. INTEREST, PRINCIPAL AND FEES
3.1 Interest Rate. Loans with a scheduled maturity of 30 days or
less will bear interest at a rate equal to the Base Rate plus 1/2% (.50%) per
annum. Loans with a scheduled maturity of 31 days or more will bear interest
at a rate equal to the Base Rate plus 1% per annum.
3.2 Principal and Interest Payment Dates. Any Loan made hereunder
shall be made with maturities of up to ninety (90) days from the date when made
or less, as notified to the Lender in writing by the borrowing Company at the
time a Loan is made. Each Loan shall be payable in full on its scheduled
maturity date. Interest on a Loan shall accrue daily and shall be calculated
on the basis of a 360-day year and the actual number of days elapsed and shall
be payable monthly on the last day of each month and on the date of maturity of
such Loan.
3.3 Payments. All payments of principal of, and interest and fees
on, the Loans hereunder shall be made at the New York Office of the Lender,
free and clear of any set-offs, counterclaim, deduction or withholding for any
reason whatsoever, in immediately available funds. If any payment of principal
of or interest on a Loan shall become due on a day which is not a Business Day,
such payment shall be made on the next succeeding Business Day. Payments
received under the Loan Documents shall be applied against principal, interest
and
<PAGE> 8
4
other amounts then due from a Company in the order determined by the Lender..
A borrowing Company may, at any time when no Default shall exist hereunder,
upon not less than two (2) Business-Days' prior written notice to the Lender,
prepay all or any portion of a Loan in a minimum amount of U.S. $2 million;
provided, however, that any such prepayment must be accompanied by interest to
date on the Loan being prepaid.
3.4 Facility Fee. The Companies, jointly and severally, agree to pay
to the Lender a facility fee of 0.30% per annum on the daily unused portion of
the Aggregate Commitment from the date hereof to the Termination Date. The
facility fee shall be calculated on the basis of a year of 360 days and shall
be payable in arrears on the last Business Day of June, September, December and
March, and on the Termination Date.
3.5 Default Interest. From and after the occurrence of a default (as
defined in Section 8 below), each Loan shall bear interest at the rate equal to
the Base Rate plus 2% until such default shall be cured; provided, however,
that after judgment, the Loan shall bear interest at the higher of such rate or
the rate provided by applicable law. Interest on any Loan past due shall be
payable on demand.
4. CHANGE IN CIRCUMSTANCES
The Companies agree to pay to the Lender such amounts as will
compensate the Lender for any increase in the cost to the Lender of making or
maintaining any Loan hereunder or of maintaining its Commitment to make Loans
hereunder, by reason of a change in any reserve, tax, capital guidelines,
special deposits, or similar requirement with respect to assets of, deposits
with or for the account of, or credit extended by, or commitments extended by,
the Lender which are imposed on, or deemed applicable by, the Lender under any
law, treaty, rule, regulation (including, without limitation, Regulation D of
the Board of Governors of the Federal Reserve System), any interpretation
thereof by any governmental fiscal, monetary or other authority charged with
the administration thereof or having jurisdiction over such Loan or the
<PAGE> 9
5
Lender, or any requirement imposed by any such authority, whether or not having
the force of law. Such additional amounts shall be payable on demand.
5. CONDITIONS TO LENDING
5.1 The Initial Loan. The Lender's obligation to make the initial
Loan hereunder shall be conditioned upon the receipt by it of copies, in form
and substance satisfactory to the Lender and its counsel, of the following:
(a) an opinion of counsel for each of the Companies in the
form of Exhibit "B" hereto;
(b) resolutions authorizing the borrowings hereunder of
each of the Company's board of directors along with specimen signatures of each
Company's authorized signatories certified by each Company's Secretary;
(c) a Note made by each of the Companies in favor of Lender
in the amount of the Aggregate Commitment;
(d) a Guaranty and appropriate resolutions authorizing the
guaranty by BanPonce of the obligations of Financial and VELCO hereunder,
substantially in the form attached hereto as Exhibit "C" (the "Guaranty"), and
(e) such other documents as the Lender shall reasonably
request.
5.2 Each Loan. The Lender shall not be obligated to make hereunder
unless:
(a) there exists no Default or event which, with giving of
notice, or lapse of time, or both, would be a Default hereunder;
<PAGE> 10
6
(b) the representations and warranties set forth in Section
6 hereof are true and correct on the borrowing date; and
(c) all legal matters incident to making such Loan shall be
satisfactory to the Lender and its counsel.
(d) the Lender shall be satisfied that no material adverse
change has occurred since the execution of this Agreement in the financial
condition, results of operations or prospects of BanPonce or the Companies.
Each request for a Loan shall constitute a representation that the
conditions set forth in Sections 5.2 (a) and (b) have been satisfied.
6. REPRESENTATIONS
Each Company represents and warrants to the Lender that:
6.1 Corporate Existence and Standing. Such Company and each of its
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and has all
requisite authority to conduct its business in each jurisdiction in which its
business is conducted. As used in this Agreement, "Subsidiary" means (i) any
corporation more than 50% of the outstanding securities having ordinary voting
power of which shall at the time be owned or controlled, directly or
indirectly, by the Company or by one or more of its Subsidiaries; or (ii) any
partnership, association, joint venture or similar business organization more
than 50% of the ownership interests having ordinary voting power of which shall
at the time be so owned or controlled.
6.2 Authorization and Validity. Such Company has the corporate power
and authority and legal right to execute and deliver the Loan Documents to
which it is a party and to perform its obligations thereunder. The execution
and delivery by such Company of such Loan
<PAGE> 11
7
Documents and the performance of its obligations thereunder have been duly
authorized by proper corporate proceedings, and such Loan Documents constitute
legal, valid and binding obligations of such Company enforceable against such
Company in accordance with their terms.
6.3 No Conflict; Government Consent. Neither the execution and
delivery by such Company of the Loan Documents to which it is a party, nor the
consummation of the transactions therein contemplated, nor compliance with the
provisions thereof, will violate any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on such Company or any of its
Subsidiaries or such Company's or any Subsidiary's articles of incorporation or
by-laws or the provisions of any indenture, instrument or agreement to which
such Company or any of its Subsidiaries is a party or is subject, or by which
it, or its property, is bound, or conflict with or constitute a default
thereunder, or result in the creation or imposition of any lien or encumbrance
on the property of such Company or a Subsidiary pursuant to the terms of any
such indenture, instrument or agreement. No order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with, or
exemption by, any governmental or public body or authority, or any subdivision
thereof, is required to authorize, or is required in connection with the
execution, delivery and performance of, or the legality, validity, binding
effect or enforceability of, such Loan Documents.
6.4 Financial Statements. The December 31, 1992 consolidated
financial statements of such Company and its Subsidiaries heretofore delivered
to the Lender were prepared in accordance with generally accepted accounting
principles in effect on the date such statements were prepared and fairly
present the consolidated financial condition and operations of such Company and
its Subsidiaries at such date and the consolidated results of their operations
for the period then ended.
6.5 Material Adverse Change. Since December 31, 1992, there has been
no material adverse change in the business, properties, condition, prospects
(financial or otherwise) or results of operations of such Company and its
Subsidiaries.
<PAGE> 12
8
6.6 Litigation and Contingent Obligations. Except as set forth on
Schedule "1" hereto, there is no litigation, arbitration, governmental
investigation, proceeding or inquiry pending or, to the knowledge of any of
their officers, threatened against or affecting such Company or any Subsidiary
which might have a material adverse effect. Other than any liability incident
to such litigation, arbitration or proceedings,:such Company has no material
contingent obligations not provided for or disclosed in the financial
statements referred to in Section 6.4.
6.7 Compliance with Laws. Such Company and its Subsidiaries have
complied in all material respects with all applicable statutes, rules,
regulations, orders and restrictions of any domestic or foreign government or
any instrumentality or agency thereof having jurisdiction over the conduct of
their respective businesses or the ownership of their respective properties.
6.8 Compliance with Agreements. Such Company and its Subsidiaries
are in material compliance with all agreements, contracts and undertakings
which are binding upon them and their respective properties.
6.9 Taxes. Such Company and its Subsidiaries have duly prepared and
filed all tax returns applicable to them or their properties through December
31, 1992, and have paid on a timely basis all taxes, charges, levies and
assessments shown thereon, except for such items as they may be contesting in
good faith, adequate reserves having been set aside therefor.
6.10 Excise Duties. There are no excise or stamp taxes or duties
applied in Puerto Rico in connection with the execution, delivery or
enforcement of the Loan Documents.
7. COVENANTS
During the term of this Agreement, unless the Lender shall otherwise
consent in writing:
7.1 Financial Reporting. BanPonce will maintain, for itself and each
of its Subsidiaries, proper books and financial records including a system of
accounting established and administered
<PAGE> 13
9
in accordance with generally accepted accounting principles consistently
applied, and furnish to the Lender:
(a) Within ninety (90) days after the close of each of its
fiscal years, an unqualified audit report certified by independent certified
public accountants, acceptable to the Lender, prepared in accordance with
generally accepted accounting principles on a consolidated and consolidating
basis (consolidating statements need not be certified by such accountants) for
itself and the Subsidiaries (including Financial and VELCO), including balance
sheets as of the end of such period, related profit and loss and reconciliation
of surplus statements, and a statement of cash flows, accompanied by any
management letter prepared by such accountants; and
(b) Within forty-five (45) days after the close of the
first three (3) quarterly periods of each of its fiscal years, for itself and
each of its Subsidiaries, consolidated and consolidating unaudited balance
sheets as at the close of each such period and consolidated and consolidating
profit and loss and reconciliation of surplus statements for the period from
the beginning of such fiscal year to the end of such quarter, including a
comparison with the similar period of the previous fiscal year, all certified
by its chief financial officer as true and correct.
All financial statements provided by the Companies shall be
prepared in accordance with generally accepted accounting principles applied
consistently with the financial statements referred to in Section 6.4.
7.2 Each of the Companies will use the proceeds of the Loans solely
to pay on a short term basis amounts then coming due in respect of commercial
paper to be issued under certain private placements. Therefore, the Companies
shall use this facility only as a short-term facility for commercial paper
backup purposes.
7.3 Each of the Companies from time to time will provide the Lender
with such information and documents with respect to its financial condition and
business operations, and
<PAGE> 14
10
that of its Subsidiaries, as the Lender may reasonably request, and will notify
the Lender of the occurrence of any Default or any event which, with giving of
notice, or lapse of time, or both,' would be a Default.
7.4 Each Company will, and will cause its Subsidiaries to, conduct
their business in substantially the same fields and manner as it is presently
conducted, and in material compliance with all applicable laws of any nature
whatsoever.
7.5 Banponce shall maintain at all times a minimum Consolidated
Tangible Net Worth equal to or greater than 5% of total assets.
7.6 BanPonce shall maintain at all times a ratio of its Long-Term
Indebtedness to Total Capitalization equal to or less than 0.50 to 1.0.
7.7 Banponce shall not permit its aggregate Non-Performing Assets at
the end of any fixed quarter or year to be more than 4.5% of its total (gross)
loans, leases and other owned real estate at the end of such period, as such
items are reported in its financial statements for the relevant period(s).
7.8 BanPonce will maintain at all times its Maximum Double Leverage
at less than 115%.
7.9 All payments to the Lender hereunder shall be made free and clear
of any deduction, withholding, stamp, or other tax applicable in Puerto Rico,
all of which shall be for the account of the Company making such payment. In
the event that any such deduction, withholding or other tax shall be
applicable, the amount payable to the Lender shall be increased so that the
Lender shall receive the same amount as if such deduction, withholding or other
tax had not applied. In addition, to the extent that any deduction,
withholding or other tax shall apply in Puerto Rico, the Company making a
payment subject to such tax shall promptly obtain and remit to the Lender
original tax receipts evidencing the payment of such tax.
<PAGE> 15
11
8. DEFAULT
The occurrence of any one or more of the following events shall
constitute a Default:
8.1 Any Company shall fail to pay any principal, interest, tax, fee
or other amount payable hereunder when due;
8.2 Any Company shall breach the terms of any covenant or
provision hereof or any representation or warranty made in connection with this
Agreement shall prove to have been false or misleading when made;
8.3 Any Company fails to pay any Indebtedness when due or a default
shall occur under any agreement governing any Indebtedness of any Company which
would permit the holder of such Indebtedness to accelerate the maturity
thereof;
8.4 Any Company or Subsidiary shall: (i) have an order for relief
entered with respect to it under the federal Bankruptcy Code; (ii) not pay, or
admit in writing its inability to pay, its debts generally as they become due;
(iii) institute any proceeding seeking an order for relief under the federal
Bankruptcy Code or take any corporate action to authorize or effect any of the
foregoing actions set forth in this Section 8.4; (iv) fail to contest in good
faith any appointment or proceeding described in Section 8.5; or (v) become or
be declared insolvent, however evidenced.
8.5 A receiver, trustee, examiner, liquidator or similar official
shall be appointed for any Company or any Subsidiary, or any substantial part
of any Company's or Subsidiary's property, or a proceeding described in Section
8.4(iii) shall be instituted against a Company or any Subsidiary and such
appointment continues undischarged or such proceeding continues undismissed or
unstayed for a period of thirty (30) consecutive days.
9 ACCELERATION
<PAGE> 16
12
9.1 Acceleration. If any Default under Section 8.4 or 8.5 occurs,
the commitment of the Lender to make Loans hereunder shall automatically
terminate and the principal of and interest on the Loans and all fees, expenses
and other amounts payable under this Agreement (the "Obligations") shall
immediately become due and payable without any election or action on the part
of the Lender. If any other Default occurs, the Lender may, upon notice (as
prescribed in Section 13 hereof) to BanPonce at any time during the
continuation of such Default, terminate or suspend the commitment of the Lender
to make Loans hereunder, or declare the Obligations to be due and payable, or
both, whereupon the Obligations shall become immediately due and payable,
without presentment, demand, protest or notice of any other kind, all of which
each Company hereby expressly waives.
9.2 Amendments. Subject to the provisions of this Section 9.2, the
Lender and the Companies may enter into agreements supplemental hereto for the
purpose of adding or modifying any provisions to the Loan Documents or changing
in any manner the rights of the Lender or the Companies hereunder or waiving
any Default hereunder.
9.3 Preservation of Rights. No delay or omission of the Lender to
exercise any right under the Loan Documents shall impair such right or be
construed to be a waiver of any Default or an acquiescence therein, and the
making of a Loan notwithstanding the existence of a Default or the inability of
any Company to satisfy the conditions precedent to such Loan shall not
constitute any waiver or acquiescence.
10. GENERAL PROVISIONS
10.1 Governing Law. This Agreement and the Notes shall be governed by
the law (and not the law of conflicts) of the State of New York, United States.
For any action or proceeding relating to the Loan Documents, BanPonce and the
Companies submit to the non-exclusive jurisdiction of the federal and state
courts in New York, N.Y., waiving any claim that the same are an inconvenient
forum. Process in any such action or proceeding may be served, in addition to
any other manner permitted by applicable law, by mailing the summons and
complaint in the
<PAGE> 17
13
English language, by any form of registered or certified mail,
to the party to be served at the address of such party set forth below its
signature line on this Agreement, as such address may be changed by such party
by written notice delivered to the other parties to this Agreement. Process
served as provided above shall be effective 10 days after posting. The
foregoing provisions shall not affect the right of the Lender to commence an
action or proceeding in any other jurisdiction. In connection with any action
or proceeding relating to the Loan Documents, the Lender and the Companies
knowingly and voluntarily waive trial by jury.
10.2 Indemnification. The Companies, jointly and severally, shall
reimburse the Lender for all reasonable out-of-pocket expenses, including
without limitation, reasonable attorneys' fees and expenses in an amount not in
excess of U.S. $3,000, paid or incurred by the Lender in connection with the
preparation, review, execution and delivery of the Loan Documents. In addition
to the foregoing, whether or not the transactions contemplated hereby shall be
consummated, the Companies, jointly and severally, agree to indemnify and hold
the Lender, and its officers, directors, employees and agents harmless, to the
fullest extent permitted by applicable law, from and against, and to indemnify
the Lender for, any and all claims, liabilities, losses, damages costs and
expenses, including without limitation, reasonable attorneys' fees, arising out
of or related to any litigation or proceeding (whether or not the Lender is a
party thereto) in regard to the Loan Documents (including any such action to
collect or enforce the Loans) or the actual or proposed use of the proceeds of
Loans hereunder. The agreements contained in this Section shall survive the
termination of this Agreement and the payment of the Notes.
10.3 Accounting. Compliance with Sections of this Agreement
(including Sections 7.5, 7.6, 7.7 and 7.8 above) shall be determined on a
consolidated basis for each Company and its Subsidiaries, in accordance with
generally accepted accounting principles applied consistently with the
financial statements referred to in Section 6.4 above.
11 SET-OFF
<PAGE> 18
14
In addition to, and without limitation of, any rights of the Lender
under applicable law, if any Company becomes insolvent, however evidenced, or
any Default, or event which, with giving of notice, or lapse of time, or both,
would be a Default, occurs, any indebtedness from the Lender to any Company
(including any account balances, whether provisional or final, matured or
unmatured) may, at any time while such circumstances shall continue, be offset
and applied toward the payment of the Obligations owing to the Lender. The
Lender will give BanPonce notice of any such offset promptly after effecting
it.
12. BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
12.1 Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Companies and
the Lender and their respective successors and assigns, except that none of the
Companies shall have the right to assign rights or obligations under the Loan
Documents.
12.2 Participations; Permitted Participants; Effect. The Lender may,
in the ordinary course of its business and in accordance with applicable law,
at any time sell to one or more banks or other entities ("Participants")
participating interests in the Loans, the Aggregate Commitment or any other
interest of the Lender under the Loan Documents. In the event of any such
sale, the Lender's obligations under the Loan Documents shall remain unchanged,
the Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, the Lender shall remain the holder of the
Notes for all purposes under the Loan Documents, all amounts payable by the
Companies under this Agreement shall be determined as if the Lender had not
sold such participating interest, and the Companies shall continue to deal
solely and directly with the Lender in connection with the Lender's rights and
obligations under the Loan Documents. In connection with a proposed sale of a
participation, the Lender may disclose to any prospective purchaser any
information concerning the Loans, the Companies and the Subsidiaries.
13. NOTICES
<PAGE> 19
15
Any notice required or permitted to be given under this Agreement may
be, and shall be deemed, given when deposited in the United States mail,
postage prepaid, when sent by telecopier or by telex (with confirmed
answer-back) to each Company or the Lender at the addresses and telecopier
numbers indicated below their signatures to the Agreement. Notices relating to
borrowings pursuant to Section 2.2 may be made orally, confirmed by telecopier.
14. COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of
which, taken together, shall constitute one agreement, and any of the parties
hereto may execute this Agreement by signing any such counterpart. This
Agreement shall be effective when it has been executed by the Lender and the
Companies and.transmitted to each other by telecopier, with original executed
counterparts to be exchanged thereafter by mail.
BANPONCE CORPORATION
By:______________________________
Its:______________________________
By:______________________________
Its:______________________________
Address:______________________________
Telex No.:______________________________
Telecopier No.:______________________________
BANPONCE FINANCIAL CORPORATION
By:______________________________
Its:______________________________
By:______________________________
Its:______________________________
Address:______________________________
Telex No.:______________________________
Telecopier No.:______________________________
<PAGE> 20
16
CHEMICAL BANK
By:______________________________
Its:______________________________
By:______________________________
Its:______________________________
Address:______________________________
Telex No.:______________________________
Telecopier No.:______________________________
<PAGE> 21
EXHIBIT "A"
NOTE
U.S. $25,000,000 April 1, 1993
_____________________________, a ________________ corporation (the
"Company"), promises to pay to the order of Chemical Bank (the "Lender") the
principal sum of U.S. $25,000,000, or the aggregate unpaid principal amount of
all Loans made by the Bank to the Company pursuant to Section l of the Credit
Agreement dated as of April 1, 1993, among BanPonce Corporation, a Puerto Rico
corporation, Vehicle Equipment Leasing Company, Inc., a Puerto Rico
corporation, BanPonce Financial Corp., a Delaware corporation, and the Lender
(the "Agreement"), whichever is less, in immediately available funds at the New
York Office of the Lender, currently located at 270 Park Avenue, New York, New
York 10017, together with interest on the unpaid principal amount hereof, free
and clear of any set-off, counterclaim, deduction or withholding for any reason
whatsoever. Interest and principal shall be payable at the rates and on the
dates set forth in the Agreement.
The Lender shall, and is hereby authorized to, record on the schedule
attached hereto, or to otherwise record in accordance with its usual practice,
the date and amount of each Loan and the date and amount of each principal
payment.
This Note is issued pursuant to the provisions of the Agreement, to
which Agreement, as it may be amended from time to time, reference is hereby
made for the definitions of capitalized terms used herein which are not
otherwise defined and for a statement of the terms and conditions under which
this Note may be prepaid or its maturity date accelerated.
Presentment, demand, protest and notice, other than as provided in
Section 9.1 of the Agreement, are hereby waived.
This Note is governed by laws of the State of New York.
[NAME OF COMPANY]
By:______________________________
Title:______________________________
<PAGE> 22
SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL
TO
NOTE OF __________________________
DATED ________________, 1993
Principal Principal
Amount of Amount Unpaid
Date Loan Maturity Paid Balance
<PAGE> 23
EXHIBIT "B"
FORM OF COMPANY COUNSEL OPINION
April 1, 1993
Gentlemen:
We are counsel for each of BanPonce Corporation, a Puerto Rico
corporation ("BanPonce"); BanPonce Financial Corp., a Delaware corporation
("Financial"); and Vehicle Equipment Leasing Company, Inc., a Puerto Rico
corporation ("VELCO", each of BanPonce, Financial and VELCO, a "Company") and
have represented the Companies in connection with their execution and delivery
of a Credit Agreement (the "Agreement") between the Companies and Chemical Bank
(the "Lender") providing for Loans in an aggregate principal amount not
exceeding U.S. $25,000,000 at any one time outstanding and dated as of April 1,
1993. All capitalized terms used in this opinion shall have the meanings
attributed to them in the Agreement.
We have examined the Companies' articles of incorporation, by-laws,
resolutions, the Agreement and such other matters of fact and law which we
deemed necessary in order to render this opinion. Based upon the foregoing, it
is our opinion that:
1. Each Company is a corporation duly incorporated, validly existing
and in good standing under the laws of its respective jurisdiction of
incorporation and has all requisite authority to conduct its business in each
jurisdiction in which its business is conducted.
2. The execution and delivery of the Agreement and the Note by
BanPonce, Financial and VELCO; the execution and delivery of the Guaranty by
BanPonce; and the performance by each Company of its obligations under its Loan
Documents to which it is a party, have been duly authorized by all necessary
corporate action and proceedings on the part of such Company, and will not:
(a) require any consent of the Company's shareholders;
(b) violate any applicable law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on such Company, or any
indenture, instrument or agreement binding upon such Company; or
(c) result in, or require, the creation or imposition of
any lien or encumbrance pursuant to the provisions of any indenture, instrument
or agreement binding upon such Company.
<PAGE> 24
2
3. Each of the Agreement, the Note and the Guaranty has been duly
executed and delivered by the Companies which are parties thereto, and
constitutes the legal, valid and binding obligation of such Company enforceable
in accordance with its terms, except to the extent the enforcement thereof may
be limited by bankruptcy, insolvency or similar laws affecting the enforcement
of creditors' rights generally and subject also to the availability of
equitable remedies if equitable remedies are sought.
4. To the best of our knowledge after due inquiry, there is no
litigation or proceeding against any Company or any Subsidiary which, if
adversely determined, would materially adversely affect the business or
condition of such Company or Subsidiary.
5. No approval, authorization, consent, adjudication, registration
or order of any governmental authority which has not been obtained by the
Companies, is required to be obtained by the Companies in connection with the
execution and delivery of the Agreement, the Note and the Guaranty, the
borrowings under the Agreement, or the performance by the Companies of their
respective obligations under the Loan Documents.
[6. Discussion of applicable taxes in Puerto Rico.]
Very truly yours,
__________________________
<PAGE> 25
EXHIBIT "C"
GUARANTY
The undersigned, BanPonce Corporation, a Puerto Rico corporation,
hereby requests the Lender (as hereinafter defined) through any of its
branches, offices, subsidiaries or affiliates, to extend credit or to permit
credit to remain outstanding to BanPonce Financial Corp., a Delaware
corporation, and/or Vehicle Equipment Leasing Company, a Puerto Rico
corporation (each, a "Company" and, collectively, the "Companies"), as the
Companies may desire and as the Lender may extend or permit from time to time
in its sole discretion, whether to a Company alone, to the Companies
collectively, or to either Company or the Companies and others, and, in
consideration of any credit granted or continued, the undersigned hereby
absolutely, unconditionally and irrevocably guarantees (as primary obligor and
not as surety merely) prompt payment when due, whether at stated maturity, upon
acceleration or otherwise, and at all times thereafter, of any and all existing
and future indebtedness and liability of every kind, nature and character,
direct or indirect, absolute or contingent (including all renewals, extensions
and modifications thereof and all attorneys' fees incurred by the Lender in
connection with the collection or enforcement hereof or thereof), of the
Companies to the Lender, arising, evidenced or acquired pursuant to that
certain Credit Agreement, as defined below (the "Guaranteed Debt"); provided,
however, that the maximum aggregate principal amount extended under the Credit
Agreement for which the undersigned shall be liable hereunder, is
US$25,000,000; provided, furthermore, that the foregoing limitation shall not
apply to interest or other non-principal amounts which may become due under the
Credit Agreement.
The undersigned waives notice of the acceptance of this Guaranty and
of the extension or continuation of the Guaranteed Debt or any part thereof.
The undersigned further waives presentment, protest, notice, the benefit of any
statutes of limitations, demand or action or delinquency in respect of the
Guaranteed Debt or any part thereof, including any right to require the Lender
to sue the Company and any other guarantor or any person obligated with respect
to the Guaranteed Debt or any part thereof, or otherwise to enforce payment
thereof against any collateral securing the Guaranteed Debt or any part
thereof.
This Guaranty is a guaranty of payment and not of collection merely,
and shall be a continuing guaranty and as such, shall remain operative and in
full force and effect until all the Guaranteed Debt shall have been paid and
actually received in full by the Lender.
The validity and enforceability of this Guaranty shall not be impaired
or affected by any of the following: (a) any extension, modification or renewal
of, or indulgence with respect to, or substitutions for, the Guaranteed Debt or
any part thereof or any agreement relating thereto at any time; (b) any failure
or omission to enforce any right, power or remedy with respect to the
Guaranteed Debt or any part thereof or any agreement relating thereto, or any
collateral securing the Guaranteed Debt or any part thereof; (c) any waiver of
any right, power or remedy or of any default with respect to the Guaranteed
Debt or any part thereof or any agreement relating thereto or with respect to
any collateral securing the Guaranteed Debt or any part
<PAGE> 26
2
thereof; (d) any release, surrender, compromise, settlement, waiver,
subordination or modification, with or without consideration, of any collateral
securing the Guaranteed Debt or any part thereof, any other guaranties with
respect to the Guaranteed Debt or any part thereof, or any other obligation of
any person or entity with respect to the Guaranteed Debt or any part thereof;
(e) the enforceability or validity of the Guaranteed Debt or any part thereof
or the genuineness, enforceability or validity or any agreement relating
thereto or with respect to any collateral securing the Guaranteed Debt or any
part thereof; (f) the application of payments received from any source to the
payment of indebtedness other than the Guaranteed Debt, any part thereof or
amount which are not covered by this Guaranty even though the Lender might
lawfully have elected to apply such payments to any part or all of the
Guaranteed Debt or to amounts which are not covered by this Guaranty; (g) any
change of ownership of either Company or the insolvency, bankruptcy or any
other change in the legal status of either Company; (h) the change in or the
imposition of any law, decree, regulation or other governmental act which does
or might impair, delay or in any way affect the validity, enforceability or the
payment when due of the Guaranteed Debt; (i) the failure of either Company or
the undersigned to maintain in full force, validity or effect or to obtain or
renew when required all governmental and other approvals, licenses or consents
required in connection with the Guaranteed Debt or this Guaranty, or to take
any other action required in connection with the performance of all obligations
pursuant to the Guaranteed Debt or this Guaranty; or (j) the existence of any
claim, set off or other rights which the undersigned may have at any time
against either Company in connection herewith or an unrelated transaction, all
whether or not the undersigned shall have had notice of knowledge of any act or
omission referred to in the foregoing clauses (a) through (j) of this
paragraph. It is agreed that the undersigned's liability hereunder is several
and independent of any other guaranties or other obligations at any time in
effect with respect to the Guaranteed Debt or any part thereof and that the
undersigned's liability hereunder may be enforced regardless of the existence,
validity, enforcement or non-enforcement of any such other guaranties or other
obligations or any provisions of any applicable law or regulation purporting to
prohibit payment by either Company of the Guaranteed Debt in the manner agreed
upon between the Lender and the Companies.
Credit may be granted or continued from time to time by the Lender to
a Company without notice to or authorization from the undersigned regardless of
such Company's financial or other condition at the time of any such grant or
continuation. The Lender shall have no obligation to disclose or discuss with
the undersigned its assessment of the financial condition of the Companies.
Until the Guaranteed Debt is paid in full, the undersigned shall not
exercise any right of subrogation with respect to payments made by the
undersigned pursuant to this Guaranty. The undersigned hereby waives any
claim, as that term is defined in the federal Bankruptcy Code, that the
undersigned might now have or hereafter acquire against either Company that
arises from the existence or performance of the undersigned's obligations under
this Guaranty. In addition, the undersigned waives any benefit of the
collateral, if any, which may, from time to time, secure the Guaranteed Debt or
any part thereof and authorizes the Lender to take any action or exercise any
remedy with respect thereto, which the Lender, in its sole discretion, shall
<PAGE> 27
3
determine, without notice to the undersigned. In the event the Lender, in its
sole discretion, elects to give notice of any action with respect to the
collateral, if any, securing the Guaranteed Debt or any part thereof, ten (10)
days' written notice mailed to the undersigned by ordinary mail at the address
shown hereon shall be deemed reasonable notice of any matters contained in such
notice.
In the event that acceleration of the time for payment of any of the
Guaranteed Debt is stayed, upon the insolvency, bankruptcy or reorganization of
either Company, or otherwise, all such amounts shall nonetheless be payable by
the undersigned forthwith upon demand by the Lender. In the event that any
payment made under this Guaranty or the other Loan Documents shall subsequently
be recovered by any trustee in bankruptcy, receiver or debtor in possession of
a Company or of the undersigned, whether pursuant to litigation or by voluntary
payment by the Lender, the amount so recovered shall become immediately due and
payable under this Guaranty which, to the extent it may otherwise have
terminated, shall be reinstated.
No provision of this Guaranty may be amended, supplemented or
modified, or any of the terms and provisions hereof waived, except by a written
instrument executed by the Lender and the undersigned. No failure on the part
of the Lender to exercise, and no delay in exercising, any right hereunder,
shall operate as a waiver thereof; nor shall any single or partial exercise or
any right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law.
The undersigned shall pay all reasonable costs, fees and expenses
(including reasonable attorneys' fees and expenses) incurred by the Lender in
collecting or enforcing the undersigned's obligations under this Guaranty.
The provisions of this Guaranty are several, and in any action or
proceeding involving any state corporate law, or any state or federal
bankruptcy; insolvency reorganization or other law affecting the rights of
creditors generally, if the obligations of the undersigned hereunder would
otherwise be held or determined to be avoidable, invalid or unenforceable on
account of the amount of the undersigned's liability under this Guaranty, then,
notwithstanding any other provision of this Guaranty to the contrary, the
amount of such liability shall, without any further action by the undersigned
or the Lender be automatically limited and reduced to the highest amount which
is valid and enforceable as determined in such action or proceeding.
This Guaranty is a continuing guaranty and shall remain in full force
and effect until the payment in full (on or after the Termination Date) of the
Guaranteed Debt and all other amounts payable under this Guaranty. This
Guaranty shall bind the undersigned and the successors and assigns of the
undersigned. This Guaranty shall be binding upon the undersigned and shall
inure to the benefit of and be enforceable by the Lender, its successors and
assigns. All references herein shall be deemed to include its successors and
assigns. Such successors and assigns shall include, without limitation, a
receiver, trustee or debtor in possession of or for the Company or the
undersigned, as the case may be. Without limiting the generality of the third
sentence of this
<PAGE> 28
4
paragraph, the Lender may assign or otherwise transfer any portion of
the Guaranteed Debt to any other person or entity, and such other person or
entity shall thereupon become vested with all the rights in respect thereof
granted to the Lender herein or otherwise. This Guaranty shall be governed by
the laws of the State of New York The provisions of the Credit Agreement
pertaining to jurisdiction, service of process and payments pursuant to Section
7.9 thereof shall apply, mutatis mutandis, to this Guaranty.
This Guaranty is delivered pursuant to the terms of that certain
Credit Agreement dated as of April 1, 1993, (the "Credit Agreement") by and
among BanPonce Corporation, a Rico corporation, BanPonce Financial Corp., a
Delaware corporation, and Vehicle Equipment Leasing Company, Inc., a Puerto
Rico corporation, and the Lender. Capitalized terms used herein and not
otherwise defined shall have the meanings given to such terms in the Credit
Agreement.
BANPONCE CORPORATION
By:______________________________
Title:______________________________
By:______________________________
Title:______________________________
April 1, 1993
<PAGE> 29
SCHEDULE "1"
LITIGATION
[To Be Attached]
<PAGE> 1
EXHIBIT 12.0
BANPONCE CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C>
Income before income taxes $132,140 $100,145 $72,164 $72,606 $67,695 $55,717
Fixed charges :
Interest expense 280,008 300,135 387,134 281,561 307,273 264,847
Estimated interest component
of net rental payments 4,827 4,691 4,674 3,007 2,483 2,493
Total fixed charges including
interest on deposits 284,835 304,826 391,808 284,568 309,756 267,340
Less: Interest on deposits 219,447 253,375 323,717 257,099 261,474 220,247
Total fixed charges excluding
interest on deposits 65,388 51,451 68,091 27,469 48,282 47,093
Income before income taxes and
fixed charges (including interest
on deposits) $416,975 $404,971 $463,972 $357,174 $377,451 $323,057
Income before income taxes and
fixed charges (excluding interest
on deposits) $197,528 $151,596 $140,255 $100,075 $115,977 $102,810
Ratio of earnings to fixed charges
Including Interest on Deposits 1.5 1.3 1.2 1.3 1.2 1.2
Excluding Interest on Deposits 3.0 2.9 2.1 3.6 2.4 2.2
</TABLE>
120
<PAGE> 1
EXHIBIT 13.1
BANPONCE
CORPORATION
1993 ANNUAL REPORT
- - - - - --------------------------------------------------------------------------------
BUSINESS REVIEW
<PAGE> 2
CONSOLIDATED FINANCIAL HIGHLIGHTS
_______________________________________________________________________________
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) 1993 1992 % Change
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEAR:
Net interest income $ 492,128 $ 440,219 11.79
Provision for loan losses 72,892 97,633 (25.34)
Fees and other income 125,180 124,504 0.54
Operating expenses 440,427 381,204 15.54
Dividends on preferred stock of subsidiary
Bank 770 770 0.00
Cumulative effect of accounting changes 6,185
Net income 109,404 85,116 28.54
Dividends declared on common stock 29,434 24,624 19.53
-----------------------------------------------------------------------------------------------------------------
PER SHARE DATA:*
Net income before cumulative effect of
accounting changes $ 3.16 $ 2.79 12.96
Net income 3.35 2.79 19.73
Dividends declared 0.90 0.80 12.50
Book value per share at year-end 25.49 23.03 10.65
Price of common stock at year-end 31.50 30.25 4.13
-----------------------------------------------------------------------------------------------------------------
AT YEAR-END:
Total assets $11,513,368 $10,002,327 15.11
Earning assets 10,657,994 9,236,024 15.40
Net loans 6,346,922 5,252,053 20.85
Deposits 8,522,658 8,038,711 6.02
Total stockholders' equity 834,195 752,119 10.91
-----------------------------------------------------------------------------------------------------------------
SELECTED RATIOS:
Return on assets 1.02% 0.89% 14.61
Return on equity 13.80 12.72 8.49
Tier I capital to risk-adjusted assets 12.29 12.88 (4.58)
Total capital to risk-adjusted assets 13.95 14.85 (6.06)
-----------------------------------------------------------------------------------------------------------------
SELECTED DATA:
Common shares outstanding 32,732,423 32,654,864 0.24
Staff in full-time equivalents 7,439 6,965 6.81
Branches (banking operations) 205 195 5.13
Automated teller machines 253 226 11.95
Stockholders 5,306 5,399 (1.72)
</TABLE>
* Per share data is based on the average number of shares outstanding during
the periods.
<PAGE> 3
CONTENTS PROFILE
________________________________________ ________________________________
<TABLE>
<CAPTION>
<S> <C> <C>
Letters to Shareholders 4 - BANPONCE CORPORATION is a diversified, publicly owned bank holding com-
pany (NASDAQ symbol: BPOP), incorporated under the General Corporation
Tradition into the Future: Law of Puerto Rico. It provides a wide variety of financial services
A Historical Perspective 10 through its principal subsidiaries: Banco Popular de Puerto Rico, VELCO
and Popular International Bank, Inc.
Prudent and Sound Business
Practices 24 - BANCO POPULAR DE PUERTO RICO is the Corporation's full-service commercial
banking subsidiary, and Puerto Rico's largest banking institution, with
Leadership and Committed $10.8 billion in assets, $8.5 billion in deposits, and a delivery system of
Employees 28 165 branches throughout Puerto Rico. The Bank operates 30 branches in
New York City, one in Chicago, one in Los Angeles and eight in the
Social Responsibility 30 British and U.S. Virgin Islands. In addition, Banco Popular has two subsid-
iaries, POPULAR LEASING & RENTAL, INC., and POPULAR CONSUMER SERVICES,
Innovation and Technology 36 INC., a small-loan company with 26 offices operating under the name of
Best Finance.
Board of Directors 43
Management 45
Banco Popular Branch Network 46 - VELCO (Vehicle Equipment Leasing Company, Inc.) is engaged in finance leasing
and daily rental of motor vehicles.
- POPULAR INTERNATIONAL BANK, INC. incorporated under the Puerto Rico
International Banking Center Act, has BanPonce Financial Corp., incorpo-
rated in Delaware, as its subsidiary. Spring Financial Services, Inc., of
Mt. Laurel, N.J., a wholly owned subsidiary of BanPonce Financial Corp., is
engaged in the business of making personal and mortgage loans in 58
offices throughout 14 states.
</TABLE>
2
<PAGE> 4
OUR CREED
________________________________________________________________________________
Banco Popular is a wholly local institution devoting its efforts to the
enhancement of the social and economic welfare of Puerto Rico and inspired on
the soundest fundamental principles of good banking practice.
Banco Popular pledges its efforts and resources to the development of
a banking service that, in meeting all requirements of the most progressive
communities of the world, is fully equipped to handle efficiently such
financial problems as may arise in the continued expansion of our island.
These words, writen by don Rafael Carrion Pacheco, embody the philosophy of our
Bank.
Our people
All the men and women who are part of our institution, from upper management to
clerical personnel, take special pride in serving our customers and community
in a very dedicated way. We all feel the same personal satisfaction of
belonging to the "Banco Popular Family," which fosters affection and
understanding, and which also holds us to the highest standards of behavior and
moral ethics.
These words by don Rafael Carrion Jr., commemoriating the Bank's 95th
anniversary, reflect our beliefs in our personnel.
3
<PAGE> 5
Photo (4)
Richard L. Carrion
Chairman, President and
Chief Executive Officer
<PAGE> 6
TO OUR SHAREHOLDERS
________________________________________________________________________________
This past year has been an extraordinary one. We commemorated our first
century of service with solid growth and sound financial performance.
Our financial results in 1993 were impressive with record earnings of
$109.4 million, an increase of 28.5% over 1992 results, and significant
improvements in most financial measures such as return on assets, return on
equity and asset quality. Total assets grew over 15% as we continue to
diversify our lines of business and geographic sources of revenue. Today we
continue to have an enviable banking franchise in Puerto Rico and, above all,
we have an outstanding group of officers and employees who are fully committed
to our goals.
On October 5, 1993, Banco Popular de Puerto Rico, the principal
subsidiary of BanPonce Corporation, turned 100 years old. A yearlong
centennial celebration, highlighting the theme "Tradition into the Future", was
shared with our customers, employees, directors, shareholders and the
communities we serve. A world-class fireworks display was featured in three
different locations throughout the island as a gift to the people of Puerto
Rico. A memorable television special, featuring our most precious traditional
melodies interpreted by some of our most prominent artists and musicians, was
broadcast simultaneously in Puerto Rico, New York and Chicago. Our Christmas
Party, a wonderful day of festivities, was attended by more than 15,000 Banco
Popular family members. The highlight of our celebration was the presentation
of a special book on the history of the Bank entitled Tradition into the
Future. The book was researched and written over a period of nearly four years
by Guillermo A. Baralt, PhD. It vividly narrates the Bank's first century, as
well as the economic, political and social history of Puerto Rico. On the
morning of October 5, 1993, we inaugurated our in-house interactive television
system that allows us to broadcast to all the Bank's branches and centralized
departments. Following the first transmission each Banco Popular employee
received a copy of the book. A condensed version of the Bank's history is
included in this report.
It is sometimes dangerous to dwell on the past, and one must be leery
of diverting an excessive amount of resources toward celebrations of past
achievements. However, we felt it was important to show our gratitude to the
customers who have supported us throughout the years and to enhance the pride
and loyalty of our employees. Additionally, as we focus on our next century,
it is inspiring to see how far we have come. At the end of the 19th century,
we were a tiny bank in a poor and rural island under the Spanish flag. At the
end of 1993, BanPonce Corporation was by far the largest financial institution
in Puerto Rico and ranked among the 55 largest bank holding companies in the
United States, with consolidated assets of $11.5 billion, deposits of $8.5
billion, and equity of $834 million. Today, in addition to Banco Popular de
Puerto Rico, the leading commercial and retail bank in Puerto Rico, our
organization includes VELCO, the largest leasing company in Puerto Rico;/Spring
Financial Services, our growing consumer finance subsidiary in the U.S.,
operating through 58 offices in 14 states; the largest retail banking
organization in the Caribbean with seven branches in the U.S. Virgin Islands
and one in the British Virgin Islands; and the largest Hispanic bank branch
network in the mainland United States with 30 branches in New York, one in
Chicago and another in Los Angeles.
In 1993 we continued to build on our existing solid foundation for our
next 100 years in an environment for banking that has grown more challenging
with every passing year. Rapidly declining interest rates, slow economic
growth, government budget reductions and excessive regulations are some of the
challenges we face while doing business in an ex-
5
<PAGE> 7
________________________________________________________________________________
tremely competitive and consolidating industry. We at BanPonce have chosen to
respond to these and other challenges by staying close to and growing
businesses that we know and that complement each other.
As we mentioned in last year's letter, our strategic plan focused on
three main objectives: vigorously managing a transition from a paperbased to an
electronic payment system, enhancing our customer service and expanding our New
York presence. We took a number of steps to enhance the attractiveness of
electronic payment services to our customers. Early in the year, Banco Popular
launched a telephone bill payment service known under the marketing name of
TelePago, providing our customers a convenient alternative to making payments
by mail and reducing traffic in the branches. Direct debit of loan payments
was also promoted, significantly increasing the number of new retail loans
using this system. Direct deposit of payrolls was also emphasized throughout
the year.
A key effort during the year was the enhancement of the ATM network
and a growing network of point-of-sale terminals that can accept our ATM card
("ATH") at various locations. While enhancing the value of the card, we
introduced an annual fee for the first time. This initiative encountered some
customer and regulatory resistance and our transaction volume was initially
impacted. However, by year-end we began to see a return to increased usage.
Also, a centralized telephone banking unit known as TeleBanco was established,
integrating customer service and telemarketing functions.
Technology has enhanced existing products, improving a cash management
system known as Popular Access Line (PAL), which allows cash monitoring for
commercial customers. We also pioneered in the use of imaging technology in
our market with the introduction of CheckRegister, which features images of
canceled checks in the monthly statement and eliminates the need to physically
return these items.
Toward the end of the year, we successfully launched our new Cuenta
Popular. This account has access to all our electronic services, as well as
checks. It is clearly the most value-laden product in the marketplace and
consumers have responded accordingly.
Perhaps the most significant event in the area of customer service was
the full implementation of the concept of Total Quality Management (TQM). At
year-end, approximately 43% of our employees had taken our introductory course
to quality management, which is based on the Deming method. In addition,
several Process Improvement Teams have been formed and are already producing
encouraging results in various areas. We plan to continue to stress improving
the quality of our service at all levels of the organization.
Pursuant to our stated plans of increasing our presence in New York,
we took a number of important steps. With respect to our banking business, we
acquired four branches and approximately $130 million in deposits from Bank
Leumi Trust Company and acquired one branch from Emigrant Savings Bank. We
closed the year with 30 branches and deposits of $1.3 billion. More
importantly, we were able to increase substantially the generation of quality
loans, mostly in the area of residential mortgages. And for the third year in
a row, Banco Popular was the largest lender of SBA-guaranteed loans among all
commercial banks in the United States.
In 1993, we also signed a purchase agreement for the acquisition of
Pioneer Bank, a successful community bank with two branches and approximately
$340 million in assets and over $300 million in deposits in the Chicago area.
As of this writing, the transaction has received regulatory approval and we
expect to complete the acquisition by the end of the first quarter of 1994. In
addition, we ac-
6
<PAGE> 8
________________________________________________________________________________
quired five branches in the British and U.S. Virgin Islands with approximately
$229 million in deposits and $125 million in loans from CoreStates Bank.
Spring Financial, our growing and successful U.S. consumer finance subsidiary
continued its expansion and closed the year with $391 million in assets
throughout 58 offices in 14 states, compared with $189 million in assets and 41
offices in 10 states at the end of 1992. Overall, our planned growth in the
U.S. and the Caribbean continued to provide us with superior asset growth and
important geographic diversification.
The Corporation's financial performance improved substantially in
1993. Net income amounted to $109.4 million, representing $3.35 per share, a
28.5% increase over the $85.1 million earned in 1992. Return on average assets
and return on average equity also improved considerably, reaching 1.02% and
13.80%, respectively. The most significant factors in 1993 that affected us
were the expansion of the operations in the mainland, increased profits of our
non-banking subsidiaries, an increase in net interest income, a reduction in
the provision for loan losses and an increase in operating expenses.
The Corporation's net interest income increased $51.9 million, mostly
due to the growth of $1.1 billion in average earning assets. Net interest
margin declined modestly from 5.01% to 4.97% in 1993. Another contributing
factor in the increase in earnings was the reduction of $24.7 million in the
required provision for loan losses, from $97.6 million in 1992 to $72.9 million
in 1993. This decrease in the provision is the result of a considerable
reduction to net charge offs for the year, particularly in the retail loan
portfolio. This is a reflection of improved credit underwriting and the
benefits of a slowly recovering economy. It is important to note that even
with the lower provision, we were able to increase the allowance for loan
losses from $110.7 million in 1992 to $133.4 million in 1993. The allowance
now stands at 2.10% of loans, compared with 2.11% a year ago.
Non-performing assets, which include commercial loans 60 days past due
and consumer installment loans, conventional mortgages and lease financing
receivables 90 days past due, decreased significantly from 2.52% of loans as of
December 31, 1992, to 1.75% at year-end 1993. The allowance coverage of these
assets increased from 83.68% in 1992 to 120.04% in 1993.
The Corporation's operating expenses for the year increased $45.3
million, including an increase of $27.7 million in personnel costs. The rise
in personnel costs is related to a $5.2 million expense associated with
postretirement health benefits for employees (SFAS #106) and the payment of a
special bonus on Banco Popular's centennial. The increase is also related to
the costs associated with recent branch acquisitions in the U.S. and the
Caribbean.
In August 1993, your Board of Directors approved an increase of 25% in
the quarterly dividend of our common stock. The new quarterly dividend will be
25 cents per share. At year-end, the Corporation had more than $834 million in
capital and a market value in excess of $1 billion. The Corporation remains
very strongly capitalized, with Tier I capital of 12.29%, total capital to
risk-adjusted assets of 13.95%, and a leverage ratio of 6.95%, all well in
excess of regulatory requirements for well-capitalized institutions. This
strong capital base allows us to pursue new opportunities and continue with our
expansion plans. Our common stock price increased slightly during the year
from $30.25 to $31.50. For the 10-year period from 1983, the compounded annual
growth rate on our common stock price was 16.86% and the total return for the
period, including dividends, was 21.78%. Our stock price has performed well
during this period, surpassing the return of market
7
<PAGE> 9
___________________________________________________(Photo 8:
Group that includes Mr. Carrion)
indicators and the performance of our competitors.
The economic climate that prevailed during 1993 was one of slow
recovery. The low interest rate environment has permitted consumers and
commercial borrowers to refinance, recapitalize and improve their financial
condition. During the early part of 1993, Section 936 of the U.S. Internal
Revenue Service Code came under attack. In August, Congress approved
amendments to the Section that reduced the tax benefits derived by Section 936
companies in Puerto Rico. Even with a reduced tax benefit, we believe these
companies will remain an important part of our economy, given the many other
benefits offered, such as good infrastructure, geographic proximity to the U.S.
mainland, no currency or political risk, and, most importantly, a skilled work
force. In November, a non-binding referendum was held in Puerto Rico for
voters to indicate their preferred political status -- commonwealth, statehood
or independence. Commonwealth, the current status, received 48.6% of the vote,
statehood 46.3% and independence 4.4%. A similar referendum was held in 1967.
At that time, commonwealth received 60.4%, statehood 39.0% and independence
0.6%.
Mr. Angel A. del Valle, who reached the mandatory retirement age,
retired from the Boards of Directors of the Corporation and Banco Popular de
Puerto Rico. After more than 22 years of dedication to the Bank, his thoughts
and insight will be missed. For personal reasons, Mr. Danilo Ondina also
retired from the Board of Directors of the Bank. For more than 25 years, he
served as an executive of Banco de Ponce and BanPonce, where he completed his
outstanding professional career. Mr. Noel Totti also reached the retirement
age of the Corporation and will continue to serve on the Board of Banco Popular
until April 1994 when he will retire. His active participation contributed to
our success. To all of them we extend our appreciation and thanks for their
contribution in attaining our goals and wish them many happy years of
retirement.
Mr. Alberto M. Paracchini stepped down from his position as
8
<PAGE> 10
(Photo 9: __________________________________________
Group that includes Mrs. Burckhart) Banco Popular's Senior Management:
from the left, David H. Chafey Jr.,
Larry Kesler, Richard L. Carrion,
Humberto Martin, Samuel T. Cespedes
(legal counsel) Jorge A. Junquera,
Maria Isabel P. de Burckhart and
Emilio E. Pinero Ferrer.
Chairman in 1993, but remains on the Boards of the Corporation and the Bank.
We will continue to benefit from his banking and financial experience in our
quest to improve performance and build the strongest of institutions in a most
competitive environment. We express our gratitude for his many years of
dedication and leadership.
As we look toward the future, our strategy remains essentially the
same as we stated in last year's letter: to continue to enhance the quality of
our customer service, to build and expand our banking and non-banking
franchises outside Puerto Rico and to move aggressively from paper-based
banking transactions to an electronic banking environment. We are convinced
that the successful financial organizations will be those that control the
quality of their assets, give value to their customers, control their cost base
and continuously improve the skills of their human resources.
In this centennial year, we evoke the memory of all those who came
before us, in particular Rafael Carrion Pacheco and Rafael Carrion Jr.
Their philosophy and principles, embodied in "Our Creed" and "Our People", have
made us strong and will carry us into the future. The would be justly proud of
what has been built on their foundation. It has been a privilege to follow in
their footsteps.
RICHARD L. CARRION
Chairman, President and
Chief Executive Officer
9
<PAGE> 11
PARTIAL INFORMATION OF 1893
INCORPORATION'S DOCUMENT
<PAGE> 12
This has been the story of a small bank that grew into a big bank, a San Juan
bank that reached out into the farthest corners of the island, and an
islandwide bank that reached out across the water into the mainland. This is
the story of a Puerto Rican bank that has attained its hundredth
anniversary -- an achievement that is not the result of chance but rather the
product of historical circumstances consciously transformed by the vision and
sustained effort of the bank's leaders, through the years, into the successful
enterprise that can be seen today.
<PAGE> 13
PAPER MONEY OVER A
BLOW UP OF A $ BILL
TRADITION INTO THE FUTURE
-----------------------------------------------------
<PAGE> 14
________________________________________________________________________________
(Photo 13a)
Banco Popular de Economias y Prestamos was founded on October 5, 1893, with a
limited capital of 5,000 silver pesos.
(Photo 13b)
Original logo used in 1893.
(Photo 13c)
1902 Annual Report.
A HISTORICAL PERSPECTIVE
Over the years, as Banco Popular's founding principles of prudence, sound
business practices and social responsibility guided its growth and saw the
institution parallel the development of a modern Puerto Rico, its presidents
believed the Bank's corporate history was a story worth telling. The
celebration of the Bank's 100th anniversary in 1993 provided the ideal
opportunity to make that desire a reality.
The result was Tradition into the Future, a book researched and
written by Guillermo A. Baralt. It is an inspiring success story of how the
solid principles set forth by the Bank's founders have prevailed through the
years, supported by a team of people dedicated to those ideals. These
principles have guided the institution from its modest beginnings to the
prominence it enjoys today.
It is these same sound and timeless principles, no less
enthusiastically endorsed by the institution's current leaders, that will guide
Banco Popular successfully through its next century.
A PEOPLE'S BANK
The story begins on the evening of Thursday, October 5, 1893, as a group of
friends -- some Puerto Rican, others Spaniards -- made their way through the
cobblestoned streets of the old walled city of San Juan. Their destination was
the Ateneo Puertorriqueno, on the Plaza Alfonso XII, today the Plaza de Armas.
Their mission was to establish a savings and loan institution catering to the
island's poor, so often the victims of usury. Within hours, the Sociedad
Anonima de Economias y Prestamos: Banco Popular was born, with a capital of
5,000 silver pesos.
This group of pioneers with a vision was headed by Manuel Fernandez
Juncos, the founder, publisher and editor of the popular weekly newspaper El
Buscapie. In his insightful, witty articles, Fernandez Juncos had long argued
the need for a bank that would welcome the modest savings of the island's poor.
He vehemently attacked usury, while trying to assuage a general pessimism in
the wake of the failure of other banking efforts.
13
<PAGE> 15
________________________________________________________________________________
(Photo 14a)
In 1924, Banco Popular pioneered educational loans in Puerto Rico.
Coin bank for home deposits used to foster savings among customers (1912).
(Photo 14b)
In 1934, Banco Popular opened its first branch in Rio Piedras. Today the Bank
has 205 branches in Puerto Rico, the Virgin Islands and the United States.
The first personal installment loans were offered in 1928.
The group also included such notable figures as Manuel F. Rossy; Jose
Celso Barbosa; Manuel Munoz Barrios, the Bank's first managing director; and
Jose B. Carrion.
They had created the first truly Puerto Rican bank after almost a
century of attempts to establish banks on the island had failed. At the time
the only bank was Banco Espanol de Puerto Rico.
FROM WAR TO PEACE
The fledgling Puerto Rican bank was not destined to enjoy smooth sailing,
however. Less than five years after that eventful October evening, the
Spanish-American War broke out in April of 1898.
Banco Popular's timid investors withdrew their funds with every new
turn of events in the war, causing the bank to show no earnings for 1898.
When the war ended and Spain ceded Puerto Rico to the United States,
the island was plunged into a financial and monetary crisis. Business
transactions that had been in progress before the war were stalled, and the
directors of Banco Popular were obliged to steer a prudent and extremely
conservative course.
A new crisis struck in 1899, as Hurricane San Ciriaco swept across the
island, leaving devastation in its wake. Banco Popular was not spared the
storm's effects, since the Bank's holdings depended upon the welfare of the
middle class.
But even greater obstacles lay in store for the innovative young
Puerto Rican bank. A new law, the Foraker Act, provided that as May 1900, the
Puerto Rican provincial silver peso would be exchanged for dollars at a 40%
devaluation. The 30,000 provincial pesos that constituted Banco Popular's
capital funds were suddenly worth only $18,000.
The change in sovereignty brought with it the establishment of U.S.
and Canadian banks, as well as some institutions with local capital.
AN EXTENSIVE BRANCH NETWORK
The island's tribulations continued in the early part of the 20th century, as
yet another hurricane struck in 1928. But calm did not follow the winds of San
Felipe. What followed was the
14
<PAGE> 16
________________________________________________________________________________
(Photo 15a)
The island's first FHA mortgage loan was granted in 1938.
(Photo 15b)
The first island bank merger took place in 1936 with Banco Popular and Banco de
Puerto Rico.
Banco Popular's Old San Juan building was inaugurated in 1939, the Caribbean's
first skyscraper.
Great Depression, and the collapse of thousands of banks around the world. In
Puerto Rico, seven banks established with local capital closed their doors
forever.
There was a moment during those dark days when the Board of Directors
of Banco Popular was forced to announce the Bank's imminent closure. Yet the
Bank survived the crisis -- in fact, it emerged stronger than ever with the
inauguration of its first branch offices in Rio Piedras, Santurce, Caguas and
Aguadilla. Banco Popular was moving confidently into the future and making
plans for the construction of its first headquarters building in San Juan,
inaugurated in 1939.
But the Bank never lost sight of its primary mission -- to encourage
thrift and make banking services available to those whose scant incomes and
geographic isolation had heretofore left them bereft of such facilities.
During its hundred-year history, Banco Popular has covered the island
with an extensive branch network, leaving indelible mark on the life of island
towns.
During the '50s, a revolutionary plan was conceived to bring a branch
of Banco Popular to every town on the island lacking such services. "Banks on
Wheels," a fleet of mobile banks, made a reality of Banco Popular's dream of
bringing banking services to the most remote corners of the island.
This new access helped revolutionize Puerto Rico's traditional saving
habits. Local residents were convinced to take their cash out of its hiding
places and entrust it to the newcomers.
The Bank also began to look beyond the island. In 1961, Banco Popular
opened its first branch outside Puerto Rico, in the heart of New York City, and
within 10 years opened seven additional branches.
As the Bank continued to grow, its heightened economic activity,
increased personnel, centralization and greater use of technology prompted
then-President Rafael Carrion Jr. to spearhead construction of new headquarters
in 1965. Within a few years, the stretch of land in Hato Rey housing the Banco
Popular building became the heart of the
15
<PAGE> 17
________________________________________________________________________________
(Photo 16a)
A revolutionary system of mobile banks was established in 1957, providing full
banking services to the farthest corners of the island.
(Photo 16b)
Three generations of bankers who led Banco Popular - Rafael Carrion Pacheco,
Damian Monserrat and Rafael Carrion Jr.
island's financial district, known as the "Golden Mile."
In 1978, the Bank extended its network of branches into the eastern
region of the island when it acquired a share in the operations of Banco
Credito y Ahorro Ponceno. During the next 10 years, the Bank also expanded to
the U.S. Virgin Islands. Then, in 1990 Banco Popular brought off the largest
bank merger in the island's history, adding to its network 40 Banco de Ponce
branches in Puerto Rico and another 14 in New York. At year-end 1993, Banco
Popular had a total of 205 branches in Puerto Rico and overseas.
INNOVATIVE ADVERTISING
One of the natural consequences of this expansion was an increase in the number
and types of services the Bank offered. Publicizing these new services through
innovative advertising led to another chapter in the Banco Popular success
story.
Always eager to reach the public it was created to serve, the Bank
sought ways to get its message out despite limited resources. In its early
days, an employee would often be sent to walk the streets of San Juan,
trumpeting the Bank's services through a megaphone.
But in the 1950s, Banco Popular took to the radio airwaves, launching
an extraordinarily successful advertising campaign based on the importance of
giving every customer friendly, personal treatment. As it moved into print and
the new television industry, the Bank became known for its catchy and highly
effective slogans.
The launching in 1973 of the innovative Ideal Account, which combined
checking, savings and reserve services in a single monthly statement, gave rise
to yet another successful advertising campaign that captured the public's
imagination.
VISIONARY BANKERS
Throughout Banco Popular's 100 years of growth and innovation, one theme has
remained constant -- its leadership. The institution's course has been guided
continuously by prudent but visionary bankers faithful to the principles upon
which the Bank was founded.
16
<PAGE> 18
________________________________________________________________________________
(Photo 17a)
Popular Center headquarters was inaugurated in 1965 in Hato Rey.
(Photo 17b)
By 1975, total deposits reached $1 billion, placing the Bank among the top 100
financial institutions in the United States.
An ingenious advertising campaign highlighted the Ideal Account. (1973)
Spanish-born attorney Damian Monserrat, who was managing director and
president of the Bank from 1904 to 1953, was the link between the founders of
1893 and the directors, employees and customers of the 20th century. True to
the founders' principles, he preached the value of hard work and the virtue of
saving to the poor and to the island's children.
At Monserrat's side was another distinguished bank officer, Rafael
Carrion Pacheco, executive vice president from 1927 to 1953, and president from
1953 to 1956. Carrion Pacheco -- farmer, businessman, housing contractor,
banker and lover of poetry -- was Puerto Rico's 20th century entrepreneur par
excellence.
When Carrion Pacheco took the helm of Banco Popular in 1927, he forged
strong ties with correspondent banks in New York. These ties allowed the Bank,
even with relatively few resources, to finance some of Puerto Rico's major
sugar cane-producing enterprises, including some financed with U.S. capital.
During the years when sugar was the lifeblood of Puerto Rico, Banco Popular's
largest loans were sugar related.
In the 1950s, when Banco Popular began to emerge as the island's
foremost financial institution, Rafael Carrion Jr. succeeded his father at the
Bank's helm. His presidency, from 1956 to 1973, brought transformations in the
Bank's organizational, operational, technological and service areas, as well as
in its public image.
Rafael Carrion Jr. also honored and believed in the ideals of 1893.
In addition to promoting banking services for the island's poor, he committed
Banco Popular to social interest projects in agriculture and public housing.
Carrion Jr. always insisted that the Bank had an obligation to help
the people, because the people were in large part responsible for the Bank's
success. The great respect and friendship he inspired among Bank employees led
them to adopt this philosophy as their own. Carrion Jr. believed Banco
Popular's employees were its most valuable asset, the anonymous protagonists of
its history.
When Rafael Carrion Jr. stepped down from the presidency to become
chairman of the Board of Directors
17
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(Photo 18a) Cupey Center (color)
The Cupey Center operations complex was inaugurated in 1976.
________________________________________________________________________________
Some of Banco Credito y Ahorro Ponceno's assets were acquired in 1978.
(Photo 18b) The automatic teller machines ushered in the "era of electronic
banking" in 1983.
in 1973, his successor, Jose Luis Carrion, was selected from a large pool of
talented men of proven loyalty to the institution. Jose Luis Carrion, who was
president from 1973 to 1978, had been with the Bank since 1956. It was his
initiative that moved Banco Popular to new frontiers beyond Puerto Rico. One
of the greatest achievements of his presidency was construction of the
operations complex known as Cupey Center, inaugurated in 1976.
Jose Luis Carrion was followed by Hector Ledesma, who served as
president of the Bank from 1978 to 1985. Ledesma had risen through the ranks
from messenger to member of the board, and compiled an illustrious record of
achievement in the Puerto Rican banking industry. Among his contributions as
president, and the one that perhaps brought him the most recognition, was the
creation of Banco Popular's International Division, geared toward encouraging
and promoting Puerto Rican exports.
In 1985, the Board of Directors entrusted the presidency of Banco
Popular to Richard L. Carrion, who represented a new generation of bankers. As
the Bank's comptroller, he had distinguished himself as "the numbers man," and
played a central role in the acquisition of Banco Credito y Ahorro Ponceno.
He also was largely responsible for leading Banco Popular into the new
age of electronic banking, developing the automated teller machine system, known
in Puerto Rico by the Spanish acronym ATH. Carrion envisioned a future
bursting with new challenges, no less significant than those his predecessors
had faced. The 1990 merger with BanPonce Corporation, the largest bank merger
in Puerto Rico's history, was a major step toward that future.
Banco Popular's growth and vitality have been fostered by the presence
of capable, committed men and women of proven integrity on its Board of
Directors. Initially drawn from the island's intelligentsia, the board members
were businessmen and sugar growers during the second stage of the Bank's
growth, giving way to a new generation of businessmen and women, manufacturers
and professionals in the third. They con-
18
<PAGE> 20
In 1990, Banco Popular merged with Banco de Ponce
Banco Popular's assets surpassed $10 billion in 1992, which ranked it number 43
among U.S. banks in deposits.
_______________________________________________________________________________
(Photo 19a)
In 1991, Banco Popular became the largest Hispanic bank in the United States
with 21 branches in New York, one in Chicago and another in Los Angeles, and
about $700 million in deposits.
The Bank became the main financial institution in the United States in granting
SBA-guaranteed loans.
sistently have brought to the Bank the knowledge, wisdom, meticulousness and
abilities acquired through years of experience in their fields, and helped keep
it on its steady course.
OUR PEOPLE: KEY TO OUR SUCCESS
While the executive officers established the direction the Bank would take,
their goals would not have been reached without the support of the
rank-and-file employees of Banco Popular. This loyal group of men and women
has always been a crucial factor in the Bank's growth.
With that in mind, the Bank has made efforts to reward the loyalty and
dedication of its employees. In the mid-1940's, Banco Popular took the lead
with an employee pension plan. That initiative was followed by such benefits
as stock distribution for every employee in 1957, and the Profit-Sharing Plan
in 1961.
Banco Popular has encouraged the spirit of saving among the Puerto
Rican people from its inception. This commitment brought the Bank many small
accounts. Moreover, the Bank instituted education loans, and offered personal
loans for the first time. Through the years, as competition between banks
became more intense and the middle class grew, the Bank continued to offer new
services.
TECHNOLOGICAL ADVANCES
In the 1970s when the Bank's operations had been fully automated and
centralized, Banco Popular ushered in the "era of electronic banking," which
allowed the Bank to expand its communications network and introduce new and
better customer services.
Among these services were the automated teller machines that the Bank
began installing in 1983. By 1993, Banco Popular had 253 ATMs in operation,
more than any other bank in Puerto Rico. Other electronic services offered
were direct payments, direct deposits, automatic payment at the point of sale,
and the telephone services known as TeleBanco and TelePago.
COMMITMENT TO THE COMMUNITY
Throughout its first hundred years, Banco Popular has worked to meet its
primary commitment to the needs of individual customers, while fulfilling its
social goal of supporting
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<PAGE> 21
In the 1990s electronic services such as direct payments, direct deposits and
automatic payment POS were introduced together with telephone services known as
TeleBanco and TelePago.
The Bank purchased CoreStates First Pennsylvania Bank, making it the largest
bank in the British and U.S. Virgin Islands (1993).
_______________________________________________________________________________
(Photo 20a)
A state-of-the art Corporate Development Center was inaugurated in 1992,
providing staff training programs.
In 1993 the Bank's net income climbed to $101.3 million, with assets of $10.8
billion.
Puerto Rican agriculture, industry, business and housing construction.
Small business, for example, continues to be a central element in the
Bank's dealings. The fact that the Banco Popular of the '90s originates more
Small Business Administration loans than any other institution underscores the
Bank's commitment to the small-business sector.
With the introduction of FHA loan programs, Banco Popular ushered in a
new era of housing construction in Puerto Rico. The houses built with these
loans redefined the urban landscape of major island cities and helped many
Puerto Ricans attain the dream of home ownership.
Indeed, examples of Banco Popular's social commitment date back to its
very origins, when its founders clearly set forth the path to follow.
At the urging of Rafael Carrion Jr., the officers of Banco Popular
realized that the institution should not limit itself strictly to banking, but
take part as well in any activity that contributed to the well-being of Puerto
Rico -- that this civic commitment was, in fact, its duty. Throughout the
years, Banco Popular has reaffirmed its identity as the people's bank and was
recognized as the banking institution most committed to the people's welfare.
UNDERLYING VALUES STILL PRESENT TODAY
As the brief review of its history illustrates, Banco Popular's 100th
anniversary is not the result of chance, but rather the product of historical
circumstances combined with a set of values, transformed by the vision and
sustained effort of the Bank's leaders into the successful enterprise of today.
Those underlying values, still present today, are:
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<PAGE> 22
(Photo 21a Fireworks (color))
On October 5, 1993, the Bank's centennial, all branches in Puerto Rico, the
Virgin Islands and New York were linked through an interactive television
system.
(Photo 21b)
As a tribute to Puerto Rico's music, a television documentary Un Pueblo que
Canta was broadcast simultaneously in Puerto Rico, New York and Chicago.
________________________________________________________________________________
Banco Popular's centennial commemoration included an impressive fireworks
display in Aquadilla, Ponce and San Juan.
Banco Popular published Tradition into the Future: The First Century of the
Banco Popular de Puerto Rico 1893-1993 by Guillermo A. Baralt, Puerto Rico's
first corporate history.
- - - - - - the foundation upon which the Bank was established: to help the neediest.
- - - - - - prudence and conservatism, but willingness to take risks,
- - - - - - innovative spirit,
- - - - - - stable senior management,
- - - - - - the advice of banking experts and strong ties with correspondent banks,
- - - - - - the presence of capable, committed men and women of proven integrity on the
Board of Directors.
- - - - - - the selection of its employees and their commitment,
- - - - - - diversification of its services,
- - - - - - acquisitions and mergers,
- - - - - - ingenious advertising campaigns,
- - - - - - the development of its broad network of branches,
- - - - - - its investment portfolio,
- - - - - - close links with the needs of the government of Puerto Rico,
- - - - - - commitment to the welfare of the people and social responsibility.
After a century of history, the words of Rafael Carrion Pacheco, words
adopted as his own by Rafael Carrion Jr., echo with meaning: "Banco
Popular's success is no longer the exclusive patrimony of a few men -- it has
become the triumph of Puerto Rico."
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<PAGE> 23
(Photo BPPR Old San Juan)
POPULAR CENTER HATO REY
<PAGE> 24
________________________________________________________________________________
BanPonce Corporation and Banco Popular enjoy a solid financial and
competitive position and a strong corporate culture as a result of an effective
leadership that has remained loyal to the corporate principles and values that
contributed to past successes. These principles and values may be grouped into
the following four broader categories: Prudent and Sound Business Practices;
Leadership and Committed Employees; Social Responsibility; and Innovation and
Expansion. Following is a review of the major accomplishments and projects of
1993, as well as the most important future initiatives classified under these
four categories.
23
<PAGE> 25
(Photo Meeting)
COMPUTER SCREEN
PRUDENT AND SOUND BUSINESS PRACTICES
-----------------------------------------------------------
<PAGE> 26
"Graphics"
Composition of Total Loan Portfolio
BanPonce Corporation
________________________________________________________________________________
Prudence in lending and in all business endeavors has characterized BanPonce
Corporation and Banco Popular through the years. Well-trained and experienced
lending officers, together with effective credit monitoring mechanisms, a
conservative credit policy, and sound portfolio diversification have
contributed to controlling loan losses, even during periods of economic
downturn.
During 1993, BanPonce's loan portfolio increased by 21% from $5.3
billion on December 31, 1992, to $6.3 billion on December 31, 1993. The
commercial loan portfolio, which comprises 45% of the total loan portfolio, is
well-diversified by loan size, by industry and by geographical areas.
Commercial loans were destined for commercial, industrial, agricultural,
construction, land development, and lease financing purposes. Growth was
mainly experienced in loans to the middle-sized market and for agricultural
purposes. Retail loans -- distributed among credit cards, auto, mortgage and
personal loans -- made up the remaining 55% of the total loan portfolio.
Loan quality continued to improve during the year. The quality of the
commercial loan portfolio improved through the expansion of secured lending,
mainly commercial mortgages and SBA-guaranteed loans. In addition, commercial
non-performing loans declined as a result of improved collection efforts of
classified loans and the aggressive marketing program to dispose of other real
estate assets in an orderly fashion. In the retail loan portfolio, quality
improved through aggressive promotion of cash and mortgage-collateralized
loans, credit training and effective collection efforts that include the use of
a state-of-the-art collection system.
To enhance credit quality and monitoring mechanisms, in February 1993
the commercial credit review and audit functions were centralized under one
independent unit. The creation of the Commercial Credit Review and Audit
Division has contributed to the evolution from a traditional loan review and
documentation audit function into an expanded credit process review and
portfolio performance monitoring.
25
<PAGE> 27
(Photo 26b)
________________________________________________________________________________
(Photo 26a) (Photo 26c)
26-a Small Business, Seminars - SBA
26-b Department Stores - SBA
26-c Industry Plants - SBA
These enhanced functions have improved the Bank's ability to assess current
loan risk exposure and forecast non-performing assets and reserve adequacy.
Another factor contributing to the improved asset quality was the
array of credit courses offered on a regular basis to credit officers. In
1993, as part of the in-house credit training curriculum, a diagnostic test was
administered to all commercial lending officers to assess capabilities and
identify training needs. During 1994, tailored courses will be offered to
address the identified needs and provide the advanced and innovative lending
skills required to sustain BanPonce's expansion strategy.
Branch employee specialization, a strategy first implemented in 1992
to enhance employee skills and improve retail credit quality and customer
service, was continued during 1993. A total of 60 specialized Individual
Credit Sections (ICS) were established at selected branches by year-end.
Officers in these sections have been trained to serve the particular credit
needs of retail customers. A performance evaluation of these specialized
sections reveals that they produce a significantly higher volume of loans of
better quality than branches with no specialized sections. Plans for 1994
include the establishment of additional ICS at selected branches and the
appointment of a dedicated specialized individual credit officer in all of the
remaining branches. In addition, the branch specialization strategy will be
expanded in 1994 to include the creation of specialized Commercial Business
Sections to better serve the credit and non-credit needs of branch commercial
customers.
Besides sound lending and specialization, Banco Popular has focused on
building diverse and stable sources of funding to strengthen its operations and
sustain future growth. With the creation of BanPonce Financial Corporation in
the United States in 1992, BanPonce has been able to provide Spring Financial
Services, a retail finance subsidiary with operations in the mainland, with
short-and medium-term funding sources. In the near future, BanPonce Financial
will expand its role to provide funding to most of BanPonce's
26
<PAGE> 28
(Photo 27a) (Photo 27b)
________________________________________________________________________________
(Photo 27c)
27a Customer's Orientation on SBA Loans
27b Customer's Orientation on SBA Loans
27c U.S. Dollar Bill
mainland operations. BanPonce has also created an effective funding mechanism
for its subsidiaries in Puerto Rico to support current needs and future
acquisitions.
As part of the organizational development efforts, some functions and
management processes have been formalized and enhanced. Credit review has been
strengthened by the creation of an overseeing committee that includes most of
senior management, as well as key lending and review officers. In addition,
the Asset/Liability Management Committee (ALCO) brings together key senior
managers with investment and treasury officers to make sound investment,
funding and pricing decisions. Strategic planning, introduced as a formal
management process in 1987 and enhanced during the past years, provides
management with and integrated view of the organization and contributes
significantly to sound decision-making.
(Graphics)
Titles: Net Losses by Loan Category as a Percentage of Average Loans
Titles: Net Losses As Percentage of Average Loans
27
<PAGE> 29
6 PRESIDENTS WITH BPPR
LOGO IN THE BACKGROUND
LEADERSHIP AND COMMITTED EMPLOYEES
--------------------------------------------------
<PAGE> 30
________________________________________________________________________________
Today, as throughout its centennial history, leaders of Banco Popular,
BanPonce's banking subsidiary, remain true to the legacy of its founding
fathers. Vision, experience and commitment to the guiding principles of
prudence, social responsibility and service, creativity and innovation, still
constitute the core attributes of employees, management and directors.
BanPonce's and Banco Popular's boards of directors have been comprised
throughout the years of some of the most successful business people in Puerto
Rico. Their knowledge and experience, spanning many different disciplines and
industries, have been key in guiding the institutions on their path of success.
Currently, as in the past, management exhibits a balanced blend of vision and
commitment to the traditional corporate values and principles, as well as the
technical and managerial skills necessary to meet the challenges of today's
financial services industry. Innovation and creativity, together with sound
decision-making, are characteristic of the institution's management.
Leaders at the helm of BanPonce and Banco Popular have not only
preserved the traditional corporate values through their business decisions and
other management processes, but also fostered them throughout the organization
and instilled a true sense of commitment, loyalty and service among employees.
It is through this unique brand of employee loyalty and commitment that the
corporate mission is fulfilled year after year. Loyalty and commitment are
evidenced through the employees' endeavors, active participation in special
activities and events, and through their individual involvement in community
work. A recent survey showed that over 90% of employees expressed deep loyalty
and pride in working for the institution, while over 95% of employees surveyed
enjoyed working at the Bank.
To further this level of commitment and enhance the strong corporate
culture, the Bank defined as one of its key strategic thrusts the establishment
of a service culture based on Dr. W. Edward Deming's Total Quality Management
philosophy. To implement this strategy, training was begun during the fourth
quarter of 1992. Implementation efforts went into full gear during 1993 with
an aggressive training plan that covered a substantial part of the organization
and included training of 2,412 employees in Puerto Rico and 624 in New York.
In addition, 19 process improvement teams were formed. Many of the teams'
recommendations have already been implemented. For 1994 and beyond, the Bank
reaffirms its commitment to the Total Quality Management philosphy. By 1994,
almost all of the 7,000 employees will have participated in Total Quality
Management seminars.
29
<PAGE> 31
Photo (Children)
HANDS REACHING
SOCIAL RESPONSIBILITY
----------------------------------------------------------------
<PAGE> 32
________________________________________________________________________________
Historically, Banco Popular has played a key role in promoting the development
of the communities it serves. Today, social responsibility remains a
fundamental force behind the Bank's strategic direction. The Bank's efforts
have always been focused on finding better and more innovative ways of
satisfying the communities' financial needs, as well as enhancing their social
and economic welfare. The institution is committed to the constant search for
alternatives to fully satisfy customers' changing needs.
To provide customers with more convenient and efficient banking
alternatives, the Bank has spearheaded efforts to transform the Puerto Rican
payment system. Since Banco Popular processes approximately 50% of all
payments in Puerto Rico, it has a unique opportunity to foster this
transformation by offering electronic products and services such as telephone
bill payment, telephone banking, direct debit of loan payments, direct deposit,
ATM transactions, and point-of-sale data capture terminals and transactions.
This key strategic effort should result in a gradual migration from paper-based
transactions to electronic alternatives, which will be added convenience for
customers, and will also make the payment system more efficient.
The Bank's firm commitment to the social and economic welfare of the
community is evidenced by its strong historical support of local entrepreneurs.
The Bank provides not only loans to small businesses, but also assistance in
improving their organization and establishing control systems. The Bank also
sponsors numerous seminars to help entrepreneurs develop the necessary skills
to manage their businesses and respond to their particular customers' needs.
Currently, loans for under $25,000 each comprise over 60% of the commercial
portfolio. In addition, the Bank is the leader in origination of
SBA-guaranteed loans among all commercial banks in the United States, Puerto
Rico and U.S. Virgin Islands.
Throughout the years, the Bank has been the first and often the only
institution capable or willing to serve specific market segments in Puerto
Rico. As a result of the Bank's firm
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<PAGE> 33
_______________________________________________________________________________
Photo (32a) Photo (32b) Photo (32c)
32a Bear and Child on Christmas Activites
32b Christmas Tree
32c Social Activites Promoted by the Bank
belief that the island's prosperity depends on the education of future
generations, it remains the sole provider of student loans in Puerto Rico. In
1993, the Bank originated over 9,000 student loans for a total value in excess
of $25 million.
In addition, to serve the special needs of senior or retired
customers, during 1993 Banco Popular pioneered reverse mortgages in Puerto
Rico. Through this mortgage-collateralized product, the Bank provides, either
in a lump sum or in monthly payments to the borrower, loans to people age 62 or
over, which require no payments as long as the borrower lives in the home.
Banco Popular's assistance to the government has been key in the
economic development of Puerto Rico. However, the Bank's role has evolved from
financing public projects to its current focus on offering services geared to
improve the government's efficiency. To satisfy the needs of various
government agencies, services are customized and distributed through the Bank's
extensive network of branches and ATMs. Non-credit services provided include
cash management and direct deposit and receipt of government payments through
telephone banking and at branches.
The Bank participates with the Economic Development Bank in providing
loans to developing enterprises. In addition, Banco Popular maintains an
office on the mainland dedicated exclusively to promoting Puerto Rico as a
superior location for the establishment of new businesses and manufacturing
operations.
The Bank continues its involvement in projects to provide
low-and moderate-income housing in the communities it serves. Community
reinvestment efforts include assessment of the lower-income segment credit
needs, outreach programs that create awareness of credit services provided, and
creating the products and services required to satisfy the credit needs of
these particular segments.
The Bank's numerous community reinvestment efforts include support to
island non-profit organizations such as Puerto Rico Community Foundation.
Desarrolladora Nuestro Barrio Products Inc., Bayamon's
32
<PAGE> 34
_______________________________________________________________________________
Photo (33a) Photo (33b)
33a - San Juan Waterfront Area
33b - Munoz Rivera Avenue Remodeling
HOMEProgram, Cantera Peninsula Development Project, and CODEFIN-Vieques, among
others. In addition, it offers seminars to merchants and communities on
banking products and services, especially federal and local
government-guaranteed business loan programs. During 1993, Banco Popular
obtained membership in the Federal Home Loan Bank. Through its FHLB
membership, the Bank will have access to lower cost funds and others programs
for financing of specific housing and economic development initiatives.
The composition of the Bank's loan portfolio is evidence of its
involvement in local community development. As of December 31, 1993, close to
1,000 single-family dwellings under construction were being financed, amounting
to approximately $16 million. These units meet criteria for FHA or VA loan
guarantees or have an average price below $60,000, which is considered
low-income housing. In addition, the Bank supported another major community
development initiative, the rehabilitation of the San Juan Waterfront Area,
through the financing of a $11.7 million condominium construction project.
Also, the Bank's construction loan portfolio includes $1.3 million in financing
for the renovation and management of public housing projects.
Banco Popular's community reinvestment efforts in New York include an
outreach program, The Good Neighbor Mortgage Program, involvement in the New
York Mortgage Coalition and the New York City Small Business Reserve Fund.
In New York, the Bank's strong community reinvestment efforts have
earned the praise of government agencies. An "Officer Call and Ascertainment
Program", requiring branch managers to make outreach calls to small business
owners, non-profit organizations, real-estate brokers, local elected officials
and various other community-based organizations in their respective service
areas, has been implemented.
In addition, the Bank is committed to an affordable mortgage financing
program for lower-income families and individuals who wish to purchase a home
in New York City. The Good Neighbor Mortgage Pro-
33
<PAGE> 35
________________________________________________________________________________
34A - Centennial Activity (Photo 34B) (Photo R Carrion antorcha)
gram provides fixed-rate financing based on non-traditional ratios and
qualifying criteria, waiver of application fees, and home buyer education
programs. Also, the Bank is a founding member of a coalition of 12 banks and
11 community organizations to promote home ownership among low- and
moderate-income families. Furthermore, Banco Popular was selected as one of
nine banks to participate in the $5 million New York City Small Business Cash
Reserve Fund. This loan program funded with deposits from the New York City
Economic Development Corporation, established a cash reserve that allows banks
to grant loans with slightly higher risk than conventional loans.
The Bank is a prime supporter of philanthropic initiatives in the
communities served, particularly in Puerto Rico, not only through its generous
donations and public relations programs, but also through the individual
efforts of its officers and employees. Many of the bank's officers are
actively involved in voluntary community service, and in many cases, they hold
key management positions in community and professional organizations.
As a result of a genuine concern for improving the quality of life on
the island and providing children with a healthy environment in which to grow,
the Bank has channeled its resources into supporting educational, sports,
cultural and charitable activities. Most of the support to education is
provided through the Banco Popular Foundation, a non-profit organization
established in 1979 to provide financial backing to institutions dedicated to
the education, development and welfare of children and young adults. In 1993,
29 students were endowed, including 18 new awards. In addition, as part of its
centennial celebration, Banco Popular granted special awards to the top
business school graduates from colleges and universities in Puerto Rico. The
Bank also made important donations during the year to education-related
programs, such as the planetarium at the Luis A. Ferre Science Park in Bayamon,
and contributions to the Ponce Medical School and to Sacred Heart University,
among others.
34
<PAGE> 36
(Photo 35a) Fireworks Display on Centennial Activity
(Photo 35b) Fireworks Display on Centennial Activity
________________________________________________________________________________
Share your Christmas is one of the numerous civic activities
undertaken annually by Banco Popular employees. In its 10th consecutive year,
the program distributed thousands of gifts and toys among needy children and
senior citizens in Puerto Rico during the Christmas season. Moreover, a
Christmas theme park was again set up at the Bank's headquarters.
To foster community well-being, the Bank is continuously involved in
the promotion of sports activities. In the 1993, the Bank sponsored the
Recorrido del Fuego Centroamericano y del Caribe, an event in which 3,000
runners, including many of the Bank's employees, took the Olympic torch to the
island's 78 municipalities. This run preceded the celebration of the Central
American and Caribbean Games held in Puerto Rico in November.
Cultural advancement is an important goal in the institutions's
community initiatives. The Bank maintains an exhibition hall in its Old San
Juan building where exhibits related to the economic and cultural development
of Puerto Rico are housed. In 1993, Essence and Presence, Our Traditional Arts,
and Tradition in the Future, a pictorial presentation of the Bank's corporate
history and the role employees have played in the institution's success story,
were displayed. The Bank also sponsors the annual Ponce Art Museum Gala, a
fund-raising event to support the largest art museum in the Caribbean.
This year, as part of the Bank's centennial presentation and as a
special gift to the people of Puerto Rico, Lights of the First Century, a
world-class fireworks display, was staged on successive nights in Aguadilla and
Ponce, followed by a grand finale in San Juan. In addition, the first
corporate book in Puerto Rico, Tradition into the Future: The First Century of
the Banco Popular de Puerto Rico 1893-1993, was formally presented.
Another centennial activity was the production of the television
special, Un Pueblo que Canta, a tribute to 100 years of Puerto Rican music.
Funds raised from the sales of videos, compact discs and cassettes of the
program were donated to various charities including the AIDS Foundation,
Centros Sor Isolina Ferre and the Cantera Peninsula Development Project.
35
<PAGE> 37
(Photo BPPR in Hato Rey at dusk)
WORLD GLOBE
INNOVATION AND EXPANSION
-------------------------------------------------------------
<PAGE> 38
________________________________________________________________________________
The offering of innovative financial products and services has distinguished
Banco Popular throughout its 100-year history. The Bank has successfully
responded to the changing financial needs of its customers and, on numerous
occasions, has anticipated them; in doing so, it has helped chart the course
for community and economic development.
Consistently, the Bank has been the first in Puerto Rico to implement
new approaches and use of the latest technology to offer innovative banking
products and services. At the turn of the century, to foster the habit of
saving among the Puerto Rican people, the Bank developed the home savings
program by which people saved money in cast-iron "piggy banks". Later on, it
brought banking services to remote communities through the innovative use of
mobile units. Through the years, the Bank has pioneered numerous products and
services in Puerto Rico including loans for education, personal loans, FHA
mortgage loans, and combined checking, savings and overdraft protection
accounts, among others.
In recent years, the Bank has brought Puerto Rico into the era of
electronic banking by establishing the most extensive network of automated
teller machines, known as ATH, and providing customers the convenience and
benefits of electronic transactions. Today, one of the institution's corporate
strategies is to drive the transformation of Puerto Rico's payment system
through the migration from paper-based transactions to electronic alternatives.
During 1993, six major initiatives were implemented to attain this
objective. A telephone bill payment service was launched in February, under
the marketing name of TelePago, to provide customers with a convenient
alternative to making payments by mail or at branches. Utility and loan
payments, as well as payments to major retail department stores, can easily be
made through the use of this service. For 1994, additional merchants will be
added to TelePago and its aggressive promotion continued. Direct debit of loan
payments was also successfully promoted during 1993, and the percent-
37
<PAGE> 39
(Photo 38a) ATM Networks facilities
(Photo 38b) ATM Networks facilities
(Photo 38c) ATM Networks facilities
_______________________________________________________________________________
age of new retail loans making payments through this option increased to almost
50% of loans originated by year-end 1993. Direct deposit of payrolls and
social security and VA benefits was also emphasized during the year, resulting
in a 46% increase in this type of transaction. The enhancement of the ATM
network and of the value of the Bank's own debit cards for usage at ATMs and at
a growing network of point-of-sale electronic data capture terminals, was a key
effort during the year. These initiatives will continue at a heightened pace
during 1994. Both the number of ATMs and of point-of-sale terminals increased,
with the latter spanning a substantial portion of leading supermarket chains
and strategically selected gasoline and retail outlets. These initiatives
provide customers with added payment alternatives to traditional branch
transactions and for at-store payments. A centralized telephone banking unit
was established, which integrates customer service and telemarketing functions.
The unit utilizes advanced communication technology that includes a Voice
Response Unit (VRU) that presently handles over half of all calls received. In
addition to continuing with these initiatives, new payment system projects will
be implemented in 1994 to continue promoting the migration of banking
transactions to electronic alternatives.
Technology has been utilized also in developing other new services and
enhancing existing products. In 1993, the Bank developed and marketed its own
cash-management system, Popular Access Line (PAL), a computer-based reporting
and transaction system with innovative, comprehensive and flexible capabilities
that allows commercial customers effective cash monitoring, seven days a week,
24 hours a day.
Imaging technology was introduced in 1993 to reduce costs and improve
efficiency, as well as to enhance existing products. Through the conversion of
documents into digitalized electronic forms, imaging can be applied to check
processing and document storage, among other processes. In 1993, the Bank
introduced CheckRegister, a new service that provides customers the flexibil-
38
<PAGE> 40
(Photo 39a) Telephone Bill Payment Services's Personnel
(Photo 39b) Telephone Bill Payment Services's Personnel
________________________________________________________________________________
ity of substituting canceled checks with images, reproduced up to 10 checks per
page. In 1994, the use of imaging technology will be expanded to include
offering CheckRegister to most checking accounts and utilizing imaging in the
processing and safekeeping of many other documents.
The latest computer and communications technology has been intensely
used at the Bank for decades to enhance processes and efficiency and to support
growth. In 1993, several automated systems were developed to achieve these
objectives and improve service quality at branches. A new automated teller
system has been developed and will be installed at all branches by the first
quarter 1995. In addition, an automated system for branch platform functions
has been developed. It facilitates and expedites account openings and
maintenance and, through its automated loan origination and disbursement
features, will contribute to improve efficiency and customer service for retail
loans at branches.
The use of advanced communications technology made possible the
development and launching of an innovative interactive television system,
inaugurated as part of the Bank's centennial celebrations. The system, the
first of its kind in Puerto Rico, allows for direct communication between the
Bank's headquarters and all branches in Puerto Rico, New York and the U.S.
Virgin Islands. Among its numerous applications, it has been used to
communicate messages from the Bank's president to all employees, as well as an
internal marketing and educational tool to introduce new products and services
to employees. In 1994, its applications will be expanded to include training,
conferences and meetings.
39
<PAGE> 41
(Photo 40a) Bank Building Facilities
(Photo 40b) Bank Building Facilities
(Photo 40c) Bank Building Facilities
________________________________________________________________________________
Mergers, acquisitions and expansion into new markets and into new
businesses have played a key role in BanPonce's growth and development through
the years. During 1993, the Corporation continued pursuing its long-term
expansion strategy outside Puerto Rico and its diversification into non-banking
activities.
In New York, the acquisition in 1993 by Banco Popular of several
branches and deposits from Bank Leumi Trust Company of New York, Northside
Savings Bank and Emigrant Bank increased deposits to almost $1.3 billion and
the number of branches to 30. For 1994, expansion opportunities will be
explored in the New York/New Jersey area and in selected areas of Florida.
In Chicago, an agreement was signed, and subsequently approved by
regulatory agencies, to acquire two branches with approximately $300 million in
deposits and $185 million in loans from Pioneer Bank Corp.
In the Caribbean, the acquisition of four branches in the U.S. Virgin
Islands and one in Tortola from CoreStates Bank was completed in 1993. Today,
the Bank operates eight branches in the Virgin Islands Region. Further
expansion in the Caribbean is being considered and plans developed to explore
opportunities.
40
<PAGE> 42
(Photo 41a Velco's Van)
________________________________________________________________________________
(Photo 41b)
Popular Leasing Building Facilities
GROWTH INTO NEW MARKETS AND BUSINESSES
Corporate expansion and diversification has also been attained through the
incursion into new businesses. BanPonce's non-banking subsidiaries allowed it
to become a diversified corporation with non-banking operations that include
two leasing companies and a small personal loan company in Puerto Rico, and a
consumer finance company that, as of December 31, 1993, operated offices in 14
states.
Through its two leasing subsidiaries, BanPonce is the dominant player
in Puerto Rico's leasing market. VELCO (Vehicle Equipment Leasing Company), a
BanPonce Corporation subsidiary, is the island's largest vehicle leasing
operation with an estimated market share of 44%. With over 30 years experience
in the market, VELCO, acquired by BanPonce in 1986, provides vehicle and
equipment leases to corporations and retail customers, maintenance services and
daily rental through four conveniently located facilities at San Juan,
Carolina, Caguas and Ponce.
POPULAR LEASING AND RENTAL, INC., a subsidiary of Banco Popular, is
the second largest vehicle leasing company in Puerto Rico, with an estimated
33% of the market. Established in 1989, Popular Leasing has grown at an
accelerated rate, and today enjoys a strong image and position in the
marketplace, as well as an experienced management team.
During 1993, both companies improved their financial performance as a
result of the implementation of cost control measures, enhancements to systems,
improved credit quality and higher business volumes.
41
<PAGE> 43
(Photo 42a) Spring Financial Building Facilities
________________________________________________________________________________
As part of its diversification and expansion plan, BanPonce has entered the
consumer finance business through the acquisition of two subsidiaries. First,
in 1987 Banco Popular acquired Popular Consumer Services, Inc., and in 1991 the
Corporation purchased Spring Financial Services, Inc.
POPULAR CONSUMER SERVICES grants small personal loans of up to the
maximum regulatory limit of $2,000 per loan, through 26 offices located across
Puerto Rico. Operating under the name of Best Finance, the company is the
fifth largest small loan company on the island.
SPRING FINANCIAL SERVICES, a wholly owned subsidiary of BanPonce
Financial Corporation, originates and services first and second mortgages as
its primary business. The company also provides retail dealer financing and
loans throughout its branch network. It presently services over 41,000
customers as of year-end 1993, and has loans outstanding of $375 million. As
of December 31, 1993, it operated 58 offices in 14 states in the mid-Atlantic
and Midwest. The acquisition of Spring and its subsequent rapid growth has
allowed BanPonce to enter numerous geographic markets and facilitated the
implementation of its expansion strategy in the U.S. mainland. In 1994,
expansion will continue into the Southern and Mid-western regions of the United
States with the opening of 14 new offices in six additional states.
42
<PAGE> 44
BOARD OF DIRECTORS, MANAGEMENT AND
________________________________________________________________________________
BANCO POPULAR BRANCH NETWORK
43
<PAGE> 45
<TABLE>
BOARD OF DIRECTORS BANPONCE CORPORATION
____________________________________________________________________________________________________________________________________
<S> <C> <C>
RICHARD L. CARRION JUAN J. BERMUDEZ ALBERTO M. PARACCHINI
Chairman of the Board and President Partner Private Investor
Bermudez & Logo, S.E. FRANCISCO PEREZ JR.
ALFONSO F. BALLESTER SILA MARIA CALDERON Chairman of the Board and
Vice Chairman of the Board President President
President Commonwealth Investment Sucrs. Jose Lema & Co., Inc
Ballester Hermanos, Inc. Company, Inc. FRANCISCO M. REXACH JR.
MANUEL LUIS DEL VALLE FRANCISCO J. CARRERAS President
Vice Chairman of the Board Educator Ready Mix Concrete, Inc.
Chairman of the Board Executive Director FELIX J. SERRALLES NEVARES
Bacardi Corporation Fundacion Angel Ramos, Inc. President and
ANTONIO LUIS FERRE WALDEMAR DEL VALLE, ESQ. Chief Executive Officer
Vice Chairman of the Board Partner Destileria Serralles, Inc.
President Parra, DelValle, Frau & Limeres LUIS RODRIGUES DELGADO
El Nuevo Dia LUIS E. DUBON JR., ESQ. President
Partner Gitty's Toys, Inc.
Dubon & Dubon EMILIO JOSE VENEGAS
ROBERTO W. ESTEVES Secretary, Board of Directors
President Venegas Construction Corp.
Star Tours International, Inc. President
Solstar Corp. d/b/a Travel network Sanson Corporation
Caribe Theaters Corp. JULIO E. VIZCARRONDO JR.
HECTOR R. GONZALEZ President and
President and Chief Executive Officer
Chief Executive Officer Desarrollos Metropolitanos, Inc.
TPC Communications of PR, Inc., and
Teleponce Cable TV, Inc. SAMUEL T. CESPEDES, ESQ.
FRANKLIN A. MATHIAS Secretary
Retired Executive Board of Directors
HUGH G. MCCOMAS ERNESTO N. MAYORAL, ESQ.
President and Assistant Secretary
Chief Executive Officer Board of Directors
MCO Industries, Inc.
MANUEL MORALES JR.
President
West Indies & Grey Advertising, Inc.
</TABLE>
44
<PAGE> 46
<TABLE>
BOARD OF DIRECTORS BANCO POPULAR
____________________________________________________________________________________________________________________________________
<S> <C> <C>
RICHARD L. CARRION JUAN A. ALBORS HERNANDEZ FRANKLIN A. MATHIAS
Chairman of the Board Chairman and Retired Executive
President Chief Executive Officer HUGH G. MCCOMAS
Chief Executive Officer Albors Development Corp. President and
SALUSTIANO ALVAREZ MENDEZ Chief Executive Officer
ALFONSO F. BALLESTER President and Director MCO Industries, Inc.
Vice Chairman of the Board Mendez & Company, Inc. MANUEL MORALES JR.
President JOSE A. BECHARA BRAVO President
Ballester Hermanos, Inc. President West Indies & Grey Advertising, Inc.
MANUEL LUIS DEL VALLE Empresas Bechara, Inc. ALBERTO M. PARACCHINI
Vice Chairman of the Board JUAN J. BERMUDEZ Private Investor
Chairman of the Board Partner FRANCISCO M. REXACH JR.
Bacardi Corporation Bermudez & Longo, S.E. President
ANTONIO LUIS FERRE ESTEBAN D. BIRD Ready Mix Concrete, Inc.
Vice Chairman of the Board President and LUIS RODRIGUEZ DELGADO
President Chief Executive Officer President
El Nuevo Dia Bird Construction Company, Inc. Gitty's Toys, Inc.
GEORGE BLASINI JOSE E. ROSSI
Investor Chairman of the Board of Directors
SILA MARIA CALDERON Aireko Construction Corp.
President FELIX J. SERRALLES NEVARES
Commonwealth Investment President and
Company, Inc. Chief Executive Officer
FRANCISCO J. CARRERAS Destileria Serralles, Inc.
Educator NOEL TOTTI JR.
Executive Director Engineer
Fundacion Angel Ramos, Inc. JULIO E. VIZCARRONDO JR.
LUIS E. DUBON JR., ESQ. President and
Partner Chief Executive Officer
Dubon & Dubon Desarrollos Metropolitanos, Inc.
ROBERTO W. ESTEVES
President SAMUEL T. CESPEDES, ESQ.
Star Tours International, Inc. Secretary
Solstar Corp. d/b/a Travel Network Board of Directors
Caribe Theaters Corp. ERNESTO N. MAYORAL, ESQ.
JORGE A. JUNQUERA Assistant Secretary
Executive Vice President Board of Directors
Banco Popular de Puerto Rico
</TABLE>
45
<PAGE> 47
<TABLE>
MANAGEMENT
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C>
BANPONCE CORPORATION ERNESTO N. MAYORAL, ESQ. CYNTHIA TORO MARITZA MENDEZ
Vice President Senior Vice President Vice President
RICHARD L. CARRION Legal Division Commercial Loans Strategic Planning
Chairman and President RICARDO TORO
RETAIL BANKING GROUP Senior Vice President OPERATIONS GROUP
MARIA ISABEL P. DE BURCKHART JORGE A. JUNQUERA Corporate Banking HUMBERTO MARTIN
Executive Vice President Executive Vice President KENNETH J. GROSS Executive Vice President
DAVID H. CHAFEY JR. JORGE BIAGGI Vice President SEGUNDO BERNIER
Executive Vice President Senior Vice President International Senior Vice President
JORGE A. JUNQUERA Hato Rey Region Operations
Executive Vice President FRANCISCO CESTERO FINANCIAL MANAGEMENT GROUP VICTOR V. ECHEVARRIA
LARRY B. KESLER Senior Vice President DAVID H. CHAFEY JR. Senior Vice President
Executive Vice President Caguas/Fajardo Region Executive Vice President Management Information Systems
HUMBERTO MARTIN NORMAN IRIZARRY ORLANDO BERGES EDUARDO FIGUEROA*
Executive Vice President Senior Vice President Senior Vice President Senior Vice President
EMILIO E. PINERO FERRER, ESQ. Western Region Comptroller Electronic Banking
Executive Vice President WILBERT MEDINA LUIS R. CINTRON Services
Senior Vice President Senior Vice President *effective March 1994
ORLANDO BERGES Bayamon Region Trust PLINIO RODRIGUEZ
Senior Vice President FERNANDO L. MONLLOR JUAN GUERRERO Senior Vice President
TERE LOUBRIEL Senior Vice President Senior Vice President Security
Senior Vice President Ponce Region Investments MARGARITA HERRERA, ESQ.
ERNESTO N. MAYORAL, ESQ. MIGUEL RIPOLL ROBERTO R. HERENCIA Vice President
Vice President Senior Vice President Senior Vice President Compliance
Rio Piedras Region U.S. Credit Products
BANCO POPULAR CARLOS ROM JR. JOSE L. LOPEZ CALDERON
Senior Vice President Senior Vice President SUBSIDIARIES
RICHARD L. CARRION San Juan Region Treasury
Chairman ELI SEPULVEDA VEHICLE EQUIPMENT
President Vice President U.S. OPERATIONS LEASING COMPANY, INC.
Chief Executive Officer Arecibo/Manati Region PAUL E. CARR JR. ANDRES F. MORRELL
Senior Vice President President
SENIOR MANAGEMENT COUNCIL RETAIL CREDIT AREA New York
RICHARD L. CARRION LARRY B. KESLER MANUEL J. REMON POPULAR LEASING AND
President and Executive Vice President Vice President RENTAL, INC.
Chief Executive Officer JORGE J. BESOSA Los Angeles CARLOS J. MANGUAL
MARIA ISABEL P. DE BURCKHART Senior Vice President WILLIAM BRUIN President
Executive Vice President Individual Lending Second Vice President
DAVID H. CHAFEY JR. FELIPE FRANCO Chicago POPULAR CONSUMER
Executive Vice President Senior Vice President SERVICES, INC.
JORGE A. JUNQUERA Mortgage Loans ADMINISTRATION GROUP EDGARDO NOVOA
Executive Vice President VALENTINO I. MCBEAN MARIA ISABEL P. DE BURCKHART President
LARRY B. KESLER Senior Vice President Executive Vice President
Executive Vice President Virgin Islands Region GUSTAVO DIAZ SPRING FINANCIAL
HUMBERTO MARTIN ARIEL RODRIGUEZ Senior Vice President SERVICES, INC.
Executive Vice President Vice President Marketing THOMAS J. FITZPATRICK
EMILIO E. PINERO FERRER, ESQ. Electronic Services JORGE E. MARCHAND President
Executive Vice President Senior Vice President
COMMERCIAL BANKING GROUP Public Relations and
TERE LOUBRIEL EMILIO E. PINERO FERRER, ESQ. Communications
Senior Vice President Executive Vice President EDUARDO RODRIGUEZ
Internal Auditor ARNALDO SOTO COUTO Senior Vice President
DENNIS C. TRISTANI Senior Vice President Human Resources
Senior Vice President Construction Loans LUZ M. TOUS DE TORRES
Credit Review and Audit Senior Vice President
Corporate Real Estate
</TABLE>
46
<PAGE> 48
<TABLE>
BANCO POPULAR BRANCH NETWORK
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C>
SAN JUAN REGION TRUJILLO ALTO MAYAGUEZ SUAU U.S. MAINLAND BRANCHES
AEROPUERTO UNIVERSIDAD DE PUERTO RICO MAYAGUEZ MALL SUR
BARRIO OBRERO MAYAGUEZ MENDEZ VIGO NEW YORK DISTRICT
BUCHANAN BAYAMON REGION SAN GERMAN MANHATTAN
CALLE LOIZA BARRANQUITAS YAUCO LAS TORRES 7 WEST 51st ST.
CENTRO MERCANTIL BAYAMON CENTER YAUCO PLAZA 164 EAST 116th ST.
CONDADO BAYAMON OESTE 615 WEST 181st ST.
EXPRESO CALLE LOIZA COMERIO PONCE REGION 4043 BROADWAY AVE.
EXPRESO ISLA GRANDE COROZAL ADJUNTAS 3540 BROADWAY AVE.
EXPRESO KENNEDY DORADO ARROYO 134 DELANCEY ST.
EXPRESO MINILLAS EXPRESO BARRANQUITAS COAMO 799 AMSTERDAM AVE.
EXPRESO PLAZOLETA ISLA VERDE EXPRESO BAYAMON PLAZA EXPRESO ALBERGUE OLIMPICO 441 2nd AVE. AT 25th ST.
EXPRESO SAN JUAN EXPRESO TOA BAJA EXPRESO PONCE PLAZA 2852 BROADWAY AT 111th ST.
ISLA VERDE LEVITTOWN GUAYAMA CALIMANO 231 WEST 125th ST. AT 8th AVE.
METRO OFFICE PARK LOMAS VERDES GUAYAMA MALL 175 DYCKMAN ST. AT 200th ST.
MIRAMAR NARANJITO GUAYANILLA BRONX
PARADA 15 REXVILLE JAYUYA 2923 THIRD AVE.
PARADA 17 RIO HONDO JUANA DIAZ 1046 SOUTHERN BLVD.
PARADA 22 SANTA ROSA PATILLAS 752 EAST TREMONT AVE.
PARADA 26 TOA ALTA PENUELAS 301 EAST FORDHAM RD.
PLAZOLETA CONDADO VEGA ALTA PONCE BUENA VISTA QUEENS
PUERTA DE TIERRA PONCE DARLINGTON 37-47 JUNCTION BLVD.
SAN JUAN ARECIBO/MANATI REGION PONCE LOS CAOBOS 83-22 BAXTER AVE.
ARECIBO DE DIEGO PONCE MALL 28-36 STEINWAY ST. LONG ISLAND
HATO REY REGION ARECIBO HIGHWAY PONCE PLAYA CITY
AVE. PINERO ARECIBO PLAZA PONCE PLAZA 56-38 MYRTLE AVE. RIDGEWOOD
CAPARRA BARCELONETA PONCE RAMBLA BROOKLYN
EXPRESO ALTAMIRA CIALES PONCE VILLA 5216 FIFTH AVE.
EXPRESO CENTRO MEDICO CRUCE DAVILA SALINAS 15 GRAHAM AVE.
EXPRESO GARDEN HILLS EXPRESO PLAZA DEL NORTE SANTA ISABEL 1620 PITKIN AVE.
EXPRESO HATO REY PDA. 34 EXPRESO SAN LUIS VILLALBA 247 ROCKWAY PKWY.
EXPRESO POPULAR CENTER EXPRESO VEGA BAJA XTRA 1117 EASTERN PKWY.
GUAYNABO FLORIDA CAGUAS/FAJARDO REGION 166 LIVINGSTON AVE.
GUAYNABO LOS JARDINES MANATI CAGUAS 539 EASTERN PKWY. AT
HATO REY CENTER MOROVIS AGUAS BUENAS NOSTRAND AVE.
HYDE PARK OROCOVIS AIBONITO 1619 SHEEPSHEAD BAY RD. AT
POPULAR CENTER UTUADO CAGUAS PLAZA JEROME AVE.
PUERTO NUEVO VEGA BAJA CAYEY 8020 FLATLANDS AVE. AT 81ST
REPARTO METROPOLITANO CIDRA 2095 RALPH AVE.
SAN FRANCISCO WESTERN REGION CONDADITO 3851 NOSTRAND AVE.
SAN PATRICIO AGUADILLA EXPRESO CAGUAS MALL
SANTA MARIA AGUADA EXPRESO CAYEY CENTRO CALIFORNIA DISTRICT
AGUADILLA EXPRESO PLAZA DEL CARMEN LOS ANGELES
RIO PIEDRAS REGION AGUADILLA SUR GURABO 354 SOUTH SPRING ST.
AVE. 65 DE INFANTERIA CAMUY SAN ALFONSO
BARBOSA EXPRESO AGUADILLA XTRA SAN LORENZO ILLINOIS DISTRICT
CAMPO RICO HATILLO VILLA BLANCA CHICAGO
CAROLINA HIGHWAY ISABELA FAJARDO 2525 NORTH KEDZIE AVE.
CAROLINA PUEBLO LARES CANOVANAS
CENTRO COMERICAL 65 DE MOCA CEIBA VIRGIN ISLANDS REGION
INFANTERIA QUEBRADILLAS EXPRESO FAJARDO MALL
CENTRO COMERCIAL TRUJILLO RAMEY FAJARDO ST. CROIX
ALTO RINCON HUMACAO CHRISTIANSTED
CUPEY SAN SEBASTIAN HUMACAO ESTE 17 CHURCH ST.
EL SENORIAL MAYAGUEZ LUQUILLO SUNNY ISLE
EXPRESO CAROLINA XTRA CABO ROJO RIO GRANDE
EXPRESO EL SENORIAL EXPRESO CABO ROJO VIEQUES ST. THOMAS
EXPRESO PLAZA PUERTO RICO EXPRESO MAYAGUEZ MALL YABUCOA CHARLOTTE AMALIE
EXPRESO 65 DE INFANTERIA EXPRESO MAYAGUEZ PLAYA FORT MYLNER
MUNOZ RIVERA EXPRESO SAN GERMAN VETERANS DRIVE
PLAZA CAROLINA EXPRESO VISTA VERDE SUGAR ESTATE
PLAZA DEL MERCADO HORMIGUEROS RED HOOK
RIO PIEDRAS DE DIEGO LAS MARIAS
SAN JOSE MARICAO TORTOLA
ROAD TOWN
</TABLE>
47
<PAGE> 49
SHAREHOLDERS' INFORMATION
- - - - - --------------------------------------------------------------------------------
INDEPENDENT PUBLIC ACCOUNTANTS
Price Waterhouse
ANNUAL MEETING
The 1994 annual stockholders' meeting of BanPonce Corporation
will be held on April 22 at 2:00 p.m. at Banco Popular Center
in Hato Rey, Puerto Rico.
TELEPHONE (809) 765-9800
FAX (809) 759-7803
ADDITIONAL INFORMATION
Copies of the Annual Report to the Securities and Exchange Com-
mission on Form 10-K and any other financial information may be
obtained by writing to:
Orlando Berges
Senior Vice President and Comptroller
Banco Popular de Puerto Rico
PO Box 362708
San Juan, PR 00936-2708
48
<PAGE> 50
EXHIBIT 13.1
BANPONCE
CORPORATION
1993 ANNUAL REPORT
- - - - - --------------------------------------------------------------------------------
FINANCIAL REVIEW
<PAGE> 51
FINANCIAL REVIEW
- - - - - ------------------------------------------------------------------------------
CONTENTS
Management's Discussion and
Analysis of Financial Condition
and Results of Operations 2
Statistical Summaries 21
Glossary of Terms 26
Report of Independent Accountants 27
Consolidated Financial Statements 28
Summary of Significant Accounting
Policies 32
Notes to Consolidated Financial
Statements 34
<PAGE> 52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- - - - - --------------------------------------------------------------------------------
SUMMARY
This year was a memorable one for the institution, celebrating the 100th
anniversary of Banco Popular de Puerto Rico, the subsidiary Bank of BanPonce
Corporation (the Corporation). The celebration gave us the opportunity to
look back again to the traditions and values that created the solid foundation
in which the institution's success is based.
During 1993, the Corporation had a sound financial performance. Net
income amounted to $109.4 million, increasing 28.5% from the net income of
$85.1 million reported in 1992. Earnings per share (EPS) for 1993 were $3.35
compared with $2.79 for the previous year. The results for the year include
$6.2 million in additional income resulting from the one-time cumulative
effect of the adoption of two new accounting principles (SFAS 106 and 109)
that will be further explained in this annual report. Excluding the effect of
these adjustments, EPS for 1993 were $3.16. Average shares outstanding for
1993 and 1992 were 32,701,236 and 30,461,494, respectively. The rise in
average shares reflects the effect of the issuance of 2,458,740 shares through
a subscription offering in November of 1992 and the shares issued under the
Dividend Reinvestment Plan of the Corporation.
The Corporation's profitability ratios improved markedly with returns on
assets (ROA) and on shareholders' equity (ROE) of 1.02% and 13.80%,
respectively. ROA and ROE for 1992 were 0.89% and 12.72%, respectively. As
presented in Table A, the Corporation was able to reduce its provision for
loan losses while the net interest income and the operating expenses as a
percentage of average assets remained stable.
The Corporation has continued enhancing its presence in the mainland
through acquisitions and growth. During the year, the Corporation acquired
five branches and $172.8 million in deposits in New York. In addition, Spring
Financial Services, Inc. (Spring), a diversified consumer financial services
subsidiary in the mainland, opened 17 new branches in 1993 and experienced a
growth of $194.7 million or 108.4% in its loan portfolio. Spring has now 58
branches operating throughout 14 different states.
As a leading financial institution in the Caribbean, the Corporation also
expanded its presence in the U.S. and British Virgin Islands (Virgin Islands)
with the acquisition of five branches and $228.8 million in deposits on
September 30, 1993.
The Corporation will continue playing an active role in evaluating and
undertaking acquisitions and growth strategies that are considered
advantageous from a business and economic standpoint.
The aforementioned acquisitions together with the business expansion led
to an increase in the Corporation's total assets to $11,513 million, 15.1%
higher than the $10,002 million reported for December 31, 1992. Average total
assets for 1993 were $10,684 million compared with $9,529 million for 1992.
Total loans amounted to $6,347 million at December 31, 1993, compared with
$5,252 million a year before. This significant growth of 20.9% was mainly in
mortgage loans which grew $785.2 million due to the acquisition of several
portfolios in New York, an increase in loan originations and the growth in
Spring's portfolio, as previously mentioned. Average loans for 1993 totaled
$5,700 million compared with $5,150 million for 1992. As of September 30,
1993, the subsidiary Bank ranked first in market share of loans in Puerto Rico
with approximately 28% of total loans in the market.
The Corporation's credit quality statistics improved considerably in
1993. Non-performing assets (NPA) at year-end decreased $21.1 million or 16%
and net charge-offs for the year decreased $29.4 million. The NPA to total
assets ratio improved to 0.97% from 1.32%, (or to 0.70% from 1.05% assuming
the standard industry practice). The allowance for loan losses reached $133.4
million at the end of 1993 and represented 2.10% of total loans at that date.
Total deposits increased 6% to $8,523 million at December 31, 1993, from
$8,039 million at year-end 1992. Non-interest bearing deposits grew $234.1
million and interest bearing deposits increased $249.9 million, mainly in
savings accounts. This rise re-
TABLE A
COMPONENTS OF NET INCOME AS A PERCENTAGE OF AVERAGE TOTAL ASSETS
<TABLE>
<CAPTION>
For the Year
- - - - - ----------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
--------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income 4.61% 4.62% 4.56% 4.87% 4.50%
Provision for loan losses (0.68) (1.03) (1.36) (0.91) (0.75)
Other income 1.17 1.31 1.47 1.21 1.09
--------------------------------------------
5.10 4.90 4.67 5.17 4.84
Operating expenses (3.86) (3.85) (3.86) (3.93) (3.65)
--------------------------------------------
Net income before tax, dividends on preferred stock
of subsidiary Bank, and cumulative effect of
accounting changes 1.24 1.05 0.81 1.24 1.19
Provision for income tax (0.26) (0.15) (0.08) (0.15) (0.20)
--------------------------------------------
Net income before dividends on preferred stock of
subsidiary Bank and cumulative effect of
accounting changes 0.98 0.90 0.73 1.09 0.99
Dividends on preferred
stock of subsidiary Bank (0.01) (0.01) (0.01)
Cumulative effect of
accounting changes 0.05
---------------------------------------------
Net income 1.02% 0.89% 0.72% 1.09% 0.99%
=============================================
</TABLE>
2
<PAGE> 53
<TABLE>
<CAPTION>
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
TABLE B
CHANGES IN NET INCOME AND EARNINGS PER SHARE
1993 1992 1991
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts) DOLLARS PER SHARE Dollars Per share Dollars Per share
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income for prior year $ 85,116 $ 2.79 $ 64,564 $ 2.15 $ 63,366 $ 3.15
Increase (decrease) from changes in:
Net interest income 51,909 1.70 32,411 1.08 123,563 6.14
Provision for loan losses 24,741 0.81 24,048 0.80 (68,647) (3.41)
Gain on sale of securities 622 0.02 (18,376) (0.61) 18,554 0.92
Trading account profit 171 0.01 (376) (0.01) 732 0.04
Dividends on preferred stock of subsidiary Bank 37 (807) (0.4)
Other operating income (117) 11,480 0.38 41,532 2.06
Income tax (13,892) (0.46) (7,465) (0.25) 2,446 0.12
Operating expenses (45,331) (1.49) (21,207) (0.71) (116,175) (5.77)
----------------------------------------------------------------------------
Subtotal 103,219 3.38 85,116 2.83 64,564 3.21
Cumulative effect of accounting changes 6,185 0.20
Change in average common shares* (0.23) (0.04) (1.06)
----------------------------------------------------------------------------
Net income for the year $ 109,404 $ 3.35 $ 85,116 $ 2.79 $ 64,564 $ 2.15
=============================================================================
</TABLE>
*Used to reflect the effect of the issuance of 2,458,740 shares of common stock
through a subscription offering in November 1992. Also reflects the effect of
the issuance of shares of common stock through the Dividend Reinvestment Plan
in the years presented, plus the additional shares issued on December 31, 1990,
related to the merger transaction. The average common shares outstanding used
in the above computation were 32,701,236 for 1993; 30,461,494 for 1992; and
30,035,601 for 1991.
- - - - - --------------------------------------------------------------------------------
lates principally to the deposits acquired in New York and in the Virgin
Islands.
The Corporation's capital ratios continue well above the minimum
regulatory capital requirements established for well capitalized institutions.
The Tier I, total capital and leverage ratios of the Corporation at December
31, 1993 were 12.29%, 13.95% and 6.95%, respectively. At the same date in 1992
these ratios amounted to 12.88%, 14.85% and 7.26%, respectively. Stockholders'
equity increased 10.9%, reaching $834.2 million at the end of 1993. The
Corporation's market capitalization at December 31, 1993 was $1,031 million.
During the third quarter of 1993, the Corporation increased its quarterly
dividend by 25%, from $0.20 to $0.25 per share, effective for the dividend
paid on October 1, 1993.
This financial review contains an analysis of the performance of BanPonce
Corporation and its subsidiaries, Banco Popular de Puerto Rico, including its
wholly-owned subsidiaries Popular Leasing and Rental, Inc. and Popular Consumer
Services, Inc., Vehicle Equipment Leasing Company, Inc. (VELCO), and Popular
International Bank, Inc., including its wholly-owned subsidiaries, BanPonce
Financial Corp. and Spring Financial Services, Inc., a second tier subsidiary.
On December 31, 1990, Banco Popular de Puerto Rico and the former BanPonce
Corporation merged. Due to the effective date of the merger, the financial
information for 1990 and prior years included in this annual report will be
presented as follows:
- The statement of condition as of December 31, 1990, and all references to
assets and liabilities as of the end of that period reflect the figures
for the combined entity immediately after the merger. Average figures for
1990 are those of Banco Popular and its subsidiaries.
- The statements of condition for the years before 1990 and all historical
asset and liability information, including both averages and end of
period information, are those of Banco Popular and its subsidiaries,
Popular Leasing and Rental, Inc. (organized in mid-1989) and Popular
Consumer Services, Inc. (acquired in December of 1989).
- The results of operations for 1990 and prior years and all historical
income and expense information are those of Banco Popular and its
subsidiaries.
Table C presents a ten year summary of selected financial
information.
EARNINGS ANALYSIS
Table B shows the variances, in dollar and per share amounts, of the
major captions of the Corporation's income statement for the last three years.
The major components of the $24.3 million increase in net earnings for the year
ended on December 31, 1993, are summarized as follows:
- An increase in net interest income due to a growth of $1.1 billion in
the average volume of earning assets, partially offset by a decrease of 61
basis points in the net interest yield, on a taxable equivalent basis,
mainly due to the maturity of high-yielding tax exempt securities during
the last quarter of 1992.
- Lower provision for loan losses due to the improved credit quality of
the loan portfolios which led to a reduced level of net charge-offs.
- Higher gains on security and trading transactions partially offset by a
decline in other revenues mainly due to an adjustment recorded during the
year on the excess servicing recognized in 1992 upon the sale of mortgages
through collateralized mortgage obligations (CMO) as a result of the
increase in mortgage prepayments during 1993.
3
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<TABLE>
<CAPTION>
- - - - - ----------------------------------------------------------------------------------------------------------
TABLE C
SELECTED FINANCIAL DATA
---------------------------------------------------
(Dollars in thousands, except per share data) 1993 1992 1991
---------------------------------------------------
<S> <C> <C> <C>
CONDENSED INCOME STATEMENTS
Interest income $ 772,136 $ 740,354 $ 794,943
Interest expense 280,008 300,135 387,134
---------------------------------------------------
Net interest income 492,128 440,219 407,809
Security and trading gains (losses) 1,418 625 19,376
Operating income 123,762 123,879 112,398
Operating expenses 412,276 366,945 345,738
Provision for loan losses 72,892 97,633 121,681
Income tax 28,151 14,259 6,793
Dividends on preferred stock of subsidiary Bank 770 770 807
Cumulative effect of accounting changes 6,185
----------------------------------------------------
Net income $ 109,404 $ 85,116 $ 64,564
====================================================
PER SHARE DATA *
Net income $3.35 $ 2.79 $ 2.15
Dividends declared 0.90 0.80 0.80
Book value 25.49 23.03 21.00
Outstanding shares:
Average 32,701,236 30,461,494 30,035,601
End of period 32,732,423 32,654,864 30,093,852
AVERAGE BALANCES
Net loans $ 5,700,069 $ 5,150,328 $ 5,302,189
Earning assets 9,894,662 8,779,981 8,199,195
Total assets 10,683,753 9,528,518 8,944,357
Deposits 8,124,885 7,641,123 7,198,187
Subordinated notes 73,967 85,585 94,000
Total stockholders' equity 793,001 668,990 610,641
PERIOD END BALANCES
Net loans $ 6,346,922 $ 5,252,053 $ 5,195,557
Allowance for loan losses 133,437 110,714 94,199
Earning assets 10,657,994 9,236,024 8,032,556
Total assets 11,513,368 10,002,327 8,780,282
Deposits 8,522,658 8,038,711 7,207,118
Subordinated notes 62,000 74,000 94,000
Total stockholders' equity 834,195 752,119 631,818
SELECTED RATIOS
Net interest yield (taxable equivalent basis) 5.50% 6.11% 5.97%
Net operating expense/average earning assets 2.92 2.77 2.85
Return on average total assets 1.02 0.89 0.72
Return on average earning assets 1.11 0.97 0.79
Return on average stockholders' equity 13.80 12.72 10.57
Dividend payout ratio 25.39 28.33 34.13
Average net loans/average total deposits 70.16 67.40 73.66
Average earning assets/average total assets 92.61 92.14 91.67
Average total stockholders' equity/average net loans 13.91 12.99 11.52
Average total stockholders' equity/average assets 7.42 7.02 6.83
Overhead ratio 58.34 55.07 52.47
Tier I capital to risk-adjusted assets 12.29 12.88 11.01
Total capital to risk-adjusted assets 13.95 14.85 13.35
Tax rate 21.30 14.24 9.41
</TABLE>
* Per share data is based on the average number of shares outstanding
during the periods, except for the book value which is based on total shares at
the end of the periods. All per share data has been adjusted to reflect a
stock split effected in the form of a dividend on April 3, 1989.
4
<PAGE> 55
<TABLE>
<CAPTION>
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
1990 1989 1988 1987 1986 1985 1984
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 565,807 $ 558,273 $ 488,200 $ 410,605 $ 365,513 $ 352,691 $ 327,005
281,561 302,747 261,316 206,778 183,253 182,159 173,796
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
284,246 255,526 226,884 203,827 182,260 170,532 153,209
91 2,529 689 (366) 7,253 1,604 (1,660)
70,865 59,550 53,025 40,623 33,204 27,670 22,680
229,563 207,376 190,862 182,593 166,982 154,777 136,140
53,033 42,603 34,750 18,000 11,500 7,050 3,900
9,240 11,456 7,844 5,956 6,778 5,468 4,765
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
$ 63,366 $ 56,170 $ 47,142 $ 37,535 $ 37,457 $ 32,511 $ 29,424
====================================================================================================================================
$ 3.15 $ 2.81 $ 2.36 $ 1.88 $ 1.97 $ 1.81 $ 1.63
0.80 0.80 0.685 0.66 0.61 0.56 0.48
19.67 18.76 16.75 15.07 13.86 12.30 11.05
20,116,970 20,014,013 20,000,000 20,000,000 19,000,000 18,000,000 18,000,000
29,942,406 20,037,396 20,000,000 20,000,000 20,000,000 18,000,000 18,000,000
$ 3,377,463 $ 3,132,167 $ 2,869,829 $ 2,510,495 $ 1,974,648 $ 1,553,739 $ 1,217,844
5,461,938 5,318,800 5,182,535 4,597,329 3,949,899 3,392,972 2,885,819
5,836,749 5,676,981 5,523,823 4,918,984 4,257,327 3,666,180 3,123,191
5,039,422 4,782,791 4,571,456 4,211,465 3,655,492 3,084,367 2,555,828
50,000 38,082 119 1,717 8,178 14,706 16,721
407,611 353,844 317,001 286,752 247,679 208,598 185,911
$ 5,365,917 $ 3,276,389 $ 3,056,761 $ 2,737,271 $ 2,266,437 $ 1,713,602 $ 1,372,302
89,335 40,896 33,244 28,423 26,903 24,229 21,625
8,219,279 5,469,921 5,221,873 4,957,221 4,135,121 3,786,650 3,206,313
8,983,624 5,923,261 5,661,398 5,352,745 4,525,241 4,136,418 3,521,833
7,422,711 4,926,304 4,715,837 4,491,612 3,820,223 3,365,265 2,870,671
94,000 50,000 500 2,500 13,500 15,500
588,884 375,807 334,867 301,425 277,090 221,274 198,797
6.30% 5.57% 5.10% 5.04% 5.70% 6.25% 7.07%
2.91 2.78 2.66 3.09 3.39 3.75 3.93
1.09 0.99 0.85 0.76 0.88 0.89 0.94
1.16 1.06 0.91 0.82 0.95 0.96 1.02
15.55 15.87 14.87 13.09 15.12 15.59 15.83
25.33 28.14 28.00 35.17 31.08 30.87 27.53
67.02 65.49 62.78 59.61 54.02 50.37 47.65
93.58 93.69 93.82 93.46 92.78 92.55 92.40
12.07 11.30 11.05 11.42 12.54 13.43 15.27
6.98 6.23 5.74 5.83 5.82 5.69 5.95
55.80 56.86 60.45 69.83 69.42 73.59 75.14
10.10 9.47 9.19 N/A N/A N/A N/A
12.74 11.76 10.10 N/A N/A N/A N/A
12.73 16.94 14.27 13.70 15.32 14.40 13.94
</TABLE>
5
<PAGE> 56
<TABLE>
<CAPTION>
- - - - - ---------------------------------------------------------------------------------------------------------------------------------
TABLE D
NET INTEREST INCOME - TAXABLE EQUIVALENT BASIS
Year ended December 31,
- - - - - ----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991 1990 1989
------------------------------------------------------------------------------------------------------------
AVERAGE Average Average Average Average
BALANCE RATE Balance Rate Balance Rate Balance Rate Balance Rate
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets $9,894,662 8.33% $8,779,981 9.53% $8,199,195 10.69% $5,461,938 11.46% $5,318,800 11.26%
============================================================================================================
Financed by:
Interest
bearing funds $8,097,004 3.46% $7,277,051 4.12% $6,816,787 5.68% $4,325,229 6.51% $4,264,665 7.10%
Non-interest
bearing funds 1,797,658 1,502,930 1,382,408 1,136,709 1,054,135
------------------------------------------------------------------------------------------------------------
Total $9,894,662 2.83% $8,779,981 3.42% $8,199,195 4.72% $5,461,938 5.16% $5,318,800 5.69%
============================================================================================================
Net interest income $ 544,471 $ 536,485 $ 489,541 $ 344,307 $ 296,116
============================================================================================================
Spread 4.87% 5.41% 5.01% 4.95% 4.16%
Net interest yield 5.50 6.11 5.97 6.30 5.57
- - - - - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- Higher income tax expense due to a higher pre-tax income and
the effect of the tax calculation required by SFAS 109
"Accounting for Income Taxes".
- Higher other operating expenses, mainly personnel
costs, due to the inclusion of the salaries of the acquired
operations, a special bonus paid to the employees of the
subsidiary Bank on its 100th anniversary and the accrual for
postretirement health benefits for the year 1993 as required
by SFAS 106 "Accounting for Postretirement Benefits Other than
Pensions". In addition, the increased business activity of the
Corporation together with the launching of new products and
services led to increases in other expense categories.
- The cumulative effect of accounting changes due to the
implementation of SFAS 109 which resulted in a credit to
income of $28.9 million, partially offset by the recognition of
the full transition obligation for postretirement benefits
required by SFAS 106 which amounted to $22.7 million, net of
deferred taxes. The net effect of these changes was an
increase of $6.2 million in net income.
NET INTEREST INCOME
Net interest income, the principal source of earnings for the
Corporation, represents the excess of the interest earned on earning assets
over the interest paid on rate-related liabilities. The net interest income is
affected by the changes in the balance sheet structure of the Corporation,
principally in the volume and composition of earning assets and interest
bearing liabilities, the rates earned or paid on these assets and liabilities,
and the maturity and repricing of these financial instruments. The latter is
of particular significance in years such as 1993 when the interest rates
declined to the lowest points in three decades. The Corporation constantly
monitors and manages the composition and maturity structure of its assets and
liabilities in order to minimize the impact of the above circumstances on its
net interest income.
For the year ended December 31, 1993, net interest income totaled
$492.1 million compared with $440.2 million for the same period in 1992, an
increase of $51.9 million. In 1991 the net interest income of the Corporation
amounted to $407.8 million. On a taxable equivalent basis, the net interest
income rose to $544.5 million for 1993, from $536.5 million in 1992 and $489.5
million in 1991. The rise resulted from an increase of $73.5 million due to the
growth and change in the composition of average earning assets partially
offset by a reduction of $65.5 million due to lower taxable equivalent yields.
The net interest yield, on a taxable equivalent basis, was 5.50% for 1993
compared with 6.11% a year ago and 5.97% in 1991.
In order to present all the interest data on a comparable basis,
interest income on tax exempt assets has been converted to a taxable equivalent
basis assuming an income tax rate of 42%. An analysis of net interest income
is presented in Table D.
Average earning assets for 1993 increased to $9,895 million, compared
with $8,780 million in 1992 and $8,199 million in 1991. On a taxable equivalent
basis, interest income amounted to $824.5 million compared with $836.6 million
for the year before. The yield on earning assets, on a taxable equivalent
basis, for 1993 was 8.33%, a decrease of 120 basis points from the taxable
equivalent yield of 9.53% in 1992. In 1991 the taxable equivalent yield on
earning assets was 10.69%.
Average loans in 1993 amounted to $5,700 million and represented 57.6%
of total average earning assets, a slight change from the 1992 ratio of 58.7%.
Average loans for 1992 were $5,150 million. The rise of $549.7 million in
average loans consists of increases of $405.7 million in mortgage loans, $144
million in commercial and construction loans and $65.4 million in lease
financings. Average consumer loans, conversely, were $65.4 million lower than
in 1992. The rise in average mortgage loans was mainly due to the acquisition
of nearly $358 million in mortgage loan portfolios in the U.S., together with a
significant mortgage origination and refinancing activity in Spring and in the
subsidiary Bank, given the low interest rate environment. The latter also
affected the volume of consumer loans due to the large amount of consumer debt
refinanced through residential mortgage loans. Average loans in 1991 totaled
$5,302 million.
6
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<TABLE>
<CAPTION>
- - - - - --------------------------------------------------------------------------------------------------------------------------------
TABLE E
INTEREST VARIANCE ANALYSIS - TAXABLE EQUIVALENT BASIS
1993 vs. 1992 1992 vs. 1991
- - - - - --------------------------------------------------------------------------------------------------------------------------------
(In thousands) Increase (Decrease) Due to Change in: Increase (Decrease) Due to Change in:
-----------------------------------------------------------------------------------------------
Volume Rate Total Volume Rate Total
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Federal funds sold and securities
and mortgages purchased under
agreements to resell ($ 736) ($ 410) ($ 1,146) $ 4,265 ($ 3,648) $ 617
Time deposits with other banks (6,094) (740) (6,834) (12,252) (7,541) (19,793)
Investment securities 59,181 (92,257) (33,076) 83,525 (41,438) 42,087
Trading securities 98 48 146 (174) (173) (347)
Loans 47,873 (19,122) 28,751 (16,986) (45,633) (62,619)
-----------------------------------------------------------------------------------------------
Total interest income 100,322 (112,481) (12,159) 58,378 (98,433) (40,055)
-----------------------------------------------------------------------------------------------
Interest expense:
Savings and NOW accounts 18,812 (20,305) (1,493) 25,021 (29,240) (4,219)
Other time deposits (10,669) (21,767) (32,436) (14,385) (51,738) (66,123)
Short-term borrowings 13,998 (3,326) 10,672 1,763 (21,194) (19,431)
Long-term borrowings 4,634 (1,515) 3,119 5,853 (3,079) 2,774
-----------------------------------------------------------------------------------------------
Total interest expense 26,775 (46,913) (20,138) 18,252 (105,251) (86,999)
-----------------------------------------------------------------------------------------------
Net interest income $ 73,547 ($ 65,568) $ 7,979 $ 40,126 $ 6,818 $ 46,944
===============================================================================================
</TABLE>
Note: The changes that are not due solely to volume or rate are allocated to
volume and rate based on the proportion of the change in each category.
- - - - - ----------------------------------------------------------------------------
The average yield on loans for 1993 was 9.75% on a taxable equivalent basis,
representing a reduction of 48 basis points when compared with 1992. The most
significant reduction was in the mortgage loans yield which decreased 106 basis
points due to the origination and acquisition of a large portion of the
portfolio during the current low interest rate scenario. The taxable equivalent
yields on construction, commercial and consumer loans declined 41, 39 and 15
basis points, respectively, while the yield on lease financings rose five basis
points.
Average investment securities for 1993 totaled $4,010 million, an increase of
$748.5 million from the average recorded in 1992. Most of this increase was in
the U.S. Treasury securities portfolio, mainly due to the Corporation's
strategy of moving funds to tax exempt assets whose yields were more attractive
during the prevailing interest rate scenario. Other securities also rose,
particularly as a result of the acquisition of several CMO during the year.
Average investment securities for 1992 and 1991 were $3,262 million and $2,382
million, respectively. The taxable equivalent yield on investment securities
decreased from 9.04% in 1992 to 6.53% in 1993. The decrease in yield resulted
from the maturity, during the last quarter of 1992, of approximately $400
million in investment securities whose taxable equivalent yield exceeded 10%.
These securities, acquired at the end of 1987, provided higher tax benefits to
the Corporation since they were not subject to interest expense disallowance
for regular income tax, based on the provisions of the Puerto Rico Income Tax
Reform Act of 1987. In addition, the repricing and growth in the investment
portfolio during a period of lower interest rates also led to the decline in
yield.
Average money market investment decreased $185.2 million in 1993, from $362
million in 1992 to $176.8 million. In 1991 these investments averaged $506.5
million. The yield on these securities also declined 34 basis points during the
year.
Average interest bearing liabilities were $8,097 million for 1993, an
increase of 11.3% or $820 million from the average of $7,277 million for 1992.
In 1991, these liabilities averaged $6,817 million. Total interest expense for
1993 decreased $20.1 million or 6.7% despite the increase in average interest
bearing liabilities.
Total deposits averaged $8,125 million in 1993, increasing $483.8 million or
6.3% from the 1992 average of $7,641 million. Average non-interest bearing
deposits rose $165.1 million or 11.2%. Average interest bearing deposits grew
$318.7 million or 5.2%. The increase in average deposits is principally
related to the full-year effect of the acquisition of approximately $600
million in deposits from American Savings Bank of New York (American Savings)
in June 1992, together with the acquisitions of deposits in New York and the
Virgin Islands in 1993, as previously mentioned. Average deposits for 1991
were $7,198 million.
The core deposit base of the Corporation increased substantially during the
year. Average savings accounts grew $448.8 million or 22% and NOW, Super NOW
and money market accounts rose $122.4 million or 12.8%. The average cost of
these accounts decreased 58 and 71 basis points, respectively, as a result of
revisions made to their pricing structure throughout 1993. Certificates of
deposit decreased $258.8 million or 9.1%, particularly due to the shift of
customers' funds from time deposits to savings and NOW accounts. The average
cost of certificates of deposit declined 70 basis points from 4.50% in 1992 to
3.80% in 1993. Other time deposits remained stable during the year, showing an
increase of only $6.2 million in their average balance, while their average
cost declined 89 basis points to 4.13% in 1993. As a result of the
7
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<TABLE>
<CAPTION>
- - - - - ---------------------------------------------------------------------------------------------------------------------------------
TABLE F
OTHER OPERATING INCOME
Year ended December 31,
- - - - - ---------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991 1990 1989
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 68,246 $ 63,064 $ 55,000 $36,031 $33,074
Other service fees:
Credit card fees and discounts 16,818 16,795 15,268 11,447 10,805
Other fees 27,054 25,696 24,066 17,336 12,230
Other income 11,644 18,324 18,064 6,051 3,441
------------------------------------------------------------------------------------------
Total $ 123,762 $123,879 $112,398 $70,865 $59,550
==========================================================================================
Other operating income
to average assets 1.16% 1.30% 1.26% 1.21% 1.05%
Other operating income
to operating expenses 30.02 33.76 32.51 30.87 28.72
- - - - - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
above, the average cost of interest bearing deposits decreased 73 basis points,
from 4.11% in 1992 to 3.38% in 1993.
Average short-term borrowings increased $434.1 million. Most of this
increase was in the subsidiary Bank due to higher balances of federal funds
purchased and securities sold under agreements to repurchase. The rise in these
borrowings resulted mainly from a higher volume of arbitrage activities. In
addition, the average volume of commercial paper issued by the parent company
rose $76.5 million. The average rate on short-term borrowings decreased 34
basis points, from 3.51% in 1992 to 3.17% in 1993.
Long-term debt averaged $67.2 million more in 1993. The increase resulted
from a higher amount of medium term notes issued to finance Spring's
operations. The average cost of the long-term debt for 1993 was 6.74%,
decreasing 70 basis points from the average cost of 7.44% for 1992.
The average cost of funding earning assets decreased 59 basis points,
reaching 2.83% compared with 3.42% in 1992 and 4.72% in 1991.
SECURITY AND TRADING GAINS
Beginning in the second quarter of 1992, the Corporation classifies investment
securities which management believes may be sold prior to maturity for
asset/liability management purposes, as securities available for sale. These
securities are carried at the lower of cost or market value. At the end of
1993 these securities amounted to $714.6 million and the market value exceeded
their cost by $19.2 million. Securities that are acquired to speculate with
short-term price movements are carried in a separate trading account and are
marked to market on a monthly basis.
During 1993, the Corporation sold $83.2 million of the investment
securities available for sale and $11.6 million of the investment securities
for a gain of $0.9 million. During 1992, $43.1 million in investment
securities were sold for a net gain of $0.2 million. Trading account activities
for the year ended on December 31, 1993, resulted in profits of $0.6 million
compared with profits of $0.4 million obtained in 1992.
OTHER OPERATING INCOME
Other operating income, which consists primarily of service charges on deposit
accounts, credit card fees, other fee-based services and other revenues,
decreased slightly from $123.9 million in 1992 to $123.8 million in 1993. In
1991, these revenues totaled $112.4 million.
Service charges on deposit accounts, which represented 55% of the
Corporation's other operating revenues, rose to $68.2 million for the year
ended December 31, 1993, from $63.1 million in 1992 and $55 million in 1991. As
a percentage of average deposits, service charges increased to 0.84% in 1993
from 0.83% in 1992 and 0.76% in 1991. The increase in service charges was
primarily attributed to the implementation of a fee on automatic teller
machines in the second quarter which contributed $2.5 million, an increase of
$1.7 million in consumer checking accounts fees due to revisions made to their
fee structure and to a higher customer base, and an increase of $0.6 million in
service charges on commercial accounts. The increase in service charges on
deposit accounts in 1992 was basically in commercial accounts as a result of
the revisions made in their fee structure.
Other service fees, which represented 35.4% of the total other operating
income for the year, increased $1.4 million or 3.3%, from $42.5 million in 1992
to $43.9 million in 1993. This increase is mainly related to an increase of
$1.0 million in credit life insurance fees due to a higher loan origination
volume. The increase in other service fees in 1992 was mostly in credit cards,
which grew $1.5 million, and in the fees realized by Spring.
Other operating income for the period ended December 31, 1993, decreased
$6.7 million from $18.3 million reported in 1992 to $11.6 million. During 1992,
the Corporation realized a $4.4 million gain on the sale of $86 million on
mortgage loans through a grantor trust. In addition, during 1993 the subsidiary
Bank recorded adjustments totaling $2.6 million to reflect the reduction in the
market value of the excess servicing recognized in 1992 upon the sale of
mortgages previously mentioned. These adjustments resulted from higher than
expected mortgage prepayments due to the declining interest rate scenario that
prevailed in 1993. In 1991, other operating income was $18.1 million and
included a gain of $3.1 million realized in the sale of leases through a
grantor trust.
As shown in Table F, this decrease had a direct effect on the ratio of
other operating income to operating expenses which declined to 30.02% in 1993
from 33.76% in 1992. Also, the ratio of other operating income to average
assets declined to 1.16% in 1993, compared with 1.30% in 1992 and 1.26% in
1991.
8
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<TABLE>
<CAPTION>
- - - - - ----------------------------------------------------------------------------------------------------------------------------
TABLE G
OPERATING EXPENSES
Year ended December 31,
- - - - - ----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991 1990 1989
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries $151,432 $134,709 $129,928 $ 92,910 $ 86,654
Pension and other benefits 44,713 36,484 37,626 23,269 18,469
Profit sharing 19,766 17,041 13,080 15,143 12,309
-------------------------------------------------------------------------------------
Total personnel costs 215,911 188,234 180,634 131,322 117,432
-------------------------------------------------------------------------------------
Equipment expenses 27,964 23,813 22,755 16,524 15,763
Professional fees 27,302 22,558 19,254 16,114 13,763
Net occupancy expense 26,085 25,442 22,497 12,205 9,717
Communications 18,203 17,048 17,377 12,172 11,369
Business promotion 16,638 12,548 10,723 8,963 9,528
Amortization of intangibles 16,176 14,888 13,687 384
Other taxes 15,996 14,608 13,049 9,788 7,832
Printing and supplies 8,189 7,290 8,349 5,524 6,112
Other operating expenses:
FDIC assessment 17,802 16,372 15,007 5,809 3,744
Transportation and travel 3,554 3,136 3,150 2,151 2,440
All other 18,456 21,008 19,256 8,607 9,676
-------------------------------------------------------------------------------------
Subtotal 196,365 178,711 165,104 98,241 89,944
-------------------------------------------------------------------------------------
Total $412,276 $366,945 $345,738 $229,563 $207,376
=====================================================================================
Personnel costs to average assets 2.02% 1.98% 2.02% 2.25% 2.07%
Operating expenses to average assets 3.86 3.85 3.86 3.93 3.65
Assets per employee (in millions) $1.55 $1.44 $1.28 $1.29 $1.18
- - - - - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
OPERATING EXPENSES
Total operating expenses for 1993 increased $45.3 million or 12.3%, reaching
$412.2 million from $366.9 million in 1992. As a percentage of average assets,
operating expenses have remained stable throughout the last three years,
representing 3.86% in 1993, 3.85% in 1992 and 3.86% in 1991. Total operating
expenses were $345.7 million during 1991. Table G presents a detail of
operating expenses for the last five years.
The increase of $45.3 million in total operating expenses is partially
related to corporate growth and acquisitions, the recognition of the current
year's expense for postretirement health benefits and the expenses related to
the celebration of the subsidiary Bank's 100th anniversary. During the year,
the operating expenses of Spring increased $3.4 million or 42%, primarily
related to the opening of 17 branches. Also, the branches acquired from
American Savings in June 1992 had additional expenses of approximately $2.8
million in 1993 and the expenses of the operations acquired during 1993
amounted to approximately $4 million.
Personnel costs, which represent 52.4% of the total operating expenses for
1993, increased $27.7 million or 14.7%, compared with $188.2 million in 1992
and $180.6 million in 1991.
The increase in personnel costs is mainly attributed to an increase of
$16.7 million in salary expense. Salaries increased $4.1 million due to the
aforementioned acquisitions and growth, $3.7 million due to the payment of a
special bonus to employees on the subsidiary Bank's 100th anniversary and $3.1
million in incentive compensation. Also, annual merit increases contributed to
the rise in salary expense.
Full-time equivalent employees (FTE) amounted to 7,439 at December 31,
1993, up 474 from 6,965 at the end of 1992. The increase in FTE results mainly
from 162 employees retained in the operations acquired in the Virgin Islands
and an increase of 118 employees in the operations of Spring.
Employee benefits, including profit sharing, rose $10.9 million to $64.4
million in 1993, compared with $53.5 million in 1992 and $50.7 million in 1991.
This increase is primarily the result of an improvement in the subsidiary
Bank's profitability ratios which led to a higher profit sharing expense by
$2.7 million and to the recognition of the $5.2 million postretirement health
benefit expense required by SFAS 106. Excluding the effect of SFAS 106, pension
and other benefits increased $2.9 million which is related to a rise in social
security tax due to the higher salary base, an increase in staff activities
related to the subsidiary Bank's 100th anniversary, and an increase in staff
trainings due to the Total Quality Management Program which began in late 1992.
During the first quarter of 1993, the Corporation implemented the Statement
of Financial Accounting Standard (SFAS) 106 "Employers Accounting for
Postretirement Benefits other than Pensions". This new accounting standard
requires that employers accrue the expected cost of retiree health care and
other postretirement benefits, including the transition obligation which is the
portion of future retiree benefit costs related to services already rendered by
both active and retired employees up to the date of adoption of the statement.
The Corporation elected to recognize the full transition obligation in 1993, as
permitted by
9
<PAGE> 60
- - - - - -------------------------------------------------------------------------------
SFAS 106, resulting in an expense of $22.7 million, net of taxes, which is
presented in the financial statements as a cumulative effect of accounting
changes. In addition, the Corporation recorded $5.2 million corresponding to
the current portion of the expense related to the services rendered during
1993.
All other operating expenses increased 9.9% to $196.4 million compared with
$178.7 million during 1992. In 1991, these expenses totaled $165.1 million.
The most significant increases were $4.2 million in equipment expenses, $4.7
million in professional fees and $4.1 million in business promotion.
The increase in equipment expenses correspond to the additional investment
in equipment, mostly electronic related, for the development of new products
and services. During the year, the Corporation expanded significantly the
installation of point of sales (POS) terminals throughout the island.
Furthermore, an electronic payment service was introduced where customers can
pay bills through the telephone. Business expansion and acquisitions also
contributed to this increase.
Professional fees also increased due to the above mentioned initiatives
that resulted in higher legal fees, software costs and other consulting
services.
The increase in business promotion is due to the advertising campaigns
initiated to support the new products being offered and the business expansion
in New York, and to the expenses of the different activities associated with
the celebration of the subsidiary Bank's 100th anniversary.
Other captions showing increases were other taxes, mainly due to the
increase in tax rates for property and municipal license tax in Puerto Rico,
FDIC assessment, for the increase in deposit base, and amortization of
intangibles, for the premiums paid on the acquired operations.
INCOME TAX EXPENSE
Effective January 1, 1993, the Corporation adopted SFAS 109. This standard
requires an asset and liability approach to accounting for income taxes. The
objective of SFAS 109 is to recognize the amount of taxes payable or refundable
in the current year and to recognize deferred tax liabilities and/or assets for
the future tax consequences of events that have been recognized in the
financial statements or tax returns. The measurement of current and deferred
tax liabilities or assets is based on the regular tax rates and provisions of
the enacted tax laws. At the date of adoption of SFAS 109, the Corporation
recorded a credit to income and a deferred tax asset of $28.9 million mainly
due to alternative minimum tax credits and tax loss carryforwards that the
Corporation had available. Prior to 1993, the Corporation determined its
income tax provision under SFAS 96 whereby the income tax expense was basically
the same as the Corporation's income tax liability.
At December 31, 1993, the Corporation's net deferred tax asset amounted to
$35.9 million. The Corporation recorded this deferred tax asset because, based
on the available evidence, it is more likely than not that the asset will be
realized.
The income tax expense for the year ended December 31, 1993, amounted to
$28.2 million compared with $14.3 million for the year before and $6.8 million
in 1991. The effective tax rate rose to 21.30% from 14.24% in 1992. The
increase of $13.9 million is directly related to a higher amount of pre-tax
earnings and to the tax calculation methodology prescribed by SFAS 109, which
is based on the regular tax rate. In 1991, the effective tax rate was 9.41%
which was affected by tax losses realized on the sale of loans to less
developed countries (LDC) acquired on the merger and by a higher amount of loan
losses.
The difference between the effective tax rates and the statutory rate,
which in Puerto Rico is 42%, is primarily due to the interest income earned on
certain investments and loans which is tax exempt, net of the related interest
expense disallowance.
Please refer to Note 21 of the Financial Statements for additional
information on the deferred tax asset and the provision for income taxes.
BALANCE SHEET COMMENTS
Total assets at December 31, 1993, were $11,513 million, representing an
increase of 15.1% over the 1992 level of $10,002 million. Total assets at
December 31, 1991, amounted to $8,780 million. Average total assets for 1993
amounted to $10,684 million, compared with $9,529 million in 1992 and $8,944
million in 1991.
Earning assets at December 31, 1993, amounted to $10,658 million compared
with $9,236 million at December 31, 1992, and $8,033 million at December 31,
1991. Loans, which represented 59.6% of the total earning assets at year-end,
amounted to $6,347 million compared with $5,252 million at the end of 1992 and
$5,196 million at the same date of 1991. The increase in loans is principally
due to a significant growth of $785.2 million or 99.3% in mortgage loans, as
previously explained. Mortgage loans represented 24.8% of total loans as of
December 31, 1993, compared with 15.1% in 1992. This rise should result in an
improved credit quality on loans since, based on experience, the Corporation
expects low levels of losses on its mortgage portfolio.
Money market, investments and trading securities totaled $4,311 million at
year-end compared with $3,984 million at the end of 1992, an increase of 8.2%.
Investment securities totaled $4,045 million at the end of 1993 of which
$714.6 million were carried at the lower of cost or market compared with
$408.1 million at December 31, 1992.
During the first quarter of 1994, SFAS 115 "Accounting for Certain
Investments in Debt and Equity Securities" will be implemented. This statement
supersedes SFAS 12 and specifically addresses the accounting and reporting for
certain investments in debt and equity securities. It requires depository
institutions to divide their securities holdings among three categories:
held-to-maturity, available-for-sale and trading securities. Those securities
which management has the positive intent and ability to hold to maturity will
be classified as held-to-maturity and will be carried at cost. Those that are
bought and held principally for the purpose of selling them in the near term,
will be classified as trading and will continue to be reported at fair value
with unrealized gains and losses included in earnings. All other securities
will be classified as available-for-sale and will be reported at fair value
with unrealized gains and losses excluded from earnings and reported as a
separate component of shareholders' equity. As a result of the adoption of
this statement, the Corporation estimates an increase in shareholders' equity
of approximately $14.4 million, net of $4.8 million in deferred taxes.
Other assets increased from $64.9 million at December 31, 1992, to $95.8
million at December 31, 1993, an increase of $30.9 million. As previously
explained, during this year the Corporation adopted SFAS 109 which resulted in
the recognition of a net deferred tax asset of $35.9 million as of December 31,
1993.
10
<PAGE> 61
<TABLE>
<CAPTION>
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
TABLE H
LOANS AVERAGE BALANCES
For the Year
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
(In thousands) 1993 1992 1991 1990 1989
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, industrial and
agricultural $2,203,304 $2,039,205 $2,037,960 $1,341,528 $1,191,335
Construction 160,539 180,652 205,816 89,289 78,506
Lease financing 339,309 273,882 286,388 36,333 19,143
Mortgage 1,169,881 764,175 649,564 340,156 278,560
Consumer 1,827,036 1,892,414 2,122,460 1,570,157 1,564,623
--------------------------------------------------------------------------------------------------
Total $5,700,069 $5,150,328 $5,302,188 $3,377,463 $3,132,167
==================================================================================================
</TABLE>
On the liability side, total deposits increased $483.9 million or 6%, from
$8,039 million at December 31, 1992, to $8,523 million at the same date of
1993. Total deposits as of December 31, 1991, amounted to $7,207 million.
Accounting for this year's increase in deposits were $126 million in deposits
acquired in New York on July 30, 1993, and $228.8 million acquired in Virgin
Islands on September 30, 1993.
Core deposits continued to grow reaching $6,954 million at December 31,
1993, compared with $6,295 million a year before. This rise was principally
due to an increase of $234.1 million in non-interest bearing deposits and
$421.5 million in savings accounts. NOW and money market accounts rose $99.1
million, while certificates of deposit of less than $100,000 decreased $95.9
million. Certificates of deposit of $100,000 and over decreased $174.8
million.
Borrowings increased $907.6 million as compared with prior year. This rise
is mainly due to an increase of $631.5 million in the amount of federal funds
purchased and securities sold under agreements to repurchase due to the
existence of profitable arbitrage opportunities. Also, the issuance of an
additional $176.4 million in medium-term notes by BanPonce Financial to finance
Spring's operations and an increase of $31.1 million in commercial paper,
contributed to the rise in borrowings.
Subordinated notes decreased $12 million from the $74 million outstanding
balance as of December 31, 1992, due to the prepayment in December of 1993 of a
7.95% note which matured in 1994.
Other liabilities increased from $132.5 million at the end of 1992 to $182.4
million at the same date in 1993, an increase of $49.9 million or 37.6%. This
increase is primarily attributed to the recognition of the obligation under
SFAS 106, which amounted to $42.7 million at December 31, 1993.
The analysis of the Corporation's balance sheet components will focus on
three major topics: Credit Risk Analysis, Asset and Liability Management and
Stockholders' Equity.
CREDIT RISK ANALYSIS
CREDIT MANAGEMENT
The acceptance and management of credit risk is an integral part of the
Corporation's business activities. The Corporation has established strict
credit underwriting standards to monitor the loan granting process and the
subsequent performance of the loan portfolio. The risk concentration is also
closely monitored by the Corporation.
The Corporation's Credit Review and Audit Division provides an independent
and objective assessment of the loan portfolio's credit quality. This division
also manages the credit rating system, the major credit risk monitoring tool,
and tests the adequacy of the allowance for loan losses.
During 1993, the commercial portfolio reflected a significant improvement
in the level of delinquencies, charge-offs and recoveries. The Commercial
Credit Administration Division closely monitors the compliance with the lending
policies and procedures to assure the timely detection of problem loans and
loss exposure risk. During 1994, a commercial credit training center will be
established to continue enforcing the policies of maintaining a highly skilled
and experienced staff and assuring the consistent application of sound credit
standards.
The emphasis of the Consumer Credit Area continues to be on credit quality.
The delinquency and net credit losses on this portfolio have also improved
considerably over the last two years. In addition, a shift in the consumer
portfolio from an unsecured to a secured basis, primarily mortgage and
cash-secured loans, has been achieved. For 1994, credit quality will continue
to be emphasized through additional training and improved processing
technology.
The Corporation's credit risk is well balanced as its credit policies
emphasize diversification among geographic areas, business and industry groups.
The loan risk exposure is spread among individual consumers, small commercial
loans and a diverse base of borrowers engaged in a wide variety of businesses.
The Corporation has over 780,000 consumer loans and over 32,000 commercial
lending relationships. Of these, only 21 relationships have loans outstanding
over $10 million. Highly leveraged transactions and credit facilities to
finance speculative real estate ventures are minimal and there are no LDC
loans. The portfolio composition at the end of 1993 was as follows; 37% in
commercial loans, 2% in construction loans, 30% in consumer loans, 25% in
residential mortgage loans and 6% in lease financing as compared with 41%, 3%,
35%, 15%, and 6%, respectively, in 1992.
The following risk concentration categories existed at year-end. Only
those concentrations with portfolio totals in excess of the Corporation's
stockholders'equity are presented.
11
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Geographic Risk - The bulk of the Corporation's business activities and credit
exposure is concentrated with customers in Puerto Rico. The Island's
economic prospects are generally regarded as stable to improving and the
Government of Puerto Rico and its instrumentalities are all
investment-grade rated borrowers in the United States capital markets.
However, the Corporation has been increasing its market outside of Puerto
Rico, which now represents 18% of the Corporation's total assets. The
Corporation operates the largest Hispanic bank branch network in the United
States mainland with 30 branches in New York, one in Chicago and one in Los
Angeles. It also operates eight branches in the U.S. and British Virgin
Islands and continues to add geographic and business diversity through
controlled acquisitions of other operations. Spring Financial, a consumer
financial operation acquired in 1991, now has 58 branches in 14 states,
primarily in the Mid-Atlantic Region. In addition, during 1993 the
Corporation acquired several branches in New York and in the Virgin
Islands. These acquisitions added $234 million in assets and $401.6
million in deposits to our operations outside of Puerto Rico. Furthermore,
the Corporation has entered into a purchase agreement for the acquisition
of Pioneer Bank in Chicago, with approximately $341 million in assets and
$300 million in deposits. It has been the Corporation's philosophy of
generally limiting its lending activities to projects and borrowers within
its geographic regions. This has consistently resulted in acceptable
credit quality.
Consumer Credit Risk - Consumer credit risk arises from exposures to credit
card receivables, home mortgages, personal loans, and other installment
credit facilities. At year-end, consumer and residential mortgage loans
amounted to $1,872 million and $1,576 million, respectively, with $645
million in unused credit card lines. The lower charge-off amount for
consumer credit loans in 1993 reflects the consistent application of good
credit standards, plus enhanced collection systems. In 1994, management
will direct the efforts to continue increasing the secured portion of the
portfolio. At December 31, 1993, the secured consumer loan portfolio was
$702.6 million or 38% of the total portfolio compared with 34% at December
31, 1992.
Industry Risk - Total commercial loans, including commercial real estate loans,
amounted to $2,370 million at year-end. Commercial loans secured by real
estate, consisting primarily of residential, owner-occupied and income
producing properties, represented $894.2 million or 38% of the commercial
portfolio. Construction loans amounted to $153.4 million at year end.
During the last quarter of 1993 an uptick economic growth was confirmed.
The real estate activity in the mainland reached impressive levels as
compared with the economic environment of the last two years, when the
slow economy seriously affected this market. The real estate in Puerto
Rico has relative price stability and is expected to continue improving.
The Corporation's objective for 1994 in this area is to continue to be
highly selective in its underwriting of real estate-related credits. The
non real estate-related portion of the commercial loan portfolio amounted
to $1,476 million, with $1,140 million in unused commitments under lines of
credit to commercial, industrial and agricultural concerns. Commercial and
stand by letters of credit totalled $94.2 million at year-end. As
mentioned previously, there are no significant concentrations in any one
industry with a substantial portion of the customers having credit needs of
less than $100,000. Furthermore, there is only a limited number of
speculative and highly leveraged transactions in the commercial portfolio
and no LDC loans.
Government Risk - As of year-end, $3,543 million of the investment securities
represented exposure to the U.S. Government in the form of U.S. Treasury
securities and obligations of U.S. Government agencies and corporations. In
addition, $82.1 million of residential mortgages and $142.1 million in
commercial loans are insured or guaranteed by the U.S. Government or its
agencies. Furthermore, there are $256.7 million of investment securities
representing obligations of the Puerto Rico Government and political
subdivisions thereof with another $126.9 million of loans issued to or
guaranteed by these same entities.
LOANS
Loans at December 31, 1993 totaled $6,347 million, an increase of $1,095
million or 21% from prior year's total of $5,252 million. Total loans at
December 31, 1991, amounted to $5,196 million. Most of the increase in loans
is attributed to the mortgage loan portfolio which increased $785.2 million,
from $790.8 million at December 31, 1992, to $1,576 million at the end of this
year. Mortgage loans at December 31, 1991 totaled $683.5 million. Commercial,
lease financing and consumer loan portfolios increased 11.1% or $236.2 million,
19.3% or $60.8 million and 1.7% or $31.7 million, respectively, as compared
with the balances a year ago. However, the construction loans portfolio
reflected a decline of $19 million or 11% as compared with the prior year.
The increase in the mortgage loan portfolio was mainly due to the
acquisition of approximately $358 million in mortgage loan portfolios in the
New York operations and the high level of mortgage originations and refinancing
activities in 1993 resulting from the low interest rate environment that has
prevailed. Furthermore, mortgage loan figures include $54.8 million in loans
acquired on September 30, 1993, as part of the operations acquired in the
Virgin Islands. During 1993, a mortgage loan division was established in the
subsidiary Bank's New York operations to continue pursuing the Corporation's
strategy of increasing its share of mortgage-secured loans.
The commercial loan portfolio consists primarily of commercial and
industrial loans and commercial loans secured by real estate. At December 31,
1993, commercial loans, including commercial loans secured by real estate,
amounted to $2,370 million, compared with $2,133 million a year ago and $1,996
million at the end of 1991. The rise in the commercial portfolio was primarily
due to an improved economic environment that led to an increase of $104 million
in the retail and middle market portfolio, and the strong marketing efforts
directed to the origination of Government Guaranteed Loans. During 1993, these
loans increased approximately $40 million, primarily loans guaranteed by the
Small Business Administration (SBA). Also, $46.7 million in commercial loans
were acquired in the purchased Virgin Island operations. Commercial loans to
Fortune 500 and multinational corporations remained stable, totalling $652.3
million as of December 31, 1993, as compared with $647.3 million at the end of
1992.
12
<PAGE> 63
<TABLE>
<CAPTION>
- - - - - ----------------------------------------------------------------------------------------------------------------------------------
TABLE I
NON-PERFORMING ASSETS
As of December 31,
- - - - - ----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991 1990 1989
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, industrial and
agricultural $ 49,517 $ 62,662 $ 79,642 $ 61,328 $ 25,245
Construction 8,215 8,798 8,213 6,297 1,547
Lease financing 4,429 4,752 5,449 405
Mortgage 14,363 11,532 10,374 5,581 1,918
Consumer 16,290 20,597 25,049
Renegotiated accruing loans 5,643 8,380 520
Other real estate 12,699 15,582 7,012 6,666 1,460
---------------------------------------------------------------------------------------
Total $111,156 $132,303 $136,259 $ 80,277 $ 30,170
=======================================================================================
Accruing loans past-due
90 days or more $ 15,505 $ 23,957 $ 32,658 $ 57,355 $ 28,162
=======================================================================================
Non-performing assets to loans 1.75% 2.52% 2.62% 1.50% 0.92%
Interest lost $ 4,992 $ 7,548 $ 10,983 $ 6,869 $ 3,771
</TABLE>
Note: The Corporation's policy is to place commercial and construction loans
on non-accrual status if payments of principal or interest are
past-due 60 days or more. Lease financing receivables and conventional
residential mortgage loans are placed on non-accrual status if
payments are delinquent 90 days or more. Closed-end consumer loans are
placed on non-accrual when they become 90 days or more past-due and
are charged-off when they are 120 days past-due. Open-end consumer
loans are not placed on non-accrual status and are charged-off when
they are 180 days past-due. Prior to 1991, the Corporation continued
to accrue interest on closed-end consumer loans until they were 120
days past-due, at which time they were sold for a percent of their
balance and the difference charged-off.
- - - - - --------------------------------------------------------------------------------
The lease financing portfolio amounted to $375.7 million as of December
31, 1993, compared with $314.9 million and $252.7 million as of December 31,
1992 and 1991, respectively. The rise in the truck and vehicle sales in Puerto
Rico contributed to the growth in this loan category.
It is expected that the commercial portfolio will continue to grow
moderately during 1994 primarily in the following economic sectors: service
industries, middle market and corporate loans, pre-export and export financing,
and government guaranteed loans. Furthermore, increases in loan demand are
expected in the agricultural and tourism sectors.
Consumer loans outstanding, which include personal, auto and boats,
credit cards, reserve lines and student loans, amounted to $1,872 million at
December 31, 1993, compared with $1,841 million at year-end 1992 and $2,069
million as of December 31, 1991. This growth reflects the acquisition of $29.8
million in consumer loans in the Virgin Islands and reflects also the effects
of a slowly improving economy and the strong marketing efforts during the year.
As a percentage of the total loan portfolio, consumer loans represented 30% at
the end of 1993 as compared with 35% and 40% as of December 31, 1992 and 1991,
respectively.
At the end of this year, the personal loan portfolio represented
approximately 54% of the total consumer loan portfolio. The personal loan
portfolio was comprised of about 22% in mortgage secured loans, 10% with cash
collateral and the remainder was unsecured. Emphasis on secured personal loans
during 1992 and 1993 increased the secured portion of the total personal loan
portfolio to 32% at the end of 1993, from 20% in 1991.
Auto and boat secured loans represent about 17% of the total consumer
loan portfolio, and revolving credit (credit cards plus reserve lines of credit)
are 24%. The remaining 5% is student loans and small dealer contracts.
In 1994, credit quality will continue to be emphasized through
additional training and improved processing technology. Sustained advertising
and promotions should spur growth in the personal loan and revolving credit
portfolios despite a continuously cautious consumer and a reduced, but still
high, consumerindebtedness. Consumers have chosen to refinance home mortgages
to cancel personal debts, also getting lower mortgage interest costs that are
tax deductible. Auto loans are expected to grow due to continued marketing
efforts and strong auto sales.
NON-PERFORMING ASSETS
Non-performing assets of the Corporation consist of past due loans on which no
interest income is being accrued, renegotiated loans, other real estate and
in-substance foreclosed assets. Non-performing assets at December 31, 1993,
totaled $111.2 million or 1.75% of loans. This represents a drop of $21.1
million or 16% from a year earlier when comparable amounts were $132.3 million
or 2.52% of loans. Non-performing loans at December 31, 1993, were $92.8
million or 1.46% of loans, down $15.5 million from $108.3 million or 2.06% a
year earlier. The allowance for loan losses as a percentage of non-performing
assets rose to 120.04% as of December 31, 1993, from 83.68% at the same date of
1992.
The reduction in non-performing assets was reflected mainly in the
commercial non-performing loans which decreased $13.1 million or 21% due to the
improved collection efforts of classified loans. Other non-performing loan
categories in which reductions were observed were consumer non-performing
loans, with a decrease of $4.3 million, and construction and lease
financing which
13
<PAGE> 64
- - - - - --------------------------------------------------------------------------------
decreased $0.6 million and $0.3 million, respectively. On the other hand,
non-performing mortgage loans increased $2.8 million mainly due to the rise in
the mortgage loan portfolio. The Corporation was able to reduce other real
estate owned by $2.9 million through the successful efforts in the disposition
of these properties. Table I presents the composition of non-performing assets
by category at the end of 1993 and the previous four years.
The Corporation reports its non-performing assets on a more conservative
basis than most U.S. banks. The Corporation's policy is to place commercial
loans on non-accrual status if payments of principal or interest are delinquent
60 days rather than the standard industry practice of 90 days. Lease financing
receivables and conventional mortgage loans are placed on non-accrual status if
payments are 90 days past-due. Closed-end consumer loans are placed on
non-accrual status if payments are delinquent 90 days, in order to comply with
Puerto Rico statutory requirements, and are charged-off against the allowance
when delinquent 120 days. Open-end (revolving credit) consumer loans are
charged-off if payments are delinquent 180 days. Certain loans which would be
treated as non-accrual loans pursuant to the foregoing policy are treated as
accruing loans if they are considered well secured and in the process of
collection.
Assuming the standard industry practice of placing commercial loans on
non-accrual status at 90 days past-due and not categorizing the aforementioned
closed-end consumer loans as non-accruing, the Corporation's non-performing
assets at December 31, 1993, would have been $80.9 million or 1.27% of loans,
and the allowance for loan losses would be 165.03% of non-performing assets.
At December 31, 1992, adjusted non-performing assets would have been $105.7
million or 2.01% of loans.
Accruing loans that are contractually past-due 90 days or more as to
principal or interest as of December 31, 1993, amounted to $15.5 million as
compared with $24 million in 1992. Renegotiated loans at December 31, 1993,
totaled $6.1 million of which $0.5 million were in non-accrual status. All
renegotiated loans are classified as non-performing assets.
Once a loan is placed on non-accrual status the interest previously accrued
and uncollected is charged against current earnings and thereafter, income is
recorded only to the extent of any interest collected. The interest income
that would have been realized had these loans been performing in accordance
with their original terms amounted to $5 million for 1993 compared with $7.5
million for 1992.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The Corporation maintains the allowance for possible credit losses at a level
which is considered adequate to absorb the potential credit losses inherent in
the portfolio. In determining the allowance for loan losses, management
considers the risk characteristics of the loan portfolio, historical loan loss
experience and the current and projected economic conditions. Based on this
evalutation and the current level of net charge-offs, a provision for loans
losses is recorded.
The provision for loan losses for 1993 totaled $72.9 million, compared with
$97.6 million in 1992 and $121.7 million in 1991. The reductions of $24.7
million or 25.3% as compared with prior year and $48.8 million or 40.1% as
compared with 1991, were due to a reduced level of charge-offs in the
portfolios as a result of the improvement in loan quality during the past two
years. Net charge-offs for the year totaled $51.7 million or 0.91% of average
loans, compared with $81.1 million or 1.58% in 1992 and $118.4 million or 2.23%
in 1991.
Net credit losses in the consumer portfolio reflected the major reduction.
Consumer loans net charge-offs declined $19.4 million or 51.1%, from $37.9
million in 1992 to $18.5 million in 1993. In 1991, consumer loans net
charge-offs amounted to $91.2 million. As a percentage of average consumer
loans, net charge-offs amounted to 1.02% in 1993, compared with 2% in 1992 and
4.30% in 1991. Most of this decrease was experienced in the personal loan
portfolio where net charge-offs decreased from $21.5 million or 2.28% of
average loans in 1992 to only $5.7 million or 0.65% in 1993. In 1991 personal
loans' net charge-offs were $54.4 million or 4.81% of loans. During 1993
delinquency and net losses on installment loans and credit cards continued
declining considerably. This trend was the result of the consistent application
of good credit standards through officer training and periodic lending reviews,
plus enhanced collection systems.
Commercial loan's net losses also reflected a reduction, decreasing $10.9
million or 31.9% during this year, from $34.1 million in 1992 to $23.2 million
in 1993. This decrease was caused mainly by lower losses on the retail and
middle market portfolios due to reduced bankruptcy levels and the
implementation of improved collection systems. In 1993, commercial loans net
charge-offs as a percentage of the average portfolio were 1.05% compared with
1.67% in 1992. In addition to the aforementioned reductions, lease financing
net charge-offs decreased $0.9 million, while construction and mortgage net
charge-offs rose $1.4 million and $0.4 million, respectively. The net
charge-offs on the mortgage portfolio were recorded by Spring.
Based on the improved loan quality and the expected improvement in the
economic environment, it is expected that net loan losses for 1994 will
continue decreasing.
Notwithstanding the decrease in the provision for loan losses, the
allowance for loan losses at December 31, 1993 totaled $133.4 million,
representing 2.10% of total loans, compared with $110.7 million or 2.11% a year
earlier and $94.2 million or 1.81% at year-end 1991. As a percentage of loans,
the allowance remained basically the same as in 1992 due to the fact that the
Corporation's loan quality has improved considerably and most of the increase
in loans resulted in the mortgage sector where losses have historically been
much lower. Broken down by major loan categories, the allowance for the last
four years was as follows:
ALLOWANCE FOR LOAN LOSSES
AT DECEMBER 31,
(In millions)
<TABLE>
<CAPTION>
1993 1992 1991 1990
---- ---- ---- ----
<S> <C> <C> <C> <C>
Commercial $ 64.0 $ 49.5 $34.4 $21.9
Construction 10.6 6.5 3.5 3.2
Lease financing 5.8 5.4 5.4 4.3
Consumer 52.0 49.3 50.9 59.9
Mortgage 1.0
------------------------------------
$ 133.4 $ 110.7 $94.2 $89.3
====================================
14
</TABLE>
<PAGE> 65
<TABLE>
<CAPTION>
- - - - - -------------------------------------------------------------------------------------------------------------
TABLE J
ALLOWANCE FOR LOAN LOSSES AND SELECTED LOAN LOSSES STATISTICS
(Dollars in thousands) 1993 1992 1991 1990 1989
- - - - - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 110,714 $ 94,199 $ 89,335 $ 40,896 $ 33,244
Allowance of acquired Corporation 43,932
Other allowances purchased 1,580 1,556 1,786
Provision for loan losses 72,892 97,633 121,681 53,033 42,603
--------------------------------------------------------------
185,186 191,832 212,572 139,647 75,847
--------------------------------------------------------------
Losses charged to the allowance
Commercial 29,501 37,700 24,849 12,578 12,974
Construction 3,060 1,887 2,450 587 125
Lease financing 9,150 10,139 4,316 20
Mortgage 477
Consumer 35,239 52,454 97,700 40,486 32,377
--------------------------------------------------------------
77,427 102,180 129,315 53,671 45,476
--------------------------------------------------------------
Recoveries
Commercial 6,279 3,577 4,300 1,414 7,234
Construction 607 796 50 801
Lease financing 2,081 2,169 154
Mortgage 36
Consumer 16,675 14,520 6,488 1,895 2,490
--------------------------------------------------------------
25,678 21,062 10,942 3,359 10,525
--------------------------------------------------------------
Net loans charged-off 51,749 81,118 118,373 50,312 34,951
--------------------------------------------------------------
Balance at end of year $ 133,437 $ 110,714 $ 94,199 $ 89,335 $ 40,896
==============================================================
Loans:
Outstanding at year-end $ 6,346,922 $5,252,053 $5,195,557 $5,365,917 $3,276,389
Average 5,700,069 5,150,328 5,302,189 3,377,463 3,132,167
Ratios:
Allowance for loan losses to year
end loans 2.10% 2.11% 1.81% 1.66% 1.25%
Recoveries to charge-offs 33.16 20.61 8.46 6.26 23.14
Net charge-offs to average loans 0.91 1.58 2.23 1.49 1.12
Net charge-offs earnings coverage 3.96x 2.44x 1.64x 2.50x 3.15x
Allowance for loan losses to net
charge-offs 2.58 1.36 0.80 1.78 1.17
Provision for loan losses to:
Net charge-offs 1.41 1.20 1.03 1.05 1.22
Average loans 1.28% 1.90% 2.29% 1.57% 1.36%
Allowance to non-performing assets 120.04 83.68 69.13 111.28 135.55
- - - - - -------------------------------------------------------------------------------------------------------------
</TABLE>
Table J summarizes the movement in the allowance for loan losses and presents
selected loan losses statistics for the past five years. As can be seen from
Table J, the Corporation continued strengthening its allowance position during
1993, improving its ratios of allowance to net charge-offs and non performing
assets to 258% and 120.04%, respectively, at December 31, 1993.
On May 1993 the Financial Accounting Standards Board issued SFAS 114,
"Accounting by Creditors for Impairment of a Loan". SFAS 114 addresses the
accounting by creditors for impairment of a loan by specifying how the
allowance for loan losses related to certain loans should be determined. Under
this standard a loan loss may be based on the present value of the loan's
expected future cash flows discounted at the loan's effective interest rate,
the loan's market price or the fair value of the collateral. If the loss is
measured using a discounted present value, the subsequent increase in present
value due to the passage of time will be reflected in the income statement
either as an adjustment to the provision for loan losses or as interest income.
If collateral value or market price of the loan is used to measure the
impairment, a subsequent change in value is treated as an adjustment to the
provision for loan losses. SFAS 114 is effective for fiscal years beginning
after December 15, 1994. At this time, management has not estimated the effect
of the adoption of this standard on the financial statements of the
Corporation.
15
<PAGE> 66
<TABLE>
<CAPTION>
- - - - - ---------------------------------------------------------------------------------------------------------------------------
TABLE K
MATURITY DISTRIBUTION OF EARNING ASSETS
As of December 31, 1993
- - - - - ---------------------------------------------------------------------------------------------------------------------------
Maturities
---------------------------------------------------------------
After one year
through five years After five years
---------------------------------------------------------------
Fixed Variable Fixed Variable
One year interest interest interest interest
(In thousands) or less rates rates rates rates Total
- - - - - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money market securities $ 262,692 $ 262,692
Investment and trading
securities 2,218,270 $1,635,127 $ 194,983 4,048,380
Loans:
Commercial 1,218,908 373,103 $365,019 342,439 $223,476 2,522,945
Lease financing 120,765 253,364 1,569 375,698
Consumer 611,395 1,113,012 147,828 1,872,235
Mortgage 142,804 514,184 919,056 1,576,044
-----------------------------------------------------------------------------------
Total $4,574,834 $3,888,790 $365,019 $1,605,875 $223,476 $10,657,994
===================================================================================
</TABLE>
ASSET/LIABILITY MANAGEMENT
The Corporation manages its assets and liabilities to minimize the impact of
volatile interest rates on net interest income. Changes in interest rates can
affect the level and stability of earnings. Therefore, the structure of the
balance sheet is monitored on a continuous basis to ensure that potential
earnings volatility remains within predetermined guidelines established by the
Board of Directors. The responsibility for protecting the level of the
Corporation's earnings and maintaining potential variations within Board
parameters resides with the Asset/Liability Committee (ALCO), which is
comprised of senior officers.
As specified in the Asset/Liability Management Policy, the ALCO's mandate
is to maximize net interest income while maintaining risk within the guidelines
detailed in the policy. A balanced position between rate sensitive assets and
rate sensitive liabilities over the one year period is generally called for by
the policy, although expected market opportunities occasionally occur and the
ALCO may adjust the Corporation's asset/liability position to take advantage of
them. Asset and liability mismatches are allowed only under policy guidelines
and are monitored closely by the ALCO. In addition, positions assumed can be
quickly adjusted if warranted by market conditions.
The ALCO convenes monthly to review the Corporation's earnings,
asset/liability position and current conditions in the financial markets, as
well as to analyze and adopt strategies to accomplish the Committee's
objectives. Monthly scenario analyses are run using a simulation model to
measure the impact of changes in interest rates and proposed strategies on net
interest income. The results from the monthly simulations help determine the
optimum strategy to adopt.
LIQUIDITY
The objective of liquidity management is to ensure the Corporation's ability to
fund the loan demands of customers, repay deposit withdrawals and maturities,
and finance its operations. Since the cost of liquidity increases
commensurately with its level, a main focus of liquidity management is
maintaining adequate liquid assets and sources of funds at a reasonable cost.
A substantial source of liquidity can be found in the Corporation's assets,
enhanced by the quality of the investment portfolio and the Corporation's
primary position in the local funds market. In addition, the Corporation has
immediate access to the U.S. money and capital markets.
The investment portfolio provides a significant source of liquidity to the
Corporation. Liquid assets include those that can be readily converted into
cash with minimal transaction costs or capital losses. The Corporation's
securities available for sale, which totalled $714.6 million at December 31,
1993, represent a highly accessible source of liquidity since they can be sold
in the secondary markets. In addition, the Corporation's investment securities
portfolio at year-end totalled $3,331 million of which 75.5% represents high
quality U.S. Treasury and Agency Securities, and 72% of these securities mature
in one year or less. These securities can be financed easily in the money
markets.
The Corporation's loan portfolio is also an important source of liquidity
as it generates a substantial amount of cash flows from payments of principal
and interest. As of December 31, 1993, $2,094 million or 33% of the total loan
portfolio was due within one year.
A substantial core deposit base is one of the Corporation's most important
sources of liquidity. These deposits include consumer and commercial demand
deposits, savings deposits and time deposits under $100,000. Core deposits are
more stable and reliable than institutional funds since they are not as
sensitive to fluctuations in interest rates and market conditions. As of
December 31, 1993, core deposits amounted to $6,954 million or 81.6% of total
deposits, which represents an increase of 10.5% as compared with the balance at
the end of year 1992. Certificates of deposit of
16
<PAGE> 67
<TABLE>
<CAPTION>
- - - - - -----------------------------------------------------------------------------------------------------------------------------
TABLE L
AVERAGE TOTAL DEPOSITS
For the Year
- - - - - -----------------------------------------------------------------------------------------------------------------------------
(In thousands) 1993 1992 1991 1990 1989
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Private demand $1,396,339 $1,265,230 $1,206,443 $ 872,124 $ 826,064
Public demand 235,323 201,218 172,722 144,867 149,972
Other non-interest bearing accounts 3,678 3,807 4,247 4,383 5,913
--------------------------------------------------------------------------------------
Non-interest bearing 1,635,340 1,470,255 1,383,412 1,021,374 981,949
--------------------------------------------------------------------------------------
Savings accounts 2,492,845 2,044,037 1,629,806 1,055,410 994,163
NOW and money market accounts 1,078,075 955,654 767,984 433,989 367,750
--------------------------------------------------------------------------------------
Savings deposits 3,570,920 2,999,691 2,397,790 1,489,399 1,361,913
--------------------------------------------------------------------------------------
Certificates of deposit:
Under $100,000 1,053,515 1,125,653 1,184,350 768,584 744,006
$100,000 and over 498,093 511,585 633,126 629,472 586,250
936 1,029,450 1,202,604 1,260,491 947,555 994,492
--------------------------------------------------------------------------------------
Certificates of deposit 2,581,058 2,839,842 3,077,967 2,345,611 2,324,748
--------------------------------------------------------------------------------------
Public time 124,629 155,715 181,019 132,128 81,531
Other time 212,938 175,620 157,999 50,910 32,650
--------------------------------------------------------------------------------------
Other time deposits 337,567 331,335 339,018 183,038 114,181
--------------------------------------------------------------------------------------
Interest bearing 6,489,545 6,170,868 5,814,775 4,018,048 3,800,842
--------------------------------------------------------------------------------------
Total $8,124,885 $7,641,123 $7,198,187 $5,039,422 $4,782,791
======================================================================================
</TABLE>
$100,000 and over amounted to 18.4% of total deposits and had the following
maturity distribution at year-end:
<TABLE>
<S> <C>
(In thousands)
3 months or less $1,206,188
3 to 6 months 144,475
6 to 12 months 113,190
over 12 months 104,847
----------
$1,568,700
==========
</TABLE>
Section 936 deposits comprise part of the Corporation's total deposit base
and amounted to $975.5 million or 11.4% of total deposits as of December 31,
1993. To avoid undue reliance on 936 funds, the Corporation has established
internal limits on the maximum amount allowed. Total Section 936 funds,
including deposits and repurchase agreements, amounted to $1,766 million as of
December 31, 1993, representing a 16.7% of total liabilities.
During the past year, the U.S. Internal Revenue Code was amended as part of
President William Clinton's economic program. Federal budget deficit reduction
is a primary objective of the program and Section 936 of the Code was revised
toward that goal. The revision basically reduced the tax credit associated with
the section throughout a period of several years. Eligible corporations
electing the credit may choose between a wage-based or income-based benefit.
Under the wage-based method, the tax credit is 65% of total wages and benefits
paid by the 936 corporations to their employees. Under the income-based
method, in 1994 the tax benefit will be 60% of the credit under the previous
law. In the subsequent four years, the income-based tax credit will be reduced
by 5% annually to 40% of the previous law's credit. The Corporation believes
that the amendments to the Code will not unduly affect the economy of Puerto
Rico considering its gradual implementation and still significant benefits.
To complement its liquidity and funding sources, on May 3, 1993, the
Corporation and some of its subsidiaries had ordered effective a "shelf"
registration filed with the Securities and Exchange Commission. Under this
registration these entities may issue unsecured debt securities, which may be
either senior or subordinated, and shares of preferred stock. The aggregate
initial offering under this registration may not exceed $400 million or, in the
case of debt securities, the equivalent thereof in one or more foreign
currencies, including composite currencies. The amounts, terms and timing of
offerings will be determined in the future when and as the corporations decide
to sell debt securities and/or shares of preferred stock under the
registration. In addition, at the beginning of 1994 the Corporation's
subsidiary Bank became member of the Federal Home Loan Bank of New York.
Through this membership, the Corporation has access to an additional source of
long-term funds at attractive rates.
INTEREST RATE SENSITIVITY
The level of net interest income of most financial institutions is sensitive to
fluctuations in interest rates. Since net interest income is the primary source
of income for most financial institutions, management monitors very closely
developments in the financial markets and their potential impact on
profitability.
The effect of changes in interest rates on net interest income depends upon
the maturity, duration and repricing characteristics of the Corporation's
assets and liabilities as well as the direction of interest rate movements. An
asset sensitive position occurs when a higher volume of assets than liabilities
matures or reprices within a specific time period while, on the other hand, a
liability sensitive
17
<PAGE> 68
<TABLE>
<CAPTION>
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
TABLE M
INTEREST RATE SENSITIVITY
As of December 31, 1993
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
By Repricing Dates
--------------------------------------------------------------------------------------------
After After
Within three months six months Non-interest
0-30 31-90 but within but within After one bearing
(Dollars in thousands) days days six months one year year funds Total
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Federal funds sold and
securities purchased under
agreements to resell $ 247,333 $ 247,333
Short-term interest bearing
deposits in other banks 10,259 $ 5,100 15,359
Investment and trading securities 603,867 456,167 $ 424,762 $ 791,120 $1,772,464 4,048,380
Loans 1,825,122 201,536 274,611 381,098 3,664,555 6,346,922
Other assets $ 855,374 855,374
--------------------------------------------------------------------------------------------
Total $ 2,686,581 662,803 699,373 1,172,218 5,437,019 855,374 11,513,368
--------------------------------------------------------------------------------------------
Liabilities and equity:
Savings and NOW accounts* 1,122,097 2,761,906 3,884,003
Other time deposits 1,049,423 635,504 404,323 252,172 448,375 2,789,797
Short-term interest bearing liabilities 510,496 575,015 359,113 47,548 123,734 1,615,906
Long-term interest bearing liabilities 2 12,002 88 333,763 345,855
Non-interest bearing deposits 1,848,859 1,848,859
Other non-interest bearing liabilities 183,753 183,753
Preferred stock of subsidiary
Bank and stockholders' equity 845,195 845,195
--------------------------------------------------------------------------------------------
Total 2,682,016 1,210,521 775,438 299,808 3,667,778 $2,877,807 $11,513,368
--------------------------------------------------------------------------------------------
Interest rate sensitive gap $ 4,565 $ (547,718) $ (76,065) $ 872,410 $1,769,241
Cumulative interest rate
sensitivity gap $ 4,565 $ (543,153) $(619,218) $ 253,192 $2,022,433
Cumulative sensitive gap to
earning assets 0.17% (16.22%) (15.29%) 4.85% 18.98%
*Now accounts are presented as repricing within 0-30 days. Savings accounts are
included as repricing after one year as they have proved to be stable sources
of funds that have not been subject to withdrawal, notwithstanding the changes
in interest rates.
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
position occurs when more liabilities than assets mature or reprice during a
specific time period.
When interest rates rise, an asset sensitive position will generally
result in increased net interest income. In this environment, a greater
amount of assets will reprice at a higher rate than liabilities, and
therefore net interest income rises. Conversely, when rates decrease an asset
sensitive position generally results in lower net interest income because a
greater volume of assets will reprice at a lower rate than liabilities. A
liability sensitive position is generally affected inversely by changes in
interest rates. Rising rates increase the cost of funds more rapidly than
interest income, while declining rates decrease the cost of funds more rapidly
than interest income.
The Corporation's interest rate risk position is detailed in Table M. As
of December 31, 1993, the one-year cumulative gap was $253.2 million or 4.85% of
earning assets as compared with a one-year cumulative negative gap of $511.9
million or 13.13% of earning assets in 1992. This change was due to an
increase of $1,288 million in investment securities and $54.9 million in loans
repricing within one year, partially offset by a rise of $656.1 million in
short-term interest bearing liabilities also repricing within one year.
STOCKHOLDERS' EQUITY
The Corporation has a strong capital base which allows it to undertake new
business initiatives and enhance its asset base.
At December 31, 1993, stockholders' equity amounted to $834.2 million,
an increase of $82.1 million or 10.9% from the balance of $752.1 million
at December 31, 1992. The factors contributing to the growth in the
capital position in 1993 were earnings' retention and the issuance of
additional shares of common stock under the Dividend Reinvestment Plan which
added $2.1 million to capital. The internal capital generation rate for this
year was 10.08% as compared to 9.04% in 1992.
The Corporation's capital for 1992 showed an increase in excess of the
capital retention ratios because, in the last quarter of 1992, the Corporation
offered subscription rights to stockholders
18
<PAGE> 69
<TABLE>
<CAPTION>
- - - - - ----------------------------------------------------------------------------------------------------------------------------
TABLE N
CAPITAL ADEQUACY DATA
As of December 31,
- - - - - ----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991 1990 1989
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Risk-based capital
Tier I capital $ 786,686 $ 722,082 $ 598,034 $ 567,653 $ 375,807
Supplementary (Tier II) capital 106,193 110,704 127,181 148,085 90,897
------------------------------------------------------------------------------
Total capital $ 892,879 $ 832,786 $ 725,215 $ 715,738 $ 466,704
==============================================================================
Risk-weighted assets
Balance sheet items $6,150,749 $5,430,534 $5,240,345 $5,537,909 $3,897,743
Off-balance sheet items 250,102 177,172 191,927 82,205 70,523
------------------------------------------------------------------------------
Total risk-weighted assets $6,400,851 $5,607,706 $5,432,272 $5,620,114 $3,968,266
==============================================================================
Ratios:
Tier I capital (minimum required - 4.00%) 12.29% 12.88% 11.01% 10.10% 9.47%
Total capital (minimum required - 8.00%) 13.95 14.85 13.35 12.74 11.76
Leverage ratio (minimum required - 3.00%) 6.95 7.26 6.64 6.34 6.34
Equity to assets 7.42 7.02 6.83 6.98 6.23
Tangible equity to assets 6.29 5.66 5.46 6.87 6.23
Equity to loans 13.91 12.99 11.52 12.07 11.30
Internal capital generation rate 10.08 9.04 6.64 11.60 11.35
- - - - - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
for 2,321,317 shares of common stock. Shares unsubscribed for in the offering
were expected to be sold to the public in an underwritten public offering. The
subscription offering was oversubscribed by existing stockholders and the
Corporation issued 2,458,740 shares which raised $57.6 million in additional
capital.
The Corporation exceeds the regulatory risk-based capital requirements for
well capitalized institutions by wide margins, due to the high level of capital
and the conservative nature of the Corporation's assets. Tier I capital to
risk-adjusted assets ratio at December 31, 1993, was 12.29% while the total
capital ratio was 13.95%, compared with 12.88% and 14.85%, respectively, at
December 31, 1992. The Corporation's leverage ratio was 6.95% as of December
31, 1993, compared with 7.26% a year before. These ratios decreased slightly
from prior year since assets grew at a faster pace than capital and the
prepayment of subordinated notes during the year reduced the total capital.
Table N shows capital adequacy information for the current and previous four
years.
The average tangible equity rose to $663.6 million as of December 31, 1993
from $531.8 million at December 31, 1992, an increase of $131.8 million or
24.8%. The tangible equity to assets ratio also increased from 5.66% for 1992
to 6.29% for 1993. At the end of 1993 total tangible equity rose to $701.4
million from $619.2 million a year ago.
Book value per share at December 31, 1993, was $25.49, compared with $23.03
at the end of 1992. The market value of the Corporation's stock at the end of
1993 was $31.50 representing a market capitalization of $1,031 million compared
with $987.8 million a year ago when the market value of the stock was $30.25.
COMMON STOCK
The Corporation's common stock is traded on the National Association of
Securities Dealers Automated Quotation (NASDAQ) National Market System under
the symbol BPOP. Table O shows the range of market quotations and cash
dividends declared for each quarter during the last five years. All the per
share data presented has been adjusted to reflect a stock split effected in the
form of a dividend on April 3, 1989, of one share for each share outstanding.
The Corporation has a Dividend Reinvestment Plan for its stockholders. This
plan offers the stockholders the opportunity to automatically reinvest their
dividends in shares of common stock at a 5% discount from the average market
price at the time of issuance. During 1993, 77,559 shares were issued under the
Plan, adding $2.1 million to capital. A total of 459,400 shares have been
issued under this plan since its inception in 1989, contributing with $9.1
million in additional capital.
DIVIDENDS
Dividends declared during 1993 amounted to $29.4 million compared with $24.6
million in 1992. This increase is mainly the result of a higher volume of
average shares outstanding due to the shares issued on the subscription
offering in November 1992, and the additional shares issued under the Dividend
Reinvestment Plan. In addition, effective on October 1, 1993, and following
its policy of maintaining a dividend payout ratio close to 30%, the Corporation
increased its quarterly dividend from $0.20 to $0.25 per share.
The dividend payout ratio for the year decreased to 25.39% as a result of
the growth in net earnings of the Corporation. However, the dividend increase
in the fourth quarter of 1993 raised the dividend payout ratio for the quarter
to 28.97%.
INFLATION ACCOUNTING
The Statement of Financial Accounting Standards (SFAS) 89 makes optional the
disclosure of supplementary information on the effects of inflation.
19
<PAGE> 70
<TABLE>
<CAPTION>
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
TABLE O
STOCK PERFORMANCE
Cash Book *
Market Price Dividends Value Dividend Price/ Market/
------------------ Declared Per Payout Dividend Earnings Book
High Low Per Share Share Ratio Yield Ratio Ratio
- - - - - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993 $25.49 25.39% 2.97% 9.42x 123.58%
1st quarter $ 31 1/4 $ 26 1/2 $.20
2nd quarter 28 1/4 24 3/8 .20
3rd quarter 30 1/4 26 1/2 .25
4th quarter 32 1/4 29 3/4 .25
1992 23.03 28.33 3.12 10.83 131.35
1st quarter $ 25 1/2 $ 18 3/4 $.20
2nd quarter 27 3/4 24 .20
3rd quarter 27 3/4 24 1/2 .20
4th quarter 30 1/4 24 1/2 .20
1991 21.00 34.13 4.18 8.96 91.67
1st quarter $ 17 1/2 $ 14 3/4 $.20
2nd quarter 19 7/8 16 3/4 .20
3rd quarter 18 1/2 16 1/2 .20
4th quarter 19 1/2 17 .20
1990 19.67 25.33 4.41 5.08 81.34
1st quarter $ 22 $ 19 $.20
2nd quarter 19 3/4 18 1/2 .20
3rd quarter 19 1/2 14 3/4 .20
4th quarter 16 7/8 14 1/4 .20
1989 18.76 28.14 3.83 7.66 114.61
1st quarter $ 19 3/8 17 3/4 $.20
2nd quarter 20 1/4 19 1/2 .20
3rd quarter 25 1/2 19 1/4 .20
4th quarter 25 1/2 17 3/4 .20
*Based on the average high and low market price for the four quarters.
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation has decided not to prepare the supplementary data for the
following reasons:
- The impact of inflation on the banking industry differs significantly
from that on industries that require a higher proportion of investment in
fixed assets. Our asset and liability structure is composed mainly of
monetary assets and liabilities.
- Changes in interest rates that may significantly impact the
Corporation's earnings do not necessarily move in the same direction or
in the same magnitude as the prices of other goods and services.
- Information included in this annual report such as Interest Variance
Analysis, Interest Rate Sensitivity Table, Average Balance Sheet, Summary
of Net Interest Income and the market value disclosures required by SFAS
107, provides more insight as to the effects on the Corporation of
changes in interest rates than the supplementary data on inflation
accounting.
20
<PAGE> 71
<TABLE>
<CAPTION>
- - - - - ----------------------------------------------------------------------------------------------------------------------------
STATISTICAL SUMMARY 1989-1993
STATEMENTS OF CONDITION BANPONCE CORPORATION
- - - - - ----------------------------------------------------------------------------------------------------------------------------
As of December 31,
- - - - - ----------------------------------------------------------------------------------------------------------------------------
(In thousands) 1993 1992 1991 1990 1989
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 368,837 $ 325,497 $ 311,384 $ 347,619 $ 272,194
------------------------------------------------------------------------------
Money market investments:
Federal funds sold and securities
and mortgages purchased under
agreements to resell 247,333 234,163 139,530 288,036 244,330
Time deposits with other banks 15,100 50,100 340,100 644,938 639,065
Bankers' acceptances 259 858 1,703 2,369 1,270
------------------------------------------------------------------------------
262,692 285,121 481,333 935,343 884,665
------------------------------------------------------------------------------
Investment securities at cost 3,330,798 3,290,440 2,354,009 1,917,144 1,301,125
------------------------------------------------------------------------------
Investment securities available for sale
at lower of cost or market value 714,565 408,127
------------------------------------------------------------------------------
Trading account securities 3,017 283 1,657 875 7,741
------------------------------------------------------------------------------
Loans 6,655,072 5,614,724 5,575,976 5,798,072 3,536,446
Less- Unearned income 308,150 362,671 380,419 432,155 260,057
Allowance for loan losses 133,437 110,714 94,199 89,335 40,896
------------------------------------------------------------------------------
6,213,485 5,141,339 5,101,358 5,276,582 3,235,493
------------------------------------------------------------------------------
Premises and equipment 298,089 260,330 253,054 235,830 122,001
Other real estate 12,699 15,582 7,012 6,748 1,460
Customers' liabilities on acceptances 1,392 1,830 1,691 3,059 2,829
Accrued income receivable 79,285 76,008 59,027 59,106 57,344
Other assets 95,763 64,890 71,026 68,267 38,409
Intangible assets 132,746 132,880 138,731 133,051
------------------------------------------------------------------------------
$ 11,513,368 $ 10,002,327 $ 8,780,282 $ 8,983,624 $ 5,923,261
==============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 1,848,859 $ 1,614,806 $ 1,499,352 $ 1,455,785 $ 1,127,991
Interest bearing 6,673,799 6,423,905 5,707,766 5,966,926 3,798,313
------------------------------------------------------------------------------
8,522,658 8,038,711 7,207,118 7,422,711 4,926,304
Federal funds purchased and securities
sold under agreements to repurchase 951,733 665,222 449,114 394,148 464,042
Other short-term borrowings 664,173 206,882 143,724 181,317 9,068
Notes payable 253,855 90,062 73,752 8,018 2,245
Senior debentures 30,000 30,000 30,000 30,000
Acceptances outstanding 1,392 1,830 1,691 3,059 2,829
Other liabilities 182,362 132,501 138,065 250,487 92,966
------------------------------------------------------------------------------
10,606,173 9,165,208 8,043,464 8,289,740 5,497,454
------------------------------------------------------------------------------
Subordinated notes 62,000 74,000 94,000 94,000 50,000
------------------------------------------------------------------------------
Preferred stock of subsidiary Bank 11,000 11,000 11,000 11,000
------------------------------------------------------------------------------
Stockholders' equity
Common stock 196,395 195,929 180,563 179,655 100,187
Surplus 386,622 361,982 287,539 276,049 210,594
Retained earnings 208,607 150,208 110,287 93,180 57,883
Capital reserves 42,571 44,000 53,429 40,000 7,143
------------------------------------------------------------------------------
834,195 752,119 631,818 588,884 375,807
------------------------------------------------------------------------------
$ 11,513,368 $ 10,002,327 $ 8,780,282 $ 8,983,624 $ 5,923,261
==============================================================================
</TABLE>
21
<PAGE> 72
<TABLE>
<CAPTION>
- - - - - -----------------------------------------------------------------------------------------------------------------------------
STATISTICAL SUMMARY 1989-1993
STATEMENTS OF INCOME BANPONCE CORPORATION
- - - - - -----------------------------------------------------------------------------------------------------------------------------
For the year ended December 31,
- - - - - -----------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share information) 1993 1992 1991 1990 1989
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans $549,388 $518,074 $579,463 $395,797 $363,925
Money market investments 6,434 14,414 33,590 37,571 105,736
Investment securities 215,944 207,642 181,413 131,911 88,125
Trading account securities 370 224 477 528 487
---------------------------------------------------------------------------
Total interest income 772,136 740,354 794,943 565,807 558,273
Less - Interest expense 280,008 300,135 387,134 281,561 302,747
---------------------------------------------------------------------------
Net interest income 492,128 440,219 407,809 284,246 255,526
Provision for loan losses 72,892 97,633 121,681 53,033 42,603
---------------------------------------------------------------------------
Net interest income after provision
for loan losses 419,236 342,586 286,128 231,213 212,923
Gain on sale of securities 864 242 18,617 64 1,969
Trading account profit 554 383 759 27 560
All other operating income 123,762 123,879 112,398 70,865 59,550
---------------------------------------------------------------------------
544,416 467,090 417,902 302,169 275,002
---------------------------------------------------------------------------
OPERATING EXPENSES:
Personnel costs 215,911 188,234 180,634 131,322 117,433
All other operating expenses 196,365 178,711 165,104 98,241 89,943
---------------------------------------------------------------------------
412,276 366,945 345,738 229,563 207,376
---------------------------------------------------------------------------
Income before tax, dividends on preferred
stock of subsidiary Bank and cumulative
effect of accounting changes 132,140 100,145 72,164 72,606 67,626
Income tax 28,151 14,259 6,793 9,240 11,456
---------------------------------------------------------------------------
Income before dividends on preferred
stock of subsidiary Bank and cumulative
effect of accounting changes 103,989 85,886 65,371 63,366 56,170
Dividends on preferred stock of
subsidiary Bank 770 770 807
---------------------------------------------------------------------------
Income before cumulative effect of
accounting changes 103,219 85,116 64,564 63,366 56,170
Cumulative effect of accounting changes 6,185
---------------------------------------------------------------------------
NET INCOME $109,404 $ 85,116 $ 64,564 $ 63,366 $ 56,170
===========================================================================
EARNINGS PER SHARE*
Before effect of accounting changes $3.16 $2.79 $2.15 $3.15 $2.81
===========================================================================
Net income $3.35 $2.79 $2.15 $3.15 $2.81
===========================================================================
DIVIDENDS DECLARED:
Cash dividends per share outstanding $0.90 $0.80 $0.80 $0.80 $0.80
===========================================================================
</TABLE>
*The average number of shares outstanding during each year was adjusted to
reflect a stock split effected in the form of a stock dividend on April 3,
1989. Accordingly, the average shares used in the computation of earnings and
cash dividend per share were 32,701,236 for 1993; 30,461,494 for 1992;
30,035,601 for 1991; 20,116,970 for 1990, and 20,014,013 for 1989.
22
<PAGE> 73
<TABLE>
<CAPTION>
- - - - - ------------------------------------------------------------------------------------------------------------------------------
STATISTICAL SUMMARY 1991-1993 BANPONCE CORPORATION
QUARTERLY FINANCIAL DATA
- - - - - ------------------------------------------------------------------------------------------------------------------------------
1993 1992
- - - - - ---------------------------------------------------------------------------------------------------------------------
FOURTH THIRD SECOND FIRST Fourth Third Second First
QUARTER QUARTER QUARTER QUARTER Quarter Quarter Quarter Quarter
- - - - - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
(In thousands, except per
share information)
Net interest income $126,490 $125,174 $122,703 $117,761 $115,514 $112,093 $107,912 $104,700
Provision for loan losses 14,737 17,442 19,166 21,547 23,043 24,333 26,237 24,020
Non-interest income 34,000 30,178 31,905 28,233 29,208 30,783 34,137 30,134
Gain (loss) on sale of
securities 332 86 446 58 10 (36) 210
Non-interest expense 107,462 101,436 100,524 102,854 95,080 93,626 91,718 86,521
Income taxes 9,875 8,459 7,306 2,511 3,415 3,536 3,022 4,286
Dividends on preferred
stock of subsidiary
Bank 192 193 192 193 192 193 192 193
Cumulative effect of
accounting changes 6,185
-------------------------------------------------------------------------------------
Net income $ 28,224 $ 28,154 $ 27,506 $ 25,520 $ 23,050 $ 21,198 $ 20,844 $ 20,024
=====================================================================================
Net income per share
before cumulative effect
of accounting changes $ 0.87 $ 0.86 $ 0.84 $ 0.59 $ 0.73 $ 0.71 $ 0.69 $ 0.66
-------------------------------------------------------------------------------------
Net income per share $ 0.87 $ 0.86 $ 0.84 $ 0.78 $ 0.73 $ 0.71 $ 0.69 $ 0.66
-------------------------------------------------------------------------------------
SELECTED AVERAGE BALANCES
(In millions)
Total assets $ 11,374 $ 10,855 $ 10,472 $ 10,017 $ 9,991 $ 9,804 $ 9,172 $ 9,138
Loans 6,219 5,849 5,466 5,254 5,211 5,078 5,153 5,160
Interest earning assets 10,543 10,064 9,693 9,264 9,245 9,033 8,437 8,397
Deposits 8,426 8,074 8,005 7,992 7,940 7,844 7,446 7,330
Interest bearing liabilities 8,612 8,249 7,946 7,569 7,610 7,546 6,979 6,967
-------------------------------------------------------------------------------------
SELECTED RATIOS
Return on assets 0.98% 1.03% 1.05% 1.03% 0.92% 0.86% 0.91% 0.88%
Return on equity 13.59 13.90 14.09 13.60 12.85 12.60 12.83 12.60
</TABLE>
<TABLE>
<CAPTION>
1991
- - - - - --------------------------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
- - - - - --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
(In thousands, except per
share information)
Net interest income $101,254 $103,292 $103,561 $99,702
Provision for loan losses 30,227 33,771 37,899 19,783
Non-interest income 33,806 28,814 25,968 24,568
Gain (loss) on sale of
securities 12,001 5,818 553 246
Non-interest expense 95,235 83,779 82,062 84,663
Income taxes 1,540 3,129 (45) 2,169
Dividends on preferred
stock of subsidiary
Bank 192 192 197 226
Cumulative effect of
accounting changes
---------------------------------------------
Net income $ 19,867 $ 17,053 $ 9,969 $17,675
=============================================
Net income per share
before cumulative effect
of accounting changes $ 0.66 $ 0.57 $ 0.33 $ 0.59
---------------------------------------------
Net income per share $ 0.66 $ 0.57 $ 0.33 $ 0.59
---------------------------------------------
SELECTED AVERAGE BALANCES
(In millions)
Total assets $ 9,046 $ 8,820 $ 9,010 $ 8,900
Loans 5,305 5,333 5,266 5,304
Interest earning assets 8,256 8,078 8,269 8,194
Deposits 7,233 7,103 7,151 7,307
Interest bearing liabilities 6,848 6,686 6,924 6,809
--------------------------------------------
SELECTED RATIOS
Return on assets 0.87% 0.77% 0.44% 0.81%
Return on equity 12.64 10.99 6.60 12.04
</TABLE>
23
<PAGE> 74
<TABLE>
<CAPTION>
STATISTICAL SUMMARY 1989-1993
AVERAGE BALANCE SHEET AND SUMMARY OF NET INTEREST INCOME
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
ON A TAXABLE EQUIVALENT BASIS*
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE Average Average
BALANCE INTEREST RATE Balance Interest Rate
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Federal funds sold and securities and
mortgages purchased under agreements
to resell $ 117,095 $ 4,115 3.51% $ 144,539 $ 5,209 3.60%
Time deposits with other banks 58,853 2,259 3.84 215,970 9,093 4.21
Bankers' acceptances 871 60 6.89 1,496 112 7.49
----------------------------------------------------------------------------
Total money market investments 176,819 6,434 3.64 362,005 4,414 3.98
----------------------------------------------------------------------------
U.S. Treasury securities 2,985,634 202,695 6.79 2,443,267 226,038 9.25
Obligations of other U.S. Government
agencies and corporations 274,821 18,033 6.56 317,152 27,838 8.78
Obligations of Puerto Rico, States and
political subdivisions 227,784 14,253 6.26 212,762 19,345 9.09
Other 522,216 26,944 5.16 288,818 21,780 7.54
----------------------------------------------------------------------------
Total investment securities 4,010,455 261,925 6.53 3,261,999 295,001 9.04
----------------------------------------------------------------------------
Trading account securities 7,319 449 6.13 5,649 303 5.36
----------------------------------------------------------------------------
Loans (net of unearned income) 5,700,069 555,671 9.75 5,150,328 526,902 10.23
----------------------------------------------------------------------------
Total interest earning assets/
Interest income 9,894,662 $824,479 8.33% 8,779,981 $836,620 9.53%
----------------------------------------------------------------------------
Total non-interest earning assets 789,091 748,537
----------------------------------------------------------------------------
TOTAL ASSETS $10,683,753 9,528,518
============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Savings and NOW accounts $ 3,570,920 $107,454 3.01% $2,999,691 $108,945 3.63%
Other time deposits 2,918,625 111,994 3.84 3,171,177 144,430 4.55
Short-term borrowings 1,337,970 42,392 3.17 903,903 31,711 3.51
Mortgages and notes payable 195,522 12,801 6.55 116,695 8,245 7.07
Subordinated notes 73,967 5,367 7.26 85,585 6,804 7.95
----------------------------------------------------------------------------
Total interest bearing liabilities/
Interest expense 8,097,004 280,008 3.46 7,277,051 300,135 4.12
----------------------------------------------------------------------------
Total non-interest bearing liabilities 1,782,748 1,571,477
----------------------------------------------------------------------------
Total liabilities 9,879,752 8,848,528
----------------------------------------------------------------------------
Preferred stock of subsidiary Bank 11,000 11,000
----------------------------------------------------------------------------
Stockholders' equity 793,001 668,990
----------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,683,753 $9,528,518
============================================================================
Net interest income on a taxable
equivalent basis $544,471 $536,485
----------------------------------------------------------------------------
Interest expense to earning assets 2.83% 3.42%
----------------------------------------------------------------------------
Net interest yield 5.50% 6.11%
============================================================================
Effect of the taxable equivalent adjustment 52,343 96,266
----------------------------------------------------------------------------
Net interest income per books $492,128 $440,219
============================================================================
</TABLE>
*Shows the effect of the tax exempt status of some loans and investments
on their yield. A 42% tax rate was used for 1993 through 1989. The computation
considers the interest expense disallowance as required by the Tax Reform Act
enacted in 1987. This adjustment is shown in order to compare the yields of the
tax exempt, and taxable assets on a taxable basis.
Note: Average loan balances include the average balance of non-accruing
loans. No interest income is recognized for these loans in accordance
Corporation's policy.
24
<PAGE> 75
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
BANPONCE CORPORATION
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
1991 1990 1989
------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- - - - - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 76,095 $ 4,448 5.85% $ 138,701 $ 11,476 8.27% $ 178,319 $ 16,732 9.38%
427,536 28,886 6.76 308,904 25,970 8.41 915,426 87,878 9.60
2,848 256 8.99 1,217 125 10.27 11,736 1,125 9.59
- - - - - --------------------------------------------------------------------------------------------------------------------
506,479 33,590 6.63 448,822 37,571 8.37 1,105,481 105,735 9.56
- - - - - --------------------------------------------------------------------------------------------------------------------
1,596,986 179,103 11.22 944,804 109,116 11.55 562,051 63,876 11.36
332,002 32,241 9.71 411,257 48,387 11.77 285,782 34,937 12.23
212,180 22,243 10.48 146,874 15,395 10.48 141,564 14,316 10.11
241,064 19,328 8.02 123,509 11,689 9.46 85,354 9,278 10.87
- - - - - --------------------------------------------------------------------------------------------------------------------
2,382,232 252,915 10.62 1,626,444 184,587 11.35 1,074,751 122,407 11.39
- - - - - --------------------------------------------------------------------------------------------------------------------
8,295 650 7.84 9,209 705 7.66 6,401 677 10.58
- - - - - --------------------------------------------------------------------------------------------------------------------
5,302,189 589,520 11.12 3,377,463 403,005 11.93 3,132,167 370,044 11.81
- - - - - --------------------------------------------------------------------------------------------------------------------
8,199,195 $876,675 10.69% 5,461,938 $625,868 11.46% 5,318,800 $598,863 11.26%
- - - - - --------------------------------------------------------------------------------------------------------------------
745,162 374,811 358,181
- - - - - --------------------------------------------------------------------------------------------------------------------
$8,944,357 $5,836,749 $5,676,981
====================================================================================================================
$2,397,790 $113,165 4.72% $1,489,399 $ 71,848 4.82% $1,361,913 $ 65,089 4.78%
3,416,985 210,552 6.16 2,528,649 185,251 7.33 2,438,929 196,385 8.05
855,702 51,142 5.98 252,695 20,037 7.93 423,143 37,838 8.94
52,310 3,965 7.58 4,486 285 6.35 2,598 140 5.39
94,000 8,310 8.84 50,000 4,140 8.28 38,082 3,295 8.65
- - - - - --------------------------------------------------------------------------------------------------------------------
6,816,787 387,134 5.68 4,325,229 281,561 6.51 4,264,665 302,747 7.10
- - - - - --------------------------------------------------------------------------------------------------------------------
1,505,929 1,103,909 1,058,472
- - - - - --------------------------------------------------------------------------------------------------------------------
8,322,716 5,429,138 5,323,137
- - - - - --------------------------------------------------------------------------------------------------------------------
11,000
- - - - - --------------------------------------------------------------------------------------------------------------------
610,641 407,611 353,844
- - - - - --------------------------------------------------------------------------------------------------------------------
$8,944,357 $5,836,749 $5,676,981
====================================================================================================================
$489,541 $344,307 $296,116
4.72% 5.16% 5.69%
- - - - - --------------------------------------------------------------------------------------------------------------------
5.97% 6.30% 5.57%
====================================================================================================================
81,732 60,061 40,590
- - - - - --------------------------------------------------------------------------------------------------------------------
$407,809 $284,246 $255,526
====================================================================================================================
</TABLE>
25
<PAGE> 76
- - - - - --------------------------------------------------------------------------------
GLOSSARY OF TERMS
- - - - - --------------------------------------------------------------------------------
936 CORPORATIONS - Subsidiaries of U. S. firms operating in Puerto Rico and
other offshore areas under Section 936 of the U.S. Internal Revenue Code.
Section 936 provides certain tax benefits on Puerto Rico source earnings from
the active conduct of a trade or business or from qualified investments.
936 DEPOSITS - Funds of 936 corporations deposited in banks usually in the form
of time deposits. The restriction that these funds must be reinvested in
eligible assets, if income derived from them is to be considered tax-exempt for
U. S. and Puerto Rico's Industrial Incentive Act purposes, lowers the rate on
these funds as compared to interest rates paid on similar deposits.
BASIS POINT - Equal to one-hundredth of one percent. Used to express changes
or differences in interest yields and rates.
CORE DEPOSITS - A deposit category that includes all non-interest bearing
deposits, savings deposits and certificates of deposit under $100,000. These
deposits are considered a stable source of funds.
EARNING ASSETS - Assets that earn interest, such as loans, investment
securities, money market investments and trading account securities.
EARNINGS PER SHARE - The earnings per average share of common stock outstanding
during the period presented.
GAP - The difference that exists at a specific period of time between the
maturities or repricing terms of interest-sensitive assets and
interest-sensitive liabilities.
INTEREST-BEARING LIABILITIES - Liabilities on which interest is paid such as
saving deposits, certificates of deposit, other time deposits, borrowings and
subordinated notes.
INTEREST-SENSITIVE ASSETS/LIABILITIES - Interest-earning
assets/interest-bearing liabilities for which interest rates are adjustable
within a specified time period due to maturity or contractual arrangements.
LEVERAGE RATIO - Ratio adopted by the Federal Reserve System to assist in the
assessment of the capital adequacy of state member banks. This ratio is
calculated by dividing Tier I capital by total assets reduced by goodwill and
any other intangible asset deducted from Tier I capital.
LIQUIDITY - A combination of assets that assures currently available supplies
of funds necessary to meet deposit withdrawals, loan demands and repayment of
borrowings as they become due. The need for liquid funds is normally satisfied
from daily operations and the maturity management of money market investments
and investment securities.
NET INTEREST INCOME - The difference between interest income and fees on
earning assets and interest expense on liabilities.
NET INTEREST YIELD - A percentage computed by dividing net interest income by
average earning assets.
NON-PERFORMING ASSETS - Includes loans on which the accrual of interest income
has been discontinued due to default on interest and/or principal payments or
other factors indicative of doubtful collection, renegotiated loans and
foreclosed real estate properties, including in-substance foreclosures.
RETURN ON ASSETS - Net income as a percentage of average total assets.
RETURN ON EQUITY - Net income as a percentage of average stockholders' equity.
RISK-BASED CAPITAL - Guidelines for the regulatory measurement of capital
adequacy. These guidelines set forth how capital is to be measured and how
total assets are to be risk adjusted. Total risk adjusted assets include
assets and off-balance sheet items adjusted by the appropriate credit risk
category, based on the type of obligor or, where relevant, the guarantor, or
the nature of the collateral.
SPREAD - A percentage difference or margin between the yield on earning assets
and the effective interest rate paid on interest-bearing liabilities.
STOCKHOLDERS' EQUITY - Excess of assets over liabilities that constitutes the
stockholders ownership participation in the Corporation's financial resources.
SUPPLEMENTARY (TIER II) CAPITAL - Consists of the allowance for loan losses and
qualifying term subordinated notes.
TANGIBLE EQUITY - Consists of stockholders' equity less intangible assets.
TAXABLE EQUIVALENT BASIS - An adjustment of income on tax-exempt earning assets
to an amount that would yield the same after-tax income had the income been
subject to taxation. The result is to equate the true earnings value of
tax-exempt and taxable income.
TIER I CAPITAL - Consists of common stockholders' equity (including the related
surplus, retained earnings and capital reserves), cumulative perpetual
preferred stock (BHCs only) less goodwill and any other non-qualifying
intangible asset.
YIELD - Percentage denoting actual return on earning assets.
26
<PAGE> 77
- - - - - ------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS BANPONCE CORPORATION
- - - - - ------------------------------------------------------------------------------
PRICE WATERHOUSE (LOGO)
San Juan, Puerto Rico
January 28, 1994
To the Board of Directors
and Stockholders of
BanPonce Corporation
In our opinion, the accompanying consolidated statements of condition and the
related consolidated statements of income, of cash flows and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of BanPonce Corporation and its subsidiaries at December 31, 1993 and
1992, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Corporation's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2 to the Consolidated Financial Statements, in 1993 the
Corporation changed its method of accounting for postretirement benefits other
than pensions to conform with Statement of Financial Accounting Standards No.
106 and for income taxes to conform with Statement of Financial Accounting
Standards No. 109.
/s/ PRICE WATERHOUSE
- - - - - ---------------------
Price Waterhouse
Stamp 1185699 of the P.R. Society of
Certified Public Accountants has been
affixed to the file copy of this report.
27
<PAGE> 78
<TABLE>
<CAPTION>
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CONDITION BANPONCE CORPORATION
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
December 31,
---------------------------------------------------------------
1993 1992
---------------------------------------------------------------
<S> <C> <C>
(In thousands)
ASSETS
Cash and due from banks $ 368,837 $ 325,497
---------------------------------------------------------------
Money market investments:
Federal funds sold and securities and mortgages purchased under
agreements to resell 247,333 234,163
Time deposits with other banks 15,100 50,100
Bankers' acceptances 259 858
---------------------------------------------------------------
262,692 285,121
---------------------------------------------------------------
Investment securities, at cost (market value
$3,358,216,000 (1992 - $3,338,993,000)) (Notes 3 and 5) 3,330,798 3,290,440
---------------------------------------------------------------
Investment securities available for sale, at lower
of cost or market value (market value $733,729,000;
(1992 - $424,034,000)) (Note 4) 714,565 408,127
---------------------------------------------------------------
Trading account securities, at market 3,017 283
---------------------------------------------------------------
Loans (Notes 5, 6 and 7) 6,655,072 5,614,724
Less - Unearned income 308,150 362,671
Allowance for loan losses 133,437 110,714
---------------------------------------------------------------
6,213,485 5,141,339
---------------------------------------------------------------
Premises and equipment (Note 8) 298,089 260,330
Other real estate 12,699 15,582
Customers' liabilities on acceptances 1,392 1,830
Accrued income receivable 79,285 76,008
Other assets 95,763 64,890
Intangible assets 132,746 132,880
---------------------------------------------------------------
$11,513,368 $10,002,327
===============================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (Note 9):
Non-interest bearing $ 1,848,859 $ 1,614,806
Interest bearing 6,673,799 6,423,905
---------------------------------------------------------------
8,522,658 8,038,711
Federal funds purchased and securities sold under agreements to
repurchase (Note 10) 951,733 665,222
Other short-term borrowings (Note 11) 664,173 206,882
Notes payable (Notes 12 and 15) 253,855 90,062
Senior debentures (Notes 13 and 15) 30,000 30,000
Acceptances outstanding 1,392 1,830
Other liabilities 182,362 132,501
---------------------------------------------------------------
10,606,173 9,165,208
---------------------------------------------------------------
Subordinated notes (Notes 14 and 15) 62,000 74,000
---------------------------------------------------------------
Preferred stock of subsidiary Bank (Note 16) 11,000 11,000
---------------------------------------------------------------
Stockholders' equity (Note 17):
Common stock, $6 par value; authorized 90,000,000 shares;
outstanding 32,732,423 in 1993 and 32,654,864 in 1992 196,395 195,929
Surplus 386,622 361,982
Retained earnings 208,607 150,208
Capital reserves (Note 14) 42,571 44,000
---------------------------------------------------------------
834,195 752,119
---------------------------------------------------------------
$11,513,368 $10,002,327
===============================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
28
<PAGE> 79
<TABLE>
<CAPTION>
- - - - - ----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME BANPONCE CORPORATION
- - - - - ----------------------------------------------------------------------------------------------------------------------
Year ended December 31,
----------------------------------------------
1993 1992 1991
- - - - - ----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share information)
<S> <C> <C> <C>
INTEREST INCOME:
Loans $549,388 $518,074 $579,463
Money market investments (Note 18) 6,434 14,414 33,590
Investment securities (Note 18) 215,944 207,642 181,413
Trading account securities 370 224 477
--------------------------------------------
772,136 740,354 794,943
--------------------------------------------
INTEREST EXPENSE:
Deposits 219,448 253,375 323,717
Short-term borrowings 42,392 31,711 51,142
Long-term debt 18,168 15,049 12,275
--------------------------------------------
280,008 300,135 387,134
--------------------------------------------
Net interest income 492,128 440,219 407,809
Provision for loan losses (Note 6) 72,892 97,633 121,681
--------------------------------------------
Net interest income after provision for loan losses 419,236 342,586 286,128
Service charges on deposit accounts 68,246 63,064 55,000
Other service fees 43,872 42,491 39,334
Gain on sale of securities 864 242 18,617
Trading account profit 554 383 759
Other operating income 11,644 18,324 18,064
--------------------------------------------
544,416 467,090 417,902
--------------------------------------------
OPERATING EXPENSES:
Personnel costs (Note 19):
Salaries 151,432 134,709 129,928
Profit sharing 19,766 17,041 13,080
Pension and other benefits 44,713 36,484 37,626
--------------------------------------------
215,911 188,234 180,634
Net occupancy expense (Notes 8 and 20) 26,085 25,442 22,497
Equipment expenses (Notes 8 and 20) 27,964 23,813 22,755
Other taxes 15,996 14,608 13,050
Professional fees 27,302 22,558 19,253
Communications 18,203 17,048 17,377
Business promotion 16,638 12,548 10,723
Printing and supplies 8,189 7,290 8,349
Other operating expenses 39,812 40,516 37,413
Amortization of intangibles 16,176 14,888 13,687
--------------------------------------------
412,276 366,945 345,738
--------------------------------------------
Income before income tax, dividends on preferred stock of
subsidiary Bank and cumulative effect of accounting changes 132,140 100,145 72,164
Income tax (Note 21) 28,151 14,259 6,793
--------------------------------------------
Income before dividends on preferred stock of subsidiary
Bank and cumulative effect of accounting changes 103,989 85,886 65,371
Dividends on preferred stock of subsidiary Bank (Note 16) 770 770 807
--------------------------------------------
Income before cumulative effect of accounting changes 103,219 85,116 64,564
Cumulative effect of accounting changes (Note 2) 6,185
--------------------------------------------
NET INCOME $109,404 $85,116 $64,564
============================================
EARNINGS PER SHARE (Note 17):
Income before cumulative effect of accounting changes $ 3.16 $ 2.79 $ 2.15
Cumulative effect of accounting changes .19
--------------------------------------------
NET INCOME $ 3.35 $ 2.79 $ 2.15
============================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
29
<PAGE> 80
<TABLE>
<CAPTION>
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS BANPONCE CORPORATION
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-----------------------------------------------------------------
1993 1992 1991
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
CASH FLOWS OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 109,404 $ 85,116 $ 64,564
-----------------------------------------------------------------
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization of premises and equipment 27,310 26,955 25,467
Provision for loan losses 72,892 97,633 121,681
Amortization of intangibles 16,176 14,888 13,687
Gain on sale of securities (864) (242) (18,617)
Gain on sale of premises and equipment (604) (333) (1,129)
Gain on sale of loans (262) (3,347) (3,092)
Amortization of premiums and accretion of discounts
on investments 14,708 2,694 (1,522)
Amortization of deferred loan fees and costs 2,508 (353) 388
Postretirement benefit obligation 42,672
Net (increase) decrease in trading securities (2,734) 1,374 (781)
Net (increase) decrease in interest receivable (2,528) (16,981) 560
Net decrease (increase) in other assets 12,860 5,561 (927)
Net decrease in interest payable (2,167) (4,729) (5,330)
Net (decrease) increase in deferred income taxes
and income taxes payable (42,953) 9,815 2,042
Net increase (decrease) in other liabilities 14,336 (11,023) 6,390
-----------------------------------------------------------------
Total adjustments 151,350 121,912 138,817
-----------------------------------------------------------------
Net cash provided by operating activities 260,754 207,028 203,381
-----------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in money market investments 22,429 196,212 454,010
Maturities of investment securities 3,887,806 3,297,635 4,661,648
Sales of investment securities 95,680 43,114 1,104,061
Purchases of investment securities (4,344,126) (4,679,275) (6,182,434)
Net disbursements on loans (692,563) (278,275) (19,251)
Proceeds from sale of LDC loans 17,836
Proceeds from sale of loans 22,997 118,707 72,197
Assets acquired, net of cash (13,275)
Acquisition of mortgage loan portfolio (367,053)
Acquisition of premises and equipment (73,711) (49,552) (53,332)
Proceeds from sale of premises and equipment 12,017 15,653 11,601
-----------------------------------------------------------------
Net cash (used in) provided by investing activities (1,436,524) (1,335,781) 53,061
-----------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 112,095 257,752 (180,487)
Net deposits acquired 237,096 573,842 58,189
Net deposits sold (55,187)
Net increase in federal funds purchased and
securities sold under agreements to repurchase 286,511 216,108 55,168
Net increase (decrease) in other short-term borrowings 457,291 63,157 (107,155)
Proceeds from issuance of notes payable 163,801 16,310 83,995
Payment of notes payable (9) (6,265)
Payment of subordinated notes (12,000) (20,000)
Dividends paid (27,781) (24,112) (22,035)
Proceeds from issuance of common stock 2,106 59,809 2,399
Disbursement for cash portion of merger (121,299)
----------------------------------------------------------------
Net cash provided by (used in) financing activities 1,219,110 1,142,866 (292,677)
----------------------------------------------------------------
Net increase (decrease) in cash and due from banks 43,340 14,113 (36,235)
Cash and due from banks at beginning of period 325,497 311,384 347,619
----------------------------------------------------------------
Cash and due from banks at end of period $ 368,837 $ 325,497 $ 311,384
===============================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
30
<PAGE> 81
<TABLE>
<CAPTION>
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES BANPONCE CORPORATION
IN STOCKHOLDERS' EQUITY
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
---------------------------------------------------------------
1993 1992 1991
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
COMMON STOCK:
<S> <C> <C> <C>
Balance at beginning of year $195,929 $180,563 $179,655
Common stock issued (Note 17) 14,752
Common stock issued under Dividend Reinvestment Plan 466 614 908
--------------------------------------------------------------
Balance at end of year 196,395 195,929 180,563
--------------------------------------------------------------
SURPLUS:
Balance at beginning of year 361,982 287,539 276,050
Proceeds from common stock issued (Note 17) 42,848
Proceeds from common stock issued under
Dividend Reinvestment Plan 1,640 1,595 1,489
Transfer from retained earnings 11,000 10,000 10,000
Transfer from capital reserves (Note 14) 12,000 20,000
--------------------------------------------------------------
Balance at end of year 386,622 361,982 287,539
--------------------------------------------------------------
RETAINED EARNINGS:
Balance at beginning of year 150,208 110,287 93,180
Net income 109,404 85,116 64,564
Cash dividends declared (Note 17) (29,434) (24,624) (24,028)
Transfer to capital reserves (Note 14) (10,571) (10,571) (13,429)
Transfer to surplus (11,000) (10,000) (10,000)
--------------------------------------------------------------
Balance at end of year 208,607 150,208 110,287
--------------------------------------------------------------
CAPITAL RESERVES:
Balance at beginning of year 44,000 53,429 40,000
Transfer from retained earnings (Note 14) 10,571 10,571 13,429
Transfer to surplus (Note 14) (12,000) (20,000)
--------------------------------------------------------------
Balance at end of year 42,571 44,000 53,429
--------------------------------------------------------------
Total stockholders' equity $834,195 $752,119 $631,818
==============================================================
The accompanying notes are an integral part of the consolidated financial
statements.
31
</TABLE>
<PAGE> 82
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BANPONCE CORPORATION
- - - - - --------------------------------------------------------------------------------
The accounting and reporting policies of BanPonce Corporation (the Corporation)
and subsidiaries conform with generally accepted accounting principles and with
general practices within the banking industry. The following is a description
of the more significant of these policies:
CONSOLIDATION
The consolidated financial statements include the accounts of the Corporation
and its wholly-owned subsidiaries Vehicle Equipment Leasing Company, Inc.
(Velco), Banco Popular de Puerto Rico (the subsidiary Bank) and its
subsidiaries Popular Leasing and Rental, Inc. and Popular Consumer Services,
Inc. and Popular International Bank and its subsidiaries BanPonce Financial
Corp. and Spring Financial Services, Inc. (second tier subsidiary), after
elimination of intercompany accounts and transactions. The preferred stock of
the subsidiary Bank and dividends related thereto have been treated as minority
interest in the accompanying consolidated financial statements.
INVESTMENT SECURITIES
During 1992, as a result of changing industry practice and management's
evaluation of the investment securities portfolio, the Corporation segregated
its investment securities portfolio into securities held to maturity and those
available for sale. Investments in debt securities, for which management has
both the ability and the positive intent to hold to maturity, are carried at
amortized cost adjusted for amortization of premiums and accretion of
discounts. Investments in debt securities which management believes may be
sold prior to maturity, in connection with changes in interest rates,
prepayment risk, changes in the Corporation's liquidity or other factors, are
classified as available for sale and are carried at the lower of aggregate cost
or market. The change in carrying basis had no effect on the Corporation's
results of operations.
The amortization of premiums are deducted and the accretion of
discounts are added to interest income based on the interest method over the
maturity period of the related securities. Interest on investment securities
is reported as interest income. Net realized gains or losses on sales of
investment securities and unrealized aggregate loss valuation adjustments, if
any, on securities available for sale are reported separately in the statement
of income.
In 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115 - "Accounting for Certain Investments
in Debt and Equity Securities."
This statement addresses the accounting and reporting for investments
in equity securities that have readily determinable fair values and for all
investments in debt securities. Those investments are to be classified in
three categories and accounted for as follows:
-Debt securities that the enterprise has the positive intent and
ability to hold to maturity are classified as held-to-maturity securities and
reported at amortized cost.
-Debt and equity securities that are bought and held principally for
the purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and losses
included in earnings.
-Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as available-for-sale
securities and reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of shareholders'
equity.
The adoption of this statement which is effective for companies with
financial statements beginning after December 15, 1993 will result in an
increase in the Corporation's stockholders' equity of approximately
$14,373,000, net of $4,791,000 deferred taxes.
TRADING ACCOUNT SECURITIES
Trading account securities are carried at market value. Net gains and losses
resulting from the sale of trading account securities and valuation adjustments
to the carrying value are shown separately in the statement of income.
INTEREST RATE FUTURES AND OPTIONS
The Corporation enters into interest rate futures and options contracts as part
of its portfolio management and trading activities. These contracts are
carried at market value. Net gains and losses resulting from these
transactions are recorded separately in the trading profit or loss account.
INTEREST RATE CAPS AND SWAPS
The Corporation enters into interest rate caps and swap transactions to manage
its interest rate exposure. Net interest settlements on interest rate caps and
swaps are recorded as adjustments to interest income or expense.
LOANS
Loans are stated at the outstanding balance, less unearned income and allowance
for loan losses. Loan origination fees and costs incurred in the origination of
new loans are deferred and amortized by the interest method over the life of
the loans as an adjustment of interest yield. Unearned interest on installment
loans is recognized as income on a basis which results in approximate level
rates of return over the term of the loans.
Recognition of interest on commercial and construction loans is
discontinued when loans are 60 days or more in arrears on payments of principal
or interest or when other factors indicate that collection of principal and
interest is doubtful. For lease financing, conventional mortgage loans and
closed-end consumer loans, interest accrual is ceased when loans are 90 days or
more past-due. Such loans are designated as non-accruing and are not returned
to an accrual status until interest is received on a current basis and those
factors indicative of doubtful collection cease to exist. Closed-end consumer
loans are charged-off against the allowance for loan losses after becoming 120
days past-due. Open-end (revolving credit) consumer loans are charged-off
after becoming 180 days past due. Income is generally recognized on open-end
loans until the loans are charged-off.
ALLOWANCE FOR LOAN LOSSES
The Corporation follows a systematic methodology to establish and evaluate the
adequacy of the allowance for loan losses to provide for inherent losses in the
loan portfolio as well as in other credit-related balance sheet and off-balance
sheet financial instruments. This methodology includes the consideration of
such factors as economic conditions, portfolio risk characteristics, prior loss
experience and results of periodic credit reviews.
The provision for loan losses charged to current operations is based
on an evaluation of the risk characteristics of the loan portfolio and the
economic conditions. Loan losses are charged and recoveries are credited to
the allowance for loan losses.
In 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114 - "Accounting by
32
<PAGE> 83
- - - - - --------------------------------------------------------------------------------
Creditors for Impairment of a Loan." This statement requires that impaired
loans be measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical expedient,
at the loan's observable market price or the fair value of the collateral if
the loan is collateral dependent. The statement must be adopted for companies
with financial statements beginning after December 15, 1994. The Corporation
has not yet determined the impact of this statement.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed on a straight-line basis over the
estimated useful life of each type of asset. Amortization of leasehold
improvements is computed over the terms of the respective leases or the
estimated useful lives of the improvements, whichever is shorter. Costs of
maintenance 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 disposed of, their cost and related
accumulated depreciation are removed from the accounts and any gain or loss is
reflected in the operations currently.
OTHER REAL ESTATE
Other real estate comprises properties acquired through both formal foreclosure
proceedings and in-substance foreclosures. In-substance foreclosed properties
are those properties where the borrower retains title but has little or no
remaining equity in the property considering its fair value, where repayment
can only be expected to come from the operation or sale of property, and where
the borrower has effectively abandoned control of the property or it is
doubtful that the borrower will be able to rebuild equity in the property.
These properties are accounted for as if they were properties of the bank and
carried at the lower of cost (outstanding loan balance) or estimated market
value less estimated costs of disposal.
Prior to foreclosure, the recorded amount of the loan, if required, is
written-down to the appraised value of the real estate to be acquired by
charging the allowance for loan losses. This practice has resulted in no
significant differences from recording the property at market value at the time
of foreclosure. Subsequent to foreclosure, gains or losses on the sale of
these properties are credited or charged to expense of operating other real
estate. The cost of maintaining and operating such properties are expensed as
incurred.
INTANGIBLE ASSETS
Intangible assets consist of goodwill and other identifiable intangible assets
acquired, mainly core deposits and credit cardholder relationships. The fair
values of the latter were computed as the net present values of the estimated
future income streams to be obtained from them. The values of core deposits,
credit cardholder relationships and mortgage servicing rights, are amortized
using various methods over the periods benefited ranging from 5 to 12 years.
Goodwill represents the excess of the Corporation's cost of purchased
operations over the fair value of the net assets acquired and is being
amortized on the straight-line basis over 15 years.
INCOME TAXES
In January 1993, the Corporation adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), Accounting for Income Taxes. SFAS 109 is an
asset and liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Corporation's financial statements or tax returns.
In estimating future tax consequences, SFAS 109 generally considers all
expected future events other than enactments of changes in the tax laws or
rates. Previously, the Corporation used the SFAS 96 asset and liability
approach that gave no recognition to future events other than the recovery of
assets and settlement of liabilities at their carrying amounts.
EMPLOYEES' RETIREMENT PLANS
The Corporation and its subsidiaries have trusteed, non-contributory retirement
and related plans covering substantially all full-time employees. Pension
costs are computed on the basis of accepted actuarial methods. The related
costs are charged to current operations and consist of several components of
net pension cost based on various actuarial assumptions regarding future
experience under the plan. Actuarial assumptions are evaluated periodically.
The funding policy is to contribute funds to the plan as necessary to provide
for services to date and for those expected to be earned in the future. To the
extent that these requirements are fully covered by assets in the plan, a
contribution may not be made in a particular year.
OTHER POSTRETIREMENT BENEFIT PLANS
The Corporation provides certain health and life insurance benefits for
eligible retirees and their dependents. The cost of postretirement benefits is
accrued during the years that the employee renders the necessary service.
Before 1993, the cost of providing these benefits was recognized as a charge to
income in the period the benefits were paid.
EARNINGS PER SHARE
Earnings per share are computed on the basis of the weighted average number of
shares of the Corporation outstanding during the year.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand and amounts due from banks.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1992 and 1991 consolidated
financial statements to conform with the presentation of the 1993 consolidated
financial statements.
33
<PAGE> 84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BANPONCE CORPORATION
- - - - - --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting policies followed by the Corporation and its subsidiaries are
disclosed in the preceding summary of significant accounting policies.
NOTE 2 - CHANGES IN ACCOUNTING PRINCIPLES:
Effective January 1, 1993, the Corporation implemented the Statement of
Financial Accounting Standard No. 106 (SFAS 106) - "Employers Accounting for
Postretirement Benefits other than Pensions" (OPEB). Under SFAS 106 the cost of
retiree health care and other postretirement benefits is accrued during
employees' service periods. The Corporation elected to recognize the full
transition obligation in 1993, which is the portion of future retiree benefit
costs related to service already rendered by both active and retired employees
up to the date of adoption, rather than amortizing it over future periods. The
cumulative effect of this accounting change resulted in a reduction in net
income of $22,736,000, or $0.70 per share, net of $16,464,000 in deferred taxes.
In addition, the accrual related to the current year obligation amounted to
$5,217,000.
Effective January 1, 1993, the Corporation adopted Statement of
Financial Accounting Standard No. 109 (SFAS 109) - "Accounting for Income Taxes"
which superseded SFAS 96. Under SFAS 109, the Corporation recognizes to a
greater degree the future tax benefits of expenses which have been recognized in
the financial statements. The adjustments to the January 1, 1993 Statement of
Condition and to the Statement of Income to adopt SFAS 109 netted to $28,921,000
or $0.89 per share. This amount is reflected in 1993 net income as part of the
cumulative effect of a accounting changes. It primarily represents the impact
of recognizing a deferred tax asset for the benefit of AMT credits and loss
carryforwards that could not be recorded under SFAS 96.
NOTE 3 - INVESTMENT SECURITIES:
The carrying value, gross unrealized gains and losses and approximate market
value of investment securities (or fair value for certain investment securities
where no market quotations are available) and related maturities as of December
31, are as follows:
<TABLE>
<CAPTION>
1993
-------------------------------------------------------------
Weighted
Book Unrealized Unrealized Market average
value gains losses value yield
-------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities
(average maturity of
9 months):
Within 1 year $1,597,481 $11,696 $ 1,609,177 5.34%
After 1 to 5 years 627,670 7,041 $ 70 634,641 4.84
-------------------------------------------------------------
2,225,151 18,737 70 2,243,818 5.20
-------------------------------------------------------------
Obligations of other U.S.
Government agencies and
corporations (average
maturity of 7 months):
Within 1 year 215,355 279 5 215,629 3.63
After 1 to 5 years 65,012 1,056 66,069 5.49
After 5 to 10 years 28 28 6.50
After 10 years 8,266 10 1 8,274 7.50
-------------------------------------------------------------
288,661 1,345 6 290,000 4.17
-------------------------------------------------------------
Obligations of Puerto Rico,
States and political sub-
divisions (average
maturity of 3 years and
8 months):
Within 1 year 152,091 209 152,300 2.36
After 1 to 5 years 39,170 3,044 18 42,196 7.40
After 5 to 10 years 24,939 3,063 28,002 7.59
After 10 years 40,474 2,628 101 43,001 8.33
-------------------------------------------------------------
256,674 8,944 119 265,499 4.56
-------------------------------------------------------------
Other (average maturity of
2 years and 1 months):
Within 1 year 228,344 1,084 2,091 227,337 5.26
After 1 to 5 years 294,378 900 1,247 294,032 5.25
After 5 to 10 years 23,393 151 158 23,386 6.51
After 10 years 14,197 1 53 14,144 5.69
-------------------------------------------------------------
560,312 2,136 3,549 558,899 5.31
-------------------------------------------------------------
$3,330,798 $31,162 $ 3,744 $ 3,358,216 5.08%
=============================================================
</TABLE>
<TABLE>
<CAPTION>
1992
---------------------------------------------------------
Weighted
Book Unrealized Unrealized Market average
value gains losses value yield
---------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities
(average maturity of
1 year and 6 months):
Within 1 year $ 671,809 $ 8,186 $ 5 $ 679,990 5.41%
After 1 to 5 years 1,877,555 30,097 1,956 1,905,696 5.46
--------------------------------------------------------
2,549,364 38,283 1,961 2,585,686 5.44
--------------------------------------------------------
Obligations of other U.S.
Government agencies and
corporations (average
maturity of 2 years and
6 months):
Within 1 year 74,506 5 74,511 3.38
After 1 to 5 years 80,025 1,708 15 81,718 6.20
After 5 to 10 years 27 27 6.50
After 10 years 19,678 7 1 19,684 7.28
--------------------------------------------------------
174,236 1,720 16 175,940 5.10
--------------------------------------------------------
Obligations of Puerto Rico,
States and political sub-
divisions (average
maturity of 5 years and
6 months):
Within 1 year 87,630 311 8 87,933 3.09
After 1 to 5 years 37,559 2,621 6 40,174 7.48
After 5 to 10 years 25,872 2,123 5 27,990 7.33
After 10 years 58,748 4,077 62,825 8.14
--------------------------------------------------------
209,809 9,132 19 218,922 5.80
--------------------------------------------------------
Other (average maturity of
3 years and 1 months):
Within 1 year 120,118 1,893 74 121,937 8.17
After 1 to 5 years 189,079 1,277 1,309 189,047 7.06
After 5 to 10 years 32,719 82 456 32,344 6.71
After 10 years 15,115 1 15,117 6.33
--------------------------------------------------------
357,031 3,253 1,839 358,445 7.37
--------------------------------------------------------
$3,290,440 $ 52,388 $ 3,835 $ 3,338,993 5.66%
========================================================
</TABLE>
34
<PAGE> 85
- - - - - --------------------------------------------------------------------------------
The aggregate carrying value and approximate market value of investment
securities at December 31, 1993, by contractual maturity, are shown below:
<TABLE>
<CAPTION>
Book value Market value
--------------------------
(In thousands)
<S> <C> <C>
Within 1 year $ 2,193,271 $2,204,443
After 1 to 5 years 1,026,230 1,036,938
After 5 to 10 years 48,360 51,416
After 10 years 62,937 65,419
----------------------------
$ 3,330,798 $3,358,216
============================
</TABLE>
Proceeds from sale of investment securities during 1993 were $12,059,000
(1992 - $43,114,000; 1991 - $1,104,061,000). Gross gains and gross losses
realized on those sales during the year were $445,000 and $2,000, respectively
(1992 - $245,000 and $3,000; 1991 - $19,645,000 and $1,028,000).
Proceeds from sale of investment securities in 1991 include approximately
$612,894,000 of securities sold immediately after a merger transaction to
restructure the newly combined investment securities portfolio to conform to
the Corporation's investment objectives and strategies. These sales resulted in
a net gain of approximately $267,000.
Investments in obligations that are payable from and secured by the same
source of revenue or taxing authority and that exceeded 10 percent of
stockholders' equity were as follows:
<TABLE>
<CAPTION>
Percent of
Book stockholders' Market
value equity value
-----------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Issuer:
Government of Puerto Rico,
its agencies and
instrumentalities:
December 31, 1993 $256,530 31% $265,370
December 31, 1992 209,632 28 218,745
</TABLE>
NOTE 4 - INVESTMENT SECURITIES AVAILABLE FOR SALE:
The carrying value, gross unrealized gains and losses and approximate market
value of investment securities available for sale (or fair value for certain
investment securities where no market quotations are available) and related
maturities as of December 31, are as follows:
<TABLE>
<CAPTION>
1993
------------------------------------------------------------------------------
Weighted
Book Unrealized Unrealized Market Average
value gains losses value yield
------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities
(average maturity of 3 years
and 2 months):
After 1 to 5 years $550,021 $15,736 $2,749 $ 563,008 5.63%
After 5 to 10 years 80,934 5,341 86,275 6.72
------------------------------------------------------------------------------
630,955 21,077 2,749 649,283 5.77
------------------------------------------------------------------------------
Obligations of other U.S.
Government agencies and
corporations (average
maturity of 2 years and
5 months):
Within 1 year 25,000 25,000 5.50
After 1 to 5 years 50,126 836 50,962 6.71
------------------------------------------------------------------------------
75,126 836 75,962 6.30
------------------------------------------------------------------------------
Other (average maturity of
3 years and 2 months):
After 1 to 5 years 8,484 8,484 8.75
------------------------------------------------------------------------------
$714,565 $21,913 $2,749 $733,729 5.86%
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
1992
----------------------------------------------------------------
Weighted
Book Unrealized Unrealized Market Average
value gains losses value yield
----------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities
(average maturity of 4 years
and 2 months):
After 1 to 5 years $223,360 $13,797 $56 $237,101 7.55%
After 5 to 10 years 81,111 1,439 82,550 6.72
---------------------------------------------------------------
304,471 15,236 56 319,651 7.34
---------------------------------------------------------------
Obligations of other U.S.
Government agencies and
corporations (average
maturity of 3 years and
6 months):
After 1 to 5 years 60,139 520 60,659 5.92
After 5 to 10 years 35,033 221 14 35,240 5.95
--------------------------------------------------------------
95,172 741 14 95,899 5.93
--------------------------------------------------------------
Other (average maturity of
7 years and 6 months):
After 5 to 10 years 8,484 8,484 8.75
--------------------------------------------------------------
408,127 15,977 $70 $ 424,034 7.04%
==============================================================
</TABLE>
The aggregate carrying value and approximate market value of investment
securities available for sale at December 31, 1993, by contractual maturity,
are shown below:
<TABLE>
<CAPTION>
Book value Market value
--------------------------
(In thousands)
- - - - - --------------------------------------------------------------
<S> <C> <C>
Within 1 year $ 25,000 $ 25,000
After 1 to 5 years 600,147 613,970
After 5 to 10 years 80,934 86,275
After 10 years 8,484 8,484
--------------------------
$ 714,565 $ 733,729
==========================
</TABLE>
Proceeds from sale of investment securities available for sale during 1993
were $83,621,000. Gross gains realized on those sales during the year were
$421,000; there were no losses.
NOTE 5 - PLEDGED ASSETS:
Investment securities and loans amounting to $1,917,840,000 are pledged to
secure public and trust deposits and securities and mortgages sold under
agreements to repurchase.
35
<PAGE> 86
<TABLE>
<CAPTION>
- - - - - --------------------------------------------------------------------------------
NOTE 6 - LOANS AND ALLOWANCE FOR LOAN LOSSES:
The composition of the loan portfolio at December 31, is as follows:
1993 1992
------------------------------
(In thousands)
<S> <C> <C>
Loans secured by real estate:
Insured or guaranteed by the U.S.
Government or its agencies $ 128,054 $ 93,110
Guaranteed by the Commonwealth
of Puerto Rico 24,758 29,208
Commercial loans secured
by real estate 894,181 688,139
Other 1,477,500 915,841
------------------------------
2,524,493 1,726,298
Financial institutions 36,445 38,469
Commercial, industrial and
agricultural 1,115,703 1,109,326
Real estate (construction) 154,237 173,025
Lease financing 462,399 391,266
Individuals - For household,
credit cards and other
consumer expenditures 2,062,437 1,902,795
Other 299,358 273,545
------------------------------
$6,655,072 $5,614,724
==============================
</TABLE>
As of December 31, 1993, loans on which the accrual of interest income
had been discontinued amounted to $92,814,000 (1992 - $108,341,000; 1991 -
$128,727,000). If these loans had been accruing interest, the additional
interest income realized would have been approximately $4,992,000 (1992 -
$7,548,000; 1991 - $10,983,000). In addition, there are $5,643,000 of
renegotiated loans still accruing interest at December 31, 1993 (1992 -
$8,380,000). Included in the non-accruing loans as of December 31, 1993 are
$16,290,000 (1992 - $21,440,000) in consumer loans.
The changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---------------------------------------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 110,714 $ 94,199 $ 89,335
Reserve for acquired loans 1,580 1,556
Provision for loan losses 72,892 97,633 121,681
Recoveries 25,678 21,062 10,942
Loans charged-off (77,427) (102,180) (129,315)
---------------------------------------
Balance at end of year $ 133,437 $ 110,714 $ 94,199
=======================================
</TABLE>
NOTE 7 - RELATED PARTY TRANSACTIONS:
The Corporation grants loans to its directors, executive officers and to
certain related individuals or organizations in the ordinary course of
business. The movement and balance of these loans were as follows:
<TABLE>
<CAPTION>
Officers Directors Total
--------------------------------------
(In thousands)
<S> <C> <C> <C>
Balance at January 1, 1992 $ 653 $ 51,995 $ 52,648
Additions 186 119,379 119,565
Reductions (106) (115,268) (115,374)
-------------------------------------
Balance at December 31, 1992 733 56,106 56,839
Additions 1,938 137,809 139,747
Reductions (637) (102,431) (103,068)
-------------------------------------
Balance at December 31, 1993 $2,034 $ 91,484 $ 93,518
=====================================
</TABLE>
These loans have been consummated on terms no more favorable than
those that would have been obtained if the transaction had been with unrelated
parties.
NOTE 8 - PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost less accumulated depreciation and
amortization as follows:
<TABLE>
<CAPTION>
Useful life
in years 1993 1992
---------------------------------------
(In thousands)
<S> <C> <C> <C>
Land $ 33,070 $ 30,381
-----------------------
Buildings 30-50 207,707 198,219
Equipment 3-10 178,632 154,457
Leasehold improvements Various 44,730 40,701
-----------------------
431,069 393,377
Less - Accumulated depreciation
and amortization 187,243 172,378
-----------------------
243,826 220,999
-----------------------
Construction in progress 21,193 8,950
-----------------------
$298,089 $260,330
=======================
</TABLE>
Depreciation and amortization of premises and equipment for the year
was $27,310,000 (1992 - $26,955,000; 1991 - $25,467,000) of which $6,421,000
(1992 - $7,515,000; 1991 - $7,355,000) was charged to occupancy expense and
$20,889,000 (1992 - $19,440,000; 1991 - $18,112,000) was charged to equipment,
communications and other operating expenses. Occupancy expense is net of rental
income of $14,097,000 (1992 - $13,067,000; 1991 - $12,743,000).
NOTE 9 - DEPOSITS:
Total interest bearing deposits as of December 31, consist of:
<TABLE>
<CAPTION>
1993 1992
-------------------------------
(In thousands)
<S> <C> <C>
Savings deposits:
Savings accounts $2,737,037 $2,315,572
NOW and money market
accounts 1,135,043 1,035,955
-------------------------------
3,872,080 3,351,527
-------------------------------
Certificates of deposit:
Under $100,000 1,233,019 1,328,873
$100,000 and over 1,568,700 1,743,505
-------------------------------
2,801,719 3,072,378
-------------------------------
$6,673,799 $6,423,905
===============================
</TABLE>
36
<PAGE> 87
- - - - - --------------------------------------------------------------------------------
NOTE 10 - FEDERAL FUNDS PURCHASED AND SECURITIES SOLD
UNDER AGREEMENTS TO REPURCHASE:
The following table summarizes certain information on federal funds purchased
and securities sold under agreements to repurchase as of December 31:
<TABLE>
<CAPTION>
1993 1992 1991
--------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Federal Funds purchased $ 9,100
Securities sold under agreements
to repurchase 942,633 $ 665,222 $449,114
--------------------------------------
Total amount outstanding $ 951,733 $ 665,222 $449,114
======================================
Maximum aggregate balance
outstanding at any month-end $1,108,578 $ 920,272 $817,856
======================================
Average aggregate balance
outstanding $ 832,651 $1,628,620 $645,789
======================================
Weighted average interest rate:
For the year 2.77% 3.16% 5.40%
At December 31 2.91 2.79 4.43
</TABLE>
NOTE 11 - OTHER SHORT-TERM BORROWINGS:
Other short-term borrowings as of December 31, consist of:
<TABLE>
<CAPTION>
1993 1992
---------------------
(In thousands)
<S> <C> <C>
Advances under revolving lines of credit
amounting to $195,000,000 (1992 -
$200,000,000) with floating interest
rates ranging from 2.66% to 3.55%
(1992 - 3.28% and 3.44%). $109,025 $ 70,000
Term federal funds purchased with
maturities until April 1994 at rates
ranging from 3.31% to 3.50%. 345,000
Commercial paper (issued to institutional
investors) with various
maturities until May 1994 at rates
ranging from 3.39% to 3.75%
(1992 - 3.32% to 4.66%.) 119,112 87,982
Term notes maturing in 1994, paying
quarterly interest at rates ranging from
0.44% to 0.94% (1992 - 0.25% to 1.15%)
over the 3 month LIBOR rate (LIBOR rate
at December 31, 1993 was 3.38%;
1992 - 3.44%). 44,986 42,963
Term notes due in 1994 paying semiannual
interest at a fixed rate ranging from 3.81%
to 7.88% (1992 - 7.27%). 44,961 4,998
Others 1,089 939
---------------------
$664,173 $206,882
=====================
</TABLE>
The weighted average interest rate of other short-term borrowings at
December 31, 1993 was 3.40% (1992 - 4.03%; 1991 - 6.07%). The maximum
aggregate balance outstanding at any month-end was approximately $695,314,000
(1992 - $208,738,000; 1991 - $222,742,000). The average aggregate balance
outstanding during the year was approximately $527,523,000 (1992 -
$172,729,000; 1991 - $198,653,000). The weighted average interest rate during
the year was 3.66% (1992 - 4.32%; 1991 - 6.69%).
NOTE 12 - NOTES PAYABLE:
Notes payable outstanding at December 31, consist of the following:
<TABLE>
<CAPTION>
1993 1992
---------------------
(In thousands)
<S> <C> <C>
Term notes with maturities ranging from
1995 through 2003 paying semiannual
interest at fixed rates ranging from 5.17%
to 7.85% (1992 - 4.47% to 7.85%). $179,301 $69,806
Term notes with maturities ranging from
1995 through 1998 paying quarterly
interest at rates ranging from 0.19% to
0.58% (1992 - 0.65% to 1.13%) over the
3 month LIBOR rate (LIBOR rate
at December 31, 1993 was 3.38%;
1992 - 3.44%). 44,861 19,972
Promissory notes maturing in 1998 with
fixed interest rates ranging from 4.50%
to 4.62%. 29,500
Mortgage notes and other debt with
varying rates and terms. 193 284
---------------------
$253,855 $90,062
=====================
</TABLE>
NOTE 13 - SENIOR DEBENTURES:
Senior debentures at December 31, 1993 consist of a $30,000,000 obligation
issued by the Corporation due in January 1997 with interest at 8.25%.
The senior debentures contain various covenants which, among others,
restrict the payment of dividends. These restrictions are less restrictive
than those imposed by the subordinated notes agreements (see Note 14).
NOTE 14 - SUBORDINATED NOTES OF THE SUBSIDIARY BANK:
Subordinated notes at December 31, consist of the following:
<TABLE>
1993 1992
-------------------
(In thousands)
<S> <C> <C>
Subordinated notes issued by the subsidiary
Bank on March 29, 1989 maturing on
June 15, 1996, with interest payable
quarterly and consisting of:
8.875% Fixed Rate Notes Series A $15,000 $15,000
8.6875% Fixed Rate Note Series B 15,000 15,000
Floating Rate Notes Series A with interest
payable at 88% of LIBID rate 19,000 19,000
Floating Rate Notes Series B with interest
payable at 86% of LIBID rate 1,000 1,000
--------------------
50,000 50,000
--------------------
Subordinated fixed rate notes with interest
payable quarterly consisting of the
following:
7.95% notes due in 1994
(Prepaid during 1993) 12,000
8.50% notes due in 1996 12,000 12,000
--------------------
12,000 24,000
--------------------
$62,000 $74,000
====================
At December 31, 1993, the LIBID rate was 3.25% (1992 - 3.31%).
</TABLE>
37
<PAGE> 88
- - - - - --------------------------------------------------------------------------------
These notes are subordinated to the rights of the subsidiary Bank's
depositors and other creditors and require the subsidiary Bank to set aside
from retained earnings an amount equal to the principal payment on each note to
be used solely to increase capital. The capital reserve account was established
to comply with the requirements of the subordinated notes. At the notes
repayment date the balance in capital reserves is transferred to the surplus
account. The subsidiary Bank transferred to capital reserves from the retained
earnings account $10,571,000, $10,571,000 and $13,429,000 during 1993, 1992 and
1991, respectively, following this requirement. In addition, during 1993 and
1992, $12 million and $20 million were transferred from capital reserves to
surplus upon prepayment of the 7.95% and 10% notes originally maturing in 1994
and 1993, respectively.
The $12 million subordinated notes agreements contain certain provisions
which, among other things, restrict the payment of dividends. Under these
restrictions, at December 31, 1993, undivided profits of the subsidiary Bank
amounting to $1,000,000 are unavailable for future dividends.
NOTE 15 - LONG-TERM DEBT MATURITY REQUIREMENTS:
The aggregate amounts of maturities of notes payable, senior debentures and
subordinated notes are as follows:
<TABLE>
<CAPTION>
Notes Senior Subordinated
Year payable debentures notes Total
- - - - - -----------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
1994 $ 92 $ 92
1995 34,961 34,961
1996 54,843 $62,000 116,843
1997 34,889 $30,000 64,889
1998 104,167 104,167
Later years 24,903 24,903
----------------------------------------------------
Total $253,855 $30,000 $62,000 $ 345,855
====================================================
</TABLE>
NOTE 16 - PREFERRED STOCK OF THE SUBSIDIARY BANK:
The subsidiary Bank has 200,000 shares of authorized preferred stock with a par
value of $100. 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. The
subsidiary Bank has issued 110,000 shares of Treasury Indexed Preferred Stock
Series A (TIPS) at $100 per share for a total of $11,000,000. These shares are
non-convertible and non-voting (except that if dividends are not paid on the
preferred stock for six consecutive quarters their holders obtain a vote in the
general election of directors of the subsidiary Bank), and are redeemable at
the subsidiary Bank's option at a price of $103 per share through June 30, 1994
and at par ($100) thereafter. Dividends are payable quarterly at a rate of
115% of the six-month bond equivalent Treasury Bill rate, or 85% of the
five-year Treasury Note constant maturity rate, whichever is higher, but the
rate cannot be lower than 7.0% or higher than 15.5% per annum.
NOTE 17 - STOCKHOLDERS' EQUITY:
The Corporation has a dividend reinvestment plan under which stockholders may
use their quarterly dividends to reinvest in shares of common stock at a 5%
discount from the average market price at the time of issuance. During 1993,
77,559 shares (1992 - 102,272; 1991 - 151,446) equivalent to $2,106,000 (1992 -
$2,209,000; 1991 - $2,397,000) in additional equity, were issued under the
plan.
On May 3, 1993, BanPonce Corporation filed, and had ordered effective, a
"shelf" registration with the Securities and Exchange Commission which
registered up to $400 million in unsecured debt securities and/or shares of
preferred stock. The amounts, terms and timing of offerings will be determined
in the future when and as the Corporation decides to sell securities under the
registration.
On November 6, 1992, the Corporation issued 2,458,740 shares of common
stock, which generated $57,600,000 of new capital. All of the shares were
purchased by existing shareholders who exercised their subscription rights.
Net proceeds from the issuance have been and will be used for general corporate
purposes, including investment in and advances to existing subsidiaries.
The Corporation's average number of shares outstanding used in the
computation of net income per share was 32,701,236 (1992 - 30,461,494; 1991 -
30,035,601). During the year cash dividends of $0.90 (1992 and 1991 - $0.80)
per share outstanding amounting to $29,434,000 (1992 - $24,624,000; 1991 -
$24,028,000) were declared.
NOTE 18 - INTEREST ON INVESTMENTS:
Interest on investments consisted of the following:
<TABLE>
<CAPTION>
1993 1992 1991
--------------------------------
(In thousands)
Money market investments:
<S> <C> <C> <C>
Federal funds sold and securities
and mortgages purchased under
agreements to resell $ 4,115 $ 5,209 $ 4,448
Time deposits with
other banks 2,259 9,093 28,886
Other 60 112 256
--------------------------------
$ 6,434 $ 14,414 $ 33,590
================================
Investment securities:
U.S. Treasury securities $163,209 $154,210 $124,451
Obligations of other
U.S. Government agencies
and corporations 14,622 19,137 22,833
Obligations of Puerto Rico,
States and political sub-
divisions 11,605 13,235 15,575
Other 26,508 21,060 18,554
--------------------------------
$215,944 $207,642 $181,413
================================
</TABLE>
Interest income on investment securities for the year ended December 31,
1993 includes tax exempt interest of $189,438,000 (1992 - $187,923,000; 1991
$163,812,000).
NOTE 19 - EMPLOYEE BENEFITS:
Substantially all of the employees of the Corporation and its subsidiaries are
covered by a non-contributory defined benefit pension plan. Pension benefits
begin to vest after five years of service and are based on age, years of
credited service and final average compensation, as defined. At December 31,
1993, plan assets primarily consist of U.S. Government obligations, high grade
corporate bonds and listed stocks including 1,418,215 shares of the
Corporation, which have a market value of approximately $43,965,000.
The following table sets forth the plan's funded status and amounts
recognized in the consolidated financial statements at December 31:
38
<PAGE> 89
<TABLE>
<CAPTION>
- - - - - -------------------------------------------------------------------------------
1993 1992
-----------------------------
(In thousands)
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefits ($123,826) ($103,365)
Non-vested benefits (9,313) (8,401)
-----------------------------
Accumulated benefit obligation (133,139) (111,766)
Effect of projected future
compensation levels (54,251) (41,487)
-----------------------------
Projected benefit obligation (187,390) (153,253)
Plan assets at fair market value
consisting primarily of U.S.
Government obligations, high grade
corporate bonds and listed stocks 203,893 193,536
-----------------------------
Plan assets in excess of projected
benefit obligation 16,503 40,283
Unrecognized net (gain) loss from
past experience different from that
assumed and effect of changes in
assumptions 19,618 (1,463)
Unrecognized prior service cost (2,395) (2,573)
Unrecognized initial net assets (27,929) (30,389)
-----------------------------
Prepaid pension cost $ 5,797 $ 5,858
=============================
Net pension cost for the year ended December 31, included the following
components:
1993 1992 1991
----------------------------
(In thousands)
Service costs - benefits earned
during period $ 7,563 $ 6,802 $ 5,818
Interest cost on projected
benefit obligation 12,454 11,495 10,451
Actual return on plan assets (15,404) (24,290) (29,184)
Net amortization and deferral (4,553) 6,025 12,922
----------------------------
Net pension cost $ 60 $ 32 $ 7
============================
</TABLE>
At December 31, 1993, the discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.5% (1992 and 1991 -
8.25%) and the rate of increase in future compensation levels was 5.5% for the
three years. The expected long-term rate of return on assets used in the
computation was 9% for 1993, 1992 and 1991.
In addition to providing pension benefits, the subsidiary Bank provides
certain health care benefits for retired employees. Substantially all of the
employees of the Bank who are eligible to retire under the pension plan and
provided they reach retirement age while working for the Bank may become
eligible for these benefits. The actual disbursements for these benefits for
1993 amounted to approximately $1,770,000 (1992 - $1,400,000; 1991 - $778,000).
The components of net postretirement benefit expense under SFAS 106 for the
year ended December 31, 1993 are as follows (in thousands):
Service cost $ 2,054
Interest cost 3,163
--------
Net postretirement benefit expense $ 5,217
========
The status of the Company's unfunded postretirement benefit plan at
December 31, 1993 is as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Actuarial present value of expected
postretirement benefit obligation:
Retirees $21,676
Fully eligible active plan
participants 2,937
Other active plan participants 22,985
Accumulated postretirement ------------
benefit obligation 47,598
Unrecognized net loss from past
experience different from that
assumed and effect of changes in
assumptions (4,926)
------------
Accrued postretirement
benefit cost $42,672
</TABLE> ============
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation at December 31, 1993 was 7.5%.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation at December 31, 1993 was 13%, decreasing by
1% every year until 5% is reached in the year 2001 and remaining at that level
thereafter. A one-percentage point increase in the health care cost trend rate
would increase the accumulated postretirement benefit obligation as of December
31, 1993 by $7,406,000 and the sum of the service and interest cost in 1993 by
$1,085,000.
The Corporation also has a profit sharing plan covering substantially all
regular employees. Annual contributions are based on operating income, as
defined in the plan, and are deposited in trust. Profit sharing expense for the
year amounted to $20,594,000 (1992 - $17,736,000; 1991 - $13,848,000).
NOTE 20 - RENTAL EXPENSE AND COMMITMENTS:
At December 31, 1993, the Corporation was obligated under a number of
non-cancelable leases for land, buildings, and equipment which require rentals
(net of related sublease rentals) as follows:
<TABLE>
<CAPTION>
Minimum Sublease
payments rentals Net
- - - - - ---------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
1994 $10,428 $ 694 $ 9,734
1995 9,101 685 8,416
1996 8,127 683 7,444
1997 7,362 671 6,691
1998 7,047 589 6,458
Later years 41,243 2,466 38,777
-----------------------------
$83,308 $5,788 $77,520
</TABLE> =============================
Total rental expense for the year ended December 31, 1993 was $14,480,000
(1992 - $14,074,000; 1991 - $14,022,000).
NOTE 21 - INCOME TAX
As discussed in Notes 1 and 2, the Corporation adopted SFAS 109 as of January
1, 1993, and the cumulative effect of this change is reported in the
Consolidated Statement of Income for the year ended December 31, 1993. Prior
year's financial statements have not been restated to apply the provisions of
SFAS 109. This standard requires the recognition of deferred tax assets and
liabilities
39
<PAGE> 90
- - - - - --------------------------------------------------------------------------------
for the expected future tax consequences of events that have been recognized in
the Corporation's financial statements or tax returns. The measurement of
current and deferred tax liabilities or assets is based on the regular tax
rates, which is 42% in Puerto Rico, and the provisions of enacted tax laws.
A related deferred tax liability of $5,000,000 is recorded in the
consolidated statement of condition at December 31, 1992, after reduction for
other net deductible amounts, for the tax effect of the excess of the assigned
values over the tax bases of net assets acquired.
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities for 1993 are as follows:
<TABLE>
<CAPTION>
Amount
---------------------
(In thousands)
<S> <C>
Deferred tax assets:
Alternative minimum tax credits
available for carryforward and
other credits available $ 54,581
Net operating loss carryforwards
available 1,914
Postretirement benefits obligation
(other than pensions) 17,682
Other temporary differences 7,296
--------------
Total gross deferred tax assets 81,473
--------------
Deferred tax liability:
Differences between the assigned
values and the tax bases of the
assets and liabilities recognized
in a purchase business
combination 41,452
Other temporary differences 3,807
--------------
Total gross deferred tax liability 45,259
--------------
Deferred tax asset valuation
allowance 296
--------------
Net deferred tax asset $ 35,918
==============
</TABLE>
At December 31, 1993, the Corporation had $21,854,000 in Alternative
Minimum Tax (AMT) credits that can be carried forward indefinitely to reduce
the regular income tax liability in future years. During 1993, the Corporation
used AMT credits totalling $6,513,000 to reduce its regular tax liability. The
Corporation also had, at the end of 1993, $4,557,000 in net operating losses
(NOL) available to carry over to offset taxable income in future years. These
NOL carryforwards expire in different amounts on years 1997 through 1999.
During 1993, the Corporation used NOL carryforwards amounting to $2,690,000 to
reduce its regular taxable income. The valuation allowance of $296,000 is
related to a deferred tax asset arising from NOL carryforwards, for which the
Corporation cannot determine the likelihood of its realizability in future
years.
Under the Puerto Rico Income Tax Law, the Corporation and its subsidiaries
are treated as separate taxable entities and are not entitled to file
consolidated tax returns. Dividends received (net of an 85% dividend received
deduction allowed by Puerto Rico Income Tax Law) by the Corporation from the
subsidiaries are subject to Puerto Rico income tax at the normal corporate tax
rates.
Under the provisions of SFAS 109, the Corporation has not recognized a
deferred tax liability on $90,313,000 of unremitted earnings of domestic
subsidiaries arising after January 1, 1993, at the applicable dividend rate,
since the P.R. income tax law provides certain alternatives to remit those
earnings to the Corporation on a tax free basis.
The aggregated income tax expense applicable to income before provision for
income taxes differs from the amount computed by applying the statutory 42%
rate as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---------------------------------------------------
% of % of % of
pre-tax pre-tax pre-tax
Amount income Amount income Amount income
-----------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Computed income tax
at statutory rate $55,499 42% $42,061 42% $ 30,309 42%
Benefits of net tax exempt
interest income (30,852) (23) (29,135) (29) (30,057) (42)
Others 3,504 2 1,109 1 2,981 4
Alternative minimum tax paid
over regular income tax 224 3,560 5
-----------------------------------------------------
Income tax expense $28,151 21% $14,259 14% $ 6,793 9%
=====================================================
</TABLE>
The provision for income tax has been significantly reduced as a result of
the elimination from the determination of taxable income of interest from
exempt securities for Puerto Rico income tax purposes.
The components of income tax expense for the year ended December 31, 1993,
are as follows:
<TABLE>
<CAPTION>
Amount
---------------
(In thousands)
<S> <C>
Current tax expense $23,018
Deferred taxes 5,133
-----------
Total income tax expense $28,151
</TABLE> ===========
Income tax provision includes $363,000, $53,000 and $4,096,000 in 1993,
1992 and 1991, respectively, related to the gain on sale of securities.
The Corporation's federal income tax provision for 1993 and 1992 was
$2,230,000 and $481,000, respectively. The Corporation's United States
operations in 1991 resulted in a loss and accordingly, no federal tax provision
was recorded.
NOTE 22 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS
OF CREDIT RISK:
The Corporation is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financial needs of its
customers and to reduce its own exposure to interest rates. These financial
instruments include loan commitments, letters of credit, standby letters of
credit, future contracts, options on future contracts and interest rate swaps
and caps. These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the consolidated
statement of condition. The contract or notional amounts of these instruments,
which are not included in the statement of condition, are an indicator of the
Corporation's activities in particular classes of financial instruments.
The Corporation's exposure to credit loss in the event of non-performance
by the other party to the financial instrument for commitments to extend credit
and standby letters of credit and financial guarantees written is represented
by the contractual notional
40
<PAGE> 91
- - - - - --------------------------------------------------------------------------------
amounts of those instruments. The Corporation uses the same credit policies
in making commitments and conditional obligations as it does for the ones
reflected on the balance sheet. For future contracts, options on future
contracts and interest rate swaps and caps the contract or notional amounts do
not represent exposure to credit loss. Instead, the amount potentially
subject to credit loss is substantially less.
The total amounts of financial instruments with off-balance sheet risk at
December 31, are as follows:
Financial instruments whose contract amounts represent potential credit
risk:
<TABLE>
<CAPTION>
1993 1992
----------------------------
(In thousands)
<S> <C> <C>
Commitments to extend credit:
Credit card lines $ 644,977 $ 631,917
Commercial lines of credit 1,139,524 778,859
Commercial letters of credit 11,512 11,768
Standby letters of credit 82,642 65,736
The movement and balance of financial instruments whose notional or
contractual amounts exceed the amount of potential credit risk is as follows:
Foreign Interest Interest
exchange rate rate
rate contracts swaps caps
----------------------------------
(In thousands)
Balance at January 1, 1992 $406 $30,000
New contracts 879 20,000 $20,000
Terminated and matured
contracts 406
----------------------------------
Balance at December 31, 1992 879 50,000 20,000
New Contracts 936
Terminated and matured
contracts 879 30,000
----------------------------------
Balance at December 31, 1993 $936 $20,000 $20,000
</TABLE> ==================================
Contractual commitments to extend credit are legally binding agreements to
lend money to customers at predetermined interest rates for a specified period
of time. Since many of the loan commitments may expire without being drawn
upon, the total commitment amount does not necessarily represent future cash
requirements. To extend credit the Corporation evaluates each customer's
creditworthiness. The amount of collateral obtained, if deemed necessary by
the Corporation upon extension of credit, is based on management's credit
evaluation of the counterpart. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment and investment securities
among others.
In general, commercial letters of credit are short-term commitments used to
finance commercial contracts for the shipment of goods. Standby letters of
credit are also issued by the Corporation to guarantee the performance of a
customer to a third party. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers. In most instances, cash items are held by the Corporation to
collateralize these instruments.
Financial future contracts are agreements to buy or sell a notional amount
of a financial instrument at a given time in the future. Options on future
contracts confer the right from seller to buyer to take a future position at a
stated price. Risks arise from the possible inability of counter parties to
meet the terms of their contracts and from movements in securities values and
interest rates.
The Corporation also enters into interest rate swap agreements in managing
its interest rate exposure. Interest rate swap agreements generally involve
the exchange of fixed and floating rate interest payment obligations without
the exchange of the underlying principal. At December 31, 1993, the
Corporation had outstanding two interest rate swap agreements having a total
notional amount of $20 million. Both of the agreements were done with
commercial banks to change the Corporation's interest rate exposure, one of
them consisting of a $10 million floating rate medium term note due in 1994
exchanged to a fixed 6.51%; the other swap agreement is for a notional
principal amount of $10 million covering the Corporation's interest rate
exposure on half of a $20 million fixed rate medium term note to a floating
rate. These agreements end at the time the related obligations mature.
Non-performance by any of the counter parties on these agreements will expose
the Corporation to an interest rate risk which management deems to be
immaterial.
Interest rate caps are contractual agreements protecting the buyer against
a rise in interest rates. As of December 31, 1993, the Corporation had
outstanding two interest rate caps having a total notional amount of $20
million. These caps were acquired in order to minimize the interest rate risk
associated with certain variable-rate securities and end at the time the
related securities mature in 1995. Cap rates range from 5.5% to 7.5%. The
risk which may arise from the inability of counter parties to meet the terms of
their contracts is considered immaterial to management.
The following table summarizes certain financial information on hedging
activities as of December 31, 1993:
<TABLE>
<CAPTION>
Interest rate
swaps
-------------------
Impact on 1993:
<S> <C>
- Net interest income ($264,000)
- Net interest margin (2.97%)
- Effect of 1% increase in
interest rates on 1993
earnings $86,000
</TABLE>
The gains and losses from hedging activities are amortized over the
remaining life of the security being hedged. Currently, there are no deferred
gains and losses from these activities. The expected weighted average interest
rates to be received and paid on the interest rate swaps approximate 5.44% and
5.01%, respectively.
A geographic concentration exists within the Corporation's loan portfolio
since most of the Corporation's business activity is with customers located in
Puerto Rico. However, as of December 31, 1993, the Corporation had no
significant concentrations of credit risk and no significant exposure to highly
leveraged transactions in its loan portfolio.
NOTE 23 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS:
The information about the estimated fair values of financial instruments, as
required by the Statement of Financial Accounting Standards No. 107 (SFAS 107),
is presented hereunder including some
41
<PAGE> 92
- - - - - --------------------------------------------------------------------------------
items not recognized in the statement of financial position. A financial
instrument is defined as cash, evidence of an ownership interest in an entity,
or a contract that creates a contractual obligation or right to deliver to or
receive cash or another financial instrument from a second entity on
potentially favorable terms with the first entity. SFAS 107 provides that for
deposit liabilities with no defined maturities, such as demand deposit
accounts, NOW, money market and savings accounts, which at December 31, 1993
and 1992, comprised 67.1% and 61.8%, respectively, of the Corporation's total
deposits, the fair value to be disclosed is the amount payable on demand. All
nonfinancial instruments are excluded from the disclosure requirements of SFAS
107.
For those financial instruments with no quoted market prices available,
fair values have been estimated using present value or other valuation
techniques. These techniques are inherently subjective and are significantly
affected by the assumptions used, including the discount rates, estimates of
future cash flows and prepayment assumptions. In that regard, the derived fair
value estimates cannot be substantiated by comparison to independent markets
and, in many cases, could not be realized in immediate settlement of the
instrument.
The fair values reflected herein have been determined based on the
prevailing interest rate environment as of December 31, 1993 and 1992,
respectively. In different interest rate environments, fair value results can
differ significantly, especially for certain fixed rate financial instruments
and nonaccrual assets. In addition, the fair values presented do not attempt
to estimate the value of the Corporation's fee generating businesses and
anticipated future business activities, that is, they do not represent the
Corporation's value as a going concern. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the Corporation.
The estimated fair values of the Corporation's financial instruments, their
carrying value and the methodologies used to estimate fair values are presented
below.
Short-Term Financial Instruments:
Short-term financial instruments, both assets and liabilities, have been valued
at their carrying amounts as reflected in the Corporation's Statement of
Condition. For these financial instruments, the carrying value may approximate
fair value because of the relatively short period of time between the
origination of the instruments and their expected realization. Included in
this category are: cash and due from banks, federal funds sold and securities
and mortgages purchased under agreements to resell, time deposits with other
banks, bankers' acceptances, customers' liabilities on acceptances, accrued
interest receivable, securities sold under agreements to repurchase,
acceptances outstanding and accrued interest payable.
Investment and Trading Securities:
Investment and trading securities are financial instruments which trade
regularly on secondary markets. The estimated fair value of these securities
was determined using either market prices or dealer quotes where available, or
quoted market prices of financial instruments with similar characteristics.
The fair value of trading account securities equals its carrying value since
they are marked-to-market for accounting purposes. These instruments are
detailed in the statement of condition and in notes 3 and 4.
Loans:
Estimated fair values have been determined for loan portfolios with similar
financial characteristics. Loans were segregated by type such as commercial,
construction, residential mortgage, consumer and credit cards. Each loan
category was further segmented based on collateral, interest repricing and
accrual vs. non-accrual status. For variable rate loans with frequent
repricing terms and no significant change in credit risk, fair values were
based on carrying values.
Commercial loans with fixed rates were segregated in commercial real
estate, cash collateral and other. Consumer loans were segregated by type such
as personal, auto, boat, student, reserve lines and home equity loans.
Personal loans were further subdivided in mortgage-guaranteed, cash collateral
and unsecured. The fair values of fixed-rate commercial, construction and
consumer loans were estimated by discounting scheduled cash flows using
prevailing market rates for those loans at the end of 1993 and 1992,
respectively. The unfavorable fair valuation results for consumer loans were
mainly due to the deregulation, during 1992, of the maximum rates that can be
charged on consumer loans in Puerto Rico. Before this deregulation, the
maximum rate chargeable in most consumer loans was limited to 130% of the
average prime rate for the previous quarter.
For non-accruing loans, the estimated fair values were based on the
discounted value of estimated cash flows. For these loans, principal-only cash
flows were adjusted to reflect projected charge-offs. Interest cash flows were
determined based on historical collection experience.
Residential mortgage loans were valued using quoted market prices, for
those available, and market prices of similar traded loans with similar credit
ratings, interest rates and maturity dates adjusted for estimated prepayments.
For credit card loans, fair value estimates were determined by discounting the
projected income stream of the portfolio, after deducting operating expenses
and estimated credit losses.
SFAS 107 does not require, nor has the Corporation performed, a fair
valuation of its lease financing portfolio. However, for presentation purposes
only, leases are shown below with fair value equal to carrying value.
<TABLE>
<CAPTION>
1993
--------------------------------------------
Estimated
Carrying value fair value
--------------------------------------------
(In thousands)
<S> <C> <C>
Commercial $2,369,514 $2,364,891
Construction 153,436 156,508
Lease financing 375,693 375,693
Mortgage 1,576,044 1,623,850
Consumer
(including credit cards) 1,872,235 1,857,068
Less: Allowance for
loan losses 133,437
--------------------------------------------
$6,213,485 $6,378,010
============================================
</TABLE>
42
<PAGE> 93
<TABLE>
<CAPTION>
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
1992
----------------------------------
Estimated
Carrying value fair value
----------------------------------
(In thousands)
<S> <C> <C>
Commercial $2,133,357 $2,122,509
Construction 172,411 175,387
Lease financing 314,905 314,905
Mortgage 790,802 815,542
Consumer
(including credit cards) 1,840,578 1,786,641
Less: Allowance for
loan losses 110,714
---------------------------------
$5,141,339 $5,214,984
=================================
</TABLE>
Deposit Liabilities:
Under SFAS 107, the fair value of deposits with no stated maturity, such as
non-interest bearing demand deposits, savings, NOW and money market accounts,
is equal to the amount payable on demand as of December 31, 1993 and 1992,
respectively. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows. The discount rate is estimated
using the rates offered at December 31, 1993 and 1992, respectively, for
deposits with similar remaining maturities.
<TABLE>
<CAPTION>
1993
----------------------------------
Estimated
Carrying value fair value
----------------------------------
(In thousands)
<S> <C> <C>
Non interest bearing
deposits $1,848,859 $1,848,859
Savings accounts 2,737,037 2,737,037
NOW and money
market accounts 1,135,043 1,135,043
Certificates of deposit 2,801,719 2,831,589
-----------------------------------
$8,522,658 $8,552,528
===================================
</TABLE>
<TABLE>
<CAPTION>
1992
------------------------------------
Estimated
Carrying value fair value
------------------------------------
(In thousands)
<S> <C> <C>
Non interest bearing
deposits $1,614,806 $1,614,806
Savings accounts 2,315,572 2,315,572
NOW and money
market accounts 1,035,955 1,035,955
Certificates of deposit 3,072,378 3,116,444
------------------------------------
$8,038,711 $8,082,777
====================================
</TABLE>
Borrowings and Long-Term Debt:
Borrowings and Long-Term Debt, which include other short-term borrowings, notes
payable, senior debentures and subordinated notes, were valued using quoted
market rates for similar instruments at December 31, 1993 and 1992,
respectively. Included within other short-term borrowings at December 31,
1993, there are $119 million (1992 - $88 million) in commercial paper issued by
the Corporation which has been valued at its carrying amount because of the
relatively short period of time between its origination and maturity.
<TABLE>
<CAPTION>
1993
-----------------------------------
Estimated
Carrying value fair value
-----------------------------------
(In thousands)
<S> <C> <C>
Other short-term
borrowings $664,173 $665,226
Notes payable 253,855 255,649
Senior debentures 30,000 31,679
Subordinated notes 62,000 64,282
</TABLE>
<TABLE>
<CAPTION>
1992
------------------------------------
Estimated
Carrying value fair value
------------------------------------
(In thousands)
<S> <C> <C>
Other short-term
borrowings $206,882 $206,991
Notes payable 90,062 93,218
Senior debentures 30,000 30,232
Subordinated notes 74,000 75,854
</TABLE>
Interest rate swaps and caps and foreign exchange contracts:
The fair value of interest rate swap and cap agreements and foreign exchange
contracts was determined taking into account the current interest rates and
exchange rates, respectively. At December 31, 1993 and 1992, the fair value of
interest rate swaps was $795,000 and ($289,000), respectively. The fair value
of interest rate caps and foreign exchange contracts is the same as its
carrying value as of December 31, 1993 and 1992.
Commitments to Extend Credit and Standby Letters of Credit:
Commitments to extend credit were fair valued using the fees currently charged
to enter into similar agreements. For those commitments where a future stream
of fees is charged, the fair value was estimated by discounting the projected
cash flows of fees on commitments which are expected to be disbursed, based on
historical experience. The fair value of letters of credit is based on fees
currently charged on similar agreements. At December 31, 1993, the Corporation
had $1,784,501,000 and $94,154,000 in commitments to extend credit and letters
of credit, respectively (1992 - $1,410,776,000 and $77,504,000). The estimated
fair value of these financial instruments with no carrying value was $4,480,000
(1992 - $3,066,000).
NOTE 24 - SUPPLEMENTAL DISCLOSURE ON THE CONSOLIDATED
STATEMENTS OF CASH FLOWS:
During the year ended December 31, 1993, the Corporation and its subsidiaries
paid interest and income taxes amounting to $279,618,000 and $26,690,000,
respectively (1992 - $304,591,000 and $5,096,000; 1991 - $392,067,000 and
$5,943,000). In addition, loans transferred to other real estate and other
property as of December 31, 1993 amounted to $15,121,000 and $3,923,000,
respectively (1992 - $7,799,000 and $5,084,000). During 1992 the Corporation
retained $8.5 million of $94 million securitized mortgage loans.
NOTE 25 - LEASE FINANCING RECEIVABLES SOLD:
During 1991 Velco, a subsidiary, sold approximately $68,616,000 of lease
financing receivables resulting in a gain of $3,092,000 net
43
<PAGE> 94
- - - - - --------------------------------------------------------------------------------
of related expenses and estimated losses for uncollectible receivables. Under
the servicing agreements, Velco retained the servicing of the portfolio sold
and the subsidiary Bank was appointed trustee. At December 31, 1993, the
Corporation and Velco are liable under limited recourse provisions on the
leases sold which do not exceed $4,500,000.
NOTE 26 - CONTINGENT LIABILITIES:
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 27 - BANPONCE CORPORATION (HOLDING COMPANY ONLY)
FINANCIAL INFORMATION:
The following condensed financial information presents the
financial position of the Holding Company only as of December 31, 1993 and 1992
and the results of its operations and its cash flows for the three years ended
December 31, 1993.
<TABLE>
<CAPTION>
STATEMENTS OF CONDITION
December 31,
-------------------------
1993 1992
-------------------------
(In thousands)
<S> <C> <C>
ASSETS
Cash $ 859 $ 1,472
Money market investments 8,467 39,148
Investment securities 1,000 1,000
Investment in subsidiary Bank,
at equity 752,339 662,797
Investment at equity in other
subsidiaries 60,932 57,072
Advances to subsidiaries 132,275 67,767
Other assets 184 601
-------------------------
Total assets $ 956,056 $ 829,857
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Commercial paper $ 80,300 $ 39,904
Senior debentures 30,000 30,000
Accrued expenses and other
liabilities 11,561 7,834
Stockholders' equity 834,195 752,119
-------------------------
Total liablities and
stockholders' equity $ 956,056 $ 829,857
=========================
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
Year ended December 31,
---------------------------
1993 1992 1991
---------------------------
(In thousands)
<S> <C> <C> <C>
Income:
Dividends from subsidiary Bank $ 16,000 $26,000 $25,850
Interest on money market and
investment securities 269 210 173
Gain on sale of securities 145
Other operating income 20
Interest on advances to
subsidiaries 10,091 3,530 2,125
-----------------------------
Total income 26,360 29,905 28,148
-----------------------------
Expenses:
Interest expense 6,464 3,509 2,475
Operating expenses 349 205 127
-----------------------------
Total expenses 6,813 3,714 2,602
-----------------------------
Income before income taxes
and equity in undistributed
earnings of subsidiaries 19,547 26,191 25,546
Income taxes 3,546 1,411 1,626
-----------------------------
Income before equity in
undistributed earnings of
subsidiaries 16,001 24,780 23,920
Equity in undistributed earnings
of subsidiaries 93,403 60,336 40,644
-----------------------------
Net income $109,404 $85,116 $64,564
=============================
</TABLE>
44
<PAGE> 95
<TABLE>
<CAPTION>
- - - - - ------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
Year ended December 31,
-------------------------------------------
1993 1992 1991
-------------------------------------------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 109,404 $ 85,116 $ 64,564
-------------------------------------------
Adjustments to reconcile net
income to net cash provided by
operating activities:
Equity in undistributed
earnings of subsidiaries (93,403) (60,336) (40,644)
Gain on sale of investment
securities (145)
Net decrease (increase) in
other assets 417 (525) (17)
Net increase (decrease) in
other liabilities 2,075 (1,028) 907
-------------------------------------------
Total adjustments (90,911) (62,034) (39,754)
-------------------------------------------
Net cash provided by
operating activities 18,493 23,082 24,810
-------------------------------------------
Cash flows from investing activities:
Net decrease (increase) in
money market investments 30,681 (36,648) 6,999
Sales of investment securities 3,014
Purchase of investment securities (1,000)
Investment securities received
from liquidated subsidiaries (2,870)
Capital contribution to subsidiaries (26,062) (7,989)
Advances to subsidiaries (64,508) (42,767)
-------------------------------------------
Net cash used in investing
activities (33,827) (103,463) (3,860)
-------------------------------------------
Cash flows from financing activities:
Net increase in commercial paper 40,396 39,904
Cash dividends paid (27,781) (24,112) (18,009)
Proceeds from issuance of
common stock 2,106 59,809 2,399
-------------------------------------------
Net cash provided by
(used in) financing
activities 14,721 75,601 (15,610)
-------------------------------------------
Net (decrease) increase in cash (613) (4,780) 5,340
Cash at beginning of period 1,472 6,252 912
-------------------------------------------
Cash at end of period $ 859 $ 1,472 $ 6,252
===========================================
</TABLE>
The principal source of income for the Corporation consists of dividends
from the subsidiary Bank. As a member subject to the regulations of the Federal
Reserve Board, the subsidiary Bank must obtain the approval of the Federal
Reserve Board for any dividend if the total of all dividends declared by it in
any calendar year would exceed the total of its net profits, as defined by the
Federal Reserve Board, for that year, combined with its retained net profits
for the preceding two years. The payment of dividends by the subsidiary Bank
may also be affected by other regulatory requirements and policies, such as the
maintenance of minimum capital levels.
NOTE 28 - POPULAR INTERNATIONAL BANK, INC. (A SUBSIDIARY OF BANPONCE
CORPORATION) FINANCIAL INFORMATION:
The following summarized financial information presents the consolidated
financial position of Popular International Bank, Inc. and its subsidiaries as
of November 30, 1993 and 1992, and the results of their operations, cash flows
and changes in stockholder's equity for the year ended November 30, 1993.
Popular International Bank Inc. was organized as the holding company of BanPonce
Financial Corp. and Spring Financial Services, Inc. (a second tier subsidiary)
effective November 30, 1992.
STATEMENTS OF CONDITION
NOVEMBER 30
1993 1992
--------------------------
(In thousands)
ASSETS
Cash $ 6,895 $ 1,675
--------------------------
Money market investments 3,949 12,596
--------------------------
Loans 390,157 189,694
Less: Unearned income 15,680 9,965
Allowance for loan losses 5,323 2,394
--------------------------
369,154 177,335
--------------------------
Other assets, consisting principally
of intangible assets, including
goodwill 11,558 10,442
--------------------------
Total assets $391,556 $202,048
==========================
LIABILITIES AND STOCKHOLDER'S EQUITY
Short-term borrowings, consisting of
$89.9 million (1992 - $47.9 million)
term notes (Note 11) and a revolving
credit facility with an affiliate of
$33.8 million (1992 - $28.8 million) $123,677 $ 76,737
Notes payable (Note 12) 224,162 89,778
Other liabilities 12,445 7,115
Stockholder's equity 31,272 28,418
--------------------------
Total liabilities and
stockholder's equity $391,556 $202,048
==========================
STATEMENT OF INCOME
FOR THE YEAR ENDED NOVEMBER 30,1993
(In thousands)
Income:
Interest and fees $33,923
Other service fees 1,945
-------
Total income 35,868
-------
Expenses:
Interest expense 14,174
Provision for loan losses 4,574
Operating expenses 12,067
-------
Total expenses 30,815
-------
Income before income tax 5,053
Income tax 2,199
-------
Net income $ 2,854
=======
45
<PAGE> 96
- - - - - --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED NOVEMBER 30,1993
(In thousands)
Cash flows from operating activities:
Net income $ 2,854
Adjustments to reconcile net income to ---------
cash provided by operating activities:
Provision for loan losses 4,574
Depreciation and amortization of
premises and equipment 151
Amortization of intangibles 1,037
Amortization of deferred loan fees
and costs 2,072
Net increase in interest receivable (853)
Net increase in other assets (1,167)
Net increase in other liabilities 5,330
---------
Total adjustments 11,144
---------
Net cash provided by operating
activities 13,998
Cash flows from investing activities:
Net decrease in money market investments 8,647
Net disbursements on loans (198,466)
Acquisition of premises and equipment (283)
---------
Net cash used in investing
activities (190,102)
---------
Cash flows from financing activities:
Net decrease in short-term borrowings 46,940
Issuance of notes payable 134,384
---------
Net cash provided by financing
activities 181,324
---------
Net increase in cash 5,220
Cash at beginning of period 1,675
---------
Cash at end of period $ 6,895
=========
STATEMENT OF CHANGES IN
STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED NOVEMBER 30,1993
(In thousands)
Preferred Stock:
Par value $25; authorized 25,000,000 shares,
none issued
Common Stock:
Par value $5; authorized 1,000,000 shares,
issued and outstanding 620,000 shares
Balance at beginning and end of the
period $ 3,100
---------
Additional paid-in capital:
Balance at beginning and end of the period 25,200
---------
Retained earnings:
Balance at beginning of the period 118
Net income 2,854
---------
Balance at end of the period 2,972
---------
Total stockholder's equity $ 31,272
=========
NOTE 29 - BANPONCE FINANCIAL CORP. (A SECOND TIER SUBSIDIARY OF BANPONCE
CORPORATION) FINANCIAL INFORMATION:
The following summarized financial information presents the consolidated
financial position of BanPonce Financial Corp. and its subsidiary as of
November 30, 1993 and 1992, and the results of their operations, cash flows
and changes in stockholder's equity for the year ended November 30, 1993 and
for the eleven-month period from inception date to November 30, 1992.
<TABLE>
<CAPTION>
STATEMENTS OF CONDITION
NOVEMBER 30
1993 1992
------------------------------
(In thousands)
<S> <C> <C>
ASSETS
Cash $ 6,890 $ 1,675
---------------------------
Money market investments 2,926 11,296
---------------------------
Loans 390,157 189,694
Less: Unearned income 15,680 9,965
Allowance for loan losses 5,323 2,394
---------------------------
369,154 177,335
---------------------------
Other assets, consisting principally
of intangible assets, including
goodwill 11,531 10,424
---------------------------
Total assets $ 390,501 $ 200,730
===========================
LIABILITIES AND STOCKHOLDER'S EQUITY
Short-term borrowings, consisting of
$89.9 million (1992 - $47.9 million)
term notes (Note 11) and a revolving
credit facility with an affiliate of
$33.8 million (1992 - $28.8 million) $ 123,677 $ 76,737
Notes payable (Note 12) 224,162 89,778
Other liabilities 12,455 7,098
Stockholder's equity 30,207 27,117
---------------------------
Total liabilities and
stockholder's equity $ 390,501 $ 200,730
===========================
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
Eleven-month
Year ended period ended
November 30, November 30,
1993 1992
------------------------------
(In thousands)
<S> <C> <C>
Income:
Interest and fees $ 33,889 $ 17,695
Other service fees 1,945 1,921
---------------------------
Total income 35,834 19,616
---------------------------
Expenses:
Interest expense 14,174 8,151
Provision for loan losses 4,574 2,322
Operating expenses 11,797 8,243
---------------------------
Total expenses 30,545 18,716
---------------------------
Income before income tax 5,289 900
Income tax 2,199 481
---------------------------
Net income $ 3,090 $ 419
===========================
</TABLE>
46
<PAGE> 97
<TABLE>
<CAPTION>
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
Eleven-month
Year ended period ended
November 30, November 30,
1993 1992
--------------------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,090 $ 419
--------------------------
Adjustments to reconcile net income to
cash provided by operating activities:
Provision for loan losses 4,574 2,322
Depreciation and amortization of
premises and equipment 151 94
Amortization of intangibles 1,037 976
Amortization of deferred loan fees
and costs 2,072 333
Net increase in interest receivable (853) (842)
Net increase in other assets (1,159) (880)
Net increase in other liabilities 5,357 3,929
--------------------------
Total adjustments 11,179 5,932
--------------------------
Net cash provided by operating
activities 14,269 6,351
--------------------------
Cash flows from investing activities:
Net decrease (increase) in money market
investments 8,370 (11,629)
Net disbursements on loans (198,465) (90,485)
Acquisition of premises and equipment (283) (190)
--------------------------
Net cash used in investing
activities (190,378) (102,304)
--------------------------
Cash flows from financing activities:
Net increase in short-term borrowings 46,940 50,737
Issuance of notes payable 134,384 19,779
Capital contribution from Parent
Company 25,000
--------------------------
Net cash provided by financing
activities 181,324 95,516
--------------------------
Net increase (decrease) in cash 5,215 (437)
Cash at beginning of period 1,675 2,112
--------------------------
Cash at end of period $ 6,890 $ 1,675
==========================
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
Eleven-month
Year ended period ended
November 30, November 30,
1993 1992
--------------------------
(In thousands)
<S> <C> <C>
Common Stock:
Par value $0.01; authorized 100
shares, all issued and outstanding
Balance at beginning and end of the $ --- $ ---
period --------------------------
Additional paid-in capital:
Balance at beginning of the period 27,000 2,000
Capital contribution from Parent
Company 25,000
--------------------------
Balance at end of the period 27,000 27,000
--------------------------
Retained earnings:
Balance at beginning of the period 117 (302)
Net income 3,090 419
--------------------------
Balance at end of the period 3,207 117
--------------------------
Total stockholder's equity $30,207 $27,117
==========================
</TABLE>
NOTE 30 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
Unaudited financial data showing the results for each 1993 and 1992
quarters are presented below. In the opinion of management all adjustments
necessary for a fair presentation have been included.
<TABLE>
<CAPTION>
1993 1992
- - - - - --------------------------------------------------------------------------------------------------------------------------------
Fourth Third Second First Fourth Third Second First
quarter quarter quarter quarter quarter quarter quarter quarter
- - - - - --------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $199,780 $196,709 $191,220 $184,427 $187,284 $188,328 $183,168 $181,574
Net interest income 126,490 125,174 122,703 117,761 115,514 112,093 107,912 104,700
Provision for loan losses 14,737 17,442 19,166 21,547 23,043 24,333 26,237 24,020
Income before income tax,
cumulative effect of
accounting changes and
dividends on preferred
stock of subsidiary Bank 38,291 36,806 35,005 22,038 26,657 24,927 24,058 24,503
Cumulative effect of
accounting changes 6,185
Net income 28,224 28,154 27,506 25,520 23,050 21,198 20,844 20,024
Per share .87 .86 .84 .78 .73 .71 .69 .66
</TABLE>
47
<PAGE> 98
STOCKHOLDERS' INFORMATION
- - - - - --------------------------------------------------------------------------------
INDEPENDENT PUBLIC ACCOUNTANTS
Price Waterhouse
ANNUAL MEETING
The 1994 annual stockholders' meeting of BanPonce
Corporation will be held on April 22 at 2:00 p.m. at
Banco Popular Center Building in Hato Rey, Puerto Rico.
TELEPHONE (809) 765-9800
FAX (809) 759-7803
ADDITIONAL INFORMATION
Copies of the Annual Report to the Securities and
Exchange Commission on Form 10-K and any other
financial information may be obtained by writing to:
Orlando Berges
Senior Vice President and Comptroller
Banco Popular de Puerto Rico
PO Box 362708
San Juan, PR 00936-2708
48
<PAGE> 1
EXHIBIT 21.1
BANPONCE CORPORATION
AS OF DECEMBER 31, 1993
Subsidiaries of the registrant
a. Banco Popular de Puerto Rico (Banco Popular) - A wholly-
owned subsidiary Bank, incorporated under the laws of
Puerto Rico in 1917.
Popular Leasing and Rental, Inc. (Popular Leasing) - A
wholly-owned subsidiary of Banco Popular, incorporated
under the laws of Puerto Rico in 1989.
Popular Consumer Services, Inc. (Best Finance) - A
wholly-owned subsidiary of Banco Popular, incorporated
under the laws of Puerto Rico in 1989.
b. Vehicle Equipment Leasing Company, Inc. (VELCO) - A wholly-
owned subsidiary, incorporated under the laws of Puerto Rico
in 1986.
c. Popular International Bank, Inc. - A wholly-owned subsidiary,
Incorporated under the laws of Puerto Rico in 1992.
BanPonce Financial Corp. - A wholly-owned subsidiary,
incorporated under the laws of Delaware in 1991.
Spring Financial Services, Inc. - A wholly-owned
subsidiary of BanPonce Financial Corp.,
incorporated under the laws of Delaware in 1988.
d. Metropolitana de Prestamos, Inc. - A wholly-owned subsidiary,
incorporated under the laws of Puerto Rico in 1961.
e. Puerto Rico Parking Corp. - A wholly-owned subsidiary,
incorporated under the laws of Puerto Rico in 1963.
<PAGE> 1
EXHIBIT 23.1
PRICE WATERHOUSE
CONSENT OF INDEPENDENT ACCOUNTANTS
March 28, 1994
To the Board of Directors
BanPonce Corporation
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 No. 33-57038 of
BanPonce Corporation of our report dated January 28, 1994 appearing on page 27
of the Financial Review of the Annual Report to Shareholders which is
incorporated in this Annual Report on Form 10-K.
S/PRICE WATERHOUSE
- - - - - ------------------
PRICE WATERHOUSE
<PAGE> 1
EXHIBIT 99.1
BANPONCE CORPORATION
P.O. BOX 362708
SAN JUAN, PUERTO RICO 00936-2708
------------------------
NOTICE OF MEETING AND PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FRIDAY, APRIL 22, 1994
------------------------
To the Stockholders of BanPonce Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of BanPonce
Corporation (the "Meeting") for the year 1994 will be held at 2:00 p.m. on
Friday, April 22, 1994, on the seventh floor of the Popular Center Building,
Hato Rey, Puerto Rico.
NOTICE IS ALSO GIVEN that the Meeting to be held on the date above set
forth will consider and act upon:
(1) The election of six (6) directors to hold office until the 1997
annual meeting of stockholders or until their respective successors shall
have been elected and qualified.
(2) To transact any and all other business as may be properly brought
before the Meeting or any adjournments thereof. Management at present knows
of no other business to be brought before the Meeting.
The Board of Directors has set March 11, 1994, as the record date to
determine the stockholders entitled to notice of, and vote at, the Meeting.
Enclosed is the Form of Proxy and the Proxy Statement.
San Juan, Puerto Rico, March 18, 1994.
SAMUEL T. CESPEDES
Secretary
<PAGE> 2
BANPONCE CORPORATION
P.O. BOX 362708
SAN JUAN, PUERTO RICO 00936-2708
---------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FRIDAY, APRIL 22, 1994
---------------------
This Proxy statement is furnished in connection with the solicitation by
the Board of Directors of BanPonce Corporation (the "Corporation") of proxies to
be used at the Annual Meeting of Stockholders (the "Meeting") to be held at 2:00
p.m. on Friday, April 22, 1994, on the seventh floor of the Popular Center
Building, Hato Rey, Puerto Rico, and any adjournments thereof.
Properly executed Proxies received by the Secretary of the Corporation will
be voted at the Meeting in accordance with the instructions which appear therein
and for the purposes indicated on the Notice of Meeting. The Board of Directors
does not intend to present any business at the Meeting other than those included
in the Notice of Meeting. The Board of Directors at this time knows of no other
matters which may come before the Meeting. However, if any new matters requiring
the vote of the Stockholders properly come before the Meeting, Proxies may be
voted with respect thereto in accordance with the best judgement of
Proxyholders, under the discretionary power granted by stockholders to their
Proxies in connection with general matters.
MAILING DATE
Enclosed with this Proxy Statement is the Annual Report covering the
financial results for the year ended December 31, 1993, duly certified by Price
Waterhouse as independent public accountants. This Proxy Statement, the enclosed
Annual Report, the Notice of Annual Meeting of Stockholders and the form of
Proxy are being sent to stockholders on or about March 18, 1994.
SOLICITATION OF PROXIES
The enclosed Proxy is solicited by and on behalf of the Board of Directors
of the Corporation. In addition to solicitation by mail, management may
participate in the solicitation of Proxies by telephone, personal interviews or
otherwise. The Board of Directors has engaged the firm of Georgeson & Company
Inc. to aid in the solicitation of Proxies. The cost of solicitation will be
borne by the Corporation and is estimated at $6,500.00.
REVOCABILITY OF PROXY
Any stockholder giving a proxy has the power to revoke it before the proxy
is exercised. The grantor may revoke the proxy by claiming at the Meeting the
right to vote by himself the shares of stock registered in his name or by notice
of revocation in writing to the President or Secretary of BanPonce Corporation,
P.O. Box 362708, San Juan, Puerto Rico 00936-2708, delivered before the proxy is
exercised.
VOTING SECURITIES
The only outstanding voting securities of the Corporation are its shares of
common stock, each share of which entitles the holder thereof to one vote. Only
common stockholders of record at the close of business on March 11, 1994 (the
"Record Date"), will be entitled to vote at the Annual Meeting and any
adjournments thereof. On Record Date there were 32,756,219 shares of common
stock of BanPonce Corporation
<PAGE> 3
outstanding. The shares covered by any such proxy that are properly executed and
received by management before 2:00 p.m. on the day of the Meeting will be voted.
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of common stock of the Corporation is necessary to constitute
a quorum at the Meeting. Votes cast by proxy or in person at the Meeting will be
counted by the persons appointed by the corporation as election judges for the
Meeting. As to the election of Directors, the proxy card being provided by the
Board of Directors enables a stockholder to vote for the election of the nominee
proposed by the Board, or to withhold authority to vote for one of the nominees
being proposed. For purposes of determining quorum, the election judges will
treat "broker non-votes" as shares that are present and entitled to vote. A
"broker non-vote" results when a broker or nominee has expressly indicated in
the proxy that it does not have discretionary authority to vote on a particular
matter. Directors will be elected by a majority of the vote. Therefore,
abstentions and broker non-votes will not have an effect on the election of
directors of the Corporation.
PRINCIPAL STOCKHOLDERS
Following is the information, to the extent known by the persons on whose
behalf this solicitation is made, with respect to any person (including any
"group" as that term is used in Section 13(d)(3) of the Securities and Exchange
Act of 1934, as amended) who is known to BanPonce Corporation to be the
beneficial owner of more than five percent of the Corporation's voting
securities.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
OF BENEFICIAL OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) CLASS(2)
- - - - - ----------------- ------------------------------------- ------------------ ---------
<S> <C> <C> <C>
Common Banco Popular de Puerto Rico (the
"Bank") As Trustee for Banco
Popular de Puerto Rico Retirement
Plan. 1,418,215
As Trustee for the Deferred
Compensation Plan (Profit Sharing)
for the Employees of Banco Popular
de Puerto Rico 1,330,348
------------------
2,748,563(3) 8.3910
Common State Farm Mutual Automobile
Insurance Company 2,355,531(4) 7.1911
</TABLE>
- - - - - ---------------
(1) As of February 28, 1994.
(2) Based on 32,756,219 shares outstanding.
(3) The Bank, as Trustee, administers both Plans through their Administrative
Committees, with sole voting and investment power.
(4) On January 28, 1994, State Farm Mutual Automobile Insurance Company ("State
Farm") and affiliated entities filed a joint statement on Schedule 13-G
with the Securities and Exchange Commission. According to said statement,
State Farm and its affiliates might be deemed to constitute a "group"
within the meaning of Section 13(d)(3) of the Securities Exchange Act of
1934. State Farm and its affiliates could also be deemed to be the
beneficial owners of 2,355,531 common shares of BanPonce Corporation.
However, State Farm and each such affiliate disclaim beneficial ownership
as to all shares as to which each such person has no right to receive the
proceeds of sale of the shares, and also disclaim that they constitute a
"group".
2
<PAGE> 4
SHARES BENEFICIALLY OWNED BY DIRECTORS,
NOMINEES AND EXECUTIVE OFFICERS OF THE CORPORATION
Following is the information, as of February 28, 1994, as to equity
securities of the Corporation beneficially owned by all current directors,
nominees, the five most highly compensated Executive Officers of the Corporation
and the total owned by directors, nominees and all Executive Officers of the
Corporation as a group:
<TABLE>
<CAPTION>
TITLE
OF AMOUNT AND NATURE PERCENT OF
NAME CLASS OF BENEFICIAL OWNERSHIP CLASS(1)
- - - - - -------------------------------------- ------- ------------------------ ----------
<S> <C> <C> <C>
Alfonso F. Ballester Common 344,360(2) 1.0513
Juan J. Bermudez Common 22,046(3) .0673
Sila M. Calderon Common 6,008(4) .0183
Francisco J. Carreras Common 1,478 .0045
Richard L. Carrion Common 228,232(5) .6968
Manuel Luis Del Valle Common 48,500 .1481
Waldemar Del Valle Common 14,208(6) .0434
Luis E. Dubon, Jr. Common 435,208(7) 1.3286
Roberto W. Esteves Common 810,761(8) 2.4751
Antonio Luis Ferre Common 576,298(9) 1.7594
Hector R. Gonzalez Common 41,016 .1252
Jorge A. Junquera Common 409(10) .0012
Franklin A. Mathias Common 20,775 .0634
Hugh G. McComas Common 1,019 .0031
Manuel Morales, Jr. Common 180,049(11) .5497
Alberto M. Paracchini Common 39,173(12) .1196
Francisco Perez, Jr. Common 222 .0007
Francisco M. Rexach, Jr. Common 9,900 .0302
Felix J. Serralles, Jr. Common 91,915(13) .2806
Emilio Jose Venegas Common 86,000(14) .2625
Julio E. Vizcarrondo, Jr. Common 262,805(15) .8023
Maria Isabel P. de Burckhart Common 3,961(16) .0121
David H. Chafey, Jr. Common 5,321 .0162
Larry B. Kesler Common 1,398 .0043
All Directors and Executive Officers
of the Corporation as a group Common 3,240,659(17) 9.8933
</TABLE>
- - - - - ---------------
(1) Based on 32,756,219 shares outstanding.
(2) Mr. Ballester owns 343,360 shares and has indirect investment power over
1,000 shares owned by his wife. Excludes 300,482 shares owned by his sister
Mrs. Griselda Ballester, as to all of which Mr. Ballester disclaims
indirect voting power. Mr. Ballester filed late one report which disclosed
one transaction required to be filed pursuant to Section 16(a) of the
Securities Exchange Act of 1934 with respect to his beneficial ownership of
shares during the last fiscal year.
(3) Excludes 1,935 shares owned by his wife, to which Mr. Bermudez disclaims
indirect voting power.
(4) Mrs. Calderon filed late one report which disclosed one transaction
required to be filed pursuant to Section 16(a) of the Securities Exchange
Act of 1934 with respect to her beneficial ownership of shares during the
last fiscal year.
(5) Mr. Carrion owns 54,271 shares and also has indirect investment power over
5,776 shares owned by his children. Junior Investment Corporation owns
1,015,000 shares of the Corporation. Mr. Carrion owns 16.57% of the shares
of said corporation.
(6) Excludes 401 shares owned by his daughter, Maria M. Del Valle, to which Mr.
Del Valle disclaims beneficial ownership. Mr. Del Valle filed late one
report which disclosed one transaction required to be filed pursuant to
Section 16(a) of the Securities Exchange Act of 1934 with respect to his
beneficial ownership of shares during the last fiscal year.
3
<PAGE> 5
(7) Mr. Dubon owns 45,441 shares and has a power of attorney over 22,804 shares
owned by Mrs. Myrta A. Dubon, wife, and 17,036 shares held in trust by Mr.
Dubon for his children, Luis E. Dubon, III, Myrta I. Dubon, Jose R. Dubon
and Maria A. Dubon, and over 349,927 shares owned by various corporations
and members of his family in which Mr. Dubon has direct or indirect
ownership. Mr. Dubon filed late one report which disclosed two transactions
required to be filed pursuant to Section 16(a) of the Securities Exchange
Act of 1934 with respect to his beneficial ownership of shares during the
last fiscal year.
(8) Mr. Esteves owns 4,000 shares, and, as guardian of Roberto Esteves, Jr.,
has indirect voting and investment power over 53,861 shares of the
Corporation. Northwestern Realty Corp., of which Mr. Esteves owns 100% of
the shares, owns 752,900 shares of the Corporation.
(9) Mr. Ferre has indirect investment and voting power over 114,300 shares
owned by Alfra Investment Corp. and 720 shares owned by his wife and
children. Mr. Ferre owns 85.12% of Ferre Investment Fund, Inc., which owns
210,300 shares of the Corporation. Mr. Ferre also owns 65.25% of the shares
of El Dia, Inc., and has indirect voting power over Alfra Investment Corp.,
which owns 19.35% of El Dia, Inc., which owns 250,978 shares of the
Corporation. Mr. Ferre claims beneficial ownership over the 576,298 shares.
Mr. Ferre filed late two reports which disclosed two transactions each
required to be filed pursuant to Section 16(a) of the Securities Exchange
Act of 1934 with respect to his beneficial ownership of shares during the
last fiscal year.
(10) Mr. Junquera, Executive Vice President of the Corporation, filed late two
reports which disclosed one and two transactions, respectively, required to
be filed pursuant to Section 16(a) of the Securities Exchange Act of 1934
with respect to his beneficial ownership of shares during the last fiscal
year.
(11) Mr. Morales owns 89,272 shares and has voting power over 90,777 shares
owned by his parents.
(12) Excludes 316 shares owned by his wife, to which Mr. Paracchini disclaims
beneficial ownership.
(13) Mr. Serralles owns 54,688 shares, and has indirect voting power over 1,573
shares owned by his wife. Mr. Serralles owns 100% of the shares of each of
Capitanejo, Inc. and Fao Investments, Inc., which own 34,255 and 1,399
shares, respectively, of the Corporation.
(14) Mr. Venegas owns 9,000 shares and also has indirect investment power over
6,000 shares owned by his wife. Mr. Venegas also has indirect voting and
investment power over the 40,000 shares of the Corporation owned by Venegas
Construction Corporation, of which he is stockholder and secretary, and
over the 31,000 shares of the Corporation owned by Sanson Corporation, of
which he is President and stockholder. Mr. Venegas filed late one report
which disclosed four transactions required to be filed pursuant to Section
16(a) of the Securities Exchange Act of 1934 with respect to his beneficial
ownership of shares during the last fiscal year.
(15) Mr. Vizcarrondo owns 47,766 shares and has indirect voting power over
44,113 shares owned by his wife and children. Mr. Vizcarrondo's wife owns
16.84% of the shares of Junior Investment Corporation, which owns 1,015,000
shares of the Corporation. Excludes 29,100 shares owned by Mr. Vizcarrondo
as trustee and member of the Investment Committee of the DMI Pension Trust,
which owns said shares of the Corporation, of which he disclaims beneficial
ownership. Excluded also are 5,000 shares owned by Mr. Vizcarrondo as
trustee of the Suarez Toro Trust, which owns said shares of the
Corporation, of which he disclaims beneficial ownership.
(16) Mrs. Burckhart, Executive Vice President of the Corporation, filed late one
report which disclosed three transactions required to be filed pursuant to
Section 16(a) of the Securities Exchange Act of 1934 with respect to her
beneficial ownership of shares during the last fiscal year.
(17) Mr. Emilio E. Pinero, Executive Vice President of the Corporation, filed
late one report which disclosed one transaction required to be filed
pursuant to Section 16(a) of the Securities Exchange Act of 1934 with
respect to his beneficial ownership of shares during the last fiscal year.
4
<PAGE> 6
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of the Corporation met on a monthly basis during
1993. All directors, except Mr. Antonio Luis Ferre and Mr. Franklin A. Mathias,
attended 75% or more of the meetings of the Board of Directors and the
committees of the Board of Directors on which each such director served. The
following table indicates the business experience of the current Board of
Directors of the Corporation and nominees:
<TABLE>
<CAPTION>
DIRECTOR OF
PRINCIPAL OCCUPATION AND BUSINESS THE CORPORATION
NAME AGE EXPERIENCE DURING THE PAST FIVE YEARS SINCE
- - - - - ----------------------- --- --------------------------------------------------- ---------------
<S> <C> <C> <C>
Alfonso F. Ballester 64 Vice Chairman of the Board of Directors of the 1990
Corporation and the Bank. President of Ballester
Hermanos, Inc. (wholesale of provisions and
liquors). Director of Popular Leasing and Rental,
Inc. and Vehicle Equipment Leasing Company, Inc.
Director of the Bank since 1975.
Juan J. Bermudez 56 Electrical Engineer. Partner of Bermudez and Longo, 1990
S.E., Ornamental Poles, S.E., Decemcor, S.E.,
Unifirst S.E., Unisouth, S.E., Uniestates, S.E.,
Unicourts, S.E., Unieast, S.E. and PCME
Commercial, S.E. Principal Stockholder and
Director of Power Poles, Inc. Director of the
Bank since 1985.
Sila M. Calderon 51 Secretary of the Governorship from 1986 to 1989. 1990
Secretary of State of the Commonwealth of Puerto
Rico from 1988 to 1989. Director of Pueblo Xtra
International, Inc. since 1990. Chairman of the
Board of Directors of the Puerto Rico Public
Broadcasting Corporation from 1991 to 1992.
President of Commonwealth Investment Company,
Inc. and member of the Board of Trustees of
Fundacion Banco Popular, Inc. since 1990.
Chairman of the board of Directors of Proyecto
Peninsula de Cantera since 1992. Director of the
Bank since 1990.
Francisco J. Carreras 61 Professor of the University of Puerto Rico. Member 1990
of the Board of Trustees of Fundacion Banco
Popular, Inc. Executive Director of Fundacion
Angel Ramos, Inc. Director of the Bank since
1979.
Richard L. Carrion 41 Chairman of the Board, President and Chief 1990
Executive Officer ("CEO") of the Corporation and
the Bank. Chairman of the Boards of Popular
International Bank, Inc., BanPonce Financial
Corp., Vehicle Equipment Leasing Company, Inc.,
Spring Financial Services, Inc., Popular Leasing
& Rental, Inc. and Popular Consumer Services,
Inc. Chairman of the Board of Trustees of
Fundacion Banco Popular, Inc. Member of the Latin
America Regional Board of Directors of Visa
International. Member of the Board of Trustees of
the American Management Association. President of
Puerto Rico's Commission for the 2004 Olympiad.
Member of the International Olympic Committee.
Member of the Board of Directors and Compensation
Committee of Pueblo Xtra International, Inc.
Director of the Bank since 1982.
</TABLE>
5
<PAGE> 7
<TABLE>
<CAPTION>
DIRECTOR OF
PRINCIPAL OCCUPATION AND BUSINESS THE CORPORATION
NAME AGE EXPERIENCE DURING THE PAST FIVE YEARS SINCE
- - - - - ----------------------- --- --------------------------------------------------- ---------------
<S> <C> <C> <C>
Manuel Luis Del Valle 69 Vice Chairman of the Board of Directors of the 1990
Corporation and the Bank. Chairman of the Board
and Director of Manuel Del Valle, Inc.
(manufacturer and wholesaler of chemical
products). Chairman of the Board and Director of
Bacardi Corporation. Director of Bacardi Limited.
Member of the Board of Trustees of Fundacion
Banco Popular, Inc. Member of the Board of
Trustees of Fundacion Angel Ramos. Member of the
Board of Directors of the Committee for the
Economic Development of Puerto Rico. Director of
Popular International Bank, Inc., Spring
Financial Services, Inc. and of BanPonce
Financial Corp. Director of the Bank since 1968.
Waldemar Del Valle 67 Attorney at Law at the law firm Parra, Del Valle, 1984
Frau & Limeres. Director of Damas Foundation,
Inc. Director of Banco de Ponce from 1975 to
1990.
Luis E. Dubon, Jr. 59 Attorney at Law and Investor. Partner of the law 1984
firm Dubon & Dubon. Director, American Investment
Corp., Fundacion Gogui, Inc. and San Jose
Development, Inc. Director of the Bank since
1973.
Roberto W. Esteves 69 President of Travel Network Travel Agencies. 1991
President of Star Tours International, tour
wholesalers. President of Caribe Theaters Corp.,
theater operators. President of Northwestern
Realty Corp., investments in Real Estate.
Director of the Bank since 1991.
Antonio Luis Ferre 60 Vice Chairman of the Board of Directors of the 1984
Corporation and the Bank. Vice Chairman of the
Board of Puerto Rican Cement Co., Inc.
(registered public company), manufacturers of
cement and allied products. President and Editor
of El Nuevo Dia, Inc. Director of AMR Corp.
(registered public company). Director, of
Metropolitan Life Insurance Company (registered
company under the Investment Company Act of
1940). Director of Pueblo Xtra International,
Inc. Director of the Bank since 1959.
Hector R. Gonzalez 60 President and Chief Executive Officer of TPC 1984
Communications of PR, Inc. and Teleponce Cable
TV, Inc., owners and operators of cable
television systems. Director, Damas Foundation,
Inc. Director of Popular Consumer Services, Inc.
Director of the Bank since 1973.
Franklin A. Mathias 68 Investor. Chairman of the Board of Directors of 1990
Molinos de Puerto Rico, Inc. until January, 1988.
Director of the Bank since 1988.
Hugh G. McComas 70 President and Chief Executive Officer of MCO 1990
Industries, Inc. Director of the Bank since 1980.
Manuel Morales, Jr. 48 Principal Stockholder of Selarom Capital Group, 1990
Inc. President of Parkview Realty, Inc. Trustee
of Universidad Sagrado Corazon and
Caribbean/Latin America Action. Member of the
Board of Trustees of Fundacion Banco Popular,
Inc. Director of the Bank since 1978.
</TABLE>
6
<PAGE> 8
<TABLE>
<CAPTION>
DIRECTOR OF
PRINCIPAL OCCUPATION AND BUSINESS THE CORPORATION
NAME AGE EXPERIENCE DURING THE PAST FIVE YEARS SINCE
- - - - - ----------------------- --- --------------------------------------------------- ---------------
<S> <C> <C> <C>
Alberto M. Paracchini 61 Former Chairman of the Board of Directors of the 1984
Corporation and the Bank. Former Chairman of the
Board of Vehicle Equipment Leasing Company, Inc.,
BanPonce Financial Corp., Spring Financial
Services, Inc., Popular Leasing & Rental, Inc.
and Popular Consumer Services, Inc. Member of the
Board of Trustees of Fundacion Banco Popular. He
served in several executive positions in the Bank
since he commenced working in the Bank in 1956.
Director of Puerto Rican Cement Co., Inc. (regis-
tered public company). Director of HDA Management
Corp. since 1993. Director of the Bank since
1969.
Francisco Perez, Jr. 57 Chairman of the Board and President of Sucrs. Jose 1984
Lema and Co., Inc. (La Favorita), shoe store
chain. President of 201 Realty Corporation,
engaged in the real estate business. Director of
Banco de Ponce from 1976 to 1990.
Francisco M. Rexach, Jr. 56 President of Ready Mix Concrete, Inc. President of 1990
Puerto Rico Oil Company, Inc. Director of Vehicle
Equipment Leasing Company, Inc. and Popular
Leasing & Rental, Inc. Director of the Bank since
1983.
Felix J. Serralles, Jr. 59 President and Chief Executive Officer of Empresas 1984
Serralles, Inc. and of its subsidiary Destileria
Serralles, Inc., manufacturers and distributors
of distilled spirits, and of its affiliate
Mercedita Leasing, Inc. Director of the Bank
since 1966.
Emilio Jose Venegas 66 President of Sanson Corporation. Secretary of 1984
Venegas Construction Corp. Director of Puerto
Rican Cement Co., Inc. (registered public
company). Director of Damas Foundation, Inc.
Director of Banco de Ponce from 1973 to 1990.
Julio E. Vizcarrondo 59 Civil Engineer. President/Partner and Chief 1990
Executive Officer of Desarrollos Metropolitanos,
S. E., VMW Enterprises Corp. and Resort Builders
S.E., corporations engaged in the development and
construction of residential, commercial and
institutional projects in Puerto Rico. Director
of the Bank since 1984.
</TABLE>
The Corporation's Board of Directors has a standing Audit Committee. The
Board of Directors of the Bank, the principal subsidiary of the Corporation, has
a standing Human Resources Committee that may review compensation matters for
the Corporation. There is no standing Nominating Committee. Information
regarding the Audit and Human Resources Committees follows:
AUDIT COMMITTEE
The functions of the Audit Committee include reviewing the accounting
principles and practices employed by the Corporation, and its compliance with
the laws and regulations. The committee meets with the Corporation's independent
external auditors to review their audit procedures, the report on their
examination of the Corporation's financial statements, and their comments on the
system of internal controls. Also, the Committee oversees the internal audit
function and reviews the reports prepared by the Auditing Division for their
examinations of the operating and business units and for any other special
examinations that may be required. The Committee held four meetings during the
fiscal year ended December 31, 1993.
7
<PAGE> 9
The committee members during 1993 were: Manuel Luis Del Valle, Luis E.
Dubon, Jr., Franklin A. Mathias, Manuel Morales, Jr. and Felix J. Serralles, Jr.
HUMAN RESOURCES COMMITTEE
The functions of the Human Resources Committee include reviewing the
compensation and benefits of management and employees, reviewing the policies
related to the performance and compensation of management and employees, and
reviewing the long-range planning for executive development and succession. The
Committee held two meetings during the fiscal year ended December 31, 1993.
The Committee members during 1993 were: Salustiano Alvarez Mendez, Juan J.
Bermudez, Francisco J. Carreras, Manuel Luis Del Valle and Julio E. Vizcarrondo,
Jr. Messrs. Bermudez, Carreras, Del Valle and Vizcarrondo, Jr. are also
directors of the Corporation. None of the members of the Committee are officers
or employees of the Corporation or any of its subsidiaries.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Corporation and its subsidiaries
were entitled to be reimbursed for certain expenses up to $8,000.00 annually.
Commencing in May 1994 directors will be entitled to be reimbursed for certain
expenses up to $10,000.00. In addition, during 1993 and up to April 1994
directors received $300.00 for attending each directors' and committee meeting.
Commencing in May 1994 directors will receive $500.00 for attending each
directors' and committee meeting. Directors who are employees do not receive
fees for attending directors' and committee meetings.
ELECTION OF DIRECTORS
The Certificate of Incorporation and the By-laws of the Corporation
establish a classified Board of Directors pursuant to which the Board of
Directors is divided into three classes as nearly equal in number as possible,
with each class having at least three members and with the term of office of one
class expiring each year. Each director serves for a term ending on the date of
the third annual meeting of stockholders following the annual meeting at which
such director was elected.
The policy of the Board of Directors, as set forth in a resolution adopted
on January 8, 1991, provides that no person shall be nominated for election or
reelection as director of the Board if at the date of the Annual Meeting of
Stockholders or during the term to be served such person attains seventy two
(72) years of age. Mr. Roberto W. Esteves and Mr. Hugh G. McComas would attain
seventy two (72) years of age during the term to be served. In accordance with
Board policy neither will be nominated for reelection as director.
Mr. Luis Rodriguez-Delgado resigned as director of the Corporation
effective January 31, 1994. Mr. Rodriguez-Delgado's resignation is not due to a
disagreement with the Corporation or with any matter relating to the
Corporation's operation. The number of directors in "Class 1" and "Class 2" has
been reduced by the Board of Directors to six directors each, since only one of
the two vacancies in "Class 1" will be filled and the vacancy in "Class 2"
resulting from Mr. Rodriguez-Delgado's resignation will not be filled, thus
reducing the total number of directors to nineteen (19), which is in accordance
with Article Eighth of the Corporation's Certificate of Incorporation.
At the Meeting, six directors assigned to "Class 1" are to be elected until
the 1997 Annual Meeting of Stockholders or until their respective successors
shall have been elected and qualified. The remaining 13 directors of the
Corporation will serve as directors, as follows: until the 1995 Annual Meeting
of Stockholders of the Corporation, in the case of those six directors assigned
to "Class 2", and until the 1996 Annual Meeting of Stockholders, in the case of
those seven directors assigned to "Class 3", or in each case until their
successors are duly elected and qualified.
The persons named as proxies in the accompanying Form of Proxy have advised
the Corporation that, unless otherwise instructed, they intend to vote at the
meeting the shares covered by the proxies FOR the election of the six nominees
named in the following table, and that if any one or more of such nominees
should
8
<PAGE> 10
become unavailable for election they intend to vote such shares FOR the election
of such substitute nominees as management may propose. The Corporation has no
knowledge that any nominee will become unavailable for election.
NOMINEES FOR ELECTION AS DIRECTORS
The following table sets forth the name of the persons nominated by the
Board of Directors of the Corporation for election as a director, including
their age, principal occupation and business experience during the past five (5)
years (including positions held with the Corporation or the Bank), and the
period during which each nominee has served as a director of the Corporation.
All directors nominated will serve for three (3) years until the 1997 Annual
Meeting of Stockholders or until their respective successors shall have been
elected and qualified.
<TABLE>
<CAPTION>
PRINCIPLE OCCUPATION AND BUSINESS DIRECTOR OF THE
EXPERIENCE DURING THE PAST FIVE CORPORATION
NAME AGE YEARS SINCE
- - - - - --------------------- --- ---------------------------------- ----------------
<S> <C> <C> <C>
Alfonso F. Ballester 64 See under "Board of Directors" 1990
Sila M. Calderon 51 See under "Board of Directors" 1990
Waldemar Del Valle 67 See under "Board of Directors" 1984
Jorge A. Junquera 45 See under "Executive Officers" --
Francisco Perez, Jr. 50 See under "Board of Directors" 1984
Emilio Jose Venegas 66 See under "Board of Directors" 1984
</TABLE>
EXECUTIVE OFFICERS
The following table sets forth the names of the executive officers ("the
Executive Officers") of the Corporation including their age, business experience
during the past five (5) years and the period during which each such person has
served as Executive Officer of the Corporation or the Bank.
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER
OF THE
PRINCIPAL OCCUPATION AND BUSINESS CORPORATION
NAME TITLE AGE EXPERIENCE DURING THE PAST FIVE YEARS SINCE
- - - - - --------------------- -------------------- --- ------------------------------------- ------------
<S> <C> <C> <C> <C>
Richard L. Carrion President, Chairman 41 See under "Board of Directors" 1990
of the Board and
CEO
Jorge A. Junquera Executive Vice 45 Supervisor of the Bank's Retail 1990
President Banking Group. Director of the Bank
since 1990. Director of Popular
International Bank, Inc. Executive
Vice President and Director of
BanPonce Financial Corp., Director
of Spring Financial Services, Inc.,
Vehicle Equipment Leasing Company,
Inc., Popular Leasing & Rental,
Inc. and Popular Consumer Services,
Inc. Chairman of the Board of
Puerto Rico Tourism Company since
1993. Executive Vice President of
the Bank since 1980.
</TABLE>
9
<PAGE> 11
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER
OF THE
PRINCIPAL OCCUPATION AND BUSINESS CORPORATION
NAME TITLE AGE EXPERIENCE DURING THE PAST FIVE YEARS SINCE
- - - - - --------------------- -------------------- --- ------------------------------------- ------------
<S> <C> <C> <C> <C>
Maria Isabel P. Executive Vice 45 Supervisor of the Administration 1990
de Burckhart President Group. Executive Vice President of
the Bank since January, 1990.
Senior Vice President of the Bank
from August, 1986 to January, 1990.
Executive Vice President of
BanPonce Financial Corp. Member of
the Board of Trustees of Fundacion
Banco Popular, Inc. Member of the
Board of Directors of Fundacion Ana
G. Mendez since 1992. Member of the
Board of Directors of Puerto Rico
Community Foundation since 1993.
Member of the Board of Directors of
Puerto Rico Convention Bureau since
1993.
David H. Chafey, Jr. Executive Vice 40 Supervisor of the Finance Group and 1990
President U.S. Operations. Executive Vice
President of the Bank since
January, 1990. Executive Vice
President and Director of Popular
International Bank, Inc., and
BanPonce Financial Corp. Director
of Vehicle Equipment Leasing Co.,
Inc., of Spring Financial Services,
Inc., of Popular Leasing & Rental,
Inc., and of Popular Consumer
Services,Inc. Chairman of the Board
of Puerto Rico Telephone Authority
since 1993.
Larry B. Kesler Executive Vice 56 Supervisor of Individual Credit and 1990
President Virgin Islands Operations.
Executive Vice President of the
Bank since January, 1990. Senior
Vice President of the Bank from
August, 1986 to January, 1990.
Executive Vice President and
Director of BanPonce Financial
Corp. Director of Spring Financial
Services, Inc. and of Popular Con-
sumer Services, Inc.
Humberto Martin Executive Vice 48 Supervisor of the Operations Group. 1986
President Executive Vice President of the
Bank since November, 1986.
Executive Vice President of
BanPonce Financial Corp.
Emilio E. Pinero Executive Vice 45 Supervisor of the Commercial Banking 1990
President Group. Executive Vice President of
the Bank since January, 1990.
Director of Vehicle Equipment
Leasing Company, Inc. and Popular
Leasing and Rental, Inc. Executive
Vice President of BanPonce
Financial Corp.
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER
OF THE
PRINCIPAL OCCUPATION AND BUSINESS CORPORATION
NAME TITLE AGE EXPERIENCE DURING THE PAST FIVE YEARS SINCE
- - - - - --------------------- -------------------- --- ------------------------------------- ------------
<S> <C> <C> <C> <C>
Orlando Berges Senior Vice Presi- 36 Senior Vice President of the Bank 1990
dent and Comp- since December, 1990. Comptroller
troller of the Bank since July, 1989.
Senior Vice President and Treasurer
of BanPonce Financial Corp.
Samuel T. Cespedes Secretary of the 57 Attorney at Law. Proprietary partner 1991
Board of Direc- of the law firm McConnell, Valdes.
tors Secretary of the Board of Directors
of the Bank since 1991. Secretary
of the Board of Directors of
Vehicle Equipment Leasing Company,
Inc., BanPonce Financial Corp.,
Spring Financial Services, Inc.,
Popular Leasing & Rental, Inc. and
Popular Consumer Services, Inc.
</TABLE>
FAMILY RELATIONSHIPS
Mr. Richard L. Carrion, Chairman of the Board, President and CEO of the
Corporation and the Bank, is brother-in-law of Mr. Julio E. Vizcarrondo, Jr.,
Director. Mr. Alfonso F. Ballester, Director, is brother-in-law of Mr. Hector R.
Gonzalez, Director.
OTHER RELATIONSHIPS AND TRANSACTIONS
Director Waldemar Del Valle is an attorney at the law firm Parra, Del
Valle, Frau & Limeres, retained by the Bank to perform general legal services,
for which $38,803 were paid during 1993.
Director Luis E. Dubon, Jr. is a partner of the law firm Dubon & Dubon,
retained by the Bank to perform general legal services, for which $44,472 were
paid during 1993.
Mr. Samuel T. Cespedes, Secretary of the Board of Directors, is a
proprietary partner of the law firm McConnell, Valdes, retained by the bank to
perform general legal services, for which $694,343 were paid during 1993.
The Bank has had loan transactions with BanPonce directors and officers,
and with their associates, and proposes to continue such transactions in the
ordinary course of its business, on substantially the same terms as those
prevailing for comparable loan transactions with other persons and subject to
the provisions of the Banking Act of the Commonwealth of Puerto Rico and the
applicable federal laws and regulations. The extensions of credit have not
involved nor presently involve more than normal risks of collectibility or other
unfavorable features.
EXECUTIVE COMPENSATION PROGRAM
REPORT OF THE BANK'S HUMAN RESOURCES COMMITTEE ON EXECUTIVE COMPENSATION
OVERVIEW
The Compensation Program for Executive Officers is established and
administered by Mr. Richard L. Carrion, Chairman of the Board, President and CEO
for each of the Corporation and the Bank. This compensation program, in turn, is
reviewed by the Bank's Human Resources Committee and approved every year by the
Board of Directors. The compensation of Mr. Carrion is revised periodically by
the Board of Directors.
11
<PAGE> 13
The Bank's Compensation Program for Executive Officers follows the same
philosophy and principles used for all Bank employees and includes the following
components:
-- Base salary and fringe benefits
-- Individual incentives
-- Deferred Compensation Plan (Profit Sharing)
One of the objectives of this Program is to achieve a ratio of salary
levels where the highest level is not greater than 25 times the lowest level in
the salary structure of the Bank. In addition, as a component of total
compensation, the variable portion of compensation, which includes individual
incentives and Profit Sharing Plan, should gradually increase over time as a
percentage of total compensation.
All cash compensation paid to Mr. Carrion and to the Executive Officers is
paid by the Bank. The Corporation does not currently pay cash compensation to
Executive Officers.
The Executive Compensation Program for the Corporation's non-banking
subsidiaries is set according to the industry and geographical area in which
they operate and is approved by the Board of Directors of each such entity.
EXECUTIVE OFFICERS
The group of executive officers is composed of six Executive Vice
Presidents, all of whom participate in an annual salary and incentive bonus
program recommended by Mr. Carrion and approved by the Board of Directors of the
Bank.
In 1993, salary increases were based 50% on individual performance in
accordance with established parameters and 50% on team performance. Such
individual and team performance are evaluated by Mr. Carrion. The percentage of
salary increases for each pool was established according to the Bank's
performance, measured by net income after tax.
Incentive bonuses for 1993 were also established based on the Bank's income
after tax. A bonus of 10% of the Executive Officers' base salary was set for
achieving a target which is established at the beginning of each year, and could
reach 20% if results exceeded the target. Under the Incentive Bonus Program, the
bonuses for 1993 amounted to $149,264, representing 13.78% of each participant's
base salary.
Salaries are increased annually and incentive bonuses are paid in one
yearly lump sum payment. Both compensation components are distributed in cash
only.
Beginning in 1994, salary increases and incentive bonuses will be measured
by the Corporation's performance, measured on an after-tax basis, instead of the
Bank's performance.
CHAIRMAN OF THE BOARD, PRESIDENT AND CEO
The compensation for the Corporation's and the Bank's Chairman of the
Board, President and CEO, Mr. Richard L. Carrion, has remained the same since
February 1989. No incentive bonus was awarded for 1993.
Currently, the Human Resources Committee is in the process of revising Mr.
Carrion's compensation for 1994 to bring it to a competitive level with
comparable institutions. Among other matters the Human Resources Committee is
considering the possible adoption of a long-term incentive program for Mr.
Carrion and the Executive Officers.
HUMAN RESOURCES COMMITTEE
<TABLE>
<S> <C>
Salustiano Alvarez Mendez
Juan J. Bermudez Manuel Luis Del Valle
Francisco J. Carreras Julio E. Vizcarrondo, Jr.
</TABLE>
12
<PAGE> 14
EMPLOYMENT CONTRACT OF MR. ALBERTO M. PARACCHINI
Mr. Paracchini served as Chairman of the Board of the Corporation and the
Bank until April 29, 1993. Pursuant to the terms of an employment agreement
dated October 19, 1989 between the Corporation and Mr. Paracchini (the
"Employment Agreement"), Mr. Paracchini was employed by the Corporation for a
two year period commencing on December 31, 1990 and ending on December 31, 1992
( the "Employment Term"). The Employment Term was extended until April 29, 1993.
The employment Agreement provided that unless Mr. Paracchini otherwise notified
the Corporation prior to the end of the Employment Term, Mr. Paracchini would
become a consultant to the Corporation and the Bank for a 36-month period,
during which he would have been entitled to receive an annual retainer of not
less than sixty percent of his total compensation received during the last year
of the Employment Term (the "Retainer").
The Employment Agreement was terminated as of July 31, 1993, and in lieu of
the Retainer to be received by Mr. Paracchini throughout the three-year period
in which he was going to serve as a consultant, Mr. Paracchini received a
lump-sum payment of $730,355 on August 16, 1993.
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid by the
Corporation or its subsidiaries to the eight highest paid Executive Officers of
the Corporation and the principal officers of the Corporation's or the Bank's
subsidiaries for 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
FISCAL -------------------- ALL OTHER
YEAR SALARY(A) BONUS(B) COMPENSATION(C) TOTAL
------ --------- -------- --------------- --------
<S> <C> <C> <C> <C> <C>
Richard L. Carrion 1993 $230,000 $36,814 $ 26,343(d) $293,157
Chairman of the Board, 1992 230,000 83,191 24,086(d) 337,277
President and CEO 1991 260,077 22,246 18,882(d) 301,205
Jorge A. Junquera 1993 210,582 63,667 24,119(d) 298,368
Executive Vice President of the Corporation 1992 183,640 58,843 19,231(d) 261,714
1991 171,695 14,736 12,464(d) 198,895
David H. Chafey, Jr. 1993 205,044 61,950 23,485(d) 290,479
Executive Vice President of the Corporation 1992 176,347 57,081 18,467(d) 251,895
1991 148,241 12,881 10,924(d) 172,046
Larry B. Kesler 1993 167,500 50,638 19,185(d) 237,323
Executive Vice President of the Corporation 1992 145,129 46,412 15,198(d) 206,739
1991 134,326 11,667 9,915(d) 155,908
Maria Isabel P. de Burckhart 1993 165,000 49,789 18,898(d) 233,687
Executive Vice President of the Corporation 1992 145,226 46,424 15,208(d) 206,858
1991 132,922 11,728 9,963(d) 154,613
Humberto Martin 1993 158,290 47,687 18,130(d) 224,107
Executive Vice President of the Corporation 1992 143,333 45,054 15,010(d) 203,397
1991 140,523 13,014 11,083(d) 164,620
Emilio E. Pinero Ferrer 1993 157,080 47,379 17,983(d) 222,442
Executive Vice President of the Corporation 1992 141,151 45,006 14,782(d) 200,939
1991 136,057 11,856 10,008(d) 157,921
Alberto M. Paracchini 1993 122,482 -0- 730,355(e) 852,837
Director and former Chairman of the Board of Directors of 1992 319,297 188,706 31,845(d) 539,848
the Corporation 1991 344,874 12,671 24,964(d) 382,509
Thomas J. Fitzpatrick(f) 1993 236,250 141,750 13,491(d) 391,491
President of Spring Financial Services, Inc. (a 1992 236,250 141,750 8,728(d) 386,728
wholly-owned subsidiary of BanPonce Financial Corp.)
Andres F. Morrell(f) 1993 120,000 38,640 -0- 158,640
President of Vehicle Equipment Leasing Company, Inc. (a 1992 108,460 32,400 -0- 140,860
wholly-owned Subsidiary of the Corporation)
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
FISCAL -------------------- ALL OTHER
YEAR SALARY(A) BONUS(B) COMPENSATION(C) TOTAL
------ --------- -------- --------------- --------
<S> <C> <C> <C> <C> <C>
Edgardo Novoa(f) 1993 90,924 11,458 -0- 102,382
President of Popular Consumer Services, Inc. (a
wholly-owned subsidiary of the Bank)
Carlos Mangual(f) 1993 90,004 33,065 10,309(d) 133,378
President of Popular Leasing and Rental, Inc. (a 1992 74,756 22,899 7,829(d) 105,484
wholly-owned subsidiary of the Bank)
</TABLE>
- - - - - ---------------
(a) Salaries before deductions. For 1991 includes the cash value of unused
vacations paid which is not a recurring payment.
(b) Includes Christmas bonus, a special bonus for the Bank's 100th Anniversary,
the Incentive Compensation Plan and the cash portion under the Profit
Sharing Plan of the Bank which are described on this page.
(c) Does not include the value of perquisites and other personal benefits
because the aggregate amount of such benefits does not exceed the lesser of
$50,000 or 10% of total amount of annual salary and bonus of any named
individual.
(d) Deferred portion under the Profit Sharing Plan which is described on this
page. For Mr. Thomas Fitzpatrick, these amounts represents the contribution
of Spring Financial Services, Inc., during 1993 and 1992 pursuant to
Section 401(k) of the Internal Revenue Code.
(e) Please refer to Section entitled "Employment Contract of Mr. Alberto M.
Paracchini" on page 13.
(f) Information presented for 1993 and 1992 except for Mr. Edgardo Novoa which
was appointed President of Popular Consumer Services, Inc. during 1993. No
disclosure is required with respect to these officers.
OTHER INCENTIVE COMPENSATION PLANS
The Bank has an Annual Management Incentive Plan for different management
levels. Under this Plan, incentive bonuses are based on individual performance
as well as Bank's performance, measured by net income after tax. The weight
assigned to each component varies according to the level of management. These
bonuses can reach 20% of salaries if results exceed the target amount.
The Bank also has an Excellence in Performance Incentive Program covering
all employees not included in the other incentive plans. This program rewards
employees for extraordinary personal contributions that are non-recurring in
nature, typically not recognizable through merit or promotional salary action,
and clearly recognized as such by management and peers alike.
In addition, the Bank has several functional incentive programs which
reward employees' productivity in specific areas.
DEFERRED COMPENSATION PLAN (PROFIT SHARING) OF THE BANK
All officers and regular employees who were in the service of the Bank as
of January 1, 1976, or hired after that date, are active participants in the
Bank's operating earnings under the yearly Profit Sharing Plan, as of the first
day of the calendar month following completion of one year of service.
The Bank's contribution for each year is computed in accordance with a
formula based on the return on average assets or the return on average equity,
whichever results in a higher contribution. The amount allocated to each officer
or employee is based on his or her basic compensation for the year.
The total amount contributed for the year 1993 was $20,593,840, of which
40% was distributed in cash among the Plan's participants, as approved by the
Bank's Board of Directors in the month of January, 1994.
PENSION PLAN
The Bank has a noncontributory, defined benefit pension plan (the "Pension
Plan") covering substantially all employees. Full time employees are eligible to
participate in the Pension Plan following the
14
<PAGE> 16
completion of three months of service. Pension costs are funded in accordance
with the minimum funding standards under the Employee Retirement Income Security
Act ("ERISA").
Benefits are paid on the basis of a straight life annuity plus supplemental
death benefits and are not reduced for social security or other payments
received by participants. Benefits are paid to participants upon normal
retirement, which is 65 years of age, or early retirement, which requires 50
years of age and 25 years of service. Benefits are reduced for early retirement.
The following table sets forth the estimated annual benefits that would
become payable under the Plan based upon certain assumptions as to covered
compensation levels and years of service. The amounts set forth in this table
are not necessarily representative of amounts which are or may actually become
payable under the Plan. The amounts represent the benefit payable upon
retirement on December 31, 1993, of a participant at age 65:
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS
YEARS OF SERVICE(2)
COVERED --------------------------------------------------------------------
COMPENSATION(1) 15 20 25 30 35
- - - - - --------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 400,000 $120,000 $160,000 $200,000 $220,000 $240,000
300,000 90,000 120,000 150,000 165,000 180,000
200,000 60,000 80,000 100,000 110,000 120,000
100,000 30,000 40,000 50,000 55,000 60,000
</TABLE>
- - - - - ---------------
(1) Covered compensation includes only the participant's base salary. Benefits
exclude adjustments for IRS maximum benefit limitations.
(2) 1993 covered compensation and estimated years of service at age 65 are as
follows for the five highest paid key policy making executive officers:
<TABLE>
<CAPTION>
1993 ESTIMATED YEARS
COVERED OF SERVICE AT
COMPENSATION AGE 65
------------ ---------------
<S> <C> <C>
Richard L. Carrion........................ $230,000 41.5
Jorge A. Junquera......................... 211,000 42.3
David H. Chafey, Jr....................... 205,000 38.5
Larry B. Kesler........................... 168,000 16.5
Maria Isabel P. de Burckhart.............. 165,000 35.3
</TABLE>
15
<PAGE> 17
BANPONCE CORPORATION
PERFORMANCE GRAPH
The following Performance Graph compares the cumulative total shareholder
return during the measurement period with the cumulative total return, assuming
reinvestment of dividends, of the S & P 500 Index and the S & P Bank Composite
Index. The cumulative total shareholder return was obtained by dividing (i) the
cumulative amount of dividends per share, assuming dividend reinvestment, since
the measurement point, December 31, 1988 plus (ii) the change in the per share
price since the measurement point, by the share price at the measurement point.
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
TOTAL RETURN AS OF DECEMBER 31
(DECEMBER 31, 1988 = 100)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD S&P 500 IN- BANKS COMPOS-
(FISCAL YEAR COVERED) BANPONCE DEX ITE
<S> <C> <C> <C>
1988 100 100 100
1989 126 132 123
1990 98 128 87
1991 123 166 142
1992 200 179 188
1993 211 197 207
</TABLE>
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors intends to retain the services of Price Waterhouse
as the independent auditors of the Corporation for the year 1994. This firm of
international public accountants has served as independent auditors of the Bank
since 1971 and of the Corporation since May 1991, when it was appointed by the
Board of Directors.
Representatives of Price Waterhouse will attend the Stockholders Meeting
and will be available to answer any questions that may arise; they will also
have the opportunity to make a statement if they so desire.
NOMINATIONS OTHER THAN BY THE BOARD OF DIRECTORS
Nominations for Directors, other than those made by or on behalf of the
existing Board of Directors of the Corporation, shall be made in writing and
shall be delivered or mailed to the President or the Secretary of the
Corporation not less than fifteen (15) days prior to April 22, 1994. The notice
of such nominations shall contain the following information to the extent known
to the notifying stockholder: (a) name and address of each proposed nominee; (b)
the principal occupation of each proposed nominee; (c) the total number of
shares of common stock of the Corporation that will be voted for each proposed
nominee; (d) the name and residence address of the notifying stockholder; and
(e) the number of shares of common stock of the Corporation owned by the
notifying stockholder. Nominations not made in accordance with the above may, in
his discretion, be disregarded by the Chairman of the Meeting and, upon his
instructions, the judges of the election may disregard all votes cast for each
such nominee.
16
<PAGE> 18
PROPOSALS OF SECURITY HOLDERS TO BE PRESENTED AT THE 1995
ANNUAL MEETING OF STOCKHOLDERS
Stockholders' proposals intended to be presented at the 1995 Annual Meeting
of Stockholders must be received by the Corporate Secretary, at its principal
executive offices, Popular Center Building, San Juan, Puerto Rico, 00918, not
later than December 30, 1994, for inclusion in the Bank's Proxy Statement and
Form of Proxy relating to the 1995 Annual Meeting of Stockholders.
OTHER MATTERS
Management does not know of any other matters to be brought before the
Meeting other than those described previously. Proxies in the accompanying form
will confer discretionary authority to Management with respect to any such other
matters presented at the meeting.
To avoid delays in ballot taking and counting, and in order to assure that
your Proxy is voted in accordance with your wishes, compliance with the
following instructions is respectfully requested: upon signing a Proxy as
attorney, executor, administrator, trustee, guardian, authorized officer of a
corporation, or on behalf of a minor, please give full title. If shares are in
the name of more than one recordholder, all should sign.
Whether or not you plan to attend the Meeting, it is very important that
your shares be represented and voted in the Meeting. Accordingly, you are urged
to properly complete, sign, date and return your Proxy Card in the enclosed
self-addressed envelope which needs no postage.
San Juan, Puerto Rico, March 18, 1994.
<TABLE>
<S> <C>
RICHARD L. CARRION SAMUEL T. CESPEDES
Chairman of the Board, President and Chief Secretary
Executive Officer
</TABLE>
ANNUAL REPORT -- U.S. SECURITIES AND EXCHANGE COMMISSION, FORM 10-K
Management will provide without charge, upon written request, a copy of the
U.S. Securities and Exchange Commission's Form 10-K filed by the Corporation for
1993, including the financial statements and the schedules thereto required to
be filed under the Regulations of the Securities and Exchange Act of 1934.
Each written request must set forth a good faith representation that, as of
the record date for the 1994 annual meeting of the stockholders of BanPonce
Corporation, the person making the request was a beneficial owner of securities
entitled to vote at such meeting.
Such written request may be directed to:
Mr. Orlando Berges
Senior Vice President and Comptroller
Banco Popular de Puerto Rico
P.O. Box 362708
San Juan, Puerto Rico 00936-2708
17
<PAGE> 19
<TABLE>
<S> <C>
PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
BANPONCE CORPORATION
THE UNDERSIGNED HEREBY APPOINTS RICHARD L. CARRION, JORGE A. JUNQUERA AND
P.O. BOX 362708 ERNESTO N. MAYORAL AS PROXIES, EACH WITH THE POWER TO APPOINT HIS SUBSTITUTE,
SAN JUAN, PUERTO RICO AND HEREBY AUTHORIZES THEM TO REPRESENT AND TO VOTE AS DESIGNATED BELOW ALL
00936-2708 THE SHARES OF COMMON STOCK OF BANPONCE CORPORATION HELD ON RECORD BY THE
UNDERSIGNED ON MARCH 11, 1994 AT THE ANNUAL MEETING OF SHAREHOLDERS TO BE
HELD AT POPULAR CENTER BUILDING, SEVENTH FLOOR, SAN JUAN, PUERTO RICO, ON
APRIL 22, 1994 AT 2:00 P.M. OR AT ANY ADJOURNMENTS THEREOF, AS FOLLOWS:
1. ELECTION OF DIRECTORS
Nominees:
Alfonso F. Ballester Waldemar Del Valle Francisco Perez, Jr.
Sila M. Calderon Jorge A. Junquera Emilio Jose Venegas
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/ / VOTE GRANTED FOR all nominees / / VOTE WITHHELD FOR all nominees
/ / Vote granted, except for the following nominee(s) (insert the names of
those nominees for whom you do not wish to vote in the space provided
below)
2. IN THEIR DISCRETION, the Proxies are authorized to vote upon such other
business as may properly come before the Meeting. THIS PROXY WHEN PROPERLY
EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED
STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" ITEM 1.
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Please sign exactly as name appears below. When
shares are held by joint tenants or by tenants in
---------------- ------------------- ------------------ common, each holder should sign. When signing as
Proxy Number Account Number Shares attorney, as executor, administrator, trustee or
guardian, please give full title as such. If a
corporation, please sign in full corporate name by
President or other authorized officer and the
position of such authorized officer should appear
below the signature. If a partnership, please sign
in partnership name by authorized person.
DATED , 1994
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Signature
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Signature
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(VEA AL DORSO TEXTO EN ESPANOL)
PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
No Postage is required if mailed in the United States, Puerto Rico or the U.S.
Virgin Islands.
