<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1996 Commission file number 0 - 13818
--------------- ---------
BANPONCE CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Puerto Rico 66-041-6582
- ------------------------ -----------------------
(State of incorporation) (I.R.S. Employer
Identification No.)
Popular Center Building
209 Munoz Rivera Avenue, Hato Rey
San Juan, Puerto Rico 00918
----------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code (809) 765-9800
--------------
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report) 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Common Stock $6.00 Par value 32,974,936
----------------------------- -----------------------------------------
(Title of Class) (Shares Outstanding as of March 31, 1996)
<PAGE> 2
2
BANPONCE CORPORATION
INDEX
<TABLE>
<S> <C>
Part I - Financial Information Page Page
-----
Item 1. Financial Statements
Unaudited consolidated statements of condition
March 31, 1996 and December 31, 1995. 3
Unaudited consolidated statements of income -
Quarter ended March 31, 1996 and 1995. 4
Unaudited consolidated statements of cash
flows - Quarter ended March 31, 1996 and 1995. 5
Notes to unaudited consolidated financial
statements. 6-13
Item 2. Management's discussion and analysis of
financial condition and results of operation. 14-24
Part II - Other Information
Item 1. Legal proceedings - None N/A
Item 2. Changes in securities - None N/A
Item 3. Defaults upon senior securities - None N/A
Item 4. Submission of matters to a vote of
security holders - None N/A
Item 5. Other information - None N/A
Item 6. Exhibits and reports on Form 8-K 25
--- Signature 25
</TABLE>
<PAGE> 3
3
BANPONCE CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
(In thousands) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 405,890 $ 458,173
- ------------------------------------------------------------------------------------------------------------------------
Money market investments:
Federal funds sold and securities and
mortgages purchased under agreements to resell 632,527 796,417
Time deposits with other banks 26,993 100
Banker's acceptances 1,837 2,202
- ------------------------------------------------------------------------------------------------------------------------
661,357 798,719
- ------------------------------------------------------------------------------------------------------------------------
Investment securities held-to-maturity, at cost 1,657,059 1,651,344
Investment securities available-for-sale,
at market 3,337,217 3,209,974
Trading account securities, at market value 295,573 330,674
Loans held-for-sale 87,486 112,806
Loans 9,088,593 8,883,963
Less - Unearned income 326,001 319,285
Allowance for loan losses 174,724 168,393
- ------------------------------------------------------------------------------------------------------------------------
8,587,868 8,396,285
- ------------------------------------------------------------------------------------------------------------------------
Premises and equipment 335,279 325,203
Other real estate 7,353 7,807
Customer's liabilities on acceptances 1,867 2,208
Accrued income receivable 134,247 113,539
Other assets 155,707 125,742
Intangible assets 138,180 142,977
- ------------------------------------------------------------------------------------------------------------------------
$15,805,083 $15,675,451
========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 1,931,168 $ 2,021,658
Interest bearing 8,251,914 7,855,004
- ------------------------------------------------------------------------------------------------------------------------
10,183,082 9,876,662
- ------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold
under agreements to repurchase 2,552,831 3,000,878
Other short-term borrowings 740,088 454,707
Notes payable 684,589 730,428
Senior debentures 30,000 30,000
Acceptances outstanding 1,867 2,208
Other liabilities 278,056 263,871
- ------------------------------------------------------------------------------------------------------------------------
14,470,513 14,358,754
- ------------------------------------------------------------------------------------------------------------------------
Subordinated notes 175,000 175,000
- ------------------------------------------------------------------------------------------------------------------------
Stockholders' equity :
Preferred stock 100,000 100,000
Common stock 197,850 197,692
Surplus 428,098 427,282
Retained earnings 383,641 350,480
Unrealized gains(losses) on securities available-for-sale, net of
deferred taxes (19) 16,243
Capital reserves 50,000 50,000
- ------------------------------------------------------------------------------------------------------------------------
1,159,570 1,141,697
- ------------------------------------------------------------------------------------------------------------------------
$15,805,083 $15,675,451
========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
<PAGE> 4
4
BANPONCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter ended
March 31,
(Dollars in thousands, except per common share information) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME:
Loans $217,247 $190,550
Money market investments 8,673 986
Investment securities 71,945 58,568
Trading account securities 5,062 115
- ----------------------------------------------------------------------------------------------------------------------
302,927 250,219
- ----------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits 82,996 77,065
Short-term borrowings 42,930 25,374
Long-term debt 14,541 10,252
- ----------------------------------------------------------------------------------------------------------------------
140,467 112,691
- ----------------------------------------------------------------------------------------------------------------------
Net interest income 162,460 137,528
Provision for loan losses 21,273 11,698
- ----------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 141,187 125,830
Service charges on deposit accounts 21,076 18,090
Other service fees 17,380 13,811
Gain on sale of securities 729 46
Trading account profit (loss) 938 (50)
Other operating income 11,869 5,656
- ----------------------------------------------------------------------------------------------------------------------
193,179 163,383
- ----------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Personnel costs:
Salaries 44,752 41,530
Profit sharing 6,070 3,327
Pension and other benefits 16,981 15,561
- ----------------------------------------------------------------------------------------------------------------------
67,803 60,418
Net occupancy expense 9,318 7,769
Equipment expenses 11,774 9,383
Other taxes 5,963 5,631
Professional fees 9,916 7,554
Communications 6,316 5,603
Business promotion 5,392 3,792
Printing and supplies 2,923 2,781
Other operating expenses 6,740 10,451
Amortization of intangibles 4,554 4,936
- ----------------------------------------------------------------------------------------------------------------------
130,699 118,318
- ----------------------------------------------------------------------------------------------------------------------
Income before tax 62,480 45,065
Income tax 17,338 11,324
- ----------------------------------------------------------------------------------------------------------------------
NET INCOME $ 45,142 $ 33,741
======================================================================================================================
Net income applicable to common stock $ 43,055 $ 31,654
======================================================================================================================
EARNINGS PER COMMON SHARE: $ 1.31 $ 0.96
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
<PAGE> 5
5
BANPONCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the quarter ended
March 31,
(In thousands) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 45,142 $ 33,741
- ----------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization of premises and equipment 12,355 10,288
Provision for loan losses 21,273 11,698
Amortization of intangibles 4,554 4,936
Gain on sale of investment securities available-for-sale (729) (46)
Gain on dispositions of premises and equipment (10) (771)
Amortization of premiums and accretion of discounts on investments 755 (700)
Decrease in loans held-for-sale 25,319 5,796
Amortization of deferred loan fees and costs (45) 142
Net increase in postretirement benefit obligation 2,253 1,831
Net decrease(increase) in trading securities 35,101 (5,499)
Net increase in interest receivable (20,708) (943)
Net (increase)decrease in other assets (13,032) 8,465
Net decrease in interest payable (1,418) (2,191)
Net increase in current and deferred taxes 6,208 7,051
Net decrease in other liabilities (5,791) (19,202)
- ----------------------------------------------------------------------------------------------------------------------
Total adjustments 66,085 20,855
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 111,227 54,596
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in money market investments 137,362 213,859
Purchases of investment securities held-to-maturity (1,366,623) (8,174,307)
Maturities of investment securities held-to-maturity 1,354,385 8,127,681
Purchases of investment securities available-for-sale (1,717,071) (327,377)
Maturities of investment securities available-for-sale 474,048 1,894
Sales of investment securities available-for-sale 1,101,095 143,244
Net disbursements on loans (266,068) (282,941)
Proceeds from sale of loans 90,066 61,692
Acquisition of loan portfolios (35,198)
Assets acquired, net of cash (16,661)
Acquisition of premises and equipment (24,452) (18,434)
Proceeds from sale of premises and equipment 2,031 5,850
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (250,425) (265,500)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 306,419 184,618
Net deposits acquired 163,636
Net decrease in federal funds purchased and
securities sold under agreements to repurchase (448,047) (287,290)
Net increase(decrease) in other short-term borrowings 285,381 (39,157)
Proceeds from issuance of notes payable 116,117 145,923
Payments of notes payable (161,957) (20,003)
Dividends paid (11,972) (10,297)
Proceeds from issuance of common stock 974 763
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 86,915 138,193
- ----------------------------------------------------------------------------------------------------------------------
Net decrease in cash and due from banks (52,283) (72,711)
Cash and due from banks at beginning of period 458,173 442,316
- ----------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of period $405,890 $369,605
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
<PAGE> 6
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share information)
NOTE 1 - CONSOLIDATION
The consolidated financial statements of BanPonce Corporation include the
balance sheet of the Corporation and its wholly-owned subsidiaries, Vehicle
Equipment Leasing Company, Inc. (Velco); BP Capital Markets, Inc.; Popular
International Bank, Inc. and its wholly-owned subsidiary BanPonce Financial
Corp., including Banco Popular, FSB, Pioneer Bancorp, Inc. (second tier
subsidiaries) and Equity One, Inc.; and Banco Popular de Puerto Rico and its
wholly-owned subsidiaries, Popular Leasing and Rental, Inc., Popular Consumer
Services, Inc. and Popular Mortgage, Inc., as of March 31, 1996 and December
31, 1995, and their related statements of income and cash flows for the
quarters ended March 31, 1996 and 1995. These statements are, in the opinion
of management, a fair statement of the results of the periods presented. These
results are unaudited, but include all necessary adjustments, of a normal
recurring nature, for a fair presentation of such results. Certain
reclassifications have been made to the prior year consolidated financial
statements to conform to the 1996 presentation.
NOTE 2 - ACCOUNTING CHANGES
Effective January 1, 1996, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." This statement requires
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. For the first quarter of 1996, no impairment recognition was
necessary based on this pronouncement.
Effective January 1, 1996, the Corporation adopted SFAS 122, "Accounting for
Mortgage Servicing Rights." This statement requires that mortgage banking
enterprises recognize as separate assets the rights to service mortgage loans
for others, whether those servicing rights are originated or purchased. Also,
it requires mortgage banking enterprises to assess capitalized mortgage
servicing rights for impairment based on the fair value of those rights.
Pursuant to the provisions of SFAS 122, the total cost of mortgage loans to be
sold with servicing rights retained is allocated to the mortgage servicing
rights and the loans (without the mortgage servicing rights) based on their
relative fair values. These mortgage servicing rights are amortized in
proportion to and over the period of estimated net servicing income.
To estimate the fair value of mortgage servicing rights the Corporation
considers prices for similar assets and the present value of expected future
cash flows associated with the servicing rights calculated using assumptions
that market participants would use in estimating future servicing income and
expense. For purposes of evaluating and measuring impairment of capitalized
mortgage servicing rights, the Corporation stratifies such rights based on
predominant risk characteristics of underlying loans, such as loan type, note
rate and term. The amount of impairment recognized if any, is the amount by
which the capitalized mortgage
<PAGE> 7
7
servicing rights per stratum exceed estimated fair value. Impairment is
recognized through a valuation allowance. As of March 31, 1996, the carrying
value, estimated fair value and valuation allowance of capitalized mortgage
servicing rights were $23,898, $26,469 and $212, respectively. During this
quarter the Corporation realized additional income of $495 as a result of the
adoption of this pronouncement.
Effective January 1, 1996, the Corporation adopted SFAS 123 "Accounting for
Stock-Based Compensation." This statement establishes a fair value-based method
of accounting for stock-based employee compensation plans. It encourages
entities to adopt this method in lieu of the provisions of APB Opinion No. 25,
"Accounting for Stock Issued to Employees", for all arrangements under which
employees receive shares of stock or other equity instruments of the employer
or the employer incurs liabilities to employees in amounts based on the price
of its stock.
The Corporation provides a stock-based compensation plan for senior management.
This is a three-year incentive plan which provides incentive compensation
linked to long-term corporate performance and objectives. For the quarter ended
March 31, 1996, the Corporation recognized $103 related to this plan.
Effective January 1, 1995, the Corporation adopted SFAS 114, "Accounting by
Creditors for Impairment of a Loan" as amended by SFAS 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures." These
statements address the accounting by creditors for impairment of certain loans
and require that impaired loans as defined, be measured based on the present
value of expected future cash flows discounted at the loan's effective rate, at
the loan's observable market price or, on the fair value of the collateral if
the loan is collateral dependent. As of March 31, 1996, the recorded investment
in loans that are considered to be impaired under SFAS 114 was $79,774 (1995 -
$87,393) of which $38,365 (1995 - $43,004) had a related allowance for possible
loan losses of $8,555 (1995 - $8,449). Average impaired loans during the first
quarter of 1996 were $83,043. The Corporation recognized interest income on
impaired loans of $901 for the quarter ended March 31, 1996.
NOTE 3 - INVESTMENT SECURITIES
The average maturities as of March 31, 1996 and market value for the following
investment securities are:
<PAGE> 8
8
Investment securities held-to-maturity:
<TABLE>
<CAPTION>
March 31,
1996 1995
Amortized Cost Market Value Amortized Cost Market Value
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury (average maturity of
1 year and 1 month) $ 924,137 $ 927,247 $1,912,231 $1,901,025
Obligations of other U.S. Government
agencies and corporations (average
maturity of 11 months) 132,271 130,950 249,509 244,949
Obligations of Puerto Rico, States and
political subdivisions (average
maturity of 2 years and 5 months) 218,222 220,124 217,037 220,211
Collatelarized mortgage obligations (average
maturity of 1 year and 5 months) 262,655 260,900 439,613 427,884
Mortgage-backed securities (average
maturity of 4 years and 4 months) 59,706 60,395 146,015 141,573
Equity securities (without contractual
maturity) 47,674 47,674 43,558 43,558
Others (average maturity of 6 years
and 6 months) 12,394 12,430 12,142 12,175
---------------------------------------------------------------------------
$1,657,059 $1,659,720 $3,020,105 $2,991,375
===========================================================================
</TABLE>
Investment securities available-for-sale:
<TABLE>
<CAPTION>
March 31,
1996 1995
Amortized Cost Market Value Amortized Cost Market Value
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury (average maturity
of 1 year and 1 month) $2,454,152 $2,453,291 $ 597,602 $ 588,337
Obligations of other U.S. Government
agencies and corporations (average
maturity of 8 months) 440,015 439,624 100,559 99,573
Obligations of Puerto Rico, States and
political subdivisions (average maturity
of 2 years and 9 months) 26,468 26,564 28,430 27,872
Collatelarized mortgage obligations (average
maturity of 2 years and 6 months) 109,047 108,342 61,356 60,789
Mortgage-backed securities (average
maturity of 16 years and 7 months) 260,168 256,910 250,765 250,015
Equity securities (without contractual
maturity) 27,703 34,436 27,989 29,645
Others (average maturity of 14 years
and 1 month) 18,050 18,050 50,000 50,000
---------------------------------------------------------------------------
$3,335,603 $3,337,217 $ 1,116,701 $1,106,231
===========================================================================
</TABLE>
NOTE 4 - PLEDGED ASSETS
Securities and insured mortgage loans of the Corporation of $2,774,689 (1995 -
$1,963,134) are pledged to secure public and trust deposits and securities and
mortgages sold under repurchase agreements.
<PAGE> 9
9
NOTE 5- COMMITMENTS
In the normal course of business there are letters of credit outstanding and
stand-by letters of credit which at March 31, 1996 amounted to $17,591 and
$118,805. There are also outstanding other commitments and contingent
liabilities, such as guarantees and commitments to extend credit, which are not
reflected in the accompanying financial statements. No losses are anticipated
as a result of these transactions.
NOTE 6- SUBORDINATED NOTES
Subordinated notes consist of the following:
<TABLE>
<CAPTION>
March 31,
1996 1995
-----------------------------
<S> <C> <C>
Subordinated notes issued by the Corporation on
December 12, 1995, maturing on December 15,
2005, with interest payable semi-annually at 6.75% $125,000
-----------------------------
Subordinated notes issued by the Banco Popular 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 Notes 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
-----------------------------
$175,000 $50,000
=============================
</TABLE>
NOTE 7 - STOCKHOLDERS' EQUITY
Authorized common stock is 90,000,000 shares with a par value of $6 per share
of which 32,974,936 are issued and outstanding at March 31, 1996. Authorized
preferred stock is 10,000,000 shares without par value of which 4,000,000
non-cumulative with a dividend rate of 8.35% and a liquidation preference value
of $25 per share are issued and outstanding at March 31, 1996.
NOTE 8 - EARNINGS PER COMMON SHARE
Earnings per common share (EPS) are calculated based on net income applicable
to common stockholders which amounted to $43,055 and $31,654 for the quarters
ended March 31, 1996 and 1995, respectively, after deducting the dividends on
preferred stock. EPS are based on 32,974,936 and 32,866,623 average shares
outstanding for the first quarter of 1996 and 1995, respectively.
NOTE 9 - SUPPLEMENTAL DISCLOSURE ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS
During the quarter ended March 31, 1996, the Corporation paid interest and
income taxes amounting to $148,341 and $5,564, respectively (1995 - $117,421
and $1,392). In addition,
<PAGE> 10
10
the loans receivable transferred to other real estate and other property for
the quarter ended March 31, 1996, amounted to $468 and $1,142, respectively
(1995 - $1,963 and $859). The Corporation's stockholders' equity at March 31,
1996 and 1995 includes $19 and $7,670, respectively, in unrealized holding
losses on securities available-for-sale, net of deferred taxes.
NOTE 10 - POPULAR INTERNATIONAL BANK, INC. (A WHOLLY-OWNED SUBSIDIARY OF
BANPONCE CORPORATION) FINANCIAL INFORMATION:
The following summarized financial information presents the unaudited
consolidated financial position of Popular International Bank, Inc. and it
wholly-owned subsidiary BanPonce Financial Corp, including its wholly owned
subsidiaries: Pioneer Bancorp, Inc. and Banco Popular, FSB (second tier
subsidiaries) and Equity One, Inc., as of March 31, 1996, and 1995 and the
results of their operations for the quarters then ended.
POPULAR INTERNATIONAL BANK, INC.
STATEMENT OF CONDITION
(In thousands)
<TABLE>
<CAPTION>
March 31,
---------
1996 1995
Assets: ---- ----
<S> <C> <C>
Cash $ 34,292 $ 29,748
Money market investments 86,866 32,281
Investment securities 224,632 314,366
---------- ----------
Loans 1,222,111 907,460
Less: Unearned income 43,430 35,297
Allowance for loan losses 17,416 12,768
---------- ----------
1,161,265 859,395
Other assets, consisting principally of
intangible assets, including goodwill, net
of amortization 67,585 56,503
---------- ----------
Total assets $1,574,640 $1,292,293
========== ==========
Liabilities and Stockholder's Equity:
Deposits $ 568,158 $ 526,757
Short-term borrowings 264,781 142,005
Notes payable 564,685 479,380
Other liabilities 34,204 23,957
Stockholder's equity 142,812 120,194
---------- ----------
Total liabilities and stockholder's equity $1,574,640 $1,292,293
========== ==========
</TABLE>
<PAGE> 11
11
POPULAR INTERNATIONAL BANK, INC.
STATEMENT OF INCOME
(In thousands)
<TABLE>
<CAPTION>
Quarter ended
March 31,
1996 1995
-------------------
<S> <C> <C>
Income:
Interest and fees $35,341 $25,951
Other service fees 4,194 2,899
------- -------
Total income 39,535 28,850
------- -------
Expenses:
Interest expense 19,819 14,625
Provision for loan losses 2,810 1,554
Operating expenses 10,252 8,044
------- -------
Total expenses 32,881 24,223
------- -------
Income before income tax 6,654 4,627
Income tax 2,670 1,886
------- -------
Net income $ 3,984 $ 2,741
======= =======
</TABLE>
<PAGE> 12
12
NOTE 11 - BANPONCE FINANCIAL CORP (A SECOND TIER SUBSIDIARY OF BANPONCE
CORPORATION) FINANCIAL INFORMATION:
The following summarized financial information presents the unaudited
consolidated financial position of BanPonce Financial Corp and its wholly-owned
subsidiaries Pioneer Bancorp, Inc., Banco Popular, FSB and Equity One, Inc.
(second tier subsidiary) as of March 31, 1996, and 1995 and the results of
their operations for the quarters then ended.
BANPONCE FINANCIAL CORP
STATEMENT OF CONDITION
(In thousands)
<TABLE>
<CAPTION>
March 31,
--------
1996 1995
---- ----
Assets:
<S> <C> <C>
Cash $ 34,268 $ 29,713
Money market investments 85,803 31,237
Investment securities 224,632 314,366
---------- ----------
Loans 1,222,111 907,460
Less: Unearned income 43,430 35,297
Allowance for loan losses 17,416 12,768
---------- ----------
1,161,265 859,395
Other assets, consisting principally of
intangible assets, including goodwill, net
of amortization 67,468 56,494
---------- ----------
Total Assets $1,573,436 $1,291,205
========== ==========
Liabilities and Stockholder's Equity:
Deposits $ 568,158 $ 526,757
Other short-term borrowings 264,781 142,005
Notes payable 564,685 479,380
Other liabilities 34,195 23,957
Stockholder's equity 141,617 119,106
---------- ----------
Total Liabilities and Stockholder's Equity $1,573,436 $1,291,205
========== ==========
</TABLE>
<PAGE> 13
13
BANPONCE FINANCIAL CORP
STATEMENT OF INCOME
(In thousands)
<TABLE>
<CAPTION>
Quarter ended
March 31,
1996 1995
----------------------------
Income:
<S> <C> <C>
Interest and fees $35,324 $25,938
Other service fees 4,194 2,899
------- -------
Total income 39,518 28,837
------- -------
Expenses:
Interest expense 19,819 14,625
Provision for loan losses 2,810 1,554
Operating expenses 10,276 8,020
------- -------
Total expenses 32,905 24,199
------- -------
Income before income tax 6,613 4,638
Income tax 2,670 1,886
------- -------
Net income $ 3,943 $ 2,752
======= =======
</TABLE>
<PAGE> 14
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This financial review contains an analysis of the consolidated financial
condition and performance of BanPonce Corporation and its wholly-oned
subsidiaries (the Corporation). BanPonce Corporation is a regional diversified,
bank holding company engaged in the following businesses through its
subsidiaries.
- - COMMERCIAL BANKING/SAVINGS AND LOANS - BANCO POPULAR DE PUERTO RICO
(BANCO POPULAR), PIONEER BANK, INC. AND BANCO POPULAR, FSB
- - LEASE FINANCING - POPULAR LEASING AND RENTAL, INC. AND VEHICLE
EQUIPMENT LEASING COMPANY, INC. (VELCO)
- - MORTGAGE BANKING/CONSUMER FINANCE - POPULAR MORTGAGE, INC. (D/B/A
PUERTO RICO HOME MORTGAGE), EQUITY ONE, INC. (EQUITY ONE) AND POPULAR
CONSUMER SERVICES, INC.
- - INVESTMENT BANKING - BP CAPITAL MARKETS, INC. (BP CAPITAL)
THIS FINANCIAL REVIEW SHOULD BE READ TOGETHER WITH THE CONSOLIDATED FINANCIAL
STATEMENTS, SUPPLEMENTAL FINANCIAL DATA AND TABLES CONTAINED IN THIS QUARTERLY
REPORT.
NET INCOME
The Corporation's net income for the first quarter of 1996 was $45.1 million,
an increase of 33.8% when compared with $33.7 million reported for the same
period in 1995. Net income for the last quarter of 1995 was $40.3 million.
Earnings per common share (EPS) for the quarter were $1.31, based on 32,974,936
average shares outstanding, compared with EPS of $0.96 for the first quarter of
1995, based on 32,866,623 average shares outstanding and EPS of $1.15 for the
last quarter of 1995, based on 32,948,636 average shares outstanding. Return on
assets (ROA) and return on common equity (ROE) for the quarter ended March 31,
1996 were 1.17% and 16.39%, respectively, compared with 1.06% and 13.96%
attained during the first quarter of 1995 and 1.05% and 14.82% for the quarter
ended December 31, 1995.
The increase of $11.4 million in net income for the first quarter of 1996
resulted from a higher net interest income by $24.9 million plus higher
non-interest revenues by $14.4 million, partially offset by increases of $12.4
million in operating expenses, $9.5 million in the provision for loan losses
and $6.0 million in income tax expense.
NET INTEREST INCOME
Net interest income for the first quarter of 1996 increased to $162.4 million,
or 18.1% higher than the $137.5 million reported for the same period in 1995.
On a taxable equivalent basis, net interest income increased to $174.5 million
from $147.1 million in the first quarter of 1995 and $168.5 million in the
fourth quarter of 1995. This increase was mainly due to a rise of $2.6 billion
in the average volume of earning assets. The net interest yield on a taxable
<PAGE> 15
15
equivalent basis for the first quarter of 1996 was 4.77% compared with 4.88%
for the same quarter in 1995 and 4.72% in the last quarter of 1995. For
analytical purposes, the interest earned on tax-exempt assets is adjusted to a
taxable equivalent basis assuming the applicable statutory income tax rates.
Average earning assets reached $14.6 billion for the quarter ended March 31,
1996, compared with $12.1 billion for the same quarter of 1995. The rise was
mainly the result of a higher average volume of investment, money market and
trading securities which taken all together rose by $1.7 billion and an
increase in the average volume of loans of $885 million.
Average money market investments reached $657 million for the first quarter of
1996, compared with $41 million for the same period of 1995. The acquisition of
the investment banking operation of BP Capital during the second quarter of
1995 was the main reason for this increase. Average investment securities
reached $4.9 billion compared with $4.2 billion reported for the same quarter
in 1995. Banco Popular was the principal contributor for this increase with a
rise of $686 million.
The average balance of trading account securities for the three-month period
ended March 31, 1996, totaled $330 million compared with $12 million reported
for the same quarter last year. This increase relates mostly to the new
subsidiaries, BP Capital, with $223 million in average balance, and Popular
Mortgage, acquired on March 31, 1995, with an average of $96 million. Both
balances are comprised mostly of mortgage-backed securities.
The increase of $390 million in average commercial loans was principally
attained at Banco Popular. Average mortgage loans grew $230 million. In this
category, Equity One had a 27.9% growth accounting for $145 million of the
total increase in mortgage loans. This increase relates to its continuous
expansion in the United States.
The yield on earning assets, on a taxable equivalent basis, for the first
quarter of 1996 and 1995 averaged 8.61%. Although the average yield did not
change, fluctuations among the various earning asset categories were
experienced.
The average yield on loans for the first quarter of 1996 and 1995, on a taxable
equivalent basis, was 10.01% and 9.79%, respectively. The taxable equivalent
yield of the commercial loan portfolio decreased by 19 basis points averaging
8.84% compared with 9.03% in the same quarter in 1995. The reduction of 25
basis points in the prime rate during the latter part of 1995 and a further
decrease of 25 basis points during the quarter ended on March 31, 1996, were
the main reasons for this decrease. The average yield on consumer loans
increased to 12.77% from 11.83% achieved during the first quarter of 1995. The
average yields on mortgage loans on a taxable equivalent basis for the first
quarter of 1996 and 1995 were 8.42% and 8.33%, respectively.
The average yield on investment securities, on a taxable equivalent basis, was
6.73% or 34 basis points higher than the 6.39% in the first quarter of 1995.
The increase mostly relates to the maturity of investment securities whose
proceeds were reinvested at higher rates. The average yield on money market
investments decreased from 9.54% during the first quarter of 1995 to 5.28% in
the same period of 1996. The latter, although appears significant, affected
<PAGE> 16
16
interest income only by $600 thousand due to the small average volume of $41
million for 1995 as compared with $657 million in 1996. The average yield, on a
taxable equivalent basis, of the trading portfolio improved to 6.07% from 3.63%
in the first quarter of 1995.
Average interest bearing liabilities of the Corporation were $12.2 billion for
the three-month period ended March 31, 1996, compared with $9.9 billion for the
same period of 1995, an increase of $2.3 billion. Average interest bearing
deposits increased $662 million, mostly in certificates of deposits which grew
$398 million, reaching $3.3 billion for the first quarter of 1996. Saving
accounts also increased during the quarter averaging $133 million more than in
the first quarter of 1995. Average demand deposits grew by $148 million from
$1.81 billion to $1.95 billion.
The average cost of interest bearing deposits for the quarter ended March 31,
1996 and 1995 was 4.10% and 4.14%, respectively. The decrease of four basis
points was attributed to lower costs on certificates of deposit and NOW and
money market deposits. The average cost on certificates of deposit for the
first quarter of 1996 was 5.07%, down from 5.29% reported for the same quarter
of 1995. The average cost of NOW and money market deposits declined 55 basis
points, reaching 3.23% in the first quarter of 1996. Conversely, the average
cost of saving accounts increased 9 basis points and the average cost of other
time deposits increased 37 basis points.
Average short-term borrowings increased $1.5 billion this quarter compared with
the quarter ended on March 31, 1995. The operation of BP Capital, with an
average volume of short-term borrowings of $848 million for the three-month
period ended March 31, 1996, accounted for most of the increase. Banco Popular
also had an increase in short-term borrowings, reaching an average level of
$1.7 billion compared with $1.5 billion in the same quarter of 1995. The
average cost of short-term borrowings for the quarter ended March 31, 1996,
decreased by 43 basis points, from 5.63% to 5.20% in 1996.
Although the average cost of most interest bearing liabilities showed
decreases, about 86% of the growth in average earning assets was funded through
time deposits, short-term borrowings and long-term debt, which carry a higher
cost. As a result, the average cost of interest bearing liabilities increased
slightly, reaching 4.60% for the first quarter of 1996, from 4.57% reported for
the same period of 1995.
The net interest yield, on a taxable equivalent basis, decreased to 4.77%, from
4.88% reported for the first quarter of 1995. The decline results mainly from
the net interest margin of 0.50% earned at BP Capital due to its significant
volume of arbitrage activities. This relatively low net interest margin had the
effect of diluting the margins earned at all the other entities within the
consolidated group by approximately 27 basis points during the quarter ended on
March 31, 1996.
<PAGE> 17
17
Table A summarizes the results previously explained.
TABLE A
NET INTEREST INCOME (TAXABLE EQUIVALENT BASIS)
<TABLE>
<CAPTION>
(Dollars in millions) First Quarter
- -------------------------------------------------------------------------------------------------------------
1996 Average 1995 Average
---------------------------------------------------
Balance Rate Balance Rate
---------------------------------------------------
<S> <C> <C> <C> <C>
Earning assets $14,631 8.61% $12,068 8.61%
======= =======
Financed by:
Interest
bearing funds $12,210 4.60% 9,871 4.57%
Non-interest
bearing funds 2,421 2,197
------- -------
TOTAL $14,631 3.84% $12,068 3.73%
======= =======
Net interest income
per books $ 162.4 $ 137.5
Taxable equivalent
adjustment 12.1 9.6
------- -------
Net interest income on a
taxable equivalent basis $ 174.5 $ 147.1
======= =======
Spread 4.01% 4.04%
Net interest yield 4.77% 4.88%
</TABLE>
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses for the first quarter of 1996 was $21.3 million,
exceeding by $9.5 million the amount recorded for the same period of 1995.
During the fourth quarter of 1995 the provision amounted to $21.2 million.
Among the factors considered for this increase are the growth of $856 million
in the Corporation's loan portfolio from March 31, 1995 to the same date this
year and increases in net charge-offs and non-performing assets. The provision
for loan losses for the first quarter of 1996 represented 142% of net
charge-offs compared with 146% for the same period of 1995 and 123% for the
last quarter of 1995.
Net charge-offs for the quarter ended March 31, 1996, totaled $14.9 million or
0.68% of average loans, compared with $8.0 million or 0.41% reported for the
same quarter in 1995, and $17.3 million or 0.81% for the quarter ended on
December 31, 1995. Consumer loans net charge-offs increased $2.8 million when
compared with the first quarter of 1995 and
<PAGE> 18
18
commercial loans net charge-offs increased $2.3 million. Consumer loans net
charge-offs totaled $6.0 million for the quarter ended March 31, 1996, while
net credit losses on the commercial portfolio amounted to $5.4 million. Total
lease financing net charge-offs increased $1.9 million, from $0.5 million in
the first quarter of 1995 to $2.4 million this quarter. Mortgage loans net
charge-offs increased $0.2 million, while there was a reduction of $0.3 million
in the construction loans net credit losses.
TABLE B
<TABLE>
<CAPTION>
Provision for Net Allowance for
Quarter Ended Loan Losses Charge-offs Loan Losses
- ------------- ------------- ------------ -----------
<S> <C> <C> <C>
(In millions)
March 31, 1996 $21.3 $14.9 $175
December 31, 1995 21.2 17.3 168
September 30, 1995 19.0 13.3 164
June 30, 1995 12.6 11.4 159
March 31, 1995 11.7 8.0 157
</TABLE>
As of March 31, 1996, the allowance for loan losses reached $175 million,
maintaining the same ratio as a percentage of loans than the one at the same
date in 1995, when the allowance was $157 million or 1.97% of loans. Comparable
figures at the end of 1995 were $168 million and 1.94%, respectively.
Management considers that the allowance for loan losses is adequate to absorb
the potential write-offs in the loan portfolio based on the methodology
established for its evaluation, which includes portfolio risk characteristics,
prior loss experience, results of periodic credit reviews and current and
anticipated economic conditions.
At March 31, 1996, the Corporation had $80 million in loans considered
impaired, of which $38 million had a related allowance for possible loan losses
of $9 million. As of the same date last year, loans considered impaired
amounted to $87 million, of which $43 million had a related allowance of $8
million. No increase in the provision for loan losses was necessary for either
quarter as a result of the impairment measurement required by SFAS 114 and 118.
<PAGE> 19
19
TABLE C
ALLOWANCE FOR LOAN LOSSES AND SELECTED LOAN LOSSES STATISTICS
<TABLE>
<CAPTION>
First Quarter
(Dollars in thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of period $168,393 $153,798
Provision for loan losses 21,273 11,698
---------------------
189,666 165,496
---------------------
Losses charged to the allowance
Commercial 9,215 4,855
Construction 693 1,000
Lease financing 3,325 1,195
Mortgage 597 336
Consumer 9,513 6,958
---------------------
23,343 14,344
---------------------
Recoveries
Commercial 3,859 1,755
Construction 1 54
Lease financing 947 713
Mortgage 112 79
Consumer 3,482 3,714
---------------------
8,401 6,315
---------------------
Net loans charged-off 14,942 8,029
---------------------
Balance at end of period $174,724 $157,467
=====================
Ratios:
Allowance for losses to loans 1.97% 1.97%
Allowance to non-performing assets 116.00 126.85
Allowance to non-performing loans 124.30 139.36
Non-performing assets to loans 1.70 1.55
Non-performing assets to total assets 0.95 0.95
Net charge-offs to average loans 0.68 0.41
Provision to net charge-offs 1.42X 1.46X
Net charge-offs earnings coverage 5.61 7.07
</TABLE>
CREDIT QUALITY
As presented on Table D, non-performing assets (NPA) as of March 31, 1996,
which consist of past-due loans on which no interest income is being accrued,
renegotiated loans and other real estate amounted to $151 million or 1.70% of
loans, compared with $124 million or 1.55% at March 31, 1995. NPA were $155
million or 1.79% of loans at December 31, 1995.
<PAGE> 20
20
Table D
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
NPA Allowance
as a % as a %
NPA Of Loans Of NPA
- ---------------------------------------------------------------------------
(Dollars in millions)
<S> <C> <C> <C>
March 31, 1996 $151 1.70% 116.0%
December 31, 1995 155 1.79 108.6
September, 30, 1995 156 1.84 105.5
June 30, 1995 148 1.81 107.1
March 31, 1995 124 1.55 126.9
</TABLE>
Non-performing loans totaled $141 million as of March 31, 1996, from $113
million at the end of the first quarter of 1995. As of December 31, 1995, these
loans amounted to $144 million. Most of the increase was reflected in
non-performing commercial and construction loans, which accounted for
approximately 61% of the increase. The major reason for the increase in
non-performing commercial and construction loans was the continued growth in
these portfolios. Non-performing mortgage loans increased $9 million, while
non-performing consumer loans increased $2.9 million, mainly at Equity One.
Non-performing lease financing loans decreased $1 million. Non-performing
mortgage loans increased $5.1 million at Equity One due mainly to the growth in
the portfolio. In addition, Banco Popular's non-performing mortgage loans
increased $3.9 million. Other real estate and renegotiated loans decreased $0.8
million and $0.2 million, respectively.
The standard industry practice is to place non-performing commercial loans on
non-accrual status when payments of principal or interest are delinquent 90
days. The Corporation, however, 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 when payments of principal or interest
are delinquent 60 days. Lease financing, conventional mortgage and closed-end
consumer loans are placed on non-accrual status when payments are delinquent 90
days. Closed-end consumer loans are charged-off against the allowance when
delinquent 120 days. Open-end (revolving credit) consumer loans are
charged-off when 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 when they are considered well secured and in the process of
collection. Under the standard industry practice, closed-end consumer loans are
charged-off when delinquent 120 days, but these consumer loans are not
customarily placed on non-accrual status prior to being charged-off.
Assuming standard industry practice of placing commercial loans on non-accrual
status when payments are past due 90 days or more and excluding the closed-end
consumer loans from non-accruing loans, non-performing assets as of March 31,
1996, amounted to $111 million or 1.26% of loans, and the allowance for loan
losses would be 156.9% of non-performing assets. At March 31, 1995 and December
31, 1995, adjusted non-performing assets were $95 million and $121 million,
respectively, or 1.19% and 1.39% of loans.
<PAGE> 21
21
Accruing loans that are contractually past-due 90 days or more as to principal
or interest as of March 31, 1996, amounted to $11.5 million compared with $9.5
million at March 31, 1995, and $11.7 million at December 31, 1995.
OTHER OPERATING INCOME
Other operating income, including securities and trading gains, amounted to
$52.0 million for the first quarter of 1996 compared with $37.6 million for the
same quarter in 1995, an increase of $14.4 million or 38.4%. This rise in other
income was principally driven by an increase of $6.2 million in other operating
income and $3.6 million in other service fees.
Services charges on deposit accounts totaled $21.1 million for the quarter
ended March 31, 1996, compared with $18.1 million for the same quarter of 1995.
Growth in the activity of commercial accounts together with a revised fee
structure accounted for $2.3 million of the increase.
Other services fees rose $3.6 million for the first three months of 1996,
amounting to $17.4 million compared with $13.8 million for the same quarter of
1995. Mortgage servicing fees were $1.0 million higher, largely as a result of
the servicing portfolio acquired from Puerto Rico Home Mortgage. Letter of
credit fees, credit card fees and fees related to the sale and administration
of investment products added $1.6 million to this revenue category. Also, fees
collected on the growing volume of transactions at point-of-sale (POS)
terminals and other electronic banking services contributed additional income.
Other operating income increased $6.2 million, from $5.7 million for the first
quarter of 1995 to $11.9 million for the same period in 1996. A portion of this
increase is due to higher gains realized on the sale of rental units and daily
rental income by the Corporation's leasing subsidiaries. Also, the investment
banking services of BP Capital, acquired in April 1995, contributed $1.8
million to this revenue category. Equity One and Puerto Rico Home Mortgage
accounted for additional income of $1.7 million from the sale of loans.
During the first three months of 1996, the Corporation realized gains on sale
of securities and trading transactions amounting to $1.6 million, of which $0.7
million were in trading activities and $0.9 million from the sale of securities
from the portfolio available-for-sale. The Corporation had a net loss of $4
thousand in these activities for the first three months of 1995.
OPERATING EXPENSES
Operating expenses increased $12.4 million or 10.5%, reaching $130.7 million
for the first quarter of 1996, from $118.3 million for the same period in 1995,
principally reflecting higher personnel costs, equipment expenses, net
occupancy expense and professional fees related to the Corporation's ongoing
strategic initiatives.
Personnel costs, the major component of operating expenses, totaled $67.8
million for the first three months of 1996, compared with $60.4 million for the
same period in 1995, an increase of $7.4 million or 12.2%. Salary expenses
increased $3.2 million or 7.8% to $44.7 million,
<PAGE> 22
22
compared with $41.5 million in 1995. This increase was due largely to annual
merit increases, greater use of incentive payments for sales efforts, and
business expansion. The salary expenses of BP Capital and Puerto Rico Home
Mortgage accounted for $1.0 million of the increase. In addition, profit
sharing expense rose $2.7 million primarily due to the improvement in Banco
Popular's profitability ratios.
Pension and other benefits totaled $17.0 million for the quarter ended March
31, 1996, compared with $15.6 million for the same period a year ago. Most of
the increase was experienced in Banco Popular, as a result of an expense of
$1.2 million for staff uniforms in order to emphasize our corporate image at
all branches. Pension costs and postretirement benefits rose $1.2 million while
health insurance expense reflected an increase of $1.0 million. Moreover, the
tax qualified savings plan implemented by Banco Popular during the second
quarter of 1995 resulted in an additional expense of $0.2 million for this
quarter. Partially offsetting these increases was the effect of a voluntary
early retirement plan offered during last year which represented a total cost
of $2.7 million for the first three months of 1995.
Other operating expenses, excluding personnel costs, increased $5.0 million,
reaching $62.9 million for the first quarter of 1996, compared with $57.9
million for the same period in 1995. The operations of Puerto Rico Home
Mortgage and BP Capital accounted for $1.1 million of the increase in other
operating expenses. Net occupancy expense, equipment expenses, professional
fees and business promotion grew a combined $7.9 million due to the investment
needed to support the continuing growth of the Corporation's business activity,
including costs related to the expansion of the electronic payment system, the
growth in the network of POS terminals and the development of new products and
services. Partially offsetting these increases, was a reduction in the FDIC
assessment of $5.0 million, caused by a decrease in the assessment rate during
the third quarter of 1995, when the Bank Insurance Fund (BIF) reached is
statutory level.
Income tax expense rose $6.0 million from $11.3 million in the first quarter of
1995 to $17.3 million in the same quarter this year, primarily as a result of
the growth in pre-tax earnings. The effective tax rate increased to 27.7% from
25.1%.
BALANCE SHEET COMMENTS
At March 31, 1996, the Corporation's total assets reached $15.8 billion,
reflecting an increase of 20.9% when compared with $13.1 billion at March 31,
1995. Total assets at December 31, 1995 were $15.7 billion. Average assets for
the first quarter of 1996 were $15.6 billion compared with $12.9 billion for
the same period in 1995, an increase of 20.3%. Average assets for the year
ended December 31, 1995 were $14.1 billion.
Earning assets at March 31, 1996 amounted to $14.8 billion compared with $12.2
billion at March 31, 1995 and $14.7 billion at December 31, 1995. Total loans
amounted to $8.9 billion at March 31, 1996 compared with $8.0 billion a year
ago. All loan categories showed increases. Commercial, including construction
loans, increased from $3.1 billion at March 31, 1995 to $3.5 billion at March
31, 1996, a rise of $404 million or 13%. Mortgage loans rose $207 million or
9.2% as compared with March 31, 1995. Most of the increase was in Equity One,
which rose $135 million. Mortgage loans amounted to $2.4 billion as of March
31, 1996,
<PAGE> 23
23
compared with $2.2 billion at March 31, 1995. Consumer loans increased $210
million or 9.7% and the lease financing portfolio rose $35.5 million or 7.4% as
compared with March 31, 1995. Total loans at December 31, 1995 amounted to $8.7
billion.
Money market investments amounted to $661 million at March 31, 1996, compared
with $52 million as of the same date in 1995. BP Capital had $658 million in
money market investments at the end of this quarter. Investment securities as
of March 31, 1996, totaled $5.0 billion compared with $4.1 billion as of March
31, 1995. Most of this growth was reflected at Banco Popular, where investment
securities increased by $1 billion. These figures include $3.3 billion in
investment securities available-for-sale as of March 31, 1996 and $1.1 billion
as of March 31, 1995. In November 1995, the Financial Accounting Standards
Board (FASB) issued a Special Report, "A Guide to Implementation of Statement
115 on Accounting For Certain Investments in Debt and Equity Securities". In
conjunction with the issuance of this Special Report the FASB provided for a
one-time "window" to reclassify securities from the held-to-maturity portfolio
to the available-for-sale or trading portfolios before January 1, 1996, without
calling into question the intent to hold other debt securities to maturity in
the future. As a result of this window, at the end of 1995 the Corporation
transferred $1.3 billion from
securities held-to-maturity to available-for-sale. The increase of $288 million
in the trading portfolio is mainly related to BP Capital and Puerto Rico Home
Mortgage.
Total deposits were $10.2 billion at March 31, 1996, compared with $9.4 billion
at March 31, 1995, an increase of $803 million. Most of the increase was
attained at Banco Popular, where total deposits increased $757 million. Total
deposits at December 31, 1995 were $9.9 billion.
Borrowings increased $1.6 billion, from $2.4 billion at March 31, 1995 to $4
billion at the end of the first quarter of 1996. This rise is mainly due to an
increase of $1.3 billion in federal funds purchased and securities sold under
agreements to repurchase due mainly to the arbitrage activities of BP Capital,
that had $851 million in that liability category as of March 31,1996. Also,
federal funds purchased and securities sold under agreements to repurchase in
Banco Popular showed an increase of $503 million mainly due to arbitrage
opportunities and asset/liability management strategies. In addition, the
medium-term notes and the commercial paper issued by BanPonce Financial and the
Corporation to finance the growth in the operation of their subsidiaries
increased by $305 million.
Subordinated notes increased to $175 million, from $50 million outstanding a
year ago, due to the issuance by the Corporation on December 12, 1995, of $125
million in notes carrying an interest rate of 6.75% and maturing on December
15, 2005. The proceeds obtained from this issuance were utilized to finance the
growth and expansion of the Corporation's subsidiaries.
Stockholders' equity at March 31, 1996, amounted to $1.16 billion, compared
with $1.04 billion at March 31, 1995. The increase is mainly due to earnings
retention and to a decrease in unrealized losses on securities
available-for-sale. The Corporation's stockholders' equity at March 31, 1996
and 1995 includes $19 thousand and $7.7 million, respectively, net of deferred
taxes, in unrealized holding losses on securities available-for-sale. Also, the
additional shares issued under the Dividend Reinvestment Plan contributed $3.7
million in additional
<PAGE> 24
24
capital since March 31, 1995. Stockholders' equity at December 31, 1995
amounted to $1.14 billion.
The market value of the Corporation's common stock at March 31, 1996 was $46.25
per share, compared with $31.50 at March 31, 1995 and $38.75 at December 31,
1995. The Corporation's total market capitalization at March 31, 1996 was $1.5
billion. Book value per common share increased to $32.13 as of March 31, 1996,
compared with $28.55 as of the same date last year. The dividend payout ratio
to common stockholders for the quarter ended March 31, 1996 was 22.96%,
compared with 25.94% for the same quarter last year.
On April 26, 1996, the Board of Directors of the Corporation authorized a stock
split in the form of a stock dividend of one share for each share outstanding
of BanPonce common stock, bringing total outstanding shares to 66,001,180. The
new shares will be distributed on July 1, 1996 to the shareholders of record on
June 14, 1996.
The Board also approved an increase of the quarterly cash dividends to $0.18
per common share for the third quarter of 1996. This represents an increase of
20 percent over the $0.15 per share, after adjustment to reflect the split,
paid in previous quarterly cash dividends. The dividend is payable on July 1,
1996 to shareholders of record on June 14, 1996.
The market value of the Corporation's preferred stock at March 31, 1996, was
$27.25 per share, compared with $25.50 at March 31, 1995, and $27.25 at
December 31, 1995.
The Corporation's Tier I, total capital and leverage ratios at March 31, 1996
were 11.96%, 14.68% and 6.65%, respectively, compared with 12.31%, 13.72% and
7.31%, at March 31, 1995.
<PAGE> 25
25
Part II - Other Information
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit No. Description Exhibit Reference
----------- ------------------- ---------
19 Quarterly Report to shareholders for the Exhibit "A"
period ended March 31, 1996
27 Financial Data Schedule (for SEC use only) Exhibit "B"
b) One report on Form 8-K was filed for the quarter ended March 31, 1996:
Dated: January 11, 1996
Item reported: Item 5 - Other Events
Item 7 - Financial Statements, Pro-Forma, Financial
Information and Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be filed on its
behalf by the undersigned duly authorized.
BANPONCE CORPORATION
(Registrant)
Date: 05/08/96 By: /s/ JORGE A. JUNQUERA
-------------------------------
Jorge A. Junquera
Senior Executive Vice President
Date: 05/08/96 By: /s/ AMILCAR L. JORDAN
-------------------------------
Amilcar L. Jordan, Esq.
Senior Vice President
& Comptroller
<PAGE> 1
QUARTERLY REPORT/MARCH 31, 1996
[BANPONCE LOGO]
<PAGE> 2
TO OUR STOCKHOLDERS
BanPonce Corporation reflected a solid performance for the first quarter of
1996, while making progress toward the achievement of its strategic objectives.
During 1996 the Corporation will focus on strengthening its competitive
position in Puerto Rico, expanding its franchise in the Caribbean and the
United States and diversifying its financial services to provide more quality
service and alternatives to its customers. The accomplishment of these
objectives should build shareholder value.
Net income for the first quarter of 1996 increased 33.8% reaching $45.1
million compared with $33.7 million for the same period in 1995. For the last
quarter of 1995, the Corporation reported net income of $40.3 million.
On a per common share basis, net income rose 36.5% to $1.31 for the first
quarter of 1996, based on 32,974,936 average shares outstanding from $0.96 for
the same period in 1995, based on 32,866,623 average shares outstanding.
Earnings per common share for the last quarter of 1995 amounted to $1.15, based
on 32,948,636 average shares outstanding.
This increase in earnings contributed to the improvement in the
Corporation's profitability ratios for the quarter. Return on assets (ROA) and
return on common equity (ROE) for the quarter ended March 31, 1996 were 1.17%
and 16.39%, respectively, compared with 1.06% and 13.96% for the first quarter
of 1995 and 1.05% and 14.82% for the fourth quarter of 1995.
Among the highlights for the first quarter of 1996 are:
Net interest income rose $24.9 million, reaching $162.4 million for the
first three months of 1996 compared with $137.5 million for the same period of
1995. While earning assets rose $2.6 billion, the net interest yield, on a
taxable equivalent basis, decreased to 4.77% for the first quarter of 1996,
from 4.88% for the same period a year earlier.
The Corporation's provision for loan losses rose to $21.3 million for the
first quarter of 1996 from $11.7 million in the same period of 1995, primarily
as a result of increases in the loan portfolio, net charge-offs and
non-performing assets. Net charge- offs for the quarter ended March 31, 1996,
amounted to $14.9 million or 0.68% of average loans, compared with $8.0 million
or 0.41% for the quarter ended March 31, 1995, and $17.3 million or 0.81%
for the fourth quarter of 1995.
Reflecting the results of the Corporation's strategic objective to
diversify revenue, other operating revenue rose to $52.0 million for the first
quarter of 1996 from $37.6 million for the same period in 1995. The increase of
$14.4 million is principally attributed to an increase of $6.2 million in other
operating income and $3.6 million in other service fees. The Corporation's
leasing subsidiaries reflected a significant increase in this category mainly
as a result of higher gains on sale of daily rental units and higher daily
rental income. In addition, the corporations acquired during the second quarter
of 1995, BP Capital and Puerto Rico Home Mortgage, contributed $2.5 million to
other operating income.
Operating expenses for the three-month period ended March 31, 1996,
increased $12.4 million or 10.5%, compared with $118.3 million reported for the
same period a year earlier primarily due to higher personnel costs. Also,
operating expenses reflected the increased spending on net occupancy,
equipment, professional fees and business promotion aimed at enhancing future
revenue growth. Partially offsetting these increases was a reduction in the
FDIC assessment of $5.0 million, as a result of a reduction in the assessment
rate during the third quarter of 1995, when the Bank Insurance Fund (BIF)
reached its statutory level.
The Corporation's total assets at March 31, 1996 amounted to $15.8
billion, compared with $13.1 billion at the same date in 1995 and $15.7 billion
at December 31, 1995. Most of the increase in assets was related to the
sustained growth in Banco Popular and to the acquisition of BP Capital which
contributed $878 million in assets as of March 31, 1996.
Loans amounted to $8.9 billion at March 31, 1996, compared with $8.0
billion a year earlier and $8.7 billion at December 31, 1995. Loan growth was
paced by an increase in commercial loans as the company continues to develop
relationships with small and middle market companies. The allowance for loan
losses increased to $175 million or 1.97% of loans at March 31, 1996, compared
with $168 million or 1.94% at December 31, 1995 and $157 million or 1.97% at
March 31, 1995.
Regarding credit quality, non performing assets
1
<PAGE> 3
(NPA) amounted to $151 million or 1.70% of total loans at March 31, 1996,
compared with $124 million or 1.55% at the same date last year and $155 million
or 1.79% at the end of 1995. When adjusted to conform to standard industry
practice, NPA were $111 million or 1.26% of loans at the end of this quarter,
compared with $95 million or 1.19% at March 31, 1995.
At March 31, 1996, total deposits were $10.2 billion compared with $9.4
billion at the same date of 1995 and $9.9 billion at December 31, 1995.
Borrowings increased $1.6 billion to $4.0 billion at the end of the first
quarter of 1996, from $2.4 billion a year earlier, primarily reflecting the
acquisition of BP Capital which utilizes borrowings as part of its arbitrage
activities.
Stockholders' equity increased to $1.16 billion at March 31, 1996,
compared with $1.04 billion a year ago and $1.14 billion as of December 31,
1995, principally as a result of the retention of earnings. Book value per
common share increased to $32.13 as of March 31, 1996, from $28.55 as of the
same date last year and $31.62 at the end of 1995.
At March 31, 1996, the Corporation had solid capital ratios, with a Tier I
ratio of 11.96%, a total capital ratio of 14.68% and a leverage ratio of 6.65%.
Please refer to the financial review section of this quarterly report for
a more detailed discussion of the Corporation's financial performance and
results of operations.
During this quarter, BanPonce Corporation made its first international
investment with the purchase of 20% of the common stock of Jamaica's fourth
largest financial institution, CitizensBank. The Corporation also acquired
preferred stock of CitizensBank, which is convertible at the option of BanPonce
into common stock equal to an additional 10% of common equity of said
institution.
ATH Dominicana, the first automated teller machine (ATM) network in the
Dominican Republic, began operations on March 25, 1996. This network, will
facilitate electronic transactions by providing customers of banks in the
Dominican Republic with access to ATMs in Puerto Rico and the United States.
This joint venture is the first expansion of Banco Popular's technological
infrastructure and expertise outside of Puerto Rico.
Mr. Waldemar Del Valle, a director of BanPonce Corporation since 1984,
recently passed away. We will certainly miss his sound advice and profoundly
appreciate his many years of dedication to our organization.
/s/ Richard L. Carrion
----------------------
Richard L. Carrion
Chairman, President and
Chief Executive Officer
2
<PAGE> 4
FINANCIAL REVIEW
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET HIGHLIGHTS At March 31, Average for the quarter
(In thousands) 1996 1995 Change 1996 1995 Change
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money market investments $ 661,357 $ 51,811 $ 609,546 $ 657,034 $ 41,337 $ 615,697
Investment and trading securities 5,289,849 4,133,505 1,156,344 5,225,215 4,162,900 1,062,315
Loans 8,850,078 7,993,717 856,361 8,748,657 7,863,742 884,915
All other assets 1,003,799 896,510 107,289 925,924 865,836 60,088
Total assets 15,805,083 13,075,543 2,729,540 15,556,830 12,933,815 2,623,015
Non-interest bearing liabilities 2,211,091 1,981,270 229,821 2,190,371 2,042,543 147,828
Interest bearing liabilities 12,434,422 10,055,955 2,378,467 12,209,571 9,871,081 2,338,490
Stockholders' equity 1,159,570 1,038,318 121,252 1,156,888 1,020,191 136,697
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING HIGHLIGHTS
(In thousands, except First Quarter
per share information) 1996 1995 Change
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 162,460 $ 137,528 $ 24,932
Provision for loan losses 21,273 11,698 9,575
Fees and other income 51,992 37,553 14,439
Other expenses 148,037 129,642 18,395
Net income $ 45,142 $ 33,741 $ 11,401
Net income applicable to common stock $ 43,055 $ 31,654 $ 11,401
Earnings per common share 1.31 0.96 0.35
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
SELECTED STATISTICAL First Quarter
INFORMATION 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PROFITABILITY RATIOS - Return on assets 1.17% 1.06%
Return on earning assets 1.24 1.13
Return on common equity 16.39 13.96
Net interest spread (taxable equivalent) 4.01 4.04
Net interest yield (taxable equivalent) 4.77 4.88
Effective tax rate 27.75 25.13
Overhead ratio 48.45 58.73
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITALIZATION RATIOS - Equity to assets 7.44% 7.89%
Tangible equity to assets 6.59 6.88
Equity to loans 13.22 12.97
Internal capital generation 11.47 9.19
Tier I capital to risk-adjusted assets 11.96 12.31
Total capital to risk-adjusted assets 14.68 13.72
Leverage ratio 6.65 7.31
- ---------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA - Market price
High $46.25 $31.75
Low 38.75 28.13
End 46.25 31.50
Book value at period end 32.13 28.55
Dividends declared 0.30 0.25
Dividend payout ratio 22.96% 25.94%
Price/earnings ratio 10.19x 8.40x
- ---------------------------------------------------------------------------------------------------------------------------------
SELECTED DATA - Common shares outstanding 32,974,936 32,866,623
Full-time equivalent employees 7,729 7,634
Branches (banking operations) 214 212
Automated teller machines 345 304
Stockholders 5,387 5,347
</TABLE>
3
<PAGE> 5
FINANCIAL REVIEW
This financial review contains an analysis of the consolidated financial
condition and performance of BanPonce Corporation and its wholly-owned
subsidiaries (the Corporation). BanPonce Corporation is a regional diversified,
bank holding company engaged in the following businesses through its
subsidiaries.
_ Commercial Banking/Savings and Loans - Banco Popular de Puerto Rico
(Banco Popular), Pioneer Bank, Inc. and Banco Popular, FSB
_ Lease Financing - Popular Leasing and Rental, Inc. and Vehicle
Equipment Leasing Company, Inc. (VELCO)
_ Mortgage Banking/Consumer Finance - Popular Mortgage, Inc. (d/b/a
Puerto Rico Home Mortgage), Equity One, Inc. (Equity One) and Popular
Consumer Services, Inc.
_ Investment Banking - BP Capital Markets, Inc. (BP Capital)
This financial review should be read together with the consolidated
financial statements, supplemental financial data and tables contained in this
quarterly report.
NET INCOME
The Corporation's net income for the first quarter of 1996 was $45.1 million,
an increase of 33.8% when compared with $33.7 million reported for the same
period in 1995. Net income for the last quarter of 1995 was $40.3 million.
Earnings per common share (EPS) for the quarter were $1.31, based on 32,974,936
average shares outstanding, compared with EPS of $0.96 for the first quarter of
1995, based on 32,866,623 average shares outstanding and EPS of $1.15 for the
last quarter of 1995, based on 32,948,636 average shares outstanding. Return on
assets (ROA) and return on common equity (ROE) for the quarter ended March 31,
1996 were 1.17% and 16.39%, respectively, compared with 1.06% and 13.96%
attained during the first quarter of 1995 and 1.05% and 14.82% for the quarter
ended December 31, 1995.
The increase of $11.4 million in net income for the first quarter of 1996
resulted from a higher net interest income by $24.9 million plus higher
non-interest revenues by $14.4 million, partially offset by increases of $12.4
million in operating expenses, $9.5 million in the provision for loan losses
and $6.0 million in income tax expense.
NET INTEREST INCOME
Net interest income for the first quarter of 1996 increased to $162.4 million,
or 18.1% higher than the $137.5 million reported for the same period in 1995.
On a taxable equivalent basis, net interest income increased to $174.5 million
from $147.1 million in the first quarter of 1995 and $168.5 million in the
fourth quarter of 1995. This increase was mainly due to a rise of $2.6 billion
in the average volume of earning assets. The net interest yield on a taxable
equivalent basis for the first quarter of 1996 was 4.77% compared with 4.88%
for the same quarter in 1995 and 4.72% in the last quarter of 1995. For
analytical purposes, the interest earned on tax-exempt assets is adjusted to a
taxable equivalent basis assuming the applicable statutory income tax rates.
Average earning assets reached $14.6 billion for the quarter ended March
31, 1996, compared with $12.1 billion for the same quarter of 1995. The rise
was mainly the result of a higher average volume of investment, money market
and trading securities which taken all together rose by $1.7 billion and an
increase in the average volume of loans of $885 million.
Average money market investments reached $657 million for the first
quarter of 1996, compared with $41 million for the same period of 1995. The
acquisition of the investment banking operation of BP Capital during the second
quarter of 1995 was the main reason for this increase. Average investment
securities reached $4.9 billion compared with $4.2 billion reported for the
same quarter in 1995. Banco Popular was the principal contributor for this
increase with a rise of $686 million.
The average balance of trading account securities for the three-month
period ended March 31, 1996, totaled $330 million compared with $12 million
reported for the same quarter last year. This increase relates mostly to the
new subsidiaries, BP Capital, with $223 million in average balance, and Popular
Mortgage, acquired on March 31, 1995, with an average of $96 million. Both
balances are comprised mostly of mortgage-backed securities.
4
<PAGE> 6
The increase of $390 million in average commercial loans was principally
attained at Banco Popular. Average mortgage loans grew $230 million. In this
category, Equity One had a 27.9% growth accounting for $145 million of the
total increase in mortgage loans. This increase relates to its continuous
expansion in the United States.
The yield on earning assets, on a taxable equivalent basis, for the first
quarter of 1996 and 1995 averaged 8.61%. Although the average yield did not
change, fluctuations among the various earning asset categories were
experienced.
The average yield on loans for the first quarter of 1996 and 1995, on a
taxable equivalent basis, was 10.01% and 9.79%, respectively. The taxable
equivalent yield of the commercial loan portfolio decreased by 19 basis points
averaging 8.84% compared with 9.03% in the same quarter in 1995. The reduction
of 25 basis points in the prime rate during the latter part of 1995 and a
further decrease of 25 basis points during the quarter ended on March 31, 1996,
were the main reasons for this decrease. The average yield on consumer loans
increased to 12.77% from 11.83% achieved during the first quarter of 1995. The
average yields on mortgage loans on a taxable equivalent basis for the first
quarter of 1996 and 1995 were 8.42% and 8.33%, respectively.
The average yield on investment securities, on a taxable equivalent basis,
was 6.73% or 34 basis points higher than the 6.39% in the first quarter of
1995. The increase mostly relates to the maturity of investment securities
whose proceeds were reinvested at higher rates. The average yield on money
market investments decreased from 9.54% during the first quarter of 1995 to
5.28% in the same period of 1996. The latter, although appears significant,
affected interest income only by $600 thousand due to the small average volume
of $41 million for 1995 as compared with $657 million in 1996. The average
yield, on a taxable equivalent basis, of the trading portfolio improved to
6.07% from 3.63% in the first quarter of 1995.
Average interest bearing liabilities of the Corporation were $12.2 billion
for the three-month period ended March 31, 1996, compared with $9.9 billion for
the same period of 1995, an increase of $2.3 billion. Average interest bearing
deposits increased $662 million, mostly in certificates of deposits which grew
$398 million, reaching $3.3 billion for the first quarter of 1996. Saving
accounts also increased during the quarter averaging $133 million more than in
the first quarter of 1995. Average demand deposits grew by $148 million from
$1.81 billion to $1.95 billion.
The average cost of interest bearing deposits for the quarter ended March
31, 1996 and 1995 was 4.10% and 4.14%, respectively. The decrease of four basis
points was attributed to lower costs on certificates of deposit and NOW and
money market deposits. The average cost on certificates of deposit for the
first quarter of 1996 was 5.07%, down from 5.29% reported for the same quarter
of 1995. The average cost of NOW and money market deposits declined 55 basis
points, reaching 3.23% in the first quarter of 1996. Conversely, the average
cost of saving accounts increased 9 basis points and the average cost of other
time deposits increased 37 basis points.
Average short-term borrowings increased $1.5 billion this quarter compared
with the quarter ended on March 31, 1995. The operation of BP Capital, with an
average volume of short-term borrowings of $848 million for the three-month
period ended March 31, 1996, accounted for most of the increase. Banco Popular
also had an increase in short-term borrowings, reaching an average level of
$1.7 billion compared with $1.5 billion in the same quarter of 1995. The
average cost of short-term borrowings for the quarter ended March 31, 1996,
decreased by 43 basis points, from 5.63% to 5.20% in 1996.
Although the average cost of most interest bearing liabilities showed
decreases, about 86% of the growth in average earning assets was funded through
time deposits, short-term borrowings and long- term debt, which carry a higher
cost. As a result, the average cost of interest bearing liabilities increased
slightly, reaching 4.60% for the first quarter of 1996, from 4.57% reported for
the same period of 1995.
The net interest yield, on a taxable equivalent basis, decreased to 4.77%,
from 4.88% reported for the first quarter of 1995. The decline results mainly
from the net interest margin of 0.50% earned at BP Capital due to its
significant volume of arbitrage activities. This relatively low net interest
margin had the effect of diluting the margins earned at all the other entities
within the consolidated group by ap-
5
<PAGE> 7
proximately 27 basis points during the quarter ended on March 31, 1996.
Table A summarizes the results previously explained.
TABLE A
NET INTEREST INCOME (TAXABLE EQUIVALENT BASIS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
(DOLLARS IN MILLIONS) FIRST QUARTER
- ---------------------------------------------------------------------------------
1996 AVERAGE 1995 AVERAGE
-------------------------------------------
BALANCE RATE BALANCE RATE
-------------------------------------------
<S> <C> <C> <C> <C>
Earning assets $14,631 8.61% $12,068 8.61%
======= =======
Financed by:
Interest bearing funds $12,210 4.60% $ 9,871 4.57%
Non-interest bearing funds 2,421 2,197
------- -------
Total $14,631 3.84% $12,068 3.73%
======= =======
Net interest income per books $ 162.4 $ 137.5
Taxable equivalent adjustment 12.1 9.6
------- -------
Net interest income on a
taxable equivalent basis $ 174.5 $ 147.1
======= =======
Spread 4.01% 4.04%
Net interest yield 4.77% 4.88%
</TABLE>
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses for the first quarter of 1996 was $21.3 million,
exceeding by $9.5 million the amount recorded for the same period of 1995.
During the fourth quarter of 1995 the provision amounted to $21.2 million.
Among the factors considered for this increase are the growth of $856 million
in the Corporation's loan portfolio from March 31, 1995 to the same date this
year and increases in net charge-offs and non-performing assets. The provision
for loan losses for the first quarter of 1996 represented 142% of net
charge-offs compared with 146% for the same period of 1995 and 123% for the
last quarter of 1995.
Net charge-offs for the quarter ended March 31, 1996, totaled $14.9
million or 0.68% of average loans, compared with $8.0 million or 0.41% reported
for the same quarter in 1995, and $17.3 million or 0.81% for the quarter ended
on December 31, 1995. Consumer loans net charge-offs increased $2.8 million
when compared with the first quarter of 1995 and commercial loans net
charge-offs increased $2.3 million. Consumer loans net charge-offs totaled $6.0
million for the quarter ended March 31, 1996, while net credit losses on the
commercial portfolio amounted to $5.4 million. Total lease financing net
charge-offs increased $1.9 million, from $0.5 million in the first quarter of
1995 to $2.4 million this quarter. Mortgage loans net charge-offs increased
$0.2 million, while there was a reduction of $0.3 million in the construction
loans net credit losses.
TABLE B
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Quarter Provision for Net Allowance for
Ended Loan Losses Charge-offs Loan Losses
- ---------------------------------------------------------------------
(In millions)
<S> <C> <C> <C>
March 31, 1996 $21.3 $14.9 $175
December 31, 1995 21.2 17.3 168
September 30, 1995 19.0 13.3 164
June 30, 1995 12.6 11.4 159
March 31, 1995 11.7 8.0 157
</TABLE>
As of March 31, 1996, the allowance for loan losses reached $175 million,
maintaining the same ratio as a percentage of loans than the one at the same
date in 1995, when the allowance was $157 million or 1.97% of loans. Comparable
figures at the end of 1995 were $168 million and 1.94%, respectively.
Management considers that the allowance for loan losses is adequate to absorb
the potential write-offs in the loan portfolio based on the methodology
established for its evaluation, which includes portfolio risk characteristics,
prior loss experience, results of periodic credit reviews and current and
anticipated economic conditions.
At March 31, 1996, the Corporation had $80 million in loans considered
impaired, of which $38 million had a related allowance for possible loan losses
of $9 million. As of the same date last year, loans considered impaired
amounted to $87 million, of which $43 million had a related allowance of $8
million. No increase in the provision for loan losses was necessary for either
quarter as a result of the impairment measurement required by SFAS 114 and 118.
CREDIT QUALITY
As presented on Table D, non-performing assets (NPA) as of March 31, 1996,
which consist of past-due loans on which no interest income is being accrued,
renegotiated loans and other real estate amounted to $151 million or 1.70% of
loans, compared with $124 million or 1.55% at March 31, 1995.
6
<PAGE> 8
TABLE C
ALLOWANCE FOR LOAN LOSSES AND SELECTED LOAN LOSSES STATISTICS
<TABLE>
<CAPTION>
First Quarter
(Dollars in thousands) 1996 1995
- ------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of period .......... $168,393 $153,798
Provision for loan losses ............... 21,273 11,698
-----------------------
189,666 165,496
-----------------------
Losses charged to the allowance
Commercial ............................. 9,215 4,855
Construction ........................... 693 1,000
Lease financing ........................ 3,325 1,195
Mortgage ............................... 597 336
Consumer ............................... 9,513 6,958
-----------------------
23,343 14,344
-----------------------
Recoveries
Commercial ............................. 3,859 1,755
Construction ........................... 1 54
Lease financing ........................ 947 713
Mortgage ............................... 112 79
Consumer ............................... 3,482 3,714
-----------------------
8,401 6,315
-----------------------
Net loans charged-off ................... 14,942 8,029
-----------------------
Balance at end of period ................ $174,724 $157,467
=======================
Ratios:
Allowance for losses to loans .......... 1.97% 1.97%
Allowance to non-performing assets ..... 116.00 126.85
Allowance to non-performing loans ...... 124.30 139.36
Non-performing assets to loans ......... 1.70 1.55
Non-performing assets to total assets .. 0.95 0.95
Net charge-offs to average loans ....... 0.68 0.41
Provision to net charge-offs ........... 1.42x 1.46x
Net charge-offs earnings coverage ...... 5.61 7.07
</TABLE>
NPA were $155 million or 1.79% of loans at December 31, 1995.
Non-performing loans totaled $141 million as of March 31, 1996, from $113
million at the end of the first quarter of 1995. As of December 31, 1995, these
loans amounted to $144 million. Most of the increase was reflected in
non-performing commercial and construction loans, which accounted for
approximately 61% of the increase. The major reason for the increase in
non-performing commercial and construction loans was the continued growth in
these portfolios. Non-performing mortgage loans increased $9 million, while
non-performing consumer loans increased $2.9 million, mainly at Equity One.
Non-performing lease financing loans decreased $1 million. Non-performing
mortgage loans increased $5.1 million at Equity One due mainly to the growth in
the portfolio. In addition, Banco Popular's non-performing mortgage loans
increased $3.9 million. Other real estate and renegotiated loans decreased $0.8
million and $0.2 million, respectively.
TABLE D
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
NPA Allowance
as a % as a %
Date NPA of Loans of NPA
- ----------------------------------------------------------------
(Dollars in millions)
<S> <C> <C> <C>
March 31, 1996 $151 1.70% 116.0%
December 31, 1995 155 1.79 108.6
September 30, 1995 156 1.84 105.5
June 30, 1995 148 1.81 107.1
March 31, 1995 124 1.55 126.9
</TABLE>
7
<PAGE> 9
The standard industry practice is to place non-performing commercial loans
on non-accrual status when payments of principal or interest are delinquent 90
days. The Corporation, however, 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 when payments of principal or interest
are delinquent 60 days. Lease financing, conventional mortgage and closed-end
consumer loans are placed on non-accrual status when payments are delinquent 90
days. Closed-end consumer loans are charged-off against the allowance when
delinquent 120 days. Open-end (revolving credit) consumer loans are charged-off
when 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 when they are considered well secured and in the process of collection.
Under the standard industry practice, closed-end consumer loans are charged-off
when delinquent 120 days, but these consumer loans are not customarily placed on
non-accrual status prior to being charged-off.
Assuming standard industry practice of placing commercial loans on
non-accrual status when payments are past due 90 days or more and excluding the
closed-end consumer loans from non-accruing loans, non-performing assets as of
March 31, 1996, amounted to $111 million or 1.26% of loans, and the allowance
for loan losses would be 156.9% of non-performing assets. At March 31, 1995 and
December 31, 1995, adjusted non-performing assets were $95 million and $121
million, respectively, or 1.19% and 1.39% of loans.
Accruing loans that are contractually past-due 90 days or more as to
principal or interest as of March 31, 1996, amounted to $11.5 million compared
with $9.5 million at March 31, 1995, and $11.7 million at December 31, 1995.
OTHER OPERATING INCOME
Other operating income, including securities and trading gains, amounted to
$52.0 million for the first quarter of 1996 compared with $37.6 million for the
same quarter in 1995, an increase of $14.4 million or 38.4%. This rise in other
income was principally driven by an increase of $6.2 million in other operating
income and $3.6 million in other service fees.
Services charges on deposit accounts totaled $21.1 million for the quarter
ended March 31, 1996, compared with $18.1 million for the same quarter of 1995.
Growth in the activity of commercial accounts together with a revised fee
structure accounted for $2.3 million of the increase.
Other services fees rose $3.6 million for the first three months of 1996,
amounting to $17.4 million compared with $13.8 million for the same quarter of
1995. Mortgage servicing fees were $1.0 million higher, largely as a result of
the servicing portfolio acquired from Puerto Rico Home Mortgage. Letter of
credit fees, credit card fees and fees related to the sale and administration
of investment products added $1.6 million to this revenue category. Also, fees
collected on the growing volume of transactions at point-of-sale (POS)
terminals and other electronic banking services contributed additional income.
Other operating income increased $6.2 million, from $5.7 million for the
first quarter of 1995 to $11.9 million for the same period in 1996. A portion
of this increase is due to higher gains realized on the sale of rental units
and daily rental income by the Corporation's leasing subsidiaries. Also, the
investment banking services of BP Capital, acquired in April 1995, contributed
$1.8 million to this revenue category. Equity One and Puerto Rico Home Mortgage
accounted for additional income of $1.7 million from the sale of loans.
During the first three months of 1996, the Corporation realized gains on
sale of securities and trading transactions amounting to $1.6 million, of which
$0.7 million were in trading activities and $0.9 million from the sale of
securities from the portfolio available-for-sale. The Corporation had a net
loss of $4 thousand in these activities for the first three months of 1995.
OPERATING EXPENSES
Operating expenses increased $12.4 million or 10.5%, reaching $130.7 million
for the first quarter of 1996, from $118.3 million for the same period in 1995,
principally reflecting higher personnel costs, equipment expenses, net
occupancy expense and professional fees related to the Corporation's ongoing
strategic initiatives.
Personnel costs, the major component of operating expenses, totaled $67.8
million for the first three
8
<PAGE> 10
months of 1996, compared with $60.4 million for the same period in 1995, an
increase of $7.4 million or 12.2%. Salary expenses increased $3.2 million or
7.8% to $44.7 million, compared with $41.5 million in 1995. This increase was
due largely to annual merit increases, greater use of incentive payments for
sales efforts, and business expansion. The salary expenses of BP Capital and
Puerto Rico Home Mortgage accounted for $1.0 million of the increase. In
addition, profit sharing expense rose $2.7 million primarily due to the
improvement in Banco Popular's profitability ratios.
Pension and other benefits totaled $17.0 million for the quarter ended
March 31, 1996, compared with $15.6 million for the same period a year ago.
Most of the increase was experienced in Banco Popular, as a result of an
expense of $1.2 million for staff uniforms in order to emphasize our corporate
image at all branches. Pension costs and postretirement benefits rose $1.2
million while health insurance expense reflected an increase of $1.0 million.
Moreover, the tax qualified savings plan implemented by Banco Popular during
the second quarter of 1995 resulted in an additional expense of $0.2 million
for this quarter. Partially offsetting these increases was the effect of a
voluntary early retirement plan offered during last year which represented a
total cost of $2.7 million for the first three months of 1995.
Other operating expenses, excluding personnel costs, increased $5.0
million, reaching $62.9 million for the first quarter of 1996, compared with
$57.9 million for the same period in 1995. The operations of Puerto Rico Home
Mortgage and BP Capital accounted for $1.1 million of the increase in other
operating expenses. Net occupancy expense, equipment expenses, professional
fees and business promotion grew a combined $7.9 million due to the investment
needed to support the continuing growth of the Corporation's business activity,
including costs related to the expansion of the electronic payment system, the
growth in the network of POS terminals and the development of new products and
services. Partially offsetting these increases, was a reduction in the FDIC
assessment of $5.0 million, caused by a decrease in the assessment rate during
the third quarter of 1995, when the Bank Insurance Fund (BIF) reached is
statutory level.
Income tax expense rose $6.0 million from $11.3 million in the first
quarter of 1995 to $17.3 million in the same quarter this year, primarily as a
result of the growth in pre-tax earnings. The effective tax rate increased to
27.7% from 25.1%.
BALANCE SHEET COMMENTS
At March 31, 1996, the Corporation's total assets reached $15.8 billion,
reflecting an increase of 20.9% when compared with $13.1 billion at March 31,
1995. Total assets at December 31, 1995 were $15.7 billion. Average assets for
the first quarter of 1996 were $15.6 billion compared with $12.9 billion for
the same period in 1995, an increase of 20.3%. Average assets for the year
ended December 31, 1995 were $14.1 billion.
Earning assets at March 31, 1996 amounted to $14.8 billion compared with
$12.2 billion at March 31, 1995 and $14.7 billion at December 31, 1995. Total
loans amounted to $8.9 billion at March 31, 1996 compared with $8.0 billion a
year ago. All loan categories showed increases. Commercial, including
construction loans, increased from $3.1 billion at March 31, 1995 to $3.5
billion at March 31, 1996, a rise of $404 million or 13%. Mortgage loans rose
$207 million or 9.2% as compared with March 31, 1995. Most of the increase was
in Equity One, which rose $135 million. Mortgage loans amounted to $2.4 billion
as of March 31, 1996, compared with $2.2 billion at March 31, 1995. Consumer
loans increased $210 million or 9.7% and the lease financing portfolio rose
$35.5 million or 7.4% as compared with March 31, 1995. Total loans at December
31, 1995 amounted to $8.7 billion.
Money market investments amounted to $661 million at March 31, 1996,
compared with $52 million as of the same date in 1995. BP Capital had $658
million in money market investments at the end of this quarter. Investment
securities as of March 31, 1996, totaled $5.0 billion compared with $4.1
billion as of March 31, 1995. Most of this growth was reflected at Banco
Popular, where investment securities increased by $1 billion. These figures
include $3.3 billion in investment securities available-for-sale as of March
31, 1996 and $1.1 billion as of March 31, 1995. In November 1995, the Financial
Accounting Standards Board (FASB) issued a Special Report, "A Guide to
Implementation of Statement 115 on Accounting For
9
<PAGE> 11
Certain Investments in Debt and Equity Securities". In conjunction with the
issuance of this Special Report the FASB provided for a one-time "window" to
reclassify securities from the held-to-maturity portfolio to the
available-for-sale or trading portfolios before January 1, 1996, without calling
into question the intent to hold other debt securities to maturity in the
future. As a result of this window, at the end of 1995 the Corporation
transferred $1.3 billion from securities held-to-maturity to available-for-sale.
The increase of $288 million in the trading portfolio is mainly related to BP
Capital and Puerto Rico Home Mortgage.
Total deposits were $10.2 billion at March 31, 1996, compared with $9.4
billion at March 31, 1995, an increase of $803 million. Most of the increase
was attained at Banco Popular, where total deposits increased $757 million.
Total deposits at December 31, 1995 were $9.9 billion.
Borrowings increased $1.6 billion, from $2.4 billion at March 31, 1995 to
$4 billion at the end of the first quarter of 1996. This rise is mainly due to
an increase of $1.3 billion in federal funds purchased and securities sold
under agreements to repurchase due mainly to the arbitrage activities of BP
Capital, that had $851 million in that liability category as of March 31,1996.
Also, federal funds purchased and securities sold under agreements to
repurchase in Banco Popular showed an increase of $503 million mainly due to
arbitrage opportunities and asset/liability management strategies. In addition,
the medium-term notes and the commercial paper issued by BanPonce Financial and
the Corporation to finance the growth in the operation of their subsidiaries
increased by $305 million.
Subordinated notes increased to $175 million, from $50 million outstanding
a year ago, due to the issuance by the Corporation on December 12, 1995, of
$125 million in notes carrying an interest rate of 6.75% and maturing on
December 15, 2005. The proceeds obtained from this issuance were utilized to
finance the growth and expansion of the Corporation's subsidiaries.
Stockholders' equity at March 31, 1996, amounted to $1.16 billion,
compared with $1.04 billion at March 31, 1995. The increase is mainly due to
earnings retention and to a decrease in unrealized losses on securities
available-for-sale. The Corporation's stockholders' equity at March 31, 1996
and 1995 includes $19 thousand and $7.7 million, respectively, net of deferred
taxes, in unrealized holding losses on securities available-for-sale. Also, the
additional shares issued under the Dividend Reinvestment Plan contributed $3.7
million in additional capital since March 31, 1995. Stockholders' equity at
December 31, 1995 amounted to $1.14 billion.
The market value of the Corporation's common stock at March 31, 1996 was
$46.25 per share, compared with $31.50 at March 31, 1995 and $38.75 at December
31, 1995. The Corporation's total market capitalization at March 31, 1996 was
$1.5 billion. Book value per common share increased to $32.13 as of March 31,
1996, compared with $28.55 as of the same date last year. The dividend payout
ratio to common stockholders for the quarter ended March 31, 1996 was 22.96%,
compared with 25.94% for the same quarter last year.
The market value of the Corporation's preferred stock at March 31, 1996,
was $27.25 per share, compared with $25.50 at March 31, 1995, and $27.25 at
December 31, 1995.
The Corporation's Tier I, total capital and leverage ratios at March 31,
1996 were 11.96%, 14.68% and 6.65%, respectively, compared with 12.31%, 13.72%
and 7.31%, at March 31, 1995.
10
<PAGE> 12
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<S> <C> <C>
ASSETS
CASH AND DUE FROM BANKS ............................................ $ 405,890 $ 369,605
- --------------------------------------------------------------------------------------------------------------------
MONEY MARKET INVESTMENTS:
FEDERAL FUNDS SOLD AND SECURITIES AND MORTGAGES
PURCHASED UNDER AGREEMENTS TO RESELL ............................ 632,527 36,030
TIME DEPOSITS WITH OTHER BANKS .................................... 26,993 15,100
BANKERS' ACCEPTANCES .............................................. 1,837 681
661,357 51,811
- --------------------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES HELD-TO-MATURITY,
AT COST ........................................................... 1,657,059 3,020,105
INVESTMENT SECURITIES AVAILABLE-FOR-SALE,
AT MARKET VALUE ................................................... 3,337,217 1,106,231
TRADING ACCOUNT SECURITIES, AT MARKET VALUE ........................ 295,573 7,169
LOANS HELD-FOR-SALE ................................................ 87,486 25,646
LOANS .............................................................. 9,088,593 8,271,609
LESS UNEARNED INCOME............................................... 326,001 303,538
ALLOWANCE FOR LOAN LOSSES ................................. 174,724 157,467
- --------------------------------------------------------------------------------------------------------------------
8,587,868 7,810,604
- --------------------------------------------------------------------------------------------------------------------
PREMISES AND EQUIPMENT ............................................. 335,279 328,459
OTHER REAL ESTATE .................................................. 7,353 8,206
CUSTOMERS' LIABILITIES ON ACCEPTANCES .............................. 1,867 843
ACCRUED INCOME RECEIVABLE .......................................... 134,247 84,183
OTHER ASSETS ....................................................... 155,707 102,209
INTANGIBLE ASSETS .................................................. 138,180 160,472
- --------------------------------------------------------------------------------------------------------------------
$15,805,083 $13,075,543
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
DEPOSITS:
NON-INTEREST BEARING ............................................ $ 1,931,168 $ 1,778,136
INTEREST BEARING ................................................ 8,251,914 7,602,298
- --------------------------------------------------------------------------------------------------------------------
10,183,082 9,380,434
FEDERAL FUNDS PURCHASED AND SECURITIES SOLD
UNDER AGREEMENTS TO REPURCHASE .................................. 2,552,831 1,223,317
OTHER SHORT-TERM BORROWINGS ....................................... 740,088 557,162
NOTES PAYABLE ..................................................... 684,589 593,178
SENIOR DEBENTURES ................................................. 30,000 30,000
ACCEPTANCES OUTSTANDING ........................................... 1,867 843
OTHER LIABILITIES ................................................. 278,056 202,291
- --------------------------------------------------------------------------------------------------------------------
14,470,513 11,987,225
- --------------------------------------------------------------------------------------------------------------------
SUBORDINATED NOTES ................................................ 175,000 50,000
- --------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
PREFERRED STOCK ................................................... 100,000 100,000
COMMON STOCK ...................................................... 197,850 197,200
SURPLUS ........................................................... 428,098 410,036
RETAINED EARNINGS ................................................. 383,641 295,895
UNREALIZED LOSSES ON SECURITIES AVAILABLE-FOR-SALE, NET OF
DEFERRED TAXES .................................................. (19) (7,670)
CAPITAL RESERVES .................................................. 50,000 42,857
- --------------------------------------------------------------------------------------------------------------------
1,159,570 1,038,318
$15,805,083 $13,075,543
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
11
<PAGE> 13
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter ended
March 31,
(Dollars in thousands, except per common share information) 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME:
Loans ............................................................... $ 217,247 $ 190,550
Money market investments ............................................ 8,673 986
Investment securities ............................................... 71,945 58,568
Trading account securities .......................................... 5,062 115
------------------------------
302,927 250,219
INTEREST EXPENSE:
Deposits ............................................................ 82,996 77,065
Short-term borrowings ............................................... 42,930 25,374
Long-term debt ...................................................... 14,541 10,252
------------------------------
140,467 112,691
------------------------------
Net interest income ................................................. 162,460 137,528
Provision for loan losses ........................................... 21,273 11,698
------------------------------
Net interest income after provision for loan losses ................. 141,187 125,830
Servcie charges on deposit accounts ................................. 21,076 18,090
Other service fees .................................................. 17,380 13,811
Gain on sale of securities .......................................... 729 46
Trading account profit (loss) ....................................... 938 (50)
Other operating income .............................................. 11,869 5,656
------------------------------
193,179 163,383
OPERATING EXPENSES:
Personnel costs:
Salaries ........................................................... 44,752 41,530
Profit sharing ..................................................... 6,070 3,327
Pension and other benefits ......................................... 16,981 15,561
------------------------------
67,803 60,418
Net occupancy expense ............................................... 9,318 7,769
Equipment expenses .................................................. 11,774 9,383
Other taxes ......................................................... 5,963 5,631
Professional fees ................................................... 9,916 7,554
Communications ...................................................... 6,316 5,603
Business promotion .................................................. 5,392 3,792
Printing and supplies ............................................... 2,923 2,781
Other operating expenses ............................................ 6,740 10,451
Amortization of intangibles ......................................... 4,554 4,936
------------------------------
130,699 118,318
------------------------------
Income before tax ................................................... 62,480 45,065
Income tax .......................................................... 17,338 11,324
------------------------------
NET INCOME .......................................................... $ 45,142 $ 33,741
==============================
NET INCOME APPLICABLE TO COMMON STOCK ............................... $ 43,055 $ 31,654
==============================
EARNINGS PER COMMON SHARE: .......................................... $ 1.31 $ 0.96
==============================
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 14
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the quarter ended
March 31,
(In thousands) 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................... $ 45,142 $ 33,741
-------------------------------
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization of premises and equipment 12,355 10,288
Provision for loan losses ....................................... 21,273 11,698
Amortization of intangibles ..................................... 4,554 4,936
Gain on sale of investment securities available-for-sale ........ (729) (46)
Gain on disposition of premises and equipment ................... (10) (771)
Amortization of premiums and accretion of discounts
on investments ................................................ 755 (700)
Decrease in loans held-for-sale ................................. 25,319 5,796
Amortization of deferred loan fees and costs .................... (45) 142
Net increase in postretirement benefit obligation ............... 2,253 1,831
Net decrease (increase) in trading securities ................... 35,101 (5,499)
Net increase in interest receivable ............................. (20,708) (943)
Net (increase) decrease in other assets ......................... (13,032) 8,465
Net decrease in interest payable ................................ (1,418) (2,191)
Net increase in current and deferred taxes ...................... 6,208 7,051
Net decrease in other liabilities ............................... (5,791) (19,202)
-------------------------------
Total adjustments ................................................. 66,085 20,855
-------------------------------
Net cash provided by operating activities ......................... 111,227 54,596
-------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in money market investments ........................ 137,362 213,859
Purchases of investment securities held-to-maturity ............. (1,366,623) (8,174,307)
Maturities of investment securities held-to-maturity ............ 1,354,385 8,127,681
Purchases of investment securities available-for-sale ........... (1,717,071) (327,377)
Maturities of investment securities available-for-sale .......... 474,048 1,894
Sales of investment securities available-for-sale ............... 1,101,095 143,244
Net disbursements on loans ...................................... (266,068) (282,941)
Proceeds from sale of loans ..................................... 90,066 61,692
Acquisition of loan portfolios .................................. (35,198)
Assets acquired, net of cash .................................... (16,661)
Acquisition of premises and equipment ........................... (24,452) (18,434)
Proceeds from sale of premises and equipment .................... 2,031 5,850
-------------------------------
Net cash used in investing activities ............................. (250,425) (265,500)
-------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits ........................................ 306,419 184,618
Net deposits acquired ........................................... 163,636
Net decrease in federal funds purchased and securities
sold under agreements to repurchase ........................... (448,047) (287,290)
Net increase (decrease) in other short-term borrowings .......... 285,381 (39,157)
Proceeds from issuance of notes payable ......................... 116,117 145,923
Payments of notes payable ....................................... (161,957) (20,003)
Dividends paid .................................................. (11,972) (10,297)
Proceeds from issuance of common stock .......................... 974 763
-------------------------------
Net cash provided by financing activities .......................... 86,915 138,193
-------------------------------
Net decrease in cash and due from banks ............................ (52,283) (72,711)
Cash and due from banks at beginning of period ..................... 458,173 442,316
-------------------------------
Cash and due from banks at end of period ........................... $ 405,890 $ 369,605
===============================
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share information)
NOTE 1 - CONSOLIDATION
The consolidated financial statements of BanPonce Corporation include the
balance sheet of the Corporation and its wholly-owned subsidiaries, Vehicle
Equipment Leasing Company, Inc. (Velco); BP Capital Markets, Inc.; Popular
International Bank, Inc. and its wholly-owned subsidiary BanPonce Financial
Corp., including Banco Popular, FSB, Pioneer Bancorp, Inc. (second tier
subsidiaries) and Equity One, Inc.; and Banco Popular de Puerto Rico and its
wholly-owned subsidiaries, Popular Leasing and Rental, Inc., Popular Consumer
Services, Inc. and Popular Mortgage, Inc., as of March 31, 1996 and 1995, and
their related statements of income and cash flows for the quarter then ended.
These statements are, in the opinion of management, a fair statement of the
results of the periods presented. These results are unaudited, but include all
necessary adjustments, of a normal recurring nature, for a fair presentation of
such results. Certain reclassifications have been made to the prior year'
consolidated financial statements to conform to the 1996 presentation.
NOTE 2 - ACCOUNTING CHANGES
Effective January 1, 1996, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." This statement requires
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. For the first quarter of 1996, no impairment recognition was
necessary based on this pronouncement.
Effective January 1, 1996, the Corporation adopted SFAS 122, "Accounting for
Mortgage Servicing Rights." This statement requires that mortgage banking
enterprises recognize as separate assets the rights to service mortgage loans
for others, whether those servicing rights are originated or purchased. Also,
it requires mortgage banking enterprises to assess capitalized mortgage
servicing rights for impairment based on the fair value of those rights.
Pursuant to the provisions of SFAS 122, the total cost of mortgage loans to be
sold with servicing rights retained is allocated to the mortgage servicing
rights and the loans (without the mortgage servicing rights) based on their
relative fair values. These mortgage servicing rights are amortized in
proportion to and over the period of estimated net servicing income.
To estimate the fair value of mortgage servicing rights the Corporation
considers prices for similar assets and the present value of expected future
cash flows associated with the servicing rights calculated using assumptions
that market participants would use in estimating future servicing income and
expense. For purposes of evaluating and measuring impairment of capitalized
mortgage servicing rights, the Corporation stratifies such rights based on
predominant risk characteristics of underlying loans, such as loan type, note
rate and term. The amount of impairment recognized if any, is the amount by
which the capitalized mortgage servicing rights per stratum exceed estimated
fair value. Impairment is recognized through a valuation allowance. As of March
31, 1996, the carrying value, estimated fair value and valuation allowance of
capitalized mortgage servicing rights were $23,898, $26,469 and $212,
respectively. During this quarter the Corporation realized additional income of
$707 as a result of the adoption of this pronouncement.
Effective January 1, 1996, the Corporation adopted SFAS 123 "Accounting for
Stock-Based Compensation." This statement establishes a fair value-based method
of accounting for stock-based employee compensation plans. It encourages
entities to adopt this method in lieu of the provisions of APB Opinion No. 25,
"Accounting for Stock Issued to Employees", for all arrangements under which
employees receive shares of stock or other equity instruments of the employer
or the employer incurs liabilities to employees in amounts based on the price
of its stock.
14
<PAGE> 16
The Corporation provides a stock-based compensation plan for senior management.
This is a three-year incentive plan which provides incentive compensation
linked to long-term corporate performance and objectives. For the quarter ended
March 31, 1996, the Corporation recognized $103 related to this plan.
Effective January 1, 1995, the Corporation adopted SFAS 114, "Accounting by
Creditors for Impairment of a Loan" as amended by SFAS 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures." These
statements address the accounting by creditors for impairment of certain loans
and require that impaired loans as defined, be measured based on the present
value of expected future cash flows discounted at the loan's effective rate, at
the loan's observable market price or, on the fair value of the collateral if
the loan is collateral dependent. As of March 31, 1996, the recorded investment
in loans that are considered to be impaired under SFAS 114 was $79,774 (1995 -
$87,393) of which $38,365 (1995 - $43,004) had a related allowance for possible
loan losses of $8,555 (1995 - $8,449). Average impaired loans during the
first quarter of 1996 were $83,043. The Corporation recognized interest income
on impaired loans of $901 for the quarter ended March 31, 1996.
NOTE 3 - INVESTMENT SECURITIES
The average maturities as of march 31, 1996 and market value for the following
investment securities are:
Investments securities held-to-maturity:
<TABLE>
<CAPTION>
March 31,
1996 1995
Amortized Cost Market Value Amortized Cost Market Value
----------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury (average maturity of
1 year and 1 month) $ 924,137 $ 927,247 $1,912,231 $1,901,025
Obligations of other u.s. government
agencies and corporations (average
maturity of 11 months) 132,271 130,950 249,509 244,949
Obligations of puerto rico, states and
political subdivisions (average
maturity of 2 years and 5 months) 218,222 220,124 217,037 220,211
Collateralized mortgage obligations
(average maturity of 1 year and 5 months) 262,655 260,900 439,613 427,884
Mortgage-backed securities (average
maturity of 4 years and 4 months) 59,706 60,395 146,015 141,573
Equity securities (without contractual
maturity) 47,674 47,674 43,558 43,558
Others (average maturity of 6 years
and 6 months) 12,394 12,430 12,142 12,175
-------------------------------------------------------
$1,657,059 $1,659,720 $3,020,105 $2,991,375
=======================================================
</TABLE>
15
<PAGE> 17
Investments securities available-for-sale:
<TABLE>
<CAPTION>
March 31,
1996 1995
Amortized Cost Market Value Amortized Cost Market Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury (average maturity of
1 year and 1 month) $2,454,152 $2,453,291 $ 597,602 $ 588,337
Obligations of other U.S. Government
agencies and corporations (average
maturity of 8 months) 440,015 439,624 100,559 99,573
Obligations of Puerto Rico, States and
political subdivisions (average
maturity of 2 years and 9 months) 26,468 26,564 28,430 27,872
Collateralized mortgage obligations (average
maturity of 2 years and 6 months) 109,047 108,342 61,356 60,789
Mortgage-backed securities (average maturity
of 16 years and 7 months) 260,168 256,910 250,765 250,015
Equity securities (without contractual maturity) 27,703 34,436 27,989 29,645
Others (average maturity of 14 years and 1 month) 18,050 18,050 50,000 50,000
------------------------------------------------------------
$3,335,603 $3,337,217 $1,116,701 $1,106,231
============================================================
</TABLE>
NOTE 4 - PLEDGED ASSETS
Securities and insured mortgage loans of the Corporation of $2,774,689 (1995 -
$1,963,134) are pledged to secure public and trust deposits and securities and
mortgages sold under repurchase agreements.
NOTE 5 - COMMITMENTS
In the normal course of business there are letters of credit outstanding and
stand-by letters of credit which at March 31, 1996 amounted to $17,591 and
$118,805. There are also outstanding other commitments and contingent
liabilities, such as guarantees and commitments to extend credit, which are not
reflected in the accompanying financial statements. No losses are anticipated
as a result of these transactions.
16
<PAGE> 18
NOTE 6 - SUBORDINATED NOTES
Subordinated notes consist of the following:
<TABLE>
<CAPTION>
March 31,
1996 1995
----------------------
<S> <C> <C>
Subordinated notes issued by the Corporation on
December 12, 1995, maturing on December 15,
2005, with interest payable semi-annually at 6.75% $125,000
----------------------
Subordinated notes issued by Banco Popular 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 Notes 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
----------------------
$175,000 $50,000
======================
</TABLE>
NOTE 7 - STOCKHOLDERS' EQUITY
Authorized common stock is 90,000,000 shares with a par value of $6 per share
of which 32,974,936 are issued and outstanding at March 31, 1996. Authorized
preferred stock is 10,000,000 shares without par value of which 4,000,000
non-cumulative with a dividend rate of 8.35% and a liquidation preference value
of $25 per share are issued and outstanding at March 31, 1996.
NOTE 8 - EARNINGS PER COMMON SHARE
Earnings per common share (EPS) are calculated based on net income applicable
to common stockholders which amounted to $43,055 and $31,654 for the quarters
ended March 31, 1996 and 1995, respectively, after deducting the dividends on
preferred stock. EPS are based on 32,974,936 and 32,866,623 average shares
outstanding for the first quarter of 1996 and 1995, respectively.
NOTE 9 - SUPPLEMENTAL DISCLOSURE ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS
During the quarter ended March 31, 1996, the Corporation paid interest and
income taxes amounting to $148,341 and $5,564, respectively (1995 - $117,421 and
$1,392). In addition, the loans receivable transferred to other real estate and
other property for the quarter ended March 31, 1996, amounted to $468 and
$1,142, respectively (1995 - $1,963 and $859). The Corporation's stockholders'
equity at March 31, 1996 and 1995 includes $19 and $7,670, respectively, in
unrealized holding losses on securities available-for-sale, net of deferred
taxes.
17
<PAGE> 19
DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
Richard L. Carrion, Chairman
Alfonso F. Ballester, Vice Chairman
Antonio Luis Ferre, Vice Chairman
Juan A. Albors Hernandez *
Salustiano Alvarez Mendez *
Jose A. Bechara Bravo *
Juan J. Bermudez
Esteban D. Bird *
Francisco J. Carreras
David H. Chafey, Jr. *
Luis E. Dubon, Jr.
Roberto W. Esteves *
Hector R. Gonzalez
Jorge A. Junquera Diez
Franklin A. Mathias
Manuel Morales, Jr.
Alberto M. Paracchini
Francisco Perez, Jr. **
Francisco M. Rexach, Jr.
Jose E. Rossi *
Felix J. Serralles Nevares
Emilio Jose Venegas **
Julio E. Vizcarrondo, Jr.
Samuel T. Cespedes, Secretary
* Director of Banco Popular de Puerto Rico only
** Director of Banponce Corporation only
EXECUTIVE OFFICERS
Richard L. Carrion, Chairman of the Board,
President and Chief Executive Officer
David H. Chafey, Jr., Senior Executive Vice President
Jorge A. Junquera Diez, Senior Executive Vice President
Maria Isabel Burckhart, Executive Vice President
Larry Kesler, Executive Vice President
Humberto Martin, Executive Vice President
Emilio E. Pinero, Executive Vice President
OFFICES
CENTRAL OFFICE
Banco Popular Center, Hato Rey
209 Munoz Rivera Avenue
San Juan, Puerto Rico 00918
Telephone: (787) 765-9800
NEW YORK OFFICE
7 West 51st St.
New York, N.Y. 10019
Telephone: (212) 315-2800
LOS ANGELES OFFICE
354 South Spring St.
Los Angeles, California 90013
Telephone: (213) 626-1160
VIRGIN ISLANDS OFFICE
80 Kronprindsens Gade
Kronprindsens Quarter
Charlotte Amalie, St. Thomas
U.S. Virgin Islands 00802
Telephone: (809) 774-2300
SUBSIDIARIES
VEHICLE EQUIPMENT LEASING COMPANY, INC.
State Road #2 Km. 6.8
Villa Caparra
Guaynabo, Puerto Rico 00966
Telephone: (787) 792-9292
POPULAR LEASING AND RENTAL, INC.
M-1046 Federico Costa St.
Tres Monjitas Industrial Development
San Juan, Puerto Rico 00903
Telephone: (787) 751-4848
POPULAR CONSUMER SERVICES, INC.
10 Salud Street
El Senorial Condominium, Suite 613
Ponce, Puerto Rico 00731
Telephone: (787) 844-2860
EQUITY ONE, INC.
523 Fellowship Road, Suite 220
Mt. Laurel, New Jersey 08054
Telephone: (609) 273-1119
PIONEER BANCORP, INC.
4000 West North Avenue
Chicago, Illinois 60639
Telephone: (312) 772-8600
BANCO POPULAR, FSB
500 Bloomfield Avenue
Newark, New Jersey 07107
Telephone: (201) 484-6525
POPULAR MORTGAGE, INC.
268 Ponce de Leon Avenue
San Juan, Puerto Rico 00918
Telephone: (787) 753-0245
BP CAPITAL MARKETS, INC.
1020 Popular Center
Hato Rey, Puerto Rico 00918
Telephone: (787) 766-4200
18
<PAGE> 20
[BANPONCE CORPORATION LOGO]
PO Box 362708
San Juan, Puerto Rico 00936-2708
(LOGO) Printed on recycled paper.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BANPONCE CORPORATION FOR THE THREE MONTHS ENDED MARCH
31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1,000
<CASH> 405,890
<INT-BEARING-DEPOSITS> 26,993
<FED-FUNDS-SOLD> 632,527
<TRADING-ASSETS> 295,573
<INVESTMENTS-HELD-FOR-SALE> 3,337,217
<INVESTMENTS-CARRYING> 1,657,059
<INVESTMENTS-MARKET> 1,659,720
<LOANS> 8,850,078
<ALLOWANCE> 174,724
<TOTAL-ASSETS> 15,805,083
<DEPOSITS> 10,183,082
<SHORT-TERM> 3,292,919
<LIABILITIES-OTHER> 278,056
<LONG-TERM> 714,589
0
100,000
<COMMON> 197,850
<OTHER-SE> 861,720
<TOTAL-LIABILITIES-AND-EQUITY> 15,805,083
<INTEREST-LOAN> 217,247
<INTEREST-INVEST> 71,945
<INTEREST-OTHER> 13,735
<INTEREST-TOTAL> 302,927
<INTEREST-DEPOSIT> 82,996
<INTEREST-EXPENSE> 140,467
<INTEREST-INCOME-NET> 162,460
<LOAN-LOSSES> 21,273
<SECURITIES-GAINS> 729
<EXPENSE-OTHER> 130,699
<INCOME-PRETAX> 62,480
<INCOME-PRE-EXTRAORDINARY> 45,142
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,142
<EPS-PRIMARY> $1.31
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.77
<LOANS-NON> 140,563
<LOANS-PAST> 11,534
<LOANS-TROUBLED> 2,704
<LOANS-PROBLEM> 122,805
<ALLOWANCE-OPEN> 168,393
<CHARGE-OFFS> 23,343
<RECOVERIES> 8,401
<ALLOWANCE-CLOSE> 174,724
<ALLOWANCE-DOMESTIC> 174,084
<ALLOWANCE-FOREIGN> 640
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
