<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 June 30, 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 (787) 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 latest practicable date:
Common Stock $6.00 Par value 66,048,673
- ---------------------------- ----------------------------------------
(Title of Class) (Shares Outstanding as of August 13, 1996)
<PAGE> 2
2
BANPONCE CORPORATION
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information Page
----
<S> <C>
Item 1. Financial Statements
Unaudited consolidated statements of condition
June 30, 1996 and December 31, 1995. 3
Unaudited consolidated statements of income -
Quarters and Semesters ended June 30, 1996 and 1995. 4
Unaudited consolidated statements of cash
flows - Semesters ended June 30, 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 25
Item 5. Other information - None N/A
Item 6. Exhibits and reports on Form 8-K 25
--- Signature 26
</TABLE>
<PAGE> 3
3
BANPONCE CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
(In thousands) 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 524,344 $ 458,173
- ---------------------------------------------------------------------------------------------------------------
Money market investments:
Federal funds sold and securities and
mortgages purchased under agreements to resell 898,041 796,417
Time deposits with other banks 3,236 100
Banker's acceptances 1,555 2,202
- ---------------------------------------------------------------------------------------------------------------
902,832 798,719
- ---------------------------------------------------------------------------------------------------------------
Investment securities held to maturity, at cost 1,694,764 1,651,344
Investment securities available-for-sale, at market 3,127,423 3,209,974
Trading account securities, at market value 329,256 330,674
Loans held-for-sale 153,278 112,806
Loans 9,456,881 8,883,963
Less - Unearned income 330,827 319,285
Allowance for loan losses 178,330 168,393
- ---------------------------------------------------------------------------------------------------------------
8,947,724 8,396,285
- ---------------------------------------------------------------------------------------------------------------
Premises and equipment 340,358 325,203
Other real estate 3,611 7,807
Customer's liabilities on acceptances 1,650 2,208
Accrued income receivable 118,774 113,539
Other assets 164,035 125,742
Intangible assets 134,088 142,977
- ---------------------------------------------------------------------------------------------------------------
$16,442,137 $15,675,451
===============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 2,140,105 $ 2,021,658
Interest bearing 8,436,843 7,855,004
- ---------------------------------------------------------------------------------------------------------------
10,576,948 9,876,662
Federal funds purchased and securities sold
under agreements to repurchase 2,747,186 3,000,878
Other short-term borrowings 802,364 454,707
Notes payable 692,435 730,428
Senior debentures 30,000 30,000
Acceptances outstanding 1,650 2,208
Other liabilities 279,416 263,871
- ---------------------------------------------------------------------------------------------------------------
15,129,999 14,358,754
- ---------------------------------------------------------------------------------------------------------------
Subordinated notes 125,000 175,000
- ---------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock 100,000 100,000
Common stock 396,007 197,692
Surplus 479,059 427,282
Retained earnings 217,725 350,480
Unrealized losses (gains) on securities available-for-sale, net of
deferred taxes (5,653) 16,243
Capital reserves 50,000
- ---------------------------------------------------------------------------------------------------------------
1,187,138 1,141,697
- ---------------------------------------------------------------------------------------------------------------
$16,442,137 $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 For the six months ended
June 30, June 30,
(Thousands of dollars except per share amounts) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $226,027 $200,530 $443,274 $391,080
Money market investments 10,882 3,596 19,555 4,582
Investment securities 68,442 63,567 140,387 122,135
Trading account securities 4,624 1,125 9,686 1,240
- ------------------------------------------------------------------------------------------------------------------------
309,975 268,818 612,902 519,037
- ------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits 86,693 84,585 169,689 161,650
Short-term borrowings 41,625 29,246 84,555 54,620
Long-term debt 13,449 12,867 27,990 23,119
- ------------------------------------------------------------------------------------------------------------------------
141,767 126,698 282,234 239,389
- ------------------------------------------------------------------------------------------------------------------------
Net interest income 168,208 142,120 330,668 279,648
Provision for loan losses 21,672 12,646 42,945 24,344
- ------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 146,536 129,474 287,723 255,304
Service charges on deposit accounts 21,389 19,552 42,465 37,642
Other service fees 19,408 15,565 36,788 29,376
Gain(loss) on sale of securities (20) 66 709 112
Trading account profit (loss) (1,383) 350 (445) 300
Other operating income 9,921 4,839 21,790 10,495
- ------------------------------------------------------------------------------------------------------------------------
195,851 169,846 389,030 333,229
- ------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Personnel costs:
Salaries 46,112 42,681 90,864 84,211
Profit sharing 5,685 6,506 11,755 9,833
Pension and other benefits 15,654 15,122 32,635 30,683
- ------------------------------------------------------------------------------------------------------------------------
67,451 64,309 135,254 124,727
Net occupancy expense 8,596 8,254 17,914 16,022
Equipment expenses 11,806 9,953 23,580 19,337
Other taxes 5,466 5,094 11,429 10,725
Professional fees 10,993 9,218 20,909 16,772
Communications 6,497 5,689 12,813 11,292
Business promotion 6,027 4,170 11,419 7,962
Printing and supplies 3,020 2,517 5,943 5,298
Other operating expenses 7,458 10,414 14,198 20,865
Amortization of intangibles 4,530 5,104 9,084 10,040
- ------------------------------------------------------------------------------------------------------------------------
131,844 124,722 262,543 243,040
- ------------------------------------------------------------------------------------------------------------------------
Income before taxes 64,007 45,124 126,487 90,189
Income taxes 17,952 11,063 35,290 22,387
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 46,055 $ 34,061 $ 91,197 $ 67,802
========================================================================================================================
NET INCOME APPLICABLE TO COMMON STOCK $ 43,967 $ 31,973 $ 87,022 $ 63,627
========================================================================================================================
EARNINGS PER COMMON SHARE: $ 0.67 $ 0.49 $ 1.32 $ 0.97
======== ======== ======== ========
</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 six months ended
June 30,
(In thousands) 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 91,197 $ 67,802
- ----------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization of premises and equipment 24,132 21,008
Provision for loan losses 42,945 24,344
Amortization of intangibles 9,084 10,040
Gain on sale of investment securities available-for-sale (709) (112)
(Gain)loss on disposition of premises and equipment (7) 199
Amortization of premiums and accretion of discounts on investments 4,647 (1,764)
(Increase)decrease in loans held-for-sale (40,472) 3,751
Amortization of deferred loan fees and costs 3,303 1,280
Net increase in postretirement benefit obligation 4,493 4,009
Net decrease(increase)in trading securities 1,418 (36,183)
Net increase in interest receivable (5,235) (12,830)
Net (increase) decrease in other assets (15,803) 1,267
Net increase (decrease) in interest payable 3,390 (1,203)
Net decrease in current and deferred taxes (22,196) (11,539)
Net increase(decrease) in other liabilities 13,228 (494)
- ----------------------------------------------------------------------------------------------------------
Total adjustments 22,218 1,773
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 113,415 69,575
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase)decrease in money market investments (104,113) 213,776
Purchases of investment securities held-to-maturity (5,620,734) (10,727,840)
Maturities of investment securities held-to-maturity 5,566,537 10,333,862
Purchases of investment securities available-for-sale (3,263,947) (413,993)
Maturities of investment securities available-for-sale 1,580,601 24,097
Sales of investment securities available-for-sale 1,743,400 152,217
Net disbursements on loans (638,924) (604,324)
Proceeds from sale of loans 158,297 173,969
Acquisition of loan portfolios (113,475) (39,231)
Assets acquired, net of cash -0- (29,189)
Acquisition of premises and equipment (39,805) (27,185)
Proceeds from sale of premises and equipment 526 4,155
- ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (731,637) (939,686)
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 700,286 412,124
Net deposits acquired -0- 163,637
Net decrease in federal funds purchased and
securities sold under agreements to repurchase (253,693) (93,906)
Net increase in other short-term borrowings 347,656 177,132
Proceeds from issuance of notes payable 394,662 306,757
Payments of notes payable (432,655) (107,505)
Payments of subordinated notes (50,000)
Dividends paid (23,952) (20,601)
Proceeds from issuance of common stock 2,089 1,577
- ----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 684,393 839,215
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and due from banks 66,171 (30,896)
Cash and due from banks at beginning of period 458,173 442,316
- ----------------------------------------------------------------------------------------------------------
Cash and due from banks at end of period $ 524,344 $ 411,420
==========================================================================================================
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
<PAGE> 6
6
NOTES TO UNAUDITED 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 June 30, 1996 and December 31,
1995, and their related statements of income and cash flows for the six-months
ended June 30, 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 as well as assets held for disposition be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. For the six-month period ended June
30,1996, no impairment recognition was necessary under 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 periods 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, rate
and term. The amount of impairment recognized if any, is the amount by which
the capitalized mortgage servicing rights per stratum exceeds its estimated
fair value. Impairment is recognized through a valuation allowance. As of June
30, 1996, the carrying value, estimated fair value and
<PAGE> 7
7
valuation allowance of capitalized mortgage servicing rights were $24,112,
$29,574 and $64, respectively. For the quarter and six-month period ended June
30, 1996, the Corporation realized additional income of $1,115 and $1,610,
respectively, 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.
Banco Popular provides a stock-based compensation plan for its senior
management. It is a three-year incentive plan under which shares of stock of
the Corporation are granted if long-term corporate performance and objectives
are met. For the quarter and six-month period ended June 30, 1996, the
Corporation recognized $111 and $214, respectively, 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 June 30, 1996, the recorded investment
in loans that are considered to be impaired under SFAS 114 was $89,818 (1995 -
$89,208) of which $54,947 (1995 - $49,507) had a related allowance for possible
loan losses of $15,157 (1995 - $9,709). Average impaired loans during the
quarter and the first six months of 1996 were $84,796 and $85,302,
respectively. The Corporation recognized interest income on impaired loans of
$687, and $1,588, respectively, for the quarter and six-month period ended June
30, 1996.
<PAGE> 8
8
NOTE 3 - INVESTMENT SECURITIES
The average maturities as of June 30, 1996 and market value for the following
investment securities are:
Investment securities held-to-maturity:
<TABLE>
<CAPTION>
June 30,
1996 1995
Amortized Amortized
Cost Market Value Cost Market Value
-------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury (average maturity of
10 months) $ 923,106 $ 923,664 $2,318,157 $2,324,459
Obligations of other U.S. Government
agencies and corporations (average
maturity of 6 months) 210,600 209,506 247,333 245,097
Obligations of Puerto Rico, States and
political subdivisions (average
maturity of 2 years and 3 months) 220,456 222,090 215,185 219,866
Collateralized mortgage obligations (average
maturity of 1 year and 5 months) 223,416 221,881 409,640 404,225
Mortgage-backed securities (average
maturity of 4 years and 7 months) 57,048 56,150 138,618 137,731
Equity securities (without contractual maturity) 47,674 47,674 43,558 43,558
Others (average maturity of 6 years and 3 months) 12,464 12,484 12,202 12,237
-------------------------------------------------------------
$1,694,764 $1,693,449 $3,384,693 $3,387,173
=============================================================
</TABLE>
Investment securities available-for-sale:
<TABLE>
<CAPTION>
June 30,
1996 1995
Amortized Amortized
Cost Market Value Cost Market Value
-------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury (average maturity
of 1 year and 3 months) $2,461,354 $2,457,654 $ 678,002 $ 679,583
Obligations of other U.S. Government
agencies and corporations (average
maturity of 1 year and 8 months) 146,977 146,064 150,135 151,110
Obligations of Puerto Rico, States and
political subdivisions (average maturity
of 2 years and 8 months) 24,924 24,814 31,154 31,201
Collateralized mortgage obligations (average
maturity of 2 years and 9 months) 188,470 187,742 41,953 41,826
Mortgage-backed securities (average
maturity of 16 years and 9 months) 266,433 261,648 215,082 214,722
Equity securities (without contractual
maturity) 27,257 31,531 24,980 29,349
Others (average maturity of 13 years
and 10 months) 18,050 17,970 38,484 38,501
-------------------------------------------------------------
$3,133,465 $3,127,423 $1,179,790 $1,186,292
=============================================================
</TABLE>
NOTE 4 - PLEDGED ASSETS
Securities and insured mortgage loans of the Corporation of $2,677,352 (1995 -
$2,523,419) 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 June 30, 1996, amounted to $19,302 and
$121,204. There are also outstanding other commitments and contingent
liabilities, such as guarantees and commitments to extend credit, which are not
reflected in the accompanying unaudited financial statements. No losses are
anticipated as a result of these transactions.
NOTE 6 - SUBORDINATED NOTES
Subordinated notes consist of the following:
<TABLE>
<CAPTION>
June 30,
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, which matured on June 15, 1996, with
interest payable quarterly and consisting of:
8.875% Fixed Rate Notes series A $15,000
8.6875% Fixed Rate Notes series B 15,000
Floating Rate Notes series A with interest
payable at 88% of LIBID rate 19,000
Floating Rate Notes series B with interest
payable at 86% of LIBID rate 1,000
-----------------------
50,000
-----------------------
$125,000 $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 66,001,180 are issued and outstanding at June 30, 1996. On April
26,1996, the Corporation's Board of Directors authorized a stock split of one
share for each share outstanding effected in the form of a dividend, effective
July 1, 1996. As a result of the split, 33,000,590 shares were issued,
increasing the number of shares outstanding to 66,001,180 as of July 1, 1996,
and $198,004 were transferred from retained earnings to common stock. All
references in the financial statements to the numbers of common shares and per
share amounts have been restated to reflect the stock split. 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 June 30, 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 $43,967 for the second quarter of 1996
(1995 - $31,973) and $87,022 for the six months ended June 30, 1996 (1995 -
$63,627), after deducting the dividends on preferred stock. EPS are based on
66,001,180 average shares outstanding for the second quarter of 1996 (1995 -
65,787,936) and 65,975,526 average shares outstanding for the first six months
of 1996 (1995 - 65,760,742), after restating for the stock split.
<PAGE> 10
10
NOTE 9 - SUPPLEMENTAL DISCLOSURE ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS
During the six-month period ended June 30, 1996, the Corporation paid interest
and income taxes amounting to $276,030 and $56,790, respectively (1995 -
$233,396 and $28,750). In addition, the loans receivable transferred to other
real estate and other property for the six-month period ended June 30, 1996,
amounted to $1,150 and $2,436, respectively (1995 - $1,843, and $4,084). The
Corporation's stockholders' equity at June 30, 1996 includes $5,653, net of
deferred taxes, in unrealized holding losses on securities available-for-sale,
as compared with unrealized holding gains of $4,262 at June 30, 1995.
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 its
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 June 30, 1996 and 1995, and the
results of their operations for the six month periods ended June 30, 1996
and 1995.
POPULAR INTERNATIONAL BANK, INC.
STATEMENT OF CONDITION
(In thousands)
<TABLE>
<CAPTION>
June 30,
--------
1996 1995
---- -----
<S> <C> <C>
Assets:
Cash $ 17,960 $ 30,400
Money market investments 40,453 29,954
Investment securities 200,372 299,104
---------- ----------
Loans 1,328,947 995,947
Less: Unearned income 45,148 38,636
Allowance for loan losses 18,793 14,091
---------- ----------
1,265,006 943,220
Other assets, consisting principally of
intangible assets, including goodwill, net
of amortization 68,798 63,948
---------- ----------
Total assets $1,592,589 $1,366,626
========== ==========
Liabilities and Stockholder's Equity:
Deposits $ 576,487 $ 520,203
Short-term borrowings 308,615 104,860
Notes payable 519,771 579,214
Other liabilities 42,007 35,395
Stockholder's equity 145,709 126,954
---------- ----------
Total liabilities and stockholder's equity $1,592,589 $1,366,626
========== ==========
</TABLE>
<PAGE> 11
11
POPULAR INTERNATIONAL BANK, INC.
STATEMENT OF INCOME
(In thousands)
<TABLE>
<CAPTION>
Quarter ended Six months ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Interest and fees $36,926 $29,502 $72,267 $55,453
Other service fees 6,343 2,857 10,537 5,756
------- ------- ------- -------
Total income 43,269 32,359 82,804 61,209
------- ------- ------- -------
Expenses:
Interest expense 19,708 16,717 39,527 31,342
Provision for loan losses 4,202 1,900 7,012 3,454
Operating expenses 10,726 9,115 20,978 17,159
------- ------- ------- -------
Total expenses 34,636 27,732 67,517 51,955
------- ------- ------- -------
Income before income tax 8,633 4,627 15,287 9,254
Income tax 3,337 1,912 6,007 3,798
------- ------- ------- -------
Net income $ 5,296 $ 2,715 $ 9,280 $ 5,456
======= ======= ======= =======
</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 June 30, 1996, and 1995 and the results of their
operations for the six month periods ended June 30, 1996 and 1995.
BANPONCE FINANCIAL CORP
STATEMENT OF CONDITION
(In thousands)
<TABLE>
<CAPTION>
June 30,
--------
1996 1995
---- ----
<S> <C> <C>
Assets:
Cash $ 17,950 $ 30,390
Money market investments 39,477 28,883
Investment securities 200,372 299,104
---------- ----------
Loans 1,328,947 995,947
Less: Unearned income 45,148 38,636
Allowance for loan losses 18,793 14,091
---------- ----------
1,265,006 943,220
Other assets, consisting principally of
intangible assets, including goodwill, net
of amortization 68,536 63,939
---------- ----------
Total assets $1,591,341 $1,365,536
========== ==========
Liabilities and Stockholder's Equity:
Deposits $ 576,487 $ 520,203
Short-term borrowings 308,615 104,860
Notes payable 519,771 579,214
Other liabilities 41,992 35,383
Stockholder's equity 144,476 125,876
---------- ----------
Total liabilities and stockholder's equity $1,591,341 $1,365,536
========== ==========
</TABLE>
<PAGE> 13
13
BANPONCE FINANCIAL CORP
STATEMENT OF INCOME
(In thousands)
<TABLE>
<CAPTION>
Quarter ended Six months ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Interest and fees $36,910 $29,486 $72,234 $55,424
Other service fees 6,343 2,857 10,537 5,756
------- ------- ------- -------
Total income 43,253 32,343 82,771 61,180
------- ------- ------- -------
Expenses:
Interest expense 19,708 16,717 39,527 31,342
Provision for loan losses 4,202 1,900 7,012 3,454
Operating expenses 10,748 9,089 21,024 17,109
------- ------- ------- -------
Total expenses 34,658 27,706 67,563 51,905
------- ------- ------- -------
Income before income tax 8,595 4,637 15,208 9,275
Income tax 3,337 1,912 6,007 3,798
------- ------- ------- -------
Net income $ 5,258 $ 2,725 $ 9,201 $ 5,477
======= ======= ======= =======
</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-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 - Equity One, Inc. (Equity
One), Popular Mortgage, Inc. (d/b/a Puerto Rico Home
Mortgage), 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 second quarter of 1996 reached $46.1
million, compared with $34.1 million reported for the same period in 1995, and
$45.1 million reported for the first quarter of 1996. Earnings per common share
(EPS) for the quarter, after adjusting for the stock split effected in the form
of a dividend of one share for each share outstanding effective July 1, 1996,
were $0.67, based on 66,001,180 average shares outstanding. EPS for the second
quarter of 1995 were $0.49, based on 65,787,936 average shares outstanding,
while EPS for the first quarter of 1996 were $0.65, based on 65,949,872 average
shares outstanding. Return on assets (ROA) and return on common equity (ROE)
for the quarter ended June 30, 1996, were 1.16% and 16.56%, respectively,
compared with 1.00% and 13.47%, reported for the same quarter of 1995 and 1.17%
and 16.39% for the first quarter of 1996.
Of the $12 million increase in net income when compared with the same quarter
last year, $4.6 million were attained at Banco Popular and $3.2 million at the
holding company. The U.S. subsidiaries of the Corporation contributed $2.5
million to the increase, while the other subsidiaries of the group contributed
the remaining $1.7 million of the increase in net income.
By major income statement component, the increase of $12 million in net income
for the second quarter of 1996 was the result of a growth of $26.1 million in
the net interest income, higher non-interest revenues by $8.9 million,
partially offset by increases of $9.0 million in the provision for loan losses,
$7.1 million in operating expenses and $6.9 million in the income tax expense.
For the six-month period ended June 30, 1996, the Corporation reported net
earnings of $91.2 million, an increase of 34.5% when compared to the $67.8
million in net earnings reported for the same period of 1995. EPS for both
periods were $1.32 and $0.97, respectively, based on
<PAGE> 15
15
65,975,526 average shares outstanding for the first six months of 1996 and
65,760,742 for the same period in 1995. ROA and ROE for the six-month period
ended June 30, 1996, were 1.16% and 16.48%, respectively, compared with 1.03%
and 13.71% reported in 1995.
NET INTEREST INCOME
The principal source of earnings for the Corporation, net interest income, rose
$26.1 million or 18.4% for the second quarter of 1996, reaching $168.2 million.
On a taxable equivalent basis, net interest income increased to $180.5 million
from $152.7 million in the second quarter of 1995 and $174.5 million in the
first quarter of 1996. This rise was the effect of a $21.4 million increase due
to a higher volume of earning assets and a $6.4 million increase due to a
higher net interest yield, on a taxable equivalent basis. For analytical
purposes, the interest earned on tax-exempt assets is adjusted to a taxable
equivalent basis assuming the applicable statutory income tax rates. The
highest marginal tax rate in Puerto Rico, the Corporation's principal place of
business, was reduced from 42% in 1995 to 39% in 1996.
Average earning assets increased to $15.0 billion for the quarter ended June
30, 1996, compared with $12.8 billion for the same quarter of 1995. The
categories that had the greater impact on the increase were loans, money market
investments and investment securities, which rose $943 million, $589 million
and $408 million, respectively.
Average money market investments reached $858 million for the second quarter of
1996, compared with $269 million for the same period of 1995. This increase was
mainly reflected at BP Capital, which was acquired during the second quarter of
1995. Average investment securities reached $4.8 billion compared with $4.4
billion in the same quarter in 1995. Banco Popular was the principal
contributor to this increase with a rise of $536 million. The rise in
investment securities realized at Banco Popular was mostly in U.S. Treasury and
Agencies securities, whose income is exempt from income taxes in Puerto Rico.
The average balance of trading account securities for the three-month period
ended June 30, 1996, totaled $341 million compared with $76 million reported
for the same quarter last year. The investment banking operation of BP Capital
with an average balance of $226 million during the quarter and Puerto Rico Home
Mortgage with $108 million, were responsible for most of the increase.
The Corporation had an increase of $943 million or 11.7% in total average loans
for the second quarter of 1996, compared with the same quarter last year. All
major loan categories showed increases. Commercial loans, including
construction, rose $455 million, consumer loans grew $234 million, mortgage
loans increased $232 million and lease financings rose $22 million.
The yield on earning assets, on a taxable equivalent basis, for the second
quarter of 1996 averaged 8.61%, compared with 8.74% for the same period in 1995.
The average yield on investment securities, on a taxable equivalent basis, was
6.61% for the three-month period ended June 30, 1996, compared with 6.63% in
the second quarter of 1995. The average yield on money market investments
decreased from 5.34% during the second quarter of
<PAGE> 16
16
1995 to 5.09% in the same period of 1996. The average yield, on a taxable
equivalent basis, of the trading portfolio was 5.78% compared with 6.91% for
the second quarter of 1995.
The average yield on loans for the second quarter of 1996, on a taxable
equivalent basis, increased to 10.11%, from 10.01% for the same quarter last
year, despite a decrease in the average yield on commercial loans. The taxable
equivalent yield of the commercial loan portfolio decreased 24 basis points
this quarter, averaging 8.92% compared with 9.16% 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 first quarter of
1996, were the main reasons for this decrease. The average yield on consumer
loans increased to 12.84% from 12.38% in the second quarter of 1995. The
average yields on mortgage loans, on a taxable equivalent basis, for the second
quarter of 1996 and 1995 were 8.61% and 8.39%, respectively.
Average interest-bearing liabilities of the Corporation were $12.5 billion for
the quarter ended June 30, 1996, compared with $10.6 billion for the same
period of 1995. Average interest-bearing deposits increased $655 million,
mostly in certificates of deposits and other time deposits which grew $414
million, reaching $4.2 billion for the second quarter of 1996. Savings accounts
also increased by $198 million during the quarter, averaging $3.1 billion
during the second quarter of 1996. Average demand deposits grew by $204 million
from $1.9 billion to $2.1 billion.
The average costs of interest-bearing deposits for the quarters ended June 30,
1996 and 1995 were 4.13% and 4.36%, respectively. The decrease of 23 basis
points was attributed to lower costs on certificates of deposit and NOW and
money market deposits. The average cost on certificates of deposit and other
time deposits for the second quarter of 1996 was 5.19%, down from 5.56%
reported for the same quarter of 1995. The average cost of NOW and money market
deposits declined 64 basis points, reaching 3.26% in the second quarter of
1996. The average cost of savings accounts increased slightly to 3.01% compared
with 2.97% reported for the second quarter of 1995.
Average short-term borrowings increased $1.2 billion this quarter compared with
the quarter ended on June 30, 1995. The increase was mainly realized by BP
Capital, with an $809 million increase in its average balance. The average cost
of short-term borrowings for the quarter ended June 30, 1996, decreased 49
basis points to 4.98%, from 5.47% in the same quarter of 1995.
Despite the lower taxable equivalent yield on earning assets for the quarter
and the diluting effect of BP Capital's net interest yield of approximately 50
basis points, the net interest yield of the Corporation, on a taxable
equivalent basis, for the second quarter of 1996 rose to 4.85% from 4.80% in
the same quarter of 1995. This improvement resulted from a reduction of 18
basis points in the average cost of funding earning assets, which decreased
from 3.94% in the second quarter of 1995 to 3.76% in this quarter just ended.
A summary of the net interest yield, on a taxable equivalent basis, for the
six-month periods ended June 30, 1996 and 1995 is presented on Table A below.
The rise of $55.2 million in the net interest income, on a taxable equivalent
basis, results principally from the higher volume of average earning assets
together with the lower cost of funding earning assets. The net interest yield,
on a taxable equivalent basis, for the first six months of 1996 averaged 4.83%
compared with 4.85% for the same period in 1995.
<PAGE> 17
17
TABLE A
NET INTEREST INCOME (TAXABLE EQUIVALENT BASIS)
<TABLE>
<CAPTION>
(Dollars in millions) First Six Months
- ---------------------------------------------------------------------------------------
1996 Average 1995 Average
---------------------------------------------------
Balance Rate Balance Rate
---------------------------------------------------
<S> <C> <C> <C> <C>
Earning assets $14,825 8.62% $12,443 8.71%
======= =======
Financed by:
Interest $12,337 4.55% $10,213 4.70%
bearing funds
Non interest
bearing funds 2,488 2,230
------- -------
TOTAL $14,825 3.79% $12,443 3.86%
======= =======
Net interest income
per books $ 330.7 $ 279.6
Taxable equivalent
adjustment 24.3 20.2
------- -------
Net interest income on a
taxable equivalent basis $ 355.0 $ 299.8
======= =======
Spread 4.07% 4.01%
Net interest yield 4.83% 4.85%
</TABLE>
As of this writing, the U.S. Congress approved legislation that would increase
the federal minimum wage and repeal Section 936 of the U.S. Internal Revenue
Code. The legislation has not yet been signed into law by the President. In
general terms, Section 936 provides U.S. corporations operating in Puerto Rico
("936 Corporations") with a tax credit against the federal tax liability on
income derived from business operations and investment income in Puerto Rico.
The proposed legislation phases out the Section 936 tax credits throughout a
10-year period. The tax-exempt status of passive investment in Puerto Rico made
by 936 Corporations, which would be repealed retroactively as of July 1, 1996
if the legislation is approved, has created a local money market (the "936
funds market") whose cost is usually below that of the U.S. mainland or the
Eurodollar market. The volume of the 936 funds market could be reduced
substantially during the Corporation's current fiscal year, if the proposed
legislation is finally approved in its present form. The Corporation is
currently a recipient of 936 funds and as of June 30, 1996, had a balance of
$2.9 billion in 936 funds, representing 19.15% of total liabilities.
Management believes that the main impact of the legislation, if signed into
law, would be a moderate net increase in the Corporation's cost of funds. The
anticipated rise in the cost of funds is expected to be partially offset by a
decrease in the cost of complying with various investment requirements mandated
by local regulations to all recipients of 936 funds.
<PAGE> 18
18
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses amounted to $21.7 million for the second quarter
of 1996, a rise of $9.0 million over the $12.7 million recorded for the same
period of 1995. For the six-month period ended June 30, 1996, the provision for
loan losses totaled $42.9 million, an increase of $18.6 million from $24.3
million recorded for the first six months of 1995. The provision for loan
losses for the six-month period ended June 30, 1996, represented 130% of net
charge-offs compared with 125% for the same period of 1995. Among the factors
responsible for this increase are the growth of $1.1 billion in the
Corporation's loan portfolio from June 30, 1995, to the same date this year and
increases in net charge-offs and non-performing assets.
Net charge-offs for the quarter ended June 30, 1996, reached $18.1 million or
0.80% of average loans, compared with $11.4 million or 0.56% for the same
quarter in 1995, and $14.9 million or 0.68% for the quarter ended on March 31,
1996. Consumer loans net charge-offs increased $3.6 million as compared with
the second quarter of 1995 and lease financing net charge-offs rose $2.2
million. Consumer loans net charge-offs totaled $7.2 million or 1.19% of
average consumer loans for the quarter ended June 30, 1996, while lease
financing net losses amounted to $2.9 million or 2.29%. Within the consumer
category, credit cards experienced an increase of approximately $1 million in
credit losses during the second quarter of 1996, mostly in the portfolio that
the Corporation maintains in the U.S. mainland. Economic factors such as the
increase in personal bankruptcies in 1996 and a rising trend in consumer debt
as a percentage of disposable personal income, contributed to the higher level
of net credit losses in the consumer loan portfolio. Total commercial loans net
charge-offs rose $0.6 million, from $6.5 million in the second quarter of 1995
to $7.1 million this quarter. Construction and mortgage loans net charge-offs
grew by $0.2 million and $0.1 million, respectively, during this quarter.
TABLE B
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Quarter Provision for Net Allowance for
Ended Loan Losses Charge Offs Loan Losses
- -------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C>
June 30, 1996 $21.7 $18.1 $178
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 12.7 11.4 159
</TABLE>
For the six-month period ended June 30, 1996, net charge-offs showed an
increase of $13.6 million, from $19.4 million reported for the same date of
1995. Consumer loans and lease financing net charge-offs reflected increases of
$6.4 million and $4.1 million, respectively, while commercial loans net
charge-offs rose $2.8 million. Mortgage loans net credit losses exceeded the
amount for the first six months of 1995 by $0.3 million, while construction
loans presented a small decline of $43,000.
<PAGE> 19
19
TABLE C
ALLOWANCE FOR LOAN LOSSES AND SELECTED LOAN LOSSES STATISTICS
<TABLE>
<CAPTION>
Second Quarter First Six Months
(Dollars in thousands) 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of period $174,724 $157,467 $168,393 $153,798
Provision for loan losses 21,672 12,646 42,945 24,344
---------------------------------------------------------
196,396 170,113 211,338 178,142
---------------------------------------------------------
Losses charged to the allowance
Commercial 9,185 8,080 18,400 12,935
Construction 500 500 1,193 1,500
Lease financing 4,869 1,609 8,194 2,804
Mortgage 459 326 1,056 662
Consumer 10,668 7,802 20,181 14,760
---------------------------------------------------------
25,681 18,317 49,024 32,661
---------------------------------------------------------
Recoveries
Commercial 2,045 1,518 5,904 3,273
Construction 21 232 22 286
Lease financing 1,962 860 2,909 1,573
Mortgage 81 48 193 127
Consumer 3,506 4,280 6,988 7,994
---------------------------------------------------------
7,615 6,938 16,016 13,253
---------------------------------------------------------
Net loans charged-off 18,066 11,379 33,008 19,408
---------------------------------------------------------
Balance at end of period $178,330 $158,734 $178,330 $158,734
=========================================================
Allowance for losses to loans 1.92% 1.94% 1.92% 1.94%
Allowance to non-performing assets 117.24 107.09 117.24 107.09
Allowance to non-performing loans 122.27 117.09 122.27 117.09
Non-performing assets to loans 1.64 1.81 1.64 1.81
Non-performing assets to total assets 0.93 1.02 0.93 1.02
Net charge-offs to average loans 0.80 0.56 0.74 0.49
Provision to net charge-offs 1.20x 1.11x 1.30x 1.25x
Net charge-offs earnings coverage 4.74 5.08 5.13 5.90
</TABLE>
At June 30, 1996, the allowance for loan losses reached $178 million,
representing 1.92% of loans, compared with $159 million or 1.94% at June 30,
1995. 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, current and
anticipated economic conditions and loan impairment measurement.
The Corporation had $90 million in loans considered impaired at June 30, 1996,
of which $55 million had a related allowance for possible loan losses of $15
million. As of the same date last year, loans considered impaired amounted to
$89 million of which $50 million had a related allowance for loan losses of $10
million. No increase in the provision for loan losses was deemed necessary for
either period as a result of the impairment measurement required by SFAS 114
and 118.
CREDIT QUALITY
Management closely monitors loans and other assets that are classified as
non-performing assets (NPA). NPA consist of past-due loans on which interest
income is not being accrued, renegotiated
<PAGE> 20
20
loans and other real estate. NPA as of June 30, 1996, amounted to $152 million
or 1.64% of loans, compared with $148 million or 1.81% at June 30, 1995, and
$151 million or 1.70% of loans at March 31, 1996. Table D shows the improving
trend in the ratios of NPA to total loans and the allowance for loan losses to
NPA over the last five quarters.
TABLE D
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
NPA Allowance
as a % as a %
Date NPA of Loans of NPA
- -------------------------------------------------------------------------------------
(Dollars in millions)
<S> <C> <C> <C>
June 30, 1996 $152 1.64 117.0%
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
</TABLE>
Non-performing loans totaled $146 million as of June 30, 1996, from $136
million at the end of the second quarter of 1995. Non-performing mortgage loans
increased $9.3 million, while non-performing consumer loans increased $2.0
million. These increases were mainly reflected in Equity One, whose
non-performing mortgage and consumer loans increased $6.8 million and $2.9
million, respectively. At Banco Popular, non-performing mortgage loans
increased by $2.3 million. Non-performing commercial loans, including
construction, increased $1.9 million, while non-performing lease financing
loans decreased $2.6 million. The Corporation was able to reduce other real
estate owned by $6.2 million through successful efforts in the disposition of
these properties, particularly at Banco Popular and Pioneer. In addition,
renegotiated loans decreased $0.2 million as compared with June 30, 1995. As of
March 31, 1996, total non-performing loans amounted to $141 million.
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 that 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 June 30,
1996, amounted to $113 million or 1.21% of loans, and the allowance for loan
losses would be 158.2% of non-performing assets. At June 30, 1995 and March
31, 1996, adjusted non-performing assets were $108 million and $111 million,
respectively, or 1.31% and 1.26% of loans.
<PAGE> 21
21
Accruing loans that are contractually past-due 90 days or more as to principal
or interest as of June 30, 1996, amounted to $13.2 million compared with $12.8
million at June 30, 1995, and $11.5 million at March 31, 1996.
OTHER OPERATING INCOME
Other operating income, including securities and trading transactions,
increased to $49.3 million for the three-month period ended June 30, 1996, from
$40.4 million for the same period in 1995, a rise of $8.9 million or 22.2%. The
increase was geared by a consistent rise in service charges on deposit
accounts, solid growth in electronic banking services, investment products fee
income and other income, including gains on sale of mortgage loans and daily
rental units. Partially offsetting these increases was a net loss of $1.4
million in the trading account. For the first six months of 1996 and 1995 these
revenues were $101.3 million and $77.9 million, respectively.
Services charges on deposit accounts totaled $21.4 million in the second
quarter of 1996, an increase of $1.8 million from $19.6 million in the same
quarter of 1995. The increase was primarily due to an increased volume of
transaction fees on commercial accounts as well as an overall rise in the
deposit levels. For the six-month period ended June 30, 1996, service charges
on deposit accounts totaled $42.5 million, or $4.9 million higher than the
$37.6 million reported for the same period in 1995.
Other service fees for the quarter ended June 30, 1996, were $19.4 million,
compared with $15.6 million for the same quarter of 1995, an increase of $3.8
million or 24.7%. Revenues from electronic banking services, principally rental
of point-of-sale (POS) terminals and fees from debit cards, contributed $1.2
million to the total increase. Also, investment products fees, mainly
resulting from the sale and administration of mutual funds, rose $1.2 million,
helped by the sale of the fourth Puerto Rico Investors Tax-Free Fund during
1996. Credit card fees and mortgage servicing fees also increased for the
second quarter of 1996, compared with the same quarter of 1995. For the
six-month period ended June 30, 1996, other service fees rose $7.4 million,
totaling $36.8 million.
Other operating income increased $5.1 million for the second quarter of 1996,
from $4.8 million in the same quarter of 1995 to $9.9 million. The rise in
other operating income was primarily due to higher gains of $2.2 million, on
sale of mortgage loans principally at Puerto Rico Home Mortgage and Equity One,
and includes the effect of the new accounting guidelines established by SFAS
122, as further explained in Note 2 to the consolidated financial statements.
The Corporation's leasing subsidiaries also reflected a $1.5 million increase
in this revenue category, mostly due to higher daily rental income and higher
gains on sale of the units. For the six-month period ended June 30, 1996,
other operating income rose $11.3 million, from $10.5 million in 1995 to $21.8
million this year.
For the second quarter of 1996, the Corporation had losses on sales of
securities and trading activities amounting to $1.4 million, mostly as a result
of trading losses of $1.3 million recorded at Puerto Rico Home Mortgage on its
mortgage-backed securities. Moreover, Banco Popular recognized a loss of $2.5
million in the sale of investment securities available-for-sale, whose proceeds
were reinvested in higher-yielding securities. Partially offsetting that loss
was a gain of $2.4 million realized by BanPonce Financial on the sale of equity
securities. For the second quarter of 1995, the Corporation had a net gain of
$0.4 million in these activities.
<PAGE> 22
22
OPERATING EXPENSES
Operating expenses for the second quarter of 1996 were $131.8 million compared
with $124.7 million for the same period of 1995. Areas such as salary expense,
equipment expenses, professional fees, business promotion and communication
expenses reflected increases, mostly attributed to the Corporation's continued
business expansion and development and promotion of new products and services.
Increases in those areas were partially offset by a lower FDIC assessment. For
the first six months of 1996, operating expenses totaled $262.5 million
compared with $243.0 million for the same period of 1995.
Personnel costs, which accounted for 51.2% of total operating expenses,
amounted to $67.4 million for the second quarter of 1996, increasing $3.1
million from $64.3 million for the same period in 1995. Salaries, the largest
single category of operating expenses, rose $3.4 million or 8.0% to $46.1
million, compared with $42.7 million in 1995. This rise was principally due to
the growth of the Corporation, annual merit increases and a greater use of
incentive pay based on increased sales efforts and actual performance. The
number of full-time equivalent employees was 7,724 at June 30, 1996, compared
with 7,620 at the same date last year.
Pension and other benefits totaled $15.7 million for the quarter ended June 30,
1996, compared with $15.1 million for the same period a year ago. Pension
costs, postretirement benefits, and health insurance expenses showed increase.
In addition, staff training expenses reflected a rise, as the Corporation
continues its efforts to maintain a well-trained work force in order to improve
the quality of its products and services. Partially offsetting these increases,
was the effect of a voluntary early retirement plan offered last year to Banco
Popular employees meeting certain eligibility requirements, which represented a
total cost of $1.9 million for the second quarter of 1995.
Other operating expenses, excluding personnel costs, increased $4.0 million,
reaching $64.4 million for the second quarter of 1996, compared with $60.4
million for the same period in 1995. The categories that increased the most
were equipment expenses, professional fees, business promotion and
communication expenses. Those categories together rose $6.3 million, mainly as
a result of the development of new products and services, including the
in-store branch initiative that began during this quarter, analysis and
implementation of new strategies and the Corporation's business expansion.
Partially offsetting those increases, was a reduction in the FDIC assessment of
$5.0 million, as a result of the decrease in the assessment rate during the
third quarter of 1995, when the Bank Insurance Fund (BIF) reached its statutory
level.
For the six-month period ended June 30, 1996, other operating expenses reached
$127.3 million, compared with $118.3 million reported for the same period in
1995.
Income tax expense rose $6.9 million, from $11.1 million in the second quarter
of 1995 to $18.0 million in the same quarter this year. The increase resulted
primarily from the growth in pre-tax earnings and the reversal of a deferred
tax liability upon the distribution of real property through a dividend from
Banco Popular to its parent company in June 1995. The above was partially
offset by the reduction in tax rates and the repeal of the tax on dividends
received from subsidiaries in Puerto Rico effective in 1996. The Corporation's
effective tax rate increased to 28.1% from 24.5% for these same periods. For
the six-month periods ended June 30, 1996 and 1995, income tax expense amounted
to $35.3 million and $22.4 million, respectively.
<PAGE> 23
23
BALANCE SHEET COMMENTS
The Corporation's total assets increased 12.8%, reaching $16.4 billion at June
30, 1996, compared with $14.6 billion at the same date in 1995. Total assets at
December 31, 1995, amounted to $15.7 billion. Average assets for the six-month
period ended June 30, 1996, were $15.8 billion compared with $13.3 billion for
the same period in 1995, an increase of 18.8%. For the year ended December 31,
1995, average assets were $14.1 billion.
Earning assets increased to $15.3 billion at June 30, 1996, from $13.6 billion
at June 30, 1995. Earning assets at December 31, 1995 were $14.7 billion. Total
loans amounted to $9.3 billion at June 30, 1996, compared with $8.2 billion a
year earlier. The largest increase was achieved in the commercial portfolio,
including construction loans, which increased 16.2% from $3.2 billion at June
30, 1995, to $3.7 billion at the end of the quarter. The major growth in this
loan category was realized by Banco Popular, which increased $353 million.
Mortgage loans also rose, reaching $2.6 billion, an increase of $275 million or
11.8% as compared with June 30, 1995. Most of the increase was in Equity One,
which rose $137 million and in Banco Popular with an increase of $72 million.
Consumer loans increased $260 million or 11.8% and the lease financing
portfolio rose $26.4 million or 5.4% as compared with June 30, 1995. Banco
Popular and Equity One reflected the higher growth in the consumer loan
category. Total loans at December 31, 1995 amounted to $8.7 billion.
At June 30, 1996, money market investments, investment securities and trading
account securities showed increases when compared with the same date last year.
Money market investments amounted to $903 million at June 30, 1996, compared
with $629 million a year earlier. BP Capital accounted for most of the increase
in this category. Investment securities as of June 30, 1996, totaled $4.8
billion compared with $4.6 billion as of June 30, 1995. Banco Popular reflected
an increase of $412 million, while Puerto Rico Home Mortgage and Banco Popular,
FSB, reflected decreases of $76 million and $90 million, respectively.
Investment securities include $3.1 billion and $1.2 billion in investment
securities available-for-sale as of June 30, 1996 and 1995, respectively. 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 $129 million
in the trading portfolio is mainly related to BP Capital and Popular Mortgage.
Total deposits amounted to $10.6 billion at June 30, 1996, compared with $9.6
billion at the same date last year. Non-interest bearing deposits increased
$299 million reaching $2.1 billion at June 30, 1996, while interest bearing
deposits were $8.4 billion or $670 million higher than the balance on June 30,
1995. Most of the growth was attained at Banco Popular, whose total deposits
increased $963 million, including an increase of $658 million in
interest-bearing deposits, particularly certificates of deposit. At June 30,
1996, 80.3% of the Corporation's total deposits were in Puerto Rico and the
Virgin Islands, and the remaining 19.7% were U.S. deposits. Total deposits at
December 31, 1995 were $9.9 billion.
<PAGE> 24
24
Borrowings increased $659 million, from $3.6 billion at June 30, 1995, to $4.2
billion at the end of the second quarter of 1996. This rise is mainly due to an
increase of $581 million in federal funds purchased and securities sold under
agreements to repurchase mainly due to arbitrage opportunities and
asset/liability strategies. Medium-term notes and commercial paper issued by
BanPonce Financial and the Corporation to finance the growth of their
subsidiaries, also reflected increases.
Subordinated notes increased to $125 million at June 30, 1996, from $50 million
outstanding a year ago. On December 12, 1995, the Corporation issued $125
million in subordinated notes carrying an interest rate of 6.75% and maturing
on December 15, 2005. The proceeds obtained from this issuance were also
utilized to finance the growth and expansion of the Corporation's subsidiaries.
The $50 million subordinated notes outstanding at June 30, 1995, matured on
June 15, 1996.
Stockholders' equity at June 30, 1996, amounted to $1.19 billion, compared with
$1.07 billion at June 30, 1995. The increase is mainly due to earnings
retention. Also, the additional shares issued under the Dividend Reinvestment
Plan contributed $4.0 million in additional capital since June 30, 1995. On
April 26, 1996, the Corporation's Board of Directors authorized a two-for-one
common stock split effected in the form of a dividend, bringing total
outstanding shares to 66,001,180. The new shares were distributed on July 1,
1996, to shareholders of record as of June 14, 1996. All per share data
included herein has been adjusted to reflect the stock split. As a result of
the split, $198 million were transferred from retained earnings to common
stock. The Corporation's stockholders' equity at June 30, 1996, includes $5.7
million, net of deferred taxes, in unrealized holding losses on securities
available-for-sale, compared with $4.3 million, net of deferred taxes, in
unrealized gains at June 30, 1995. Stockholders' equity at December 31, 1995,
amounted to $1.14 billion.
At June 30, 1996, the market value of the Corporation's common stock, after
adjusting for the stock split, was $22.50 per share, compared with $17.75 at
June 30, 1995, and $23.13 at March 31, 1996. The Corporation's total market
capitalization at June 30, 1996, was $1.5 billion. Book value per common share
increased to $16.47 as of June 30, 1996, compared with $14.79 as of the same
date last year.
The dividend payout ratio to common stockholders for the quarter ended June 30,
1996, was 22.50% compared with 25.70% for the same quarter last year. The
Corporation's Board of Directors also approved an increase in the quarterly
cash dividend for the third quarter of 1996, to $0.18 per common share. This
represents an increase of 20% over the $0.15 per share paid in previous
quarters.
The market value of the Corporation's preferred stock at June 30, 1996, was
$26.50 per share compared with $27.00 at June 30, 1995, and $27.25 at March 31,
1996.
The Corporation's capital ratios continue well-above regulatory requirements.
Tier I, total capital and leverage ratios at June 30, 1996, were 11.76%, 14.41%
and 6.68%, respectively, compared with 11.58%, 12.85% and 7.07%, at June 30,
1995.
<PAGE> 25
Part II - Other Information
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Corporation held its Annual Stockholders meeting on April 26, 1996, at
which common stockholders elected the following seven (7) directors: Antonio
Luis Ferre, Felix J. Serralles Nevares, Alberto M. Paracchini, Francisco J.
Carreras, Richard L. Carrion, Juan J. Bermudez and David H. Chafey Jr.
All seven (7) candidates were elected for a three-year term, with favorable
votes ranging from 88.02% and 88.17% of the voting shares issued and
outstanding which amounted to 32,974,936, before the stock split, as of the
record date, March 7, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
a) Exhibit No. Description Exhibit Reference
-------------- ------------------- ---------
<S> <C> <C>
19 Quarterly Report to shareholders for the Exhibit "A"
period ended June 30, 1996
27 Financial Data Schedule (for SEC use only) Exhibit "B"
</TABLE>
b) Two reports on Form 8-K were filed for the quarter ended June 30, 1996:
Dated: April 9, 1996 and May 6, 1996
Items reported: Item 5 - Other Events
Item 7 - Financial Statements and Exhibits
<PAGE> 26
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 thereunto duly authorized.
BANPONCE CORPORATION
--------------------
(Registrant)
Date: 08/13/96 By: /s/JORGE A. JUNQUERA
----------------------------------------
Jorge A. Junquera
Senior Executive Vice President
Date: 08/13/96 By: /s/AMILCAR L. JORDAN, ESQ.
----------------------------------------
Amilcar L. Jordan, Esq.
Senior Vice President
& Comptroller
<PAGE> 1
EXHIBIT A
[LOGO] BANPONCE CORPORATION
QUARTERLY REPORT/JUNE 30, 1996
[GRAPH]
BANPONCE CORPORATION
<PAGE> 2
TO OUR STOCKHOLDERS
- -------------------------------------------------------------------------------
BanPonce Corporation (the Corporation) reported net income of $46.1 million for
the quarter ended June 30, 1996, reflecting an increase of 35.2 % over the
$34.1 million earned in the same period in 1995. Earnings per common share
(EPS) for the quarter, after adjusting for the common stock split in the form
of a dividend of one share for each share outstanding, effective on July 1,
1996, were $0.67, based on 66,001,180 average shares outstanding, compared with
$0.49, based on 65,787,936 average shares outstanding, for the quarter ended
June 30, 1995. Net earnings for the first quarter of 1996 were $45.1 million,
or $0.65 per share, based on 65,949,872 average shares outstanding.
The second quarter results represented rates of return of 1.16% on
assets (ROA) and 16.56% on common equity (ROE), compared with 1.00% and 13.47%,
respectively, for the same quarter of 1995. The Corporation's improved
profitability benefited from the continued earning asset growth and a
significant increase in other income, partially offset by a rise in the
provision for loan losses, operating expenses and income taxes.
For the six-month period ended June 30, 1996, net income reached $91.2
million, or $1.32 per share, with an ROA and ROE of 1.16% and 16.48%,
respectively. For the same period in 1995, net income was $67.8 million, or
$0.97 per share, while ROA and ROE were 1.03% and 13.71%, respectively.
Net interest income for the second quarter of 1996 rose $26.1 million
or 18.4% compared with the same period in 1995. This increase is mainly
attributed to a growth of $2.2 billion in the average volume of earning assets,
principally in money market investments, investment securities and commercial
loans. The net interest yield, on a taxable equivalent basis, for the second
quarter of 1996 rose to 4.85% from 4.80% for the same quarter in 1995.
The provision for loan losses increased $9.0 million for the
three-month period ended June 30, 1996, as compared with the same period in
1995, due to a combination of increased loan volume and an increase in net
charge-offs. Net charge-offs increased $6.7 million, from the $11.4 million
reported for the second quarter last year.
Non-performing assets (NPA) amounted to $152 million, or 1.64% of
total loans at June 30, 1996, compared with $148 million or 1.81% at the same
date last year. When adjusted to conform to standard industry practice, as
further explained in the financial review section, NPA were $113 million or
1.21% of loans at the end of this quarter, compared with $108 million or 1.31%
a year earlier. The allowance for loan losses at June 30, 1996 amounted to $178
million, representing 1.92% of loans, compared with $159 million or 1.94% at
the same date in 1995.
Other revenues rose to $49.3 million for the second quarter of 1996
compared with $40.4 million for the same quarter of 1995. This rise was due to
an increase of $5.1 million in other operating income principally from
non-banking subsidiaries, together with an increase of $3.8 million in other
service fees, mostly in electronic banking services and investment products
fees.
Operating expenses for the three-month period ended June 30, 1996,
increased $7.1 million from the same period in 1995, largely reflected in the
personnel cost category which grew $3.1 million. Equipment expenses,
professional fees, communication expenses and business promotion also rose
mainly as a result of business expansion and the development of new products
and services. Partially offsetting these increases was a reduction in the FDIC
assessment of $5.0 million.
The Corporation's total assets at June 30, 1996, increased to $16.4
billion compared with $14.6 billion at the same date in 1995 and $15.8 billion
as of March 31, 1996. A significant portion of the increase was in the loan
portfolio which grew $1.1 billion, particularly in the commercial and mortgage
portfolios. Deposits amounted to $10.6 billion as of June 30, 1996, an increase
of $1.0 billion or 10.1 % from the same date in 1995.
The Corporation's total capital increased to $1.19 billion at June 30,
1996, compared with $1.07 billion a year ago and $1.16 billion as of March 31,
1996, primarily as a result of the retention of earnings. Book value per common
share increased to $16.47 as of June 30, 1996, from $14.79 at the same date
last year and $16.07 as of March 31, 1996.
1
<PAGE> 3
- -------------------------------------------------------------------------------
At June 30, 1996, the Corporation continued showing solid capital
ratios, with a Tier I capital ratio of 11.76%, a total capital ratio of 14.41%
and a leverage ratio of 6.68%.
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.
- -------------------------------------------------------------------------------
On April 26, 1996, the Corporation's Board of Directors authorized a
common stock split in the form of a dividend of one share for each share
outstanding bringing total outstanding shares to 66,001,180. The new shares
were distributed on July 1, 1996 to shareholders of record as of June 14, 1996.
All common stock data included herein has been adjusted to reflect the stock
split. The Board of Directors also approved a 20% increase in the quarterly
cash dividend for the third quarter of 1996, to $0.18 per common share, from
$0.15 per share paid in the previous quarters.
- -------------------------------------------------------------------------------
During this quarter we took several steps toward our strategic goal of
geographic and business expansion. On April 26, 1996, the Corporation announced
the signing of a purchase agreement to acquire all of the common stock of
Comban Corp. Comban Corp. is the parent company of Commerce National Bank,
which operates three branches in California located in City of Commerce,
Montebello and Downey, with assets of approximately $71 million and deposits of
$64 million as of May 31, 1996. This transaction is now awaiting the approval
of regulatory agencies.
In addition, Banco Popular opened two branches in supermarkets as part
of an in-store branch initiative and two branches within the premises of
shopping centers in order to provide banking services at our customers'
convenience. Moreover, during this quarter Pioneer Bank, opened its fifth full
service branch in Chicago and Equity One opened three new branches reaching a
total of 95 branches in 26 states.
- --------------------------------------------------------------------------------
Mr. Franklin A. Mathias, a director of the Corporation since 1990,
retired from the Board of Directors upon reaching the mandatory retirement age.
However, he will continue contributing to our organization as director of Banco
Popular.
- --------------------------------------------------------------------------------
The U.S. Congress is currently debating an increase to the minimum
wage. Included in the proposed legislation is a provision that would amend
Section 936 of the U.S. Internal Revenue Code. The bill approved by the U.S.
House of Representatives would repeal the Qualified Possession Source
Investment Income ("QPSII") retroactively to January 1, 1996 and both the
income and wage credit portion of the tax program would phase out in 10 years.
On the other hand, the U.S. Senate version contemplates the repeal of QPSII
effective July 1, 1996 , the income credit portion would also phase out in 10
years but, the wage credit would remain at a reduced rate of 40%. These
versions will be referred to the House-Senate Conference Committee in order to
reconcile both alternatives. If either version is enacted into law, the repeal
of QPSII would result in an increase in the Corporation's cost of funds, since
these funds would be replaced with conventional funds. At June 30, 1996, the
Corporation had $2.9 billion in 936 funds representing 19.15% of its
liabilities.
/s/ Richard L. Carrion
--------------------------
Richard L. Carrion
Chairman, President and
Chief Executive Officer
2
<PAGE> 4
POST MEETING REPORT
- --------------------------------------------------------------------------------
The Annual Stockholders Meeting of BanPonce Corporation was held on April 26,
1996, at 2:00 p.m. on the third floor of the Centro Europa Building in
Santurce, Puerto Rico.
Mr. Richard L. Carrion, Chairman of the Board and President of the Corporation,
presided over the meeting. The secretary of the Board, Samuel T. Cespedes,
Esq., reported that out of 32,974,936 common shares issued and outstanding,
before the stock split, as of the record date for the meeting, March 7, 1996, a
total of 29,150,015 shares, or 88.40% were represented at the meeting, which
complied with the quorum required by law.
Mr. Carrion reported the names of the seven directors nominated for re-election
until the 1999 Annual Stockholders Meeting: Antonio Luis Ferre, Felix J.
Serralles Nevares, Alberto M. Paracchini, Francisco J. Carreras, Richard L.
Carrion, Juan J. Bermcdez and David H. Chafey Jr.
While the votes were being counted, the Corporation's Annual Report was
discussed, and several shareholders raised questions related to it, offered
their comments, and thanked the Corporation's working team, Board of Directors,
Senior Management and employees. Mr. Carrion answered the questions and offered
the corresponding explanations. Following the discussion, Mr. Carrion presented
the Corporation's financial statements as well as the growth trajectory of the
institution in the last five years. Mr. Carrion also commented on some of the
Corporation's strategic goals. In addition, he pointed out that the Board of
Directors had approved a stock split, in the form of a dividend, of one common
share for each share issued and outstanding. The new shares were distributed on
July 1, 1996, to shareholders of record as of June 14, 1996. In addition, Mr.
Carrion announced that the Board of Directors also approved the payment for the
third quarter of a $0.18 dividend per common share to shareholders of record as
of June 14, 1996, payable on July 1, 1996. Upon a motion duly presented and
seconded, the 1995 Annual Report was approved.
The Ballot Committee rendered its report on the voting results for the election
of directors. All seven (7) candidates were elected for a three-year term, with
favorable votes ranging from 88.02% to 88.17% of the voting shares issued and
outstanding as of the record date.
After thanking those present for their attendance and cooperation, the Chairman
adjourned the meeting.
[PHOTO]
(Mr. Richard L. Carrion)
3
<PAGE> 5
<TABLE>
<CAPTION>
FINANCIAL REVIEW
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET HIGHLIGHTS At June 30, Average for the six months
(In thousands) 1996 1995 Change 1996 1995 Change
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money market investments $ 902,832 $ 629,239 $ 273,593 $ 757,492 $ 155,994 $ 601,498
Investment and trading securities 5,151,443 4,771,512 379,931 5,177,103 4,309,888 867,215
Loans 9,279,332 8,200,328 1,079,004 8,890,918 7,977,472 913,446
All other assets 1,108,530 972,223 136,307 946,952 833,612 113,340
Total assets 16,442,137 14,573,302 1,868,835 15,772,465 13,276,966 2,495,499
Non-interest bearing liabilities 2,421,171 2,070,062 351,109 2,273,159 2,027,267 245,892
Interest bearing liabilities 12,833,828 11,430,070 1,403,758 12,336,934 10,213,462 2,123,472
Stockholders' equity 1,187,138 1,073,170 113,968 1,162,372 1,036,237 126,135
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
OPERATING HIGHLIGHTS
(In thousands, except Second Quarter Six Months
per share information) 1996 1995 Change 1996 1995 Change
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $168,208 $142,120 $26,088 $330,668 $279,648 $51,020
Provision for loan losses 21,672 12,646 9,026 42,945 24,344 18,601
Fees and other income 49,315 40,372 8,943 101,307 77,925 23,382
Other expenses 149,796 135,785 14,011 297,833 265,427 32,406
Net income $ 46,055 $ 34,061 $11,994 $ 91,197 $ 67,802 $23,395
Net income applicable to common stock $ 43,967 $ 31,973 $11,994 $ 87,022 $ 63,627 $23,395
Earnings per common share 0.67 0.49 0.18 1.32 0.97 0.35
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
SELECTED STATISTICAL Second Quarter Six Months
INFORMATION 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PROFITABILITY RATIOS - Return on assets 1.16% 1.00% 1.16% 1.03%
Return on earning assets 1.23 1.07 1.24 1.10
Return on common equity 16.56 13.47 16.48 13.71
Net interest spread (taxable equivalent) 4.08 3.95 4.07 4.01
Net interest yield (taxable equivalent) 4.85 4.80 4.83 4.85
Effective tax rate 28.05 24.52 27.90 24.82
Overhead ratio 49.06 59.35 48.76 59.04
- ------------------------------------------------------------------------------------------------------------------------
CAPITALIZATION RATIOS - Equity to assets 7.30% 7.73% 7.37% 7.80%
Tangible equity to assets 6.51 6.65 6.55 6.76
Equity to loans 12.93 13.01 13.07 12.99
Internal capital generation 10.99 8.40 11.23 8.69
Tier I capital to risk-adjusted assets 11.76 11.58 11.76 11.58
Total capital to risk-adjusted assets 14.41 12.85 14.41 12.85
Leverage ratio 6.68 7.07 6.68 7.07
- ------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA - Market price
High $23.85 $17.75 $23.85 $17.75
Low 21.88 15.63 19.38 14.07
End 22.50 17.75 22.50 17.75
Book value at period end 16.47 14.79 16.47 14.79
Dividends declared 0.18 0.15 0.33 0.28
Dividend payout ratio 22.50% 25.70% 22.73% 25.82%
Price/earnings ratio 9.18x 9.42x 9.18x 9.42x
- ------------------------------------------------------------------------------------------------------------------------
SELECTED DATA - Common shares outstanding 66,001,180 65,787,936
Full-time equivalent employees 7,724 7,620
Branches (banking operations) 219 212
Automated teller machines 353 312
Stockholders 5,412 5,204
</TABLE>
Note: All common stock data has been adjusted to reflect the stock split
effected in the form of a dividend on July 1, 1996.
4
<PAGE> 6
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 - Equity One, Inc. (Equity One),
Popular Mortgage, Inc. (d/b/a Puerto Rico Home Mortgage), 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 second quarter of 1996 reached $46.1
million, compared with $34.1 million reported for the same period in 1995, and
$45.1 million reported for the first quarter of 1996. Earnings per common share
(EPS) for the quarter, after adjusting for the stock split effected in the form
of a dividend of one share for each share outstanding effective July 1, 1996,
were $0.67, based on 66,001,180 average shares outstanding. EPS for the second
quarter of 1995 were $0.49, based on 65,787,936 average shares outstanding,
while EPS for the first quarter of 1996 were $0.65, based on 65,949,872 average
shares outstanding. Return on assets (ROA) and return on common equity (ROE)
for the quarter ended June 30, 1996, were 1.16% and 16.56%, respectively,
compared with 1.00% and 13.47%, reported for the same quarter of 1995 and 1.17%
and 16.39% for the first quarter of 1996.
Of the $12 million increase in net income when compared with the same quarter
last year, $4.6 million were attained at Banco Popular and $3.2 million at the
holding company. The U.S. subsidiaries of the Corporation contributed $2.5
million to the increase, while the other subsidiaries of the group contributed
the remaining $1.7 million of the increase in net income.
By major income statement component, the increase of $12 million in
net income for the second quarter of 1996 was the result of a growth of $26.1
million in the net interest income, higher non-interest revenues by $8.9
million, partially offset by increases of $9.0 million in the provision for
loan losses, $7.1 million in operating expenses and $6.9 million in the income
tax expense.
For the six-month period ended June 30, 1996, the Corporation reported
net earnings of $91.2 million, an increase of 34.5% when compared to the $67.8
million in net earnings reported for the same period of 1995. EPS for both
periods were $1.32 and $0.97, respectively, based on 65,975,526 average shares
outstanding for the first six months of 1996 and 65,760,742 for the same period
in 1995. ROA and ROE for the six-month period ended June 30, 1996, were 1.16%
and 16.48%, respectively, compared with 1.03% and 13.71% reported in 1995.
NET INTEREST INCOME
The principal source of earnings for the Corporation, net interest income, rose
$26.1 million or 18.4% for the second quarter of 1996, reaching $168.2 million.
On a taxable equivalent basis, net interest income increased to $180.5 million
from $152.7 million in the second quarter of 1995 and $174.5 million in the
first quarter of 1996. This rise was the effect of a $21.4 million increase due
to a higher volume of earning assets and a $6.4 million increase due to a
higher net interest yield, on a taxable equivalent basis. For analytical
purposes, the interest earned on tax-exempt assets is adjusted to a taxable
equivalent basis assuming the applicable statutory income tax rates. The
highest marginal tax rate in Puerto Rico, the Corporation's principal place of
business, was reduced from 42% in 1995 to 39% in 1996.
Average earning assets increased to $15.0 billion for the quarter ended June
30, 1996, compared with $12.8 billion for the same quarter of 1995. The
categories that had the greater impact on the increase were loans, money market
investments and investment securities, which rose $943 million, $589 million
and $408 million, respectively.
5
<PAGE> 7
- --------------------------------------------------------------------------------
Average money market investments reached $858 million for the second
quarter of 1996, compared with $269 million for the same period of 1995. This
increase was mainly reflected at BP Capital, which was acquired during the
second quarter of 1995. Average investment securities reached $4.8 billion
compared with $4.4 billion in the same quarter in 1995. Banco Popular was the
principal contributor to this increase with a rise of $536 million. The rise in
investment securities realized at Banco Popular was mostly in U.S. Treasury and
Agencies securities, whose income is exempt from income taxes in Puerto Rico.
The average balance of trading account securities for the three-month
period ended June 30, 1996, totaled $341 million compared with $76 million
reported for the same quarter last year. The investment banking operation of BP
Capital with an average balance of $226 million during the quarter and Puerto
Rico Home Mortgage with $108 million, were responsible for most of the increase.
The Corporation had an increase of $943 million or 11.7% in total
average loans for the second quarter of 1996, compared with the same quarter
last year. All major loan categories showed increases. Commercial loans,
including construction, rose $455 million, consumer loans grew $234 million,
mortgage loans increased $232 million and lease financings rose $22 million.
The yield on earning assets, on a taxable equivalent basis, for the
second quarter of 1996 averaged 8.61%, compared with 8.74% for the same period
in 1995.
The average yield on investment securities, on a taxable equivalent
basis, was 6.61% for the three-month period ended June 30, 1996, compared with
6.63% in the second quarter of 1995. The average yield on money market
investments decreased from 5.34% during the second quarter of 1995 to 5.09% in
the same period of 1996. The average yield, on a taxable equivalent basis, of
the trading portfolio was 5.78% compared with 6.91% for the second quarter of
1995.
The average yield on loans for the second quarter of 1996, on a
taxable equivalent basis, increased to 10.11%, from 10.01% for the same quarter
last year, despite a decrease in the average yield on commercial loans. The
taxable equivalent yield of the commercial loan portfolio decreased 24 basis
points this quarter, averaging 8.92% compared with 9.16% 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 first quarter of
1996, were the main reasons for this decrease. The average yield on consumer
loans increased to 12.84% from 12.38% in the second quarter of 1995. The
average yields on mortgage loans, on a taxable equivalent basis, for the second
quarter of 1996 and 1995 were 8.61% and 8.39%, respectively.
Average interest-bearing liabilities of the Corporation were $12.5
billion for the quarter ended June 30, 1996, compared with $10.6 billion for
the same period of 1995. Average interest-bearing deposits increased $655
million, mostly in certificates of deposits and other time deposits which grew
$414 million, reaching $4.2 billion for the second quarter of 1996. Savings
accounts also increased by $198 million during the quarter, averaging $3.1
billion during the second quarter of 1996. Average demand deposits grew by $204
million from $1.9 billion to $2.1 billion.
The average costs of interest-bearing deposits for the quarters ended
June 30, 1996 and 1995 were 4.13% and 4.36%, respectively. The decrease of 23
basis points was attributed to lower costs on certificates of deposit and NOW
and money market deposits. The average cost on certificates of deposit and
other time deposits for the second quarter of 1996 was 5.19%, down from 5.56%
reported for the same quarter of 1995. The average cost of NOW and money market
deposits declined 64 basis points, reaching 3.26% in the second quarter of
1996. The average cost of savings accounts increased slightly to 3.01% compared
with 2.97% reported for the second quarter of 1995.
Average short-term borrowings increased $1.2 billion this quarter
compared with the quarter ended on June 30, 1995. The increase was mainly
realized by BP Capital, with an $809 million increase in its average balance.
The average cost of short-term borrowings for the quarter ended June 30, 1996,
decreased 49 basis points to 4.98%, from 5.47% in the same quarter of 1995.
Despite the lower taxable equivalent yield on earning assets for the
quarter and the diluting effect of BP Capital's net interest yield of
approximately 50 basis points, the net interest yield of the Corporation, on a
taxable equivalent basis, for the second quarter of 1996 rose to 4.85% from
4.80% in the same quarter of 1995. This improvement resulted from a reduction
of 18 basis points in the average cost of funding earning
6
<PAGE> 8
- --------------------------------------------------------------------------------
assets, which decreased from 3.94% in the second quarter of 1995 to 3.76% in
this quarter just ended.
A summary of the net interest yield, on a taxable equivalent basis,
for the six-month periods ended June 30, 1996 and 1995 is presented on Table A
below. The rise of $55.2 million in the net interest income, on a taxable
equivalent basis, results principally from the higher volume of average earning
assets together with the lower cost of funding earning assets. The net interest
yield, on a taxable equivalent basis, for the first six months of 1996 averaged
4.83% compared with 4.85% for the same period in 1995.
TABLE A
NET INTEREST INCOME (TAXABLE EQUIVALENT BASIS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
(DOLLARS IN MILLIONS) FIRST SIX MONTHS
- ----------------------------------------------------------------------
1996 AVERAGE 1995 AVERAGE
------------------------------------------
BALANCE RATE BALANCE RATE
------------------------------------------
<S> <C> <C> <C> <C>
Earning assets $14,825 8.62% $12,443 8.71%
======= =======
Financed by:
Interest
bearing funds $12,337 4.55% $10,213 4.70%
Non-interest
bearing funds 2,488 2,230
------- -------
Total $14,825 3.79% $12,443 3.86%
======= =======
Net interest income
per books $ 330.7 $ 279.6
Taxable equivalent
adjustment 24.3 20.2
------- -------
Net interest income on a
taxable equivalent basis $ 355.0 $ 299.8
======= =======
Spread 4.07% 4.01%
Net interest yield 4.83% 4.85%
</TABLE>
As of this writing, the U.S. Congress is considering legislation that
would increase the federal minimum wage and repeal Section 936 of the U.S.
Internal Revenue Code. In general terms, Section 936 provides U.S. corporations
operating in Puerto Rico ("936 Corporations") with a tax credit against the
federal tax liability on income derived from business operations and investment
income in Puerto Rico. The proposed legislation phases out the Section 936 tax
credits throughout a 10-year period, although the version of the legislation
passed by the Senate would retain indefinitely a portion of the benefits. The
tax-exempt status of passive investment in Puerto Rico made by 936
Corporations, which would be repealed in 1996 if the legislation is approved,
has created a local money market (the "936 funds market") whose cost is usually
below that of the U.S. mainland or the Eurodollar market. The volume of the 936
funds market could be reduced substantially during the Corporation's current
fiscal year, if the proposed legislation is finally approved in its present
form. The Corporation is currently a recipient of 936 funds and as of June 30,
1996, had a balance of $2.9 billion in 936 funds, representing 19.15% of total
liabilities. Management believes that the main impact of the proposed
legislation, if signed into law, would be a moderate net increase in the
Corporation's cost of funds. The anticipated rise in the cost of funds is
expected to be partially offset by a decrease in the cost of complying with
various investment requirements mandated by local regulations to all recipients
of 936 funds.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses amounted to $21.7 million for the second quarter
of 1996, a rise of $9.0 million over the $12.7 million recorded for the same
period of 1995. For the six-month period ended June 30, 1996, the provision for
loan losses totaled $42.9 million, an increase of $18.6 million from $24.3
million recorded for the first six months of 1995. The provision for loan
losses for the six-month period ended June 30, 1996, represented 130% of net
charge-offs compared with 125% for the same period of 1995. Among the factors
responsible for this increase are the growth of $1.1 billion in the
Corporation's loan portfolio from June 30, 1995, to the same date this year and
increases in net charge-offs and non-performing assets.
Net charge-offs for the quarter ended June 30, 1996, reached $18.1
million or 0.80% of average loans, compared with $11.4 million or 0.56% for the
same quarter in 1995, and $14.9 million or 0.68% for the quarter ended on March
31, 1996. Consumer loans net charge-offs increased $3.6 million as compared
with the second quarter of 1995 and lease financing net charge-offs rose $2.2
million. Consumer loans net charge-offs totaled $7.2 million or 1.19% of
average consumer loans for the quarter ended June 30, 1996, while lease
financing net losses amounted to $2.9 million or 2.29%. Within the consumer
category, credit cards experienced an increase of approximately
TABLE B
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Quarter Provision for Net Allowance for
Ended Loan Losses Charge-offs Loan Losses
- ------------------------------------------------------------------
(In millions)
<S> <C> <C> <C>
June 30, 1996 $21.7 $18.1 $178
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 12.7 11.4 159
</TABLE>
7
<PAGE> 9
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
TABLE C
ALLOWANCE FOR LOAN LOSSES AND SELECTED LOAN LOSSES STATISTICS
Second Quarter First Six Months
(Dollars in thousands) 1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of period ...................... $174,724 $157,467 $168,393 $153,798
Provision for loan losses ........................... 21,672 12,646 42,945 24,344
----------------------------------------------------------
196,396 170,113 211,338 178,142
----------------------------------------------------------
Losses charged to the allowance
Commercial ....................................... 9,185 8,080 18,400 12,935
Construction ..................................... 500 500 1,193 1,500
Lease financing .................................. 4,869 1,609 8,194 2,804
Mortgage ......................................... 459 326 1,056 662
Consumer ......................................... 10,668 7,802 20,181 14,760
----------------------------------------------------------
25,681 18,317 49,024 32,661
----------------------------------------------------------
Recoveries
Commercial ....................................... 2,045 1,518 5,904 3,273
Construction ..................................... 21 232 22 286
Lease financing .................................. 1,962 860 2,909 1,573
Mortgage ......................................... 81 48 193 127
Consumer ......................................... 3,506 4,280 6,988 7,994
----------------------------------------------------------
7,615 6,938 16,016 13,253
----------------------------------------------------------
Net loans charged-off ............................... 18,066 11,379 33,008 19,408
----------------------------------------------------------
Balance at end of period ............................ $178,330 $158,734 $178,330 $158,734
==========================================================
Ratios:
Allowance for losses to loans .................... 1.92% 1.94% 1.92% 1.94%
Allowance to non-performing assets ............... 117.24 107.09 117.24 107.09
Allowance to non-performing loans ................ 122.27 117.09 122.27 117.09
Non-performing assets to loans ................... 1.64 1.81 1.64 1.81
Non-performing assets to total assets ............ 0.93 1.02 0.93 1.02
Net charge-offs to average loans ................. 0.80 0.56 0.74 0.49
Provision to net charge-offs ..................... 1.20x 1.11x 1.30x 1.25x
Net charge-offs earning coverage ................. 4.74 5.08 5.13 5.90
</TABLE>
$1 million in credit losses during the second quarter of 1996, mostly in the
portfolio that the Corporation maintains in the U.S. mainland. Economic factors
such as the increase in personal bankruptcies in 1996 and a rising trend in
consumer debt as a percentage of disposable personal income, contributed to the
higher level of net credit losses in the consumer loan portfolio. Total
commercial loans net charge-offs rose $0.6 million, from $6.5 million in the
second quarter of 1995 to $7.1 million this quarter. Construction and mortgage
loans net charge-offs grew by $0.2 million and $0.1 million, respectively,
during this quarter.
For the six-month period ended June 30, 1996, net charge-offs showed
an increase of $13.6 million, from $19.4 million reported for the same date of
1995. Consumer loans and lease financing net charge-offs reflected increases of
$6.4 million and $4.1 million, respectively, while commercial loans net
charge-offs rose $2.8 million. Mortgage loans net credit losses exceeded the
amount for the first six months of 1995 by $0.3 million, while construction
loans presented a small decline of $43,000.
At June 30, 1996, the allowance for loan losses reached $178 million,
representing 1.92% of loans, compared with $159 million or 1.94% at June 30,
1995. 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, current and
anticipated economic conditions and loan impairment measurement.
The Corporation had $90 million in loans considered impaired at June
30, 1996, of which $55 million had a related allowance for possible loan losses
of $15 million. As of the same date last year, loans considered impaired
amounted to $89 million of which $50 mil-
8
<PAGE> 10
- --------------------------------------------------------------------------------
lion had a related allowance for loan losses of $10 million. No increase in the
provision for loan losses was deemed necessary for either period as a result of
the impairment measurement required by SFAS 114 and 118.
CREDIT QUALITY
Management closely monitors loans and other assets that are classified as
non-performing assets (NPA). NPA consist of past-due loans on which interest
income is not being accrued, renegotiated loans and other real estate. NPA as
of June 30, 1996, amounted to $152 million or 1.64% of loans, compared with
$148 million or 1.81% at June 30, 1995, and $151 million or 1.70% of loans at
March 31, 1996. Table D shows the improving trend in the ratios of NPA to total
loans and the allowance for loan losses to NPA over the last five quarters.
TABLE D
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
NPA Allowance
as a % as a %
Date NPA of Loans of NPA
- ----------------------------------------------------------------
(Dollars in millions)
<S> <C> <C> <C>
June 30, 1996 $152 1.64% 117.2%
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
</TABLE>
Non-performing loans totaled $146 million as of June 30, 1996, from
$136 million at the end of the second quarter of 1995. Non-performing mortgage
loans increased $9.1 million, while non-performing consumer loans increased
$2.0 million. These increases were mainly reflected in Equity One, whose
non-performing mortgage and consumer loans increased $6.8 million and $2.9
million, respectively. At Banco Popular, non-performing mortgage loans
increased by $2.3 million. Non-performing commercial loans, including
construction, increased $1.8 million, while non-performing lease financing
loans decreased $2.6 million. The Corporation was able to reduce other real
estate owned by $6.2 million through successful efforts in the disposition of
these properties, particularly at Banco Popular and Pioneer. In addition,
renegotiated loans decreased $0.2 million as compared with June 30, 1995. As of
March 31, 1996, total non-performing loans amounted to $141 million.
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 that 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
June 30, 1996, amounted to $113 million or 1.21% of loans, and the allowance
for loan losses would be 158.4% of non-performing assets. At June 30, 1995 and
March 31, 1996, adjusted non-performing assets were $108 million and $111
million, respectively, or 1.31% and 1.26% of loans.
Accruing loans that are contractually past-due 90 days or more as to
principal or interest as of June 30, 1996, amounted to $12.2 million compared
with $12.8 million at June 30, 1995, and $11.5 million at March 31, 1996.
OTHER OPERATING INCOME
Other operating income, including securities and trading transactions,
increased to $49.3 million for the three-month period ended June 30, 1996, from
$40.4 million for the same period in 1995, a rise of $8.9 million or 22.2%. The
increase was geared by a consistent rise in service charges on deposit
accounts, solid growth in electronic banking services, investment products fee
income and other income, including gains on sale of mortgage loans and daily
rental units. Partially offsetting these increases was a net loss of $1.4
million in the trading account. For the first six months of 1996 and 1995 these
revenues were $101.3 million and $77.9 million, respectively.
Services charges on deposit accounts totaled $21.4 million in the
second quarter of 1996, an increase of $1.8 million from $19.6 million in the
same quarter of
9
<PAGE> 11
- -------------------------------------------------------------------------------
1995. The increase was primarily due to an increased volume of transaction fees
on commercial accounts as well as an overall rise in the deposit levels. For
the six-month period ended June 30, 1996, service charges on deposit accounts
totaled $42.5 million, or $4.9 million higher than the $37.6 million reported
for the same period in 1995.
Other service fees for the quarter ended June 30, 1996, were $19.4
million, compared with $15.6 million for the same quarter of 1995, an increase
of $3.8 million or 24.7%. Revenues from electronic banking services,
principally rental of point-of-sale (POS) terminals and fees from debit cards,
contributed $1.2 million to the total increase. Also, investment products fees,
mainly resulting from the sale and administration of mutual funds, rose $1.2
million, helped by the sale of the fourth Puerto Rico Investors Tax-Free Fund
during 1996. Credit card fees and mortgage servicing fees also increased for
the second quarter of 1996, compared with the same quarter of 1995. For the
six-month period ended June 30, 1996, other service fees rose $7.4 million,
totaling $36.8 million.
Other operating income increased $5.1 million for the second quarter
of 1996, from $4.8 million in the same quarter of 1995 to $9.9 million. The
rise in other operating income was primarily due to higher gains of $2.2
million, on sale of mortgage loans principally at Puerto Rico Home Mortgage and
Equity One, and includes the effect of the new accounting guidelines
established by SFAS 122, as further explained in Note 2 to the consolidated
financial statements. The Corporation's leasing subsidiaries also reflected a
$1.5 million increase in this revenue category, mostly due to higher daily
rental income and higher gains on sale of the units. For the six-month period
ended June 30, 1996, other operating income rose $11.3 million, from $10.5
million in 1995 to $21.8 million this year.
For the second quarter of 1996, the Corporation had losses on sales of
securities and trading activities amounting to $1.4 million, mostly as a result
of trading losses of $1.3 million recorded at Puerto Rico Home Mortgage on its
mortgage-backed securities. Moreover, Banco Popular recognized a loss of $2.5
million in the sale of investment securities available-for-sale, whose proceeds
were reinvested in higher-yielding securities. Partially offsetting that loss
was a gain of $2.4 million realized by BanPonce Financial on the sale of equity
securities. For the second quarter of 1995, the Corporation had a net gain of
$0.4 million in these activities.
OPERATING EXPENSES
Operating expenses for the second quarter of 1996 were $131.8 million compared
with $124.7 million for the same period of 1995. Areas such as salary expense,
equipment expenses, professional fees, business promotion and communication
expenses reflected increases, mostly attributed to the Corporation's continued
business expansion and development and promotion of new products and services.
Increases in those areas were partially offset by a lower FDIC assessment. For
the first six months of 1996, operating expenses totaled $262.5 million
compared with $243.0 million for the same period of 1995.
Personnel costs, which accounted for 51.2% of total operating
expenses, amounted to $67.4 million for the second quarter of 1996, increasing
$3.1 million from $64.3 million for the same period in 1995. Salaries, the
largest single category of operating expenses, rose $3.4 million or 8.0% to
$46.1 million, compared with $42.7 million in 1995. This rise was principally
due to the growth of the Corporation, annual merit increases and a greater use
of incentive pay based on increased sales efforts and actual performance. The
number of full-time equivalent employees was 7,724 at June 30, 1996, compared
with 7,620 at the same date last year.
Pension and other benefits totaled $15.7 million for the quarter ended
June 30, 1996, compared with $15.1 million for the same period a year ago.
Pension costs, postretirement benefits, and health insurance expenses showed
increase. In addition, staff training expenses reflected a rise, as the
Corporation continues its efforts to maintain a well-trained work force in
order to improve the quality of its products and services. Partially offsetting
these increases, was the effect of a voluntary early retirement plan offered
last year to Banco Popular employees meeting certain eligibility requirements,
which represented a total cost of $1.9 million for the second quarter of 1995.
Other operating expenses, excluding personnel costs, increased $4.0
million, reaching $64.4 million for the second quarter of 1996, compared with
$60.4 million for the same period in 1995. The categories that increased the
most were equipment expenses, professional fees, business promotion and
communication expenses. Those categories together rose $6.3 million, mainly as
a result of the development of new products and services, including the
in-store branch initiative that began during this quarter, analysis and
implementation of new strategies and the Corporation's business expansion.
Partially offsetting those increases,
10
<PAGE> 12
- --------------------------------------------------------------------------------
was a reduction in the FDIC assessment of $5.0 million, as a result of the
decrease in the assessment rate during the third quarter of 1995, when the Bank
Insurance Fund (BIF) reached its statutory level.
For the six-month period ended June 30, 1996, other operating expenses
reached $127.3 million, compared with $118.3 million reported for the same
period in 1995.
Income tax expense rose $6.9 million, from $11.1 million in the second
quarter of 1995 to $18.0 million in the same quarter this year. The increase
resulted primarily from the growth in pre-tax earnings and the reversal of a
deferred tax liability upon the distribution of real property through a
dividend from Banco Popular to its parent company in June 1995. The above was
partially offset by the reduction in tax rates and the repeal of the tax on
dividends received from subsidiaries in Puerto Rico effective in 1996. The
Corporation's effective tax rate increased to 28.1% from 24.5% for these same
periods. For the six-month periods ended June 30, 1996 and 1995, income tax
expense amounted to $35.3 million and $22.4 million, respectively.
BALANCE SHEET COMMENTS
The Corporation's total assets increased 12.8%, reaching $16.4 billion at June
30, 1996, compared with $14.6 billion at the same date in 1995. Total assets at
December 31, 1995, amounted to $15.7 billion. Average assets for the six-month
period ended June 30, 1996, were $15.8 billion compared with $13.3 billion for
the same period in 1995, an increase of 18.8%. For the year ended December 31,
1995, average assets were $14.1 billion.
Earning assets increased to $15.3 billion at June 30, 1996, from $13.6
billion at June 30, 1995. Earning assets at December 31, 1995 were $14.7
billion. Total loans amounted to $9.3 billion at June 30, 1996, compared with
$8.2 billion a year earlier. The largest increase was achieved in the
commercial portfolio, including construction loans, which increased 16.2% from
$3.2 billion at June 30, 1995, to $3.7 billion at the end of the quarter. The
major growth in this loan category was realized by Banco Popular, which
increased $353 million. Mortgage loans also rose, reaching $2.6 billion, an
increase of $275 million or 11.8% as compared with June 30, 1995. Most of the
increase was in Equity One, which rose $137 million and in Banco Popular with
an increase of $72 million. Consumer loans increased $260 million or 11.8% and
the lease financing portfolio rose $26.4 million or 5.4% as compared with June
30, 1995. Banco Popular and Equity One reflected the higher growth in the
consumer loan category. Total loans at December 31, 1995 amounted to $8.7
billion.
At June 30, 1996, money market investments, investment securities and
trading account securities showed increases when compared with the same date
last year. Money market investments amounted to $903 million at June 30, 1996,
compared with $629 million a year earlier. BP Capital accounted for most of the
increase in this category. Investment securities as of June 30, 1996, totaled
$4.8 billion compared with $4.6 billion as of June 30, 1995. Banco Popular
reflected an increase of $412 million, while Puerto Rico Home Mortgage and
Banco Popular, FSB, reflected decreases of $76 million and $90 million,
respectively. Investment securities include $3.1 billion and $1.2 billion in
investment securities available-for-sale as of June 30, 1996 and 1995,
respectively. 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 $129 million in the trading portfolio is
mainly related to BP Capital and Popular Mortgage.
Total deposits amounted to $10.6 billion at June 30, 1996, compared
with $9.6 billion at the same date last year. Non-interest bearing deposits
increased $299 million reaching $2.1 billion at June 30, 1996, while interest
bearing deposits were $8.4 billion or $670 million higher than the balance on
June30, 1995. Most of the growth was attained at Banco Popular, whose total
deposits increased $963 million, including an increase of $658 million in
interest-bearing deposits, particularly certificates of deposit. At June 30,
1996, 80.3% of the Corporation's total deposits were in Puerto Rico and the
Virgin Islands, and the remaining 19.7% were U.S. deposits. Total deposits at
December 31, 1995 were $9.9 billion.
Borrowings increased $659 million, from $3.6 billion at June 30, 1995,
to $4.2 billion at the end of the second quarter or 1996. This rise is mainly
due to an
11
<PAGE> 13
- --------------------------------------------------------------------------------
increase of $581 million in federal funds purchased and securities sold under
agreements to repurchase mainly due to arbitrage opportunities and
asset/liability strategies. Medium-term notes and commercial paper issued by
BanPonce Financial and the Corporation to finance the growth of their
subsidiaries, also reflected increases.
Subordinated notes increased to $125 million at June 30, 1996, from
$50 million outstanding a year ago. On December 12, 1995, the Corporation
issued $125 million in subordinated notes carrying an interest rate of 6.75%
and maturing on December 15, 2005. The proceeds obtained from this issuance
were also utilized to finance the growth and expansion of the Corporation's
subsidiaries. The $50 million subordinated notes outstanding at June 30, 1995,
matured on June 15, 1996.
Stockholders' equity at June 30, 1996, amounted to $1.19 billion,
compared with $1.07 billion at June 30, 1995. The increase is mainly due to
earnings retention. Also, the additional shares issued under the Dividend
Reinvestment Plan contributed $4.0 million in additional capital since June 30,
1995. On April 26, 1996, the Corporation's Board of Directors authorized a
two-for-one common stock split effected in the form of a dividend, bringing
total outstanding shares to 66,001,180. The new shares were distributed on July
1, 1996, to shareholders of record as of June 14, 1996. All per share data
included herein has been adjusted to reflect the stock split. As a result of
the split, $198 million were transferred from retained earnings to common
stock. The Corporation's stockholders' equity at June 30, 1996, includes $5.7
million, net of deferred taxes, in unrealized holding losses on securities
available-for-sale, compared with $4.3 million, net of deferred taxes, in
unrealized gains at June 30, 1995. Stockholders' equity at December 31, 1995,
amounted to $1.14 billion.
At June 30, 1996, the market value of the Corporation's common stock,
after adjusting for the stock split, was $22.50 per share, compared with $17.75
at June 30, 1995, and $23.13 at March 31, 1996. The Corporation's total market
capitalization at June 30, 1996, was $1.5 billion. Book value per common share
increased to $16.47 as of June 30, 1996, compared with $14.79 as of the same
date last year.
The dividend payout ratio to common stockholders for the quarter ended
June 30, 1996, was 22.50% compared with 25.70% for the same quarter last year.
The Corporation's Board of Directors also approved an increase in the quarterly
cash dividend for the third quarter of 1996, to $0.18 per common share. This
represents an increase of 20% over the $0.15 per share paid in previous
quarters.
The market value of the Corporation's preferred stock at June 30,
1996, was $26.50 per share compared with $27.00 at June 30, 1995, and $27.25 at
March 31, 1996.
The Corporation's capital ratios continue well-above regulatory
requirements. Tier I, total capital and leverage ratios at June 30, 1996, were
11.76%, 14.41% and 6.68%, respectively, compared with 11.58%, 12.85% and 7.07%,
at June 30, 1995.
12
<PAGE> 14
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
June 30,
(In thousands) 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks ........................................... $ 524,344 $ 411,420
------------------------------
Money market investments:
Federal funds sold and securities and mortgages
purchased under agreements to resell ........................... 898,041 623,118
Time deposits with other banks .................................. 3,236 5,255
Bankers' acceptances ............................................ 1,555 866
------------------------------
902,832 629,239
------------------------------
Investment securities held-to-maturity, at cost ................... 1,694,764 3,384,693
Investment securities available-for-sale, at market value ......... 3,127,423 1,186,292
Trading account securities, at market value ....................... 329,256 200,527
Loans held-for-sale ............................................... 153,278 27,706
Loans ............................................................. 9,456,881 8,483,950
Less--Unearned income ........................................... 330,827 311,328
Allowance for loan losses .................................... 178,330 158,734
------------------------------
8,947,724 8,013,888
------------------------------
Premises and equipment ............................................ 340,358 327,194
Other real estate ................................................. 3,611 9,767
Customers' liabilities on acceptances ............................. 1,650 1,411
Accrued income receivable ......................................... 118,774 101,991
Other assets ...................................................... 164,035 124,342
Intangible assets ................................................. 134,088 154,832
------------------------------
$16,442,137 $14,573,302
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing ........................................... $ 2,140,105 $ 1,840,835
Interest bearing ............................................... 8,436,843 7,767,104
------------------------------
10,576,948 9,607,939
Federal funds purchased and securities sold
under agreements to repurchase ................................. 2,747,186 2,135,591
Other short-term borrowings ..................................... 802,364 773,366
Notes payable ................................................... 692,435 674,009
Senior debentures ............................................... 30,000 30,000
Acceptances outstanding ......................................... 1,650 1,411
Other liabilities ............................................... 279,416 227,816
------------------------------
15,129,999 13,450,132
------------------------------
Subordinated notes .............................................. 125,000 50,000
------------------------------
Stockholders' equity:
Preferred stock ................................................. 100,000 100,000
Common stock .................................................... 396,007 197,364
Surplus ......................................................... 479,059 410,687
Retained earnings ............................................... 217,725 318,000
Unrealized (losses) gains on securities available-for-sale,
net of deferred taxes .......................................... (5,653) 4,262
Capital reserves ................................................ 42,857
------------------------------
1,187,138 1,073,170
------------------------------
$16,442,137 $14,573,302
==============================
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 15
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Quarter ended For the six months ended
June 30, June 30,
(Dollars in thousands, except per share information) 1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans ................................................ $ 226,027 $ 200,530 $ 443,274 $ 391,080
Money market investments ............................. 10,882 3,596 19,555 4,582
Investment securities ................................ 68,442 63,567 140,387 122,135
Trading account securities ........................... 4,624 1,125 9,686 1,240
-------------------------------------------------------------
309,975 268,818 612,902 519,037
-------------------------------------------------------------
INTEREST EXPENSE:
Deposits ............................................. 86,693 84,585 169,689 161,650
Short-term borrowings ................................ 41,625 29,246 84,555 54,620
Long-term debt ....................................... 13,449 12,867 27,990 23,119
-------------------------------------------------------------
141,767 126,698 282,234 239,389
-------------------------------------------------------------
Net interest income .................................. 168,208 142,120 330,668 279,648
Provision for loan losses ............................ 21,672 12,646 42,945 24,344
-------------------------------------------------------------
Net interest income after provision for loan losses .. 146,536 129,474 287,723 255,304
Service charges on deposit accounts .................. 21,389 19,552 42,465 37,642
Other service fees ................................... 19,408 15,565 36,788 29,376
Gain (loss) on sale of securities .................... (20) 66 709 112
Trading account profit (loss) ........................ (1,383) 350 (445) 300
Other operating income ............................... 9,921 4,839 21,790 10,495
-------------------------------------------------------------
195,851 169,846 389,030 333,229
-------------------------------------------------------------
OPERATING EXPENSES:
Personnel costs:
Salaries ............................................ 46,112 42,681 90,864 84,211
Profit sharing ...................................... 5,685 6,506 11,755 9,833
Pension and other benefits .......................... 15,654 15,122 32,635 30,683
-------------------------------------------------------------
67,451 64,309 135,254 124,727
Net occupancy expense ................................ 8,596 8,254 17,914 16,022
Equipment expenses ................................... 11,806 9,953 23,580 19,337
Other taxes .......................................... 5,466 5,094 11,429 10,725
Professional fees .................................... 10,993 9,218 20,909 16,772
Communications ....................................... 6,497 5,689 12,813 11,292
Business promotion ................................... 6,027 4,170 11,419 7,962
Printing and supplies ................................ 3,020 2,517 5,943 5,298
Other operating expenses ............................. 7,458 10,414 14,198 20,865
Amortization of intangibles .......................... 4,530 5,104 9,084 10,040
-------------------------------------------------------------
131,844 124,722 262,543 243,040
-------------------------------------------------------------
Income before taxes .................................. 64,007 45,124 126,487 90,189
Income taxes ......................................... 17,952 11,063 35,290 22,387
-------------------------------------------------------------
NET INCOME ........................................... $ 46,055 $ 34,061 $ 91,197 $ 67,802
=============================================================
NET INCOME APPLICABLE TO COMMON STOCK ................ $ 43,967 $ 31,973 $ 87,022 $ 63,627
=============================================================
EARNINGS PER COMMON SHARE ............................ $ 0.67 $ 0.49 $ 1.32 $ 0.97
=============================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 16
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
For the six months ended
June 30,
(In thousands) 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................. $ 91,197 $ 67,802
--------------------------------
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization of premises and equipment 24,132 21,008
Provision for loan losses .............................................. 42,945 24,344
Amortization of intangibles ............................................ 9,084 10,040
Gain on sale of investment securities available-for-sale ............... (709) (112)
(Gain) loss on disposition of premises and equipment ................... (7) 199
Amortization of premiums and accretion of discounts
on investments ...................................................... 4,647 (1,764)
(Increase) decrease in loans held-for-sale ............................ (40,472) 3,751
Amortization of deferred loan fees and costs .......................... 3,303 1,280
Net increase in postretirement benefit obligation ..................... 4,493 4,009
Net decrease (increase) in trading securities ......................... 1,418 (36,183)
Net increase in interest receivable ................................... (5,235) (12,830)
Net (increase) decrease in other assets ............................... (15,803) 1,267
Net increase (decrease) in interest payable ........................... 3,390 (1,203)
Net decrease in current and deferred taxes ............................ (22,196) (11,539)
Net increase (decrease) in other liabilities .......................... 13,228 (494)
--------------------------------
Total adjustments ...................................................... 22,218 1,773
--------------------------------
Net cash provided by operating activities .............................. 113,415 69,575
--------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in money market investments ................... (104,113) 213,776
Purchases of investment securities held-to-maturity ................... (5,620,734) (10,727,840)
Maturities of investment securities held-to-maturity .................. 5,566,537 10,333,862
Purchases of investment securities available-for-sale ................. (3,263,947) (413,993)
Maturities of investment securities available-for-sale ................ 1,580,601 24,097
Sales of investment securities available-for-sale ..................... 1,743,400 152,217
Net disbursements on loans ............................................ (638,924) (604,324)
Proceeds from sale of loans ........................................... 158,297 173,969
Acquisition of loan portfolios ........................................ (113,475) (39,231)
Assets acquired, net of cash .......................................... (29,189)
Acquisition of premises and equipment ................................. (39,805) (27,185)
Proceeds from sale of premises and equipment .......................... 526 4,155
--------------------------------
Net cash used in investing activities .................................. (731,637) (939,686)
--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits .............................................. 700,286 412,124
Net deposits acquired ................................................. 163,637
Net decrease in federal funds purchased and securities
sold under agreements to repurchase ................................. (253,693) (93,906)
Net increase in other short-term borrowings ........................... 347,656 177,132
Proceeds from issuance of notes payable ............................... 394,662 306,757
Payments of notes payable ............................................. (432,655) (107,505)
Payments of subordinated notes ........................................ (50,000)
Dividends paid ........................................................ (23,952) (20,601)
Proceeds from issuance of common stock ................................ 2,089 1,577
--------------------------------
Net cash provided by financing activities .............................. 684,393 839,215
--------------------------------
Net increase (decrease) in cash and due from banks ..................... 66,171 (30,896)
Cash and due from banks at beginning of period ......................... 458,173 442,316
--------------------------------
Cash and due from banks at end of period ............................... $ 524,344 $ 411,420
================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 17
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 June 30, 1996 and 1995, and
their related statements of income and cash flows for the six-month periods
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 as well as assets held for disposition be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. For the six-month period ended June
30, 1996, no impairment recognition was necessary under 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 periods 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, rate
and term. The amount of impairment recognized if any, is the amount by which
the capitalized mortgage servicing rights per stratum exceeds its estimated
fair value. Impairment is recognized through a valuation allowance. As of June
30, 1996, the carrying value, estimated fair value and valuation allowance of
capitalized mortgage servicing rights were $24,112, $29,574 and $64,
respectively. For the quarter and six-month period ended June 30, 1996, the
Corporation realized additional income of $1,115 and $1,610, respectively, 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.
16
<PAGE> 18
- --------------------------------------------------------------------------------
Banco Popular provides a stock-based compensation plan for its senior
management. It is a three-year incentive plan under which shares of stock of
the Corporation are granted if long-term corporate performance and objectives
are met. For the quarter and six-month period ended June 30, 1996, the
Corporation recognized $111 and $214, respectively, 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 June 30, 1996, the recorded investment
in loans that are considered to be impaired under SFAS 114 was $89,818 (1995 -
$89,208) of which $54,947 (1995 - $49,507) had a related allowance for possible
loan losses of $15,157 (1995 - $9,709). Average impaired loans during the
quarter and the first six months of 1996 were $84,796 and $85,302,
respectively. The Corporation recognized interest income on impaired loans of
$687, and $1,588, respectively, for the quarter and six-month period ended June
30, 1996.
NOTE 3 - INVESTMENT SECURITIES
The average maturities as of June 30, 1996 and market value for the following
investment securities are:
Investments securities held-to-maturity:
<TABLE>
<CAPTION>
June 30,
1996 1995
Amortized Cost Market Value Amortized Cost Market Value
---------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury (average maturity of
10 months) $ 923,106 $ 923,664 $2,318,157 $2,324,459
Obligations of other U.S. Government
agencies and corporations (average
maturity of 6 months) 210,600 209,506 247,333 245,097
Obligations of Puerto Rico, States and
political subdivisions (average
maturity of 2 years and 3 months) 220,456 222,090 215,185 219,866
Collateralized mortgage obligations
(average maturity of 1 year and 5 months) 223,416 221,881 409,640 404,225
Mortgage-backed securities (average
maturity of 4 years and 7 months) 57,048 56,150 138,618 137,731
Equity securities (without contractual
maturity) 47,674 47,674 43,558 43,558
Others (average maturity of 6 years
and 3 months) 12,464 12,484 12,202 12,237
--------------------------------------------------------------
$1,694,764 $1,693,449 $3,384,693 $3,387,173
==============================================================
</TABLE>
17
<PAGE> 19
- --------------------------------------------------------------------------------
Investments securities available-for-sale:
<TABLE>
<CAPTION>
June 30,
1996 1995
Amortized Cost Market Value Amortized Cost Market Value
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury (average maturity
of 1 year and 3 months) $2,461,354 $2,457,654 $ 678,002 $ 679,583
Obligations of other U.S. Government
agencies and corporations (average
maturity of 1 year and 8 months) 146,977 146,064 150,135 151,110
Obligations of Puerto Rico, States and
political subdivisions (average
maturity of 2 years and 8 months) 24,924 24,814 31,154 31,201
Collateralized mortgage obligations (average
maturity of 2 years and 9 months) 188,470 187,742 41,953 41,826
Mortgage-backed securities (average maturity
of 16 years and 9 months) 266,433 261,648 215,082 214,722
Equity securities (without contractual
maturity) 27,257 31,531 24,980 29,349
Others (average maturity of 13 years and
10 months) 18,050 17,970 38,484 38,501
---------------------------------------------------------------
$3,133,465 $3,127,423 $1,179,790 $1,186,292
===============================================================
</TABLE>
NOTE 4 - PLEDGED ASSETS
Securities and insured mortgage loans of the Corporation of $2,677,352 (1995 -
$2,523,419) 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 June 30, 1996, amounted to $19,302 and
$121,204. 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.
18
<PAGE> 20
- --------------------------------------------------------------------------------
NOTE 6 - SUBORDINATED NOTES
Subordinated notes consist of the following:
<TABLE>
<CAPTION>
June 30,
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, which matured on June 15, 1996, with interest payable
quarterly and consisting of:
8.875% Fixed Rate Notes series A $15,000
8.6875% Fixed Rate Notes series B 15,000
Floating Rate Notes series A with interest
payable at 88% of LIBID rate 19,000
Floating Rate Notes series B with interest
payable at 86% of LIBID rate 1,000
-------------------------
50,000
-------------------------
$125,000 $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 66,001,180 are issued and outstanding at June 30, 1996. On April
26,1996, the Corporation's Board of Directors authorized a stock split of one
share for each share outstanding effected in the form of a dividend, effective
July 1, 1996. As a result of the split, 33,000,590 shares were issued,
increasing the number of shares outstanding to 66,001,180, and $198,004 were
transferred from retained earnings to common stock. All references in the
financial statements to the numbers of common shares and per share amounts have
been restated to reflect the stock split. 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 June 30, 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 $43,967 for the second quarter of 1996
(1995 -$31,973) and $87,022 for the six months ended June 30, 1996 (1995 -
$63,627), after deducting the dividends on preferred stock. EPS are based on
66,001,180 average shares outstanding for the second quarter of 1996 (1995 -
65,787,936) and 65,975,526 average shares outstanding for the first six months
of 1996 (1995 - 65,760,742), after restating for the stock split.
NOTE 9 - SUPPLEMENTAL DISCLOSURE ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS
During the six-month period ended June 30, 1996, the Corporation paid interest
and income taxes amounting $276,030 and $56,790, respectively (1995 -
$233,396 and $28,750). In addition, the loans receivable transferred to other
real estate and other property for the six-month period ended June 30, 1996,
amounted to $1,150 and $2,436, respectively (1995 - $1,843, and $4,084). The
Corporation's stockholders' equity at June 30, 1996 includes $5,653, net of
deferred taxes, in unrealized holding losses on securities available-for-sale,
as compared with unrealized holding gains of $4,262 at June 30, 1995.
19
<PAGE> 21
<TABLE>
DIRECTORS AND OFFICERS
- -----------------------------------------------------------------------------------------------------
<S> <C>
OFFICES (CONT.)
LOS ANGELES OFFICE
BOARD OF DIRECTORS 354 South Spring St.
Richard L. Carrion, Chairman Los Angeles, California 90013
Alfonso F. Ballester, Vice Chairman Telephone: (213) 626-1160
Antonio Luis Ferre, Vice Chairman
Juan A. Albors Hernandez * VIRGIN ISLANDS OFFICE
Salustiano Alvarez Mendez * 80 Kronprindsens Gade
Jose A. Bechara Bravo * Kronprindsens Quarter
Juan J. Bermcdez Charlotte Amalie, St. Thomas
Esteban D. Bird * U.S. Virgin Islands 00802
Francisco J. Carreras Telephone: (809) 774-2300
David H. Chafey, Jr.
Luis E. Dubon, Jr. SUBSIDIARIES
Hector R. Gonzalez VEHICLE EQUIPMENT LEASING COMPANY, INC.
Jorge A. Junquera Diez State Road #2 Km. 6.8
Franklin A. Mathias* Villa Caparra
Manuel Morales, Jr. Guaynabo, Puerto Rico 00966
Alberto M. Paracchini Telephone: (787) 792-9292
Francisco Perez, Jr. **
Francisco M. Rexach, Jr. POPULAR LEASING AND RENTAL, INC.
Jose E. Rossi ** M-1046 Federico Costa St.
Felix J. Serralles Nevares Tres Monjitas Industrial Development
Emilio Jose Venegas ** San Juan, Puerto Rico 00903
Julio E. Vizcarrondo, Jr. Telephone: (787) 751-4848
Samuel T. Cespedes, Secretary POPULAR CONSUMER SERVICES, INC.
10 Salud Street
* Director of Banco Popular de Puerto Rico only El Senorial Condominium, Suite 613
** Director of BanPonce Corporation only Ponce, Puerto Rico 00731
Telephone: (787) 844-2860
EXECUTIVE OFFICERS
Richard L. Carrion, Chairman of the Board, EQUITY ONE, INC.
President and Chief Executive Officer 523 Fellowship Road, Suite 220
David H. Chafey, Jr., Senior Executive Vice President Mt. Laurel, New Jersey 08054
Jorge A. Junquera Diez, Senior Executive Vice President Telephone: (609) 273-1119
Maria Isabel Burckhart, Executive Vice President
Larry Kesler, Executive Vice President PIONEER BANCORP, INC.
Humberto Martin, Executive Vice President 4000 West North Avenue
Emilio E. Pinero, Executive Vice President Chicago, Illinois 60639
Telephone: (312) 772-8600
OFFICES
BANCO POPULAR, FSB
CENTRAL OFFICE 500 Bloomfield Avenue
Banco Popular Center, Hato Rey Newark, New Jersey 07107
209 Munoz Rivera Avenue Telephone: (201) 484-6525
San Juan, Puerto Rico 00918
Telephone: (787) 765-9800 POPULAR MORTGAGE, INC.
268 Ponce de Leon Avenue
NEW YORK OFFICE San Juan, Puerto Rico 00918
7 West 51st St. Telephone: (787) 753-0245
New York, N.Y. 10019
Telephone: (212) 315-2800 BP Capital Markets, Inc.
1020 Popular Center
Hato Rey, Puerto Rico 00918
Telephone: (787) 766-4200
</TABLE>
20
<PAGE> 22
BANPONCE
COPORATION
PO Box 362708
San Juan, Puerto Rico 00936-2708
21
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
EXHIBIT 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BANPONCE CORPORATION FOR THE SIX MONTHS ENDED JUNE
30, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1,000
<CASH> 524,344
<INT-BEARING-DEPOSITS> 3,236
<FED-FUNDS-SOLD> 898,041
<TRADING-ASSETS> 329,256
<INVESTMENTS-HELD-FOR-SALE> 3,127,423
<INVESTMENTS-CARRYING> 1,694,764
<INVESTMENTS-MARKET> 1,693,449
<LOANS> 9,279,332
<ALLOWANCE> 178,330
<TOTAL-ASSETS> 16,442,137
<DEPOSITS> 10,576,948
<SHORT-TERM> 3,579,550
<LIABILITIES-OTHER> 279,416
<LONG-TERM> 692,435
0
100,000
<COMMON> 396,007
<OTHER-SE> 691,131
<TOTAL-LIABILITIES-AND-EQUITY> 16,442,137
<INTEREST-LOAN> 443,274
<INTEREST-INVEST> 140,387
<INTEREST-OTHER> 29,241
<INTEREST-TOTAL> 612,902
<INTEREST-DEPOSIT> 169,689
<INTEREST-EXPENSE> 282,234
<INTEREST-INCOME-NET> 330,668
<LOAN-LOSSES> 42,945
<SECURITIES-GAINS> 709
<EXPENSE-OTHER> 262,543
<INCOME-PRETAX> 126,487
<INCOME-PRE-EXTRAORDINARY> 91,197
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 91,197
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.83
<LOANS-NON> 145,846
<LOANS-PAST> 12,192
<LOANS-TROUBLED> 2,656
<LOANS-PROBLEM> 124,474
<ALLOWANCE-OPEN> 168,393
<CHARGE-OFFS> 49,024
<RECOVERIES> 16,016
<ALLOWANCE-CLOSE> 178,330
<ALLOWANCE-DOMESTIC> 177,637
<ALLOWANCE-FOREIGN> 693
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
