P-1 Pricing Supplement, dated August 6, 1996 to Prospectus dated September 27, 1995 and Prospectus Supplement dated October 6, 1995 BanPonce Financial Corporation Medium-Term Notes, Series C Due From Nine Months to 30 Years From Date of Issue Unconditionally Guaranteed as to Payment of Principal, Premium, if any, and Interest by BanPonce Corporation PRINCIPAL AMOUNT . . . . . . . . . . U.S. $75,000,000.00 ORIGINAL ISSUE DATE . . . . . . . . . August 9, 1996 MATURITY DATE . . . . . . . . . . . . August 9, 2001 GLOBAL SECURITY . . . . . . . . . . . Yes INTEREST RATE PER ANNUM . . . . . . . 6.75% INTEREST RATE BASIS . . . . . . . . . Fixed INTEREST PAYMENT DATES. . . . . . . . June 15 and December 15 of each year and at Maturity, commencing on December 15, 1996. Price Underwriting Proceeds to Public(1) Discount(2) to Company(1)(3) Per Note . . . . . . 99.56% 0.50% 99.06% Total . . . . . . . . $74,670,000 $375,000 $74,295,000 <FN> (1) Plus accrued interest from August 9, 1996, if any. (2) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. (3) Before deducting expenses payable by the Company. </FN> The Notes offered hereby are offered by the several Underwriters, as specified herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that the Notes will be ready for delivery in New York, New York, on or about August 9, 1996, against payment therefor in immediately available funds. Merrill Lynch & Co. CS First Boston P-2 RECENT DEVELOPMENTS The U.S. Congress has approved legislation (the "Legislation") that would, among other things, repeal Section 936 of the U.S. Internal Revenue Code ("Section 936"). The Legislation has not yet been signed into law by the President of the United States. In general terms, Section 936 provides U.S. corporations operating in Puerto Rico ("936 Corporations") with a tax credit against U.S. federal tax liability on income derived from business operations and certain investments in Puerto Rico. The Legislation phases out the Section 936 tax credit for income derived from Puerto Rican business operations of a 936 Corporation over a 10-year period. The Legislation would repeal, retroactively as of July 1, 1996, the credit against U.S. federal tax liability for investments made by 936 Corporations in Puerto Rico ("936 Funds"). This credit 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 BanPonce Corporation's (the "Corporation") current fiscal year, if the Legislation becomes law. As of June 30, 1996, the Corporation was a recipient of and had a balance of $2.9 billion in 936 Funds, representing 19.15% of the Corporation's 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 that are applicable to all recipients of 936 Funds. The repeal of Section 936 could have an adverse effect on the general economic condition of Puerto Rico, the Corporation's predominant service area. USE OF PROCEEDS The proceeds from the issuance of the Notes to which this Pricing Supplement relates will be used to finance the Corporation's subsidiaries. CERTAIN ADDITIONAL FEDERAL TAX CONSEQUENCES Recently proposed U.S. Treasury regulations (the "Proposed Regulations") would establish alternative methods for providing the certification that is required, as described in the Prospectus Supplement under the caption "United States Taxation -- United States Alien Holders", for payments on the Notes to be free from United States withholding tax, information reporting requirements and backup withholding tax. The Proposed Regulations also would require, in the case of Notes held by foreign partnerships, that (x) the certification described above be provided by the partners rather than by the foreign partnership and (y) the partnership provide certain information, including a United States taxpayer identification number. A look-through rule would apply in the case of certain tiered partnerships. The Proposed Regulations are proposed to be effective for payments made after December 31, 1997. There can be no assurance that the Proposed Regulations will be adopted or as to the provisions that they will include if and when adopted in temporary or final form. P-3 UNDERWRITING Subject to the terms and conditions set forth in a terms agreement (the "Terms Agreement") among BanPonce Financial Corporation (the "Company"), the Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated and CS First Boston Corporation (the "Underwriters"), the Company has agreed to sell to the Underwriters, and the Underwriters have severally agreed to purchase, the respective principal amount of Notes set forth after their names below. The Terms Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will be obligated to purchase all of the Notes if any are purchased. Principal Underwriter Amount Merrill Lynch, Pierce, Fenner & Smith Incorporated . . . . . . . . . . . . $52,500,000 CS First Boston Corporation . . . . . . . . . . . . 22,500,000 Total . . . . . . . . . . . . . . . $75,000,000 The Underwriters have advised the Company that they propose initially to offer the Notes to the public at the public offering price set forth on the cover page of this Pricing Supplement, and to certain dealers at such price less a concession not in excess of .3% of the principal amount. The Underwriters may allow, and such dealers may reallow, a discount not in excess of .25% of the principal amount of the Notes to certain other dealers. After the initial public offering, the public offering price, concession and discount may be changed. The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. The Underwriters and certain of their affiliates and associates are customers of, including borrowers from, engage in transactions with, and/or perform services for, the Corporation and its subsidiaries, in the ordinary course of business. Also, in the ordinary course of their respective businesses, affiliates of the Underwriters engage, and may in the future engage, in commercial banking and investment banking transactions with the Corporation and its subsidiaries. The Underwriters have performed investment banking services for the Corporation in the last two years and have received fees in connection therewith.