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EXHIBIT 13.1
BANPONCE
CORPORATION
1993 ANNUAL REPORT
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BUSINESS REVIEW
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CONSOLIDATED FINANCIAL HIGHLIGHTS
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(Dollars in thousands, except per share data) 1993 1992 % Change
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FOR THE YEAR:
Net interest income $ 492,128 $ 440,219 11.79
Provision for loan losses 72,892 97,633 (25.34)
Fees and other income 125,180 124,504 0.54
Operating expenses 440,427 381,204 15.54
Dividends on preferred stock of subsidiary
Bank 770 770 0.00
Cumulative effect of accounting changes 6,185
Net income 109,404 85,116 28.54
Dividends declared on common stock 29,434 24,624 19.53
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PER SHARE DATA:*
Net income before cumulative effect of
accounting changes $ 3.16 $ 2.79 12.96
Net income 3.35 2.79 19.73
Dividends declared 0.90 0.80 12.50
Book value per share at year-end 25.49 23.03 10.65
Price of common stock at year-end 31.50 30.25 4.13
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AT YEAR-END:
Total assets $11,513,368 $10,002,327 15.11
Earning assets 10,657,994 9,236,024 15.40
Net loans 6,346,922 5,252,053 20.85
Deposits 8,522,658 8,038,711 6.02
Total stockholders' equity 834,195 752,119 10.91
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SELECTED RATIOS:
Return on assets 1.02% 0.89% 14.61
Return on equity 13.80 12.72 8.49
Tier I capital to risk-adjusted assets 12.29 12.88 (4.58)
Total capital to risk-adjusted assets 13.95 14.85 (6.06)
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SELECTED DATA:
Common shares outstanding 32,732,423 32,654,864 0.24
Staff in full-time equivalents 7,439 6,965 6.81
Branches (banking operations) 205 195 5.13
Automated teller machines 253 226 11.95
Stockholders 5,306 5,399 (1.72)
* Per share data is based on the average number of shares outstanding during
the periods.
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CONTENTS PROFILE
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Letters to Shareholders 4 - BANPONCE CORPORATION is a diversified, publicly owned bank holding com-
pany (NASDAQ symbol: BPOP), incorporated under the General Corporation
Tradition into the Future: Law of Puerto Rico. It provides a wide variety of financial services
A Historical Perspective 10 through its principal subsidiaries: Banco Popular de Puerto Rico, VELCO
and Popular International Bank, Inc.
Prudent and Sound Business
Practices 24 - BANCO POPULAR DE PUERTO RICO is the Corporation's full-service commercial
banking subsidiary, and Puerto Rico's largest banking institution, with
Leadership and Committed $10.8 billion in assets, $8.5 billion in deposits, and a delivery system of
Employees 28 165 branches throughout Puerto Rico. The Bank operates 30 branches in
New York City, one in Chicago, one in Los Angeles and eight in the
Social Responsibility 30 British and U.S. Virgin Islands. In addition, Banco Popular has two subsid-
iaries, POPULAR LEASING & RENTAL, INC., and POPULAR CONSUMER SERVICES,
Innovation and Technology 36 INC., a small-loan company with 26 offices operating under the name of
Best Finance.
Board of Directors 43
Management 45
Banco Popular Branch Network 46 - VELCO (Vehicle Equipment Leasing Company, Inc.) is engaged in finance leasing
and daily rental of motor vehicles.
- POPULAR INTERNATIONAL BANK, INC. incorporated under the Puerto Rico
International Banking Center Act, has BanPonce Financial Corp., incorpo-
rated in Delaware, as its subsidiary. Spring Financial Services, Inc., of
Mt. Laurel, N.J., a wholly owned subsidiary of BanPonce Financial Corp., is
engaged in the business of making personal and mortgage loans in 58
offices throughout 14 states.
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OUR CREED
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Banco Popular is a wholly local institution devoting its efforts to the
enhancement of the social and economic welfare of Puerto Rico and inspired on
the soundest fundamental principles of good banking practice.
Banco Popular pledges its efforts and resources to the development of
a banking service that, in meeting all requirements of the most progressive
communities of the world, is fully equipped to handle efficiently such
financial problems as may arise in the continued expansion of our island.
These words, writen by don Rafael Carrion Pacheco, embody the philosophy of our
Bank.
Our people
All the men and women who are part of our institution, from upper management to
clerical personnel, take special pride in serving our customers and community
in a very dedicated way. We all feel the same personal satisfaction of
belonging to the "Banco Popular Family," which fosters affection and
understanding, and which also holds us to the highest standards of behavior and
moral ethics.
These words by don Rafael Carrion Jr., commemoriating the Bank's 95th
anniversary, reflect our beliefs in our personnel.
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Photo (4)
Richard L. Carrion
Chairman, President and
Chief Executive Officer
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TO OUR SHAREHOLDERS
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This past year has been an extraordinary one. We commemorated our first
century of service with solid growth and sound financial performance.
Our financial results in 1993 were impressive with record earnings of
$109.4 million, an increase of 28.5% over 1992 results, and significant
improvements in most financial measures such as return on assets, return on
equity and asset quality. Total assets grew over 15% as we continue to
diversify our lines of business and geographic sources of revenue. Today we
continue to have an enviable banking franchise in Puerto Rico and, above all,
we have an outstanding group of officers and employees who are fully committed
to our goals.
On October 5, 1993, Banco Popular de Puerto Rico, the principal
subsidiary of BanPonce Corporation, turned 100 years old. A yearlong
centennial celebration, highlighting the theme "Tradition into the Future", was
shared with our customers, employees, directors, shareholders and the
communities we serve. A world-class fireworks display was featured in three
different locations throughout the island as a gift to the people of Puerto
Rico. A memorable television special, featuring our most precious traditional
melodies interpreted by some of our most prominent artists and musicians, was
broadcast simultaneously in Puerto Rico, New York and Chicago. Our Christmas
Party, a wonderful day of festivities, was attended by more than 15,000 Banco
Popular family members. The highlight of our celebration was the presentation
of a special book on the history of the Bank entitled Tradition into the
Future. The book was researched and written over a period of nearly four years
by Guillermo A. Baralt, PhD. It vividly narrates the Bank's first century, as
well as the economic, political and social history of Puerto Rico. On the
morning of October 5, 1993, we inaugurated our in-house interactive television
system that allows us to broadcast to all the Bank's branches and centralized
departments. Following the first transmission each Banco Popular employee
received a copy of the book. A condensed version of the Bank's history is
included in this report.
It is sometimes dangerous to dwell on the past, and one must be leery
of diverting an excessive amount of resources toward celebrations of past
achievements. However, we felt it was important to show our gratitude to the
customers who have supported us throughout the years and to enhance the pride
and loyalty of our employees. Additionally, as we focus on our next century,
it is inspiring to see how far we have come. At the end of the 19th century,
we were a tiny bank in a poor and rural island under the Spanish flag. At the
end of 1993, BanPonce Corporation was by far the largest financial institution
in Puerto Rico and ranked among the 55 largest bank holding companies in the
United States, with consolidated assets of $11.5 billion, deposits of $8.5
billion, and equity of $834 million. Today, in addition to Banco Popular de
Puerto Rico, the leading commercial and retail bank in Puerto Rico, our
organization includes VELCO, the largest leasing company in Puerto Rico;/Spring
Financial Services, our growing consumer finance subsidiary in the U.S.,
operating through 58 offices in 14 states; the largest retail banking
organization in the Caribbean with seven branches in the U.S. Virgin Islands
and one in the British Virgin Islands; and the largest Hispanic bank branch
network in the mainland United States with 30 branches in New York, one in
Chicago and another in Los Angeles.
In 1993 we continued to build on our existing solid foundation for our
next 100 years in an environment for banking that has grown more challenging
with every passing year. Rapidly declining interest rates, slow economic
growth, government budget reductions and excessive regulations are some of the
challenges we face while doing business in an ex-
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tremely competitive and consolidating industry. We at BanPonce have chosen to
respond to these and other challenges by staying close to and growing
businesses that we know and that complement each other.
As we mentioned in last year's letter, our strategic plan focused on
three main objectives: vigorously managing a transition from a paperbased to an
electronic payment system, enhancing our customer service and expanding our New
York presence. We took a number of steps to enhance the attractiveness of
electronic payment services to our customers. Early in the year, Banco Popular
launched a telephone bill payment service known under the marketing name of
TelePago, providing our customers a convenient alternative to making payments
by mail and reducing traffic in the branches. Direct debit of loan payments
was also promoted, significantly increasing the number of new retail loans
using this system. Direct deposit of payrolls was also emphasized throughout
the year.
A key effort during the year was the enhancement of the ATM network
and a growing network of point-of-sale terminals that can accept our ATM card
("ATH") at various locations. While enhancing the value of the card, we
introduced an annual fee for the first time. This initiative encountered some
customer and regulatory resistance and our transaction volume was initially
impacted. However, by year-end we began to see a return to increased usage.
Also, a centralized telephone banking unit known as TeleBanco was established,
integrating customer service and telemarketing functions.
Technology has enhanced existing products, improving a cash management
system known as Popular Access Line (PAL), which allows cash monitoring for
commercial customers. We also pioneered in the use of imaging technology in
our market with the introduction of CheckRegister, which features images of
canceled checks in the monthly statement and eliminates the need to physically
return these items.
Toward the end of the year, we successfully launched our new Cuenta
Popular. This account has access to all our electronic services, as well as
checks. It is clearly the most value-laden product in the marketplace and
consumers have responded accordingly.
Perhaps the most significant event in the area of customer service was
the full implementation of the concept of Total Quality Management (TQM). At
year-end, approximately 43% of our employees had taken our introductory course
to quality management, which is based on the Deming method. In addition,
several Process Improvement Teams have been formed and are already producing
encouraging results in various areas. We plan to continue to stress improving
the quality of our service at all levels of the organization.
Pursuant to our stated plans of increasing our presence in New York,
we took a number of important steps. With respect to our banking business, we
acquired four branches and approximately $130 million in deposits from Bank
Leumi Trust Company and acquired one branch from Emigrant Savings Bank. We
closed the year with 30 branches and deposits of $1.3 billion. More
importantly, we were able to increase substantially the generation of quality
loans, mostly in the area of residential mortgages. And for the third year in
a row, Banco Popular was the largest lender of SBA-guaranteed loans among all
commercial banks in the United States.
In 1993, we also signed a purchase agreement for the acquisition of
Pioneer Bank, a successful community bank with two branches and approximately
$340 million in assets and over $300 million in deposits in the Chicago area.
As of this writing, the transaction has received regulatory approval and we
expect to complete the acquisition by the end of the first quarter of 1994. In
addition, we ac-
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quired five branches in the British and U.S. Virgin Islands with approximately
$229 million in deposits and $125 million in loans from CoreStates Bank.
Spring Financial, our growing and successful U.S. consumer finance subsidiary
continued its expansion and closed the year with $391 million in assets
throughout 58 offices in 14 states, compared with $189 million in assets and 41
offices in 10 states at the end of 1992. Overall, our planned growth in the
U.S. and the Caribbean continued to provide us with superior asset growth and
important geographic diversification.
The Corporation's financial performance improved substantially in
1993. Net income amounted to $109.4 million, representing $3.35 per share, a
28.5% increase over the $85.1 million earned in 1992. Return on average assets
and return on average equity also improved considerably, reaching 1.02% and
13.80%, respectively. The most significant factors in 1993 that affected us
were the expansion of the operations in the mainland, increased profits of our
non-banking subsidiaries, an increase in net interest income, a reduction in
the provision for loan losses and an increase in operating expenses.
The Corporation's net interest income increased $51.9 million, mostly
due to the growth of $1.1 billion in average earning assets. Net interest
margin declined modestly from 5.01% to 4.97% in 1993. Another contributing
factor in the increase in earnings was the reduction of $24.7 million in the
required provision for loan losses, from $97.6 million in 1992 to $72.9 million
in 1993. This decrease in the provision is the result of a considerable
reduction to net charge offs for the year, particularly in the retail loan
portfolio. This is a reflection of improved credit underwriting and the
benefits of a slowly recovering economy. It is important to note that even
with the lower provision, we were able to increase the allowance for loan
losses from $110.7 million in 1992 to $133.4 million in 1993. The allowance
now stands at 2.10% of loans, compared with 2.11% a year ago.
Non-performing assets, which include commercial loans 60 days past due
and consumer installment loans, conventional mortgages and lease financing
receivables 90 days past due, decreased significantly from 2.52% of loans as of
December 31, 1992, to 1.75% at year-end 1993. The allowance coverage of these
assets increased from 83.68% in 1992 to 120.04% in 1993.
The Corporation's operating expenses for the year increased $45.3
million, including an increase of $27.7 million in personnel costs. The rise
in personnel costs is related to a $5.2 million expense associated with
postretirement health benefits for employees (SFAS #106) and the payment of a
special bonus on Banco Popular's centennial. The increase is also related to
the costs associated with recent branch acquisitions in the U.S. and the
Caribbean.
In August 1993, your Board of Directors approved an increase of 25% in
the quarterly dividend of our common stock. The new quarterly dividend will be
25 cents per share. At year-end, the Corporation had more than $834 million in
capital and a market value in excess of $1 billion. The Corporation remains
very strongly capitalized, with Tier I capital of 12.29%, total capital to
risk-adjusted assets of 13.95%, and a leverage ratio of 6.95%, all well in
excess of regulatory requirements for well-capitalized institutions. This
strong capital base allows us to pursue new opportunities and continue with our
expansion plans. Our common stock price increased slightly during the year
from $30.25 to $31.50. For the 10-year period from 1983, the compounded annual
growth rate on our common stock price was 16.86% and the total return for the
period, including dividends, was 21.78%. Our stock price has performed well
during this period, surpassing the return of market
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Group that includes Mr. Carrion)
indicators and the performance of our competitors.
The economic climate that prevailed during 1993 was one of slow
recovery. The low interest rate environment has permitted consumers and
commercial borrowers to refinance, recapitalize and improve their financial
condition. During the early part of 1993, Section 936 of the U.S. Internal
Revenue Service Code came under attack. In August, Congress approved
amendments to the Section that reduced the tax benefits derived by Section 936
companies in Puerto Rico. Even with a reduced tax benefit, we believe these
companies will remain an important part of our economy, given the many other
benefits offered, such as good infrastructure, geographic proximity to the U.S.
mainland, no currency or political risk, and, most importantly, a skilled work
force. In November, a non-binding referendum was held in Puerto Rico for
voters to indicate their preferred political status -- commonwealth, statehood
or independence. Commonwealth, the current status, received 48.6% of the vote,
statehood 46.3% and independence 4.4%. A similar referendum was held in 1967.
At that time, commonwealth received 60.4%, statehood 39.0% and independence
0.6%.
Mr. Angel A. del Valle, who reached the mandatory retirement age,
retired from the Boards of Directors of the Corporation and Banco Popular de
Puerto Rico. After more than 22 years of dedication to the Bank, his thoughts
and insight will be missed. For personal reasons, Mr. Danilo Ondina also
retired from the Board of Directors of the Bank. For more than 25 years, he
served as an executive of Banco de Ponce and BanPonce, where he completed his
outstanding professional career. Mr. Noel Totti also reached the retirement
age of the Corporation and will continue to serve on the Board of Banco Popular
until April 1994 when he will retire. His active participation contributed to
our success. To all of them we extend our appreciation and thanks for their
contribution in attaining our goals and wish them many happy years of
retirement.
Mr. Alberto M. Paracchini stepped down from his position as
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(Photo 9: __________________________________________
Group that includes Mrs. Burckhart) Banco Popular's Senior Management:
from the left, David H. Chafey Jr.,
Larry Kesler, Richard L. Carrion,
Humberto Martin, Samuel T. Cespedes
(legal counsel) Jorge A. Junquera,
Maria Isabel P. de Burckhart and
Emilio E. Pinero Ferrer.
Chairman in 1993, but remains on the Boards of the Corporation and the Bank.
We will continue to benefit from his banking and financial experience in our
quest to improve performance and build the strongest of institutions in a most
competitive environment. We express our gratitude for his many years of
dedication and leadership.
As we look toward the future, our strategy remains essentially the
same as we stated in last year's letter: to continue to enhance the quality of
our customer service, to build and expand our banking and non-banking
franchises outside Puerto Rico and to move aggressively from paper-based
banking transactions to an electronic banking environment. We are convinced
that the successful financial organizations will be those that control the
quality of their assets, give value to their customers, control their cost base
and continuously improve the skills of their human resources.
In this centennial year, we evoke the memory of all those who came
before us, in particular Rafael Carrion Pacheco and Rafael Carrion Jr.
Their philosophy and principles, embodied in "Our Creed" and "Our People", have
made us strong and will carry us into the future. The would be justly proud of
what has been built on their foundation. It has been a privilege to follow in
their footsteps.
RICHARD L. CARRION
Chairman, President and
Chief Executive Officer
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PARTIAL INFORMATION OF 1893
INCORPORATION'S DOCUMENT
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This has been the story of a small bank that grew into a big bank, a San Juan
bank that reached out into the farthest corners of the island, and an
islandwide bank that reached out across the water into the mainland. This is
the story of a Puerto Rican bank that has attained its hundredth
anniversary -- an achievement that is not the result of chance but rather the
product of historical circumstances consciously transformed by the vision and
sustained effort of the bank's leaders, through the years, into the successful
enterprise that can be seen today.
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PAPER MONEY OVER A
BLOW UP OF A $ BILL
TRADITION INTO THE FUTURE
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(Photo 13a)
Banco Popular de Economias y Prestamos was founded on October 5, 1893, with a
limited capital of 5,000 silver pesos.
(Photo 13b)
Original logo used in 1893.
(Photo 13c)
1902 Annual Report.
A HISTORICAL PERSPECTIVE
Over the years, as Banco Popular's founding principles of prudence, sound
business practices and social responsibility guided its growth and saw the
institution parallel the development of a modern Puerto Rico, its presidents
believed the Bank's corporate history was a story worth telling. The
celebration of the Bank's 100th anniversary in 1993 provided the ideal
opportunity to make that desire a reality.
The result was Tradition into the Future, a book researched and
written by Guillermo A. Baralt. It is an inspiring success story of how the
solid principles set forth by the Bank's founders have prevailed through the
years, supported by a team of people dedicated to those ideals. These
principles have guided the institution from its modest beginnings to the
prominence it enjoys today.
It is these same sound and timeless principles, no less
enthusiastically endorsed by the institution's current leaders, that will guide
Banco Popular successfully through its next century.
A PEOPLE'S BANK
The story begins on the evening of Thursday, October 5, 1893, as a group of
friends -- some Puerto Rican, others Spaniards -- made their way through the
cobblestoned streets of the old walled city of San Juan. Their destination was
the Ateneo Puertorriqueno, on the Plaza Alfonso XII, today the Plaza de Armas.
Their mission was to establish a savings and loan institution catering to the
island's poor, so often the victims of usury. Within hours, the Sociedad
Anonima de Economias y Prestamos: Banco Popular was born, with a capital of
5,000 silver pesos.
This group of pioneers with a vision was headed by Manuel Fernandez
Juncos, the founder, publisher and editor of the popular weekly newspaper El
Buscapie. In his insightful, witty articles, Fernandez Juncos had long argued
the need for a bank that would welcome the modest savings of the island's poor.
He vehemently attacked usury, while trying to assuage a general pessimism in
the wake of the failure of other banking efforts.
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(Photo 14a)
In 1924, Banco Popular pioneered educational loans in Puerto Rico.
Coin bank for home deposits used to foster savings among customers (1912).
(Photo 14b)
In 1934, Banco Popular opened its first branch in Rio Piedras. Today the Bank
has 205 branches in Puerto Rico, the Virgin Islands and the United States.
The first personal installment loans were offered in 1928.
The group also included such notable figures as Manuel F. Rossy; Jose
Celso Barbosa; Manuel Munoz Barrios, the Bank's first managing director; and
Jose B. Carrion.
They had created the first truly Puerto Rican bank after almost a
century of attempts to establish banks on the island had failed. At the time
the only bank was Banco Espanol de Puerto Rico.
FROM WAR TO PEACE
The fledgling Puerto Rican bank was not destined to enjoy smooth sailing,
however. Less than five years after that eventful October evening, the
Spanish-American War broke out in April of 1898.
Banco Popular's timid investors withdrew their funds with every new
turn of events in the war, causing the bank to show no earnings for 1898.
When the war ended and Spain ceded Puerto Rico to the United States,
the island was plunged into a financial and monetary crisis. Business
transactions that had been in progress before the war were stalled, and the
directors of Banco Popular were obliged to steer a prudent and extremely
conservative course.
A new crisis struck in 1899, as Hurricane San Ciriaco swept across the
island, leaving devastation in its wake. Banco Popular was not spared the
storm's effects, since the Bank's holdings depended upon the welfare of the
middle class.
But even greater obstacles lay in store for the innovative young
Puerto Rican bank. A new law, the Foraker Act, provided that as May 1900, the
Puerto Rican provincial silver peso would be exchanged for dollars at a 40%
devaluation. The 30,000 provincial pesos that constituted Banco Popular's
capital funds were suddenly worth only $18,000.
The change in sovereignty brought with it the establishment of U.S.
and Canadian banks, as well as some institutions with local capital.
AN EXTENSIVE BRANCH NETWORK
The island's tribulations continued in the early part of the 20th century, as
yet another hurricane struck in 1928. But calm did not follow the winds of San
Felipe. What followed was the
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(Photo 15a)
The island's first FHA mortgage loan was granted in 1938.
(Photo 15b)
The first island bank merger took place in 1936 with Banco Popular and Banco de
Puerto Rico.
Banco Popular's Old San Juan building was inaugurated in 1939, the Caribbean's
first skyscraper.
Great Depression, and the collapse of thousands of banks around the world. In
Puerto Rico, seven banks established with local capital closed their doors
forever.
There was a moment during those dark days when the Board of Directors
of Banco Popular was forced to announce the Bank's imminent closure. Yet the
Bank survived the crisis -- in fact, it emerged stronger than ever with the
inauguration of its first branch offices in Rio Piedras, Santurce, Caguas and
Aguadilla. Banco Popular was moving confidently into the future and making
plans for the construction of its first headquarters building in San Juan,
inaugurated in 1939.
But the Bank never lost sight of its primary mission -- to encourage
thrift and make banking services available to those whose scant incomes and
geographic isolation had heretofore left them bereft of such facilities.
During its hundred-year history, Banco Popular has covered the island
with an extensive branch network, leaving indelible mark on the life of island
towns.
During the '50s, a revolutionary plan was conceived to bring a branch
of Banco Popular to every town on the island lacking such services. "Banks on
Wheels," a fleet of mobile banks, made a reality of Banco Popular's dream of
bringing banking services to the most remote corners of the island.
This new access helped revolutionize Puerto Rico's traditional saving
habits. Local residents were convinced to take their cash out of its hiding
places and entrust it to the newcomers.
The Bank also began to look beyond the island. In 1961, Banco Popular
opened its first branch outside Puerto Rico, in the heart of New York City, and
within 10 years opened seven additional branches.
As the Bank continued to grow, its heightened economic activity,
increased personnel, centralization and greater use of technology prompted
then-President Rafael Carrion Jr. to spearhead construction of new headquarters
in 1965. Within a few years, the stretch of land in Hato Rey housing the Banco
Popular building became the heart of the
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(Photo 16a)
A revolutionary system of mobile banks was established in 1957, providing full
banking services to the farthest corners of the island.
(Photo 16b)
Three generations of bankers who led Banco Popular - Rafael Carrion Pacheco,
Damian Monserrat and Rafael Carrion Jr.
island's financial district, known as the "Golden Mile."
In 1978, the Bank extended its network of branches into the eastern
region of the island when it acquired a share in the operations of Banco
Credito y Ahorro Ponceno. During the next 10 years, the Bank also expanded to
the U.S. Virgin Islands. Then, in 1990 Banco Popular brought off the largest
bank merger in the island's history, adding to its network 40 Banco de Ponce
branches in Puerto Rico and another 14 in New York. At year-end 1993, Banco
Popular had a total of 205 branches in Puerto Rico and overseas.
INNOVATIVE ADVERTISING
One of the natural consequences of this expansion was an increase in the number
and types of services the Bank offered. Publicizing these new services through
innovative advertising led to another chapter in the Banco Popular success
story.
Always eager to reach the public it was created to serve, the Bank
sought ways to get its message out despite limited resources. In its early
days, an employee would often be sent to walk the streets of San Juan,
trumpeting the Bank's services through a megaphone.
But in the 1950s, Banco Popular took to the radio airwaves, launching
an extraordinarily successful advertising campaign based on the importance of
giving every customer friendly, personal treatment. As it moved into print and
the new television industry, the Bank became known for its catchy and highly
effective slogans.
The launching in 1973 of the innovative Ideal Account, which combined
checking, savings and reserve services in a single monthly statement, gave rise
to yet another successful advertising campaign that captured the public's
imagination.
VISIONARY BANKERS
Throughout Banco Popular's 100 years of growth and innovation, one theme has
remained constant -- its leadership. The institution's course has been guided
continuously by prudent but visionary bankers faithful to the principles upon
which the Bank was founded.
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(Photo 17a)
Popular Center headquarters was inaugurated in 1965 in Hato Rey.
(Photo 17b)
By 1975, total deposits reached $1 billion, placing the Bank among the top 100
financial institutions in the United States.
An ingenious advertising campaign highlighted the Ideal Account. (1973)
Spanish-born attorney Damian Monserrat, who was managing director and
president of the Bank from 1904 to 1953, was the link between the founders of
1893 and the directors, employees and customers of the 20th century. True to
the founders' principles, he preached the value of hard work and the virtue of
saving to the poor and to the island's children.
At Monserrat's side was another distinguished bank officer, Rafael
Carrion Pacheco, executive vice president from 1927 to 1953, and president from
1953 to 1956. Carrion Pacheco -- farmer, businessman, housing contractor,
banker and lover of poetry -- was Puerto Rico's 20th century entrepreneur par
excellence.
When Carrion Pacheco took the helm of Banco Popular in 1927, he forged
strong ties with correspondent banks in New York. These ties allowed the Bank,
even with relatively few resources, to finance some of Puerto Rico's major
sugar cane-producing enterprises, including some financed with U.S. capital.
During the years when sugar was the lifeblood of Puerto Rico, Banco Popular's
largest loans were sugar related.
In the 1950s, when Banco Popular began to emerge as the island's
foremost financial institution, Rafael Carrion Jr. succeeded his father at the
Bank's helm. His presidency, from 1956 to 1973, brought transformations in the
Bank's organizational, operational, technological and service areas, as well as
in its public image.
Rafael Carrion Jr. also honored and believed in the ideals of 1893.
In addition to promoting banking services for the island's poor, he committed
Banco Popular to social interest projects in agriculture and public housing.
Carrion Jr. always insisted that the Bank had an obligation to help
the people, because the people were in large part responsible for the Bank's
success. The great respect and friendship he inspired among Bank employees led
them to adopt this philosophy as their own. Carrion Jr. believed Banco
Popular's employees were its most valuable asset, the anonymous protagonists of
its history.
When Rafael Carrion Jr. stepped down from the presidency to become
chairman of the Board of Directors
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(Photo 18a) Cupey Center (color)
The Cupey Center operations complex was inaugurated in 1976.
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Some of Banco Credito y Ahorro Ponceno's assets were acquired in 1978.
(Photo 18b) The automatic teller machines ushered in the "era of electronic
banking" in 1983.
in 1973, his successor, Jose Luis Carrion, was selected from a large pool of
talented men of proven loyalty to the institution. Jose Luis Carrion, who was
president from 1973 to 1978, had been with the Bank since 1956. It was his
initiative that moved Banco Popular to new frontiers beyond Puerto Rico. One
of the greatest achievements of his presidency was construction of the
operations complex known as Cupey Center, inaugurated in 1976.
Jose Luis Carrion was followed by Hector Ledesma, who served as
president of the Bank from 1978 to 1985. Ledesma had risen through the ranks
from messenger to member of the board, and compiled an illustrious record of
achievement in the Puerto Rican banking industry. Among his contributions as
president, and the one that perhaps brought him the most recognition, was the
creation of Banco Popular's International Division, geared toward encouraging
and promoting Puerto Rican exports.
In 1985, the Board of Directors entrusted the presidency of Banco
Popular to Richard L. Carrion, who represented a new generation of bankers. As
the Bank's comptroller, he had distinguished himself as "the numbers man," and
played a central role in the acquisition of Banco Credito y Ahorro Ponceno.
He also was largely responsible for leading Banco Popular into the new
age of electronic banking, developing the automated teller machine system, known
in Puerto Rico by the Spanish acronym ATH. Carrion envisioned a future
bursting with new challenges, no less significant than those his predecessors
had faced. The 1990 merger with BanPonce Corporation, the largest bank merger
in Puerto Rico's history, was a major step toward that future.
Banco Popular's growth and vitality have been fostered by the presence
of capable, committed men and women of proven integrity on its Board of
Directors. Initially drawn from the island's intelligentsia, the board members
were businessmen and sugar growers during the second stage of the Bank's
growth, giving way to a new generation of businessmen and women, manufacturers
and professionals in the third. They con-
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20
In 1990, Banco Popular merged with Banco de Ponce
Banco Popular's assets surpassed $10 billion in 1992, which ranked it number 43
among U.S. banks in deposits.
_______________________________________________________________________________
(Photo 19a)
In 1991, Banco Popular became the largest Hispanic bank in the United States
with 21 branches in New York, one in Chicago and another in Los Angeles, and
about $700 million in deposits.
The Bank became the main financial institution in the United States in granting
SBA-guaranteed loans.
sistently have brought to the Bank the knowledge, wisdom, meticulousness and
abilities acquired through years of experience in their fields, and helped keep
it on its steady course.
OUR PEOPLE: KEY TO OUR SUCCESS
While the executive officers established the direction the Bank would take,
their goals would not have been reached without the support of the
rank-and-file employees of Banco Popular. This loyal group of men and women
has always been a crucial factor in the Bank's growth.
With that in mind, the Bank has made efforts to reward the loyalty and
dedication of its employees. In the mid-1940's, Banco Popular took the lead
with an employee pension plan. That initiative was followed by such benefits
as stock distribution for every employee in 1957, and the Profit-Sharing Plan
in 1961.
Banco Popular has encouraged the spirit of saving among the Puerto
Rican people from its inception. This commitment brought the Bank many small
accounts. Moreover, the Bank instituted education loans, and offered personal
loans for the first time. Through the years, as competition between banks
became more intense and the middle class grew, the Bank continued to offer new
services.
TECHNOLOGICAL ADVANCES
In the 1970s when the Bank's operations had been fully automated and
centralized, Banco Popular ushered in the "era of electronic banking," which
allowed the Bank to expand its communications network and introduce new and
better customer services.
Among these services were the automated teller machines that the Bank
began installing in 1983. By 1993, Banco Popular had 253 ATMs in operation,
more than any other bank in Puerto Rico. Other electronic services offered
were direct payments, direct deposits, automatic payment at the point of sale,
and the telephone services known as TeleBanco and TelePago.
COMMITMENT TO THE COMMUNITY
Throughout its first hundred years, Banco Popular has worked to meet its
primary commitment to the needs of individual customers, while fulfilling its
social goal of supporting
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21
In the 1990s electronic services such as direct payments, direct deposits and
automatic payment POS were introduced together with telephone services known as
TeleBanco and TelePago.
The Bank purchased CoreStates First Pennsylvania Bank, making it the largest
bank in the British and U.S. Virgin Islands (1993).
_______________________________________________________________________________
(Photo 20a)
A state-of-the art Corporate Development Center was inaugurated in 1992,
providing staff training programs.
In 1993 the Bank's net income climbed to $101.3 million, with assets of $10.8
billion.
Puerto Rican agriculture, industry, business and housing construction.
Small business, for example, continues to be a central element in the
Bank's dealings. The fact that the Banco Popular of the '90s originates more
Small Business Administration loans than any other institution underscores the
Bank's commitment to the small-business sector.
With the introduction of FHA loan programs, Banco Popular ushered in a
new era of housing construction in Puerto Rico. The houses built with these
loans redefined the urban landscape of major island cities and helped many
Puerto Ricans attain the dream of home ownership.
Indeed, examples of Banco Popular's social commitment date back to its
very origins, when its founders clearly set forth the path to follow.
At the urging of Rafael Carrion Jr., the officers of Banco Popular
realized that the institution should not limit itself strictly to banking, but
take part as well in any activity that contributed to the well-being of Puerto
Rico -- that this civic commitment was, in fact, its duty. Throughout the
years, Banco Popular has reaffirmed its identity as the people's bank and was
recognized as the banking institution most committed to the people's welfare.
UNDERLYING VALUES STILL PRESENT TODAY
As the brief review of its history illustrates, Banco Popular's 100th
anniversary is not the result of chance, but rather the product of historical
circumstances combined with a set of values, transformed by the vision and
sustained effort of the Bank's leaders into the successful enterprise of today.
Those underlying values, still present today, are:
20
22
(Photo 21a Fireworks (color))
On October 5, 1993, the Bank's centennial, all branches in Puerto Rico, the
Virgin Islands and New York were linked through an interactive television
system.
(Photo 21b)
As a tribute to Puerto Rico's music, a television documentary Un Pueblo que
Canta was broadcast simultaneously in Puerto Rico, New York and Chicago.
________________________________________________________________________________
Banco Popular's centennial commemoration included an impressive fireworks
display in Aquadilla, Ponce and San Juan.
Banco Popular published Tradition into the Future: The First Century of the
Banco Popular de Puerto Rico 1893-1993 by Guillermo A. Baralt, Puerto Rico's
first corporate history.
- - - - - - the foundation upon which the Bank was established: to help the neediest.
- - - - - - prudence and conservatism, but willingness to take risks,
- - - - - - innovative spirit,
- - - - - - stable senior management,
- - - - - - the advice of banking experts and strong ties with correspondent banks,
- - - - - - the presence of capable, committed men and women of proven integrity on the
Board of Directors.
- - - - - - the selection of its employees and their commitment,
- - - - - - diversification of its services,
- - - - - - acquisitions and mergers,
- - - - - - ingenious advertising campaigns,
- - - - - - the development of its broad network of branches,
- - - - - - its investment portfolio,
- - - - - - close links with the needs of the government of Puerto Rico,
- - - - - - commitment to the welfare of the people and social responsibility.
After a century of history, the words of Rafael Carrion Pacheco, words
adopted as his own by Rafael Carrion Jr., echo with meaning: "Banco
Popular's success is no longer the exclusive patrimony of a few men -- it has
become the triumph of Puerto Rico."
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23
(Photo BPPR Old San Juan)
POPULAR CENTER HATO REY
24
________________________________________________________________________________
BanPonce Corporation and Banco Popular enjoy a solid financial and
competitive position and a strong corporate culture as a result of an effective
leadership that has remained loyal to the corporate principles and values that
contributed to past successes. These principles and values may be grouped into
the following four broader categories: Prudent and Sound Business Practices;
Leadership and Committed Employees; Social Responsibility; and Innovation and
Expansion. Following is a review of the major accomplishments and projects of
1993, as well as the most important future initiatives classified under these
four categories.
23
25
(Photo Meeting)
COMPUTER SCREEN
PRUDENT AND SOUND BUSINESS PRACTICES
-----------------------------------------------------------
26
"Graphics"
Composition of Total Loan Portfolio
BanPonce Corporation
________________________________________________________________________________
Prudence in lending and in all business endeavors has characterized BanPonce
Corporation and Banco Popular through the years. Well-trained and experienced
lending officers, together with effective credit monitoring mechanisms, a
conservative credit policy, and sound portfolio diversification have
contributed to controlling loan losses, even during periods of economic
downturn.
During 1993, BanPonce's loan portfolio increased by 21% from $5.3
billion on December 31, 1992, to $6.3 billion on December 31, 1993. The
commercial loan portfolio, which comprises 45% of the total loan portfolio, is
well-diversified by loan size, by industry and by geographical areas.
Commercial loans were destined for commercial, industrial, agricultural,
construction, land development, and lease financing purposes. Growth was
mainly experienced in loans to the middle-sized market and for agricultural
purposes. Retail loans -- distributed among credit cards, auto, mortgage and
personal loans -- made up the remaining 55% of the total loan portfolio.
Loan quality continued to improve during the year. The quality of the
commercial loan portfolio improved through the expansion of secured lending,
mainly commercial mortgages and SBA-guaranteed loans. In addition, commercial
non-performing loans declined as a result of improved collection efforts of
classified loans and the aggressive marketing program to dispose of other real
estate assets in an orderly fashion. In the retail loan portfolio, quality
improved through aggressive promotion of cash and mortgage-collateralized
loans, credit training and effective collection efforts that include the use of
a state-of-the-art collection system.
To enhance credit quality and monitoring mechanisms, in February 1993
the commercial credit review and audit functions were centralized under one
independent unit. The creation of the Commercial Credit Review and Audit
Division has contributed to the evolution from a traditional loan review and
documentation audit function into an expanded credit process review and
portfolio performance monitoring.
25
27
(Photo 26b)
________________________________________________________________________________
(Photo 26a) (Photo 26c)
26-a Small Business, Seminars - SBA
26-b Department Stores - SBA
26-c Industry Plants - SBA
These enhanced functions have improved the Bank's ability to assess current
loan risk exposure and forecast non-performing assets and reserve adequacy.
Another factor contributing to the improved asset quality was the
array of credit courses offered on a regular basis to credit officers. In
1993, as part of the in-house credit training curriculum, a diagnostic test was
administered to all commercial lending officers to assess capabilities and
identify training needs. During 1994, tailored courses will be offered to
address the identified needs and provide the advanced and innovative lending
skills required to sustain BanPonce's expansion strategy.
Branch employee specialization, a strategy first implemented in 1992
to enhance employee skills and improve retail credit quality and customer
service, was continued during 1993. A total of 60 specialized Individual
Credit Sections (ICS) were established at selected branches by year-end.
Officers in these sections have been trained to serve the particular credit
needs of retail customers. A performance evaluation of these specialized
sections reveals that they produce a significantly higher volume of loans of
better quality than branches with no specialized sections. Plans for 1994
include the establishment of additional ICS at selected branches and the
appointment of a dedicated specialized individual credit officer in all of the
remaining branches. In addition, the branch specialization strategy will be
expanded in 1994 to include the creation of specialized Commercial Business
Sections to better serve the credit and non-credit needs of branch commercial
customers.
Besides sound lending and specialization, Banco Popular has focused on
building diverse and stable sources of funding to strengthen its operations and
sustain future growth. With the creation of BanPonce Financial Corporation in
the United States in 1992, BanPonce has been able to provide Spring Financial
Services, a retail finance subsidiary with operations in the mainland, with
short-and medium-term funding sources. In the near future, BanPonce Financial
will expand its role to provide funding to most of BanPonce's
26
28
(Photo 27a) (Photo 27b)
________________________________________________________________________________
(Photo 27c)
27a Customer's Orientation on SBA Loans
27b Customer's Orientation on SBA Loans
27c U.S. Dollar Bill
mainland operations. BanPonce has also created an effective funding mechanism
for its subsidiaries in Puerto Rico to support current needs and future
acquisitions.
As part of the organizational development efforts, some functions and
management processes have been formalized and enhanced. Credit review has been
strengthened by the creation of an overseeing committee that includes most of
senior management, as well as key lending and review officers. In addition,
the Asset/Liability Management Committee (ALCO) brings together key senior
managers with investment and treasury officers to make sound investment,
funding and pricing decisions. Strategic planning, introduced as a formal
management process in 1987 and enhanced during the past years, provides
management with and integrated view of the organization and contributes
significantly to sound decision-making.
(Graphics)
Titles: Net Losses by Loan Category as a Percentage of Average Loans
Titles: Net Losses As Percentage of Average Loans
27
29
6 PRESIDENTS WITH BPPR
LOGO IN THE BACKGROUND
LEADERSHIP AND COMMITTED EMPLOYEES
--------------------------------------------------
30
________________________________________________________________________________
Today, as throughout its centennial history, leaders of Banco Popular,
BanPonce's banking subsidiary, remain true to the legacy of its founding
fathers. Vision, experience and commitment to the guiding principles of
prudence, social responsibility and service, creativity and innovation, still
constitute the core attributes of employees, management and directors.
BanPonce's and Banco Popular's boards of directors have been comprised
throughout the years of some of the most successful business people in Puerto
Rico. Their knowledge and experience, spanning many different disciplines and
industries, have been key in guiding the institutions on their path of success.
Currently, as in the past, management exhibits a balanced blend of vision and
commitment to the traditional corporate values and principles, as well as the
technical and managerial skills necessary to meet the challenges of today's
financial services industry. Innovation and creativity, together with sound
decision-making, are characteristic of the institution's management.
Leaders at the helm of BanPonce and Banco Popular have not only
preserved the traditional corporate values through their business decisions and
other management processes, but also fostered them throughout the organization
and instilled a true sense of commitment, loyalty and service among employees.
It is through this unique brand of employee loyalty and commitment that the
corporate mission is fulfilled year after year. Loyalty and commitment are
evidenced through the employees' endeavors, active participation in special
activities and events, and through their individual involvement in community
work. A recent survey showed that over 90% of employees expressed deep loyalty
and pride in working for the institution, while over 95% of employees surveyed
enjoyed working at the Bank.
To further this level of commitment and enhance the strong corporate
culture, the Bank defined as one of its key strategic thrusts the establishment
of a service culture based on Dr. W. Edward Deming's Total Quality Management
philosophy. To implement this strategy, training was begun during the fourth
quarter of 1992. Implementation efforts went into full gear during 1993 with
an aggressive training plan that covered a substantial part of the organization
and included training of 2,412 employees in Puerto Rico and 624 in New York.
In addition, 19 process improvement teams were formed. Many of the teams'
recommendations have already been implemented. For 1994 and beyond, the Bank
reaffirms its commitment to the Total Quality Management philosphy. By 1994,
almost all of the 7,000 employees will have participated in Total Quality
Management seminars.
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31
Photo (Children)
HANDS REACHING
SOCIAL RESPONSIBILITY
----------------------------------------------------------------
32
________________________________________________________________________________
Historically, Banco Popular has played a key role in promoting the development
of the communities it serves. Today, social responsibility remains a
fundamental force behind the Bank's strategic direction. The Bank's efforts
have always been focused on finding better and more innovative ways of
satisfying the communities' financial needs, as well as enhancing their social
and economic welfare. The institution is committed to the constant search for
alternatives to fully satisfy customers' changing needs.
To provide customers with more convenient and efficient banking
alternatives, the Bank has spearheaded efforts to transform the Puerto Rican
payment system. Since Banco Popular processes approximately 50% of all
payments in Puerto Rico, it has a unique opportunity to foster this
transformation by offering electronic products and services such as telephone
bill payment, telephone banking, direct debit of loan payments, direct deposit,
ATM transactions, and point-of-sale data capture terminals and transactions.
This key strategic effort should result in a gradual migration from paper-based
transactions to electronic alternatives, which will be added convenience for
customers, and will also make the payment system more efficient.
The Bank's firm commitment to the social and economic welfare of the
community is evidenced by its strong historical support of local entrepreneurs.
The Bank provides not only loans to small businesses, but also assistance in
improving their organization and establishing control systems. The Bank also
sponsors numerous seminars to help entrepreneurs develop the necessary skills
to manage their businesses and respond to their particular customers' needs.
Currently, loans for under $25,000 each comprise over 60% of the commercial
portfolio. In addition, the Bank is the leader in origination of
SBA-guaranteed loans among all commercial banks in the United States, Puerto
Rico and U.S. Virgin Islands.
Throughout the years, the Bank has been the first and often the only
institution capable or willing to serve specific market segments in Puerto
Rico. As a result of the Bank's firm
31
33
_______________________________________________________________________________
Photo (32a) Photo (32b) Photo (32c)
32a Bear and Child on Christmas Activites
32b Christmas Tree
32c Social Activites Promoted by the Bank
belief that the island's prosperity depends on the education of future
generations, it remains the sole provider of student loans in Puerto Rico. In
1993, the Bank originated over 9,000 student loans for a total value in excess
of $25 million.
In addition, to serve the special needs of senior or retired
customers, during 1993 Banco Popular pioneered reverse mortgages in Puerto
Rico. Through this mortgage-collateralized product, the Bank provides, either
in a lump sum or in monthly payments to the borrower, loans to people age 62 or
over, which require no payments as long as the borrower lives in the home.
Banco Popular's assistance to the government has been key in the
economic development of Puerto Rico. However, the Bank's role has evolved from
financing public projects to its current focus on offering services geared to
improve the government's efficiency. To satisfy the needs of various
government agencies, services are customized and distributed through the Bank's
extensive network of branches and ATMs. Non-credit services provided include
cash management and direct deposit and receipt of government payments through
telephone banking and at branches.
The Bank participates with the Economic Development Bank in providing
loans to developing enterprises. In addition, Banco Popular maintains an
office on the mainland dedicated exclusively to promoting Puerto Rico as a
superior location for the establishment of new businesses and manufacturing
operations.
The Bank continues its involvement in projects to provide
low-and moderate-income housing in the communities it serves. Community
reinvestment efforts include assessment of the lower-income segment credit
needs, outreach programs that create awareness of credit services provided, and
creating the products and services required to satisfy the credit needs of
these particular segments.
The Bank's numerous community reinvestment efforts include support to
island non-profit organizations such as Puerto Rico Community Foundation.
Desarrolladora Nuestro Barrio Products Inc., Bayamon's
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34
_______________________________________________________________________________
Photo (33a) Photo (33b)
33a - San Juan Waterfront Area
33b - Munoz Rivera Avenue Remodeling
HOMEProgram, Cantera Peninsula Development Project, and CODEFIN-Vieques, among
others. In addition, it offers seminars to merchants and communities on
banking products and services, especially federal and local
government-guaranteed business loan programs. During 1993, Banco Popular
obtained membership in the Federal Home Loan Bank. Through its FHLB
membership, the Bank will have access to lower cost funds and others programs
for financing of specific housing and economic development initiatives.
The composition of the Bank's loan portfolio is evidence of its
involvement in local community development. As of December 31, 1993, close to
1,000 single-family dwellings under construction were being financed, amounting
to approximately $16 million. These units meet criteria for FHA or VA loan
guarantees or have an average price below $60,000, which is considered
low-income housing. In addition, the Bank supported another major community
development initiative, the rehabilitation of the San Juan Waterfront Area,
through the financing of a $11.7 million condominium construction project.
Also, the Bank's construction loan portfolio includes $1.3 million in financing
for the renovation and management of public housing projects.
Banco Popular's community reinvestment efforts in New York include an
outreach program, The Good Neighbor Mortgage Program, involvement in the New
York Mortgage Coalition and the New York City Small Business Reserve Fund.
In New York, the Bank's strong community reinvestment efforts have
earned the praise of government agencies. An "Officer Call and Ascertainment
Program", requiring branch managers to make outreach calls to small business
owners, non-profit organizations, real-estate brokers, local elected officials
and various other community-based organizations in their respective service
areas, has been implemented.
In addition, the Bank is committed to an affordable mortgage financing
program for lower-income families and individuals who wish to purchase a home
in New York City. The Good Neighbor Mortgage Pro-
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35
________________________________________________________________________________
34A - Centennial Activity (Photo 34B) (Photo R Carrion antorcha)
gram provides fixed-rate financing based on non-traditional ratios and
qualifying criteria, waiver of application fees, and home buyer education
programs. Also, the Bank is a founding member of a coalition of 12 banks and
11 community organizations to promote home ownership among low- and
moderate-income families. Furthermore, Banco Popular was selected as one of
nine banks to participate in the $5 million New York City Small Business Cash
Reserve Fund. This loan program funded with deposits from the New York City
Economic Development Corporation, established a cash reserve that allows banks
to grant loans with slightly higher risk than conventional loans.
The Bank is a prime supporter of philanthropic initiatives in the
communities served, particularly in Puerto Rico, not only through its generous
donations and public relations programs, but also through the individual
efforts of its officers and employees. Many of the bank's officers are
actively involved in voluntary community service, and in many cases, they hold
key management positions in community and professional organizations.
As a result of a genuine concern for improving the quality of life on
the island and providing children with a healthy environment in which to grow,
the Bank has channeled its resources into supporting educational, sports,
cultural and charitable activities. Most of the support to education is
provided through the Banco Popular Foundation, a non-profit organization
established in 1979 to provide financial backing to institutions dedicated to
the education, development and welfare of children and young adults. In 1993,
29 students were endowed, including 18 new awards. In addition, as part of its
centennial celebration, Banco Popular granted special awards to the top
business school graduates from colleges and universities in Puerto Rico. The
Bank also made important donations during the year to education-related
programs, such as the planetarium at the Luis A. Ferre Science Park in Bayamon,
and contributions to the Ponce Medical School and to Sacred Heart University,
among others.
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36
(Photo 35a) Fireworks Display on Centennial Activity
(Photo 35b) Fireworks Display on Centennial Activity
________________________________________________________________________________
Share your Christmas is one of the numerous civic activities
undertaken annually by Banco Popular employees. In its 10th consecutive year,
the program distributed thousands of gifts and toys among needy children and
senior citizens in Puerto Rico during the Christmas season. Moreover, a
Christmas theme park was again set up at the Bank's headquarters.
To foster community well-being, the Bank is continuously involved in
the promotion of sports activities. In the 1993, the Bank sponsored the
Recorrido del Fuego Centroamericano y del Caribe, an event in which 3,000
runners, including many of the Bank's employees, took the Olympic torch to the
island's 78 municipalities. This run preceded the celebration of the Central
American and Caribbean Games held in Puerto Rico in November.
Cultural advancement is an important goal in the institutions's
community initiatives. The Bank maintains an exhibition hall in its Old San
Juan building where exhibits related to the economic and cultural development
of Puerto Rico are housed. In 1993, Essence and Presence, Our Traditional Arts,
and Tradition in the Future, a pictorial presentation of the Bank's corporate
history and the role employees have played in the institution's success story,
were displayed. The Bank also sponsors the annual Ponce Art Museum Gala, a
fund-raising event to support the largest art museum in the Caribbean.
This year, as part of the Bank's centennial presentation and as a
special gift to the people of Puerto Rico, Lights of the First Century, a
world-class fireworks display, was staged on successive nights in Aguadilla and
Ponce, followed by a grand finale in San Juan. In addition, the first
corporate book in Puerto Rico, Tradition into the Future: The First Century of
the Banco Popular de Puerto Rico 1893-1993, was formally presented.
Another centennial activity was the production of the television
special, Un Pueblo que Canta, a tribute to 100 years of Puerto Rican music.
Funds raised from the sales of videos, compact discs and cassettes of the
program were donated to various charities including the AIDS Foundation,
Centros Sor Isolina Ferre and the Cantera Peninsula Development Project.
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37
(Photo BPPR in Hato Rey at dusk)
WORLD GLOBE
INNOVATION AND EXPANSION
-------------------------------------------------------------
38
________________________________________________________________________________
The offering of innovative financial products and services has distinguished
Banco Popular throughout its 100-year history. The Bank has successfully
responded to the changing financial needs of its customers and, on numerous
occasions, has anticipated them; in doing so, it has helped chart the course
for community and economic development.
Consistently, the Bank has been the first in Puerto Rico to implement
new approaches and use of the latest technology to offer innovative banking
products and services. At the turn of the century, to foster the habit of
saving among the Puerto Rican people, the Bank developed the home savings
program by which people saved money in cast-iron "piggy banks". Later on, it
brought banking services to remote communities through the innovative use of
mobile units. Through the years, the Bank has pioneered numerous products and
services in Puerto Rico including loans for education, personal loans, FHA
mortgage loans, and combined checking, savings and overdraft protection
accounts, among others.
In recent years, the Bank has brought Puerto Rico into the era of
electronic banking by establishing the most extensive network of automated
teller machines, known as ATH, and providing customers the convenience and
benefits of electronic transactions. Today, one of the institution's corporate
strategies is to drive the transformation of Puerto Rico's payment system
through the migration from paper-based transactions to electronic alternatives.
During 1993, six major initiatives were implemented to attain this
objective. A telephone bill payment service was launched in February, under
the marketing name of TelePago, to provide customers with a convenient
alternative to making payments by mail or at branches. Utility and loan
payments, as well as payments to major retail department stores, can easily be
made through the use of this service. For 1994, additional merchants will be
added to TelePago and its aggressive promotion continued. Direct debit of loan
payments was also successfully promoted during 1993, and the percent-
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39
(Photo 38a) ATM Networks facilities
(Photo 38b) ATM Networks facilities
(Photo 38c) ATM Networks facilities
_______________________________________________________________________________
age of new retail loans making payments through this option increased to almost
50% of loans originated by year-end 1993. Direct deposit of payrolls and
social security and VA benefits was also emphasized during the year, resulting
in a 46% increase in this type of transaction. The enhancement of the ATM
network and of the value of the Bank's own debit cards for usage at ATMs and at
a growing network of point-of-sale electronic data capture terminals, was a key
effort during the year. These initiatives will continue at a heightened pace
during 1994. Both the number of ATMs and of point-of-sale terminals increased,
with the latter spanning a substantial portion of leading supermarket chains
and strategically selected gasoline and retail outlets. These initiatives
provide customers with added payment alternatives to traditional branch
transactions and for at-store payments. A centralized telephone banking unit
was established, which integrates customer service and telemarketing functions.
The unit utilizes advanced communication technology that includes a Voice
Response Unit (VRU) that presently handles over half of all calls received. In
addition to continuing with these initiatives, new payment system projects will
be implemented in 1994 to continue promoting the migration of banking
transactions to electronic alternatives.
Technology has been utilized also in developing other new services and
enhancing existing products. In 1993, the Bank developed and marketed its own
cash-management system, Popular Access Line (PAL), a computer-based reporting
and transaction system with innovative, comprehensive and flexible capabilities
that allows commercial customers effective cash monitoring, seven days a week,
24 hours a day.
Imaging technology was introduced in 1993 to reduce costs and improve
efficiency, as well as to enhance existing products. Through the conversion of
documents into digitalized electronic forms, imaging can be applied to check
processing and document storage, among other processes. In 1993, the Bank
introduced CheckRegister, a new service that provides customers the flexibil-
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40
(Photo 39a) Telephone Bill Payment Services's Personnel
(Photo 39b) Telephone Bill Payment Services's Personnel
________________________________________________________________________________
ity of substituting canceled checks with images, reproduced up to 10 checks per
page. In 1994, the use of imaging technology will be expanded to include
offering CheckRegister to most checking accounts and utilizing imaging in the
processing and safekeeping of many other documents.
The latest computer and communications technology has been intensely
used at the Bank for decades to enhance processes and efficiency and to support
growth. In 1993, several automated systems were developed to achieve these
objectives and improve service quality at branches. A new automated teller
system has been developed and will be installed at all branches by the first
quarter 1995. In addition, an automated system for branch platform functions
has been developed. It facilitates and expedites account openings and
maintenance and, through its automated loan origination and disbursement
features, will contribute to improve efficiency and customer service for retail
loans at branches.
The use of advanced communications technology made possible the
development and launching of an innovative interactive television system,
inaugurated as part of the Bank's centennial celebrations. The system, the
first of its kind in Puerto Rico, allows for direct communication between the
Bank's headquarters and all branches in Puerto Rico, New York and the U.S.
Virgin Islands. Among its numerous applications, it has been used to
communicate messages from the Bank's president to all employees, as well as an
internal marketing and educational tool to introduce new products and services
to employees. In 1994, its applications will be expanded to include training,
conferences and meetings.
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41
(Photo 40a) Bank Building Facilities
(Photo 40b) Bank Building Facilities
(Photo 40c) Bank Building Facilities
________________________________________________________________________________
Mergers, acquisitions and expansion into new markets and into new
businesses have played a key role in BanPonce's growth and development through
the years. During 1993, the Corporation continued pursuing its long-term
expansion strategy outside Puerto Rico and its diversification into non-banking
activities.
In New York, the acquisition in 1993 by Banco Popular of several
branches and deposits from Bank Leumi Trust Company of New York, Northside
Savings Bank and Emigrant Bank increased deposits to almost $1.3 billion and
the number of branches to 30. For 1994, expansion opportunities will be
explored in the New York/New Jersey area and in selected areas of Florida.
In Chicago, an agreement was signed, and subsequently approved by
regulatory agencies, to acquire two branches with approximately $300 million in
deposits and $185 million in loans from Pioneer Bank Corp.
In the Caribbean, the acquisition of four branches in the U.S. Virgin
Islands and one in Tortola from CoreStates Bank was completed in 1993. Today,
the Bank operates eight branches in the Virgin Islands Region. Further
expansion in the Caribbean is being considered and plans developed to explore
opportunities.
40
42
(Photo 41a Velco's Van)
________________________________________________________________________________
(Photo 41b)
Popular Leasing Building Facilities
GROWTH INTO NEW MARKETS AND BUSINESSES
Corporate expansion and diversification has also been attained through the
incursion into new businesses. BanPonce's non-banking subsidiaries allowed it
to become a diversified corporation with non-banking operations that include
two leasing companies and a small personal loan company in Puerto Rico, and a
consumer finance company that, as of December 31, 1993, operated offices in 14
states.
Through its two leasing subsidiaries, BanPonce is the dominant player
in Puerto Rico's leasing market. VELCO (Vehicle Equipment Leasing Company), a
BanPonce Corporation subsidiary, is the island's largest vehicle leasing
operation with an estimated market share of 44%. With over 30 years experience
in the market, VELCO, acquired by BanPonce in 1986, provides vehicle and
equipment leases to corporations and retail customers, maintenance services and
daily rental through four conveniently located facilities at San Juan,
Carolina, Caguas and Ponce.
POPULAR LEASING AND RENTAL, INC., a subsidiary of Banco Popular, is
the second largest vehicle leasing company in Puerto Rico, with an estimated
33% of the market. Established in 1989, Popular Leasing has grown at an
accelerated rate, and today enjoys a strong image and position in the
marketplace, as well as an experienced management team.
During 1993, both companies improved their financial performance as a
result of the implementation of cost control measures, enhancements to systems,
improved credit quality and higher business volumes.
41
43
(Photo 42a) Spring Financial Building Facilities
________________________________________________________________________________
As part of its diversification and expansion plan, BanPonce has entered the
consumer finance business through the acquisition of two subsidiaries. First,
in 1987 Banco Popular acquired Popular Consumer Services, Inc., and in 1991 the
Corporation purchased Spring Financial Services, Inc.
POPULAR CONSUMER SERVICES grants small personal loans of up to the
maximum regulatory limit of $2,000 per loan, through 26 offices located across
Puerto Rico. Operating under the name of Best Finance, the company is the
fifth largest small loan company on the island.
SPRING FINANCIAL SERVICES, a wholly owned subsidiary of BanPonce
Financial Corporation, originates and services first and second mortgages as
its primary business. The company also provides retail dealer financing and
loans throughout its branch network. It presently services over 41,000
customers as of year-end 1993, and has loans outstanding of $375 million. As
of December 31, 1993, it operated 58 offices in 14 states in the mid-Atlantic
and Midwest. The acquisition of Spring and its subsequent rapid growth has
allowed BanPonce to enter numerous geographic markets and facilitated the
implementation of its expansion strategy in the U.S. mainland. In 1994,
expansion will continue into the Southern and Mid-western regions of the United
States with the opening of 14 new offices in six additional states.
42
44
BOARD OF DIRECTORS, MANAGEMENT AND
________________________________________________________________________________
BANCO POPULAR BRANCH NETWORK
43
45
BOARD OF DIRECTORS BANPONCE CORPORATION
____________________________________________________________________________________________________________________________________
RICHARD L. CARRION JUAN J. BERMUDEZ ALBERTO M. PARACCHINI
Chairman of the Board and President Partner Private Investor
Bermudez & Logo, S.E. FRANCISCO PEREZ JR.
ALFONSO F. BALLESTER SILA MARIA CALDERON Chairman of the Board and
Vice Chairman of the Board President President
President Commonwealth Investment Sucrs. Jose Lema & Co., Inc
Ballester Hermanos, Inc. Company, Inc. FRANCISCO M. REXACH JR.
MANUEL LUIS DEL VALLE FRANCISCO J. CARRERAS President
Vice Chairman of the Board Educator Ready Mix Concrete, Inc.
Chairman of the Board Executive Director FELIX J. SERRALLES NEVARES
Bacardi Corporation Fundacion Angel Ramos, Inc. President and
ANTONIO LUIS FERRE WALDEMAR DEL VALLE, ESQ. Chief Executive Officer
Vice Chairman of the Board Partner Destileria Serralles, Inc.
President Parra, DelValle, Frau & Limeres LUIS RODRIGUES DELGADO
El Nuevo Dia LUIS E. DUBON JR., ESQ. President
Partner Gitty's Toys, Inc.
Dubon & Dubon EMILIO JOSE VENEGAS
ROBERTO W. ESTEVES Secretary, Board of Directors
President Venegas Construction Corp.
Star Tours International, Inc. President
Solstar Corp. d/b/a Travel network Sanson Corporation
Caribe Theaters Corp. JULIO E. VIZCARRONDO JR.
HECTOR R. GONZALEZ President and
President and Chief Executive Officer
Chief Executive Officer Desarrollos Metropolitanos, Inc.
TPC Communications of PR, Inc., and
Teleponce Cable TV, Inc. SAMUEL T. CESPEDES, ESQ.
FRANKLIN A. MATHIAS Secretary
Retired Executive Board of Directors
HUGH G. MCCOMAS ERNESTO N. MAYORAL, ESQ.
President and Assistant Secretary
Chief Executive Officer Board of Directors
MCO Industries, Inc.
MANUEL MORALES JR.
President
West Indies & Grey Advertising, Inc.
44
46
BOARD OF DIRECTORS BANCO POPULAR
____________________________________________________________________________________________________________________________________
RICHARD L. CARRION JUAN A. ALBORS HERNANDEZ FRANKLIN A. MATHIAS
Chairman of the Board Chairman and Retired Executive
President Chief Executive Officer HUGH G. MCCOMAS
Chief Executive Officer Albors Development Corp. President and
SALUSTIANO ALVAREZ MENDEZ Chief Executive Officer
ALFONSO F. BALLESTER President and Director MCO Industries, Inc.
Vice Chairman of the Board Mendez & Company, Inc. MANUEL MORALES JR.
President JOSE A. BECHARA BRAVO President
Ballester Hermanos, Inc. President West Indies & Grey Advertising, Inc.
MANUEL LUIS DEL VALLE Empresas Bechara, Inc. ALBERTO M. PARACCHINI
Vice Chairman of the Board JUAN J. BERMUDEZ Private Investor
Chairman of the Board Partner FRANCISCO M. REXACH JR.
Bacardi Corporation Bermudez & Longo, S.E. President
ANTONIO LUIS FERRE ESTEBAN D. BIRD Ready Mix Concrete, Inc.
Vice Chairman of the Board President and LUIS RODRIGUEZ DELGADO
President Chief Executive Officer President
El Nuevo Dia Bird Construction Company, Inc. Gitty's Toys, Inc.
GEORGE BLASINI JOSE E. ROSSI
Investor Chairman of the Board of Directors
SILA MARIA CALDERON Aireko Construction Corp.
President FELIX J. SERRALLES NEVARES
Commonwealth Investment President and
Company, Inc. Chief Executive Officer
FRANCISCO J. CARRERAS Destileria Serralles, Inc.
Educator NOEL TOTTI JR.
Executive Director Engineer
Fundacion Angel Ramos, Inc. JULIO E. VIZCARRONDO JR.
LUIS E. DUBON JR., ESQ. President and
Partner Chief Executive Officer
Dubon & Dubon Desarrollos Metropolitanos, Inc.
ROBERTO W. ESTEVES
President SAMUEL T. CESPEDES, ESQ.
Star Tours International, Inc. Secretary
Solstar Corp. d/b/a Travel Network Board of Directors
Caribe Theaters Corp. ERNESTO N. MAYORAL, ESQ.
JORGE A. JUNQUERA Assistant Secretary
Executive Vice President Board of Directors
Banco Popular de Puerto Rico
45
47
MANAGEMENT
____________________________________________________________________________________________________________________________________
BANPONCE CORPORATION ERNESTO N. MAYORAL, ESQ. CYNTHIA TORO MARITZA MENDEZ
Vice President Senior Vice President Vice President
RICHARD L. CARRION Legal Division Commercial Loans Strategic Planning
Chairman and President RICARDO TORO
RETAIL BANKING GROUP Senior Vice President OPERATIONS GROUP
MARIA ISABEL P. DE BURCKHART JORGE A. JUNQUERA Corporate Banking HUMBERTO MARTIN
Executive Vice President Executive Vice President KENNETH J. GROSS Executive Vice President
DAVID H. CHAFEY JR. JORGE BIAGGI Vice President SEGUNDO BERNIER
Executive Vice President Senior Vice President International Senior Vice President
JORGE A. JUNQUERA Hato Rey Region Operations
Executive Vice President FRANCISCO CESTERO FINANCIAL MANAGEMENT GROUP VICTOR V. ECHEVARRIA
LARRY B. KESLER Senior Vice President DAVID H. CHAFEY JR. Senior Vice President
Executive Vice President Caguas/Fajardo Region Executive Vice President Management Information Systems
HUMBERTO MARTIN NORMAN IRIZARRY ORLANDO BERGES EDUARDO FIGUEROA*
Executive Vice President Senior Vice President Senior Vice President Senior Vice President
EMILIO E. PINERO FERRER, ESQ. Western Region Comptroller Electronic Banking
Executive Vice President WILBERT MEDINA LUIS R. CINTRON Services
Senior Vice President Senior Vice President *effective March 1994
ORLANDO BERGES Bayamon Region Trust PLINIO RODRIGUEZ
Senior Vice President FERNANDO L. MONLLOR JUAN GUERRERO Senior Vice President
TERE LOUBRIEL Senior Vice President Senior Vice President Security
Senior Vice President Ponce Region Investments MARGARITA HERRERA, ESQ.
ERNESTO N. MAYORAL, ESQ. MIGUEL RIPOLL ROBERTO R. HERENCIA Vice President
Vice President Senior Vice President Senior Vice President Compliance
Rio Piedras Region U.S. Credit Products
BANCO POPULAR CARLOS ROM JR. JOSE L. LOPEZ CALDERON
Senior Vice President Senior Vice President SUBSIDIARIES
RICHARD L. CARRION San Juan Region Treasury
Chairman ELI SEPULVEDA VEHICLE EQUIPMENT
President Vice President U.S. OPERATIONS LEASING COMPANY, INC.
Chief Executive Officer Arecibo/Manati Region PAUL E. CARR JR. ANDRES F. MORRELL
Senior Vice President President
SENIOR MANAGEMENT COUNCIL RETAIL CREDIT AREA New York
RICHARD L. CARRION LARRY B. KESLER MANUEL J. REMON POPULAR LEASING AND
President and Executive Vice President Vice President RENTAL, INC.
Chief Executive Officer JORGE J. BESOSA Los Angeles CARLOS J. MANGUAL
MARIA ISABEL P. DE BURCKHART Senior Vice President WILLIAM BRUIN President
Executive Vice President Individual Lending Second Vice President
DAVID H. CHAFEY JR. FELIPE FRANCO Chicago POPULAR CONSUMER
Executive Vice President Senior Vice President SERVICES, INC.
JORGE A. JUNQUERA Mortgage Loans ADMINISTRATION GROUP EDGARDO NOVOA
Executive Vice President VALENTINO I. MCBEAN MARIA ISABEL P. DE BURCKHART President
LARRY B. KESLER Senior Vice President Executive Vice President
Executive Vice President Virgin Islands Region GUSTAVO DIAZ SPRING FINANCIAL
HUMBERTO MARTIN ARIEL RODRIGUEZ Senior Vice President SERVICES, INC.
Executive Vice President Vice President Marketing THOMAS J. FITZPATRICK
EMILIO E. PINERO FERRER, ESQ. Electronic Services JORGE E. MARCHAND President
Executive Vice President Senior Vice President
COMMERCIAL BANKING GROUP Public Relations and
TERE LOUBRIEL EMILIO E. PINERO FERRER, ESQ. Communications
Senior Vice President Executive Vice President EDUARDO RODRIGUEZ
Internal Auditor ARNALDO SOTO COUTO Senior Vice President
DENNIS C. TRISTANI Senior Vice President Human Resources
Senior Vice President Construction Loans LUZ M. TOUS DE TORRES
Credit Review and Audit Senior Vice President
Corporate Real Estate
46
48
BANCO POPULAR BRANCH NETWORK
____________________________________________________________________________________________________________________________________
SAN JUAN REGION TRUJILLO ALTO MAYAGUEZ SUAU U.S. MAINLAND BRANCHES
AEROPUERTO UNIVERSIDAD DE PUERTO RICO MAYAGUEZ MALL SUR
BARRIO OBRERO MAYAGUEZ MENDEZ VIGO NEW YORK DISTRICT
BUCHANAN BAYAMON REGION SAN GERMAN MANHATTAN
CALLE LOIZA BARRANQUITAS YAUCO LAS TORRES 7 WEST 51st ST.
CENTRO MERCANTIL BAYAMON CENTER YAUCO PLAZA 164 EAST 116th ST.
CONDADO BAYAMON OESTE 615 WEST 181st ST.
EXPRESO CALLE LOIZA COMERIO PONCE REGION 4043 BROADWAY AVE.
EXPRESO ISLA GRANDE COROZAL ADJUNTAS 3540 BROADWAY AVE.
EXPRESO KENNEDY DORADO ARROYO 134 DELANCEY ST.
EXPRESO MINILLAS EXPRESO BARRANQUITAS COAMO 799 AMSTERDAM AVE.
EXPRESO PLAZOLETA ISLA VERDE EXPRESO BAYAMON PLAZA EXPRESO ALBERGUE OLIMPICO 441 2nd AVE. AT 25th ST.
EXPRESO SAN JUAN EXPRESO TOA BAJA EXPRESO PONCE PLAZA 2852 BROADWAY AT 111th ST.
ISLA VERDE LEVITTOWN GUAYAMA CALIMANO 231 WEST 125th ST. AT 8th AVE.
METRO OFFICE PARK LOMAS VERDES GUAYAMA MALL 175 DYCKMAN ST. AT 200th ST.
MIRAMAR NARANJITO GUAYANILLA BRONX
PARADA 15 REXVILLE JAYUYA 2923 THIRD AVE.
PARADA 17 RIO HONDO JUANA DIAZ 1046 SOUTHERN BLVD.
PARADA 22 SANTA ROSA PATILLAS 752 EAST TREMONT AVE.
PARADA 26 TOA ALTA PENUELAS 301 EAST FORDHAM RD.
PLAZOLETA CONDADO VEGA ALTA PONCE BUENA VISTA QUEENS
PUERTA DE TIERRA PONCE DARLINGTON 37-47 JUNCTION BLVD.
SAN JUAN ARECIBO/MANATI REGION PONCE LOS CAOBOS 83-22 BAXTER AVE.
ARECIBO DE DIEGO PONCE MALL 28-36 STEINWAY ST. LONG ISLAND
HATO REY REGION ARECIBO HIGHWAY PONCE PLAYA CITY
AVE. PINERO ARECIBO PLAZA PONCE PLAZA 56-38 MYRTLE AVE. RIDGEWOOD
CAPARRA BARCELONETA PONCE RAMBLA BROOKLYN
EXPRESO ALTAMIRA CIALES PONCE VILLA 5216 FIFTH AVE.
EXPRESO CENTRO MEDICO CRUCE DAVILA SALINAS 15 GRAHAM AVE.
EXPRESO GARDEN HILLS EXPRESO PLAZA DEL NORTE SANTA ISABEL 1620 PITKIN AVE.
EXPRESO HATO REY PDA. 34 EXPRESO SAN LUIS VILLALBA 247 ROCKWAY PKWY.
EXPRESO POPULAR CENTER EXPRESO VEGA BAJA XTRA 1117 EASTERN PKWY.
GUAYNABO FLORIDA CAGUAS/FAJARDO REGION 166 LIVINGSTON AVE.
GUAYNABO LOS JARDINES MANATI CAGUAS 539 EASTERN PKWY. AT
HATO REY CENTER MOROVIS AGUAS BUENAS NOSTRAND AVE.
HYDE PARK OROCOVIS AIBONITO 1619 SHEEPSHEAD BAY RD. AT
POPULAR CENTER UTUADO CAGUAS PLAZA JEROME AVE.
PUERTO NUEVO VEGA BAJA CAYEY 8020 FLATLANDS AVE. AT 81ST
REPARTO METROPOLITANO CIDRA 2095 RALPH AVE.
SAN FRANCISCO WESTERN REGION CONDADITO 3851 NOSTRAND AVE.
SAN PATRICIO AGUADILLA EXPRESO CAGUAS MALL
SANTA MARIA AGUADA EXPRESO CAYEY CENTRO CALIFORNIA DISTRICT
AGUADILLA EXPRESO PLAZA DEL CARMEN LOS ANGELES
RIO PIEDRAS REGION AGUADILLA SUR GURABO 354 SOUTH SPRING ST.
AVE. 65 DE INFANTERIA CAMUY SAN ALFONSO
BARBOSA EXPRESO AGUADILLA XTRA SAN LORENZO ILLINOIS DISTRICT
CAMPO RICO HATILLO VILLA BLANCA CHICAGO
CAROLINA HIGHWAY ISABELA FAJARDO 2525 NORTH KEDZIE AVE.
CAROLINA PUEBLO LARES CANOVANAS
CENTRO COMERICAL 65 DE MOCA CEIBA VIRGIN ISLANDS REGION
INFANTERIA QUEBRADILLAS EXPRESO FAJARDO MALL
CENTRO COMERCIAL TRUJILLO RAMEY FAJARDO ST. CROIX
ALTO RINCON HUMACAO CHRISTIANSTED
CUPEY SAN SEBASTIAN HUMACAO ESTE 17 CHURCH ST.
EL SENORIAL MAYAGUEZ LUQUILLO SUNNY ISLE
EXPRESO CAROLINA XTRA CABO ROJO RIO GRANDE
EXPRESO EL SENORIAL EXPRESO CABO ROJO VIEQUES ST. THOMAS
EXPRESO PLAZA PUERTO RICO EXPRESO MAYAGUEZ MALL YABUCOA CHARLOTTE AMALIE
EXPRESO 65 DE INFANTERIA EXPRESO MAYAGUEZ PLAYA FORT MYLNER
MUNOZ RIVERA EXPRESO SAN GERMAN VETERANS DRIVE
PLAZA CAROLINA EXPRESO VISTA VERDE SUGAR ESTATE
PLAZA DEL MERCADO HORMIGUEROS RED HOOK
RIO PIEDRAS DE DIEGO LAS MARIAS
SAN JOSE MARICAO TORTOLA
ROAD TOWN
47
49
SHAREHOLDERS' INFORMATION
- - - - - --------------------------------------------------------------------------------
INDEPENDENT PUBLIC ACCOUNTANTS
Price Waterhouse
ANNUAL MEETING
The 1994 annual stockholders' meeting of BanPonce Corporation
will be held on April 22 at 2:00 p.m. at Banco Popular Center
in Hato Rey, Puerto Rico.
TELEPHONE (809) 765-9800
FAX (809) 759-7803
ADDITIONAL INFORMATION
Copies of the Annual Report to the Securities and Exchange Com-
mission on Form 10-K and any other financial information may be
obtained by writing to:
Orlando Berges
Senior Vice President and Comptroller
Banco Popular de Puerto Rico
PO Box 362708
San Juan, PR 00936-2708
48
50
EXHIBIT 13.1
BANPONCE
CORPORATION
1993 ANNUAL REPORT
- - - - - --------------------------------------------------------------------------------
FINANCIAL REVIEW
51
FINANCIAL REVIEW
- - - - - ------------------------------------------------------------------------------
CONTENTS
Management's Discussion and
Analysis of Financial Condition
and Results of Operations 2
Statistical Summaries 21
Glossary of Terms 26
Report of Independent Accountants 27
Consolidated Financial Statements 28
Summary of Significant Accounting
Policies 32
Notes to Consolidated Financial
Statements 34
52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- - - - - --------------------------------------------------------------------------------
SUMMARY
This year was a memorable one for the institution, celebrating the 100th
anniversary of Banco Popular de Puerto Rico, the subsidiary Bank of BanPonce
Corporation (the Corporation). The celebration gave us the opportunity to
look back again to the traditions and values that created the solid foundation
in which the institution's success is based.
During 1993, the Corporation had a sound financial performance. Net
income amounted to $109.4 million, increasing 28.5% from the net income of
$85.1 million reported in 1992. Earnings per share (EPS) for 1993 were $3.35
compared with $2.79 for the previous year. The results for the year include
$6.2 million in additional income resulting from the one-time cumulative
effect of the adoption of two new accounting principles (SFAS 106 and 109)
that will be further explained in this annual report. Excluding the effect of
these adjustments, EPS for 1993 were $3.16. Average shares outstanding for
1993 and 1992 were 32,701,236 and 30,461,494, respectively. The rise in
average shares reflects the effect of the issuance of 2,458,740 shares through
a subscription offering in November of 1992 and the shares issued under the
Dividend Reinvestment Plan of the Corporation.
The Corporation's profitability ratios improved markedly with returns on
assets (ROA) and on shareholders' equity (ROE) of 1.02% and 13.80%,
respectively. ROA and ROE for 1992 were 0.89% and 12.72%, respectively. As
presented in Table A, the Corporation was able to reduce its provision for
loan losses while the net interest income and the operating expenses as a
percentage of average assets remained stable.
The Corporation has continued enhancing its presence in the mainland
through acquisitions and growth. During the year, the Corporation acquired
five branches and $172.8 million in deposits in New York. In addition, Spring
Financial Services, Inc. (Spring), a diversified consumer financial services
subsidiary in the mainland, opened 17 new branches in 1993 and experienced a
growth of $194.7 million or 108.4% in its loan portfolio. Spring has now 58
branches operating throughout 14 different states.
As a leading financial institution in the Caribbean, the Corporation also
expanded its presence in the U.S. and British Virgin Islands (Virgin Islands)
with the acquisition of five branches and $228.8 million in deposits on
September 30, 1993.
The Corporation will continue playing an active role in evaluating and
undertaking acquisitions and growth strategies that are considered
advantageous from a business and economic standpoint.
The aforementioned acquisitions together with the business expansion led
to an increase in the Corporation's total assets to $11,513 million, 15.1%
higher than the $10,002 million reported for December 31, 1992. Average total
assets for 1993 were $10,684 million compared with $9,529 million for 1992.
Total loans amounted to $6,347 million at December 31, 1993, compared with
$5,252 million a year before. This significant growth of 20.9% was mainly in
mortgage loans which grew $785.2 million due to the acquisition of several
portfolios in New York, an increase in loan originations and the growth in
Spring's portfolio, as previously mentioned. Average loans for 1993 totaled
$5,700 million compared with $5,150 million for 1992. As of September 30,
1993, the subsidiary Bank ranked first in market share of loans in Puerto Rico
with approximately 28% of total loans in the market.
The Corporation's credit quality statistics improved considerably in
1993. Non-performing assets (NPA) at year-end decreased $21.1 million or 16%
and net charge-offs for the year decreased $29.4 million. The NPA to total
assets ratio improved to 0.97% from 1.32%, (or to 0.70% from 1.05% assuming
the standard industry practice). The allowance for loan losses reached $133.4
million at the end of 1993 and represented 2.10% of total loans at that date.
Total deposits increased 6% to $8,523 million at December 31, 1993, from
$8,039 million at year-end 1992. Non-interest bearing deposits grew $234.1
million and interest bearing deposits increased $249.9 million, mainly in
savings accounts. This rise re-
TABLE A
COMPONENTS OF NET INCOME AS A PERCENTAGE OF AVERAGE TOTAL ASSETS
For the Year
- - - - - ----------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
--------------------------------------------
Net interest income 4.61% 4.62% 4.56% 4.87% 4.50%
Provision for loan losses (0.68) (1.03) (1.36) (0.91) (0.75)
Other income 1.17 1.31 1.47 1.21 1.09
--------------------------------------------
5.10 4.90 4.67 5.17 4.84
Operating expenses (3.86) (3.85) (3.86) (3.93) (3.65)
--------------------------------------------
Net income before tax, dividends on preferred stock
of subsidiary Bank, and cumulative effect of
accounting changes 1.24 1.05 0.81 1.24 1.19
Provision for income tax (0.26) (0.15) (0.08) (0.15) (0.20)
--------------------------------------------
Net income before dividends on preferred stock of
subsidiary Bank and cumulative effect of
accounting changes 0.98 0.90 0.73 1.09 0.99
Dividends on preferred
stock of subsidiary Bank (0.01) (0.01) (0.01)
Cumulative effect of
accounting changes 0.05
---------------------------------------------
Net income 1.02% 0.89% 0.72% 1.09% 0.99%
=============================================
2
53
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
TABLE B
CHANGES IN NET INCOME AND EARNINGS PER SHARE
1993 1992 1991
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts) DOLLARS PER SHARE Dollars Per share Dollars Per share
----------------------------------------------------------------------------
Net income for prior year $ 85,116 $ 2.79 $ 64,564 $ 2.15 $ 63,366 $ 3.15
Increase (decrease) from changes in:
Net interest income 51,909 1.70 32,411 1.08 123,563 6.14
Provision for loan losses 24,741 0.81 24,048 0.80 (68,647) (3.41)
Gain on sale of securities 622 0.02 (18,376) (0.61) 18,554 0.92
Trading account profit 171 0.01 (376) (0.01) 732 0.04
Dividends on preferred stock of subsidiary Bank 37 (807) (0.4)
Other operating income (117) 11,480 0.38 41,532 2.06
Income tax (13,892) (0.46) (7,465) (0.25) 2,446 0.12
Operating expenses (45,331) (1.49) (21,207) (0.71) (116,175) (5.77)
----------------------------------------------------------------------------
Subtotal 103,219 3.38 85,116 2.83 64,564 3.21
Cumulative effect of accounting changes 6,185 0.20
Change in average common shares* (0.23) (0.04) (1.06)
----------------------------------------------------------------------------
Net income for the year $ 109,404 $ 3.35 $ 85,116 $ 2.79 $ 64,564 $ 2.15
=============================================================================
*Used to reflect the effect of the issuance of 2,458,740 shares of common stock
through a subscription offering in November 1992. Also reflects the effect of
the issuance of shares of common stock through the Dividend Reinvestment Plan
in the years presented, plus the additional shares issued on December 31, 1990,
related to the merger transaction. The average common shares outstanding used
in the above computation were 32,701,236 for 1993; 30,461,494 for 1992; and
30,035,601 for 1991.
- - - - - --------------------------------------------------------------------------------
lates principally to the deposits acquired in New York and in the Virgin
Islands.
The Corporation's capital ratios continue well above the minimum
regulatory capital requirements established for well capitalized institutions.
The Tier I, total capital and leverage ratios of the Corporation at December
31, 1993 were 12.29%, 13.95% and 6.95%, respectively. At the same date in 1992
these ratios amounted to 12.88%, 14.85% and 7.26%, respectively. Stockholders'
equity increased 10.9%, reaching $834.2 million at the end of 1993. The
Corporation's market capitalization at December 31, 1993 was $1,031 million.
During the third quarter of 1993, the Corporation increased its quarterly
dividend by 25%, from $0.20 to $0.25 per share, effective for the dividend
paid on October 1, 1993.
This financial review contains an analysis of the performance of BanPonce
Corporation and its subsidiaries, Banco Popular de Puerto Rico, including its
wholly-owned subsidiaries Popular Leasing and Rental, Inc. and Popular Consumer
Services, Inc., Vehicle Equipment Leasing Company, Inc. (VELCO), and Popular
International Bank, Inc., including its wholly-owned subsidiaries, BanPonce
Financial Corp. and Spring Financial Services, Inc., a second tier subsidiary.
On December 31, 1990, Banco Popular de Puerto Rico and the former BanPonce
Corporation merged. Due to the effective date of the merger, the financial
information for 1990 and prior years included in this annual report will be
presented as follows:
- The statement of condition as of December 31, 1990, and all references to
assets and liabilities as of the end of that period reflect the figures
for the combined entity immediately after the merger. Average figures for
1990 are those of Banco Popular and its subsidiaries.
- The statements of condition for the years before 1990 and all historical
asset and liability information, including both averages and end of
period information, are those of Banco Popular and its subsidiaries,
Popular Leasing and Rental, Inc. (organized in mid-1989) and Popular
Consumer Services, Inc. (acquired in December of 1989).
- The results of operations for 1990 and prior years and all historical
income and expense information are those of Banco Popular and its
subsidiaries.
Table C presents a ten year summary of selected financial
information.
EARNINGS ANALYSIS
Table B shows the variances, in dollar and per share amounts, of the
major captions of the Corporation's income statement for the last three years.
The major components of the $24.3 million increase in net earnings for the year
ended on December 31, 1993, are summarized as follows:
- An increase in net interest income due to a growth of $1.1 billion in
the average volume of earning assets, partially offset by a decrease of 61
basis points in the net interest yield, on a taxable equivalent basis,
mainly due to the maturity of high-yielding tax exempt securities during
the last quarter of 1992.
- Lower provision for loan losses due to the improved credit quality of
the loan portfolios which led to a reduced level of net charge-offs.
- Higher gains on security and trading transactions partially offset by a
decline in other revenues mainly due to an adjustment recorded during the
year on the excess servicing recognized in 1992 upon the sale of mortgages
through collateralized mortgage obligations (CMO) as a result of the
increase in mortgage prepayments during 1993.
3
54
- - - - - ----------------------------------------------------------------------------------------------------------
TABLE C
SELECTED FINANCIAL DATA
---------------------------------------------------
(Dollars in thousands, except per share data) 1993 1992 1991
---------------------------------------------------
CONDENSED INCOME STATEMENTS
Interest income $ 772,136 $ 740,354 $ 794,943
Interest expense 280,008 300,135 387,134
---------------------------------------------------
Net interest income 492,128 440,219 407,809
Security and trading gains (losses) 1,418 625 19,376
Operating income 123,762 123,879 112,398
Operating expenses 412,276 366,945 345,738
Provision for loan losses 72,892 97,633 121,681
Income tax 28,151 14,259 6,793
Dividends on preferred stock of subsidiary Bank 770 770 807
Cumulative effect of accounting changes 6,185
----------------------------------------------------
Net income $ 109,404 $ 85,116 $ 64,564
====================================================
PER SHARE DATA *
Net income $3.35 $ 2.79 $ 2.15
Dividends declared 0.90 0.80 0.80
Book value 25.49 23.03 21.00
Outstanding shares:
Average 32,701,236 30,461,494 30,035,601
End of period 32,732,423 32,654,864 30,093,852
AVERAGE BALANCES
Net loans $ 5,700,069 $ 5,150,328 $ 5,302,189
Earning assets 9,894,662 8,779,981 8,199,195
Total assets 10,683,753 9,528,518 8,944,357
Deposits 8,124,885 7,641,123 7,198,187
Subordinated notes 73,967 85,585 94,000
Total stockholders' equity 793,001 668,990 610,641
PERIOD END BALANCES
Net loans $ 6,346,922 $ 5,252,053 $ 5,195,557
Allowance for loan losses 133,437 110,714 94,199
Earning assets 10,657,994 9,236,024 8,032,556
Total assets 11,513,368 10,002,327 8,780,282
Deposits 8,522,658 8,038,711 7,207,118
Subordinated notes 62,000 74,000 94,000
Total stockholders' equity 834,195 752,119 631,818
SELECTED RATIOS
Net interest yield (taxable equivalent basis) 5.50% 6.11% 5.97%
Net operating expense/average earning assets 2.92 2.77 2.85
Return on average total assets 1.02 0.89 0.72
Return on average earning assets 1.11 0.97 0.79
Return on average stockholders' equity 13.80 12.72 10.57
Dividend payout ratio 25.39 28.33 34.13
Average net loans/average total deposits 70.16 67.40 73.66
Average earning assets/average total assets 92.61 92.14 91.67
Average total stockholders' equity/average net loans 13.91 12.99 11.52
Average total stockholders' equity/average assets 7.42 7.02 6.83
Overhead ratio 58.34 55.07 52.47
Tier I capital to risk-adjusted assets 12.29 12.88 11.01
Total capital to risk-adjusted assets 13.95 14.85 13.35
Tax rate 21.30 14.24 9.41
* Per share data is based on the average number of shares outstanding
during the periods, except for the book value which is based on total shares at
the end of the periods. All per share data has been adjusted to reflect a
stock split effected in the form of a dividend on April 3, 1989.
4
55
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
1990 1989 1988 1987 1986 1985 1984
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
$ 565,807 $ 558,273 $ 488,200 $ 410,605 $ 365,513 $ 352,691 $ 327,005
281,561 302,747 261,316 206,778 183,253 182,159 173,796
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
284,246 255,526 226,884 203,827 182,260 170,532 153,209
91 2,529 689 (366) 7,253 1,604 (1,660)
70,865 59,550 53,025 40,623 33,204 27,670 22,680
229,563 207,376 190,862 182,593 166,982 154,777 136,140
53,033 42,603 34,750 18,000 11,500 7,050 3,900
9,240 11,456 7,844 5,956 6,778 5,468 4,765
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
$ 63,366 $ 56,170 $ 47,142 $ 37,535 $ 37,457 $ 32,511 $ 29,424
====================================================================================================================================
$ 3.15 $ 2.81 $ 2.36 $ 1.88 $ 1.97 $ 1.81 $ 1.63
0.80 0.80 0.685 0.66 0.61 0.56 0.48
19.67 18.76 16.75 15.07 13.86 12.30 11.05
20,116,970 20,014,013 20,000,000 20,000,000 19,000,000 18,000,000 18,000,000
29,942,406 20,037,396 20,000,000 20,000,000 20,000,000 18,000,000 18,000,000
$ 3,377,463 $ 3,132,167 $ 2,869,829 $ 2,510,495 $ 1,974,648 $ 1,553,739 $ 1,217,844
5,461,938 5,318,800 5,182,535 4,597,329 3,949,899 3,392,972 2,885,819
5,836,749 5,676,981 5,523,823 4,918,984 4,257,327 3,666,180 3,123,191
5,039,422 4,782,791 4,571,456 4,211,465 3,655,492 3,084,367 2,555,828
50,000 38,082 119 1,717 8,178 14,706 16,721
407,611 353,844 317,001 286,752 247,679 208,598 185,911
$ 5,365,917 $ 3,276,389 $ 3,056,761 $ 2,737,271 $ 2,266,437 $ 1,713,602 $ 1,372,302
89,335 40,896 33,244 28,423 26,903 24,229 21,625
8,219,279 5,469,921 5,221,873 4,957,221 4,135,121 3,786,650 3,206,313
8,983,624 5,923,261 5,661,398 5,352,745 4,525,241 4,136,418 3,521,833
7,422,711 4,926,304 4,715,837 4,491,612 3,820,223 3,365,265 2,870,671
94,000 50,000 500 2,500 13,500 15,500
588,884 375,807 334,867 301,425 277,090 221,274 198,797
6.30% 5.57% 5.10% 5.04% 5.70% 6.25% 7.07%
2.91 2.78 2.66 3.09 3.39 3.75 3.93
1.09 0.99 0.85 0.76 0.88 0.89 0.94
1.16 1.06 0.91 0.82 0.95 0.96 1.02
15.55 15.87 14.87 13.09 15.12 15.59 15.83
25.33 28.14 28.00 35.17 31.08 30.87 27.53
67.02 65.49 62.78 59.61 54.02 50.37 47.65
93.58 93.69 93.82 93.46 92.78 92.55 92.40
12.07 11.30 11.05 11.42 12.54 13.43 15.27
6.98 6.23 5.74 5.83 5.82 5.69 5.95
55.80 56.86 60.45 69.83 69.42 73.59 75.14
10.10 9.47 9.19 N/A N/A N/A N/A
12.74 11.76 10.10 N/A N/A N/A N/A
12.73 16.94 14.27 13.70 15.32 14.40 13.94
5
56
- - - - - ---------------------------------------------------------------------------------------------------------------------------------
TABLE D
NET INTEREST INCOME - TAXABLE EQUIVALENT BASIS
Year ended December 31,
- - - - - ----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991 1990 1989
------------------------------------------------------------------------------------------------------------
AVERAGE Average Average Average Average
BALANCE RATE Balance Rate Balance Rate Balance Rate Balance Rate
------------------------------------------------------------------------------------------------------------
Earning assets $9,894,662 8.33% $8,779,981 9.53% $8,199,195 10.69% $5,461,938 11.46% $5,318,800 11.26%
============================================================================================================
Financed by:
Interest
bearing funds $8,097,004 3.46% $7,277,051 4.12% $6,816,787 5.68% $4,325,229 6.51% $4,264,665 7.10%
Non-interest
bearing funds 1,797,658 1,502,930 1,382,408 1,136,709 1,054,135
------------------------------------------------------------------------------------------------------------
Total $9,894,662 2.83% $8,779,981 3.42% $8,199,195 4.72% $5,461,938 5.16% $5,318,800 5.69%
============================================================================================================
Net interest income $ 544,471 $ 536,485 $ 489,541 $ 344,307 $ 296,116
============================================================================================================
Spread 4.87% 5.41% 5.01% 4.95% 4.16%
Net interest yield 5.50 6.11 5.97 6.30 5.57
- - - - - ----------------------------------------------------------------------------------------------------------------------------------
- Higher income tax expense due to a higher pre-tax income and
the effect of the tax calculation required by SFAS 109
"Accounting for Income Taxes".
- Higher other operating expenses, mainly personnel
costs, due to the inclusion of the salaries of the acquired
operations, a special bonus paid to the employees of the
subsidiary Bank on its 100th anniversary and the accrual for
postretirement health benefits for the year 1993 as required
by SFAS 106 "Accounting for Postretirement Benefits Other than
Pensions". In addition, the increased business activity of the
Corporation together with the launching of new products and
services led to increases in other expense categories.
- The cumulative effect of accounting changes due to the
implementation of SFAS 109 which resulted in a credit to
income of $28.9 million, partially offset by the recognition of
the full transition obligation for postretirement benefits
required by SFAS 106 which amounted to $22.7 million, net of
deferred taxes. The net effect of these changes was an
increase of $6.2 million in net income.
NET INTEREST INCOME
Net interest income, the principal source of earnings for the
Corporation, represents the excess of the interest earned on earning assets
over the interest paid on rate-related liabilities. The net interest income is
affected by the changes in the balance sheet structure of the Corporation,
principally in the volume and composition of earning assets and interest
bearing liabilities, the rates earned or paid on these assets and liabilities,
and the maturity and repricing of these financial instruments. The latter is
of particular significance in years such as 1993 when the interest rates
declined to the lowest points in three decades. The Corporation constantly
monitors and manages the composition and maturity structure of its assets and
liabilities in order to minimize the impact of the above circumstances on its
net interest income.
For the year ended December 31, 1993, net interest income totaled
$492.1 million compared with $440.2 million for the same period in 1992, an
increase of $51.9 million. In 1991 the net interest income of the Corporation
amounted to $407.8 million. On a taxable equivalent basis, the net interest
income rose to $544.5 million for 1993, from $536.5 million in 1992 and $489.5
million in 1991. The rise resulted from an increase of $73.5 million due to the
growth and change in the composition of average earning assets partially
offset by a reduction of $65.5 million due to lower taxable equivalent yields.
The net interest yield, on a taxable equivalent basis, was 5.50% for 1993
compared with 6.11% a year ago and 5.97% in 1991.
In order to present all the interest data on a comparable basis,
interest income on tax exempt assets has been converted to a taxable equivalent
basis assuming an income tax rate of 42%. An analysis of net interest income
is presented in Table D.
Average earning assets for 1993 increased to $9,895 million, compared
with $8,780 million in 1992 and $8,199 million in 1991. On a taxable equivalent
basis, interest income amounted to $824.5 million compared with $836.6 million
for the year before. The yield on earning assets, on a taxable equivalent
basis, for 1993 was 8.33%, a decrease of 120 basis points from the taxable
equivalent yield of 9.53% in 1992. In 1991 the taxable equivalent yield on
earning assets was 10.69%.
Average loans in 1993 amounted to $5,700 million and represented 57.6%
of total average earning assets, a slight change from the 1992 ratio of 58.7%.
Average loans for 1992 were $5,150 million. The rise of $549.7 million in
average loans consists of increases of $405.7 million in mortgage loans, $144
million in commercial and construction loans and $65.4 million in lease
financings. Average consumer loans, conversely, were $65.4 million lower than
in 1992. The rise in average mortgage loans was mainly due to the acquisition
of nearly $358 million in mortgage loan portfolios in the U.S., together with a
significant mortgage origination and refinancing activity in Spring and in the
subsidiary Bank, given the low interest rate environment. The latter also
affected the volume of consumer loans due to the large amount of consumer debt
refinanced through residential mortgage loans. Average loans in 1991 totaled
$5,302 million.
6
57
- - - - - --------------------------------------------------------------------------------------------------------------------------------
TABLE E
INTEREST VARIANCE ANALYSIS - TAXABLE EQUIVALENT BASIS
1993 vs. 1992 1992 vs. 1991
- - - - - --------------------------------------------------------------------------------------------------------------------------------
(In thousands) Increase (Decrease) Due to Change in: Increase (Decrease) Due to Change in:
-----------------------------------------------------------------------------------------------
Volume Rate Total Volume Rate Total
-----------------------------------------------------------------------------------------------
Interest income:
Federal funds sold and securities
and mortgages purchased under
agreements to resell ($ 736) ($ 410) ($ 1,146) $ 4,265 ($ 3,648) $ 617
Time deposits with other banks (6,094) (740) (6,834) (12,252) (7,541) (19,793)
Investment securities 59,181 (92,257) (33,076) 83,525 (41,438) 42,087
Trading securities 98 48 146 (174) (173) (347)
Loans 47,873 (19,122) 28,751 (16,986) (45,633) (62,619)
-----------------------------------------------------------------------------------------------
Total interest income 100,322 (112,481) (12,159) 58,378 (98,433) (40,055)
-----------------------------------------------------------------------------------------------
Interest expense:
Savings and NOW accounts 18,812 (20,305) (1,493) 25,021 (29,240) (4,219)
Other time deposits (10,669) (21,767) (32,436) (14,385) (51,738) (66,123)
Short-term borrowings 13,998 (3,326) 10,672 1,763 (21,194) (19,431)
Long-term borrowings 4,634 (1,515) 3,119 5,853 (3,079) 2,774
-----------------------------------------------------------------------------------------------
Total interest expense 26,775 (46,913) (20,138) 18,252 (105,251) (86,999)
-----------------------------------------------------------------------------------------------
Net interest income $ 73,547 ($ 65,568) $ 7,979 $ 40,126 $ 6,818 $ 46,944
===============================================================================================
Note: The changes that are not due solely to volume or rate are allocated to
volume and rate based on the proportion of the change in each category.
- - - - - ----------------------------------------------------------------------------
The average yield on loans for 1993 was 9.75% on a taxable equivalent basis,
representing a reduction of 48 basis points when compared with 1992. The most
significant reduction was in the mortgage loans yield which decreased 106 basis
points due to the origination and acquisition of a large portion of the
portfolio during the current low interest rate scenario. The taxable equivalent
yields on construction, commercial and consumer loans declined 41, 39 and 15
basis points, respectively, while the yield on lease financings rose five basis
points.
Average investment securities for 1993 totaled $4,010 million, an increase of
$748.5 million from the average recorded in 1992. Most of this increase was in
the U.S. Treasury securities portfolio, mainly due to the Corporation's
strategy of moving funds to tax exempt assets whose yields were more attractive
during the prevailing interest rate scenario. Other securities also rose,
particularly as a result of the acquisition of several CMO during the year.
Average investment securities for 1992 and 1991 were $3,262 million and $2,382
million, respectively. The taxable equivalent yield on investment securities
decreased from 9.04% in 1992 to 6.53% in 1993. The decrease in yield resulted
from the maturity, during the last quarter of 1992, of approximately $400
million in investment securities whose taxable equivalent yield exceeded 10%.
These securities, acquired at the end of 1987, provided higher tax benefits to
the Corporation since they were not subject to interest expense disallowance
for regular income tax, based on the provisions of the Puerto Rico Income Tax
Reform Act of 1987. In addition, the repricing and growth in the investment
portfolio during a period of lower interest rates also led to the decline in
yield.
Average money market investment decreased $185.2 million in 1993, from $362
million in 1992 to $176.8 million. In 1991 these investments averaged $506.5
million. The yield on these securities also declined 34 basis points during the
year.
Average interest bearing liabilities were $8,097 million for 1993, an
increase of 11.3% or $820 million from the average of $7,277 million for 1992.
In 1991, these liabilities averaged $6,817 million. Total interest expense for
1993 decreased $20.1 million or 6.7% despite the increase in average interest
bearing liabilities.
Total deposits averaged $8,125 million in 1993, increasing $483.8 million or
6.3% from the 1992 average of $7,641 million. Average non-interest bearing
deposits rose $165.1 million or 11.2%. Average interest bearing deposits grew
$318.7 million or 5.2%. The increase in average deposits is principally
related to the full-year effect of the acquisition of approximately $600
million in deposits from American Savings Bank of New York (American Savings)
in June 1992, together with the acquisitions of deposits in New York and the
Virgin Islands in 1993, as previously mentioned. Average deposits for 1991
were $7,198 million.
The core deposit base of the Corporation increased substantially during the
year. Average savings accounts grew $448.8 million or 22% and NOW, Super NOW
and money market accounts rose $122.4 million or 12.8%. The average cost of
these accounts decreased 58 and 71 basis points, respectively, as a result of
revisions made to their pricing structure throughout 1993. Certificates of
deposit decreased $258.8 million or 9.1%, particularly due to the shift of
customers' funds from time deposits to savings and NOW accounts. The average
cost of certificates of deposit declined 70 basis points from 4.50% in 1992 to
3.80% in 1993. Other time deposits remained stable during the year, showing an
increase of only $6.2 million in their average balance, while their average
cost declined 89 basis points to 4.13% in 1993. As a result of the
7
58
- - - - - ---------------------------------------------------------------------------------------------------------------------------------
TABLE F
OTHER OPERATING INCOME
Year ended December 31,
- - - - - ---------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991 1990 1989
-------------------------------------------------------------------------------------------
Service charges on deposit accounts $ 68,246 $ 63,064 $ 55,000 $36,031 $33,074
Other service fees:
Credit card fees and discounts 16,818 16,795 15,268 11,447 10,805
Other fees 27,054 25,696 24,066 17,336 12,230
Other income 11,644 18,324 18,064 6,051 3,441
------------------------------------------------------------------------------------------
Total $ 123,762 $123,879 $112,398 $70,865 $59,550
==========================================================================================
Other operating income
to average assets 1.16% 1.30% 1.26% 1.21% 1.05%
Other operating income
to operating expenses 30.02 33.76 32.51 30.87 28.72
- - - - - --------------------------------------------------------------------------------------------------------------------------------
above, the average cost of interest bearing deposits decreased 73 basis points,
from 4.11% in 1992 to 3.38% in 1993.
Average short-term borrowings increased $434.1 million. Most of this
increase was in the subsidiary Bank due to higher balances of federal funds
purchased and securities sold under agreements to repurchase. The rise in these
borrowings resulted mainly from a higher volume of arbitrage activities. In
addition, the average volume of commercial paper issued by the parent company
rose $76.5 million. The average rate on short-term borrowings decreased 34
basis points, from 3.51% in 1992 to 3.17% in 1993.
Long-term debt averaged $67.2 million more in 1993. The increase resulted
from a higher amount of medium term notes issued to finance Spring's
operations. The average cost of the long-term debt for 1993 was 6.74%,
decreasing 70 basis points from the average cost of 7.44% for 1992.
The average cost of funding earning assets decreased 59 basis points,
reaching 2.83% compared with 3.42% in 1992 and 4.72% in 1991.
SECURITY AND TRADING GAINS
Beginning in the second quarter of 1992, the Corporation classifies investment
securities which management believes may be sold prior to maturity for
asset/liability management purposes, as securities available for sale. These
securities are carried at the lower of cost or market value. At the end of
1993 these securities amounted to $714.6 million and the market value exceeded
their cost by $19.2 million. Securities that are acquired to speculate with
short-term price movements are carried in a separate trading account and are
marked to market on a monthly basis.
During 1993, the Corporation sold $83.2 million of the investment
securities available for sale and $11.6 million of the investment securities
for a gain of $0.9 million. During 1992, $43.1 million in investment
securities were sold for a net gain of $0.2 million. Trading account activities
for the year ended on December 31, 1993, resulted in profits of $0.6 million
compared with profits of $0.4 million obtained in 1992.
OTHER OPERATING INCOME
Other operating income, which consists primarily of service charges on deposit
accounts, credit card fees, other fee-based services and other revenues,
decreased slightly from $123.9 million in 1992 to $123.8 million in 1993. In
1991, these revenues totaled $112.4 million.
Service charges on deposit accounts, which represented 55% of the
Corporation's other operating revenues, rose to $68.2 million for the year
ended December 31, 1993, from $63.1 million in 1992 and $55 million in 1991. As
a percentage of average deposits, service charges increased to 0.84% in 1993
from 0.83% in 1992 and 0.76% in 1991. The increase in service charges was
primarily attributed to the implementation of a fee on automatic teller
machines in the second quarter which contributed $2.5 million, an increase of
$1.7 million in consumer checking accounts fees due to revisions made to their
fee structure and to a higher customer base, and an increase of $0.6 million in
service charges on commercial accounts. The increase in service charges on
deposit accounts in 1992 was basically in commercial accounts as a result of
the revisions made in their fee structure.
Other service fees, which represented 35.4% of the total other operating
income for the year, increased $1.4 million or 3.3%, from $42.5 million in 1992
to $43.9 million in 1993. This increase is mainly related to an increase of
$1.0 million in credit life insurance fees due to a higher loan origination
volume. The increase in other service fees in 1992 was mostly in credit cards,
which grew $1.5 million, and in the fees realized by Spring.
Other operating income for the period ended December 31, 1993, decreased
$6.7 million from $18.3 million reported in 1992 to $11.6 million. During 1992,
the Corporation realized a $4.4 million gain on the sale of $86 million on
mortgage loans through a grantor trust. In addition, during 1993 the subsidiary
Bank recorded adjustments totaling $2.6 million to reflect the reduction in the
market value of the excess servicing recognized in 1992 upon the sale of
mortgages previously mentioned. These adjustments resulted from higher than
expected mortgage prepayments due to the declining interest rate scenario that
prevailed in 1993. In 1991, other operating income was $18.1 million and
included a gain of $3.1 million realized in the sale of leases through a
grantor trust.
As shown in Table F, this decrease had a direct effect on the ratio of
other operating income to operating expenses which declined to 30.02% in 1993
from 33.76% in 1992. Also, the ratio of other operating income to average
assets declined to 1.16% in 1993, compared with 1.30% in 1992 and 1.26% in
1991.
8
59
- - - - - ----------------------------------------------------------------------------------------------------------------------------
TABLE G
OPERATING EXPENSES
Year ended December 31,
- - - - - ----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991 1990 1989
-------------------------------------------------------------------------------------
Salaries $151,432 $134,709 $129,928 $ 92,910 $ 86,654
Pension and other benefits 44,713 36,484 37,626 23,269 18,469
Profit sharing 19,766 17,041 13,080 15,143 12,309
-------------------------------------------------------------------------------------
Total personnel costs 215,911 188,234 180,634 131,322 117,432
-------------------------------------------------------------------------------------
Equipment expenses 27,964 23,813 22,755 16,524 15,763
Professional fees 27,302 22,558 19,254 16,114 13,763
Net occupancy expense 26,085 25,442 22,497 12,205 9,717
Communications 18,203 17,048 17,377 12,172 11,369
Business promotion 16,638 12,548 10,723 8,963 9,528
Amortization of intangibles 16,176 14,888 13,687 384
Other taxes 15,996 14,608 13,049 9,788 7,832
Printing and supplies 8,189 7,290 8,349 5,524 6,112
Other operating expenses:
FDIC assessment 17,802 16,372 15,007 5,809 3,744
Transportation and travel 3,554 3,136 3,150 2,151 2,440
All other 18,456 21,008 19,256 8,607 9,676
-------------------------------------------------------------------------------------
Subtotal 196,365 178,711 165,104 98,241 89,944
-------------------------------------------------------------------------------------
Total $412,276 $366,945 $345,738 $229,563 $207,376
=====================================================================================
Personnel costs to average assets 2.02% 1.98% 2.02% 2.25% 2.07%
Operating expenses to average assets 3.86 3.85 3.86 3.93 3.65
Assets per employee (in millions) $1.55 $1.44 $1.28 $1.29 $1.18
- - - - - ----------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Total operating expenses for 1993 increased $45.3 million or 12.3%, reaching
$412.2 million from $366.9 million in 1992. As a percentage of average assets,
operating expenses have remained stable throughout the last three years,
representing 3.86% in 1993, 3.85% in 1992 and 3.86% in 1991. Total operating
expenses were $345.7 million during 1991. Table G presents a detail of
operating expenses for the last five years.
The increase of $45.3 million in total operating expenses is partially
related to corporate growth and acquisitions, the recognition of the current
year's expense for postretirement health benefits and the expenses related to
the celebration of the subsidiary Bank's 100th anniversary. During the year,
the operating expenses of Spring increased $3.4 million or 42%, primarily
related to the opening of 17 branches. Also, the branches acquired from
American Savings in June 1992 had additional expenses of approximately $2.8
million in 1993 and the expenses of the operations acquired during 1993
amounted to approximately $4 million.
Personnel costs, which represent 52.4% of the total operating expenses for
1993, increased $27.7 million or 14.7%, compared with $188.2 million in 1992
and $180.6 million in 1991.
The increase in personnel costs is mainly attributed to an increase of
$16.7 million in salary expense. Salaries increased $4.1 million due to the
aforementioned acquisitions and growth, $3.7 million due to the payment of a
special bonus to employees on the subsidiary Bank's 100th anniversary and $3.1
million in incentive compensation. Also, annual merit increases contributed to
the rise in salary expense.
Full-time equivalent employees (FTE) amounted to 7,439 at December 31,
1993, up 474 from 6,965 at the end of 1992. The increase in FTE results mainly
from 162 employees retained in the operations acquired in the Virgin Islands
and an increase of 118 employees in the operations of Spring.
Employee benefits, including profit sharing, rose $10.9 million to $64.4
million in 1993, compared with $53.5 million in 1992 and $50.7 million in 1991.
This increase is primarily the result of an improvement in the subsidiary
Bank's profitability ratios which led to a higher profit sharing expense by
$2.7 million and to the recognition of the $5.2 million postretirement health
benefit expense required by SFAS 106. Excluding the effect of SFAS 106, pension
and other benefits increased $2.9 million which is related to a rise in social
security tax due to the higher salary base, an increase in staff activities
related to the subsidiary Bank's 100th anniversary, and an increase in staff
trainings due to the Total Quality Management Program which began in late 1992.
During the first quarter of 1993, the Corporation implemented the Statement
of Financial Accounting Standard (SFAS) 106 "Employers Accounting for
Postretirement Benefits other than Pensions". This new accounting standard
requires that employers accrue the expected cost of retiree health care and
other postretirement benefits, including the transition obligation which is the
portion of future retiree benefit costs related to services already rendered by
both active and retired employees up to the date of adoption of the statement.
The Corporation elected to recognize the full transition obligation in 1993, as
permitted by
9
60
- - - - - -------------------------------------------------------------------------------
SFAS 106, resulting in an expense of $22.7 million, net of taxes, which is
presented in the financial statements as a cumulative effect of accounting
changes. In addition, the Corporation recorded $5.2 million corresponding to
the current portion of the expense related to the services rendered during
1993.
All other operating expenses increased 9.9% to $196.4 million compared with
$178.7 million during 1992. In 1991, these expenses totaled $165.1 million.
The most significant increases were $4.2 million in equipment expenses, $4.7
million in professional fees and $4.1 million in business promotion.
The increase in equipment expenses correspond to the additional investment
in equipment, mostly electronic related, for the development of new products
and services. During the year, the Corporation expanded significantly the
installation of point of sales (POS) terminals throughout the island.
Furthermore, an electronic payment service was introduced where customers can
pay bills through the telephone. Business expansion and acquisitions also
contributed to this increase.
Professional fees also increased due to the above mentioned initiatives
that resulted in higher legal fees, software costs and other consulting
services.
The increase in business promotion is due to the advertising campaigns
initiated to support the new products being offered and the business expansion
in New York, and to the expenses of the different activities associated with
the celebration of the subsidiary Bank's 100th anniversary.
Other captions showing increases were other taxes, mainly due to the
increase in tax rates for property and municipal license tax in Puerto Rico,
FDIC assessment, for the increase in deposit base, and amortization of
intangibles, for the premiums paid on the acquired operations.
INCOME TAX EXPENSE
Effective January 1, 1993, the Corporation adopted SFAS 109. This standard
requires an asset and liability approach to accounting for income taxes. The
objective of SFAS 109 is to recognize the amount of taxes payable or refundable
in the current year and to recognize deferred tax liabilities and/or assets for
the future tax consequences of events that have been recognized in the
financial statements or tax returns. The measurement of current and deferred
tax liabilities or assets is based on the regular tax rates and provisions of
the enacted tax laws. At the date of adoption of SFAS 109, the Corporation
recorded a credit to income and a deferred tax asset of $28.9 million mainly
due to alternative minimum tax credits and tax loss carryforwards that the
Corporation had available. Prior to 1993, the Corporation determined its
income tax provision under SFAS 96 whereby the income tax expense was basically
the same as the Corporation's income tax liability.
At December 31, 1993, the Corporation's net deferred tax asset amounted to
$35.9 million. The Corporation recorded this deferred tax asset because, based
on the available evidence, it is more likely than not that the asset will be
realized.
The income tax expense for the year ended December 31, 1993, amounted to
$28.2 million compared with $14.3 million for the year before and $6.8 million
in 1991. The effective tax rate rose to 21.30% from 14.24% in 1992. The
increase of $13.9 million is directly related to a higher amount of pre-tax
earnings and to the tax calculation methodology prescribed by SFAS 109, which
is based on the regular tax rate. In 1991, the effective tax rate was 9.41%
which was affected by tax losses realized on the sale of loans to less
developed countries (LDC) acquired on the merger and by a higher amount of loan
losses.
The difference between the effective tax rates and the statutory rate,
which in Puerto Rico is 42%, is primarily due to the interest income earned on
certain investments and loans which is tax exempt, net of the related interest
expense disallowance.
Please refer to Note 21 of the Financial Statements for additional
information on the deferred tax asset and the provision for income taxes.
BALANCE SHEET COMMENTS
Total assets at December 31, 1993, were $11,513 million, representing an
increase of 15.1% over the 1992 level of $10,002 million. Total assets at
December 31, 1991, amounted to $8,780 million. Average total assets for 1993
amounted to $10,684 million, compared with $9,529 million in 1992 and $8,944
million in 1991.
Earning assets at December 31, 1993, amounted to $10,658 million compared
with $9,236 million at December 31, 1992, and $8,033 million at December 31,
1991. Loans, which represented 59.6% of the total earning assets at year-end,
amounted to $6,347 million compared with $5,252 million at the end of 1992 and
$5,196 million at the same date of 1991. The increase in loans is principally
due to a significant growth of $785.2 million or 99.3% in mortgage loans, as
previously explained. Mortgage loans represented 24.8% of total loans as of
December 31, 1993, compared with 15.1% in 1992. This rise should result in an
improved credit quality on loans since, based on experience, the Corporation
expects low levels of losses on its mortgage portfolio.
Money market, investments and trading securities totaled $4,311 million at
year-end compared with $3,984 million at the end of 1992, an increase of 8.2%.
Investment securities totaled $4,045 million at the end of 1993 of which
$714.6 million were carried at the lower of cost or market compared with
$408.1 million at December 31, 1992.
During the first quarter of 1994, SFAS 115 "Accounting for Certain
Investments in Debt and Equity Securities" will be implemented. This statement
supersedes SFAS 12 and specifically addresses the accounting and reporting for
certain investments in debt and equity securities. It requires depository
institutions to divide their securities holdings among three categories:
held-to-maturity, available-for-sale and trading securities. Those securities
which management has the positive intent and ability to hold to maturity will
be classified as held-to-maturity and will be carried at cost. Those that are
bought and held principally for the purpose of selling them in the near term,
will be classified as trading and will continue to be reported at fair value
with unrealized gains and losses included in earnings. All other securities
will be classified as available-for-sale and will be reported at fair value
with unrealized gains and losses excluded from earnings and reported as a
separate component of shareholders' equity. As a result of the adoption of
this statement, the Corporation estimates an increase in shareholders' equity
of approximately $14.4 million, net of $4.8 million in deferred taxes.
Other assets increased from $64.9 million at December 31, 1992, to $95.8
million at December 31, 1993, an increase of $30.9 million. As previously
explained, during this year the Corporation adopted SFAS 109 which resulted in
the recognition of a net deferred tax asset of $35.9 million as of December 31,
1993.
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TABLE H
LOANS AVERAGE BALANCES
For the Year
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
(In thousands) 1993 1992 1991 1990 1989
--------------------------------------------------------------------------------------------------
Commercial, industrial and
agricultural $2,203,304 $2,039,205 $2,037,960 $1,341,528 $1,191,335
Construction 160,539 180,652 205,816 89,289 78,506
Lease financing 339,309 273,882 286,388 36,333 19,143
Mortgage 1,169,881 764,175 649,564 340,156 278,560
Consumer 1,827,036 1,892,414 2,122,460 1,570,157 1,564,623
--------------------------------------------------------------------------------------------------
Total $5,700,069 $5,150,328 $5,302,188 $3,377,463 $3,132,167
==================================================================================================
On the liability side, total deposits increased $483.9 million or 6%, from
$8,039 million at December 31, 1992, to $8,523 million at the same date of
1993. Total deposits as of December 31, 1991, amounted to $7,207 million.
Accounting for this year's increase in deposits were $126 million in deposits
acquired in New York on July 30, 1993, and $228.8 million acquired in Virgin
Islands on September 30, 1993.
Core deposits continued to grow reaching $6,954 million at December 31,
1993, compared with $6,295 million a year before. This rise was principally
due to an increase of $234.1 million in non-interest bearing deposits and
$421.5 million in savings accounts. NOW and money market accounts rose $99.1
million, while certificates of deposit of less than $100,000 decreased $95.9
million. Certificates of deposit of $100,000 and over decreased $174.8
million.
Borrowings increased $907.6 million as compared with prior year. This rise
is mainly due to an increase of $631.5 million in the amount of federal funds
purchased and securities sold under agreements to repurchase due to the
existence of profitable arbitrage opportunities. Also, the issuance of an
additional $176.4 million in medium-term notes by BanPonce Financial to finance
Spring's operations and an increase of $31.1 million in commercial paper,
contributed to the rise in borrowings.
Subordinated notes decreased $12 million from the $74 million outstanding
balance as of December 31, 1992, due to the prepayment in December of 1993 of a
7.95% note which matured in 1994.
Other liabilities increased from $132.5 million at the end of 1992 to $182.4
million at the same date in 1993, an increase of $49.9 million or 37.6%. This
increase is primarily attributed to the recognition of the obligation under
SFAS 106, which amounted to $42.7 million at December 31, 1993.
The analysis of the Corporation's balance sheet components will focus on
three major topics: Credit Risk Analysis, Asset and Liability Management and
Stockholders' Equity.
CREDIT RISK ANALYSIS
CREDIT MANAGEMENT
The acceptance and management of credit risk is an integral part of the
Corporation's business activities. The Corporation has established strict
credit underwriting standards to monitor the loan granting process and the
subsequent performance of the loan portfolio. The risk concentration is also
closely monitored by the Corporation.
The Corporation's Credit Review and Audit Division provides an independent
and objective assessment of the loan portfolio's credit quality. This division
also manages the credit rating system, the major credit risk monitoring tool,
and tests the adequacy of the allowance for loan losses.
During 1993, the commercial portfolio reflected a significant improvement
in the level of delinquencies, charge-offs and recoveries. The Commercial
Credit Administration Division closely monitors the compliance with the lending
policies and procedures to assure the timely detection of problem loans and
loss exposure risk. During 1994, a commercial credit training center will be
established to continue enforcing the policies of maintaining a highly skilled
and experienced staff and assuring the consistent application of sound credit
standards.
The emphasis of the Consumer Credit Area continues to be on credit quality.
The delinquency and net credit losses on this portfolio have also improved
considerably over the last two years. In addition, a shift in the consumer
portfolio from an unsecured to a secured basis, primarily mortgage and
cash-secured loans, has been achieved. For 1994, credit quality will continue
to be emphasized through additional training and improved processing
technology.
The Corporation's credit risk is well balanced as its credit policies
emphasize diversification among geographic areas, business and industry groups.
The loan risk exposure is spread among individual consumers, small commercial
loans and a diverse base of borrowers engaged in a wide variety of businesses.
The Corporation has over 780,000 consumer loans and over 32,000 commercial
lending relationships. Of these, only 21 relationships have loans outstanding
over $10 million. Highly leveraged transactions and credit facilities to
finance speculative real estate ventures are minimal and there are no LDC
loans. The portfolio composition at the end of 1993 was as follows; 37% in
commercial loans, 2% in construction loans, 30% in consumer loans, 25% in
residential mortgage loans and 6% in lease financing as compared with 41%, 3%,
35%, 15%, and 6%, respectively, in 1992.
The following risk concentration categories existed at year-end. Only
those concentrations with portfolio totals in excess of the Corporation's
stockholders'equity are presented.
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Geographic Risk - The bulk of the Corporation's business activities and credit
exposure is concentrated with customers in Puerto Rico. The Island's
economic prospects are generally regarded as stable to improving and the
Government of Puerto Rico and its instrumentalities are all
investment-grade rated borrowers in the United States capital markets.
However, the Corporation has been increasing its market outside of Puerto
Rico, which now represents 18% of the Corporation's total assets. The
Corporation operates the largest Hispanic bank branch network in the United
States mainland with 30 branches in New York, one in Chicago and one in Los
Angeles. It also operates eight branches in the U.S. and British Virgin
Islands and continues to add geographic and business diversity through
controlled acquisitions of other operations. Spring Financial, a consumer
financial operation acquired in 1991, now has 58 branches in 14 states,
primarily in the Mid-Atlantic Region. In addition, during 1993 the
Corporation acquired several branches in New York and in the Virgin
Islands. These acquisitions added $234 million in assets and $401.6
million in deposits to our operations outside of Puerto Rico. Furthermore,
the Corporation has entered into a purchase agreement for the acquisition
of Pioneer Bank in Chicago, with approximately $341 million in assets and
$300 million in deposits. It has been the Corporation's philosophy of
generally limiting its lending activities to projects and borrowers within
its geographic regions. This has consistently resulted in acceptable
credit quality.
Consumer Credit Risk - Consumer credit risk arises from exposures to credit
card receivables, home mortgages, personal loans, and other installment
credit facilities. At year-end, consumer and residential mortgage loans
amounted to $1,872 million and $1,576 million, respectively, with $645
million in unused credit card lines. The lower charge-off amount for
consumer credit loans in 1993 reflects the consistent application of good
credit standards, plus enhanced collection systems. In 1994, management
will direct the efforts to continue increasing the secured portion of the
portfolio. At December 31, 1993, the secured consumer loan portfolio was
$702.6 million or 38% of the total portfolio compared with 34% at December
31, 1992.
Industry Risk - Total commercial loans, including commercial real estate loans,
amounted to $2,370 million at year-end. Commercial loans secured by real
estate, consisting primarily of residential, owner-occupied and income
producing properties, represented $894.2 million or 38% of the commercial
portfolio. Construction loans amounted to $153.4 million at year end.
During the last quarter of 1993 an uptick economic growth was confirmed.
The real estate activity in the mainland reached impressive levels as
compared with the economic environment of the last two years, when the
slow economy seriously affected this market. The real estate in Puerto
Rico has relative price stability and is expected to continue improving.
The Corporation's objective for 1994 in this area is to continue to be
highly selective in its underwriting of real estate-related credits. The
non real estate-related portion of the commercial loan portfolio amounted
to $1,476 million, with $1,140 million in unused commitments under lines of
credit to commercial, industrial and agricultural concerns. Commercial and
stand by letters of credit totalled $94.2 million at year-end. As
mentioned previously, there are no significant concentrations in any one
industry with a substantial portion of the customers having credit needs of
less than $100,000. Furthermore, there is only a limited number of
speculative and highly leveraged transactions in the commercial portfolio
and no LDC loans.
Government Risk - As of year-end, $3,543 million of the investment securities
represented exposure to the U.S. Government in the form of U.S. Treasury
securities and obligations of U.S. Government agencies and corporations. In
addition, $82.1 million of residential mortgages and $142.1 million in
commercial loans are insured or guaranteed by the U.S. Government or its
agencies. Furthermore, there are $256.7 million of investment securities
representing obligations of the Puerto Rico Government and political
subdivisions thereof with another $126.9 million of loans issued to or
guaranteed by these same entities.
LOANS
Loans at December 31, 1993 totaled $6,347 million, an increase of $1,095
million or 21% from prior year's total of $5,252 million. Total loans at
December 31, 1991, amounted to $5,196 million. Most of the increase in loans
is attributed to the mortgage loan portfolio which increased $785.2 million,
from $790.8 million at December 31, 1992, to $1,576 million at the end of this
year. Mortgage loans at December 31, 1991 totaled $683.5 million. Commercial,
lease financing and consumer loan portfolios increased 11.1% or $236.2 million,
19.3% or $60.8 million and 1.7% or $31.7 million, respectively, as compared
with the balances a year ago. However, the construction loans portfolio
reflected a decline of $19 million or 11% as compared with the prior year.
The increase in the mortgage loan portfolio was mainly due to the
acquisition of approximately $358 million in mortgage loan portfolios in the
New York operations and the high level of mortgage originations and refinancing
activities in 1993 resulting from the low interest rate environment that has
prevailed. Furthermore, mortgage loan figures include $54.8 million in loans
acquired on September 30, 1993, as part of the operations acquired in the
Virgin Islands. During 1993, a mortgage loan division was established in the
subsidiary Bank's New York operations to continue pursuing the Corporation's
strategy of increasing its share of mortgage-secured loans.
The commercial loan portfolio consists primarily of commercial and
industrial loans and commercial loans secured by real estate. At December 31,
1993, commercial loans, including commercial loans secured by real estate,
amounted to $2,370 million, compared with $2,133 million a year ago and $1,996
million at the end of 1991. The rise in the commercial portfolio was primarily
due to an improved economic environment that led to an increase of $104 million
in the retail and middle market portfolio, and the strong marketing efforts
directed to the origination of Government Guaranteed Loans. During 1993, these
loans increased approximately $40 million, primarily loans guaranteed by the
Small Business Administration (SBA). Also, $46.7 million in commercial loans
were acquired in the purchased Virgin Island operations. Commercial loans to
Fortune 500 and multinational corporations remained stable, totalling $652.3
million as of December 31, 1993, as compared with $647.3 million at the end of
1992.
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TABLE I
NON-PERFORMING ASSETS
As of December 31,
- - - - - ----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991 1990 1989
---------------------------------------------------------------------------------------
Commercial, industrial and
agricultural $ 49,517 $ 62,662 $ 79,642 $ 61,328 $ 25,245
Construction 8,215 8,798 8,213 6,297 1,547
Lease financing 4,429 4,752 5,449 405
Mortgage 14,363 11,532 10,374 5,581 1,918
Consumer 16,290 20,597 25,049
Renegotiated accruing loans 5,643 8,380 520
Other real estate 12,699 15,582 7,012 6,666 1,460
---------------------------------------------------------------------------------------
Total $111,156 $132,303 $136,259 $ 80,277 $ 30,170
=======================================================================================
Accruing loans past-due
90 days or more $ 15,505 $ 23,957 $ 32,658 $ 57,355 $ 28,162
=======================================================================================
Non-performing assets to loans 1.75% 2.52% 2.62% 1.50% 0.92%
Interest lost $ 4,992 $ 7,548 $ 10,983 $ 6,869 $ 3,771
Note: The Corporation's policy is to place commercial and construction loans
on non-accrual status if payments of principal or interest are
past-due 60 days or more. Lease financing receivables and conventional
residential mortgage loans are placed on non-accrual status if
payments are delinquent 90 days or more. Closed-end consumer loans are
placed on non-accrual when they become 90 days or more past-due and
are charged-off when they are 120 days past-due. Open-end consumer
loans are not placed on non-accrual status and are charged-off when
they are 180 days past-due. Prior to 1991, the Corporation continued
to accrue interest on closed-end consumer loans until they were 120
days past-due, at which time they were sold for a percent of their
balance and the difference charged-off.
- - - - - --------------------------------------------------------------------------------
The lease financing portfolio amounted to $375.7 million as of December
31, 1993, compared with $314.9 million and $252.7 million as of December 31,
1992 and 1991, respectively. The rise in the truck and vehicle sales in Puerto
Rico contributed to the growth in this loan category.
It is expected that the commercial portfolio will continue to grow
moderately during 1994 primarily in the following economic sectors: service
industries, middle market and corporate loans, pre-export and export financing,
and government guaranteed loans. Furthermore, increases in loan demand are
expected in the agricultural and tourism sectors.
Consumer loans outstanding, which include personal, auto and boats,
credit cards, reserve lines and student loans, amounted to $1,872 million at
December 31, 1993, compared with $1,841 million at year-end 1992 and $2,069
million as of December 31, 1991. This growth reflects the acquisition of $29.8
million in consumer loans in the Virgin Islands and reflects also the effects
of a slowly improving economy and the strong marketing efforts during the year.
As a percentage of the total loan portfolio, consumer loans represented 30% at
the end of 1993 as compared with 35% and 40% as of December 31, 1992 and 1991,
respectively.
At the end of this year, the personal loan portfolio represented
approximately 54% of the total consumer loan portfolio. The personal loan
portfolio was comprised of about 22% in mortgage secured loans, 10% with cash
collateral and the remainder was unsecured. Emphasis on secured personal loans
during 1992 and 1993 increased the secured portion of the total personal loan
portfolio to 32% at the end of 1993, from 20% in 1991.
Auto and boat secured loans represent about 17% of the total consumer
loan portfolio, and revolving credit (credit cards plus reserve lines of credit)
are 24%. The remaining 5% is student loans and small dealer contracts.
In 1994, credit quality will continue to be emphasized through
additional training and improved processing technology. Sustained advertising
and promotions should spur growth in the personal loan and revolving credit
portfolios despite a continuously cautious consumer and a reduced, but still
high, consumerindebtedness. Consumers have chosen to refinance home mortgages
to cancel personal debts, also getting lower mortgage interest costs that are
tax deductible. Auto loans are expected to grow due to continued marketing
efforts and strong auto sales.
NON-PERFORMING ASSETS
Non-performing assets of the Corporation consist of past due loans on which no
interest income is being accrued, renegotiated loans, other real estate and
in-substance foreclosed assets. Non-performing assets at December 31, 1993,
totaled $111.2 million or 1.75% of loans. This represents a drop of $21.1
million or 16% from a year earlier when comparable amounts were $132.3 million
or 2.52% of loans. Non-performing loans at December 31, 1993, were $92.8
million or 1.46% of loans, down $15.5 million from $108.3 million or 2.06% a
year earlier. The allowance for loan losses as a percentage of non-performing
assets rose to 120.04% as of December 31, 1993, from 83.68% at the same date of
1992.
The reduction in non-performing assets was reflected mainly in the
commercial non-performing loans which decreased $13.1 million or 21% due to the
improved collection efforts of classified loans. Other non-performing loan
categories in which reductions were observed were consumer non-performing
loans, with a decrease of $4.3 million, and construction and lease
financing which
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decreased $0.6 million and $0.3 million, respectively. On the other hand,
non-performing mortgage loans increased $2.8 million mainly due to the rise in
the mortgage loan portfolio. The Corporation was able to reduce other real
estate owned by $2.9 million through the successful efforts in the disposition
of these properties. Table I presents the composition of non-performing assets
by category at the end of 1993 and the previous four years.
The Corporation reports its non-performing assets on a more conservative
basis than most U.S. banks. The Corporation's policy is to place commercial
loans on non-accrual status if payments of principal or interest are delinquent
60 days rather than the standard industry practice of 90 days. Lease financing
receivables and conventional mortgage loans are placed on non-accrual status if
payments are 90 days past-due. Closed-end consumer loans are placed on
non-accrual status if payments are delinquent 90 days, in order to comply with
Puerto Rico statutory requirements, and are charged-off against the allowance
when delinquent 120 days. Open-end (revolving credit) consumer loans are
charged-off if payments are delinquent 180 days. Certain loans which would be
treated as non-accrual loans pursuant to the foregoing policy are treated as
accruing loans if they are considered well secured and in the process of
collection.
Assuming the standard industry practice of placing commercial loans on
non-accrual status at 90 days past-due and not categorizing the aforementioned
closed-end consumer loans as non-accruing, the Corporation's non-performing
assets at December 31, 1993, would have been $80.9 million or 1.27% of loans,
and the allowance for loan losses would be 165.03% of non-performing assets.
At December 31, 1992, adjusted non-performing assets would have been $105.7
million or 2.01% of loans.
Accruing loans that are contractually past-due 90 days or more as to
principal or interest as of December 31, 1993, amounted to $15.5 million as
compared with $24 million in 1992. Renegotiated loans at December 31, 1993,
totaled $6.1 million of which $0.5 million were in non-accrual status. All
renegotiated loans are classified as non-performing assets.
Once a loan is placed on non-accrual status the interest previously accrued
and uncollected is charged against current earnings and thereafter, income is
recorded only to the extent of any interest collected. The interest income
that would have been realized had these loans been performing in accordance
with their original terms amounted to $5 million for 1993 compared with $7.5
million for 1992.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The Corporation maintains the allowance for possible credit losses at a level
which is considered adequate to absorb the potential credit losses inherent in
the portfolio. In determining the allowance for loan losses, management
considers the risk characteristics of the loan portfolio, historical loan loss
experience and the current and projected economic conditions. Based on this
evalutation and the current level of net charge-offs, a provision for loans
losses is recorded.
The provision for loan losses for 1993 totaled $72.9 million, compared with
$97.6 million in 1992 and $121.7 million in 1991. The reductions of $24.7
million or 25.3% as compared with prior year and $48.8 million or 40.1% as
compared with 1991, were due to a reduced level of charge-offs in the
portfolios as a result of the improvement in loan quality during the past two
years. Net charge-offs for the year totaled $51.7 million or 0.91% of average
loans, compared with $81.1 million or 1.58% in 1992 and $118.4 million or 2.23%
in 1991.
Net credit losses in the consumer portfolio reflected the major reduction.
Consumer loans net charge-offs declined $19.4 million or 51.1%, from $37.9
million in 1992 to $18.5 million in 1993. In 1991, consumer loans net
charge-offs amounted to $91.2 million. As a percentage of average consumer
loans, net charge-offs amounted to 1.02% in 1993, compared with 2% in 1992 and
4.30% in 1991. Most of this decrease was experienced in the personal loan
portfolio where net charge-offs decreased from $21.5 million or 2.28% of
average loans in 1992 to only $5.7 million or 0.65% in 1993. In 1991 personal
loans' net charge-offs were $54.4 million or 4.81% of loans. During 1993
delinquency and net losses on installment loans and credit cards continued
declining considerably. This trend was the result of the consistent application
of good credit standards through officer training and periodic lending reviews,
plus enhanced collection systems.
Commercial loan's net losses also reflected a reduction, decreasing $10.9
million or 31.9% during this year, from $34.1 million in 1992 to $23.2 million
in 1993. This decrease was caused mainly by lower losses on the retail and
middle market portfolios due to reduced bankruptcy levels and the
implementation of improved collection systems. In 1993, commercial loans net
charge-offs as a percentage of the average portfolio were 1.05% compared with
1.67% in 1992. In addition to the aforementioned reductions, lease financing
net charge-offs decreased $0.9 million, while construction and mortgage net
charge-offs rose $1.4 million and $0.4 million, respectively. The net
charge-offs on the mortgage portfolio were recorded by Spring.
Based on the improved loan quality and the expected improvement in the
economic environment, it is expected that net loan losses for 1994 will
continue decreasing.
Notwithstanding the decrease in the provision for loan losses, the
allowance for loan losses at December 31, 1993 totaled $133.4 million,
representing 2.10% of total loans, compared with $110.7 million or 2.11% a year
earlier and $94.2 million or 1.81% at year-end 1991. As a percentage of loans,
the allowance remained basically the same as in 1992 due to the fact that the
Corporation's loan quality has improved considerably and most of the increase
in loans resulted in the mortgage sector where losses have historically been
much lower. Broken down by major loan categories, the allowance for the last
four years was as follows:
ALLOWANCE FOR LOAN LOSSES
AT DECEMBER 31,
(In millions)
1993 1992 1991 1990
---- ---- ---- ----
Commercial $ 64.0 $ 49.5 $34.4 $21.9
Construction 10.6 6.5 3.5 3.2
Lease financing 5.8 5.4 5.4 4.3
Consumer 52.0 49.3 50.9 59.9
Mortgage 1.0
------------------------------------
$ 133.4 $ 110.7 $94.2 $89.3
====================================
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TABLE J
ALLOWANCE FOR LOAN LOSSES AND SELECTED LOAN LOSSES STATISTICS
(Dollars in thousands) 1993 1992 1991 1990 1989
- - - - - -------------------------------------------------------------------------------------------------------------
Balance at beginning of year $ 110,714 $ 94,199 $ 89,335 $ 40,896 $ 33,244
Allowance of acquired Corporation 43,932
Other allowances purchased 1,580 1,556 1,786
Provision for loan losses 72,892 97,633 121,681 53,033 42,603
--------------------------------------------------------------
185,186 191,832 212,572 139,647 75,847
--------------------------------------------------------------
Losses charged to the allowance
Commercial 29,501 37,700 24,849 12,578 12,974
Construction 3,060 1,887 2,450 587 125
Lease financing 9,150 10,139 4,316 20
Mortgage 477
Consumer 35,239 52,454 97,700 40,486 32,377
--------------------------------------------------------------
77,427 102,180 129,315 53,671 45,476
--------------------------------------------------------------
Recoveries
Commercial 6,279 3,577 4,300 1,414 7,234
Construction 607 796 50 801
Lease financing 2,081 2,169 154
Mortgage 36
Consumer 16,675 14,520 6,488 1,895 2,490
--------------------------------------------------------------
25,678 21,062 10,942 3,359 10,525
--------------------------------------------------------------
Net loans charged-off 51,749 81,118 118,373 50,312 34,951
--------------------------------------------------------------
Balance at end of year $ 133,437 $ 110,714 $ 94,199 $ 89,335 $ 40,896
==============================================================
Loans:
Outstanding at year-end $ 6,346,922 $5,252,053 $5,195,557 $5,365,917 $3,276,389
Average 5,700,069 5,150,328 5,302,189 3,377,463 3,132,167
Ratios:
Allowance for loan losses to year
end loans 2.10% 2.11% 1.81% 1.66% 1.25%
Recoveries to charge-offs 33.16 20.61 8.46 6.26 23.14
Net charge-offs to average loans 0.91 1.58 2.23 1.49 1.12
Net charge-offs earnings coverage 3.96x 2.44x 1.64x 2.50x 3.15x
Allowance for loan losses to net
charge-offs 2.58 1.36 0.80 1.78 1.17
Provision for loan losses to:
Net charge-offs 1.41 1.20 1.03 1.05 1.22
Average loans 1.28% 1.90% 2.29% 1.57% 1.36%
Allowance to non-performing assets 120.04 83.68 69.13 111.28 135.55
- - - - - -------------------------------------------------------------------------------------------------------------
Table J summarizes the movement in the allowance for loan losses and presents
selected loan losses statistics for the past five years. As can be seen from
Table J, the Corporation continued strengthening its allowance position during
1993, improving its ratios of allowance to net charge-offs and non performing
assets to 258% and 120.04%, respectively, at December 31, 1993.
On May 1993 the Financial Accounting Standards Board issued SFAS 114,
"Accounting by Creditors for Impairment of a Loan". SFAS 114 addresses the
accounting by creditors for impairment of a loan by specifying how the
allowance for loan losses related to certain loans should be determined. Under
this standard a loan loss may be based on the present value of the loan's
expected future cash flows discounted at the loan's effective interest rate,
the loan's market price or the fair value of the collateral. If the loss is
measured using a discounted present value, the subsequent increase in present
value due to the passage of time will be reflected in the income statement
either as an adjustment to the provision for loan losses or as interest income.
If collateral value or market price of the loan is used to measure the
impairment, a subsequent change in value is treated as an adjustment to the
provision for loan losses. SFAS 114 is effective for fiscal years beginning
after December 15, 1994. At this time, management has not estimated the effect
of the adoption of this standard on the financial statements of the
Corporation.
15
66
- - - - - ---------------------------------------------------------------------------------------------------------------------------
TABLE K
MATURITY DISTRIBUTION OF EARNING ASSETS
As of December 31, 1993
- - - - - ---------------------------------------------------------------------------------------------------------------------------
Maturities
---------------------------------------------------------------
After one year
through five years After five years
---------------------------------------------------------------
Fixed Variable Fixed Variable
One year interest interest interest interest
(In thousands) or less rates rates rates rates Total
- - - - - ---------------------------------------------------------------------------------------------------------------------------
Money market securities $ 262,692 $ 262,692
Investment and trading
securities 2,218,270 $1,635,127 $ 194,983 4,048,380
Loans:
Commercial 1,218,908 373,103 $365,019 342,439 $223,476 2,522,945
Lease financing 120,765 253,364 1,569 375,698
Consumer 611,395 1,113,012 147,828 1,872,235
Mortgage 142,804 514,184 919,056 1,576,044
-----------------------------------------------------------------------------------
Total $4,574,834 $3,888,790 $365,019 $1,605,875 $223,476 $10,657,994
===================================================================================
ASSET/LIABILITY MANAGEMENT
The Corporation manages its assets and liabilities to minimize the impact of
volatile interest rates on net interest income. Changes in interest rates can
affect the level and stability of earnings. Therefore, the structure of the
balance sheet is monitored on a continuous basis to ensure that potential
earnings volatility remains within predetermined guidelines established by the
Board of Directors. The responsibility for protecting the level of the
Corporation's earnings and maintaining potential variations within Board
parameters resides with the Asset/Liability Committee (ALCO), which is
comprised of senior officers.
As specified in the Asset/Liability Management Policy, the ALCO's mandate
is to maximize net interest income while maintaining risk within the guidelines
detailed in the policy. A balanced position between rate sensitive assets and
rate sensitive liabilities over the one year period is generally called for by
the policy, although expected market opportunities occasionally occur and the
ALCO may adjust the Corporation's asset/liability position to take advantage of
them. Asset and liability mismatches are allowed only under policy guidelines
and are monitored closely by the ALCO. In addition, positions assumed can be
quickly adjusted if warranted by market conditions.
The ALCO convenes monthly to review the Corporation's earnings,
asset/liability position and current conditions in the financial markets, as
well as to analyze and adopt strategies to accomplish the Committee's
objectives. Monthly scenario analyses are run using a simulation model to
measure the impact of changes in interest rates and proposed strategies on net
interest income. The results from the monthly simulations help determine the
optimum strategy to adopt.
LIQUIDITY
The objective of liquidity management is to ensure the Corporation's ability to
fund the loan demands of customers, repay deposit withdrawals and maturities,
and finance its operations. Since the cost of liquidity increases
commensurately with its level, a main focus of liquidity management is
maintaining adequate liquid assets and sources of funds at a reasonable cost.
A substantial source of liquidity can be found in the Corporation's assets,
enhanced by the quality of the investment portfolio and the Corporation's
primary position in the local funds market. In addition, the Corporation has
immediate access to the U.S. money and capital markets.
The investment portfolio provides a significant source of liquidity to the
Corporation. Liquid assets include those that can be readily converted into
cash with minimal transaction costs or capital losses. The Corporation's
securities available for sale, which totalled $714.6 million at December 31,
1993, represent a highly accessible source of liquidity since they can be sold
in the secondary markets. In addition, the Corporation's investment securities
portfolio at year-end totalled $3,331 million of which 75.5% represents high
quality U.S. Treasury and Agency Securities, and 72% of these securities mature
in one year or less. These securities can be financed easily in the money
markets.
The Corporation's loan portfolio is also an important source of liquidity
as it generates a substantial amount of cash flows from payments of principal
and interest. As of December 31, 1993, $2,094 million or 33% of the total loan
portfolio was due within one year.
A substantial core deposit base is one of the Corporation's most important
sources of liquidity. These deposits include consumer and commercial demand
deposits, savings deposits and time deposits under $100,000. Core deposits are
more stable and reliable than institutional funds since they are not as
sensitive to fluctuations in interest rates and market conditions. As of
December 31, 1993, core deposits amounted to $6,954 million or 81.6% of total
deposits, which represents an increase of 10.5% as compared with the balance at
the end of year 1992. Certificates of deposit of
16
67
- - - - - -----------------------------------------------------------------------------------------------------------------------------
TABLE L
AVERAGE TOTAL DEPOSITS
For the Year
- - - - - -----------------------------------------------------------------------------------------------------------------------------
(In thousands) 1993 1992 1991 1990 1989
--------------------------------------------------------------------------------------
Private demand $1,396,339 $1,265,230 $1,206,443 $ 872,124 $ 826,064
Public demand 235,323 201,218 172,722 144,867 149,972
Other non-interest bearing accounts 3,678 3,807 4,247 4,383 5,913
--------------------------------------------------------------------------------------
Non-interest bearing 1,635,340 1,470,255 1,383,412 1,021,374 981,949
--------------------------------------------------------------------------------------
Savings accounts 2,492,845 2,044,037 1,629,806 1,055,410 994,163
NOW and money market accounts 1,078,075 955,654 767,984 433,989 367,750
--------------------------------------------------------------------------------------
Savings deposits 3,570,920 2,999,691 2,397,790 1,489,399 1,361,913
--------------------------------------------------------------------------------------
Certificates of deposit:
Under $100,000 1,053,515 1,125,653 1,184,350 768,584 744,006
$100,000 and over 498,093 511,585 633,126 629,472 586,250
936 1,029,450 1,202,604 1,260,491 947,555 994,492
--------------------------------------------------------------------------------------
Certificates of deposit 2,581,058 2,839,842 3,077,967 2,345,611 2,324,748
--------------------------------------------------------------------------------------
Public time 124,629 155,715 181,019 132,128 81,531
Other time 212,938 175,620 157,999 50,910 32,650
--------------------------------------------------------------------------------------
Other time deposits 337,567 331,335 339,018 183,038 114,181
--------------------------------------------------------------------------------------
Interest bearing 6,489,545 6,170,868 5,814,775 4,018,048 3,800,842
--------------------------------------------------------------------------------------
Total $8,124,885 $7,641,123 $7,198,187 $5,039,422 $4,782,791
======================================================================================
$100,000 and over amounted to 18.4% of total deposits and had the following
maturity distribution at year-end:
(In thousands)
3 months or less $1,206,188
3 to 6 months 144,475
6 to 12 months 113,190
over 12 months 104,847
----------
$1,568,700
==========
Section 936 deposits comprise part of the Corporation's total deposit base
and amounted to $975.5 million or 11.4% of total deposits as of December 31,
1993. To avoid undue reliance on 936 funds, the Corporation has established
internal limits on the maximum amount allowed. Total Section 936 funds,
including deposits and repurchase agreements, amounted to $1,766 million as of
December 31, 1993, representing a 16.7% of total liabilities.
During the past year, the U.S. Internal Revenue Code was amended as part of
President William Clinton's economic program. Federal budget deficit reduction
is a primary objective of the program and Section 936 of the Code was revised
toward that goal. The revision basically reduced the tax credit associated with
the section throughout a period of several years. Eligible corporations
electing the credit may choose between a wage-based or income-based benefit.
Under the wage-based method, the tax credit is 65% of total wages and benefits
paid by the 936 corporations to their employees. Under the income-based
method, in 1994 the tax benefit will be 60% of the credit under the previous
law. In the subsequent four years, the income-based tax credit will be reduced
by 5% annually to 40% of the previous law's credit. The Corporation believes
that the amendments to the Code will not unduly affect the economy of Puerto
Rico considering its gradual implementation and still significant benefits.
To complement its liquidity and funding sources, on May 3, 1993, the
Corporation and some of its subsidiaries had ordered effective a "shelf"
registration filed with the Securities and Exchange Commission. Under this
registration these entities may issue unsecured debt securities, which may be
either senior or subordinated, and shares of preferred stock. The aggregate
initial offering under this registration may not exceed $400 million or, in the
case of debt securities, the equivalent thereof in one or more foreign
currencies, including composite currencies. The amounts, terms and timing of
offerings will be determined in the future when and as the corporations decide
to sell debt securities and/or shares of preferred stock under the
registration. In addition, at the beginning of 1994 the Corporation's
subsidiary Bank became member of the Federal Home Loan Bank of New York.
Through this membership, the Corporation has access to an additional source of
long-term funds at attractive rates.
INTEREST RATE SENSITIVITY
The level of net interest income of most financial institutions is sensitive to
fluctuations in interest rates. Since net interest income is the primary source
of income for most financial institutions, management monitors very closely
developments in the financial markets and their potential impact on
profitability.
The effect of changes in interest rates on net interest income depends upon
the maturity, duration and repricing characteristics of the Corporation's
assets and liabilities as well as the direction of interest rate movements. An
asset sensitive position occurs when a higher volume of assets than liabilities
matures or reprices within a specific time period while, on the other hand, a
liability sensitive
17
68
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
TABLE M
INTEREST RATE SENSITIVITY
As of December 31, 1993
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
By Repricing Dates
--------------------------------------------------------------------------------------------
After After
Within three months six months Non-interest
0-30 31-90 but within but within After one bearing
(Dollars in thousands) days days six months one year year funds Total
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
Assets:
Federal funds sold and
securities purchased under
agreements to resell $ 247,333 $ 247,333
Short-term interest bearing
deposits in other banks 10,259 $ 5,100 15,359
Investment and trading securities 603,867 456,167 $ 424,762 $ 791,120 $1,772,464 4,048,380
Loans 1,825,122 201,536 274,611 381,098 3,664,555 6,346,922
Other assets $ 855,374 855,374
--------------------------------------------------------------------------------------------
Total $ 2,686,581 662,803 699,373 1,172,218 5,437,019 855,374 11,513,368
--------------------------------------------------------------------------------------------
Liabilities and equity:
Savings and NOW accounts* 1,122,097 2,761,906 3,884,003
Other time deposits 1,049,423 635,504 404,323 252,172 448,375 2,789,797
Short-term interest bearing liabilities 510,496 575,015 359,113 47,548 123,734 1,615,906
Long-term interest bearing liabilities 2 12,002 88 333,763 345,855
Non-interest bearing deposits 1,848,859 1,848,859
Other non-interest bearing liabilities 183,753 183,753
Preferred stock of subsidiary
Bank and stockholders' equity 845,195 845,195
--------------------------------------------------------------------------------------------
Total 2,682,016 1,210,521 775,438 299,808 3,667,778 $2,877,807 $11,513,368
--------------------------------------------------------------------------------------------
Interest rate sensitive gap $ 4,565 $ (547,718) $ (76,065) $ 872,410 $1,769,241
Cumulative interest rate
sensitivity gap $ 4,565 $ (543,153) $(619,218) $ 253,192 $2,022,433
Cumulative sensitive gap to
earning assets 0.17% (16.22%) (15.29%) 4.85% 18.98%
*Now accounts are presented as repricing within 0-30 days. Savings accounts are
included as repricing after one year as they have proved to be stable sources
of funds that have not been subject to withdrawal, notwithstanding the changes
in interest rates.
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
position occurs when more liabilities than assets mature or reprice during a
specific time period.
When interest rates rise, an asset sensitive position will generally
result in increased net interest income. In this environment, a greater
amount of assets will reprice at a higher rate than liabilities, and
therefore net interest income rises. Conversely, when rates decrease an asset
sensitive position generally results in lower net interest income because a
greater volume of assets will reprice at a lower rate than liabilities. A
liability sensitive position is generally affected inversely by changes in
interest rates. Rising rates increase the cost of funds more rapidly than
interest income, while declining rates decrease the cost of funds more rapidly
than interest income.
The Corporation's interest rate risk position is detailed in Table M. As
of December 31, 1993, the one-year cumulative gap was $253.2 million or 4.85% of
earning assets as compared with a one-year cumulative negative gap of $511.9
million or 13.13% of earning assets in 1992. This change was due to an
increase of $1,288 million in investment securities and $54.9 million in loans
repricing within one year, partially offset by a rise of $656.1 million in
short-term interest bearing liabilities also repricing within one year.
STOCKHOLDERS' EQUITY
The Corporation has a strong capital base which allows it to undertake new
business initiatives and enhance its asset base.
At December 31, 1993, stockholders' equity amounted to $834.2 million,
an increase of $82.1 million or 10.9% from the balance of $752.1 million
at December 31, 1992. The factors contributing to the growth in the
capital position in 1993 were earnings' retention and the issuance of
additional shares of common stock under the Dividend Reinvestment Plan which
added $2.1 million to capital. The internal capital generation rate for this
year was 10.08% as compared to 9.04% in 1992.
The Corporation's capital for 1992 showed an increase in excess of the
capital retention ratios because, in the last quarter of 1992, the Corporation
offered subscription rights to stockholders
18
69
- - - - - ----------------------------------------------------------------------------------------------------------------------------
TABLE N
CAPITAL ADEQUACY DATA
As of December 31,
- - - - - ----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991 1990 1989
------------------------------------------------------------------------------
Risk-based capital
Tier I capital $ 786,686 $ 722,082 $ 598,034 $ 567,653 $ 375,807
Supplementary (Tier II) capital 106,193 110,704 127,181 148,085 90,897
------------------------------------------------------------------------------
Total capital $ 892,879 $ 832,786 $ 725,215 $ 715,738 $ 466,704
==============================================================================
Risk-weighted assets
Balance sheet items $6,150,749 $5,430,534 $5,240,345 $5,537,909 $3,897,743
Off-balance sheet items 250,102 177,172 191,927 82,205 70,523
------------------------------------------------------------------------------
Total risk-weighted assets $6,400,851 $5,607,706 $5,432,272 $5,620,114 $3,968,266
==============================================================================
Ratios:
Tier I capital (minimum required - 4.00%) 12.29% 12.88% 11.01% 10.10% 9.47%
Total capital (minimum required - 8.00%) 13.95 14.85 13.35 12.74 11.76
Leverage ratio (minimum required - 3.00%) 6.95 7.26 6.64 6.34 6.34
Equity to assets 7.42 7.02 6.83 6.98 6.23
Tangible equity to assets 6.29 5.66 5.46 6.87 6.23
Equity to loans 13.91 12.99 11.52 12.07 11.30
Internal capital generation rate 10.08 9.04 6.64 11.60 11.35
- - - - - ----------------------------------------------------------------------------------------------------------------------------
for 2,321,317 shares of common stock. Shares unsubscribed for in the offering
were expected to be sold to the public in an underwritten public offering. The
subscription offering was oversubscribed by existing stockholders and the
Corporation issued 2,458,740 shares which raised $57.6 million in additional
capital.
The Corporation exceeds the regulatory risk-based capital requirements for
well capitalized institutions by wide margins, due to the high level of capital
and the conservative nature of the Corporation's assets. Tier I capital to
risk-adjusted assets ratio at December 31, 1993, was 12.29% while the total
capital ratio was 13.95%, compared with 12.88% and 14.85%, respectively, at
December 31, 1992. The Corporation's leverage ratio was 6.95% as of December
31, 1993, compared with 7.26% a year before. These ratios decreased slightly
from prior year since assets grew at a faster pace than capital and the
prepayment of subordinated notes during the year reduced the total capital.
Table N shows capital adequacy information for the current and previous four
years.
The average tangible equity rose to $663.6 million as of December 31, 1993
from $531.8 million at December 31, 1992, an increase of $131.8 million or
24.8%. The tangible equity to assets ratio also increased from 5.66% for 1992
to 6.29% for 1993. At the end of 1993 total tangible equity rose to $701.4
million from $619.2 million a year ago.
Book value per share at December 31, 1993, was $25.49, compared with $23.03
at the end of 1992. The market value of the Corporation's stock at the end of
1993 was $31.50 representing a market capitalization of $1,031 million compared
with $987.8 million a year ago when the market value of the stock was $30.25.
COMMON STOCK
The Corporation's common stock is traded on the National Association of
Securities Dealers Automated Quotation (NASDAQ) National Market System under
the symbol BPOP. Table O shows the range of market quotations and cash
dividends declared for each quarter during the last five years. All the per
share data presented has been adjusted to reflect a stock split effected in the
form of a dividend on April 3, 1989, of one share for each share outstanding.
The Corporation has a Dividend Reinvestment Plan for its stockholders. This
plan offers the stockholders the opportunity to automatically reinvest their
dividends in shares of common stock at a 5% discount from the average market
price at the time of issuance. During 1993, 77,559 shares were issued under the
Plan, adding $2.1 million to capital. A total of 459,400 shares have been
issued under this plan since its inception in 1989, contributing with $9.1
million in additional capital.
DIVIDENDS
Dividends declared during 1993 amounted to $29.4 million compared with $24.6
million in 1992. This increase is mainly the result of a higher volume of
average shares outstanding due to the shares issued on the subscription
offering in November 1992, and the additional shares issued under the Dividend
Reinvestment Plan. In addition, effective on October 1, 1993, and following
its policy of maintaining a dividend payout ratio close to 30%, the Corporation
increased its quarterly dividend from $0.20 to $0.25 per share.
The dividend payout ratio for the year decreased to 25.39% as a result of
the growth in net earnings of the Corporation. However, the dividend increase
in the fourth quarter of 1993 raised the dividend payout ratio for the quarter
to 28.97%.
INFLATION ACCOUNTING
The Statement of Financial Accounting Standards (SFAS) 89 makes optional the
disclosure of supplementary information on the effects of inflation.
19
70
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
TABLE O
STOCK PERFORMANCE
Cash Book *
Market Price Dividends Value Dividend Price/ Market/
------------------ Declared Per Payout Dividend Earnings Book
High Low Per Share Share Ratio Yield Ratio Ratio
- - - - - ----------------------------------------------------------------------------------------------------------------------------------
1993 $25.49 25.39% 2.97% 9.42x 123.58%
1st quarter $ 31 1/4 $ 26 1/2 $.20
2nd quarter 28 1/4 24 3/8 .20
3rd quarter 30 1/4 26 1/2 .25
4th quarter 32 1/4 29 3/4 .25
1992 23.03 28.33 3.12 10.83 131.35
1st quarter $ 25 1/2 $ 18 3/4 $.20
2nd quarter 27 3/4 24 .20
3rd quarter 27 3/4 24 1/2 .20
4th quarter 30 1/4 24 1/2 .20
1991 21.00 34.13 4.18 8.96 91.67
1st quarter $ 17 1/2 $ 14 3/4 $.20
2nd quarter 19 7/8 16 3/4 .20
3rd quarter 18 1/2 16 1/2 .20
4th quarter 19 1/2 17 .20
1990 19.67 25.33 4.41 5.08 81.34
1st quarter $ 22 $ 19 $.20
2nd quarter 19 3/4 18 1/2 .20
3rd quarter 19 1/2 14 3/4 .20
4th quarter 16 7/8 14 1/4 .20
1989 18.76 28.14 3.83 7.66 114.61
1st quarter $ 19 3/8 17 3/4 $.20
2nd quarter 20 1/4 19 1/2 .20
3rd quarter 25 1/2 19 1/4 .20
4th quarter 25 1/2 17 3/4 .20
*Based on the average high and low market price for the four quarters.
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
The Corporation has decided not to prepare the supplementary data for the
following reasons:
- The impact of inflation on the banking industry differs significantly
from that on industries that require a higher proportion of investment in
fixed assets. Our asset and liability structure is composed mainly of
monetary assets and liabilities.
- Changes in interest rates that may significantly impact the
Corporation's earnings do not necessarily move in the same direction or
in the same magnitude as the prices of other goods and services.
- Information included in this annual report such as Interest Variance
Analysis, Interest Rate Sensitivity Table, Average Balance Sheet, Summary
of Net Interest Income and the market value disclosures required by SFAS
107, provides more insight as to the effects on the Corporation of
changes in interest rates than the supplementary data on inflation
accounting.
20
71
- - - - - ----------------------------------------------------------------------------------------------------------------------------
STATISTICAL SUMMARY 1989-1993
STATEMENTS OF CONDITION BANPONCE CORPORATION
- - - - - ----------------------------------------------------------------------------------------------------------------------------
As of December 31,
- - - - - ----------------------------------------------------------------------------------------------------------------------------
(In thousands) 1993 1992 1991 1990 1989
------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 368,837 $ 325,497 $ 311,384 $ 347,619 $ 272,194
------------------------------------------------------------------------------
Money market investments:
Federal funds sold and securities
and mortgages purchased under
agreements to resell 247,333 234,163 139,530 288,036 244,330
Time deposits with other banks 15,100 50,100 340,100 644,938 639,065
Bankers' acceptances 259 858 1,703 2,369 1,270
------------------------------------------------------------------------------
262,692 285,121 481,333 935,343 884,665
------------------------------------------------------------------------------
Investment securities at cost 3,330,798 3,290,440 2,354,009 1,917,144 1,301,125
------------------------------------------------------------------------------
Investment securities available for sale
at lower of cost or market value 714,565 408,127
------------------------------------------------------------------------------
Trading account securities 3,017 283 1,657 875 7,741
------------------------------------------------------------------------------
Loans 6,655,072 5,614,724 5,575,976 5,798,072 3,536,446
Less- Unearned income 308,150 362,671 380,419 432,155 260,057
Allowance for loan losses 133,437 110,714 94,199 89,335 40,896
------------------------------------------------------------------------------
6,213,485 5,141,339 5,101,358 5,276,582 3,235,493
------------------------------------------------------------------------------
Premises and equipment 298,089 260,330 253,054 235,830 122,001
Other real estate 12,699 15,582 7,012 6,748 1,460
Customers' liabilities on acceptances 1,392 1,830 1,691 3,059 2,829
Accrued income receivable 79,285 76,008 59,027 59,106 57,344
Other assets 95,763 64,890 71,026 68,267 38,409
Intangible assets 132,746 132,880 138,731 133,051
------------------------------------------------------------------------------
$ 11,513,368 $ 10,002,327 $ 8,780,282 $ 8,983,624 $ 5,923,261
==============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 1,848,859 $ 1,614,806 $ 1,499,352 $ 1,455,785 $ 1,127,991
Interest bearing 6,673,799 6,423,905 5,707,766 5,966,926 3,798,313
------------------------------------------------------------------------------
8,522,658 8,038,711 7,207,118 7,422,711 4,926,304
Federal funds purchased and securities
sold under agreements to repurchase 951,733 665,222 449,114 394,148 464,042
Other short-term borrowings 664,173 206,882 143,724 181,317 9,068
Notes payable 253,855 90,062 73,752 8,018 2,245
Senior debentures 30,000 30,000 30,000 30,000
Acceptances outstanding 1,392 1,830 1,691 3,059 2,829
Other liabilities 182,362 132,501 138,065 250,487 92,966
------------------------------------------------------------------------------
10,606,173 9,165,208 8,043,464 8,289,740 5,497,454
------------------------------------------------------------------------------
Subordinated notes 62,000 74,000 94,000 94,000 50,000
------------------------------------------------------------------------------
Preferred stock of subsidiary Bank 11,000 11,000 11,000 11,000
------------------------------------------------------------------------------
Stockholders' equity
Common stock 196,395 195,929 180,563 179,655 100,187
Surplus 386,622 361,982 287,539 276,049 210,594
Retained earnings 208,607 150,208 110,287 93,180 57,883
Capital reserves 42,571 44,000 53,429 40,000 7,143
------------------------------------------------------------------------------
834,195 752,119 631,818 588,884 375,807
------------------------------------------------------------------------------
$ 11,513,368 $ 10,002,327 $ 8,780,282 $ 8,983,624 $ 5,923,261
==============================================================================
21
72
- - - - - -----------------------------------------------------------------------------------------------------------------------------
STATISTICAL SUMMARY 1989-1993
STATEMENTS OF INCOME BANPONCE CORPORATION
- - - - - -----------------------------------------------------------------------------------------------------------------------------
For the year ended December 31,
- - - - - -----------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share information) 1993 1992 1991 1990 1989
---------------------------------------------------------------------------
INTEREST INCOME:
Loans $549,388 $518,074 $579,463 $395,797 $363,925
Money market investments 6,434 14,414 33,590 37,571 105,736
Investment securities 215,944 207,642 181,413 131,911 88,125
Trading account securities 370 224 477 528 487
---------------------------------------------------------------------------
Total interest income 772,136 740,354 794,943 565,807 558,273
Less - Interest expense 280,008 300,135 387,134 281,561 302,747
---------------------------------------------------------------------------
Net interest income 492,128 440,219 407,809 284,246 255,526
Provision for loan losses 72,892 97,633 121,681 53,033 42,603
---------------------------------------------------------------------------
Net interest income after provision
for loan losses 419,236 342,586 286,128 231,213 212,923
Gain on sale of securities 864 242 18,617 64 1,969
Trading account profit 554 383 759 27 560
All other operating income 123,762 123,879 112,398 70,865 59,550
---------------------------------------------------------------------------
544,416 467,090 417,902 302,169 275,002
---------------------------------------------------------------------------
OPERATING EXPENSES:
Personnel costs 215,911 188,234 180,634 131,322 117,433
All other operating expenses 196,365 178,711 165,104 98,241 89,943
---------------------------------------------------------------------------
412,276 366,945 345,738 229,563 207,376
---------------------------------------------------------------------------
Income before tax, dividends on preferred
stock of subsidiary Bank and cumulative
effect of accounting changes 132,140 100,145 72,164 72,606 67,626
Income tax 28,151 14,259 6,793 9,240 11,456
---------------------------------------------------------------------------
Income before dividends on preferred
stock of subsidiary Bank and cumulative
effect of accounting changes 103,989 85,886 65,371 63,366 56,170
Dividends on preferred stock of
subsidiary Bank 770 770 807
---------------------------------------------------------------------------
Income before cumulative effect of
accounting changes 103,219 85,116 64,564 63,366 56,170
Cumulative effect of accounting changes 6,185
---------------------------------------------------------------------------
NET INCOME $109,404 $ 85,116 $ 64,564 $ 63,366 $ 56,170
===========================================================================
EARNINGS PER SHARE*
Before effect of accounting changes $3.16 $2.79 $2.15 $3.15 $2.81
===========================================================================
Net income $3.35 $2.79 $2.15 $3.15 $2.81
===========================================================================
DIVIDENDS DECLARED:
Cash dividends per share outstanding $0.90 $0.80 $0.80 $0.80 $0.80
===========================================================================
*The average number of shares outstanding during each year was adjusted to
reflect a stock split effected in the form of a stock dividend on April 3,
1989. Accordingly, the average shares used in the computation of earnings and
cash dividend per share were 32,701,236 for 1993; 30,461,494 for 1992;
30,035,601 for 1991; 20,116,970 for 1990, and 20,014,013 for 1989.
22
73
- - - - - ------------------------------------------------------------------------------------------------------------------------------
STATISTICAL SUMMARY 1991-1993 BANPONCE CORPORATION
QUARTERLY FINANCIAL DATA
- - - - - ------------------------------------------------------------------------------------------------------------------------------
1993 1992
- - - - - ---------------------------------------------------------------------------------------------------------------------
FOURTH THIRD SECOND FIRST Fourth Third Second First
QUARTER QUARTER QUARTER QUARTER Quarter Quarter Quarter Quarter
- - - - - ---------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
(In thousands, except per
share information)
Net interest income $126,490 $125,174 $122,703 $117,761 $115,514 $112,093 $107,912 $104,700
Provision for loan losses 14,737 17,442 19,166 21,547 23,043 24,333 26,237 24,020
Non-interest income 34,000 30,178 31,905 28,233 29,208 30,783 34,137 30,134
Gain (loss) on sale of
securities 332 86 446 58 10 (36) 210
Non-interest expense 107,462 101,436 100,524 102,854 95,080 93,626 91,718 86,521
Income taxes 9,875 8,459 7,306 2,511 3,415 3,536 3,022 4,286
Dividends on preferred
stock of subsidiary
Bank 192 193 192 193 192 193 192 193
Cumulative effect of
accounting changes 6,185
-------------------------------------------------------------------------------------
Net income $ 28,224 $ 28,154 $ 27,506 $ 25,520 $ 23,050 $ 21,198 $ 20,844 $ 20,024
=====================================================================================
Net income per share
before cumulative effect
of accounting changes $ 0.87 $ 0.86 $ 0.84 $ 0.59 $ 0.73 $ 0.71 $ 0.69 $ 0.66
-------------------------------------------------------------------------------------
Net income per share $ 0.87 $ 0.86 $ 0.84 $ 0.78 $ 0.73 $ 0.71 $ 0.69 $ 0.66
-------------------------------------------------------------------------------------
SELECTED AVERAGE BALANCES
(In millions)
Total assets $ 11,374 $ 10,855 $ 10,472 $ 10,017 $ 9,991 $ 9,804 $ 9,172 $ 9,138
Loans 6,219 5,849 5,466 5,254 5,211 5,078 5,153 5,160
Interest earning assets 10,543 10,064 9,693 9,264 9,245 9,033 8,437 8,397
Deposits 8,426 8,074 8,005 7,992 7,940 7,844 7,446 7,330
Interest bearing liabilities 8,612 8,249 7,946 7,569 7,610 7,546 6,979 6,967
-------------------------------------------------------------------------------------
SELECTED RATIOS
Return on assets 0.98% 1.03% 1.05% 1.03% 0.92% 0.86% 0.91% 0.88%
Return on equity 13.59 13.90 14.09 13.60 12.85 12.60 12.83 12.60
1991
- - - - - --------------------------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
- - - - - --------------------------------------------------------------------------
SUMMARY OF OPERATIONS
(In thousands, except per
share information)
Net interest income $101,254 $103,292 $103,561 $99,702
Provision for loan losses 30,227 33,771 37,899 19,783
Non-interest income 33,806 28,814 25,968 24,568
Gain (loss) on sale of
securities 12,001 5,818 553 246
Non-interest expense 95,235 83,779 82,062 84,663
Income taxes 1,540 3,129 (45) 2,169
Dividends on preferred
stock of subsidiary
Bank 192 192 197 226
Cumulative effect of
accounting changes
---------------------------------------------
Net income $ 19,867 $ 17,053 $ 9,969 $17,675
=============================================
Net income per share
before cumulative effect
of accounting changes $ 0.66 $ 0.57 $ 0.33 $ 0.59
---------------------------------------------
Net income per share $ 0.66 $ 0.57 $ 0.33 $ 0.59
---------------------------------------------
SELECTED AVERAGE BALANCES
(In millions)
Total assets $ 9,046 $ 8,820 $ 9,010 $ 8,900
Loans 5,305 5,333 5,266 5,304
Interest earning assets 8,256 8,078 8,269 8,194
Deposits 7,233 7,103 7,151 7,307
Interest bearing liabilities 6,848 6,686 6,924 6,809
--------------------------------------------
SELECTED RATIOS
Return on assets 0.87% 0.77% 0.44% 0.81%
Return on equity 12.64 10.99 6.60 12.04
23
74
STATISTICAL SUMMARY 1989-1993
AVERAGE BALANCE SHEET AND SUMMARY OF NET INTEREST INCOME
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
ON A TAXABLE EQUIVALENT BASIS*
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE Average Average
BALANCE INTEREST RATE Balance Interest Rate
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Interest earning assets:
Federal funds sold and securities and
mortgages purchased under agreements
to resell $ 117,095 $ 4,115 3.51% $ 144,539 $ 5,209 3.60%
Time deposits with other banks 58,853 2,259 3.84 215,970 9,093 4.21
Bankers' acceptances 871 60 6.89 1,496 112 7.49
----------------------------------------------------------------------------
Total money market investments 176,819 6,434 3.64 362,005 4,414 3.98
----------------------------------------------------------------------------
U.S. Treasury securities 2,985,634 202,695 6.79 2,443,267 226,038 9.25
Obligations of other U.S. Government
agencies and corporations 274,821 18,033 6.56 317,152 27,838 8.78
Obligations of Puerto Rico, States and
political subdivisions 227,784 14,253 6.26 212,762 19,345 9.09
Other 522,216 26,944 5.16 288,818 21,780 7.54
----------------------------------------------------------------------------
Total investment securities 4,010,455 261,925 6.53 3,261,999 295,001 9.04
----------------------------------------------------------------------------
Trading account securities 7,319 449 6.13 5,649 303 5.36
----------------------------------------------------------------------------
Loans (net of unearned income) 5,700,069 555,671 9.75 5,150,328 526,902 10.23
----------------------------------------------------------------------------
Total interest earning assets/
Interest income 9,894,662 $824,479 8.33% 8,779,981 $836,620 9.53%
----------------------------------------------------------------------------
Total non-interest earning assets 789,091 748,537
----------------------------------------------------------------------------
TOTAL ASSETS $10,683,753 9,528,518
============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Savings and NOW accounts $ 3,570,920 $107,454 3.01% $2,999,691 $108,945 3.63%
Other time deposits 2,918,625 111,994 3.84 3,171,177 144,430 4.55
Short-term borrowings 1,337,970 42,392 3.17 903,903 31,711 3.51
Mortgages and notes payable 195,522 12,801 6.55 116,695 8,245 7.07
Subordinated notes 73,967 5,367 7.26 85,585 6,804 7.95
----------------------------------------------------------------------------
Total interest bearing liabilities/
Interest expense 8,097,004 280,008 3.46 7,277,051 300,135 4.12
----------------------------------------------------------------------------
Total non-interest bearing liabilities 1,782,748 1,571,477
----------------------------------------------------------------------------
Total liabilities 9,879,752 8,848,528
----------------------------------------------------------------------------
Preferred stock of subsidiary Bank 11,000 11,000
----------------------------------------------------------------------------
Stockholders' equity 793,001 668,990
----------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,683,753 $9,528,518
============================================================================
Net interest income on a taxable
equivalent basis $544,471 $536,485
----------------------------------------------------------------------------
Interest expense to earning assets 2.83% 3.42%
----------------------------------------------------------------------------
Net interest yield 5.50% 6.11%
============================================================================
Effect of the taxable equivalent adjustment 52,343 96,266
----------------------------------------------------------------------------
Net interest income per books $492,128 $440,219
============================================================================
*Shows the effect of the tax exempt status of some loans and investments
on their yield. A 42% tax rate was used for 1993 through 1989. The computation
considers the interest expense disallowance as required by the Tax Reform Act
enacted in 1987. This adjustment is shown in order to compare the yields of the
tax exempt, and taxable assets on a taxable basis.
Note: Average loan balances include the average balance of non-accruing
loans. No interest income is recognized for these loans in accordance
Corporation's policy.
24
75
------------------------------------------------------------------------------------------------------------
BANPONCE CORPORATION
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
1991 1990 1989
------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- - - - - --------------------------------------------------------------------------------------------------------------------
$ 76,095 $ 4,448 5.85% $ 138,701 $ 11,476 8.27% $ 178,319 $ 16,732 9.38%
427,536 28,886 6.76 308,904 25,970 8.41 915,426 87,878 9.60
2,848 256 8.99 1,217 125 10.27 11,736 1,125 9.59
- - - - - --------------------------------------------------------------------------------------------------------------------
506,479 33,590 6.63 448,822 37,571 8.37 1,105,481 105,735 9.56
- - - - - --------------------------------------------------------------------------------------------------------------------
1,596,986 179,103 11.22 944,804 109,116 11.55 562,051 63,876 11.36
332,002 32,241 9.71 411,257 48,387 11.77 285,782 34,937 12.23
212,180 22,243 10.48 146,874 15,395 10.48 141,564 14,316 10.11
241,064 19,328 8.02 123,509 11,689 9.46 85,354 9,278 10.87
- - - - - --------------------------------------------------------------------------------------------------------------------
2,382,232 252,915 10.62 1,626,444 184,587 11.35 1,074,751 122,407 11.39
- - - - - --------------------------------------------------------------------------------------------------------------------
8,295 650 7.84 9,209 705 7.66 6,401 677 10.58
- - - - - --------------------------------------------------------------------------------------------------------------------
5,302,189 589,520 11.12 3,377,463 403,005 11.93 3,132,167 370,044 11.81
- - - - - --------------------------------------------------------------------------------------------------------------------
8,199,195 $876,675 10.69% 5,461,938 $625,868 11.46% 5,318,800 $598,863 11.26%
- - - - - --------------------------------------------------------------------------------------------------------------------
745,162 374,811 358,181
- - - - - --------------------------------------------------------------------------------------------------------------------
$8,944,357 $5,836,749 $5,676,981
====================================================================================================================
$2,397,790 $113,165 4.72% $1,489,399 $ 71,848 4.82% $1,361,913 $ 65,089 4.78%
3,416,985 210,552 6.16 2,528,649 185,251 7.33 2,438,929 196,385 8.05
855,702 51,142 5.98 252,695 20,037 7.93 423,143 37,838 8.94
52,310 3,965 7.58 4,486 285 6.35 2,598 140 5.39
94,000 8,310 8.84 50,000 4,140 8.28 38,082 3,295 8.65
- - - - - --------------------------------------------------------------------------------------------------------------------
6,816,787 387,134 5.68 4,325,229 281,561 6.51 4,264,665 302,747 7.10
- - - - - --------------------------------------------------------------------------------------------------------------------
1,505,929 1,103,909 1,058,472
- - - - - --------------------------------------------------------------------------------------------------------------------
8,322,716 5,429,138 5,323,137
- - - - - --------------------------------------------------------------------------------------------------------------------
11,000
- - - - - --------------------------------------------------------------------------------------------------------------------
610,641 407,611 353,844
- - - - - --------------------------------------------------------------------------------------------------------------------
$8,944,357 $5,836,749 $5,676,981
====================================================================================================================
$489,541 $344,307 $296,116
4.72% 5.16% 5.69%
- - - - - --------------------------------------------------------------------------------------------------------------------
5.97% 6.30% 5.57%
====================================================================================================================
81,732 60,061 40,590
- - - - - --------------------------------------------------------------------------------------------------------------------
$407,809 $284,246 $255,526
====================================================================================================================
25
76
- - - - - --------------------------------------------------------------------------------
GLOSSARY OF TERMS
- - - - - --------------------------------------------------------------------------------
936 CORPORATIONS - Subsidiaries of U. S. firms operating in Puerto Rico and
other offshore areas under Section 936 of the U.S. Internal Revenue Code.
Section 936 provides certain tax benefits on Puerto Rico source earnings from
the active conduct of a trade or business or from qualified investments.
936 DEPOSITS - Funds of 936 corporations deposited in banks usually in the form
of time deposits. The restriction that these funds must be reinvested in
eligible assets, if income derived from them is to be considered tax-exempt for
U. S. and Puerto Rico's Industrial Incentive Act purposes, lowers the rate on
these funds as compared to interest rates paid on similar deposits.
BASIS POINT - Equal to one-hundredth of one percent. Used to express changes
or differences in interest yields and rates.
CORE DEPOSITS - A deposit category that includes all non-interest bearing
deposits, savings deposits and certificates of deposit under $100,000. These
deposits are considered a stable source of funds.
EARNING ASSETS - Assets that earn interest, such as loans, investment
securities, money market investments and trading account securities.
EARNINGS PER SHARE - The earnings per average share of common stock outstanding
during the period presented.
GAP - The difference that exists at a specific period of time between the
maturities or repricing terms of interest-sensitive assets and
interest-sensitive liabilities.
INTEREST-BEARING LIABILITIES - Liabilities on which interest is paid such as
saving deposits, certificates of deposit, other time deposits, borrowings and
subordinated notes.
INTEREST-SENSITIVE ASSETS/LIABILITIES - Interest-earning
assets/interest-bearing liabilities for which interest rates are adjustable
within a specified time period due to maturity or contractual arrangements.
LEVERAGE RATIO - Ratio adopted by the Federal Reserve System to assist in the
assessment of the capital adequacy of state member banks. This ratio is
calculated by dividing Tier I capital by total assets reduced by goodwill and
any other intangible asset deducted from Tier I capital.
LIQUIDITY - A combination of assets that assures currently available supplies
of funds necessary to meet deposit withdrawals, loan demands and repayment of
borrowings as they become due. The need for liquid funds is normally satisfied
from daily operations and the maturity management of money market investments
and investment securities.
NET INTEREST INCOME - The difference between interest income and fees on
earning assets and interest expense on liabilities.
NET INTEREST YIELD - A percentage computed by dividing net interest income by
average earning assets.
NON-PERFORMING ASSETS - Includes loans on which the accrual of interest income
has been discontinued due to default on interest and/or principal payments or
other factors indicative of doubtful collection, renegotiated loans and
foreclosed real estate properties, including in-substance foreclosures.
RETURN ON ASSETS - Net income as a percentage of average total assets.
RETURN ON EQUITY - Net income as a percentage of average stockholders' equity.
RISK-BASED CAPITAL - Guidelines for the regulatory measurement of capital
adequacy. These guidelines set forth how capital is to be measured and how
total assets are to be risk adjusted. Total risk adjusted assets include
assets and off-balance sheet items adjusted by the appropriate credit risk
category, based on the type of obligor or, where relevant, the guarantor, or
the nature of the collateral.
SPREAD - A percentage difference or margin between the yield on earning assets
and the effective interest rate paid on interest-bearing liabilities.
STOCKHOLDERS' EQUITY - Excess of assets over liabilities that constitutes the
stockholders ownership participation in the Corporation's financial resources.
SUPPLEMENTARY (TIER II) CAPITAL - Consists of the allowance for loan losses and
qualifying term subordinated notes.
TANGIBLE EQUITY - Consists of stockholders' equity less intangible assets.
TAXABLE EQUIVALENT BASIS - An adjustment of income on tax-exempt earning assets
to an amount that would yield the same after-tax income had the income been
subject to taxation. The result is to equate the true earnings value of
tax-exempt and taxable income.
TIER I CAPITAL - Consists of common stockholders' equity (including the related
surplus, retained earnings and capital reserves), cumulative perpetual
preferred stock (BHCs only) less goodwill and any other non-qualifying
intangible asset.
YIELD - Percentage denoting actual return on earning assets.
26
77
- - - - - ------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS BANPONCE CORPORATION
- - - - - ------------------------------------------------------------------------------
PRICE WATERHOUSE (LOGO)
San Juan, Puerto Rico
January 28, 1994
To the Board of Directors
and Stockholders of
BanPonce Corporation
In our opinion, the accompanying consolidated statements of condition and the
related consolidated statements of income, of cash flows and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of BanPonce Corporation and its subsidiaries at December 31, 1993 and
1992, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Corporation's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2 to the Consolidated Financial Statements, in 1993 the
Corporation changed its method of accounting for postretirement benefits other
than pensions to conform with Statement of Financial Accounting Standards No.
106 and for income taxes to conform with Statement of Financial Accounting
Standards No. 109.
/s/ PRICE WATERHOUSE
- - - - - ---------------------
Price Waterhouse
Stamp 1185699 of the P.R. Society of
Certified Public Accountants has been
affixed to the file copy of this report.
27
78
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CONDITION BANPONCE CORPORATION
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
December 31,
---------------------------------------------------------------
1993 1992
---------------------------------------------------------------
(In thousands)
ASSETS
Cash and due from banks $ 368,837 $ 325,497
---------------------------------------------------------------
Money market investments:
Federal funds sold and securities and mortgages purchased under
agreements to resell 247,333 234,163
Time deposits with other banks 15,100 50,100
Bankers' acceptances 259 858
---------------------------------------------------------------
262,692 285,121
---------------------------------------------------------------
Investment securities, at cost (market value
$3,358,216,000 (1992 - $3,338,993,000)) (Notes 3 and 5) 3,330,798 3,290,440
---------------------------------------------------------------
Investment securities available for sale, at lower
of cost or market value (market value $733,729,000;
(1992 - $424,034,000)) (Note 4) 714,565 408,127
---------------------------------------------------------------
Trading account securities, at market 3,017 283
---------------------------------------------------------------
Loans (Notes 5, 6 and 7) 6,655,072 5,614,724
Less - Unearned income 308,150 362,671
Allowance for loan losses 133,437 110,714
---------------------------------------------------------------
6,213,485 5,141,339
---------------------------------------------------------------
Premises and equipment (Note 8) 298,089 260,330
Other real estate 12,699 15,582
Customers' liabilities on acceptances 1,392 1,830
Accrued income receivable 79,285 76,008
Other assets 95,763 64,890
Intangible assets 132,746 132,880
---------------------------------------------------------------
$11,513,368 $10,002,327
===============================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (Note 9):
Non-interest bearing $ 1,848,859 $ 1,614,806
Interest bearing 6,673,799 6,423,905
---------------------------------------------------------------
8,522,658 8,038,711
Federal funds purchased and securities sold under agreements to
repurchase (Note 10) 951,733 665,222
Other short-term borrowings (Note 11) 664,173 206,882
Notes payable (Notes 12 and 15) 253,855 90,062
Senior debentures (Notes 13 and 15) 30,000 30,000
Acceptances outstanding 1,392 1,830
Other liabilities 182,362 132,501
---------------------------------------------------------------
10,606,173 9,165,208
---------------------------------------------------------------
Subordinated notes (Notes 14 and 15) 62,000 74,000
---------------------------------------------------------------
Preferred stock of subsidiary Bank (Note 16) 11,000 11,000
---------------------------------------------------------------
Stockholders' equity (Note 17):
Common stock, $6 par value; authorized 90,000,000 shares;
outstanding 32,732,423 in 1993 and 32,654,864 in 1992 196,395 195,929
Surplus 386,622 361,982
Retained earnings 208,607 150,208
Capital reserves (Note 14) 42,571 44,000
---------------------------------------------------------------
834,195 752,119
---------------------------------------------------------------
$11,513,368 $10,002,327
===============================================================
The accompanying notes are an integral part of the consolidated financial
statements.
28
79
- - - - - ----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME BANPONCE CORPORATION
- - - - - ----------------------------------------------------------------------------------------------------------------------
Year ended December 31,
----------------------------------------------
1993 1992 1991
- - - - - ----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share information)
INTEREST INCOME:
Loans $549,388 $518,074 $579,463
Money market investments (Note 18) 6,434 14,414 33,590
Investment securities (Note 18) 215,944 207,642 181,413
Trading account securities 370 224 477
--------------------------------------------
772,136 740,354 794,943
--------------------------------------------
INTEREST EXPENSE:
Deposits 219,448 253,375 323,717
Short-term borrowings 42,392 31,711 51,142
Long-term debt 18,168 15,049 12,275
--------------------------------------------
280,008 300,135 387,134
--------------------------------------------
Net interest income 492,128 440,219 407,809
Provision for loan losses (Note 6) 72,892 97,633 121,681
--------------------------------------------
Net interest income after provision for loan losses 419,236 342,586 286,128
Service charges on deposit accounts 68,246 63,064 55,000
Other service fees 43,872 42,491 39,334
Gain on sale of securities 864 242 18,617
Trading account profit 554 383 759
Other operating income 11,644 18,324 18,064
--------------------------------------------
544,416 467,090 417,902
--------------------------------------------
OPERATING EXPENSES:
Personnel costs (Note 19):
Salaries 151,432 134,709 129,928
Profit sharing 19,766 17,041 13,080
Pension and other benefits 44,713 36,484 37,626
--------------------------------------------
215,911 188,234 180,634
Net occupancy expense (Notes 8 and 20) 26,085 25,442 22,497
Equipment expenses (Notes 8 and 20) 27,964 23,813 22,755
Other taxes 15,996 14,608 13,050
Professional fees 27,302 22,558 19,253
Communications 18,203 17,048 17,377
Business promotion 16,638 12,548 10,723
Printing and supplies 8,189 7,290 8,349
Other operating expenses 39,812 40,516 37,413
Amortization of intangibles 16,176 14,888 13,687
--------------------------------------------
412,276 366,945 345,738
--------------------------------------------
Income before income tax, dividends on preferred stock of
subsidiary Bank and cumulative effect of accounting changes 132,140 100,145 72,164
Income tax (Note 21) 28,151 14,259 6,793
--------------------------------------------
Income before dividends on preferred stock of subsidiary
Bank and cumulative effect of accounting changes 103,989 85,886 65,371
Dividends on preferred stock of subsidiary Bank (Note 16) 770 770 807
--------------------------------------------
Income before cumulative effect of accounting changes 103,219 85,116 64,564
Cumulative effect of accounting changes (Note 2) 6,185
--------------------------------------------
NET INCOME $109,404 $85,116 $64,564
============================================
EARNINGS PER SHARE (Note 17):
Income before cumulative effect of accounting changes $ 3.16 $ 2.79 $ 2.15
Cumulative effect of accounting changes .19
--------------------------------------------
NET INCOME $ 3.35 $ 2.79 $ 2.15
============================================
The accompanying notes are an integral part of the consolidated financial
statements.
29
80
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS BANPONCE CORPORATION
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-----------------------------------------------------------------
1993 1992 1991
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
CASH FLOWS OPERATING ACTIVITIES:
Net income $ 109,404 $ 85,116 $ 64,564
-----------------------------------------------------------------
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization of premises and equipment 27,310 26,955 25,467
Provision for loan losses 72,892 97,633 121,681
Amortization of intangibles 16,176 14,888 13,687
Gain on sale of securities (864) (242) (18,617)
Gain on sale of premises and equipment (604) (333) (1,129)
Gain on sale of loans (262) (3,347) (3,092)
Amortization of premiums and accretion of discounts
on investments 14,708 2,694 (1,522)
Amortization of deferred loan fees and costs 2,508 (353) 388
Postretirement benefit obligation 42,672
Net (increase) decrease in trading securities (2,734) 1,374 (781)
Net (increase) decrease in interest receivable (2,528) (16,981) 560
Net decrease (increase) in other assets 12,860 5,561 (927)
Net decrease in interest payable (2,167) (4,729) (5,330)
Net (decrease) increase in deferred income taxes
and income taxes payable (42,953) 9,815 2,042
Net increase (decrease) in other liabilities 14,336 (11,023) 6,390
-----------------------------------------------------------------
Total adjustments 151,350 121,912 138,817
-----------------------------------------------------------------
Net cash provided by operating activities 260,754 207,028 203,381
-----------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in money market investments 22,429 196,212 454,010
Maturities of investment securities 3,887,806 3,297,635 4,661,648
Sales of investment securities 95,680 43,114 1,104,061
Purchases of investment securities (4,344,126) (4,679,275) (6,182,434)
Net disbursements on loans (692,563) (278,275) (19,251)
Proceeds from sale of LDC loans 17,836
Proceeds from sale of loans 22,997 118,707 72,197
Assets acquired, net of cash (13,275)
Acquisition of mortgage loan portfolio (367,053)
Acquisition of premises and equipment (73,711) (49,552) (53,332)
Proceeds from sale of premises and equipment 12,017 15,653 11,601
-----------------------------------------------------------------
Net cash (used in) provided by investing activities (1,436,524) (1,335,781) 53,061
-----------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 112,095 257,752 (180,487)
Net deposits acquired 237,096 573,842 58,189
Net deposits sold (55,187)
Net increase in federal funds purchased and
securities sold under agreements to repurchase 286,511 216,108 55,168
Net increase (decrease) in other short-term borrowings 457,291 63,157 (107,155)
Proceeds from issuance of notes payable 163,801 16,310 83,995
Payment of notes payable (9) (6,265)
Payment of subordinated notes (12,000) (20,000)
Dividends paid (27,781) (24,112) (22,035)
Proceeds from issuance of common stock 2,106 59,809 2,399
Disbursement for cash portion of merger (121,299)
----------------------------------------------------------------
Net cash provided by (used in) financing activities 1,219,110 1,142,866 (292,677)
----------------------------------------------------------------
Net increase (decrease) in cash and due from banks 43,340 14,113 (36,235)
Cash and due from banks at beginning of period 325,497 311,384 347,619
----------------------------------------------------------------
Cash and due from banks at end of period $ 368,837 $ 325,497 $ 311,384
===============================================================
The accompanying notes are an integral part of the consolidated financial
statements.
30
81
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES BANPONCE CORPORATION
IN STOCKHOLDERS' EQUITY
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
---------------------------------------------------------------
1993 1992 1991
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
COMMON STOCK:
Balance at beginning of year $195,929 $180,563 $179,655
Common stock issued (Note 17) 14,752
Common stock issued under Dividend Reinvestment Plan 466 614 908
--------------------------------------------------------------
Balance at end of year 196,395 195,929 180,563
--------------------------------------------------------------
SURPLUS:
Balance at beginning of year 361,982 287,539 276,050
Proceeds from common stock issued (Note 17) 42,848
Proceeds from common stock issued under
Dividend Reinvestment Plan 1,640 1,595 1,489
Transfer from retained earnings 11,000 10,000 10,000
Transfer from capital reserves (Note 14) 12,000 20,000
--------------------------------------------------------------
Balance at end of year 386,622 361,982 287,539
--------------------------------------------------------------
RETAINED EARNINGS:
Balance at beginning of year 150,208 110,287 93,180
Net income 109,404 85,116 64,564
Cash dividends declared (Note 17) (29,434) (24,624) (24,028)
Transfer to capital reserves (Note 14) (10,571) (10,571) (13,429)
Transfer to surplus (11,000) (10,000) (10,000)
--------------------------------------------------------------
Balance at end of year 208,607 150,208 110,287
--------------------------------------------------------------
CAPITAL RESERVES:
Balance at beginning of year 44,000 53,429 40,000
Transfer from retained earnings (Note 14) 10,571 10,571 13,429
Transfer to surplus (Note 14) (12,000) (20,000)
--------------------------------------------------------------
Balance at end of year 42,571 44,000 53,429
--------------------------------------------------------------
Total stockholders' equity $834,195 $752,119 $631,818
==============================================================
The accompanying notes are an integral part of the consolidated financial
statements.
31
82
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BANPONCE CORPORATION
- - - - - --------------------------------------------------------------------------------
The accounting and reporting policies of BanPonce Corporation (the Corporation)
and subsidiaries conform with generally accepted accounting principles and with
general practices within the banking industry. The following is a description
of the more significant of these policies:
CONSOLIDATION
The consolidated financial statements include the accounts of the Corporation
and its wholly-owned subsidiaries Vehicle Equipment Leasing Company, Inc.
(Velco), Banco Popular de Puerto Rico (the subsidiary Bank) and its
subsidiaries Popular Leasing and Rental, Inc. and Popular Consumer Services,
Inc. and Popular International Bank and its subsidiaries BanPonce Financial
Corp. and Spring Financial Services, Inc. (second tier subsidiary), after
elimination of intercompany accounts and transactions. The preferred stock of
the subsidiary Bank and dividends related thereto have been treated as minority
interest in the accompanying consolidated financial statements.
INVESTMENT SECURITIES
During 1992, as a result of changing industry practice and management's
evaluation of the investment securities portfolio, the Corporation segregated
its investment securities portfolio into securities held to maturity and those
available for sale. Investments in debt securities, for which management has
both the ability and the positive intent to hold to maturity, are carried at
amortized cost adjusted for amortization of premiums and accretion of
discounts. Investments in debt securities which management believes may be
sold prior to maturity, in connection with changes in interest rates,
prepayment risk, changes in the Corporation's liquidity or other factors, are
classified as available for sale and are carried at the lower of aggregate cost
or market. The change in carrying basis had no effect on the Corporation's
results of operations.
The amortization of premiums are deducted and the accretion of
discounts are added to interest income based on the interest method over the
maturity period of the related securities. Interest on investment securities
is reported as interest income. Net realized gains or losses on sales of
investment securities and unrealized aggregate loss valuation adjustments, if
any, on securities available for sale are reported separately in the statement
of income.
In 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115 - "Accounting for Certain Investments
in Debt and Equity Securities."
This statement addresses the accounting and reporting for investments
in equity securities that have readily determinable fair values and for all
investments in debt securities. Those investments are to be classified in
three categories and accounted for as follows:
-Debt securities that the enterprise has the positive intent and
ability to hold to maturity are classified as held-to-maturity securities and
reported at amortized cost.
-Debt and equity securities that are bought and held principally for
the purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and losses
included in earnings.
-Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as available-for-sale
securities and reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of shareholders'
equity.
The adoption of this statement which is effective for companies with
financial statements beginning after December 15, 1993 will result in an
increase in the Corporation's stockholders' equity of approximately
$14,373,000, net of $4,791,000 deferred taxes.
TRADING ACCOUNT SECURITIES
Trading account securities are carried at market value. Net gains and losses
resulting from the sale of trading account securities and valuation adjustments
to the carrying value are shown separately in the statement of income.
INTEREST RATE FUTURES AND OPTIONS
The Corporation enters into interest rate futures and options contracts as part
of its portfolio management and trading activities. These contracts are
carried at market value. Net gains and losses resulting from these
transactions are recorded separately in the trading profit or loss account.
INTEREST RATE CAPS AND SWAPS
The Corporation enters into interest rate caps and swap transactions to manage
its interest rate exposure. Net interest settlements on interest rate caps and
swaps are recorded as adjustments to interest income or expense.
LOANS
Loans are stated at the outstanding balance, less unearned income and allowance
for loan losses. Loan origination fees and costs incurred in the origination of
new loans are deferred and amortized by the interest method over the life of
the loans as an adjustment of interest yield. Unearned interest on installment
loans is recognized as income on a basis which results in approximate level
rates of return over the term of the loans.
Recognition of interest on commercial and construction loans is
discontinued when loans are 60 days or more in arrears on payments of principal
or interest or when other factors indicate that collection of principal and
interest is doubtful. For lease financing, conventional mortgage loans and
closed-end consumer loans, interest accrual is ceased when loans are 90 days or
more past-due. Such loans are designated as non-accruing and are not returned
to an accrual status until interest is received on a current basis and those
factors indicative of doubtful collection cease to exist. Closed-end consumer
loans are charged-off against the allowance for loan losses after becoming 120
days past-due. Open-end (revolving credit) consumer loans are charged-off
after becoming 180 days past due. Income is generally recognized on open-end
loans until the loans are charged-off.
ALLOWANCE FOR LOAN LOSSES
The Corporation follows a systematic methodology to establish and evaluate the
adequacy of the allowance for loan losses to provide for inherent losses in the
loan portfolio as well as in other credit-related balance sheet and off-balance
sheet financial instruments. This methodology includes the consideration of
such factors as economic conditions, portfolio risk characteristics, prior loss
experience and results of periodic credit reviews.
The provision for loan losses charged to current operations is based
on an evaluation of the risk characteristics of the loan portfolio and the
economic conditions. Loan losses are charged and recoveries are credited to
the allowance for loan losses.
In 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114 - "Accounting by
32
83
- - - - - --------------------------------------------------------------------------------
Creditors for Impairment of a Loan." This statement requires that impaired
loans be measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical expedient,
at the loan's observable market price or the fair value of the collateral if
the loan is collateral dependent. The statement must be adopted for companies
with financial statements beginning after December 15, 1994. The Corporation
has not yet determined the impact of this statement.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed on a straight-line basis over the
estimated useful life of each type of asset. Amortization of leasehold
improvements is computed over the terms of the respective leases or the
estimated useful lives of the improvements, whichever is shorter. Costs of
maintenance and repairs which do not improve or extend the life of the
respective assets are expensed as incurred. Costs of renewals and betterments
are capitalized. When assets are disposed of, their cost and related
accumulated depreciation are removed from the accounts and any gain or loss is
reflected in the operations currently.
OTHER REAL ESTATE
Other real estate comprises properties acquired through both formal foreclosure
proceedings and in-substance foreclosures. In-substance foreclosed properties
are those properties where the borrower retains title but has little or no
remaining equity in the property considering its fair value, where repayment
can only be expected to come from the operation or sale of property, and where
the borrower has effectively abandoned control of the property or it is
doubtful that the borrower will be able to rebuild equity in the property.
These properties are accounted for as if they were properties of the bank and
carried at the lower of cost (outstanding loan balance) or estimated market
value less estimated costs of disposal.
Prior to foreclosure, the recorded amount of the loan, if required, is
written-down to the appraised value of the real estate to be acquired by
charging the allowance for loan losses. This practice has resulted in no
significant differences from recording the property at market value at the time
of foreclosure. Subsequent to foreclosure, gains or losses on the sale of
these properties are credited or charged to expense of operating other real
estate. The cost of maintaining and operating such properties are expensed as
incurred.
INTANGIBLE ASSETS
Intangible assets consist of goodwill and other identifiable intangible assets
acquired, mainly core deposits and credit cardholder relationships. The fair
values of the latter were computed as the net present values of the estimated
future income streams to be obtained from them. The values of core deposits,
credit cardholder relationships and mortgage servicing rights, are amortized
using various methods over the periods benefited ranging from 5 to 12 years.
Goodwill represents the excess of the Corporation's cost of purchased
operations over the fair value of the net assets acquired and is being
amortized on the straight-line basis over 15 years.
INCOME TAXES
In January 1993, the Corporation adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), Accounting for Income Taxes. SFAS 109 is an
asset and liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Corporation's financial statements or tax returns.
In estimating future tax consequences, SFAS 109 generally considers all
expected future events other than enactments of changes in the tax laws or
rates. Previously, the Corporation used the SFAS 96 asset and liability
approach that gave no recognition to future events other than the recovery of
assets and settlement of liabilities at their carrying amounts.
EMPLOYEES' RETIREMENT PLANS
The Corporation and its subsidiaries have trusteed, non-contributory retirement
and related plans covering substantially all full-time employees. Pension
costs are computed on the basis of accepted actuarial methods. The related
costs are charged to current operations and consist of several components of
net pension cost based on various actuarial assumptions regarding future
experience under the plan. Actuarial assumptions are evaluated periodically.
The funding policy is to contribute funds to the plan as necessary to provide
for services to date and for those expected to be earned in the future. To the
extent that these requirements are fully covered by assets in the plan, a
contribution may not be made in a particular year.
OTHER POSTRETIREMENT BENEFIT PLANS
The Corporation provides certain health and life insurance benefits for
eligible retirees and their dependents. The cost of postretirement benefits is
accrued during the years that the employee renders the necessary service.
Before 1993, the cost of providing these benefits was recognized as a charge to
income in the period the benefits were paid.
EARNINGS PER SHARE
Earnings per share are computed on the basis of the weighted average number of
shares of the Corporation outstanding during the year.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand and amounts due from banks.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1992 and 1991 consolidated
financial statements to conform with the presentation of the 1993 consolidated
financial statements.
33
84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BANPONCE CORPORATION
- - - - - --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting policies followed by the Corporation and its subsidiaries are
disclosed in the preceding summary of significant accounting policies.
NOTE 2 - CHANGES IN ACCOUNTING PRINCIPLES:
Effective January 1, 1993, the Corporation implemented the Statement of
Financial Accounting Standard No. 106 (SFAS 106) - "Employers Accounting for
Postretirement Benefits other than Pensions" (OPEB). Under SFAS 106 the cost of
retiree health care and other postretirement benefits is accrued during
employees' service periods. The Corporation elected to recognize the full
transition obligation in 1993, which is the portion of future retiree benefit
costs related to service already rendered by both active and retired employees
up to the date of adoption, rather than amortizing it over future periods. The
cumulative effect of this accounting change resulted in a reduction in net
income of $22,736,000, or $0.70 per share, net of $16,464,000 in deferred taxes.
In addition, the accrual related to the current year obligation amounted to
$5,217,000.
Effective January 1, 1993, the Corporation adopted Statement of
Financial Accounting Standard No. 109 (SFAS 109) - "Accounting for Income Taxes"
which superseded SFAS 96. Under SFAS 109, the Corporation recognizes to a
greater degree the future tax benefits of expenses which have been recognized in
the financial statements. The adjustments to the January 1, 1993 Statement of
Condition and to the Statement of Income to adopt SFAS 109 netted to $28,921,000
or $0.89 per share. This amount is reflected in 1993 net income as part of the
cumulative effect of a accounting changes. It primarily represents the impact
of recognizing a deferred tax asset for the benefit of AMT credits and loss
carryforwards that could not be recorded under SFAS 96.
NOTE 3 - INVESTMENT SECURITIES:
The carrying value, gross unrealized gains and losses and approximate market
value of investment securities (or fair value for certain investment securities
where no market quotations are available) and related maturities as of December
31, are as follows:
1993
-------------------------------------------------------------
Weighted
Book Unrealized Unrealized Market average
value gains losses value yield
-------------------------------------------------------------
(In thousands)
U.S. Treasury securities
(average maturity of
9 months):
Within 1 year $1,597,481 $11,696 $ 1,609,177 5.34%
After 1 to 5 years 627,670 7,041 $ 70 634,641 4.84
-------------------------------------------------------------
2,225,151 18,737 70 2,243,818 5.20
-------------------------------------------------------------
Obligations of other U.S.
Government agencies and
corporations (average
maturity of 7 months):
Within 1 year 215,355 279 5 215,629 3.63
After 1 to 5 years 65,012 1,056 66,069 5.49
After 5 to 10 years 28 28 6.50
After 10 years 8,266 10 1 8,274 7.50
-------------------------------------------------------------
288,661 1,345 6 290,000 4.17
-------------------------------------------------------------
Obligations of Puerto Rico,
States and political sub-
divisions (average
maturity of 3 years and
8 months):
Within 1 year 152,091 209 152,300 2.36
After 1 to 5 years 39,170 3,044 18 42,196 7.40
After 5 to 10 years 24,939 3,063 28,002 7.59
After 10 years 40,474 2,628 101 43,001 8.33
-------------------------------------------------------------
256,674 8,944 119 265,499 4.56
-------------------------------------------------------------
Other (average maturity of
2 years and 1 months):
Within 1 year 228,344 1,084 2,091 227,337 5.26
After 1 to 5 years 294,378 900 1,247 294,032 5.25
After 5 to 10 years 23,393 151 158 23,386 6.51
After 10 years 14,197 1 53 14,144 5.69
-------------------------------------------------------------
560,312 2,136 3,549 558,899 5.31
-------------------------------------------------------------
$3,330,798 $31,162 $ 3,744 $ 3,358,216 5.08%
=============================================================
1992
---------------------------------------------------------
Weighted
Book Unrealized Unrealized Market average
value gains losses value yield
---------------------------------------------------------
(In thousands)
U.S. Treasury securities
(average maturity of
1 year and 6 months):
Within 1 year $ 671,809 $ 8,186 $ 5 $ 679,990 5.41%
After 1 to 5 years 1,877,555 30,097 1,956 1,905,696 5.46
--------------------------------------------------------
2,549,364 38,283 1,961 2,585,686 5.44
--------------------------------------------------------
Obligations of other U.S.
Government agencies and
corporations (average
maturity of 2 years and
6 months):
Within 1 year 74,506 5 74,511 3.38
After 1 to 5 years 80,025 1,708 15 81,718 6.20
After 5 to 10 years 27 27 6.50
After 10 years 19,678 7 1 19,684 7.28
--------------------------------------------------------
174,236 1,720 16 175,940 5.10
--------------------------------------------------------
Obligations of Puerto Rico,
States and political sub-
divisions (average
maturity of 5 years and
6 months):
Within 1 year 87,630 311 8 87,933 3.09
After 1 to 5 years 37,559 2,621 6 40,174 7.48
After 5 to 10 years 25,872 2,123 5 27,990 7.33
After 10 years 58,748 4,077 62,825 8.14
--------------------------------------------------------
209,809 9,132 19 218,922 5.80
--------------------------------------------------------
Other (average maturity of
3 years and 1 months):
Within 1 year 120,118 1,893 74 121,937 8.17
After 1 to 5 years 189,079 1,277 1,309 189,047 7.06
After 5 to 10 years 32,719 82 456 32,344 6.71
After 10 years 15,115 1 15,117 6.33
--------------------------------------------------------
357,031 3,253 1,839 358,445 7.37
--------------------------------------------------------
$3,290,440 $ 52,388 $ 3,835 $ 3,338,993 5.66%
========================================================
34
85
- - - - - --------------------------------------------------------------------------------
The aggregate carrying value and approximate market value of investment
securities at December 31, 1993, by contractual maturity, are shown below:
Book value Market value
--------------------------
(In thousands)
Within 1 year $ 2,193,271 $2,204,443
After 1 to 5 years 1,026,230 1,036,938
After 5 to 10 years 48,360 51,416
After 10 years 62,937 65,419
----------------------------
$ 3,330,798 $3,358,216
============================
Proceeds from sale of investment securities during 1993 were $12,059,000
(1992 - $43,114,000; 1991 - $1,104,061,000). Gross gains and gross losses
realized on those sales during the year were $445,000 and $2,000, respectively
(1992 - $245,000 and $3,000; 1991 - $19,645,000 and $1,028,000).
Proceeds from sale of investment securities in 1991 include approximately
$612,894,000 of securities sold immediately after a merger transaction to
restructure the newly combined investment securities portfolio to conform to
the Corporation's investment objectives and strategies. These sales resulted in
a net gain of approximately $267,000.
Investments in obligations that are payable from and secured by the same
source of revenue or taxing authority and that exceeded 10 percent of
stockholders' equity were as follows:
Percent of
Book stockholders' Market
value equity value
-----------------------------------
(Dollars in thousands)
Issuer:
Government of Puerto Rico,
its agencies and
instrumentalities:
December 31, 1993 $256,530 31% $265,370
December 31, 1992 209,632 28 218,745
NOTE 4 - INVESTMENT SECURITIES AVAILABLE FOR SALE:
The carrying value, gross unrealized gains and losses and approximate market
value of investment securities available for sale (or fair value for certain
investment securities where no market quotations are available) and related
maturities as of December 31, are as follows:
1993
------------------------------------------------------------------------------
Weighted
Book Unrealized Unrealized Market Average
value gains losses value yield
------------------------------------------------------------------------------
(In thousands)
U.S. Treasury securities
(average maturity of 3 years
and 2 months):
After 1 to 5 years $550,021 $15,736 $2,749 $ 563,008 5.63%
After 5 to 10 years 80,934 5,341 86,275 6.72
------------------------------------------------------------------------------
630,955 21,077 2,749 649,283 5.77
------------------------------------------------------------------------------
Obligations of other U.S.
Government agencies and
corporations (average
maturity of 2 years and
5 months):
Within 1 year 25,000 25,000 5.50
After 1 to 5 years 50,126 836 50,962 6.71
------------------------------------------------------------------------------
75,126 836 75,962 6.30
------------------------------------------------------------------------------
Other (average maturity of
3 years and 2 months):
After 1 to 5 years 8,484 8,484 8.75
------------------------------------------------------------------------------
$714,565 $21,913 $2,749 $733,729 5.86%
===============================================================================
1992
----------------------------------------------------------------
Weighted
Book Unrealized Unrealized Market Average
value gains losses value yield
----------------------------------------------------------------
(In thousands)
U.S. Treasury securities
(average maturity of 4 years
and 2 months):
After 1 to 5 years $223,360 $13,797 $56 $237,101 7.55%
After 5 to 10 years 81,111 1,439 82,550 6.72
---------------------------------------------------------------
304,471 15,236 56 319,651 7.34
---------------------------------------------------------------
Obligations of other U.S.
Government agencies and
corporations (average
maturity of 3 years and
6 months):
After 1 to 5 years 60,139 520 60,659 5.92
After 5 to 10 years 35,033 221 14 35,240 5.95
--------------------------------------------------------------
95,172 741 14 95,899 5.93
--------------------------------------------------------------
Other (average maturity of
7 years and 6 months):
After 5 to 10 years 8,484 8,484 8.75
--------------------------------------------------------------
408,127 15,977 $70 $ 424,034 7.04%
==============================================================
The aggregate carrying value and approximate market value of investment
securities available for sale at December 31, 1993, by contractual maturity,
are shown below:
Book value Market value
--------------------------
(In thousands)
- - - - - --------------------------------------------------------------
Within 1 year $ 25,000 $ 25,000
After 1 to 5 years 600,147 613,970
After 5 to 10 years 80,934 86,275
After 10 years 8,484 8,484
--------------------------
$ 714,565 $ 733,729
==========================
Proceeds from sale of investment securities available for sale during 1993
were $83,621,000. Gross gains realized on those sales during the year were
$421,000; there were no losses.
NOTE 5 - PLEDGED ASSETS:
Investment securities and loans amounting to $1,917,840,000 are pledged to
secure public and trust deposits and securities and mortgages sold under
agreements to repurchase.
35
86
- - - - - --------------------------------------------------------------------------------
NOTE 6 - LOANS AND ALLOWANCE FOR LOAN LOSSES:
The composition of the loan portfolio at December 31, is as follows:
1993 1992
------------------------------
(In thousands)
Loans secured by real estate:
Insured or guaranteed by the U.S.
Government or its agencies $ 128,054 $ 93,110
Guaranteed by the Commonwealth
of Puerto Rico 24,758 29,208
Commercial loans secured
by real estate 894,181 688,139
Other 1,477,500 915,841
------------------------------
2,524,493 1,726,298
Financial institutions 36,445 38,469
Commercial, industrial and
agricultural 1,115,703 1,109,326
Real estate (construction) 154,237 173,025
Lease financing 462,399 391,266
Individuals - For household,
credit cards and other
consumer expenditures 2,062,437 1,902,795
Other 299,358 273,545
------------------------------
$6,655,072 $5,614,724
==============================
As of December 31, 1993, loans on which the accrual of interest income
had been discontinued amounted to $92,814,000 (1992 - $108,341,000; 1991 -
$128,727,000). If these loans had been accruing interest, the additional
interest income realized would have been approximately $4,992,000 (1992 -
$7,548,000; 1991 - $10,983,000). In addition, there are $5,643,000 of
renegotiated loans still accruing interest at December 31, 1993 (1992 -
$8,380,000). Included in the non-accruing loans as of December 31, 1993 are
$16,290,000 (1992 - $21,440,000) in consumer loans.
The changes in the allowance for loan losses were as follows:
1993 1992 1991
---------------------------------------
(In thousands)
Balance at beginning of year $ 110,714 $ 94,199 $ 89,335
Reserve for acquired loans 1,580 1,556
Provision for loan losses 72,892 97,633 121,681
Recoveries 25,678 21,062 10,942
Loans charged-off (77,427) (102,180) (129,315)
---------------------------------------
Balance at end of year $ 133,437 $ 110,714 $ 94,199
=======================================
NOTE 7 - RELATED PARTY TRANSACTIONS:
The Corporation grants loans to its directors, executive officers and to
certain related individuals or organizations in the ordinary course of
business. The movement and balance of these loans were as follows:
Officers Directors Total
--------------------------------------
(In thousands)
Balance at January 1, 1992 $ 653 $ 51,995 $ 52,648
Additions 186 119,379 119,565
Reductions (106) (115,268) (115,374)
-------------------------------------
Balance at December 31, 1992 733 56,106 56,839
Additions 1,938 137,809 139,747
Reductions (637) (102,431) (103,068)
-------------------------------------
Balance at December 31, 1993 $2,034 $ 91,484 $ 93,518
=====================================
These loans have been consummated on terms no more favorable than
those that would have been obtained if the transaction had been with unrelated
parties.
NOTE 8 - PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost less accumulated depreciation and
amortization as follows:
Useful life
in years 1993 1992
---------------------------------------
(In thousands)
Land $ 33,070 $ 30,381
-----------------------
Buildings 30-50 207,707 198,219
Equipment 3-10 178,632 154,457
Leasehold improvements Various 44,730 40,701
-----------------------
431,069 393,377
Less - Accumulated depreciation
and amortization 187,243 172,378
-----------------------
243,826 220,999
-----------------------
Construction in progress 21,193 8,950
-----------------------
$298,089 $260,330
=======================
Depreciation and amortization of premises and equipment for the year
was $27,310,000 (1992 - $26,955,000; 1991 - $25,467,000) of which $6,421,000
(1992 - $7,515,000; 1991 - $7,355,000) was charged to occupancy expense and
$20,889,000 (1992 - $19,440,000; 1991 - $18,112,000) was charged to equipment,
communications and other operating expenses. Occupancy expense is net of rental
income of $14,097,000 (1992 - $13,067,000; 1991 - $12,743,000).
NOTE 9 - DEPOSITS:
Total interest bearing deposits as of December 31, consist of:
1993 1992
-------------------------------
(In thousands)
Savings deposits:
Savings accounts $2,737,037 $2,315,572
NOW and money market
accounts 1,135,043 1,035,955
-------------------------------
3,872,080 3,351,527
-------------------------------
Certificates of deposit:
Under $100,000 1,233,019 1,328,873
$100,000 and over 1,568,700 1,743,505
-------------------------------
2,801,719 3,072,378
-------------------------------
$6,673,799 $6,423,905
===============================
36
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- - - - - --------------------------------------------------------------------------------
NOTE 10 - FEDERAL FUNDS PURCHASED AND SECURITIES SOLD
UNDER AGREEMENTS TO REPURCHASE:
The following table summarizes certain information on federal funds purchased
and securities sold under agreements to repurchase as of December 31:
1993 1992 1991
--------------------------------------
(Dollars in thousands)
Federal Funds purchased $ 9,100
Securities sold under agreements
to repurchase 942,633 $ 665,222 $449,114
--------------------------------------
Total amount outstanding $ 951,733 $ 665,222 $449,114
======================================
Maximum aggregate balance
outstanding at any month-end $1,108,578 $ 920,272 $817,856
======================================
Average aggregate balance
outstanding $ 832,651 $1,628,620 $645,789
======================================
Weighted average interest rate:
For the year 2.77% 3.16% 5.40%
At December 31 2.91 2.79 4.43
NOTE 11 - OTHER SHORT-TERM BORROWINGS:
Other short-term borrowings as of December 31, consist of:
1993 1992
---------------------
(In thousands)
Advances under revolving lines of credit
amounting to $195,000,000 (1992 -
$200,000,000) with floating interest
rates ranging from 2.66% to 3.55%
(1992 - 3.28% and 3.44%). $109,025 $ 70,000
Term federal funds purchased with
maturities until April 1994 at rates
ranging from 3.31% to 3.50%. 345,000
Commercial paper (issued to institutional
investors) with various
maturities until May 1994 at rates
ranging from 3.39% to 3.75%
(1992 - 3.32% to 4.66%.) 119,112 87,982
Term notes maturing in 1994, paying
quarterly interest at rates ranging from
0.44% to 0.94% (1992 - 0.25% to 1.15%)
over the 3 month LIBOR rate (LIBOR rate
at December 31, 1993 was 3.38%;
1992 - 3.44%). 44,986 42,963
Term notes due in 1994 paying semiannual
interest at a fixed rate ranging from 3.81%
to 7.88% (1992 - 7.27%). 44,961 4,998
Others 1,089 939
---------------------
$664,173 $206,882
=====================
The weighted average interest rate of other short-term borrowings at
December 31, 1993 was 3.40% (1992 - 4.03%; 1991 - 6.07%). The maximum
aggregate balance outstanding at any month-end was approximately $695,314,000
(1992 - $208,738,000; 1991 - $222,742,000). The average aggregate balance
outstanding during the year was approximately $527,523,000 (1992 -
$172,729,000; 1991 - $198,653,000). The weighted average interest rate during
the year was 3.66% (1992 - 4.32%; 1991 - 6.69%).
NOTE 12 - NOTES PAYABLE:
Notes payable outstanding at December 31, consist of the following:
1993 1992
---------------------
(In thousands)
Term notes with maturities ranging from
1995 through 2003 paying semiannual
interest at fixed rates ranging from 5.17%
to 7.85% (1992 - 4.47% to 7.85%). $179,301 $69,806
Term notes with maturities ranging from
1995 through 1998 paying quarterly
interest at rates ranging from 0.19% to
0.58% (1992 - 0.65% to 1.13%) over the
3 month LIBOR rate (LIBOR rate
at December 31, 1993 was 3.38%;
1992 - 3.44%). 44,861 19,972
Promissory notes maturing in 1998 with
fixed interest rates ranging from 4.50%
to 4.62%. 29,500
Mortgage notes and other debt with
varying rates and terms. 193 284
---------------------
$253,855 $90,062
=====================
NOTE 13 - SENIOR DEBENTURES:
Senior debentures at December 31, 1993 consist of a $30,000,000 obligation
issued by the Corporation due in January 1997 with interest at 8.25%.
The senior debentures contain various covenants which, among others,
restrict the payment of dividends. These restrictions are less restrictive
than those imposed by the subordinated notes agreements (see Note 14).
NOTE 14 - SUBORDINATED NOTES OF THE SUBSIDIARY BANK:
Subordinated notes at December 31, consist of the following:
1993 1992
-------------------
(In thousands)
Subordinated notes issued by the subsidiary
Bank on March 29, 1989 maturing on
June 15, 1996, with interest payable
quarterly and consisting of:
8.875% Fixed Rate Notes Series A $15,000 $15,000
8.6875% Fixed Rate Note Series B 15,000 15,000
Floating Rate Notes Series A with interest
payable at 88% of LIBID rate 19,000 19,000
Floating Rate Notes Series B with interest
payable at 86% of LIBID rate 1,000 1,000
--------------------
50,000 50,000
--------------------
Subordinated fixed rate notes with interest
payable quarterly consisting of the
following:
7.95% notes due in 1994
(Prepaid during 1993) 12,000
8.50% notes due in 1996 12,000 12,000
--------------------
12,000 24,000
--------------------
$62,000 $74,000
====================
At December 31, 1993, the LIBID rate was 3.25% (1992 - 3.31%).
37
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- - - - - --------------------------------------------------------------------------------
These notes are subordinated to the rights of the subsidiary Bank's
depositors and other creditors and require the subsidiary Bank to set aside
from retained earnings an amount equal to the principal payment on each note to
be used solely to increase capital. The capital reserve account was established
to comply with the requirements of the subordinated notes. At the notes
repayment date the balance in capital reserves is transferred to the surplus
account. The subsidiary Bank transferred to capital reserves from the retained
earnings account $10,571,000, $10,571,000 and $13,429,000 during 1993, 1992 and
1991, respectively, following this requirement. In addition, during 1993 and
1992, $12 million and $20 million were transferred from capital reserves to
surplus upon prepayment of the 7.95% and 10% notes originally maturing in 1994
and 1993, respectively.
The $12 million subordinated notes agreements contain certain provisions
which, among other things, restrict the payment of dividends. Under these
restrictions, at December 31, 1993, undivided profits of the subsidiary Bank
amounting to $1,000,000 are unavailable for future dividends.
NOTE 15 - LONG-TERM DEBT MATURITY REQUIREMENTS:
The aggregate amounts of maturities of notes payable, senior debentures and
subordinated notes are as follows:
Notes Senior Subordinated
Year payable debentures notes Total
- - - - - -----------------------------------------------------------------------
(In thousands)
1994 $ 92 $ 92
1995 34,961 34,961
1996 54,843 $62,000 116,843
1997 34,889 $30,000 64,889
1998 104,167 104,167
Later years 24,903 24,903
----------------------------------------------------
Total $253,855 $30,000 $62,000 $ 345,855
====================================================
NOTE 16 - PREFERRED STOCK OF THE SUBSIDIARY BANK:
The subsidiary Bank has 200,000 shares of authorized preferred stock with a par
value of $100. This stock may be issued in series, and the shares of each
series shall have such rights and preferences as shall be fixed by the Board of
Directors when authorizing the issuance of that particular series. The
subsidiary Bank has issued 110,000 shares of Treasury Indexed Preferred Stock
Series A (TIPS) at $100 per share for a total of $11,000,000. These shares are
non-convertible and non-voting (except that if dividends are not paid on the
preferred stock for six consecutive quarters their holders obtain a vote in the
general election of directors of the subsidiary Bank), and are redeemable at
the subsidiary Bank's option at a price of $103 per share through June 30, 1994
and at par ($100) thereafter. Dividends are payable quarterly at a rate of
115% of the six-month bond equivalent Treasury Bill rate, or 85% of the
five-year Treasury Note constant maturity rate, whichever is higher, but the
rate cannot be lower than 7.0% or higher than 15.5% per annum.
NOTE 17 - STOCKHOLDERS' EQUITY:
The Corporation has a dividend reinvestment plan under which stockholders may
use their quarterly dividends to reinvest in shares of common stock at a 5%
discount from the average market price at the time of issuance. During 1993,
77,559 shares (1992 - 102,272; 1991 - 151,446) equivalent to $2,106,000 (1992 -
$2,209,000; 1991 - $2,397,000) in additional equity, were issued under the
plan.
On May 3, 1993, BanPonce Corporation filed, and had ordered effective, a
"shelf" registration with the Securities and Exchange Commission which
registered up to $400 million in unsecured debt securities and/or shares of
preferred stock. The amounts, terms and timing of offerings will be determined
in the future when and as the Corporation decides to sell securities under the
registration.
On November 6, 1992, the Corporation issued 2,458,740 shares of common
stock, which generated $57,600,000 of new capital. All of the shares were
purchased by existing shareholders who exercised their subscription rights.
Net proceeds from the issuance have been and will be used for general corporate
purposes, including investment in and advances to existing subsidiaries.
The Corporation's average number of shares outstanding used in the
computation of net income per share was 32,701,236 (1992 - 30,461,494; 1991 -
30,035,601). During the year cash dividends of $0.90 (1992 and 1991 - $0.80)
per share outstanding amounting to $29,434,000 (1992 - $24,624,000; 1991 -
$24,028,000) were declared.
NOTE 18 - INTEREST ON INVESTMENTS:
Interest on investments consisted of the following:
1993 1992 1991
--------------------------------
(In thousands)
Money market investments:
Federal funds sold and securities
and mortgages purchased under
agreements to resell $ 4,115 $ 5,209 $ 4,448
Time deposits with
other banks 2,259 9,093 28,886
Other 60 112 256
--------------------------------
$ 6,434 $ 14,414 $ 33,590
================================
Investment securities:
U.S. Treasury securities $163,209 $154,210 $124,451
Obligations of other
U.S. Government agencies
and corporations 14,622 19,137 22,833
Obligations of Puerto Rico,
States and political sub-
divisions 11,605 13,235 15,575
Other 26,508 21,060 18,554
--------------------------------
$215,944 $207,642 $181,413
================================
Interest income on investment securities for the year ended December 31,
1993 includes tax exempt interest of $189,438,000 (1992 - $187,923,000; 1991
$163,812,000).
NOTE 19 - EMPLOYEE BENEFITS:
Substantially all of the employees of the Corporation and its subsidiaries are
covered by a non-contributory defined benefit pension plan. Pension benefits
begin to vest after five years of service and are based on age, years of
credited service and final average compensation, as defined. At December 31,
1993, plan assets primarily consist of U.S. Government obligations, high grade
corporate bonds and listed stocks including 1,418,215 shares of the
Corporation, which have a market value of approximately $43,965,000.
The following table sets forth the plan's funded status and amounts
recognized in the consolidated financial statements at December 31:
38
89
- - - - - -------------------------------------------------------------------------------
1993 1992
-----------------------------
(In thousands)
Actuarial present value of
benefit obligations:
Vested benefits ($123,826) ($103,365)
Non-vested benefits (9,313) (8,401)
-----------------------------
Accumulated benefit obligation (133,139) (111,766)
Effect of projected future
compensation levels (54,251) (41,487)
-----------------------------
Projected benefit obligation (187,390) (153,253)
Plan assets at fair market value
consisting primarily of U.S.
Government obligations, high grade
corporate bonds and listed stocks 203,893 193,536
-----------------------------
Plan assets in excess of projected
benefit obligation 16,503 40,283
Unrecognized net (gain) loss from
past experience different from that
assumed and effect of changes in
assumptions 19,618 (1,463)
Unrecognized prior service cost (2,395) (2,573)
Unrecognized initial net assets (27,929) (30,389)
-----------------------------
Prepaid pension cost $ 5,797 $ 5,858
=============================
Net pension cost for the year ended December 31, included the following
components:
1993 1992 1991
----------------------------
(In thousands)
Service costs - benefits earned
during period $ 7,563 $ 6,802 $ 5,818
Interest cost on projected
benefit obligation 12,454 11,495 10,451
Actual return on plan assets (15,404) (24,290) (29,184)
Net amortization and deferral (4,553) 6,025 12,922
----------------------------
Net pension cost $ 60 $ 32 $ 7
============================
At December 31, 1993, the discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.5% (1992 and 1991 -
8.25%) and the rate of increase in future compensation levels was 5.5% for the
three years. The expected long-term rate of return on assets used in the
computation was 9% for 1993, 1992 and 1991.
In addition to providing pension benefits, the subsidiary Bank provides
certain health care benefits for retired employees. Substantially all of the
employees of the Bank who are eligible to retire under the pension plan and
provided they reach retirement age while working for the Bank may become
eligible for these benefits. The actual disbursements for these benefits for
1993 amounted to approximately $1,770,000 (1992 - $1,400,000; 1991 - $778,000).
The components of net postretirement benefit expense under SFAS 106 for the
year ended December 31, 1993 are as follows (in thousands):
Service cost $ 2,054
Interest cost 3,163
--------
Net postretirement benefit expense $ 5,217
========
The status of the Company's unfunded postretirement benefit plan at
December 31, 1993 is as follows (in thousands):
Actuarial present value of expected
postretirement benefit obligation:
Retirees $21,676
Fully eligible active plan
participants 2,937
Other active plan participants 22,985
Accumulated postretirement ------------
benefit obligation 47,598
Unrecognized net loss from past
experience different from that
assumed and effect of changes in
assumptions (4,926)
------------
Accrued postretirement
benefit cost $42,672
============
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation at December 31, 1993 was 7.5%.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation at December 31, 1993 was 13%, decreasing by
1% every year until 5% is reached in the year 2001 and remaining at that level
thereafter. A one-percentage point increase in the health care cost trend rate
would increase the accumulated postretirement benefit obligation as of December
31, 1993 by $7,406,000 and the sum of the service and interest cost in 1993 by
$1,085,000.
The Corporation also has a profit sharing plan covering substantially all
regular employees. Annual contributions are based on operating income, as
defined in the plan, and are deposited in trust. Profit sharing expense for the
year amounted to $20,594,000 (1992 - $17,736,000; 1991 - $13,848,000).
NOTE 20 - RENTAL EXPENSE AND COMMITMENTS:
At December 31, 1993, the Corporation was obligated under a number of
non-cancelable leases for land, buildings, and equipment which require rentals
(net of related sublease rentals) as follows:
Minimum Sublease
payments rentals Net
- - - - - ---------------------------------------------------------------
(In thousands)
1994 $10,428 $ 694 $ 9,734
1995 9,101 685 8,416
1996 8,127 683 7,444
1997 7,362 671 6,691
1998 7,047 589 6,458
Later years 41,243 2,466 38,777
-----------------------------
$83,308 $5,788 $77,520
=============================
Total rental expense for the year ended December 31, 1993 was $14,480,000
(1992 - $14,074,000; 1991 - $14,022,000).
NOTE 21 - INCOME TAX
As discussed in Notes 1 and 2, the Corporation adopted SFAS 109 as of January
1, 1993, and the cumulative effect of this change is reported in the
Consolidated Statement of Income for the year ended December 31, 1993. Prior
year's financial statements have not been restated to apply the provisions of
SFAS 109. This standard requires the recognition of deferred tax assets and
liabilities
39
90
- - - - - --------------------------------------------------------------------------------
for the expected future tax consequences of events that have been recognized in
the Corporation's financial statements or tax returns. The measurement of
current and deferred tax liabilities or assets is based on the regular tax
rates, which is 42% in Puerto Rico, and the provisions of enacted tax laws.
A related deferred tax liability of $5,000,000 is recorded in the
consolidated statement of condition at December 31, 1992, after reduction for
other net deductible amounts, for the tax effect of the excess of the assigned
values over the tax bases of net assets acquired.
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities for 1993 are as follows:
Amount
---------------------
(In thousands)
Deferred tax assets:
Alternative minimum tax credits
available for carryforward and
other credits available $ 54,581
Net operating loss carryforwards
available 1,914
Postretirement benefits obligation
(other than pensions) 17,682
Other temporary differences 7,296
--------------
Total gross deferred tax assets 81,473
--------------
Deferred tax liability:
Differences between the assigned
values and the tax bases of the
assets and liabilities recognized
in a purchase business
combination 41,452
Other temporary differences 3,807
--------------
Total gross deferred tax liability 45,259
--------------
Deferred tax asset valuation
allowance 296
--------------
Net deferred tax asset $ 35,918
==============
At December 31, 1993, the Corporation had $21,854,000 in Alternative
Minimum Tax (AMT) credits that can be carried forward indefinitely to reduce
the regular income tax liability in future years. During 1993, the Corporation
used AMT credits totalling $6,513,000 to reduce its regular tax liability. The
Corporation also had, at the end of 1993, $4,557,000 in net operating losses
(NOL) available to carry over to offset taxable income in future years. These
NOL carryforwards expire in different amounts on years 1997 through 1999.
During 1993, the Corporation used NOL carryforwards amounting to $2,690,000 to
reduce its regular taxable income. The valuation allowance of $296,000 is
related to a deferred tax asset arising from NOL carryforwards, for which the
Corporation cannot determine the likelihood of its realizability in future
years.
Under the Puerto Rico Income Tax Law, the Corporation and its subsidiaries
are treated as separate taxable entities and are not entitled to file
consolidated tax returns. Dividends received (net of an 85% dividend received
deduction allowed by Puerto Rico Income Tax Law) by the Corporation from the
subsidiaries are subject to Puerto Rico income tax at the normal corporate tax
rates.
Under the provisions of SFAS 109, the Corporation has not recognized a
deferred tax liability on $90,313,000 of unremitted earnings of domestic
subsidiaries arising after January 1, 1993, at the applicable dividend rate,
since the P.R. income tax law provides certain alternatives to remit those
earnings to the Corporation on a tax free basis.
The aggregated income tax expense applicable to income before provision for
income taxes differs from the amount computed by applying the statutory 42%
rate as follows:
1993 1992 1991
---------------------------------------------------
% of % of % of
pre-tax pre-tax pre-tax
Amount income Amount income Amount income
-----------------------------------------------------
(Dollars in thousands)
Computed income tax
at statutory rate $55,499 42% $42,061 42% $ 30,309 42%
Benefits of net tax exempt
interest income (30,852) (23) (29,135) (29) (30,057) (42)
Others 3,504 2 1,109 1 2,981 4
Alternative minimum tax paid
over regular income tax 224 3,560 5
-----------------------------------------------------
Income tax expense $28,151 21% $14,259 14% $ 6,793 9%
=====================================================
The provision for income tax has been significantly reduced as a result of
the elimination from the determination of taxable income of interest from
exempt securities for Puerto Rico income tax purposes.
The components of income tax expense for the year ended December 31, 1993,
are as follows:
Amount
---------------
(In thousands)
Current tax expense $23,018
Deferred taxes 5,133
-----------
Total income tax expense $28,151
===========
Income tax provision includes $363,000, $53,000 and $4,096,000 in 1993,
1992 and 1991, respectively, related to the gain on sale of securities.
The Corporation's federal income tax provision for 1993 and 1992 was
$2,230,000 and $481,000, respectively. The Corporation's United States
operations in 1991 resulted in a loss and accordingly, no federal tax provision
was recorded.
NOTE 22 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS
OF CREDIT RISK:
The Corporation is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financial needs of its
customers and to reduce its own exposure to interest rates. These financial
instruments include loan commitments, letters of credit, standby letters of
credit, future contracts, options on future contracts and interest rate swaps
and caps. These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the consolidated
statement of condition. The contract or notional amounts of these instruments,
which are not included in the statement of condition, are an indicator of the
Corporation's activities in particular classes of financial instruments.
The Corporation's exposure to credit loss in the event of non-performance
by the other party to the financial instrument for commitments to extend credit
and standby letters of credit and financial guarantees written is represented
by the contractual notional
40
91
- - - - - --------------------------------------------------------------------------------
amounts of those instruments. The Corporation uses the same credit policies
in making commitments and conditional obligations as it does for the ones
reflected on the balance sheet. For future contracts, options on future
contracts and interest rate swaps and caps the contract or notional amounts do
not represent exposure to credit loss. Instead, the amount potentially
subject to credit loss is substantially less.
The total amounts of financial instruments with off-balance sheet risk at
December 31, are as follows:
Financial instruments whose contract amounts represent potential credit
risk:
1993 1992
----------------------------
(In thousands)
Commitments to extend credit:
Credit card lines $ 644,977 $ 631,917
Commercial lines of credit 1,139,524 778,859
Commercial letters of credit 11,512 11,768
Standby letters of credit 82,642 65,736
The movement and balance of financial instruments whose notional or
contractual amounts exceed the amount of potential credit risk is as follows:
Foreign Interest Interest
exchange rate rate
rate contracts swaps caps
----------------------------------
(In thousands)
Balance at January 1, 1992 $406 $30,000
New contracts 879 20,000 $20,000
Terminated and matured
contracts 406
----------------------------------
Balance at December 31, 1992 879 50,000 20,000
New Contracts 936
Terminated and matured
contracts 879 30,000
----------------------------------
Balance at December 31, 1993 $936 $20,000 $20,000
==================================
Contractual commitments to extend credit are legally binding agreements to
lend money to customers at predetermined interest rates for a specified period
of time. Since many of the loan commitments may expire without being drawn
upon, the total commitment amount does not necessarily represent future cash
requirements. To extend credit the Corporation evaluates each customer's
creditworthiness. The amount of collateral obtained, if deemed necessary by
the Corporation upon extension of credit, is based on management's credit
evaluation of the counterpart. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment and investment securities
among others.
In general, commercial letters of credit are short-term commitments used to
finance commercial contracts for the shipment of goods. Standby letters of
credit are also issued by the Corporation to guarantee the performance of a
customer to a third party. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers. In most instances, cash items are held by the Corporation to
collateralize these instruments.
Financial future contracts are agreements to buy or sell a notional amount
of a financial instrument at a given time in the future. Options on future
contracts confer the right from seller to buyer to take a future position at a
stated price. Risks arise from the possible inability of counter parties to
meet the terms of their contracts and from movements in securities values and
interest rates.
The Corporation also enters into interest rate swap agreements in managing
its interest rate exposure. Interest rate swap agreements generally involve
the exchange of fixed and floating rate interest payment obligations without
the exchange of the underlying principal. At December 31, 1993, the
Corporation had outstanding two interest rate swap agreements having a total
notional amount of $20 million. Both of the agreements were done with
commercial banks to change the Corporation's interest rate exposure, one of
them consisting of a $10 million floating rate medium term note due in 1994
exchanged to a fixed 6.51%; the other swap agreement is for a notional
principal amount of $10 million covering the Corporation's interest rate
exposure on half of a $20 million fixed rate medium term note to a floating
rate. These agreements end at the time the related obligations mature.
Non-performance by any of the counter parties on these agreements will expose
the Corporation to an interest rate risk which management deems to be
immaterial.
Interest rate caps are contractual agreements protecting the buyer against
a rise in interest rates. As of December 31, 1993, the Corporation had
outstanding two interest rate caps having a total notional amount of $20
million. These caps were acquired in order to minimize the interest rate risk
associated with certain variable-rate securities and end at the time the
related securities mature in 1995. Cap rates range from 5.5% to 7.5%. The
risk which may arise from the inability of counter parties to meet the terms of
their contracts is considered immaterial to management.
The following table summarizes certain financial information on hedging
activities as of December 31, 1993:
Interest rate
swaps
-------------------
Impact on 1993:
- Net interest income ($264,000)
- Net interest margin (2.97%)
- Effect of 1% increase in
interest rates on 1993
earnings $86,000
The gains and losses from hedging activities are amortized over the
remaining life of the security being hedged. Currently, there are no deferred
gains and losses from these activities. The expected weighted average interest
rates to be received and paid on the interest rate swaps approximate 5.44% and
5.01%, respectively.
A geographic concentration exists within the Corporation's loan portfolio
since most of the Corporation's business activity is with customers located in
Puerto Rico. However, as of December 31, 1993, the Corporation had no
significant concentrations of credit risk and no significant exposure to highly
leveraged transactions in its loan portfolio.
NOTE 23 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS:
The information about the estimated fair values of financial instruments, as
required by the Statement of Financial Accounting Standards No. 107 (SFAS 107),
is presented hereunder including some
41
92
- - - - - --------------------------------------------------------------------------------
items not recognized in the statement of financial position. A financial
instrument is defined as cash, evidence of an ownership interest in an entity,
or a contract that creates a contractual obligation or right to deliver to or
receive cash or another financial instrument from a second entity on
potentially favorable terms with the first entity. SFAS 107 provides that for
deposit liabilities with no defined maturities, such as demand deposit
accounts, NOW, money market and savings accounts, which at December 31, 1993
and 1992, comprised 67.1% and 61.8%, respectively, of the Corporation's total
deposits, the fair value to be disclosed is the amount payable on demand. All
nonfinancial instruments are excluded from the disclosure requirements of SFAS
107.
For those financial instruments with no quoted market prices available,
fair values have been estimated using present value or other valuation
techniques. These techniques are inherently subjective and are significantly
affected by the assumptions used, including the discount rates, estimates of
future cash flows and prepayment assumptions. In that regard, the derived fair
value estimates cannot be substantiated by comparison to independent markets
and, in many cases, could not be realized in immediate settlement of the
instrument.
The fair values reflected herein have been determined based on the
prevailing interest rate environment as of December 31, 1993 and 1992,
respectively. In different interest rate environments, fair value results can
differ significantly, especially for certain fixed rate financial instruments
and nonaccrual assets. In addition, the fair values presented do not attempt
to estimate the value of the Corporation's fee generating businesses and
anticipated future business activities, that is, they do not represent the
Corporation's value as a going concern. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the Corporation.
The estimated fair values of the Corporation's financial instruments, their
carrying value and the methodologies used to estimate fair values are presented
below.
Short-Term Financial Instruments:
Short-term financial instruments, both assets and liabilities, have been valued
at their carrying amounts as reflected in the Corporation's Statement of
Condition. For these financial instruments, the carrying value may approximate
fair value because of the relatively short period of time between the
origination of the instruments and their expected realization. Included in
this category are: cash and due from banks, federal funds sold and securities
and mortgages purchased under agreements to resell, time deposits with other
banks, bankers' acceptances, customers' liabilities on acceptances, accrued
interest receivable, securities sold under agreements to repurchase,
acceptances outstanding and accrued interest payable.
Investment and Trading Securities:
Investment and trading securities are financial instruments which trade
regularly on secondary markets. The estimated fair value of these securities
was determined using either market prices or dealer quotes where available, or
quoted market prices of financial instruments with similar characteristics.
The fair value of trading account securities equals its carrying value since
they are marked-to-market for accounting purposes. These instruments are
detailed in the statement of condition and in notes 3 and 4.
Loans:
Estimated fair values have been determined for loan portfolios with similar
financial characteristics. Loans were segregated by type such as commercial,
construction, residential mortgage, consumer and credit cards. Each loan
category was further segmented based on collateral, interest repricing and
accrual vs. non-accrual status. For variable rate loans with frequent
repricing terms and no significant change in credit risk, fair values were
based on carrying values.
Commercial loans with fixed rates were segregated in commercial real
estate, cash collateral and other. Consumer loans were segregated by type such
as personal, auto, boat, student, reserve lines and home equity loans.
Personal loans were further subdivided in mortgage-guaranteed, cash collateral
and unsecured. The fair values of fixed-rate commercial, construction and
consumer loans were estimated by discounting scheduled cash flows using
prevailing market rates for those loans at the end of 1993 and 1992,
respectively. The unfavorable fair valuation results for consumer loans were
mainly due to the deregulation, during 1992, of the maximum rates that can be
charged on consumer loans in Puerto Rico. Before this deregulation, the
maximum rate chargeable in most consumer loans was limited to 130% of the
average prime rate for the previous quarter.
For non-accruing loans, the estimated fair values were based on the
discounted value of estimated cash flows. For these loans, principal-only cash
flows were adjusted to reflect projected charge-offs. Interest cash flows were
determined based on historical collection experience.
Residential mortgage loans were valued using quoted market prices, for
those available, and market prices of similar traded loans with similar credit
ratings, interest rates and maturity dates adjusted for estimated prepayments.
For credit card loans, fair value estimates were determined by discounting the
projected income stream of the portfolio, after deducting operating expenses
and estimated credit losses.
SFAS 107 does not require, nor has the Corporation performed, a fair
valuation of its lease financing portfolio. However, for presentation purposes
only, leases are shown below with fair value equal to carrying value.
1993
--------------------------------------------
Estimated
Carrying value fair value
--------------------------------------------
(In thousands)
Commercial $2,369,514 $2,364,891
Construction 153,436 156,508
Lease financing 375,693 375,693
Mortgage 1,576,044 1,623,850
Consumer
(including credit cards) 1,872,235 1,857,068
Less: Allowance for
loan losses 133,437
--------------------------------------------
$6,213,485 $6,378,010
============================================
42
93
- - - - - ------------------------------------------------------------------------------------------------------------------------------------
1992
----------------------------------
Estimated
Carrying value fair value
----------------------------------
(In thousands)
Commercial $2,133,357 $2,122,509
Construction 172,411 175,387
Lease financing 314,905 314,905
Mortgage 790,802 815,542
Consumer
(including credit cards) 1,840,578 1,786,641
Less: Allowance for
loan losses 110,714
---------------------------------
$5,141,339 $5,214,984
=================================
Deposit Liabilities:
Under SFAS 107, the fair value of deposits with no stated maturity, such as
non-interest bearing demand deposits, savings, NOW and money market accounts,
is equal to the amount payable on demand as of December 31, 1993 and 1992,
respectively. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows. The discount rate is estimated
using the rates offered at December 31, 1993 and 1992, respectively, for
deposits with similar remaining maturities.
1993
----------------------------------
Estimated
Carrying value fair value
----------------------------------
(In thousands)
Non interest bearing
deposits $1,848,859 $1,848,859
Savings accounts 2,737,037 2,737,037
NOW and money
market accounts 1,135,043 1,135,043
Certificates of deposit 2,801,719 2,831,589
-----------------------------------
$8,522,658 $8,552,528
===================================
1992
------------------------------------
Estimated
Carrying value fair value
------------------------------------
(In thousands)
Non interest bearing
deposits $1,614,806 $1,614,806
Savings accounts 2,315,572 2,315,572
NOW and money
market accounts 1,035,955 1,035,955
Certificates of deposit 3,072,378 3,116,444
------------------------------------
$8,038,711 $8,082,777
====================================
Borrowings and Long-Term Debt:
Borrowings and Long-Term Debt, which include other short-term borrowings, notes
payable, senior debentures and subordinated notes, were valued using quoted
market rates for similar instruments at December 31, 1993 and 1992,
respectively. Included within other short-term borrowings at December 31,
1993, there are $119 million (1992 - $88 million) in commercial paper issued by
the Corporation which has been valued at its carrying amount because of the
relatively short period of time between its origination and maturity.
1993
-----------------------------------
Estimated
Carrying value fair value
-----------------------------------
(In thousands)
Other short-term
borrowings $664,173 $665,226
Notes payable 253,855 255,649
Senior debentures 30,000 31,679
Subordinated notes 62,000 64,282
1992
------------------------------------
Estimated
Carrying value fair value
------------------------------------
(In thousands)
Other short-term
borrowings $206,882 $206,991
Notes payable 90,062 93,218
Senior debentures 30,000 30,232
Subordinated notes 74,000 75,854
Interest rate swaps and caps and foreign exchange contracts:
The fair value of interest rate swap and cap agreements and foreign exchange
contracts was determined taking into account the current interest rates and
exchange rates, respectively. At December 31, 1993 and 1992, the fair value of
interest rate swaps was $795,000 and ($289,000), respectively. The fair value
of interest rate caps and foreign exchange contracts is the same as its
carrying value as of December 31, 1993 and 1992.
Commitments to Extend Credit and Standby Letters of Credit:
Commitments to extend credit were fair valued using the fees currently charged
to enter into similar agreements. For those commitments where a future stream
of fees is charged, the fair value was estimated by discounting the projected
cash flows of fees on commitments which are expected to be disbursed, based on
historical experience. The fair value of letters of credit is based on fees
currently charged on similar agreements. At December 31, 1993, the Corporation
had $1,784,501,000 and $94,154,000 in commitments to extend credit and letters
of credit, respectively (1992 - $1,410,776,000 and $77,504,000). The estimated
fair value of these financial instruments with no carrying value was $4,480,000
(1992 - $3,066,000).
NOTE 24 - SUPPLEMENTAL DISCLOSURE ON THE CONSOLIDATED
STATEMENTS OF CASH FLOWS:
During the year ended December 31, 1993, the Corporation and its subsidiaries
paid interest and income taxes amounting to $279,618,000 and $26,690,000,
respectively (1992 - $304,591,000 and $5,096,000; 1991 - $392,067,000 and
$5,943,000). In addition, loans transferred to other real estate and other
property as of December 31, 1993 amounted to $15,121,000 and $3,923,000,
respectively (1992 - $7,799,000 and $5,084,000). During 1992 the Corporation
retained $8.5 million of $94 million securitized mortgage loans.
NOTE 25 - LEASE FINANCING RECEIVABLES SOLD:
During 1991 Velco, a subsidiary, sold approximately $68,616,000 of lease
financing receivables resulting in a gain of $3,092,000 net
43
94
- - - - - --------------------------------------------------------------------------------
of related expenses and estimated losses for uncollectible receivables. Under
the servicing agreements, Velco retained the servicing of the portfolio sold
and the subsidiary Bank was appointed trustee. At December 31, 1993, the
Corporation and Velco are liable under limited recourse provisions on the
leases sold which do not exceed $4,500,000.
NOTE 26 - CONTINGENT LIABILITIES:
The Corporation is a defendant in a number of legal proceedings arising in the
normal course of business. Management believes, based on the opinion of legal
counsel, that the final disposition of these matters will not have a material
adverse effect on the Corporation's financial position or results of
operations.
NOTE 27 - BANPONCE CORPORATION (HOLDING COMPANY ONLY)
FINANCIAL INFORMATION:
The following condensed financial information presents the
financial position of the Holding Company only as of December 31, 1993 and 1992
and the results of its operations and its cash flows for the three years ended
December 31, 1993.
STATEMENTS OF CONDITION
December 31,
-------------------------
1993 1992
-------------------------
(In thousands)
ASSETS
Cash $ 859 $ 1,472
Money market investments 8,467 39,148
Investment securities 1,000 1,000
Investment in subsidiary Bank,
at equity 752,339 662,797
Investment at equity in other
subsidiaries 60,932 57,072
Advances to subsidiaries 132,275 67,767
Other assets 184 601
-------------------------
Total assets $ 956,056 $ 829,857
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Commercial paper $ 80,300 $ 39,904
Senior debentures 30,000 30,000
Accrued expenses and other
liabilities 11,561 7,834
Stockholders' equity 834,195 752,119
-------------------------
Total liablities and
stockholders' equity $ 956,056 $ 829,857
=========================
STATEMENTS OF INCOME
Year ended December 31,
---------------------------
1993 1992 1991
---------------------------
(In thousands)
Income:
Dividends from subsidiary Bank $ 16,000 $26,000 $25,850
Interest on money market and
investment securities 269 210 173
Gain on sale of securities 145
Other operating income 20
Interest on advances to
subsidiaries 10,091 3,530 2,125
-----------------------------
Total income 26,360 29,905 28,148
-----------------------------
Expenses:
Interest expense 6,464 3,509 2,475
Operating expenses 349 205 127
-----------------------------
Total expenses 6,813 3,714 2,602
-----------------------------
Income before income taxes
and equity in undistributed
earnings of subsidiaries 19,547 26,191 25,546
Income taxes 3,546 1,411 1,626
-----------------------------
Income before equity in
undistributed earnings of
subsidiaries 16,001 24,780 23,920
Equity in undistributed earnings
of subsidiaries 93,403 60,336 40,644
-----------------------------
Net income $109,404 $85,116 $64,564
=============================
44
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- - - - - ------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
Year ended December 31,
-------------------------------------------
1993 1992 1991
-------------------------------------------
(In thousands)
Cash flows from operating activities:
Net income $ 109,404 $ 85,116 $ 64,564
-------------------------------------------
Adjustments to reconcile net
income to net cash provided by
operating activities:
Equity in undistributed
earnings of subsidiaries (93,403) (60,336) (40,644)
Gain on sale of investment
securities (145)
Net decrease (increase) in
other assets 417 (525) (17)
Net increase (decrease) in
other liabilities 2,075 (1,028) 907
-------------------------------------------
Total adjustments (90,911) (62,034) (39,754)
-------------------------------------------
Net cash provided by
operating activities 18,493 23,082 24,810
-------------------------------------------
Cash flows from investing activities:
Net decrease (increase) in
money market investments 30,681 (36,648) 6,999
Sales of investment securities 3,014
Purchase of investment securities (1,000)
Investment securities received
from liquidated subsidiaries (2,870)
Capital contribution to subsidiaries (26,062) (7,989)
Advances to subsidiaries (64,508) (42,767)
-------------------------------------------
Net cash used in investing
activities (33,827) (103,463) (3,860)
-------------------------------------------
Cash flows from financing activities:
Net increase in commercial paper 40,396 39,904
Cash dividends paid (27,781) (24,112) (18,009)
Proceeds from issuance of
common stock 2,106 59,809 2,399
-------------------------------------------
Net cash provided by
(used in) financing
activities 14,721 75,601 (15,610)
-------------------------------------------
Net (decrease) increase in cash (613) (4,780) 5,340
Cash at beginning of period 1,472 6,252 912
-------------------------------------------
Cash at end of period $ 859 $ 1,472 $ 6,252
===========================================
The principal source of income for the Corporation consists of dividends
from the subsidiary Bank. As a member subject to the regulations of the Federal
Reserve Board, the subsidiary Bank must obtain the approval of the Federal
Reserve Board for any dividend if the total of all dividends declared by it in
any calendar year would exceed the total of its net profits, as defined by the
Federal Reserve Board, for that year, combined with its retained net profits
for the preceding two years. The payment of dividends by the subsidiary Bank
may also be affected by other regulatory requirements and policies, such as the
maintenance of minimum capital levels.
NOTE 28 - POPULAR INTERNATIONAL BANK, INC. (A SUBSIDIARY OF BANPONCE
CORPORATION) FINANCIAL INFORMATION:
The following summarized financial information presents the consolidated
financial position of Popular International Bank, Inc. and its subsidiaries as
of November 30, 1993 and 1992, and the results of their operations, cash flows
and changes in stockholder's equity for the year ended November 30, 1993.
Popular International Bank Inc. was organized as the holding company of BanPonce
Financial Corp. and Spring Financial Services, Inc. (a second tier subsidiary)
effective November 30, 1992.
STATEMENTS OF CONDITION
NOVEMBER 30
1993 1992
--------------------------
(In thousands)
ASSETS
Cash $ 6,895 $ 1,675
--------------------------
Money market investments 3,949 12,596
--------------------------
Loans 390,157 189,694
Less: Unearned income 15,680 9,965
Allowance for loan losses 5,323 2,394
--------------------------
369,154 177,335
--------------------------
Other assets, consisting principally
of intangible assets, including
goodwill 11,558 10,442
--------------------------
Total assets $391,556 $202,048
==========================
LIABILITIES AND STOCKHOLDER'S EQUITY
Short-term borrowings, consisting of
$89.9 million (1992 - $47.9 million)
term notes (Note 11) and a revolving
credit facility with an affiliate of
$33.8 million (1992 - $28.8 million) $123,677 $ 76,737
Notes payable (Note 12) 224,162 89,778
Other liabilities 12,445 7,115
Stockholder's equity 31,272 28,418
--------------------------
Total liabilities and
stockholder's equity $391,556 $202,048
==========================
STATEMENT OF INCOME
FOR THE YEAR ENDED NOVEMBER 30,1993
(In thousands)
Income:
Interest and fees $33,923
Other service fees 1,945
-------
Total income 35,868
-------
Expenses:
Interest expense 14,174
Provision for loan losses 4,574
Operating expenses 12,067
-------
Total expenses 30,815
-------
Income before income tax 5,053
Income tax 2,199
-------
Net income $ 2,854
=======
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STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED NOVEMBER 30,1993
(In thousands)
Cash flows from operating activities:
Net income $ 2,854
Adjustments to reconcile net income to ---------
cash provided by operating activities:
Provision for loan losses 4,574
Depreciation and amortization of
premises and equipment 151
Amortization of intangibles 1,037
Amortization of deferred loan fees
and costs 2,072
Net increase in interest receivable (853)
Net increase in other assets (1,167)
Net increase in other liabilities 5,330
---------
Total adjustments 11,144
---------
Net cash provided by operating
activities 13,998
Cash flows from investing activities:
Net decrease in money market investments 8,647
Net disbursements on loans (198,466)
Acquisition of premises and equipment (283)
---------
Net cash used in investing
activities (190,102)
---------
Cash flows from financing activities:
Net decrease in short-term borrowings 46,940
Issuance of notes payable 134,384
---------
Net cash provided by financing
activities 181,324
---------
Net increase in cash 5,220
Cash at beginning of period 1,675
---------
Cash at end of period $ 6,895
=========
STATEMENT OF CHANGES IN
STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED NOVEMBER 30,1993
(In thousands)
Preferred Stock:
Par value $25; authorized 25,000,000 shares,
none issued
Common Stock:
Par value $5; authorized 1,000,000 shares,
issued and outstanding 620,000 shares
Balance at beginning and end of the
period $ 3,100
---------
Additional paid-in capital:
Balance at beginning and end of the period 25,200
---------
Retained earnings:
Balance at beginning of the period 118
Net income 2,854
---------
Balance at end of the period 2,972
---------
Total stockholder's equity $ 31,272
=========
NOTE 29 - BANPONCE FINANCIAL CORP. (A SECOND TIER SUBSIDIARY OF BANPONCE
CORPORATION) FINANCIAL INFORMATION:
The following summarized financial information presents the consolidated
financial position of BanPonce Financial Corp. and its subsidiary as of
November 30, 1993 and 1992, and the results of their operations, cash flows
and changes in stockholder's equity for the year ended November 30, 1993 and
for the eleven-month period from inception date to November 30, 1992.
STATEMENTS OF CONDITION
NOVEMBER 30
1993 1992
------------------------------
(In thousands)
ASSETS
Cash $ 6,890 $ 1,675
---------------------------
Money market investments 2,926 11,296
---------------------------
Loans 390,157 189,694
Less: Unearned income 15,680 9,965
Allowance for loan losses 5,323 2,394
---------------------------
369,154 177,335
---------------------------
Other assets, consisting principally
of intangible assets, including
goodwill 11,531 10,424
---------------------------
Total assets $ 390,501 $ 200,730
===========================
LIABILITIES AND STOCKHOLDER'S EQUITY
Short-term borrowings, consisting of
$89.9 million (1992 - $47.9 million)
term notes (Note 11) and a revolving
credit facility with an affiliate of
$33.8 million (1992 - $28.8 million) $ 123,677 $ 76,737
Notes payable (Note 12) 224,162 89,778
Other liabilities 12,455 7,098
Stockholder's equity 30,207 27,117
---------------------------
Total liabilities and
stockholder's equity $ 390,501 $ 200,730
===========================
STATEMENTS OF INCOME
Eleven-month
Year ended period ended
November 30, November 30,
1993 1992
------------------------------
(In thousands)
Income:
Interest and fees $ 33,889 $ 17,695
Other service fees 1,945 1,921
---------------------------
Total income 35,834 19,616
---------------------------
Expenses:
Interest expense 14,174 8,151
Provision for loan losses 4,574 2,322
Operating expenses 11,797 8,243
---------------------------
Total expenses 30,545 18,716
---------------------------
Income before income tax 5,289 900
Income tax 2,199 481
---------------------------
Net income $ 3,090 $ 419
===========================
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STATEMENTS OF CASH FLOWS
Eleven-month
Year ended period ended
November 30, November 30,
1993 1992
--------------------------
(In thousands)
Cash flows from operating activities:
Net income $ 3,090 $ 419
--------------------------
Adjustments to reconcile net income to
cash provided by operating activities:
Provision for loan losses 4,574 2,322
Depreciation and amortization of
premises and equipment 151 94
Amortization of intangibles 1,037 976
Amortization of deferred loan fees
and costs 2,072 333
Net increase in interest receivable (853) (842)
Net increase in other assets (1,159) (880)
Net increase in other liabilities 5,357 3,929
--------------------------
Total adjustments 11,179 5,932
--------------------------
Net cash provided by operating
activities 14,269 6,351
--------------------------
Cash flows from investing activities:
Net decrease (increase) in money market
investments 8,370 (11,629)
Net disbursements on loans (198,465) (90,485)
Acquisition of premises and equipment (283) (190)
--------------------------
Net cash used in investing
activities (190,378) (102,304)
--------------------------
Cash flows from financing activities:
Net increase in short-term borrowings 46,940 50,737
Issuance of notes payable 134,384 19,779
Capital contribution from Parent
Company 25,000
--------------------------
Net cash provided by financing
activities 181,324 95,516
--------------------------
Net increase (decrease) in cash 5,215 (437)
Cash at beginning of period 1,675 2,112
--------------------------
Cash at end of period $ 6,890 $ 1,675
==========================
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
Eleven-month
Year ended period ended
November 30, November 30,
1993 1992
--------------------------
(In thousands)
Common Stock:
Par value $0.01; authorized 100
shares, all issued and outstanding
Balance at beginning and end of the $ --- $ ---
period --------------------------
Additional paid-in capital:
Balance at beginning of the period 27,000 2,000
Capital contribution from Parent
Company 25,000
--------------------------
Balance at end of the period 27,000 27,000
--------------------------
Retained earnings:
Balance at beginning of the period 117 (302)
Net income 3,090 419
--------------------------
Balance at end of the period 3,207 117
--------------------------
Total stockholder's equity $30,207 $27,117
==========================
NOTE 30 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
Unaudited financial data showing the results for each 1993 and 1992
quarters are presented below. In the opinion of management all adjustments
necessary for a fair presentation have been included.
1993 1992
- - - - - --------------------------------------------------------------------------------------------------------------------------------
Fourth Third Second First Fourth Third Second First
quarter quarter quarter quarter quarter quarter quarter quarter
- - - - - --------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Interest income $199,780 $196,709 $191,220 $184,427 $187,284 $188,328 $183,168 $181,574
Net interest income 126,490 125,174 122,703 117,761 115,514 112,093 107,912 104,700
Provision for loan losses 14,737 17,442 19,166 21,547 23,043 24,333 26,237 24,020
Income before income tax,
cumulative effect of
accounting changes and
dividends on preferred
stock of subsidiary Bank 38,291 36,806 35,005 22,038 26,657 24,927 24,058 24,503
Cumulative effect of
accounting changes 6,185
Net income 28,224 28,154 27,506 25,520 23,050 21,198 20,844 20,024
Per share .87 .86 .84 .78 .73 .71 .69 .66
47
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STOCKHOLDERS' INFORMATION
- - - - - --------------------------------------------------------------------------------
INDEPENDENT PUBLIC ACCOUNTANTS
Price Waterhouse
ANNUAL MEETING
The 1994 annual stockholders' meeting of BanPonce
Corporation will be held on April 22 at 2:00 p.m. at
Banco Popular Center Building in Hato Rey, Puerto Rico.
TELEPHONE (809) 765-9800
FAX (809) 759-7803
ADDITIONAL INFORMATION
Copies of the Annual Report to the Securities and
Exchange Commission on Form 10-K and any other
financial information may be obtained by writing to:
Orlando Berges
Senior Vice President and Comptroller
Banco Popular de Puerto Rico
PO Box 362708
San Juan, PR 00936-2708
48