1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1994 Commission file number 0 - 13818
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BANPONCE CORPORATION
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(Exact name of registrant as specified in its charter)
Puerto Rico 66-041-6582
- - ------------------------ -------------------
(State of incorporation) (I.R.S. Employer
Identification No.)
Popular Center Building
209 Munoz Rivera avenue, Hato Rey
San Juan, Puerto Rico 00918
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code (809) 765-9800
--------------
Not Applicable
- - --------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Common Stock $6.00 Par value 32,756,219
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(Title of Class) (Shares Outstanding as of March 31, 1994)
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BANPONCE CORPORATION
INDEX
Part I - Financial Information Page
- - ------------------------------ ------
Item 1. Financial Statements
Unaudited consolidated statements of condition
March 31, 1994 and December 31, 1993. 3
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Unaudited consolidated statements of income
Quarters ended March 31, 1994 and 1993. 4
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Unaudited consolidated statements of cash
flows - Quarters ended March 31, 1994 and 1993. 5
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Notes to unaudited consolidated financial
statements. 6-12
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Item 2. Management's discussion and analysis of
financial condition and results of operation. 13-20
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Part II - Other Information
- - ---------------------------
Item 1. Legal proceedings - None N/A
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Item 2. Changes in securities - None N/A
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Item 3. Defaults upon senior securities - None N/A
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Item 4. Submission of matters to a vote of
security holders - None N/A
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Item 5. Other information N/A
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Item 6. Exhibits and reports on Form 8-K 21
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--- Signature 21
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3
BANPONCE CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED)
March 31, December 31,
(In thousands) 1994 1993
- - --------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 364,961 $ 368,837
- - --------------------------------------------------------------------------------------------------------------
Money market investments:
Federal funds sold and securities and
mortgages purchased under agreements to resell 152,000 247,333
Time deposits with other banks 10,500 15,100
Banker's acceptances 341 259
- - --------------------------------------------------------------------------------------------------------------
162,841 262,692
- - --------------------------------------------------------------------------------------------------------------
Investment securities held to maturity,
at cost (Notes 3 and 4) 3,450,827 3,330,798
Investment securities available for sale,
at market (Notes 3 and 4) 719,178 714,565
Trading account securities, at market 12,647 3,017
Loans (Note 4) 7,120,742 6,655,072
Less - Unearned income 305,346 308,150
Allowance for loan losses 140,949 133,437
- - --------------------------------------------------------------------------------------------------------------
6,674,447 6,213,485
- - --------------------------------------------------------------------------------------------------------------
Premises and equipment 310,319 298,089
Other real estate 11,899 12,699
Customer's liabilities on acceptances 1,378 1,392
Accrued income receivable 77,037 79,285
Other assets 104,840 95,763
Intangible assets 140,153 132,746
- - --------------------------------------------------------------------------------------------------------------
$12,030,527 $11,513,368
==============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
Non-interest bearing $ 1,799,641 $ 1,848,859
Interest bearing 7,021,533 6,673,799
- - --------------------------------------------------------------------------------------------------------------
8,821,174 8,522,658
Federal funds purchased and securities sold
under agreements to repurchase (Note 4) 1,026,458 951,733
Other short-term borrowings 773,487 664,173
Notes payable 268,786 253,855
Senior debentures 30,000 30,000
Acceptances outstanding 1,378 1,392
Other liabilities 177,697 182,362
- - --------------------------------------------------------------------------------------------------------------
11,098,980 10,606,173
- - --------------------------------------------------------------------------------------------------------------
Subordinated notes (Note 6) 62,000 62,000
- - --------------------------------------------------------------------------------------------------------------
Preferred stock of subsidiary Bank (Note 7) 11,000 11,000
- - --------------------------------------------------------------------------------------------------------------
Stockholders' equity (Note 8):
Common stock 196,537 196,395
Surplus 387,177 386,622
Retained earnings 229,148 208,607
Unrealized gains on securities available for sale (Note 2) 3,114 -0-
Capital reserves 42,571 42,571
- - --------------------------------------------------------------------------------------------------------------
858,547 834,195
- - --------------------------------------------------------------------------------------------------------------
$12,030,527 $11,513,368
==============================================================================================================
The accompanying notes are an integral part of these unaudited financial
statements
4
4
BANPONCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Quarter ended
March 31,
(Dollars in thousands, except per share information) 1994 1993
- - ------------------------------------------------------------------------------------------------------
INTEREST INCOME:
Loans $ 147,373 $ 129,018
Money market investments 2,140 1,477
Investment securities 49,459 53,893
Trading account securities 9 39
- - ------------------------------------------------------------------------------------------------------
198,981 184,427
- - ------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits 54,179 55,837
Short-term borrowings 14,018 7,338
Long-term debt 5,431 3,491
- - ------------------------------------------------------------------------------------------------------
73,628 66,666
- - ------------------------------------------------------------------------------------------------------
Net interest income 125,353 117,761
Provision for loan losses 13,663 21,547
- - ------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 111,690 96,214
Service charges on deposit accounts 17,175 15,476
Other service fees 11,895 10,372
Gain on sale of securities 272 446
Trading account profit 170 60
Other operating income 4,042 2,325
- - ------------------------------------------------------------------------------------------------------
145,244 124,893
- - ------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Personnel costs:
Salaries 39,042 36,443
Profit sharing 4,991 4,928
Pension and other benefits 11,286 15,668
- - ------------------------------------------------------------------------------------------------------
55,319 57,039
Net occupancy expense 6,903 6,275
Equipment expenses 8,203 6,333
Other taxes 4,432 3,689
Professional fees 6,850 6,158
Communications 4,904 4,768
Business promotion 3,690 3,592
Printing and supplies 2,101 1,881
Other operating expenses 9,814 9,259
Amortization of intangibles 4,361 3,860
- - ------------------------------------------------------------------------------------------------------
106,577 102,854
- - ------------------------------------------------------------------------------------------------------
Income before tax, dividends on preferred stock of subsidiary
Bank and cumulative effect of accounting changes 38,667 22,039
Income tax (Note 9) 9,745 2,511
- - ------------------------------------------------------------------------------------------------------
Income before dividends on preferred stock of subsidiary
Bank and cumulative effect of accounting changes 28,922 19,528
Dividends on preferred stock of subsidiary Bank 193 193
- - ------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting changes 28,729 19,335
Cumulative effect of accounting changes (Note 2) 6,185
- - ------------------------------------------------------------------------------------------------------
NET INCOME $ 28,729 $ 25,520
======================================================================================================
EARNINGS PER SHARE (NOTE 10):
Income before cumulative effect of accounting changes $ 0.88 $ 0.59
Cumulative effect of accounting changes (Note 2) 0.19
- - ------------------------------------------------------------------------------------------------------
Net Income $ 0.88 $ 0.78
======================================================================================================
The accompanying notes are an integral part of these unaudited financial
statements.
5
5
BANPONCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the quarter ended
(In thousands) March 31,
1994 1993
- - --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 28,729 $ 25,520
- - --------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization of premises and equipment 8,309 6,464
Provision for loan losses 13,663 21,547
Amortization of intangibles 4,361 3,860
Gain on sale of investment securities and other (272) (446)
Gain on sale of premises and equipment (487) (323)
Gain on sale of loans (300)
Amortization of premiums and accretion of discounts
on investments 4,296 1,665
Amortization of deferred loan fees and costs 77 1,164
Postretirement benefit obligation 1,019 43,602
Net increase in trading securities (9,630) (9,985)
Net decrease in interest receivable 4,339 8,036
Net increase in other assets (5,431) (7,200)
Net decrease in interest payable (4,199) (4,568)
Net increase (decrease) in current and deferred taxes 5,677 (42,388)
Net decrease in other liabilities (11,731) (8,430)
- - --------------------------------------------------------------------------------------------------------------
Total adjustments 9,991 12,698
- - --------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 38,720 38,218
- - --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in money market investments 105,251 159,104
Purchases of investment securities held to maturity (2,126,928) (904,945)
Maturities of investment securities held to maturity 2,002,656 682,450
Sales of investment securities held to maturity 1,759
Sales of investment securities available for sale 281,524 83,225
Purchases of investment securities available for sale (168,024) (58,696)
Net disbursements on loans (218,994) (48,910)
Proceeds from sale of loans 25,780
Acquisition of mortgage loan portfolios (76,700) (101,100)
Assets acquire, net of cash (17,557)
Acquisition of premises and equipment (21,771) (19,256)
Proceeds from sale of premises and equipment 8,249 2,957
- - --------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (232,294) (177,632)
- - --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 5,811 (87,103)
Net increase in federal funds purchased and
securities sold under agreements to repurchase 69,725 164,535
Net increase in other short-term borrowings 106,714 72,558
Proceeds from issuance of notes payable 14,934 9,980
Payments of notes payable (2) (21)
Dividends paid (8,183) (6,531)
Proceeds from issuance of common stock 699 470
- - --------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 189,698 153,888
- - --------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and due from banks (3,876) 14,474
Cash and due from banks at beginning of period 368,837 325,497
- - --------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of period $ 364,961 $ 339,971
==============================================================================================================
The accompanying notes are an integral part of these unaudited financial
statements.
6
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share information)
NOTE 1- CONSOLIDATION
The consolidated financial statements of BanPonce Corporation include the
balance sheet of the Corporation and its wholly-owned subsidiaries, Velco,
Popular International Bank, Inc.and its wholly-owned subsidiaries BanPonce
Financial Corp., Spring Financial Services, Inc. and Pioneer Bancorp, Inc.
(second tier subsidiaries), and Banco Popular de Puerto Rico and its
wholly-owned subsidiaries, Popular Leasing and Rental, Inc. and Popular
Consumer Services, Inc., as of March 31, 1994 and December 31, 1993, and their
related statements of income and cash flows for the quarters ended March 31,
1994 and 1993. These statements are, in the opinion of management, a fair
statement of the results of the periods presented. These results are
unaudited, but include all necessary adjustments for a fair presentation of
such results.
NOTE 2- ACCOUNTING CHANGES
During the first quarter of 1994 the Corporation adopted SFAS 115
"Accounting for Certain Investments in Debt and Equity Securities." SFAS 115
requires financial 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's stockholders' equity at March 31, 1994
includes $3.1 million, net of taxes, in unrealized holding gains on securities
available for sale.
Effective January 1, 1993, the Corporation implemented the Statement of
Financial Accounting Standards (SFAS) 106, "Employers Accounting for
Postretirement Benefits other than Pensions", and SFAS 109, "Accounting for
Income Taxes". 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, 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, in the first
quarter of 1993 rather than amortize it over future periods. The cumulative
effect, net of taxes, of this accounting change amounted to $22.7 million, or
$0.70 per share. The SFAS 109 established accounting and reporting standards
for the recognition of deferred tax assets and liabilities for the future tax
consequences of temporary differences between the amount of assets and
liabilities for financial reporting purposes and such amounts as measured by
tax laws. The cumulative effect of this change resulted in a credit to income
of $28.9 million, or $0.89 per share. This amount is net of a valuation
allowance of approximately $2.1 million related to a deferred tax asset arising
from net operating loss carryforwards for which the Corporation cannot
determine the likelihood that they will be realized.
7
7
NOTE 3 - INVESTMENT SECURITIES
The maturities as of March 31, 1994 and market value for the following
investment securities are:
Investment securities held to maturity:
March 31,
1994 1993
Book Value Market Value Book Value Market Value
--------------------------------------------------------------------
U.S. Treasury (average maturity of
11.5 months) $ 2,206,380 $ 2,203,787 $ 2,628,862 $ 2,677,195
Obligations of other U.S. Government
agencies and corporations (average
maturity of 6.9 months) 412,145 411,469 150,468 152,985
Obligations of Puerto Rico, States and
political subdivisions (average
maturity of 4 years and 3 months) 210,054 215,930 220,440 230,195
Others (average maturity of 3 years
and 2.7 months) 622,248 611,208 485,581 486,786
--------------------------------------------------------------------
$ 3,450,827 $ 3,442,394 $ 3,485,351 $ 3,547,161
====================================================================
Investment securities available for sale:
March 31,
1994 1993
Book Value Market Value Book Value Market Value
------------------------------------------------------------------
U.S. Treasury (average maturity
of 3 years and 2.3 months) $ 558,700 $ 562,572 $ 304,557 $ 328,408
Obligations of other U.S. Government
agencies and corporations (average
maturity of 3 years and 1.5 months) 116,621 116,901 95,163 96,734
Obligations of Puerto Rico, States and
political subdivisions (average maturity
of 2 years and 10.8 months) 27,135 27,135
Others (average maturity of 2 years
and 7.2 months) 12,570 12,570 8,484 8,484
------------------------------------------------------------------
$ 715,026 $ 719,178 $ 408,204 $ 433,626
==================================================================
NOTE 4- PLEDGED ASSETS
Securities and insured mortgage loans of the Corporation of $1,921,301 (1993 -
$1,574,978) are pledged to secure public and trust deposits and securities and
mortgages sold under repurchase agreements.
NOTE 5- COMMITMENTS
In the normal course of business there are letters of credit outstanding and
stand- by letters of credit which at March 31, 1994 amounted to $15,257 and
$80,455, respectively. There are also outstanding other commitments and
contingent liabilities, such as guarantees and commitments to extend credit,
which are not reflected in the accompanying financial statements. No losses
are anticipated as a result of these transactions.
8
8
NOTE 6- SUBORDINATED NOTES
Subordinated notes consist of the following:
8.50% Fixed Rate Notes, due in 1996 $12,000
8.875% Fixed Rate Notes series A, due in 1996 15,000
8.6875% Fixed Rate Notes series B, due in 1996 15,000
Floating Rate Notes series A with interest
payable at 88% of LIBID rate, due in 1996 19,000
Floating Rate Notes series B with interest
payable at 86% of LIBID rate, due in 1996 1,000
-------
$62,000
=======
NOTE 7- PREFERRED STOCK OF SUBSIDIARY BANK
As of March 31, 1994, the subsidiary Bank has 200,000 shares of authorized
preferred stock with a par value of $100, of which 110,000 are issued and
outstanding.
NOTE 8- STOCKHOLDERS' EQUITY
Authorized common stock is 90,000,000 shares with a par value of $6 per share
of which 32,756,219 are issued and outstanding at March 31, 1994.
NOTE 9- INCOME TAX
The income tax expense includes a tax provision of $68 and $187 in 1994 and
1993, respectively, related with the gains on sale of securities.
NOTE 10- EARNINGS PER SHARE BASIS
Earnings per share are based on 32,756,219 average shares outstanding during
1994 and 32,672,126 during 1993.
NOTE 11- SUPPLEMENTAL DISCLOSURE ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS
During the quarter ended March 31, 1994 the Corporation paid interest and
income taxes amounting to $81,843 and $152, respectively (1993- $70,997 and
$604). In addition, the loans receivable transferred to other real estate and
other property as of March 31, 1994, amounted to $254 and $620, respectively
(1993- $8,537 and $1,598). The Corporation's stockholders' equity at March 31,
1994 includes $4.2 million, in unrealized holding gains on securities available
for sale.
9
9
NOTE 12- POPULAR INTERNATIONAL BANK, INC. (A WHOLLY-OWNED SUBSIDIARY OF
BANPONCE CORPORATION) FINANCIAL INFORMATION:
The following summarized financial information presents the unaudited
consolidated financial position of Popular International, Inc. and its
wholly-owned subsidiaries BanPonce Financial Corp., Spring Financial Services,
Inc. and Pioneer Bancorp, Inc. (second tier subsidiaries) as of March 31, 1994
and 1993, and the results of their operations for the quarters then ended.
POPULAR INTERNATIONAL BANK, INC.
STATEMENT OF CONDITION
(In thousands)
March 31,
---------
1994 1993
---- ----
Assets:
Cash $ 12,632 $ 1,539
Money market investments 8,036 11,572
Investment securities 113,742 -0-
-------- --------
Loans 640,373 218,903
Less: Unearned income 25,008 10,846
Allowance for loan losses 9,566 2,857
-------- --------
605,799 205,200
Other assets, consisting principally of
intangible assets, including goodwill, net 35,956 10,341
-------- --------
Total assets $776,165 $228,652
======== ========
Liabilities and Stockholder's Equity:
Deposits $292,705 $ -0-
Short-term borrowings 163,110 93,740
Notes payable 239,117 99,762
Other liabilities 20,433 6,327
Stockholder's equity 60,800 28,823
-------- --------
Total liabilities and stockholder's equity $776,165 $228,652
======== ========
10
10
POPULAR INTERNATIONAL BANK, INC.
STATEMENT OF INCOME
(In thousands)
Quarter ended
March 31,
1994 1993
------------------
Income:
Interest and fees $10,859 $6,730
Other service fees 1,395 430
------- ------
Total income 12,254 7,160
------- ------
Expenses:
Interest expense 5,281 2,731
Provision for loan losses 1,371 880
Operating expenses 3,259 2,820
------- ------
Total expenses 9,911 6,431
------- ------
Income before income tax 2,343 729
Income tax 979 323
------- ------
Net income $ 1,364 $ 406
======= ======
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11
NOTE 13- BANPONCE FINANCIAL CORP. (A SECOND TIER SUBSIDIARY OF BANPONCE
CORPORATION) FINANCIAL INFORMATION:
The following summarized financial information presents the unaudited
consolidated financial position of BanPonce Financial Corp. and its
wholly-owned subsidiaries Spring Financial Services, Inc. and Pioneer Bancorp
Inc., as of March 31, 1994 and 1993, and the results of their operations for
the quarters then ended.
BANPONCE FINANCIAL CORP.
STATEMENT OF CONDITION
(In thousands)
March 31,
---------
1994 1993
---- ----
Assets:
Cash $ 12,612 $ 1,514
Money market investments 7,041 10,395
Investment securities 113,742 -0-
--------- --------
Loans 640,373 218,903
Less: Unearned income 25,008 10,846
Allowance for loan losses 9,566 2,857
-------- --------
605,799 205,200
Other assets, consisting principally of
intangible assets, including goodwill, net 35,931 10,328
-------- --------
Total assets $775,125 $227,437
======== ========
Liabilities and Stockholder's Equity:
Deposits $292,705 $ -0-
Other short-term borrowings 163,111 93,740
Notes payable 239,117 99,762
Other liabilities 20,433 6,327
Stockholder's equity 59,759 27,608
-------- --------
Total liabilities and stockholder's equity $775,125 $227,437
======== ========
12
12
BANPONCE FINANCIAL CORP.
STATEMENT OF INCOME
(In thousands)
Quarter ended
March 31,
1994 1993
------------------
Income:
Interest and fees $10,851 $6,720
Other service fees 1,394 430
------- -----
Total income 12,245 7,150
------- ------
Expenses:
Interest expense 5,281 2,731
Provision for loan losses 1,371 880
Operating expenses 3,226 2,725
------- ------
Total expenses 9,878 6,336
------- ------
Income before income tax 2,367 814
Income tax 979 323
------- ------
Net income $ 1,388 $ 491
======= ======
13
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This financial review contains an analysis of the performance of BanPonce
Corporation (the Corporation) and its subsidiaries Banco Popular de Puerto Rico
(Banco Popular), including its wholly-owned subsidiaries Popular Leasing and
Rental, Inc. (Popular Leasing) and Popular Consumer Services, Inc., Vehicle
Equipment Leasing Company, Inc. (VELCO), Popular International Bank, Inc., and
its wholly-owned subsidiaries BanPonce Financial Corp., Spring Financial
Services, Inc. (Spring) and Pioneer Bancorp, Inc. (Pioneer), second tier
subsidiaries. Pioneer was acquired on March 31, 1994.
This financial review should be read in conjunction with the unaudited
consolidated financial statements, supplemental financial data and tables
contained herein.
NET INCOME
Net income for the first quarter of 1994 was $28.7 million, compared with $25.5
million for the same period in 1993, a 12.6% increase. Net income for 1993
includes the effect of the adoption of two new accounting principles, which
resulted in $6.2 million in additional revenues for the Corporation.
On a per share basis, net earnings for the quarter were $0.88 per share, based
on 32,756,219 average shares outstanding, as compared with $0.78 per share for
the first quarter of 1993 based on 32,672,126 average shares outstanding. The
Corporation's return on assets (ROA) and return on equity (ROE) for the first
quarter of 1994 were 1.0% and 13.78%, respectively, compared with 1.03% and
13.60%, for the first quarter of 1993. For the last quarter of 1993 these
ratios were 0.98% and 13.59%.
NET INTEREST INCOME
Net interest income for the quarter ended March 31, 1994, reached $125.4
million, a 6.5% percent increase when compared with $117.8 million reported
during the same quarter in 1993. On a taxable equivalent basis, net interest
income rose to $136.9 million for the first three months of 1994 from $130.1
million for the same period in 1993. This rise is the net effect of a $19.2
million increase due to the growth and change in the composition of average
earning assets and a $12.4 million decrease due to lower taxable equivalent
yields. For analytical purposes, the interest earned on tax exempt assets is
adjusted to a "taxable equivalent" basis assuming the statutory income tax rate
of 42%.
Average earning assets increased $1,546 million, reaching $10,809 million for
the first quarter of 1994 compared with $9,263 million for the same quarter in
1993. The increase is principally related to a higher volume of average
mortgage loans by $858 million, principally related to several purchases of
mortgages realized during 1993 and to a higher origination activity in Banco
Popular and Spring. During the first quarter of 1994 the Federal Reserve raised
the federal funds rate in response to a recovering economy and anticipating
inflationary pressures. This increase in rates is expected to result in a
slow-down in the mortgage loans' refinancing activity during 1994. The increase
in average loans also reflects a 12% increase in commercial loans which rose
$286 million.
14
14
Average investment securities increased to $4,113 million from $3,822 million
in 1993. The increase in investment securities is principally related to the
acquisition of several CMO's by Banco Popular during 1993 and to a higher level
of tax exempt securities, mainly U.S. Treasury securities.
The average yield on earning assets on a taxable equivalent basis decreased 71
basis points to 7.79% compared with 8.50% in the first quarter of 1993 due to
the significant growth in assets during 1993 when interest rates reached their
lowest levels in three decades. The average yield on loans, on a taxable
equivalent basis, decreased from 9.95% reported during the first quarter of
1993 to 9.21% for the first quarter of 1994. The yield on mortgage loans
decreased 176 basis points, principally due to the significant volume of
refinancings, originations and purchases of loans realized during the low
interest rate environment that prevailed in 1993. These loans, however,
provided higher returns than most other investment alternatives available with
limited interest rate risk being assumed given the deposits acquired during
1993. Personal loans yield decreased 68 basis points due to competitive
factors in the Puerto Rico financial industry. In addition, the Corporation is
placing more emphasis in the origination of secured personal loans, such as
home equity and cash collateral loans, that carry a lower yield. The yield on
investment securities also showed a reduction, decreasing 96 basis points from
6.76% to 5.80% during the first quarter of 1994. During 1993 approximately $660
million in U.S. Treasury securities matured with an average yield of
approximately 6.99%. These securities were substituted, in part with U.S.
Treasury securities yielding approximately 4.78%.
TABLE A
NET INTEREST INCOME (TAXABLE EQUIVALENT BASIS)
(In Millions) First Quarter
- - ---------------------------------------------------------------------------------------------------
1994 Average 1993 Average
Balance Rate Balance Rate
-------------------------------------------------------
Earning assets $10,809 7.79% $9,263 8.50%
======= ======
Financed by:
Interest
bearing funds $ 8,856 3.33% $7,569 3.52%
Non-interest
bearing funds 1,953 1,694
------- ------
TOTAL $10,809 2.72% $9,263 2.88%
======= ======
Net interest income
per books $ 125.4 $117.8
Taxable equivalent
adjustment 11.5 12.3
------- ------
Net interest income on a
taxable equivalent basis $ 136.9 $130.1
======= ======
Spread 4.46% 4.98%
Net interest yield 5.07% 5.62%
15
15
Average interest bearing liabilities for the quarter ended March 31, 1994 were
$8,856 million, compared with $7,569 million during the first quarter of 1993,
a 17% increase. This rise relates principally to a higher level of short-term
borrowings by $767 million, particularly fed funds purchased and securities
sold under agreements to repurchase in response to arbitrage activities. The
increase in the average interest bearing liabilities is also due to a higher
volume of commercial paper issued by the parent company to finance its
subsidiaries' operations. Average interest bearing deposits increased $355.6
million, principally in savings, NOW and money market accounts. The average
volume of non-interest bearing deposits rose $196.5 million when compared with
the first quarter of 1993, reaching $1,757 million.
The average cost of interest bearing liabilities decreased to 3.33%, or 19
basis points, when compared with 3.52% for the first quarter of 1993. The
average cost of interest bearing deposits for the first quarter of 1994 was
3.19% compared with 3.47% for the same quarter in 1993, a decrease of 28 basis
points, mostly in saving accounts which decreased 34 basis points. During 1993
the pricing structure of these accounts was modified in accordance with the
prevailing low interest rates. Also the average cost of certificates of
deposits decreased 28 basis points. On the other hand, the average cost of
short-term borrowings increased 17 basis points as a result of the increase in
short-term rates during the first quarter. The average cost of funding earning
assets decreased to 2.72% from 2.88%. The Corporation's net interest yield, on
a taxable equivalent basis, was 5.07% compared with 5.62% for the same quarter
in 1993.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses was $13.7 million for the first quarter of 1994,
a decline of $7.8 million or 36.6% from $21.5 million provided in the same
period of 1993. The provision is also $1.0 million lower than the preceding
quarter. This decline results from a reduction in net charge-offs and an
improvement in the loan quality. Notwithstanding the reduction in the provision
for loan losses, the Corporation continues maintaining the allowance for loan
losses at a level which is considered adequate to absorb the potential credit
losses inherent in the portfolio.
As presented in table B, net charge-offs for the first quarter of 1994 totaled
$9.6 million or 0.60% of average loans, representing a decline of $6.8 million
or 41.3% as compared with a year ago when the net charge-offs were $16.4
million or 1.25% of average loans. Net charge-offs for the last quarter of 1993
amounted to $11.9 million or 0.77% of average loans.
TABLE B
Provision for Net Allowance for
Quarter Ended Loan Losses Charge-offs Loan Losses
- - -------------- ------------- ----------- -------------
March 31, 1994 $13.7 $ 9.6 $140.9
December 31, 1993 14.7 11.9 133.4
September 30, 1993 17.4 9.6 130.6
June 30, 1993 19.2 13.8 121.4
March 31, 1993 21.5 16.4 115.9
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Commercial loans net charge-offs reflected a reduction of $2.7 million or 35.4%
as compared with the same period in 1993, decreasing from $7.7 million to $5.0
million. Consumer loans net charge-offs were $3.6 million for the first quarter
of 1994 as compared with $6.1 million a year ago, a decrease of 41.1%.
Construction and lease financing net charge-offs also decreased $1.4 million
and $0.3 million, respectively, partially offset by an increase of $0.1 million
in mortgage loans net charge-offs.
At March 31, 1994, the allowance for loan losses was $140.9 million,
representing 2.07% of loans, and included Pioneer's allowance of $3.4 million.
These figures compare with $115.9 million or 2.16% at March 31, 1993 and $133.4
million and 2.10% at December 31, 1993.
Table C presents the movement in the allowance for loan losses and shows
selected loan loss statistics for the quarters ended on March 31, 1994 and
1993.
TABLE C
ALLOWANCE FOR LOAN LOSSES AND SELECTED LOAN LOSSES STATISTICS
First Quarter
(Dollars in thousands) 1994 1993
- - ----------------------------------------------------------------------------
Balance at beginning of period $133,437 $110,714
Allowances purchased 3,473
Provision for loan losses 13,663 21,547
-------------------------
150,573 132,261
-------------------------
Losses charged to the allowance
Commercial 6,126 9,226
Construction 100 1,473
Lease financing 1,627 1,879
Mortgage 111 -0-
Consumer 7,559 10,000
-------------------------
15,523 22,578
-------------------------
Recoveries
Commercial 1,171 1,559
Construction 190 194
Lease financing 559 493
Mortgage -0- -0-
Consumer 3,979 3,927
-------------------------
5,899 6,173
-------------------------
Net loans charged-off 9,624 16,405
-------------------------
Balance at end of period $140,949 $115,856
=========================
Ratios:
Allowance for losses to loans 2.07% 2.16%
Allowance to non-performing assets 120.18 81.25
Allowance to non-performing loans 145.53 102.28
Non-performing assets to loans 1.72 2.66
Non-performing assets to total assets 0.97 1.40
Net charge-offs to average loans 0.60 1.25
Provision to net charge-offs 1.42X 1.31X
Net charge-offs earnings coverage 5.44 2.66
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CREDIT QUALITY
The Corporation reports its non-performing assets on a more conservative basis
than most other 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. Financing
leases, conventional mortgages and close-end consumer loans are placed on non-
accrual status if payments are delinquent 90 days. Closed-end consumer loans
are charged-off against the allowance when delinquent 120 days. Open-end
(revolving credit) consumer loans are charged-off 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. Under the standard industry practice,
closed-end consumer loans are charged-off if delinquent 120 days, but these
consumer loans are not customarily placed on non-accrual status prior to being
charged-off.
As of March 31, 1994, non-performing assets ("NPA") which consist of past due
loans on which no interest income is being accrued, renegotiated loans, other
real estate and in-substance foreclosed assets, amounted to $117.3 million or
1.72% of loans. NPA were $142.6 million or 2.66% of loans a year earlier and
$111.2 million or 1.75% at December 31, 1993.
Non-performing loans decreased $16.5 million or 14.6% when compared with the
same quarter of 1993, of which $9.4 million were in non-performing commercial
and construction loans due to improved collection efforts of classified loans,
$7.6 million were in non-performing consumer loans and $1.2 million in lease
financing. Partially offsetting this reduction was an increase of $1.7 million
in non-performing mortgage loans, mainly due to the rise in the mortgage loan
portfolio. The Corporation was able to reduce the other real estate owned by
$9.5 million or 44.3% through successful efforts in the disposition of these
properties. As compared with December 31, 1993, non-performing assets increased
$6.1 million, of which $5.8 million represented non-performing assets of
Pioneer, acquired on March 31, 1994. Table D presents NPA for the current and
previous four quarters.
Assuming the standard industry practice of placing commercial loans on
non-accrual status when payments are past due 90 days or more and excluding the
closed-end consumer loans from non-accruing loans, non-performing assets as of
March 31, 1994, amounted to $88.9 million or 1.31% of total loans. At that
date, the allowance for loan losses as a percent of adjusted non-performing
assets was 158.5%. These two ratios compare with 1.92% and 112.7% as of March
31, 1993, and 1.27% and 165.0% at December 31, 1993.
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TABLE D
NPA Allowance
as a % as a %
Date NPA of Loans of NPA
- - -----------------------------------------------------------------------------------------
(In millions)
March 31, 1994 $117.3 1.72% 120.2%
December 31, 1993 111.2 1.75 120.0
September 30, 1993 137.5 2.24 95.0
June 30, 1993 139.7 2.42 86.9
March 31, 1993 142.6 2.66 81.3
Accruing loans which are contractually past due 90 days or more as to principal
or interest amounted to $14.3 million at March 31, 1994, compared with $16.0
million at March 31, 1993, and $15.5 million at December 31, 1993. Renegotiated
loans at the end of this period amounted to $9.1 million of which $0.5 million
are in non-accrual status. All renegotiated loans are classified as non-
performing assets.
OTHER OPERATING INCOME
Other operating income, including securities and trading gains, increased to
$33.6 million for the first quarter of 1994 compared with $28.7 million for the
same quarter in 1993.
Service charges on deposit accounts totaled $17.2 million for the first quarter
of 1994, an 11% increase from the $15.5 million recorded for the same quarter
in 1993. The increase relates primarily to the implementation of an automatic
teller machine (ATM) fee on April of 1993, an increase in commercial accounts
fees and fees related to the operations acquired during 1993.
Other service fees rose $1.5 million, from $10.4 million reported for the first
three months of 1993 to $11.9 million for the same period of 1994. Most of this
increase was attained at Spring through mortgage loans sales and servicing
activities.
Other operating income increased $1.7 million reaching $4.0 million for the
first quarter of 1994. The increase is principally the result of an adjustment
of $1.4 million recorded by Banco Popular during the first quarter of 1993 to
reduce the market value of the excess mortgage servicing recorded upon the sale
of mortgages in 1992 due to higher than expected mortgage prepayments. This
amount compares with an adjustment of only $0.5 million during the first
quarter of 1994.
The Corporation realized gains on securities and trading activities during the
first three months of 1994 of $0.4 million compared with $0.5 million for the
same period in 1993.
OPERATING EXPENSES
Operating expenses for the first quarter of 1994 reached $106.6 million
compared with $102.9 million for the same quarter in 1993.
Personnel costs decreased $1.7 million from the $57 million reported in the
first three months of 1993. This decrease is mainly related to a reduction of
$4.4 million in pension and other benefits expense due to the recognition
during the first quarter
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of 1993 of the full year expense under SFAS 106 which amounted to $5.2 million.
During the first quarter of 1994, the SFAS 106 expense amounted to $1.5
million.
On the other hand, salaries increased 7.1% to $39 million due to the salaries
of the operations acquired in New York and the Virgin Islands during the latter
part of 1993, annual merit increases and Spring's expansion in the mainland.
These increases are partially offset by the accrual of $1.2 million recognized
during the first quarter of 1993 for a special bonus paid to the employees of
Banco Popular on its 100th Anniversary.
Other operating expenses, excluding personnel costs, totaled $51.3 million, an
11.9% rise from the $45.8 million reported during the first quarter of 1993.
The major increase was in equipment expenses, basically depreciation, which is
related to the growth in the Corporation's business activity and the
development of new products and services, especially the electronic payment
system and the establishment of point of sales terminals in food stores and
other locations. Through these, the Corporation is moving from a paper- based
operation to an electronic one. Other increases were in other taxes,
professional fees and net occupancy expenses. These increases are part of the
costs of the growth that the Corporation is aiming to attain in the mainland,
Puerto Rico and the Caribbean.
Income tax expense increased significantly, from $2.5 million for the first
quarter of 1993 to $9.7 million for the first quarter of 1994. The increase
relates principally to a higher operating income for the quarter by $16.6
million and a lower amount of exempt income from securities mainly due to the
repricing of securities, as previously mentioned.
BALANCE SHEET COMMENTS
At March 31, 1994, the Corporation's total assets reached $12 billion,
reflecting an increase of 17.8% as compared with $10.2 billion at March 31,
1993. Total assets at the end of 1993 were $11.5 billion. Average total assets
for the first quarter of 1994 were $11.6 billion compared with $10.0 billion
for the same period of 1993. Average total assets for 1993 amounted to $10.7
billion.
On March 31, 1994, BanPonce Financial Corp, a subsidiary of BanPonce
Corporation, acquired Pioneer Bancorp, Inc., a full-service banking operation
in Chicago, operating two branches, with $333.7 million in assets and $292.7
million in deposits.
Earning assets at March 31, 1994, amounted to $11.2 billion compared with $9.4
billion at March 31, 1993 and $10.7 billion at December 31, 1993. Loans
amounted to $6.8 billion at March 31, 1994 compared with $5.4 billion at the
same date of prior year and $6.3 billion at the end of 1993. Most of the
increase in loans was in the mortgage loan portfolio, which grew $827 million,
from $949 million at March 31, 1993 to $1.8 billion at March 31, 1994. This
increase results mainly from the purchase of approximately $435 million in
mortgage loans in the U.S. since April 1993 and a significant mortgage loan
origination and refinancing activity during 1993 in Banco Popular and Spring.
Spring's mortgage loan portfolio increased $206.8 million since March 31, 1993.
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
from CoreStates Bank, N.A. (CoreStates). Commercial and construction loans rose
$431 million, which included $46.7 million acquired from CoreStates and
20
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$115.7 million acquired in the Pioneer transaction. The growth in the consumer
loan portfolio of $123 million was mainly due to $86 million in portfolios of
the aforementioned acquisitions. Lease financing receivables increased $77.3
million as compared with March 31, 1993.
During the first quarter of 1994 the Corporation adopted SFAS 115 "Accounting
for Certain Investments in Debt and Equity Securities". SFAS 115 requires
financial 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's stockholders' equity at March 31, 1994
includes $3.1 million, net of taxes, in unrealized holding gains on securities
available for sale.
Total deposits at March 31, 1994, amounted to $8.8 billion compared with $8.0
billion at March 31, 1993, an increase of $800 million. At December 31, 1993
total deposits amounted to $8.5 billion. Deposits at the end of this quarter
include $228.8 million acquired in Virgin Islands and $172.8 million acquired
in New York during the latter part of 1993, in addition to $292.7 million in
Pioneer's deposits.
Borrowings increased $859.5 million as compared with prior year. This rise is
mainly due to an increase of $196.7 million in federal funds purchased and
securities sold under agreements to repurchase and $494 million in other
short-term borrowings. Also, the issuance of an additional $255 million in
medium-term notes by BanPonce Financial to finance Spring's operations and an
increase of $69.2 million in commercial paper, contributed to the increase in
borrowings.
Subordinated notes decreased $12 million from the $74 million outstanding
balance as of March 31, 1993, due to the prepayment in December of 1993 of a
7.95% note.
Stockholders' equity at March 31, 1994, amounted to $858.5 million compared
with $771.6 million a year ago. This increase is related to earnings'
retention, the issuance of common stock through the Dividend Reinvestment Plan
and the adjustment recognized on the Corporation's stockholders' equity due to
the implementation of SFAS 115 during the first quarter of 1994, as previously
explained.
Book value per share increased to $26.21 as of March 31, 1994, compared with
$23.62 as of the same date last year. The market value of the Corporation's
common stock at March 31, 1994 was $31.50, compared with $29.25 at March 31,
1993. At the end of the quarter, the Corporation had a total market
capitalization of $1.03 billion. The Corporation Tier I, total capital and
leverage ratio at March 31, 1994, were 11.72%, 13.35% and 6.90%,
respectively, as compared with 12.93%, 14.90 and 7.35%, at March 31, 1993.
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Part II - Other Information
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit No. Description Exhibit Reference
-------------- ------------------- ---------
20 The financial data contained under the Exhibit "A"
caption "Financial Review" on pages 3
through 9, and the financial statements
and the notes thereto contained on pages
10 through 14 of the Quarterly Report to
shareholders for the period ending March
31, 1994, are incorporated by reference.
Included for informational purposes only,
and not for purposes of filing under the
Securities Exchanges Act of 1934, is a
copy of the complete Quarterly Report.
b) No report on Form 8-K was filed for the three months ended March
----------------------------------------------------------------
31, 1994:
---------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be filed on its behalf
by the undersigned duly authorized.
BANPONCE CORPORATION
(Registrant)
Date: May 12, 1994 By: /s/DAVID H. CHAFEY, JR.
------------ -----------------------
David H. Chafey, Jr.
Executive Vice President
Date: May 12, 1994 By: /s/ORLANDO BERGES
------------ -----------------
Orlando Berges
Senior Vice President
& Comptroller