1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 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, Puerto Rico 00918
----------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code (809) 765-9800
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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 32,784,747
- - - ---------------------------- ----------------------------------------
(Title of Class) (Shares Outstanding as of June 30, 1994)
2
BANPONCE CORPORATION
INDEX
Part I - Financial Information Page
- - - ------------------------------ ------
Item 1. Financial Statements
Unaudited consolidated statements of condition
June 30, 1994 and December 31, 1993. 3
Unaudited consolidated statements of income
quarters and semesters ended June 30, 1994
and 1993. 4
Unaudited consolidated statements of cash
flows - semesters ended June 30, 1994 and 1993. 5
Notes to unaudited consolidated financial
statements. 6-12
Item 2. Management's discussion and analysis of
financial condition and results of operation. 13-21
Part II - Other Information
- - - ---------------------------
Item 1. Legal proceedings - None N/A
Item 2. Changes in securities - None N/A
Item 3. Defaults upon senior securities - None N/A
Item 4. Submission of matters to a vote of
security holders - None N/A
Item 5. Other information N/A
Item 6. Exhibits and reports on Form 8-K 22
--- Signature 22
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3
BANPONCE CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED)
June 30, December 31,
(In thousands) 1994 1993
- - - ------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 398,894 $ 368,837
- - - ----------------------------------------------------------------------------
Money market investments:
Federal funds sold and securities and
mortgages purchased under agreements to resell 351,600 247,333
Time deposits with other banks 3,100 15,100
Banker's acceptances 251 259
- - - ----------------------------------------------------------------------------
354,951 262,692
- - - ----------------------------------------------------------------------------
Investment securities held to maturity,
at cost (Notes 3 and 4) 3,539,899 3,330,798
Investment securities available for sale,
at market (Notes 3 and 4) 724,636 714,565
Trading account securities, at market 10,399 3,017
Loans (Note 4) 7,520,107 6,655,072
Less - Unearned income 298,927 308,150
Allowance for loan losses 146,418 133,437
- - - ----------------------------------------------------------------------------
7,074,762 6,213,485
- - - ----------------------------------------------------------------------------
Premises and equipment 316,179 298,089
Other real estate 11,953 12,699
Customer's liabilities on acceptances 1,433 1,392
Accrued income receivable 77,221 79,285
Other assets 105,571 95,763
Intangible assets 135,371 132,746
- - - ----------------------------------------------------------------------------
$ 12,751,269 $11,513,368
============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
Non-interest bearing $ 2,020,249 $ 1,848,859
Interest bearing 7,048,877 6,673,799
- - - ----------------------------------------------------------------------------
9,069,126 8,522,658
Federal funds purchased and securities sold
under agreements to repurchase (Note 4) 1,356,692 951,733
Other short-term borrowings 720,880 664,173
Notes payable 358,562 253,855
Senior debentures 30,000 30,000
Acceptances outstanding 1,433 1,392
Other liabilities 182,751 182,362
- - - ----------------------------------------------------------------------------
11,719,434 10,606,173
- - - ----------------------------------------------------------------------------
Subordinated notes (Note 6) 62,000 62,000
- - - ----------------------------------------------------------------------------
Preferred stock of subsidiary Bank (Note 7) 11,000
- - - ----------------------------------------------------------------------------
Stockholders' equity (Note 8):
Preferred stock 100,000
Common stock 196,708 196,395
Surplus 384,560 386,622
Retained earnings 250,916 208,607
Unrealized gains on securities
available for sale (Note 2) (6,635)
Capital reserves 44,286 42,571
- - - ----------------------------------------------------------------------------
969,835 834,195
- - - ----------------------------------------------------------------------------
$12,751,269 $ 11,513,368
============================================================================
The accompanying notes are an integral part of these unaudited financial
statements
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4
BANPONCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Quarter ended For the Six months
June 30, ended June 30,
(Dollars in thousands, except per share information) 1994 1993 1994 1993
- - - ------------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
Loans $162,210 $132,897 $309,583 $261,915
Money market investments 1,209 1,816 3,349 3,293
Investment securities 56,081 56,396 105,540 110,289
Trading account securities 43 111 52 150
- - - ------------------------------------------------------------------------------------------------------------------------------------
219,543 191,220 418,524 375,647
- - - ------------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits 60,722 54,514 114,901 110,351
Short-term borrowings 17,283 9,906 31,301 17,244
Long-term debt 6,421 4,097 11,852 7,588
- - - ------------------------------------------------------------------------------------------------------------------------------------
84,426 68,517 158,054 135,183
- - - ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 135,117 122,703 260,470 240,464
Provision for loan losses 14,037 19,166 27,700 40,713
- - - ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 121,080 103,537 232,770 199,751
Service charges on deposit accounts 18,050 17,830 35,225 33,306
Other service fees 13,296 11,013 25,191 21,385
Gain on sale of securities 86 272 532
Trading account profit 161 164 331 224
Other operating income 3,357 2,898 7,399 5,223
- - - ------------------------------------------------------------------------------------------------------------------------------------
155,944 135,528 301,168 260,421
- - - ------------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Personnel costs:
Salaries 39,857 37,631 78,899 74,074
Profit sharing 5,624 5,486 10,615 10,414
Pension and other benefits 11,416 10,108 22,702 25,776
- - - ------------------------------------------------------------------------------------------------------------------------------------
56,897 53,225 112,216 110,264
Net occupancy expense 6,927 6,408 13,830 12,683
Equipment expenses 8,760 6,506 16,963 12,839
Other taxes 4,667 4,006 9,099 7,695
Professional fees 9,202 6,368 16,052 12,526
Communications 4,989 4,503 9,893 9,271
Business promotion 3,539 4,178 7,229 7,770
Printing and supplies 2,311 2,143 4,412 4,024
Other operating expenses 10,659 9,283 20,473 18,542
Amortization of intangibles 4,502 3,904 8,863 7,764
- - - ------------------------------------------------------------------------------------------------------------------------------------
112,453 100,524 219,030 203,378
- - - ------------------------------------------------------------------------------------------------------------------------------------
Income before tax, dividends on
preferred stock of subsidiary
Bank and cumulative effect of
accounting changes 43,491 35,004 82,158 57,043
Income tax (Note 9) 11,622 7,306 21,367 9,817
- - - ------------------------------------------------------------------------------------------------------------------------------------
Income before dividends on
preferred stock of subsidiary
Bank and cumulative effect of
accounting changes 31,869 27,698 60,791 47,226
Dividends on preferred stock of
subsidiary Bank 192 192 385 385
- - - ------------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect
of accounting changes 31,677 27,506 60,406 46,841
Cumulative effect of accounting
changes (Note 2) 6,185
NET INCOME $31,677 $27,506 $60,406 $53,026
====================================================================================================================================
EARNINGS PER SHARE (NOTE 10):
Income before cumulative effect of
accounting changes $0.96 $0.84 $1.84 $1.43
Cumulative effect of
accounting changes (Note 2) 0.19
- - - ------------------------------------------------------------------------------------------------------------------------------------
Net Income $0.96 $0.84 $1.84 $1.62
====================================================================================================================================
The accompanying notes are an integral part of these unaudited financial
statements.
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5
BANPONCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the six months ended
(In thousands) June 30,
1994 1993
- - - ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 60,406 $ 53,026
- - - --------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization of premises and equipment 18,208 12,965
Provision for loan losses 27,700 40,713
Amortization of intangibles 8,863 7,764
Gain on sale of investment securities available for sale (272) (532)
Gain on sale of premises and equipment (792) (847)
Gain on sale of loans (300)
Amortization of premiums and accretion of discounts
on investments 5,648 4,026
Amortization of deferred loan fees and costs 1,707 2,538
Net increase in postretirement benefit obligation 2,063 43,299
Net decrease in trading securities (7,382) (11,508)
Net decrease(increase) in interest receivable 4,156 (602)
Net (decrease)increase in other assets (7,329) 2,686
Net decrease in interest payable (383) (5,140)
Net increase(decrease) in current and deferred taxes 4,464 (50,142)
Net (decrease)increase in other liabilities (3,663) 17,520
- - - --------------------------------------------------------------------------------------------------------------
Total adjustments 51,188 62,440
- - - --------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 111,594 115,466
- - - --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (decrease)increase in money market investments (86,859) 31,533
Purchases of investment securities held to maturity (3,982,242) (1,663,590)
Maturities of investment securities held to maturity 3,761,409 1,334,666
Sales of investment securities held to maturity 4,064
Purchases of investment securities available for sale 228,208 58,696
Sales of investment securities available for sale (329,674) (83,095)
Net disbursements on loans (690,918) (298,152)
Proceeds from sale of loans 56,271 20,273
Acquisition of mortgage loan portfolios (76,700) (297,688)
Assets acquire, net of cash (17,557)
Acquisition of premises and equipment (32,518) (30,689)
Proceeds from sale of premises and equipment 3,542 4,690
- - - --------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (964,106) (870,494)
- - - --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 252,925 (120,452)
Net deposits acquired 5,600
Net increase in federal funds purchased and
securities sold under agreements to repurchase 399,959 710,156
Net increase in other short-term borrowings 54,107 113,521
Proceeds from issuance of notes payable 104,702 72,760
Payments of notes payable (5) (4)
Dividends paid (16,372) (13,065)
Proceeds from issuance of common stock 1,562 960
Proceeds from issuance of preferred stock 96,690
Redemption of preferred stocks (11,000)
-------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 882,569 769,476
- - - --------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and due from banks 30,057 14,448
Cash and due from banks at beginning of period 368,837 325,497
- - - --------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of period $398,894 $339,945
==============================================================================================================
The accompanying notes are an integral part of these unaudited financial
statements.
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6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share information)
NOTE 1- CONSOLIDATION
The consolidated financial statements of BanPonce Corporation include
the balance sheet of the Corporation and its wholly-owned subsidiaries, Vehicle
Equipment Leasing Company, Inc., 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 June 30, 1994 and December 31, 1993
and their related statements of income and cash flows for the semesters ended
June 30, 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 June 30, 1994
reflects $6.6 million, net of taxes, in unrealized holding losses 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 June 30, 1994 and market value for the following
investment securities are:
Investment securities held to maturity:
June 30,
1994 1993
Book Value Market Value Book Value Market Value
-------------------------------------------------------------------
(Dollars in thousands)
U.S. Treasury (average maturity of
11.2 months) $2,074,308 $2,057,542 $2,652,215 $2,690,099
Obligations of other U.S. Government
agencies and corporations (average
maturity of 1 year and 3.3 months) 545,596 541,759 173,078 175,194
Obligations of Puerto Rico, States and
political subdivisions (average
maturity of 3 years and 1.3 months) 250,499 254,603 199,381 209,845
Others (average maturity of 3 years
and 9.2 months) 669,496 649,905 562,580 566,132
-------------------------------------------------------------------
$3,539,899 $3,503,809 $3,587,254 $3,641,270
===================================================================
Investment securities available for sale:
June 30,
1994 1993
Book Value Market Value Book Value Market Value
-------------------------------------------------------------------
(Dollars in thousands)
U.S. Treasury (average maturity
of 2 years and 11.2 months) $557,115 $549,945 $304,643 $329,336
Obligations of other U.S. Government
agencies and corporations (average
maturity of 2 years and 9.4 months) 89,328 89,062 95,153 96,614
Obligations of Puerto Rico, States and
political subdivisions (average maturity
of 2 years and 8.2 months) 26,916 26,916
Others (average maturity of 3 years
and 2.7 months) 58,790 58,713 8,484 8,484
----------------------------------------------------------------------
$732,149 $724,636 $408,280 $434,434
======================================================================
NOTE 4- PLEDGED ASSETS
Securities and insured mortgage loans of the Corporation of $2,373,775 (1993 -
$1,913,205) are pledged to secure public and trust deposits and securities and
mortgages sold under repurchase agreements.
NOTE 5- COMMITMENTS
In the normal course of business there are letters of credit outstanding and
stand-by letters of credit which at June 30, 1994 amounted to $16,747 and
$80,576, respect-ively. 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.
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8
NOTE 6- SUBORDINATED NOTES
Subordinated notes consist of the following:
(Dollars in thousands)
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
The subsidiary Bank has 200,000 shares of authorized preferred stock with a
par value of $100. Of these, 110,000 were issued and outstanding until June 30,
1994, when the shares were redeemed at par value.
NOTE 8- STOCKHOLDERS' EQUITY
Authorized common stock is 90,000,000 shares with a par value of $6 per share
of which 32,784,747 were issued and outstanding at June 30, 1994. On June 27,
1994, the Corporation issued 4,000,000 shares of non-cumulative preferred stock
with a dividend rate of 8.35% and a liquidation preference value of $25.
Authorized preferred stock is 10,000,000 shares without par value.
NOTE 9 - INCOME TAX
The income tax expense includes a tax provision of $68 and $223 in 1994 and
1993, respectively, related with the gains on sale of securities. For the
quarter ended June 30, 1994 and 1993, the expense includes a provision of $22
and $36, respectively.
NOTE 10 - EARNINGS PER SHARE BASIS
Earnings per share are based on 32,770,562 average common shares outstanding
during 1994 and 32,681,001 during 1993.
NOTE 11 - SUPPLEMENTAL DISCLOSURE ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS
During the six-month period ended June 30, 1994, the Corporation paid interest
and income taxes amounting to $156,701 and $14,849, respectively (1993 -
$136,312 and $13,614). In addition, the loans receivable transferred to other
real estate and other property as of June 30, 1994, amounted to $931 and
$1,414, respectively (1993 - $13,002 and $2,507). The Corporation's
stockholders' equity at June 30, 1994 includes $6.6 million, net of taxes, in
unrealized holding losses on securities available for sale.
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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 June 30, 1994
and 1993, and the results of their operations for the six month periods then
ended.
POPULAR INTERNATIONAL BANK, INC.
STATEMENT OF CONDITION
(In thousands)
June 30,
---------
1994 1993
---- ----
Assets:
Cash $ 19,506 $ 2,806
Money market investments 12,642 5,374
Investment securities 104,882 -0-
-------- --------
Loans 710,291 261,662
Less: Unearned income 27,500 12,050
Allowance for loan losses 10,708 3,538
-------- --------
672,083 246,074
Other assets, consisting principally of
intangible assets, including goodwill, net 34,407 10,376
-------- --------
Total assets $843,520 $264,630
======== ========
Liabilities and Stockholder's Equity:
Deposits $293,055 $ -0-
Short-term borrowings 148,110 86,965
Notes payable 318,906 139,581
Other liabilities 21,676 8,593
Stockholder's equity 61,773 29,491
-------- -------
Total liabilities and stockholder's equity $843,520 $264,630
======== ========
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POPULAR INTERNATIONAL BANK, INC.
STATEMENT OF INCOME
(In thousands)
Quarter ended For the six months ended
June 30, June 30,
1994 1993 1994 1993
--------------------- ------------------------
Income:
Interest and fees $18,128 $7,875 $28,987 $14,605
Other service fees 1,813 451 3,208 881
------- ------ ------- -------
Total income 19,941 8,326 32,195 15,486
------- ------ ------- -------
Expenses:
Interest expense 8,813 3,119 14,094 5,850
Provision for loan losses 1,749 1,076 3,120 1,956
Operating expenses 6,087 2,925 9,346 5,745
------- ------ ------- -------
Total expenses 16,649 7,120 26,560 13,551
------- ------ ------- -------
Income before income tax 3,292 1,206 5,635 1,935
Income tax 1,319 540 2,298 863
------- ------ ------- -------
Net income $1,973 $ 666 $ 3,337 $ 1,072
======= ====== ======= =======
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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 June 30, 1994 and 1993, and the results of their operations for the
six month periods then ended.
BANPONCE FINANCIAL CORP.
STATEMENT OF CONDITION
(In thousands)
June 30,
--------
1994 1993
---- ----
Assets:
Cash $ 19,470 $ 2,800
Money market investments 11,642 4,258
Investment securities 104,882 -0-
-------- --------
Loans 710,291 261,662
Less: Unearned income 27,500 12,050
Allowance for loan losses 10,708 3,538
-------- --------
672,083 246,074
Other assets, consisting principally of
intangible assets, including goodwill, net 34,383 10,364
-------- --------
Total assets $842,460 $263,496
======== ========
Liabilities and Stockholder's Equity:
Deposits $293,055 $ -0-
Other short-term borrowings 148,110 86,965
Notes payable 318,906 139,581
Other liabilities 21,677 8,593
Stockholder's equity 60,712 28,357
-------- --------
Total liabilities and stockholder's equity $842,460 $263,496
======== ========
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BANPONCE FINANCIAL CORP.
STATEMENT OF INCOME
(In thousands)
Quarter ended For the six months ended
June 30, June 30,
1994 1993 1994 1993
----------------------- ----------------------------
Income:
Interest and fees $18,119 $7,867 $28,970 $14,587
Other service fees 1,814 450 3,208 881
------- ------ ------- -------
Total income 19,933 8,317 32,178 15,468
------- ------ ------- -------
Expenses:
Interest expense 8,813 3,119 14,094 5,850
Provision for loan losses 1,749 1,077 3,120 1,956
Operating expenses 6,098 2,832 9,324 5,558
------- ------ ------- -------
Total expenses 16,660 7,028 26,538 13,364
------- ------ ------- -------
Income before income tax 3,273 1,289 5,640 2,104
Income tax 1,319 540 2,298 863
------- ------ ------- -------
Net income $ 1,954 $ 749 $ 3,342 $ 1,241
======= ====== ======= =======
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), and Popular International Bank, Inc.
and its wholly owned subsidiaries BanPonce Financial Corp. (BanPonce
Financial), 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 consolidated
financial statements, supplemental financial data and tables contained herein.
NET INCOME
Net earnings increased to $31.7 million during the second quarter of
1994 from the $27.5 million reported for the second quarter of 1993. Net
earnings also increased 10% from the $28.7 million reported during the first
quarter of 1994. The rise in earnings relates principally to a higher net
interest income and a lower provision for loan losses, partially offset by
higher operating expenses.
Net earnings for the quarter were $0.96 per share, based on 32,784,747 average
shares outstanding, as compared with $0.84 per share for the second quarter of
1993, based on 32,689,778 average shares outstanding. Return on assets (ROA)
and return on equity (ROE) for the quarter ended June 30, 1994 were 1.03% and
14.59%, respectively, compared with 1.05% and 14.09% reported for the second
quarter of 1993.
For the first six months of 1994, the Corporation's net earnings rose to $60.4
million, compared with $53.0 million reported during the same period of 1993.
The results for 1993 include $6.2 million in additional revenues which resulted
from the implementation of two new accounting principles (SFAS 106 and 109).
Earnings per share for the six-month period ended June 30, 1994 were $1.84,
based on 32,770,562 average shares outstanding during the period, compared with
$1.62 per share, based on 32,681,001 average shares outstanding during the same
period of 1993. Excluding the cumulative effect of the changes in accounting
principles adopted during the first quarter of 1993, earnings per share were
$1.43 for the first six months of 1993.
ROA and ROE for the first six months of 1994 were 1.02% and 14.19%,
respectively, compared with 1.04% and 13.85% obtained during the first six
months of 1993.
NET INTEREST INCOME
Net interest income for the quarter ended June 30, 1994 increased $12.4
million, from $122.7 million for the second quarter of 1993 to $135.1 million.
On a taxable equivalent basis, net interest income rose to $146.4 million for
the second quarter of 1994, from $135.8 million for the same quarter of 1993.
The improved net interest
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14
income is the net effect of a $23.1 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 $1.8 billion, reaching $11.4 billion
for the second quarter of 1994, compared with $9.7 billion for the same quarter
of 1993. This increase was mainly in mortgage and commercial loans. The
increase in mortgage loans was due to the significant mortgage loan origination
and refinancing activity during 1993 and the beginning of 1994 in Banco Popular
and Spring, and the acquisition of several mortgage loan portfolios in the U.S.
mainland. Approximately $435 million in mortgage loans have been purchased
during the fifteen-month period ended on March 31, 1994. As a result of these,
average mortgage loans almost doubled, reaching $1.9 billion for the second
quarter of 1994 compared with $1.0 billion for the second quarter of 1993.
Average commercial and construction loans increased $492 million, from $2.7
billion for the second quarter of 1993 to $3.2 billion for the second quarter
of 1994. Also, average investment securities increased from $4.0 billion for
the second quarter of 1993 to $4.4 billion for the second quarter of 1994. The
increase resulted mainly from higher levels of mortgage pass-through securities
acquired principally for the New York operations of Banco Popular and higher
levels of tax exempt securities.
The average yield on earning assets, on a taxable equivalent basis, decreased
36 basis points to 8.07%, compared with 8.43% for the second quarter of 1993.
The average yield on loans, on a taxable equivalent basis, was 9.41% for the
second quarter of 1994, a decrease of 43 basis points when compared with 9.84%
reported for the same quarter in 1993. This is principally due to the
significant volume of refinancings, originations and purchases of mortgage
loans realized during the low interest rate environment that prevailed in 1993
and the beginning of 1994, which resulted in a reduction of 142 basis points in
the taxable equivalent yield of the mortgage loan portfolio. On the other
hand, the yield on commercial loans increased as a result of the repricing of
approximately 60% of the commercial loan portfolio whose yield floats with the
prime rate. The prime rate has increased 125 basis points since March 1994.
The yield on investment securities decreased from 6.76% reported during the
second quarter of 1993 to 6.01% in 1994, due to the maturity and replacement
of higher yielding tax-free securities during a lower interest rate
environment.
Average interest bearing liabilities for the quarter ended June 30, 1994 were
$9.4 billion, an 18.8% increase when compared with $7.9 billion reported for
the same quarter in 1993. For the quarter ended June 30, 1994, average
short-term borrowings were $1.8 billion, an increase of $555 million when
compared with the $1.3 billion reported during the same quarter in 1993. This
increase is mostly related to a higher volume of arbitrage activities performed
by Banco Popular and a higher level of medium-term notes issued by BanPonce
Financial to finance Spring's operations. Interest-bearing deposits rose $750
million or 11.7%, mostly in savings accounts which increased $455 million. Non-
interest bearing deposits also increased by $245 million or 15.6% to $1.8
billion. The increase in total deposits relates primarily to the expansion of
the Corporation's activities during the latter part of 1993 and the beginning
of 1994. The acquisition of Pioneer on March 31, 1994 added
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15
$292.7 million in deposits and other deposit acquisitions realized during the
last six months of 1993 in New York and the Virgin Islands added $401.6
million.
The average cost of interest bearing liabilities increased 13 basis points,
from 3.45% for the second quarter of 1993 to 3.58% for the second quarter of
1994. The average cost of interest bearing deposits for the second quarter of
1994 remained stable at 3.38%, compared with 3.39% for the same quarter of
1993. However, the average cost of short-term borrowings increased 67 basis
points when compared to the average cost reported during the second quarter of
1993. The rise in the average cost of funds resulted from the higher interest
rate scenario that prevailed during the second quarter of 1994. The net
interest yield, on a taxable equivalent basis, was 5.12% for the second quarter
of 1994, decreasing 48 basis points from 5.60% reported for the quarter ended
June 30, 1993. For the first quarter of 1994, the net interest yield, on a
taxable equivalent basis, was 5.07%.
For the six-month period ended June 30, 1994, net interest income amounted to
$260.5 million, an increase of $20 million from the $240.5 million reported for
the same period in 1993. On a taxable equivalent basis, net interest income
rose to $283.3 million for such period, from $265.8 million for the same period
in 1993. This rise is composed of a $42.4 million increase due to the growth
and change in the composition of average earning assets and a $24.9 million
decrease due to lower after tax yields.
TABLE A
NET INTEREST INCOME (TAXABLE EQUIVALENT BASIS)
(In Millions)
First Six Months
1994 Average 1993 Average
Balance Rate Balance Rate
---------------------------------------------------------
Earning assets $11,131 7.93% $9,479 8.46%
======= ======
Financed by:
Interest
bearing funds $ 9,149 3.45% $7,758 3.48%
Non-interest
bearing funds 1,982 1,721
------- ------
TOTAL $11,131 2.84% $9,479 2.85%
======= ======
Net interest income
per books $ 260.5 $240.5
Taxable equivalent
adjustment 22.8 25.3
------- ------
Net interest income on a
taxable equivalent basis $ 283.3 $265.8
======= ======
Spread 4.48% 4.98%
Net interest yield 5.09% 5.61%
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As presented in Table A, the yield on earning assets, on a taxable equivalent
basis, declined 53 basis points, from 8.46% for the first half of 1993 to 7.93%
for the same period in 1994. The Corporation's average cost of interest bearing
liabilities for the six-month periods ended June 30, 1994 and 1993 was 3.45%
and 3.48%, respectively. The net interest yield, on a taxable equivalent basis,
was 5.09% for the first six months of 1994 compared with 5.61% for the same
period in 1993.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The Corporation's provision for loan losses was $14 million for the
quarter ended June 30, 1994, compared with $19.2 million for the same quarter
of 1993, a reduction of $5.2 million or 26.8%. For the six months ended June
30, 1994, the provision for loan losses decreased $13.0 million or 32%, from
$40.7 million for the same period of 1993 to $27.7 million. This reduction is
the result of an improvement in loan quality and the reduced level of
charge-offs in the portfolios. Notwithstanding the reduction in the provision
for loan losses, the Corporation continues maintaining an adequate allowance
level.
As presented in Table B, net charge-offs for the second quarter of 1994 totaled
$8.6 million or 0.49% of average loans, as compared with $13.8 million or 1.01%
for the same quarter in 1993 and $9.6 million or 0.60% for the first quarter of
1994. Consumer loans net charge-offs decreased 46.8% for the quarter ended June
30, 1994, from $4.3 million for the second quarter of 1993 to $2.3 million.
Lease financing and construction loans net charge-offs also showed a decrease
of $1.7 million and $1.2 million, respectively, as compared with the same
period of 1993. Commercial loans net charge-offs reflected a slight reduction
of $0.5 million, while mortgage loans net charge-offs increased $0.2 million.
TABLE B
Provision for Net Allowance for
Quarter Ended Loan Losses Charge-offs Loan Losses
- - - ---------------------------------------------------------------------------------------------
(In Millions)
June 30, 1994 $14.0 $ 8.6 $146.4
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
For the six-month period ended June 30, 1994, net charge-offs amounted to $18.2
million, reflecting a decline of 39.9% as compared with $30.3 million recorded
a year ago. For these periods net charge-offs as a percentage of average loans
were 0.54% and 1.13%, respectively. Consumer loans net charge-offs decreased
$4.5 million as compared with the first six months of 1993, while commercial,
construction and lease financing net charge-offs declined $3.2 million, $2.6
million and $2.1 million, respectively.
At June 30, 1994, the allowance for loan losses was $146.4 million,
representing 2.03% of loans, as compared with $121.4 million or 2.10% at June
30, 1993. At March 31, 1994 the allowance was $140.9 million or 2.07% of loans.
Although the ratio of allowance to loans shows a small decrease, the
Corporation continues enjoying a strong allowance position since most of the
increase in loans has been experienced
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in the mortgage loan portfolio where the Corporation, based on its historical
experience and expected economic conditions, does not foresee significant
losses.
Table C presents the movement in the allowance for loan losses and shows
selected loan loss statistics for the three and six-month periods ended June
30, 1994 and 1993.
TABLE C
ALLOWANCE FOR LOAN LOSSES AND SELECTED LOAN LOSSES STATISTICS
Second Quarter Year To Date
(Dollars in thousands) 1994 1993 1994 1993
- - - ------------------------------------------------------------------------------------------------------------------
Balance at beginning of period $140,949 $115,856 $133,437 $110,714
Allowances purchased 226 3,473 226
Provision for loan losses 14,037 19,166 27,700 40,713
154,986 135,248 164,610 151,653
Losses charged to the allowance
Commercial 7,285 7,071 13,411 16,297
Construction 100 1,452 200 2,925
Lease financing 1,731 3,094 3,358 4,973
Mortgage 227 338
Consumer 6,826 8,892 14,385 18,892
--------------------------------------------------------------
16,169 20,509 31,692 43,087
--------------------------------------------------------------
Recoveries
Commercial 2,140 1,435 3,311 2,994
Construction 41 150 231 344
Lease financing 896 512 1,455 1,005
Mortgage
Consumer 4,524 4,566 8,503 8,493
--------------------------------------------------------------
7,601 6,663 13,500 12,836
--------------------------------------------------------------
Net loans charged-off 8,568 13,846 18,192 30,251
--------------------------------------------------------------
Balance at end of period $146,418 $121,402 $146,418 $121,402
==============================================================
Ratios:
Allowance for losses to loans 2.03% 2.10% 2.03% 2.10%
Allowance to non-performing assets 126.35 86.90 126.35 86.90
Allowance to non-performing loans 153.26 105.36 153.26 105.36
Non-performing assets to loans 1.60 2.42 1.60 2.42
Non-performing assets to total assets 0.91 1.29 0.91 1.29
Net charge-offs to average loans 0.49 1.01 0.54 1.13
Provision to net charge-offs 1.64x 1.38x 1.52x 1.35x
Net charge-offs earnings coverage 6.71 3.91 6.04 3.23
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 closed-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
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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 June 30, 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 $115.9 million or
1.60% of loans. NPA were $139.7 million or 2.42% of loans a year earlier and
$117.3 million or 1.72% at March 31, 1994.
Non-performing assets decreased $23.8 million or 17% when compared with June
30, 1993. Most of this reduction was in the non-performing commercial and
construction loans, which decreased $13.1 million due to improved collection
efforts of classified loans, and in the non-performing consumer loans which
declined $7.1 million. The Corporation was also able to reduce the other real
estate owned by $6.1 million through successful efforts in the disposition of
these properties. 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
June 30, 1994, amounted to $83.3 million or 1.15% of total loans. At that date,
the allowance for loan losses as a percent of adjusted non-performing assets
was 175.8%. These two ratios compare with 1.79% and 117.4% as of June 30, 1993,
and 1.31% and 158.5% at March 31, 1994.
TABLE D
- - - ----------------------------------------------------------------------------------------------
NPA Allowance
as a % as a %
Date NPA of Loans of NPA
- - - ----------------------------------------------------------------------------------------------
(In millions)
June 30, 1994 $115.9 1.60% 126.4%
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
Accruing loans which are contractually past due 90 days or more as to principal
or interest amounted to $13.2 million at June 30, 1994, compared with $20.0
million at June 30, 1993, and $14.3 million at March 31, 1994. Renegotiated
loans at the end of this period amounted to $9.0 million of which $0.6 million
were 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
$34.9 million for the second quarter of 1994 from $32.0 million reported for
the same period in 1993. For the six-month periods ended June 30, 1994 and
1993, these revenues were $68.4 million and $60.7 million, respectively.
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Of the total increase of $2.9 million in other income for the quarter, $2.3
million correspond to the rise in other service fees. Most of this increase was
achieved through mortgage loan sales and servicing activities performed by
Spring. Also, there was an increase in credit card fees and fees collected on
new services, such as the rental of point of sales terminals to retail outlets
and the sale of investment products at selected branches. For the first six
months of 1994, other service fees totaled $25.2 million, compared with $21.4
million for the same period of 1993.
Service charges on deposit accounts totaled $18.1 million for the three-month
period ended June 30, 1994, compared with $17.8 million reported during the
same period in 1993. For the six-month period ended June 30, 1994, service
charges on deposit accounts totaled $35.2 million, increasing $1.9 million from
the $33.3 million reported for the same period in 1993. The increase is mostly
related to the automated teller machine fees which were implemented in April of
1993 and to higher revenues on commercial checking accounts.
Other operating income reached $3.4 million for the second quarter of 1994,
compared with $2.9 million for the second quarter of 1993. For the six-month
periods ended June 30, 1994 and 1993, other operating income amounted to $7.4
million and $5.2 million, respectively. The increase relates primarily to an
adjustment of $1.4 million recorded during the first quarter of 1993 due to a
reduction in the market value of the excess mortgage servicing that resulted
from the sale of mortgages in 1992, compared with an adjustment of only $0.5
million in 1994. Also, the income of the leasing subsidiaries increased as a
result of an increase in volume.
OPERATING EXPENSES
Operating expenses for the second quarter of 1994 were $112.4 million compared
with $100.5 million for the same period of 1993, an increase of $11.9 million.
For the first six months of 1994, operating expenses increased to $219.0
million from $203.4 million for the same period in 1993.
Of the total increase in operating expenses for the first six months of 1994,
approximately $2 million is attributed to the operations acquired in September
of 1993 in the U.S. and British Virgin Islands and $2.6 million corresponds to
Pioneer, which was acquired on March 31, 1994.
Personnel costs increased to $56.9 million for the three-month period ended
June 30, 1994, a 6.9% increase when compared with $53.2 million reported during
the same period of 1993. For the six-month period ended June 30, 1994, these
expenses were $112.2 million compared with $110.3 million for the same period
of 1993. The increase in personnel costs for the first six months of 1994 is
due to the salaries of the acquired operations, amounting to approximately $1.7
million, the normal annual merit increases and the business expansion of
Spring. These increases are partially offset by the accrual of $2.4 million
recognized during the first six months of 1993 for a special bonus paid to the
employees of Banco Popular on its 100th anniversary.
Other operating expenses, excluding personnel costs, increased $8.3 million,
reaching $55.6 million for the quarter ended June 30, 1994, compared with $47.3
million for the same quarter in 1993. For the six-month period ended June 30,
1994, other operating expenses increased to $106.8 million from $93.1 million
reported for the same period in 1993. The major increases are reflected in
equipment expenses
20
20
and professional fees. Both are related to the efforts of the Corporation to
move from a paper-based operation to an electronic one and to provide a broader
variety of convenient products and services to customers. Also, the business
expansion has resulted in increases in net occupancy expense and amortization
of intangibles.
Income tax expense for the quarter ended June 30, 1994, reached $11.6 million,
compared with $7.3 million for the same quarter in 1993. The increase results
mainly from a higher operating income and a lower amount of exempt income from
securities, mainly due to the repricing of securities, as previously mentioned.
For the six-month period ended June 30, 1994, income tax expense reached $21.4
million, compared with $9.8 million reported for the same period in 1993.
BALANCE SHEET COMMENTS
The Corporation's total assets amounted to $12.8 billion at June 30, 1994 as
compared with $10.9 billion a year earlier, an increase of 17.3%. Total assets
at the end of 1993 were $11.5 billion. Average total assets for the first six
months of 1994 were $12.0 billion compared with $10.2 billion for the same
period of 1993. The Corporation's business expansion is the principal reason
for the increase in assets. The most recent one was on March 31, 1994 with the
acquisition of Pioneer, a full-service bank located in Chicago, operating two
branches with $333.7 million in assets and $292.7 million in deposits, at that
date.
At June 30, 1994, earning assets totaled $11.9 billion, compared with $10
billion at June 30, 1993. Earning assets at December 31, 1993 were $10.7
billion. Loans amounted to $7.2 billion at the end of the second quarter of
1994, compared with $5.8 billion at the same date in 1993 and $6.3 billion at
the end of 1993. Most of the increase in loans was recorded in the mortgage
loan portfolio, as previously explained, which grew $712 million, from $1.2
billion at June 30, 1993 to $1.9 billion at June 30, 1994. Furthermore,
mortgage loan figures include $54.8 million in loans acquired on September 30,
1993 as part of the operations purchased in the Virgin Islands. Commercial and
construction loans rose $499 million, mainly due to an increase of $400.5
million in Banco Popular's commercial loan portfolio and $115.7 million in
commercial loans acquired in Pioneer's transaction. The growth in the consumer
loan portfolio of $154.9 million was mainly due to the addition of $86 million
in portfolios in the aforementioned acquisitions and an increase in the
business activity due to the improvement in the economy. Lease financing
receivables increased $75.5 million as compared with June 30, 1993.
Total deposits were $9.1 billion at June 30, 1994, compared with $7.9 billion
at the same date of 1993. At December 31, 1993, total deposits amounted to $8.5
billion. The increase, when compared with June 1993, was mainly due to the
deposits acquired in the Pioneer transaction, which totaled $292.7 million, and
the deposits purchased during the last six months of 1993 in New York and
Virgin Islands, which amounted to $401.6 million.
Borrowings increased $577.5 million as compared with June 30, 1993. This rise
is mainly due to an increase of $381.8 million in federal funds purchased,
securities sold under agreements to repurchase and other short-term borrowings.
In addition, BanPonce Financial issued $285 million in additional medium-term
notes to finance Spring's operations.
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Subordinated notes decreased to $62 million from the $74 million outstanding a
year ago, due to the prepayment in December of 1993 of a 7.95% note. In
addition, the $11 million in preferred stock of Banco Popular were redeemed at
par value on June 30, 1994.
Stockholders' equity at June 30, 1994, amounted to $969.8 million, compared
with $793.0 million at June 30, 1993. On June 27, 1994, the Corporation issued
4,000,000 shares of non-cumulative preferred stock with a dividend rate of
8.35% and a liquidation preference value of $25. Through this issuance the
Corporation raised $96.7 million in additional capital which will allow it to
continue evaluating and undertaking business acquisitions while maintaining a
solid capital position. In addition to the issuance of the preferred stock, the
Corporation increased its stockholders' equity through earnings' retention and
through the issuance of common stock under the Dividend Reinvestment Plan.
Stockholders' equity at the end of the second quarter of 1994 includes an
allowance of $6.6 million, net of taxes, for unrealized losses on securities
available for sale, due to the implementation in the first quarter of 1994 of
SFAS 115 "Accounting for Certain Investments in Debt and Equity Securities".
Book value per common share rose to $26.53 at June 30, 1994 from $24.26 at June
30, 1993. The market value of the Corporation's common stock at June 30, 1994
was $31.25, compared with $26.25 at the same date last year. At the end of the
first six months of 1994, the Corporation had a total market capitalization of
$1.02 billion. The Corporation's Tier I, total capital and leverage ratios at
June 30, 1994, were 12.66%, 14.11% and 7.43%, respectively, as compared with
12.62%, 14.55% and 7.24%, at June 30, 1993.
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Part II - Other Information
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit No. Description Exhibit Reference
19 The financial data contained under the Exhibit "A"
caption "Financial Review" on pages 4
through 10, and the financial statements and the
notes thereto contained on pages 11 through 15 of the
Quarterly Report to shareholders for the period
ending June 30, 1994, are 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.
27 Financial Data Schedule Exhibit "B"
b) One report on Form 8-K was filed for the three months ended June 30, 1994:
Dated: June 21, 1994
Item reported: Item 7 - Financial Statements and Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be filed on its behalf by the
undersigned duly authorized.
BANPONCE CORPORATION
--------------------
(Registrant)
Date: 8/11/94 By: /s/ David H. Chafey, Jr.
------------- ----------------------------
David H. Chafey, Jr.
Executive Vice President
Date: 8/11/94 By: /s/ Orlando Berges
------------- ----------------------------
Orlando Berges
Senior Vice President
& Comptroller