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, 1995 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
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Not Applicable
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(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 32,866,623
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(Title of Class) (Shares Outstanding as of March 31, 1995)
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BANPONCE CORPORATION
INDEX
Part I - Financial Information Page
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Item 1. Financial Statements
Unaudited consolidated statements of condition
March 31, 1995 and December 31, 1994. 3
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Unaudited consolidated statements of income -
Quarters ended March 31, 1995 and 1994. 4
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Unaudited consolidated statements of cash
flows - Quarters ended March 31, 1995 and 1994. 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. 13-21
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Part II - Other Information
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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 - None N/A
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Item 6. Exhibits and reports on Form 8-K 22
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--- Signature 22
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BANPONCE CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED)
March 31, December 31,
(In thousands) 1995 1994
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ASSETS
Cash and due from banks $ 369,605 $ 442,316
- ---------------------------------------------------------------------------------------------------------------
Money market investments:
Federal funds sold and securities and
mortgages purchased under agreements to resell 36,030 265,000
Time deposits with other banks 15,100 100
Banker's acceptances 681 570
- ---------------------------------------------------------------------------------------------------------------
51,811 265,670
- ---------------------------------------------------------------------------------------------------------------
Investment securities held to maturity, at cost
(notes 3 and 4) 3,020,105 2,955,911
Investment securities available-for-sale,
at market (notes 3 and 4) 1,106,231 839,226
Trading account securities, at market 7,169 1,670
Loans held-for-sale 25,646 10,296
Loans (Note 4) 8,271,609 8,066,954
Less - Unearned income 303,538 295,921
Allowance for loan losses 157,467 153,798
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7,810,604 7,617,235
- ---------------------------------------------------------------------------------------------------------------
Premises and equipment 328,459 324,160
Other real estate 8,206 10,390
Customer's liabilities on acceptances 843 902
Accrued income receivable 84,183 78,765
Other assets 102,209 103,088
Intangible assets 160,472 128,729
- ---------------------------------------------------------------------------------------------------------------
$13,075,543 $12,778,358
===============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 1,778,136 $ 1,950,883
Interest bearing 7,602,298 7,061,552
- ---------------------------------------------------------------------------------------------------------------
9,380,434 9,012,435
Federal funds purchased and securities sold
under agreements to repurchase (Note 4) 1,223,317 1,438,038
Other short-term borrowings 557,162 573,841
Notes payable 593,178 459,524
Senior debentures 30,000 30,000
Acceptances outstanding 843 902
Other liabilities 202,291 211,195
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11,987,225 11,725,935
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Subordinated notes (Note 6) 50,000 50,000
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Preferred stock of Banco Popular (Note 7)
- ---------------------------------------------------------------------------------------------------------------
Stockholders' equity (Note 8):
Preferred stock 100,000 100,000
Common stock 197,200 197,029
Surplus 410,036 409,445
Retained earnings 295,895 272,458
Unrealized gains (losses) on securities available-for-sale, net of
deferred taxes (Note 2) (7,670) (19,366)
Capital reserves 42,857 42,857
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1,038,318 1,002,423
- --------------------------------------------------------------------------------------------------------------
$13,075,543 $12,778,358
===============================================================================================================
The accompanying notes are an integral part of these unaudited consolidated
financial statements
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BANPONCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Quarter ended
March 31,
(Dollars in thousands, except per common share information) 1995 1994
- ---------------------------------------------------------------------------------------------------
INTEREST INCOME:
Loans $190,550 $147,803
Money market investments 986 2,140
Investment securities 58,568 49,459
Trading account securities 115 9
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250,219 199,411
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INTEREST EXPENSE:
Deposits 77,065 54,179
Short-term borrowings 25,374 14,018
Long-term debt 10,252 5,431
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112,691 73,628
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Net interest income 137,528 125,783
Provision for loan losses 11,698 13,663
- ---------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 125,830 112,120
Service charges on deposit accounts 18,090 17,175
Other service fees 13,811 10,911
Gain on sale of investment securities 46 272
Trading account profit (loss) (50) 170
Other operating income 5,656 4,596
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163,383 145,244
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OPERATING EXPENSES:
Personnel costs:
Salaries 41,530 39,042
Profit sharing 3,327 4,991
Pension and other benefits 15,561 11,286
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60,418 55,319
Net occupancy expense 7,769 6,903
Equipment expenses 9,383 8,203
Other taxes 5,631 4,432
Professional fees 7,554 6,850
Communications 5,603 4,904
Business promotion 3,792 3,690
Printing and supplies 2,781 2,101
Other operating expenses 10,451 9,814
Amortization of intangibles 4,936 4,361
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118,318 106,577
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Income before tax and dividends on preferred stock of Banco Popular 45,065 38,667
Income tax 11,324 9,745
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Income before dividends on preferred stock of Banco Popular 33,741 28,922
Dividends on preferred stock of Banco Popular 193
- ---------------------------------------------------------------------------------------------------
NET INCOME $ 33,741 $ 28,729
===================================================================================================
Net income applicable to common stock $ 31,654 $ 28,729
===================================================================================================
EARNINGS PER COMMON SHARE (NOTE 9): $ 0.96 $ 0.88
===================================================================================================
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
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BANPONCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the quarter ended
March 31,
(In thousands) 1995 1994
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 33,741 $ 28,729
- ---------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization of premises and equipment 10,288 9,346
Provision for loan losses 11,698 13,663
Amortization of intangibles 4,936 4,361
Gain on sale of investment securities available-for-sale (46) (272)
Gain on sale of premises and equipment (771) (487)
Gain on sale of loans (1,571) (985)
Amortization of premiums and accretion of discounts on investments (700) 4,296
Amortization of deferred loan fees and costs 142 77
Net increase in postretirement benefit obligation 1,831 1,019
Net increase in trading securities (5,499) (9,630)
Net (increase) decrease in interest receivable (943) 4,339
Net decrease (increase) in other assets 8,465 (5,431)
Net decrease in interest payable (2,191) (4,199)
Net increase in current and deferred taxes 7,051 5,677
Net decrease in other liabilities (19,202) (11,731)
- ---------------------------------------------------------------------------------------------------------------
Total adjustments 13,488 10,043
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Net cash provided by operating activities 47,229 38,772
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in money market investments 213,859 105,251
Purchases of investment securities held-to-maturity (8,174,307) (2,126,928)
Maturities of investment securities held-to-maturity 8,127,681 2,002,656
Purchases of investment securities available to-maturity (327,377) (168,024)
Maturities of investment securities available-for-sale 1,894
Sales of investment securities available-for-sale 143,244 281,524
Net disbursements on loans (282,941) (246,229)
Proceeds from sale of loans 63,263 28,220
Acquisition of mortgage loan portfolios (76,700)
Decrease in loans held-for-sale 5,796
Assets acquired, net of cash (16,661) (17,557)
Acquisition of premises and equipment (18,434) (24,295)
Proceeds from sale of premises and equipment 5,850 9,736
- ---------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (258,133) (232,346)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 184,618 5,811
Net deposits acquired 163,636
Net (decrease) increase in federal funds purchased and
securities sold under agreements to repurchase (287,290) 69,725
Net (decrease) increase in other short-term borrowings (39,157) 106,714
Proceeds from issuance of notes payable 145,923 14,934
Payments of notes payable (20,003) (2)
Dividends paid (10,297) (8,183)
Proceeds from issuance of common stock 763 699
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Net cash provided by financing activities 138,193 189,698
- ---------------------------------------------------------------------------------------------------------------
Net decrease in cash and due from banks (72,711) (3,876)
Cash and due from banks at beginning of period 442,316 368,837
- ---------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of period $ 369,605 $ 364,961
===============================================================================================================
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
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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., including Banco Popular, FSB, and Pioneer Bancorp, Inc.
(second tier subsidiaries) and Equity One, Inc., and Banco Popular de Puerto
Rico and its wholly-owned subsidiaries, Popular Leasing and Rental, Inc.,
Popular Consumer Services, Inc. and Popular Mortgage, Inc., as of March 31,
1995 and December 31, 1994, and their related statements of income and cash
flows for the quarters ended March 31, 1995 and 1994. 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
Effective January 1, 1995 the Corporation adopted the Statement of Financial
Accounting Standards (SFAS) 114, "Accounting by Creditors for Impairment of a
Loan," as amended by SFAS 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures." SFAS 114 which defines impaired
loans, requires creditors to set up a valuation allowance with a corresponding
charge to the provision for loan losses for loans considered to be impaired.
The loan impairment is measured based on the present value of expected future
cash flows discounted at the loan's effective rate, on the loan's observable
market price, or the fair value of the collateral if the loan is collateral
dependent. The Corporation had $87.4 million in loans considered impaired which
required an allowance of $14.7 million as of March 31, 1995. For the first
quarter of 1995, no increase in the provision for loan losses was necessary as
a result of the impairment measurement. As allowed by SFAS 118, the Corporation
continued using current practices of recognizing income for all impaired loans.
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 are classified as held-to-maturity and are carried at cost. Those that
are bought and held principally for the purpose of selling them in the near
term, are classified as trading and continue to be reported at fair value with
unrealized gains and losses included in earnings. All other securities are
classified as available-for-sale and are 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, 1995 includes unrealized
holding losses on securities available-for-sale of $7.7 million, net of
deferred taxes, as compared with $3.1 million in unrealized gains at March 31,
1994.
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NOTE 3 - INVESTMENT SECURITIES
The maturities as of March 31, 1995 and market value for the following
investment securities are:
Investment securities held-to-maturity:
March 31,
1995 1994
Book Value Market Value Book Value Market Value
---------------------------------------------------------------
U.S. Treasury (average maturity of
1 year) $1,912,231 $1,901,025 $2,206,380 $2,203,787
Obligations of other U.S. Government
agencies and corporations (average
maturity of 2 years) 249,509 244,949 408,100 407,413
Obligations of Puerto Rico, States and
political subdivisions (average
maturity of 3 years and 3 months) 217,037 220,211 210,054 215,930
Collateralized mortgage obligations (average
maturity of 1 year and 10 months) 439,613 427,884 517,662 508,988
Mortgage-backed securities (average
maturIty of 4 years and 11 months) 146,015 141,573 67,747 65,292
Others (average maturity of 7 years
and 3 months) 55,700 55,733 39,884 39,984
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$3,020,105 $2,991,375 $3,449,827 $3,441,394
=============================================================
Investment securities available-for-sale:
March 31,
1995 1994
Amortized Cost Market Value Amortized Cost Market Value
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U.S. Treasury (average maturity
of 2 years and 2 months) $ 597,602 $ 588,337 $ 558,700 $ 562,572
Obligations of other U.S. Government
agencies and corporations (average
maturity of 2 years and 1 month) 100,559 99,573 78,776 79,056
Obligations of Puerto Rico, States and
political subdivisions (average maturity
of 3 years and 1 month) 28,430 27,872 27,135 27,135
Collateralized mortgage obligations (average
maturity of 3 year and 11 months) 52,872 52,305 18,000 18,000
Mortgage-backed securities (average
maturity of 6 years and 10 months) 250,765 250,015 19,727 19,727
Others (average maturity of 10 months) 86,473 88,129 13,688 13,688
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$1,116,701 $1,106,231 $ 716,026 $ 720,178
=============================================================
NOTE 4 - PLEDGED ASSETS
Securities and insured mortgage loans of the Corporation of $1,963,134 (1994 -
$1,921,301) 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, 1995 amounted to $18,130 and
$54,834, respectively. There are
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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.
NOTE 6 - SUBORDINATED NOTES
Subordinated notes consist of the following:
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
-------
$50,000
=======
NOTE 7 - PREFERRED STOCK OF BANCO POPULAR
Banco Popular 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 32,866,623 are issued and outstanding at March 31, 1995. 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 per
share. Authorized preferred stock is 10,000,000 shares without par value.
NOTE 9 - EARNINGS PER COMMON SHARE
Earnings per common share (EPS) are calculated based on net income applicable
to common stockholders which amounted to $31,654 and $28,729 for the quarters
ended March 31, 1995 and 1994, respectively, after deducting the dividends on
preferred stock. EPS are based on 32,866,623 and 32,756,219 average shares
outstanding during the first quarter of 1995 and 1994, respectively.
NOTE 10 - SUPPLEMENTAL DISCLOSURE ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS
During the quarter ended March 31, 1995 the Corporation paid interest and
income taxes amounting to $117,421 and $1,392, respectively (1994 - $81,843 and
$152). In addition, the loans receivable transferred to other real estate and
other property for the quarter ended March 31, 1995, amounted to $1,963 and
$859, respectively (1994 - $254 and $620). The Corporation's stockholders'
equity at March 31, 1995 includes $7.7 million, in unrealized holding losses on
securities available-for-sale, net of deferred taxes, as compared with
unrealized gains of $3.1 million at March 31, 1994.
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NOTE 11 - POPULAR INTERNATIONAL BANK, INC. (A WHOLLY-OWNED SUBSIDIARY OF
BANPONCE CORPORATION) FINANCIAL INFORMATION:
The following summarized financial information presents the unaudited
consolidated financial position of Popular International Bank, Inc. and its
wholly-owned subsidiaries BanPonce Financial Corp., Banco Popular, FSB and
Pioneer Bancorp, Inc. (second tier subsidiaries) as of March 31, 1995 and 1994,
and the results of their operations for the quarters then ended.
POPULAR INTERNATIONAL BANK, INC.
STATEMENT OF CONDITION
(In thousands)
March 31,
---------
1995 1994
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Assets:
Cash $ 29,748 $ 12,632
Money market investments 32,281 8,036
Investment securities 314,366 113,742
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Loans 907,460 640,373
Less: Unearned income 35,297 25,008
Allowance for loan losses 12,768 9,566
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859,395 605,799
Other assets, consisting principally of
intangible assets, including goodwill, net 56,503 35,956
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Total Assets $1,292,293 $776,165
========== ========
Liabilities and Stockholder's Equity:
Deposits $ 526,757 $292,705
Short-term borrowings 142,005 163,110
Notes payable 479,380 239,117
Other liabilities 23,957 20,433
Stockholder's equity 120,194 60,800
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Total Liabilities and Stockholder's Equity $1,292,293 $776,165
========== ========
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POPULAR INTERNATIONAL BANK, INC.
STATEMENT OF INCOME
(In thousands)
Quarter ended
March 31,
1995 1994
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Income:
Interest and fees $25,951 $10,859
Other service fees 2,899 1,395
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Total income 28,850 12,254
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Expenses:
Interest expense 14,625 5,281
Provision for loan losses 1,554 1,371
Operating expenses 8,044 3,259
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Total expenses 24,223 9,911
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Income before income tax 4,627 2,343
Income tax 1,886 979
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Net income $ 2,741 $ 1,364
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NOTE 12 - 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 Banco Popular, FSB and Pioneer Bancorp Inc., as of
March 31, 1995 and 1994, and the results of their operations for the quarters
then ended.
BANPONCE FINANCIAL CORP.
STATEMENT OF CONDITION
(In thousands)
March 31,
---------
1995 1994
---- ----
Assets:
Cash $ 29,713 $ 12,612
Money market investments 31,237 7,041
Investment securities 314,366 113,742
---------- --------
Loans 907,460 640,373
Less: Unearned income 35,297 25,008
Allowance for loan losses 12,768 9,566
---------- --------
859,395 605,799
Other assets, consisting principally of
intangible assets, including goodwill, net 56,494 35,931
---------- --------
Total Assets $1,291,205 $775,125
========== ========
Liabilities and Stockholder's Equity:
Deposits $ 526,757 $292,705
Other short-term borrowings 142,005 163,111
Notes payable 479,380 239,117
Other liabilities 23,957 20,433
Stockholder's equity 119,106 59,759
---------- --------
Total Liabilities and Stockholder's Equity $1,291,205 $775,125
========== ========
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BANPONCE FINANCIAL CORP.
STATEMENT OF INCOME
(In thousands)
Quarter ended
March 31,
1995 1994
------------------------
Income:
Interest and fees $25,938 $10,851
Other service fees 2,899 1,394
------- -------
Total income 28,837 12,245
------- -------
Expenses:
Interest expense 14,625 5,281
Provision for loan losses 1,554 1,371
Operating expenses 8,020 3,226
------- -------
Total expenses 24,199 9,878
------- -------
Income before income tax 4,638 2,367
Income tax 1,886 979
------- -------
Net income $ 2,752 $ 1,388
======= =======
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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 wholly-owned subsidiaries:
- - Banco Popular de Puerto Rico (Banco Popular), including its
wholly-owned subsidiaries Popular Leasing and Rental, Inc. (Popular
Leasing), Popular Consumer Services, Inc. and Popular Mortgage, Inc.
- - Vehicle Equipment Leasing Company (VELCO)
- - Popular International Bank, Inc. and its wholly-owned subsidiaries
BanPonce Financial Corp. (BanPonce Financial) including Pioneer
Bancorp, Inc. (Pioneer) and Banco Popular, FSB, second tier
subsidiaries, and Equity One, Inc. (Equity One).
Popular Mortgage, Inc. was incorporated to acquire the $123 million in assets
that were purchased on March 31, 1995 by Banco Popular from Puerto Rico Home
Mortgage. Banco Popular, FSB, is a new subsidiary of the Ban Ponce Financial
Corporation, which acquired from the Resolution Trust Corporation, in January
1995, four branches of the former Carteret Federal Savings Bank in New Jersey,
with deposits of approximately $182 million. Pioneer, a full-service banking
operation in Chicago, 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 reported for the first quarter of 1995 was $33.7 million, compared
with $28.7 million for the same quarter of 1994, an increase of $5 million or
17.4%. Net income for the last quarter of 1994 was $32.6 million. Earnings
per common share (EPS) for the quarter were $0.96, based on 32,866,623 average
shares outstanding, as compared with EPS of $0.88 for the same period in 1994,
based on 32,756,219 average shares outstanding. EPS for the last quarter of
1994 were $0.93. The Corporation's return on assets (ROA) and return on common
equity (ROE) for the first quarter were 1.06% and 13.96%, respectively, as
compared with 1.00% and 13.78%, for the first three months of 1994. For the
last quarter of 1994 these ratios were 1.03% and 13.54%, respectively.
The increase in net income for the quarter ended on March 31, 1995, as compared
with the same quarter last year, resulted from a rise of $11.7 million in net
interest income, an increase of $4.4 million in other operating income and a
decrease of $2.0 million in the provision for loan losses. These improvements
were partially offset by increases of $11.7 million and $1.6 million in
operating expenses and income taxes, respectively.
NET INTEREST INCOME
Net interest income for the quarter ended March 31,1995 increased to $137.5
million, or 9.3% higher than the $125.8 million reported in the same quarter of
1994. On a taxable equivalent basis, net interest income rose to $147.1 million
for the first quarter of 1995, from the $137.3 million reported for the same
quarter of 1994. This rise is the net effect of a $19.0 million increase due to
a higher volume of average earning assets partially offset by a $9.2 million
decrease due to a lower net interest margin on a taxable equivalent basis. For
analytical
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purposes, the interest earned on tax-exempt assets is adjusted to a taxable
equivalent basis assuming the applicable statutory income tax rates.
Average earning assets increased $1.3 billion, reaching $12.1 billion for the
first quarter of 1995 compared with $10.8 billion for the same quarter of 1994.
The rise relates primarily to higher averages of commercial, including
construction, and mortgage loans which increased $544 million and $520 million,
respectively.
The increase in commercial loans was principally achieved at Banco Popular. In
addition, commercial loans at Pioneer averaged $138 million during the first
quarter of 1995. The rise in mortgage loans was experienced at Banco Popular
and Equity One. Average consumer loans grew $262 million, mostly in home equity
and auto loans, while the leasing portfolio averaged $81 million more in 1995.
The average yield on earning assets, on a taxable equivalent basis, for the
first quarter of 1995 rose 81 basis points to 8.61%, compared with 7.80% for
the first quarter of 1994. The average yield on loans, on a taxable equivalent
basis, was 9.79% compared with 9.24% reported for the first three months of
1994. The rise in yield in commercial loans was the principal contributor to
this increase. The yield of the commercial loan portfolio for the first quarter
of 1995, on a taxable equivalent basis, was 9.03%, 160 basis points higher than
the 7.43% reported for the first quarter of 1994. This rise is directly related
to the increases in the prime rate since the first quarter of 1994. Mortgage
loans also experienced an increase of 23 basis points in their taxable
equivalent yield. The yield of the leasing portfolio remained stable during the
first quarter of 1995, averaging 12.27% compared with 12.25% in the first
quarter of 1994. The average yield on consumer loans declined 26 basis points
from 12.09% in the first quarter of 1994 to 11.83% in 1995. The latter is
related to a higher amount of secured loans within the consumer portfolio,
particularly home equity loans which carry a lower yield, and to the strong
competition in the Puerto Rico consumer loan market.
The yield on investment securities, on a taxable equivalent basis, increased to
6.39% from 5.80% reported for the first quarter of 1994. This increase is due
to the reinvestment of the proceeds from securities that matured in 1994 and
1995 during a rising rate scenario.
On the liability side, average interest bearing liabilities for the first three
months of 1995 were $9.9 billion compared with $8.9 billion for the same
period of 1994. The increase was principally the result of a higher volume of
deposits and borrowings. Pioneer and Banco Popular, FSB contributed
approximately $474 million or 68% of the total increase in average deposits.
Average interest bearing deposits increased $651 million, including a rise of
$480 million in average certificates of deposits which have been more
attractive to customers during the current higher interest rate environment.
Average savings accounts rose $128 million, while demand deposits increased by
$50 million. The average cost of interest bearing deposits for the first three
months of 1995 was 4.14% compared with 3.19% for the same period in 1994. The
increase is the result of a rise of 165 basis points on the average cost of
time deposits, an increase of 75 basis points in NOW and money market deposits
and a rise of 14 basis points in savings accounts. These rises are primarily
the result of the rising rate scenario that has prevailed through 1994 and the
beginning of 1995.
Average borrowings rose $364 million, mainly due to a higher amount of
medium-term notes issued by BanPonce Financial to finance the operations of
Equity One and a higher amount of
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borrowings by the Corporation. The average cost of short-term borrowings
increased to 5.63% from 3.28%. The average cost of long- term debt also
increased in 1995 reaching 6.51% compared with 6.07% for the same period of
1994.
The average cost of interest bearing liabilities increased 124 basis points,
from 3.33% reported for the first quarter of 1994 to 4.57% for the same period
in 1995. The total cost of funding earning assets rose to 3.73% from 2.72%
reported for the first quarter of 1994. The net interest yield, on a taxable
equivalent basis, decreased to 4.88% from 5.08% reported in the first quarter
of 1994.
Table A summarizes the results previously explained.
TABLE A
NET INTEREST INCOME (TAXABLE EQUIVALENT BASIS)
(Dollars in millions) First Quarter
- -------------------------------------------------------------------------------------------------
1995 Average 1994 Average
-----------------------------------------------------
Balance Rate Balance Rate
-----------------------------------------------------
Earning assets $12,068 8.61% $10,809 7.80%
======= =======
Financed by:
Interest
bearing funds $ 9,871 4.57% 8,856 3.33%
Non-interest
bearing funds 2,197 1,953
------- -------
TOTAL $12,068 3.73% $10,809 2.72%
======= =======
Net interest income
per books $ 137.5 $ 125.8
Taxable equivalent
adjustment 9.6 11.5
------- -------
Net interest income on a
taxable equivalent basis $ 147.1 $ 137.3
======= =======
Spread 4.04% 4.47%
Net interest yield 4.88% 5.08%
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The Corporation's provision for loan losses was $11.7 million for the first
quarter of 1995, as compared with $13.7 million for the same quarter of 1994,
decreasing $2.0 million or 14.4%.
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This decline is mainly due to an improvement in the asset quality that resulted
in a lower ratio of net charge-offs during the period. The provision for the
last quarter of 1994 was $12.5 million.
As presented in Table B, net charge-offs for the first quarter of 1995 totaled
$8.0 million or 0.41% of average loans, representing a decline of $1.6 million
or 16.6% compared with the same quarter of 1994 when net charge-offs were $9.6
million or 0.60% of average loans. These amounts compare with $8.2 million and
0.43%, respectively, for the fourth quarter of 1994.
TABLE B
Provision for Net Allowance for
Quarter Ended Loan Losses Charge-offs Loan Losses
- -------------- ------------- ----------- ------------
(In millions)
March 31, 1995 $11.7 $ 8.0 $157.5
December 31, 1994 12.5 8.2 153.8
September 30, 1994 13.5 10.5 149.4
June 30, 1994 14.0 8.6 146.4
March 31, 1994 13.7 9.6 140.9
Commercial loans net charge-offs decreased $0.9 million as compared with the
first quarter of 1994, from $5.0 million for the quarter ended on March 31,
1994 to $4.1 million in the first quarter of 1995, a reduction of 17.3%. Lease
financing and consumer loans net charge-offs decreased $0.6 million and $0.3
million, respectively. All these reductions are the result of the sustained
economic improvement and the continuous efforts in the collection of troubled
and charged-off loans. On the other hand, credit losses on mortgage loans
increased $0.2 million, mostly related to the growth in Equity One's portfolio.
At March 31, 1995, the allowance for loan losses stood at $157.5 million, or
1.97% of loans. At the same date of 1994 the allowance for loan losses amounted
to $140.9 million or 2.07% of loans. Despite the small decrease in the ratio of
allowance to loans, the Corporation continues enjoying a strong allowance
position due to the growth in the secured portion of the loan portfolio where
no significant losses are foreseen. The allowance for loan losses at December
31, 1994 was $153.8 million or 1.98% of loans.
Effective January 1, 1995 the Corporation adopted the Statement of Financial
Accounting Standards (SFAS) 114, "Accounting by Creditors for Impairment of a
Loan," as amended by SFAS 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures." SFAS 114 which defines impaired
loans, requires creditors to set up a valuation allowance with a corresponding
charge to the provision for loan losses for loans considered to be impaired.
The loan impairment is measured based on the present value of expected future
cash flows discounted at the loan's effective rate, on the loan's observable
market price, or the fair value of the collateral if the loan is collateral
dependent. The Corporation had $87.4 million in loans considered impaired which
required an allowance of $14.7 million as of March 31, 1995. For the first
quarter of 1995, no increase in the provision for loan losses was
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necessary as a result of the impairment measurement. As allowed by SFAS 118,
the Corporation continued using current practices of recognizing income for
all impaired loans.
Table C presents the movement in the allowance for loan losses and shows
selected loan loss statistics for the quarters ended March 31, 1995 and 1994.
TABLE C
ALLOWANCE FOR LOAN LOSSES AND SELECTED LOAN LOSSES STATISTICS
First Quarter
(Dollars in thousands) 1995 1994
- ---------------------------------------------------------------------------------------------
Balance at beginning of period $153,798 $133,437
Allowances purchased 3,473
Provision for loan losses 11,698 13,663
-------------------------
165,496 150,573
--------------------------
Losses charged to the allowance
Commercial 5,855 6,126
Construction 100
Lease financing 1,195 1,627
Mortgage 336 111
Consumer 6,958 7,559
-------------------------
14,344 15,523
-------------------------
Recoveries
Commercial 1,755 1,171
Construction 54 190
Lease financing 713 559
Mortgage 79
Consumer 3,714 3,979
-------------------------
6,315 5,899
-------------------------
Net loans charged-off 8,029 9,624
-------------------------
Balance at end of period $157,467 $140,949
=========================
Ratios:
Allowance for losses to loans 1.97% 2.07%
Allowance to non-performing assets 126.85 120.18
Allowance to non-performing loans 139.36 145.73
Non-performing assets to loans 1.55 1.72
Non-performing assets to total assets 0.95 0.97
Net charge-offs to average loans 0.41 0.60
Provision to net charge-offs 1.46X 1.42X
Net charge-offs earnings coverage 7.07 5.44
CREDIT QUALITY
Non-performing assets consist of past-due loans on which no interest income is
being accrued, renegotiated loans and other real estate. The Corporation
reports its non-performing assets on a more conservative basis than most U.S.
banks. The Corporation's policy is to place commercial loans on non-accrual
status if payments of principal or interest are delinquent 60
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days rather than the standard industry practice of 90 days. Financing leases,
conventional mortgage 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 when 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 when delinquent 120 days, but these
consumer loans are not customarily placed on non-accrual status prior to being
charged-off.
As of March 31, 1995, non-performing assets (NPA) amounted to $124.1 million
compared with $117.3 million at March 31, 1994. Although there was a slight
increase in the amount of NPA, the ratio of NPA to loans decreased, reaching
1.55% as of March 31, 1995, from 1.72% a year ago. NPA were $107.6 million or
1.38% of loans at December 31, 1994.
TABLE D
NPA Allowance
as a % as a %
Date NPA of Loans of NPA
- -------------------------------------------------------------------------------------------
(In millions)
March 31, 1995 $124.1 1.55% 126.9%
December 31, 1994 107.6 1.38 142.9
September 30, 1994 118.0 1.57 126.7
June 30, 1994 115.9 1.60 126.4
March 31, 1994 117.3 1.72 120.2
Non-performing loans increased $16.3 million, from $96.7 million as of March
31, 1994 to $113.0 million as of March 31, 1995. Most of the increase was
reflected in non-performing commercial and construction loans which increased
$11.3 million, mostly due to the portfolio growth and the adoption, as
previously mentioned, of SFAS 114. This statement requires that a loan for
which foreclosure of collateral is probable should continue to be accounted for
as a loan and not as an in-substance foreclosed asset. Based on this
requirement the Corporation reclassified $3.7 million from in-substance
foreclosed assets to non-performing commercial loans. In addition,
non-performing mortgage loans increased $6.6 million, partially offset by
reductions in non-performing consumer and lease financing loans of $1.1 million
and $0.5 million, respectively. The increase in non-performing mortgage loans
was mainly due to the growth in the portfolio. Renegotiated loans decreased
$5.7 million, from $8.6 million at March 31, 1994, to $2.9 million at the end
of the first quarter of 1995. Other real estate decreased, mainly due to the
reclassification of in-substance foreclosed assets mentioned above. 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
closed-end consumer loans from non-accruing loans, non-performing assets as of
March 31, 1995, amounted to $95.0 million
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or 1.19% of loans, and the allowance for loan losses would be 165.78% of
non-performing assets. At March 31, 1994 and December 31, 1994 adjusted
non-performing assets would have been $88.9 million or 1.31% of loans and $78.2
million or 1.01% of loans, respectively.
Accruing loans that are contractually past-due 90 days or more as to principal
or interest as of March 31, 1995, amounted to $9.5 million as compared with
$14.3 million at March 31, 1994, and $15.0 million at December 31, 1994.
OTHER OPERATING INCOME
Other operating income, including securities and trading gains, totaled $37.5
million for the first three months of 1995, an increase of 13.4% or $4.4
million over the $33.1 million recorded for the same period in 1994.
Service charges on deposit accounts contribute a significant portion of fee
income for the Corporation. These service charges represent the largest
category of other operating income, and amounted to $18.1 million for the first
quarter of 1995, an increase of 5.3% when compared with $17.2 million reported
for the first quarter of 1994. This increase is attributed to an increase in
the fees collected on returned checks and a higher customer deposit base due to
growth and acquisitions. The operations of Banco Popular, FSB and Pioneer
contributed $0.4 million in service charges on deposit accounts.
Other service fees rose $2.9 million, from $10.9 million reported for the first
three months of 1994 to $13.8 million for the same period of 1995, as a result
of the Corporation's continuing focus on improving non-interest revenues. The
rise in credit card fees, credit life insurance fees and other fees amounted to
$1.5 million and represented 53% of the total increase. The growing volume of
transactions at point-of-sale (POS) terminals and other electronic transactions
resulted in an increase of $0.3 million in other fees collected while Pioneer
reflected $0.4 million in this category.
Other operating income increased $1.1 million reaching $5.7 million for the
first quarter of 1995. A significant portion of this increase was attained
through a higher amount of gains recognized on the sale of daily rental units
by the leasing subsidiaries and the remainder through sales of mortgage loans
by Equity One.
During the first three months of 1995, the Corporation realized net losses on
sale of securities and trading activities of four thousand dollars compared
with gains of $0.4 million for the first three months of 1994.
OPERATING EXPENSES
Operating expenses for the first quarter of 1995 were $118.3 million compared
with $106.6 million for the same quarter in 1994, an increase of $11.7 million
or 11%.
Personnel costs, the largest category of operating expenses, accounted for
51.1% of the total operating expenses for the first three months of 1995,
reaching $60.4 million compared with 51.9% and $55.3 million, respectively, a
year earlier. Salaries increased $2.5 million or 6.4% primarily due to the
salaries of the operations of Pioneer and Banco Popular, FSB which amounted to
$1.4 million to the annual merit increases. The profit sharing expense of
$3.3 million for the first quarter of 1995 was $1.7 million below the $5.0
million recorded during 1994 as a result of an amendment to the plan in order
to encourage stronger profitability ratios. Pension and other benefits rose
$4.3 million from $11.3 million for the first quarter of 1994 to $15.6 million
for the same period in 1995. This rise reflects the implementation in
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Banco Popular of a voluntary early retirement plan for employees meeting
certain eligibility requirements. This plan, which will be available until May
1, 1995, had a total cost of $2.7 million during this quarter.
Other operating expenses, excluding personnel costs, totaled $57.9 million, a
13.0% rise from the $51.3 million reported during the first quarter of 1994.
The main increase was in other taxes, as a result of the growth in business
activity of the Corporation and higher rates for property and municipal license
taxes in Puerto Rico. Equipment expenses, basically depreciation and
communication expenses rose significantly due to the development of new
products and services, and the expansion of the electronic payment system and
POS terminals. During the first quarter of 1995, 465 additional POS terminals
and seven ATM machines were installed. A total of 4,255 POS terminals have been
installed since Banco Popular began its electronic payment system initiatives.
Other categories showing increases are: net occupancy expenses, professional
fees, printing and supplies and amortization of intangibles, mainly as a result
of the Corporation's growth and expansion costs. The operations of Pioneer and
Banco Popular, FSB added $2.5 million in other operating expenses to this
quarter.
Income tax expense for the quarter ended March 31, 1995 reached $11.3 million,
compared with $9.7 million for the same quarter of 1994. The increase is a
result of higher operating income for the quarter and an increase in the
disallowance of interest expense related to tax-exempt assets partially offset
by a reduction in the deferred tax liability for certain capital assets with
different book and tax bases that was originally recorded using the regular
income tax rate instead of the capital gains tax rate.
BALANCE SHEET COMMENTS
At March 31, 1995 the Corporation's total assets reached $13.1 billion,
reflecting an increase of 8.7% when compared with $12.0 billion at March 31,
1994. Total assets at the end of 1994 were $12.8 billion. Average assets for
the first quarter of 1995 were $12.9 billion compared with $11.6 billion for
the same period in 1994. Average assets for the year 1994 totaled $12.2
billion.
Earning assets at March 31, 1995 amounted to $12.2 billion compared with $11.2
billion at March 31, 1994 and $11.8 billion at December 31, 1994. Loans
amounted to $8.0 billion at March 31, 1995 compared with $6.8 billion a year
ago and $7.8 billion at the end of 1994. All loan categories showed increases.
Commercial and construction loans reflected a strong growth due to an overall
improvement in the economic environment and a higher market share in Puerto
Rico, increasing from $2.7 billion at March 31, 1994 to $3.1 billion at March
31, 1995, a rise of $422.0 million or 15.7%. Mortgage loans rose $460.3 million
or 25.9% as compared with March 31, 1994, particularly at Banco Popular and
Equity One. Mortgage loans amounted to $2.2 billion as of March 31, 1995,
compared with $1.8 billion at the end of the first quarter of 1994. On March
31, 1995, Banco Popular acquired approximately $123 million in assets and a
mortgage servicing portfolio of $1.8 billion from Puerto Rico Home Mortgage.
Through this acquisition, Banco Popular became Puerto Rico's largest mortgage
servicing institution. Consumer loans increased $229.3 million or 11.9% and the
lease financing portfolio rose $66.8 million or 16.2% as compared with March
31, 1994, reflecting the economic recovery and strong marketing efforts.
Total deposits were $9.4 billion at March 31, 1995, compared with $8.8 billion
at March 31, 1994, an increase of $559.3 million. Most of the increase was
attained at Banco Popular, where total deposits increased $339 million. Also,
Banco Popular, FSB, contributed to the increase with deposits of $175.4 million
at March 31, 1995. Total deposits at December 31, 1994 were $9.0 billion.
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Borrowings increased $304.9 million as compared with the prior year. This rise
is mainly due to an increase of $170 million in medium-term notes outstanding
issued by BanPonce Financial and additional debt issued by the Corporation to
finance the growth in operations of its leasing and consumer finance
subsidiaries in Puerto Rico.
Subordinated notes decreased to $50 million from $62 million outstanding a year
ago due to the prepayment in July 1994 of an 8.50% note due in 1996. Also, the
$11 million in preferred stock of Banco Popular were redeemed at par value on
June 30, 1994.
Stockholders' equity at March 31, 1995, amounted to $1.0 billion, compared with
$858.5 million at March 31, 1994. The increase is mainly due to the issuance on
June 27, 1994 of 4,000,000 shares of non-cumulative preferred stock which
raised $96.7 million in additional capital and to earnings retention. The
Corporation's stockholders' equity at March 31, 1995 includes an allowance of
$7.7 million, net of taxes, in unrealized holding losses on securities
available-for-sale, as required by SFAS 115, compared with unrealized holding
gains of $3.1 million a year ago.
Book value per common share increased to $28.55 as of March 31, 1995, compared
with $26.21 as of the same date last year. The Corporation's Tier I, total
capital and leverage ratios at March 31, 1995 were 12.31%, 13.72% and 7.31%,
respectively, as compared with 11.72%, 13.35% and 6.90%, at March 31, 1994.
Effective March 31, 1995, a portion of the deferred tax asset of the
Corporation is disallowed in the computation of Tier I capital as required by
regulatory agencies. This new requirement does not have a material effect on
the Corporation's capital ratios which continue well above the minimum
standards established by regulatory agencies.
The Corporation's dividend payout ratio to common stockholders for the quarter
ended March 31, 1995 was 25.94%. Effective for the dividend payable on July 3,
1995, the Corporation raised its quarterly dividend from $0.25 to $0.30 per
common share.
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Part II - Other Information
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit No. Description Exhibit Reference
-------------- ------------------- ---------
19 Quarterly Report to shareholders for the Exhibit "A"
period ended March 31, 1995
27 Financial Data Schedule Exhibit "B"
b) One report on Form 8-K was filed for the quarter ended March 31, 1995:
Dated: March 7, 1995
Item reported: Item 5 - Other Events
Item 7 - Financial Statements Pro-Forma, Financial
Information 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: By: /s/ DAVID H. CHAFEY, JR.
-------------- ----------------------------
David H. Chafey, Jr.
Executive Vice President
Date: By: /s/ AMILCAR L. JORDAN
-------------- ----------------------------
Amilcar L. Jordan, Esq.
Senior Vice President
& Comptroller