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EXHIBIT A
TO OUR STOCKHOLDERS
BanPonce Corporation's (the Corporation) earnings grew $6.6 million or 20.8% as
the results for the third quarter of 1995 reflect net earnings of $38.3 million
or $1.10 per common share, compared with $31.7 million or $0.90 per common
share for the third quarter of 1994. Return on assets (ROA) and return on
common equity (ROE) for the quarter were 1.03% and 14.55%, respectively,
compared with 1.02% and 13.26% for the third quarter of 1994. These
improvements reflected the positive effects of the growth in earning assets and
other income, which were partially offset by increases in the provision for
loan losses and operating expenses.
For the nine-month period ended September 30, 1995, net income reached
$106.1 million or $3.04 per common share, for an ROA of 1.03% and an ROE of
14.00%. For the same period in 1994, net income was $92.1 million or $2.74 per
common share, while ROA and ROE were 1.02% and 13.72%, respectively.
Net interest income for the third quarter of 1995 rose $11.7 million or
8.6% when compared with the same period in 1994. The increase in net interest
income for the quarter resulted mainly from an increase of $2.2 billion in the
average volume of earning assets. The increase in the volume of earning assets
was funded through a higher amount of deposits and borrowings.
The provision for loan losses increased to $19.0 million for the third
quarter of 1995 from $13.5 million for the same period a year earlier. Net
charge-offs for the third quarter were $13.3 million or 0.64% of average loans,
compared with $10.5 million or 0.57% of average loans reported for the same
quarter last year. For the first nine months of 1995, net charge-offs amounted
to $32.7 million or 0.54% of average loans, compared with $28.7 million or
0.55% for the same period a year earlier.
Non-performing assets (NPA) at September 30, 1995 amounted to $155.9
million compared with $118.0 million a year earlier and $148.2 million at June
30, 1995. As a percentage of loans, non-performing assets represented 1.84%,
1.57% and 1.81%, respectively, as of those same dates. When adjusted to conform
to standard industry practice, NPA were $123.8 million or 1.46 % of total loans
as of September 30, 1995 compared with $90.1 million or 1.20% as of the same
date last year. The allowance for loan losses at September 30, 1995 amounted to
$164.4 million, representing 1.94% of loans, compared with $149.4 million or
1.99% at the same date in 1994.
Other operating revenues grew $11.0 million or 30.8%, from $35.8 million
for the third quarter of 1994 to $46.8 million for the same period in 1995.
Other service fees and other operating income accounted for the largest portion
of the increase, rising $7.0 million primarily due to increases in fees such as
mortgage servicing, credit cards, electronic transactions, investment banking
and higher gains realized on the sale of mortgage loans.
Operating expenses for the three-month period ended September 30, 1995,
totaled $119.6 million compared with $114.6 million for the same quarter a year
earlier. The rise is principally due to the new operations of BP Capital
Markets, Banco Popular, FSB and Popular Mortgage, which accounted for $4.8
million in operating expenses for the quarter ended September 30, 1995. Other
factors such as annual merit increases, expenses related to the implementation
of technological advances, the expansion of the Corporation's business
activities, the development of new products and services and the setup of
reserves to cover for losses in Virgin Islands resulted in higher operating
expenses. Partially offsetting these increases was a refund of $5.6 million
received from the FDIC due to the retroactive reduction in the assessment rate.
The Corporation's total assets at September 30, 1995 were $14.9 billion
compared with $12.4 billion at the same date in 1994 and $14.6 billion as of
June 30, 1995. Total loans reached $8.5 billion while total deposits were $9.7
billion. The Corporation's capital increased to $1.1 billion at September 30,
1995, compared with $988.9 million a year earlier. Book value per common share
increased to $30.44 as of September 30, 1995, from $27.09 as of the same date
last year.
At September 30, 1995, the market value of the Corporation's common stock
was $38.75, representing an appreciation of 37.8% and 17.0% from the market
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value of $28.13 at December 31, 1994 and $33.13 at September 30, 1994,
respectively. Based on 32,922,318 common shares outstanding, the Corporation
had a total market capitalization of $1.3 billion at September 30, 1995. The
Corporation enjoys strong risk-weighted capital ratios with a Tier I ratio of
11.57 %, a total capital ratio of 12.83% and a leverage ratio of 6.70%.
Please refer to the financial review section of this quarterly report for a
more detailed discussion of the Corporation's financial performance and results
of operations.
The Corporation continues making progress toward its strategic goal of
geographic and business expansion. In addition to the acquisitions performed
during the first half of 1995 creating three new subsidiaries, Banco Popular,
FSB, Popular Mortgage (d/b/a Puerto Rico Home Mortgage) and BP Capital Markets,
our subsidiary Equity One has expanded significantly. Equity One opened five
new offices on the mainland during this quarter. These five offices along with
11 offices established during the first half of 1995, give Equity One a total
of 87 offices in 25 states as of the end of the third quarter. Also, Banco
Popular, FSB opened two new branches in August 1995 further expanding its
presence in New Jersey, for a total of six branches in the state.
To further enhance the Corporation's ability to secure financing in the
U.S. money and capital markets a "shelf" registration was filed with the
Securities and Exchange Commission. Under this registration, which became
effective on September 27, 1995, the Corporation may issue unsecured debt
securities, which may be either senior or subordinated notes, or shares of
preferred stock in an aggregate amount of up to $1 billion. The amounts, terms
and timing of offerings will be determined in the future when and as the
Corporation decides to issue debt securities and/or shares of preferred stock.
The U.S. Congress continues working on the budget reconciliation package,
which may include tax provisions and modifications to Section 936 of the
Internal Revenue Code. Their discussion has resulted in two proposed bills, one
by each legislative body.
The House bill phases out Section 936 in 10 years and allows no new
investments in that time. Under the Senate bill, companies receiving tax
incentives based on wages paid will continue doing so through the year 2001 at
60 percent of said wages. Tax breaks on income will continue at the present
rate for three years, until the end of 1998 and then drop by 10 percent each
year until they end in the year 2001.
The controversy is expected to be referred to the House-Senate Conference
Committee in order to attempt to reconcile both alternatives.
The Board of Directors in its October 12, 1995 meeting, named Messrs. David
H. Chafey, Jr. and Jorge A. Junquera senior executive vice presidents of the
Corporation. Also, effective January 1, 1996, both executives will switch their
job responsibilities. Mr. Chafey will head the Retail Banking Group,
supervising the eight regions in Puerto Rico, the centralized banking unit
known as TeleBanco and Private Banking. Mr. Junquera will be the chief
financial officer supervising the divisions of Trust, Investments,
Comptroller's and Treasury, and the Corporation's operations in New York, New
Jersey, Chicago and Los Angeles. Mr. Junquera will also head the Corporation's
expansion plans on the mainland and the Caribbean.
/s/ Richard L. Carrion
Richard L. Carrion
Chairman, President and
Chief Executive Officer
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FINANCIAL REVIEW
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BALANCE SHEET HIGHLIGHTS AT SEPTEMBER 30, AVERAGE FOR THE NINE MONTHS
(In thousands) 1995 1994 CHANGE 1995 1994 CHANGE
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Money market investments $715,224 $150,165 $565,059 $305,907 $133,799 $172,108
Investment and trading securities 4,765,803 3,953,928 811,875 4,483,910 4,208,042 275,868
Loans 8,486,899 7,502,091 984,808 8,106,514 6,926,741 1,179,773
All other assets 966,669 838,341 128,328 863,074 835,620 27,454
Total assets 14,934,595 12,444,525 2,490,070 13,759,405 12,104,202 1,655,203
Non-interest bearing liabilities 2,086,677 1,952,951 133,726 2,026,525 1,953,908 72,617
Interest bearing liabilities 11,745,871 9,502,701 2,243,170 10,679,496 9,248,785 1,430,711
Preferred stock of Banco Popular 7,253 (7,253)
Stockholders' equity 1,102,047 988,873 113,174 1,053,384 894,256 159,128
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OPERATING HIGHLIGHTS
(In thousands, except Third Quarter Nine months
per share information) 1995 1994 Change 1995 1994 Change
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Net interest income $148,415 $136,699 $11,716 $428,062 $398,056 $30,006
Provision for loan losses 18,987 13,544 5,443 43,331 41,244 2,087
Fees and other income 46,831 35,809 11,022 124,756 103,340 21,416
Operating expenses 137,952 127,247 10,705 403,378 368,029 35,349
Net income $38,307 $31,717 $6,590 $106,109 $92,123 $13,986
Net income applicable to
common stock $36,220 $29,560 $6,660 $99,847 $89,966 $9,881
Earnings per common share 1.10 0.90 0.20 3.04 2.74 0.30
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SELECTED STATISTICAL Third Quarter Nine months
INFORMATION 1995 1994 1995 1994
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PROFITABILITY RATIOS - Return on assets 1.03% 1.02% 1.03% 1.02%
Return on earning assets 1.10 1.09 1.10 1.09
Return on common equity 14.55 13.26 14.00 13.72
Net interest spread (taxable equivalent) 3.87 4.39 3.93 4.46
Net interest yield (taxable equivalent) 4.64 5.10 4.75 5.10
Effective tax rate 32.39 28.59 27.74 26.91
Overhead ratio 49.03 57.60 55.57 57.84
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CAPITALIZATION RATIOS - Equity to assets 7.39% 7.96% 7.66% 7.45%
Tangible equity to assets 6.42 6.96 6.64 6.41
Equity to loans 13.00 13.41 12.99 13.01
Internal capital generation 9.69 8.66 9.10 9.51
Tier I capital to risk-adjusted assets 11.57 12.90 11.57 12.90
Total capital to risk-adjusted assets 12.83 14.31 12.83 14.31
Leverage ratio 6.70 7.56 6.70 7.56
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COMMON STOCK DATA - Market price
High $39.00 $33.25 $39.00 $33.25
Low 35.50 31.50 28.13 30.75
End 38.75 33.13 38.75 33.13
Book value at period end 30.44 27.09 30.44 27.09
Dividends declared 0.30 0.25 0.85 0.75
Dividend payout ratio 27.25% 27.73% 26.33% 27.64%
Price/earnings ratio 9.76x 9.18x 9.76x 9.18x
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SELECTED DATA - Common shares outstanding 32,922,318 32,812,818
Full-time equivalent employees 7,653 7,542
Branches (banking operations) 214 207
Automated teller machines 327 289
Stockholders 5,375 5,247
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FINANCIAL REVIEW
The following discussion portrays management's analysis of the consolidated
financial condition, changes in financial condition and results of operations
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
Consumer Services, Inc. and Popular Mortgage, Inc. (Popular Mortgage).
- Vehicle Equipment Leasing Company (VELCO).
- Popular International Bank, Inc. and its wholly-owned subsidiary
BanPonce Financial Corp. (BanPonce Financial), including Pioneer
Bancorp, Inc.(Pioneer) and Banco Popular, FSB, second tier
subsidiaries, and Equity One, Inc.(Equity One).
- BP Capital Markets, Inc.
The Corporation has completed various acquisitions during 1995. Through
these acquisitions management pursues the Corporation's strategic goal of
geographic and business diversification. In January 1995, Banco Popular, FSB, a
new subsidiary, acquired from the Resolution Trust Corporation four branches of
the former Carteret Federal Savings Bank in New Jersey with deposits of
approximately $182 million. Also, in August 1995 Banco Popular, FSB established
two de novo branches further expanding the Corporation's presence in New
Jersey. In addition, Popular Mortgage was incorporated to acquire $123 million
in assets from Puerto Rico Home Mortgage on March 31, 1995. The Corporation
also entered into the investment banking and brokerage industry with the
acquisition on April 30, 1995, of the operations of CS First Boston Puerto
Rico, Inc., now operating under the name of BP Capital Markets (BP Capital). BP
Capital is a well-established investment banking firm that has provided general
investment banking services to the public and private sectors in the past to
the Puerto Rico market. Also, Equity One opened five offices during the third
quarter of 1995, operating 87 offices in 25 states as of the end of the third
quarter.
This financial review should be read together with the consolidated
financial statements, supplemental financial data and tables contained in this
quarterly report.
NET INCOME
The Corporation's net income for the third quarter of 1995 was $38.3 million, a
significant increase of 20.8% when compared to $31.7 million reported for the
same period in 1994. Earnings per common share (EPS) for the quarter were
$1.10, based on 32,922,318 average shares outstanding, compared with EPS of
$0.90 for the third quarter of 1994, based on 32,812,818 average shares
outstanding. The Corporation's return on assets (ROA) and return on common
equity (ROE) for the quarter ended September 30, 1995 were 1.03% and 14.55%,
respectively, compared with 1.02% and 13.26% attained during the third quarter
of 1994.
The improvement of $6.6 million in net income for the third quarter of 1995
as compared to the third quarter of 1994 can be summarized as follows:
- Higher net interest income by $11.7 million
- An increase of $11 million in non-interest revenues
- Higher income tax expense by $5.7 million
- Higher provision for loan losses by $5.4 million
- Higher operating expenses by $5.0 million
For the nine-month period ended September 30, 1995, net income amounted to
$106.1 million, increasing 15.2% from $92.1 million reported for the same
period of 1994. EPS for these periods were $3.04 and $2.74, respectively, based
on 32,894,507 average shares outstanding for the first nine months of 1995 and
32,784,802 for the same period of 1994. ROA and ROE for the nine-month period
ended September 30, 1995 were 1.03% and 14.00%, respectively, compared with
1.02% and 13.72% reported for the same period in 1994.
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NET INTEREST INCOME
Net interest income for the third quarter of 1995 increased to $148.4 million,
or $11.7 million higher than the $136.7 million reported for the same period in
1994. On a taxable equivalent basis, net interest income increased to $159.9
million as compared with $147.0 million. This increase is the net effect of a
$15.4 million increase due to a larger volume of average earning assets and a
$2.5 million decrease due to a lower net interest yield on a taxable equivalent
basis. For analytical 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 reached $13.8 billion for the quarter ended
September 30, 1995, compared with $11.5 billion for the same quarter of 1994.
The rise resulted from a higher average volume of loans by $1.0 billion, mainly
commercial and mortgage loans, and higher average volumes of money market
investments, investment securities and trading account securities by $1.2
billion.
The increase in average commercial loans of $377.4 million was principally
attained at Banco Popular. Average mortgage loans grew $323.5 million. In this
category, Equity One had a significant growth increasing 37.4%, reaching an
average balance of $609.3 million during the third quarter of 1995, mainly
related to its continuous expansion in the mainland.
Average money market investments reached $600.8 million during the third
quarter of 1995, compared with $69.5 million for the same period of 1994. The
acquisition of the investment banking operation of BP Capital during the second
quarter of 1995 was the main reason for this increase. Investment securities
increased $472.0 million, of which Banco Popular accounted for $200.1 million
or 42.4%. The average investment portfolio of Banco Popular reached $4.2
billion as compared with $4.0 billion for the third quarter of 1994. Banco
Popular, FSB had $147.9 million in average investment securities for the third
quarter of 1995.
The average balance of trading account securities, for the three-month
period ended September 30, 1995, reached $248.1 million compared with $8.4
million reported for the same quarter last year, mostly due to the new
subsidiary BP Capital with $201.5 million.
The average yield on earning assets for the third quarter of 1995, on a
taxable equivalent basis, was 8.70% or 41 basis points higher than the 8.29%
reported for the third quarter of 1994. The increase in the average yield of
loans was the main contributor to the rise in the yield of earning assets.
The average yields on loans for the third quarter of 1995 and 1994, on a
taxable equivalent basis, were 10.05% and 9.51%, respectively. The commercial
loan portfolio had an improvement of 105 basis points in its average yield for
the quarter, reaching 9.09% compared with 8.04% reported for the same quarter
in 1994. The average yield on consumer loans also increased to 12.59% from the
11.94% achieved during the third quarter of 1994. The average yields on
mortgage loans, on a taxable equivalent basis, for the third quarter of 1995
and 1994 were 8.52% and 8.24%, respectively.
The average yield on investment securities, on a taxable equivalent basis,
was 6.76%, 61 basis points higher than the 6.15% attained in the third quarter
of 1994. This increase resulted from the maturity and sale of lower yielding
investments whose proceeds were reinvested during a higher interest rate
scenario. The average yield on money market investments increased from 4.62% in
the third quarter of 1994 to 5.91% in the same period of 1995.
Average interest bearing liabilities of the Corporation were $11.6 billion
for the three-month period ended September 30, 1995 and $9.4 billion for the
same period of 1994, an increase of $2.2 billion. Average interest bearing
deposits increased to $7.8 billion or $734.1 million for the third quarter of
1995, mostly in certificates of deposits which grew $712.9 million. The average
costs of interest bearing deposits for the quarter ended September
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30, 1995 and 1994 were 4.30% and 3.60%, respectively. The increase is mainly
the result of a rise of 104 basis points on the average cost of certificates of
deposit. The average cost of savings accounts increased 24 basis points while
the cost of NOW and money market deposits rose 13 basis points.
The operation of BP Capital, with an average volume of short-term
borrowings of $821.2 million for the three-month period ended September 30,
1995, accounted for most of the increase of $1.2 billion in this category.
Banco Popular also had an increase in short-term borrowings, reaching an
average level of $1.7 billion compared with $1.5 billion in the same quarter of
1994. The average cost of short-term borrowings increased by 104 basis points
from 4.50% to 5.54% in 1995.
As a result of the above, the average cost of interest bearing liabilities
increased 93 basis points, from 3.90% reported for the third quarter of 1994 to
4.83% for the same period of 1995, while the average cost of funding earning
assets rose to 4.06% from 3.19%. The net interest yield, on a taxable
equivalent basis, decreased to 4.64% from 5.10% reported for the third quarter
of 1994. The net
Table A
NET INTEREST INCOME (TAXABLE EQUIVALENT BASIS)
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(DOLLARS IN MILLIONS) FIRST NINE MONTHS
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1995 AVERAGE 1994 AVERAGE
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BALANCE RATE BALANCE RATE
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Earning assets $ 12,896 8.67% $ 11,269 8.06%
======== ========
Financed by:
Interest
bearing funds $ 10,679 4.74% $ 9,249 3.60%
Non-interest
bearing funds 2,217 2,020
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Total $ 12,896 3.92% $ 11,269 2.96%
======== ========
Net interest income
per books $ 428.1 $ 398.1
Taxable equivalent
adjustment 31.6 33.2
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Net interest income
on a taxable equivalent
basis $ 459.7 $ 431.3
======== ========
Spread 3.93% 4.46%
Net interest yield 4.75% 5.10%
interest yield, on a taxable equivalent basis, for the first and second quarter
of 1995 was 4.88% and 4.77%, respectively. Based on the Corporation's
asset/liability structure at September 30, 1995 it is expected that its net
interest yield should improve in the forthcoming months, when it is anticipated
that the interest rates will remain stable or decline.
As shown on Table A, for the nine-month period ended September 30, 1995,
net interest income reached $428.1 million, increasing $30 million from the
$398.1 million reported for the same period of 1994. On a taxable equivalent
basis, net interest income rose to $459.7 million from $431.3 million reported
for the nine-month period ended September 30, 1994. This rise is the net
effect of an increase of $52.4 million due to the growth and change in the
composition of average earning assets partially offset with a decrease of $24.0
million due to a lower net interest yield on a taxable equivalent basis.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses for the third quarter of 1995 increased to $19
million, compared with $13.5 million for the same quarter of 1994, an increase
of $5.5 million. For the second quarter of 1995 the provision was $12.6
million. For the nine-month period ended on September 30, 1995, the provision
for loan losses amounted to $43.3 million compared with $41.2 million for the
same period last year. The increase in the provision is attributed to the rise
in net charge-offs and management's intention of maintaining the allowance at
a conservative level. In addition, the Corporation provided for potential
losses that may arise in the U.S. Virgin Islands' loan portfolio as a result
TABLE B
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Quarter Provision for Net Allowance for
Ended Loan Losses Charge-offs Loan Losses
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(In millions)
September 30, 1995 $19.0 $13.3 $164.4
June 30, 1995 12.6 11.4 158.7
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
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Table C
Allowance for Loan Losses and Selected Loan Losses Statistics
Third Quarter First nine months
(Dollars in thousands) 1995 1994 1995 1994
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Balance at beginning of period . . . . . . . . . . . . . . $158,734 $146,418 $153,798 $133,437
Allowances purchased . . . . . . . . . . . . . . . . . 3,473
Provision for loan losses . . . . . . . . . . . . . . . 18,987 13,544 43,331 41,244
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177,721 159,962 197,129 178,154
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Losses charged to the allowance
Commercial . . . . . . . . . . . . . . . . . . . . . 9,726 7,952 24,161 21,363
Construction . . . . . . . . . . . . . . . . . . . . 8 85 8 285
Lease financing . . . . . . . . . . . . . . . . . . . 1,316 1,871 4,120 5,229
Mortgage . . . . . . . . . . . . . . . . . . . . . . 468 549 1,130 887
Consumer . . . . . . . . . . . . . . . . . . . . . . 9,285 7,688 24,045 22,073
------------------------------------------
20,803 18,145 53,464 49,837
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Recoveries
Commercial . . . . . . . . . . . . . . . . . . . . . 2,229 1,732 5,502 5,043
Construction . . . . . . . . . . . . . . . . . . . . 27 286 258
Lease financing . . . . . . . . . . . . . . . . . . . 315 1,248 1,888 2,703
Mortgage . . . . . . . . . . . . . . . . . . . . . . 56 183
Consumer . . . . . . . . . . . . . . . . . . . . . . 4,912 4,605 12,906 13,108
------------------------------------------
7,512 7,612 20,765 21,112
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Net loans charged-off . . . . . . . . . . . . . . . . 13,291 10,533 32,699 28,725
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Balance at end of period . . . . . . . . . . . . . . . $164,430 $149,429 $164,430 $149,429
==========================================
Ratios:
Allowance for losses to loans . . . . . . . . . . . . 1.94% 1.99% 1.94% 1.99%
Allowance to non-performing assets . . . . . . . . . 105.46 126.67 105.46 126.67
Allowance to non-performing loans . . . . . . . . . . 114.52 146.92 114.52 146.92
Non-performing assets to loans . . . . . . . . . . . 1.84 1.57 1.84 1.57
Non-performing assets to total assets . . . . . . . . 1.04 0.95 1.04 0.95
Net charge-offs to average loans . . . . . . . . . . 0.64 0.57 0.54 0.55
Provision to net charge-offs . . . . . . . . . . . . 1.43X 1.29x 1.33X 1.44x
Net charge-offs earnings coverage . . . . . . . . . . 5.69 5.50 5.82 5.84
of the effects of hurricane Marilyn on the economy of the islands. The
provision for the third quarter of 1995 represented 143% of net charge-offs
compared with 129% for the same period of 1994.
As presented on Table B, net charge-offs for the third quarter of 1995
totaled $13.3 million or 0.64% of average loans, increasing $2.8 million from
the $10.5 million or 0.57% reported for the same quarter in 1994. Net
charge-offs for the quarter ended on June 30, 1995 were $11.4 million or 0.56%
of average loans. Commercial and consumer loans net charge-offs increased $1.3
million each, when compared with the third quarter of 1994. Commercial loans
net charge-offs totaled $7.5 million for the current quarter, while credit
losses on the consumer portfolio amounted to $4.4 million. Lease financing net
charge-offs increased $0.4 million, from $0.6 million for the third quarter of
1994 to $1.0 million for the same quarter this year. Reductions in the mortgage
and construction loans net charge-offs of $0.1 million and $0.05 million
partially offset these increases.
For the nine-month period ended September 30, 1995, net charge-offs totaled
$32.7 million, as compared with $28.7 million a year before, an increase of
$4.0 million. As showed on Table C, net losses as a percentage of average loans
remained steady as compared with the first nine months of 1994, representing
0.54% and 0.55%, of average loans, respectively. On a year-to-date basis, the
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major fluctuations in net charge-offs were experienced in the commercial loan
portfolio, whose net charge-offs increased $2.3 million, and in consumer loans,
whose losses increased $2.2 million. Other small fluctuations were a decline of
$0.3 million in each, lease financing and construction loans net charge-offs
and an increase of $0.06 million in mortgage credit losses.
Although the effect of hurricane Marilyn on the Corporation's U.S. Virgin
Islands loan portfolio is difficult to predict at this time, management
considers that the additional provision recorded this quarter is adequate to
cover for future losses and keeps closely monitoring the performance of the
loan portfolios on the islands. The Corporation's USVI portfolio represents
only 4.2% of the Corporation total loans as of September 30, 1995.
As of September 30, 1995, the allowance for loan losses amounted to $164.4
million, representing 1.94% of loans, compared with $149.4 million or 1.99% of
loans a year earlier and $158.7 million and 1.94% at June 30, 1995. Based on
the current economic conditions and the methodology established to evaluate the
adequacy of the allowance for loan losses, which includes portfolio risk
characteristics, prior loss experience and results of periodic credit reviews,
management considers that the Corporation continues enjoying a strong position
in the allowance for loan losses.
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" (as further explained on Note 2 to
the Consolidated Financial Statements). As a result of this adoption the
Corporation had $98.2 million in loans considered impaired which required an
allowance of $16.6 million as of September 30, 1995. For the current and
previous two quarters 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 on
impaired loans.
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 when payments of principal or interest are delinquent 60 days rather
than the standard industry practice of 90 days. Lease financing, conventional
mortgage and closed-end consumer loans are placed on non-accrual status when
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 when 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.
TABLE D
- ---------------------------------------------------------
NPA Allowance
as a % as a %
Date NPA of Loans of NPA
- ---------------------------------------------------------
(Dollars in millions)
September 30, 1995 $155.9 1.84% 105.5%
June 30, 1995 148.2 1.81 107.1
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
As presented on Table D, non-performing assets (NPA) as of September 30,
1995, amounted to $155.9 million or 1.84% of loans, compared with $118.0
million or 1.57% at September 30, 1994. NPA were $148.2 million or 1.81% of
loans at June 30, 1995.
Non-performing loans amounted to $143.6 million as of September 30, 1995
from $101.7 million
8
9
at the end of the third quarter of 1994. As of June 30, 1995, these loans
amounted to $135.6 million. Most of the increase was reflected in
non-performing commercial and construction loans which increased $27.5 million.
During this year a corporate loan was classified as a non-performing loan,
accounting for approximately 30% of the increase. Other reasons for the
increase in non-performing commercial and construction loans were the growth in
these portfolios, which rose $424.3 million or 14.5% as compared with September
30, 1994 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 $3.1
million of in-substance foreclosed assets to non-performing commercial loans.
Non-performing mortgage loans increased $10.3 million, while non-performing
consumer and lease financing loans increased $2.3 million and $1.8 million,
respectively. The increase in non-performing mortgage loans was mainly due to
the growth in the portfolio. Renegotiated loans decreased $2.5 million, from
$5.3 million at September 30, 1994 to $2.8 million at the end of the third
quarter of 1995. Other real estate decreased $1.5 million mainly due to the
reclassification of in-substance foreclosed assets mentioned above.
Assuming 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
September 30, 1995, amounted to $123.8 million or 1.46% of loans, and the
allowance for loan losses would be 133% of non- performing assets. At September
30, 1994 and June 30, 1995, adjusted non-performing assets were $90.1 million
and $107.7 million, respectively, or 1.20% and 1.31% of loans.
Accruing loans that are contractually past-due 90 days or more as to
principal or interest as of September 30, 1995, amounted to $16 million as
compared with $13.7 million at September 30, 1994, and $12.8 million at June
30, 1995.
OTHER OPERATING INCOME
Other operating income, including securities and trading gains, rose to $46.8
million for the third quarter of 1995 from $35.8 million reported for the same
period in 1994, a 30.8% increase. Excluding the effect of $3.1 million of the
operations acquired during 1995, the increase in other operating income was
$7.9 million or 22.0%.For the nine-month periods ended September 30, 1995 and
1994, these revenues were $124.8 million and $103.3 million, respectively.
Service charges on deposit accounts, the principal component of other
operating income, amounted to $20.0 million for the third quarter of 1995, an
increase of $1.6 million or 8.5% when compared with $18.4 million reported for
the third quarter of 1994. This increase is largely attributed to a broader
variety of services offered to the commercial accounts together with revisions
made to their fee structure and higher fees collected on returned checks. For
the nine-month period ended September 30, 1995, service charges on deposit
accounts totaled $57.6 million, increasing $4.0 million from the $53.6 million
reported for the same period a year earlier.
Other service fees rose $3.4 million to $16.4 million for the third quarter
of 1995 from $13.0 million for the same period in 1994, primarily due to a net
increase of $0.9 million in mortgage servicing fees in Banco Popular as a
result of the acquisition of Puerto Rico Home Mortgage's servicing portfolio of
$1.8 billion on March 31, 1995. The increase in credit card fees, fees
collected on the growing volume of transactions at point-of-sale (POS)
terminals and other electronic transactions, and fees generated through new
collection and payment processing services provided to certain government
agencies contributed $1.7 million to the rise in other service fees. Also, fees
related to the sale and administration of investment products added $0.7
million to this revenue category. For the nine-month period ended September 30,
1995, other service fees reached $45.8 million or 25.8% higher than $36.4
million a year before.
9
10
Furthermore, other operating income increased $3.6 million reaching $8.2
million for the third quarter of 1995, compared with $4.6 million for the third
quarter of 1994. This increase resulted mainly from the higher gains realized
on the sale of mortgage loans by Equity One, Puerto Rico Home Mortgage and
Banco Popular. Also, BP Capital added $1.1 million in other operating income
from investment banking and underwriting services. Other operating income
increased 44.8% for the nine-month period ended September 30, 1995, reaching
$18.7 million compared with $12.9 million for the same period last year.
The gains on sale of investment securities available-for-sale for the third
quarter of 1995 amounted to $2.0 million, principally due to the gain on the
sale of $3.4 million in investment securities of BanPonce Financial, as
compared with losses of $0.2 million for the same period of 1994. Also, trading
transactions contributed with $0.3 million to the Corporation's earnings in the
current quarter.
OPERATING EXPENSES
Operating expenses for the third quarter of 1995 were $119.6 million compared
with $114.6 million for the same quarter in 1994, an increase of $5.0 million.
For the first nine months of 1995 operating expenses rose to $362.6 million
from $333.6 million for the same period in 1994.
The largest category of operating expenses is personnel costs, which
amounted to $62.4 million for the third quarter of 1995, increasing $4.5
million from $57.9 million for the same period of 1994. More than 50% of the
increase, or $2.4 million represents expenses of the Corporation's new
subsidiaries, Banco Popular, FSB, Popular Mortgage and BP Capital.
Salaries accounted for the largest portion of the increase in personnel
costs rising $3.6 million or 8.8% to $44.6 million for the quarter ended
September 30, 1995, compared with $41.0 million for the same period in 1994,
reflecting the cost of annual merit increases and business expansion. Excluding
the salaries of the operations acquired during 1995, salaries increased $1.4
million or 3.5%. Pension costs and other fringe benefits increased $1.8 million
to $13.3 million for the third quarter of 1995, mainly due to higher medical
plan costs and increases in the pension and postretirement benefits expenses
due mainly to changes in various actuarial assumptions. Partially offsetting
these increases was a reduction of $0.9 million in the profit sharing expense
which amounted to $4.4 million for the third quarter of 1995. This reduction is
a result of an amendment to the plan, effective in 1995, in order to encourage
stronger profitability ratios. Personnel costs for the nine-month period ended
September 30, 1995, grew $17 million or 10.0% from $170.1 million recorded for
the same period a year earlier. This increase includes the cost of the
voluntary early retirement plan, for employees meeting certain eligibility
requirements, implemented at the beginning of 1995. The plan, which was
available until May 1, 1995, had a total cost for the Corporation of $4.6
million.
Other operating expenses, excluding personnel cost, increased $0.5
million, reaching $57.2 million for the quarter ended September 30, 1995,
compared with $56.7 million for the same quarter in 1994. During this quarter
the Corporation received a refund of $5.6 million from the FDIC due to the
reduction in the assessment rate retroactive to June 1, 1995 when the Bank
Insurance Fund reached the statutory level. The increase in other operating
expenses was mostly in equipment expenses, mainly depreciation expense on
equipment installed related to the expansion of the electronic payment system
and the extension of the POS terminal network. Net occupancy, supplies and
communication expenses also rose due to the expansion of the Corporation's
business activities and the development of new products and services. Also,
Banco Popular increased its reserve for sundry losses to cover for potential
losses in the U.S. Virgin Islands as a result of hurricane Marilyn. For the
nine-month period ended September 30, 1995, other operating expenses of the
Corporation reached $175.5 million from $163.5 million reported for the same
period in 1994.
10
11
Income tax expense for the quarter ended September 30, 1995 amounted to
$18.4 million, an increase of $ 5.7 million when compared with $12.7 million
recorded for the same quarter of 1994. The increase in income tax mostly
results from a higher pre-tax income. For the nine-month period ended September
30, 1995, income tax expense reached $40.7 million compared with $34.1 million
reported for the same period in 1994.
BALANCE SHEET COMMENTS
At September 30, 1995, the Corporation's total assets reached $14.9 billion,
reflecting an increase of 20.0% when compared with $12.4 billion at September
30, 1994. Total assets at December 31, 1994 were $12.8 billion. Average assets
for the first nine months of 1995 were $13.8 billion compared with $12.1
billion for the same period in 1994, an increase of 13.7%. Average assets for
the year ended December 31, 1994 were $12.2 billion.
Earning assets at September 30, 1995 amounted to $14.0 billion compared
with $11.6 billion at September 30, 1994. Loans amounted to $8.5 billion at
September 30, 1995 compared with $7.5 billion a year ago. All loan categories
showed increases. Commercial and construction loans increased from $2.9 billion
at September 30, 1994 to $3.3 billion at September 30, 1995, a rise of $424.3
million or 14.5%. Mortgage loans rose $254.9 million or 12.1% as compared with
September 30, 1994. Most of the increase was in Equity One, which rose $172.0
million. Mortgage loans amounted to $2.4 billion as of September 30, 1995
compared with $2.1 billion at September 30, 1994. Consumer loans increased
$248.7 million or 12.3% and the lease financing portfolio rose $57.0 million or
12.9% as compared with September 30, 1994. Total loans at December 31, 1994
amounted to $7.8 billion.
Money market investments amounted to $715.2 million at September 30, 1995,
compared with $150.2 million as of the same date in 1994. BP Capital had $705.2
million in money market investments at the end of this quarter. Investment
securities as of September 30, 1995, totaled $4.5 billion compared with $3.9
billion as of September 30, 1994. Most of this grow relates to U.S. Treasury
securities held by Banco Popular. These figures include $1.4 billion in
investment securities available-for-sale as of September 30, 1995 and $724.5
million as of September 30, 1994. The increase of $262.1 million in the trading
portfolio is mainly related to the new subsidiaries, BP Capital and Popular
Mortgage.
Total deposits were $9.7 billion at September 30, 1995, compared with $8.9
billion at September 30, 1994, an increase of $852 million. Most of the
increase was attained at Banco Popular, where total deposits increased $647.2
million. Also, Banco Popular, FSB, contributed to the increase with deposits of
$179.2 million at September 30, 1995. Total deposits at December 31, 1994
were $9.0 billion.
Borrowings increased $1.5 billion as compared with September 30, 1994. This
rise is mainly due to the acquisition of BP Capital with $861.7 million in
borrowings at September 30, 1995, an increase of $165 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 subsidiaries. Also,
federal funds purchased and securities sold under agreements to repurchase in
Banco Popular showed an increase of $556.7 million due to arbitrage
opportunities.
Stockholders' equity at September 30, 1995, amounted to $1.1 billion,
compared with $988.9 million at September 30, 1994. The increase is mainly due
to earnings retention and to a positive change in the allowance required by
SFAS 115. The Corporation's stockholders' equity at September 30, 1995
includes an allowance of $5.8 million, net of taxes, in unrealized holding
gains on securities available-for-sale, as required by SFAS 115, compared with
unrealized holding losses of $9.8 million a year ago. Also, the additional
shares issued under the Dividend Reinvestment Plan contributed $3.3 million in
additional capital since September 30, 1994.
11
12
The market value of the Corporation's common stock at September 30, 1995
was $38.75, compared with $33.13 at September 30, 1994 and $35.50 at June 30,
1995. The Corporation's total market capitalization at September 30, 1995 was
$1.3 billion. Book value per common share increased to $30.44 as of September
30, 1995, compared with $27.09 as of the same date last year. The dividend
payout ratio to common stockholders for the quarter ended September 30, 1995
was 27.25%, compared with 27.73% for the same quarter last year.
The Corporation's Tier I, total capital and leverage ratios at September
30, 1995 were 11.57%, 12.83% and 6.70%, respectively, as compared with
12.90%, 14.31% and 7.56%, at September 30, 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.
12
13
CONSOLIDATED STATEMENTS OF CONDITION
September 30,
(In Thousands) 1995 1994
- -----------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . $ 376,086 $ 340,920
-------------------------------
Money market investments:
Federal funds sold and securities and mortgages
purchased under agreements to resell . . . . . . . . . . . 714,085 146,790
Time deposits with other banks . . . . . . . . . . . . . . . 100 3,100
Bankers' acceptances . . . . . . . . . . . . . . . . . . . . 1,039 275
-------------------------------
715,224 150,165
-------------------------------
Investment securities held-to-maturity,
At cost (Notes 3 and 4) . . . . . . . . . . . . . . . . . . . 3,107,252 3,210,192
Investment securities available-for-sale,
At market (Notes 3 and 4) . . . . . . . . . . . . . . . . . . 1,377,192 724,522
Trading account securities, at market . . . . . . . . . . . . . 281,359 19,214
Loans held-for-sale . . . . . . . . . . . . . . . . . . . . . . 37,146
Loans (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . 8,764,741 7,798,689
Less--Unearned income . . . . . . . . . . . . . . . . . . . 314,987 296,599
Allowance for loan losses . . . . . . . . . . . . . . . . . . 164,430 149,429
-------------------------------
8,285,324 7,352,661
-------------------------------
Premises and equipment . . . . . . . . . . . . . . . . . . . . 328,118 322,780
Other real estate . . . . . . . . . . . . . . . . . . . . . . . 9,494 10,959
Customers' liabilities on acceptances . . . . . . . . . . . . . 1,592 1,257
Accrued income receivable . . . . . . . . . . . . . . . . . . . 124,541 76,444
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 142,519 104,339
Intangible assets . . . . . . . . . . . . . . . . . . . . . . 148,748 131,072
-------------------------------
$14,934,595 $12,444,525
===============================
LIABILities and stockholders' equity
Liabilities:
Deposits:
Non-interest bearing . . . . . . . . . . . . . . . . . . . $ 1,838,618 $ 1,760,969
Interest bearing . . . . . . . . . . . . . . . . . . . . . 7,889,766 7,115,412
-------------------------------
9,728,384 8,876,381
Federal funds purchased and securities sold
under agreements to repurchase (Note 4) . . . . . . . . . . 2,642,766 1,195,956
Other short-term borrowings . . . . . . . . . . . . . . . . . 418,936 702,804
Notes payable . . . . . . . . . . . . . . . . . . . . . . . 714,403 408,529
Senior debentures . . . . . . . . . . . . . . . . . . . . . . 30,000 30,000
Acceptances outstanding . . . . . . . . . . . . . . . . . . . 1,592 1,257
Other liabilities . . . . . . . . . . . . . . . . . . . . . . 246,467 190,725
-------------------------------
13,782,548 11,405,652
-------------------------------
Subordinated notes (Note 6) . . . . . . . . . . . . . . . . . 50,000 50,000
-------------------------------
Stockholders' equity (Note 8):
Preferred stock . . . . . . . . . . . . . . . . . . . . . . 100,000 100,000
Common stock . . . . . . . . . . . . . . . . . . . . . . . . 197,534 196,877
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . 411,468 393,800
Retained earnings . . . . . . . . . . . . . . . . . . . . . . 344,343 272,273
Unrealized gains (losses) on securities
available-for-sale, net of deferred taxes (Note 2) . . . . . 5,845 (9,791)
Capital reserves . . . . . . . . . . . . . . . . . . . . . . 42,857 35,714
-------------------------------
1,102,047 988,873
-------------------------------
$14,934,595 $12,444,525
===============================
The accompanying notes are an integral part of these financial statements.
13
14
CONSOLIDATED STATEMENTS OF INCOME
Quarter ended For the nine months ended
September 30, September 30,
(Dollars in thousands, except per common share information) 1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------
INTEREST INCOME:
Loans . . . . . . . . . . . . . . . . . . . . . . . . $ 208,175 $ 173,414 $ 599,254 $ 483,884
Money market investments . . . . . . . . . . . . . . 8,885 803 13,467 4,152
Investment securities . . . . . . . . . . . . . . . . 67,637 54,338 189,772 159,878
Trading account securities . . . . . . . . . . . . . 3,762 140 5,002 192
---------------------------------------------
288,459 228,695 807,495 648,106
INTEREST EXPENSE:
Deposits . . . . . . . . . . . . . . . . . . . . . . 83,886 63,536 245,536 178,437
Short-term borrowings . . . . . . . . . . . . . . . 43,325 21,714 97,945 53,015
Long-term debt . . . . . . . . . . . . . . . . . . . 12,833 6,746 35,952 18,598
---------------------------------------------
140,044 91,996 379,433 250,050
---------------------------------------------
Net interest income . . . . . . . . . . . . . . . . . 148,415 136,699 428,062 398,056
Provision for loan losses . . . . . . . . . . . . . . 18,987 13,544 43,331 41,244
---------------------------------------------
Net interest income after provision for loan losses 129,428 123,155 384,731 356,812
Service charges on deposit accounts . . . . . . . . . 19,976 18,419 57,618 53,644
Other service fees . . . . . . . . . . . . . . . . . 16,456 13,035 45,832 36,426
Gain (loss) on sale of securities . . . . . . . . . . 1,950 (205) 2,062 67
Trading account profit (loss) . . . . . . . . . . . 293 (8) 593 323
Other operating income . . . . . . . . . . . . . . . 8,156 4,568 18,651 12,880
---------------------------------------------
176,259 158,964 509,487 460,152
---------------------------------------------
OPERATING EXPENSES:
Personnel costs:
Salaries . . . . . . . . . . . . . . . . . . . . . 44,626 41,002 128,837 119,901
Profit sharing . . . . . . . . . . . . . . . . . . 4,435 5,378 14,268 15,993
Pension and other benefits . . . . . . . . . . . . 13,302 11,465 43,985 34,167
---------------------------------------------
62,363 57,845 187,090 170,061
Net occupancy expense . . . . . . . . . . . . . . . . 8,236 7,304 24,258 21,134
Equipment expenses . . . . . . . . . . . . . . . . . 10,274 9,101 29,610 26,064
Other taxes . . . . . . . . . . . . . . . . . . . . . 5,241 4,961 15,966 14,060
Professional fees . . . . . . . . . . . . . . . . . . 8,847 8,694 25,619 24,746
Communications . . . . . . . . . . . . . . . . . . . 5,731 5,206 17,023 15,099
Business promotion . . . . . . . . . . . . . . . . . 4,270 4,385 12,232 11,614
Printing and supplies . . . . . . . . . . . . . . . 3,047 2,321 8,345 6,733
Other operating expenses . . . . . . . . . . . . . . 6,470 10,233 27,335 30,706
Amortization of intangibles . . . . . . . . . . . . . 5,117 4,501 15,157 13,364
---------------------------------------------
119,596 114,551 362,635 333,581
---------------------------------------------
Income before tax and dividends on preferred stock of
Banco Popular . . . . . . . . . . . . . . . . . . . 56,663 44,413 146,852 126,571
Income tax . . . . . . . . . . . . . . . . . . . . . 18,356 12,696 40,743 34,063
---------------------------------------------
Income before dividends on preferred stock of
Banco Popular . . . . . . . . . . . . . . . . . . . 38,307 31,717 106,109 92,508
Dividends on preferred stock of Banco Popular (Note 7) 385
---------------------------------------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . $38,307 $ 31,717 $106,109 $92,123
=============================================
NET INCOME APPLICABLE TO COMMON STOCK . . . . . . . . $36,220 $ 29,560 $99,847 $89,966
=============================================
EARNINGS PER COMMON SHARE (Note 9): . . . . . . . . . $1.10 $0.90 $3.04 $2.74
=============================================
The accompanying notes are an integral part of these financial statements.
14
15
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended
September 30,
(In thousands) 1995 1994
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 106,109 $ 92,123
----------------------------------
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization of premises and equipment . 32,283 27,505
Provision for loan losses . . . . . . . . . . . . . . . . 43,331 41,244
Amortization of intangibles . . . . . . . . . . . . . . . . 15,157 13,364
Gain on sale of investment securities available-for-sale . (2,062) (67)
Loss (gain) on disposition of premises and equipment . . . 125 (862)
Amortization of premiums and accretion of discounts
on investments . . . . . . . . . . . . . . . . . . . . . (2,479) 6,170
Net increase in loans held-for-sale . . . . . . . . . . . . (5,689)
Amortization of deferred loan fees and costs . . . . . . . 432 975
Net increase in postretirement benefit obligation . . . . 5,770 3,273
Net increase in trading securities . . . . . . . . . . . . (48,659) (16,197)
Net (increase) decrease in interest receivable . . . . . . (35,380) 4,934
Net increase in other assets . . . . . . . . . . . . . . . (11,989) (6,189)
Net decrease in interest payable . . . . . . . . . . . . . 384 991
Net (decrease) increase in current and deferred taxes . . (5,401) 10,406
Net increase (decrease) in other liabilities . . . . . . . 6,924 (1,393)
----------------------------------
Total adjustments . . . . . . . . . . . . . . . . . . . . . (7,253) 84,154
----------------------------------
Net cash provided by operating activities . . . . . . . . . . 98,856 176,277
----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in money market investments . . . . . . . . . 127,792 117,927
Purchases of investment securities held-to-maturity . . . . (11,030,926) (5,860,771)
Maturities of investment securities held-to-maturity . . . 10,985,704 5,977,209
Purchases of investment securities available-for-sale . . . (818,398) (258,595)
Maturities of investment securities available-for-sale . . 78,867
Sales of investment securities available-for-sale . . . . . 234,056 347,799
Net disbursements on loans . . . . . . . . . . . . . . . . (861,871) (1,010,521)
Proceeds from sale of loans . . . . . . . . . . . . . . . . 88,876 81,510
Acquisition of mortgage loan portfolios . . . . . . . . . . (46,575) (76,700)
Assets acquired, net of cash . . . . . . . . . . . . . . . (29,189) (17,557)
Acquisition of premises and equipment . . . . . . . . . . (44,047) (46,853)
Proceeds from sale of premises and equipment . . . . . . . 8,893 2,049
----------------------------------
Net cash used in investing activities . . . . . . . . . . . . (1,306,818) (744,503)
----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits . . . . . . . . . . . . . . . . . 532,568 61,018
Net deposits acquired . . . . . . . . . . . . . . . . . . . 163,577
Net increase in federal funds purchased and securities
sold under agreements to repurchase . . . . . . . . . . . 413,269 239,222
Net (decrease) increase in other short-term borrowings . . (177,298) 36,031
Proceeds from issuance of notes payable . . . . . . . . . 327,153 154,681
Payments of notes payable . . . . . . . . . . . . . . . . . (87,508) (7)
Payments of subordinated notes . . . . . . . . . . . . . . (12,000)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . (32,557) (26,725)
Proceeds from issuance of common stock . . . . . . . . . . 2,528 2,399
Proceeds from issuance of preferred stock . . . . . . . . . 96,690
Redemption of preferred stock . . . . . . . . . . . . . . . (11,000)
----------------------------------
Net cash provided by financing activities . . . . . . . . . . 1,141,732 540,309
----------------------------------
Net decrease in cash and due from banks . . . . . . . . . . . (66,230) (27,917)
Cash and due from banks at beginning of period . . . . . . . 442,316 368,837
----------------------------------
Cash and due from banks at end of period . . . . . . . . . . $ 376,086 $ 340,920
==================================
The accompanying notes are an integral part of these financial statements.
15
16
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, BP
Capital Markets, Popular International Bank, Inc. and its wholly-owned
subsidiary BanPonce Financial Corp., including Banco Popular, FSB, 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
September 30, 1995 and 1994, and their related statements of income and cash
flows for the nine-month period then ended. 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,
of a normal recurring nature, for a fair presentation of such results. Certain
reclassifications have been made to the prior years' consolidated financial
statements to conform to the 1995 presentation.
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 setup 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 observable market price
or, on the fair value of the collateral if the loan is collateral dependent. As
of September 30, 1995, the recorded investment in loans that are considered to
be impaired under SFAS 114 was $98,175, of which $46,439 have a related
allowance for possible loan losses of $16,600 at September 30, 1995. Average
impaired loans during the third quarter of 1995 were $93,716. For the
nine-month period ended September 30,1995, average impaired loans were $91,608.
The Corporation recognized interest income on impaired loans of $927 during the
third quarter of 1995 and $2,325 for the first nine months of 1995.
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 September 30, 1995
includes unrealized holding gains on securities available-for-sale of $5,845,
net of deferred taxes, as compared with $9,791 in unrealized losses at
September 30, 1994.
In March 1995, the Financial Accounting Standards Board issued SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." This statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The statement is effective
for fiscal years beginning after December 15, 1995. The Corporation has not yet
determined the impact of this statement, however, management estimates that the
adoption of this statement will have no material effect on the consolidated
financial statements.
In May 1995, the Financial Accounting Standards Board issued SFAS 122,
"Accounting for Mortgage Servicing Rights." This statement requires that a
mortgage banking enterprise recognize as separate assets the rights to service
mortgage loans for others, whether those servicing rights are originated or
purchased. Also, it requires that the
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mortgage banking enterprise assess its capitalized mortgage servicing rights
for impairment based on the fair value of those rights. The statement is
effective for fiscal years beginning after December 15,1995. Management
estimates that the adoption of this statement will have no material effect on
the consolidated financial statements of the Corporation.
NOTE 3 - INVESTMENT SECURITIES
The average maturities as of September 30, 1995 and market value for the
following investment securities are:
Investments securities held-to-maturity:
September 30,
1995 1994
Book Value Market Value Book Value Market Value
--------------------------------------------------------
U.S. Treasury (average maturity of
10 months) $2,144,326 $2,151,139 $1,803,692 $1,783,353
Obligations of other U.S. Government
agencies and corporations (average
maturity of 1 year and 5 months) 214.280 212,445 541,960 536,245
Obligations of Puerto Rico, States and
political subdivisions (average
maturity of 3 years and 3 months) 197,694 201,988 193,731 196,596
Collateralized mortgage obligations
(average maturity of 1 year and 8 months) 370,599 366,165 472,244 456,873
Mortgage-backed securities (average
maturity of 4 years and 9 months) 124,280 123,474 147,183 141,078
Others (average maturity of 1 year
and 7 months) 56,073 56,108 51,382 51,417
--------------------------------------------------------
$3,107,252 $3,111,319 $3,210,192 $3,165,562
========================================================
Investments securities available-for-sale:
September 30,
1995 1994
Amortized Cost Market Value Amortized Cost Market Value
---------------------------------------------------------------
U.S. Treasury (average maturity
of 1 year and 10 months) $ 904,314 $ 905,457 $563,154 $552,109
Obligations of other U.S. Government
agencies and corporations (average
maturity of 1 year and 2 months) 145,079 145,735 64,356 63,419
Obligations of Puerto Rico, States and
political subdivisions (average
maturity of 2 years and 11 months) 30,518 30,574 30,449 29,482
Collateralized mortgage obligations (average
maturity of 2 years and 7 months) 64,980 64,850 46,676 46,319
Mortgage-backed securities (average maturity
of 10 years and 3 months) 183,656 183,268 21,635 20,981
Others (average maturity of 1 year and
1 month) 39,770 47,308 11,903 12,212
----------------------------------------------------------
$1,368,317 $1,377,192 $738,173 $724,522
==========================================================
Note 4 - Pledged Assets
Securities and insured mortgage loans of the Corporation of $2,496,446 (1994 -
$2,305,087) are pledged to secure public and trust deposits and securities and
mortgages sold under repurchase agreements.
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NOTE 5 - COMMITMENTS
In the normal course of business there are letters of credit outstanding and
stand-by letters of credit which at September 30, 1995 amounted to $19,868 and
$78,338. 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.
NOTE 6 - SUBORDINATED NOTES
Subordinated notes consist of the following:
8.875% Fixed Rate Notes series A, due on June 15, 1996 $15,000
8.6875% Fixed Rate Notes series B, due on June 15, 1996 15,000
Floating Rate Notes series A with interest
payable at 88% of LIBID rate, due on June 15, 1996 19,000
Floating Rate Notes series B with interest
payable at 86% of LIBID rate, due on June 15, 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 32,922,318 are issued and outstanding at September 30, 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 $36,220 and $29,560 for the third
quarter of 1995 and 1994 and $99,847 and $89,966 for the nine months ended
September 30, 1995 and 1994, respectively, after deducting the dividends on
preferred stock. EPS are based on 32,922,318 and 32,812,818 average shares
outstanding for the third quarter of 1995 and 1994, respectively, and
32,894,507 and 32,784,802 average shares outstanding during the nine-month
period of 1995 and 1994, respectively.
NOTE 10 - SUPPLEMENTAL DISCLOSURE ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS
During the nine months ended September 30, 1995 the Corporation paid interest
and income taxes amounting to $382,692 and $36,741, respectively (1994 -
$248,737 and $21,051). In addition, the loans receivable transferred to other
real estate and other property for the period ended September 30, 1995,
amounted to $5,072 and $2,669, respectively (1994 - $1,822 and $2,376). The
Corporation's stockholders' equity at September 30, 1995 includes $5,845 in
unrealized holding gains on securities available-for-sale, net of deferred
taxes, as compared with $9,791 in unrealized losses as of September 30, 1994.
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DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
Richard L. Carrion, Chairman
Alfonso F. Ballester, Vice Chairman
Antonio Luis Ferre, Vice Chairman
Juan A. Albors Hernandez *
Salustiano Alvarez Mendez *
Jose A. Bechara Bravo *
Juan J. Bermudez
Esteban D. Bird *
Francisco J. Carreras
David H. Chafey, Jr. *
Waldemar del Valle **
Luis E. Dubon, Jr.
Roberto W. Esteves *
Hector R. Gonzalez **
Jorge A. Junquera Diez
Franklin A. Mathias
Manuel Morales, Jr.
Alberto M. Paracchini
Francisco Perez, Jr. **
Francisco M. Rexach, Jr.
Jose E. Rossi *
Felix J. Serralles Nevares
Emilio Jose Venegas **
Julio E. Vizcarrondo, Jr.
Samuel T. Cespedes, Secretary
* Director Of Banco Popular De Puerto Rico Only
** Director Of Banponce Corporation Only
EXECUTIVE OFFICERS
Richard L. Carrion, Chairman Of The Board,
President And Chief Executive Officer
David H. Chafey, Jr., Senior Executive Vice President
Jorge A. Junquera Diez, Senior Executive Vice President
Maria Isabel Burckhart, Executive Vice President
Larry Kesler, Executive Vice President
Humberto Martin, Executive Vice President
Emilio E. Pinero, Executive Vice President
OFFICES
CENTRAL OFFICE
Banco Popular Center, Hato Rey
209 Munoz Rivera Avenue
San Juan, Puerto Rico 00918
Telephone: (809) 765-9800
NEW YORK OFFICE
7 West 51st St.
New York, N.Y. 10019
Telephone: (212) 315-2800
OFFICES (CONT.)
LOS ANGELES OFFICE
354 South Spring St.
Los Angeles, California 90013
Telephone: (213) 626-1160
VIRGIN ISLANDS OFFICE
80 Kronprindsens Gade
Kronprindsens Quarter
Charlotte Amalie, St. Thomas
U.S. Virgin Islands 00802
Telephone: (809) 774-2300
SUBSIDIARIES
VEHICLE EQUIPMENT LEASING COMPANY, INC.
State Road #2 Km. 6.8
Villa Caparra
Guaynabo, Puerto Rico 00966
Telephone: (809) 792-9292
POPULAR LEASING AND RENTAL, INC.
M-1046 Federico Costa St.
Tres Monjitas Industrial Development
San Juan, Puerto Rico 00903
Telephone: (809) 751-4848
POPULAR CONSUMER SERVICES, INC.
10 Salud Street
El Senorial Condominium, Suite 613
Ponce, Puerto Rico 00731
Telephone: (809) 844-2860
EQUITY ONE, INC.
523 Fellowship Road, Suite 220
Mt. Laurel, New Jersey 08054
Telephone: (609) 273-1119
PIONEER BANCORP, INC.
4000 West North Avenue
Chicago, Illinois 60639
Telephone: (312) 772-8600
BANCO POPULAR, FSB
500 Bloomfield Avenue
Newark, New Jersey 07107
Telephone: (201) 484-6525
POPULAR MORTGAGE, INC.
268 Ponce De Leon Avenue
San Juan, Puerto Rico 00918
Telephone: (809) 753-0245
BP CAPITAL MARKETS
1020 Popular Center
Hato Rey, Puerto Rico 00918
Telephone: (809) 766-4200
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