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EXHIBIT 19
(PICTURE)
QUARTERLY REPORT / MARCH 31, 1997
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TO OUR STOCKHOLDERS
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The first quarter of 1997 ended with a shift in the interest rate environment
as the Federal Reserve increased the federal funds rate 25 basis points on
March 25, 1997. Although this was the first Fed rate increase in over two
years, it was perceived as a step in providing greater assurance that the
current economic expansion would be extended by sustaining the present low
inflation environment through the rest of the year.
Considering this economic environment, together with the business and
regulatory developments, BanPonce Corporation (the Corporation) has established
four comprehensive strategic objectives for 1997. These strategies include
strengthening our competitive position in Puerto Rico, expanding our franchise
in the Caribbean and the United States, diversifying our financial services to
provide more quality service and alternatives to our clients, and reinforcing
our organizational quality.
During this quarter, besides focusing on the strategic objectives we are
pursuing, the Corporation continued reflecting an increase in shareholder value
as the net income for the first quarter of 1997 rose to $49.5 million, for an
increase of $4.4 million or 9.7% from $45.1 million in the same quarter of
1996. For the last quarter of 1996, the Corporation reported net income of
$47.7 million.
On a per common share basis, net income rose 9.9% to $0.72 for the first
quarter of 1997, from $0.65 for the same period in 1996 and $0.69 for the last
quarter of 1996. Per share data have been adjusted to reflect the stock split
effected in the form of a dividend of one share for each share outstanding on
July 1, 1996.
Return on assets (ROA) and return on common equity (ROE) for the quarter ended
March 31, 1997, were 1.19% and 16.32%, respectively, compared with 1.17% and
16.39% for the first quarter of 1996 and 1.13% and 15.76% for the fourth
quarter of 1996.
The primary reason for the increase in net income for the first quarter of
1997, when compared with the same period a year earlier, was the growth of
$18.2 million in net interest income and $5.1 million in other revenues. These
increases were tempered by lower gains on sale of securities and trading gains
by $2.9 million, and rises of $2.4 million in the provision for loan losses,
$11.4 million in operating expenses and $2.2 million in income taxes.
Net interest income rose 11.2%, reaching $180.6 million for the first three
months of 1997, compared with $162.4 million for the same period of 1996. While
average earning assets rose $1.2 billion, the net interest yield, on a taxable
equivalent basis, increased to 4.90% for the first quarter of 1997, from 4.78%
for the same period a year earlier.
The Corporation's provision for loan losses increased to $23.7 million for the
first quarter of 1997 from $21.3 million in the same period of 1996, primarily
as a result of increases in the loan portfolio, net charge-offs and
non-performing assets. Net charge-offs for the quarter ended March 31, 1997,
amounted to $17.9 million as compared with $14.9 million for the quarter ended
March 31, 1996, and $20.3 million for the fourth quarter of 1996. The increase
reflected higher losses in consumer and commercial loans.
Other operating revenues rose to $55.4 million for the first quarter of 1997
from $50.3 million for the same period in 1996. This increase is largely
attributed to a growth in other service fees, particularly debit card fees and
credit card fees and discounts.
Operating expenses for the three-month period ended March 31, 1997, increased
to $142.1 million or 8.7%, compared with $130.7 million reported for the same
period a year earlier. Personnel costs rose mainly due to higher
performance-based compensation, annual merit increases and increased headcount
resulting from the continuous business expansion. In addition, professional
fees, printing and supplies, business promotion, communications and equipment
expenses all rose reflecting increased spending on strategic initiatives to
diversify sources of revenue, improve marketing and expand the use of
technology for competitive advantage.
The Corporation's total assets at March 31, 1997, amounted to $17.4 billion
for an increase of $1.6 billion or 10.1% when compared with $15.8 billion at
the same date in 1996. Most of the rise in assets was achieved by Banco Popular
de Puerto Rico (BPPR).
Loans amounted to $9.9 billion at March 31, 1997, compared with $8.9 billion a
year earlier and $9.8 billion at December 31, 1996. Loan growth was paced by an
increase of $529 million in commercial and construction loans, from $3.5
billion at March 31, 1996, to $4.0 billion a year later, as the Corporation
continues developing relationships with small and middle market companies.
Reflecting the overall economic conditions and management's proactive
assertion regarding credit
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quality, the allowance for loan losses increased to $191 million or 1.94% of
loans at March 31, 1997, compared with $186 million or 1.90% at December 31,
1996, and $175 million or 1.97% at March 31, 1996. Non-performing assets (NPA)
amounted to $174 million at March 31, 1997, compared with $151 million at the
same date last year and $155 million at the end of 1996. The increase in NPA
was primarily reflected in the mortgage loan portfolio in which non-performing
loans amounted to $47.2 million at March 31, 1997, compared with $28.8 million
at the same date last year and $44.0 million at December 31, 1996.
The ratio of NPA to loans increased slightly, from 1.70% at March 31, 1996, to
1.76% a year later. When adjusted to conform to standard industry practice, NPA
were $124 million or 1.25 % of loans at the end of this quarter, compared with
$111 million or 1.26% at March 31, 1996.
At March 31, 1997, total deposits were $10.5 billion compared with $10.2
billion at the same date of 1996 and $10.8 billion at December 31, 1996. As
expected, since the repeal of Section 936 of the U.S. Internal Revenue Code in
August 1996, total 936 deposits decreased from $1.0 billion at March 31, 1996
to $874 million as of December 31, 1996 and $638 million at March 31, 1997.
Borrowings increased $1.1 billion to $5.3 billion at the end of the first
quarter of 1997, from $4.2 billion a year earlier, principally at BPPR as a
result of the reduction in 936 deposits and arbitrage opportunities.
Stockholders' equity increased to $1.29 billion at March 31, 1997, compared
with $1.16 billion a year ago and $1.26 billion as of December 31, 1996,
principally as a result of the retention of earnings. Book value per share
increased to $17.96 as of March 31, 1997, from $16.07 as of the same date last
year and $17.59 at the end of 1996.
The Corporation's stock market value was $35.50 at the end of the quarter,
representing an appreciation of 53.5% and 5.2% from the market value of $23.13
at March 31, 1996 and $33.75 at December 31, 1996, respectively. The
Corporation had a total market capitalization value of $2.35 billion at March
31, 1997, based on 66,121,855 common shares outstanding.
On February 5, 1997, the Corporation sold to institutional investors $150
million of capital securities.
BanPonce Trust I, a statutory business trust owned by BanPonce Financial Corp,
issued $150 million of Capital Securities Series A at a rate of 8.327%, fully
guaranteed by BanPonce Financial Corp and BanPonce Corporation. The proceeds
were upstreamed to BanPonce Financial as junior subordinated debt under the
same terms and conditions. Cumulative preferred securities having the
characteristics of the Series A Capital Securities, as defined by the Federal
Reserve, qualify as Tier I capital for bank holding companies. Such Tier I
capital treatment provides the Corporation with a more cost-effective means of
obtaining capital for regulatory purposes.
At March 31, 1997, the Corporation maintained solid capital ratios, with a
Tier I ratio of 13.35%, a total capital ratio of 15.90% and a leverage ratio of
7.71%
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.
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In an effort to continue providing banking services at our customers'
convenience, during this first quarter BPPR launched its innovative "PC Bank"
in Puerto Rico. This new product, which is available 24 hours a day, allows
customers to obtain balances of their deposit accounts, credit cards and loans
through their personal computer from the privacy of their home or office. In
addition, clients are able to verify their most recent transactions since their
last statement of account, perform a series of payments and transfers within
the accounts and communicate with the bank through electronic mail. Also, BPPR
opened one branch and one in-store facility, increasing its opportunities to
cross-sell services, while Equity One opened two new offices for a total of 104
offices in 29 states.
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On March 28, 1997, the Federal regulatory agencies approved the previously
announced acquisition of Seminole National Bank in Sanford, Florida. Seminole
National Bank operates three branches in Sanford and Orlando with assets of
approximately $26 million and deposits of $22 million. The transaction is
expected to be completed by April 30, 1997.
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Still awaiting the approval of regulatory agencies are the acquisitions of
Roig Commercial Bank, National Bancorp and CBC Bancorp. Roig Commercial Bank
operates 25 branches, mainly located in the eastern part of Puerto Rico, with
assets of approximately $900 million and deposits of $650 million. National
Bancorp is the holding company of American Midwest Bank & Trust with assets of
approximately $175 million and deposits of $146 million, operating two branches
in Chicago, Illinois. CBC Bancorp has two banking subsidiaries, Capitol Bank &
Trust and Capitol Bank of Westmont, with assets of approximately $315 million
and deposits of $280 million.
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Effective March 31, 1997, Mr. Carlos J. Vazquez joined BanPonce Corporation as
an Executive Vice President and member of the Senior Management Council
supervising the risk management function of the Corporation. The risk
management function includes identifying, measuring and managing interest rate,
market, insurance, credit, reputation, liquidity and other risks. Mr. Vazquez
has 15 years of experience at J.P. Morgan focusing in domestic and
international financing. This appointment is in line with the guidelines
recently issued by the Federal Reserve Bank that direct examiners to provide
separate supervisory ratings for the risk management process.
/s/ Richard L. Carrion
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Richard L. Carrion
Chairman, President and
Chief Executive Officer
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FINANCIAL REVIEW
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(Dollars in thousands, except per share information)
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BALANCE SHEET HIGHLIGHTS At March 31, Average for the quarter
(In thousands) 1997 1996 Change 1997 1996 Change
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Money market investments $ 790,187 $ 661,357 $ 128,830 $ 689,891 $ 657,034 $ 32,857
Investment and trading securities 5,657,293 5,289,849 367,444 5,388,006 5,225,215 162,791
Loans 9,889,254 8,850,078 1,039,176 9,777,772 8,748,657 1,029,115
All other assets 1,064,724 1,003,799 60,925 1,061,185 925,924 135,261
Total assets 17,401,458 15,805,083 1,596,375 16,916,854 15,556,830 1,360,024
Non-interest bearing liabilities 2,553,432 2,211,091 342,341 2,490,229 2,190,371 299,858
Interest bearing liabilities 13,560,511 12,434,422 1,126,089 13,147,072 12,209,571 937,501
Stockholders' equity 1,287,515 1,159,570 127,945 1,279,553 1,156,888 122,665
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OPERATING HIGHLIGHTS
(In thousands, except First Quarter
per share information) 1997 1996 Change
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Net interest income $ 180,644 $ 162,460 $ 18,184
Provision for loan losses 23,687 21,273 2,414
Fees and other income 54,255 51,992 2,263
Other expenses 161,673 148,037 13,636
Net income 49,539 $ 45,142 $ 4,397
Net income applicable to common stock $ 47,452 $ 43,055 $ 4,397
Earnings per common share 0.72 0.65 0.07
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SELECTED STATISTICAL First Quarter
INFORMATION 1997 1996
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PROFITABILITY RATIOS - Return on assets 1.19% 1.17%
Return on earning assets 1.27 1.24
Return on common equity 16.32 16.39
Net interest spread (taxable equivalent) 4.09 4.01
Net interest yield (taxable equivalent) 4.90 4.78
Effective tax rate 28.29 27.75
Overhead ratio 48.64 48.45
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CAPITALIZATION RATIOS - Equity to assets 7.56% 7.44%
Tangible equity to assets 6.78 6.59
Equity to loans 13.09 13.22
Internal capital generation 11.11 11.47
Tier I capital to risk-adjusted assets 13.35 11.96
Total capital to risk-adjusted assets 15.90 14.68
Leverage ratio 7.71 6.65
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COMMON STOCK DATA - Market price
High $ 36.75 $ 23.13
Low 33.06 19.38
End 35.50 23.13
Book value at period end 17.96 16.07
Dividends declared 0.18 0.15
Dividend payout ratio 25.07% 22.96%
Price/earnings ratio 12.91X 10.19x
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SELECTED DATA - Common shares outstanding 66,121,855 65,949,872
Full-time equivalent employees 7,981 7,836
Branches (banking operations) 231 214
Automated teller machines 391 345
Stockholders 5,627 5,387
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Note: All common stock data has been adjusted to reflect the stock split
effected in the form of a dividend on July 1, 1996.
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FINANCIAL REVIEW
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This financial review contains the analysis of the consolidated financial
position and financial performance of BanPonce Corporation and its subsidiaries
(the Corporation). The Corporation is a regional diversified bank holding
company engaged in the following businesses through its subsidiaries.
- Commercial Banking/Savings and Loan -
Banco Popular de Puerto Rico (BPPR),
Banco Popular, Illinois, Banco Popular, FSB
and Banco Popular, N.A. (California), acquired
on September 30, 1996
- Lease Financing -Popular Leasing and Rental,
Inc.
- Mortgage Banking/Consumer Finance -Popular
Mortgage, Inc. (d/b/a Puerto Rico Home
Mortgage), Equity One, Inc. (Equity One) and
Popular Consumer Services, Inc. (d/b/a Best
Finance)
- Investment Banking-BP Capital Markets, Inc.
(BP Capital)
This financial review should be read together with the consolidated financial
statements, supplemental financial data and tables included in this report.
NET INCOME
The Corporation reported net earnings of $49.5 million for the first quarter
of 1997, compared with $45.1 million for the same period in 1996, and $47.7
million during the last quarter of 1996. Earnings per common share (EPS) for
the quarter were $0.72, based on 66,121,855 average shares outstanding,
compared with EPS of $0.65 for the first quarter of 1996, based on 65,949,872
average shares outstanding, and EPS of $0.69 for the fourth quarter of 1996,
based on 66,088,506 average shares outstanding. All per share data have been
adjusted to reflect the stock split effected in the form of a dividend of one
share for each share outstanding, effective July 1, 1996. Return on assets
(ROA) and return on common equity (ROE) for the quarter ended March 31, 1997
were 1.19% and 16.32%, respectively, compared with 1.17% and 16.39% reported
during the first quarter of 1996 and 1.13% and 15.76% for the last quarter of
1996.
Net interest income, discussed below, was the principal contributor to the
rise of $4.4 million in net earnings, with an increase of $18.2 million,
followed by an increase in other operating income of $5.1 million, partially
offset by lower gains on sale of securities and trading transactions of $2.9
million, and rises of $11.4 million in operating expenses, $2.4 million in
provision for loan losses and $2.2 million in the income tax provision.
NET INTEREST INCOME
Net interest income for the first quarter of 1997 reached $180.6 million
compared with $162.4 million reported for the same quarter in 1996. On a
taxable equivalent basis, net interest income increased to $193.3 million from
$174.5 million in the same quarter of 1996. This rise resulted from a $16.6
million increase due to a higher volume of earning assets and a $2.2 million
increase due to a higher net interest yield. 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 $15.9 billion for the quarter ended March 31,
1997, compared with $14.6 billion for the same quarter of 1996. The increase in
average earning assets relates primarily to a rise of $1.0 billion in average
loans, reaching $9.8 billion as compared with $8.8 billion for the same
quarter in 1996. The rise relates mainly to increases of $538 million in the
average commercial and construction portfolio and of $315 million in the
average consumer loan portfolio, principally at BPPR.
The average yield on loans, on a taxable equivalent basis, rose to 10.22% from
10.04% reported during the first quarter of 1996. The loan categories that were
responsible for most of the increase were commercial and consumer loans.
Commercial loans had an average yield for the quarter of 9.09%, compared with
8.89% in the first quarter of 1996, while consumer loans had an average yield
for the quarter of 13.08%, compared with 12.79% for the first quarter of 1996.
Average money market investments reached $690 million for the first quarter of
1997, compared with $657 million for the same period of 1996. The yield on
money market investments decreased to 5.21% from 5.31% reported in the first
quarter of 1996.
Average investment securities reached $5.1 billion compared with $4.9 billion
reported for the same quarter in 1996. The increase relates principally to a
higher average volume at BPPR, mainly in
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collateralized mortgage obligations, mortgage-backed securities and U.S.
Treasury securities, partially offset by a lower average balance of investments
required by local regulations to all recipients of 936 funds which have a yield
substantially below market rates. The average yield of the Corporation's
investment portfolio, on a taxable equivalent basis, including both
available-for-sale and held to maturity investments increased four basis points
to 6.80% during the three-month period ended March 31, 1997, from 6.76% during
the same period of 1996.
The average balance of trading account securities for the first quarter of
1997 was $285 million compared with $330 million reported for the same quarter
last year, a decrease of $45 million. BP Capital experienced a decrease of $59
million compared with the first quarter of 1996. The taxable equivalent yield
on trading account securities increased 20 basis points to 6.32% from 6.12%
reported in the first quarter of 1996.
As a result of the larger volume of higher-yielding assets coupled with
improvements in yields of most loan categories, the average yield on earning
assets, on a taxable equivalent basis, reached 8.83% for the first quarter of
1997, or 19 basis points higher than 8.64% reported during the first quarter of
1996.
On the liability side, average interest bearing liabilities of the Corporation
were $13.1 billion for the three-month period ended March 31, 1997, compared
with $12.2 billion for the same period of 1996. Average interest bearing
deposits increased $200 million, despite a decrease of $291 million in average
936 deposits. The increase was mostly in savings accounts which rose $164
million and NOW and money market deposits which rose $50 million for the first
quarter of 1997. Average certificates of deposits, excluding 936 deposits,
rose $278 million. Average demand deposits grew by $221 million from $2.0
billion to $2.2 billion during the first quarter of 1997.
The average costs of interest bearing deposits for the quarters ended March
31, 1997 and 1996 were 4.21% and 4.12%, respectively. The increase of nine
basis points in the average cost was principally attributed to a rise in the
cost of certificates of deposit, from 5.23% in the first quarter of 1996 to
5.41% for the same quarter in 1997. Traditionally 936 certificates of deposit
had a cost below that of the U.S. or the Eurodollar market. During the first
quarter of 1996, these deposits had an average cost of 4.61% and comprised
24.7% of total average certificates of deposit compared with 4.71% and 17.3%
during the first quarter of 1997. That reduction in the proportion of 936
deposits was among the factors resulting in an increase in the average cost of
certificates of deposit.
Savings accounts and NOW and money market deposits also reflected increases in
their average costs. Savings accounts increased from 3.02% during the first
quarter of 1996 to 3.06% for the same period in 1997, while the average cost of
NOW and money market deposits rose from 3.23% to 3.35% for the three-month
period ended March 31,1997.
Average short term borrowings increased $265 million to $3.6 billion during
the first quarter of 1997 compared with $3.3 billion reported during the same
period of 1996. The increase mostly occurred at BPPR, whose average balance
increased $445 million due to the reduction in 936 deposits and arbitrage
opportunities. This increase was partially offset by a decrease at BP Capital
of $215 million in its average balance as a result of lower 936 borrowings. The
average cost of short-term borrowings for the quarter ended March 31, 1997,
increased by 16 basis points, from 5.23% to 5.39% in 1997, due to both a
decrease in the average balance of 936 repurchase agreements and general
market conditions.
Average long and medium term-debt increased $472 million, from $810 million in
the first quarter of 1996 to $1.3 billion for the same quarter of 1997. This
increase was mostly experienced at BPPR and the holding company. The average
cost of long and medium term debt for the quarter ended March 31, 1997, was
6.34% compared with 7.22% for the same quarter last year. Also, in February
1997, the Corporation issued $150 million in Capital Securities which qualify
as Tier I capital for regulatory purposes. These securities mature on February
2027.
As a result of the increase in the average costs of interest bearing deposits
and short-term borrowings the total cost of interest bearing liabilities rose
11 basis points, from 4.63% to 4.74% for the first quarter of 1997. The cost of
funding earning assets also increased, from 3.86% for the first quarter of 1996
to 3.93% for the same quarter in 1997.
Notwithstanding the increase in the cost of funds, the rise in the yield on
earning assets was strong
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enough to move the net interest yield, on a taxable equivalent basis, upward to
4.90% for the first quarter of 1997 from 4.78% for the same quarter in 1996 and
4.84% in the last quarter of 1996.
Table A below contains a summary of the results of the Corporation's net
interest yield, on a taxable equivalent basis, for the first quarter of 1997
and 1996.
TABLE A
NET INTEREST INCOME (TAXABLE EQUIVALENT BASIS)
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(DOLLARS IN MILLIONS) FIRST QUARTER
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1997 AVERAGE 1996 AVERAGE
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BALANCE RATE BALANCE RATE
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Earning assets $15,856 8.83% $14,631 8.64%
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Financed by:
Interest
bearing funds $13,147 4.74% $12,210 4.63%
Non-interest
bearing funds 2,709 2,421
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Total $15,856 3.93% $14,631 3.86%
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Net interest income
per books $ 180.6 $ 162.4
Taxable equivalent
adjustment 12.7 12.1
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Net interest income
on a taxable equivalent
basis $ 193.3 $ 174.5
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Spread 4.09% 4.01%
Net interest yield 4.90% 4.78%
In August 1996, the U.S. Congress approved legislation that repealed Section
936 of the U.S. Internal Revenue Code. The bill approved repealed the
Qualified Possession Source Investment Income (QPSII) for taxable years
beginning after December 31, 1995. As expected, the Corporation has experienced
a reduction in the volume of 936 funds and its further substitution with
conventional higher-cost funds. Factors such as a higher rate charged on loans
previously tied to a 936 market rate and a higher rate on investments required
by local regulations to all recipients of 936 funds has helped mitigate the
impact of the resulting higher cost of funds. Also, some 936 Corporations have
chosen not to withdraw all their funds from financial institutions and have,
instead, invested those funds at a longer term to reduce the tollgate taxes
applicable upon repatriating those funds. As a result, the cost of those funds
have remained below that of the U.S. or Eurodollar market. At March 31, 1997,
the Corporation maintained $1.9 billion in 936 funds, representing 11.7% of its
liabilities compared with $2.5 billion or 17.3% at the same date in 1996 and
$2.2 billion or 14.2% at December 31, 1996.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses for the first quarter of 1997, totaled $23.7
million or a $2.4 million increase from $21.3 million reported for the same
quarter of 1996. During the fourth quarter of 1996, the provision was $23.5
million. Net charge-offs for the quarter ended March 31, 1997, reached $17.9
million or 0.73% of average loans, compared with $14.9 million or 0.68% for the
same quarter in 1996, and $20.3 million or 0.84% for the quarter ended on
December 31, 1996. Table B below presents information for the quarter ended
March 31,1997 and the previous four quarters.
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)
March 31, 1997 $23.7 $17.9 $191
December 31, 1996 23.5 20.3 186
September 30, 1996 22.4 18.8 182
June 30, 1996 21.7 18.1 178
March 31, 1996 21.3 14.9 175
Consumer and commercial loans net charge-offs increased $2.5 million and $2.0
million, respectively. Consumer loans net charge-offs totaled $8.6 million or
1.28% of average consumer loans for the quarter ended March 31, 1997, while
commercial loans net losses amounted to $7.4 million or 0.78% of the average
commercial portfolio. For the same quarter last year, consumer and commercial
loans net charge-offs represented 1.02% and 0.66%, respectively, of their
average portfolio. Most of the rise in net credit losses in the consumer
category was experienced at BPPR and Equity One which recorded $1.3 million and
$0.8 million, respectively, over the amount recognized for the same quarter of
the previous year. In the commercial loan category, BPPR was responsible for
the rise of $2.0 million in net loans
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TABLE C
ALLOWANCE FOR LOAN LOSSES AND SELECTED LOAN LOSSES STATISTICS
First Quarter
(Dollars in thousands) 1997 1996
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Balance at beginning of period. . . . . . . . . . . . . . . . $185,574 $168,393
Provision for loan losses . . . . . . . . . . . . . . . . . . 23,687 21,273
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209,261 189,666
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Losses charged to the allowance
Commercial . . . . . . . . . . . . . . . . . . . . . . . 11,200 9,215
Construction . . . . . . . . . . . . . . . . . . . . . . 300 693
Lease financing. . . . . . . . . . . . . . . . . . . . . 6,283 3,325
Mortgage . . . . . . . . . . . . . . . . . . . . . . . . 529 597
Consumer . . . . . . . . . . . . . . . . . . . . . . . . 12,001 9,513
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30,313 23,343
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Recoveries
Commercial . . . . . . . . . . . . . . . . . . . . . . . 3,823 3,859
Construction . . . . . . . . . . . . . . . . . . . . . 1 1
Lease financing . . . . . . . . . . . . . . . . . . . . 5,129 947
Mortgage . . . . . . . . . . . . . . . . . . . . . . . 36 112
Consumer . . . . . . . . . . . . . . . . . . . . . . . . 3,423 3,482
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12,412 8,401
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Net loans charged-off . . . . . . . . . . . . . . . . . . . . 17,901 14,942
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Balance at end of period. . . . . . . . . . . . . . . . . . . $191,360 $174,724
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Ratios: . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for losses to loans 1.94% 1.97%
Allowance to non-performing assets 109.99 116.00
Allowance to non-performing loans . . . . . . . . . . . 116.63 124.30
Non-performing assets to loans . . . . . . . . . . . . . 1.76 1.70
Non-performing assets to total assets . . . . . . . . . 1.00 0.95
Net charge-offs to average loans . . . . . . . . . . . . 0.73 0.68
Provision to net charge-offs . . . . . . . . . . . . . . 1.32X 1.42x
Net charge-offs earnings coverage . . . . . . . . . . . 5.18 5.61
charged-off. Lease financing and construction loans net charge-offs decreased
$1.2 million and $0.4 million, respectively, when compared with the first
quarter of 1996. The decrease in net charge-offs in the lease financing
portfolio resulted from a higher level of recoveries, as a result of the more
aggresive charge-off policy implemented in 1996 by the Corporation's leasing
subsidiaries.
As shown in Table C, the allowance for loan losses at March 31, 1997, amounted
to $191 million, representing 1.94% of loans, compared with $175 million or
1.97% at the same date last year. At December 31, 1996, the allowance for loan
losses was $186 million or 1.90% of loans. Management considers that the
allowance for loan losses is adequate to absorb potential write-offs of the
loan portfolio, based on the process established to assess its adequacy. This
process incorporates portfolio risk characteristics, results of periodic credit
reviews, prior loss experience, current and anticipated economic conditions and
loan impairment measurement.
As required by SFAS 114, the Corporation has defined impaired loans as all
loans with interest and/or principal past due 90 days or more and other
specific loans for which, based on current information and events, it is
probable that the debtor will be unable to pay all amounts due according to the
contractual terms of the loan agreement. Loan impairment is measured based on
the present value of expected cash flows discounted at the loan's effective
rate, on the observable market price or, on the fair value of the collateral if
the loan is collateral dependent. Large groups of smaller balance homogenous
loans are collectively evaluated for impairment based on past
8
10
- --------------------------------------------------------------------------------
experience. All other loans are evaluated on a loan-by-loan basis. Impaired
loans for which the discounted cash flows, collateral value or market price
equals or exceeds its carrying value do not require an allowance. At March 31,
1997, the Corporation had $99 million in loans considered impaired of which $65
million had a related allowance for possible loan losses of $18 million. As of
the same date last year, loans considered impaired amounted to $80 million of
which $38 million had a related allowance for loan losses of $9 million.
Average impaired loans during the first quarter of 1997 and 1996 were $97
million and $83 million, respectively. The Corporation recognized interest
income on impaired loans of $1.0 million and $0.9 million, for the quarters
ended March 31, 1997 and 1996, respectively.
CREDIT QUALITY
Non-performing assets (NPA) consist of past-due loans on which no interest
income is being accrued, renegotiated loans and other real estate. The
Corporation reports NPA on a more conservative basis than most U.S. banks. The
standard industry practice is to place non-performing commercial loans on
non-accrual status when payments of principal or interest are delinquent 90
days. However, the Corporation's policy is to place commercial loans on
non-accrual status when payments of principal or interest are delinquent 60
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 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 shown in Table D, NPA as of March 31, 1997, amounted to $174 million or
1.76% of loans, compared with $151 million or 1.70% at March 31, 1996. NPA
were $155 million or 1.58% of loans at December 31, 1996.
Non-performing loans totaled $164 million as of March 31, 1997 compared with
$141 million at the same date last year and $145 million as of December 31,
1996. Most of the increase from March 31, 1996, was reflected in
non-performing mortgage and consumer loans which rose $18.4 million and $5.0
million, respectively. Most of the increase in non- performing mortgage loans
was experienced at Equity One, and it was related to the rise in personal
bankruptcies in the mainland and the growth in its mortgage loan portfolio.
Non-performing commercial loans increased $1.3 million over the amount as of
March 31, 1996, while non-performing lease financings
TABLE D
- -----------------------------------------------------
NPA Allowance
as a % as a %
Date NPA of Loans of NPA
- -----------------------------------------------------
(Dollars in millions)
March 31, 1997 174 1.76% 110.0%
December 31, 1996 155 1.58 119.9
September 30, 1996 153 1.60 118.9
June 30, 1996 152 1.64 117.0
March 31, 1996 151 1.70 116.0
decreased $1.1 million and other real estate showed a decline of $0.7 million.
Assuming standard industry practice of placing commercial loans on non-accrual
status when payments of principal or interest are past due 90 days or more and
excluding the closed-end consumer loans from non-accruing loans, non-
performing assets as of March 31, 1997, amounted to $124 million or 1.25% of
loans, and the allowance for loan losses would be 154.3% of non-performing
assets. At March 31, 1996 and December 31, 1996, adjusted non-performing assets
were $111 million and $117 million, respectively, or 1.26% and 1.19% of loans.
Accruing loans that are contractually past-due 90 days or more as to principal
or interest as of March 31, 1997, amounted to $11.4 million compared with
$11.5 million at March 31, 1996, and $12.3 million at December 31, 1996.
OTHER OPERATING INCOME
Other operating income, excluding securities and trading transactions,
amounted to $55.4 million for the
9
11
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first quarter of 1997 compared with $50.3 million for the same quarter in 1996,
an increase of $5.1 million or 10.2%. This rise in other income was
principally driven by an increase of $4.8 million in other service fees and
$0.7 million in service charges on deposit accounts. Partially offsetting these
increases was a decrease of $0.4 million in other operating income. Total other
operating income for the last quarter of 1996, amounted to $54.5 million.
Service charges on deposit accounts totaled $21.8 million for the quarter
ended March 31, 1997, compared with $21.1 million for the same quarter of 1996.
This increase resulted from the growth in the activity of commercial accounts,
particularly at BPPR. In addition, the operations of Banco Popular N.A.
(California), acquired on September 30, 1996, contributed approximately $0.3
million in these service charges for the quarter.
Other service fees for the first three months of 1997, amounted to $22.2
million compared with $17.4 million for the same period of 1996. The increase
in other service fees was principally attained at BPPR where debit card fees
rose $1.5 million, reflecting the growing volume of point-of-sale (POS)
terminals and transactions. The volume of transactions at POS terminals
increased from a monthly average of approximately 1,536,000 in March 1996 to
2,524,000 a year later. Also at BPPR, credit card fees and discounts rose $1.2
million, as credit card net sales rose 29.0% and the number of credit card
active accounts grew 15.7%. In addition, fees related to the sale and
administration of investment products and credit life insurance fees rose $0.6
million and $0.5 million, respectively. The growth in credit life insurance
fees resulted mainly from a higher volume of personal loans originated during
this quarter which exceeded the originations for the first quarter of 1996 by
3,234 loans.
Other operating income decreased $0.4 million, from $11.9 million for the
first quarter of 1996 to $11.5 million for the same period in 1997. This
decrease resulted mainly from the reduction in gains realized from the sale of
mortgage loans by Equity One and a decrease in investment banking and
underwriting fees at BP Capital. Partially offsetting these reductions was a
realized gain of $2.5 million on the securitization and sale of mortgage loans
recorded at BPPR.
The Corporation recognized a net loss of $1.7 million in the sale of
securities during the first quarter of 1997, principally reflected at BPPR as a
result of the sale of U.S. Treasury securities. These securities were sold as
part of an asset/liability strategy,which included the sale of securitized
mortgage loans, in order to maintain the duration of the assets of the
Corporation and reinvest the proceeds in higher-yielding investments. Also,
during the first three months of 1997, the Corporation realized a net profit on
trading transactions amounting to $0.4 million. The Corporation had a combined
net gain of $1.7 million resulting from securities and trading activities for
the first three months of 1996.
OPERATING EXPENSES
Operating expenses for the first quarter of 1997 were $142.1 million compared
with $130.7 million for the same quarter in 1996, an increase of $11.4 million
principally reflecting higher personnel costs, professional fees, printing and
supplies expenses, business promotion and communication expenses. Operating
expenses for the last quarter of 1996 amounted to $143.9 million.
The largest category of operating expenses, personnel costs, totaled $71.5
million for the first three months of 1997, compared with $67.8 million for the
same period in 1996, an increase of $3.7 million or 5.4%. Salaries accounted
for the largest portion of the increase in personnel costs, rising $3.6 million
or 8.0% to $48.3 million, compared with $44.7 million in 1996. This increase
was due largely to annual merit increases and greater use of incentive pay to
compensate productivity and sales efforts. Also, full-time equivalent employees
(FTE) amounted to 7,981 at the end of this quarter, up 145 from 7,836 FTEs at
the same date in 1996. Profit sharing expense rose $0.4 million primarily due
to the improvement in BPPR's profitability ratios. Partially offsetting these
increases was a reduction of $0.3 million in pension and other benefits, as a
result of an expense of $1.2 million for staff uniforms recorded at BPPR during
the first quarter of 1996 in order to emphasize its corporate image at all
branches. The operations of Banco Popular N.A. (California) accounted for $0.7
million in personnel costs for the quarter ended March 31, 1997.
Operating expenses, excluding personnel costs, increased $7.7 million,
reaching $70.6 million for the first quarter of 1997, compared with $62.9
million for the same period in 1996. The increase in these operating expenses
was mostly reflected in professional fees
10
12
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which grew $2.5 million, reflecting expenditures for purchased software
associated with systems enhancements and consulting services related to the
Corporation's strategic initiatives. Business promotion, printing and supplies
and communications grew a combined $2.6 million due to the investment needed to
support the continuing growth of the Corporation's business activity and the
development of new products and services. Also, equipment expenses increased
$0.6 million, mostly as a result of the expansion of the electronic payment
system and the network of POS terminals. By the end of the first quarter of
1997, the Corporation had increased its automated teller machine (ATM) network
by 46 machines and installed 4,176 additional POS terminals, when compared with
the same date a year earlier, further expanding its electronic delivery
capabilities. Moreover, other operating expenses rose $2.1million mainly at
BPPR, reflecting higher FDIC assessment and interchange expenses related to the
growing volume of electronic transactions. The operations of Banco Popular N.A.
(California) accounted for $0.7 million in operating expenses, excluding
personnel costs, for the quarter ended March 31, 1997.
Income tax expense rose $2.2 million from $17.3 million in the first quarter
of 1996 to $19.5 million in the same quarter this year, primarily as a result
of higher pre-tax earnings. The effective tax rate for the first quarter of
1997 was 28.3%, compared with 27.7% for the same period in 1996.
BALANCE SHEET COMMENTS
Total assets at March 31, 1997, were $17.4 billion compared with $15.8 billion
at the same date last year, an increase of $1.6 billion or 10.1%. At December
31, 1996, total assets were $16.8 billion. For the first quarter of 1997,
average assets amounted to $16.9 billion compared with $15.6 billion for the
quarter ended March 31, 1996, an increase of 8.7%. Average assets for the year
ended December 31, 1996 were $16.3 billion.
Earning assets at March 31, 1997, amounted to $16.3 billion compared with
$14.8 billion at March 31, 1996 and $15.5 billion at December 31, 1996. Loans
amounted to $9.9 billion at March 31, 1997, compared with $8.9 billion a year
ago. During the first quarter of 1997 the Corporation enjoyed growth in most
loans categories. Commercial and construction loans increased from $3.5 billion
at March 31, 1996 to $4.0 billion at March 31, 1997, a rise of $529 million or
15.0%. BPPR accounted for $403 million of the increase, while Banco Popular
N.A. (California) had $62 million in commercial loans at March 31,1997.
Mortgage loans rose $195 million or 8.0% as compared with March 31, 1996. Most
of the increase was at Equity One, which rose $212 million, partially offset by
a decrease of $70 million at BPPR as a result of the sale of internally
generated FNMA pools during the latter part of 1996 and the first quarter of
1997. Mortgage loans amounted to $2.6 billion as of March 31, 1997, compared
with $2.4 billion at March 31, 1996. Consumer loans increased $295 million or
12.4%, mainly at BPPR, and the lease financing portfolio rose $20 million or
3.8% as compared with March 31, 1996. Total loans at December 31, 1996 amounted
to $9.8 billion.
At March 31, 1997, money market investments amounted to $790 million compared
with $661 million as of the same date in 1996. BP Capital had $494 million in
money market investments at the end of this quarter. Investment securities as
of March 31, 1997, totaled $5.4 billion compared with $5.0 billion as of March
31, 1996. These figures include $4.0 billion in investment securities
available-for-sale as of March 31, 1997, and $3.3 billion as of March 31, 1996.
Most of the growth was reflected at BPPR, where investment securities increased
$465 million. At March 31, 1997, the trading portfolio amounted to $263
million or a decrease of $32 million from a year earlier.
At March 31, 1997, total deposits reached $10.5 billion or $282 million higher
than $10.2 billion at March 31, 1996. Most of the increase was attained at
BPPR, where total deposits increased $216 million. Also, Banco Popular N.A.
(California) had $94 million in total deposits at March 31,1997. Total deposits
at December 31, 1996 were $10.8 billion. Total 936 deposits decreased $236
million from $874 million at December 31, 1996 to $638 million at the end of
this quarter.
Borrowings, excluding subordinated notes and capital securities, totaled $5.0
billion at March 31, 1997, from $4.0 billion at March 31, 1996. This rise was
mainly experienced at BPPR due to the decrease in 936 deposits and arbitrage
opportunities. This increase was partially offset by a decline of $208 million
in the federal funds purchased and securities sold under agreements to
repurchase mainly at BP Capital. Subordinated notes decreased $50 million, from
$175 million outstanding a year ago, due to the maturity on June 15, 1996, of
the subordinated notes
11
13
- --------------------------------------------------------------------------------
issued by BPPR in 1989.
During the first quarter of 1997, the Corporation issued $150 million in
Capital Securities Series A at 8.327%, through BanPonce Trust I, a statutory
business trust owned by BanPonce Financial Corp. The proceeds were upstreamed
to BanPonce Financial as junior subordinated debt under the same terms and
conditions. The Series A Capital Securities, qualify as Tier I capital for
regulatory purposes. Such Tier I treatment provides the Corporation with a more
cost-effective means of obtaining capital for regulatory purposes.
The Corporation's stockholders' equity at March 31, 1997, amounted to $1.29
billion, compared with $1.16 billion at March 31, 1996. The increase is mainly
due to earnings retention. Also, the additional shares issued under the
Dividend Reinvestment Plan contributed $4.2 million in additional capital since
March 31, 1996. Stockholders' equity at December 31, 1996 amounted to $1.26
billion. On April 26, 1996, the Board of Directors authorized a two-for-one
common stock split effected in the form of a dividend, which doubled the
outstanding shares at the time. The new shares were issued on July 1, 1996, to
shareholders of record as of June 14, 1996, and $198 million were transferred
from retained earnings to common stock as a result of the split. All per share
data included herein have been adjusted to reflect the stock split. The
allowance for unrealized holding losses on securities available-for-sale, net
of deferred taxes, amounted to $9.9 million at March 31, 1997, compared with a
loss of $19,000 a year ago.
The market value of the Corporation's common stock at March 31, 1997 was
$35.50 per share compared with $23.13 at March 31, 1996 and $33.75 at December
31, 1996. The Corporation's total market capitalization at March 31, 1997 was
$2.35 billion, compared with $1.53 billion at March 31, 1996. Book value per
common share increased to $17.96 as of March 31, 1997, compared with $16.07 as
of the same date last year. The dividend payout ratio to common stockholders
for the quarter ended March 31, 1997 was 25.07%, compared with 22.96% for the
same quarter last year.
The market value of the Corporation's preferred stock at March 31, 1997, was
$26.75 per share compared with $27.25 at March 31, 1996, and $26.25 at December
31, 1996.
The Corporation's Tier I, total capital and leverage ratios at March 31, 1997,
increased to 13.35%, 15.90% and 7.71%, respectively, as compared with 11.96%,
14.68% and 6.65% at March 31, 1996.
12
14
CONSOLIDATED STATEMENTS OF CONDITION
- -------------------------------------------------------------------------------------------------------------
March 31,
(In thousands)
- -------------------------------------------------------------------------------------------------------------
1997 1996
ASSETS
Cash and due from banks. . . . . . . . . . . . . . . . . . . . . $ 447,113 $ 405,890
-----------------------------
Money market investments:
Federal funds sold and securities and mortgages
purchased under agreements to resell . . . . . . . . . . . . 728,381 632,527
Time deposits with other banks . . . . . . . . . . . . . . . 59,831 26,993
Bankers acceptances . . . . . . . . . . . . . . . . . . . . . . 1,975 1,837
-----------------------------
790,187 661,357
-----------------------------
Investment securities available-for-sale,
at market value . . . . . . . . . . . . . . . . . . . . . . . 3,963,115 3,337,217
Investment securities held-to-maturity
at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,430,700 1,657,059
Trading account securities, at market value . . . . . . . . . . 263,478 295,573
Loans held-for-sale . . . . . . . . . . . . . . . . . . . . . . 249,317 87,486
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,972,694 9,088,593
Less--Unearned income . . . . . . . . . . . . . . . . . . . . 332,757 326,001
Allowance for loan losses . . . . . . . . . . . . . . . . 191,360 174,724
-----------------------------
9,448,577 8,587,868
-----------------------------
Premises and equipment . . . . . . . . . . . . . . . . . . . . 372,957 335,279
Other real estate . . . . . . . . . . . . . . . . . . . . . . . 6,615 7,353
Customers' liabilities on acceptances . . . . . . . . . . . . . 1,870 1,867
Accrued income receivable . . . . . . . . . . . . . . . . . . . 108,320 134,247
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 191,912 155,707
Intangible assets. . . . . . . . . . . . . . . . . . . . . . . . 127,297 138,180
-----------------------------
$17,401,458 $15,805,083
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing . . . . . . . . . . . . . . . . . . . . $ 2,213,435 $ 1,931,168
Interest bearing. . . . . . . . . . . . . . . . . . . . . . . 8,251,718 8,251,914
-----------------------------
10,465,153 10,183,082
Federal funds purchased and securities sold
under agreements to repurchase . . . . . . . . . . . . . . 2,344,411 2,552,831
Other short-term borrowings . . . . . . . . . . . . . . . . . 1,535,911 740,088
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . 1,153,472 684,589
Senior debentures . . . . . . . . . . . . . . . . . . . . . . 30,000
Acceptances outstanding . . . . . . . . . . . . . . . . . . . 1,870 1,867
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . 338,126 278,056
-----------------------------
15,838,943 14,470,513
-----------------------------
Subordinated notes . . . . . . . . . . . . . . . . . . . . . . 125,000 175,000
-----------------------------
Guaranteed preferred beneficial interests in BanPonce
Financial's subordinated debentures . . . . . . . . . . . . . 150,000
-----------------------------
Stockholders' equity:
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . 100,000 100,000
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . 396,731 197,850
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . 497,462 428,098
Retained earnings . . . . . . . . . . . . . . . . . . . . . . 303,268 383,641
Unrealized losses on securities available-for-sale, net of
deferred taxes . . . . . . . . . . . . . . . . . . . . . . . (9,946) (19)
Capital reserves . . . . . . . . . . . . . . . . . . . . . . . 50,000
-----------------------------
1,287,515 1,159,570
-----------------------------
$17,401,458 $15,805,083
=============================
The accompanying notes are an integral part of these financial statements
13
15
CONSOLIDATED STATEMENTS OF INCOME
- ---------------------------------------------------------------------------------------------
Quarter ended
March 31,
(Dollars in thousands, except per share information) 1997 1996
- ---------------------------------------------------------------------------------------------
INTEREST INCOME:
Loans .......................................................... $ 246,353 $217,247
Money market investments ....................................... 8,867 8,673
Investment securities .......................................... 75,111 71,945
Trading account securities ..................................... 3,934 5,062
-----------------------
334,265 302,927
-----------------------
INTEREST EXPENSE:
Deposits ....................................................... 86,195 82,996
Short-term borrowings .......................................... 47,362 42,930
Long-term debt ................................................. 20,064 14,541
-----------------------
153,621 140,467
-----------------------
Net interest income ............................................ 180,644 162,460
Provision for loan losses ...................................... 23,687 21,273
-----------------------
Net interest income after provision for loan losses............. 156,957 141,187
Service charges on deposit accounts ............................ 21,819 21,076
Other service fees ............................................. 22,169 17,380
(Loss) gain on sale of securities .............................. (1,660) 729
Trading account profit ......................................... 433 938
Other operating income ......................................... 11,494 11,869
-----------------------
211,212 193,179
-----------------------
OPERATING EXPENSES:
Personnel costs:
Salaries ....................................................... 48,345 44,752
Profit sharing ................................................. 6,440 6,070
Pension and other benefits ..................................... 16,700 16,981
-----------------------
71,485 67,803
Net occupancy expense .......................................... 9,002 9,318
Equipment expenses ............................................. 12,340 11,774
Other taxes .................................................... 6,445 5,963
Professional fees .............................................. 12,414 9,916
Communications ................................................. 7,581 6,316
Business promotion ............................................. 5,957 5,392
Printing and supplies .......................................... 3,644 2,923
Other operating expenses ....................................... 8,819 6,740
Amortization of intangibles .................................... 4,438 4,554
-----------------------
142,125 130,699
-----------------------
Income before taxes ............................................ 69,087 62,480
Income taxes ................................................... 19,548 17,338
-----------------------
NET INCOME ..................................................... $ 49,539 $ 45,142
=======================
NET INCOME APPLICABLE TO COMMON STOCK .......................... $ 47,452 $ 43,055
=======================
EARNINGS PER COMMON SHARE ...................................... $ 0.72 $ 0.65
=======================
The accompanying notes are an integral part of these financial statements.
16
CONSOLIDATED STATEMENTS OF CASH FLOW
- --------------------------------------------------------------------------------------------------------------
For the quarter ended
March 31,
(In thousands) 1997 1996
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49,539 $ 45,142
-----------------------------
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization of premises and equipment . . . . . 12,639 12,355
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . 23,687 21,273
Amortization of intangibles. . . . . . . . . . . . . . . . . . . . . 4,438 4,554
Loss (gain) on sale of investment securities available-for-sale . . 1,660 (729)
Loss (gain) on disposition of premises and equipment . . . . . . . 160 (10)
Gain on sale of loans . . . . . . . . . . . . . . . . . . . . . . . (4,388) (2,792)
Amortization of premiums and accretion of discounts
on investments . . . . . . . . . . . . . . . . . . . . . . . . . . 596 755
Decrease in loans held-for-sale . . . . . . . . . . . . . . . . . . 5,812 25,319
Amortization of deferred loan fees and costs . . . . . . . . . . . (1,101) (45)
Net decrease in trading securities . . . . . . . . . . . . . . . . . 28,671 35,101
Net increase in interest receivable. . . . . . . . . . . . . . . . . (12,833) (20,708)
Net decrease (increase) in other assets. . . . . . . . . . . . . . . 208,050 (13,032)
Net decrease in interest payable . . . . . . . . . . . . . . . . . . (8,323) (1,418)
Net increase in current and deferred taxes . . . . . . . . . . . . . 10,317 6,208
Net increase postretirement benefit obligation.. . . . . . . . . . . 1,473 2,253
Net increase (decrease) in other liabilities . . . . . . . . . . . . 6,469 (5,791)
-----------------------------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . 277,327 63,293
-----------------------------
Net cash provided by operating activities . . . . . . . . . . . . . . 326,866 108,435
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in money market investments . . . . . . . . . . . . . . 10,090 137,362
Purchases of investment securities held-to-maturity. . . . . . . . . (7,028,117) (1,366,623)
Maturities of investment securities held-to-maturity . . . . . . . . 6,851,253 1,354,385
Purchases of investment securities available-for-sale . . . . . . . (2,056,260) (1,717,071)
Maturities of investment securities available-for-sale . . . . . . . 78,604 474,048
Sales of investment securities available-for-sale. . . . . . . . . . 1,356,192 1,101,095
Net disbursements on loans . . . . . . . . . . . . . . . . . . . . . (249,045) (266,068)
Proceeds from sale of loans. . . . . . . . . . . . . . . . . . . . . 121,723 92,858
Acquisition of loan portfolios . . . . . . . . . . . . . . . . . . . (4,082) (35,198)
Acquisition of premises and equipment. . . . . . . . . . . . . . . . (35,520) (24,452)
Proceeds from sale of premises and equipment . . . . . . . . . . . . 6,461 2,031
-----------------------------
Net cash used in investigating activities . . . . . . . . . . . . . . (948,701) (247,633)
-----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits . . . . . . . . . . . . . . . . (298,121) 306,419
Net increase (decrease) in federal funds purchased and securities
sold under agreements to repurchase . . . . . . . . . . . . . . . . 468,945 (448,047)
Net increase in other short-term borrowings . . . . . . . . . . . . 131,906 285,381
Proceeds from issuance of notes payable . . . . . . . . . . . . . . 166,759 116,117
Payments of notes payable . . . . . . . . . . . . . . . . . . . . . (161,957)
Proceeds from issuance of Series A Capital Securities . . . . . . . 150,000
Payments of senior debentures . . . . . . . . . . . . . . . . . . . (30,000)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,989) (11,972)
Proceeds from issuance of common stock . . . . . . . . . . . . . . . 1,080 974
-----------------------------
Net cash provided by financing activities . . . . . . . . . . . . . . 576,580 86,915
-----------------------------
Net decrease in cash and due from banks . . . . . . . . . . . . . . . (45,255) (52,283)
Cash and cash due from banks at beginning of period . . . . . . . . . 492,368 458,173
-----------------------------
Cash and due from banks at end of period . . . . . . . . . . . . . . $ 447,113 $ 405,890
=============================
The accompanying notes are an integral part of these 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, BP Capital
Markets, Inc.; Popular International Bank, Inc. and its wholly-owned subsidiary
BanPonce Financial Corp, including Banco Popular, FSB, Pioneer Bancorp, Inc.,
CombanCorp (second tier subsidiaries) and Equity One, Inc.; Banco Popular de
Puerto Rico and its wholly-owned subsidiaries, Popular Leasing and Rental,
Inc., Popular Consumer Services, Inc. and Popular Mortgage, Inc.; and
Metropolitana de Prestamos, Inc., as of March 31, 1997 and 1996, and their
related statements of income and cash flows for the three-month periods 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 year consolidated financial statements to conform to the 1997
presentation.
NOTE 2 - ACCOUNTING CHANGES
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 129, "Disclosure of
Information about Capital Structure." This statement establishes standards for
disclosing information about an entity's capital structure. This statement is
effective for financial statements for periods ending after December 15, 1997.
However, it contains no change in disclosure requirements for entities that
were previously subject to the requirements of Opinion 10 and 15 and SFAS 47.
In February 1997, the FASB issued SFAS 128, "Earnings per Share." This
statement establishes standards for computing and presenting earnings per share
(EPS) and applies to entities with publicly held common stock or potential
common stock. It simplifies the standards for computing earnings per share
previously found in APB Opinion 15, "Earnings per Share," and makes them
comparable to international EPS standards. SFAS 128 replaces the presentation
of primary earnings per share with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. This statement is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods and requires restatement of all prior period
EPS data presented.
In June 1996, the FASB issued SFAS 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities," which supersedes SFAS
122 "Accounting for Mortgage Servicing Rights". This statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities. Those standards are based on a
consistent application of a financial component approach that focuses on the
legal and physical control over the component. Under this approach, following a
transfer of financial assets, an entity recognizes the financial and servicing
assets it controls and the liabilities it has incurred, and derecognizes
financial assets for which control has been surrendered and financial
liabilities that have been extinguished. The provisions of this statement are
effective for transactions occurring after December 31, 1996. However, the FASB
issued SFAS 127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement 125", that delays until January 1, 1998, the effective date of those
provisions of the statement that deal with securities lending, repurchase
agreements and similar transactions. The adoption of this pronouncement did not
have a financial impact on the consolidated financial statement of the
Corporation in the quarter ended March 31, 1997. In addition, this statement
requires that mortgage banking enterprises recognize as separate assets the
rights to service mortgage loans for others, whether those servicing rights are
originated or purchased. Also, it requires mortgage banking enterprises to
assess capitalized mortgage servicing rights for impairment based on the fair
value of those rights. The total cost of mortgage loans to be sold with
servicing rights retained is allocated to the mortgage servicing rights and the
loans (without the mortgage servicing rights) based on their relative fair
values. These mortgage servicing rights are amortized in proportion to and over
the periods of estimated net servicing income.
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To estimate the fair value of mortgage servicing rights the Corporation
considers prices for similar assets and the present value of expected future
cash flows associated with the servicing rights calculated using assumptions
that market participants would use in estimating future servicing income and
expense. For purposes of evaluating and measuring impairment of capitalized
mortgage servicing rights, the Corporation stratifies such rights based on
predominant risk characteristics of underlying loans, such as loan type, rate
and term. The amount of impairment recognized if any, is the amount by which
the capitalized mortgage servicing rights per stratum exceeds its estimated
fair value. Impairment is recognized through a valuation allowance. As of March
31, 1997, the carrying value, estimated fair value and valuation allowance of
capitalized mortgage servicing rights were $26,367, $35,221 and $31,
respectively (1996-$23,898, $26,469 and $212).
Effective January 1, 1996, the Corporation adopted SFAS 123 "Accounting for
Stock-Based Compensation." This statement establishes a fair value-based method
of accounting for stock-based employee compensation plans. It encourages
entities to adopt this method in lieu of the provisions of APB Opinion 25,
"Accounting for Stock Issued to Employees," for all arrangements under which
employees receive shares of stock or other equity instruments of the employer
or the employer incurs liabilities to employees in amounts based on the price
of its stock. Banco Popular provides a stock-based compensation plan for its
senior management. It is a three-year incentive plan under which shares of
stock of the Corporation are granted if long-term corporate performance and
objectives are met. For the quarters ended March 31, 1997 and 1996, the
Corporation recognized an expense of $223 and $103, respectively, related to
this plan.
Effective January 1, 1996, the Corporation adopted Statement of Financial
Accounting Standards (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 indentifiable intangibles to be held and
used by an entity as well as assets held for disposition be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. For the first quarters of
1997 and 1996, no impairment recognition was necessary based on this
pronouncement.
NOTE 3 - INVESTMENT SECURITIES
The average maturities as of March 31, 1997, and market value for the following
investment securities are:
Investments securities available-for-sale:
March 31,
1997 1996
Amortized Market Amortized Market
Cost Value Cost Value
-------------------------------------------------------
U.S. Treasury (average
maturity of 1 year and 3 months) $2,669,908 $2,663,911 $2,454,152 $2,453,291
Obligations of other U.S. Government
agencies and corporations
(average maturity of 6 years and 7 months) 312,604 308,669 440,015 439,624
Obligations of Puerto Rico, States and
political subdivisions (average
maturity of 6 years and 9 months) 39,305 39,118 26,468 26,564
Collateralized mortgage obligations
(average maturity of 2 years) 486,786 485,339 109,047 108,342
Mortgage-backed securities (average
maturity of 18 years and 4 months) 426,975 425,964 260,168 256,910
Equity securities (without contractual
maturity) 20,238 20,753 27,703 34,436
Others (average maturity of 12 years
and 9 months) 19,362 19,361 18,050 18,050
-------------------------------------------------------
$3,975,178 $3,963,115 $3,335,603 $3,337,217
=======================================================
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Investments securities held-to-maturity:
March 31,
1997 1996
Amortized Market Amortized Market
Cost Value Cost Value
---------------------------------------------------------
U.S. Treasury (average maturity
of 7 months) $ 370,721 $ 370,323 $ 924,137 $ 927,247
Obligations of other U.S. Government
agencies and corporations (average
maturity of 1 month) 739,617 739,064 132,271 130,950
Obligations of Puerto Rico, States and
political subdivisions (average
maturity of 6 years and 11 months) 59,725 60,761 218,222 220,124
Collateralized mortgage obligations (average
maturity of 1 year and 6 months) 130,117 129,583 262,655 260,900
Mortgage-backed securities (average maturity
of 4 years and 2 months) 53,159 52,646 59,706 60,395
Equity securities (without contractual
maturity) 64,620 64,620 47,674 47,674
Others (average maturity of 3 years and
9 months) 12,741 12,706 12,394 12,430
-------------------------------------------------------
$1,430,700 $1,429,703 $1,657,059 $1,659,720
=======================================================
NOTE 4 - PLEDGED ASSETS
Securities and insured mortgage loans of the Corporation of $3,709,321 (1996 -
$2,774,689) 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, 1997, amounted to $17,923 and
$113,143. 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.
18
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NOTE 6 - SUBORDINATED NOTES
Subordinated notes consist of the following:
March 31,
1997 1996
----------------------
Subordinated notes issued by the Corporation on
December 12, 1995, maturing on December 15,
2005, with interest payable semi-annually at 6.75% $125,000 $125,000
----------------------
Subordinated notes issued by Banco Popular on
March 29,1989, which matured on June 15, 1996,
with interest payable quarterly and consisting of:
8.875% Fixed Rate Notes series A $ 15,000
8.6875% Fixed Rate Notes series B 15,000
Floating Rate Notes series A with interest
payable at 88% of LIBID rate 19,000
Floating Rate Notes series B with interest
payable at 86% of LIBID rate 1,000
----------------------
50,000
----------------------
$125,000 $175,000
======================
NOTE 7 - STOCKHOLDERS' EQUITY
Authorized common stock is 90,000,000 shares with a par value of $6 per share
of which 66,121,855 are issued and outstanding at March 31, 1997. On April
26,1996, the Corporation's Board of Directors authorized a stock split of one
share for each share outstanding effected in the form of a dividend, effective
July 1, 1996. As a result of the split, 33,000,590 shares were issued, and
$198,004 were transferred from retained earnings to common stock. All
references in the financial statements to the numbers of common shares and per
share amounts have been restated to reflect the stock split. Authorized
preferred stock is 10,000,000 shares without par value of which 4,000,000,
non-cumulative with a dividend rate of 8.35% and a liquidation preference value
of $25 per share, are issued and outstanding at March 31, 1997.
NOTE 8 - EARNINGS PER COMMON SHARE
Earnings per common share (EPS) are calculated based on net income applicable
to common stockholders which amounted to $47,452 and $43,055 for the quarters
ended March 31, 1997 and 1996 respectively, after deducting the dividends on
preferred stock. EPS are based on 66,121,855 and 65,949,872 average shares
outstanding for the first quarter of 1997 and 1996, respectively, after
restating for the stock split.
NOTE 9 - SUPPLEMENTAL DISCLOSURE ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS
During the quarter ended March 31, 1997 the corporation paid interest and
income taxes amounting to $160,892 and $4,732, respectively (1996 - $148,341
and $5,554). In addition, the loans receivable transferred to other real estate
and other property for the quarter ended march 31, 1997, amounted to $1,524 and
$1,430, respectively (1996 - $468 and $1,142). The corporation's stockholders'
equity at march 31, 1997 includes $9,946, in unrealized holding losses on
securities available-for-sale, net of deferred taxes, as compared with $19 in
unrealized losses as of march 31, 1996.
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DIRECTORS AND OFFICERS
BOARD OF DIRECTORS OFFICES (CONT.)
Richard L. Carrion, Chairman VIRGIN ISLANDS OFFICE
Alfonso F. Ballester, Vice Chairman 80 Kronprindsens Gade
Antonio Luis Ferre, Vice Chairman Kronprindsens Quarter
Juan A. Albors Hernandez * Charlotte Amalie, St. Thomas
Salustiano Alvarez Mendez * U.S. Virgin Islands 00802
Jose A. Bechara Bravo * Telephone: (809) 774-2300
Juan J. Bermudez
Esteban D. Bird * SUBSIDIARIES
Francisco J. Carreras METROPOLITANA DE PRESTAMOS, INC.
David H. Chafey, Jr. State Road #2 Km. 6.8
Luis E. Dubon, Jr. Villa Caparra
Hector R. Gonzalez Guaynabo, Puerto Rico 00966
Jorge A. Junquera Diez Telephone: (787) 792-9292
Franklin A. Mathias*
Manuel Morales, Jr. POPULAR LEASING AND RENTAL, INC.
Alberto M. Paracchini M-1046 Federico Costa St.
Francisco Perez, Jr. ** Tres Monjitas Industrial Development
Francisco M. Rexach, Jr. San Juan, Puerto Rico 00903
Jose E. Rossi ** Telephone: (787) 751-4848
Felix J. Serralles Nevares
Emilio Jose Venegas ** POPULAR CONSUMER SERVICES, INC.
Julio E. Vizcarrondo, Jr. 10 Salud Street
El Senorial Condominium, Suite 613
Samuel T. Cespedes, Secretary Ponce, Puerto Rico 00731
Telephone: (787) 844-2860
* Director of Banco Popular de Puerto Rico only
** Director of BanPonce Corporation only EQUITY ONE, INC.
523 Fellowship Road, Suite 220
EXECUTIVE OFFICERS Mt. Laurel, New Jersey 08054
Richard L. Carrion, Chairman of the Board, Telephone: (609) 273-1119
President and Chief Executive Officer
David H. Chafey, Jr., Senior Executive Vice President PIONEER BANCORP, INC.
Jorge A. Junquera Diez, Senior Executive Vice President 4000 West North Avenue
Maria Isabel Burckhart, Executive Vice President Chicago, Illinois 60639
Roberto R. Herencia, Executive Vice President Telephone: (312) 772-8600
Larry Kesler, Executive Vice President
Humberto Martin, Executive Vice President BANCO POPULAR, FSB
Emilio E. Pinero, Executive Vice President 500 Bloomfield Avenue
Carlos Rom, Jr., Executive Vice President Newark, New Jersey 07107
Carlos J. Vazquez, Executive Vice President Telephone: (201) 484-6525
OFFICES POPULAR MORTGAGE, INC.
CENTRAL OFFICE 268 Ponce de Leon Avenue
Banco Popular Center, Hato Rey San Juan, Puerto Rico 00918
209 Munoz Rivera Avenue Telephone: (787) 753-0245
San Juan, Puerto Rico 00918
Telephone: (787) 765-9800 BP Capital Markets, Inc.
1020 Popular Center
NEW YORK OFFICE Hato Rey, Puerto Rico 00918
7 West 51st St. Telephone: (787) 766-4200
New York, N.Y. 10019
Telephone: (212) 315-2800 COMBANCORP
6001 E. Washington Blvd.
City of Commerce, California 90040
Telephone: (213) 724-8800
ATH COSTA RICA
Cond. en Oficinas Ofiplaza del Este
Edif. D- Piso 1, 100 metros Oeste de la
Rotonda de la Bandera
San Pedro, Costa Rica
Telephone: (011) 506-280-9796
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