-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, IlfS+0f3Ss9wSEsdCkSUe2OVc3Mu88VKDk6TukNUvv375YYEtwn8fBb/mA2ce+dy Da6qNNvqI2CRha2sN+uiWw== 0000950144-94-002002.txt : 19941117 0000950144-94-002002.hdr.sgml : 19941117 ACCESSION NUMBER: 0000950144-94-002002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANPONCE CORP CENTRAL INDEX KEY: 0000763901 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 660416582 STATE OF INCORPORATION: PR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13818 FILM NUMBER: 94559783 BUSINESS ADDRESS: STREET 1: 209 MUNOZ RIVERA AVE STREET 2: POPULAR CENTER BUILDING CITY: HATO REY STATE: PR ZIP: 00918 BUSINESS PHONE: 8097659800 MAIL ADDRESS: STREET 1: P.O. BOX 362708 CITY: SAN JUAN STATE: PR ZIP: 00936-2708 10-Q 1 BANPONCE CORPORATION - FORM 10-Q 9/30/94 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10 - Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended September 30, 1994 Commission file number 0- 13818 ------------------ -------- BANPONCE CORPORATION ---------------------------------------------------- (Exact name of registrant as specified in its charter) Puerto Rico 66-041-6582 ---------------------- ---------------------------------- (State of incorporation) (I.R.S. Employer Identification No.) Popular Center Building 209 Munoz Rivera Avenue, Hato Rey, Puerto Rico 00918 -------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (809) 765-9800 Not Applicable -------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report. Common Stock $6.00 Par value 32,812,818 ---------------------------- ------------------------------------------- (Title of Class) (Shares Outstanding as of September 30, 1994) 2 BANPONCE CORPORATION INDEX
Part I - Financial Information Page - - ------------------------------ ------ Item 1. Financial Statements Unaudited consolidated statements of condition September 30, 1994 and December 31, 1993. 3 Unaudited consolidated statements of income three months and nine months ended September 30, 1994 and 1993. 4 Unaudited consolidated statements of cash flows - nine months ended September 30, 1994 and 1993. 5 Notes to unaudited consolidated financial statements. 6-12 Item 2. Management's discussion and analysis of financial condition and results of operation. 13-21 Part II - Other Information - - --------------------------- Item 1. Legal proceedings - None N/A Item 2. Changes in securities - None N/A Item 3. Defaults upon senior securities - None N/A Item 4. Submission of matters to a vote of security holders - None N/A Item 5. Other information N/A Item 6. Exhibits and reports on Form 8-K 22 --- Signature 22
3 3 BANPONCE CORPORATION CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)
September 30, December 31, (In thousands) 1994 1993 - - --------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 340,920 $ 368,837 - - --------------------------------------------------------------------------------------------------------------- Money market investments: Federal funds sold and securities and mortgages purchased under agreements to resell 146,790 247,333 Time deposits with other banks 3,100 15,100 Banker's acceptances 275 259 - - --------------------------------------------------------------------------------------------------------------- 150,165 262,692 - - --------------------------------------------------------------------------------------------------------------- Investment securities held to maturity, at cost (Notes 3 and 4) 3,210,192 3,330,798 Investment securities available for sale, at market (Notes 3 and 4) 724,522 714,565 Trading account securities, at market 19,214 3,017 Loans (Note 4) 7,798,689 6,655,072 Less - Unearned income 296,599 308,150 Allowance for loan losses 149,429 133,437 - - --------------------------------------------------------------------------------------------------------------- 7,352,661 6,213,485 - - --------------------------------------------------------------------------------------------------------------- Premises and equipment 322,780 298,089 Other real estate 10,959 12,699 Customer's liabilities on acceptances 1,257 1,392 Accrued income receivable 76,444 79,285 Other assets 104,339 95,763 Intangible assets 131,072 132,746 - - --------------------------------------------------------------------------------------------------------------- $12,444,525 $ 11,513,368 =============================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits: Non-interest bearing $ 1,760,969 $ 1,848,859 Interest bearing 7,115,412 6,673,799 - - --------------------------------------------------------------------------------------------------------------- 8,876,381 8,522,658 Federal funds purchased and securities sold under agreements to repurchase (Note 4) 1,195,956 951,733 Other short-term borrowings 702,804 664,173 Notes payable 408,529 253,855 Senior debentures 30,000 30,000 Acceptances outstanding 1,257 1,392 Other liabilities 190,725 182,362 - - --------------------------------------------------------------------------------------------------------------- 11,405,652 10,606,173 - - --------------------------------------------------------------------------------------------------------------- Subordinated notes (Note 6) 50,000 62,000 - - --------------------------------------------------------------------------------------------------------------- Preferred stock of subsidiary Bank (Note 7) 11,000 - - --------------------------------------------------------------------------------------------------------------- Stockholders' equity (Note 8): Preferred stock 100,000 Common stock 196,877 196,395 Surplus 393,800 386,622 Retained earnings 272,273 208,607 Unrealized losses on securities available for sale (Note 2) (9,791) Capital reserves 35,714 42,571 - - --------------------------------------------------------------------------------------------------------------- 988,873 834,195 - - --------------------------------------------------------------------------------------------------------------- $12,444,525 $11,513,368 ===============================================================================================================
The accompanying notes are an integral part of these unaudited financial statements 4 4 BANPONCE CORPORATION CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED) Quarter ended For the nine months September 30, ended September 30, (Dollars in thousands, except per share information) 1994 1993 1994 1993 - - --------------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME: Loans $172,946 $140,665 $482,529 $402,580 Money market investments 803 1,465 4,152 4,758 Investment securities 54,338 54,422 159,878 164,711 Trading account securities 140 157 192 307 - - ------------------------------------------------------------------------------------------------------------------------------- 228,227 196,709 646,751 572,356 - - -------------------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE: Deposits 63,536 54,432 178,437 164,783 Short-term borrowings 21,714 12,080 53,015 29,324 Long-term debt 6,746 5,023 18,598 12,611 - - ------------------------------------------------------------------------------------------------------------------------------- 91,996 71,535 250,050 206,718 - - -------------------------------------------------------------------------------------------------------------------------------- Net interest income 136,231 125,174 396,701 365,638 Provision for loan losses 13,544 17,442 41,244 58,155 - - ------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 122,687 107,732 355,457 307,483 Service charges on deposit accounts 18,419 17,400 53,644 50,706 Other service fees 14,011 10,737 39,202 32,122 Gain (loss) on sale of securities (205) 332 67 864 Trading account profit (loss) (8) 183 323 407 Other operating income 4,060 1,858 11,459 7,081 - - ------------------------------------------------------------------------------------------------------------------------------- 158,964 138,242 460,152 398,663 - - -------------------------------------------------------------------------------------------------------------------------------- OPERATING EXPENSES: Personnel costs: Salaries 41,002 38,011 119,901 112,085 Profit sharing 5,378 4,648 15,993 15,062 Pension and other benefits 11,465 9,527 34,167 35,303 - - ------------------------------------------------------------------------------------------------------------------------------- 57,845 52,186 170,061 162,450 Net occupancy expense 7,304 6,426 21,134 19,109 Equipment expenses 9,101 7,347 26,064 20,186 Other taxes 4,961 4,153 14,060 11,848 Professional fees 8,694 7,259 24,746 19,785 Communications 5,206 4,447 15,099 13,718 Business promotion 4,385 3,659 11,614 11,429 Printing and supplies 2,321 1,943 6,733 5,967 Other operating expenses 10,233 9,975 30,706 28,517 Amortization of intangibles 4,501 4,041 13,364 11,805 - - ------------------------------------------------------------------------------------------------------------------------------- 114,551 101,436 333,581 304,814 - - -------------------------------------------------------------------------------------------------------------------------------- Income before tax, dividends on preferred stock of subsidiary Bank and cumulative effect of accounting changes 44,413 36,806 126,571 93,849 Income tax 12,696 8,459 34,063 18,276 - - ------------------------------------------------------------------------------------------------------------------------------- Income before dividends on preferred stock of subsidiary Bank and cumulative effect of accounting changes 31,717 28,347 92,508 75,573 Dividends on preferred stock of subsidiary Bank 193 385 578 - - ------------------------------------------------------------------------------------------------------------------------------- Income before cumulative effect of accounting changes 31,717 28,154 92,123 74,995 Cumulative effect of accounting changes (Note 2) 6,185 - - ------------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 31,717 $ 28,154 $ 92,123 $ 81,180 ================================================================================================================================ EARNINGS PER COMMON SHARE (NOTE 9): Income before cumulative effect of accounting changes $ 0.90 $ 0.86 $ 2.74 $ 2.29 Cumulative effect of accounting changes (Note 2) 0.19 - - -------------------------------------------------------------------------------------------------------------------------------- Net Income $ 0.90 $ 0.86 $ 2.74 $ 2.48 ================================================================================================================================
The accompanying notes are an integral part of these unaudited financial statements. 5 5 BANPONCE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the nine months ended (In thousands) September 30, 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 92,123 $ 81,180 - - --------------------------------------------------------------------------------------------------------------- Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization of premises and equipment 27,505 19,784 Provision for loan losses 41,244 58,155 Amortization of intangibles 13,364 11,805 Gain on sale of investment securities available for sale (67) (864) Gain on sale of premises and equipment (862) (912) Gain on sale of loans (2,775) (262) Amortization of premiums and accretion of discounts on investments 6,170 8,354 Amortization of deferred loan fees and costs 975 4,470 Net increase in postretirement benefit obligation 3,273 42,695 Net increase in trading securities (16,197) (16,344) Net decrease in interest receivable 4,934 3,754 Net increase in other assets (6,189) (15,237) Net increase (decrease) in interest payable 991 (1,234) Net increase (decrease) in current and deferred taxes 10,406 (47,276) Net (decrease) increase in other liabilities (1,393) 11,770 - - --------------------------------------------------------------------------------------------------------------- Total adjustments 81,379 78,658 - - --------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 173,502 159,838 - - --------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Net decrease in money market investments 117,927 113,844 Purchases of investment securities held to maturity (5,860,771) (2,686,065) Maturities of investment securities held to maturity 5,977,209 2,483,979 Sales of investment securities held to maturity 12,059 Purchases of investment securities available for sale (258,595) (233,200) Sales of investment securities available for sale 347,799 83,039 Net disbursements on loans (1,010,521) (529,299) Proceeds from sale of loans 84,285 22,998 Acquisition of mortgage loan portfolio (76,700) (297,688) Assets acquire, net of cash (17,557) Acquisition of premises and equipment (46,853) (46,557) Proceeds from sale of premises and equipment 2,049 8,198 - - --------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (741,728) (1,068,692) - - --------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in deposits 61,018 (92,223) Net deposits acquired 199,179 Net increase in federal funds purchased and securities sold under agreements to repurchase 239,222 599,771 Net increase in other short-term borrowings 36,031 130,388 Proceeds from issuance of notes payable 154,681 139,011 Payments of notes payable (7) (7) Payments of subordinated notes (12,000) Dividends paid (26,725) (19,603) Proceeds from issuance of common stock 2,399 1,464 Proceeds from issuance of preferred stock 96,690 Redemption of preferred stock of subsidiary Bank 11,000 -------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 540,309 957,980 - - --------------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash and due from banks (27,917) 49,126 Cash and due from banks at beginning of period 368,837 325,497 - - --------------------------------------------------------------------------------------------------------------- Cash and due from banks at end of period $ 340,920 $ 374,623 ===============================================================================================================
The accompanying notes are an integral part of these unaudited financial statements. 6 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share information) NOTE 1- CONSOLIDATION The consolidated financial statements of BanPonce Corporation include the balance sheet of the Corporation and its wholly-owned subsidiaries, Velco, Popular International Bank, Inc. and its wholly-owned subsidiaries BanPonce Financial Corp., Spring Financial Services, Inc. and Pioneer Bancorp, Inc. (second tier subsidiaries), and Banco Popular de Puerto Rico and its wholly-owned subsidiaries, Popular Leasing and Rental, Inc. and Popular Consumer Services, Inc., as of September 30, 1994 and December 31, 1993, and their related statements of income and cash flows for the nine-month periods ended September 30, 1994 and September 30, 1993. These statements are, in the opinion of management, a fair statement of the results of the periods presented. These results are unaudited, but include all necessary adjustments for a fair presentation of such results. NOTE 2- ACCOUNTING CHANGES During the first quarter of 1994 the Corporation adopted SFAS 115 "Accounting for Certain Investments in Debt and Equity Securities." SFAS 115 requires financial institutions to divide their securities holdings among three categories: held-to-maturity, available-for-sale and trading securities. Those securities which management has the positive intent and ability to hold to maturity will be classified as held-to-maturity and will be carried at cost. Those that are bought and held principally for the purpose of selling them in the near term, will be classified as trading and will continue to be reported at fair value with unrealized gains and losses included in earnings. All other securities will be classified as available-for-sale and will be reported at fair value with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders' equity. As a result of the adoption of this statement, the Corporation's stockholders' equity at September 30, 1994 includes $9.8 million, net of taxes, in unrealized holding losses on securities available for sale. Effective January 1, 1993, the Corporation implemented the Statement of Financial Accounting Standards (SFAS) 106, "Employers Accounting for Postretirement Benefits other than Pensions", and SFAS 109, "Accounting for Income Taxes". Under SFAS 106 the cost of retiree health care and other postretirement benefits is accrued during employees' service periods. The Corporation elected to recognize the full transition obligation, which is the portion of future retiree benefit costs related to service already rendered by both active and retired employees up to the date of adoption, in the first quarter of 1993 rather than amortize it over future periods. The cumulative effect, net of taxes, of this accounting change amounted to $22.7 million, or $0.70 per share. The SFAS 109 established accounting and reporting standards for the recognition of deferred tax assets and liabilities for the future tax consequences of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. The cumulative effect of this change resulted in a credit to income of $28.9 million, or $0.89 per share. This amount is net of a valuation allowance of approximately $2.1 million related to a deferred tax asset arising from net operating loss carryforwards for which the Corporation cannot determine the likelihood that they will be realized. 7 7 NOTE 3 - INVESTMENT SECURITIES The maturities as of September 30, 1994 and the market value as of September 30, 1994 and September 30, 1993 for the following investment securities are: Investments securities held to maturity:
September 30, 1994 1993 Book Value Market Value Book Value Market Value ---------------------------------------------------------------------- (Dollars in Thousands) U.S. Treasury (average maturity of 1 year and 1.3 months) $1,803,692 $1,783,353 $2,526,877 $2,558,708 Obligations of other U.S. Government agencies and corporations (average maturity of 1 year and 9.4 months) 555,637 549,935 119,832 121,804 Obligations of Puerto Rico, States and political subdivisions (average maturity of 3 years and 7.4 months) 193,731 196,596 218,709 228,947 Others (average maturity of 3 years and 7.1 months) 657,132 635,678 607,011 607,285 ---------------------------------------------------------------------- $3,210,192 $3,165,562 $3,472,429 $3,516,744 ---------------------------------------------------------------------- Investment securities available for sale: September 30, 1994 1993 Book Value Market Value Book Value Market Value ---------------------------------------------------------------------- (Dollars in Thousands) U.S. Treasury (average maturity of 2 years and 8.1 months) $563,154 $552,108 $455,715 $481,407 Obligations of other U.S. Government agencies and corporations (average maturity of 2 years and 8.6 months) 62,463 61,546 95,137 96,656 Obligations of Puerto Rico, States and political subdivisions (average maturity of 2 years and 9.8 months) 23,915 23,157 Others (average maturity of 3 years and 5.1 months) 88,641 87,711 8,484 8,484 -------------------------------------------------------------------- $738,173 $724,522 $559,336 $586,547 --------------------------------------------------------------------
NOTE 4- PLEDGED ASSETS Securities and insured mortgage loans of the Corporation of $2,305,087 (1993 - $1,877,687) 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 September 30, 1994 amounted to $15,146 and $75,468, respectively. There are also outstanding other commitments and contingent liabilities, such as guarantees and commitments to extend credit, which are not reflected in the accompanying financial statements. No losses are anticipated as a result of these transactions. 8 8 NOTE 6- SUBORDINATED NOTES Subordinated notes consist of the following: 8.875% Fixed Rate Notes series A, due in 1996 $15,000 8.6875% Fixed Rate Notes series B, due in 1996 15,000 Floating Rate Notes series A with interest payable at 88% of LIBID rate, due in 1996 19,000 Floating Rate Notes series B with interest payable at 86% of LIBID rate, due in 1996 1,000 ------- $50,000 =======
NOTE 7- PREFERRED STOCK OF SUBSIDIARY BANK The subsidiary Bank has 200,000 shares of authorized preferred stock with a par value of $100. Of these, 110,000 were issued and outstanding until June 30, 1994, when the shares were redeemed at par value. NOTE 8- STOCKHOLDERS' EQUITY Authorized common stock is 90,000,000 shares with a par value of $6 per share of which 32,812,818 are issued and outstanding at September 30, 1994. On June 27, 1994, the Corporation issued 4,000,000 shares of non-cumulative preferred stock with a dividend rate of 8.35% and a liquidation preference value of $25. Authorized preferred stock is 10,000,000 shares without par value. NOTE 9 - EARNINGS PER COMMON SHARE Earnings per common share (EPS) are calculated based on the net income applicable to common stockholders which amounted to $29,560 and $89,966 for the quarter and nine-month period ended September 30, 1994, respectively, after deducting the dividends on preferred stock. EPS are based on 32,812,818 and 32,709,858 average shares outstanding during the third quarters of 1994 and 1993, respectively, and 32,784,802 and 32,690,726 during the nine-month periods of 1994 and 1993, respectively. NOTE 10 - SUPPLEMENTAL DISCLOSURE ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS During the nine-month period ended September 30, 1994 the Corporation paid interest and income taxes amounting to $248,737 and $21,051, respectively (1993 - - - $199,284 and $17,559). In addition, the loans receivable transferred to other real estate and other property as of September 30, 1994, amounted to $1,822 and $2,376, respectively (1993 - $13,748 and $3,198). The Corporation's stockholders' equity at September 30, 1994 includes $9.8 million, net of taxes, in unrealized holding losses on securities available for sale. 9 9 NOTE 11- POPULAR INTERNATIONAL BANK, INC. (A WHOLLY-OWNED SUBSIDIARY OF BANPONCE CORPORATION) FINANCIAL INFORMATION: The following summarized financial information presents the unaudited consolidated financial position of Popular International, Inc. and its wholly-owned subsidiaries BanPonce Financial Corp., Spring Financial Services, Inc. and Pioneer Bancorp, Inc. (second tier subsidiaries), as of September 30, 1994 and 1993, and the results of their operations for the nine-month periods then ended. Pioneer Bancorp, Inc. was acquired on March 31, 1994. POPULAR INTERNATIONAL BANK, INC. STATEMENT OF CONDITION (In thousands)
September 30, 1994 1993 ---- ---- Assets: Cash $ 20,052 $ 5,697 Money market investments 44,716 7,458 Investment securities 105,765 -0- -------- -------- Loans 810,634 321,664 Less: Unearned income 31,043 13,978 Allowance for loan losses 11,781 4,372 -------- -------- 767,810 303,314 Other assets, consisting principally of intangible assets, including goodwill, net 36,372 11,135 -------- -------- Total assets $974,715 $327,604 ======== ======== Liabilities and Stockholder's Equity: Deposits $329,932 $ -0- Short-term borrowings 160,371 83,666 Notes payable 348,906 199,352 Other liabilities 21,719 14,296 Stockholder's equity 113,787 30,290 -------- -------- Total liabilities and stockholder's equity $974,715 $327,604 ======== ========
10 10 POPULAR INTERNATIONAL BANK, INC. STATEMENT OF INCOME (In thousands)
Quarter ended For the nine months ended September 30, September 30, 1994 1993 1994 1993 ----------------------- ---------------------------- Income: Interest and fees $20,545 $9,011 $49,533 $23,616 Other service fees 1,916 482 5,123 1,363 ------- ------ ------- ------- Total income 22,461 9,493 54,656 24,979 ------- ------ ------- ------- Expenses: Interest expense 10,280 3,735 24,374 9,585 Provision for loan losses 1,930 1,228 5,050 3,184 Operating expenses 6,507 3,061 15,853 8,806 ------- ------ ------- ------- Total expenses 18,717 8,024 45,277 21,575 ------- ------ ------- ------- Income before income tax 3,744 1,469 9,379 3,404 Income tax 1,521 670 3,819 1,533 ------- ------ ------- ------- Net income $ 2,223 $ 799 $ 5,560 $ 1,871 ======= ====== ======= =======
11 11 NOTE 12- BANPONCE FINANCIAL CORP. (A SECOND TIER SUBSIDIARY OF BANPONCE CORPORATION) FINANCIAL INFORMATION: The following summarized financial information presents the unaudited consolidated financial position of BanPonce Financial Corp. and its wholly-owned subsidiaries Spring Financial Services, Inc. and Pioneer Bancorp Inc., as of September 30, 1994 and 1993, and the results of their operations for the nine-month periods then ended. Pioneer Bancorp, Inc. was acquired on March 31, 1994. BANPONCE FINANCIAL CORP. STATEMENT OF CONDITION (In thousands)
September 30, ------------- 1994 1993 ---- ---- Assets: Cash $ 19,997 $ 5,690 Money market investments 43,688 6,422 Investment securities 105,765 -0- -------- -------- Loans 810,634 321,664 Less: Unearned income 31,043 13,978 Allowance for loan losses 11,781 4,372 -------- -------- 767,810 303,314 Other assets, consisting principally of intangible assets, including goodwill, net 36,370 11,126 ------- -------- Total assets $973,630 $326,552 ======== ======== Liabilities and Stockholder's Equity: Deposits $329,932 $ -0- Other short-term borrowings 160,371 83,666 Notes payable 348,905 199,352 Other liabilities 21,720 14,296 Stockholder's equity 112,702 29,238 -------- -------- Total liabilities and stockholder's equity $973,630 $326,552 ======== ========
12 12 BANPONCE FINANCIAL CORP. STATEMENT OF INCOME (In thousands)
Quarter ended For the nine months ended September 30, September 30, 1994 1993 1994 1993 ----------------------- ----------------------------- Income: Interest and fees $20,535 $9,002 $49,505 $23,589 Other service fees 1,916 482 5,123 1,363 ------- ------ ------- ------- Total income 22,451 9,484 54,628 24,952 ------- ------ ------- ------- Expenses: Interest expense 10,280 3,734 24,374 9,584 Provision for loan losses 1,930 1,228 5,050 3,184 Operating expenses 6,521 2,972 15,844 8,530 ------- ------ ------- ------- Total expenses 18,731 7,934 45,268 21,298 ------- ------ ------- ------- Income before income tax 3,720 1,550 9,360 3,654 Income tax 1,521 670 3,819 1,533 ------- ------ ------- ------- Net income $ 2,199 $ 880 $ 5,541 $ 2,121 ======= ====== ======= =======
13 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This financial review contains an analysis of the performance of BanPonce Corporation (the Corporation) and its subsidiaries Banco Popular de Puerto Rico (Banco Popular), including its wholly-owned subsidiaries Popular Leasing and Rental, Inc. (Popular Leasing) and Popular Consumer Services, Inc., Vehicle Equipment Leasing Company, Inc. (VELCO), Popular International Bank, Inc. and its wholly owned subsidiaries BanPonce Financial Corp. (BanPonce Financial), Spring Financial Services, Inc. (Spring) and Pioneer Bancorp, Inc. (Pioneer), second tier subsidiaries. Pioneer was acquired on March 31, 1994. This financial review should be read in conjunction with the consolidated financial statements, supplemental financial data and tables contained herein. NET INCOME Net income for the third quarter of 1994 reached $31.7 million, an increase of 12.7% when compared with $28.2 million reported during the same quarter of 1993. Earnings per common share for the three-month period ended September 30, 1994 and 1993 were $0.90 based on 32,812,818 average shares outstanding, and $0.86 based on 32,709,858 average shares outstanding, respectively. The Corporation's Return on Assets (ROA) and Return on Common Equity (ROE) for the quarter ended September 30, 1994 were 1.02% and 13.26%, respectively, compared with 1.03% and 13.90% reported during the same quarter in 1993. The increase in earnings reflects a higher net interest income of $11.1 million, a higher operating income by $5.8 million and a lower provision for loan losses of $3.9 million. On the other hand, the Corporation's operating expenses and income tax expense rose $13.1 million and $4.2 million, respectively. Of the total increase in operating expenses $2.7 million pertain to Pioneer's operation and $2.5 million to the operations acquired in the Virgin Islands during the last quarter of 1993. For the first nine months of 1994, the Corporation reported net earnings of $92.1 million compared with $81.2 million during the first nine months of 1993. The results for 1993 include $6.2 million in additional revenues which resulted from the implementation of two new accounting principles (SFAS 106 and 109). The increase of $10.9 million or 13.5% in the Corporation's net earnings for the nine-month period, results from a rise of $6.8 million in the net earnings of Banco Popular and its subsidiaries and an increase of $4.1 million in the net revenues of the Corporation and its other subsidiaries. Earnings per common share (EPS) for the nine-month period ended September 30, 1994 were $2.74 based on 32,784,802 average shares outstanding during the period, compared with $2.48 based on 32,690,726 average shares outstanding during the same period of 1993. Excluding the cumulative effect of the changes in accounting principles adopted during the first quarter of 1993, EPS were $2.29 for the first nine months of 1993. ROA and ROE for the first nine months of 1994 were 1.02% and 13.72%, respectively, compared with 1.04% and 13.87% obtained during the first nine months of 1993. To calculate earnings per common share and ROE, the dividends paid on the preferred shares issued on June 27, 1994 are reduced from the Corporation's earnings. Such dividends amounted to $2.2 million. 14 14 NET INTEREST INCOME Net interest income, the Corporation's major source of earnings, rose from $125.2 million reported during the third quarter of 1993 to $136.2 million in the third quarter of 1994. On a taxable equivalent basis, net interest income increased to $146.6 million for the quarter just ended from $138.3 million for the three month period ended September 30, 1993. The improved net interest income is the net effect of a $22.2 million increase due to the growth and change in the composition of average earning assets and a $13.9 million decrease due to a slightly lower taxable equivalent yield and a higher cost of funding earning assets. For analytical purposes, the interest earned on tax-exempt assets is presented on a taxable equivalent basis, which places tax-exempt income and yields on a comparable basis with taxable income, assuming a statutory income tax rate of 42%. Average earning assets increased 14.7% or $1.5 billion, reaching $11.5 billion for the third quarter of 1994 as compared with $10 billion for the same period of 1993. This increase was experienced in the Corporation's average loan portfolio, principally in mortgage and commercial loans which rose $717 million and $548 million, respectively. The growth in mortgages resulted from the significant mortgage loan origination and refinancing activity during 1993 and the beginning of 1994 in Banco Popular and Spring. In addition, the purchase of $76.7 million in mortgage loan portfolios during the first quarter of 1994 and the operations acquired in the Virgin Islands in the last quarter of 1993, which added $54.8 million in mortgage loans, contributed to the aforementioned increase. The increase in the commercial loan portfolio was mostly attained at Banco Popular, where average commercial loans rose $369.5 million or 15.1%. The acquisition of Pioneer, on March 31, 1994, also added $115.7 million to the Corporation's commercial loan portfolio. The overall improvement in the economy has been a significant factor for the growth in this portfolio. The average yield on earning assets, on a taxable equivalent basis, for the quarter ended September 30, 1994, decreased 7 basis points to 8.27% compared with 8.34% for the third quarter of 1993. The average yield on loans, on a taxable equivalent basis, was 9.49% for the third quarter of 1994 compared with 9.73% for the same period of 1993. This decrease is principally due to the significant volume of mortgage activity during the low interest rate environment that prevailed in 1993 and the beginning of 1994, which resulted in a reduction of 85 basis points in the yield of the mortgage loan portfolio. On the other hand, the yield on commercial loans increased 71 basis points as a result of the increases in the prime rate during 1994. Approximately 60% of the commercial loan portfolio has a floating rate tied to the prime rate. The yield on investment securities, on a taxable equivalent basis, decreased to 6.15% from 6.51% reported during the third quarter of 1993. The decrease in yield resulted from the maturity of tax-exempt securities with higher yields which were replaced during a lower interest rate environment with shorter-term securities in anticipation of further increases in interest rates. Average interest bearing liabilities for the quarter ended September 30, 1994, were $9.4 billion compared with $8.2 billion for the same quarter of 1993. Average short-term borrowings reached $1,929 million, an increase of $418 million when compared with $1,511 million reported during the third quarter of 1993. This increase is mostly related to a higher volume of arbitrage activities in Banco Popular and in the notes issued to finance Spring's operation. Interest-bearing deposits rose to $7,067 million or 9.7%, 15 15 mostly in savings accounts which increased $352 million. Certificates of deposit and other time deposits rose $255.9 million or 9.0%, mainly as a result of the higher interest rates available on these instruments since mid 1994. Non-interest bearing deposits also increased by $142 million or 8.7% to $1,774 million. The increase in total deposits relates primarily to the expansion of the Corporation's activities during the latter part of 1993 and the beginning of 1994. The acquisition of Pioneer on March 31, 1994 added $292.7 million in deposits and other deposit acquisitions realized since September 30, 1993 in New York and the Virgin Islands added $276 million. The average cost of interest bearing liabilities increased 43 basis points, from 3.47% for the third quarter of 1993 to 3.90% for the third quarter of 1994. The average cost of interest bearing deposits for the third quarter of 1994 increased to 3.60% compared with 3.38% for the same period in 1993. The increase is the result of a rise of 52 basis points in the average cost of time deposits, partially offset by a reduction of 17 basis points in the cost of savings accounts. In addition, the average cost of short-term borrowings increased 131 basis points when compared to the average cost reported for the same quarter of 1993. The rise in the average cost of funds resulted from the higher interest rate scenario that has prevailed during 1994. The total cost of funding earning assets rose 35 basis points, from 2.84% in the third quarter of 1993 to 3.19% in this quarter leading to a reduction in the net interest yield, on a taxable equivalent basis, to 5.08% for the third quarter of 1994 from 5.50% reported for the same quarter of 1993. TABLE A
NET INTEREST INCOME (TAXABLE EQUIVALENT BASIS) - - ---------------------------------------------------------------------------------------------------- (In Millions) First Nine Months - - ---------------------------------------------------------------------------------------------------- 1994 Average 1993 Average Balance Rate Balance Rate -------------------------------------------------------- Earning assets $11,269 8.05% $9,676 8.42% ======= ====== Financed by: Interest bearing funds $9,249 3.60% $7,924 3.48% Non-interest bearing funds 2,020 1,752 ------- ------ TOTAL $11,269 2.96% $9,676 2.85% ======= ====== Net interest income per books $396.7 $365.6 Taxable equivalent adjustment 33.2 38.5 ------ ------ Net interest income on a taxable equivalent basis $ 429.9 $404.1 ======= ====== Spread 4.45% 4.94% Net interest yield 5.09% 5.57%
16 16 For the nine-month period ended September 30, 1994, net interest income amounted to $396.7 million, an increase of $31.1 million from the $365.6 million reported for the same period in 1993. On a taxable equivalent basis, net interest income rose to $429.9 million for such period from $404.1 million for the same period in 1993. This rise is composed of a $64.4 million increase due to the growth and change in the composition of average earning assets and a $38.6 million decrease due to lower taxable equivalent net interest yields. As presented in Table A, the yield on earning assets, on a taxable equivalent basis, declined 37 basis points for the nine-month period ended September 30, 1994, from 8.42% in 1993 to 8.05%. The average cost of interest bearing liabilities for the nine-month periods ended September 30, 1994 and 1993, was 3.60% and 3.48%, respectively. The net interest yield, on a taxable equivalent basis, was 5.09% for the first nine months of 1994 compared with 5.57% for the same period in 1993. PROVISION AND ALLOWANCE FOR LOAN LOSSES The Corporation's provision for loan losses was $13.5 million for the quarter ended September 30, 1994, compared with $17.4 million for the same quarter of 1993, a reduction of $3.9 million or 22.3%. The provision for the second quarter of 1994, was $14.0 million. For the nine-month period ended September 30, 1994, the provision for loan losses decreased $17 million or 29.1%, from $58.2 million for the same period of 1993 to $41.2 million. The decrease in the provision for loan losses is the result of the continuous improvement in loan quality and a lower ratio of net charge-offs.
TABLE B - - --------------------------------------------------------------------------------------------- Provision for Net Allowance for Quarter Ended Loan Losses Charge-offs Loan Losses - - --------------------------------------------------------------------------------------------- (In Millions) September 30, 1994 $13.5 $10.5 $149.4 June 30, 1994 14.0 8.6 146.4 March 31, 1994 13.7 9.6 140.9 December 31, 1993 14.7 11.9 133.4 September 30, 1993 17.4 9.6 130.6
As presented in Table B, net charge-offs for the third quarter of 1994 totaled $10.5 million or 0.57% of average loans, as compared with $9.6 million or 0.66% for the same quarter of 1993 and $8.6 million or 0.49% for the second quarter of 1994. Commercial loans net charge-offs increased $1.2 million as compared with the third quarter of 1993, and mortgage loans net charge-offs rose $0.5 million. Partially offsetting these increases was a reduction of $0.9 million in consumer loans net charge-offs. For the nine-month period ended September 30, 1994, net charge- offs amounted to $28.7 million, a decrease of $11.1 million as compared with the same period on prior year when net charge-offs totaled $39.8 million. Net charge-offs as a percentage of average loans were 0.55% and 0.96% for the nine- month periods ended September 30, 1994 and 1993, respectively. Consumer loans net charge- offs decreased $5.4 million or 37.7%. In addition, construction, lease financing and commercial loans net charge-offs decreased $2.5 million, $2.1 million and $2.0 million, respectively, as compared with the first nine months of 1993. Mortgage loans net charge-offs were $0.9 million for the first nine months of 1994. 17 17 At September 30, 1994, the allowance for loan losses stood at $149.4 million, representing 1.99% of loans. At the same date of 1993 the allowance for loan losses amounted to $130.6 million or 2.13% of loans. At June 30, 1994, the allowance was $146.4 million or 2.03% of loans. Although the ratio of allowance to loans shows a small decrease, the Corporation continues enjoying a strong allowance position since most of the increase in loans has been experienced in the mortgage loan portfolio where the Corporation, based on its historical experience and expected economic conditions, does not foresee significant losses. Table C presents the movement in the allowance for loan losses and shows selected loan loss statistics for the three and nine- month periods ended September 30, 1994 and 1993. TABLE C ALLOWANCE FOR LOAN LOSSES AND SELECTED LOAN LOSSES STATISTICS
Third Quarter Year To Date (Dollars in thousands) 1994 1993 1994 1993 - - -------------------------------------------------------------------------------------------------------------- Balance at beginning of period $146,418 $121,402 $133,437 $110,714 Allowances purchased 1,354 3,473 1,580 Provision for loan losses 13,544 17,442 41,244 58,155 ----------------------------------------------------------- 159,962 140,198 178,154 170,449 ----------------------------------------------------------- Losses charged to the allowance Commercial 7,952 6,438 21,363 22,735 Construction 85 285 2,925 Lease financing 1,871 1,321 5,229 6,294 Mortgage 549 887 Consumer 7,688 8,024 22,073 26,916 ----------------------------------------------------------- 18,145 15,783 49,837 58,870 ----------------------------------------------------------- Recoveries Commercial 1,732 1,454 5,043 4,448 Construction 27 58 258 402 Lease financing 1,248 647 2,703 1,652 Mortgage Consumer 4,605 4,029 13,108 12,522 ----------------------------------------------------------- 7,612 6,188 21,112 19,024 ----------------------------------------------------------- Net loans charged-off 10,533 9,595 28,725 39,846 ----------------------------------------------------------- Balance at end of period $149,429 $130,603 $149,429 $130,603 =========================================================== Ratios: Allowance for losses to loans 1.99% 2.13% 1.99% 2.13% Allowance to non-performing assets 126.67 95.02 126.67 95.02 Allowance to non-performing loans 146.92 112.29 146.92 112.29 Non-performing assets to loans 1.57 2.24 1.57 2.24 Non-performing assets to total assets 0.95 1.23 0.95 1.23 Net charge-offs to average loans 0.57 0.66 0.55 0.96 Provision to net charge-offs 1.29x 1.82x 1.44x 1.46x Net charge-offs earnings coverage 5.50 5.65 5.84 3.81
18 18 CREDIT QUALITY The Corporation reports its non-performing assets on a more conservative basis than most other U.S. banks. The Corporation's policy is to place commercial loans on non-accrual status if payments of principal or interest are delinquent 60 days rather than the standard industry practice of 90 days. Financing leases, conventional mortgages and closed-end consumer loans are placed on non-accrual status if payments are delinquent 90 days. Closed-end consumer loans are charged-off against the allowance when delinquent 120 days. Open-end (revolving credit) consumer loans are charged-off if payments are delinquent 180 days. Certain loans which would be 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, close-end consumer loans are charged-off if delinquent 120 days, but these consumer loans are not customarily placed on non-accrual status prior to being charged-off.
TABLE D - - ----------------------------------------------------------------------------------- NPA Allowance as a % as a % Date NPA of Loans of NPA - - ----------------------------------------------------------------------------------- (In millions) September 30, 1994 $118.0 1.57% 126.7% June 30, 1994 115.9 1.60 126.4 March 31, 1994 117 .3 1 .72 120.2 December 31, 1993 111.2 1.75 120.0 September 30, 1993 137.5 2.24 95.0
As of September 30, 1994, non-performing assets ("NPA"), which consist of past-due loans on which no interest income is being accrued, renegotiated loans, other real estate and in substance foreclosed assets, amounted to $118.0 million or 1.57% of loans. NPA were $137.5 million or 2.24% of loans a year earlier and $115.9 million or 1.60% at June 30, 1994. At the end of the first quarter of 1994, NPA totaled $117.3 million or 1.72% of loans. The decrease in non-performing assets of $19.5 million or 14.2% as compared with September 30, 1993, was mainly in non-performing commercial and construction loans, which declined $10.6 million due to improved collection efforts of classified loans. In addition, non-performing consumer loans decreased $6.3 million. On the other hand, non-performing mortgage loans increased $2.5 million mainly due to the rise in the mortgage loan portfolio. The Corporation was also able to reduce the other real estate owned by $4.6 million through successful efforts in the disposition of these properties. Table D presents NPA for the current and previous four quarters. Accruing loans which are contractually past due 90 days or more as to principal or interest amounted to $13.7 million at September 30, 1994, compared with $17.1 million at September 30, 1993, and $13.2 million at June 30, 1994. Renegotiated loans at the end of this period amounted to $5.9 million of which $0.6 million were in non-accrual status. All renegotiated loans are classified as non-performing assets. Assuming the standard industry practice of placing commercial loans on non accrual status when payments are past due 90 days or more and excluding the closed-end consumer loans from non-accruing loans, non-performing assets as of September 30, 19 19 1994, amounted to $90.1 million or 1.20% of total loans. At that date, the allowance for loan losses as a percent of adjusted non-performing assets was 165.86%. These two ratios compare with 1.57% and 135.42% as of September 30, 1993, and 1.15% and 175.80% at June 30, 1994. OTHER OPERATING INCOME Other operating income, excluding securities and trading gains, amounted to $36.5 million for the third quarter of 1994 compared with $30.0 million for the same quarter of 1993. For the nine-month periods ended September 30, 1994 and 1993, these revenues were $104.3 million and $89.9 million, respectively. Service charges on deposit accounts, which comprised approximately 51% of total other operating income for the third quarter of 1994, rose to $18.4 million, an increase of 5.9% over the $17.4 million reported for the same period last year. This increase reflects the growth in the customer base due to the acquired operations and the introduction of several new products and services. For the nine-month periods ended September 30, 1994 and 1993, service charges on deposit accounts totaled $53.6 million and $50.7 million, respectively, an increase of $2.9 million. Other service charges for the third quarter of 1994 were $14.0 million, an increase of 30.5% from the $10.7 million reported for the same period in 1993. Credit card fees, credit life insurance fees and other fees collected on new services accounted for $2.1 million of the total increase. In addition, other service fees increased $0.8 million in Spring as a result of the gain on sale of mortgage loans and an increase in servicing activities. Other operating income rose to $4.1 million for the third quarter of 1994, an increase of $2.2 million over the $1.9 million reported for the same period in 1993. During the third quarter of 1993 a downward adjustment of $1.2 million was recorded in the market value of the excess servicing recognized by Banco Popular on the sale of $86 million on mortgage loans through a grantor trust on June 30, 1992. This adjustment was necessary due to the higher than expected mortgage prepayments as a result of the declining interest rate scenario that prevailed in 1993. OPERATING EXPENSES Operating expenses for the third quarter of 1994 increased to $114.6 million or 12.9%, as compared with $101.4 million for the third quarter of 1993. For the first nine months of 1994, operating expenses totaled $333.6 million compared with $304.8 million for the same period of 1993. Personnel costs represent the largest category of operating expenses. These costs increased $5.7 million or 10.8% in the third quarter of 1994 from $52.2 million a year earlier. Included in the personnel expenses for this quarter are $1.2 million pertaining to the operations of Pioneer and $1.4 million of the operations acquired in the Virgin Islands in the last quarter of 1993. Salary expense increased $3.0 million from the $38.0 million reported for the quarter ended September 30, 1993 due to merit increases and business expansion. At September 30, 1994, full-time equivalent employees (F.T.E.) totaled 7,542 versus 7,149 a year earlier. The 20 20 increase of 393 F.T.E. results principally from the business expansion of Spring and the acquired operations, as previously mentioned. Profit sharing expense rose $0.7 million as a result of the higher salary base. Personnel costs for the nine-month period ended September 30, 1994 grew 4.7% from the $162.5 million recorded for the same period a year earlier. Pension and other benefits account for $1.9 million of the total increase in personnel costs for the quarter. This is a result of an accrual of $1.5 million recorded this quarter for post-retirement benefits as required by SFAS 106, compared with the recognition during the first quarter of 1993 of the full year expense. All other operating expenses, excluding personnel costs, increased $7.5 million, or 15.1%, from $49.2 million in the third quarter of 1993 to $56.7 million in 1994. The acquired operations account for approximately $2.6 million of the total increase. Areas such as equipment expenses, professional fees, and communications reflected an increase related to the expanded usage of technological advances in order to provide a broader variety of products and services to customers. Also, business promotion increased as a result of the efforts to introduce the new services. For the nine months ended September 30, 1994, other operating expenses amounted to $163.5 million, an increase of $21.1 million from the $142.4 million reported for the same period in 1993. The increase is primarily reflected in the same items mentioned above. Income tax expense for the quarter ended September 30, 1994, reached $12.7 million compared with $8.5 million for the same quarter in 1993. Income tax expense for the nine-month period ended September 30, 1994, increased to $34.1 million, $15.8 million higher than the $18.3 million reported during the same period in 1993. This increase is primarily related to higher levels of pre-tax income and to a lower ratio of tax exempt assets, principally resulting from the increase in the loan portfolio. BALANCE SHEET COMMENTS At September 30, 1994, total assets were $12.4 billion, including $11.6 billion of interest earning assets. Comparable amounts a year earlier were $11.2 billion and $10.3 billion, respectively. Average total assets for the nine-month period ended September 30, 1994 were $12.1 billion compared with $10.5 billion for the same period in 1993. Total loans at September 30, 1994, amounted to $7.5 billion compared with $6.1 billion a year ago. The mortgage loan portfolio reflected 46.5% of the total increase in loans due to the significant mortgage loan origination and refinancing activity during 1993 and the beginning of 1994 in Banco Popular and Spring. The commercial loan portfolio also showed an increase of $560.8 million due to the overall improvement in the economic environment. Consumer loans increased $175.1 million or 9.48% while financing leases rose $83.4 million or 23.3% during the period. Included in the total loan portfolio at September 30, 1994 are $226.9 million in loans of Pioneer. Investment securities as of September 30, 1994, totaled $3.9 billion compared with $4.0 billion as of September 30, 1993. These figures include $724.5 million in investment securities available for sale as of September 30, 1994 and $559.3 million 21 21 as of September 30, 1993. These securities are currently carried at market value under the provisions of SFAS 115 and were carried at the lower of cost or market in 1993. Total deposits were $8.9 billion at September 30,1994, compared with $8.3 billion at the same date of 1993. This increase was mainly due to the deposits acquired in the Pioneer transaction which amounted to $292.7 million. Borrowings increased $476 million as compared with the prior year. This rise is mainly due to an increase of $226.7 million in securities under agreements to repurchase due to arbitrage opportunities, and an increase of $186.5 million in the medium-term notes issued by BanPonce Financial to finance Spring's operations. Subordinated notes decreased to $50 million from the $74 million outstanding a year ago, due to the prepayment in December of 1993 of a 7.95% note due in 1994 and the prepayment in July of 1994 of a 8.50% note due in 1996. Also, the $11 million in preferred stock of Banco Popular were redeemed at par value on June 30, 1994. Stockholders' equity at September 30, 1994, amounted to $988.9 million, compared with $813.5 million at September 30, 1993. The increase is mainly due to the issuance on June 27, 1994 of 4,000,000 shares of non-cumulative preferred stock which raised $96.7 million in additional capital and to earnings' retention. The Corporation's stockholders' equity at September 30, 1994 includes an allowance of $9.8 million, net of taxes, in unrealized holding losses on securities available for sale, as required by SFAS 115 "Accounting for Certain Investments in Debt and Equity Securities'. Book value per common share increased to $27.09 as of September 30, 1994, compared with $24.87 as of the same date last year. The market value of the Corporation's common stock also rose to $33.125 at September 30, 1994 from $29.75 a year before. The Corporation's Tier 1, total capital and leverage ratios at September 30, 1994 were 12.90%, 14.31% and 7.56%, respectively, as compared with 12.38%, 14.09% and 7.06% at September 30, 1993. Capital ratios remain well in excess of minimum regulatory requirements. 22 22 Part II - Other Information ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibit No. Description Exhibit Reference -------------- ------------------- --------- 19 Quarterly Report to shareholders for the Exhibit "A" period ended September 30, 1994. 27 Financial Data Schedule Exhibit "B"
b) One report on Form 8-K was filed for the three months ended September 30, 1994: Dated: August 4, 1994 Item reported: Item 7 - Financial Statements and Exhibits (for SEC purposes only) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be filed on its behalf by the undersigned duly authorized. BANPONCE CORPORATION -------------------- (Registrant) Date: 11/11/94 By: /s/ David H. Chafey, Jr. ------------ --------------------------- David H. Chafey, Jr. Executive Vice President Date: 11/11/94 By: /s/ Orlando Berges ------------ --------------------------- Orlando Berges Senior Vice President & Comptroller EX-19 2 QUARTERLY REPORT TO SHAREHOLDERS 1 EXHIBIT 19 BANPONCE CORPORATION QUARTERLY REPORT September 30, 1994 2 BanPonce Corporation's net income for the third quarter of 1994 amounted to $31.7 million, an increase of $3.6 million or 12.7% over the $28.1 million in earnings recorded for the same period of 1993. On a per share basis, net income grew to $0.90 in the third quarter of 1994 from $0.86 a year earlier. The results for the third quarter of 1994 produced a return on assets (ROA) of 1.02% and a return on common equity (ROE) of 13.26%, compared with 1.03% and 13.90%, respectively, for the same period of 1993. For the first nine months of 1994, the Corporation's net income reached $92.1 million compared with $81.2 million in earnings during the same period of 1993. The latter included $6.2 million in additional income resulting from the cumulative effect of the adoption of two accounting principles (SFAS 106 and 109) in the first quarter of 1993. Net interest income for the quarter improved $11.1 million as compared with the same quarter of 1993, mainly as a result of an increase of $1.5 billion in the average volume of earning assets. This growth was partially offset by a reduction of 42 basis points on a taxable equivalent basis in the net interest yield. The provision for loan losses decreased to $13.5 million for the third quarter of 1994 from $17.4 million for the same period a year earlier. This is a result of the improvement in our loan quality, as reflected by the non-performing assets (NPA) which decreased to $118.0 million, or 1.57% of total loans at September 30, 1994, from $137.5 million, or 2.24% at the same date last year. Operating expenses for the third quarter of 1994 increased to $114.6 million or 12.9% from $101.4 million for the third quarter of 1993. This rise is partially due to the expenses pertaining to the operations acquired in the Virgin Islands, which represent approximately $2.5 million, and Pioneer's expenses which totaled $2.7 million. Other factors such as the business expansion of the Corporation, expenses related to the usage of technological advances, the implementation and marketing of a broader variety of product and services and an increase in the tax rates paid to the municipalities in Puerto Rico contributed to the total increase. For the nine-month period ended September 30, 1994 operating expenses amounted to $333.6 million compared with $304.8 million a year earlier. The Corporation's total assets as of September 30, 1994 amounted to $12.4 billion compared with $11.2 billion as of September 30, 1993. Loans increased 22.5%, from $6.1 billion a year ago to $7.5 billion at September 30, 1994. Deposits also rose to $8.9 billion as of September 30, 1994, from $8.3 billion as of September 30, 1993. Our capital base was also enhanced during the period. Total stockholder's equity rose to $988.9 million at September 30, 1994, up from the $813.5 million a year earlier. This increase is primarily due to issuance on June 27, 1994 of 4,000,000 shares of non-cumulative preferred stock which raised $96.7 million in additional capital. Book value per common share increased to $27.09 as of September 30, 1994, from $24.87 as of the same date last year. The Corporation continues enjoying strong risk- weighted capital ratios, with a Tier I capital ratio of 12.90%, a total capital ratio of 14.31% and a leverage ratio of 7.56%. 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. In September, 1994 the Governor of Puerto Rico announced a Tax Reform Proposal. As we went to press, the proposal was already approved by the House of Representatives and the Senate. It is expected to become law soon. The Tax Reform Bill would provide tax rate reductions for individual and corporate taxpayers. The maximum tax rate for corporations would decrease from the current 42% to 39%. In addition, under the proposed bill the dividends received from domestic corporations will be taxed at a flat rate of 10% instead of the current rates which vary from 20% to 29%. In the case of BanPonce shareholders, both residents and non residents of Puerto Rico, the new withholding tax rate will be 10%. The bill is expected to promote capital investments in the island and a stronger economic activity. 1 3 As a result of inflation fears, during this quarter the Federal Reserve raised interest rates for the fifth time this year, leading bond yields to their highest levels in three years. So far this year, short-term interest rates have increased 175 basis points. Fears of higher interest rates continue present, even though key inflation data for September was better than expected. Given the continuous trend in the economy and inflationary pressures in certain sectors it is expected that the Federal Reserve may increase the interest rates again. Richard L. Carrion Chairman, President and Chief Executive Officer 2 4 FINANCIAL REVIEW
- - ---------------------------------------------------------------------------------------------------------------------------------- Balance Sheet Highlights At September 30, Average for the nine months (In thousands) 1994 1993 Change 1994 1993 Change - - ---------------------------------------------------------------------------------------------------------------------------------- Money market investments $ 150,165 $ 171,278 ($21,113) $ 133,799 $ 177,061 ($43,262) Investment and trading securities 3,953,928 4,048,393 (94,465) 4,208,042 3,973,943 234,099 Loans 7,502,091 6,125,705 1,376,386 6,926,741 5,525,210 1,401,531 All other assets 838,341 872,189 (33,848) 835,620 774,849 60,771 Total assets 12,444,525 11,217,565 1,226,960 12,104,202 10,451,063 1,653,139 Non-interest bearing liabilities 1,952,951 1,945,066 7,885 1,953,908 1,733,839 220,069 Interest bearing liabilities 9,502,701 8,447,985 1,054,716 9,248,785 7,923,604 1,325,181 Preferred stock of subsidiary Bank 11,000 (11,000) 7,253 11,000 (3,747) Stockholders' equity 988,873 813,514 175,359 894,256 782,620 111,636 - - ---------------------------------------------------------------------------------------------------------------------------------- Operating Highlights (In thousands, except Third Quarter Nine months per share information) 1994 1993 Change 1994 1993 Change - - ---------------------------------------------------------------------------------------------------------------------------------- Net interest income $136,231 $125,174 $11,057 $396,701 $365,638 $31,063 Provision for loan losses 13,544 17,442 (3,898) 41,244 58,155 (16,911) Fees and other income 36,277 30,510 5,767 104,695 91,180 13,515 Operating expenses 127,247 110,088 17,159 368,029 323,668 44,361 Cumulative effect of accounting changes 6,185 (6,185) Net income $31,717 $ 28,154 $3,563 $92,123 $81,180 $10,943 Net income applicable to common stock 29,560 28,154 1,406 89,966 81,180 8,786 Per common share before cumulative effect of accounting changes 0.90 0.86 0.04 2.74 2.29 0.45 Per common share 0.90 0.86 0.04 2.74 2.48 0.26 - - ---------------------------------------------------------------------------------------------------------------------------------- Selected Statistical Third Quarter Nine months Information 1994 1993 1994 1993 - - ---------------------------------------------------------------------------------------------------------------------------------- Profitability Ratios - Return on assets 1.02% 1.03% 1.02% 1.04% Return on earning assets 1.09 1.11 1.09 1.12 Return on common equity 13.26 13.90 13.72 13.87 Net interest spread (taxable equivalent) 4.37 4.87 4.45 4.94 Net interest yield (taxable equivalent) 5.08 5.50 5.09 5.57 Tax rate 28.59 22.98 26.91 19.47 Overhead ratio 57.46 56.66 57.70 58.43 - - ---------------------------------------------------------------------------------------------------------------------------------- Capitalization Ratios - Equity to assets 7.96% 7.40% 7.45% 7.49% Tangible equity to assets 6.96 6.32 6.41 6.34 Equity to loans 13.41 13.74 13.01 14.16 Internal capital generation 8.66 9.95 9.51 10.21 Tier I capital to risk-adjusted assets 12.90 12.38 12.90 12.38 Total capital to risk-adjusted assets 14.31 14.09 14.31 14.09 Leverage ratio 7.56 7.06 7.56 7.06 - - ---------------------------------------------------------------------------------------------------------------------------------- Common Stock Data - Market price High $33.25 $30.25 $33.25 $31.25 Low 31.50 26.50 30.75 24.38 End 33.125 29.75 33.125 29.75 Book value at period end 27.09 24.87 27.09 24.87 Dividends declared 0.25 0.25 0.75 0.65 Dividend payout ratio 27.73% 23.22% 27.64% 24.15% Price/earnings ratio 9.18x 9.27x 9.18x 9.27x - - ---------------------------------------------------------------------------------------------------------------------------------- Selected Data - Common shares outstanding 32,812,818 32,709,858 Full-time equivalent employees 7,542 7,149 Branches (banking operations) 207 205 Automated teller machines 289 240 Stockholders 5,247 5,298
3 5 FINANCIAL REVIEW This financial review contains an analysis of the performance of BanPonce Corporation (the Corporation) and its subsidiaries Banco Popular de Puerto Rico (Banco Popular), including its wholly-owned subsidiaries Popular Leasing and Rental, Inc. (Popular Leasing) and Popular Consumer Services, Inc., Vehicle Equipment Leasing Company, Inc. (VELCO), Popular International Bank, Inc. and its wholly owned subsidiaries BanPonce Financial Corp. (BanPonce Financial), Spring Financial Services, Inc. (Spring) and Pioneer Bancorp, Inc. (Pioneer), second tier subsidiaries. Pioneer was acquired on March 31, 1994. This financial review should be read in conjunction with the consolidated financial statements, supplemental financial data and tables contained herein. NET INCOME Net income for the third quarter of 1994 reached $31.7 million, an increase of 12.7% when compared with $28.2 million reported during the same quarter of 1993. Earnings per common share for the three-month period ended September 30, 1994 and 1993 were $0.90 based on 32,812,818 average shares outstanding, and $0.86 based on 32,709,858 average shares outstanding, respectively. The Corporation's Return on Assets (ROA) and Return on Common Equity (ROE) for the quarter ended September 30, 1994 were 1.02% and 13.26%, respectively, compared with 1.03% and 13.90% reported during the same quarter in 1993. The increase in earnings reflects a higher net interest income of $11.1 million, a higher operating income by $5.8 million and a lower provision for loan losses of $3.9 million. On the other hand, the Corporation's operating expenses and income tax expense rose $13.1 million and $4.2 million, respectively. Of the total increase in operating expenses $2.7 million pertain to Pioneer's operation and $2.5 million to the operations acquired in the Virgin Islands during the last quarter of 1993. For the first nine months of 1994, the Corporation reported net earnings of $92.1 million compared with $81.2 million during the first nine months of 1993. The results for 1993 include $6.2 million in additional revenues which resulted from the implementation of two new accounting principles (SFAS 106 and 109). The increase of $10.9 million or 13.5% in the Corporation's net earnings for the nine-month period, results from a rise of $6.8 million in the net earnings of Banco Popular and its subsidiaries and an increase of $4.1 million in the net revenues of the Corporation and its other subsidiaries. Earnings per common share (EPS) for the nine-month period ended September 30, 1994 were $2.74 based on 32,784,802 average shares outstanding during the period, compared with $2.48 based on 32,690,726 average shares outstanding during the same period of 1993. Excluding the cumulative effect of the changes in accounting principles adopted during the first quarter of 1993, EPS were $2.29 for the first nine months of 1993. ROA and ROE for the first nine months of 1994 were 1.02% and 13.72%, respectively, compared with 1.04% and 13.87% obtained during the first nine months of 1993. To calculate earnings per common share and ROE, the dividends paid on the preferred shares issued on June 27, 1994 are reduced from the Corporation's earnings. Such dividends amounted to $2.2 million. NET INTEREST INCOME Net interest income, the Corporation's major source of earnings, rose from $125.2 million reported during the third quarter of 1993 to $136.2 million in the third quarter of 1994. On a taxable equivalent basis, net interest income increased to $146.6 million for the quarter just ended from $138.3 million for the three month period ended September 30, 1993. The improved net interest income is the net effect of a $22.2 million increase due to the growth and change in the composition of average earning assets and a $13.9 million decrease due to a slightly lower taxable equivalent yield and a higher cost of funding earning assets. For analytical purposes, the interest earned on tax-exempt assets is presented on a taxable equivalent basis, which places tax-exempt income and yields on a comparable basis with taxable income, assuming a statutory income tax rate of 42%. Average earning assets increased 14.7% or $1.5 billion, reaching $11.5 billion for the third quarter of 1994 as compared with $10 billion for the same period of 1993. This increase was experienced in the Corporation's average loan portfolio, principally in mortgage and commercial loans which rose $717 million and $548 million, respectively. The growth in mortgages resulted from the significant mortgage loan origination and refinancing activity during 1993 and the beginning of 1994 in Banco Popular and Spring. In addition, the purchase of $76.7 million in mortgage loan portfolios during the first quarter of 1994 and the operations acquired in the Virgin Islands in the last 4 6 quarter 1993, which added $54.8 million in mortgage loans, contributed to the aforementioned increase. The increase in the commercial loan portfolio was mostly attained at Banco Popular, where average commercial loans rose $369.5 million or 15.1%. The acquisition of Pioneer, on March 31, 1994, also added $115.7 million to the Corporation's commercial loan portfolio. The overall improvement in the economy has been a significant factor for the growth in this portfolio. The average yield on earning assets, on a taxable equivalent basis, for the quarter ended September 30, 1994, decreased 7 basis points to 8.27% compared with 8.34% for the third quarter of 1993. The average yield on loans, on a taxable equivalent basis, was 9.49% for the third quarter of 1994 compared with 9.73% for the same period of 1993. This decrease is principally due to the significant volume of mortgage activity during the low interest rate environment that prevailed in 1993 and the beginning of 1994, which resulted in a reduction of 85 basis points in the yield of the mortgage loan portfolio. On the other hand, the yield on commercial loans increased 71 basis points as a result of the increases in the prime rate during 1994. Approximately 60% of the commercial loan portfolio has a floating rate tied to the prime rate. The yield on investment securities, on a taxable equivalent basis, decreased to 6.15% from 6.51% reported during the third quarter of 1993. The decrease in yield resulted from the maturity of tax-exempt securities with higher yields which were replaced during a lower interest rate environment with shorter-term securities in anticipation of further increases in interest rates. Average interest bearing liabilities for the quarter ended September 30, 1994, were $9.4 billion compared with $8.2 billion for the same quarter of 1993. Average short-term borrowings reached $1,929 million, an increase of $418 million when compared with $1,511 million reported during the third quarter of 1993. This increase is mostly related to a higher volume of arbitrage activities in Banco Popular and in the notes issued to finance Spring's operation. Interest-bearing deposits rose to $7,067 million or 9.7%, mostly in savings accounts which increased $352 million. Certificates of deposit and other time deposits rose $255.9 million or 9.0%, mainly as a result of the higher interest rates available on these instruments since mid 1994. Non-interest bearing deposits also increased by $142 million or 8.7% to $1,774 million. The increase in total deposits relates primarily to the expansion of the Corporation's activities during the latter part of 1993 and the beginning of 1994. The acquisition of Pioneer on March 31, 1994 added $292.7 million in deposits and other deposit acquisitions realized since September 30, 1993 in New York and the Virgin Islands added $276 million. The average cost of interest bearing liabilities increased 43 basis points, from 3.47% for the third quarter of 1993 to 3.90% for the third quarter of 1994. The average cost of interest bearing deposits for the third quarter of 1994 increased to 3.60% compared with 3.38% for the same period in 1993. The increase is the result of a rise of 52 basis points in the average cost of time deposits, partially offset by a reduction of 17 basis points in the cost of savings accounts. In addition, the average cost of short-term borrowings increased 131 basis points when compared to the average cost reported for the same quarter of 1993. The rise in the average cost of funds resulted from the higher interest rate scenario that has prevailed during 1994. The total cost of funding earning assets rose 35 basis points, from 2.84% in the third quarter of 1993 to 3.19% in this quarter leading to a reduction in the net interest yield, on a taxable equivalent basis, to 5.08% for the third quarter of 1994 from 5.50% reported for the same quarter of 1993. Table A
Net Interest Income (Taxable Equivalent Basis) - - ------------------------------------------------------------------------ (In millions) First Nine Months - - ------------------------------------------------------------------------ 1994 Average 1993 Average --------------------------------------- Balance Rate Balance Rate --------------------------------------- Earning assets $11,269 8.05% $9,676 8.42% ======= ====== Financed by: Interest bearing funds $ 9,249 3.60% $7,924 3.48% Non-interest bearing funds 2,020 1,752 ------- ------ Total $11,269 2.96% $9,676 2.85% ======= ====== Net interest income per books $396.7 $365.6 Taxable equivalent adjustment 33.2 38.5 ------- ------ Net interest income on a taxable equivalent basis $429.9 $404.1 ======= ====== Spread 4.45% 4.94% Net interest yield 5.09% 5.57%
5 7 For the nine-month period ended September 30, 1994, net interest income amounted to $396.7 million, an increase of $31.1 million from the $365.6 million reported for the same period in 1993. On a taxable equivalent basis, net interest income rose to $429.9 million for such period from $404.1 million for the same period in 1993. This rise is composed of a $64.4 million increase due to the growth and change in the composition of average earning assets and a $38.6 million decrease due to lower taxable equivalent net interest yields. As presented in Table A, the yield on earning assets, on a taxable equivalent basis, declined 37 basis points for the nine-month period ended September 30, 1994, from 8.42% in 1993 to 8.05%. The average cost of interest bearing liabilities for the nine-month periods ended September 30, 1994 and 1993, was 3.60% and 3.48%, respectively. The net interest yield, on a taxable equivalent basis, was 5.09% for the first nine months of 1994 compared with 5.57% for the same period in 1993. PROVISION AND ALLOWANCE FOR LOAN LOSSES The Corporation's provision for loan losses was $13.5 million for the quarter ended September 30, 1994, compared with $17.4 million for the same quarter of 1993, a reduction of $3.9 million or 22.3%. The provision for the second quarter of 1994, was $14.0 million. For the nine-month period ended September 30, 1994, the provision for loan losses decreased $17 million or 29.1%, from $58.2 million for the same period of 1993 to $41.2 million. The decrease in the provision for loan losses is the result of the continuous improvement in loan quality and a lower ratio of net charge-offs. Table B
- - --------------------------------------------------------------- Quarter Provision for Net Allowance for Ended Loan Losses Charge-offs Loan Losses - - --------------------------------------------------------------- (In millions) September 30, 1994 $13.5 $10.5 $149.4 June 30, 1994 14.0 8.6 146.4 March 31, 1994 13.7 9.6 140.9 December 31, 1993 14.7 11.9 133.4 September 30, 1993 17.4 9.6 130.6
As presented in Table B, net charge-offs for the third quarter of 1994 totaled $10.5 million or 0.57% of average loans, as compared with $9.6 million or 0.66% for the same quarter of 1993 and $8.6 million or 0.49% for the second quarter of 1994. Commercial loans net charge-offs increased $1.2 million as compared with the third quarter of 1993, and mortgage loans net charge-offs rose $0.5 million. Partially offsetting these increases was a reduction of $0.9 million in consumer loans net charge-offs. For the nine-month period ended September 30, 1994, net charge- offs amounted to $28.7 million, a decrease of $11.1 million as compared with the same period on prior year when net charge-offs totaled $39.8 million. Net charge-offs as a percentage of average loans were 0.55% and 0.96% for the nine- month periods ended September 30, 1994 and 1993, respectively. Consumer loans net charge-offs decreased $5.4 million or 37.7%. In addition, construction, lease financing and commercial loans net charge-offs decreased $2.5 million, $2.1 million and $2.0 million, respectively, as compared with the first nine months of 1993. Mortgage loans net charge-offs were $0.9 million for the first nine months of 1994. At September 30, 1994, the allowance for loan losses stood at $149.4 million, representing 1.99% of loans. At the same date of 1993 the allowance for loan losses amounted to $130.6 million or 2.13% of loans. At June 30, 1994, the allowance was $146.4 million or 2.03% of loans. Although the ratio of allowance to loans shows a small decrease, the Corporation continues enjoying a strong allowance position since most of the increase in loans has been experienced in the mortgage loan portfolio where the Corporation, based on its historical experience and expected economic conditions, does not foresee significant losses. Table C presents the movement in the allowance for loan losses and shows selected loan loss statistics for the three and nine-month periods ended September 30, 1994 and 1993. CREDIT QUALITY The Corporation reports its non-performing assets on a more conservative basis than most other U.S. banks. The Corporation's policy is to place commercial loans on non-accrual status if payments of principal or interest are delinquent 60 days rather than the standard industry practice of 90 days. Financing leases, conventional mortgages and closed-end consumer loans are placed on non-accrual status if payments are delinquent 90 days. Closed-end consumer loans are charged-off against the allowance when delinquent 120 days. Open-end (revolving credit) consumer loans are charged-off if payments are delinquent 180 days. Certain loans which would be treated as non-accrual 6 8
- - ----------------------------------------------------------------------------------------------------------- Table C Allowance for Loan Losses and Selected Loan Losses Statistics Third Quarter Year to date Dollars in thousands 1994 1993 1994 1993 - - ----------------------------------------------------------------------------------------------------------- Balance at beginning of period . . . . . . . . . . . . . . $146,418 $121,402 $133,437 $110,714 Allowances purchased . . . . . . . . . . . . . . . . . . . 1,354 3,473 1,580 Provision for loan losses . . . . . . . . . . . . . . . . . 13,544 17,442 41,244 58,155 -------------------------------------------- 159,962 140,198 178,154 170,449 -------------------------------------------- Losses charged to the allowance Commercial . . . . . . . . . . . . . . . . . . . . . . 7,952 6,438 21,363 22,735 Construction . . . . . . . . . . . . . . . . . . . . . 85 285 2,925 Lease financing . . . . . . . . . . . . . . . . . . . . 1,871 1,321 5,229 6,294 Mortgage . . . . . . . . . . . . . . . . . . . . . . . 549 887 Consumer . . . . . . . . . . . . . . . . . . . . . . . 7,688 8,024 22,073 26,916 -------------------------------------------- 18,145 15,783 49,837 58,870 -------------------------------------------- Recoveries Commercial . . . . . . . . . . . . . . . . . . . . . . 1,732 1,454 5,043 4,448 Construction . . . . . . . . . . . . . . . . . . . . . 27 58 258 402 Lease financing . . . . . . . . . . . . . . . . . . . 1,248 647 2,703 1,652 Mortgage . . . . . . . . . . . . . . . . . . . . . . . Consumer . . . . . . . . . . . . . . . . . . . . . . . 4,605 4,029 13,108 12,522 -------------------------------------------- 7,612 6,188 21,112 19,024 -------------------------------------------- Net loans charged-off . . . . . . . . . . . . . . . . . . . 10,533 9,595 28,725 39,846 -------------------------------------------- Balance at end of period . . . . . . . . . . . . . . . . . $149,429 $130,603 $149,429 $130,603 ============================================ Ratios: Allowance for losses to loans . . . . . . . . . . . . . 1.99% 2.13% 1.99% 2.13% Allowance to non-performing assets . . . . . . . . . . 126.67 95.02 126.67 95.02 Allowance to non-performing loans . . . . . . . . . . . 146.92 112.29 146.92 112.29 Non-performing assets to loans . . . . . . . . . . . . 1.57 2.24 1.57 2.24 Non-performing assets to total assets . . . . . . . . . 0.95 1.23 0.95 1.23 Net charge-offs to average loans . . . . . . . . . . . 0.57 0.66 0.55 0.96 Provision to net charge-offs . . . . . . . . . . . . . 1.29x 1.82x 1.44x 1.46x Net charge-offs earnings coverage . . . . . . . . . . . 5.50 5.65 5.84 3.81
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, close-end consumer loans are charged-off if delinquent 120 days, but these consumer loans are not customarily placed on non-accrual status prior to being charged-off. Table D
- - --------------------------------------------------------------------- NPA Allowance as a % as a % Date NPA of Loans of NPA - - --------------------------------------------------------------------- (In millions) September 30, 1994 $118.0 1.57% 126.7% June 30, 1994 115.9 1.60 126.4 March 31, 1994 117.3 1.72 120.2 December 31, 1993 111.2 1.75 120.0 September 30, 1993 137.5 2.24 95.0
As of September 30, 1994, non-performing assets ("NPA"), which consist of past-due loans on which no interest income is being accrued, renegotiated loans, other real estate and in substance foreclosed assets, amounted to $118.0 million or 1.57% of loans. NPA were $137.5 million or 2.24% of loans a year earlier and $115.9 million or 1.60% at June 30, 1994. At the end of the first quarter of 1994, NPA totaled $117.3 million or 1.72% of loans. The decrease in non-performing assets of $19.5 million or 14.2% as compared with September 30, 1993, was mainly in non-performing commercial and construction loans, which declined $10.6 million due to improved collection efforts of classified loans. In addition, non-performing consumer loans decreased $6.3 million. On the other hand, non-performing mortgage loans increased $2.5 million mainly due to the rise in the mortgage loan portfolio. The Corporation was also able to reduce the other real estate owned by $4.6 million through successful efforts in the disposition of these properties. Table D presents NPA for the current and previous four quarters. 7 9 Accruing loans which are contractually past due 90 days or more as to principal or interest amounted to $13.7 million at September 30, 1994, compared with $17.1 million at September 30, 1993, and $13.2 million at June 30, 1994. Renegotiated loans at the end of this period amounted to $5.9 million of which $0.6 million were in non-accrual status. All renegotiated loans are classified as non-performing assets. Assuming the standard industry practice of placing commercial loans on non accrual status when payments are past due 90 days or more and excluding the closed-end consumer loans from non-accruing loans, non-performing assets as of September 30, 1994, amounted to $90.1 million or 1.20% of total loans. At that date, the allowance for loan losses as a percent of adjusted non-performing assets was 165.86%. These two ratios compare with 1.57% and 135.42% as of September 30, 1993, and 1.15% and 175.80% at June 30, 1994. OTHER OPERATING INCOME Other operating income, excluding securities and trading gains, amounted to $36.5 million for the third quarter of 1994 compared with $30.0 million for the same quarter of 1993. For the nine-month periods ended September 30, 1994 and 1993, these revenues were $104.3 million and $89.9 million, respectively. Service charges on deposit accounts, which comprised approximately 51% of total other operating income for the third quarter of 1994, rose to $18.4 million, an increase of 5.9% over the $17.4 million reported for the same period last year. This increase reflects the growth in the customer base due to the acquired operations and the introduction of several new products and services. For the nine-month periods ended September 30, 1994 and 1993, service charges on deposit accounts totaled $53.6 million and $50.7 million, respectively, an increase of $2.9 million. Other service charges for the third quarter of 1994 were $14.0 million, an increase of 30.5% from the $10.7 million reported for the same period in 1993. Credit card fees, credit life insurance fees and other fees collected on new services accounted for $2.1 million of the total increase. In addition, other service fees increased $0.8 million in Spring as a result of the gain on sale of mortgage loans and an increase in servicing activities. Other operating income rose to $4.1 million for the third quarter of 1994, an increase of $2.2 million over the $1.9 million reported for the same period in 1993. During the third quarter of 1993 a downward adjustment of $1.2 million was recorded in the market value of the excess servicing recognized by Banco Popular on the sale of $86 million on mortgage loans through a grantor trust on June 30, 1992. This adjustment was necessary due to the higher than expected mortgage prepayments as a result of the declining interest rate scenario that prevailed in 1993. OPERATING EXPENSES Operating expenses for the third quarter of 1994 increased to $114.6 million or 12.9%, as compared with $101.4 million for the third quarter of 1993. For the first nine months of 1994, operating expenses totaled $333.6 million compared with $304.8 million for the same period of 1993. Personnel costs represent the largest category of operating expenses. These costs increased $5.7 million or 10.8% in the third quarter of 1994 from $52.2 million a year earlier. Included in the personnel expenses for this quarter are $1.2 million pertaining to the operations of Pioneer and $1.4 million of the operations acquired in the Virgin Islands in the last quarter of 1993. Salary expense increased $3.0 million from the $38.0 million reported for the quarter ended September 30, 1993 due to merit increases and business expansion. At September 30, 1994, full-time equivalent employees (F.T.E.) totaled 7,542 versus 7,149 a year earlier. The increase of 393 F.T.E. results principally from the business expansion of Spring and the acquired operations, as previously mentioned. Profit sharing expense rose $0.7 million as a result of the higher salary base. Personnel costs for the nine-month period ended September 30, 1994 grew 4.7% from the $162.5 million recorded for the same period a year earlier. Pension and other benefits account for $1.9 million of the total increase in personnel costs for the quarter. This is a result of an accrual of $1.5 million recorded this quarter for post-retirement benefits as required by SFAS 106, compared with the recognition during the first quarter of 1993 of the full year expense. All other operating expenses, excluding personnel costs, increased $7.5 million, or 15.1%, from $49.2 million in the third quarter of 1993 to $56.7 million in 8 10 1994. The acquired operations account for approximately $2.6 million of the total increase. Areas such as equipment expenses, professional fees, and communications reflected an increase related to the expanded usage of technological advances in order to provide a broader variety of products and services to customers. Also, business promotion increased as a result of the efforts to introduce the new services. For the nine months ended September 30, 1994, other operating expenses amounted to $163.5 million, an increase of $21.1 million from the $142.4 million reported for the same period in 1993. The increase is primarily reflected in the same items mentioned above. Income tax expense for the quarter ended September 30, 1994, reached $12.7 million compared with $8.5 million for the same quarter in 1993. Income tax expense for the nine-month period ended September 30, 1994, increased to $34.1 million, $15.8 million higher than the $18.3 million reported during the same period in 1993. This increase is primarily related to higher levels of pre-tax income and to a lower ratio of tax exempt assets, principally resulting from the increase in the loan portfolio. BALANCE SHEET COMMENTS At September 30, 1994, total assets were $12.4 billion, including $11.6 billion of interest earning assets. Comparable amounts a year earlier were $11.2 billion and $10.3 billion, respectively. Average total assets for the nine-month period ended September 30, 1994 were $12.1 billion compared with $10.5 billion for the same period in 1993. Total loans at September 30, 1994, amounted to $7.5 billion compared with $6.1 billion a year ago. The mortgage loan portfolio reflected 46.5% of the total increase in loans due to the significant mortgage loan origination and refinancing activity during 1993 and the beginning of 1994 in Banco Popular and Spring. The commercial loan portfolio also showed an increase of $560.8 million due to the overall improvement in the economic environment. Consumer loans increased $175.1 million or 9.48% while financing leases rose $83.4 million or 23.3% during the period. Included in the total loan portfolio at September 30, 1994 are $226.9 million in loans of Pioneer. Investment securities as of September 30, 1994, totaled $3.9 billion compared with $4.0 billion as of September 30, 1993. These figures include $724.5 million in investment securities available for sale as of September 30, 1994 and $559.3 million as of September 30, 1993. These securities are currently carried at market value under the provisions of SFAS 115 and were carried at the lower of cost or market in 1993. Total deposits were $8.9 billion at September 30,1994, compared with $8.3 billion at the same date of 1993. This increase was mainly due to the deposits acquired in the Pioneer transaction which amounted to $292.7 million. Borrowings increased $476 million as compared with the prior year. This rise is mainly due to an increase of $226.7 million in securities under agreements to repurchase due to arbitrage opportunities, and an increase of $186.5 million in the medium-term notes issued by BanPonce Financial to finance Spring's operations. Subordinated notes decreased to $50 million from the $74 million outstanding a year ago, due to the prepayment in December of 1993 of a 7.95% note due in 1994 and the prepayment in July of 1994 of a 8.50% note due in 1996. Also, the $11 million in preferred stock of Banco Popular were redeemed at par value on June 30, 1994. Stockholders' equity at September 30, 1994, amounted to $988.9 million, compared with $813.5 million at September 30, 1993. The increase is mainly due to the issuance on June 27, 1994 of 4,000,000 shares of non-cumulative preferred stock which raised $96.7 million in additional capital and to earnings' retention. The Corporation's stockholders' equity at September 30, 1994 includes an allowance of $9.8 million, net of taxes, in unrealized holding losses on securities available for sale, as required by SFAS 115 "Accounting for Certain Investments in Debt and Equity Securities". Book value per common share increased to $27.09 as of September 30, 1994, compared with $24.87 as of the same date last year. The market value of the Corporation's common stock also rose to $33.125 at September 30, 1994 from $29.75 a year before. The Corporation's Tier 1, total capital and leverage ratios at September 30, 1994 were 12.90%, 14.31% and 7.56%, respectively, as compared with 12.38%, 14.09% and 7.06% at September 30, 1993. Capital ratios remain well in excess of minimum regulatory requirements. 9 11
CONSOLIDATED STATEMENTS OF CONDITION - - ---------------------------------------------------------------------------------------------------------- September 30, (In thousands) 1994 1993 - - ---------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks . . . . . . . . . . . . . . . $ 340,920 $ 374,623 ----------------------------------- Money market investments: Federal funds sold and securities and mortgages purchased under agreements to resell . . . . . . 146,790 160,350 Time deposits with other banks . . . . . . . . . . 3,100 10,100 Bankers' acceptances . . . . . . . . . . . . . . . 275 828 ----------------------------------- 150,165 171,278 ----------------------------------- Investment securities held to maturity, at cost (Notes 3 and 4) . . . . . . . . . . . . . 3,210,192 3,472,429 Investment securities available for sale, at market (Notes 3 and 4) . . . . . . . . . . . . 724,522 559,336 Trading account securities, at market . . . . . . . . 19,214 16,628 Loans (Note 4) . . . . . . . . . . . . . . . . . . . 7,798,689 6,452,340 Less--Unearned income . . . . . . . . . . . . . . 296,599 326,635 Allowance for loan losses . . . . . . 149,429 130,603 ----------------------------------- 7,352,661 5,995,102 ----------------------------------- Premises and equipment . . . . . . . . . . . . . . . 322,780 281,618 Other real estate . . . . . . . . . . . . . . . . . 10,959 15,565 Customers' liabilities on acceptances . . . . . . . 1,257 1,643 Accrued income receivable . . . . . . . . . . . . . 76,444 73,002 Other assets . . . . . . . . . . . . . . . . . . . . 104,339 120,194 Intangible assets . . . . . . . . . . . . . . . . . 131,072 136,147 ----------------------------------- $12,444,525 $11,217,565 =================================== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits: Non-interest bearing . . . . . . . . . . . . . . $ 1,760,969 $ 1,764,747 Interest bearing . . . . . . . . . . . . . . . . 7,115,412 6,512,656 ----------------------------------- 8,876,381 8,277,403 Federal funds purchased and securities sold under agreements to repurchase (Note 4) . . . . 1,195,956 1,264,993 Other short-term borrowings . . . . . . . . . . . 702,804 337,269 Notes payable . . . . . . . . . . . . . . . . . . 408,529 229,067 Senior debentures . . . . . . . . . . . . . . . . 30,000 30,000 Acceptances outstanding . . . . . . . . . . . . . 1,257 1,643 Other liabilities . . . . . . . . . . . . . . . . 190,725 178,676 ----------------------------------- 11,405,652 10,319,051 ----------------------------------- Subordinated notes (Note 6) . . . . . . . . . . . 50,000 74,000 ----------------------------------- Preferred stock of subsidiary Bank (Note 7) . . . 11,000 ----------------------------------- Stockholders' equity (Note 8): Preferred stock . . . . . . . . . . . . . . . . . 100,000 Common stock . . . . . . . . . . . . . . . . . . . 196,877 196,259 Surplus . . . . . . . . . . . . . . . . . . . . . 393,800 363,117 Retained earnings . . . . . . . . . . . . . . . . 272,273 208,424 Unrealized losses on securities available for sale (Note 2) (9,791) Capital reserves . . . . . . . . . . . . . . . . 35,714 45,714 ----------------------------------- 988,873 813,514 ----------------------------------- $12,444,525 $11,217,565 ===================================
The accompanying notes are an integral part of these financial statements. 10 12
CONSOLIDATED STATEMENTS OF INCOME - - ---------------------------------------------------------------------------------------------------------- Quarter ended For the nine months ended September 30, september 30, (Dollars in thousands, except per share information) 1994 1993 1994 1994 - - ---------------------------------------------------------------------------------------------------------- INTEREST INCOME: Loans . . . . . . . . . . . . . . . . . . . . . . . . . $172,946 $140,665 $482,529 $402,580 Money market investments . . . . . . . . . . . . . . . . 803 1,465 4,152 4,758 Investment securities . . . . . . . . . . . . . . . . . . 54,338 54,422 159,878 164,711 Trading account securities . . . . . . . . . . . . . . . 140 157 192 307 -------------------------------------------- 228,227 196,709 646,751 572,356 -------------------------------------------- INTEREST EXPENSE: Deposits . . . . . . . . . . . . . . . . . . . . . . . 63,536 54,432 178,437 164,783 Short-term borrowings . . . . . . . . . . . . . . . . . . 21,714 12,080 53,015 29,324 Long-term debt . . . . . . . . . . . . . . . . . . . . 6,746 5,023 18,598 12,611 -------------------------------------------- 91,996 71,535 250,050 206,718 -------------------------------------------- Net interest income . . . . . . . . . . . . . . . . . . 136,231 125,174 396,701 365,638 Provision for loan losses . . . . . . . . . . . . . . . 13,544 17,442 41,244 58,155 -------------------------------------------- Net interest income after provision for loan losses 122,687 107,732 355,457 307,483 Service charges on deposit accounts . . . . . . . . . . . 18,419 17,400 53,644 50,706 Other service fees . . . . . . . . . . . . . . . . . . . 14,011 10,737 39,202 32,122 Gain (loss) on sale of securities . . . . . . . . . . . (205) 332 67 864 Trading account profit (loss) . . . . . . . . . . . . . (8) 183 323 407 Other operating income . . . . . . . . . . . . . . . . . 4,060 1,858 11,459 7,081 -------------------------------------------- 158,964 138,242 460,152 398,663 -------------------------------------------- OPERATING EXPENSES: Personnel costs: Salaries . . . . . . . . . . . . . . . . . . . . . . . 41,002 38,011 119,901 112,085 Profit sharing . . . . . . . . . . . . . . . . . . . . 5,378 4,648 15,993 15,062 Pension and other benefits . . . . . . . . . . . . . . . 11,465 9,527 34,167 35,303 -------------------------------------------- 57,845 52,186 170,061 162,450 Net occupancy expense . . . . . . . . . . . . . . . . . . 7,304 6,426 21,134 19,109 Equipment expenses . . . . . . . . . . . . . . . . . . . 9,101 7,347 26,064 20,186 Other taxes . . . . . . . . . . . . . . . . . . . . . . 4,961 4,153 14,060 11,848 Professional fees . . . . . . . . . . . . . . . . . . . 8,694 7,259 24,746 19,785 Communications . . . . . . . . . . . . . . . . . . . . . 5,206 4,447 15,099 13,718 Business promotion . . . . . . . . . . . . . . . . . . . 4,385 3,659 11,614 11,429 Printing and supplies . . . . . . . . . . . . . . . . . 2,321 1,943 6,733 5,967 Other operating expenses . . . . . . . . . . . . . . . . 10,233 9,975 30,706 28,517 Amortization of intangibles . . . . . . . . . . . . . . 4,501 4,041 13,364 11,805 -------------------------------------------- 114,551 101,436 333,581 304,814 -------------------------------------------- Income before tax, dividends on preferred stock of subsidiary Bank and cumulative effect of accounting changes . . . . . . . . . . . . . . . . . 44,413 36,806 126,571 93,849 Income tax . . . . . . . . . . . . . . . . . . . . . . . 12,696 8,459 34,063 18,276 -------------------------------------------- Income before dividends on preferred stock of subsidiary Bank and cumulative effect of accounting changes . . . . 31,717 28,347 92,508 75,573 Dividends on preferred stock of subsidiary Bank . . . . 193 385 578 -------------------------------------------- Income before cumulative effect of accounting changes . . 31,717 28,154 92,123 74,995 Cumulative effect of accounting changes (Note 2) . . . . 6,185 -------------------------------------------- NET INCOME . . . . . . . . . . . . . . . . . . . . . . . $ 31,717 $ 28,154 $ 92,123 $ 81,180 ============================================ EARNINGS PER COMMON SHARE (Note 9): Income before cumulative effect of accounting changes . . $0.90 $0.86 $2.74 $2.29 Cumulative effect of accounting changes (Note 2) . . . . 0.19 -------------------------------------------- Net Income . . . . . . . . . . . . . . . . . . . . . . . $0.90 $0.86 $2.74 $2.48 ============================================
The accompanying notes are an integral part of these financial statements. 11 13 CONSOLIDATED STATEMENTS OF CASH FLOWS - - ----------------------------------------------------------------------------------------------
For the nine months ended September 30, (In thousands) 1994 1993 - - ---------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . $ 92,123 $ 81,180 ---------------------------- Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization of premises and equipment 27,505 19,784 Provision for loan losses . . . . . . . . . . . . . . . 41,244 58,155 Amortization of intangibles . . . . . . . . . . . . . . 13,364 11,805 Gain on sale of investment securities available for sale (67) (864) Gain on sale of premises and equipment . . . . . . . . (862) (912) Gain on sale of loans . . . . . . . . . . . . . . . . . (2,775) (262) Amortization of premiums and accretion of discounts on investments . . . . . . . . . . . . . . . . . . . 6,170 8,354 Amortization of deferred loan fees and costs . . . . . 975 4,470 Net increase in postretirement benefit obligation . . . 3,273 42,695 Net increase in trading securities . . . . . . . . . . (16,197) (16,344) Net decrease in interest receivable . . . . . . . . . . 4,934 3,754 Net increase in other assets . . . . . . . . . . . . . (6,189) (15,237) Net increase (decrease) in interest payable . . . . . . 991 (1,234) Net increase (decrease) in current and deferred taxes . 10,406 (47,276) Net (decrease) increase in other liabilities . . . . . (1,393) 11,770 ---------------------------- Total adjustments . . . . . . . . . . . . . . . . . . . . . 81,379 78,658 ---------------------------- Net cash provided by operating activities . . . . . . . . . 173,502 159,838 ---------------------------- Cash flows from investing activities: Net decrease in money market investments . . . . . . . 117,927 113,844 Purchases of investment securities held to maturity . . (5,860,771) (2,686,065) Maturities of investment securities held to maturity . 5,977,209 2,483,979 Sales of investment securities held to maturity . . . . 12,059 Purchases of investment securities available for sale . (258,595) (233,200) Sales of investment securities available for sale . . . 347,799 83,039 Net disbursements on loans . . . . . . . . . . . . . . (1,010,521) (529,299) Proceeds from sale of loans . . . . . . . . . . . . . . 84,285 22,998 Acquisition of mortgage loan portfolio . . . . . . . . (76,700) (297,688) Assets acquired, net of cash . . . . . . . . . . . . . (17,557) Acquisition of premises and equipment . . . . . . . . . (46,853) (46,557) Proceeds from sale of premises and equipment . . . . . 2,049 8,198 ---------------------------- Net cash used in investing activities . . . . . . . . . . . (741,728) (1,068,692) ---------------------------- Cash flows from financing activities: Net increase (decrease) in deposits . . . . . . . . . . 61,018 (92,223) Net deposits acquired . . . . . . . . . . . . . . . . . 199,179 Net increase in federal funds purchased and securities sold under agreements to repurchase 239,222 599,771 Net increase in other short-term borrowings . . . . . . 36,031 130,388 Proceeds from issuance of notes payable . . . . . . . . 154,681 139,011 Payments of notes payable . . . . . . . . . . . . . . . (7) (7) Payments of subordinated notes . . . . . . . . . . . . (12,000) Dividends paid . . . . . . . . . . . . . . . . . . . . (26,725) (19,603) Proceeds from issuance of common stock . . . . . . . . 2,399 1,464 Proceeds from issuance of preferred stock . . . . . . . 96,690 Redemption of preferred stock of subsidiary Bank . . . (11,000) ---------------------------- Net cash provided by financing activities . . . . . . . . . 540,309 957,980 ---------------------------- Net (decrease) increase in cash and due from banks . . . . (27,917) 49,126 Cash and due from banks at beginning of period . . . . . . 368,837 325,497 ---------------------------- Cash and due from banks at end of period $ 340,920 $ 374,623 ============================
The accompanying notes are an integral part of these financial statements. 12 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share information) Note 1 - Consolidation The consolidated financial statements of BanPonce Corporation include the balance sheet of the Corporation and its wholly-owned subsidiaries, Velco, Popular International Bank, Inc. and its wholly-owned subsidiaries BanPonce Financial Corp., Spring Financial Services, Inc. and Pioneer Bancorp, Inc. (second tier subsidiaries), and Banco Popular de Puerto Rico and its wholly-owned subsidiaries, Popular Leasing and Rental, Inc. and Popular Consumer Services, Inc., as of September 30, 1994 and 1993, 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 for a fair presentation of such results. NOTE 2 - ACCOUNTING CHANGES During the first quarter of 1994 the Corporation adopted SFAS 115 "Accounting for Certain Investments in Debt and Equity Securities." SFAS 115 requires financial institutions to divide their securities holdings among three categories: held-to-maturity, available-for-sale and trading securities. Those securities which management has the positive intent and ability to hold to maturity will be classified as held-to-maturity and will be carried at cost. Those that are bought and held principally for the purpose of selling them in the near term, will be classified as trading and will continue to be reported at fair value with unrealized gains and losses included in earnings. All other securities will be classified as available-for-sale and will be reported at fair value with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders' equity. As a result of the adoption of this statement, the Corporation's stockholders' equity at September 30, 1994 includes $9.8 million, net of taxes, in unrealized holding losses on securities available for sale. Effective January 1, 1993, the Corporation implemented the Statement of Financial Accounting Standards (SFAS) 106, "Employers Accounting for Postretirement Benefits other than Pensions", and SFAS 109, "Accounting for Income Taxes". Under SFAS 106 the cost of retiree health care and other postretirement benefits is accrued during employees' service periods. The Corporation elected to recognize the full transition obligation, which is the portion of future retiree benefit costs related to service already rendered by both active and retired employees up to the date of adoption, in the first quarter of 1993 rather than amortize it over future periods. The cumulative effect, net of taxes, of this accounting change amounted to $22.7 million, or $0.70 per share. The SFAS 109 established accounting and reporting standards for the recognition of deferred tax assets and liabilities for the future tax consequences of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. The cumulative effect of this change resulted in a credit to income of $28.9 million, or $0.89 per share. This amount is net of a valuation allowance of approximately $2.1 million related to a deferred tax asset arising from net operating loss carryforwards for which the Corporation cannot determine the likelihood that they will be realized. NOTE 3 - INVESTMENT SECURITIES The maturities as of September 30, 1994 and market value for the following investment securities are: Investments securities held to maturity:
September 30, 1994 1993 Book Value Market Value Book Value Market Value ----------------------------------------------------- U.S. Treasury (average maturity 1 year and 1.3 months) $1,803,692 $1,783,353 $2,526,877 $2,558,708 Obligations of other U.S. Government agencies and corporations (average maturity of 1 year and 9.4 months) 555,637 549,935 119,832 121,804 Obligations of Puerto Rico, States and political subdivisions (average maturity of 3 years and 7.4 months) 193,731 196,596 218,709 228,947 Others (average maturity of 3 years and 7.1 months) 657,132 635,678 607,011 607,285 ----------------------------------------------------- $3,210,192 $3,165,562 $3,472,429 $3,516,744 =====================================================
13 15 Investments securities available for sale:
September 30, 1994 1993 Book Value Market Value Book Value Market Value ---------------------------------------------------------- U.S. Treasury (average maturity of 2 years and 8.1 months) $563,154 $552,108 $455,715 $481,407 Obligations of other U.S. Government agencies and corporations (average maturity of 2 years and 8.6 months) 62,463 61,546 95,137 96,656 Obligations of Puerto Rico, States and political subdivisions (average maturity of 2 years and 9.8 months) 23,915 23,157 Others (average maturity of 3 years and 5.1 months) 88,641 87,711 8,484 8,484 ------------------------------------------------------ $738,173 $724,522 $559,336 $586,547 ======================================================
Note 4 - Pledged Assets Securities and insured mortgage loans of the Corporation of $2,305,087 (1993 - $1,877,687) 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 September 30, 1994 amounted to $15,146 and $75,468, respectively. There are also outstanding other commitments and contingent liabilities, such as guarantees and commitments to extend credit, which are not reflected in the accompanying financial statements. No losses are anticipated as a result of these transactions. Note 6 - Subordinated Notes Subordinated notes consist of the following: 8.875% Fixed Rate Notes series A, due in 1996 $15,000 8.6875% Fixed Rate Notes series B, due in 1996 15,000 Floating Rate Notes series A with interest payable at 88% of LIBID rate, due in 1996 19,000 Floating Rate Notes series B with interest payable at 86% of LIBID rate, due in 1996 1,000 ------- $50,000 =======
Note 7 - Preferred Stock of Subsidiary Bank The subsidiary Bank has 200,000 shares of authorized preferred stock with a par value of $100. Of these, 110,000 were issued and outstanding until June 30, 1994, when the shares were redeemed at par value. Note 8 - Stockholders' Equity Authorized common stock is 90,000,000 shares without par value of $6 per share of which 32,812,818 are issued and outstanding at September 30, 1994. On June 27, 1994, the Corporation issued 4,000,000 shares of non-cumulative preferred stock with a dividend rate of 8.35% and a liquidation preference value of $25. Authorized preferred stock is 10,000,000 shares without par value. Note 9 - Earnings per Common Share Earnings per common share (EPS) are calculated based on the net income applicable to common stockholders which amounted to $29,560 and $89,966 for the quarter and nine-month period ended September 30, 1994, respectively, after deducting the dividends on preferred stock. EPS are based on 32,812,818 and 32,709,858 average shares outstanding during the third quarters of 1994 and 1993, respectively, and 32,784,802 and 32,690,726 during the nine-month periods of 1994 and 1993, respectively. Note 10 - Supplemental Disclosure on the Consolidated Statements of Cash Flows During the nine-month period ended September 30, 1994 the Corporation paid interest and income taxes amounting to $248,737 and $21,051, respectively (1993 - - - $199,284 and $17,559). In addition, the loans receivable transferred to other real estate and other property as of September 30, 1994, amounted to $1,822 and $2,376, respectively (1993 - $13,748 and $3,198). The Corporation's stockholders' equity at September 30, 1994 includes $9.8 million, net of taxes, in unrealized holding losses on securities available for sale. 14 16 DIRECTORS AND OFFICERS BOARD OF DIRECTORS Richard L. Carrion, Chairman Alfonso F. Ballester, Vice Chairman Manuel Luis del Valle, Vice Chairman Antonio Luis Ferre, Vice Chairman Juan A. Albors Hernandez * Salustiano Alvarez Mendez * Jose A. Bechara Bravo * Juan J. Bermcdez Esteban D. Bird * George Blasini * Sila M. Calderon 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 Noel Totti, Jr. * 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 Jorge A. Junquera Diez, Executive Vice President Maria Isabel Burckhart, Executive Vice President David H. Chafey, Jr., 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 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 SPRING FINANCIAL SERVICES, 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) 292-4777 15 EX-27 3 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 9-MOS DEC-31-1994 JAN-01-1994 SEP-30-1994 1000 340,920 3,100 146,790 19,214 724,522 3,210,192 3,165,562 7,502,090 149,429 12,444,525 8,876,381 1,898,760 190,725 438,529 196,877 0 100,000 691,996 12,444,525 482,529 159,878 4,344 646,751 178,437 250,050 376,701 41,244 67 333,581 126,571 126,571 0 0 92,123 2.74 0 5.09 101,720 13,662 5,299 99,895 133,437 49,837 21,112 149,429 149,214 215 0
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