<PAGE> 1
Filed pursuant to Rule 424(b)(3)
Registration No. 333-23397
[Popular, Inc. Letterhead]
June 12, 1997
Dear RCB Shareholder:
On May 8, 1997, the shareholders of Roig Commercial Bank ("RCB")
approved an Agreement and Plan of Merger, dated as of December 30, 1996 and
amended on March 20, 1997 (as so amended, the "Merger Agreement"), which
provides for the merger of RCB with and into Banco Popular de Puerto Rico
("Banco Popular") (the "Merger").
As described in the Prospectus/Proxy Statement referred to below, the
Merger Agreement provides that in the Merger each RCB shareholder will receive
either all cash or all shares of common stock of Popular, Inc. (formerly
BanPonce Corporation) or a combination of both in exchange for all his or her
shares of RCB common stock.
Accordingly, Popular, Inc. is now asking you to indicate whether you
wish to elect to receive either all cash or all Popular, Inc. common stock or a
combination of both in exchange for your shares of RCB common stock. To assist
you in making this election, enclosed are an Election Form and Letter of
Transmittal (the "Election Form") and a Prospectus Supplement to the original
Prospectus/Proxy Statement, dated April 7, 1997, which was sent to RCB
shareholders of record as of April 8, 1997. The Prospectus Supplement is
attached to this letter; for those of you who did not previously receive a copy
of the original Prospectus/Proxy Statement, a copy is also enclosed.
Each record holder's election to receive Popular, Inc. Common Stock
shall be honored by the Exchange Agent up to 50% of the RCB Common Stock owned
by such record holder (the "Protected Election Shares"). Except for these
Protected Election Shares, each election will be subject to the results of the
procedures set forth in the Merger Agreement for allocating the amounts
available for cash and Popular, Inc. common stock payments among RCB
shareholders. To the extent that shareholder elections exceed the total amounts
available for cash or Popular, Inc. common stock payments, the Exchange Agent
will be required to select certain shareholders whose shares will be converted
into Popular, Inc. common stock or cash, respectively, notwithstanding their
elections.
You will need to complete and return the accompanying Election Form to
the Exchange Agent, Banco Popular, in order to indicate whether you wish to
receive either all cash, all Popular, Inc. common stock or part cash and part
shares. You also may indicate on the Election Form that you do not have a
preference as to cash or Popular, Inc. common stock.
We urge you to consult your own financial advisor before making your
election. Moreover, although certain Puerto Rico and U.S. federal income tax
consequences of the Merger for RCB shareholders are described in the Prospectus
Supplement, you should consult your own tax advisor because of the complexities
of the Puerto Rico and U.S. Federal, state and local tax laws. We make no
recommendation as to whether you should elect cash or stock or indicate no
preference.
It is important that you read the accompanying documents carefully,
complete the enclosed Election Form, and ensure that it, together with all stock
certificates representing your RCB common stock to which the Election Form
relates, is actually received by the Exchange Agent at the Puerto Rico location
specified in the Election Form by 5:00 p.m., Puerto Rico Time, on June 30, 1997
or at the New York location specified in the Election Form by 5:00 p.m., New
York Time, on June 30, 1997. If such materials are not actually received by the
Exchange Agent at one of the proper locations by the proper time, you will be
deemed to have expressed no preference and will receive either cash or Popular,
Inc. common stock, depending upon the choices made by other RCB shareholders.
Sincerely,
Richard L. Carrion
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 2
POPULAR, INC.
PROSPECTUS SUPPLEMENT
TO
PROSPECTUS/PROXY STATEMENT
DATED APRIL 7, 1997
------------------
This Prospectus Supplement ("Supplement") is being furnished to holders
of common stock, par value $10.00 per share ("RCB Common Stock") of Roig
Commercial Bank ("RCB"), as a supplement to the Prospectus/Proxy Statement,
dated April 7, 1997 (the "Prospectus/Proxy Statement") of RCB and Popular, Inc.
("Popular, Inc."), formerly BanPonce Corporation. The Prospectus/Proxy Statement
was previously sent to holders of record of RCB Common Stock as of April 8, 1997
in connection with the Annual Meeting of Shareholders of RCB held on May 8, 1997
(the "Annual Meeting"). A copy of the Prospectus/Proxy Statement is enclosed
herewith for shareholders to whom a Prospectus/Proxy Statement has not
previously been sent. At the Annual Meeting, RCB shareholders approved the
Agreement and Plan of Merger, dated as of December 30, 1996 and amended on March
20, 1997 (as so amended, the "Merger Agreement"), by and among RCB, Popular,
Inc. and Banco Popular de Puerto Rico ("Banco Popular"), which provides for the
merger of RCB with and into Banco Popular (the "Merger").
The Supplement updates certain information contained in the
Prospectus/Proxy Statement and, together with the Prospectus/Proxy Statement, is
for the use of RCB shareholders of record in determining whether they would
elect to receive all cash or all shares of common stock, par value $6.00 per
share (including the attached rights to purchase Series A Participating
Cumulative Preferred Stock, "Popular, Inc. Common Stock") of Popular, Inc. or a
combination of cash and Popular, Inc. Common Stock or would have no preference
as between cash and Popular, Inc. Common Stock for their shares of RCB Common
Stock. An RCB shareholder should consider current price information prior to
making an election, but, because the market price of Popular, Inc. Common Stock
fluctuates, the market price of Popular, Inc. Common Stock (and, therefore, the
relative values of the cash and stock consideration) may vary from the price
(and relative values ) on the date hereof. Under the terms of the Merger
Agreement, no consideration will be paid to holders of RCB Common Stock until
the completion of the election and allocation procedures described herein, which
will not occur until June 30, 1997 at the earliest. Furthermore, as discussed
under "THE MERGER -- Election Procedures; Allocation Procedures", each record
holder's election to receive Popular, Inc. Common Stock shall be honored by the
Exchange Agent up to 50% of the RCB Common Stock owned by such record holder
(the "Protected Election Shares"). Except for this election, no guarantee can be
given that any other election by any given RCB shareholder will be honored.
Please read this Supplement and the Prospectus/Proxy Statement
carefully. Failure of a holder of RCB Common Stock to properly complete and
deliver the accompanying Election Form and Letter of Transmittal (the "Election
Form"), together with the certificates representing shares of RCB Common Stock
to which the Election Form relates, to the Puerto Rico location specified in the
Election Form by 5:00 p.m., Puerto Rico Time, on June 30, 1997 or to the New
York location specified in the Election Form by 5:00 p.m., New York Time, on
June 30, 1997 (the "Election Deadline") and to comply with the procedures
described in this Supplement will cause such holder to be deemed to have
expressed no preference and to receive either all cash or all Popular, Inc.
Common Stock or a combination thereof, depending upon the elections made by
other RCB shareholders. If your stock certificate(s) is lost, stolen or
destroyed, you are urged to refer to Instruction 12 set forth in the
accompanying Election Form.
This Supplement and the Prospectus/Proxy Statement constitute
prospectuses of Popular, Inc. with respect to the shares of Popular, Inc. Common
Stock issuable pursuant to the Merger. This Supplement shall not constitute an
offer to sell or solicitation of an offer to purchase unless accompanied or
preceded by the Prospectus/Proxy Statement.
The Popular, Inc. Common Stock is listed on the Nasdaq National Market
(the "NASDAQ"). The last reported sale price of Popular, Inc. Common Stock
(NASDAQ Symbol: "BPOP") on the NASDAQ on June 11, 1997 was $36.875 per share.
Based on such sale price of the Popular, Inc. Common Stock, the Exchange Ratio
(as defined herein) would result in an implied market value per share for the
RCB Common Stock of $200.00. THERE CAN BE NO ASSURANCE AS TO THE MARKET PRICE
PER SHARE OF THE POPULAR, INC. COMMON STOCK AT ANY TIME PRIOR TO, AT OR AFTER
THE EFFECTIVE TIME. Shareholders are urged to obtain current market quotations.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION (THE "COMMISSION"), THE OFFICE OF THE COMMISSIONER
OF FINANCIAL INSTITUTIONS OF PUERTO RICO (THE "OFFICE OF THE COMMISSIONER") OR
ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION, THE OFFICE OF THE
COMMISSIONER OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS SUPPLEMENT OR THE
PROSPECTUS/PROXY STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED
BY THE FDIC, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION
FUND OR ANY OTHER GOVERNMENTAL AGENCY.
The date of this Supplement is June 12, 1997.
<PAGE> 3
AVAILABLE INFORMATION
Popular, Inc. is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by Popular, Inc. with the Commission may
be inspected and copied at the Commission's public reference room located at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at the public reference facilities in the Commission's regional offices located
at: 7 World Trade Center, 13th Floor, New York, New York 10048; and Citicorp
Center, 500 West Madison Street, Suite 400, Chicago, Illinois 60661. Copies of
such material may be obtained at prescribed rates by writing to the Securities
and Exchange Commission, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such material may also be accessed electronically, by
means of the Commission's home page on the Internet at http://www.sec.gov.
Popular, Inc. has filed with the Commission a Registration Statement on
Form S-4 (together with any amendments thereto, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the securities to be issued pursuant to the Merger Agreement. This
Supplement does not contain all the information set forth in the Registration
Statement. Such additional information may be obtained from the Commission's
principal office in Washington, D.C. Statements contained in this Supplement or
in any document incorporated by reference in this Supplement as to the contents
of any contract or other document referred to herein or therein are not
necessarily complete and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement or
such other document, each such statement being qualified in all respects by such
reference.
AS INDICATED BELOW, THIS SUPPLEMENT INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO
POPULAR, INC. EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED THEREIN, ARE
AVAILABLE WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST TO AMILCAR JORDAN, SENIOR
VICE PRESIDENT, POPULAR, INC., 209 MUNOZ RIVERA AVENUE, HATO REY, PUERTO RICO
00918, (787) 765-9800. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE BY JUNE 20, 1997.
i
<PAGE> 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Popular, Inc. with the Commission are
incorporated into this Supplement by reference:
1. Annual Report on Form 10-K for the year ended December 31, 1996.
2. Description of the Common Stock set forth in Popular, Inc.'s
Registration Statements filed pursuant to Section 12 of the Exchange Act and any
amendment or report filed for the purpose of updating that description.
3. The Prospectus/Proxy Statement.
4. Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.
5. Current Reports on Form 8-K, dated January 14, 1997, February 19,
1997, April 10, 1997, May 8, 1997 and May 9, 1997.
6. Registration Statement on Form 8-A, dated August 18, 1988, filed
pursuant to Section 12(g) of the Exchange Act, pursuant to which Popular, Inc.
registered its Series A Participating Cumulative Preferred Stock Purchase
Rights.
7. Registration Statement on Form 8-A, dated June 17, 1994, as amended
by Popular, Inc.'s Amendment on Form 8-A/A, dated June 21, 1994, filed pursuant
to Section 12(g) of the Exchange Act, pursuant to which Popular, Inc. registered
its 8.35% Non-Cumulative Monthly Income Preferred Stock, 1994 Series A.
All documents filed by Popular, Inc. pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Supplement shall
be deemed to be incorporated herein by reference and to be part hereof from the
date of such filing. Any statement contained in a document incorporated or
deemed to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes hereof to the extent that a statement contained herein
or in any other subsequently filed document which also is, or is deemed to be,
incorporated herein by reference modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part hereof.
RCB is not subject to periodic reporting requirements under the
Exchange Act, and, accordingly, no information or documents relating to RCB are
incorporated herein by reference. All information contained herein relating to
RCB and its business was provided by RCB specifically for inclusion herein and
has been included in reliance on RCB's representations as to the truth and
accuracy thereof.
ii
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Page
---- ----
<S> <C>
AVAILABLE INFORMATION.............................................................................................i
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE..................................................................................................ii
SUMMARY .........................................................................................................1
The Parties....................................................................................................1
The Merger.....................................................................................................2
Certain Tax Consequences of the Merger.........................................................................7
Appraisal Rights...............................................................................................7
Resale of Popular, Inc. Common Shares..........................................................................8
Selected Historical Financial Information......................................................................9
Comparison of Certain Unaudited
Per Share Data.............................................................................................11
Historical Market Price and
Dividends Declared.........................................................................................13
INTRODUCTION.....................................................................................................15
THE MERGER.......................................................................................................16
Effects of the Merger.........................................................................................16
Effective Time; Effective Date................................................................................16
Merger Consideration..........................................................................................16
Election Procedures; Allocation Procedures....................................................................18
Additional Exchange Procedures................................................................................20
Conditions to the Consummation
of the Merger..............................................................................................21
Rights of Dissenting RCB Shareholders.........................................................................22
Resale of Popular, Inc. Common Shares.........................................................................22
Certain Tax Consequences of the Merger........................................................................22
CERTAIN INFORMATION
REGARDING RCB.................................................................................................25
DESCRIPTION OF POPULAR'S CAPITAL
STOCK.........................................................................................................28
SUPERVISION AND REGULATION.......................................................................................28
EXPERTS ........................................................................................................28
APPENDIX: FIRST QUARTER 1997
FINANCIAL INFORMATION FOR RCB
</TABLE>
------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS SUPPLEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, POPULAR, INC. COMMON STOCK OFFERED BY THIS
SUPPLEMENT, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS SUPPLEMENT NOR ANY DISTRIBUTION OF SECURITIES MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF POPULAR, INC. OR RCB SINCE THE DATE OF THIS
SUPPLEMENT.
iii
<PAGE> 6
SUMMARY
The following is a summary of certain information relating to Popular,
Inc. and RCB, the Merger and the related shareholder election and allocation
procedures contained elsewhere in this Supplement, the Prospectus/Proxy
Statement and the documents incorporated herein and therein by reference.
Reference is made to, and this summary is qualified in its entirety by, the more
detailed information contained elsewhere in this Supplement and the
Prospectus/Proxy Statement, contained in the accompanying Appendix hereto and
Appendices thereto and the documents incorporated by reference in this
Supplement and the Prospectus/Proxy Statement and contained in the documents
referred to herein and therein. Shareholders are urged to read this Supplement
and the Prospectus/Proxy Statement, the documents incorporated herein and
therein by reference and the accompanying Appendices hereto and thereto in their
entirety. As used in this Supplement, the terms "Popular, Inc.", "Banco Popular"
and "RCB" refer to such corporations, respectively, and, where the context
requires, such entities and their respective subsidiaries.
THE PARTIES
POPULAR, INC.
Popular, Inc., formerly BanPonce Corporation, is a bank holding company
registered under the Bank Holding Company Act of 1956, as amended (the "BHC
Act"), and incorporated in 1984 under the laws of the Commonwealth of Puerto
Rico ("Puerto Rico"). Popular, Inc. is the largest financial institution in
Puerto Rico, with consolidated assets of $17.4 billion, total deposits of $10.5
billion and shareholders' equity of $1.3 billion at March 31, 1997. Based on
total assets at December 31, 1996, Popular, Inc. was the 42nd largest bank
holding company in the United States. At Popular, Inc.'s annual meeting of
shareholders held on April 25, 1997, Popular, Inc.'s shareholders approved a
proposal made by the Board of Directors to change the name of BanPonce
Corporation to Popular, Inc. Popular, Inc.'s principal executive offices are
located at 209 Munoz Rivera Avenue, Hato Rey, Puerto Rico 00918 and its
telephone number is (787) 765-9800.
Popular, Inc.'s principal subsidiary, Banco Popular de Puerto Rico
("Banco Popular" or the "Bank"), was incorporated over 100 years ago in 1893 and
is Puerto Rico's largest bank with total assets of $14.8 billion, deposits of
$9.9 billion and shareholders' equity of $1.1 billion at March 31, 1997. The
Bank accounted for 85% of the total consolidated assets of Popular, Inc. at
March 31, 1997. A consumer-oriented bank, Banco Popular has the largest retail
franchise in Puerto Rico, operating 179 branches and 330 automated teller
machines. The Bank also has the largest trust operation in Puerto Rico and is
the largest servicer of mortgage loans for investors. In addition, it operates
the largest Hispanic bank branch network in the mainland United States with 29
branches in New York and an agency in Chicago. As of March 31, 1997, these
branches had a total of approximately $1.5 billion in deposits. The Bank also
operates seven branches in the U.S. Virgin Islands and one branch in the British
Virgin Islands. Banco Popular has three subsidiaries, Popular Leasing & Rental
Inc., Puerto Rico's largest vehicle leasing and daily rental company, Popular
Finance Inc. (formerly Popular Consumer Services, Inc.), a small-loan and
secondary mortgage company with 35 offices in Puerto Rico operating under the
name of Best Finance and Popular Mortgage, Inc., a mortgage loan company with
four offices in Puerto Rico operating under the name of Popular Mortgage
(formerly Puerto Rico Home Mortgage).
Popular, Inc. has two other principal subsidiaries: Popular Securities,
Inc. (formerly BP Capital Markets) and Popular International Bank, Inc. ("PIB"),
which in turn owns all of the outstanding stock of Popular North America, Inc.
("PNA"). Popular Securities, Inc. is a direct subsidiary of Popular, Inc. and
engages in the business of a securities broker-dealer in Puerto Rico, with
institutional brokerage, financial advisory, and investment and security
brokerage operations.
1
<PAGE> 7
RECENT DEVELOPMENTS
On May 31, 1997, Popular, Inc. acquired National Bancorp, Inc. ("NBI"),
the parent of American Midwest Bank, through a direct wholly owned subsidiary of
Popular, Inc. American Midwest Bank operates two branches in Melrose Park,
Illinois and had assets of $189 million and deposits of $141 million as of May
31, 1997.
On May 31, 1997, Popular, Inc. acquired CBC Bancorp, Ltd. ("CBC"), the
parent company of Capital Bank & Trust and Capitol Bank of Westmont, through an
indirect wholly owned subsidiary of Popular, Inc. CBC, with assets of $325
million and deposits of $266 million at May 31, 1997, operates three branches in
Chicago and Westmont, Illinois through its banking subsidiaries.
At the annual meeting of shareholders on April 25, 1997, Popular,
Inc.'s shareholders approved amendments to the Restated Articles of
Incorporation to change the name of the corporation to Popular, Inc. from
BanPonce Corporation, and to increase the total number of authorized shares of
capital stock to 190,000,000. The authorized capital stock of Popular, Inc.
consists of 180,000,000 shares of Common Stock, par value of $6.00 per share,
and 10,000,000 shares of Preferred Stock without par value.
On April 30, 1997, Popular North America, Inc. acquired all of the
shares of Seminole National Bank, a national bank headquartered in Florida with
assets at April 30, 1997 of $34 million. The bank now operates under the name
Banco Popular, N.A. (Florida).
On May 8, 1997, Popular, Inc. announced that its Board of Directors had
authorized the repurchase of up to 3,000,000 shares of outstanding common stock
to offset the issuance of shares in connection with the Merger and another
recent proposed acquisition.
RCB
RCB is a full-service commercial bank which provides a wide range of
financial services principally in the eastern and San Juan metropolitan regions
of Puerto Rico. RCB was founded in 1922 and does business under the Puerto Rico
Banking Act of 1933, as amended (the "Banking Law"). As of March 31, 1997, RCB
had total assets of $849 million, deposits of $602 million and shareholders'
equity of $66 million. RCB's principal executive offices are located at 63
Carreras Street, Humacao, Puerto Rico 00979 and its telephone number is (787)
852-1010.
RCB operates 25 branches located in Humacao, San Juan, Bayamon, Caguas,
Carolina, Fajardo, Rio Piedras, Rio Grande, Yabucoa, Las Piedras, Loiza,
Luquillo, Maunabo, Naguabo, Juncos and Culebra. Its deposits are insured by the
Federal Deposit Insurance Corporation (the "FDIC") and it is subject to the
supervision of the FDIC and of the Office of the Commissioner of Financial
Institutions of Puerto Rico.
THE MERGER
EFFECTS OF THE MERGER
At the Effective Time (as hereinafter defined), RCB shall merge with
and into Banco Popular, and the separate existence of RCB shall cease. Banco
Popular shall be the surviving bank in the Merger, and the separate corporate
existence of Banco Popular, with all its rights, privileges and franchises,
shall continue unaffected by the Merger. The Merger shall be pursuant to and
have the effects specified in the Banking Law. The Charter and Bylaws of Banco
Popular, as in effect immediately prior to the Effective Date, shall be the
Charter and the Bylaws of the Surviving Bank until further amended as provided
therein.
2
<PAGE> 8
EFFECTIVE TIME; EFFECTIVE DATE
On June 30, 1997, assuming the satisfaction or waiver of the conditions
set forth in Article 8 of the Merger Agreement, the parties shall cause the
Merger Agreement to be properly filed in the office of the Secretary of State of
Puerto Rico in accordance with the Banking Law. This date is herein sometimes
referred to as the "Effective Date" and the time at which the Merger Agreement
will be filed the "Effective Time".
MERGER CONSIDERATION
The Merger Agreement provides that (subject to the election and
allocation procedures provided for therein), at the Effective Time, each share
of RCB Common Stock issued and outstanding immediately prior to the Effective
Time (other than shares held as treasury stock of RCB and shares held directly
or indirectly by Popular, Inc., except shares ("Excluded Shares") held by
Popular, Inc. in a fiduciary capacity or in satisfaction of a debt previously
contracted) (the "Outstanding Shares") will be converted into the right to
receive, at the election of the holders thereof and subject to the election and
allocation procedures set forth below, either
(i) a number of shares of Popular, Inc. Common Stock equal to
the sum of (a) one-half of the Exchange Ratio (as defined below) and
(b) the ratio of $100 to the Popular, Inc. Average Stock Price (as
defined below) (the "Per Share Stock Consideration"), or
(ii) cash equal to the sum of (a) $100 and (b) the product of (I)
one-half of the Exchange Ratio and (II) the Popular, Inc. Average
Stock Price (the "Per Share Cash Consideration");
provided, that if RCB's shareholders' equity (adjusted as provided below) is
less than $66,100,000 as of the close of business on the date that is 15
calendar days preceding the Effective Date (the amount, if any, by which RCB's
shareholders' equity is less than $66,100,000, the "Equity Shortfall"), the Per
Share Stock Consideration and the Per Share Cash Consideration shall be reduced
as follows:
(X) the Per Share Cash Consideration shall be reduced by an
amount equal to (I) the Equity Shortfall (if any), divided by (II) the
number of Outstanding Shares (the "Per Share Cash Reduction"); and
(Y) the Per Share Stock Consideration shall be reduced by an
amount equal to the Per Share Cash Reduction divided by the Popular,
Inc. Average Stock Price; and
provided, further, that 50% of the Outstanding Shares shall be converted into
the right to receive cash (the "Cash Number") and 50% of the Outstanding Shares
shall be converted into the right to receive Popular, Inc. Common Stock
(the "Stock Number").
The "Exchange Ratio" means $200 divided by the "Popular, Inc. Average
Stock Price," subject to the Collar described below. The "Popular, Inc. Average
Stock Price" is the average of the last sale price for Popular, Inc. Common
Stock quoted on the Nasdaq National Market as reported in the Wall Street
Journal (or, in the absence thereof, as reported in such other source upon which
Popular, Inc. and RCB shall agree) for each of the ten consecutive trading days
on which Popular, Inc. Common Stock is traded on the Nasdaq National Market
ending on, and including, the trading day which is two Business Days prior to
the Election Deadline (as defined below).
In order to provide some protection to holders of shares of RCB Common
Stock against fluctuation in the price of Popular, Inc. Common Stock, the Merger
Agreement provides that the Exchange Ratio will be $200 divided by the Popular,
Inc. Average Stock Price so long as that price falls within a specified range.
This range is between $37.40 and $30.60 per share of Popular, Inc. Common Stock,
inclusive (the "Collar"). If the Popular, Inc. Average Stock Price is above the
Collar, the Exchange Ratio shall be 5.348. If the Popular, Inc. Average Stock
Price is below the Collar, the Exchange Ratio shall be 6.536.
3
<PAGE> 9
The Merger Agreement provided that, on or prior to the Effective Date,
RCB could have declared and paid an extraordinary cash dividend not exceeding
$20,000,000 (the "Extraordinary Dividend") if RCB received a ruling from the
Puerto Rico Department of the Treasury to the effect that payment of such
Extraordinary Dividend in the amount proposed would not disqualify the Merger as
a "reorganization" within the meaning of Section 1112(g)(1) of the Puerto Rico
Internal Revenue Code of 1994, as amended (the "Puerto Rico Code"). If the
Extraordinary Dividend had been paid, the consideration to be received by RCB
shareholders in the Merger would have been reduced by the amount of the
Extraordinary Dividend.
The rulings received by RCB from the Puerto Rico Department of the
Treasury with respect to the Extraordinary Dividend are not satisfactory to RCB.
Although payment of the Extraordinary Dividend would not disqualify the Merger
as "reorganization" within the meaning of Section 1112(g)(1), RCB shareholders
would not receive the tax benefits from the Extraordinary Dividend that RCB
intended. Therefore, RCB has determined not to pay the Extraordinary Dividend.
In computing RCB's shareholders' equity for purposes of calculating the
Per Share Cash Consideration and the Per Share Stock Consideration: (1) such
equity shall be defined as the sum of RCB's common stock, surplus and undivided
profits, but excluding any unrealized gain or loss on securities available for
sale, (2) such equity shall reflect any adjustments required as a result of the
Price Waterhouse audit referred to in Section 1.4 of the Merger Agreement, (3)
computations shall be made in accordance with Generally Accepted Accounting
Principles consistently applied and (4) any dividend declared between the month
end preceding the Election Deadline and the Effective Date shall be deducted
from such equity and any reduction in such equity resulting from any reduction
after December 30, 1996 in the value of RCB's securities portfolio due to an
increase in the general level of interest rates shall be excluded; provided,
however, that, to the extent gains are taken on the sale of securities in RCB's
securities portfolio after December 30, 1996, RCB's shareholders' equity shall
be reduced to reflect unrealized losses in its securities portfolio that exceed
the amount of such unrealized losses as of December 30, 1996.
ADDITIONAL AUDIT
Pursuant to the Merger Agreement, Price Waterhouse will conduct an
audit in accordance with generally accepted auditing standards of the statement
of condition of RCB as of the month end immediately preceding the Election
Deadline that is at least 30 days prior to the Election Deadline. Any adjustment
to shareholders' equity as a result of this audit could affect the Per Share
Stock Consideration and Per Share Cash Consideration if shareholders' equity is
less than $66,100,000 (less the amount of any Extraordinary Dividend). See
"--Conversion of RCB Common Stock".
ELECTION AND ALLOCATION OF RCB COMMON STOCK
Each shareholder of RCB is now being asked to indicate on the enclosed
Election Form the kind of consideration sought to be received in exchange for
her shares of RCB Common Stock. As described below, such election may not
necessarily be honored. See "THE MERGER -- Election and Allocation Procedures".
It is essential that you complete your Election Form promptly and that the
Exchange Agent actually receive it, together with the certificates representing
your shares of RCB Common Stock to which your Election Form relates, at one of
the proper locations specified in the Election Form by the Election Deadline,
which is 5:00 p.m., Puerto Rico Time, on June 30, 1997, if delivered to the
Exchange Agent in Puerto Rico and 5:00 p.m., New York Time, on June 30, 1997, if
delivered to the Exchange Agent in New York.
Each RCB shareholder of record immediately prior to the Effective Time
is entitled to make an election and submit an Election Form covering all shares
of RCB Common Stock actually held of record by such holder. Nominee record
holders, which include any nominee, any trustee or any other person that holds
shares of RCB Common Stock in any capacity whatsoever on behalf of another
person or entity, are entitled to make an election for such nominee record
holder as well as an election on behalf of each beneficial owner of shares of
RCB Common Stock held through such nominee record holder, but such elections
must be made on a single Election Form. Such Election Form must
4
<PAGE> 10
set forth the election of each beneficial owner separately. Beneficial owners
who are not record holders are not entitled to submit Election Forms.
A record holder of RCB Common Stock who does not, by the Election
Deadline, properly complete, sign and deliver the enclosed Election Form along
with such holder's certificates will be deemed to have indicated no preference
for cash or Popular, Inc. Common Stock and will be allocated cash or Popular,
Inc. Common Stock depending upon the elections made by other RCB shareholders.
Any election may be revoked, but only by written notice actually received by the
Exchange Agent at one of the proper locations specified in the Election Form by
the Election Deadline. NEITHER POPULAR, INC. NOR THE EXCHANGE AGENT WILL BE
UNDER ANY OBLIGATION TO NOTIFY ANY PERSON OF ANY DEFECT IN ANY ELECTION FORM OR
NOTICE OF REVOCATION SUBMITTED TO THE EXCHANGE AGENT. See "THE MERGER --
Election and Allocation Procedures" in this Supplement.
Subject to the allocation procedures described below, each record
holder of RCB Common Stock immediately prior to the Effective Time will be
entitled (i) to elect to receive Popular, Inc. Common Stock for all or some of
the shares of RCB Common Stock ("Stock Election Shares") held by such record
holder, (ii) to elect to receive cash for all or some of the shares of RCB
Common Stock ("Cash Election Shares") held by such record holder or (iii) to
indicate that such holder makes no such election for all or some of the shares
of RCB Common Stock held by such record holder ("No-Election Shares"). Each
record holder's election to receive Popular, Inc. Common Stock shall be honored
by the Exchange Agent, which shall be Banco Popular, up to 50% of the RCB Common
Stock owned by such record holder (the "Protected Election Shares"). Protected
Election Shares shall not be subject to the allocation procedures set forth
below, shall be deducted from the Stock Number and shall not be deemed Stock
Election Shares.
Any shares of RCB Common Stock with respect to which the record holder
thereof shall not, as of the Election Deadline, have properly submitted to the
Exchange Agent a properly completed Election Form shall be deemed to be
No-Election Shares. A record holder acting in different capacities shall be
entitled to submit an Election Form for each capacity in which such record
holder so acts with respect to each person for which it so acts.
Not later than the 10th day after the Election Deadline, Popular, Inc.
shall cause the Exchange Agent to effect the allocation among the holders of RCB
Common Stock of rights to receive the Per Share Stock Consideration or the Per
Share Cash Consideration in the Merger as follows:
If the number of Stock Election Shares is less than the Stock Number,
then (i) all Stock Election Shares shall be converted into the right to
receive the Per Share Stock Consideration, and (ii) the Exchange Agent
shall select (by random selection or by lot) from among the No-Election
Shares a sufficient number of No-Election Shares such that the sum of
such number and the number of Stock Election Shares shall equal as
closely as practicable the Stock Number, and all such selected shares
("Stock-Selected No-Election Shares") shall be converted into the right
to receive the Per Share Stock Consideration, provided that if the sum
of all No-Elec tion Shares and Stock Election Shares is less than the
Stock Number, all No-Election Shares shall be converted into the right
to receive the Per Share Stock Consideration and thereby become
Stock-Selected No- Election Shares.
If the sum of Stock Election Shares and No-Election Shares is less than
the Stock Number, the Exchange Agent shall convert (by the method of
pro rata conversion described below), a sufficient number of Cash
Election Shares into Stock Election Shares ("Converted Cash Election
Shares") such that the sum of Stock Election Shares, No-Election Shares
and Converted Cash Election Shares equals as closely as practicable the
Stock Number, and all Converted Cash Election Shares shall be converted
into the right to receive the Per Share Stock Consideration, and any
No-Election Shares and the Cash Election Shares that are not Stock-
Selected No-Election Shares or Converted Cash Election Shares (as the
case may be) shall be converted into the right to receive the Per Share
Cash Consideration.
If the number of Stock Election Shares is greater than the Stock
Number, then all Cash Election Shares and No-Election Shares shall be
converted into the right to receive the Per Share Cash Consideration,
and the
5
<PAGE> 11
Exchange Agent shall convert (by the method of pro rata conversion
described below) a sufficient number of Stock Election Shares into
Cash Election Shares ("Converted Stock Election Shares") such that the
remainder of Stock Election Shares (before such conversion) less
Converted Stock Election Shares equals as closely as practicable the
Stock Number, and all Converted Stock Election Shares shall be
converted into the right to receive the Per Share Cash Consideration,
and the Stock Election Shares which are not Converted Stock Election
Shares shall be converted into the right to receive the Per Share
Stock Consideration.
If the number of Stock Election Shares equals the Stock Number, then
all Stock Election Shares shall be converted into the right to receive
the Per Share Stock Consideration and all Cash Election Shares and
No-Election Shares shall be converted into the right to receive the
Per Share Cash Consideration.
In the event the Exchange Agent is required to convert Cash Election
Shares into Stock Election Shares, the election by each holder of Cash
Election Shares shall be converted on a pro rata basis into Cash
Election Shares and Stock Election Shares, with the Stock Election
Shares to be equal to the product of (x) the number of such holder's
Cash Election Shares before such conversion and (y) the fraction in
which the total number of Converted Cash Election Shares comprises the
numerator and the total number of Cash Election Shares before such
conversion comprises the denominator. In the event the Exchange Agent
is required to convert Stock Election Shares into Cash Election
Shares, the election by each holder of Stock Election Shares shall be
converted on a pro rata basis into Stock Election Shares and Cash
Election Shares, with the Cash Election Shares to be equal to the
product of (x) the number of such holder's Stock Election Shares
before such conversion and (y) the fraction in which the total number
of Converted Stock Election Shares comprises the numerator and the
total number of Stock Election Shares before such conversion comprises
the denominator.
Notwithstanding the foregoing, a person who immediately prior to the
Effective Time, owned (for purposes of the Puerto Rico Code) 1% or
more of the outstanding shares of RCB Common Stock and who does not
elect to receive Per Share Cash Consideration for all his shares,
shall deliver a written agreement, in a form reasonably acceptable to
Popular, Inc., containing customary representations to the effect that
such holder has no present intention to sell, exchange or otherwise
dispose of such shares of Popular, Inc. Common Stock to be received in
exchange for such shares of RCB Common Stock, and if such holder shall
not deliver such written agreement, in a form reasonably acceptable to
Popular, Inc., at the election of Popular, Inc. such person shall
instead receive the Per Share Cash Consideration with respect to such
shares, regardless of the election (or lack thereof) made by such
person in its Election Form, and, if Popular, Inc. exercises such
election, the Cash Number shall be reduced by the number of shares of
RCB Common Stock that were owned by such person immediately prior to
the Effective Time.
To be effective, an Election Form must be properly completed, signed
and actually received by the Exchange Agent in Puerto Rico not later than 5:00
p.m., Puerto Rico Time, on June 30, 1997, or by the Exchange Agent in New York
not later than 5:00 p.m., New York Time, on June 30, 1997, and accompanied by
the certificates representing all the shares of RCB Common Stock as to which the
Election is being made (or an appropriate guarantee of delivery by an eligible
organization).
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Consummation of the Merger is subject, among other things, to (i) the
Registration Statement not being subject to a stop order of the Commission, (ii)
no law, statute, rule or regulation, domestic or foreign, having been enacted or
promulgated which would prohibit the consummation of the transactions
contemplated by the Merger Agreement, and (iii) certain other closing
conditions. See "THE MERGER--Conditions to the Consummation of the Merger".
6
<PAGE> 12
CERTAIN TAX CONSEQUENCES OF THE MERGER
The summary set forth below of certain Puerto Rico and United States
Federal income tax consequences of the Merger is qualified in its entirety by
the complete discussion under "THE MERGER--Certain Tax Consequences of the
Merger". Because the tax consequences of the Merger may vary depending on an
individual taxpayer's particular situation, shareholders are urged to consult
their own tax advisors to determine the particular tax consequences to them of
these transactions.
PUERTO RICO
It is intended that, under the income tax laws of Puerto Rico, the
Merger will be, with respect to Popular, Inc., Banco Popular and RCB, a tax-free
reorganization, with the consequence that (i) shareholders of RCB that exchange
RCB Common Stock solely for Popular, Inc. Common Stock will not recognize gain
or loss as a result of the exchange, (ii) shareholders of RCB that exchange RCB
Common Stock solely for cash will be required to recognize the total amount of
gain realized on the exchange and (iii) the gain realized by shareholders of RCB
that exchange RCB Common Stock for cash and Popular, Inc. Common Stock will
generally be required to be recognized in an amount that does not exceed the
cash received. On June 12, 1997, the Puerto Rico Department of the Treasury
issued its ruling (the "Ruling") on the tax consequences of the Merger,
providing that, among other things, with respect to Popular, Inc., Banco Popular
and RCB, the Merger will be a tax-free reorganization. For a complete
description of the Ruling, see "THE MERGER--Certain Tax Consequences of the
Merger--Puerto Rico Income Tax Consequences".
UNITED STATES
The conversion of RCB Common Stock pursuant to the Merger generally
will be a taxable transaction for United States Federal income tax purposes and
may also be taxable under applicable state, local and other tax laws. In
general, for United States Federal income tax purposes, a shareholder of RCB
that is a U.S. Holder (other than certain bona fide residents of Puerto Rico),
as defined below under "Certain Tax Consequences of the Merger--United States
Federal Income Tax Consequences", that exchanges RCB Common Stock for Popular,
Inc. Common Stock or cash will recognize gain or loss for United States Federal
income tax purposes in an amount equal to the difference between the sum of the
cash and fair market value of the shares of Popular, Inc. Common Stock received
and the shareholder's basis in the shares of RCB Common Stock surrendered. See
"Certain Tax Consequences of the Merger -- United States Federal Income Tax
Consequences".
APPRAISAL RIGHTS
Each holder of RCB Common Stock who dissented from the Merger and has
neither effectively withdrawn nor lost his right to the appraisal of his shares
may be entitled to the appraisal rights of dissenting shareholders under Section
15(d) of the Banking Law. A copy of Section 15(d) of the Banking Law is attached
to the Prospectus/Proxy Statement as Appendix C, and a summary of such section
is included in this Supplement under "THE MERGER--Rights of Dissenting RCB
Shareholders".
RESALE OF POPULAR, INC. COMMON SHARES
The Popular, Inc. Common Shares have been registered under the
Securities Act, thereby allowing such shares to be traded freely and without
restriction by those holders of RCB Common Stock who receive such shares
following consummation of the Merger and who are not deemed to be "affiliates"
(as defined under the Securities Act) of RCB or Popular, Inc. It is a condition
to consummation of the Merger that each holder of RCB Common Stock who is deemed
by RCB to be an "affiliate" of RCB shall enter into an agreement with Popular,
Inc. (an "Affiliate's Agreement") providing, among other things, that such
affiliate will not transfer any Popular, Inc. Common Shares received by such
affiliate in the Merger, except in compliance with the Securities Act. This
Supplement does not cover any resales of Popular, Inc. Common Shares received by
"affiliates" of RCB.
7
<PAGE> 13
SELECTED HISTORICAL FINANCIAL INFORMATION
POPULAR, INC.
The following table sets forth selected historical financial information for
Popular, Inc. This information should be read in conjunction with the historical
financial statements of Popular, Inc. including the notes thereto, incorporated
herein by reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE".
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
SUMMARY INCOME STATEMENT
(in thousands
except per share
amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 334,265 $ 302,927 $ 1,272,853 $ 1,105,807 $ 887,141 $ 772,136 $ 740,354
Interest expense 153,621 140,467 591,540 521,624 351,633 280,008 300,135
Net interest income 180,644 162,460 681,313 584,183 535,508 492,128 440,219
Provision for credit losses 23,687 21,273 88,839 64,558 53,788 72,892 97,633
Net interest income after
provision for credit losses 156,957 141,187 592,474 519,625 481,720 419,236 342,586
Noninterest income 54,255 51,992 205,472 173,338 141,303 125,180 124,504
Noninterest expense 142,125 130,699 541,919 486,833 448,231 413,046 367,715
Income before income taxes 69,087 62,480 256,027 206,130 174,792 131,370 99,375
Applicable income taxes 19,548 17,338 70,877 59,769 50,043 28,151 14,259
Cumulative effect of accounting
changes -- -- -- -- -- 6,185 --
Net income 49,539 45,142 $ 185,150 $ 146,361 $ 124,749 $ 109,404 $ 85,116
Net income per common share(1) 0.72 0.65 $ 2.68 $ 2.10 $ 1.84 $ 1.67 $ 1.40
Cash dividends per common
share(1) 0.18 0.15 $ 0.69 $ 0.58 $ 0.50 $ 0.45 $ 0.40
SELECTED PERIOD-END BALANCES
(in thousands except per
share amounts)
Total assets $17,401,458 $15,805,083 $16,764,103 $15,675,451 $12,778,358 $11,513,368 $10,002,327
Total loans and loans held-for-
sale 9,889,254 8,850,078 9,779,028 8,677,484 7,781,329 6,346,922 5,252,053
Investment and trading securities 5,657,293 5,289,849 4,905,150 5,191,992 3,796,807 4,048,380 3,698,850
Earning assets 16,336,734 14,801,284 15,484,454 14,668,195 11,843,806 10,657,994 9,236,024
Deposits 10,465,153 10,183,082 10,763,275 9,876,662 9,012,435 8,522,658 8,038,711
Term borrowings(2) 2,964,383 1,629,679 2,545,719 1,390,135 1,113,365 1,010,028 400,944
Shareholders' equity 1,287,515 1,159,570 1,262,532 1,141,697 1,002,423 834,195 752,119
Book value per share 17.96 16.07 17.59 15.81 13.74 12.75 11.52
SELECTED FINANCIAL RATIOS
Return on average common equity 16.32% 16.39% 16.15% 14.22% 13.80% 13.80% 12.72%
Return on average assets 1.19 1.17 1.14 1.04 1.02 1.02 0.89
Net interest margin(3) 4.90 4.78 4.77 4.74 5.06 5.50 6.11
Allowance for credit losses to
period-end loans and loans
held-for-sale 1.94 1.97 1.90 1.94 1.98 2.10 2.11
Nonperforming assets as a
percentage of period-end
loans and loans held-for-sale 1.76 1.70 1.58 1.79 1.38 1.75 2.52
Net charge-offs to average loans
and loans held-for-sale 0.73 0.68 0.78 0.61 0.52 0.91 1.58
Average equity to average assets 7.56 7.44 7.33 7.58 7.57 7.42 7.02
</TABLE>
- ----------------------
(1) Adjusted to reflect the stock split effected in the form of a
dividend on July 1, 1996.
(2) Excludes Federal Funds that must be repaid in one day.
(3) On a taxable equivalent basis.
8
<PAGE> 14
ROIG COMMERCIAL BANK
The following table sets forth selected historical financial information for
RCB. This information should be read in conjunction with the historical
financial statements of RCB, including the notes thereto, attached to the
Prospectus/Proxy Statement as Appendix D. See Appendix for first quarter 1997
financial statements.
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year ended December 31,
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
SUMMARY INCOME STATEMENT
(in thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income 17,099 16,101 $ 66,962 $ 62,758 $ 55,681 $ 53,534 $ 55,656
Interest expense 8,058 7,872 32,675 31,009 24,148 22,458 25,910
Net interest income 9,041 8,229 34,287 31,749 31,533 31,076 29,746
Provision for credit losses 1,200 600 3,180 1,006 1,437 3,769 6,026
Net interest income after provision for
credit losses 7,841 7,629 31,107 30,743 30,096 27,307 23,720
Noninterest income 971 1,626 6,592 5,812 4,295 5,457 5,752
Noninterest expense 8,495 7,538 31,369 28,855 26,776 24,411 23,307
Income before income taxes 317 1,717 6,330 7,701 7,616 8,354 6,165
Income taxes -- 86 (702) 426 359 1,150 1,094
Cumulative effect of accounting changes -- -- -- -- -- 818 --
Net income (loss) 317 1,631 7,032 7,275 7,256 8,022 5,071
Net income per common share 0.53 2.72 11.72 12.12 12.09 13.37 8.45
Cash dividends per common share -- -- 3.50 3.25 3.10 3.20 2.40
SELECTED PERIOD-END BALANCES
(in thousands except per share amounts)
Total assets $847,858 $850,935 $888,443 $814,522 $759,742 $716,468 $672,197
Total loans and loans held-for-sale 353,401 318,341 349,115 301,378 282,262 242,019 260,192
Investment and trading securities 407,276 468,503 459,076 453,031 418,587 402,315 333,089
Earning assets 805,396 807,854 841,401 764,619 709,649 676,384 629,581
Deposits 602,382 648,708 656,291 642,360 623,859 609,500 605,476
Term borrowings 171,530 132,282 156,850 97,000 78,926 52,000 18,000
Shareholders' equity 65,642 64,058 66,493 64,497 51,666 50,470 44,368
Book value per share 109.40 106.76 110.82 107.50 86.11 84.12 73.95
SELECTED FINANCIAL RATIOS
Return on average common equity 1.91% 9.95% 10.48% 12.46% 13.99% 15.07% 11.96%
Return on average assets 0.14 0.77 0.81 0.92 0.99 1.04 0.79
Net interest margin 4.13 3.89 3.92 3.97 4.29 4.51 4.53
Allowance for credit losses to period-end
loans and loans held-for-sale 1.64 1.66 1.62 1.70 2.05 2.04 1.47
Nonperforming assets as a percentage of
average assets 1.32 1.48 1.38 1.47 .87 1.35 1.44
Net charge-offs to average loans and leases 1.17 0.54 0.80 0.57 0.34 1.02 2.10
Average equity to average assets 7.59 7.75 7.67 7.31 7.07 6.93 6.46
Dividend payout -- -- 29.90 26.80 25.60 23.90 28.40
</TABLE>
9
<PAGE> 15
COMPARISON OF CERTAIN UNAUDITED PER SHARE DATA
The following unaudited information, adjusted for any stock dividends
and stock splits, reflects, where applicable, certain comparative per share data
related to book value, cash dividends paid, income and market value: (i) on a
historical basis for Popular, Inc. and RCB; (ii) on a pro forma combined basis
per share of Popular, Inc. Common Stock; and (iii) on an equivalent pro forma
basis per share of RCB Common Stock. Such pro forma information has been
prepared assuming (a) a 5.92593 Exchange Ratio for the book value per share,
cash dividends per share and net income per share amounts as of December 31,
1996 or for the year ended December 31, 1996 and a 5.63380 Exchange Ratio for
the book value per share, cash dividends per share and net income per share
amounts as of March 31, 1997 or for the three months ended March 31, 1997; (b) a
5.92593 Exchange Ratio for the market value per share amount on December 30,
1996, (c) a 5.42373 Exchange Ratio for the market value per share amount on June
11, 1997 and (d) consummation of the Merger on a purchase accounting basis as of
January 1, 1996.
The 5.92593 Exchange Ratio used in the pro forma information for book
value per share, cash dividends per share and net income per share is based on
$33.75, the last reported sale price per share of Popular, Inc. Common Stock on
the Nasdaq National Market on December 31, 1996. The 5.92593 Exchange Ratio used
in the pro forma information for market value per share on December 30, 1996 is
based on $33.75, the last reported sale price per share of Popular, Inc. Common
Stock on the Nasdaq National Market on December 30, 1996, the date preceding the
public announcement of the Merger Agreement. The 5.42373 Exchange Ratio used in
the pro forma information for market value per share on June 11, 1997 is based
on the last reported sale price per share of Popular, Inc. Common Stock on the
Nasdaq National Market on June 11, 1997. The actual Exchange Ratio will depend
on the Popular, Inc. Average Stock Price (which will not be known until shortly
before the Effective Date) and may be higher or lower than $33.75 or $36.875.
The pro forma information would be different if the Popular, Inc. Average Stock
Price results in a different Exchange Ratio. Shareholders are urged to obtain
current quotations of the market price per share of Popular, Inc. Common Stock.
Since purchase accounting does not require restatement of results for
prior periods following consummation of the Merger, consummation of the Merger
will not affect Popular, Inc.'s historical results for the periods indicated.
Pro forma financial information is intended to show how the Merger might have
affected historical financial statements if the Merger had been consummated at
an earlier time. The pro forma financial information does not purport to be
indicative of the results that actually would have been realized had the Merger
taken place at the beginning of the applicable periods indicated, nor is it
indicative of the combined financial position or results of operations for any
future periods.
The information shown below should be read in conjunction with the
historical financial statements of Popular, Inc. and RCB, including the
respective notes thereto, and the documents incorporated herein by reference.
See "AVAILABLE INFORMATION", "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE",
and Appendix.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
<S> <C> <C>
BOOK VALUE PER SHARE:
Historical per share of:
Popular, Inc. Common Stock.................................. $ 17.59 $ 17.96
RCB Common Stock............................................ 110.82 109.40
Pro forma combined per share of Popular, Inc. Common
Stock (1)................................................... 19.48 18.38
Equivalent pro forma per share of RCB Common Stock (2).......... 115.44 103.57
</TABLE>
- -----------
(1) The pro forma combined book value per share of Popular, Inc. Common
Stock amount represents the sum of the pro forma combined shareholders'
equity amounts, divided by pro forma combined period-end number of
shares outstanding.
10
<PAGE> 16
(2) The equivalent pro forma book value per share of RCB Common Stock
amount represents the pro forma combined book value per share of
Popular, Inc. Common Stock amounts multiplied by a 5.92593 Exchange
Ratio for December 31, 1996 and a 5.63380 Exchange Ratio for March 31,
1997.
---------------------------
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- ---------------
<S> <C> <C>
CASH DIVIDENDS PAID PER SHARE:
Historical per share of:
Popular, Inc. Common Stock............................ $ .69 $ .18
RCB Common Stock...................................... 3.50 --
Pro forma combined per share of Popular, Inc.
Common Stock (3)...................................... .70 .1754
Equivalent pro forma per share of RCB Common
Stock (4)............................................. 4.15 .99
</TABLE>
- ------------
(3) The pro forma combined cash dividends paid per share of Popular, Inc.
Common Stock amount represents pro forma combined cash dividends paid
on common stock outstanding, divided by pro forma combined average
number of common shares outstanding, rounded to the nearest cent.
(4) The equivalent pro forma cash dividends paid per share of RCB Common
Stock amount represents pro forma combined per share of Popular, Inc.
Common Stock amounts multiplied by a 5.92593 Exchange Ratio, rounded up
to the nearest cent, for the year ended December 31, 1996 and
multiplied by a 5.63380 Exchange Ratio, rounded up to the nearest cent,
for the three months ended March 31, 1997. The current annualized
dividend rate per share of Popular, Inc. Common Stock, based upon the
most recent quarterly dividend rate of $.18 per share payable on April
1, 1997, would be $.72. On an equivalent pro forma basis, such current
annualized Popular, Inc. dividend per share of RCB Common Stock would
be $4.27, based on a 5.92593 Exchange Ratio, rounded to the nearest
cent. Any future Popular, Inc. and RCB dividends are dependent upon
their respective earnings and financial conditions, government
regulations and policies and other factors.
---------------------------
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- -------------------
<S> <C> <C>
NET INCOME APPLICABLE TO COMMON SHAREHOLDERS:
Historical per share of:
Popular, Inc. Common Stock............................ $ 2.68 $ .72
RCB Common Stock...................................... 11.72 .53
Pro forma combined per share of Popular, Inc.
Common Stock (5)...................................... 2.75 .69
Equivalent pro forma per share of RCB Common
Stock (6)............................................. 16.30 3.87
</TABLE>
- ------------
(5) The pro forma combined income per share of Popular, Inc. Common Stock
amount represents pro forma combined net income applicable to holders
of Popular, Inc. Common Stock, divided by pro forma combined average
number of shares of Popular, Inc. Common Stock outstanding.
(6) The equivalent pro forma income per share of RCB Common Stock amount
represents pro forma combined income per share of Popular, Inc. Common
Stock amounts multiplied by a 5.92593 Exchange Ratio for the year ended
December 31, 1996 and a 5.63380 Exchange Ratio for the three months
ended March 31, 1997.
------------------
11
<PAGE> 17
<TABLE>
<CAPTION>
MARKET VALUE PER SHARE(7): DECEMBER 30, 1996 JUNE 11, 1997
----------------- -------------
<S> <C> <C>
Historical per share of:
Popular, Inc. Common Stock....................... $ 33.75 $36.875
Equivalent pro forma per share of RCB Common
Stock........................................... 200.00 200.00
</TABLE>
- ------------
(7) The equivalent pro forma market value per share of RCB Common Stock on
December 30, 1996 represents the historical market value per share of
Popular, Inc. Common Stock multiplied by a 5.92593 Exchange Ratio,
rounded down to the nearest one-eighth. The equivalent pro forma market
value per share of RCB Common Stock on June 11, 1997 represents the
historical market value per share of Popular, Inc. Common Stock
multiplied by a 5.42373 Exchange Ratio, rounded down to the nearest
one-eighth. The Popular, Inc. historical market values per share
represent the last reported sales price per share of Popular, Inc.
Common Stock on the Nasdaq National Market: (i) on December 30, 1996,
the last business day preceding public announcement of the execution of
the Merger Agreement; and (ii) on June 11, 1997. There is no
established trading market for RCB Common Stock.
Because the market price of Popular, Inc. Common Stock is subject to
fluctuation, the market value of the Popular, Inc. Common Shares that holders of
RCB Common Stock will receive upon consummation of the Merger may increase or
decrease prior to and after the receipt of such shares. RCB shareholders are
urged to obtain current market quotations for Popular, Inc. Common Stock.
HISTORICAL MARKET PRICE AND DIVIDENDS DECLARED
ROIG COMMERCIAL BANK
On May 30, 1997, RCB had approximately 264 shareholders of record.
There is no established trading market for RCB Common Stock and it has been
subject to only limited trading. The shares are not listed on any exchange or
quoted on any automated quotation system and no institution makes a market in
the stock. The only sources of information available to RCB management relating
to sales of RCB Common Stock are (i) requests for registration of transfers of
shares of RCB Common Stock on the RCB stock register (which does not provide any
information as to the price at which the shares were sold); and (ii) statements
made by RCB shareholders to members of RCB's management (which by their nature
cannot be independently corroborated). During the period from January 1, 1995 to
May 30, 1997, there were 10 transfers of RCB Common Stock on the stock registry
books of RCB (other than transfers which RCB management knows to be the result
of gifts or inheritance), as follows:
<TABLE>
<CAPTION>
Number of
Date Shares Transferred
---- ------------------
<S> <C>
January 26, 1995 1,000
June 12, 1995 3,960
November 8, 1995 200
December 26, 1995 37
December 26, 1996 6,401
January 10, 1996 3
March 28, 1996 39
May 2, 1996 119
May 16, 1996 80
February 3, 1997 164
</TABLE>
This table may not reflect all trades. Based on statements made by RCB
shareholders to members of RCB management relating to some of these transfers,
RCB management believes that the price range at which some of these
transfers took place is between $45 and $60 per share. These prices are not
necessarily indicative of the fair market value of the stock of the time of the
trade.
12
<PAGE> 18
The Merger Agreement was publicly announced on December 31, 1996. The
most recent sale of RCB Common Stock prior to the announcement of the Merger
Agreement occurred on May 16, 1996 for 80 shares. Subsequent to the announcement
of the Merger Agreement, there was one sale of RCB Common Stock on February 3,
1997, wherein 164 shares were sold.
RCB normally pays dividends on its common stock in June and December of
each year. The amount of the cash dividends paid during the two fiscal years
ended December 31, 1995 and 1996, was as follows:
<TABLE>
<CAPTION>
DIVIDEND AGGREGATE
DATE PER SHARE AMOUNT OF DIVIDEND
---- ---------- ------------------
<S> <C> <C>
June 1995 $1.25 $ 750,000
December 1995 2.00 1,200,000
June 1996 1.25 750,000
December 1996 2.25 1,350,000
</TABLE>
13
<PAGE> 19
INTRODUCTION
This Supplement contains important information for the holders of
record of RCB Common Stock as of June 30, 1997 concerning the elections to be
made in connection with the Merger.
PLEASE READ THIS SUPPLEMENT AND THE PROSPECTUS/PROXY STATEMENT
CAREFULLY. THE FAILURE OF A RCB SHAREHOLDER OF RECORD TO PROPERLY COMPLETE AND
DELIVER THE ACCOMPANYING ELECTION FORM, TOGETHER WITH CERTIFICATES REPRESENTING
THE SHARES OF RCB COMMON STOCK TO WHICH THAT ELECTION FORM RELATES, TO ONE OF
THE LOCATIONS SPECIFIED BELOW PRIOR TO THE ELECTION DEADLINE, WHICH IS 5:00
P.M., PUERTO RICO TIME, ON JUNE 30, 1997 OR 5:00 P.M., NEW YORK TIME, ON JUNE
30, 1997 (THE "ELECTION DEADLINE") AND TO COMPLY WITH THE PROCEDURES DESCRIBED
IN THIS SUPPLEMENT AND THE INSTRUCTIONS TO THE ELECTION FORM WILL CAUSE SUCH
SHAREHOLDER TO BE DEEMED TO HAVE EXPRESSED NO PREFERENCE AND TO RECEIVE EITHER
CASH OR POPULAR, INC. COMMON STOCK, DEPENDING UPON THE ELECTIONS MADE BY OTHER
RCB SHAREHOLDERS.
- --------------------------------------------------------------------------------
IMPORTANT: To make a valid election, record holders of RCB Common Stock
as of June 30, 1997 must complete and return the accompanying Election Form and
the certificates with respect to all of the shares of RCB Common Stock to which
the Election Form relates, in accordance with the instructions on the Election
Form. A properly completed Election Form must be received by the Exchange Agent
at one of the proper locations specified in the Election Form by the Election
Deadline (5:00 p.m. Puerto Rico Time if in Puerto Rico or 5:00 p.m., New York
Time if in New York) together with certificate(s) representing all of the RCB
Common Stock to which the Election
- --------------------------------------------------------------------------------
ALL ELECTION FORMS MUST BE ACTUALLY RECEIVED BY THE EXCHANGE AGENT AT
ONE OF THE PROPER LOCATIONS LISTED BELOW BY THE ELECTION DEADLINE. THE EXCHANGE
AGENT AND THE PROPER LOCATIONS ARE:
BANCO POPULAR DE PUERTO RICO
IN PUERTO RICO:
By Hand/Overnight Delivery: By Mail:
209 Munoz Rivera Avenue P.O. Box 362708
5th Floor San Juan, P.R. 00936-2708
Hato Rey, P.R. 00918
IN THE MAINLAND UNITED STATES:
By Hand/Overnight Delivery: By Mail:
7 W. 51st Street 7 W. 51st Street
9th Floor 9th Floor
New York, NY 10019 New York, NY 10019
It is recommended that certificates be sent via certified mail and
appropriately insured.
If you have any questions, you should contact the Exchange Agent at
(787) 764-1893.
14
<PAGE> 20
THE MERGER
The following information relating to the Merger is qualified in its
entirety by reference to the Merger Agreement, which is incorporated herein by
reference. A more detailed discussion of the terms and conditions of the Merger
is contained in the Prospectus/Proxy Statement.
EFFECTS OF THE MERGER
Subject to the terms and conditions of the Merger Agreement, at the
Effective Time, RCB shall merge with and into Banco Popular, and the separate
existence of RCB shall cease. Banco Popular shall be the surviving bank in the
Merger (sometimes hereinafter referred to as the "Surviving Bank"), and the
separate corporate existence of Banco Popular, with all its rights, privileges
and franchises, shall continue unaffected by the Merger. The Merger shall be
pursuant to and have the effects specified in the Banking Law. The Charter and
Bylaws of Banco Popular, as in effect immediately prior to the Effective Date,
shall be the Charter and the Bylaws of the Surviving Bank until further amended
as provided therein.
EFFECTIVE TIME; EFFECTIVE DATE
On June 30, 1997, assuming the satisfaction or waiver of the conditions
set forth in Article 8 of the Merger Agreement, the parties shall cause the
Merger Agreement to be properly filed in the office of the Secretary of State of
Puerto Rico in accordance with the Banking Law. This date is herein sometimes
referred to as the "Effective Date" and the time at which the Merger Agreement
will be filed the "Effective Time".
MERGER CONSIDERATION
At the Effective Time, each share of RCB Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares held as
treasury stock of RCB and shares held directly or indirectly by Popular, Inc.,
except shares ("Excluded Shares") held by Popular, Inc. in a fiduciary capacity
or in satisfaction of a debt previously contracted) ("Outstanding Shares") shall
become and be converted into the right to receive, at the election of each
holder thereof, but subject to the election and allocation procedures described
below, either:
(A) a number of shares of Popular, Inc. Common Stock equal to
the sum of (x) one-half of the Exchange Ratio (as defined below) and
(y) the ratio of $100 to the Popular, Inc. Average Stock Price (as
defined below) (the "Per Share Stock Consideration"), or
(B) cash equal to the sum of (x) $100 and (y) the product of
(I) one-half of the Exchange Ratio and (II) the Popular, Inc. Average
Stock Price (the "Per Share Cash Consideration" and, together with the
Per Share Stock Consideration, the "Consideration"),
provided that if RCB's shareholders' equity (adjusted as provided below) is less
than $66,100,000 as of the close of business on the date that is 15 calendar
days preceding the Effective Date (the amount, if any, by which RCB's
shareholders' equity is less than $66,100,000, the "Equity Shortfall"), the Per
Share Stock Consideration and the Per Share Cash Consideration shall be reduced
as follows:
(X) the Per Share Cash Consideration shall be reduced by an
amount equal to (I) the Equity Shortfall (if any), divided by (II) the
number of Outstanding Shares (the "Per Share Cash Reduction"); and
(Y) the Per Share Stock Consideration shall be reduced by an
amount equal to the Per Share Cash Reduction divided by the Popular,
Inc. Average Stock Price.
All of the foregoing is subject to the proviso that (X) 50% of the
Outstanding Shares shall be converted into the right to receive the Per Share
Cash Consideration (such number of shares of RCB Common Stock, the "Cash
Number"); and (Y) 50% of the Outstanding Shares shall be converted into the
right to receive the Per Share Stock Consideration (such number of shares of RCB
Common Stock, the "Stock Number"). At the Effective Time, each
15
<PAGE> 21
share of RCB Common Stock that, immediately prior to the Effective Time, is held
as treasury stock of RCB or held directly or indirectly by Popular, Inc., other
than Excluded Shares, shall by virtue of the Merger be canceled and retired and
shall cease to exist, and no exchange or payment shall be made therefor.
The term "Exchange Ratio" means $200 divided by the Popular, Inc.
Average Stock Price provided that (x) if the Popular, Inc. Average Stock Price
is greater than $37.40, the Exchange Ratio shall be 5.348 and (y) if the
Popular, Inc. Average Stock Price is less than $30.60, the Exchange Ratio shall
be 6.536. If Popular, Inc. effects a stock dividend, extraordinary dividend,
reclassification, recapitalization, split-up, combination, exchange of shares or
similar transaction, after the date hereof and before the Effective Time, the
Exchange Ratio shall be appropriately adjusted.
The term "Popular, Inc. Average Stock Price" means the average of the
last sale price for Popular, Inc. Common Stock quoted on the Nasdaq National
Market as reported in the Wall Street Journal (or, in the absence thereof, as
reported in such other source upon which Popular, Inc. and RCB shall agree) for
each of the ten consecutive trading days on which Popular, Inc. Common Stock is
traded on the Nasdaq National Market ending on, and including, the trading day
which is two Business Days prior to the Election Deadline (as defined below).
The term "Business Day" means any day on which depository institutions are
generally open for business in Puerto Rico and the Nasdaq National Market is
generally open for business.
EXTRAORDINARY DIVIDEND
The Merger Agreement provided that, on or prior to the Effective Date,
RCB could have declared and paid an extraordinary cash dividend not exceeding
$20,000,000 (the "Extraordinary Dividend") if RCB received a ruling from the
Puerto Rico Department of the Treasury to the effect that payment of such
Extraordinary Dividend in the amount proposed would not disqualify the Merger as
a "reorganization" within the meaning of Section 1112(g)(1) of the Puerto Rico
Internal Revenue Code of 1994, as amended (the "Puerto Rico Code"). If the
Extraordinary Dividend had been paid, the consideration to be received by RCB
shareholders in the Merger would have been reduced by the amount of the
Extraordinary Dividend.
The rulings received by RCB from the Puerto Rico Department of the
Treasury with respect to the Extraordinary Dividend are not satisfactory to RCB.
Although payment of the Extraordinary Dividend would not disqualify the Merger
as "reorganization" within the meaning of Section 1112(g)(1), RCB shareholders
would not receive the tax benefits from the Extraordinary Dividend that RCB
intended. Therefore, RCB has determined not to pay the Extraordinary Dividend.
SHAREHOLDERS' EQUITY
In computing RCB's shareholders' equity for purposes of conversion, (a)
RCB's shareholders' equity shall be defined as the sum of its common stock,
surplus and undivided profits, but excluding any unrealized gain or loss on
securities available for sale, (b) RCB's shareholders' equity shall reflect any
adjustments required as a result of the Price Waterhouse audit referred to in
Section 1.4 of the Merger Agreement, (c) computations shall be made in
accordance with Generally Accepted Accounting Principles as consistently
applied, (d) any dividend declared between the month end preceding the Election
Deadline and the Effective Date shall be deducted from RCB's shareholders'
equity and (e) any reduction in RCB's shareholders' equity resulting from any
reduction after December 30, 1996 in the value of RCB's securities portfolio due
to an increase in the general level of interest rates shall be excluded;
provided, however, that, to the extent that gains are taken on the sale of
securities in RCB's securities portfolio after December 30, 1996, RCB's
shareholders' equity shall be reduced to reflect unrealized losses in its
securities portfolio that exceed the amount of such unrealized losses as of
December 30, 1996.
ADDITIONAL AUDIT
Pursuant to the Merger Agreement, Price Waterhouse will conduct an
audit in accordance with generally accepted auditing standards of the statement
of condition of RCB as of the month end immediately preceding the
16
<PAGE> 22
Election Deadline that is at least 30 days prior to the Election Deadline. Any
adjustment to shareholders' equity as a result of this audit could affect the
Per Share Stock Consideration and Per Share Cash Consideration if shareholders'
equity is less than $66,100,000 (less the amount of any Extraordinary Dividend).
See "--Conversion of RCB Common Stock".
FRACTIONAL SHARES
No fractional interests in shares of Popular, Inc. Common Stock, and no
certificates representing such fractional interests, shall be issued upon the
surrender for exchange of certificates representing RCB Common Stock. In lieu of
any fractional share, Popular, Inc. shall pay to each former holder of RCB
Common Stock who otherwise would be entitled to receive a fractional interest in
a share of Popular, Inc. Common Stock an amount of cash (without interest)
determined by multiplying (i) the last sale price per share of Popular, Inc.
Common Stock on the date of the Effective Time quoted on the Nasdaq National
Market as reported in the Wall Street Journal multiplied by (ii) the fractional
interest to which such holder would otherwise be entitled.
DISSENTING SHARES
Each holder of RCB Common Stock who dissented from the Merger and has
neither effectively withdrawn nor lost his right to the appraisal of his shares
(the "Dissenting Shares") may be entitled to the appraisal rights of dissenting
shareholders under Section 15(d) of the Banking Law, and such Dissenting Shares
shall not be converted in the manner set forth in "-- Merger Consideration".
If after the Effective Date any holder of Dissenting Shares shall
effectively withdraw or lose (through failure to perfect or otherwise) his or
her right to appraisal, then 50% of such Dissenting Shares shall be converted
into the Per Share Stock Consideration and 50% of such Dissenting Shares shall
be converted into the Per Share Cash Consideration.
ELECTION PROCEDURES; ALLOCATION PROCEDURES
Subject to the allocation procedures described below, each record
holder of RCB Common Stock immediately prior to the Effective Time will be
entitled (i) to elect to receive Popular, Inc. Common Stock for all or some of
the shares of RCB Common Stock ("Stock Election Shares") held by such record
holder, (ii) to elect to receive cash for all or some of the shares of RCB
Common Stock ("Cash Election Shares") held by such record holder or (iii) to
indicate that such holder makes no such election for all or some of the shares
of RCB Common Stock ("No-Election Shares") held by such record holder; provided,
that each record holder's election to receive Popular, Inc. Common Stock shall
be honored by the Exchange Agent, which shall be Banco Popular, up to 50% of the
RCB Common Stock owned by such record holder (such number of shares for which
the election is so honored are referred to as "Protected Election Shares").
Protected Election Shares shall not be subject to the allocation procedures set
forth below, shall be deducted from the Stock Number and shall not be deemed
Stock Election Shares. All such elections shall be made on the Election Form.
Any shares of RCB Common Stock with respect to which the record holder thereof
shall not, as of the Election Deadline, have properly submitted to the Exchange
Agent a properly completed Election Form shall be deemed to be No-Election
Shares. A record holder acting in different capacities shall be entitled to
submit an Election Form for each capacity in which such record holder so acts
with respect to each person for which it so acts.
Not later than the 10th day after the Election Deadline, Popular, Inc.
shall cause the Exchange Agent to effect the allocation among the holders of RCB
Common Stock of rights to receive the Per Share Stock Consideration or the Per
Share Cash Consideration in the Merger as follows:
If the number of Stock Election Shares is less than the Stock Number,
then (i) all Stock Election Shares shall be converted into the right to
receive the Per Share Stock Consideration, and (ii) the Exchange Agent
shall select (by random selection or by lot) from among the No-Election
Shares a sufficient number of No-Election Shares such that the sum of
such number and the number of Stock Election Shares shall equal as
closely as
17
<PAGE> 23
practicable the Stock Number, and all such selected shares
("Stock-Selected No-Election Shares") shall be converted into the
right to receive the Per Share Stock Consideration, provided that if
the sum of all No-Elec tion Shares and Stock Election Shares is less
than the Stock Number, all No-Election Shares shall be converted into
the right to receive the Per Share Stock Consideration and thereby
become Stock-Selected No-Election Shares.
If the sum of Stock Election Shares and No-Election Shares is less
than the Stock Number, the Exchange Agent shall convert (by the method
of pro rata conversion described below), a sufficient number of Cash
Election Shares into Stock Election Shares ("Converted Cash Election
Shares") such that the sum of Stock Election Shares, No-Election
Shares and Converted Cash Election Shares equals as closely as
practicable the Stock Number, and all Converted Cash Election Shares
shall be converted into the right to receive the Per Share Stock
Consideration, and any No-Election Shares and the Cash Election Shares
that are not Stock- Selected No-Election Shares or Converted Cash
Election Shares (as the case may be) shall be converted into the right
to receive the Per Share Cash Consideration.
If the number of Stock Election Shares is greater than the Stock
Number, then all Cash Election Shares and No-Election Shares shall be
converted into the right to receive the Per Share Cash Consideration,
and the Exchange Agent shall convert (by the method of pro rata
conversion described below) a sufficient number of Stock Election
Shares into Cash Election Shares ("Converted Stock Election Shares")
such that the remainder of Stock Election Shares (before such
conversion) less Converted Stock Election Shares equals as closely as
practicable the Stock Number, and all Converted Stock Election Shares
shall be converted into the right to receive the Per Share Cash
Consideration, and the Stock Election Shares which are not Converted
Stock Election Shares shall be converted into the right to receive the
Per Share Stock Consideration.
If the number of Stock Election Shares equals the Stock Number, then
all Stock Election Shares shall be converted into the right to receive
the Per Share Stock Consideration and all Cash Election Shares and
No-Election Shares shall be converted into the right to receive the
Per Share Cash Consideration.
In the event the Exchange Agent is required to convert Cash Election
Shares into Stock Election Shares, the election by each holder of Cash
Election Shares shall be converted on a pro rata basis into Cash
Election Shares and Stock Election Shares, with the Stock Election
Shares to be equal to the product of (x) the number of such holder's
Cash Election Shares before such conversion and (y) the fraction in
which the total number of Converted Cash Election Shares comprises the
numerator and the total number of Cash Election Shares before such
conversion comprises the denominator. In the event the Exchange Agent
is required to convert Stock Election Shares into Cash Election
Shares, the election by each holder of Stock Election Shares shall be
converted on a pro rata basis into Stock Election Shares and Cash
Election Shares, with the Cash Election Shares to be equal to the
product of (x) the number of such holder's Stock Election Shares
before such conversion and (y) the fraction in which the total number
of Converted Stock Election Shares comprises the numerator and the
total number of Stock Election Shares before such conversion comprises
the denominator.
Notwithstanding the foregoing, a person who immediately prior to the
Effective Time, owned (for purposes of the Puerto Rico Code), 1% or
more of the outstanding shares of RCB Common Stock and who does not
elect to receive Per Share Cash Consideration for all his shares,
shall deliver a written agreement, in a form reasonably acceptable to
Popular, Inc., containing customary representations to the effect that
such holder has no present intention to sell, exchange or otherwise
dispose of such shares of Popular, Inc. Common Stock to be received in
exchange for such shares of RCB Common Stock, and if such holder shall
not deliver such a written agreement, in a form reasonably acceptable
to Popular, Inc., at the election of Popular, Inc. such person shall
instead receive the Per Share Cash Consideration with respect to such
shares, regardless of the election (or lack thereof) made by such
person in its Election Form, and, if Popular, Inc. exercises such
election, the Cash Number shall be reduced by the number of shares of
RCB Common Stock that were owned by such person immediately prior to
the Effective Time.
18
<PAGE> 24
To be effective, the Election Form must be properly completed, signed
and actually received by the Exchange Agent in Puerto Rico not later than 5:00
p.m., Puerto Rico Time, on June 30, 1997 or by the Exchange Agent in New York
not later than 5:00 p.m., New York Time, on June 30, 1997 and accompanied by the
certificates formerly repre senting all the shares of RCB Common Stock ("Old
Certificates") as to which the Election is being made (or an appropriate
guarantee of delivery by an eligible organization). Popular, Inc. shall have
reasonable discretion, which it may delegate in whole or in part to the Exchange
Agent, to determine whether Election Forms have been properly completed, signed
and timely submitted or to disregard defects in Election Forms; such decisions
of Popular, Inc. (or of the Exchange Agent) shall be conclusive and binding.
Neither Popular, Inc. nor the Exchange Agent shall be under any obligation to
notify any person of any defect in an Election Form submitted to the Exchange
Agent. The Exchange Agent and Popular, Inc. shall also make all conversion
election and allocation computations.
ADDITIONAL EXCHANGE PROCEDURES
An "Affiliate" of RCB (as that term is used in Rule 145 under the
Securities Act of 1933, as amended) shall not be entitled to receive any
consideration until such Affiliate shall have duly executed and delivered an
appropriate agreement described in Section 7.10 of the Merger Agreement.
At and after the Effective Time, each Old Certificate, and each share
of RCB Common Stock represented thereby, shall represent for all purposes only
the right to receive consideration as provided in the Merger Agreement, and
nothing else. If any consideration is to be issued to a person other than the
registered holder of the shares of RCB Common Stock formerly represented by the
Old Certificate or Certificates surrendered with respect thereto, it shall be a
condition to such issuance that the Old Certificate or Certificates so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the person requesting such issuance shall pay to the Exchange
Agent any transfer or other taxes required as a result of such issuance to a
person other than the registered holder of such shares of RCB Common Stock or
shall establish to the satisfaction of the Exchange Agent that such tax has been
paid or is not payable.
At and after the Effective Time, there shall be no further registration
or transfers of shares of RCB Common Stock, and the stock ledgers of RCB shall
be closed. After the Effective Time, Old Certificates presented to the Surviving
Bank for transfer shall be canceled and exchanged for the consideration provided
for, and in accordance with the procedures set forth, in Article 1 of the Merger
Agreement.
After the first anniversary of the date of the Effective Time, any
former holders of RCB Common Stock who have not delivered Old Certificates to
the Exchange Agent prior to that time shall thereafter look only to Popular,
Inc. for the consideration in respect of any shares of RCB Common Stock formerly
represented by such Old Certificates.
None of the Surviving Bank, Popular, Inc. and the Exchange Agent shall
be liable to any former holder of RCB Common Stock for any securities delivered
or any cash paid to a public official pursuant to applicable escheat or
abandoned property laws or for any securities or cash retained by any of them as
permitted by any such law.
No dividends or other distributions with respect to consideration shall
be paid to the holder of any unsurrendered Old Certificates until such Old
Certificates are surrendered. Upon such surrender, there shall be paid, without
interest, to the person in whose name any Per Share Stock Consideration is
registered, all dividends and other distributions payable in respect of such
securities on a date subsequent to, and in respect of a record date after, the
Effective Time. No interest will be paid or accrued on the Per Share Cash
Consideration or the cash paid in lieu of fractional shares.
In the event that any Old Certificate shall have been lost, stolen or
destroyed, the Exchange Agent shall pay in respect of such lost, stolen or
destroyed certificate, upon the making of an affidavit of that fact by the
holder thereof, the consideration as may be provided pursuant to this Agreement;
provided, however, that Popular, Inc. may, in its discretion and as a condition
precedent to the payment thereof, require the owner of such lost, stolen or
destroyed certificate to deliver a bond in such sum as it may direct as
indemnity against any claim that may be made
19
<PAGE> 25
against Popular, Inc., Banco Popular, RCB, the Exchange Agent or any other party
with respect to the certificate alleged to have been lost, stolen or destroyed.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Each party's obligation to effect the Merger is subject, among other
things, to the satisfaction, at or prior to the Effective Date of the following
conditions: (i) no injunction or other order entered by a Puerto Rico or U.S.
federal court of competent jurisdiction shall have been issued and remain in
effect which would prohibit the consummation of the transactions contemplated in
the Merger Agreement; (ii) there shall have been no law, statute, rule or
regulation, domestic or foreign, enacted or promulgated which would prohibit the
consummation of the transactions contemplated in the Merger Agreement; (iii) the
Registration Statement shall not be subject to a stop order of the Commission,
and, if the offer and sale of Popular, Inc. Common Stock in the Merger pursuant
to the Merger Agreement is required to be registered under any Puerto Rico or
state Blue Sky laws, the Registration Statement shall not be subject to a stop
order of a securities commission in any relevant jurisdiction.
RCB's obligation to effect the Merger is also subject to the following
conditions: (i) the representations and warranties of Popular, Inc. set forth in
Articles 2 and 4 of the Merger Agreement shall have been true and correct as of
the date of the Merger Agreement, and shall be true and correct as of the
Effective Date as if made at and as of the Effective Date, subject to Article 5
of the Merger Agreement; and Popular, Inc. shall in all material respects have
performed each obligation and agreement and complied with each covenant to be
performed and complied with by it hereunder at or prior to the Effective Time;
(ii) Popular, Inc. shall have furnished to RCB a certificate of the Chief
Executive Officer and Chief Financial Officer of Popular, Inc., dated as of the
Effective Date, certifying the truth and correctness of Popular, Inc.'s
representations and warranties set forth in Articles 2 and 4 of the Merger
Agreement; and (iii) RCB shall have received an opinion letter, dated as of the
Effective Date, addressed to RCB from counsel to Popular, Inc., in customary
form and subject to customary qualifications, as to the validity of the Popular,
Inc. Common Stock being issued in the Merger.
The obligation of Popular, Inc. and Banco Popular to effect the Merger
is also subject to the following conditions: (i) the representations and
warranties of RCB set forth in Articles 3 and 4 of the Merger Agreement shall
have been true and correct as of the date of the Merger Agreement, and such
representations and warranties shall be true and correct as of the Effective
Date as if made at and as of the Effective Date, subject to Article 5 of the
Merger Agreement, and RCB shall in all material respects have performed each
obligation and agreement and complied with each covenant to be performed and
complied with by it under the Merger Agreement at or prior to the Effective
Date; (ii) RCB shall have furnished to Popular, Inc. a certificate of the Chief
Executive Officer and Chief Financial Officer of RCB, dated as of the Effective
Date, certifying the truth and correctness of RCB's representations and
warranties set forth in Articles 3 and 4 of the Merger Agreement; (iii) RCB
shall have furnished to Popular, Inc. certain corporate documents as set forth
in Article 8.3(c) of the Merger Agreement; and (iv) Popular, Inc. shall have
received an opinion letter, dated as of the Effective Date, addressed to
Popular, Inc. from McConnell Valdes, counsel to RCB, in customary form and
subject to customary qualifications, to the effect that, among other things, RCB
has the corporate power to consummate the transactions on its part contemplated
by, and has taken all requisite corporate action to authorize, the Merger
Agreement.
RIGHTS OF DISSENTING RCB SHAREHOLDERS
Pursuant to the Banking Law, holders of shares of RCB Common Stock may
demand payment from the Surviving Bank of the value of their shares instead of
receiving shares of Popular, Inc. Common Stock. The appraisal rights of
dissenting shareholders are contained in Section 15(d) of the Banking Law, which
is attached to the Prospectus/Proxy Statement as Appendix C. A shareholder
electing to make such a demand must (i) not vote in favor of the Merger
Agreement; (ii) record his opposition to the Merger at the time of the Meeting
or within twenty days thereafter; and (iii) demand payment of the value of his
shares. Such written objection or written demand may be filed with the Secretary
of RCB.
20
<PAGE> 26
If the Merger is carried out, each dissenting shareholder of RCB will
be notified by mail of the Effective Date of the Merger Agreement. Such
shareholder shall, within 60 days after the Effective Date and upon ten days'
written notice to RCB, petition the Superior Court of the Commonwealth of Puerto
Rico for the appointment of three appraisers who shall estimate and determine
the value of the shareholder's shares. Upon due appointment and the completion
of their valuation, the appraisers shall deliver to RCB and to such shareholder
if he demands it, a copy of their report. RCB shall pay the determined value and
the shareholder shall cease to be a shareholder of RCB, or to have any interest
therein. RCB will establish with its own funds an escrow account (the "Escrow
Account") with an amount sufficient to pay all claims of dissenting holders of
RCB Common Stock. Upon satisfaction of all claims of dissenting holders of RCB
Common Stock, any remaining amount held in escrow, together with any investment
income thereon and reduced by the amount of fees and expenses, if any, will be
transferred to the Surviving Bank. Expenses incurred in determining the value of
the shares of RCB Common Stock under these procedures will be paid from the
Escrow Account.
RESALE OF POPULAR, INC. COMMON SHARES
The Popular, Inc. Common Shares have been registered under the
Securities Act, thereby allowing such shares to be traded freely and without
restriction by those holders of RCB Common Stock who receive such shares
following consummation of the Merger and who are not deemed to be "affiliates"
(as defined under the Securities Act) of RCB or Popular, Inc. It is a condition
to consummation of the Merger that each holder of RCB Common Stock who is deemed
by RCB to be an "affiliate" of RCB shall enter into an agreement with Popular,
Inc. (an "Affiliate's Agreement") providing, among other things, that such
affiliate will not transfer any Popular, Inc. Common Shares received by such
affiliate in the Merger, except in compliance with the Securities Act. This
Supplement does not cover any resales of Popular, Inc. Common Shares received by
"affiliates" of RCB.
CERTAIN TAX CONSEQUENCES OF THE MERGER
The following is a general summary of certain Puerto Rico and United
States Federal income tax consequences of the Merger and does not discuss all
possible tax consequences that may be relevant to the shareholders of RCB in
light of each shareholder's particular circumstances and the special rules that
may be applicable to such shareholders. All shareholders should consult their
own tax advisors to determine the particular tax consequences to them of these
transactions.
In general (except as set forth below), individuals who are bona fide
residents of Puerto Rico during the entire taxable year in which the Merger
occurs and Puerto Rico corporations, partnerships, trusts and estates will not
be subject to U.S. Federal income tax on income or gain, if any, realized as a
result of the Merger and should therefore consult the discussion below under
"Puerto Rico Income Tax Consequences". Except as set forth in the next sentence,
U.S. citizens (other than bona fide residents of Puerto Rico during the entire
taxable year in which the Merger occurs) and U.S. corporations, partnerships,
trusts and estates generally will not be subject to Puerto Rico income tax on
income or gain, if any, realized as a result of the Merger and should therefore
consult the discussion below under "United States Federal Income Tax
Consequences". Aliens residing in Puerto Rico, as well as Puerto Rico
corporations, partnerships, trusts or estates, that hold shares of RCB in
connection with a U.S. trade or business should also consult the discussion
below under "United States Federal Income Tax Consequences", and aliens not
resident in Puerto Rico, U.S. corporations, partnerships, trusts or estates
engaged in a trade or business in Puerto Rico should also consult the discussion
below under "Puerto Rico Income Tax Consequences". All shareholders should
consult the discussions below under "U.S. Backup Withholding Requirements".
The discussion below is based, in the case of Puerto Rico income tax
consequences, on the Puerto Rico Internal Revenue Code of 1994, as amended (the
"Puerto Rico Code"), as interpreted by regulations and rulings issued by the
Puerto Rico Department of the Treasury and by judicial decisions, and, in the
case of United States Federal income tax consequences, on the Internal Revenue
Code of 1986, as amended (the "Code"), Treasury Regulations, Internal Revenue
Service rulings and judicial decisions now in effect, all of which are subject
to change at any time by legislative, judicial or administrative action. Any
such changes may be retroactively applied in a manner that could
21
<PAGE> 27
adversely affect holders of RCB Common Stock. The discussion may not be
applicable to RCB Common Stock acquired as compensation (including stock
acquired upon the exercise of options to acquire such stock). As discussed under
"Puerto Rico Income Tax Consequences" below, a ruling was issued on June 12,
1997 by the Puerto Rico Department of the Treasury relating to the Puerto Rico
income tax consequences of the Merger. With respect to the discussion under
"U.S. Federal Income Tax Consequences" below, shareholders should note that this
summary is not binding on the Internal Revenue Service or the courts and that no
ruling has been or will be sought from the Internal Revenue Service as to the
U.S. Federal income tax consequences of the Merger.
PUERTO RICO INCOME TAX CONSEQUENCES
It is intended that, under the income tax laws of Puerto Rico, the
Merger will be, with respect to Popular, Inc., Banco Popular and RCB, a tax-free
reorganization. A ruling on the tax consequences of the Merger was issued by the
Puerto Rico Department of the Treasury on June 12, 1997 (the "Ruling"). The
Ruling provides that Popular, Inc., Banco Popular and RCB will not recognize
gain or loss as a result of the Merger. With respect to the RCB shareholders
that exchange RCB Common Stock for Popular, Inc. Common Stock and cash, the
Ruling Request provides, among other things, that:
1. No gain or loss will be recognized by the RCB shareholders
upon the transfer of their shares of RCB Common Stock in
exchange for shares of Popular, Inc. Common Stock.
2. Except as noted below, the RCB shareholders who receive cash
and Popular, Inc. Common Stock in exchange for shares of RCB
Common Stock will recognize any gain realized in the exchange,
but not in excess of the amount of the cash received. Unless
the shares of RCB Common Stock were held primarily for sale to
customers in the ordinary course of the RCB shareholder's
trade or business, the gain recognized will constitute a
capital gain. In such case, if the shares of RCB Common Stock
were held by the RCB shareholder for more than six months
prior to the effective date of the Merger, the gain recognized
will be subject to a maximum tax of 20% in cases of RCB
shareholders who are individuals, estates or trusts, or of 25%
if the RCB shareholder is a corporation or partnership.
3. RCB shareholders who are individuals, estates or trusts, not
residents of Puerto Rico, or that are non-Puerto Rico
corporations or partnerships, will not be subject to Puerto
Rico taxes on any gain realized on the transfer of their
shares of RCB Common Stock provided they deliver their RCB
stock certificates to a New York office of Banco Popular,
unless the shareholder is an alien or a non-Puerto Rico
corporation or partnership and the gain is effectively
connected with the conduct of a Puerto Rico trade or business
by such shareholder.
4. The shares of Popular, Inc. Common Stock received by the RCB
shareholders in connection with the Merger will have a tax
basis in the hands of each such shareholder equal
23
<PAGE> 28
to his or her tax basis in the shares of RCB Common Stock
exchanged therefor, reduced by the amount of cash received and
increased by the amount of gain recognized in the exchange.
5. The holding period of the RCB shareholders in the shares of
Popular, Inc. Common Stock received in connection with the
Merger will include the period during which they held their
shares of RCB Common Stock exchanged therefor.
Except as provided above, RCB shareholders that exchange RCB Common Stock solely
for cash will recognize the total amount of gain realized in the exchange.
The Ruling is subject to the fulfillment of various representations
made, such as that the shareholders of RCB receive RCB Common Stock representing
in value at least 50% of the value of all the outstanding stock of RCB on the
date the reorganization takes place. If the Merger fails to qualify as a
tax-free reorganization, a shareholder of RCB would recognize gain or loss for
Puerto Rico tax purposes equal to the difference between the sum of the cash and
the fair market value of the shares of Popular, Inc. Common Stock received and
the basis of the shares of RCB Common Stock surrendered. Such gain or loss would
be a capital gain or loss if the shares of RCB Common Stock were held as a
capital asset. In addition, if the Merger fails to qualify as a tax-free
reorganization, RCB would be subject to Puerto Rico income tax on any
appreciation in the value of its assets.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain United States Federal income tax
consequences of the conversion of RCB Common Stock pursuant to the Merger. The
summary does not address the United States Federal income tax consequences of
the Merger to individuals who hold RCB Common Stock who are bona fide residents
of Puerto Rico during the entire taxable year in which the Merger occurs. Such
holders should consult the discussion above under "-Puerto Rico Income Tax
Consequences".
The conversion of RCB Common Stock pursuant to the Merger generally
will be a taxable transaction for United States Federal income tax purposes and
may also be taxable under applicable state, local and other tax laws. In
general, for United States Federal income tax purposes, a shareholder of RCB
that is a U.S. Holder, as defined below, that exchanges RCB Common Stock for
Popular, Inc. Common Stock or cash (or a combination thereof) will recognize
gain or loss for United States Federal income tax purposes in an amount equal to
the difference between the sum of the cash and fair market value of the shares
of Popular, Inc. Common Stock received and the shareholder's basis in the shares
of RCB Common Stock surrendered. Generally such gain or loss will be long-term
capital gain or loss
24
<PAGE> 29
if the U.S. Holder's holding period for the shares of RCB Common Stock
surrendered exceeds one year and the U.S. Holder holds such shares as a capital
asset. For purposes of this discussion, a "U.S. Holder" is any beneficial owner
of RCB Common Stock that is (i) a citizen or resident of the United States, (ii)
a corporation organized under the laws of the United States or any State or
(iii) otherwise subject to United States Federal income taxation on a net income
basis in respect of a share of RCB Common Stock, and a "Non-U.S. Holder" is any
beneficial owner of RCB Common Stock that is not a United States person for
United States Federal income tax purposes.
A Non-U.S. Holder will generally not be subject to United States
Federal income tax in respect of gain recognized on the conversion of RCB Common
Stock pursuant to the Merger unless, in the case of a Non-U.S. Holder who is an
individual, such holder is present in the United States for 183 or more days in
the taxable year of the conversion and certain other conditions apply.
UNITED STATES BACKUP WITHHOLDING AND INFORMATION REPORTING
The exchange of RCB Common Stock for Popular, Inc. Common Stock or cash
pursuant to the Merger by a New York office of Banco Popular may be subject to
both United States backup withholding at a 31% rate and information reporting
unless the holder or beneficial owner certifies its non-United States status
under penalties of perjury, provides his taxpayer identification number in the
manner required by United States law and applicable regulations or otherwise
establishes an exemption. United States information reporting and backup
withholding generally will not apply to the exchange of RCB Common Stock for RCB
Common Stock or cash pursuant to the Merger outside the United States.
CERTAIN INFORMATION REGARDING RCB
RCB MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 1996
Net Income
RCB reported net income of $317,000 for the first quarter of 1997,
compared with $1.63 million for the first quarter of 1996. Earnings per common
share ("EPS") for the quarter were $0.53 for 1997, compared with $2.72 for 1996,
based on 600,000 average shares issued and outstanding. Accordingly, return on
assets and return on equity for the first quarter of 1997 were 0.14% and 1.91%,
compared with 0.77% and 9.95% in 1996, respectively.
As discussed in further detail in the following paragraphs, the major
reasons for the decrease of $1.3 million in net income in
25
<PAGE> 30
the first quarter of 1997 as compared to the same period for 1996 are (i) an
increase in the provision for loan losses of $600,000, (ii) a reduction in the
gain on trading activities of $406,000, (iii) the accrual of professional fees
of $562,000 associated with the sale of RCB, and (iv) the accrual of an
additional non-recurring $715,000 related to post-retirement compensation. An
increase in net interest income of $812,000 offset the negative impact of the
above-mentioned factors.
Net Interest Income
Net interest income for the first quarter of 1997 reached $9.04
million, compared to $8.23 million in 1996. The improvement of $812,000 over the
same quarter in 1996 is mainly due to an increase in average earning assets of
$28.4 million. Average loans increased by $41.3 million ($359.5 million in the
first quarter of 1997 compared with $318.2 million in the first quarter of
1996), while average investments decreased by $21.6 million (from $460.8 million
in the first quarter of 1996 to $439.2 million in the first quarter of 1997).
This shift in asset structure resulted in higher interest income since the
average loan yield was 11.0% in the first quarter of 1997 while investments
yielded only 6.56% (10.89% and 6.45%, respectively, in the first quarter of
1996).
Out of the $41.3 million increase in loans, RCB increased its loans
secured by real estate by $27.1 million (with an average yield of 9.63% for its
first quarter 1997) and consumer loans by $19.6 million (yielding 13.67% for the
first quarter of 1997), while commercial loans and credit lines (with an average
yield of 9.75% for the first quarter of 1997) decreased by $5.0 million.
Money market interest income increased from $369,000 for the first
quarter of 1996 to $476,000 for the quarter ended March 31, 1997. As discussed
in further detail in this report, in August 1996 the U.S. Congress repealed
Section 936 of the Internal Revenue Code. As a result of the possible
repatriation of 936 funds to the mainland United States, RCB decided to maintain
higher balances of these short term accounts. For this reason, average money
market balances for the first quarter of 1997 increased by $9.4 million ($38.0
million in the first quarter of 1997 compared to $28.6 million in the first
quarter of 1996).
Interest income on investments remained at the same level for the first
quarter of 1997 as in the first quarter of 1996 ($7.2 million in 1997 and $7.4
million in 1996). The yield on investments for the first quarter of 1997
improved to 6.56% (6.45% in 1996) as a result of maturing lower-yield
investments. Average investment balances declined from $460.8 million in the
first quarter of 1996 to $439.2 for the first quarter of 1997.
On the liabilities side, average interest-bearing liabilities of RCB
were $733.7 million for the three month period ended March 31, 1997 compared
with $715.8 million for the same period of 1996.
Average interest-bearing deposits decreased by $22.7 million, driven by
a decrease of $25.2 million in 936 deposits, net of an increase in regular core
deposits of $2.5 million. The average cost of interest-bearing deposits for the
quarters ended March 31, 1997 and 1996 were 4.18% and 4.29% respectively. The
average rate on savings accounts remained steady (3.34% for the first quarter of
1997 and 3.37% for 1996). NOW accounts reflected a decrease in cost of funds
from 4.05% for the first quarter of 1996 to 3.95% in 1997. This reduction in
cost of funds was partially offset by an increase in money market deposit costs,
which rose from 3.57% in the first quarter of 1996
26
<PAGE> 31
to 3.99% in 1997. The increase in the money market interest rate was due to a
marketing strategy to attract this type of deposit for which RCB is well known
in its market area.
Average repurchase agreements and promissory notes increased to $162.8
million in the first quarter of 1997 from $122.3 million in the first quarter of
1996. This increase of $40.5 million in borrowings contributed to the increase
in interest expense of $600,000 (from $1.5 million to $2.1 million in 1997).
This increase was part of a strategy to acquire long-term funds at prudent
levels before 936 funds would become scarce. The cost of funds also increased
for this type of financing, from 4.91% for the first quarter of 1996 to 5.15% in
1997. This increase was mainly due to general conditions in the market
associated with the anticipated scarcity of 936 funds.
The net effect of the reduction in cost of interest-bearing deposits
and the increase in cost of repurchase agreements and promissory notes resulted
in similar cost for total interest-bearing liabilities for the two periods,
4.39% for 1997 and 4.40% in 1996. With a similar cost of funds, and better
yielding assets, RCB was able to increase its net interest margin by 24 basis
points, from 3.89% for the quarter ended March 31, 1996 to 4.13% for 1997.
In August 1996, the U.S. Congress approved legislation that repealed
Section 936 of the Internal Revenue Code. The bill approved repealed the
Qualified Possession Source Investment Income (QPSII) provision for taxable
years beginning after December 31, 1995. As expected, RCB has experienced a
reduction in the volume of 936 funds and their substitution by conventional
higher-cost funds. Factors such as a higher rate charged on loans previously
funded by 936 funds have helped mitigate the impact of the higher cost of funds.
Also, some 936 corporations have chosen not to withdraw all their funds from
financial institutions and have, instead, invested those funds at a longer term
to reduce the tollgate taxes applicable upon repatriating those funds. As a
result, the cost of those funds has remained below that of the U.S. or
Eurodollar market. At March 31, 1997 RCB maintained $181.9 million in 936 funds,
representing 23.5% of its liabilities, compared with $212.3 million, or 27.2%,
at the same date in 1996.
Provision and Allowance for Loan Losses
The provision for loan losses for the first quarter of 1997 totaled
$1.2 million, or an increase of $600,000, when compared to the same quarter of
1996. Net charge-offs for the quarter ended March 31, 1997 reached $1.05
million, or 1.17% of average loans, compared with $426,000, or 0.54% of average
loans, for the same quarter in 1996.
Consumer loan net charge-offs increased $474,000, which represents 76%
of the total increase in net charge-offs. Consumer loan net charge-offs totaled
$942,000, or 2.78% of average consumer loans, for the quarter ended March 31,
1997, while commercial and real estate loan net charge-offs amounted to
$129,000, representing 0.23% of the average commercial and real estate loans.
For the same quarter last year, consumer loan net charge-offs represented 1.63%
and commercial and real estate loan net recoveries reflected 0.05%,
respectively, of their average portfolio. Most of the increase in net credit
charge-offs in the consumer category is due to a higher number of bankruptcies
in Puerto Rico during 1997.
Non-performing assets as of March 31, 1997 totaled $11.6 million, or
1.32% of total average assets, compared with $12.5 million, or 1.48% of total
average assets, at March 31, 1996. Non-performing loans totaled $9.6 million as
of March 31, 1997 and $10.0 million at the same date last year.
The allowance for loan losses at March 31, 1997 amounted to $5.9
million, representing 1.64% of total loans, compared with $5.4 million, or 1.66%
of total loans, at the same date last year. Management considers that the
allowance for loan loses is adequate to absorb potential write-offs of the loan
portfolio based on the process established to assess its adequacy. This process
incorporates portfolio risk characteristics, results of periodic credit reviews,
prior loss experience and current and anticipated economic conditions.
RCB's policy is to place commercial loans on non-accrual status if
payments of principal or interest are delinquent 90 days, following the standard
industry practice. Conventional mortgages and close-end consumer
27
<PAGE> 32
loans are also placed on non-accrual status if payments are delinquent 90 days.
Close-end consumer loans are charged-off against the allowance when delinquent
for 120 days. Open-end (revolving credit) consumer loans are charged-off when
payments are delinquent 180 days. Certain loans which would be treated as
non-accrual loans pursuant to the foregoing policy are treated as accruing loans
if they are considered well-secured and in the process of collection.
Other Operating Income
Other operating income, excluding securities and trading transactions,
amounted to $1.3 million for the first quarter of 1997, compared with $1.5
million for the same quarter in 1996, a decrease of $249,000, or 16.6%. The main
reason for the fluctuation is a decrease in overdraft charges of $333,100,
mitigated by increased savings cycle charges of $91,000. Overdraft charges
decreased because RCB changed its method of determinating customer available
balance to a way more beneficial to the customer since the second half of 1996.
Saving cycle charges increased as a result of a restructuring of RCB's savings
products during the second half of 1996.
RCB also experienced a net loss on its trading securities of $305,000
during the first quarter of 1997, while a net gain of $102,000 was obtained for
the same period the year before.
Operating Expenses
Operating expenses for the first quarter of 1997 were $8.5 million,
compared with $7.5 million for the same quarter in 1996, an increase of $1.0
million principally related to professional fees and post retirement
compensation expenses.
During the second quarter of 1996, RCB experienced a significant
reduction of its labor force as a result of a major reengineering of its
operations. As a result of the reengineering, the number of full time equivalent
employees decreased from 447 as of March 31, 1996 to 388 as of March 31, 1997.
Expenses related to this reengineering were recorded mainly during the last
three quarters of 1996.
As a result of this reengineering, RCB's salary expense decreased by
$193,000 during the quarter ended March 31, 1997 when compared with the same
period in 1996 (from $2,393,000 in the first quarter of 1996 to $2,200,000 in
the first quarter of 1997), or an 8.0% reduction. On the other hand, the "Other
fringe benefits" expense did not decrease because during the first quarter of
1997 RCB had $985,000 in post-retirement compensation expenses, including a
non-recurring expense of $715,000.
Another significant category of other expenses was professional fees,
which amounted to $849,000 for the first quarter of 1997, an increase of
$265,000 over the previous year. The main reason for the increase is the use of
outside consultants related to the proposed merger with Banco Popular.
The "Other operating expenses" category amounted to $1.34 million for
the first quarter of 1997, or $190,000 more than the $1.15 million for the first
quarter of the preceding year. The increase includes $101,000 related to
expenses associated with the proposed merger with Banco Popular.
The lack of a provision for income taxes for the three-month period
ended March 31, 1997 is the result of low pre-tax earnings and RCB's substantial
level of tax-exempt income.
Other expense categories in 1997 remained at similar levels as in 1996.
Balance Sheet Comments
Total assets as of March 31, 1997 were $847.8 million, compared with
$888.4 million as of December 31, 1996, a decrease of $40.6 million, or 4.57%.
For the first quarter of 1997 and for the year ended December 31, 1996, average
assets remained at the same level of $875 million.
28
<PAGE> 33
Earning assets at March 31, 1997 amounted to $805 million, compared
with $841 million as of December 31, 1996, or a $36 million decrease. The
decrease was a result of the use of investments proceeds to repay 936 deposits
that were not renewed.
At March 31, 1997, money market investments amounted to $45 million,
compared to $33 million at December 31, 1996. Investment securities as of March
31, 1997 totaled $407 million, compared with $459 million as of December 31,
1996. These figures include $219 million in available for sale securities as of
March 31, 1997, and $256 million at December 31, 1996.
Total deposits decreased by $54 million, from $656 million at December
31, 1996 to $602 million at March 31, 1997, mainly as the result of the
maturities of $50 million of 936 certificates of deposit.
Borrowings, represented by repurchase agreements and promissory notes,
amounted to $172 million as of March 31, 1997, and $157 million as of December
31, 1996. The increase of $15 million was due to a short-term repurchase
agreement maturing on April 2, 1997. Out of these funds, $147 million were 936
funds at both March 31, 1997 and December 31, 1996.
Shareholders' equity totaled $65.6 million as of March 31, 1997,
compared to $66.5 million as of December 31, 1996. The fluctuation in this
account is the net effect of a decrease in the net unrealized gain on securities
by $1.2 million (from an unrealized gain of $370,000 at December 31, 1996 to an
unrealized loss of $797,000 as of March 31, 1997) offset by the net income for
the quarter totaling $317,000.
For RCB management's discussion and analysis of financial condition and
results of operations for 1994, 1995 and 1996, see the Prospectus/Proxy
Statement.
DESCRIPTION OF POPULAR'S CAPITAL STOCK
See "SUMMARY--Recent Developments" in this Supplement and "DESCRIPTION
OF BANPONCE'S CAPITAL STOCK" in the Prospectus/Proxy Statement.
SUPERVISION AND REGULATION
See "SUPERVISION AND REGULATION" in the Prospectus/Proxy Statement.
EXPERTS
The consolidated financial statements of Popular, Inc. incorporated by
reference to the 1996 Form 10-K, which have been audited by Price Waterhouse,
independent accountants, to the extent and for the periods indicated in their
report thereon, have been so incorporated in reliance on the report of Price
Waterhouse, given on the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of RCB included in the
Prospectus/Proxy Statement, which have been audited by Price Waterhouse,
independent accountants, to the extent and for the periods indicated in their
report thereon, have been so included in reliance on the report of Price
Waterhouse, given on the authority of said firm as experts in accounting and
auditing.
29
<PAGE> 34
APPENDIX: FIRST QUARTER 1997 FINANCIAL INFORMATION FOR RCB
ROIG COMMERCIAL BANK
STATEMENT OF CONDITION
<TABLE>
<CAPTION>
31-MAR-97 31-DEC-96
---------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 14,667,528 $ 18,652,734
---------------------------
Money market investments:
Securities purchased under agreements to resell 43,209,409 31,700,000
Time deposits with other banks 1,510,000 1,510,000
---------------------------
44,719,409 33,210,000
---------------------------
Investment securities available-for-sale, at market value:
US Treasury securities 119,249,466 120,192,969
Obligations of US Government and political subdivisions 86,199,692 121,790,761
Other securities 13,877,190 14,090,942
---------------------------
219,326,348 256,074,672
---------------------------
Investment securities held-to-maturity, at market value:
US Treasury securities 40,002,504 40,003,271
Obligations of US Government and political subdivisions 130,000,957 142,875,816
Obligations of Puerto Rico Government agencies and instrumentalities 8,854,218 8,919,672
Mortgage-backed securities 1,103,448 1,206,661
Other securities 5,518,188 7,525,610
---------------------------
185,479,315 200,531,030
---------------------------
Investment in Federal Home Loan Bank stock, at redemption value 2,470,400 2,470,400
---------------------------
Loans 397,230,233 393,322,796
Less:
Unearned income 37,940,517 38,465,667
Allowance for loan losses 5,888,935 5,742,153
---------------------------
353,400,781 349,114,976
---------------------------
Bank premises and equipment 12,098,931 12,033,057
Customers' liability on letters of credit and guarantee 114,539 133,396
Accrued interest receivable 6,483,257 6,687,448
Other assets 9,097,389 9,535,645
---------------------------
$847,857,897 $888,443,358
===========================
Liabilities and Capital
Liabilities:
Deposits $602,382,404 $656,291,063
Securities sold under agreements to repurchase 62,530,000 47,850,000
Notes Payable 109,000,000 109,000,000
Letter of credit and guarantee outstanding 114,539 133,396
Accrued interest payable 2,924,807 3,348,914
Other accrued expenses 5,263,648 3,976,965
Dividends payable - 1,350,000
---------------------------
782,215,398 821,950,338
---------------------------
Capital:
Common stock 6,000,000 6,000,000
Surplus 40,000,000 40,000,000
Undivided profits 20,439,728 20,123,216
Net unrealized (loss) gain on securities available for sale (797,229) 369,804
---------------------------
65,642,499 66,493,020
---------------------------
$847,857,897 $888,443,358
===========================
</TABLE>
A-1
<PAGE> 35
ROIG COMMERCIAL BANK
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
MARCH 31,
--------------------------
1997 1996
--------------------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 316,510 $ 1,630,807
--------------------------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 416,787 542,356
Provision for loan losses 1,200,000 600,000
Amortization of deferred loan fees and cost (208,869) (191,701)
Amortization of premium and discounts on securities 119,159 109,005
Decrease in interest receivable 204,191 531,289
Decrease in other assets 438,256 83,613
Increase in other liabilities 862,576 346,110
--------------------------
Total adjustments 3,032,100 2,020,673
--------------------------
Net cash provided by operating activities 3,348,610 3,651,480
--------------------------
Cash flows from investing activities:
Net increase in money market investments (11,509,409) (10,800,000)
Proceeds from maturity and redemption of investments
securities available-for-sale 105,537,155 11,006,639
Purchase of investment securities available-for-sale (70,000,000) (15,361,201)
Proceeds from maturity and redemption of investments
securities held-to-maturity 14,976,695 52,411,718
Purchase of investments securities held-to-maturity - (65,707,809)
Net increase in loans (5,276,936) (17,371,913)
Acquisition of bank premises and equipment (482,661) (543,827)
--------------------------
Net cash used in investing activities 33,244,845 (46,366,393)
--------------------------
Cash flows from financing activities:
Net (decrease) increase in demand and savings deposits (4,289,951) 3,815,406
Net (decrease) increase in time deposits (49,618,709) 2,533,385
Increase in securities sold under agreements to repurchase 14,680,000 35,281,941
Dividends paid (1,350,000) (1,200,000)
--------------------------
Net cash provided by financing activities (40,578,660) 40,430,732
--------------------------
Net increase (decrease) in cash and due from banks (3,985,206) (2,284,181)
Cash and due from banks at beginning of year 18,652,734 18,282,700
--------------------------
Cash and due from banks at end of period $14,667,528 $15,998,519
==========================
15,998,519
</TABLE>
A-2
<PAGE> 36
ROIG COMMERCIAL BANK
STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-------------------------
1997 1996
-------------------------
<S> <C> <C>
Interest income:-
Interest and fees on loans $9,890,685 $8,665,873
Money market investments 476,380 369,313
U.S. Treasury and Government obligations 2,238,247 2,892,614
States and U.S. Government political
subdivisions obligations 3,892,699 3,411,690
Puerto Rico Government and political
subdivisions obligations 170,686 180,813
Other securities 360,718 570,970
Trading account 69,647 10,096
-------------------------
17,099,062 16,101,369
Less - Interest expense 8,057,840 7,872,393
-------------------------
Net interest income 9,041,222 8,228,976
Provision for loan losses 1,200,000 600,000
-------------------------
Net interest income after provision
for loan losses 7,841,222 7,628,976
(Loss) gain on trading securities (304,328) 102,169
Sevice charges on deposits 917,622 1,137,121
Other 357,359 386,723
-------------------------
8,811,875 9,254,989
-------------------------
Operating expenses:-
Personnel costs:
Salaries 2,200,510 2,392,684
Payroll taxes 270,632 287,445
Other fringe benefits 1,576,973 893,596
Net occupancy expenses 701,729 691,449
Equipment rentals and other expenses 645,147 635,732
Taxes other than income 299,509 308,654
FDIC insurance 20,102 500
Professional fees 848,868 584,180
Advertising and promotion 261,550 287,325
Communication 333,756 305,845
Other operating expenses 1,336,589 1,150,940
-------------------------
8,495,365 7,538,350
-------------------------
Income before income tax 316,510 1,716,639
Income tax - 85,832
-------------------------
Net income $ 316,510 $1,630,807
=========================
Earnings per common share $ 0.53 $ 2.72
=========================
</TABLE>
A-3
