<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
WASHINGTON, D.C. 20549
----------------------
FORM 10 - Q
-----------
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1998 Commission file number 0 - 13818
------------- ---------
POPULAR, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Puerto Rico 66-041-6582
- ------------------------ ---------------------
(State of incorporation) (I.R.S. Employer
Identification No.)
Popular Center Building
209 Munoz Rivera Avenue, Hato Rey
San Juan, Puerto Rico 00918
----------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code (787) 765-9800
--------------
Not Applicable
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report) Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock $6.00 Par value 135,555,652
---------------------------- ------------------------------------------
(Title of Class) (Shares Outstanding as of August 13, 1998)
<PAGE> 2
2
POPULAR, INC.
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information Page
- ------------------------------ ----
<S> <C> <C>
Item 1. Financial Statements
Unaudited consolidated statements of condition - June 30,
1998, December 31, 1997 and June 30, 1997. 3
Unaudited consolidated statements of income - Quarters and six
months ended June 30, 1998 and 1997. 4
Unaudited consolidated statements of comprehensive income -
Quarters and six months ended June 30, 1998 and 1997. 5
Unaudited consolidated statements of cash flows - Six months
ended June 30, 1998 and 1997. 6
Notes to unaudited consolidated financial statements. 7-15
Item 2. Management's discussion and analysis of financial condition
and results of operations. 16-31
Item 3. Quantitative and qualitative disclosures about market risk 21-22
Part II - Other Information
Item 1. Legal proceedings 31
Item 2. Changes in securities and use of proceeds - None N/A
Item 3. Defaults upon senior securities - None N/A
Item 4. Submission of matters to a vote of security holders 31
Item 5. Other information 31
Item 6. Exhibits and reports on Form 8-K 31
--- Signature 32
</TABLE>
FORWARD LOOKING INFORMATION. This Quarterly Report on Form 10-Q contains
certain forward looking statements with respect to the adequacy of the allowance
for loan losses, the Corporation's market risk and the effect of legal
proceedings on Popular, Inc.'s financial condition and results of operations.
These forward looking statements involve certain risks, uncertainties, estimates
and assumptions by management.
Various factors could cause actual results to differ from those
contemplated by such forward looking statements. With respect to the adequacy of
the allowance for loan losses and market risk, these factors include, among
others, the rate of growth in the economy, the relative strength and weakness in
the consumer and commercial credit sectors and in the real estate markets, the
performance of the stock and bond markets and the magnitude of interest rate
changes. Moreover, the outcome of litigation, as discussed in "Part II, Item I.
Legal Proceedings." is inherently uncertain and depends on judicial
interpretations of law and the findings of judges and juries.
<PAGE> 3
3
POPULAR, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, December 31, June 30,
(In thousands) 1998 1997 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 500,941 $ 463,151 $ 609,160
- -----------------------------------------------------------------------------------------------------------------
Money market investments:
Federal funds sold and securities and
mortgages purchased under agreements to resell 650,881 802,803 847,171
Time deposits with other banks 42,779 9,013 20,020
Banker's acceptances 827 2,274 2,376
- -----------------------------------------------------------------------------------------------------------------
694,487 814,090 869,567
- -----------------------------------------------------------------------------------------------------------------
Investment securities available-for-sale, at market value 5,795,668 5,239,005 4,905,562
Investment securities held-to-maturity, at cost 232,316 408,993 745,826
Trading account securities, at market value 250,090 222,303 340,749
Loans held-for-sale 338,566 265,204 314,916
Loans 11,767,063 11,457,675 10,969,960
Less - Unearned income 352,416 346,272 375,511
Allowance for loan losses 224,045 211,651 206,719
- -----------------------------------------------------------------------------------------------------------------
11,190,602 10,899,752 10,387,730
- -----------------------------------------------------------------------------------------------------------------
Premises and equipment 380,684 364,892 388,970
Other real estate 20,283 18,012 10,285
Customers' liabilities on acceptances 454 1,801 2,542
Accrued income receivable 128,897 118,677 109,346
Other assets 239,267 252,040 229,909
Intangible assets 225,381 232,587 231,282
- -----------------------------------------------------------------------------------------------------------------
$19,997,636 $19,300,507 $19,145,844
=================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 2,585,256 $ 2,546,836 $ 2,496,684
Interest bearing 9,517,338 9,202,750 8,908,832
- -----------------------------------------------------------------------------------------------------------------
12,102,594 11,749,586 11,405,516
Federal funds purchased and securities sold under
agreements to repurchase 2,672,811 2,723,329 2,623,292
Other short-term borrowings 1,864,562 1,287,435 1,630,976
Notes payable 1,137,709 1,403,696 1,412,407
Acceptances outstanding 454 1,801 2,542
Other liabilities 350,813 356,568 371,981
- -----------------------------------------------------------------------------------------------------------------
18,128,943 17,522,415 17,446,714
- -----------------------------------------------------------------------------------------------------------------
Subordinated notes 125,000 125,000 125,000
- -----------------------------------------------------------------------------------------------------------------
Preferred beneficial interests in Popular North America's
junior subordinated deferrable interest debentures guaranteed
by the Corporation 150,000 150,000 150,000
- -----------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock 100,000 100,000 100,000
Common stock 412,426 412,029 411,697
Surplus 604,983 602,023 579,878
Retained earnings 473,531 395,253 340,267
Treasury stock-at cost (39,559) (39,559) (14,017)
Accumulated other comprehensive income-unrealized gains
on securities available-for-sale, net of deferred taxes 42,312 33,346 6,305
- -----------------------------------------------------------------------------------------------------------------
1,593,693 1,503,092 1,424,130
- -----------------------------------------------------------------------------------------------------------------
$19,997,636 $19,300,507 $19,145,844
=================================================================================================================
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
<PAGE> 4
4
POPULAR, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter ended Six months ended
June 30, June 30,
(Dollars in thousands, except per share amounts) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $296,476 $260,804 $589,693 $507,157
Money market investments 9,192 8,515 18,018 17,382
Investment securities 93,177 84,646 183,436 159,757
Trading account securities 4,020 5,040 8,085 8,974
- ----------------------------------------------------------------------------------------------------------------------------
402,865 359,005 799,232 693,270
- ----------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits 101,777 87,092 199,108 173,287
Short-term borrowings 58,330 56,409 114,577 103,771
Long-term debt 28,366 24,898 58,451 44,962
- ----------------------------------------------------------------------------------------------------------------------------
188,473 168,399 372,136 322,020
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income 214,392 190,606 427,096 371,250
Provision for loan losses 33,524 25,413 67,089 49,100
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 180,868 165,193 360,007 322,150
Service charges on deposit accounts 25,494 22,214 50,832 44,033
Other service fees 28,818 24,785 54,991 46,954
Gain (loss) on sale of securities 3,049 1,286 3,917 (374)
Trading account profit 1,311 817 1,981 1,250
Other operating income 14,214 7,125 29,116 18,619
- ----------------------------------------------------------------------------------------------------------------------------
253,754 221,420 500,844 432,632
- ----------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Personnel costs:
Salaries 59,623 50,344 118,916 98,689
Profit sharing 6,264 6,788 11,947 13,228
Pension and other benefits 16,770 17,307 35,188 34,007
- ----------------------------------------------------------------------------------------------------------------------------
82,657 74,439 166,051 145,924
Net occupancy expense 11,737 8,743 23,298 17,745
Equipment expenses 18,481 16,777 36,509 31,628
Other taxes 7,899 7,311 15,867 13,756
Professional fees 13,816 10,923 26,694 20,826
Communications 9,194 7,750 18,017 15,331
Business promotion 8,917 7,980 17,133 13,937
Printing and supplies 4,415 3,127 8,418 6,771
Other operating expenses 11,080 10,155 21,804 18,974
Amortization of intangibles 6,849 4,841 13,633 9,279
- ----------------------------------------------------------------------------------------------------------------------------
175,045 152,046 347,424 294,171
- ----------------------------------------------------------------------------------------------------------------------------
Income before taxes 78,709 69,374 153,420 138,461
Income tax 21,248 18,283 41,164 37,831
- ----------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 57,461 $ 51,091 $112,256 $100,630
============================================================================================================================
NET INCOME APPLICABLE TO COMMON STOCK $ 55,374 $ 49,004 $108,081 $ 96,455
============================================================================================================================
BASIC AND DILUTED EARNINGS PER COMMON SHARE $ 0.41 $ 0.37 $ 0.80 $ 0.73
============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
<PAGE> 5
5
POPULAR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter ended Six months ended
June 30, June 30,
(In thousands) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income $57,461 $51,091 $112,256 $100,630
------- ------- -------- --------
Other comprehensive income net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during the period 7,248 17,197 11,559 4,542
Less: reclassification adjustment
for gains (losses) included in net
income 1,988 945 2,593 (64)
------- ------- -------- --------
Total other comprehensive income 5,260 16,252 8,966 4,606
------- ------- -------- --------
Comprehensive income $62,721 $67,343 $121,222 $105,236
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
<PAGE> 6
6
POPULAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
June 30,
(In thousands) 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 112,256 $ 100,630
- -------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization of premises and equipment 30,574 25,839
Provision for loan losses 67,089 49,100
Amortization of intangibles 13,633 9,279
(Gain) loss on sale of investment securities available-for-sale (3,917) 374
(Gain) loss on disposition of premises and equipment (63) 103
Gain on sale of loans (10,943) (6,127)
Amortization of premiums and accretion of discounts on investments 1,044 745
Increase in loans held-for-sale (73,362) (59,787)
Amortization of deferred loan fees and costs (1,384) (1,824)
Net increase in trading securities (27,787) (48,580)
Net increase in interest receivable (10,220) (6,872)
Net decrease in other assets 47,870 194,770
Net increase in interest payable 3,714 4,953
Net decrease in current and deferred taxes (12,080) (37,494)
Net increase in postretirement benefit obligation 4,359 4,014
Net (decrease) increase in other liabilities (28,108) 51,138
- -------------------------------------------------------------------------------------------------------------------------------
Total adjustments 419 179,631
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 112,675 280,261
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in money market investments 119,603 (46,595)
Purchases of investment securities held-to-maturity (8,660,288) (21,944,787)
Maturities of investment securities held-to-maturity 8,836,116 22,453,433
Purchases of investment securities available-for-sale (3,410,698) (3,839,435)
Maturities of investment securities available-for-sale 2,111,428 878,497
Sales of investment securities available-for-sale 762,267 1,975,195
Net disbursements on loans (679,918) (648,185)
Proceeds from sale of loans 358,598 190,030
Acquisition of loan portfolios (41,988) (14,390)
Assets acquired, net of cash (4,094) (78,163)
Acquisition of premises and equipment (59,217) (55,034)
Proceeds from sale of premises and equipment 13,641 11,696
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (654,550) (1,117,738)
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 313,419 (371,676)
Net deposits acquired 36,297
Net (decrease) increase in federal funds purchased and
securities sold under agreements to repurchase (50,518) 690,570
Net increase in other short-term borrowings 276,347 226,970
Proceeds from issuance of notes payable 34,727 328,233
Payment of senior debentures (30,000)
Proceeds from issuance of Series A Capital Securities 150,000
Dividends paid (33,963) (27,973)
Proceeds from issuance of common stock 3,356 2,162
Treasury stock, acquired (14,017)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 579,665 954,269
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and due from banks 37,790 116,792
Cash and due from banks at beginning of period 463,151 492,368
- -------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of period $ 500,941 $ 609,160
===============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
<PAGE> 7
7
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share information)
NOTE 1- CONSOLIDATION
The consolidated financial statements of Popular, Inc. include the balance sheet
of the Corporation and its wholly-owned subsidiaries, Popular Securities
Incorporated; Popular International Bank, Inc. and its wholly-owned subsidiaries
ATH Costa Rica, and Popular North America, Inc., including Banco Popular, FSB
and its wholly-owned subsidiary Equity One, Inc., Banco Popular, Illinois and
its wholly-owned subsidiary Popular Leasing USA, Banco Popular National
Association (California), Banco Popular National Association (Florida), Banco
Popular, National Association (Texas) and Popular Cash Express, Inc.; Banco
Popular de Puerto Rico and its wholly-owned subsidiaries, Popular Leasing and
Rental, Inc., Popular Finance, Inc. and Popular Mortgage, Inc.; and
Metropolitana de Prestamos, Inc., as of June 30, 1998, December 31, 1997 and
June 30, 1997 and their related statements of income, comprehensive income and
cash flows for the six-month periods then ended. These statements are, in the
opinion of management, a fair statement of the results of the periods presented.
These results are unaudited, but include all necessary adjustments, of a normal
recurring nature, for a fair presentation of such results. Certain
reclassifications have been made to the prior year consolidated financial
statements to conform to the 1998 presentation.
NOTE 2- ACCOUNTING CHANGES
Effective January 1, 1998 the Corporation adopted SFAS 130, "Reporting
Comprehensive Income". This statement establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains,
and losses) in a full set of general-purpose financial statements. Comprehensive
income has been defined as the change in equity of a business enterprise during
a period from transactions and other events and circumstances, except those
resulting from investments by owners and distributions to owners. This
pronouncement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The pronouncement does not require a specific format for
the financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement. This statement requires the reclassification of financial statements
for earlier periods provided for comparative purposes.
In June 1997, the Financial Accounting Standard Board (FASB) issued SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information". This
statement establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders since the second
year of application. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. This statement
supersedes SFAS 14, "Financial Reporting for Segments of a Business Enterprise",
but retains the requirements to report information about major customers. This
statement is effective for financial statements for periods beginning after
December 15, 1997. Adoption in interim financial statements is not required
until the year after initial adoption, however, comparative prior period
information is required.
<PAGE> 8
8
In February 1998, the FASB issued SFAS 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits". This statement supersedes the
disclosure requirements in FASB statements No. 87, "Employers' Accounting for
Pensions," No. 88, "Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits", and No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions". This
statement revises employers' disclosures about pension and postretirement
benefit plans. It does not change the measurement or recognition of those plans.
It standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values on plan assets
that will facilitate financial analysis, and eliminates certain disclosures that
are no longer useful. The statement suggests combined formats for presentation
of pension and other postretirement benefits disclosures. This statement is
effective for fiscal year beginning after December 15, 1997, and requires
comparative information for earlier years. Restatement of disclosures for
earlier periods provided for comparative purposes is required unless the
information is not readily available, in which case the notes to the financial
statements should include all available information and a description of the
information not available.
On June 16, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of condition and measure those instruments at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge of
the exposure to changes in the fair value of a recognized asset or liability or
an unrecognized firm commitment (fair value hedge), a hedge of the exposure to
variable cash flows of a forecasted transaction (cash flow hedge), or a hedge of
the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. The accounting for changes
in the fair value of a derivative depends on the intended use of the derivative
and the resulting designation. In general, the gain or loss in a fair value
hedge is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item attributable to the risk being
hedged. For a cash flow hedge, gains or losses are reported in other
comprehensive income and subsequently reclassified into earnings. For
derivatives designated as a hedge of the foreign currency exposure, the gain or
loss is reported in other comprehensive income as part of the cumulative
translation adjustment. This statement is effective for all quarters of fiscal
years beginning after June 15, 1999. Initial application of this Statement
should be as of the beginning of an entity's fiscal quarter; on that date,
hedging relationships must be designated anew and documented pursuant to the
provisions of this Statement. Earlier application of all of the provisions of
this Statement is encouraged, but it is permitted as of the beginning of any
fiscal quarter that begins after issuance of the Statement. This Statement
should not be applied retroactively to financial statements of prior periods.
Management understands that the adoption of this statement will not have a
material effect on the consolidated financial statements of the Corporation.
<PAGE> 9
9
NOTE 3 - INVESTMENT SECURITIES
The average maturities as of June 30, 1998, and market value for the following
investment securities are:
Investments securities available-for-sale:
<TABLE>
<CAPTION>
June 30,
--------
1998 1997
---- ----
Amortized Market Amortized Market
Cost Value Cost Value
--------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury (average maturity of 1 year
and 10 months) $3,123,686 $3,141,595 $3,007,496 $3,013,782
Obligations of other U.S. Government
agencies and corporations (average
maturity of 5 years and 8 months) 1,415,991 1,419,231 1,099,072 1,103,135
Obligations of Puerto Rico, States and
political subdivisions (average
maturity of 8 years and 10 months) 58,061 59,159 45,680 45,915
Collateralized mortgage obligations(average
maturity of 1 year and 1 month) 717,931 718,634 626,490 625,798
Mortgage-backed securities (average
maturity of 21 years and 3 months) 381,319 388,691 80,473 79,143
Equity securities (without contractual
maturity) 30,206 56,592 20,183 20,444
Others (average maturity of 10 years and
2 months) 11,930 11,766 17,321 17,345
--------------------------------------------------------
$5,739,124 $5,795,668 $4,896,715 $4,905,562
========================================================
</TABLE>
Investment securities held-to-maturity:
<TABLE>
<CAPTION>
June 30,
--------
1998 1997
---- ----
Amortized Market Amortized Market
Cost Value Cost Value
-------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $350,397 $350,430
Obligations of other U.S. Government
agencies and corporations 89,731 89,399
Obligations of Puerto Rico, States and
political subdivisions (average
maturity of 7 years and 9 months) $ 38,563 $ 39,740 61,746 62,958
Collateralized mortgage obligations (average
maturity of 1 year and 9 months) 42,516 42,640 102,970 102,701
Mortgage-backed securities (average
maturity of 3 years and 2 months) 39,608 40,470 51,294 51,641
Equity securities (without contractual
maturity) 78,668 78,668 70,660 65,611
Others (average maturity of 6 years
and 7 months) 32,961 32,971 19,028 18,997
--------------------------------------------------------
$232,316 $234,489 $745,826 $741,737
========================================================
</TABLE>
NOTE 4 - PLEDGED ASSETS
Securities and insured mortgage loans of the Corporation of $4,288,426
(1997-$3,930,814) are pledged to secure public and trust deposits and securities
and mortgages sold under repurchase agreements.
<PAGE> 10
10
NOTE 5- COMMITMENTS
In the normal course of business there are letters of credit outstanding and
stand-by letters of credit which at June 30, 1998, amounted to $18,907 and
$65,816. There are also outstanding other commitments and contingent
liabilities, such as guarantees and commitments to extend credit, which are not
reflected in the accompanying financial statements. No losses are anticipated as
a result of these transactions.
NOTE 6- SUBORDINATED NOTES
Subordinated notes of $125,000 as of June 30, 1998 and 1997 consisted of notes
issued by the Corporation on December 12, 1995, maturing on December 15, 2005,
with interest payable semi-annually at 6.75%.
NOTE 7- STOCKHOLDERS' EQUITY
Authorized common stock is 180,000,000 shares with a par value of $6 per share
of which 135,497,786 were issued and outstanding at June 30, 1998, after
adjusting for the stock split described below. On April 23, 1998, the
Corporation's Board of Directors authorized a two-for-one common stock split
effected in the form of a dividend, effective July 1, 1998. As a result of the
split 67,748,893 shares were issued, and $406 million were transferred from
surplus to common stock. All references in the financial statements to the
numbers of common shares and per share amounts have been restated to reflect the
stock split. On May 8, 1997, the Board of Directors approved a stock repurchase
program of up to three million shares of outstanding common stock of the
Corporation. A total of 988,800 shares with a cost of $39.6 million were
repurchased during 1997, no additional shares were repurchased during the six
month period ended June 30, 1998.
Authorized preferred stock is 10,000,000 shares without par value of which
4,000,000, non-cumulative with a dividend rate of 8.35% and a liquidation
preference value of $25 per share, were issued and outstanding at June 30, 1998.
Popular International Bank, Inc. (PIB) and Popular North America, Inc.'s (PNA)
bank subsidiaries (Banco Popular, Illinois, Banco Popular National Association
(California), Banco Popular National Association (Florida), Banco Popular,
National Association (Texas) and Banco Popular, FSB) have certain statutory
provisions and regulatory requirements and policies, such as the maintenance of
adequate capital, that limit the amount of dividends they can pay. Other than
these limitations, no other restrictions exist on the ability of PIB and PNA to
make dividend and asset distributions to the Corporation, nor on the ability of
PNA's subsidiaries, except for Banco Popular, FSB, to make distributions to PNA.
In connection with the acquisition by Banco Popular, FSB from the Resolution
Trust Company (RTC) of four New Jersey branches of the former Carteret Federal
Savings Bank, the RTC provided to Banco Popular, FSB interim financial
assistance in the form of a loan in the amount of $19.5 million, which matures
on January 20, 2000, but which is prepayable any time before then. Pursuant to
the terms of such financing, Banco Popular, FSB may not, among other things,
declare or pay any dividends on its outstanding capital stock (unless such
dividends are used exclusively for payment of principal of or interest on such
RTC loan) or make any distribution of its assets until payments in full of such
promissory note.
<PAGE> 11
11
NOTE 8- EARNINGS PER COMMON SHARE
Earnings per common share (EPS) are calculated based on net income applicable to
common stockholders which amounted to $55,374 for the second quarter of 1998
(1997 - $49,004) and $108,081 for the six months ended June 30, 1998 (1997 -
$96,455), after deducting the dividends on preferred stock. EPS are based on
135,497,786 average shares outstanding for the second quarter of 1998 (1997 -
132,753,232) and 135,466,614 average shares outstanding for the first six months
of 1998 (1997 - 132,499,878), after restating for the stock split.
NOTE 9- SUPPLEMENTAL DISCLOSURE ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS
During the six month period ended June 30, 1998, the Corporation paid interest
and income taxes amounting to $370,373 and $65,399 respectively (1997 - $288,126
and $56,427). In addition, the loans receivable transferred to other real estate
and other property for the six-month period ended June 30, 1998, amounted to
$3,619 and $14,114, respectively (1997 - $3,683 and $10,408). The Corporation's
stockholders' equity at June 30, 1998, includes $42,312 in unrealized holding
gains on securities available-for-sale, net of deferred taxes, as compared with
$6,305 in unrealized losses as of June 30, 1997.
NOTE 10- POPULAR INTERNATIONAL BANK, INC. (A WHOLLY-OWNED SUBSIDIARY OF POPULAR,
INC.) FINANCIAL INFORMATION:
The following summarized financial information presents the unaudited
consolidated financial position of Popular International Bank, Inc. (PIB) and
its wholly-owned subsidiaries, ATH Costa Rica, and Popular North America, Inc,
including Banco Popular, FSB and its wholly-owned subsidiary Equity One, Inc.,
Banco Popular, Illinois and its wholly-owned subsidiary Popular Leasing USA,
Banco Popular National Association (California), Banco Popular National
Association (Florida), Banco Popular, National Association (Texas) and Popular
Cash Express, Inc. as of May 31, 1998 and 1997, and the results of their
operations for the quarters and the six-month period then ended.
Popular, Inc. has not presented separate financial statements and any other
disclosures concerning Popular International Bank, Inc., other than the
following summarized financial information, because management has determined
that such information is not material to holders of debt securities issued by
PIB which is guaranteed by the Corporation.
<PAGE> 12
12
POPULAR INTERNATIONAL BANK, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands)
<TABLE>
<CAPTION>
May 31,
----------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Assets:
Cash $ 84,932 $ 76,421
Money market investments 70,231 125,575
Investment securities 287,838 289,738
Loans 2,380,410 2,054,913
Less: Unearned income 64,078 50,998
Allowance for loan losses 33,151 29,330
---------- ----------
2,283,181 1,974,585
Other assets 101,984 77,222
Intangible assets 85,363 74,149
---------- ----------
Total assets $2,913,529 $2,617,690
========== ==========
Liabilities and Stockholder's Equity:
Deposits $1,299,521 $1,115,418
Short-term borrowings 445,515 308,267
Notes payable 670,706 713,695
Other liabilities 52,436 49,059
Preferred beneficial interests in Popular North
America's junior subordinated deferrable
interest debentures guaranteed by the
Corporation 150,000 150,000
Stockholder's equity 295,351 281,251
---------- ----------
Total liabilities and stockholder's equity $2,913,529 $2,617,690
========== ==========
</TABLE>
<PAGE> 13
13
POPULAR INTERNATIONAL BANK, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
<TABLE>
<CAPTION>
Quarter ended Six months ended
May 31, May 31,
----------------------------- -----------------------------
1998 1997 1998 1997
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Income:
Interest and fees $ 63,879 $ 52,017 $ 125,724 $ 97,894
Other income 12,721 4,697 22,932 7,491
-------- -------- --------- ---------
Total income 76,600 56,714 148,656 105,385
-------- -------- --------- ---------
Expenses:
Interest expense 33,320 27,311 65,882 51,161
Provision for loan losses 5,323 4,422 10,157 8,107
Operating expenses 32,625 19,200 61,932 32,935
-------- -------- --------- ---------
Total expenses 71,268 50,933 137,971 92,203
-------- -------- --------- ---------
Income before income tax 5,332 5,781 10,685 13,182
Income tax 2,703 2,383 4,463 5,677
-------- -------- --------- ---------
Net income $ 2,629 $ 3,398 $ 6,222 $ 7,505
======== ======== ========= =========
</TABLE>
<PAGE> 14
14
NOTE 11- POPULAR NORTH AMERICA, INC. (A SECOND-TIER SUBSIDIARY OF POPULAR, INC.)
FINANCIAL INFORMATION:
The following summarized financial information presents the unaudited
consolidated financial position of Popular North America, Inc. and its
wholly-owned subsidiaries, Banco Popular, FSB and its wholly-owned subsidiary
Equity One, Inc., Banco Popular, Illinois and its wholly-owned subsidiary
Popular Leasing USA, Banco Popular National Association (California), Banco
Popular National Association (Florida), Banco Popular, National Association
(Texas) and Popular Cash Express, Inc. as of May 31, 1998 and 1997, and the
results of their operations for the quarters and the six-month period then
ended.
Popular, Inc. has not presented separate financial statements and any other
disclosures concerning Popular North America, Inc., other than the following
summarized financial information, because management has determined that such
information is not material to holders of debt securities issued by PNA which is
guaranteed by the Corporation.
POPULAR NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands)
<TABLE>
<CAPTION>
May 31,
--------------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Assets:
Cash $ 84,519 $ 55,975
Money market investments 68,138 119,170
Investment securities 282,763 212,310
Loans 2,380,410 1,991,417
Less: Unearned income 64,078 50,944
Allowance for loan losses 33,151 28,426
------------ ------------
2,283,181 1,912,047
Other assets 99,605 69,714
Intangibles assets 85,363 53,225
------------ ------------
Total assets $ 2,903,569 $ 2,422,441
============ ============
Liabilities and Stockholder's Equity:
Deposits $ 1,299,521 $ 972,548
Short-term borrowings 440,515 297,018
Notes payable 670,706 713,695
Other liabilities 52,048 47,389
Preferred beneficial interests in Popular North
America's junior subordinated deferrable
interest debentures guaranteed by the
Corporation 150,000 150,000
Stockholder's equity 290,779 241,791
------------ ------------
Total liabilities and stockholder's equity $ 2,903,569 $ 2,422,441
============ ============
</TABLE>
<PAGE> 15
15
POPULAR NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
<TABLE>
<CAPTION>
Quarter ended Six months ended
May 31, May 31,
---------------------------- ----------------------------
1998 1997 1998 1997
------- ------- -------- -------
<S> <C> <C> <C> <C>
Income:
Interest and fees $63,831 $50,395 $125,415 $ 95,523
Other income 12,699 4,533 23,099 7,329
------- ------- -------- --------
Total income 76,530 54,928 148,514 102,852
------- ------- -------- --------
Expenses:
Interest expense 33,246 26,994 65,585 50,844
Provision for loan losses 5,323 4,417 10,157 8,102
Operating expenses 32,410 18,477 61,531 32,103
------- ------- -------- --------
Total expenses 70,979 49,888 137,273 91,049
------- ------- -------- --------
Income before income tax 5,551 5,040 11,241 11,803
Income tax 2,703 2,298 4,463 5,592
------- ------- -------- --------
Net income $ 2,848 $ 2,742 $ 6,778 $ 6,211
======= ======= ======== ========
</TABLE>
<PAGE> 16
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
<TABLE>
<CAPTION>
TABLE A
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------
AT JUNE 30, AVERAGE FOR THE SIX MONTHS
BALANCE SHEET HIGHLIGHTS 1998 1997 Change 1998 1997 Change
(In thousands)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money market investments $ 694,487 $ 869,567 ($175,080) $ 732,328 $ 663,047 $ 69,281
Investment and trading securities 6,278,074 5,992,137 285,937 6,283,034 5,659,576 623,458
Loans 11,753,213 10,909,365 843,848 11,541,256 9,972,014 1,569,242
Total assets 19,997,636 19,145,844 851,792 19,711,518 17,272,791 2,438,727
Deposits 12,102,594 11,405,516 697,078 12,001,807 10,548,874 1,452,933
Borrowings 5,950,082 5,941,675 8,407 5,728,283 5,126,364 601,919
Shareholders' equity 1,593,693 1,424,130 169,563 1,512,723 1,301,369 211,354
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SECOND QUARTER SIX MONTHS
OPERATING HIGHLIGHTS 1998 1997 Change 1998 1997 Change
(In thousands, except per share
information)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $214,392 $190,606 $23,786 $427,096 $371,250 $55,846
Provision for loan losses 33,524 25,413 8,111 67,089 49,100 17,989
Fees and other income 72,886 56,227 16,659 140,837 110,482 30,355
Other expenses 196,293 170,329 25,964 388,588 332,002 56,586
Net income $ 57,461 $ 51,091 $ 6,370 $112,256 $100,630 $11,626
Net income applicable to common
stock $ 55,374 $ 49,004 $ 6,370 $108,081 $ 96,455 $11,626
Earnings per common share 0.41 0.37 0.04 0.80 0.73 0.07
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
SELECTED STATISTICAL SECOND QUARTER SIX MONTHS
INFORMATION 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMON STOCK DATA - Market price
High $36.16 $21.44 $36.16 $21.44
Low 29.22 16.88 23.03 16.53
End 33.25 20.19 33.25 20.19
Book value at period ended 11.02 9.70 11.02 9.70
Dividends declared 0.11 0.09 0.22 0.18
Dividend payout ratio 26.90% 24.29% 27.56% 24.67%
Price/earnings ratio 21.18X 14.32x 21.18X 14.32x
Average shares 135,497,786 132,700,596 132,753,232 132,499,878
End of period shares 135,497,786 136,472,096 135,497,786 136,472,096
- -----------------------------------------------------------------------------------------------------------------------
PROFITABILITY RATIOS - Return on assets 1.16% 1.16% 1.15% 1.17%
Return on common equity 15.50 16.07 15.43 16.17
Net interest spread
(taxable equivalent) 4.03 4.03 4.07 4.06
Net interest yield
(taxable equivalent) 4.93 4.91 4.97 4.91
Effective tax rate 27.00 26.35 26.83 27.32
Overhead ratio 47.65 50.27 48.37 49.48
- -----------------------------------------------------------------------------------------------------------------------
CAPITALIZATION RATIOS - Equity to assets 7.69% 7.51% 7.67% 7.54%
Tangible equity to assets 6.63 6.82 6.60 6.81
Equity to loans 13.20 13.02 13.11 13.07
Internal capital generation 10.56 11.19 10.35 11.14
Tier I capital to risk -
adjusted assets 12.35 12.56 12.35 12.56
Total capital to risk -
adjusted assets 14.70 14.98 14.70 14.98
Leverage ratio 7.17 7.71 7.17 7.71
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: All common stock data has been adjusted to reflect the stock split
effected in the form of a dividend on July 1, 1998.
<PAGE> 17
17
FINANCIAL REVIEW
This financial review contains the analysis of the consolidated financial
position and financial performance of Popular, Inc. and its subsidiaries (the
Corporation). The Corporation is a regional diversified bank holding company
engaged in the following businesses through its subsidiaries.
- Commercial Banking/Savings and Loans - Banco Popular de Puerto
Rico (BPPR), Banco Popular, Illinois, Banco Popular, FSB, Banco
Popular National Association (California), Banco Popular National
Association, Florida and Banco Popular, National Association
(Texas).
- Lease Financing - Popular Leasing and Rental, Inc. and Popular
Leasing, USA.
- Mortgage Banking/Consumer Finance - Popular Mortgage, Inc.,
Equity One, Inc., Popular Finance, Inc. and Popular Cash Express,
Inc. On April 30, 1998 the Corporation, through its subsidiary
Popular Cash Express acquired 13 check cashing outlets in
Florida.
- Investment Banking - Popular Securities Incorporated (Popular
Securities)
- ATM Processing Services - ATH Costa Rica
NET INCOME
Net income for the second quarter of 1998 was $57.5 million, compared with $51.1
million reported for the same period in 1997 and $54.8 million reported during
the first quarter of 1998. Earnings per common share (EPS), after adjusting for
the stock split in the form of a dividend of one share for each share
outstanding effective July 1, 1998, were $0.41 based on 135,497,786 average
shares outstanding, compared with EPS of $0.37 for the second quarter of 1997
based on 132,753,232 average shares outstanding and EPS of $0.39 for the first
quarter of 1998 based on 135,435,096 average shares outstanding. Return on
assets (ROA) and return on common equity (ROE) for the quarter ended June 30,
1998, were 1.16% and 15.50%, respectively, compared with 1.16% and 16.07% report
during the same period in 1997, and 1.14% and 15.36% for the first quarter of
1998.
For the first six months, the Corporation net earnings reached $112.3 million
compared with $100.6 million for the same period in 1997. ROA and ROE for the
six months ended June 30, 1998 were 1.15% and 15.43%, respectively. These ratios
were 1.17% and 16.17% for the same period in 1997.
On April 23, 1998, the Board of Directors authorized a two-for-one common stock
split in the form of a dividend, bringing total outstanding shares to
135,497,786. The new shares were distributed on July 1, 1998 to shareholders of
record as of June 12, 1998. As mentioned above, all per share data included
herein has been adjusted to reflect the stock split.
The increase in the Corporation's net income for the second quarter of 1998,
when compared with the same period in 1997 can be attributed mainly to $23.8
million in net interest income and $16.7 million in other revenues, partially
offset by rises of $23.0 million in operating expenses, of $8.1 million in the
provision for loan losses and $3.0 million in income taxes.
<PAGE> 18
18
NET INTEREST INCOME
Net interest income for the second quarter of 1998, amounted to $214.4 million,
an increase of 12.5% over the same period in 1997. On a taxable equivalent
basis, net interest income increased to $231.3 million compared with $205.1
million reported for the second quarter of 1997. An increase of $28.5 million
was attributed to higher volume of earning assets, partially offset by a
decrease of $2.4 million due to rates and the change in the composition of
earning assets and rate-related liabilities. For analytical purposes, the
interest earned on tax-exempt assets is adjusted to a taxable equivalent basis
assuming the applicable statutory income tax rates. Table B summarizes the
changes in the composition of average earning assets and interest bearing
liabilities, and their respective interest income and expenses and yields and
costs, on a taxable equivalent basis, for the second quarter of 1998, as
compared with the same quarter in 1997.
TABLE B
ANALYSIS OF LEVELS AND YIELDS ON A TAXABLE EQUIVALENT BASIS
QUARTER ENDED ON JUNE 30,
<TABLE>
<CAPTION>
Variance
Average Volume Average Yields Interest Attributable To
- ---------------------------------------------------------------------------------------------------------------------------------
1998 1997 Variance 1998 1997 Variance 1998 1997 Variance Rate Volume
- ---------------------------------------------------------------------------------------------------------------------------------
($ IN MILLIONS) ($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 764 $ 636 $ 128 4.84% 5.37% (0.53%) Money market investments $ 9,225 $ 8,515 $ 710 $ (868) $ 1,578
6,127 5,603 524 7.06 6.94 0.12 Investment securities 107,912 96,978 10,934 1,795 9,139
264 325 (61) 6.77 6.66 0.11 Trading 4,445 5,398 (953) 88 (1,041)
------- ------- ------ ----- ----- ----- -------- -------- ------- ------- --------
7,155 6,564 591 6.81 6.77 0.04 121,582 110,891 10,691 1,015 9,676
------- ------- ------ ----- ----- ----- -------- -------- ------- ------- --------
Loans:
5,036 4,165 871 9.20 9.32 (0.12) Commercial 115,543 96,758 18,785 (1,216) 20,001
659 542 117 12.22 13.22 (1.00) Leasing 20,137 17,905 2,232 (1,433) 3,665
2,902 2,713 189 8.66 8.42 0.24 Mortgage 62,846 57,154 5,692 1,648 4,044
3,018 2,745 273 13.21 13.26 (0.05) Consumer 99,629 90,836 8,793 (1,233) 10,026
------- ------- ------ ----- ----- ----- -------- -------- ------- ------- -------
11,615 10,165 1,450 10.28 10.35 (0.07) 298,155 262,653 35,502 (2,234) 37,736
------- ------- ------ ----- ----- ----- -------- -------- ------- ------- -------
$18,770 $16,729 $2,041 8.96% 8.95% 0.01% TOTAL EARNING ASSETS $419,737 $373,544 $46,193 ($1,219) 47,412
======= ======= ====== ===== ===== ===== ======== ======== ======= ======= =======
Interest bearing deposits:
$ 1,466 $ 1,230 $ 236 3.37% 3.32% 0.05% NOW and money market $ 12,321 $ 10,176 $ 2,145 $ 159 $ 1,986
3,745 3,289 456 3.09 3.06 0.03 Savings 28,832 25,130 3,702 111 3,591
4,392 3,825 567 5.54 5.43 0.11 Time deposits 60,623 51,786 8,837 (148) 8,985
------- ------- ------ ----- ----- ----- -------- -------- ------- ------- -------
9,603 8,344 1,259 4.25 4.19 0.06 101,776 87,092 14,684 122 14,562
------- ------- ------ ----- ----- ----- -------- -------- ------- ------- -------
4,306 3,927 379 5.43 5.76 (0.33) Short-term borrowings 58,330 56,409 1,921 (3,066) 4,987
1,429 1,466 (37) 7.96 6.81 1.15 Medium and long-term debt 28,366 24,898 3,468 4,085 (617)
------- ------- ------ ----- ----- ----- -------- -------- ------- ------- -------
TOTAL INTEREST BEARING
15,338 13,737 1,601 4.93 4.92 0.01 LIABILITIES 188,472 168,399 20,073 1,141 18,932
2,593 2,277 316 Demand deposits
839 715 124 Other sources of funds
------- ------- ------ ----- ----- ----- -------- -------- ------- ------- -------
$18,770 $16,729 $2,041 4.03% 4.04% (0.01%) $231,265 $205,145 $26,120 ($2,360) $28,480
======= ======= ====== ===== ===== ===== ======= =======
Taxable equivalent
adjustment 16,873 14,539 2,334
-------- -------- -------
Net interest income
per books $214,392 $190,606 $23,786
======== ======== =======
4.93% 4.91% 0.02% NET INTEREST MARGIN
4.03% 4.03% 0.00% NET INTEREST SPREAD
</TABLE>
<PAGE> 19
19
The increase of $2.0 billion in average earning assets was mainly related to the
increase in loans which accounted for 71% of the total increase. The acquisition
of Roig Commercial Bank (RCB) on June 30, 1997, the operations consolidated in
Banco Popular, Illinois in May 1997, and the sustained growth in the loan
portfolio, particularly in the commercial sector, contributed to the increase in
the average loans of the Corporation.
The increase in investment securities was principally related to a higher
balance of U.S. Treasury and Agency Securities of $411 million and
collateralized mortgage obligations of $120 million. Most of the increase in
U.S. Treasury and Agency Securities was realized at BPPR where the income
derived from these securities is exempt for income tax purposes net of a related
disallowance of interest expense and general administrative expenses.
The average yield on earning assets, on a taxable equivalent basis, increased to
8.96% for the second quarter of 1998, one basis point higher than the 8.95%
reported in the same quarter of 1997. This increase relates to a higher yield on
investment securities and a higher proportion of loans, partially offset by
lower interests rates on loans. Most of the reduction in the yield on loans was
related to the strong market competition, both in Puerto Rico and the U.S.
The increase in average interest bearing liabilities for the second quarter of
1998, as compared with the same quarter of 1997, was mainly reflected in average
interest bearing deposits. The acquisition of RCB and the expansion of the US
banking operations, mentioned above, were the main contributors for that growth.
The average cost of interest bearing liabilities also rose by one basis point
when compared with the second quarter of 1997, mainly driven by a higher rate on
medium and longer term debt related to debt issued during a higher interest rate
environment and floating rate instruments resetting semiannually or quarterly.
The increase in the yield on earning assets, partially offset by the increase in
the average cost of interest bearing liabilities, combined with a higher
proportion of average loans in relation to total earning assets, and with a
higher amount of non-interest bearing sources, allowed the Corporation to
improve its net interest margin, on a taxable equivalent basis, from 4.91%
reported for the second quarter of 1997 to 4.93% reported for the second quarter
of 1998. During the first quarter of 1998, the net interest yield, on a taxable
equivalent basis was 5.00%.
For the six-month period ended June 30, 1998, net interest income, on a taxable
equivalent basis, increased $60.8 million, compared with the same period of
1997. The increase in the average volume of earning assets, partially offset by
the increase in the average volume of interest bearing liabilities, caused a
positive variance of $62.2 million, which was offset by a negative variance of
$1.4 million due to changes in rates and in the mix of the portfolios.
<PAGE> 20
20
TABLE C
ANALYSIS OF LEVELS AND YIELDS ON A TAXABLE EQUIVALENT BASIS
YEAR-TO-DATE AS OF JUNE 30,
<TABLE>
<CAPTION>
Variance
Average Volume Average Yields Interest Attributable to
- ------------------------------------------------------------------------------------------------------------------------------
1998 1997 Variance 1998 1997 Variance 1998 1997 Variance Rate Volume
- ------------------------------------------------------------------------------------------------------------------------------
($ IN MILLIONS) ($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 732 $ 663 $ 69 4.97% 5.29% (0.32%) Money market investments $ 18,052 $ 17,382 $ 670 ($1,046) $ 1,716
6,021 5,354 667 7.07 6.87 0.20 Investment securities 211,455 182,675 28,780 5,763 23,017
262 305 (43) 6.79 6.50 0.29 Trading 8,819 9,848 (1,029) 429 (1,458)
- ------- ------- ------ ----- ----- ----- -------- -------- -------- ------ -------
7,015 6,322 693 6.84 6.69 0.15 238,326 209,905 28,421 5,146 23,275
- ------- ------- ------ ----- ----- ----- -------- -------- -------- ------ -------
Loans:
4,988 4,079 909 9.28 9.21 0.07 Commercial 229,616 186,287 43,329 1,530 41,799
624 533 91 12.63 13.15 (0.52) Leasing 39,410 35,024 4,386 (1,422) 5,808
2,887 2,650 237 8.69 8.41 0.28 Mortgage 125,434 111,451 13,983 3,765 10,218
3,043 2,710 333 13.10 13.17 (0.07) Consumer 198,667 177,882 20,785 (3,224) 24,009
- ------- ------- ------ ----- ----- ----- -------- -------- -------- ------ -------
11,542 9,972 1,570 10.32 10.28 0.04 593,127 510,644 82,483 649 81,834
- ------- ------- ------ ------ ----- ----- -------- -------- -------- ------ --------
$18,557 $16,294 $2,263 9.01% 8.89% 0.12% TOTAL EARNING ASSETS $831,453 $720,549 $110,904 $5,795 $105,109
======= ======= ====== ===== ===== ===== ======== ======== ======== ====== ========
Interest bearing deposits:
$ 1,423 $ 1,204 $ 219 3.36% 3.34% 0.02% NOW and money market $ 23,719 $ 19,924 $ 3,795 $ 153 $ 3,642
3,693 3,243 450 3.08 3.06 0.02 Savings 56,487 49,232 7,255 182 7,073
4,342 3,874 468 5.52 5.42 0.10 Time deposits 118,901 104,131 14,770 (119) 14,889
- ------- ------- ------ ---- ---- ----- -------- -------- -------- ------ --------
9,458 8,321 1,137 4.25 4.20 0.05 199,107 173,287 25,820 216 25,604
- ------- ------- ------ ---- ---- ----- -------- -------- -------- ------ --------
4,198 3,752 446 5.50 5.58 (0.08) Short-term borrowings 114,577 103,771 10,806 (793) 11,599
1,530 1,375 155 7.69 6.59 1.10 Medium and long-term debt 58,451 44,962 13,489 7,777 5,712
- ------- ------- ------ ---- ---- ----- -------- -------- -------- ------ --------
TOTAL INTEREST BEARING
15,186 13,448 1,738 4.94 4.83 0.11 LIABILITIES 372,135 322,020 50,115 7,200 42,915
2,544 2,227 317 Demand deposits
827 619 208 Other sources of funds
- ------- ------- ------ ---- ---- ---- -------- -------- -------- ------ -------
$18,557 $16,294 $2,263 4.04% 3.98% 0.06% $459,318 $398,529 $ 60,789 ($1,405) $62,194
======= ======= ====== ==== ==== ==== ======== =======
Taxable equivalent
adjustment 32,222 27,279 4,943
-------- -------- -------
Net interest income
per books $427,096 $371,250 $55,846
======== ======== =======
4.97% 4.91% 0.06% NET INTEREST MARGIN
4.07% 4.06% 0.01% NET INTEREST SPREAD
</TABLE>
<PAGE> 21
21
As shown in Table C average earning assets for the six-month period ended June
30, 1998, increased $2.3 billion when compared with the same period of 1997, of
which 69% represented an increase in average loans. Commercial loans was the
principal contributor to the increase in average loans due to the acquisitions
realized during 1997 and the sustained growth of the Corporation's loans
portfolio in Puerto Rico. The increase in investment securities mainly comprises
of US Treasury and Agency securities and collateralized mortgage obligations.
The increase of 12 basis points in the average yield on earning assets, on a
taxable equivalent basis, was mainly caused by a higher rate in investment
securities due to the higher interest rate scenario that has prevailed during
1998, as compared with the first six months of 1997. The higher yield on
mortgage loans, mainly in the U.S., has been the principal contributor to the
increase of four basis points in the yields of loans.
Interest bearing liabilities increased $1.7 billion when compared with the
six-month period ended June 30, 1997. All deposit categories showed increases,
reflecting the aforementioned acquisitions and the business expansion of the
Corporation in both Puerto Rico and in the United States. The average short-term
borrowings increased mostly due to higher arbitrage activities as compared with
the first six months of 1997.
The rise in the yield on earning assets, on a taxable equivalent basis, coupled
with the higher proportion of loans and deposits, more than offset the increase
in the cost of interest bearing liabilities, resulting in the increase in net
interest margin, on a taxable equivalent basis, of six basis points for the
six-month period ended June 30, 1998, from the 4.91% reported in the same period
of 1997.
MARKET RISK
Market risk is the risk of economic loss arising from adverse changes in market
rates and prices, such as interest rates, foreign currency exchange rates,
commodity prices, and other relevant market or price changes. The Corporation's
primary market risk exposure is that to interest rates as the interest income is
affected primarily by interest rate volatility and its impact on the repricing
of assets and liabilities. The Corporation maintains a formal asset and
liability management process to quantify, monitor and control interest rate risk
and to assist management in maintaining stability in the net interest margin
under varying interest rate environments.
The Corporation uses various techniques to assess the degree of interest rate
risk, including static gap analysis, simulations and duration analysis. Each
focuses on different aspects of the interest rate risk that is assumed at any
point in time, and are therefore used jointly to make informed judgements about
the risk levels and the appropriateness of strategies under consideration. An
interest rate sensitivity analysis, performed at the corporation level, is the
primary tool used in expressing the potential loss in future earnings resulting
from selected hypothetical changes in interest rates.
Sensitivity is calculated on a monthly basis using a simulation model which
incorporates both actual balance sheet figures detailed by maturity and interest
yields or costs, the expected balance sheet dynamics, reinvestments, and other
non-interest related data. Simulations are run using various interest rate
scenarios to determine potential changes to the future earnings of the
Corporation.
<PAGE> 22
22
Computations of the prospective effects of hypothetical interest rate changes
are based on many assumptions, including relative levels of market interest
rates, loan prepayments and deposits decay. They should not be relied upon as
indicative of actual results. Further, the computations do not contemplate
actions the management could take to respond to changes in interest rates. By
their nature, these forward looking choices are only estimates and may be
different from what actually may occur in the future.
Based on the results of the sensitivity analysis as of June 30, 1998, the
increase in net interest income on a hypothetical rising rate scenario for the
next twelve months was $4.8 million and the decrease for the same period
utilizing a hypothetical declining rate scenario was $11.9 million. Both
hypothetical rate scenarios consider a gradual change of 50 basis points during
the twelve-month period. This level of interest rate risk is well within the
Corporation's policy guidelines.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses for the quarter ended June 30, 1998, increased
$8.1 million or 31.9% when compared with the same period of 1997. When comparing
the first six months of 1998 with the same period of 1997, the provision for
loan losses increased $18.0 million or 36.6%. These increases were the result of
the higher loan volume, non-performing loans and net charge-offs. As shown in
Table D, net charge-offs for the quarter ended June 30, 1998, increased 18.8%
when compared with the same quarter of 1997. Net charge-offs decreased 1.2% when
compared with the first quarter of 1998. In addition, Table D presents other
related information for the quarter, ended June 30, 1998 and 1997 and for the
first six months of 1998 and 1997.
Consumer loans net charge-offs rose $8.2 million, representing 2.65% of average
consumer loans for the quarter ended June 30, 1998, compared with 1.71% for the
second quarter of 1997. The increase in consumer loans net charge-offs was
mostly related to higher levels of bankruptcies in the U.S. mainland and Puerto
Rico. On the other hand, commercial loans net charge-offs decreased $3.2 million
for the quarter ended June 30, 1998, when compared with the same quarter in
1997.
Net charge-offs for the six-month period ended June 30, 1998, reached $54.7
million or 0.95% of average loans, compared with $40.8 million or 0.82% for the
same period of 1997. The increase in net credit losses was related to the
consumer loan portfolio, that reflected a rise of $18.3 million, compared with
the six-month period ended June 30, 1997. Conversely, commercial loans net
charge-offs decreased $4.6 million for the six-month period ended June 30, 1998,
when compared with the same period the prior year. The decrease in net
charge-offs in the commercial loan portfolio was principally the result of the
Corporation conservative charge-off policy applied to loans acquired during the
second quarter of last year.
<PAGE> 23
23
TABLE D
ALLOWANCE FOR LOAN LOSSES AND SELECTED LOAN LOSSES STATISTICS
<TABLE>
<CAPTION>
Second Quarter First Six Months
(Dollars in thousands) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of period $217,708 $191,360 $211,651 $185,574
Allowances purchased 12,832 12,832
Provision for loan losses 33,524 25,413 67,089 49,100
------------------------------------------------------------
251,232 229,605 278,740 247,506
------------------------------------------------------------
Losses charged to the allowance:
Commercial 9,558 12,442 19,549 23,642
Construction 65 190 300
Lease financing 4,954 5,834 11,139 12,117
Mortgage 789 477 1,281 1,006
Consumer 25,039 15,617 47,519 27,618
------------------------------------------------------------
40,405 34,370 79,678 64,683
------------------------------------------------------------
Recoveries:
Commercial 3,861 3,549 7,901 7,372
Construction 1 80 41 81
Lease financing 4,245 3,930 7,991 9,059
Mortgage 55 70 174 106
Consumer 5,056 3,855 8,876 7,278
------------------------------------------------------------
13,218 11,484 24,983 23,896
------------------------------------------------------------
Net loans charged-off (recovered):
Commercial 5,697 8,893 11,648 16,270
Construction 64 (80) 149 219
Lease financing 709 1,904 3,148 3,058
Mortgage 734 407 1,107 900
Consumer 19,983 11,762 38,643 20,340
------------------------------------------------------------
27,187 22,886 54,695 40,787
------------------------------------------------------------
Balance at end of period $224,045 $206,719 $224,045 $206,719
------------------------------------------------------------
Ratios:
Allowance for losses to loans 1.91% 1.89% 1.91% 1.89%
Allowance to non-performing assets 99.79 97.87 99.79 97.87
Allowance to non-performing loans 109.70 104.58 109.70 104.58
Non-performing assets to loans 1.91 1.94 1.91 1.94
Non-performing assets to total assets 1.12 1.10 1.12 1.10
Net charge-offs to average loans 0.94 0.90 0.95 0.82
Provision to net charge-offs 1.23X 1.11x 1.23X 1.20x
Net charge-offs earnings coverage 4.13 4.14 4.03 4.60
</TABLE>
As shown in Table D, the allowance for loan losses at June 30, 1998, amounted to
$224 million, representing 1.91% of loans, compared with $207 million or 1.89%
at the same date last year. Management considers that the allowance for loan
losses is adequate to absorb potential write-offs of the loan portfolio, based
on the process established to assess its adequacy. This process incorporates
portfolio risk characteristics, results of periodic credit reviews, prior loss
experience, current and anticipated economic conditions and loan impairment
measurement.
The Corporation has defined impaired loans as all loans with interest and/or
principal past due 90 days or more and other specific loans for which, based on
current information and events, it is probable that the debtor will be unable to
pay all amounts due according to the contractual terms of the loan agreement.
Loan impairment is measured based on the present value of expected cash flows
discounted at the loan's effective rate, on the observable market price or, on
the fair value of the collateral if the loan is collateral dependent. Large
groups of smaller balance homogenous
<PAGE> 24
24
loans are collectively evaluated for impairment based on past experience. All
other loans are evaluated on a loan-by-loan basis. Impaired loans for which the
discounted cash flows, collateral value or market price equals or exceeds its
carrying value do not require an allowance.
The following table shows the Corporation's recorded investment in impaired
loans and the related valuation allowance calculated under SFAS No. 114 (as
amended by SFAS No. 118) at June 30, 1998 and June 30, 1997.
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
------------- -------------
Recorded Valuation Recorded Valuation
Investment Allowance Investment Allowance
---------- --------- ---------- ---------
(In millions)
Impaired loans:
<S> <C> <C> <C> <C>
Valuation allowance required $104 $28 $ 78 $22
No valuation allowance required 36 57
---- --- ---- ---
Total impaired loans $140 $28 $135 $22
==== === ==== ===
</TABLE>
Average impaired loans during the second quarter of 1998 and 1997 were $131
million and $112 million, respectively. The Corporation recognized interest
income on impaired loans of $1.5 million, and $1.3 million respectively, for the
quarters ended June 30, 1998 and 1997.
CREDIT QUALITY
Non-performing assets (NPA) consist of past-due loans on which no interest
income is being accrued, renegotiated loans and other real estate. The
Corporation reports NPA on a more conservative basis than most U.S. banks.
The standard industry practice is to place non-performing commercial loans on
non-accrual status when payments of principal or interest are delinquent 90
days. However, the Corporation's policy is to place commercial loans on
non-accrual status when payments of principal or interest are delinquent 60
days. Lease financing, conventional mortgage and closed-end consumer loans are
placed on non-accrual status when payments are delinquent 90 days. Closed-end
consumer loans are charged-off against the allowance when delinquent 120 days.
Open-end (revolving credit) consumer loans are charged-off when payments are
delinquent 180 days. Certain loans which would be treated as non-accrual loans
pursuant to the foregoing policy, are treated as accruing loans if they are
considered well-secured and in the process of collection. Under the standard
industry practice, closed-end consumer loans are charged-off when delinquent 120
days, but these consumer loans are not customarily placed on non-accrual status
prior to being charged-off.
Table E shows information on non-performing assets as of June 30, 1998, December
31, 1997 and June 30, 1997. NPA were $213 million or 1.85% of loans at March 31,
1998.
<PAGE> 25
25
TABLE E
NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
JUNE 30, December 31, June 30,
1998 1997 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Dollars in thousands)
Commercial, construction, industrial
and agricultural $115,761 $108,584 $125,315
Lease financing 2,665 1,569 1,084
Mortgage 54,523 53,449 50,238
Consumer 31,282 30,840 21,022
Renegotiated accruing loans 6 6 3,284
Other real estate 20,284 18,012 10,285
------------------------------------------------------
Total $224,521 $212,460 $211,228
======================================================
Accruing loans past-due
90 days or more $ 22,896 $ 20,843 $ 15,386
======================================================
Non-performing assets to loans 1.91% 1.87% 1.94%
Non-performing assets to assets 1.12 1.10 1.10
</TABLE>
Non-performing loans totaled $204 million as of June 30, 1998, compared with
$198 million at the same date last year. The increase from June 30, 1997, was
reflected in non-performing consumer and mortgage loans and lease financing
receivable which rose $10 million, $4 million and $2 million, respectively,
partially offsetted by a reduction of $10 million in non-performing commercial
loans, including construction. Most of the rises relates to the increase in
personal bankruptcies in the U.S. mainland and Puerto Rico and the growth in the
loan portfolio. Bankruptcy filings over the 12-month period ended on March 31,
1998, increased 14% over the same period a year before in Puerto Rico and US. In
addition, other real estate increased $10 million compared with June 30, 1997,
including a $7 million increase at Equity One.
Assuming standard industry practice of placing commercial loans on non-accrual
status when payments of principal or interest are past due 90 days or more and
excluding the closed-end consumer loans from non-accruing loans, non-performing
assets as of June 30, 1998, amounted to $166 million or 1.41% of loans, and the
allowance for loan losses would be 135.1% of non-performing assets. At June 30,
1997 and March 31, 1998, adjusted non-performing assets were $163 million and
$160 million, respectively, or 1.49% and 1.39% of loans.
OTHER OPERATING INCOME
Other operating income, excluding securities and trading gains, amounted to
$68.5 million for the three-month period ended June 30, 1998, compared with
$54.1 million for the same quarter in 1997, as seen on Table F. For the
six-month periods ended June 30, 1998 and 1997, these revenues were $135.0
million and $109.6 million, respectively.
<PAGE> 26
26
TABLE F
OTHER OPERATING INCOME
<TABLE>
<CAPTION>
Second Quarter Year-to-Date
- ----------------------------------------------------------------------------------------------------
1998 1997 Change 1998 1997 Change
- ----------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposit
accounts $ 25,494 $ 22,214 $ 3,280 $ 50,832 $ 44,033 $ 6,799
Other service fees:
Credit card fees and discounts 8,742 7,282 1,460 16,809 13,862 2,947
Credit life insurance fees 2,184 2,618 (434) 4,250 5,019 (769)
Debit card fees 4,547 3,877 670 8,659 7,314 1,345
Sale and administration of
investment products 3,304 2,500 804 6,082 4,158 1,924
Mortgage servicing fees, net of
amortization 2,287 2,515 (228) 4,679 4,763 (84)
Trust fees 2,237 1,654 583 4,237 3,267 970
Other fees 5,517 4,339 1,178 10,275 8,571 1,704
----------------------------------------------------------------
Subtotal 28,818 24,785 4,033 54,991 46,954 8,037
Other income 14,214 7,125 7,089 29,116 18,619 10,497
----------------------------------------------------------------
Total $ 68,526 $ 54,124 $ 14,402 $134,939 $109,606 $ 25,333
================================================================
</TABLE>
Service charges on deposit accounts increased $3.3 million mostly due to higher
activity on commercial and retail accounts and a higher volume of deposits
mainly resulting from the operations acquired during the second quarter of 1997.
The increase in other service fees principally resulted from the rise in credit
card fees and discounts, as credit card net sales rose 24.1% and the number of
credit card active accounts grew 27.8%. For the six-month period credit card net
sales increased 26.6%. Also, the debit card fees, reflected the growing volume
of point-of-sale (POS) terminals and transactions. In addition, fees related to
the sale and administration of investment products were higher as a result of
the fees earned by the new retail division of Popular Securities, which started
operations at the end of the second quarter of 1997.
The increase of $7.1 million in other income resulted mainly from the recording
during the second quarter of 1997 of a loss of $3.6 million in the market value
of a real property which was finally sold later in 1997, and higher gains on
loans sold for the quarter ended June 30,1998. During the first quarter of 1998,
a non-recurring income of $1.7 million was recorded due to a partial recovery of
the investment in common stock of Citizens Bank of Jamaica, written down in the
first quarter of 1997, contributing to the increase shown in the six-month
period ended June 30, 1998.
For the second quarter of 1998, the Corporation recognized a net gain of $3.0
million on the sale of securities and net trading account profits of $1.3
million, compared with profits of $1.3 million and $0.8 million, respectively,
for the second quarter of 1997.
<PAGE> 27
27
OPERATING EXPENSES
Operating expenses for the second quarter of 1998, were $175.0 million compared
with $152.0 million for the same quarter in 1997, an increase of $23.0 million
principally reflecting higher personnel costs, net occupancy expenses,
professional fees, amortization of intangibles and equipment expenses. For the
first six months of 1998, operating expenses rose to $347.4 million from $294.2
million for the same period in 1997.
Personnel costs, the largest category of operating expenses, totaled $82.7
million for the second quarter of 1998, an increase of $8.2 million or 11% when
compared with the same period of 1997. Salaries accounted for the largest
portion of the increase in personnel costs rising $9.3 million. This rise
resulted from increased employment levels due to the acquisitions made since the
second quarter of 1997 and to normal merit adjustments. Full-time equivalent
employees (FTE) amounted to 9,148 at the end of this quarter, up 366 from 8,782
FTEs at the same date in 1997.
Other operating expenses, excluding personnel costs, increased $14.8 million,
reaching $92.4 million for the second quarter of 1998, compared with $77.6
million for the same period in 1997. The increase in other operating expenses
was mostly in net occupancy expenses principally due to the sale of the
income-producing real property previously mentioned and the Corporation's growth
and expansion. Professional fees rose $2.9 million reflecting higher consulting
and technical support fees for business expansion and costs incurred in relation
to the Corporation's action plan to address the Year 2000 Issue. The rise in
amortization of intangibles is related to the premiums paid on the operations
acquired since the second quarter of 1997. The increase in equipment expenses
resulted from the Corporation's business and geographic expansion, and
expenditures associated with new technology and systems enhancements. During the
second quarter of 1998, the Corporation increased its automated teller machine
(ATM) network by 76, and 3,946 additional POS terminals were connected in order
to expand electronic delivery capabilities.
Income tax expense rose $3.0 million from $18.3 million in the second quarter of
1997, primarily as a result of the growth in pre-tax earnings. The effective tax
rate for the second quarter of 1998 increased to 27.0% from 26.4% for the same
period in 1997. For the six-month periods ended June 30, 1998 and 1997, income
tax expense amounted to $41.2 million and $37.8 million, respectively.
YEAR 2000
The Corporation's action plan for the Year 2000 issue is being completed
substantially as scheduled. In addition to the Information Technology
assessment, the Corporation has considered all aspects of the operations that
the Year 2000 issue could affect in some way.
As of June 30, 1998, the modification phase was 66% completed and some testing
activities had already been started. Based on presently available information
the Corporation does not foresee any significant problems to achieve the
milestones established for the completion of this project. Modifications of
critical systems should be completed by December 31, 1998 and their testing
should be underway by September 1, 1998, the latter to be completed by June 30,
1999.
The Corporation has been utilizing both external and internal resources to
reprogram, or replace, and test the software for the Year 2000 modifications.
The total remaining incremental costs of the Year 2000 project is estimated at
$11.9 million and will be funded through operating cash flows.
<PAGE> 28
28
BALANCE SHEET COMMENTS
Total assets at June 30, 1998, were $20.0 billion reflecting an increase of $697
million when compared with the amount reported at December 31, 1997. Total
assets at June 30, 1997, were $19.1 billion. Earning assets increased $665
million, reaching $18.7 billion as of June 30, 1998, from $18.1 billion as of
December 31, 1997 and $17.8 billion at June 30, 1997.
TABLE G
LOANS ENDING BALANCES
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1998 1997 1997
- --------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Commercial, industrial and agricultural $4,811,921 $4,637,409 $4,329,534
Construction 251,264 250,111 233,740
Lease financing 629,588 581,927 552,563
Mortgage * 2,992,823 2,833,896 2,827,933
Consumer 3,067,617 3,073,264 2,965,595
---------------------------------------------
Total $11,753,213 $11,376,607 $10,909,365
=============================================
* Includes loans held-for-sale
- --------------------------------------------------------------------------------------------
</TABLE>
The investment portfolio increased $380 million from $5.6 billion as of December
31, 1997 to $6.0 billion as of June 30, 1998. Investment securities totalled
$5.7 billion at June 30, 1997. The increase in investment securities resulted
mostly from arbitrage opportunities undertaken by BPPR.
As shown on Table G, the growth of $377 million in loans as compared with
December 31, 1997, was mostly reflected in the commercial and mortgage loan
portfolios which contributed $333 million or 88% to the total increase. The
growth in the commercial loan portfolio resulted principally from the continued
marketing efforts directed to the retail and middle market and the expansion in
the United States. The increase in the mortgage portfolio as compared with
year-end 1997, was mainly reflected at BPPR with a rise of $110 million. Equity
One and Banco Popular, FSB also contributed to the increase with $28 million and
$36 million, respectively.
Total deposits at June 30, 1998, were $12.1 billion or $353 million over the
balance at December 31, 1997. Most of the growth was realized in savings and
time deposits, which increased $203 million and $115 million, respectively. At
June 30, 1997, total deposits amounted to $11.4 billion. Total deposits in
Puerto Rico, the Corporation's principal place of business, increased to $8.7
billion at June 30, 1998, from $8.6 billion at December 31, 1997 and $8.3
billion at June 30, 1997.
<PAGE> 29
29
Table H presents the distribution of assets, loans, deposits and net income by
geographical area.
TABLE H
DISTRIBUTION BY GEOGRAPHICAL AREA
(Dollars in millions)
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997 June 30, 1997
$ % $ % $ %
---------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Puerto Rico $ 14,659 73.30% $ 14,190 73.52% $ 14,217 74.26%
United States 4,823 24.12 4,616 23.92 4,436 23.17
U.S. and British Virgin
Islands and Latin America 516 2.58 495 2.56 493 2.57
-------- -------- -------- ------- -------- --------
$ 19,998 100.00% $ 19,301 100.00% $ 19,146 100.00%
-------- -------- -------- ------- -------- --------
LOANS
Puerto Rico $ 7,331 63.51% $ 7,282 64.01% $ 7,018 64.33%
United States 3,810 33.01 3,727 32.76 3,517 32.24
U.S. and British Virgin
Islands and Latin America 402 3.48 368 3.23 374 3.43
-------- -------- -------- ------- -------- --------
$ 11,543 100.00% $ 11,377 100.00% $ 10,909 100.00%
-------- -------- -------- ------- -------- --------
DEPOSITS
Puerto Rico $ 8,698 71.87% $ 8,581 73.03% $ 8,317 72.92%
United States 2,887 23.85 2,715 23.11 2,617 22.94
U.S. and British Virgin
Islands and Latin America 518 4.28 454 3.86 472 4.14
-------- -------- -------- ------- -------- --------
$ 12,103 100.00% $ 11,750 100.00% $ 11,406 100.00%
-------- -------- -------- ------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
Six-month period
June 30, 1998 June 30, 1997
------------- -------------
NET INCOME
<S> <C> <C> <C> <C>
Puerto Rico $ 98 87.50% $ 86 85.15%
United States 11 9.82 11 10.89
U.S. and British Virgin
Islands and Latin America 3 2.68 4 3.96
----- ------ ----- ------
$ 112 100.00% $ 101 100.00%
----- ------ ----- ------
</TABLE>
Borrowed funds, including subordinated notes and capital securities, amounted to
$6.0 billion at June 30, 1998, compared with $5.7 billion and $6.0 billion at
December 31, 1997 and June 30, 1997, respectively.
Stockholder's equity at June 30, 1998 totaled $1.59 billion compared with $1.50
billion at December 31, 1997. The increase of $90.6 million is mostly due to
earnings retention. Also, the Corporation's Dividend Reinvestment Plan
contributed $3.3 million in additional capital since December 31, 1997, and the
unrealized holding gains on securities available-for-sale rose $9.0 million as
compared with year-end 1997. Stockholders' equity at June 30, 1997 amounted to
$1.42 billion.
<PAGE> 30
30
The dividend payout ratio to common stockholders for the quarter ended June 30,
1998, was 26.90% compared with 24.29% for the same quarter last year. For the
six-month periods ended June 30, 1998 and 1997, these ratios were 27.56% and
24.67%, respectively. The increase in the ratio resulted from an increase of
22.2%, from $0.09 to $0.11 per common share (after restating for the stock
split), in the Corporation's quarterly dividend, effective with the dividend
paid on October 1, 1997.
Under the prompt corrective action provisions banks and bank holding companies
which meet or exceed a Tier I ratio of 6%, a total capital ratio of 10% and a
leverage ratio of 5% are considered well-capitalized. As shown on Table I, the
Corporation exceeds those regulatory risk-based capital requirements for
well-capitalized institutions by wide margins, due to the high level of capital
and the conservative nature of the Corporation's assets.
The market value of the Corporation's common stock at June 30, 1998, was $33.25,
compared with $24.75 at December 31, 1997 and $20.19 at June 30, 1997, after
restating for the stock split. Market capitalization at June 30, 1998, was $4.5
billion compared with $3.4 billion as of December 31, 1997 and $2.8 billion at
June 30, 1997.
TABLE I
CAPITAL ADEQUACY DATA
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
JUNE 30, December 31, June 30,
1998 1997 1997
- -----------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Risk-based capital
Tier I capital $1,407,738 $ 1,335,391 $ 1,342,187
Supplementary (Tier II) capital 268,501 263,115 259,520
-------------------------------------------------------
Total capital $1,676,239 $ 1,598,506 $ 1,601,707
=======================================================
Risk-weighted assets
Balance sheet items $11,146,081 $10,687,847 $10,372,107
Off-balance sheet items 253,461 287,822 317,340
-------------------------------------------------------
Total risk-weighted assets $11,399,542 $10,975,669 $10,689,447
=======================================================
Ratios:
Tier I capital (minimum required - 4.00%) 12.35% 12.17% 12.56%
Total capital (minimum required - 8.00%) 14.70 14.56 14.98
Leverage ratio (minimum required - 3.00%) 7.17 6.86 7.71
</TABLE>
Popular International Bank, Inc. (PIB) and Popular North America, Inc.'s (PNA)
bank subsidiaries (Banco Popular, Illinois, Banco Popular National Association
(California), Banco Popular National Association (Florida), Banco Popular,
National Association (Texas) and Banco Popular, FSB) have certain statutory
provisions and regulatory requirements and policies, such as the maintenance of
adequate capital, that limit the amount of dividends they can pay. Other than
these limitations, no other restrictions exist on the ability of PIB and PNA to
make dividend and asset distributions to the Corporation, nor on the ability of
PNA's subsidiaries, except for Banco Popular, FSB, to make distributions to PNA.
In connection with the acquisition by Banco Popular, FSB from the Resolution
Trust Company (RTC) of four New Jersey branches of the former Carteret Federal
Savings Bank,
<PAGE> 31
31
the RTC provided to Banco Popular, FSB interim financial assistance in the form
of a loan in the amount of $19.5 million, which matures on January 20, 2000, but
which is prepayable any time before then. Pursuant to the terms of such
financing, Banco Popular, FSB may not, among other things, declare or pay any
dividends on its outstanding capital stock (unless such dividends are used
exclusively for payment of principal of or interest on such RTC loan) or make
any distribution of its assets until payment in full of such promissory note. As
of June 30, 1998 the undistributed earnings of Banco Popular, FSB totaled $57
million.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Corporation is a defendant in a number of legal proceedings arising in the
normal course of business. Management believes, based on the opinion of legal
counsel, that the final disposition of these matters will not have a material
adverse effect on the Corporation's financial position or results of operations.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Corporation held its Annual Stockholder's Meeting on April 23, 1998, at
which common stockholders elected the following five directors: Luis E. Dubon
Jr., Hector R. Gonzalez, Manuel Morales Jr., Francisco M. Rexach Jr. and Julio
E. Vizcarrondo Jr.
All five directors were elected for a three year term, with favorable votes
ranging from 81.68% to 81.80% of the voting shares issued and outstanding which
amounted to 67,717,548 as of the record date, March 4, 1998. An 80.77% of the
common shares issued and outstanding as of the mentioned record date, were
represented at the meeting, which complied with the quorum required by law.
ITEM 5. OTHER INFORMATION
Recently, the Corporation announced its agreement to acquire from the Government
of Puerto Rico a 5% share of Puerto Rico Telephone Company (PRTC) for
approximately $46 million. The acquisition will be completed through a joint
venture with a telecommunication company, which will acquire a 51% share of
PRTC, while the government retains between 43% and 46% of ownership. The
transaction was already approved by the local legislature and is pending
approval from the federal agencies. The Corporation believes this is an
important step for the future of telecommunications in Puerto Rico, its
principal market, and the economy of Puerto Rico, in view of the recent changes
in federal regulations associated to the telecommunication's industry.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
a) Exhibit No. Description Exhibit Reference
-------------- ---------------------------------------- -----------
<S> <C> <C>
19 Quarterly Report to shareholders for the Exhibit "A"
quarter ended June 30, 1998
27 Financial Data Schedule Exhibit "B"
b) Two reports on Form 8-K were filed for the quarter ended June 30, 1998:
-----------------------------------------------------------------------------
Dated: April 7, 1998 and April 23, 1998
Items reported: Item 5 - Other Events
Item 7 - Financial Statements, Pro-Forma, Financial
Information and Exhibits
</TABLE>
<PAGE> 32
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be filed on its behalf by the
undersigned thereunto duly authorized.
POPULAR, INC.
-------------
(Registrant)
Date: August 13, 1998 By: /s/ Jorge A. Junquera
----------------- ---------------------------------
Jorge A. Junquera
Senior Executive Vice President
Date: August 13, 1998 By: /s/ Amilcar L. Jordan
------------------ ---------------------------------
Amilcar L. Jordan, Esq.
Senior Vice President & Comptroller
<PAGE> 1
(POPULAR, INC. LOGO)
2nd
Quarter Report
June 30, 1998
<PAGE> 2
To Our Stockholders
Popular, Inc. (the Corporation) reported net income of $57.5 million for the
quarter ended June 30, 1998, reflecting an increase of 12.5% over the $51.1
million earned in the same period in 1997. Earnings per common share (EPS) for
the quarter, after adjusting for the common stock split in the form of a
dividend of one share for each share outstanding, effective on July 1, 1998,
were $0.41 per common share, compared with $0.37 per common share for the
quarter ended June 30, 1997. Net earnings for the first quarter of 1998, were
$54.8 million or $0.39 per common share.
The second quarter results represented rates of return of 1.16% on assets
(ROA) and 15.50% on common equity (ROE) compared with 1.16% and 16.07%,
respectively, for the same quarter of 1997. For the first quarter of 1998, the
Corporation attained an ROA and ROE of 1.14% and 15.36%, respectively.
For the six-month period ended June 30, 1998, net income reached $112.3
million, or $0.80 per share, with an ROA and ROE of 1.15% and 15.43%,
respectively. For the same period in 1997, net income was $100.6 million, or
$0.73 per share, with an ROA and ROE of 1.17% and 16.17%, respectively.
The Corporation's results of operations for the quarter ended June 30, 1998,
when compared with the same quarter of 1997, reflected an increase of $23.8
million in net interest income coupled with an increase of $16.7 million in
other revenues. These improvements were partially tempered by rises of $8.1
million in the provision for loan losses, $23.0 million in operating expenses
and $3.0 million in income taxes.
The increase in net interest income was mainly attributed to the growth in
average earning assets, reflecting the Corporation's acquisitions during the
second quarter of 1997, as well as an increase in loans and investment
securities due to business expansion. The growth in non-interest income was
primarly achieved through higher gains on loans sold, increases in credit card
fees and discounts and debit card fees due to the continuous expansion of the
electronic payment system, and a higher activity on commercial and retail
accounts.
The provision for loan losses reflected the increase in loan volume,
non-performing assets and net charge-offs, as well as the Corporation's
commitment to maintain its allowance for loan losses at an adequate level. The
increase in operating expenses was reflected in most categories and was directly
related to the acquisitions made during the second quarter of 1997, the growth
in the business activities, and expenditures associated with new technology.
The Corporation's total assets at June 30, 1998, reached $20.0 billion
compared with $19.1 billion a year ago, while total deposits amounted to $12.1
billion as of June 30, 1998, an increase of 6.1% from June 30, 1997. The
Corporation's capital increased to $1.6 billion at June 30, 1998, compared with
$1.4 billion a year earlier.
The Corporation's common stock market value was $33.25 per share at the end
of the quarter, representing an appreciation of 64.7% and 13.3% from the market
value of $20.19 at June 30, 1997, and $29.34 at March 31, 1998, respectively.
- --------------------------------------------------------------------------------
The Annual Stockholders Meeting of Popular, Inc. was held on April 23, 1998.
An 80.77% of the common shares issued and outstanding as of the record date of
March 4, 1998, were represented at the meeting, which complied with the quorum
required by law. All five directors nominated for re-election were elected for a
three-year term. The Corporation's Annual Report was discussed, as well as some
of the Corporation's strategic goals. In addition, it was announced at the
meeting that the Board of Directors had approved the aforementioned stock split
in the form of a dividend.
- --------------------------------------------------------------------------------
In April 1998, the Corporation through its subsidiary, Popular Cash Express,
completed the acquisition of 13 check cashing outlets in Florida, which offer
services such as check cashing, money transfers to other countries, money order
sales and processing of payments. This acquisition is considered an important
step toward the Corporation's objective of penetrating the unbanked segment.
In an effort to become a more efficient competitor in the Puerto Rico
mortgage banking market, the Corporation consolidated Banco Popular de Puerto
Rico's mortgage origination division into its mortgage subsidiary, Popular
Mortgage, effective on July 1, 1998.
Also, the Corporation is in the process of acquiring a small mortgage
processing company in Los Angeles, California,
<PAGE> 3
which serves as the processor of mortgages to third parties. This acquisition
will offer a good opportunity to originate residential mortgage loans throughout
the United States in a more efficient way.
As previously announced, Popular, Inc. is awaiting regulatory approval to
become the principal shareholder of Banco Gerencial & Fiduciario Dominicano,
S.A. Through this transaction the Corporation will acquire a 45 percent share in
the bank through newly issued common stock. Banco Gerencial is the fourth
largest bank in the Dominican Republic with $389 million in total assets and
over $31 million in equity.
Recently, the Corporation announced its agreement to acquire from the
government of Puerto Rico a 5% share of Puerto Rico Telephone Company (PRTC) for
$37.5 million. The agreement is a joint venture with a telecommunications
company, which will acquire a 50% share of PRTC, while the government retains
between 44% and 47% of ownership. The transaction was already approved by the
local legislature and is pending approval from the federal agencies. The
Corporation believes this is an important step for the future of
telecommunications in Puerto Rico, its principal market, and the economy of
Puerto Rico, in view of the recent changes in federal regulations associated to
the telecommunication's industry.
/s/ Richard L. Carrion
---------------------------
Richard L. Carrion
Chairman, President and
Chief Executive Officer
<PAGE> 4
Financial Highlights
Popular, Inc.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET HIGHLIGHTS AT JUNE 30, AVERAGE FOR THE SIX MONTHS
(In thousands) 1998 1997 Change 1998 1997 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money market investments $ 694,487 $ 869,567 $(175,080) $ 732,328 $ 663,047 $ 69,281
Investment and trading securities 6,278,074 5,992,137 285,937 6,283,034 5,659,576 623,458
Loans 11,753,213 10,909,365 843,848 11,541,256 9,972,014 1,569,242
Total assets 19,997,636 19,145,844 851,792 19,711,518 17,272,791 2,438,727
Deposits 12,102,594 11,405,516 697,078 12,001,807 10,548,874 1,452,933
Borrowings 5,950,082 5,941,675 8,407 5,728,283 5,126,364 601,919
Stockholders' equity 1,593,693 1,424,130 169,563 1,512,723 1,301,369 211,354
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING HIGHLIGHTS SECOND QUARTER SIX MONTHS
(In thousands, except per share information) 1998 1997 Change 1998 1997 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $214,392 $190,606 $23,786 $427,096 $371,250 $55,846
Provision for loan losses 33,524 25,413 8,111 67,089 49,100 17,989
Fees and other income 72,886 56,227 16,659 140,837 110,482 30,355
Other expenses 196,293 170,329 25,964 388,588 332,002 56,586
Net income $ 57,461 $ 51,091 $ 6,370 $112,256 $100,630 $11,626
Net income applicable to common stock $ 55,374 $ 49,004 $ 6,370 $108,081 $ 96,455 $11,626
Earnings per common share 0.41 0.37 0.04 0.80 0.73 0.07
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTED STATISTICAL SECOND QUARTER SIX MONTHS
INFORMATION 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK DATA - Market price
High $36.16 $21.44 $36.16 $21.44
Low 29.22 16.88 23.03 16.53
End 33.25 20.19 33.25 20.19
Book value at period end 11.02 9.70 11.02 9.70
Dividends declared 0.11 0.09 0.22 0.18
Dividend payout ratio 26.90% 24.29% 27.56% 24.67%
Price/earnings ratio 21.18X 14.32x 21.18X 14.32x
- ------------------------------------------------------------------------------------------------------------------------------------
PROFITABILITY RATIOS - Return on assets 1.16% 1.16% 1.15% 1.17%
Return on common equity 15.50 16.07 15.43 16.17
Net interest spread (taxable equivalent) 4.03 4.03 4.07 4.06
Net interest yield (taxable equivalent) 4.93 4.91 4.97 4.91
Effective tax rate 27.00 26.35 26.83 27.32
Overhead ratio 47.65 50.27 48.37 49.48
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITALIZATION RATIOS - Equity to assets 7.69% 7.51% 7.67% 7.54%
Tangible equity to assets 6.63 6.82 6.60 6.81
Equity to loans 13.20 13.02 13.11 13.07
Internal capital generation 10.56 11.19 10.35 11.14
Tier I capital to risk-adjusted assets 12.35 12.56 12.35 12.56
Total capital to risk-adjusted assets 14.70 14.98 14.70 14.98
Leverage ratio 7.17 7.71 7.17 7.71
- ------------------------------------------------------------------------------------------------------------------------------------
CREDIT QUALITY RATIOS - Allowance for losses to loans 1.91% 1.89% 1.91% 1.89%
Allowance to non-performing assets 99.59 97.87 99.59 97.87
Allowance to non-performing loans 109.47 104.58 109.47 104.58
Non-performing assets to loans 1.91 1.94 1.91 1.94
Non-performing assets to total assets 1.12 1.10 1.12 1.10
Net charge-offs to average loans 0.94 0.90 0.95 0.82
Provision to net charge-offs 1.23X 1.11x 1.23X 1.20x
Net charge-offs earnings coverage 4.13 4.14 4.03 4.60
</TABLE>
NOTE: All common stock data has been adjusted to reflect the stock split
effected in the form of a dividend on July 1, 1998.
<PAGE> 5
Additional Information
BOARD OF DIRECTORS
Richard L. Carrion, Chairman
Alfonso F. Ballester, Vice Chairman
Antonio Luis Ferre, Vice Chairman
Juan A. Albors Hernandez *
Salustiano Alvarez Mendez *
Jose A. Bechara Bravo *
Juan J. Bermudez
Esteban D. Bird *
Francisco J. Carreras
David H. Chafey, Jr.
Luis E. Dubon, Jr.
Hector R. Gonzalez
Jorge A. Junquera Diez
Manuel Morales, Jr.
Alberto M. Paracchini
Francisco M. Rexach, Jr.
J. Adalberto Roig, Jr.
Felix J. Serralles Nevares
Julio E. Vizcarrondo, Jr.
Samuel T. Cespedes, Secretary
* Director of Banco Popular de Puerto Rico only
EXECUTIVE OFFICERS
Richard L. Carrion, Chairman of the Board,
President and Chief Executive Officer
David H. Chafey, Jr., Senior Executive Vice President
Jorge A. Junquera Diez, Senior Executive Vice President
Maria Isabel Burckhart, Executive Vice President
Roberto R. Herencia, Executive Vice President
Larry Kesler, Executive Vice President
Humberto Martin, Executive Vice President
Emilio E. Pinero, Executive Vice President
Carlos Rom, Jr., Executive Vice President
Carlos J. Vazquez, Executive Vice President
SHAREHOLDER INFORMATION
SHAREHOLDER ASSISTANCE - Shareholders requiring a change of address, records or
information about lost certificates, dividend checks or dividend reinvestment
should contact:
Banco Popular de Puerto Rico
Trust Division (725)
Popular Center Building
4th Floor Suite 400
209 Ponce de Leon Ave.
Hato Rey, Puerto Rico 00918
PUBLICATIONS - For printed material (annual and quarterly reports, 10-K and 10-Q
reports), contact Mr. Amilcar L. Jordan at the Comptroller's Division at (787)
765-9800 ext. 6101.
DIVIDEND REINVESTMENT PLAN - The Corporation has a dividend reinvestment plan
which provides the shareholder a simple, convenient and cost-effective way to
acquire Popular, Inc. common stock.
- - Dividends can be automatically reinvested in additional shares at 95% of the
Average Market Price.
- - Participants may make optional cash payments of at least $25 and not more
than $10,000 per calendar month for investment in additional shares.
- - No brokerage commissions are charged on purchases under this plan.
- - Participant's funds will be fully invested, because the plan permits
fractions of shares to be credited to a participant's account.
If you would like more information on this plan, please contact our Trust
Department at (787) 756-3908, (787) 765-9800 ext. 5637, 5525 and 5897.
<PAGE> 6
Consolidated Statements of Condition Popular, Inc.
<TABLE>
<CAPTION>
June 30,
(In thousands) 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks ......................................... $ 500,941 $ 609,160
--------------------------
Money market investments:
Federal funds sold and securities and mortgages
purchased under agreements to resell ......................... 650,881 847,171
Time deposits with other banks ................................. 42,779 20,020
Bankers' acceptances ........................................... 827 2,376
--------------------------
694,487 869,567
--------------------------
Investment securities available-for-sale,
at market value ................................................ 5,795,668 4,905,562
Investment securities held-to-maturity, at cost ................. 232,316 745,826
Trading account securities, at market value ..................... 250,090 340,749
Loans held-for-sale ............................................. 338,566 314,916
Loans ........................................................... 11,767,063 10,969,960
Less--Unearned income .......................................... 352,416 375,511
Allowance for loan losses ........................... 224,045 206,719
--------------------------
11,190,602 10,387,730
--------------------------
Premises and equipment .......................................... 380,684 388,970
Other real estate ............................................... 20,283 10,285
Customers' liabilities on acceptances ........................... 454 2,542
Accrued income receivable ....................................... 128,897 109,346
Other assets .................................................... 239,267 229,909
Intangible assets ............................................... 225,381 231,282
--------------------------
$19,997,636 $19,145,844
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing ......................................... $ 2,585,256 $ 2,496,684
Interest bearing ............................................. 9,517,338 8,908,832
--------------------------
12,102,594 11,405,516
Federal funds purchased and securities sold
under agreements to repurchase ............................... 2,672,811 2,623,292
Other short-term borrowings .................................... 1,864,562 1,630,976
Notes payable .................................................. 1,137,709 1,412,407
Acceptances outstanding ........................................ 454 2,542
Other liabilities .............................................. 350,813 371,981
--------------------------
18,128,943 17,446,714
--------------------------
Subordinated notes ............................................. 125,000 125,000
--------------------------
Preferred beneficial interests in Popular North America's junior
subordinated deferrable interest debentures guaranteed by the
Corporation ................................................. 150,000 150,000
--------------------------
Stockholders' equity:
Preferred stock ................................................ 100,000 100,000
Common stock ................................................... 412,426 411,697
Surplus ........................................................ 604,983 579,878
Retained earnings .............................................. 473,531 340,267
Treasury stock - at cost ....................................... (39,559) (14,017)
Unrealized gains on securities available-for-sale, net of
deferred taxes ............................................... 42,312 6,305
--------------------------
1,593,693 1,424,130
--------------------------
$19,997,636 $19,145,844
==========================
</TABLE>
<PAGE> 7
Consolidated Statements of Income Popular, Inc.
<TABLE>
<CAPTION>
Quarter ended Six months ended
June 30, June 30,
(Dollars in thousands, except per share information) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans ............................................. $296,476 $260,804 $589,693 $507,157
Money market investments .......................... 9,192 8,515 18,018 17,382
Investment securities ............................. 93,177 84,646 183,436 159,757
Trading account securities ........................ 4,020 5,040 8,085 8,974
-----------------------------------------
402,865 359,005 799,232 693,270
-----------------------------------------
INTEREST EXPENSE:
Deposits .......................................... 101,777 87,092 199,108 173,287
Short-term borrowings ............................. 58,330 56,409 114,577 103,771
Long-term debt .................................... 28,366 24,898 58,451 44,962
-----------------------------------------
188,473 168,399 372,136 322,020
-----------------------------------------
Net interest income ............................... 214,392 190,606 427,096 371,250
Provision for loan losses ......................... 33,524 25,413 67,089 49,100
-----------------------------------------
Net interest income after provision for loan losses 180,868 165,193 360,007 322,150
Service charges on deposit accounts ............... 25,494 22,214 50,832 44,033
Other service fees ................................ 28,818 24,785 54,991 46,954
Gain (loss) on sale of securities ................. 3,049 1,286 3,917 (374)
Trading account profit ............................ 1,311 817 1,981 1,250
Other operating income ............................ 14,214 7,125 29,116 18,619
-----------------------------------------
253,754 221,420 500,844 432,632
-----------------------------------------
OPERATING EXPENSES:
Personnel costs:
Salaries ........................................ 59,623 50,344 118,916 98,689
Profit sharing .................................. 6,264 6,788 11,947 13,228
Pension and other benefits ...................... 16,770 17,307 35,188 34,007
-----------------------------------------
82,657 74,439 166,051 145,924
Net occupancy expenses ............................ 11,737 8,743 23,298 17,745
Equipment expenses ................................ 18,481 16,777 36,509 31,628
Other taxes ....................................... 7,899 7,311 15,867 13,756
Professional fees ................................. 13,816 10,923 26,694 20,826
Communications .................................... 9,194 7,750 18,017 15,331
Business promotion ................................ 8,917 7,980 17,133 13,937
Printing and supplies ............................. 4,415 3,127 8,418 6,771
Other operating expenses .......................... 11,080 10,155 21,804 18,974
Amortization of intangibles ....................... 6,849 4,841 13,633 9,279
-----------------------------------------
175,045 152,046 347,424 294,171
-----------------------------------------
Income before taxes ............................... 78,709 69,374 153,420 138,461
Income tax ........................................ 21,248 18,283 41,164 37,831
-----------------------------------------
NET INCOME ........................................ $ 57,461 $ 51,091 $112,256 $100,630
=========================================
NET INCOME APPLICABLE TO COMMON STOCK ............. $ 55,374 $ 49,004 $108,081 $ 96,455
=========================================
EARNINGS PER COMMON SHARE ......................... $ 0.41 $ 0.37 $ 0.80 $ 0.73
=========================================
</TABLE>
<PAGE> 8
Subsidiaries
CENTRAL OFFICE
Popular Center
209 Munoz Rivera Avenue
San Juan, Puerto Rico 00918
Telephone: (787) 765-9800
ATH COSTA RICA
Cond. en Oficinas Ofiplaza
del Este
Edif. D- Piso 1, San Pedro
150 metros Oeste de la
Rotonda de la Bandera
San Jose, Costa Rica
Telephone: (011) 506-280-9796
BANCO POPULAR DE PUERTO RICO
PUERTO RICO OFFICE
Popular Center
209 Munoz Rivera Avenue
San Juan, Puerto Rico 00918
Telephone: (787) 765-9800
NEW YORK OFFICE
7 West 51st St.
New York, N.Y. 10019
Telephone: (212) 315-2800
VIRGIN ISLANDS OFFICE
80 Kronprindsens Gade
Kronprindsens Quarter
Charlotte Amalie, St. Thomas
U.S. Virgin Islands 00802
Telephone: (809) 774-2300
BANCO POPULAR, FSB
500 Bloomfield Avenue
Newark, New Jersey 07107
Telephone: (201) 484-6525
BANCO POPULAR, ILLINOIS
4000 West North Avenue
Chicago, Illinois 60639
Telephone: (773) 772-8600
BANCO POPULAR, N.A. (CALIFORNIA)
6001 E. Washington Blvd.
City of Commerce
California 90040
Telephone: (213) 724-8800
BANCO POPULAR, N.A. (FLORIDA)
5551 Vanguard Street
Suite 100
Orlando, Florida 32819
Telephone: (407) 370-8000
BANCO POPULAR, N.A. (TEXAS)
1615 Little York Road
Houston, Texas 77093
Telephone: (281) 539-8600
EQUITY ONE, INC.
523 Fellowship Road, Suite 220
Mt. Laurel, New Jersey 08054
Telephone: (609) 273-1119
METROPOLITANA DE PRESTAMOS, INC.
State Road #2 Km. 6.8
Villa Caparra
Guaynabo, Puerto Rico 00966
Telephone: (787) 792-9292
POPULAR FINANCE, INC.
10 Salud Street
El Senorial Condominium
Suite 613
Ponce, Puerto Rico 00731
Telephone: (787) 844-2860
POPULAR MORTGAGE, INC.
268 Ponce de Leon Avenue
San Juan, Puerto Rico 00918
Telephone: (787) 753-0245
POPULAR LEASING AND RENTAL, INC.
M-1046 Federico Costa St.
Tres Monjitas Industrial
Development
San Juan, Puerto Rico 00903
Telephone: (787) 751-4848
POPULAR SECURITIES INCORPORATED
Popular Center
Suite 1020
San Juan, Puerto Rico 00918
Telephone: (787) 766-4200
POPULAR CASH EXPRESS
6200 North Hiawatha
Suite 200
Chicago, IL 60646
Telephone: (773) 205-8300
(POPULAR, INC. LOGO)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BANCO POPULAR DE PUERTO RICO FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1,000
<CASH> 500,941
<INT-BEARING-DEPOSITS> 42,779
<FED-FUNDS-SOLD> 650,881
<TRADING-ASSETS> 250,090
<INVESTMENTS-HELD-FOR-SALE> 5,795,668
<INVESTMENTS-CARRYING> 232,316
<INVESTMENTS-MARKET> 234,489
<LOANS> 11,753,213
<ALLOWANCE> 224,045
<TOTAL-ASSETS> 19,997,636
<DEPOSITS> 12,102,594
<SHORT-TERM> 4,537,373
<LIABILITIES-OTHER> 350,813
<LONG-TERM> 1,412,709
0
100,000
<COMMON> 412,426
<OTHER-SE> 1,081,267
<TOTAL-LIABILITIES-AND-EQUITY> 19,997,636
<INTEREST-LOAN> 589,693
<INTEREST-INVEST> 183,436
<INTEREST-OTHER> 26,103
<INTEREST-TOTAL> 799,232
<INTEREST-DEPOSIT> 199,108
<INTEREST-EXPENSE> 372,136
<INTEREST-INCOME-NET> 427,096
<LOAN-LOSSES> 67,089
<SECURITIES-GAINS> 3,917
<EXPENSE-OTHER> 347,424
<INCOME-PRETAX> 153,420
<INCOME-PRE-EXTRAORDINARY> 112,256
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 112,256
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.97
<LOANS-NON> 204,677
<LOANS-PAST> 22,450
<LOANS-TROUBLED> 6
<LOANS-PROBLEM> 120,235
<ALLOWANCE-OPEN> 211,651
<CHARGE-OFFS> 79,678
<RECOVERIES> 24,983
<ALLOWANCE-CLOSE> 224,045
<ALLOWANCE-DOMESTIC> 222,802
<ALLOWANCE-FOREIGN> 1,243
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
