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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- --- THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year Ended December 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- --- THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
Commission File No. 0-13818
POPULAR, INC.
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Incorporated in the Commonwealth of Puerto Rico
IRS Employer Identification No. 66-0416582
Principal Executive Offices:
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209 Munoz Rivera Avenue
Hato Rey, Puerto Rico 00918
Telephone Number: (809) 765-9800
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock ($6.00 par value)
8.35% Non-Cumulative Monthly Income Preferred Stock,
1994 Series A (Liquidation Preference $25.00 Per Share)
Series A Participating Cumulative Preferred Stock Purchase Rights
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 .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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As of February 26, 1999 the Corporation had 135,709,287 shares of common stock
outstanding. The aggregate market value of the common stock held by
non-affiliates of the Corporation was $4,503,852,000 based upon the reported
closing price of $33.1875 on the NASDAQ National Market System on that date.
DOCUMENTS INCORPORATED BY REFERENCE
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(1) Portions of the Corporation's Annual Report to Shareholders for the
fiscal year ended December 31, 1998 are incorporated herein by reference in
response to Item 1 of Part I, Items 5 through 8 of Part II and Item 14 of Part
IV.
(2) Portions of the Corporation's Proxy Statement relating to the 1999
Annual Meeting of Stockholders of the Corporation are incorporated herein by
reference to Items 10 through 13 of Part III.
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TABLE OF CONTENTS
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Page
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PART I
Item 1 Business ................................................ 3
Item 2 Properties .............................................. 11
Item 3 Legal Proceedings ....................................... 12
Item 4 Submission of Matters to a Vote of Security Holders ..... 12
PART II
Item 5 Market for Registrant's Common Stock and Related
Stockholder Matters .................................... 12
Item 6 Selected Financial Data .................................. 14
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations .................... 14
Item 7A Quantitative and Qualitative Disclosures About Market Risk 14
Item 8 Financial Statements and Supplementary Data .............. 15
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure .................... 15
PART III
Item 10 Directors and Executive Officers of the Registrant ....... 15
Item 11 Executive Compensation ................................... 15
Item 12 Security Ownership of Certain Beneficial Owners
and Management ......................................... 16
Item 13 Certain Relationships and Related Transactions ........... 16
PART IV
Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K .................................... 16
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PART I
POPULAR, INC.
ITEM 1. BUSINESS
Popular, Inc. (the "Corporation") is a diversified, publicly owned bank
holding company, registered under the Bank Holding Company Act of 1956, as
amended (the "BHC Act") and, accordingly, subject to the supervision and
regulation of the Board of Governors of the Federal Reserve System ("the Federal
Reserve Board"). The Corporation was incorporated in 1984 under the laws of the
Commonwealth of Puerto Rico and is the largest financial institution in Puerto
Rico, with consolidated assets of $23.2 billion, total deposits of $13.7 billion
and stockholders' equity of $1.7 billion at December 31, 1998. Based on total
assets at December 31, 1998, the Corporation was the 36th largest bank holding
company in the United States.
The Corporation's principal subsidiary, Banco Popular de Puerto Rico
("Banco Popular" or the "Bank"), was incorporated over 100 years ago in 1893 and
is Puerto Rico's largest bank with total assets of $18.5 billion, deposits of
$11.7 billion and stockholders' equity of $1.4 billion at December 31, 1998. The
Bank, accounted for 80% of the total consolidated assets of the Corporation at
December 31, 1998. A consumer-oriented bank, Banco Popular has the largest
retail franchise in Puerto Rico, operating 194 branches and 421 automated teller
machines. The Bank also has the largest trust operation in Puerto Rico. In
addition, as of December 31, 1998, it operated the largest Hispanic bank branch
network in the mainland United States with 32 branches in New York and an agency
in Chicago. As of December 31, 1998, these branches had a total of approximately
$1.6 billion in deposits. The Bank also operates seven branches in the U.S.
Virgin Islands and one branch in the British Virgin Islands. Banco Popular's
deposits are insured under the Bank Insurance Fund ("BIF") of the Federal
Deposit Insurance Corporation (the "FDIC"). Banco Popular has three
subsidiaries, Popular Leasing & Rental, Inc., Puerto Rico's largest vehicle
leasing and daily rental company, Popular Finance, Inc., a small-loan and second
mortgage company with 48 offices in Puerto Rico, and Popular Mortgage, Inc., a
mortgage loan company with eleven offices in Puerto Rico.
The Corporation has two other principal subsidiaries: Popular
Securities Incorporated, a securities broker-dealer in Puerto Rico with
brokerage, financial advisory, investment and security brokerage operations for
institutional and retail customers and Popular International Bank, Inc. ("PIB").
PIB owns all of the outstanding stock of Popular North America, Inc. ("PNA") and
ATH Costa Rica, which provides ATM switching and driving services in San Jose,
Costa Rica. In addition, PIB has an investment in 45% of the outstanding stock
of Banco Gerencial & Fiduciario S.A. (BGF), a commercial bank in the Dominican
Republic.
PIB is a wholly-owned subsidiary of the Corporation organized in 1992
under the laws of the Commonwealth of Puerto Rico that operates as an
"international banking entity" under the International Banking Center Regulatory
Act of Puerto Rico (the "IBC Act"). PIB is principally engaged in providing
managerial services to its subsidiaries.
PNA, a wholly-owned subsidiary of PIB and an indirectly wholly-owned
subsidiary of the Corporation, was organized in 1991 under the laws of the State
of Delaware. As of December 31, 1998, PNA had ten subsidiaries, all of which
were wholly-owned: Banco Popular North America, Inc., ("BPNAI"), Banco Popular,
N.A. Florida ("Banco Popular (Florida)"), Banco Popular, N.A. (Texas) ("Banco
Popular (Texas)"), Banco Popular, N.A. (California) ("Banco Popular
(California)"), Banco Popular, FSB, First State Bank of Southern California
("First State") and Bronson-Gore Bank of Prospect Heights, The Irving Bank,
Water Tower Bank (collectively, "Gore-Bronson Banks") and Popular Cash Express,
Inc. ("PCE"). PNA does not engage directly in any activities other than
providing managerial services to its subsidiaries and raising funds for those
subsidiaries. BPNAI is the holding company of Banco Popular, Illinois.
PIB, PNA and BPNAI, respectively as indirect and direct owners of Banco
Popular, Illinois, Banco Popular (Florida), Banco Popular (Texas), Banco Popular
(California), Banco Popular, FSB, First State and Gore-Bronson Banks, are
registered bank holding companies under the BHC Act.
Banco Popular, Illinois operated 19 branches in the State of Illinois.
The deposits of Banco Popular, Illinois were insured under BIF by the FDIC,
which was also its primary federal regulator. As of December 31, 1998, the
assets of Banco Popular, Illinois were $1.0 billion and its deposits were $795.7
million. In addition, Banco Popular, Illinois owned all of the outstanding stock
of Popular Leasing, USA, a non-banking subsidiary that offers small ticket
equipment leasing in seven states, with total assets of $36.8 million as of
December 31, 1998.
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As of December 31, 1998, the assets of Banco Popular (Florida) were
$214.4 million and its deposits were $133.3 million, operating ten branches in
Florida. Banco Popular (Florida) was a national bank and its deposits were
insured under BIF by the FDIC.
Banco Popular (Texas) is also a national bank. As of December 31, 1998,
the assets of Banco Popular (Texas) were $90.5 million and its deposits were
$51.2 million, with four branches operating in Houston, Texas. The deposits of
Banco Popular (Texas) were also insured under BIF by the FDIC and was subject to
supervision by the Office of the Comptroller of the Currency ("OCC").
Banco Popular (California), was a national bank and operated 14
branches in California with total assets of $221 million and deposits of $162.6
million as of December 31, 1998. The deposits of Banco Popular (California) were
also insured by the FDIC and was subject to supervision by the OCC.
Banco Popular, FSB, was a federal savings bank with total assets of
$375 million and deposits of $310 million. The deposits of Banco Popular, FSB
were insured under the Saving Association Insurance Fund ("SAIF") by the FDIC.
Banco Popular, FSB was subject to the supervision of the Office Thrift
Supervision. Banco Popular, FSB owned Equity One, Inc., a Delaware corporation
("Equity One"). Equity One is a diversified consumer finance company engaged in
the business of making personal and mortgage loans and providing dealer
financing through 128 offices in 36 states with total assets of $1.4 billion as
of December 31, 1998.
Acquisitions
On September 30, 1998, the Corporation through its wholly-owned
subsidiary PIB, acquired 45% of the outstanding stock of BGF. BGF is the fourth
largest bank in the Dominican Republic, with 26 branches throughout the
Dominican Republic, $496 million in total assets and $320 million in total
deposits as of September 30, 1998. The deposits of BGF are not insured by the
FDIC and it is subject to the supervision of the Monetary Board of the Central
Bank of the Dominican Republic.
On October 31, 1998, PNA acquired 100% of the voting shares of First
State with $194 million in assets and deposits of $157 million at October 31,
1998. First State operates five branches in California and its deposits are
insured by the FDIC. On the same day, PNA acquired 100% of the voting shares of
Gore-Bronson Bancorp, Inc., and its banks subsidiaries: Bronson-Gore Bank in
Prospect Heights, the Irving Bank and Water Tower Bank (Gore-Bronson Banks) with
assets of $281 million and deposits of $217 million at the acquisition date. The
deposits of Gore-Bronson Banks are insured by the FDIC. The Gore-Bronson Banks
specialize in asset-based lending and operates five branches in Chicago
Metropolitan Area. On December 1, 1998 Gore-Bronson Bancorp, Inc. was merged
with and into PNA.
In April 1998, PNA through its nonbank subsidiary PCE, completed the
acquisition of 15 check cashing outlets in Florida. These outlets offer services
such as check cashing, money transfers to other countries, money order sales and
processing of payments. In October 1998, PCE acquired Inglewood Quik Check, Inc.
("Inglewood") a corporation with eight check cashing locations and 28 mobile
check-cashing units in California. As of December 31, 1998, PCE and its
subsidiary Inglewood are operating 23 outlets and 28 mobile check-cashing units,
with consolidated assets of $19.4 million.
Reorganization
During 1998, the Corporation actively worked in an internal
reorganization of its direct and indirect subsidiaries that was completed on
January 1, 1999 (the "Reorganization"). In order to take advantage of recent
changes in federal laws involving branch banking across state lines, the
Corporation undertook the Reorganization to streamline its operations in the
United States and simplify the regulatory environment in which its multiple
banking subsidiaries in the United States were operating.
In general terms, the mechanics of the Reorganization were as follows:
The Corporation organized a new Puerto Rico-chartered bank that acquired all of
the assets and liabilities of Banco Popular, except those connected with the
Bank's branches in New York. As a result, the new Puerto Rico-chartered bank
became the owner of all of the assets of the Bank in Puerto Rico, the United
States Virgin Islands, the British Virgin Islands, one branch in New York and
the agency in Illinois. As was the case with the old Banco Popular, the new
Puerto Rico-chartered bank became a wholly-owned subsidiary of the Corporation.
Following the completion of the Reorganization, the new Puerto Rico-chartered
bank changed its corporate name to "Banco Popular de Puerto Rico".
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The old Banco Popular owning only the New York branches, merged with
and into Banco Popular, New York, a new New York-chartered bank, into which
Banco Popular, Illinois, Banco Popular (Florida), Banco Popular (California) and
Banco Popular, FSB were also merged. The resulting institution was named Banco
Popular, New York ("BPNY") and became a direct subsidiary of BPNAI. Also, as
part of the reorganization PNA contributed all of the issued and outstanding
shares of Banco Popular (Texas) to BPNAI. The new structure resulted in PNA as
the parent company of BPNAI and BPNAI became the holding company of BPNY, Banco
Popular (Texas), First State and Gore-Bronson Banks. Following the completion of
the reorganization, BPNY changed its corporate name to Banco Popular North
America ("BPNA"). Furthermore, BPNAI changed its corporate name to Popular
Holdings USA, Inc. ("PHUSA"). As part also of the Reorganization, on January 23,
1999, First State merged with and into BPNA and during 1999 is expected that
Gore-Bronson Banks and Banco Popular (Texas) will be merge with and into BPNA.
The Reorganization did not cause any disruption or interruption in the
delivery of services and products offered by the Corporation's banking and
non-banking subsidiaries to existing and potential customers in each of the
markets served.
Competition
The business of banking is highly competitive. In addition to
competition from other commercial banks, banks face significant competition from
nonbank financial institutions. Savings associations compete aggressively with
commercial banks for deposits and loans. Credit unions and finance companies are
significant factors in the consumer loan market. Investment firms and retailers
are significant competitors for some types of business. Banks compete for
deposits with a broad spectrum of other types of investments such as mutual
funds, debt securities of corporations, and debt securities of the federal
government, state governments and their respective agencies. The principal
methods of competition for financial services are price (interest rates paid on
deposits, interest rates charged on borrowings, and fees charged for services)
and service (convenience and quality of services rendered to customers).
Forward-Looking Statements
This report contains certain forward looking statements with respect to
the adequacy of the allowance for loan losses, the Corporation's market risk,
the effect of legal proceedings on the Corporation's financial condition and
results of operations and the Year 2000 issue. 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, the magnitude of interest rate
changes and the potential effects of the Year 2000 issue. Moreover, the outcome
of litigation, as discussed in "Part I, Item 3. Legal Proceedings," is
inherently uncertain and depends on judicial interpretations of law and the
findings of judges and juries. The information regarding Year 2000 compliance is
based on management's current assessment. However, this is an ongoing process
involving continual evaluation, and unanticipated problems could develop that
could cause compliance to be more difficult or costly than currently
anticipated.
Recent Developments
On March 2, 1999, the Corporation acquired 9.99% of the outstanding
stock of Telecomunicaciones de Puerto Rico, Inc. ("Telpri"), the successor to
the Puerto Rico Telephone Company, from the Puerto Rican Telephone Authority, a
political subdivision of the Government of Puerto Rico (the "PRTA"), for $90.2
million. The Corporation made this investment in conjunction with the
simultaneous acquisition by GTE Telecommunications Incorporated ("GTE"),
indirectly through a wholly-owned subsidiary, of 40.01% plus one share of the
outstanding stock of Telpri that resulted in GTE's control and operation of
Telpri. After these acquisitions closed, the government of Puerto Rico retained
ownership of 43% of the outstanding stock of Telpri. The remaining 7% was
acquired by the Employee Stock Ownership Plan Trust of Telpri.
The Corporation's business is described on pages 1 through 17 of the
Business Review Section of the Annual Report to Shareholders for the year ended
December 31, 1998, which is incorporated herein by reference.
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REGULATION AND SUPERVISION
General
Each of the Corporation, PIB, PNA and PHUSA is a bank holding company
subject to supervision and regulation by the Federal Reserve Board under the BHC
Act. As a bank holding company, the Corporation's, PIB's, PNA's and PHUSA's
activities and those of their banking and non-banking subsidiaries are limited
to the business of banking and activities closely related to banking, and none
of the Corporation, PIB, PNA or PHUSA may directly or indirectly acquire the
ownership or control of more than 5% of any class of voting shares or
substantially all of the assets of any company in the United States, including a
bank, without the prior approval of the Federal Reserve Board. In addition, bank
holding companies are generally prohibited under the BHC Act from engaging in
non-banking activities, subject to certain exceptions.
Banco Popular is considered a foreign bank for purposes of the
International Banking Act of 1978 (the "IBA"). Under the IBA Banco Popular is
not permitted to operate a branch or agency, that is located outside of its
"home state", except to the extent that a national bank with the same home state
is permitted to do so as described under "Interstate Banking and Legislation"
below. Puerto Rico is not considered a state for purposes of these geographic
limitations. Banco Popular has designated the state of New York as its home
state.
Banco Popular, BPNA, Gore-Bronson Banks and Banco Popular (Texas) are
subject to supervision and examination by applicable federal and state banking
agencies including, in the case of Banco Popular, the Federal Reserve Board and
the Office of the Commissioner of Financial Institutions of Puerto Rico, in the
case of BPNA, the Federal Reserve Board and the New York State Banking
Department; in the case of Gore-Bronson Banks, the FDIC and the Illinois
Commissioner of Banks and Trust Companies; and in the case of Banco Popular
(Texas), the OCC. Banco Popular, BPNA, Gore-Bronson Banks and Banco Popular
(Texas) are subject to requirements and restrictions under federal and state
law, including requirements to maintain reserves against deposits, restrictions
on the types and amounts of loans that may be granted and the interest that may
be charged thereon, and limitations on the types of other investments that may
be made and the types of services that may be offered. Various consumer laws and
regulations also affect the operations of Banco Popular, BPNA, Gore-Bronson
Banks and Banco Popular (Texas). In addition to the impact of regulations,
commercial banks are significantly affected by the actions of the Federal
Reserve Board as it attempts to control the money supply and credit availability
in order to influence the economy.
F D I C I A
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") the federal banking regulators must take prompt corrective action in
respect of depository institutions that do not meet minimum capital
requirements. FDICIA and regulations thereunder established five capital tiers:
"well capitalized", "adequately capitalized," "undercapitalized", "significantly
under- capitalized", and "critically undercapitalized". A depository institution
is deemed well capitalized if it maintains a leverage ratio of at least 5%, a
risk-based Tier 1 capital ratio of at least 6% and a risk-based total capital
ratio of at least 10% and is not subject to any written agreement or directive
to meet a specific capital level. A depository institution is deemed adequately
capitalized if it is not well capitalized but maintains a leverage ratio of at
least 4% (or at least 3% if given the highest regulatory rating and not
experiencing or anticipating significant growth), a risk-based Tier 1 capital
ratio of at least 4% and a risk-based total capital ratio of at least 8%. A
depository institution is deemed undercapitalized if it fails to meet the
standards for adequately capitalized institutions (unless it is deemed
significantly or critically undercapitalized). An institution is deemed
significantly undercapitalized if it has a leverage ratio of less than 3%, a
risk-based Tier 1 capital ratio of less than 3% or a risk-based total capital
ratio of less than 6%. An institution is deemed critically undercapitalized if
it has tangible equity equal to 2% or less of total assets. A depository
institution may be deemed to be in a capitalization category that is lower than
is indicated by its actual capital position if it receives a less than
satisfactory examination rating in any one of four categories.
At December 31, 1998, each of Banco Popular, BPNA, Gore-Bronson Banks,
First State and Banco Popular (Texas) was well capitalized. An institution's
capital category, as determined by applying the prompt corrective action
provisions of law, may not constitute an accurate representation of the overall
financial condition or prospects of the Corporation or its banking subsidiaries,
and should be considered in conjunction with other available information
regarding the Corporation's financial condition and results of operations.
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FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
restrictions on borrowing from the Federal Reserve System. In addition,
undercapitalized depository institutions are subject to growth limitations and
are required to submit capital restoration plans. A depository institution's
holding company must guarantee the capital plan, up to an amount equal to the
lesser of 5% of the depository institution's assets at the time it becomes
undercapitalized or the amount of the capital deficiency when the institution
fails to comply with the plan. The federal banking agencies may not accept a
capital plan without determining, among other things, that the plan is based on
realistic assumptions and is likely to succeed in restoring the depository
institution's capital. If a depository institution fails to submit an acceptable
plan, it is treated as if it is significantly undercapitalized. Significantly
undercapitalized depository institutions may be subject to a number of
requirements and restrictions, including orders to sell sufficient voting stock
to become adequately capitalized, requirements to reduce total assets and
cessation of receipt of deposits from correspondent banks. Critically
undercapitalized depository institutions are subject to appointment of a
receiver or conservator.
The capital-based prompt corrective action provisions of FDICIA and
their implementing regulations apply to FDIC-insured depository institutions
such as the subsidiaries of the Corporation, PIB, PNA and PHUSA, but they are
not directly applicable to holding companies, such as the Corporation, PIB, PNA
and PHUSA which control such institutions. However, federal banking agencies
have indicated that, in regulating holding companies, they may take appropriate
action at the holding company level based on their assessment of the
effectiveness of supervisory actions imposed upon subsidiary insured depository
institutions pursuant to such provisions and regulations.
Holding Company Structure
Banco Popular, BPNA, Gore-Bronson Banks and Banco Popular (Texas) are
subject to restrictions under federal law that limit the transfer of funds among
any of them, any of the Corporation, PIB, PNA or PHUSA and any of the
Corporation's other non-banking subsidiaries, whether in the form of loans,
other extensions of credit, investments or asset purchases. Such a transfer by
any of Banco Popular, BPNA, Gore-Bronson Banks or Banco Popular (Texas), to any
of the Corporation, PIB, PNA or PHUSA or to any of the non-banking subsidiaries,
is limited in amount to 10% of the transferring institution's capital stock and
surplus and, with respect to the Corporation and any of its non-banking
subsidiaries, to an aggregate of 20% of the transferring institution's capital
stock and surplus. For these purposes, capital stock and surplus includes the
institution's total risk-based capital plus the balance of its allowance for
loan losses not included therein. Furthermore, such loans and extensions of
credit are required to be secured in specified amounts.
Under the Federal Reserve Board policy, a bank holding company such as
the Corporation, PIB, PNA or PHUSA is expected to act as a source of financial
strength to each of its subsidiary banks and to commit resources to support each
subsidiary bank. This support may be required at times when, absent such policy,
the bank holding company might not otherwise provide such support. In addition,
any capital loans by a bank holding company to any of its subsidiary depository
institutions are subordinated in right of payment to deposits and to certain
other indebtedness of such subsidiary depository institution. In the event of a
bank holding company's bankruptcy, any commitment by the bank holding company to
a federal bank regulatory agency to maintain the capital of a subsidiary
depository institution will be assumed by the bankruptcy trustee and entitled to
a priority of payment. Banco Popular, BPNA, Gore- Bronson Banks and Banco
Popular (Texas) are currently the only depository institutions of the
Corporation, PNA and PHUSA.
Because the Corporation, PIB, PNA and PHUSA are holding companies,
their right to participate in the assets of any subsidiary upon the latter's
liquidation or reorganization will be subject to the prior claims of the
subsidiary's creditors (including depositors in the case of subsidiary
depository institutions) except to the extent that the Corporation, PIB, PNA or
PHUSA as the case may be, may itself be a creditor with recognized claims
against the subsidiary.
Under the Federal Deposit Insurance Act (the "FDIA"), a depository
institution, the deposits of which are insured by the FDIC, can be held liable
for any loss incurred by, or reasonably expected to be incurred by, the FDIC in
connection with (i) the default of a commonly controlled FDIC-insured depository
institution or (ii) any assistance provided by the FDIC to any commonly
controlled FDIC-insured depository institution "in danger of default". "Default"
is defined generally as the appointment of a conservator or a receiver and "in
danger of default" is defined generally as the existence of certain conditions
indicating that a default is likely to occur in the absence of regulatory
assistance. Banco Popular, BPNA, Gore-Bronson Banks and Banco Popular (Texas)
are all currently FDIC-insured depository institutions of the Corporation. In
some circumstances (depending upon the amount of the loss or anticipated
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loss suffered by the FDIC), cross-guarantee liability may result in the ultimate
failure or insolvency of one or more insured depository institutions in a
holding company structure. Any obligation or liability owed by a subsidiary
depository institution to its parent company is subordinated to the subsidiary
bank's cross-guarantee liability with respect to commonly controlled insured
depository institutions.
Dividend Restrictions
The principal regular source of cash flow for the Corporation is
dividends from Banco Popular. Various statutory provisions limit the amount of
dividends Banco Popular can pay to the Corporation without regulatory approval.
As a member bank subject to the regulation of the Federal Reserve Board, Banco
Popular must obtain the approval of the Federal Reserve Board for any dividend
if the total of all dividends declared by the member bank in any calendar year
would exceed the total of its net profits, as defined by the Federal Reserve
Board, for that year, combined with its retained net profits for the preceding
two years. In addition, a member bank may not pay a dividend in an amount
greater than its undivided profits then on hand after deducting its losses and
bad debts. For this purpose, bad debts are generally defined to include the
principal amount of loans that are in arrears with respect to interest by six
months or more unless such loans are fully secured and in the process of
collection. Moreover, for purposes of this limitation, a member bank is not
permitted to add the balance in its allowance for loan losses account to its
undivided profits then on hand. A member bank may, however, net the sum of its
bad debts as so defined against the balance in its allowance for loan losses
account and deduct from undivided profits only bad debts as so defined in excess
of that account. At December 31, 1998, Banco Popular could have declared a
dividend of approximately $361 million without the approval of the Federal
Reserve Board. On January 14, 1999, the Board of Directors of Banco Popular
approved a dividend of $230 million payable on January 15, 1999. The proceeds
from this dividend were used by the Corporation to repay outstanding debts at
the Holding Company level. New York law and the National Bank Act contains
similar limitation on the amount of dividends that a bank subsidiary can pay to
its holding company.
The payment of dividends by Banco Popular, BPNA, Gore-Bronson Banks and
Banco Popular (Texas) may also be affected by other regulatory requirements and
policies, such as the maintenance of adequate capital. If, in the opinion of the
applicable regulatory authority, a depository institution under its jurisdiction
is engaged in, or is about to engage in, an unsafe or unsound practice (that,
depending on the financial condition of the depository institution, could
include the payment of dividends), such authority may require, after notice and
hearing, that such depository institution cease and desist from such practice.
The Federal Reserve Board has issued a policy statement that provides that
insured banks and bank holding companies should generally pay dividends only out
of current operating earnings. In addition, all insured depository institutions
are subject to the capital-based limitations required by the FDICIA. See
"FDICIA".
See" Puerto Rico Regulation" for a description of certain restrictions
on Banco Popular's ability to pay dividends under Puerto Rico law.
FDIC Insurance Assessments
Banco Popular, BPNA, Gore-Bronson Banks and Banco Popular (Texas) are
subject to FDIC deposit insurance assessments.
Pursuant to the FDICIA, the FDIC has adopted a risk-based assessment
system, under which the assessment rate for an insured depository institution
varies according to the level of risk incurred in its activities. An
institution's risk category is based partly upon whether the institution is well
capitalized, adequately capitalized or less than adequately capitalized. Each
insured depository institution is also assigned to one of the following
"supervisory subgroups": "A", "B" or "C". Group "A" institutions are financially
sound institutions with only a few minor weaknesses; Group "B" institutions are
institutions that demonstrate weaknesses that, if not corrected, could result in
significant deterioration; and Group "C" institutions are institutions for which
there is a substantial probability that the FDIC will suffer a loss in
connection with the institution unless effective action is taken to correct the
areas of weakness.
The FDIC reduced the insurance premiums it charges on bank deposits
insured by the BIF to the statutory minimum of $2,000.00 for "well capitalized"
banks, effective January 1, 1996. On September 30, 1996, the Deposit Insurance
Funds Act of 1996 ("DIFA") was enacted and signed into law. DIFA repealed the
statutory minimum premium, and currently premiums related to deposits assessed
by both the BIF and the Savings Association Insurance Fund ("SAIF") are to be
assessed at a annual rate of between 0 cents and 27 cents per $100.00 of
deposits. DIFA also provided for a special one-time assessment imposed on
deposits insured by the SAIF to recapitalize the SAIF to bring the SAIF up to
statutorily required levels.
8
<PAGE> 9
DIFA also separated the Financing Corporation ("FICO") assessment to
service the interest on its bond obligations from the BIF and SAIF assessments.
The amount assessed on individual institutions by the FICO is in addition to the
amount, if any, paid for deposit insurance according to the FDIC's risk-related
assessment rate schedules. By law, the FICO rate on BIF-assessable deposits must
be one-fifth the rate on SAIF-assessable deposits until the insurance funds are
merged or until January 1, 2000 (whichever occurs first). As of December 31,
1998, the Corporation had a BIF deposit assessment base of approximately $12.8
billion.
Brokered Deposits
FDIC regulations adopted under the FDICIA govern the receipt of
brokered deposits. Under these regulations, a bank cannot accept, roll over or
renew brokered deposits (which term is defined also to include any deposit with
an interest rate more than 75 basis points above prevailing rates) unless (i) it
is well capitalized or (ii) it is adequately capitalized and receives a waiver
from the FDIC. A bank that is adequately capitalized may not pay an interest
rate on any deposits in excess of 75 basis points over certain prevailing market
rates specified by regulation. There are no such restrictions on a bank that is
well capitalized. The Corporation does not believe the brokered deposits
regulation has had or will have a material effect on the funding or liquidity of
Banco Popular, BPNA, Gore-Bronson Banks and Banco Popular (Texas).
Capital Adequacy
Information about the capital composition of the Corporation as of
December 31, 1998 and for the four previous years is presented in Table H
"Capital Adequacy Data", on page F-14 in the "Management Discussion and Analysis
of Financial Condition and Results of Operations" (MD&A) and is incorporated
herein by reference.
Under the Federal Reserve Board's risk-based capital guidelines for
bank holding companies and member banks, the minimum guidelines for the ratio of
qualifying total capital ("Total Capital") to risk-weighted assets (including
certain off-balance sheet items, such as standby letters of credit) is 8%. At
least half of the Total Capital is to be comprised of common equity, retained
earnings, minority interest in unconsolidated subsidiaries, non-cumulative
perpetual preferred stock and a limited amount of cumulative perpetual preferred
stock, less goodwill, and certain other intangible assets ("Tier 1 Capital").
The remainder may consist of a limited amount of subordinated debt, other
preferred stock, certain other instruments and a limited amount of loan and
lease loss reserves ("Tier 2 Capital").
In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies and member banks. These guidelines
provide for a minimum ratio of Tier 1 Capital to total assets, less goodwill and
certain other intangible assets discussed below (the "leverage ratio") of 3% for
bank holding companies and member banks that meet certain specified criteria,
including that they have the highest regulatory rating. All other bank holding
companies and member banks will be required to maintain a leverage ratio of 4%.
The guidelines also provide that banking organizations experiencing internal
growth or making acquisitions will be expected to maintain strong capital
positions substantially above the minimum supervisory levels, without
significant reliance on intangible assets. Furthermore, the guidelines indicate
that the Federal Reserve Board will continue to consider a "tangible Tier 1
leverage ratio" and other indicia of capital strength in evaluating proposals
for expansion or new activities. The tangible Tier 1 leverage ratio is the ratio
of a banking organization's Tier 1 Capital less all intangibles, to total assets
less all intangibles.
Banco Popular and BPNA are subject to the risk-based and leverage
capital requirements adopted by the Federal Reserve Board. See Consolidated
Financial Statements, Note 18 "Regulatory Capital Requirements" on page F-47 ,
for the capital ratios of the Corporation and of Banco Popular.
Gore-Bronson Banks and Banco Popular (Texas) are subject to similar
capital requirements adopted by the FDIC and OCC. Failure to meet capital
guidelines could subject a bank to a variety of enforcement remedies, including
the termination of deposit insurance by the FDIC and to certain restrictions on
its business. See "FDICIA".
Interstate Banking Legislation
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
permits bank holding companies, with Federal Reserve Board approval, to acquire
banks located in states other than the holding company's home state without
regard to whether the transaction is prohibited under state law. In addition,
national and state banks with different home states are permitted to merge
across
9
<PAGE> 10
state lines, with approval of the appropriate federal banking agency, unless the
home state of a participating bank passed legislation prior to May 31, 1997
expressly prohibiting interstate mergers. States were allowed to "opt in" to
permit interstate branching by merger prior to June 1, 1997 and to permit de
novo interstate branching. Once a bank has established branches in a state
through an interstate merger transaction, the bank may establish and acquire
additional branches at any location in the state where any bank involved in the
interstate merger transaction could have established or acquired branches under
applicable federal or state law. A bank that has established a branch in a state
through de novo branching may establish and acquire additional branches in such
state in the same manner and to the same extent as a bank having a branch in
such state as a result of an interstate merger. If a state opts out of
interstate branching within the specified time period, no bank in any other
state may establish a branch in the state which has opted out, whether through
an acquisition or de novo. A foreign bank, like Banco Popular, may branch
interstate by merger or de novo to the same extent as domestic banks in the
foreign bank's home state, which, in the case of Banco Popular, is New York.
Various other legislation, including proposals to overhaul the bank
regulatory system, expand bank and bank holding company powers and limit the
investments that a depository institution may make with insured funds, is from
time to time introduced in Congress. The Corporation, PIB, PNA and PHUSA cannot
determine the ultimate effect that such potential legislation, if enacted, or
implementing regulations, would have upon their financial condition or results
of operations.
Puerto Rico Regulation
General
As a commercial bank organized under the laws of Puerto Rico, Banco
Popular is subject to the supervision, examination and regulation by the Office
of the Commissioner of Financial Institutions of Puerto Rico (the "Office of the
Commissioner"), pursuant to the Puerto Rico Banking Act of 1933, as amended (the
"Banking Law").
Section 27 of the Banking Law requires that at least 10% of the yearly
net income of Banco Popular be credited annually to a reserve fund. This
apportionment shall be done every year until the reserve fund shall be equal to
the total of paid-in capital on common and preferred stock. At the end of its
most recent fiscal year, Banco Popular had a fund established in compliance with
these requirements.
Section 27 of the Banking Law also provides that when the expenditures
of a bank are greater than the receipts, the excess of the former over the
latter shall be charged against the undistributed profits of the bank, and the
balance, if any, shall be charged against the reserve fund, as a reduction
thereof. If there is no reserve fund sufficient to cover such balance in whole
or in part, the outstanding amount shall be charged against the capital account
and no dividend shall be declared until said capital has been restored to its
original amount and the reserve fund to 20% of the original capital.
Section 16 of the Banking Law requires every bank to maintain a legal
reserve that, except as otherwise provided by the Office of the Commissioner,
shall not be less than 20% of its demand liabilities, excluding government
deposits (federal, state and municipal) which are secured by actual collateral.
Furthermore, if a bank is authorized to establish one or more bank branches in a
State of the United States or in a foreign country, where such branches are
subject to the reserve requirements of that state or country, the Office of the
Commissioner may exempt said branch or branches of the reserve requirements of
Section 16. However, Banco Popular has been exempted from such requirements,
with respect to deposits payable in Puerto Rico, pursuant to an order of the
Board of Governors of the Federal Reserve System dated November 24, 1982. The
reserve requirements of Section 16 apply to those deposits.
Section 17 of the Banking Law permits Banco Popular to make loans to
any one person, firm, partnership or corporation, up to an aggregate amount of
15% of the paid-in capital and reserve fund of the Bank. As of December 31,
1998, the legal lending limit for the Bank under this provision was
approximately $109 million and after the Reorganization approximately $90
million. The above limitations do not apply to loans which are secured by
collateral worth at least 25% more than the amount of the loan, up to an
aggregate maximum amount of one third of the paid-in capital of the Bank, plus
its reserve fund. If the institution is well capitalized and had been rated 1 in
the last examination performed by the Office of the Commissioner or any
regulatory agency its legal lending limit shall also include 15% of 50% of its
undivided profits. Institutions rated 2 in their last regulatory examination may
include this additional component in their legal lending limit only with the
previous authorization of the Office of the Commissioner. There are no
restrictions under Section 17 on the amount of loans that are wholly secured by
bonds, securities and other evidence of indebtedness of the Government of the
United States or Puerto Rico, or by current debt bonds, not in default, of
municipalities or instrumentalities of Puerto Rico.
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<PAGE> 11
Section 14 of the Banking Law authorizes Banco Popular to conduct
certain financial and related activities directly or through subsidiaries,
including finance leasing of personal property, originating and servicing
mortgage loans and operating a small loan company. Banco Popular engages in
these activities through its wholly-owned subsidiaries, Popular Leasing &
Rental, Inc., Popular Mortgage, Inc. and Popular Finance Inc., respectively, all
of which are organized and operate in Puerto Rico.
The Finance Board, which is a part of the Office of the Commissioner,
but also includes as its members the Secretary of the Treasury, the Secretary of
Commerce, the Secretary of Consumer Affairs, the President of the Planning
Board, and the President of the Government Development Bank for Puerto Rico, has
the authority to regulate the maximum interest rates and finance charges that
may be charged on loans to individuals and unincorporated businesses in Puerto
Rico. The current regulations of the Finance Board provide that the applicable
interest rate on loans to individuals and unincorporated businesses (including
real estate development loans but excluding certain other personal and
commercial loans secured by mortgages on real estate properties) is to be
determined by free competition. The Finance Board also has authority to regulate
the maximum finance charges on retail installment sales contracts, which are
currently set at 21%, and for credit card purchases, which are currently set at
26%. There is no maximum rate set for installment sales contracts involving
motor vehicles, commercial, agricultural and industrial equipment, commercial
electric appliances and insurance premiums.
IBC Act
Under the IBC Act, without the prior approval of the Office of the
Commissioner, PIB may not amend its articles of incorporation or issue
additional shares of capital stock or other securities convertible into
additional shares of capital stock unless such shares are issued directly to the
shareholders of PIB previously identified in the application to organize the
international banking entity, in which case notification to the Office of the
Commissioner must be given within ten business days following the date of the
issue. Pursuant to the IBC Act, without the prior approval of the Office of the
Commissioner, PIB may not initiate the sale, encumbrance, assignment, merger or
other transfer of shares if by such transaction a person or persons acting in
concert could acquire direct or indirect control of 10% or more of any class of
the Company's stock. Such authorization must be requested at least 30 days prior
to the transaction.
PIB must submit to the Office of the Commissioner a report of its
condition and results of operation on a quarterly basis and its annual audited
financial statement at the close of its fiscal year. Under the IBC Act, PIB may
not deal with "domestic persons" as such term is defined in the IBC Act. Also,
it may only engage in those activities authorized in the IBC Act, the
regulations adopted thereunder and its license.
The IBC Act empowers the Office of the Commissioner to revoke or
suspend, after a hearing, the license of an international banking entity if,
among other things, it fails to comply with the IBC Act, regulations issued by
the Office of the Commissioner or the terms of its license or if the Office of
the Commissioner finds that the business of the international banking entity is
conducted in a manner not consistent with the public interest.
Employees
At December 31, 1998, the Corporation employed 10,549 persons. None of
its employees are represented by a collective bargaining group.
Segment Disclosure
Note 27 to the Financial Statements, "Segment Reporting" on page F-58
and F-59 is herein incorporated by reference.
ITEM 2. PROPERTIES
As of December 31, 1998, Banco Popular owned (and wholly or partially
occupied) approximately 71 branch premises and other facilities throughout the
Commonwealth and branch premises in New York. In addition, as of such date,
Banco Popular leased properties for branch operations in approximately 126
locations in Puerto Rico, 16 locations in New York and 7 locations in the U.S.
11
<PAGE> 12
Virgin Islands. The Corporation's management believes that each of its
facilities is well-maintained and suitable for its purpose. The principal
properties owned by the Corporation for banking operations and other services
are described below:
Popular Center, the San Juan metropolitan area headquarters, located at
209 Munoz Rivera Avenue, Hato Rey, Puerto Rico, a 20 story office building.
Approximately 50% of the office space is leased to outside tenants.
Cupey Center Complex, three buildings, one of three stories, and two of
two stories each, located in Cupey, Rio Piedras, Puerto Rico. The computer
center, operational and support services, and a recreational center for
employees are some of the main activities conducted at these facilities. The
facilities are fully occupied by Banco Popular's personnel.
Stop 22 - Santurce building, a twelve story structure located in
Santurce, Puerto Rico. A branch, the accounting department, the human resources
division and the auditing department are the main activities conducted at this
facility, which is fully occupied by Banco Popular personnel.
Old San Juan building, a twelve story structure located in Old San
Juan, Puerto Rico. Banco Popular occupies approximately 33% of the building for
a branch operation, a regional office, an exhibit room and other facilities. The
rest of the building is rented to outside tenants.
Mortgage Loan Center, a six story building, a four story building, and
a one story building, located at 153, 167 and 157 Ponce de Leon Avenue, Hato
Rey, Puerto Rico, respectively, are fully occupied by Popular Mortgage, Inc. and
Banco Popular's mortgage servicing departments.
New York building, a nine story structure with two underground levels
located at 7 West 51st. Street, New York City. BPNA occupies approximately 92%
of the office space is used for banking operations. The remaining space is
rented or available for rent to outside tenants.
Chicago building, a three story building located at 4000-4008 West
North Avenue, Chicago, Illinois. BPNA's full service branch, the executive
offices, the human resources division and the bank's operation department, are
the main activities conducted at this facility.
Orlando building, a two story building located at 5551 Vanguard Street,
Orlando, Florida. Credit cards operations, finance and accounting department and
the BPNA's operation services are the main activities conducted at this
facility.
Houston building, a one story building located at 1615 Little York
Road, Houston, Texas. BPNA's full service branch and the administrative offices
are located at this facility.
ITEM 3. LEGAL PROCEEDINGS
The Corporation and its subsidiaries are defendants in various lawsuits
arising in the ordinary course of business. Management believes, based on the
opinion of legal counsel, that the aggregate liabilities, if any, arising from
such actions would not have a material adverse effect on the financial position
of the Corporation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Corporation's common stock (the "Common Stock") is traded on the
National Association of Securities Dealers Automated Quotation (NASDAQ) National
Market System under the symbol BPOP. Information concerning the range of high
and low sales prices for
12
<PAGE> 13
the Corporation's common shares for each quarterly period during 1998 and the
previous four years, as well as cash dividends declared is contained under Table
I, "Common Stock Performance", on page F-15 and under the caption "Stockholders'
Equity" on page F-14 in the MD&A, and is incorporated herein by reference.
Information concerning legal or regulatory restrictions on the payment
of dividends by the Corporation and Banco Popular is contained under the caption
"Regulation and Supervision" in Item 1 herein.
As of February 26, 1999, the Corporation had 10,454 stockholders of
record of its Common Stock, not including beneficial owners whose shares are
held in record names of brokers or other nominees. The last sales price for the
Corporation's Common Stock on such date, as quoted on the NASDAQ, was $33.1875
per share.
The Corporation currently has outstanding $125 million subordinated
notes due December 15, 2005 with interest payable semi-annually at 6.75%. These
notes are unsecured subordinated obligations which are subordinated in right of
payment in full to all present and future senior indebtedness of the
Corporation. These notes do not provide for any sinking fund.
On February 5, 1997, BanPonce Trust I, a statutory business trust
created under the laws of the State of Delaware that is wholly-owned by PNA and
indirectly wholly-owned by the Corporation, sold to institutional investors
$150,000,000 of its 8.32% Capital Securities Series A (liquidation amount $1,000
per Capital Security) through certain underwriters. The proceeds of the
issuance, together with the proceeds of the purchase by PNA of $4,640,000 of its
8.327% common securities (liquidation amount $1,000 per common security) were
used to purchase $154,640,000 aggregate principal amount of PNA 8.327% Junior
Subordinated Deferrable Interest Debentures, Series A (the "Junior Subordinated
Debentures"). These capital securities qualify as Tier I capital, are fully and
unconditionally guaranteed by the Corporation, and are presented in the
Consolidated Statements of Condition as "Guaranteed Preferred Beneficial
Interest in Popular North America's Subordinated Debentures." The obligations of
PNA under the Junior Subordinated Debentures and its guarantees of the
obligations of BanPonce Trust I are fully and unconditionally guaranteed by the
Corporation. The assets of BanPonce Trust I consisted of $154, 640,000 of Junior
Subordinated Debentures and a related accrued interest receivable of $4,292,000.
The Junior Subordinated Debentures mature on February 1, 2027; however, under
certain circumstances, the maturity of the Junior Subordinated Debentures (which
shortening would result in a mandatory redemption of the Capital Securities) may
be shortened.
The Puerto Rico Internal Revenue Code of 1994, as amended, generally
imposes a withholding tax on the amount of any dividends paid by corporations to
individuals, whether residents of Puerto Rico or not, trusts, estates and
special partnerships at a special 10% withholding tax rate. If the recipient is
a foreign corporation or partnership not engaged in trade or business within
Puerto Rico the withholding tax is also 10%.
Prior to the first dividend distribution for the taxable year,
individuals who are residents of Puerto Rico may elect to be taxed on the
dividends at the regular rates, in which case the special 10% tax will not be
withheld from such year's distributions.
United States citizens who are non-residents of Puerto Rico will not be
subject to Puerto Rico tax on dividends if said individual's gross income from
sources within Puerto Rico during the taxable year does not exceed $1,300 if
single, or $3,000 if married, and form AS 2732 of the Puerto Rico Treasury
Department "Withholding Tax Exemption Certificate for the Purpose of Section
1147", is filed with the withholding agent.
U.S. income tax law permits a credit against U.S. income tax liability,
subject to certain limitations, for certain foreign income taxes paid or deemed
paid with respect to such dividends.
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<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item appears in Table C, "Selected
Financial Data" on pages F-4 and F-5 and the text under the caption "Earnings
Analysis", on page F-6 in the MD & A, and is incorporated herein by reference.
The Corporation's ratio of earnings to fixed charges on a consolidated
basis for each of the last five years is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
Ratio of Earnings to Fixed Charges: -----------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Excluding Interest on Deposits 1.8 1.8 2.0 2.0 2.6
Including Interest on Deposits 1.4 1.4 1.4 1.4 1.5
Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends:
Excluding Interest on Deposits 1.8 1.8 2.0 2.0 2.5
Including Interest on Deposits 1.4 1.4 1.4 1.4 1.5
</TABLE>
For purposes of computing these consolidated ratios, earnings represent
income before income taxes, plus fixed charges. Fixed charges represent all
interest expense (ratios are presented both excluding and including interest on
deposits), the portion of net rental expense which is deemed representative of
the interest factor and the amortization of debt issuance expense.
The Corporation's long-term senior debt and preferred stock on a
consolidated basis for each of the last five years ended December 31, is as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
(In thousands) 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Long-term obligations $1,582,160 $1,678,696 $1,111,713 $885,428 $489,524
Non-Cumulative preferred
stock of the Corporation 100,000 100,000 100,000 100,000 100,000
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by this item appears on page F-2 through F-28
under the caption "MD&A", and is incorporated herein by reference.
Table K, "Maturity Distribution of Earning Assets", on page F-18 in the
MD&A, has been prepared on the basis of expected maturities. The Corporation
does not have a policy with respect to rolling over maturing loans, but rolls
over loans only on a case-by-case basis after review of such loans in accordance
with the Corporation's lending criteria.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information regarding the market risk of the Corporation's
Investments, appears on page F-16 through F-18 under the caption "MD&A", and is
incorporated herein by reference.
The Corporation uses different techniques to measure its exposure to
future changes in interest rates or interest rate risk ("IRR"). The Corporation
uses simulation analysis and static gap estimates for measuring short-term IRR.
Duration analysis is used to quantify the level of long-term IRR assumed, and
focuses on the estimated economic value of portfolio equity, also referred to as
market value of portfolio equity ("MVPE") of the Corporation; i.e., the
difference between the estimated market value of financial assets less the
estimated value of financial liabilities.
14
<PAGE> 15
Static gap analysis measures the value of asset maturing or repricing
within a particular time period, and the amount of liabilities maturing or
repricing in the same period. The repricing volumes typically include
adjustments for anticipated future asset prepayments and for differences in
sensitivity to market rates. The volume of net assets or liabilities repricing
during future periods is used as one short-term indicator of IRR.
Simulation analysis is another measurement used by the Corporation for
short-term IRR and it addresses some of the deficiencies of gap analysis. It
involves estimating the effect on net interest income ("NII") of one or more
future interest rate scenarios as applied to the repricing of the Corporation's
current assets and liabilities and the assumption of new balances. The
simulation analyses are performed using a computer-based earnings simulation
model and are based on various interest rate scenarios.
Longer-term IRR is measured using duration analysis, in particular the
duration of MVPE. It expresses in general terms, the sensitivity of the MVPE to
changes in interest rates. The estimated MVPE is obtained from the market values
of the cash flows from the Corporation's financial assets and liabilities, which
are primarily payments of interest and repayments of principal. In turn, the
duration of the MVPE in derived from the estimated duration of the Corporation's
assets and liabilities. The sensitivity of the MVPE thus incorporates all future
cash flows from NII, whereas other measures of IRR focus primarily on short-term
net interest income.
Duration measures the "average length" of a financial asset. In
particular it equals the weighted average maturity of all the cash flows of a
security, loan, deposit, etc., where the weights are equal to the present value
of each cash flow. The present value of a cash flow occurring in the future, is
its estimated market value as of a certain date. The sensitivity of the market
value of an asset or liability to changes in interest rates is primarily a
function of its duration. In general terms, the longer the duration of an asset
or liability is, the greater is the sensitivity of its market value to interest
rate changes. Since duration measures the "length" of a financial asset, it is
usually expressed in terms of years or months.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item appears on pages F-29 through
F-65, and on page F-28 under the caption "Statistical Summary - Quarterly
Financial Data", in the MD&A and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the captions "Shares Beneficially Owned
by Directors, Nominees and Executive Officers of the Corporation", "Beneficial
Ownership Reporting Compliance" and "Board of Directors and Committees"
including the "Nominees for Election as Directors", "Executive Officers",
"Family Relationships" and "Other Relationships, Transactions and Events" of the
Corporation's definitive proxy statement filed with the Securities and Exchange
Commission on or about March 23, 1999 (the "Proxy Statement"), is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the caption "Executive Compensation Program", and
under the caption "Popular, Inc. Performance Graph" of the Proxy Statement, is
incorporated herein by reference.
15
<PAGE> 16
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the captions "Principal Stockholders" and under
"Shares Beneficially Owned by Directors, Nominees and Executive Officers of the
Corporation" of the Proxy Statement, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Family Relationships" and "Other
Relationships, Transactions and Events" of the Proxy Statement, is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. The following financial statements and reports included on pages F-29
thru F-65 of the financial review section of the Corporation's Annual
Report to Shareholders, have been incorporated herein by reference:
(1) Financial Statements:
Report of Independent Accountants
Consolidated Statements of Condition as of December 31, 1998
and 1997
Consolidated Statements of Income for each of the years in the
three-year period ended December 31, 1998
Consolidated Statements of Cash Flows for each of the years in
the three-year period ended December 31, 1998
Consolidated Statements of Changes in Stockholders' Equity for
each of the years in the three-year period ended December
31, 1998
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules: No schedules are presented
because the information is not applicable or is included in
the Consolidated Financial Statements described in A.1 above
or in the notes thereto.
(3) Exhibits
The exhibits listed on the Exhibits Index on page 19 of this
report are filed herewith or are incorporated herein by
reference.
B. The Corporation filed one report on Form 8-K during the quarter ended
December 31, 1998.
Dated: October 7, 1998
Items reported: Item 5 - Other Events
Item 7 - Financial Statements and Exhibits
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
POPULAR, INC.
-------------
(Registrant)
By: S\RICHARD L. CARRION
--------------------
Richard L. Carrion
Chairman of the Board, President
and Chief Executive Officer
Dated: 02-11-99 (Principal Executive Officer)
----------
By: S\JORGE A. JUNQUERA
-------------------
Jorge A. Junquera
Senior Executive Vice President
Dated: 02-11-99 (Principal Financial Officer)
----------
By: S\AMILCAR L. JORDAN
-------------------
Amilcar L. Jordan
Senior Vice President
Dated: 02-11-99 (Principal Accounting Officer)
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
S\RICHARD L. CARRION Chairman of the Board,
- ----------------------------- President and Chief
Richard L. Carrion Executive Officer 02-11-99
S\ALFONSO F. BALLESTER Vice Chairman of
- ----------------------------- the Board 02-11-99
Alfonso F. Ballester
S\ANTONIO LUIS FERRE Vice Chairman of
- ----------------------------- the Board 02-11-99
Antonio Luis Ferre
S\JUAN J. BERMUDEZ
- ----------------------------- Director 02-11-99
Juan J. Bermudez
S\FRANCISCO J. CARRERAS
- ----------------------------- Director 02-11-99
Francisco J. Carreras
S\DAVID H. CHAFEY, JR.
- ----------------------------- Director 02-11-99
David H. Chafey, Jr.
S\LUIS E. DUBON, JR.
- ----------------------------- Director 02-11-99
Luis E. Dubon, Jr.
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C> <C>
S\HECTOR R. GONZALEZ
- ----------------------------- Director 02-11-99
Hector R. Gonzalez
S\JORGE A. JUNQUERA
- ----------------------------- Director 02-11-99
Jorge A. Junquera
- ----------------------------- Director
Manuel Morales, Jr.
S\ALBERTO M. PARACCHINI
- ----------------------------- Director 02-11-99
Alberto M. Paracchini
S\FRANCISCO M. REXACH, JR.
- ----------------------------- Director 02-11-99
Francisco M. Rexach, Jr.
S\J. ADALBERTO ROIG, JR.
- ----------------------------- Director 02-11-99
J. Adalberto Roig, Jr.
- ----------------------------- Director
Felix J. Serralles, Jr.
- ----------------------------- Director
Julio E. Vizcarrondo, Jr.
</TABLE>
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Footnote
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 Restated Articles of Incorporation of Popular, Inc. (1)
3.2 By laws of Popular, Inc.
4.1 Form of certificate for common stock.
4.3 Rights Agreement. (2)
4.4 Indenture dated as of October 1, 1991, as supplemented by the First
Supplemental Indenture thereto, dated February 28, 1995 and by the
Second Supplemental Indenture thereto, dated as of May 8, 1997, each
among Popular North America, Inc., Popular, Inc,. as Guarantor, and
The First National Bank of Chicago, as Trustee. (3)
4.7 Form of Certificate of 8.35% non-cumulative monthly Income Preferred
Stock, 1994 Series A (Liquidation Preference $25.00 per share). (4)
4.9 Subordinated Indenture dated as of November 30, 1995,
between Popular, Inc. and First National Bank of Chicago, as
trustee. (5)
4.10 Form of Subordinated Note of Popular, Inc. (6)
4.11 Indenture dated as of February 15, 1995, as supplemented by the First
Supplemental Indenture thereto, dated as of May 8, 1997, between
Popular, Inc. and First National Bank of Chicago, as Trustee. (7)
4.14 Form of Fixed Rate Medium-Term Note of Popular, Inc. (8)
4.15 Form of Floating Rate Medium-Term Note of Popular, Inc. (8a)
4.16 Form of Fixed Rate Medium-Term Note, Series D, of Popular North
America, Inc., endorsed with the guarantee of Popular, Inc. (8b)
4.17 Form of Floating Rate Medium-Term Note, Series D, of Popular North
America, Inc., endorsed with the guarantee of Popular, Inc. (8c)
10.8 Annual Management Incentive Compensation Plan for certain Division
Supervisors approved in January, 1987.
10.8.1 Popular, Inc. Senior Executive Long-Term Incentive Plan dated
October 6, 1994. (9)
10.8.2 Amendment to Popular, Inc. Senior Executive Long-Term Incentive Plan
dated April 23, 1998.
10.9 Stock Deferment Plan for outside directors effective on August 15,
1996. (10)
</TABLE>
19
<PAGE> 20
<TABLE>
<S> <C> <C>
10.12.2 Credit Agreement dated as of October 29, 1998 among Popular, Inc.
and Popular North America, Inc., and the lenders named therein. For
an aggregate principal amount of $320,000,000. The Chase Manhattan
Bank as Administrative agent and Chase Securities, Inc. as advisor,
as manager and book manager.
12.0 Computation of Ratio of Earnings to Fixed Charges
13.1 Registrants Annual Report to Shareholders for the year ended December
31, 1998
21.1 Schedule of Subsidiaries
23.1 Consent of Independent Auditors
27.0 Financial Data Schedule (for SEC use only)
99.1 Registrant's Proxy Statement for the April 27, 1999 Annual Meeting of
Stockholders
</TABLE>
Popular, Inc. hereby agrees to furnish upon request to the Commission a copy of
each instrument defining the rights of holders of senior and subordinated debt
of Popular, Inc. or of any of its consolidated subsidiaries.
- -------------------------
(1) Incorporated by reference to Exhibit 3.1 of the 1997 Form 10-K.
(2) Incorporated by reference to Exhibit 1 of Registration Statement on
Form 8-A, filed on August 28, 1998.
(3) Incorporated by reference to Exhibit 4 (f) of Registration Statement
No. 333-26941.
(4) Incorporated by reference to Exhibit 4.7 of the 1994 Form 10-k.
(5) Incorporated by reference to Exhibit 4(e) of Registration Statement No.
333-26941
(6) Incorporated by reference to Exhibit 4(p) on Form 8-K filed on December
13, 1995.
(7) Incorporated by reference to Exhibit 4(d) of Registration Statement No.
333-26941.
(8) Incorporated by reference to Exhibit 4(1) of Form 8-K filed on June 11,
1997.
(8a) Incorporated by reference to Exhibit 4(m) of Form 8-K filed on June 11,
1997.
(8b) Incorporated by reference to Exhibit 4(n) of Form 8-K on June 11, 1997.
(8c) Incorporated by reference to Exhibit 4(o) of Form 8-K filed on June 11,
1997.
(9) Incorporated by reference to Exhibit 10.8.1 of the 1994 Form 10-K.
(10) Incorporated by reference to Exhibit 10.9 of the 1996 Form 10-K.
20
<PAGE> 1
EXHIBIT 3.2
BY LAWS OF
POPULAR, INC.
ARTICLE 1: BOARD OF DIRECTORS
1.1 The business and affairs of the Corporation shall be
conducted under the authority of its Board of Directors. The directors shall be
elected in the manner set forth in the Certificate of Incorporation of the
Corporation.
1.2 If for any reason or cause an election of directors is not
held on the Annual Meeting of Stockholders, or at any adjournment thereof, such
election may be held on any subsequent date at a special meeting of
stockholders duly called for such purpose.
1.3 Directors shall receive such reasonable compensation as may
be established from time to time by the Board of Directors by resolution
approved by an absolute majority thereof.
1.4 The Board may hold such regular meetings as may be
established from time to time by resolution approved by an absolute majority of
the Board. Once regular meetings are convened as established herein, notice
thereof need not be given. The Board may hold such extraordinary meetings as
may be convened by the Chairman of the Board, by the President or which may be
required by at least three (3) directors. Such regular or extraordinary
meetings may be held at the Corporation's principal office, at any other place
or places within or without Puerto Rico, or by such other means as permitted by
law.
1.5 The quorum at any meeting of the Board of Directors shall
consist of a majority of the total number of directors. The vote of a majority
of the directors present at a meeting at which a quorum is present shall be the
act of the Board unless the Certificate of Incorporation or these By-Laws shall
require a vote of a greater number.
ARTICLE 2: MEETINGS OF STOCKHOLDERS
2.1. An Annual Meeting of Stockholders shall be held not later
that the fifth month following the end of the fiscal year of the Corporation at
a place, date and time fixed by the Board of Directors.
2.2 Special meetings of stockholders may be called by the Board
of Directors, the Chairman of the Board of Directors or the President of the
Corporation. The notice of such special meetings shall specify the purpose or
purposes for which the meeting is called.
2.3 All meeting of stockholders shall be convened by delivering a
notice to each holder or shares entitled to vote, not less than thirty (30)
days before the date of the meeting, either
<PAGE> 2
personally or by mail. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, addressed to the stockholder at his
or her address as it appears on the Stock Book of the Corporation, with postage
thereon prepaid.
2.4 A majority of the outstanding shares of the Corporation
entitled to vote represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders. If no quorum is present, the meeting shall be
adjourned from time to time without further notice until a date not less than
eight (8) days after the date for which the first meeting was called. Such
adjourned meeting shall be held and shall be lawfully organized whatever the
number of shares entitled to vote may be represented therein, and any business
may be transacted which might have been transacted at the meeting as originally
noticed.
2.5 Unless otherwise provided in the Certificate of
Incorporation, each stockholder entitled to vote at any meeting of stockholders
shall be entitled to one vote for each share of stock held by such stockholder
which has voting power upon the matter in question. Each stockholder entitled
to vote at a meeting of stockholders or to express consent or dissent to
corporate action in writing without a meeting may authorize another person or
persons to act for such stockholder by proxy, but no such proxy shall be voted
or acted upon after three years from its date, unless the proxy provides for a
longer period. Without limiting the manner in which a stockholder may authorize
another person or persons to act for him as proxy, the following shall
constitute valid means by which a stockholder may grant such authority:
i. A stockholder may execute a writing authorizing
another person or persons to act for him as proxy.
Execution may be accomplished by the stockholder or
his authorized officer, director, employee or agent
signing such writing or causing his or her signature
to be affixed to such writing by any reasonable
means including, but not limited to, by facsimile
signature.
ii. A stockholder may authorize another person or
persons to act for him as proxy by transmitting or
authorizing the transmission of a telegram,
cablegram, Internet or other means of electronic
transmission to the person who will be the holder of
the proxy or to a proxy solicitation firm, proxy
support service organization or like agent duly
authorized by the person who will be the holder of
the proxy to receive such transmission, provided
that any such telegram, cablegram, Internet or other
means of electronic transmission must either set
forth or be submitted with information from which it
can be determined that the telegram, cablegram,
Internet or other electronic transmission was
authorized by the stockholder. If it is determined
that such telegrams, cablegrams, Internet or other
electronic transmissions are valid, the inspectors
or, if there are no inspectors, such other persons
making that determination shall specify the
information upon which they relied.
<PAGE> 3
2.6 The Chairman of the Board of Directors shall preside at any
meeting of stockholders and shall conduct such proceedings as are customary in
this kind of meeting, procuring at all times order and impartiality in the
debates.
2.7 During the Annual Meeting of Stockholders, the financial
statements of the Corporation shall be presented to the stockholders for their
approval, and the directors shall provide such explanations as may be
reasonably requested by the stockholders regarding such statements as well as
the operations of the Corporation during the year.
ARTICLE 3: OFFICERS AND EMPLOYEES
3.1 The Board shall appoint one of its members to be the Chairman
of the Board, to serve at the pleasure of the Board. He shall preside at all
meetings of the Board and of the stockholders. He shall also have and may
exercise such executive powers and duties as pertain to the office of Chairman
of the Board, or as from time to time may be conferred upon, or assigned to,
him by the Board.
3.2 The Board shall appoint one of its members to be the
President of the Corporation, to serve at the pleasure of the Board. In the
absence of the Chairman, the President shall preside at any meetings of the
Board and of the stockholders. He shall also have and may exercise such further
powers and duties as pertain to the office of President of the Corporation, or
as from time to time may be conferred upon, or assigned to, him by the Board.
3.3 The Board of Directors may appoint from among its members
one or more Vice Chairmen to serve at the pleasure of the Board. Each Vice
Chairman shall have such powers and duties as may be assigned to him by the
Board.
3.4 The Board shall appoint a Secretary. The Secretary shall
keep the minutes of the meetings of the Board and of the stockholders. He or
one of the Assistant Secretaries shall see that proper notices are given of all
meetings of which notice is required. The Secretary shall have custody of the
seal and when necessary shall attest to the same when affixed to written
instruments properly executed on behalf of the Corporation; and generally,
shall perform such other duties as may be prescribed from time to time by the
Board, the Chairman or the President.
3.5 The Board shall appoint one or more Assistant Secretaries.
The Assistant Secretaries shall perform such duties as shall be prescribed by
the Board, The Chairman, the President or the Secretary.
3.6 The Board may appoint such other officers (who need not be
directors) and attorneys-in-fact as from time to time may appear to the Board
to be required or desirable to transact the business of the Corporation. Such
officers shall respectively exercise such powers and perform such duties as
pertain to their several offices, or as may be conferred upon, or assigned to,
them by the Board or the President.
<PAGE> 4
ARTICLE 4: CERTIFICATES AND TRANSFERS OF STOCK
4.1 Certificates for Shares. Subject to the second paragraph of
this Section 4.1, every holder of shares of stock of the Corporation shall be
entitled to have a certificate representing all shares to which he is entitled.
The certificates shall be signed by the President or any Vice President and by
the Treasurer or an Assistant Treasurer, or by the Secretary or an Assistant
Secretary. Such signatures may be facsimiles if the certificate is manually
signed on behalf of a transfer agent or registrar other than the Corporation
itself or an employee of the Corporation. In case any officer who signed, or
whose facsimile signature has been placed upon, such certificate shall have
ceased to be such officer before such certificate is issued, it may be issued
by the Corporation with the same effect as if he were such officer at the date
of its issuance. The certificates representing the stock of the Corporation
shall be in such form as shall be approved by the Board of Directors.
4.2 Transfers of stock shall be made on the books of the
Corporation only by the person named in the certificate in the case of
uncertificated securities, or by attorney lawfully constituted in writing, and,
in the case of certificated securities, upon surrender and cancellation of a
certificate or certificates for a like number of shares of the same class of
stock, with duly executed assignment and power of transfer endorsed thereon or
attached thereto, and with such proof of the authenticity of the signatures as
the Corporation or its agents may reasonably require. No transfer of stock
other than on the records of the Corporation shall affect the right of the
Corporation to pay any dividend upon the stock to the holder of record thereof
or to treat the holder of record as the holder in fact thereof for all
purposes, and no transfer shall be valid, except between the parties thereto,
until such transfers shall have been made upon the records of the Corporation.
4.3 With respect to voting rights, the shares of stock shall be
considered indivisible. In the case of shares belonging to several persons
collectively, the co-owners shall appoint a representative to act on behalf of
the group.
4.4 If the loss, theft or destruction of a Certificate is
reasonably established before the Board of Directors, the latter may authorize
the issuance of a duplicate, provided the concerned stockholder presents before
the Board of Directors a sworn statement in which the stockholder described
circumstances surrounding the loss, theft or destruction of said Certificate,
and if the Board of Directors so require give the Corporation a bond of
indemnify, in form and with one or more sureties satisfactory to the Board, in
such sum as it may direct as indemnify against any claim which may be made
against the Corporation with respect to the Certificate alleged to have been
lost, stolen or destroyed.
4.5 The Board of Directors may, in its discretion, appoint one or
more banks or trust companies in any such city or cities as the Board of
Directors may deem advisable, including any banking subsidiaries of the
Corporation, from time to time, to act as Transfer Agents and Registrars of the
stock or other securities of the Corporation; and upon such appointments being
made, no stock certificate shall be valid until countersigned by one of
<PAGE> 5
such Agents and registered by one of such Registrars.
4.6 The Board of Directors may close the Stock Book in their
discretion for a period not exceeding fifty (50) days preceding any meeting of
the Stockholders, or the day appointed for the payment of dividends.
ARTICLE 5: WAIVER OF NOTICE
5.1 Any stockholder, director or officer may waive, in writing,
any notice required to be given under these By-Laws.
ARTICLE 6: FISCAL YEAR
6.1 The fiscal year of the Corporation shall commence on the
first day of January and shall end on the thirty-first day of December of each
year.
ARTICLE 7: PROFITS AND DIVIDENDS
7.1 Dividends upon the capital stock of the Corporation, subject
to the provisions of the Certificate of Incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock.
7.2 Before payment of any dividend or making any distribution of
profits, there may be set aside out of any funds of the Corporation available
for dividends as the Board of Directors form time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Board of Directors shall think
conducive to the interest of the Corporation, and, the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE 8: SEAL
8.1 The corporate seal shall have inscribed thereon the name of
the Corporation and the words "Commonwealth of Puerto Rico". The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
<PAGE> 1
EXHIBIT 4.1
<TABLE>
<S> <C> <C>
Numero POPULAR, INC. Acciones Comunes
[SEAL] [SEAL]
Number San Juan, Puerto Rico Common Shares
Num. del Accionista Incorporado bajo las leyes del Estado Libre Asociado de Puerto Rico
[SEAL] Incorporated under the laws of the Commonwealth of Puerto Rico
Stockholder No. ESTE CERTIFICADO ES TRANSFERIBLE EN SAN JUAN, PUERTO RICO -----------------
THIS CERTIFICATE IS TRANSFERABLE IN SAN JUAN, PUERTO RICO CUSIP 733174 10 6
-----------------
Certificamos que la(s) persona(s) o entidad(es) que se indica(n) a continuacion, a saber:
This is to certify that the person(s) or entity(ies) who is (are) mentioned below, to wit:
es (son) dueno(s) de
is (are) the owner(s) of
accion(es) comun(es), de un valor par de $ cada una, del capital social de POPULAR, INC.
common shares, of a par value of $ each, of the capital stock of POPULAR, INC.
Transferibles solamente en los libros de la Corporacion personalmente por el poseedor o por su apoderado
Legalmente autorizado, mediante la entrega de este Certificado debidamente endosado.
Transferable only on the books of the Corporation personally by the holder hereof or by his duly authorized
attorney upon surrender of this Certificate properly endorsed.
EN TESTIMONIO DE LO CUAL aparecen el facsimile del sello de la
Corporacion y el facsimile de las firmas de sus oficiales autorizados.
IN WITNESS WHEREOF, the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
Countersigned and Registered:
BANCO POPULAR DE PUERTO RICO (Signature)
TRANSFER AGENT AND REGISTRAR
President/Presidente
By [SEAL]
(Signature)
Authorized Signature Secretary/Secretario
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
Hasta el Momento de Separacion (segun se define en el Acuerdo de Derechos al que nos referimos mas adelante), este certificado
tambien evidencia y concede al tenedor ciertos Derechos que se establecen en un Acuerdo de Derechos fechado el 13 de agosto de 1998
(el cual puede ser enmendado, en adelante el "Acuerdo") entre Popular, Inc., (en adelante la "Compania") y Banco Popular de Puerto
Rico, como Agente de Derechos, los terminos de los cuales se incorporan aqui por referencia y copia del cual se guarda en archivo en
las oficinas ejecutivas de la Compania. Bajo ciertas circunstancias, segun establece el Acuerdo, estos Derechos pueden redimirse,
pueden intercambiarse por valores o activos de la Compania o valores de otra entidad, pueden intercambiarse por acciones comunes u
otros valores o activos de la Compania, pueden expirar, pueden advenir nulos (si son "Propiedad para el Beneficio" de un
"Adquirente" o un afiliado o asociado de este, segun se definen estos terminos en el Acuerdo, o por cualquier cesionario de
cualquiera de los anteriores) o puede ser evidenciado por certificados separados y dejar de serlo ya por este certificado. La
Compania enviara por correo o facilitara el envio por correo, sin cargo alguno, de una copia del Acuerdo al tenedor de este
certificado a solicitud por escrito de este.
Until the Separation Time (as defined in the Rights Agreement referred to below), this certificate also evidences and entitles the
holder hereof to certain Rights as set forth in a Rights Agreement, dated as of August 13, 1998 (as such may be amended from time to
time, the "Rights Agreement"), between Popular, Inc. (the "Company") and Banco Popular de Puerto Rico, as Rights Agent, the terms of
which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of the Company.
Under certain circumstances, as set forth in the Rights Agreement, such Rights may be redeemed, may become exercisable for
securities or assets of the Company or securities of another entity, may be exchanged for shares of Common Stock or other securities
or assets of the Company, may expire, may become void (if they are "Beneficially Owned" by an "Acquiring Person" or an Affiliate
or Associate thereof, as such terms are defined in the Rights Agreement, or by any transferee of any of the foregoing) or may be
evidenced by separate certificates and may no longer be evidenced by this certificate. The Company will mail or arrange for the
mailing of a copy of the Rights Agreement to the holder of this certificate without charge after the receipt of a written request
thereof.
The Corporation will furnish without charge to each stockholder who so requests a statement of the powers, designations,
preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though
they were written out in full according to applicable laws or regulations:
TEN COM -as tenants in common UNIF GIFT MIN ACT- Custodian
TEN ENT -as tenants by the entireties ------------ ------------
JT TEN -as joint tenants with right (Cust) (Minor)
of survivorship and not as tenants under Uniform Gifts to Minors
in common Act
-----------
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby sell, assign and transfer unto
-----------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------Shares
of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
- ----------------------------------------------------------------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Company with full power of substitution in the premises.
Dated
----------------------------------------
------------------------------------------------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF
THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- -----------------------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
</TABLE>
<PAGE> 1
EXHIBIT 10.8
BANCO POPULAR
ANNUAL INCENTIVE PLAN
PRESIDENT & CEO
In line with the Strategic Plan, the Board of Directors of Banco Popular
approved an Annual Incentive Plan for the President and CEO, as follows:
Annual Incentive Plan
- ---------------------
Incentive Bonus will be granted based on the financial results of Popular, Inc.
according to the following table:
<TABLE>
<CAPTION>
% of Salary
-------------
Bonus Awarded
-------------
- Net Income After Tax (Pro-rated)
-------------------- -------------
<S> <C>
Budget 15%
105% of Budget 20%
Over 105% of Budget 25%
</TABLE>
<TABLE>
<CAPTION>
- ROE Incentive
-------------
<S> <C>
15.00% 10%
15.50% 15%
16.00% 20%
16.50% 25%
17.00%+ 30%
</TABLE>
- In addition, the Incentive Bonus may be increased by 25% when
shareholder returns exceed 20% annually on a rolling three-year basis.
Total Shareholder Returns represents the compounded annual yield of the
stock, considering the market appreciation, dividends received and
dividend reinvested.
If no less than 95% of the Budget is achieved, the Human Resources and
Compensation Committees shall consider the President and CEO's personal
efforts, outside factors, economic situation and unanticipated conditions and
may recommend awarding a percentage of the Incentive that shall not be less
than 5.00% nor more than 15.00% of salary.
1
<PAGE> 2
BANCO POPULAR
ANNUAL COMPENSATION PLAN
SENIOR MANAGEMENT COUNCIL
In line with the Strategic Plan, the Board of Directors of Banco Popular has to
approve a Senior Management Council Salary and Annual Incentive Program as
follows:
PARTICIPANTS:
Senior Executive Vice President and Executive Vice President reports directly
to the President subject to annual confirmation by the Board of Directors. The
participants are:
SALARY INCREASES:
Salary increases will be based on two components: Team Performance and
Individual Review. The parameter for Team Performance is based on the financial
results of Popular, Inc.
<TABLE>
<CAPTION>
NET INCOME AFTER TAX TEAM INCREASE INDIVIDUAL REVIEW TOTAL POTENTIAL INCREASE
- -------------------- ------------- ----------------- ------------------------
<S> <C> <C> <C>
Under Budget 0% 0-4% 0-4%
Budget 4% 0-8% 4-12%
105% of budget 5% 0-10% 5-15%
110% of budget 6% 0-12% 6-18%
Over 100% of budget 7% 0-14% 7-21%
</TABLE>
ANNUAL INCENTIVE PLAN:
Incentive Bonus will be granted based on the financial results of Popular, Inc.
according to the following table:
<TABLE>
<CAPTION>
% OF SALARY
BONUS AWARDED
NET INCOME AFTER TAX (PRO-RATED)
- -------------------- -------------
<S> <C>
Budget 15%
105% of Budget 20%
Over 105% of Budget 25%
ROE INCENTIVE
- -------------
15.00% 10%
15.50% 15%
16.00% 20%
16.50% 25%
17.00%+ 30%
</TABLE>
2
<PAGE> 3
In addition, the Incentive Bonus may be increased by 25% when shareholder
returns exceed 20% annually on a rolling three-year basis. Total
Shareholder Returns represents the compounded annual yield of the stock,
considering the market appreciation, dividends received and dividend
reinvested.
If no less than 95% of the Budget is achieved, the Human Resources and
compensation Committees shall meet with the Corporation's President and CEO to
consider the SMC's personal efforts, outside factors, economic situation and
unanticipated conditions and may recommend awarding a percentage of the
Incentive that shall not be less than 5.00% nor more than 15.00% of salary.
3
<PAGE> 4
Banco Popular de Puerto Rico
(The "Bank")
Administrative Committee
MANAGEMENT INCENTIVE
--------------------
The incentive bonus will be granted based on the achievement of
individuals and financial goals, established in the following components:
I. FINANCIAL GOALS
BASED ON NET INCOME BUDGETED FOR THE BANK
<TABLE>
<CAPTION>
% OF ANNUAL SALARY
------------------
<S> <C>
100% of Budget 5.0%
105% of Budget 7.5%
over 105% 10.0%
</TABLE>
RETURN ON EQUITY OF POPULAR, INC.
<TABLE>
<CAPTION>
<S> <C>
15.00% 1.0%
15.50% 2.0%
16.00% 3.0%
16.50% 4.0%
17.00% 5.0%
</TABLE>
RETURN OF POPULAR, INC.'S SHAREHOLDERS
The incentive achieved with the first two components may be increased by
25% when shareholders returns exceed 20% annually on a rolling three-year basis.
Total Shareholders Returns represents the compounded annual yield of the stock,
considering the market appreciation, dividends received and dividend reinvested.
MAXIMUM OF THE INCENTIVE BY FINANCIAL GOALS
The incentive achieved with the first three components should not exceed
15% of the basic salary.
II. INDIVIDUALS GOALS
The incentive for the achievement of individuals goals will be from 0 up
to 15% of the annual basic salary. Nevertheless, to participate in this annual
incentive, the Bank should achieve the budgeted financial goals and the
participant should achieve 75% of the individuals goals.
4
<PAGE> 5
Banco Popular de Puerto Rico
(The "Bank")
Human Resources Division
Managers of Departments and Branches
Management Incentive
--------------------
The incentive bonus will be granted based on individuals and
financials goals, established in the following components:
I. FINANCIAL GOALS
BASED ON NET INCOME BUDGETED FOR THE BANK
<TABLE>
<CAPTION>
% OF ANNUAL BASIC SALARY
------------------------
<S> <C>
100% of Budget 2%
105% of Budget 4%
over 105% 6%
</TABLE>
II. INDIVIDUALS GOALS
The incentive for the achievement of the individuals goals will be
from 0 up to 15% of the annual basic salary. Nevertheless, to participate in
this annual incentive, the Bank should achieve its budgeted financial goals and
the participant should achieve not less than 75% of the individuals goals.
5
<PAGE> 1
EXHIBIT 10.8.2
POPULAR, INC.
SENIOR EXECUTIVE
LONG TERM INCENTIVE PLAN
DOCUMENT
<PAGE> 2
ARTICLE 1
PURPOSE
1.1 Popular, Inc. has adopted the Senior Executive Long Term Incentive
Plan to provide incentive compensation to selected Employees.
1.2 The purpose of the Plan is to promote the success of the Corporation
by:
(a) attracting and retaining as Senior Executives of the
Corporation competent and experienced individuals;
(b) offering a long term incentive opportunity to Senior
Executives, that, together with other forms of remuneration,
is comparable to that of the Peer Group;
(c) motivating Senior Executives by rewarding good performance
and encouraging greater focus on the Corporation's long term
objectives; and
(d) providing Senior Executives with the opportunity to obtain an
additional interest in the Corporation through stock
ownership.
<PAGE> 3
ARTICLE 2
DEFINITIONS
2.1 "Average Closing Price" means the average of the closing price, as
reported on the national market where the Stock is traded or as
reported by a nationally recognized stock quotation service, on each
Friday of the months of November and December preceding the beginning
of the Plan Year, and January and February following the beginning of
the Plan Year.
2.2 "Beneficiary" means the beneficiary or beneficiaries designated by the
Participant to receive the amount, if any, payable under the Plan upon
the death of a Participant.
2.3 "Board of Directors" means the Board of Directors of Popular, Inc.
2.4 "Change in Control" refers to change in ownership, control, or power
to vote 25 percent or more of the outstanding shares of any class of
voting securities of the Corporation, or the direct or indirect
acquisition of all or substantially all of the assets of the
Corporation, by an individual (or group of individuals acting in
concert), a partnership, corporation or any other business entity not
directly or indirectly controlled by the Corporation. A Change of
Control will not be deemed to have occurred solely because of the
acquisition of shares of stock of the Corporation by any employee
benefit plan maintained by the Corporation or other entity controlled
by the Corporation.
2.5 "Corporation" means Popular, Inc. and its divisions or wholly-owned
subsidiaries which adopt this Plan, and any successor to Popular, Inc.
by merger, purchase, reorganization, or otherwise.
<PAGE> 4
2.6 "Disability" means the total and permanent inability to perform
services for the Corporation as determined under the Long Term
Disability (LTD) plan which the Corporation sponsors, and the receipt
of benefits under that LTD plan.
2.7 "Discharge for Cause" means discharge from the Corporation because of
a conviction for a felony, embezzlement of Corporate funds, fraud, or
repeated acts of willful dishonesty which have a material adverse
effect on the Corporation.
2.8 "Employee" means an employee of the Corporation.
2.9 "Human Resources and Compensation Committee" or "Committee" means the
committee appointed by the Board of Directors to determine and
administer various human resource and compensation matters and plans
for Employees of the Corporation.
2.10 "Incentive Payment" means the award paid to the Participant at the
conclusion of a Plan Year as determined pursuant to the terms of
Article 4.
2.11 "Measurement" means the definition of the full amount or multiple of
the Incentive Payment that may be paid if the Target is attained or is
exceeded pursuant to the terms of Article 4.
2.12 "Participant" means the President and CEO of the Corporation and any
other Employee of the Corporation designated as a participant in the
Plan pursuant to the terms of Article 3.
2.13 "Peer Group" means the group of institutions of similar
characteristics, such as size, scope or business orientation, selected
by the Committee for purposes of performance comparison.
<PAGE> 5
2.14 "Plan Year" means a three year period beginning on January 1st of the
first year and ending on December 31st of the third year. The first
Plan Year is January 1, 1994 through December 31, 1996.
2.15 "President and CEO" means the President and CEO of Popular, Inc.
2.16 "Plan" means the Popular, Inc. Senior Executive Long Term Incentive
Plan.
2.17 "Retirement" means separation from service as a retiree eligible to
immediately receive benefits under a qualified defined benefit
retirement plan (retirement benefits may be postponed without
affecting this definition of retirement) sponsored by the Corporation.
If no such plan exists, separation from service as a retiree after age
55 shall constitute a retirement under the Plan.
2.18 "Rules" refers to the rules that will direct the Plan Year as
described in Article 4.
2.19 "Senior Executive" refers to an Employee that reports to the President
and CEO, that participates or has authority to participate in major
policy making functions of the Corporation and whose decisions help
determine the long-term performance of the Corporation.
2.20 "Stock" means Popular, Inc.'s common stock.
2.21 "Target" means the goal that triggers 100% of the Incentive Payment
under the Plan as determined pursuant to Article 4.
<PAGE> 6
ARTICLE 3
PARTICIPATION
3.1 Prior to the beginning of a Plan Year, or within three months
thereafter, the President and CEO shall recommend for approval by the
Committee, Senior Executives as Participants (excluding the position
of President and CEO). The President and CEO may recommend for
approval by the Committee, additional Senior Executives as
Participants, provided, however, that such participation in the Plan
shall be prospective from the date the person becomes a Participant.
Prior to the beginning of a Plan Year, or within three months
thereafter, the Committee shall decide the eligibility of the
President and CEO.
3.2 The Committee shall issue a notification in writing to each person
selected as a Participant.
3.3 Once approved for participation in the Plan, the Participant shall
continue as such during:
(a) the Plan Year for which the Participant was originally
selected; and
(b) future Plan Years.
3.4 Participation in the Plan will cease if:
(a) the Participant changes position and is no longer a Senior
Executive at the beginning of a new Plan Year, or
(b) a specific recommendation is made by the President and CEO to
remove the Senior Executive as Participant in future Plan
Years and the recommendation is approved
<PAGE> 7
by the Committee; or in regard to the position of President
and CEO, the Committee decides to remove the President and
CEO as Participant in future Plan Years.
The Committee shall notify the affected Senior Executive in writing
that participation in future Plan Years has ceased.
<PAGE> 8
ARTICLE 4
LONG TERM INCENTIVES
4.1 Prior to the beginning of each fiscal year, or within three months
thereafter, the President and CEO shall recommend the Rules that shall
apply to the Plan Year commencing at such time, for approval by the
Committee.
4.2 The Rules shall provide for the Plan to make Incentive Payments to the
Participants based on the principles described hereunder.
(a) At the beginning of a Plan Year, the Rules shall ascertain
the percentage of the base salary in effect at the beginning
of the year or three months thereafter that will constitute
the basis for the determination of the Incentive Payment for
the Plan Year.
(b) The Committee shall calculate the Incentive Payment to be
made to each Participant based on achievement of the Target
and the Measurement. The Incentive Payment shall equal: the
dollar amount calculated in 4.2(a) divided by the Average
Closing Price to determine the number of shares of Stock to
be acquired at the beginning of the Plan Year, that after
adding reinvested dividends, will be multiplied by the
Measurement to determine the Incentive Payment for the Plan
Year. Fractional shares will be permitted.
(c) The Rules shall define and set the Target to be used for the
Plan Year. The Target shall be financial, developmental,
quantitative, qualitative, or a combination of such factors,
which, if attained, shall promote the long term success of
the Corporation.
(d) The Rules shall define the Measurement to be used in relation
to the Target for each Plan Year. The Measurement may include
a leverage factor which shall be a factor or formula by which
the Incentive Payment is multiplied if the Target is exceeded
or
<PAGE> 9
a threshold factor which shall be a factor or formula by
which the Incentive Payment is multiplied if the Target is
not met.
(e) The President and CEO may make a recommendation, for all
positions except that of President and CEO, for approval by
the Committee, to change the Target or Measurement at any
time. Such change would only provide increased potential for
an Incentive Payment, to reflect special opportunities and/or
circumstances that were unknown at the beginning of the Plan
Year which would otherwise limit or prohibit an Incentive
Payment. The Committee may make a similar decision with
respect to the President and CEO.
(f) Dividends payable on the shares of Stock acquired pursuant to
the Plan, will be reinvested in shares of Stock through such
reinvestment vehicle as shall be determined in the Rules.
Fractional shares are permitted.
(g) The President and CEO may recommend, for all positions except
that of President and CEO, a discretionary Incentive Payment,
to reflect special opportunities and/or circumstances that
were unknown at the beginning of the Plan Year. The Committee
shall have the ability to make a similar decision with regard
to the President and CEO.
4.3 The Incentive Payment shall be made within 60 days after publication
of the financial results for Popular, and the Peer Group for the last
fiscal year that makes up the Plan Year.
4.4 The Incentive Payment shall be made in Stock. The Committee shall
provide for the withholding of any income taxes as prescribed by law
or regulation, or as requested by the Participant.
<PAGE> 10
ARTICLE 5
SEPARATION FROM SERVICE
5.1 If a Participant separates from service due to Retirement, Disability
or death, the Participant or Beneficiary shall receive that portion of
the Incentive Payment which corresponded to the time elapsed from the
beginning of the Plan Year to the time of separation of the
Participant. Incentive Payments shall be disbursed to the Participant
or Beneficiary at the end of the Plan Year pursuant to the terms
hereof. However, the Committee may, at its option, make the
corresponding payment prior to the termination of the Plan Year if as
of the time of separation the Target has been achieved or if a
determination is made that special circumstances merit such payment
prior to termination
5.2 If a Participant separates from service from the corporation through
resignation from employment or is subject to Discharge for Cause, no
Incentive Payments shall be made.
<PAGE> 11
ARTICLE 6
GENERAL MATTERS
6.1 The Committee shall be the administrator of the Plan. As the
administrator, the Committee shall be vested with the general
administration of the Plan including the exclusive right to interpret
the Plan. The decisions, actions, and records of the Committee shall
be conclusive and binding upon the Corporation and all persons having
or claiming to have an interest in or under the Plan provided,
however, that any such interpretation, decision, action or record,
shall be subject to revision by the Board of Directors of the
Corporation.
6.2 The Committee shall appoint the officers of the Corporation, that
shall attend to the day-to-day administration of the Plan.
6.3 All expenses of the Plan will be paid by the Corporation.
6.4 The Corporation will purchase the Stock to act as the basis for the
Incentive Payments within three months of the date the Plan Year
commences. Participants shall have no right, title, or interest in
such Stock purchased hereunder, or dividends paid, until the
Participant acquires a right to receive an Incentive Payment under the
Plan. In the event a Participant does not acquire the right to
receive the Incentive Payment for a Plan Year, the Corporation may
roll-over to the Plan Year commencing immediately after the end of the
Plan Year for which no Incentive Payment is made, the total amount of
Shares acquired by the Corporation for the payment of the Incentive
Payment for the Plan Year for which no payment is made.
<PAGE> 12
6.5 The Corporation may establish a trust to hold the assets of the Plan,
if any. The terms and conditions of such trust shall govern the rights
of Participants to any funds or assets. Provided, however, that any
trust established by the Corporation pursuant hereto shall not
contravene the objectives of the Plan.
6.6 The Plan may be amended or terminated at any time by the Board of
Directors of the Corporation provided, however, that no amendment or
termination may have an adverse impact upon the vested rights of any
Participant to any Incentive Payment.
6.7 In the event of a Change in Control, the Participant shall have the
right to the Incentive Payment, if any, for the current Plan Year
pursuant to the terms of the Plan. The Committee in place prior to the
Change in Control or such other persons designated by the Committee,
will continue to administer the Plan until the Incentive Payment, if
any, is calculated and disbursed to the Participant. The Plan shall be
binding on any successor or assign of the Corporation in the event of,
Change in Control of the Corporation.
6.8 The Plan will not affect the Participant's rights to participate in
any other plan or program sponsored by the Corporation.
6.9 The Plan gives no employment rights to the Participant.
6.10 To the extent that a Participant acquires a right to receive an
Incentive Payment under the Plan, such right shall be no greater than
that of an unsecured creditor of the Corporation.
6.11 The Plan will be governed by and construed in accordance with the Laws
of the Commonwealth of Puerto Rico.
6.12 The Plan is not designed to fall under the law or regulations issued
pursuant to the Employee Retirement Income Security Act of 1974
(ERISA) as amended from time to time.
<PAGE> 1
Exhibit 10.12.2
AGREEMENT, ACKNOWLEDGMENT AND CONSENT
AGREEMENT, ACKNOWLEDGMENT AND CONSENT dated as of
December 31, 1998 (this "Agreement"), by and among CREDIT
SUISSE FIRST BOSTON ("CSFB"), POPULAR, INC., POPULAR NORTH
AMERICA, INC. (together with Popular, Inc., the
"Borrowers") and THE CHASE MANHATTAN BANK ("Chase"), as
administrative agent (in such capacity, the
"Administrative Agent").
A. Reference is made to the Credit Agreement dated as of
October 29, 1998 (the "Credit Agreement"), among the Borrowers, the financial
institutions from time to time party thereto, initially consisting of those
listed on Schedule 2.01 (the "Lenders") and the Administrative Agent.
Capitalized terms used but not otherwise defined herein have the meaning
assigned to them in the Credit Agreement.
B. The Lenders have agreed to extend credit to the Borrowers
in the form of Revolving Loans in an aggregate principal amount of $320,000,000
on the terms and subject to the conditions set forth in the Credit Agreement.
C. The Borrowers have requested that the Lenders increase
their individual commitments in an aggregate amount of $50,000,000 effective
December 31, 1998.
D. Each Lender has declined or is deemed to have declined to
increase its Commitment pursuant to Section 2.22 of the Credit Agreement.
E. The Borrowers have arranged for CSFB to become a party to
the Credit Agreement and to extend a Commitment of $25,000,000.
NOW, THEREFORE, in consideration of the mutual agreements
herein contained and other good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, the Borrowers, CSFB and the
Administrative Agent agree, acknowledge and consent as follows:
SECTION 1. Borrowers' Acknowledgements. The Borrowers
acknowledge that, pursuant to Section 2.22 of the Credit Agreement, they have
requested that (i) the aggregate amount of the Commitments be increased to
$345,000,000, (ii) CSFB become a Lender under the Credit Agreement and (iii)
CSFB extend credit under the Credit Agreement in the amount of $25,000,000.
<PAGE> 2
2
SECTION 2. Extension of Credit and Commitment of CSFB. CSFB
agrees to become a Lender under the Credit Agreement and to extend credit to the
Borrowers on the terms and subject to the conditions set forth in the Credit
Agreement. CSFB further agrees that its Revolving Credit Commitment under the
Credit Agreement shall be $25,000,000.
SECTION 3. Consent of the Administrative Agent. The
Administrative Agent consents to the addition of CSFB as a Lender under the
Credit Agreement.
SECTION 4. Certification of the Borrowers. Pursuant to Section
2.22 of the Credit Agreement, the Borrowers hereby certify that as of the date
hereof:
(a) No Default or Event of Default has occurred and is
continuing.
(b) The representations and warranties set forth in Article
III of the Credit Agreement are true and correct in all material
respects on and as of the date hereof with the same effect as though
made on and as of such date, except to the extent such representations
and warranties expressly relate to an earlier date.
(c) The Borrowers are in compliance with all the terms and
provisions set forth in the Credit Agreement and in each other Loan
Document on its part to be observed or performed as of the date hereof.
SECTION 5. Effectiveness. This Agreement shall effective upon
the satisfaction in full of the following conditions precedent:
(a) The Administrative Agent shall have received counterparts
hereof, duly executed and delivered by the Borrowers, CSFB and the
Administrative Agent; and
(b) The Borrowers shall have delivered to the Administrative
Agent documents consistent with those delivered under clauses (a) and
(c) of Section 4.02 as to the corporate power and authority of the
Borrowers to borrow under the Credit Agreement after giving effect to
the $25,000,000 increase of the aggregate commitments pursuant to
Section 2.22.
SECTION 6. Applicable Law. THIS AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF NEW YORK.
<PAGE> 3
3
SECTION 7. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one contract. This Agreement may
be delivered by facsimile transmission of the relevant signature pages hereof.
SECTION 8. Headings. Section headings used herein are for
convenience of reference only, are not part of this Agreement and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Agreement.
<PAGE> 4
4
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
POPULAR, INC.,
by
----------------------------------------
Name:
Title:
POPULAR NORTH AMERICA, INC.,
by
----------------------------------------
Name:
Title:
CREDIT SUISSE FIRST BOSTON,
by
----------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
as Administrative Agent,
by
----------------------------------------
Name:
Title:
<PAGE> 5
Exhibit 10.12.2 (2)
AMENDMENT dated as of February 12, 1999, to
the Credit Agreement dated as of October 29, 1998,
among POPULAR, INC., POPULAR NORTH AMERICA INC., the
Lenders party thereto and THE CHASE MANHATTAN BANK,
as Administrative Agent.
WHEREAS, the Borrowers (such term and each other capitalized
term used but not defined herein having the meaning assigned to it in the Credit
Agreement), have requested that the Lenders approve an amendment to a certain
provision of the Credit Agreement; and
WHEREAS, the undersigned Lenders are willing, on the terms and
subject to the conditions set forth herein, to approve such amendment;
NOW, THEREFORE, in consideration of these premises, the
Borrowers and the undersigned Lenders hereby agree as follows:
SECTION 1. Amendment. Effective as of the Amendment Effective
Date (as defined in Section 2 hereof), Section 6.08 of the Credit Agreement is
hereby amended to increase the maximum double leverage ratio by replacing the
"125%" at the end of Section 6.08 with "130%".
SECTION 2. Effectiveness. This Amendment shall become
effective as of the date (the "Amendment Effective Date") when the
Administrative Agent (or its counsel) shall have received copies hereof that,
when taken together, bear the signatures of the Borrowers and the Required
Lenders.
SECTION 3. Applicable Law. This Amendment shall be
construed in accordance with and governed by the law of the State
of New York.
SECTION 4. No Other Amendments. Except as expressly set forth
herein, this Amendment shall not by implication or otherwise limit, impair,
constitute a waiver of, or otherwise affect the rights and remedies of any party
under, the Credit Agreement, nor alter, modify, amend or in any way affect any
of the terms, conditions, obligations, covenants or agreements contained in the
Credit Agreement, all of which are ratified and affirmed in all respects and
shall continue in full force and effect. This Amendment shall apply and be
effective only with respect to the provisions of the Credit Agreement
specifically referred to herein.
SECTION 5. Counterparts. This Amendment may be executed in two
or more counterparts, each of which shall constitute an original, but all of
which when taken together
<PAGE> 6
2
shall constitute but one contract. Delivery of an executed counterpart of a
signature page of this Amendment by facsimile transmission shall be as effective
as delivery of a manually executed counterpart of this Amendment.
SECTION 6. Headings. Section headings used herein are for
convenience of reference only, are not part of this Amendment and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Amendment.
SECTION 7. Expenses. The Borrowers shall reimburse the
Administrative Agent for its reasonable out-of-pocket expenses incurred in
connection with this Amendment, including the reasonable fees and expenses of
Cravath, Swaine & Moore, counsel for the Administrative Agent.
IN WITNESS WHEREOF, the Borrowers and the undersigned Lenders
have caused this Amendment to be duly executed by their duly authorized
officers, all as of the date first above written.
POPULAR, INC.,
by
-----------------------------------
Name:
Title:
by
-----------------------------------
Name:
Title:
POPULAR NORTH AMERICA, INC.,
by
-----------------------------------
Name:
Title:
by
-----------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
by
-----------------------------------
Name:
Title:
<PAGE> 7
3
BARCLAYS BANK PLC
by
-------------------------
Name:
Title:
CARIPLO-CASSA DI RISPARMIO DELLE
PROVINCIE LOMBARDE S.P.A.
by
-------------------------
Name:
Title:
by
-------------------------
Name:
Title:
CITIBANK, N.A.
by
-------------------------
Name:
Title:
COMERICA BANK
by
-------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO
by
-------------------------
Name:
Title:
LASALLE NATIONAL BANK
by
-------------------------
Name:
Title:
<PAGE> 8
4
NORDDEUTSCHE LANDESBANK
GIROZENTRALE NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
by
-------------------------
Name:
Title:
by
-------------------------
Name:
Title:
BANCO BILBAO VIZCAYA S.A.
by
-------------------------
Name:
Title:
BANCA MONTE DEI PASCHI DI SIENA
S.P.A. NEW YORK BRANCH
by
-------------------------
Name:
Title:
by
-------------------------
Name:
Title:
MELLON BANK
by
-------------------------
Name:
Title:
BANCA CRT SPA
by
-------------------------
Name:
Title:
by
-------------------------
Name:
Title:
<PAGE> 9
Exhibit 10.12.2 (3)
================================================================================
CREDIT AGREEMENT
Dated as of October 29, 1998
among
POPULAR, INC.,
POPULAR NORTH AMERICA, INC.,
THE LENDERS NAMED HEREIN
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
CHASE SECURITIES, INC.
as advisor, arranger and book manger
================================================================================
[CS&M Ref. No. 6700-751]
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Section Page
- ------- ------- ----
<S> <C> <C>
I. DEFINITIONS ................................................................... 1
1.01. Defined Terms ................................................. 11
1.02. Terms Generally ............................................... 12
II. THE CREDITS ................................................................... 12
2.01. Commitments.................................................... 12
2.02. Loans ......................................................... 12
2.03. Competitive Bid Procedure ..................................... 14
2.04. Borrowing Procedure ........................................... 16
2.05. Evidence of Debt; Repayment of Loans .......................... 16
2.06. Fees .......................................................... 17
2.07. Interest on Loans ............................................. 18
2.08. Default Interest .............................................. 18
2.09. Alternate Rate of Interest .................................... 18
2.10. Termination and Reduction of Commitments....................... 19
2.11. Prepayment .................................................... 19
2.12. Reserve Requirements; Change in Circumstances.................. 20
2.13. Change in Legality ............................................ 21
2.14. Indemnity ..................................................... 21
2.15. Pro Rata Treatment ............................................ 22
2.16. Sharing of Setoffs ............................................ 22
2.17. Payments ...................................................... 23
2.18. Taxes ......................................................... 23
2.19. Assignment of Commitments Under Certain Circumstances.......... 26
2.20. Cross Guaranty................................................. 27
2.21. Extension of Revolving Credit Maturity Date.................... 28
2.22. Increase in Commitments........................................ 29
III. REPRESENTATIONS AND WARRANTIES................................................. 31
3.01. Organization; Powers .......................................... 31
3.02. Authorization ................................................. 31
3.03. Enforceability ................................................ 31
3.04. Governmental Approvals ........................................ 31
3.05. Financial Statements .......................................... 32
</TABLE>
<PAGE> 11
Contents, p. 2
<TABLE>
<CAPTION>
Article Section Page
<S> <C> <C>
3.06. No Material Adverse Change..................................... 32
3.07. Title to Properties; Possession Under Leases................... 32
3.08. Subsidiaries................................................... 32
3.09. Litigation; Compliance with Laws............................... 32
3.10. Agreements..................................................... 33
3.11. Federal Reserve Regulations.................................... 33
3.12. Investment Company Act; Public Utility Holding Company Act..... 33
3.13. Use of Proceeds................................................ 33
3.14. Tax Returns.................................................... 33
3.15. No Material Misstatements...................................... 33
3.16. Employee Benefit Plans......................................... 34
3.17. Environmental and Safety Matters............................... 34
3.18. Capital Commitments............................................ 34
3.19. Year 2000...................................................... 34
IV. CONDITIONS OF LENDING.......................................................... 35
4.01. All Credit Events ............................................. 35
4.02. First Credit Event ............................................ 35
V. AFFIRMATIVE COVENANTS.......................................................... 36
5.01. Existence; Businesses and Properties........................... 36
5.02 Insurance...................................................... 37
5.03 Obligations and Taxes.......................................... 37
5.04. Financial Statements, Reports, etc............................. 37
5.05. Litigation and Other Notices .................................. 38
5.06. Employee Benefits.............................................. 39
5.07. Maintaining Records; Access to Properties and Inspections...... 39
5.08 Use of Proceeds................................................ 39
5.09 Continuance of Business........................................ 39
5.10 Compliance with Regulatory Standards........................... 40
5.11 Capital Requirements........................................... 40
</TABLE>
<PAGE> 12
Contents, p. 3
<TABLE>
<CAPTION>
Article Section Page
<S> <C> <C>
VI. NEGATIVE COVENANTS............................................................. 40
6.01. Liens.......................................................... 40
6.02. Sale and Lease-Back Transactions............................... 41
6.03. Mergers, Consolidations, Sales of Assets ...................... 41
6.04 Business of Borrowers and Subsidiaries......................... 42
6.05 Consolidated Tangible Net Worth................................ 42
6.06 Ratio of Long-Term Indebtedness to Total Capitalization........ 42
6.07 Non-Performing Assets.......................................... 42
6.08 Double Leverage................................................ 42
VII. EVENTS OF DEFAULT.............................................................. 42
VIII. THE ADMINISTRATIVE AGENT....................................................... 45
IX. MISCELLANEOUS.................................................................. 47
9.01. Notices........................................................ 47
9.02. Survival of Agreement ......................................... 48
9.03. Binding Effect ................................................ 48
9.04. Successors and Assigns ........................................ 48
9.05. Expenses; Indemnity ........................................... 51
9.06. Right of Setoff................................................ 51
9.07. Applicable Law ................................................ 52
9.08. Waivers; Amendment ............................................ 52
9.09 Interest Rate Limitation....................................... 52
9.10. Entire Agreement .............................................. 53
9.11. WAIVER OF JURY TRIAL........................................... 53
9.12. Severability .................................................. 53
9.13. Counterparts .................................................. 53
9.14. Headings ...................................................... 53
9.15. Jurisdiction; Consent to Service of Process.................... 53
9.16 Confidentiality................................................ 54
9.17 Termination of Existing Credit Agreement....................... 54
</TABLE>
<PAGE> 13
Contents, p. 4
EXHIBITS AND SCHEDULES
Exhibit A Form of Assignment and Acceptance
Exhibit B Form of Opinion of Borrowers' Counsel
EXHIBIT C Form of Request for Extension of Maturity Date
<PAGE> 14
1
CREDIT AGREEMENT dated as of October 29, 1998, among
POPULAR, INC., a Puerto Rico corporation ("Popular"),
Popular North America, Inc., a Delaware corporation
("Popular North America"), and together with Popular,
the "Borrowers"), the financial institutions from
time to time party hereto, initially consisting of
those listed on Schedule 2.01 (the "Lenders"), and
The Chase Manhattan Bank, a New York banking
corporation, as agent (in such capacity, the
"Administrative Agent") for the Lenders.
The Borrowers have requested the Lenders to extend credit in
the form of Revolving Loans (such term and each other capitalized term used but
not defined herein having the meaning given it in Article I) at any time and
from time to time prior to the Revolving Credit Maturity Date, in an aggregate
principal amount at any time outstanding not in excess of $320,000,000. The
Borrowers have requested the Lenders to provide a procedure pursuant to which a
Borrower may invite the Lenders to bid on an uncommitted basis on short-term
borrowings by such Borrower. The proceeds of the Loans are to be used for
general corporate purposes, including commercial paper back-up.
The Lenders are willing to extend such credit to the Borrowers
on the terms and subject to the conditions set forth herein. Accordingly, the
parties hereto agree as follows:
ARTICLE I. DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the
following terms shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any Loan bearing interest at the
Alternate Base Rate in accordance with the provisions of Article II.
"Administrative Agent Fees" shall have the meaning assigned to
such term in Section 2.06(c).
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"Administrative Questionnaire" shall mean an Administrative
Questionnaire in a form supplied by the Administrative Agent.
"Affiliate" shall mean, when used with respect to a specified
person, another person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control with the
person specified.
"Aggregate Revolving Credit Exposure" shall mean the aggregate
amount of the Lenders' Revolving Credit Exposures.
"Alternate Base Rate" shall mean, for any day, a rate per
annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the
greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. If for any reason the
Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Federal
Funds Effective Rate for any reason, including the inability or failure of the
Administrative Agent to obtain sufficient quotations in accordance with the
terms thereof, the Alternate Base Rate shall be determined without regard to
clause (b) of the preceding sentence, as appropriate, until the circumstances
giving rise to such inability no longer exist. Any change in the Alternate Base
Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall
be effective on the effective date of such change in the Prime Rate or the
Federal Funds Effective Rate, respectively.
"Applicable Percentage" means, with respect to any Lender, the
percentage of the total Commitments represented by such Lender's Commitment.
"Applicable Rate" shall mean, with respect to any Eurodollar
Loan (other than any Eurodollar Competitive Loan), or with respect to the
Facility Fees, as the case may be, the Applicable Rate set forth below in the
row across from the caption "Eurodollar Spread" or "Facility Fee", as the case
may be, based
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upon the ratings by S&P and Moody's, respectively, applicable on such date to
the Index Debt:
<TABLE>
<CAPTION>
=======================================================================================================
Category 1 Category 2 Category 3 Category 4 Category 5
---------- ---------- ---------- ---------- ----------
A/A2 or A-/A3 BBB+/Baa1 BBB/Baa2 BBB-/Baa3/ or
Higher Lower
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> C> <C> <C>
Eurodollar Spread 25.00 30.00 35.00 42.50 50.00
- -----------------
(bp)
- -------------------------------------------------------------------------------------------------------
Facility Fee (bp) 10.00 12.50 15.00 20.00 25.00
=======================================================================================================
</TABLE>
For purposes of the foregoing, (i) if S&P or Moody's shall not
have in effect a rating for the Index Debt (other than by reason of the
circumstances referred to in the last sentence of this definition), then such
rating agency shall be deemed to have established a rating in Category 5; (ii)
if the ratings established or deemed to have been established by S&P and Moody's
for the Index Debt shall fall within different Categories, the Applicable Rate
shall be based on (A) if the ratings are in adjacent categories, the higher of
the two ratings and (B) if the ratings are in non-adjacent categories, the
rating immediately below the higher of the two ratings; and (iii) if the ratings
established or deemed to have been established by S&P and Moody's for the Index
Debt shall be changed (other than as a result of a change in the rating system
of such rating agency), such change shall be effective as of the date on which
it is first announced by the applicable rating agency. Each change in the
Applicable Rate shall apply during the period commencing on the effective date
of such change and ending on the date immediately preceding the effective date
of the next such change. If the rating system of S&P or Moody's shall change, or
if any such rating agency shall cease to be in the business of rating corporate
debt obligations, the Borrowers and the Lenders shall negotiate in good faith to
amend this definition to reflect such changed rating system or the
non-availability of ratings from such rating agency and, pending the
effectiveness of any such amendment, the Applicable Rate shall be determined
using the rating of such rating agency most recently in effect prior to such
change or cessation.
"Assignment and Acceptance" shall mean an assignment and
acceptance entered into by a Lender and an assignee, and accepted by the
Administrative Agent, in the form of Exhibit B or such other form as shall be
approved by the Administrative Agent.
"Banco Popular" shall mean the Banco Popular de Puerto Rico, a
Puerto Rico bank.
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"Bank Regulatory Authority" shall mean the Board of Governors
of the Federal Reserve System, the Comptroller of the Currency, the Federal
Deposit Insurance Corporation and all other relevant bank regulatory authorities
(including relevant state bank regulatory authorities).
"Bank Subsidiary" shall mean any Subsidiary that is a
commercial bank, banking corporation, savings and loan association, savings
bank, trust company or Edge Act corporation.
"Board" shall mean the Board of Governors of the Federal
Reserve System of the United States.
"Borrowing" shall mean a group of Loans of a single Type made
by the Lenders (or, in the case of a Competitive Borrowing, by the Lender or
Lenders whose Competitive Bids have been accepted pursuant to Section 2.03) on a
single date and as to which a single Interest Period is in effect.
"Borrowing Request" shall mean a request by a Borrower in
accordance with the terms of Section 2.04.
"Business Day" shall mean any day other than a Saturday,
Sunday or day on which banks in New York City are authorized or required by law
to close; provided, however, that (i) when used in connection with a Eurodollar
Loan, the term "Business Day" shall also exclude any day on which banks are not
open for dealings in Dollar deposits in the London interbank market and (ii)
when used in Sections 2.03 and 2.04, the Term "Business Day" shall also exclude
any day on which banks in Puerto Rico are authorized or required by law to
close.
"Capital Commitment" shall mean any commitment to the Federal
Deposit Insurance Corporation, the Resolution Trust Corporation, the Director of
the Office of Thrift Supervision, the Comptroller of the Currency, or the Board,
or their predecessors or successors, to maintain the capital of an insured
depository institution.
"Capital Lease Obligations" of any person shall mean the
obligations of such person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
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A "Change in Control" shall be deemed to have occurred if (a)
any person or group (within the meaning of Rule 13d-5 of the Securities Exchange
Act of 1934 as in effect on the date hereof) shall own directly or indirectly,
beneficially or of record, shares representing more than 25% of the aggregate
ordinary voting power represented by the issued and outstanding capital stock of
Popular; (b) a majority of the seats (other than vacant seats) on the board of
directors of a Borrower shall at any time have been occupied by persons who were
neither (i) nominated by the board of directors of a Borrower, nor (ii)
appointed by directors so nominated; (c) Popular shall cease to own, directly or
indirectly, all of the outstanding and issued voting stock of Popular North
America; (d) Popular shall cease to own, directly or indirectly, all of the
outstanding and issued capital stock of Banco Popular (other than directors'
qualifying shares); or (e) any person or group shall otherwise directly or
indirectly control Popular.
"Closing Date" shall mean the date of execution of this
Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as the
same may be amended from time to time.
"Commitment" shall mean, with respect to any Lender, such
Lender's Revolving Credit Commitment.
"Competitive Bid" shall mean an offer by a Lender to make a
Competitive Loan pursuant to Section 2.03.
"Competitive Bid Accept/Reject Letter" shall mean a
notification made by a Borrower pursuant to Section 2.03(d) in a form approved
by the Administrative Agent.
"Competitive Bid Rate" shall mean, as to any Competitive Bid
made by a Lender pursuant to Section 2.03(b), (i) in the case of a Eurodollar
Loan, the Margin, and (ii) in the case of a Fixed Rate Loan, the fixed rate of
interest offered by the Lender making such Competitive Bid.
"Competitive Bid Request" shall mean a request made pursuant
to Section 2.03 in a form approved by the Administrative Agent.
"Competitive Borrowing" shall mean a Borrowing consisting of a
Competitive Loan or concurrent Competitive Loans from the Lender or Lenders
whose Competitive Bids for such Borrowing have been accepted by a Borrower under
the bidding procedure described in Section 2.03.
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"Competitive Loan" shall mean a Loan from a Lender to a
Borrower pursuant to the bidding procedure described in Section 2.03. Each
Competitive Loan shall be a Eurodollar Competitive Loan or a Fixed Rate Loan.
"Consolidated Net Worth" shall mean at any date the Net Worth
of Popular and its consolidated Subsidiaries on such date, determined on a
consolidated basis in accordance with GAAP.
"Consolidated Tangible Net Worth" shall mean, at any date, (a)
Consolidated Net Worth at such date minus (b) with respect to Popular and its
Subsidiaries (determined on a consolidated basis in accordance with GAAP), the
book value of all Intangibles reflected in clause (a) above.
"Control" shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of a
person, whether through the ownership of voting securities, by contract or
otherwise, and "Controlling" and "Controlled" shall have meanings correlative
thereto.
"Credit Event" shall have the meaning assigned to such term in
Section 4.01.
"Default" shall mean any event or condition which upon notice,
lapse of time or both would constitute an Event of Default.
"Dollars" or "$" shall mean lawful money of the United States
of America.
"Equity Investments in Subsidiaries" shall mean, at any date,
Popular's aggregate equity investments in the Subsidiaries, determined in
accordance with GAAP.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as the same may be amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or
not incorporated) that, together with a Borrower, is treated as a single
employer under Section 414 of the Code.
"Eurodollar Borrowing" shall mean a Borrowing comprised of
Eurodollar Loans.
"Eurodollar Competitive Borrowing" shall mean a Borrowing
comprised of Eurodollar Competitive Loans.
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"Eurodollar Competitive Loan" shall mean any Competitive Loan
bearing interest at a rate determined by reference to the LIBO Rate in
accordance with the provisions of Article II.
"Eurodollar Loan" shall mean any Eurodollar Revolving Loan or
Eurodollar Competitive Loan.
"Eurodollar Revolving Credit Borrowing" shall mean a Borrowing
comprised of Eurodollar Revolving Loans.
"Eurodollar Revolving Loan" shall mean any Revolving Loan
bearing interest at a rate determined by reference to the LIBO Rate in
accordance with the provisions of Article II.
"Event of Default" shall have the meaning assigned to such
term in Article VII.
"Existing Credit Agreement" shall mean the Credit Agreement
dated as of November 3, 1995, among Popular, Popular North America, the
financial institutions from time to time party thereto and The Chase Manhattan
Bank, as administrative agent.
"Facility Fee" shall have the meaning assigned to such term in
Section 2.06(a).
"Federal Funds Effective Rate" shall mean, for any day, the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day which is a Business Day,
the average of the quotations for the day of such transactions received by the
Administrative Agent from three Federal funds brokers of recognized standing
selected by it.
"Fee Letter" shall mean the Fee Letter dated September 25,
1998, among the Borrowers, the Administrative Agent and Chase Securities Inc.
"Fees" shall mean the Facility Fees, the Utilization Fees and
the Administrative Agent Fees.
"Financial Officer" of any corporation shall mean the chief
financial officer, principal accounting officer, Treasurer or Controller of such
corporation.
"Fixed Rate Borrowing" shall mean a Borrowing comprised of
Fixed Rate Loans.
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"Fixed Rate Loan" shall mean any Competitive Loan bearing
interest at a fixed percentage rate per annum (expressed as a number of basis
points to no more than four decimal places) specified by the Lender making such
Loan in its Competitive Bid.
"GAAP" shall mean generally accepted accounting principles
applied on a consistent basis.
"Governmental Authority" shall mean any Federal, state, local
or foreign court or governmental agency, authority, instrumentality or
regulatory body.
"Guarantee" of or by any person shall mean any obligation,
contingent or otherwise, of such person guaranteeing or having the economic
effect of guaranteeing any Indebtedness of any other person (the "primary
obligor") in any manner, whether directly or indirectly, and including any
obligation of such person, direct or indirect, (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or to
purchase (or to advance or supply funds for the purchase of) any security for
the payment of such Indebtedness, (b) to purchase or lease property, securities
or services for the purpose of assuring the owner of such Indebtedness of the
payment of such Indebtedness or (c) to maintain working capital, equity capital
or any other financial statement condition or liquidity of the primary obligor
so as to enable the primary obligor to pay such Indebtedness; provided, however,
that the term Guarantee shall not include endorsements for collection or deposit
in the ordinary course of business.
"Guarantors" shall mean the Borrowers, in their capacity as
guarantors under Section 2.20.
"Indebtedness" of any person shall mean, without duplication,
(a) all obligations of such person for borrowed money or with respect to
deposits or advances of any kind, (b) all obligations of such person evidenced
by bonds, debentures, notes or similar instruments, (c) all obligations of such
person upon which interest charges are customarily paid, (d) all obligations of
such person under conditional sale or other title retention agreements relating
to property or assets purchased by such person, (e) all obligations of such
person issued or assumed as the deferred purchase price of property or services
(excluding trade accounts payable and accrued obligations incurred in the
ordinary course of business), (f) all Indebtedness of others secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on property owned or acquired by such
person, whether or not the obligations secured thereby have been assumed, (g)
all Guarantees by such person of Indebtedness of
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others, (h) all Capital Lease Obligations of such person and (i) all obligations
of such person as an account party in respect of letters of credit and bankers'
acceptances, excluding (in all cases) (x) liabilities of any Bank Subsidiary
that constitute "deposits" within the meaning of Section 3(i) of the Federal
Deposit Insurance Act, as amended, and (y) repurchase agreements entered into in
the ordinary course of business with a maturity of less than one year. The
Indebtedness of any person shall include the Indebtedness of any partnership in
which such person is a general partner.
"Index Debt" shall mean the senior, unsecured, non-credit
enhanced, long-term indebtedness for borrowed money of Popular.
"Intangibles" shall mean with respect to any person at any
date the amount of all assets of such person that would be classified as
intangible assets in accordance with GAAP, but in any event including
unamortized debt discount and expense, unamortized organization and
reorganization expense, costs in excess of the net asset value of acquired
companies, patents, copyrights, trade or service marks, franchises, trade names,
goodwill and the amount of any write-up in the book value of any assets
resulting from any revaluation thereof (other than (a) revaluations of tangible
assets arising out of purchase accounting adjustments, (b) revaluations arising
out of foreign currency valuations in accordance with GAAP, and (c) revaluations
pursuant to the Statement of Financial Accounting Standards No. 115).
"Interest Payment Date" shall mean, with respect to any Loan,
the last day of the Interest Period applicable to the Borrowing of which such
Loan is a part and, in the case of a Eurodollar Borrowing with an Interest
Period of more than three months' duration, each day that would have been an
Interest Payment Date had successive Interest Periods of three months' duration
been applicable to such Borrowing, and, in addition, the date of any refinancing
of such Borrowing with a Borrowing of a different Type.
"Interest Period" shall mean (a) as to any Eurodollar
Borrowing, the period commencing on the date of such Borrowing or on the last
day of the immediately preceding Interest Period applicable to such Borrowing,
as the case may be, and ending on the numerically corresponding day (or, if
there is no numerically corresponding day, on the last day) in the calendar
month that is 1, 2, 3 or 6 months thereafter, as the Borrower may elect, (b) as
to any ABR Borrowing, the period commencing on the date of such Borrowing or on
the last day of the immediately preceding Interest Period applicable to such
Borrowing, as the case may be, and ending on the earliest of (i) the next
succeeding March 31, June 30, September 30 or December 31, (ii) the Revolving
Credit Maturity Date and (iii) the date such
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Borrowing is prepaid in accordance with Section 2.11 and (c) as to any Fixed
Rate Borrowing, the period commencing on the date of such Borrowing and ending
on the date specified in the Competitive Bids in which the offer to make the
Fixed Rate Loans comprising such Borrowing were extended, which shall not be
earlier than seven days after the date of such Borrowing or later than 360 days
after the date of such Borrowing; provided, however, that if any Interest Period
would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless, in the case of a Eurodollar
Borrowing only, such next succeeding Business Day would fall in the next
calendar month, in which case such Interest Period shall end on the next
preceding Business Day. Interest shall accrue from and including the first day
of an Interest Period to but excluding the last day of such Interest Period.
"LIBO Rate" shall mean, with respect to any Eurodollar
Borrowing, the rate (rounded upwards, if necessary, to the next 1/16 of 1%) at
which Dollar deposits approximately equal in principal amount to (i) in the case
of a Revolving Credit Borrowing, the Administrative Agent's portion of such
Eurodollar Borrowing and (ii) in the case of a Competitive Borrowing, a
principal amount that would have been the Administrative Agent's portion of such
Competitive Borrowing had such Competitive Borrowing been a Revolving Credit
Borrowing, and for a maturity comparable to such Interest Period are offered to
the principal London office of the Administrative Agent in immediately available
funds in the London interbank market at approximately 11:00 a.m., London time,
two Business Days prior to the commencement of such Interest Period.
"Lien" shall mean, with respect to any asset, (a) any
mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest
in or on such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement relating
to such asset and (c) in the case of securities, any purchase option, call or
similar right of a third party with respect to such securities.
"Loan Documents" shall mean this Agreement and the Fee Letter.
"Loans" shall mean the Revolving Loans and the Competitive
Loans.
"Long-Term Indebtedness" shall mean, at any date, all
Indebtedness of Popular and the consolidated Subsidiaries outstanding as of such
date that does not mature or that is treated
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on the consolidated financial statements of Popular as not maturing, or
otherwise come due and payable, within one year of such date.
"Margin" shall mean, as to any Eurodollar Competitive Loan,
the margin (expressed as a number of basis points per annum in the form of a
decimal to no more than four decimal places) to be added to or subtracted from
the LIBO Rate in order to determine the interest rate applicable to such Loan,
as specified in the Competitive Bid relating to such Loan.
"Margin Stock" shall have the meaning assigned to such term in
Regulation U.
"Material Adverse Effect" shall mean (a) a materially adverse
effect on the business, assets, operations, prospects or condition, financial or
otherwise, of the Borrowers and the Subsidiaries taken as a whole, (b) material
impairment of the ability of any Borrower to perform any of its obligations
under any Loan Document to which it is or will be a party or (c) material
impairment of the rights of or benefits available to the Lenders under any Loan
Document.
"Moody's" shall mean Moody's Investors Service, Inc.
"Multiemployer Plan" shall mean a multiemployer plan as
defined in Section 4001(a)(3) of ERISA to which a Borrower or any ERISA
Affiliate (other than one considered an ERISA Affiliate only pursuant to
subsection (m) or (o) of Code Section 414) is making or accruing an obligation
to make contributions, or has within any of the preceding five plan years made
or accrued an obligation to make contributions.
"Net Worth" with respect to any person at any date shall mean
(i) all amounts which would be included under shareholders' equity on a balance
sheet of such person, as of such date, determined in accordance with GAAP, less
(ii) such person's treasury stock (to the extent included in clause (i) above).
"Nonperforming Assets" shall mean, at any date, the sum, for
Popular and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP) of the following: (a) loans that are at
least 90 days past-due as to principal or interest; (b) loans that are required
to have been placed on nonaccrual status by the relevant Bank Regulatory
Authority for Popular or its Subsidiaries; (c) loans that bear a rate of
interest that has been reduced below market rates due to the deteriorating
financial condition of a borrower; and (d) assets that have been
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acquired in satisfaction of indebtedness or have been classified as
"in-substance foreclosures".
"Note" shall mean a promissory note delivered pursuant to
Section 9.04(h).
"Obligations" shall have the meaning assigned to such term in
the first paragraph of Section 2.20.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
referred to and defined in ERISA.
"person" shall mean any natural person, corporation, business
trust, joint venture, association, company, partnership or government, or any
agency or political subdivision thereof.
"Plan" shall mean any employee pension benefit plan (other
than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or
Section 412 of the Code that is maintained for current or former employees, or
any beneficiary thereof, of a Borrower or any ERISA Affiliate.
"Prime Rate" shall mean the rate of interest per annum
publicly announced from time to time by the Administrative Agent as its prime
rate in effect at its principal office in New York City; each change in the
Prime Rate shall be effective on the date such change is publicly announced as
being effective.
"Register" shall have the meaning given such term in Section
9.04(d).
"Regulation U" shall mean Regulation U of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulation X" shall mean Regulation X of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulation Y" shall mean Regulation Y of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Reportable Event" shall mean any reportable event as defined
in Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than a Plan maintained by an ERISA Affiliate that is considered an
ERISA Affiliate only pursuant to subsection (m) or (o) of Code Section 414).
"Required Lenders" shall mean, at any time, Lenders having
Revolving Credit Commitments representing greater than 50% of
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the sum of all Revolving Credit Commitments at such time or, for purposes of
acceleration pursuant to clause (ii) of Article VII, Lenders having Loans and
unused Revolving Credit Commitments representing greater than 50% of the sum of
all Loans outstanding and unused Revolving Credit Commitments.
"Responsible Officer" of any corporation shall mean any
executive officer or Financial Officer of such corporation and any other officer
or similar official thereof responsible for the administration of the
obligations of such corporation in respect of this Agreement.
"Revolving Credit Borrowing" shall mean a Borrowing comprised
of Revolving Loans.
"Revolving Credit Commitment" shall mean, with respect to each
Lender, the commitment of such Lender to make Revolving Loans hereunder as set
forth in Schedule 2.01, or in the Assignment and Acceptance pursuant to which
such Lender assumed its Revolving Credit Commitment, as applicable, as the same
(a) may be reduced from time to time pursuant to Section 2.10, and (b) may be
reduced or increased from time to time pursuant to assignments by or to such
Lender pursuant to Section 9.04.
"Revolving Credit Exposure" shall mean, with respect to any
Lender at any time, the aggregate principal amount at such time of all
outstanding Revolving Credit Loans of such Lender.
"Revolving Credit Lender" shall mean a Lender with a Revolving
Credit Commitment.
"Revolving Credit Maturity Date" shall mean October 28, 1999,
as such date may be extended pursuant to Section 2.21.
"Revolving Loans" shall mean the revolving loans made by the
Lenders to a Borrower pursuant to Section 2.01. Each Revolving Loan shall be a
Eurodollar Revolving Loan or an ABR Revolving Loan.
"Significant Subsidiary" shall mean any Subsidiary which, at
the time any determination is being made, constitutes a "significant subsidiary"
as defined in Rule 1-02 of Regulation S-X of the Securities and Exchange
Commission, 17 C.F.R. ss. 210.1-02, as in effect on the date hereof.
"S&P" shall mean Standard & Poor's Ratings Group, a division
of McGraw-Hill, Inc.
"Subsidiary" shall mean any corporation, partnership,
association or other business entity (a) of which securities or other ownership
interests representing more than 50% of the equity or more than 50% of the
ordinary voting power or more than 50% of
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the general partnership interests are, at the time any determination is being
made, owned, controlled or held by either Borrower, or (b) which is, at the time
any determination is made, otherwise Controlled, by either Borrower or one or
more Subsidiaries of either Borrower or by either Borrower and one or more
Subsidiaries of either Borrower.
"Total Assets" shall mean, at any date, the total assets that
would be included on a balance sheet of Popular and its Subsidiaries (determined
on a consolidated basis in accordance with GAAP) as of such date.
"Total Capitalization" shall mean, at any date, the sum of
Consolidated Net Worth and Long-Term Indebtedness, each determined as of such
date.
"Total Revolving Credit Commitment" shall mean, at any time,
the aggregate amount of the Revolving Credit Commitments, as in effect at such
time.
"Transactions" shall have the meaning assigned to such term in
Section 3.02.
"Type", when used in respect of any Loan or Borrowing, shall
refer to the Rate by reference to which interest on such Loan or on the Loans
comprising such Borrowing is determined. For purposes hereof, "Rate" shall
include the LIBO Rate and the Alternate Base Rate.
"Utilization Fee" shall have the meaning assigned to such term
in Section 2.06(b).
"Withdrawal Liability" shall mean liability to a Multiemployer
Plan as a result of a complete or partial withdrawal from such Multiemployer
Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Terms Generally. The definitions in Section 1.01
shall apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, (a) any reference in this Agreement to any Loan
Document shall mean such document as amended, restated, supplemented or
otherwise modified from time to time and (b) all terms of an accounting or
financial nature shall be construed in accordance with GAAP, as in effect from
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time to time; provided, however, that for purposes of determining compliance
with the covenants contained in Article VI, all accounting terms herein shall be
interpreted and all accounting determinations hereunder shall be made in
accordance with GAAP as in effect on the date of this Agreement and applied on a
basis consistent with the application used in the financial statements referred
to in Section 3.05.
ARTICLE II. THE CREDITS
SECTION 2.01. Commitments. Subject to the terms and conditions
and relying upon the representations and warranties herein set forth, each
Lender agrees, severally and not jointly, to make Revolving Loans to the
Borrowers, at any time and from time to time on or after the date hereof, and
until the earlier of the Revolving Credit Maturity Date and the termination of
the Revolving Credit Commitment of such Lender in accordance with the terms
hereof, in an aggregate principal amount at any time outstanding that will not
result in such Lender's Revolving Credit Exposure exceeding such Lender's
Revolving Credit Commitment (minus the amount by which the Competitive Loans
outstanding at such time shall be deemed to have used such Commitment pursuant
to Section 2.15), subject, however, to the conditions that (i) at no time shall
(A) the sum of (x) the outstanding aggregate principal amount of all Revolving
Credit Loans made by all Lenders plus (y) the outstanding aggregate principal
amount of all Competitive Loans made by all Lenders exceed (B) the Total
Revolving Credit Commitment and (ii) at all times, the outstanding aggregate
principal amount of all Revolving Loans made by each Lender shall equal the
product of (A) the percentage which its Revolving Credit Commitment represents
of the Total Revolving Credit Commitment times (B) the outstanding aggregate
principal amount of all Revolving Loans.
Within the foregoing limits, a Borrower may borrow, pay or
prepay and reborrow Revolving Loans on or after the Closing Date and prior to
the Revolving Credit Maturity Date, subject to the terms, conditions and
limitations set forth herein.
SECTION 2.02. Loans. (a) Each Revolving Loan shall be made as
part of a Borrowing consisting of Revolving Loans made by the Lenders ratably in
accordance with their applicable Revolving Credit Commitments; provided,
however, that the failure of any Lender to make any Revolving Loan shall not in
itself relieve any other Lender of its obligation to lend hereunder (it being
understood, however, that no Lender shall be responsible for the failure of any
other Lender to make any Loan required to be made by such other Lender). Each
Competitive Loan shall be made in accordance with the procedures set forth in
Section 2.03. The Loans comprising any Borrowing shall be in an aggregate
principal amount which is (i) an integral multiple of $1,000,000 and not less
than
<PAGE> 29
16
$5,000,000 or (ii) equal to the remaining available balance of the applicable
Commitments.
(b) Subject to Sections 2.09 and 2.13, each Competitive
Borrowing shall be comprised entirely of Eurodollar Competitive Loans or Fixed
Rate Loans, and each other Borrowing shall be comprised entirely of ABR Loans or
Eurodollar Loans as the Borrower may request pursuant to Section 2.03 or 2.04,
as applicable. Each Lender may at its option make any Eurodollar Loan by causing
any domestic or foreign branch or Affiliate of such Lender to make such Loan;
provided that any exercise of such option shall not affect the obligation of a
Borrower to repay such Loan in accordance with the terms of this Agreement.
Borrowings of more than one Type may be outstanding at the same time; provided,
however, that a Borrower shall not be entitled to request any Borrowing which,
if made, would result in more than five Eurodollar Borrowings outstanding
hereunder at any time. For purposes of the foregoing, Borrowings having
different Interest Periods, regardless of whether they commence on the same
date, shall be considered separate Borrowings.
(c) Subject to paragraph (f) below, each Lender shall make
each Loan to be made by it hereunder on the proposed date thereof by wire
transfer to such account as the Administrative Agent may designate in federal
funds not later than 11:00 a.m., New York City time, and the Administrative
Agent shall by 12:00 (noon), New York City time, credit the amounts so received
to an account with the Administrative Agent designated by the applicable
Borrower in the applicable Borrowing Request or Competitive Bid Request, which
account must be in the name of the Borrower or, if a Borrowing shall not occur
on such date because any condition precedent herein specified shall not have
been met, return the amounts so received to the respective Lenders.
(d) Unless the Administrative Agent shall have received notice
from a Lender prior to the date of any Borrowing that such Lender will not make
available to the Administrative Agent such Lender's portion of such Borrowing,
the Administrative Agent may assume that such Lender has made such portion
available to the Administrative Agent on the date of such Borrowing in
accordance with paragraph (c) above and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If the Administrative Agent shall have so made funds
available then, to the extent that such Lender shall not have made such portion
available to the Administrative Agent, such Lender and the applicable Borrower
severally agree to repay to the Administrative Agent, in the case of such
Lender, forthwith on demand and, in the case of the applicable Borrower, within
two Business Days of demand, such corresponding amount together with interest
thereon, for each day from the date such amount is made available to such
Borrower until the date such amount is repaid to the Administrative Agent at (i)
in the case of such
<PAGE> 30
17
Borrower, the interest rate applicable at the time to the Loans comprising such
Borrowing and (ii) in the case of such Lender, a rate determined by the
Administrative Agent to represent its cost of overnight or short-term funds
(which determination shall be conclusive absent manifest error). If such Lender
shall repay to the Administrative Agent such corresponding amount, such amount
shall constitute such Lender's Loan as part of such Borrowing for purposes of
this Agreement.
(e) Notwithstanding any other provision of this Agreement, a
Borrower shall not be entitled to request any Borrowing if the Interest Period
requested with respect thereto would end after the Revolving Credit Maturity
Date.
(f) A Borrower may refinance all or any part of a Borrowing
with another Borrowing, subject to the conditions and limitations set forth in
this Agreement (including the condition that the Aggregate Revolving Credit
Exposure after giving effect thereto will not exceed the Total Revolving Credit
Commitment). Any Borrowing or part thereof so refinanced shall be deemed to be
repaid or prepaid in accordance with the applicable provisions of this Agreement
with the proceeds of the new Borrowing, and the proceeds of such new Borrowing,
to the extent they do not exceed the principal amount of the Borrowing being
refinanced, shall not be paid by the Lenders to the Administrative Agent or by
the Administrative Agent to such Borrower pursuant to paragraph (c) above.
SECTION 2.03. Competitive Bid Procedure. (a) In order to
request Competitive Bids, a Borrower shall hand deliver or telecopy to the
Administrative Agent a duly completed Competitive Bid Request (i) in the case of
a Eurodollar Competitive Borrowing, not later than 10:00 a.m., New York City
time, four Business Days before the proposed date of such Borrowing and (ii) in
the case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York City
time, one Business Day before the proposed date of such Borrowing. A Competitive
Bid Request shall not be made within five Business Days after the date of any
previous Competitive Bid Request. No ABR Loan shall be requested in, or made
pursuant to, a Competitive Bid Request. A Competitive Bid Request that does not
conform to a form approved by the Administrative Agent may be rejected by the
Administrative Agent, and the Administrative Agent shall notify the applicable
Borrower of such rejection as promptly as practicable. Each Competitive Bid
Request shall refer to this Agreement and specify (i) whether the Borrowing
being requested is to be a Eurodollar Borrowing or a Fixed Rate Borrowing; (ii)
the date of such Borrowing (which shall be a Business Day); (iii) the number and
the location of the account to which funds are to be disbursed (which shall be
an account that complies with the requirements of Section 2.02(c)); (iv) the
aggregate principal amount of such Borrowing, which shall be a minimum of
$5,000,000 and an integral
<PAGE> 31
18
multiple of $1,000,000; and (v) the Interest Period with respect thereto (which
may not end after the Revolving Credit Maturity Date). Promptly after its
receipt of a Competitive Bid Request that is not rejected, the Administrative
Agent shall by telecopy in a form Approved by the Administrative Agent invite
the Revolving Credit Lenders to bid to make Competitive Loans pursuant to the
Competitive Bid Request.
(b) Each Revolving Credit Lender may make one or more
Competitive Bids to the applicable Borrower responsive to a Competitive Bid
Request. Each Competitive Bid by a Revolving Credit Lender must be received by
the Administrative Agent by telecopy in a form approved by the Administrative
Agent, (i) in the case of a Eurodollar Competitive Borrowing, not later than
9:30 a.m., New York City time, three Business Days before the proposed date of
such Competitive Borrowing, and (ii) in the case of a Fixed Rate Borrowing, not
later than 9:30 a.m., New York City time, on the proposed date of such
Competitive Borrowing. Competitive Bids that do not conform to the form of
approved by the Administrative Agent may be rejected by the Administrative
Agent, and the Administrative Agent shall notify the applicable Lender as
promptly as practicable. Each Competitive Bid shall refer to this Agreement and
specify (x) the principal amount (which shall be a minimum of $5,000,000 and an
integral multiple of $1,000,000 and which may equal the entire principal amount
of the Competitive Borrowing requested by the Borrower) of the Competitive Loan
or Loans that the Revolving Credit Lender is willing to make, (y) the
Competitive Bid Rate or Rates at which the Revolving Credit Lender is prepared
to make such Loan or Loans and (z) the Interest Period applicable to such Loan
or Loans and the last day thereof.
(c) The Administrative Agent shall promptly notify the
applicable Borrower by telecopy of the Competitive Bid Rate and the principal
amount of each Competitive Loan in respect of which a Competitive Bid shall have
been made and the identity of the Revolving Credit Lender that shall have made
each bid.
(d) The applicable Borrower may, subject only to the
provisions of this paragraph (d), accept or reject any Competitive Bid. Such
Borrower shall notify the Administrative Agent by telephone, confirmed by
telecopy in the form of a Competitive Bid Accept/Reject Letter, whether and to
what extent it has decided to accept or reject each Competitive Bid, (x) in the
case of a Eurodollar Competitive Borrowing, not later than 10:30 a.m., New York
City time, three Business Days before the date of the proposed Competitive
Borrowing, and (y) in the case of a Fixed Rate Borrowing, not later than 10:30
a.m., New York City time, on the proposed date of the Competitive Borrowing;
provided, however, that (i) the failure of such Borrower to give such notice
shall be deemed to be a rejection of each Competitive Bid, (ii) such Borrower
shall not accept a Competitive Bid made at a particular Competitive Bid
<PAGE> 32
19
Rate if such Borrower has decided to reject a Competitive Bid made at a lower
Competitive Bid Rate, (iii) the aggregate amount of the Competitive Bids
accepted by such Borrower shall not exceed the principal amount specified in the
Competitive Bid Request, (iv) if such Borrower shall accept a Competitive Bid or
Bids made at a particular Competitive Bid Rate but the amount of such
Competitive Bid or Bids would cause the total amount to be accepted by such
Borrower to exceed the amount specified in the Competitive Bid Request, then
such Borrower shall accept a portion of such Competitive Bid or Bids in an
amount equal to the amount specified in the Competitive Bid Request less the
amount of all other Competitive Bids so accepted, which acceptance, in the case
of multiple Competitive Bids at such Competitive Bid Rate, shall be made pro
rata in accordance with the amount of each such Bid, and (v) except pursuant to
clause (iv) above, no Competitive Bid shall be accepted for a Competitive Loan
unless such Competitive Loan is in a minimum principal amount of $5,000,000 and
an integral multiple of $1,000,000; provided further, however, that if a
Competitive Loan must be in an amount less than $5,000,000 because of the
provisions of clause (iv) above, such Competitive Loan may be for a minimum of
$1,000,000 or any integral multiple thereof, and in calculating the pro rata
allocation of acceptances of portions of multiple Competitive Bids at a
particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be
rounded to integral multiples of $1,000,000 in a manner determined by such
Borrower. A notice given by any Borrower pursuant to this paragraph (d) shall be
irrevocable.
(e) The Administrative Agent shall promptly notify each
bidding Revolving Credit Lender by telecopy whether or not its Competitive Bid
has been accepted (and, if so, in what amount and at what Competitive Bid Rate),
and each successful bidder will thereupon become bound, upon the terms and
subject to the conditions hereof, to make the Competitive Loan in respect of
which its Competitive Bid has been accepted.
(f) No Competitive Borrowing shall be requested or made
hereunder if after giving effect thereto any of the conditions set forth in
clause (i) of Section 2.01 would not be met.
(g) If the Administrative Agent shall elect to submit a
Competitive Bid in its capacity as a Revolving Credit Lender, it shall submit
such Competitive Bid directly to the applicable Borrower at least one quarter of
an hour earlier than the time by which the other Revolving Credit Lenders are
required to submit their Competitive Bids to the Administrative Agent pursuant
to paragraph (b) above.
SECTION 2.04. Borrowing Procedure. (a) In order to request a
Borrowing (other than a Competitive Loan, as to which this Section 2.04 shall
not apply), the applicable Borrower shall hand deliver or telecopy to the
Administrative Agent a duly completed
<PAGE> 33
20
Borrowing Request in a form approved by the Administrative Agent (a) in the case
of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three
Business Days before a proposed Borrowing, and (b) in the case of an ABR
Borrowing, not later than 10:00 a.m., New York City time, on the day of such
Borrowing; provided, however, that Borrowing Requests with respect to Borrowings
to be made on the Closing Date may, at the discretion of the Administrative
Agent, be delivered later than the times specified above. Each Borrowing Request
shall be irrevocable, signed by or on behalf of the applicable Borrower and
shall specify the following information: (i) whether the Borrowing then being
requested is to be a Eurodollar Borrowing or an ABR Borrowing; (ii) the date of
such Borrowing (which shall be a Business Day), (iii) the number and location of
the account to which funds are to be disbursed (which shall be an account that
complies with the requirements of Section 2.02(c)); (iv) the amount of such
Borrowing; and (v) if such Borrowing is to be a Eurodollar Borrowing, the
Interest Period with respect thereto; provided, however, that, notwithstanding
any contrary specification in any Borrowing Request, each requested Borrowing
shall comply with the requirements set forth in Section 2.02. If no election as
to the Type of Borrowing is specified in any such notice, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period with respect to any
Eurodollar Borrowing is specified in any such notice, then the Borrower shall be
deemed to have selected an Interest Period of one month's duration. The
Administrative Agent shall promptly (and in any event on the same day that the
Administrative Agent receives such notice, if received by 1:00 p.m., New York
City time, on such day) advise the applicable Lenders of any notice given
pursuant to this Section 2.04 (and the contents thereof), of each Lender's
portion of the requested Borrowing.
(b) If the applicable Borrower shall not have delivered a
Borrowing Request in accordance with this Section 2.04 prior to the end of the
Interest Period then in effect for any Revolving Credit Borrowing and requesting
that such Borrowing be refinanced, then such Borrower shall (unless such
Borrower has notified the Administrative Agent, not less than three Business
Days prior to the end of such Interest Period, that such Borrowing is to be
repaid at the end of such Interest Period) be deemed to have delivered a
Borrowing Request requesting that such Borrowing be refinanced with a new
Borrowing of equivalent amount, and such new Borrowing shall be an ABR
Borrowing.
SECTION 2.05. Evidence of Debt; Repayment of Loans. (a) The
outstanding principal balance of each Loan shall be payable on the earlier of
the last day of the Interest Period applicable to such Loan and the Revolving
Credit Maturity Date. Each Loan shall bear interest from the date of the first
Borrowing hereunder on the outstanding principal balance thereof as set forth in
Section 2.07.
<PAGE> 34
21
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness to such Lender
resulting from each Loan made by such Lender from time to time, including the
amounts of principal and interest payable and paid such Lender from time to time
under this Agreement.
(c) The Administrative Agent shall maintain accounts in which
it will record (i) the amount of each Loan made hereunder, the Type of each Loan
made and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) the amount of any sum received by
the Administrative Agent hereunder from the Borrower and each Lender's share
thereof.
(d) The entries made in the accounts maintained pursuant to
paragraphs (b) and (c) of this Section 2.05 shall be prima facie evidence of the
existence and amounts of the obligations therein recorded; provided, however,
that the failure of any Lender or the Administrative Agent to maintain such
accounts or any error therein shall not in any manner affect the obligations of
the Borrower to repay the Loans in accordance with their terms.
(e) Notwithstanding any other provision of this Agreement, in
the event any Lender shall request and receive a Note payable to such Lender and
its registered assigns (which Note shall be consistent in all respects with this
Agreement), the interests represented by that Note shall at all times (including
after any assignment of all or part of such interests pursuant to Section 9.04)
be represented by one or more Notes payable to the payee named therein or its
registered assigns.
SECTION 2.06. Fees. (a) The Borrowers agree to pay to each
Lender, through the Administrative Agent, on the last Business Day of March,
June, September and December in each year, and on the date on which the
Commitment of such Lender shall be terminated as provided herein, a facility fee
(a "Facility Fee") equal to the Applicable Rate per annum on the average daily
amount of the Revolving Credit Commitment of such Lender (whether used or
unused) during the preceding quarter (or shorter period commencing with the date
hereof or ending with the Revolving Credit Maturity Date or the date on which
the Revolving Credit Commitment of such Lender shall be terminated). All
Facility Fees shall be computed on the basis of the actual number of days
elapsed in a year of 360 days. The Facility Fee due to each Lender shall
commence to accrue on the date of this Agreement and shall cease to accrue on
the date on which the Revolving Credit Commitment of such Lender shall be
terminated as provided herein.
(b) Each Borrower agrees to pay to each Lender, through the
Administrative Agent, on the last Business Day of March, June, September and
December in each year, and on the date on which all
<PAGE> 35
22
the Loans shall have been paid in full and all the Commitments shall be
terminated as provided herein, a utilization fee (a "Utilization Fee") equal to
0.0625% per annum on the average daily amount of Loans made to such Borrower and
outstanding during the preceding quarter (or shorter period commencing with the
date hereof or ending with the date on which all the Loans shall have been paid
in full and all the Commitments shall be terminated), if during such preceding
quarter (or such shorter period), the average daily amount of all Loans
outstanding exceeded 50% of the average amount of the Total Revolving Credit
Commitment in effect during such period. All Utilization Fees shall be computed
on the basis of the actual number of days elapsed in a year of 360 days.
(c) The Borrowers agree to pay to the Administrative Agent,
for its own account, the fees set forth in the Fee Letter at the times specified
therein (the "Administrative Agent Fees").
(d) All Fees shall be paid on the dates due, in immediately
available funds, to the Administrative Agent for distribution, if and as
appropriate, among the Lenders. Once paid, none of the Fees shall be refundable
under any circumstances.
SECTION 2.07. Interest on Loans. (a) Subject to the provisions
of Section 2.08, the Loans comprising each ABR Borrowing shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 365
or 366 days, as the case may be, when determined by reference to the Prime Rate
and over a year of 360 days at all other times) at a rate per annum equal to the
Alternate Base Rate.
(b) Subject to the provisions of Section 2.08, the Loans
comprising each Eurodollar Borrowing shall bear interest (computed on the basis
of the actual number of days elapsed over a year of 360 days) at a rate per
annum equal to (i) in the case of each Eurodollar Revolving Loan, the LIBO Rate
for the Interest Period in effect for such Borrowing plus the Applicable Rate,
and (ii) in the case of each Eurodollar Competitive Loan, the LIBO Rate for the
Interest Period in effect for such Borrowing plus the Margin offered by the
Lender making such Loan and accepted by the applicable Borrower pursuant to
Section 2.03.
(c) Subject to the provisions of Section 2.08, Fixed Rate
Loans shall bear interest (computed on the basis of the actual number of days
elapsed over a year of 360 days) at a rate per annum equal to the fixed rate of
interest offered by the Lender making such Loan and accepted by the applicable
Borrower pursuant to Section 2.03.
(d) Interest on each Loan shall be payable on the Interest
Payment Dates applicable to such Loan except as otherwise provided in this
Agreement. The applicable Alternate Base Rate or
<PAGE> 36
23
LIBO Rate for each Interest Period or day within an Interest Period, as the case
may be, shall be determined by the Administrative Agent, and such determination
shall be conclusive absent manifest error.
SECTION 2.08. Default Interest. If a Borrower shall default in
the payment of the principal of or interest on any Loan or any other amount
becoming due hereunder, by acceleration or otherwise, such Borrower shall on
demand from time to time pay interest, to the extent permitted by law, on such
defaulted amount up to (but not including) the date of actual payment (after as
well as before judgment) at a rate per annum (computed on the basis of the
actual number of days elapsed over a year of 360 days) equal to the sum of the
Alternate Base Rate, plus the margin from time to time applicable for purposes
of determining the interest rate on Revolving Credit Borrowings comprised of ABR
Loans under Section 2.07 plus 2.00%.
SECTION 2.09. Alternate Rate of Interest. In the event, and on
each occasion, that on the day two Business Days prior to the commencement of
any Interest Period for a Eurodollar Borrowing the Administrative Agent shall
have determined that Dollar deposits in the principal amount of the Loans
comprising such Borrowing are not generally available in the London interbank
market, or that the rates at which such Dollar deposits are being offered will
not adequately and fairly reflect the cost to any Lender of making or
maintaining its Eurodollar Loan during such Interest Period, or that reasonable
means do not exist for ascertaining the LIBO Rate, the Administrative Agent
shall, as soon as practicable thereafter, give written or telecopy notice of
such determination to the Borrowers and the Lenders. In the event of any such
determination, until the Administrative Agent shall have advised the Borrowers
and the Lenders that the circumstances giving rise to such notice no longer
exist, (i) any request by a Borrower for a Eurodollar Revolving Credit Borrowing
pursuant to Section 2.04 shall be deemed to be a request for an ABR Borrowing
and (ii) any request by a Borrower for a Eurodollar Competitive Borrowing
pursuant to Section 2.03 shall be of no force and effect and shall be denied by
the Administrative Agent. Each determination by the Administrative Agent
hereunder shall be conclusive absent manifest error.
SECTION 2.10. Termination and Reduction of Commitments.
(a) The Revolving Credit Commitments shall be automatically terminated on the
Revolving Credit Maturity Date.
(b) Upon at least three Business Days' prior irrevocable
written or telecopy notice to the Administrative Agent, the Borrowers may at any
time in whole permanently terminate, or from time to time in part permanently
reduce, the Revolving Credit Commitments; provided, however, that (i) each
partial reduction of the Revolving Credit Commitments shall be in an integral
multiple of $1,000,000 and in a minimum principal amount of $5,000,000 and
<PAGE> 37
24
(ii) the Total Revolving Credit Commitment shall not be reduced to an amount
that is less than the sum of the Aggregate Revolving Credit Exposure and the
aggregate outstanding amount of the Competitive Loans at the time.
(c) Each reduction in the Revolving Credit Commitments
hereunder shall be made ratably among the Lenders in accordance with their
respective Commitments. The Borrowers shall pay to the Administrative Agent for
the account of the Lenders, on the date of each termination or reduction, the
Facility Fees on the amount of the Commitments so terminated or reduced accrued
to the date of such termination or reduction.
SECTION 2.11. Prepayment. (a) Each Borrower shall have the
right at any time and from time to time to prepay any Borrowing (other than a
Competitive Borrowing) consisting of Loans made to such Borrower, in whole or in
part, upon at least three Business Days' prior written or telecopy notice (or
telephone notice promptly confirmed by written or telecopy notice) to the
Administrative Agent before 11:00 a.m., New York City time; provided, however,
that each partial prepayment shall be in an amount which is an integral multiple
of $1,000,000 and not less than $5,000,000. The Borrowers shall not have the
right to prepay any Competitive Borrowing.
(b) In the event of any termination of the Revolving Credit
Commitments, each Borrower shall repay or prepay all its outstanding Revolving
Credit Borrowings on the date of such termination. In the event of any partial
reduction of the Revolving Credit Commitments, then (i) at or prior to the
effective date of such reduction, the Administrative Agent shall notify the
Borrowers and the Revolving Credit Lenders of the Aggregate Revolving Credit
Exposure and (ii) if the Aggregate Revolving Credit Exposure would exceed the
Total Revolving Credit Commitment after giving effect to such reduction, then
the Borrowers shall, on the date of such reduction, repay or prepay Revolving
Credit Borrowings in an amount sufficient to eliminate such excess.
(c) Each notice of prepayment shall specify the prepayment
date and the principal amount of each Borrowing (or portion thereof) to be
prepaid, shall be irrevocable and shall commit the applicable Borrower to prepay
such Borrowing by the amount stated therein on the date stated therein. All
prepayments under this Section 2.11 shall be subject to Section 2.14 but
otherwise without premium or penalty. All prepayments under this Section 2.11
shall be accompanied by accrued interest on the principal amount being prepaid
to the date of payment.
SECTION 2.12. Reserve Requirements; Change in Circumstances.
(a) If after the date of this Agreement any change in applicable law or
regulation or in the interpretation or administration thereof by any
Governmental Authority charged with
<PAGE> 38
25
the interpretation or administration thereof (whether or not having the force of
law) shall change the basis of taxation of payments to any Lender of the
principal of or interest on any Eurodollar Loan or Fixed Rate Loan made by such
Lender or any Fees or other amounts payable hereunder (other than changes in
respect of taxes imposed on the overall net income of such Lender by the
jurisdiction in which such Lender has its principal office or by any political
subdivision or taxing authority therein), or shall impose, modify or deem
applicable any reserve, special deposit or similar requirement against assets
of, deposits with or for the account of or credit extended by such Lender, or
shall impose on such Lender or the London interbank market (or other relevant
interbank market) any other condition affecting this Agreement or Eurodollar
Loans or Fixed Rate Loans made by such Lender, and the result of any of the
foregoing shall be to increase the cost to such Lender of making or maintaining
any Eurodollar Loan, or to reduce the amount of any sum received or receivable
by such Lender hereunder (whether of principal, interest or otherwise) by an
amount deemed by such Lender to be material, then each Borrower will pay to such
Lender upon demand such additional amount or amounts as will compensate such
Lender for such additional costs incurred or reduction suffered.
(b) If any Lender shall have determined that the adoption
after the date hereof of any law, rule, regulation, agreement or guideline
regarding capital adequacy, or any change after the date hereof in any such law,
rule, regulation, agreement or guideline (whether such law, rule, regulation,
agreement or guideline has been adopted) or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof, or compliance by any Lender (or any
lending office of such Lender) or any Lender's holding company with any request
or directive regarding capital adequacy (whether or not having the force of law)
of any Governmental Authority has or would have the effect of reducing the rate
of return on such Lender's capital or on the capital of such Lender's holding
company, if any, as a consequence of this Agreement or the Loans made by such
Lender pursuant hereto to a level below that which such Lender or such Lender's
holding company could have achieved but for such applicability, adoption, change
or compliance (taking into consideration such Lender's policies and the policies
of such Lender's holding company with respect to capital adequacy) by an amount
deemed by such Lender to be material, then from time to time each Borrower shall
pay to such Lender such additional amount or amounts as will compensate such
Lender or such Lender's holding company for any such reduction suffered.
(c) A certificate of a Lender setting forth the amount or
amounts necessary to compensate such Lender or its holding company as specified
in paragraph (a) or (b) above shall be delivered to the Borrowers and shall be
conclusive absent manifest error. Each Borrower shall pay each Lender the amount
shown as due
<PAGE> 39
26
from such Borrower on any such certificate delivered by it within 10 days after
its receipt of the same.
(d) Failure or delay on the part of any Lender to demand
compensation for any increased costs or reduction in amounts received or
receivable or reduction in return on capital shall not constitute a waiver of
such Lender's right to demand such compensation. The protection of this Section
shall be available to each Lender regardless of any possible contention of the
invalidity or inapplicability of the law, rule, regulation, agreement, guideline
or other change or condition which shall have occurred or been imposed.
Notwithstanding any other provision of this Section, no Lender shall be entitled
to demand compensation hereunder in respect of any Competitive Loan if it shall
have been aware of the event or circumstance giving rise to such demand at the
time it submitted the Competitive Bid pursuant to which such Loan was made.
SECTION 2.13. Change in Legality. (a) Notwithstanding any
other provision herein, if, after the date hereof, any change in any law or
regulation or in the interpretation thereof by any Governmental Authority
charged with the administration or interpretation thereof shall make it unlawful
for any Lender to make or maintain any Eurodollar Loan or to give effect to its
obligations as contemplated hereby with respect to any Eurodollar Loan, then, by
written notice to the Borrowers and to the Administrative Agent:
(i) such Lender may declare that Eurodollar Loans will not
thereafter (for the duration of such unlawfulness or impracticability)
be made by such Lender hereunder, whereupon such Lender shall not
submit a Competitive Bid in response to a request for a Eurodollar
Competitive Loan and any request for a Eurodollar Borrowing, shall, as
to such Lender only, be deemed a request for an ABR Loan unless such
declaration shall be subsequently withdrawn (or, if a Loan to a
Borrower cannot be made for the reasons specified above, such request
shall be deemed to have been withdrawn); and
(ii) such Lender may require that all outstanding Eurodollar
Loans made by it be converted to ABR Loans, in which event all such
Eurodollar Loans shall be automatically converted to ABR Loans as of
the effective date of such notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal which would otherwise have been applied to
repay the Eurodollar Loans that would have been made by such Lender or the
converted Eurodollar Loans of such Lender shall instead be applied to repay the
ABR Loans made by such Lender in lieu of, or resulting from the conversion of,
such Eurodollar Loans.
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27
(b) For purposes of this Section 2.13, a notice to a Borrower
by any Lender shall be effective as to each Eurodollar Loan, if lawful, on the
last day of the Interest Period currently applicable to such Eurodollar Loan; in
all other cases such notice shall be effective on the date of receipt by such
Borrower.
SECTION 2.14. Indemnity. The Borrowers shall indemnify each
Lender against any loss or expense which such Lender may sustain or incur as a
consequence of (a) any event, other than a default by such Lender in the
performance of its obligations hereunder, which results in (i) such Lender
receiving or being deemed to receive any amount on account of the principal of
any Loan prior to the end of the Interest Period in effect therefor or (ii) any
Loan to be made by such Lender not being made after notice of such Loan shall
have been given by a Borrower hereunder (any of the events referred to in this
clause (a) being called a "Breakage Event") or (b) any default in the making of
any payment or prepayment required to be made hereunder; provided, however, that
any Breakage Event caused by the prepayment by a Borrower of an ABR Loan shall
not result in such Borrower becoming liable to such Lender pursuant to this
Section 2.14. In the case of any Breakage Event, such loss shall include an
amount equal to the excess, as reasonably determined by such Lender, of (i) its
cost of obtaining funds for the Loan which is the subject of such Breakage Event
for the period from the date of such Breakage Event to the last day of the
Interest Period in effect (or which would have been in effect) for such Loan
over (ii) the amount of interest likely to be realized by such Lender in
redeploying the funds released or not utilized by reason of such Breakage Event
for such period. A certificate of any Lender setting forth any amount or amounts
which such Lender is entitled to receive pursuant to this Section shall be
delivered to the applicable Borrower and shall be conclusive absent manifest
error.
SECTION 2.15. Pro Rata Treatment. Except as provided in the
succeeding sentence with respect to Competitive Borrowings and as required under
Section 2.13, each Borrowing, each payment or prepayment of principal of any
Borrowing, each payment of interest on the Loans, each payment of the Facility
Fees, each reduction of the Revolving Credit Commitments and each refinancing of
any Borrowing with a Borrowing of any Type shall be allocated pro rata among the
Lenders in accordance with their respective applicable Commitments (or, if such
Commitments shall have expired or been terminated, in accordance with the
respective principal amounts of their outstanding Loans). Each payment of
principal of any Competitive Borrowing shall be allocated pro rata among the
Lenders participating in such Borrowing in accordance with the respective
principal amounts of their outstanding Competitive Loans comprising such
Borrowing. Each payment of interest on any Competitive Borrowing shall be
allocated pro rata among the Lenders participating in such Borrowing in
accordance with the respective
<PAGE> 41
28
amounts of accrued and unpaid interest on their outstanding Competitive Loans
comprising such Borrowing. For purposes of determining the available Revolving
Credit Commitment of each Lender at any time, each outstanding Competitive
Borrowing shall be deemed to have utilized the Revolving Credit Commitments of
the Lenders (including those Lenders which shall not have made Loans as part of
such Competitive Borrowing) pro rata in accordance with such respective
Revolving Credit Commitments. Each Lender agrees that in computing such Lender's
portion of any Borrowing to be made hereunder, the Administrative Agent may, in
its discretion, round each Lender's percentage of such Borrowing, computed in
accordance with Section 2.01, to the next higher or lower whole Dollar amount.
SECTION 2.16. Sharing of Setoffs. Each Lender agrees that if
it shall, through the exercise of a right of banker's lien, setoff or
counterclaim against a Borrower, or pursuant to a secured claim under Section
506 of Title 11 of the United States Code or other security or interest arising
from, or in lieu of, such secured claim, received by such Lender under any
applicable bankruptcy, insolvency or other similar law or otherwise, or by any
other means, obtain payment (voluntary or involuntary) in respect of any Loan or
Loans as a result of which the unpaid principal portion of its Loans shall be
proportionately less than the unpaid principal portion of the Loans of any other
Lender, it shall be deemed simultaneously to have purchased from such other
Lender at face value, and shall promptly pay to such other Lender the purchase
price for, a participation in the Loans of such other Lender, so that the
aggregate unpaid principal amount of the Loans and participations in Loans held
by each Lender shall be in the same proportion to the aggregate unpaid principal
amount of all Loans then outstanding as the principal amount of its Loans prior
to such exercise of banker's lien, setoff or counterclaim or other event was to
the principal amount of all Loans outstanding prior to such exercise of banker's
lien, setoff or counterclaim or other event; provided, however, that, if any
such purchase or purchases or adjustments shall be made pursuant to this Section
and the payment giving rise thereto shall thereafter be recovered, such purchase
or purchases or adjustments shall be rescinded to the extent of such recovery
and the purchase price or prices or adjustment restored without interest. The
Borrowers expressly consent to the foregoing arrangements and agree that any
Lender holding a participation in a Loan deemed to have been so purchased may
exercise any and all rights of banker's lien, setoff or counterclaim with
respect to any and all moneys owing by a Borrower to such Lender by reason
thereof as fully as if such Lender had made a Loan directly to such Borrower in
the amount of such participation.
SECTION 2.17. Payments. (a) The Borrowers shall make each
payment (including principal of or interest on any Borrowing or any Fees or
other amounts) hereunder and under any other Loan Document not later than 12:00
(noon), New York City time, on the
<PAGE> 42
29
date when due in immediately available funds by wire transfer to such account as
the Administrative Agent may designate. Each such payment shall be made to the
Administrative Agent at its offices at 270 Park Avenue, New York, New York. Each
such payment shall be made in Dollars.
(b) Whenever any payment (including principal of or interest
on any Borrowing or any Fees or other amounts) hereunder or under any other Loan
Document shall become due, or otherwise would occur, on a day that is not a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of
interest or Fees, if applicable.
SECTION 2.18. Taxes. (a) Any and all payments by a Borrower
hereunder and under any other Loan Document shall be made, in accordance with
Section 2.17, free and clear of and without deduction for any and all current or
future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding (i) income taxes imposed on the net
income of the Administrative Agent or any Lender (or any transferee or assignee
thereof, including a participation holder (any such entity a "Transferee")) and
(ii) franchise taxes imposed on the net income of the Administrative Agent or
any Lender (or Transferee), in each case by the jurisdiction under the laws of
which the Administrative Agent or such Lender (or Transferee) is organized or
any political subdivision thereof (all such nonexcluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities, collectively or individually,
being called "Taxes"). If a Borrower shall be required to deduct any Taxes from
or in respect of any sum payable hereunder or under any other Loan Document to
the Administrative Agent or any Lender (or any Transferee), (i) the sum payable
shall be increased by the amount (an "additional amount") necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.18) the Administrative Agent or
such Lender (or Transferee), as the case may be, shall receive an amount equal
to the sum it would have received had no such deductions been made, (ii) such
Borrower shall make such deductions and (iii) such Borrower shall pay the full
amount deducted to the relevant Governmental Authority in accordance with
applicable law.
(b) In addition, each Borrower agrees to bear and to pay to
the relevant Governmental Authority in accordance with applicable law any
current or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies that arise from any payment made hereunder or
under any other Loan Document or from the execution, delivery or registration
of, or otherwise with respect to, this Agreement or any other Loan Document
("Other Taxes").
<PAGE> 43
30
(c) Each Borrower will indemnify the Administrative Agent and
each Lender (or Transferee) for the full amount of Taxes and Other Taxes paid by
the Administrative Agent or such Lender (or Transferee), as the case may be, and
any liability (including penalties, interest and expenses (including reasonable
attorney's fees and expenses)) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted by
the relevant Governmental Authority. A certificate as to the amount of such
payment or liability prepared by the Administrative Agent or a Lender (or
Transferee), or the Administrative Agent on its behalf, absent manifest error,
shall be final, conclusive and binding for all purposes. Such indemnification
shall be made within 30 days after the date the Administrative Agent or any
Lender (or Transferee), as the case may be, makes written demand therefor.
(d) If the Administrative Agent or a Lender (or Transferee)
shall become aware that it is entitled to claim a refund from a Governmental
Authority in respect of Taxes or Other Taxes as to which it has been indemnified
by the Borrowers, or with respect to which a Borrower has paid additional
amounts, pursuant to this Section 2.18, it shall promptly notify such Borrower
of the availability of such refund claim and shall, within 30 days after receipt
of a request by such Borrower, make a claim to such Governmental Authority for
such refund at such Borrower's expense. If the Administrative Agent or a Lender
(or Transferee) receives a refund (including pursuant to a claim for refund made
pursuant to the preceding sentence) in respect of any Taxes or Other Taxes as to
which it determines in its sole discretion that it has been indemnified by the
Borrowers or with respect to which a Borrower has paid additional amounts
pursuant to this Section 2.18, it shall within 30 days from the date of such
receipt pay over such refund to such Borrower (but only to the extent of
indemnity payments made, or additional amounts paid, by such Borrower under this
Section 2.18 with respect to the Taxes or Other Taxes giving rise to such
refund), net of all out-of-pocket expenses of the Administrative Agent or such
Lender (or Transferee) and without interest (other than interest paid by the
relevant Governmental Authority with respect to such refund); provided, however,
that such Borrower, upon the request of the Administrative Agent or such Lender
(or Transferee), agrees to repay the amount paid over to such Borrower (plus
penalties, interest or other charges) to the Administrative Agent or such Lender
(or Transferee) in the event the Administrative Agent or such Lender (or
Transferee) is required to repay such refund to such Governmental Authority.
(e) As soon as practicable after the date of any payment of
Taxes or Other Taxes by a Borrower to the relevant Governmental Authority, such
Borrower will deliver to the Administrative Agent, at its address referred to in
Section 9.01, the original or a
<PAGE> 44
31
certified copy of a receipt issued by such Governmental Authority evidencing
payment thereof.
(f) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section 2.18
shall survive the payment in full of the principal of and interest on all Loans
made hereunder.
(g) Each Lender (or Transferee) that is organized under the
laws of a jurisdiction other than the United States, any State thereof or the
District of Columbia (a "Non-U.S. Lender") shall deliver to the Borrowers and
the Administrative Agent two copies of either United States Internal Revenue
Service Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming
exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of
the Code with respect to payments of "portfolio interest", a Form W-8, or any
subsequent versions thereof or successors thereto (and, if such Non-U.S. Lender
delivers a Form W-8, a certificate representing that such Non-U.S. Lender is not
a bank for purposes of Section 881(c) of the Code, is not a 10-percent
shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of a
Borrower and is not a controlled foreign corporation related to a Borrower
(within the meaning of Section 864(d)(4) of the Code)), properly completed and
duly executed by such Non-U.S. Lender claiming complete exemption from, or
reduced rate of, U.S. Federal withholding tax on payments by a Borrower under
this Agreement and the other Loan Documents. Such forms shall be delivered by
each Non-U.S. Lender on or before the date it becomes a party to this Agreement
(or, in the case of a Transferee that is a participation holder, on or before
the date such participation holder becomes a Transferee hereunder) and on or
before the date, if any, such Non-U.S. Lender changes its applicable lending
office by designating a different lending office (a "New Lending Office"). In
addition, each Non-U.S. Lender shall deliver such forms promptly upon the
obsolescence or invalidity of any form previously delivered by such Non-U.S.
Lender. Notwithstanding any other provision of this Section 2.18(g), a Non-U.S.
Lender shall not be required to deliver any form pursuant to this Section
2.18(g) that such Non-U.S. Lender is not legally able to deliver.
(h) The Borrowers shall not be required to indemnify any
Non-U.S. Lender or to pay any additional amounts to any Non-U.S. Lender, in
respect of United States Federal withholding tax pursuant to paragraph (a) or
(c) above to the extent that (i) the obligation to withhold amounts with respect
to United States Federal withholding tax existed on the date such Non U.S.
Lender became a party to this Agreement (or, in the case of a Transferee that is
a participation holder, on the date such participation holder became a
Transferee hereunder) or, with respect to payments to a New Lending Office, the
date such Non-U.S. Lender designated such New Lending Office with respect to a
Loan; provided, however, that this
<PAGE> 45
32
paragraph (h) shall not apply (x) to any Transferee or New Lending Office that
becomes a Transferee or New Lending Office as a result of an assignment,
participation, transfer or designation made at the request of a Borrower and (y)
to the extent the indemnity payment or additional amounts any Transferee, or any
Lender (or Transferee), acting through a New Lending Office, would be entitled
to receive (without regard to this paragraph (h)) do not exceed the indemnity
payment or additional amounts that the person making the assignment,
participation or transfer to such Transferee, or Lender (or Transferee) making
the designation of such New Lending Office, would have been entitled to receive
in the absence of such assignment, participation, transfer or designation or
(ii) the obligation to pay such additional amounts would not have arisen but for
a failure by such Non-U.S. Lender to comply with the provisions of paragraph (g)
above.
(i) Any Lender (or Transferee) claiming any indemnity payment
or additional amounts payable pursuant to this Section 2.18 shall use reasonable
efforts (consistent with legal and regulatory restrictions) to file any
certificate or document reasonably requested in writing by a Borrower or to
change the jurisdiction of its applicable lending office if the making of such a
filing or change would avoid the need for or reduce the amount of any such
indemnity payment or additional amounts that may thereafter accrue and would
not, in the sole determination of such Lender (or Transferee), be otherwise
disadvantageous to such Lender (or Transferee).
(j) Nothing contained in this Section 2.18 shall require any
Lender (or any Transferee) or the Administrative Agent to make available any of
its tax returns (or any other information that it deems to be confidential or
proprietary).
SECTION 2.19. Assignment of Commitments Under Certain
Circumstances. (a) In the event (i) any Lender delivers a certificate requesting
compensation pursuant to Section 2.12, (ii) any Lender delivers a notice
described in Section 2.13 or (iii) a Borrower is required to pay any additional
amount to any Lender or any Governmental Authority on account of any Lender
pursuant to Section 2.18, such Borrower may, at its sole expense and effort,
upon notice to such Lender and the Administrative Agent, require such Lender to
transfer and assign, without recourse (in accordance with and subject to the
restrictions contained in Section 9.04), all of its interests, rights and
obligations under this Agreement to an assignee which shall assume such assigned
obligations (which assignee may be another Lender, if a Lender accepts such
assignment); provided that (x) such assignment shall not conflict with any law,
rule or regulation or order of any court or other Governmental Authority having
jurisdiction, (y) such Borrower shall have received the prior written consent of
the Administrative Agent, which consent shall not unreasonably be
<PAGE> 46
33
withheld, and (z) such Borrower or such assignee shall have paid to the affected
Lender in immediately available funds an amount equal to the sum of the
principal of and interest accrued to the date of such payment on the outstanding
Loans of such Lender plus all Fees and other amounts accrued for the account of
such Lender hereunder (including any amounts under Section 2.12 and Section
2.14); provided further that if prior to any such transfer and assignment the
circumstances or event that resulted in such Lender's claim for compensation
under Section 2.12 or notice under Section 2.13 or the amounts paid pursuant to
Section 2.18, as the case may be, cease to cause such Lender to suffer increased
costs or reductions in amounts received or receivable or reduction in return on
capital, or cease to have the consequences specified in Section 2.13, or cease
to result in amounts being payable under Section 2.18, as the case may be
(including as a result of any action taken by such Lender pursuant to paragraph
(b) below), or if such Lender shall waive its right to claim further
compensation under Section 2.12 in respect of such circumstances or event or
shall withdraw its notice under Section 2.13 or shall waive its right to further
payments under Section 2.18 in respect of such circumstances or event, as the
case may be, then such Lender shall not thereafter be required to make any such
transfer and assignment hereunder.
(b) If (i) any Lender shall request compensation under Section
2.12, (ii) any Lender delivers a notice described in Section 2.13 or (iii) a
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority on account of any Lender, pursuant to Section 2.18, then,
such Lender shall exercise reasonable efforts (which shall not require such
Lender to incur an unreimbursed loss or unreimbursed cost or expense or
otherwise take any action inconsistent with its internal policies or suffer any
disadvantage or burden deemed by it to be significant) to assign its rights and
delegate and transfer its obligations hereunder to another of its offices,
branches or affiliates, if such assignment would reduce its claims for
compensation under Section 2.12 or enable it to withdraw its notice pursuant to
Section 2.13 or would reduce amounts payable pursuant to Section 2.18, as the
case may be, in the future. The Borrowers hereby agree to pay all reasonable
costs and expenses incurred by any Lender in connection with any such
assignment, delegation and transfer.
SECTION 2.20. Cross Guaranty. Each Guarantor unconditionally
guarantees, as a primary obligor and not merely as a surety, jointly and
severally with the other Guarantor, (a) the due and punctual payment of (i) the
principal of and premium, if any, and interest on the Loans, when and as due,
whether at maturity, by acceleration, upon one or more dates set for prepayment
or otherwise, and (ii) all other monetary obligations (other than those referred
to in the preceding clause (i)) of the Borrowers under the Loan Documents and
(b) the due and punctual performance of all covenants, agreements, obligations
and liabilities of the Borrowers
<PAGE> 47
34
under or pursuant to the Loan Documents (collectively, the "Obligations"). Each
Guarantor further agrees that the Obligations may be extended and renewed, in
whole or in part, without notice to or further assent from it, and that it will
remain bound upon its guarantee notwithstanding any extension or renewal of any
Obligation.
Each Guarantor waives presentment to, demand of payment from
and protest to the Borrowers of any of the Obligations, and also waives notice
of acceptance of its guarantee and notice of protest for nonpayment. The
obligations of a Guarantor hereunder shall not be affected by (a) the failure of
any Lender or the Administrative Agent to assert any claim or demand or to
enforce any right or remedy against the Borrowers or the other Guarantor under
the provisions of this Agreement or any of the other Loan Documents or
otherwise; (b) any rescission, waiver, amendment or modification of any of the
terms or provisions of this Agreement any of the other Loan Documents, any
guarantee or any other agreement; or (c) the failure of any Lender to exercise
any right or remedy against any other guarantor of the Obligations.
Each Guarantor further agrees that its guarantee constitutes a
guarantee of payment when due and not of collection, and waives any right to
require that any resort be had by any Lender to any balance of any deposit
account or credit on the books of any Lender in favor or any Borrower or any
other person.
The obligations of each Guarantor hereunder shall not be
subject to any reduction, limitation, impairment or termination for any reason,
including, without limitation, compromise, and shall not be subject to any
defense or setoff, counterclaim, recoupment or termination whatsoever by reason
of the invalidity, illegality or unenforceability of the Obligations or
otherwise. Without limiting the generality of the foregoing, the obligations of
each Guarantor hereunder shall not be discharged or impaired or otherwise
affected by the failure of the Administrative Agent or any Lender to assert any
claim or demand or to enforce any remedy under this Agreement or under any other
Loan Document, any guarantee or any other agreement, by any waiver or
modification in respect of any thereof, by any default, failure or delay, wilful
or otherwise, in the performance of the Obligations, or by any other act or
omission which may or might in any manner or to any extent vary the risk of such
Guarantor or otherwise operate as a discharge of such Guarantor as a matter of
law or equity.
Each Guarantor further agrees that its guarantee shall
continue to be effective or be reinstated, as the case may be, if at any time
payment, or any part thereof, of principal of or interest on any Obligation is
rescinded or must otherwise be restored by the Administrative Agent or any
Lender upon the bankruptcy or reorganization of any of the Borrowers or
otherwise.
<PAGE> 48
35
In furtherance of the foregoing and not in limitation of any
other right which the Administrative Agent or any Lender may have at law or in
equity against any Guarantor by virtue hereof, upon the failure of a Borrower to
pay any Obligation when and as the same shall become due, whether at maturity,
by acceleration, after notice of prepayment or otherwise, each Guarantor hereby
promises to and will, upon receipt of written demand by the Administrative
Agent, forthwith pay, or cause to be paid, in cash the amount of such unpaid
Obligations, and thereupon each Lender shall, in a reasonable manner, assign the
amount of the Obligations owed to it and paid by such Guarantor pursuant to this
guarantee to such Guarantor, such assignment to be pro tanto to the extent to
which the Obligations in question were discharged by such Guarantor, or make
such disposition thereof as such Guarantor shall direct (all without recourse to
any Lender and without any representation or warranty by any Lender).
Upon payment by a Guarantor of any sums as provided above, all
rights of such Guarantor against a Borrower, as the case may be, arising as a
result thereof by way of right of subrogation or otherwise shall in all respects
be subordinated and junior in right of payment to the prior indefeasible payment
in full of all the Obligations to the Lenders.
SECTION 2.21. Extension of Revolving Credit Maturity Date. (a)
The Borrower may, by notice to the Administrative Agent in a the form of Exhibit
C hereto (which shall promptly deliver a copy to each of the Lenders) not less
than 45 days and not more than 60 days prior to the Revolving Credit Maturity
Date at any time in effect (the "Existing Revolving Credit Maturity Date"),
request that the Lenders extend the Revolving Credit Maturity Date for an
additional 364 days from the Existing Revolving Credit Maturity Date. Each
Lender shall, by notice to the Borrower and the Administrative Agent given not
less than 20 and not more than 30 days prior to the Existing Revolving Credit
Maturity Date, advise the Borrower whether or not such Lender agrees to such
extension (and any Lender that does not advise the Borrower on or before the
later of such days shall be deemed to have advised the Borrower that it will not
agree to such extension).
(b) The Borrower shall have the right, on or before the
Existing Revolving Credit Maturity Date, to require any Lender which shall have
advised or been deemed to advise the Borrower that it will not agree to an
extension of the Revolving Credit Maturity Date (each a "Non-Extending Lender")
to transfer without recourse (in accordance with and subject to the restrictions
contained in Section 9.04) all its interests, rights and obligations under this
Agreement to one or more other banks or other financial institutions (any such
bank or other financial institution being called a "Substitute Lender"), which
may include any Lender; provided that (i) such Substitute Lender, if not already
a Lender hereunder, shall
<PAGE> 49
36
have been approved by the Administrative Agent (which approval shall not be
unreasonably withheld) and shall execute all such documentation as the
Administrative Agent shall specify to evidence its status as a Lender hereunder,
(ii) such assignment shall become effective as of the Existing Revolving Credit
Maturity Date and (iii) the Borrower or such Substitute Lender shall pay to such
Non-Extending Lender in immediately available funds on the effective date of
such assignment the principal of and interest accrued to the date of payment on
the Loans made by it hereunder and all other amounts accrued for its account or
owed to it hereunder.
(c) If (and only if) Lenders (including Substitute Lenders)
holding Commitments that represent at least 66 2/3% of the Total Commitment on
the 60th day prior to the Existing Revolving Credit Maturity Date shall have
agreed to extend the Existing Revolving Credit Maturity Date (the "Continuing
Lenders"), then the Revolving Credit Maturity Date shall be extended to the date
364 days after the Existing Revolving Credit Maturity Date (provided, that if
such date is not a Business Day, then the Maturity Date shall be extended to the
next preceding Business Day). The decision to agree or withhold agreement to any
extension of the Revolving Credit Maturity Date hereunder shall be at the sole
discretion of each Lender. The Commitment of each Non-Extending Lender (after
giving effect to each transfer and assignment pursuant to paragraph (b) above)
shall terminate, and all Loans of such Non-Extending Lender shall become due and
payable, together with all interest accrued thereon and all other amounts owed
to such Lender hereunder, on the Existing Revolving Credit Maturity Date.
Notwithstanding the foregoing, no extension of the Revolving
Credit Maturity Date shall be effective with respect to any Lender unless, on
and as of the Existing Revolving Credit Maturity Date, the conditions set forth
in paragraphs (b) and (c) of Section 4.01 shall be satisfied (with all
references in such paragraphs to a Credit Event being deemed to be references to
such extension) and the Agent shall have received a certificate to that effect,
dated the Existing Revolving Credit Maturity Date and executed by a Responsible
Officer of the Borrower.
SECTION 2.22. Increase in Commitments. (a) The Borrower may,
by written notice to the Administrative Agent (which shall promptly deliver a
copy to each of the Lenders), request that the total Commitments be increased by
an amount not less than 50,000,000 for any such increase provided that the total
Commitments shall not exceed $500,000,000. Such notice shall set forth the
amount of the requested increase in the total Commitments and the date on which
such increase is requested to become effective (which shall be not less than 30
days or more than 60 days after the date of such notice), and shall offer each
Lender the opportunity to increase its Commitment by its Applicable Percentage
of the proposed increased amount. Each Lender shall, by notice to the Borrower
and the Administrative Agent given not more than 20 days after the date of the
Borrower's notice, either agree to increase its Commitment by
<PAGE> 50
37
all or a portion of the offered amount (each Lender so agreeing being an
"Increasing Lender") or decline to increase its Commitment (and any Lender that
does not deliver such a notice within such period of 20 days shall be deemed to
have declined to increase its Commitment) (each Lender so declining or deemed to
have declined being a "Non-Increasing Lender"). In the event that, on the 20th
day after the Borrower shall have delivered a notice pursuant to the first
sentence of this paragraph, the Lenders shall have agreed pursuant to the
preceding sentence to increase their Commitments by an aggregate amount less
than the increase in the total Commitments requested by the Borrower, the
Borrower may arrange for one or more banks or other financial institutions (any
such bank or other financial institution referred to in this clause (a) being
called an "Augmenting Lender"), which may include any Lender, to extend
Commitments or increase their existing Commitments in an aggregate amount equal
to the unsubscribed amount; provided that each Augmenting Lender, if not already
a Lender hereunder, shall be subject to the approval of the Administrative Agent
(which approval shall not be unreasonably withheld) and each Augmenting Lender
shall execute all such documentation as the Administrative Agent shall specify
to evidence its Commitment and its status as a Lender hereunder. Any increase in
the total Commitments may be made in an amount which is less than the increase
requested by the Borrower if the Borrower is unable to arrange for, or chooses
not to arrange for Augmenting Lenders. Increases and new Commitments created
pursuant to this clause (a) shall become effective on the date specified in the
notice delivered by the Borrower pursuant to the first sentence of this
paragraph. Notwithstanding the foregoing, no increase in the total Commitments
(or in the Commitment of any Lender) shall become effective under this paragraph
unless, (i) on the date of such increase, the conditions set forth in paragraphs
(b) and (c) of Section 4.01 shall be satisfied (with all references in such
paragraphs to a Credit Event being deemed to be references to such increase) and
the Administrative Agent shall have received a certificate to that effect dated
such date and executed by a Financial Officer of the Borrower, and (ii) the
Administrative Agent shall have received (with sufficient copies for each of the
Lenders) documents consistent with those delivered on the under clauses (a) and
(c) of Section 4.02 as to the corporate power and authority of the Borrower to
borrow hereunder after giving effect to such increase.
(b) On the effective date (the "Increase Effective Date") of
any increase in the total Commitments pursuant to Section 2.22(a) (the
"Commitment Increase"), (i) the aggregate principal amount of the Loans
outstanding (the "Initial Loans") immediately prior to giving effect to the
Commitment Increase on the Increase Effective Date shall be deemed to be paid,
(ii) each Increasing Lender and each Augmenting Lender that shall have been a
Lender prior to the Commitment Increase shall pay to the Administrative Agent in
same day funds an amount equal to the difference between (A) the product of (1)
such Lender's Applicable Percentage (calculated after giving effect to the
Commitment Increase) multiplied by (2) the amount of the Subsequent Borrowings
(as hereinafter defined) and (B) the product of (1) such Lender's Applicable
Percentage (calculated without giving effect to the Commitment Increase)
multiplied by (2) the amount of the Initial
<PAGE> 51
38
Loans, (iii) each Augmenting Lender that shall not have been a Lender prior to
the Commitment Increase shall pay to Administrative Agent in same day funds an
amount equal to the product of (1) such Augmenting Lender's Applicable
Percentage (calculated after giving effect to the Commitment Increase)
multiplied by (2) the amount of the Subsequent Borrowings, and (iv) after the
Administrative Agent receives the funds specified in clauses (ii) and (iii)
above, the Administrative Agent shall pay to each Non-Increasing Lender the
portion of such funds that is equal to the difference between (A) the product of
(1) such Non-Increasing Lender's Applicable Percentage (calculated without
giving effect to the Commitment Increase) multiplied by (2) the amount of the
Initial Loans, and (B) the product of (1) such Non-Increasing Lender's
Applicable Percentage (calculated after giving effect to the Commitment
Increase) multiplied by (2) the amount of the Subsequent Borrowings, (v) after
the effectiveness of the Commitment Increase, the Borrower shall be deemed to
have made new Borrowings (the "Subsequent Borrowings") in an aggregate principal
amount equal to the aggregate principal amount of the Initial Loans and of the
types and for the Interest Periods specified in a Borrowing Request delivered to
the Administrative Agent in accordance with Section 2.04, (vi) each
Non-Increasing Lender, each Increasing Lender and each Augmenting Lender shall
be deemed to hold its Applicable Percentage of each Subsequent Borrowing
(calculated after giving effect to the Commitment Increase) and (vii) the
Borrower shall pay each Increasing Lender and each Non-Increasing Lender any and
all accrued but unpaid interest on the Initial Loans. The deemed payments made
pursuant to clause (i) above in respect of each Eurodollar Loan shall be subject
to indemnification by the Borrower pursuant to the provisions of Section 2.14 if
the Increase Effective Date occurs other than on the last day of the Interest
Period relating thereto.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
Each Borrower represents and warrants to each of the Lenders
that:
SECTION 3.01. Organization; Powers. (a) Each Borrower and each
of the Subsidiaries (i) is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization, (ii) has
all requisite power and authority to own its property and assets and to carry on
its business as now conducted and as proposed to be conducted, (iii) is
qualified to do business in every jurisdiction where such qualification is
required, except where the failure so to qualify would not result in a Material
Adverse Effect, and (iv) has the corporate power and authority to execute,
deliver and perform its obligations under each of the Loan Documents and each
other agreement or instrument contemplated thereby to which it is or will be a
party and, in the case of each Borrower, to borrow hereunder.
(b) Popular is duly registered as a bank holding company under
the Bank Holding Company Act of 1956, as amended.
<PAGE> 52
39
SECTION 3.02. Authorization. The execution, delivery and
performance by each Borrower of each of the Loan Documents and the borrowings
hereunder (collectively, the "Transactions") (a) have been duly authorized by
all requisite corporate and, if required, stockholder action and (b) will not
(i) violate (A) any provision of law, statute, rule or regulation, or of the
certificate or articles of incorporation or other constitutive documents or
by-laws of such Borrower or any Subsidiary, (B) any order of any Governmental
Authority or (C) any provision of any indenture, agreement or other instrument
to which such Borrower or any Subsidiary is a party or by which any of them or
any of their property is or may be bound, (ii) be in conflict with, result in a
breach of or constitute (alone or with notice or lapse of time or both) a
default under any such indenture, agreement or other instrument or (iii) result
in the creation or imposition of any Lien upon or with respect to any property
or assets now owned or hereafter acquired by such Borrower or any Subsidiary.
SECTION 3.03. Enforceability. This Agreement has been duly
executed and delivered by each Borrower and constitutes, and each other Loan
Document when executed and delivered by such Borrower will constitute, a legal,
valid and binding obligation of such Borrower enforceable against such Borrower
in accordance with its terms.
SECTION 3.04. Governmental Approvals. No action, consent or
approval of, registration or filing with or any other action by any Governmental
Authority is or will be required in connection with the Transactions, except for
such as have been made or obtained and are in full force and effect.
SECTION 3.05. Financial Statements. Popular has heretofore
furnished to the Lenders its consolidated balance sheets and statements of
income and changes in financial condition (i) as of and for the fiscal year
ended December 31, 1997, audited by and accompanied by the opinion of Price
Waterhouse LLP, independent public accountants, and (ii) as of and for the
fiscal quarter and portion of the fiscal year ended June 30, 1998. Such
financial statements present fairly the financial condition and results of
operations of Popular and its consolidated Subsidiaries as of such dates and for
such periods. Such balance sheets and the notes thereto disclose all material
liabilities, direct or contingent, of the Popular and its consolidated
Subsidiaries as of the dates thereof. Such financial statements were prepared in
accordance with GAAP applied on a consistent basis subject to, in the case of
the statements referred to in clause (ii) above, normal year-end audit
adjustments and the absence of footnotes.
SECTION 3.06. No Material Adverse Change. There has been no
material adverse change in the business, assets, operations,
<PAGE> 53
40
prospects or condition, financial or otherwise, of the Borrowers and the
Subsidiaries, taken as a whole, since December 31, 1997.
SECTION 3.07. Title to Properties; Possession Under Leases.
(a) Each of the Borrowers and the Subsidiaries has good and marketable title to,
or valid leasehold interests in, all its material properties and assets, except
for minor defects in title that do not interfere with its ability to conduct its
business as currently conducted or to utilize such properties and assets for
their intended purposes. All such material properties and assets are free and
clear of Liens prohibited by Section 6.01.
(b) Each of the Borrowers and the Subsidiaries has complied
with all obligations under all material leases to which it is a party and all
such leases are in full force and effect. Each of the Borrowers and the
Subsidiaries enjoys peaceful and undisturbed possession under all such material
leases.
SECTION 3.08. Subsidiaries. Schedule 3.08 sets forth a
complete and correct list, as of the date hereof, of all Subsidiaries. Except as
set forth in Schedule 3.08, all the issued and outstanding shares of capital
stock or the partnership interests, as the case may be, of each of the
Subsidiaries have been validly issued and are fully paid and nonassessable and
are owned directly or indirectly by the Borrower free and clear of all Liens
whatsoever, and there are no options, warrants, calls, conversion or exchange
rights, commitments or agreements of any character obligating any of the
Subsidiaries to issue, deliver or sell additional shares of capital stock of any
class or any securities convertible into or exchangeable for any such capital
stock or any additional partnership interests.
SECTION 3.09. Litigation; Compliance with Laws. (a) Except as
set forth in Schedule 3.09, there are not any actions, suits or proceedings at
law or in equity or by or before any Governmental Authority now pending or, to
the knowledge of either the Borrowers, threatened against or affecting either of
the Borrowers or any Subsidiary or any business, property or rights of any such
person (i) which involve any Loan Document or the Transactions or (ii) as to
which there is a reasonable possibility of an adverse determination and which,
if adversely determined, could, individually or in the aggregate, result in a
Material Adverse Effect.
(b) None of the Borrowers or any of the Subsidiaries or any of
their respective material properties or assets is in violation of, nor will the
continued operation of their material properties and assets as currently
conducted violate, any law, rule or regulation, or is in default with respect to
any judgment, writ, injunction or decree of any Governmental Authority, where
such violation or default could result in a Material Adverse Effect.
<PAGE> 54
41
SECTION 3.10. Agreements. (a) Neither of the Borrowers
nor any of the Subsidiaries is a party to any agreement or instrument
or subject to any corporate restriction that has resulted or could
result in a Material Adverse Effect.
(b) Neither of the Borrowers nor any of the Subsidiaries is in
default in any manner under any provision of any indenture or other agreement or
instrument evidencing Indebtedness, or any other material agreement or
instrument to which it is a party or by which it or any of its properties or
assets are or may be bound, where such default could result in a Material
Adverse Effect.
SECTION 3.11. Federal Reserve Regulations. (a) Neither of the
Borrowers nor any of the Subsidiaries is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
(b) No part of the proceeds of any Loan will be used, whether
directly or indirectly, and whether immediately, incidentally or ultimately, (i)
to purchase or carry Margin Stock or to extend credit to others for the purpose
of purchasing or carrying Margin Stock or to refund indebtedness originally
incurred for such purpose, or (ii) for any purpose which entails a violation of,
or which is inconsistent with, the provisions of the Regulations of the Board,
including Regulation U or X.
SECTION 3.12. Investment Company Act; Public Utility Holding
Company Act. Neither of the Borrowers nor any Subsidiary is (a) an "investment
company" as defined in, or subject to regulation under, the Investment Company
Act of 1940 or (b) a "holding company" as defined in, or subject to regulation
under, the Public Utility Holding Company Act of 1935.
SECTION 3.13. Use of Proceeds. The Borrowers will use the
proceeds of the Loans only for the purposes specified in the preamble to this
Agreement.
SECTION 3.14. Tax Returns. Each of the Borrowers and the
Subsidiaries has filed or caused to be filed all Federal, state and local tax
returns required to have been filed by it and has paid or caused to be paid all
taxes due and payable by it and all assessments received by it, except taxes
that are being contested in good faith by appropriate proceedings and for which
a Borrower shall have set aside on its books adequate reserves.
SECTION 3.15. No Material Misstatements. No information,
report, financial statement, exhibit or schedule furnished by or on behalf of a
Borrower to the Administrative Agent or any Lender in connection with the
negotiation of any Loan Document or included therein or delivered pursuant
thereto
<PAGE> 55
42
contained, contains or will contain any material misstatement of fact or
omitted, omits or will omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were, are
or will be made, not misleading.
SECTION 3.16. Employee Benefit Plans. Each of the Borrowers
and their respective ERISA Affiliates is in compliance in all material respects
with the applicable provisions of ERISA and the Code and the regulations and
published interpretations thereunder. No Reportable Event has occurred in
respect of any Plan of a Borrower or any ERISA Affiliate. The present value of
all benefit liabilities under each Plan (based on those assumptions used to fund
such Plan) did not, as of the last annual valuation date applicable thereto,
exceed by more than $10,000,000 the value of the assets of such Plan, and the
present value of all benefit liabilities of all underfunded Plans (based on
those assumptions used to fund each such Plan) did not, as of the last annual
valuation dates applicable thereto, exceed by more than $10,000,000 the value of
the assets of all such underfunded Plans. Neither of the Borrowers nor any ERISA
Affiliate has incurred any Withdrawal Liability that materially adversely
affects the financial condition of a Borrower and its ERISA Affiliates taken as
a whole. Neither of the Borrowers nor any ERISA Affiliate has received any
notification that any Multiemployer Plan is in reorganization or has been
terminated, within the meaning of Title IV of ERISA, and no Multiemployer Plan
is reasonably expected to be in reorganization or to be terminated, where such
reorganization or termination has resulted or can reasonably be expected to
result in an increase in the contributions required to be made to such Plan that
would materially and adversely affect the financial condition of a Borrower and
its ERISA Affiliates taken as a whole.
SECTION 3.17. Environmental and Safety Matters. The Borrowers
are aware of no events, conditions or circumstances involving environmental
pollution or contamination or employee health or safety that could reasonably be
expected to result in a Material Adverse Effect.
SECTION 3.18. Capital Commitments. Popular is not a party to
any Capital Commitment, other than such Capital Commitments entered into after
the Closing Date that, individually and in the aggregate, could not reasonably
be expected to have a Material Adverse Effect.
SECTION 3.19. Year 2000. Any reprogramming required to permit
the proper functioning, in and following the year 2000, of (i) the Borrower's
computer systems and equipment containing embedded microchips (including systems
and equipment supplied by others or with which Borrower's systems interface) and
the testing of all such systems and equipment, as so reprogrammed, will be
<PAGE> 56
43
completed by June 30, 1999. The cost to the Borrower of such reprogramming and
testing and of the reasonably foreseeable consequences of year 2000 to the
Borrower (including, without limitation, reprogramming errors and the failure of
others' systems or equipment) will not result in a Default or a Material Adverse
Effect. Except for such of the reprogramming referred to in the preceding
sentence as may be necessary, the computer and management information systems of
the Borrower and its Subsidiaries are and, with ordinary course upgrading and
maintenance, will continue for the term of this Agreement to be, sufficient to
permit the Borrower to conduct its business without Material Adverse Effect.
ARTICLE IV. CONDITIONS OF LENDING
The obligations of the Lenders to make Loans hereunder are
subject to the satisfaction of the following conditions:
SECTION 4.01. All Credit Events. On the date of each
Borrowing, including each Borrowing in which Loans are refinanced with new Loans
as contemplated by Section 2.02(f) (each such event being called a "Credit
Event"):
(a) The Administrative Agent shall have received a notice of
such Borrowing as required by Section 2.03 or 2.04, as applicable (or
such notice shall have been deemed given in accordance with the last
paragraph of Section 2.04).
(b) The representations and warranties set forth in Article
III (other than, in the case of a Borrowing that does not increase the
aggregate outstanding principal amount of the Loans of any Lender,
Sections 3.06 and 3.09(a)) shall be true and correct in all material
respects on and as of the date of such Credit Event with the same
effect as though made on and as of such date, except to the extent such
representations and warranties expressly relate to an earlier date.
(c) Each Borrower shall be in compliance with all the terms
and provisions set forth herein and in each other Loan Document on its
part to be observed or performed, and at the time of and immediately
after such Credit Event, no Event of Default or Default shall have
occurred and be continuing.
Each Credit Event shall be deemed to constitute a representation and warranty by
each Borrower on the date of such Credit Event as to the matters specified in
paragraphs (b) and (c) of this Section 4.01.
SECTION 4.02. First Credit Event. On the Closing Date:
(a) The Administrative Agent shall have received, on behalf of
itself and the Lenders, a favorable written opinion of Brunilde Santos
de Alvarez, Esq., Assistant Secretary and
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44
counsel for the Borrowers, substantially to the effect set forth in
Exhibit E (A) dated the Closing Date, (B) addressed to the
Administrative Agent and the Lenders, and (C) covering such other
matters relating to the Loan Documents and the Transactions as the
Administrative Agent shall reasonably request, and the Borrowers hereby
instruct such counsel to deliver such opinion.
(b) All legal matters incident to this Agreement, the
borrowings and extensions of credit hereunder and the other Loan
Documents shall be satisfactory to the Lenders and to Cravath, Swaine &
Moore, counsel for the Administrative Agent.
(c) The Administrative Agent shall have received (i) a copy of the
certificate or articles of incorporation, including all amendments
thereto, of each Borrower, certified as of a recent date by the
Secretary of State of the state of its organization, and a letter
sealed by such Secretary of State from each Borrower requesting a
certificate as to the good standing of each Borrower as of a recent
date from such Secretary of State; (ii) a certificate of the Secretary
or Assistant Secretary of each Borrower dated the Closing Date and
certifying (A) that attached thereto is a true and complete copy of the
by-laws of such Borrower as in effect on the Closing Date and at all
times since a date prior to the date of the resolutions described in
clause (B) below, (B) that attached thereto is a true and complete copy
of resolutions duly adopted by the Board of Directors of such Borrower
authorizing the execution, delivery and performance of the Loan
Documents and the borrowings hereunder, and that such resolutions have
not been modified, rescinded or amended and are in full force and
effect, (C) that the certificate or articles of incorporation of such
Borrower have not been amended since the date of the last amendment
thereto which date will be shown on the certificate of good standing to
be furnished pursuant to Section 5.04(g), and (D) as to the incumbency
and specimen signature of each officer executing any Loan Document or
any other document delivered in connection herewith on behalf of such
Borrower; (iii) a certificate of another officer of each Borrower as to
the incumbency and specimen signature of the Secretary or Assistant
Secretary of such Borrower executing the certificate pursuant to (ii)
above; and (iv) such other documents as the Lenders or Cravath, Swaine
& Moore, counsel for the Administrative Agent, may reasonably request.
(d) The Administrative Agent shall have received a certificate
of each Borrower, dated the Closing Date and signed by a Financial
Officer of such Borrower, confirming compliance with the conditions
precedent set forth in paragraphs (b) and (c) of Section 4.01.
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45
(e) The Administrative Agent shall have received the financial
statements referred to in Section 3.05.
(f) The Administrative Agent shall have received all Fees and
other amounts due and payable on or prior to the Closing Date,
including, to the extent invoiced, reimbursement or payment of all
out-of-pocket expenses required to be reimbursed or paid by the
Borrowers hereunder or under any other Loan Document.
(g) The Administrative Agent shall have received a certificate
of a Financial Officer of each of the Borrowers certifying as to (i)
the termination of the Existing Credit Agreement, and (ii) the payment
in full of all obligations of the Borrowers outstanding under the
Existing Credit Agreement.
ARTICLE V. AFFIRMATIVE COVENANTS
Each Borrower covenants and agrees with each Lender that so
long as this Agreement shall remain in effect and until the Commitments have
been terminated and the principal of and interest on each Loan, all Fees and all
other expenses or amounts payable under any Loan Document shall have been paid
in full, unless the Required Lenders shall otherwise consent in writing, such
Borrower will, and will cause each of the Subsidiaries to:
SECTION 5.01. Existence; Businesses and Properties. (a) Do or
cause to be done all things necessary to preserve, renew and keep in full force
and effect its legal existence, except as otherwise expressly permitted under
Section 6.04.
(b) Do or cause to be done all things necessary to obtain,
preserve, renew, extend and keep in full force and effect the rights, licenses,
permits, franchises, authorizations, patents, copyrights, trademarks and trade
names material to the conduct of its business; maintain and operate such
business in substantially the manner in which it is presently conducted and
operated (provided that the Borrowers may engage in new businesses not
prohibited by Section 6.04); comply in all material respects with all applicable
laws, rules, regulations and orders of any Governmental Authority, whether now
in effect or hereafter enacted; and at all times maintain and preserve all
property material to the conduct of such business and keep such property in good
repair, working order and condition and from time to time make, or cause to be
made, all needful and proper repairs, renewals, additions, improvements and
replacements thereto necessary in order that the business carried on in
connection therewith may be properly conducted at all times.
SECTION 5.02. Insurance. Keep its insurable properties
adequately insured at all times by financially sound and reputable
<PAGE> 59
46
insurers; maintain such other insurance, to such extent and against such risks,
including fire and other risks insured against by extended coverage, as is
customary with companies in the same or similar businesses, including public
liability insurance against claims for personal injury or death or property
damage occurring upon, in, about or in connection with the use of any properties
owned, occupied or controlled by it; and maintain such other insurance as may be
required by law.
SECTION 5.03. Obligations and Taxes. Pay its Indebtedness and
other obligations promptly and in accordance with their terms and pay and
discharge promptly when due all taxes, assessments and governmental charges or
levies imposed upon it or upon its income or profits or in respect of its
property, before the same shall become delinquent or in default, as well as all
lawful claims for labor, materials and supplies or otherwise which, if unpaid,
might give rise to a Lien upon such properties or any part thereof; provided,
however, that such payment and discharge shall not be required with respect to
any such tax, assessment, charge, levy or claim so long as the validity or
amount thereof shall be contested in good faith by appropriate proceedings and
the Borrower shall have set aside on its books adequate reserves with respect
thereto and such contest operates to suspend collection of the contested
obligation, tax, assessment or charge and enforcement of a Lien.
SECTION 5.04. Financial Statements, Reports, etc. In the
case of Popular, furnish to the Administrative Agent and each Lender:
(a) within 90 days after the end of each fiscal year, its
consolidated balance sheets and related statements of operations,
stockholders' equity and cash flows showing the financial condition of
Popular and its consolidated subsidiaries as of the close of such
fiscal year and the results of its operations and the operations of
such subsidiaries during such year, setting forth in each case in
comparative form the figures for the previous fiscal year, all audited
by Price Waterhouse LLP or other independent public accountants of
recognized national standing acceptable to the Required Lenders and
accompanied by an opinion of such accountants (which shall not be
qualified in any material respect) to the effect that such consolidated
financial statements fairly present the financial condition and results
of operations of Popular on a consolidated basis in accordance with
GAAP consistently applied;
(b) within 45 days after the end of each of the first three
fiscal quarters of each fiscal year, its consolidated balance sheets
and related statements of operations, stockholders' equity and cash
flows showing the financial
<PAGE> 60
47
condition of Popular and its consolidated subsidiaries as of the close
of such fiscal quarter and the results of its operations and the
operations of such subsidiaries during such fiscal quarter and the then
elapsed portion of the fiscal year, setting forth in each case in
comparative form the figures for the corresponding quarter and the
corresponding portion of the previous fiscal year, all certified by one
of its Financial Officers as fairly presenting the financial condition
and results of operations of Popular on a consolidated basis in
accordance with GAAP consistently applied, subject to normal year-end
audit adjustments;
(c) concurrently with any delivery of financial statements
under (a) or (b) above, a certificate of a Financial Officer (i)
setting forth in reasonable detail the calculations required to
establish whether Popular was in compliance with the requirements of
Sections 6.05, 6.06, 6.07 and 6.08 and (ii) certifying that no Event of
Default or Default has occurred or, if such an Event of Default or
Default has occurred, specifying the nature and extent thereof and any
corrective action taken or proposed to be taken with respect thereto;
(d) promptly after the same become publicly available, copies
of all periodic and other reports, proxy statements and other materials
filed by it with the Securities and Exchange Commission, or any
Governmental Authority succeeding to any of or all the functions of
said Commission, or with any national securities exchange, or
distributed to its shareholders, as the case may be;
(e) as soon as is reasonably practicable after the same
becomes available, the "Parent Company Only Financial Statement for
Bank Holding Companies" (report No. FR Y-9LP or any successor form of
the Federal Reserve System) of Popular and Popular North America, Inc.
and the "Consolidated Financial Statements for Bank Holding Companies"
(report no. FR Y-9C or any successor form of the Federal Reserve
System) of Popular that Popular shall have filed with the Board;
(f) promptly upon the request of the Administrative Agent or
any Lender, copies of all call reports of each Significant Subsidiary;
(g) promptly, upon receipt by each borrower, the certificate
of good standing delivered by the Secretary of State to the Borrower in
response to the Borrower's request for such certificate in the letter
delivered to the Administrative Agent pursuant to Section 4.02(c)(i);
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48
(h) promptly, from time to time, such other information
regarding the operations, business affairs and financial condition of
Popular or any Subsidiary, or compliance with the terms of any Loan
Document, as the Administrative Agent or any Lender may reasonably
request; and
(i) promptly, upon entering such agreement, notice of the
terms of any agreement entered into by Banco Popular after the date of
this Agreement restricting or limiting Banco Popular's
right to declare and make payments of dividends to the Borrower, and
any changes to any existing restrictions or limits on Banco Popular's
right to declare or pay dividends to the Borrower.
SECTION 5.05. Litigation and Other Notices. Furnish to
the Administrative Agent and each Lender prompt written notice of the
following:
(a) any Event of Default or Default, specifying the nature and
extent thereof and the corrective action (if any) proposed to be taken
with respect thereto;
(b) the filing or commencement of, or any threat or notice of
intention of any person to file or commence, any action, suit or
proceeding, whether at law or in equity or by or before any
Governmental Authority, against a Borrower or any Affiliate thereof
which could reasonably be expected to result in a Material Adverse
Effect; and
(c) any other development that has resulted in, or could
reasonably be expected to result in, a Material Adverse Effect.
SECTION 5.06. Employee Benefits. (a) Comply in all material
respects with the applicable provisions of ERISA and the Code and (b) furnish to
the Administrative Agent (i) as soon as possible after, and in any event within
30 days after any Responsible Officer of such Borrower or any ERISA Affiliate
knows or has reason to know that, any Reportable Event has occurred that alone
or together with any other Reportable Event could reasonably be expected to
result in liability of such Borrower to the PBGC in an aggregate amount
exceeding $10,000,000, a statement of a Financial Officer setting forth details
as to such Reportable Event and the action that the Borrower proposes to take
with respect thereto, together with a copy of the notice, if any, of such
Reportable Event given to the PBGC, (ii) promptly after receipt thereof, a copy
of any notice that the Borrower or any ERISA Affiliate may receive from the PBGC
relating to the intention of the PBGC to terminate any Plan or Plans (other than
a Plan maintained by an ERISA Affiliate that is considered an ERISA Affiliate
only pursuant to subsection (m) or (o) of Code Section 414) or to appoint
<PAGE> 62
49
a trustee to administer any such Plan, (iii) within 10 days after the due date
for filing with the PBGC pursuant to Section 412(n) of the Code a notice of
failure to make a required installment or other payment with respect to a Plan,
a statement of a Financial Officer setting forth details as to such failure and
the action that such Borrower proposes to take with respect thereto, together
with a copy of any such notice given to the PBGC and (iv) promptly and in any
event within 30 days after receipt thereof by the Borrower or any ERISA
Affiliate from the sponsor of a Multiemployer Plan, a copy of each notice
received by the Borrower or any ERISA Affiliate concerning (A) the imposition of
Withdrawal Liability or (B) a determination that a Multiemployer Plan is, or is
expected to be, terminated or in reorganization, both within the meaning of
Title IV of ERISA.
SECTION 5.07. Maintaining Records; Access to Properties and
Inspections. Maintain all financial records in accordance with GAAP and permit
any representatives designated by any Lender to visit and inspect the financial
records and the properties of a Borrower or any Subsidiary at reasonable times
and upon reasonable notice and as often as requested and to make extracts from
and copies of such financial records, and permit any representatives designated
by any Lender to discuss the affairs, finances and condition of such Borrower or
any Subsidiary with the officers thereof and independent accountants therefor.
SECTION 5.08. Use of Proceeds. Use the proceeds of the
Loans only for the purposes set forth in the preamble to this
Agreement.
SECTION 5.09. Continuance of Business. With respect to
Popular, at all times be a bank holding company duly registered with the Board
under the Bank Holding Company Act of 1956, as amended, and continue (and will
cause each Subsidiary to continue) to (a) engage in business of the same general
type as now conducted by it or any other business permitted under, and in
accordance with, the Bank Holding Company Act of 1956, as amended, and any
regulation of, or ruling by, the Board issued thereunder and (b) unless
otherwise permitted by this Agreement, maintain its corporate existence and keep
in full force and effect all licenses and permits necessary to the proper
conduct of its business.
SECTION 5.10. Compliance with Regulatory Standards. At all
times substantially comply with all applicable regulatory guidelines, policy
statements, regulations or other legal requirements and cause each Bank
Subsidiary (other than any Edge Act corporation) to maintain membership with the
Federal Deposit Insurance Corporation.
SECTION 5.11. Capital Requirements. Maintain and cause each of
its Bank Subsidiaries to, (a) maintain (at all times 120
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50
days or more after the date such person became a Bank Subsidiary), such amount
of capital as may be prescribed from time to time by each Bank Regulatory
Authority with jurisdiction over such Borrower or such Bank Subsidiary, whether
by regulation, agreement or order.
(b) Cause each Bank Subsidiary that is a Significant
Subsidiary to be "adequately capitalized" (within the meaning of 12 U.S.C. 1831,
as amended, reenacted or redesignated from time to time) at all times 120 days
or more after the date such person became a Bank Subsidiary.
ARTICLE VI. NEGATIVE COVENANTS
Each Borrower covenants and agrees with each Lender that, so
long as this Agreement shall remain in effect and until the Commitments have
been terminated and the principal of and interest on each Loan, all Fees and all
other expenses or amounts payable under any Loan Document have been paid in
full, unless the Required Lenders shall otherwise consent in writing, such
Borrower will not, and will not cause or permit any of the Subsidiaries to:
SECTION 6.01. Liens. In the case of the Borrowers, create,
incur, assume or permit to exist any Lien on any property or assets (including
stock or other securities of any person, including any Subsidiary) now owned or
hereafter acquired by it or on any income or revenues or rights in respect of
any thereof, except:
(a) Liens on property or assets of such Borrower existing on
the date hereof and set forth in Schedule 6.01; provided that such
Liens shall secure only those obligations which they secure on the date
hereof;
(b) any Lien existing on any property or asset prior to the
acquisition thereof by such Borrower; provided that (i) such Lien is
not created in contemplation of or in connection with such acquisition
and (ii) such Lien does not apply to any other property or assets of
such Borrower;
(c) Liens for taxes not yet due or which are being contested
in compliance with Section 5.03;
(d) carriers', warehousemen's, mechanic's, materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business and securing obligations that are not due and payable or which
are being contested in compliance with Section 5.03;
(e) pledges and deposits made in the ordinary course of
business in compliance with workmen's compensation,
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51
unemployment insurance and other social security laws or regulations;
(f) deposits to secure the performance of bids, trade
contracts (other than for Indebtedness), leases (other than Capital
Lease Obligations), statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in
the ordinary course of business;
(g) zoning restrictions, easements, rights-of-way,
restrictions on use of real property and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate,
are not substantial in amount and do not materially detract from the
value of the property subject thereto or interfere with the ordinary
conduct of the business of such Borrower;
(h) purchase money security interests in real property,
improvements thereto or equipment hereafter acquired (or, in the case
of improvements, constructed) by such Borrower; provided that (i) such
security interests are incurred, and the Indebtedness secured thereby
is created, within 90 days after such acquisition (or construction) and
(ii) such security interests do not apply to any other property or
assets of such Borrower or any Subsidiary;
(i) any Lien (a "replacement Lien") replacing, refinancing,
extending or renewing any Lien permitted under clause (a), (b) or (h)
above; provided that such replacement Lien shall secure only those
obligations that are secured by, and shall not apply to any property of
any Borrower other than property of such Borrower subject to, the Lien
replaced, refinanced, extended or renewed by such replacement Lien on
the date of incurrence of such replacement Lien; and
(j) securities repurchase agreements entered into in the
ordinary course of business with a maturity of less than one year.
SECTION 6.02. Sale and Lease-Back Transactions. In the case of
the Borrowers, enter into any arrangement, directly or indirectly, with any
person whereby it shall sell or transfer any property, real or personal, used or
useful in its business, whether now owned or hereafter acquired, and thereafter
rent or lease such property or other property which it intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
SECTION 6.03. Mergers, Consolidations, Sales of Assets. Merge
into or consolidate with any other person, or permit any other person to merge
into or consolidate with it, or sell, transfer,
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lease or otherwise dispose of (in one transaction or in a series of
transactions) all or any substantial part of the assets of Popular or its
Subsidiaries, taken as a whole (whether now owned or hereafter acquired), except
that if at the time thereof and immediately after giving effect thereto no Event
of Default or Default shall have occurred and be continuing (a) any Subsidiary
may merge into either Borrower in a transaction in which such Borrower is the
surviving corporation, (b) any Subsidiary may merge into or consolidate with any
other Subsidiary in a transaction in which the surviving entity is a Subsidiary
and (c) a wholly owned Subsidiary (other than a Subsidiary that owns a
substantial portion of the assets of Popular and its Subsidiaries, taken as a
whole) may merge with any person if the surviving corporation is a Subsidiary.
SECTION 6.04. Business of Borrowers and Subsidiaries. Engage
at any time in any business or business activity other than the business
currently conducted by it and business activities reasonably incidental thereto.
Notwithstanding the previous sentence, either Borrower may acquire, develop or
otherwise engage in any new business (consistent with applicable regulatory
requirements); provided, however, that all such new businesses (taken together)
shall not materially affect the overall nature and character of the business of
Popular and its Subsidiaries (taken as a whole), as currently conducted.
SECTION 6.05. Consolidated Tangible Net Worth. Permit at any
time Consolidated Tangible Net Worth to be less than 5% of Total Assets.
SECTION 6.06. Ratio of Long-Term Indebtedness to Total
Capitalization. Permit at any time the ratio of Long-Term Indebtedness to Total
Capitalization to exceed .65 to 1.0.
SECTION 6.07. Non-Performing Assets. Permit NonPerforming
Assets at any time to exceed 4.5% of total (gross) loans, leases and other owned
real estate, in each case for Popular and its Subsidiaries (determined on a
consolidated basis in accordance with GAAP), as at such time.
SECTION 6.08. Double Leverage. Permit at any time the ratio of
(a) the sum of Equity Investments in Subsidiaries and the Intangibles of Popular
and its consolidated Subsidiaries, in each case determined as of such time, to
(b) Consolidated Net Worth less the goodwill of Popular and its consolidated
Subsidiaries (determined on a consolidated basis in accordance with GAAP), in
each case determined as of such time, to exceed 125%.
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ARTICLE VII. EVENTS OF DEFAULT
In case of the happening of any of the following events
("Events of Default"):
(a) any representation or warranty made or deemed made in or
in connection with any Loan Document or the borrowings hereunder, or
any representation, warranty, statement or information contained in any
report, certificate, financial statement or other instrument furnished
in connection with or pursuant to any Loan Document, shall prove to
have been false or misleading in any material respect when so made,
deemed made or furnished;
(b) default shall be made in the payment of any principal of
any Loan when and as the same shall become due and payable, whether at
the due date thereof or at a date fixed for prepayment thereof or by
acceleration thereof or otherwise;
(c) default shall be made in the payment of any interest on
any Loan or any Fee or any other amount (other than an amount referred
to in (b) above) due under any Loan Document, when and as the same
shall become due and payable, and such default shall continue
unremedied for a period of three Business Days;
(d) default shall be made in the due observance or performance
by a Borrower or any Subsidiary of any covenant, condition or agreement
contained in Section 5.01(a), 5.05, 5.08 or 5.11 or in Article VI;
(e) default shall be made in the due observance or performance
by a Borrower or any Subsidiary of any covenant, condition or agreement
contained in any Loan Document (other than those specified in (b), (c)
or (d) above) and such default shall continue unremedied for a period
of 30 days after notice thereof from the Administrative Agent or any
Lender to such Borrower;
(f) a Borrower or any Subsidiary shall (i) fail to pay any
principal or interest, regardless of amount, due in respect of any
Indebtedness in a principal amount in excess of $25,000,000 when and as
the same shall become due and payable, or (ii) fail to observe or
perform any other term, covenant, condition or agreement contained in
any agreement or instrument evidencing or governing any such
Indebtedness if the effect of any failure referred to in this clause
(ii) is to cause, or to permit the holder or holders of such
Indebtedness or a trustee on its or their behalf (with or without the
giving of notice, the lapse of time or both) to
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54
cause, such Indebtedness to become due prior to its stated maturity;
(g) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of a Borrower or any
Subsidiary, or of a substantial part of the property or assets of such
Borrower or a Subsidiary, under Title 11 of the United States Code, as
now constituted or hereafter amended, or any other Federal or state
bankruptcy, insolvency, receivership or similar law, (ii) the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for such Borrower or any Subsidiary or
for a substantial part of the property or assets of such Borrower or a
Subsidiary or (iii) the winding-up or liquidation of such Borrower or
any Subsidiary; and such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or ordering any
of the foregoing shall be entered;
(h) a Borrower or any Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking relief under Title
11 of the United States Code, as now constituted or hereafter amended,
or any other Federal or state bankruptcy, insolvency, receivership or
similar law, (ii) consent to the institution of, or fail to contest in
a timely and appropriate manner, any proceeding or the filing of any
petition described in (g) above, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for such Borrower or any Subsidiary or
for a substantial part of the property or assets of such Borrower or
any Subsidiary, (iv) file an answer admitting the material allegations
of a petition filed against it in any such proceeding, (v) make a
general assignment for the benefit of creditors, (vi) become unable,
admit in writing its inability or fail generally to pay its debts as
they become due or (vii) take any action for the purpose of effecting
any of the foregoing;
(i) one or more judgments for the payment of money in an
aggregate amount in excess of $10,000,000 shall be rendered against a
Borrower, any Subsidiary or any combination thereof and the same shall
remain undischarged for a period of 30 consecutive days during which
execution shall not be effectively stayed, or any action shall be
legally taken by a judgment creditor to levy upon assets or properties
of such Borrower or any Subsidiary to enforce any such judgment;
(j) (i) a Reportable Event or Reportable Events, or a failure
to make a required installment or other payment (within the meaning of
Section 412(n)(1) of the Code), shall have occurred with respect to any
Plan or Plans that
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55
reasonably could be expected to result in liability of a Borrower to
the PBGC or to a Plan in an aggregate amount exceeding $10,000,000 and,
within 30 days after the reporting of any such Reportable Event to the
Administrative Agent or after the receipt by the Administrative Agent
of a statement required pursuant to Section 5.06(b)(iii) hereof, the
Administrative Agent shall have notified such Borrower in writing that
(A) the Required Lenders have made a determination that, on the basis
of such Reportable Event or Reportable Events or the failure to make a
required payment, there are reasonable grounds for the termination of
such Plan or Plans by the PBGC, the appointment by the appropriate
United States district court of a trustee to administer such Plan or
Plans or the imposition of a lien in favor of a Plan and (B) as a
result thereof an Event of Default exists hereunder; or (ii) a trustee
shall be appointed by a United States district court to administer any
such Plan or Plans; or (iii) the PBGC shall institute proceedings
(including giving notice of intent thereof) to terminate any such Plan
or Plans;
(k) (i) a Borrower or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred
Withdrawal Liability to such Multiemployer Plan, (ii) such Borrower or
such ERISA Affiliate does not have reasonable grounds for contesting
such Withdrawal Liability or is not contesting such Withdrawal
Liability in a timely and appropriate manner and (iii) the amount of
such Withdrawal Liability specified in such notice, when aggregated
with all other amounts required to be paid to Multiemployer Plans in
connection with Withdrawal Liabilities (determined as of the date or
dates of such notification), either (A) exceeds $10,000,000 or requires
payments exceeding $1,000,000 in any year or (B) is less than
$10,000,000 but any Withdrawal Liability payment remains unpaid 30 days
after such payment is due;
(l) a Borrower or any ERISA Affiliate shall have been notified
by the sponsor of a Multiemployer Plan that such Multiemployer Plan is
in reorganization or is being terminated, within the meaning of Title
IV of ERISA, if solely as a result of such reorganization or
termination the aggregate annual contributions of such Borrower and its
ERISA Affiliates to all Multiemployer Plans that are then in
reorganization or have been or are being terminated have been or will
be increased over the amounts required to be contributed to such
Multiemployer Plans for their most recently completed plan years by an
amount exceeding $1,000,000; or
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56
(m) there shall have occurred a Change in Control; then, and
in every such event (other than an event with respect to a Borrower
described in paragraph (g) or (h) above), and at any time thereafter
during the continuance of such event, the Administrative Agent may, and
at the request of the Required Lenders shall, by notice to the
Borrowers, take either or both of the following actions, at the same or
different times: (i) terminate forthwith the Commitments and (ii)
declare the Loans then outstanding to be forthwith due and payable in
whole or in part, whereupon the principal of the Loans so declared to
be due and payable, together with accrued interest thereon and any
unpaid accrued Fees and all other liabilities of the Borrowers accrued
hereunder and under any other Loan Document, shall become forthwith due
and payable, without presentment, demand, protest or any other notice
of any kind, all of which are hereby expressly waived by the Borrowers,
anything contained herein or in any other Loan Document to the contrary
notwithstanding; and in any event with respect to a Borrower described
in paragraph (g) or (h) above, the Commitments shall automatically
terminate and the principal of the Loans then outstanding, together
with accrued interest thereon and any unpaid accrued Fees and all other
liabilities of such Borrower accrued hereunder and under any other Loan
Document, shall automatically become due and payable, without
presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived by such Borrower, anything contained
herein or in any other Loan Document to the contrary notwithstanding.
ARTICLE VIII. THE ADMINISTRATIVE AGENT
In order to expedite the transactions contemplated by this Agreement,
The Chase Manhattan Bank is hereby appointed to act as Administrative Agent on
behalf of the Lenders. Each of the Lenders and each assignee of any such Lender,
hereby irrevocably authorizes the Administrative Agent to take such actions on
behalf of such Lender or assignee and to exercise such powers as are
specifically delegated to the Administrative Agent by the terms and provisions
hereof and of the other Loan Documents, together with such actions and powers as
are reasonably incidental thereto. The Administrative Agent is hereby expressly
authorized by the Lenders, without hereby limiting any implied authority, (a) to
receive on behalf of the Lenders all payments of principal of and interest on
the Loans and all other amounts due to the Lenders hereunder, and promptly to
distribute to each Lender its proper share of each payment so received; (b) to
give notice on behalf of each of the Lenders to the Borrowers of any Event of
Default specified in this Agreement of which the Administrative Agent has actual
knowledge acquired in connection with its agency hereunder; and (c) to
distribute to each Lender copies of all notices, financial statements and other
materials delivered by a Borrower pursuant to this Agreement as received by the
Administrative Agent.
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57
Neither the Administrative Agent nor any of its directors, officers,
employees or agents shall be liable as such for any action taken or omitted by
any of them except for its or his own gross negligence or wilful misconduct, or
be responsible for any statement, warranty or representation herein or the
contents of any document delivered in connection herewith, or be required to
ascertain or to make any inquiry concerning the performance or observance by a
Borrower of any of the terms, conditions, covenants or agreements contained in
any Loan Document. The Administrative Agent shall not be responsible to the
Lenders for the due execution, genuineness, validity, enforceability or
effectiveness of this Agreement or any other Loan Documents or other instruments
or agreements. The Administrative Agent shall in all cases be fully protected in
acting, or refraining from acting, in accordance with written instructions
signed by the Required Lenders and, except as otherwise specifically provided
herein, such instructions and any action or inaction pursuant thereto shall be
binding on all the Lenders. The Administrative Agent shall, in the absence of
knowledge to the contrary, be entitled to rely on any instrument or document
believed by it in good faith to be genuine and correct and to have been signed
or sent by the proper person or persons. Neither the Administrative Agent nor
any of its directors, officers, employees or agents shall have any
responsibility to the Borrowers on account of the failure of or delay in
performance or breach by any Lender of any of its obligations hereunder or to
any Lender on account of the failure of or delay in performance or breach by any
other Lender or a Borrower of any of their respective obligations hereunder or
under any other Loan Document or in connection herewith or therewith. The
Administrative Agent may execute any and all duties hereunder by or through
agents or employees and shall be entitled to rely upon the advice of legal
counsel selected by it with respect to all matters arising hereunder and shall
not be liable for any action taken or suffered in good faith by it in accordance
with the advice of such counsel.
The Lenders hereby acknowledge that the Administrative Agent
shall be under no duty to take any discretionary action permitted to be taken by
it pursuant to the provisions of this Agreement unless it shall be requested in
writing to do so by the Required Lenders.
Subject to the appointment and acceptance of a successor
Administrative Agent as provided below, the Administrative Agent may resign at
any time by notifying the Lenders and the Borrowers. Upon any such resignation,
the Required Lenders shall have the right to appoint a successor. If no
successor shall have been so appointed by the Required Lenders and shall have
accepted such appointment within 30 days after the retiring Administrative Agent
gives notice of its resignation, then the retiring Administrative Agent may, on
behalf of the Lenders, appoint a successor Administrative Agent which shall be a
bank with an office in New York, New York, having a
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combined capital and surplus of at least $500,000,000 or an Affiliate of any
such bank. Upon the acceptance of any appointment as Administrative Agent
hereunder by a successor bank, such successor shall succeed to and become vested
with all the rights, powers, privileges and duties of the retiring
Administrative Agent and the retiring Administrative Agent shall be discharged
from its duties and obligations hereunder. After the Administrative Agent's
resignation hereunder, the provisions of this Article and Section 9.05 shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as Administrative Agent.
With respect to the Loans made by it hereunder, the
Administrative Agent in its individual capacity and not as Administrative Agent
shall have the same rights and powers as any other Lender and may exercise the
same as though it were not the Administrative Agent, and the Administrative
Agent and its Affiliates may accept deposits from, lend money to and generally
engage in any kind of business with the Borrowers or any Subsidiary or other
Affiliate thereof as if it were not the Administrative Agent.
Each Lender agrees (i) to reimburse the Administrative Agent,
on demand, in the amount of its pro rata share (based on its Commitments
hereunder) of any expenses incurred for the benefit of the Lenders by the
Administrative Agent, including counsel fees and compensation of agents and
employees paid for services rendered on behalf of the Lenders, which shall not
have been reimbursed by the Borrowers and (ii) to indemnify and hold harmless
the Administrative Agent and any of its directors, officers, employees or
agents, on demand, in the amount of such pro rata share, from and against any
and all liabilities, taxes, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against it in its
capacity as the Administrative Agent or any of them in any way relating to or
arising out of this Agreement or any other Loan Document or any action taken or
omitted by it or any of them under this Agreement or any other Loan Document, to
the extent the same shall not have been reimbursed by the Borrowers; provided
that no Lender shall be liable to the Administrative Agent for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the gross negligence or
wilful misconduct of the Administrative Agent or any of its directors, officers,
employees or agents.
Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent or any other Lender and based on
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will,
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independently and without reliance upon the Administrative Agent or any other
Lender and based on such documents and information as it shall from time to time
deem appropriate, continue to make its own decisions in taking or not taking
action under or based upon this Agreement or any other Loan Document, any
related agreement or any document furnished hereunder or thereunder.
ARTICLE IX. MISCELLANEOUS
SECTION 9.01. Notices. Notices and other communications
provided for herein shall be in writing and shall be delivered by hand or
overnight courier service, mailed by certified or registered mail or sent by
telecopy, as follows:
(a) if to a Borrower, to it at Banco Popular Center
Building, 209 Munoz Rivera Avenue, Hato Rey, Puerto Rico 00918,
Attention of Mr. Richard Barrios (Telecopy No. 787-751-2137);
(b) if to the Administrative Agent, to The Chase Manhattan
Bank Agency Services Group, 1 Chase Manhattan Plaza, New York, New York
10081, Attention of Laura Rebecca (Telecopy No. 212- 552-7490), with a
copy to The Chase Manhattan Bank, at 270 Park Avenue, New York 10017,
Attention of Christine M. Herrick (Telecopy No. 212-270-1789); and
(c) if to a Lender, to it at its address (or telecopy number)
set forth in Schedule 2.01 or in the Assignment and Acceptance pursuant
to which such Lender shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy or on the date five Business Days after dispatch by certified or
registered mail if mailed, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this Section 9.01 or in accordance with
the latest unrevoked direction from such party given in accordance with this
Section 9.01.
SECTION 9.02. Survival of Agreement. All covenants,
agreements, representations and warranties made by each Borrower herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Lenders and shall survive the making by the Lenders
of the Loans, regardless of any investigation made by the Lenders or on their
behalf, and shall continue in full force and effect as long as the principal of
or any accrued interest on any Loan or any Fee or
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60
any other amount payable under this Agreement or any other Loan Document is
outstanding and unpaid and so long as the Commitments have not been terminated.
SECTION 9.03. Binding Effect. This Agreement shall become
effective when it shall have been executed by the Borrowers and the
Administrative Agent and when the Administrative Agent shall have received
counterparts hereof which, when taken together, bear the signatures of each of
the other parties hereto, and thereafter shall be binding upon and inure to the
benefit of the parties hereto and their respective permitted successors and
assigns.
SECTION 9.04. Successors and Assigns. (a) Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the permitted successors and assigns of such party; and all
covenants, promises and agreements by or on behalf of each Borrower, the
Administrative Agent or the Lenders that are contained in this Agreement shall
bind and inure to the benefit of their respective successors and assigns.
(b) Each Lender may assign to one or more assignees all or a
portion of its interests, rights and obligations under this Agreement (including
all or a portion of its Commitment and the Loans at the time owing to it);
provided, however, that (i) except in the case of an assignment to a Lender or
an Affiliate of such Lender, each Borrower and the Administrative Agent must
give their prior written consent to such assignment (which consent shall not be
unreasonably withheld), (ii) the amount of the Commitment of the assigning
Lender subject to each such assignment (determined as of the date the Assignment
and Acceptance with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $5,000,000, (iii) the parties to
each such assignment shall execute and deliver to the Administrative Agent an
Assignment and Acceptance, together with a processing and recordation fee of
$3,500 and (iv) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire. Upon acceptance and
recording pursuant to paragraph (e) of this Section 9.04, from and after the
effective date specified in each Assignment and Acceptance, which effective date
shall be at least five Business Days after the execution thereof, (A) the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and obligations of a
Lender under this Agreement and (B) the assigning Lender thereunder shall, to
the extent of the interest assigned by such Assignment and Acceptance, be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto but shall continue to be entitled to the benefits of Sections
2.12, 2.14, 2.18 and 9.05, as well as to any Fees accrued for its account and
not yet paid).
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(c) By executing and delivering an Assignment and Acceptance,
the assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and that
its Revolving Credit Commitment, and the outstanding balances of its Revolving
Loans and Competitive Loans, in each case without giving effect to assignments
thereof which have not become effective, are as set forth in such Assignment and
Acceptance, (ii) except as set forth in (i) above, such assigning Lender makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement, or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement, any other Loan Document or any other
instrument or document furnished pursuant hereto, or the financial condition of
the Borrowers or any Subsidiary or the performance or observance by the
Borrowers or any Subsidiary of any of its obligations under this Agreement, any
other Loan Document or any other instrument or document furnished pursuant
hereto; (iii) such assignee represents and warrants that it is legally
authorized to enter into such Assignment and Acceptance; (iv) such assignee
confirms that it has received a copy of this Agreement, together with copies of
the most recent financial statements, if any, delivered pursuant to Section 5.04
and such other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into such Assignment and
Acceptance; (v) such assignee will independently and without reliance upon the
Administrative Agent, such assigning Lender or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement; (vi) such assignee appoints and authorizes the Administrative
Agent to take such action as agent on its behalf and to exercise such powers
under this Agreement as are delegated to the Administrative Agent by the terms
hereof, together with such powers as are reasonably incidental thereto; and
(vii) such assignee agrees that it will perform in accordance with their terms
all the obligations which by the terms of this Agreement are required to be
performed by it as a Lender.
(d) The Administrative Agent, acting for this purpose as an
agent of the Borrowers, shall maintain at one of its offices in The City of New
York a copy of each Assignment and Acceptance delivered to it and a register for
the recordation of the names and addresses of the Lenders, and the Commitment
of, and principal amount of the Loans owing to, each Lender pursuant to the
terms hereof from time to time (the "Register"). The entries in the Register
shall be conclusive and the Borrowers, the Administrative Agent and the Lenders
may treat each person whose name is recorded in the Register pursuant to the
terms hereof as a Lender hereunder
<PAGE> 75
62
for all purposes of this Agreement, notwithstanding notice to the contrary. The
Register shall be available for inspection by the Borrowers and any Lender, at
any reasonable time and from time to time upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee, an Administrative
Questionnaire completed in respect of the assignee (unless the assignee shall
already be a Lender hereunder), the processing and recordation fee referred to
in paragraph (b) above and, if required, the written consent of each Borrower
and the Administrative Agent to such assignment, the Administrative Agent shall
(i) accept such Assignment and Acceptance, (ii) record the information contained
therein in the Register and (iii) give prompt notice thereof to the Lenders. No
assignment shall be effective unless it has been recorded in the Register as
provided in this paragraph (e).
(f) Each Lender may without the consent of the Borrowers or
the Administrative Agent sell participations to one or more banks or other
entities in all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans owing to it);
provided, however, that (i) such Lender's obligations under this Agreement shall
remain unchanged, (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii) the participating
banks or other entities shall be entitled to the benefit of the cost protection
provisions contained in Sections 2.12, 2.14 and 2.18 to the same extent as if
they were Lenders; provided that no such participating bank or entity shall be
entitled to receive any greater amount pursuant to such Sections than a Lender
would have been entitled to receive in respect of the amount of the
participation sold by such Lender to such participating bank or entity had no
sale occurred, and (iv) the Borrowers, the Administrative Agent and the Lenders
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement, and such Lender shall
retain the sole right to enforce the obligations of the Borrowers relating to
the Loans and to approve any amendment, modification or waiver of any provision
of this Agreement (other than amendments, modifications or waivers decreasing
any fees payable hereunder or the amount of principal of or the rate at which
interest is payable on the Loans, extending any scheduled principal payment date
or date fixed for the payment of interest on the Loans or changing or extending
the Commitments).
(g) Any Lender or participant may, in connection with any
assignment or participation or proposed assignment or participation pursuant to
this Section 9.04, disclose to the assignee or participant or proposed assignee
or participant any information relating to a Borrower furnished to such Lender
by or on
<PAGE> 76
63
behalf of the Borrowers; provided that, prior to any such disclosure of
information designated by a Borrower as confidential, each such assignee or
participant or proposed assignee or participant shall execute an agreement
whereby such assignee or participant shall agree (subject to customary
exceptions) to preserve the confidentiality of such confidential information on
terms no less restrictive than those applicable to the Lenders pursuant to
Section 9.16.
(h) Any Lender may at any time assign all or any portion of
its rights under this Agreement to a Federal Reserve Bank to secure extensions
of credit by such Federal Reserve Bank to such Lender; provided that no such
assignment shall release a Lender from any of its obligations hereunder or
substitute any such Bank for such Lender as a party hereto. In order to
facilitate such an assignment to a Federal Reserve Bank, the applicable Borrower
shall, at the request of the assigning Lender, duly execute and deliver to the
assigning Lender a promissory note or notes evidencing the Loans made to such
Borrower by the assigning Lender hereunder.
(i) A Borrower shall not assign or delegate any of its rights
or duties hereunder without the prior written consent of the Administrative
Agent and each Lender, and any attempted assignment without such consent shall
be null and void.
SECTION 9.05. Expenses; Indemnity. (a) Each Borrower agrees to
pay all out-of-pocket expenses incurred by the Administrative Agent in
connection with the preparation and administration of this Agreement and the
other Loan Documents or in connection with any amendments, modifications or
waivers of the provisions hereof or thereof (whether or not the transactions
hereby contemplated shall be consummated) or incurred by the Administrative
Agent or any Lender in connection with the enforcement or protection of their
rights in connection with this Agreement and the other Loan Documents or in
connection with the Loans made issued hereunder, including the fees, charges and
disbursements of Cravath, Swaine & Moore, counsel for the Administrative Agent,
and, in connection with any such enforcement or protection, the fees, charges
and disbursements of any other counsel for the Administrative Agent or any
Lender.
(b) Each Borrower agrees to indemnify the Administrative Agent
and each Lender, each Affiliate of any of the foregoing persons and each of
their respective directors, officers, employees and agents (each such person
being called an "Indemnitee") against, and to hold each Indemnitee harmless
from, any and all losses, claims, damages, liabilities and related expenses,
including reasonable counsel fees, charges and disbursements, incurred by or
asserted against any Indemnitee arising out of, in any way connected with, or as
a result of (i) the execution or delivery of this Agreement or any other Loan
Document or any agreement or instrument
<PAGE> 77
64
contemplated thereby, the performance by the parties thereto of their respective
obligations thereunder or the consummation of the Transactions and the other
transactions contemplated thereby, (ii) the use of the proceeds of the Loans, or
(iii) any claim, litigation, investigation or proceeding relating to any of the
foregoing, whether or not any Indemnitee is a party thereto; provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses are determined by a
court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or wilful misconduct of such Indemnitee.
(c) The provisions of this Section 9.05 shall remain operative
and in full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the expiration of the Commitments, the invalidity
or unenforceability of any term or provision of this Agreement or any other Loan
Document, or any investigation made by or on behalf of the Administrative Agent
or any Lender. All amounts due under this Section 9.05 shall be payable on
written demand therefor.
SECTION 9.06. Right of Setoff. If an Event of Default shall
have occurred and be continuing, each Lender is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by such Lender
to or for the credit or the account of the applicable Borrower against any of
and all the obligations of such Borrower now or hereafter existing under this
Agreement and other Loan Documents held by such Lender, irrespective of whether
or not such Lender shall have made any demand under this Agreement or such other
Loan Document and although such obligations may be unmatured. The rights of each
Lender under this Section are in addition to other rights and remedies
(including other rights of setoff) which such Lender may have.
SECTION 9.07. Applicable Law. THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS (OTHER THAN AS EXPRESSLY SET FORTH IN OTHER LOAN DOCUMENTS) SHALL
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK.
SECTION 9.08. Waivers; Amendment. (a) No failure or delay of
the Administrative Agent or any Lender in exercising any power or right
hereunder or under any Loan Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Administrative Agent and the
Lenders
<PAGE> 78
65
hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies which they would otherwise have. No waiver
of any provision of this Agreement or any other Loan Document or consent to any
departure by a Borrower therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) below, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice or demand on a Borrower in any case shall entitle such Borrower
to any other or further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by each of the Borrowers and the Required Lenders;
provided, however, that no such agreement shall (i) decrease the principal
amount of any Loan, or extend the maturity of or any scheduled principal payment
date or date for the payment of any interest on any Loan, or waive or excuse any
such payment or any part thereof, or decrease the rate of interest on any Loan,
without the prior written consent of each Lender affected thereby, (ii) change
or extend the Commitment of any Lender or postpone the date for the payment
thereof, or decrease the Facility Fees of any Lender or postpone the date for
the payment thereof, in each case without the prior written consent of such
Lender, or (iii) amend or modify the provisions of Section 2.15 or 2.20, the
provisions of this Section or the definition of "Required Lenders", or release
any Guarantor from its agreements pursuant to Section 2.20, without the prior
written consent of each Lender; provided further that no such agreement shall
amend, modify or otherwise affect the rights or duties of the Administrative
Agent hereunder or under any other Loan Document without the prior written
consent of the Administrative Agent.
SECTION 9.09. Interest Rate Limitation. Notwithstanding
anything herein to the contrary, if at any time the interest rate applicable to
any Loan, together with all fees, charges and other amounts which are treated as
interest on such Loan under applicable law (collectively the "Charges"), shall
exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for,
charged, taken, received or reserved by the Lender holding such Loan in
accordance with applicable law, the rate of interest payable in respect of such
Loan hereunder, together with all Charges payable in respect thereof, shall be
limited to the Maximum Rate and, to the extent lawful, the interest and Charges
that would have been payable in respect of such Loan but were not payable as a
result of the operation of this Section shall be cumulated and the interest and
Charges payable to such Lender in respect of other Loans or periods shall be
increased (but not above the Maximum Rate therefor) until such cumulated amount,
together with interest thereon at the Federal Funds Effective Rate to the date
of repayment, shall have been received by such Lender.
<PAGE> 79
66
SECTION 9.10. Entire Agreement. This Agreement and the other
Loan Documents constitute the entire contract between the parties relative to
the subject matter hereof. Any previous agreement among the parties with respect
to the subject matter hereof is superseded by this Agreement and the other Loan
Documents. Nothing in this Agreement or in the other Loan Documents, expressed
or implied, is intended to confer upon any party other than the parties hereto
and thereto any rights, remedies, obligations or liabilities under or by reason
of this Agreement or the other Loan Documents.
SECTION 9.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS
APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION 9.11.
SECTION 9.12. Severability. In the event any one or more of
the provisions contained in this Agreement or in any other Loan Document should
be held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein and therein
shall not in any way be affected or impaired thereby. The parties shall endeavor
in good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.
SECTION 9.13. Counterparts. This Agreement may be executed in
counterparts (and by different parties hereto on different counterparts), each
of which shall constitute an original but all of which when taken together shall
constitute a single contract, and shall become effective as provided in Section
9.03. Delivery of an executed signature page to this Agreement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Agreement.
SECTION 9.14. Headings. Article and Section headings and the
Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and are not to affect the construction of, or to be taken
into consideration in interpreting, this Agreement.
<PAGE> 80
67
SECTION 9.15. Jurisdiction; Consent to Service of Process. (a)
Each Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that any
Lender may otherwise have to bring any action or proceeding relating to this
Agreement or the other Loan Documents against a Borrower or its properties in
the courts of any jurisdiction.
(b) Each Borrower hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this agreement or the other
Loan Documents in any New York State court or Federal court sitting in New York
City. Each of the parties hereto hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to the maintenance
of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 9.01. Nothing
in this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 9.16. Confidentiality. The Administrative Agent and
each of the Lenders agrees to keep confidential (and to use its best efforts to
cause its respective agents and representatives to keep confidential) the
Information (as defined below) and all copies thereof, extracts therefrom and
analyses or other materials based thereon, except that the Administrative Agent
or any Lender shall be permitted to disclose Information (a) to such of its
respective officers, directors, employees, agents, affiliates and
representatives as need to know such Information, (b) to the extent requested by
any regulatory authority, (c) to the extent otherwise required by applicable
laws and regulations or by any subpoena or similar legal process, (d) in
connection with any suit, action or proceeding relating to the enforcement of
its rights hereunder or under the other Loan Documents or (e) to the extent such
Information (i) becomes publicly available other than as a result of a breach of
<PAGE> 81
68
this Agreement or (ii) becomes available to the Administrative Agent or any
Lender on a nonconfidential basis from a source other than a Borrower. For the
purposes of this Section, "Information" shall mean all financial statements,
certificates, reports, agreements and information (including all analyses,
compilations and studies prepared by the Administrative Agent or any Lender
based on any of the foregoing) that are received from a Borrower and related to
a Borrower, any shareholder of a Borrower or any employee, customer or supplier
of a Borrower, other than any of the foregoing that were available to the
Administrative Agent or any Lender on a nonconfidential basis prior to its
disclosure thereto by a Borrower, and which are in the case of Information
provided after the date hereof, clearly identified at the time of delivery as
confidential. The provisions of this Section 9.16 shall remain operative and in
full force and effect regardless of the expiration and term of this Agreement.
SECTION 9.17. Termination of Existing Credit Agreement. Each
of the undersigned Lenders that is a party to the Existing Credit Agreement and
solely in its capacity as a lender under the terms of the Existing Credit
Agreement hereby waives any requirement for notice provided in the Existing
Credit Agreement, and the Borrowers and each such lender hereby agree that the
Existing Credit Agreement shall terminate as of the date hereof.
<PAGE> 82
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
POPULAR, INC.,
by
--------------------------------
Name:
Title:
by
--------------------------------
Name:
Title:
POPULAR NORTH AMERICA, INC.,
by
--------------------------------
Name:
Title:
by
--------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, individually
and as Administrative Agent,
by
--------------------------------
Name:
Title:
<PAGE> 83
BARCLAYS BANK PLC
by
-------------------------
Name:
Title:
CARIPLO-CASSA DI RISPARMIO DELLE
PROVINCIE LOMBARDE S.P.A.
by
-------------------------
Name:
Title:
by
-------------------------
Name:
Title:
CITIBANK, N.A.
by
-------------------------
Name:
Title:
COMERICA BANK
by
-------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF
CHICAGO
by
-------------------------
Name:
Title:
LASALLE NATIONAL BANK
by
-------------------------
Name:
Title:
<PAGE> 84
NORDDEUTSCHE LANDESBANK
GIROZENTRALE NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
by
-------------------------
Name:
Title:
by
-------------------------
Name:
Title:
BANCO BILBAO VIZCAYA S.A.
by
-------------------------
Name:
Title:
BANCA MONTE DEI PASCHI DI SIENA
S.P.A. NEW YORK BRANCH
by
-------------------------
Name:
Title:
by
-------------------------
Name:
Title:
MELLON BANK
by
-------------------------
Name:
Title:
BANCA CRT SPA
by
-------------------------
Name:
Title:
by
-------------------------
Name:
Title:
<PAGE> 85
EXHIBIT A
[Form of]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of [_____________],
1998 (the "Credit Agreement"), among Popular, Inc., a Puerto Rico corporation
("Popular"), Popular North America, Inc., a Delaware corporation ("Popular North
America"),(each a "Borrower", and collectively, the "Borrowers"), the lenders
from time to time party thereto, initially consisting of those listed on
Schedule 2.01 thereto (the "Lenders") and The Chase Manhattan Bank, as
administrative agent for the Lenders (in such capacity, the "Administrative
Agent"). Terms defined in the Credit Agreement are used herein with the same
meanings.
1. The Assignor hereby sells and assigns, without recourse, to the
Assignee, and the Assignee hereby purchases and assumes, without recourse, from
the Assignor, effective as of the Effective Date set forth below (but not prior
to the registration of the information contained herein in the Register pursuant
to Section 9.04(e) of the Credit Agreement), the interests set forth below (the
"Assigned Interest") in the Assignor's rights and obligations under the Credit
Agreement, including, without limitation, the amounts and percentages set forth
below of (i) the Commitments of the Assignor on the Effective Date and (ii) the
Loans owing to the Assignor which are outstanding on the Effective Date. Each of
the Assignor and the Assignee hereby makes and agrees to be bound by all the
representations, warranties and agreements set forth in Section 9.04(c) of the
Credit Agreement, a copy of which has been received by each such party. From and
after the Effective Date (i) the Assignee shall be a party to and be bound by
the provisions of the Credit Agreement and, to the extent of the interests
assigned by this Assignment and Acceptance, have the rights and obligations of a
Lender thereunder and under the Loan Documents and (ii) the Assignor shall, to
the extent of the interests assigned by this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement.
2. This Assignment and Acceptance is being delivered to the
Administrative Agent together with (i) if the Assignee is organized under the
laws of a jurisdiction outside the United States, the forms specified in Section
2.18(g) of the Credit Agreement, duly completed and executed by such Assignee,
(ii) if the Assignee is not already a Lender under the Credit Agreement, an
Administrative Questionnaire in a form supplied by the
<PAGE> 86
2
Administrative Agent and (iii) a processing and recordation fee of $3,500.
3. This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of New York.
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
Effective Date of Assignment (may not be
fewer than 5 Business Days after the Date of
Assignment):
<TABLE>
<CAPTION>
Percentage Assigned of
Applicable
Facility/Commitment (set
Principal Amount forth, to at least 8
Assigned (and decimals, as a
Identifying percentage of the
information as to Facility and the
individual aggregate Commitments of
Facility/commitment Competitive Loans) all Lenders thereunder)
- ------------------- ----------------- -----------------------
<S> <C> <C>
$ %
Revolving Credit
Competitive Loans
</TABLE>
The terms set forth above and
on the reverse side hereof are
hereby agreed to: Accepted */
<PAGE> 87
3
, as Assignor THE CHASE MANHATTAN BANK,
- ----------------- as Administrative Agent
By: By:
--------------------------- -------------------------
Name: Name:
Title: Title:
, as Assignee POPULAR, INC.
- -----------------
By: By:
--------------------------- -------------------------
Name: Name:
Title: Title:
POPULAR NORTH AMERICA, INC.
By:
-------------------------
Name:
Title:
<PAGE> 88
EXHIBIT B
<PAGE> 89
EXHIBIT C
FORM OF REQUEST FOR EXTENSION OF TERMINATION DATE
-----------------, ----
The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Dear Madam or Sir:
We refer to Section ___ of the Credit Agreement dated as of ____ __, 199_ among
Popular, Inc., Popular North America, Inc. the Banks listed on the signature
pages thereof, and the Chase Manhattan Bank, as Administrative Agent, and hereby
request that the Banks extend the Termination Date (as defined therein) to
_____, ____. The undersigned hereby represents to the Administrative Agent and
the Banks that as of the date hereof no Default or Event of Default exists.
Very truly yours,
POPULAR, INC.,
By:
-------------------------
Title:
POPULAR NORTH AMERICA, INC.,
By:
-------------------------
Title:
<PAGE> 90
SCHEDULE 2.01
Revolving Credit Commitments
<TABLE>
<CAPTION>
Name and Address of Lender Revolving Credit Commitment
- -------------------------- ---------------------------
<S> <C>
THE CHASE MANHATTAN BANK $40,000,000
270 Park Avenue
New York, NY 10017
Tel: 212-270-9747
Fax: 212-270-1789
Attn: Christine Herrick
BARCLAYS BANK PLC $40,000,000
801 Brickell Avenue
Miami, FL 33131
Tel: 305-376-8755
Fax: 305-539-1778
Attn: Carolina Guerra
CARIPLO-CASSA DI RISPARMIO $25,000,000
DELLE PROVINCIE LOMBARDE S.P.A.
10 East 53rd Street
New York, NY 10022
Tel: 212-832-6622
Fax: 212-832-6777
Attn: Anthony F. Giobbi
CITIBANK, N.A. $25,000,000
1 Citibank Drive
San Juan, PR 00926
Tel: 787-766-2667
Fax: 787-766-0003
Attn: Elena Manrara
COMERICA BANK $25,000,000
One Detroit Center-23rd Floor
Detroit, MI 48226
Tel: 313-222-2968
Fax: 313-222-7421
Attn: Laura Wrocklage
THE FIRST NATIONAL BANK OF CHICAGO $25,000,000
Mail Suite 0155
One First National Plaza
Chicago, IL 60670
Tel: 312-732-5294
Fax: 312-732-6222
Attn: R. Eric Wiedelman
LASALLE NATIONAL BANK $25,000,000
135 S. LaSalle Street
Chicago, IL 60603
Tel: 312-904-7075
Fax: 312-904-2780
Attn: John C. Giuffre
NORDDEUTSCHE LANDESBANK GIROZENTTRALE
NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH $25,000,000
1270 Avenue of the Americas
New York, NY 10020
Tel: 212-332-8600
Fax: 212-332-8660
Attn: Stephen K. Hunter
</TABLE>
<PAGE> 91
2
<TABLE>
<S> <C>
BANCA MONTE DEI PASCHI DI SIENA S.P.A. (NEW YORK BRANCH) 25,000,000
55 East 59th Street
New York, NY 10022-1112
Tel: 212-891-3600
Fax:
Attn: Gulio Natalicci
MELLON BANK $25,000,000
One Mellon Bank Center, Room 0370
Pittsburgh, PA 15258-0001
Tel: 412-234-9364
Fax:
Attn: Geoff Callahan
BANCA CRT SPA $25,000,000
500 Park Avenue
New York, NY 10022
Tel: 212-980-4862
Fax:
Attn: J. Slade Carter
BANCO BILBAO VIZCAYA S.A. $15,000,000
P.O. Box 361990
San Juan, PR 00936-1990
Tel: 787-766-6973
Fax: 787-766-6972
Attn: Elizabeth Loza
</TABLE>
<PAGE> 92
Schedule 3.08 to
Credit Agreement dated October 27, 1998
among Popular, Inc., Popular North America, Inc.
and The Chase Manhattan Bank
Subsidiaries
Popular, Inc. is the owner of all issued and outstanding shares of common stock
of Popular De Puerto Rico.
Popular de Puerto Rico
Popular Finance, Inc., Popular Leasing @ Rental, Inc. and Popular
Mortgage, Inc. are wholly-owned subsidiaries of Popular de Puerto
Rico.
Besides Popular de Puerto Rico, Popular, Inc. is the owner of the
following wholly-owned subsidiaries:
a. Popular International Bank, Inc.
Popular North America is a wholly-owned subsidiary of Popular
International Bank, Inc., and is the parent of Popular North America,
Popular (Texas), Popular, N.A. (Florida), Popular, FSB (New Jersey),
Popular, N.A. (California) and Popular Cash Express.
Popular North America, Inc. is the owner of Popular (Illinois) who in turn is
the owner of Popular Leasing, U.S.
b. Popular Securities, Inc.
<PAGE> 93
Schedule 3.09 to
Credit Agreement dated October 27, 1998
among Popular, Inc., Popular North America, Inc.
and The Chase Manhattan Bank
Litigation; Compliance with Laws
None
<PAGE> 94
Schedule 6.01 to
Credit Agreement dated October 27, 1998
among Popular, Inc., Popular North America, Inc.,
The Chase Manhattan Bank and the Lenders listed in
Schedule 2.01 to the Agreement
Liens as of September 30, 1998.
A. Securities Pledged for potential daylight overdrafts in Popular, inc.
demand deposit account with Popular de Puerto Rico (at par value):
<TABLE>
<S> <C> <C>
1. Non Voting Common Stock of Venture
Capital Fund, Inc. (1,500 shares).................... $ 1,500,000
2. Municipality of Bayamon-Municipal Revenue Bond
1995 Series A, at 8.50% due 6/30/05.................. 250,000
3. Doral Financial Corporation 8% Convertible
Preferred Stock (8,460 shares)....................... 8,460,000
4. Tax Credit Enhanced Film Fund of
Puerto Rice (75 shares of common stock).............. 1,500,000
---------
SUB TOTAL.................. $11,710,000
B. Securities sold under repurchase agreements with
maturities of less than one year:
1. U.S. Treasury Notes at 6.875% due 8/31/99............ $50,000,000
-----------
TOTALS..................... $61,710,000
</TABLE>
<PAGE> 1
EXHIBIT 12.0
POPULAR, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Income before income taxes 307,019 284,026 256,027 206,130 175,177
Fixed charges:
Interest expense 779,444 707,348 591,540 521,624 351,633
Estimated interest component
of net rental payments 8,817 7,779 7,065 6,012 5,568
Total fixed charges including
interest on deposits 788,261 715,127 598,605 527,636 357,201
Less: interest on deposits 411,517 366,528 350,221 329,783 247,726
Total fixed charges excluding
interest on deposits 376,744 348,599 248,384 197,853 109,475
Income before taxes and
fixed charges (including interest
on deposits) $1,095,280 $999,153 $854,632 $733,766 $532,378
Income before income taxes and
fixed charges (excluding interest
on deposits) $ 683,763 $632,625 $504,411 $403,983 $284,652
Preferred stock dividends 8,350 8,350 8,350 8,350 4,630
Ratio of earnings to fixed charges
Including Interest on Deposits 1.4 1.4 1.4 1.4 1.5
Excluding Interest on Deposits 1.8 1.8 2.0 2.0 2.6
Ratio of earnings to fixed charges & Preferred Stock Dividends
Including Interest on Deposits 1.4 1.4 1.4 1.4 1.5
Excluding Interest on Deposits 1.8 1.8 2.0 2.0 2.5
</TABLE>
<PAGE> 1
BANCO POPULAR
[LOGO]
[COMPUTERIZED ARTS GRAPHIC DESIGN]
1998 ANNUAL REPORT
<PAGE> 2
20-Year Summary
<TABLE>
<CAPTION>
(Dollars in millions, except
per common share data) 1979 1980 1981 1982 1983 1984 1985 1986 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Selected Financial Information
Net Interest Income $ 110.6 $ 130.0 $ 135.9 $ 151.7 $ 144.9 $ 156.8 $ 174.9 $ 184.2 $ 207.7
Non Interest Income 13.5 14.2 15.8 15.9 19.6 19.0 26.8 41.4 41.0
Operating Expenses 88.8 101.3 109.4 121.2 127.3 137.2 156.0 168.4 185.7
Net Income 18.2 23.5 24.3 27.3 26.8 29.8 32.9 38.3 38.3
- --------------------------------------------------------------------------------------------------------------------------------
Total Assets $2,472.0 $2,630.1 $2,677.9 $2,727.0 $2,974.1 $3,526.7 $4,141.7 $4,531.8 $5,389.6
Net Loans 974.1 988.4 1,007.6 976.8 1,075.7 1,373.9 1,715.7 2,271.0 2,768.5
Deposits 2,045.8 2,060.5 211.7 2,208.2 2,347.5 2,870.7 3,365.3 3,820.2 4,491.6
Total Stockholders' Equity 112.4 122.1 142.3 163.5 182.2 203.5 226.4 283.1 308.2
- --------------------------------------------------------------------------------------------------------------------------------
Market Capitalization $ 70.3 $ 45.0 $ 66.4 $ 99.0 $ 119.3 $ 159.8 $ 216.0 $ 304.0 $ 260.0
ROA 0.79% 0.92% 0.90% 0.96% 0.95% 0.94% 0.89% 0.88% 0.76%
ROE 17.56% 19.96% 18.36% 17.99% 15.86% 15.83% 15.59% 15.12% 13.09%
Per Common Share(1)
Earnings $ 0.25 $ 0.34 $ 0.34 $ 0.38 $ 0.37 $ 0.41 $ 0.46 $ 0.50 $ 0.48
Dividends (Declared) 0.06 0.07 0.06 0.08 0.11 0.12 0.14 0.15 0.17
Book Value 1.53 1.66 1.93 2.22 2.47 2.76 3.07 3.46 3.77
Market Price 0.98 1.01 0.92 1.38 1.66 2.22 3.00 4.00 3.34
Assets by Geographic Area
Puerto Rico 96.54% 95.53% 94.65% 94.63% 93.70% 91.31% 92.42% 91.67% 94.22%
United States 3.46% 4.47% 5.14% 5.01% 5.23% 7.52% 6.47% 7.23% 5.01%
Caribbean 0.00% 0.00% 0.22% 0.36% 1.07% 1.17% 1.11% 1.10% 0.77%
- --------------------------------------------------------------------------------------------------------------------------------
Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Traditional Delivery System
Banking Branches
Puerto Rico 110 110 110 110 112 113 115 124 126
Virgin Islands 1 2 3 3 3 3 3
United States 8 7 7 7 6 9 9 9 9
Banco Fiduciario (D.R.)
- --------------------------------------------------------------------------------------------------------------------------------
Subtotal 118 117 118 119 121 125 127 136 138
- --------------------------------------------------------------------------------------------------------------------------------
Non-Banking Offices
Equity One
Popular Cash Express
Popular Finance 14
Popular Leasing
Popular Leasing, U.S.A
Popular Mortgage
Popular Securities
- --------------------------------------------------------------------------------------------------------------------------------
Subtotal 14
- --------------------------------------------------------------------------------------------------------------------------------
Total 118 117 118 119 121 125 127 136 152
Electronic Delivery System
ATMs
Owned
Puerto Rico 30 78 94 113 136
Caribbean 3
United States
- --------------------------------------------------------------------------------------------------------------------------------
Subtotal 30 78 94 113 139
- --------------------------------------------------------------------------------------------------------------------------------
Driven
Puerto Rico 6 36 51 55
Caribbean
- --------------------------------------------------------------------------------------------------------------------------------
Subtotal 6 36 51 55
- --------------------------------------------------------------------------------------------------------------------------------
Total 30 84 130 164 194
Transactions (in millions)
Electronic Transactions 0.6 4.4 7.0 8.3 12.7
Items Processed 88.9 94.8 96.9 98.5 102.1 110.3 123.8 134.0 139.1
Employees (FTEs) 3,659 3,838 3,891 3,816 3,832 4,110 4,314 4,400 4,699
</TABLE>
(1) Per common share data adjusted for stock splits.
<PAGE> 3
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 232.5 $ 260.9 $ 284.2 $ 407.8 $ 440.2 $ 492.1 $ 535.5 $ 584.2 $ 681.3 $ 784.0 $ 873.0
54.9 63.3 70.9 131.8 124.5 125.2 141.3 173.3 205.5 247.6 291.2
195.6 212.4 229.6 345.7 366.9 412.3 447.8 486.8 541.9 636.9 720.4
47.4 56.3 63.4 64.6 85.1 109.4 124.7 146.4 185.2 209.6 232.3
- -----------------------------------------------------------------------------------------------------------------------------
$5,706.5 $5,972.7 $8,983.6 $8,780.3 $10,002.3 $11,513.4 $12,778.4 $15,675.5 $16,764.1 $19,300.5 $23,204.8
3,096.3 3,320.6 5,373.3 5,195.6 5,252.1 6,346.9 7,781.3 8,677.5 9,779.0 11,376.6 13,077.8
4,715.8 4,926.3 7,422.7 7,207.1 8,038.7 8,522.7 9,012.4 9,876.7 10,763.3 11,749.6 13,716.0
341.9 383.0 588.9 631.8 752.1 834.2 1,002.4 1,141.7 1,262.5 1,503.1 1,709.1
- -----------------------------------------------------------------------------------------------------------------------------
$ 355.0 $ 430.1 $ 479.1 $ 579.0 $ 987.8 $ 1,014.7 $ 923.7 $ 1,276.8 $ 2,230.5 $ 3,350.3 $ 4,602.4
0.85% 0.99% 1.09% 0.72% 0.89% 1.02% 1.02% 1.04% 1.14% 1.14% 1.14%
14.87% 15.87% 15.55% 10.57% 12.72% 13.80% 13.80% 14.22% 16.15% 15.83% 15.41%
$ 0.59 $ 0.70 $ 0.79 $ 0.54 $ 0.70 $ 0.84 $ 0.92 $ 1.05 $ 1.34 $ 1.50 $ 1.65
0.17 0.20 0.20 0.20 0.20 0.23 0.25 0.29 0.35 0.40 0.50
4.19 4.69 4.92 5.25 5.76 6.38 6.87 7.91 8.80 10.37 11.86
4.44 5.38 4.00 4.81 7.56 7.75 7.03 9.69 16.88 24.75 34.00
93.45% 92.18% 88.59% 86.67% 87.33% 79.42% 75.86% 75.49% 73.88% 73.52% 70.84%
5.50% 6.28% 9.28% 10.92% 10.27% 16.03% 19.65% 20.76% 22.41% 23.92% 24.92%
1.05% 1.54% 2.13% 2.41% 2.40% 4.55% 4.49% 3.75% 3.71% 2.56% 4.24%
- -----------------------------------------------------------------------------------------------------------------------------
100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
126 128 173 161 162 165 166 166 178 201 198
3 3 3 3 3 8 8 8 8 8 8
10 10 24 24 30 32 34 40 44 63 89
27
- -----------------------------------------------------------------------------------------------------------------------------
139 141 200 188 195 205 208 214 230 272 322
- -----------------------------------------------------------------------------------------------------------------------------
27 41 58 73 91 102 117 128
23
17 18 26 26 26 26 28 31 39 44 48
4 9 9 9 8 10 9 8 10 10
7 8
3 3 3 11
1 2 2
- -----------------------------------------------------------------------------------------------------------------------------
17 22 35 62 76 92 111 134 153 183 230
- -----------------------------------------------------------------------------------------------------------------------------
156 163 235 250 271 297 319 348 383 455 552
153 151 211 206 211 234 262 281 327 391 421
3 3 3 3 3 8 8 8 9 17 59
6 11 26 38 53 71 94
- -----------------------------------------------------------------------------------------------------------------------------
156 154 214 209 220 253 296 327 389 479 574
- -----------------------------------------------------------------------------------------------------------------------------
68 65 54 73 81 86 88 120 162 170 187
97 192 265
- -----------------------------------------------------------------------------------------------------------------------------
68 65 54 73 81 86 88 120 259 362 452
- -----------------------------------------------------------------------------------------------------------------------------
224 219 268 282 301 339 384 447 648 841 1,026
14.9 16.1 18.0 23.9 28.6 33.2 43.0 56.6 78.0 111.2 130.5
159.8 161.9 164.0 166.1 170.4 171.8 174.5 175.0 173.7 171.9 170.9
5,131 5,213 7,023 7,006 7,024 7,533 7,606 7,815 7,996 8,854 10,549
</TABLE>
<PAGE> 4
Focused on efficiency
Popular, Inc., a bank holding company with $23.2 billion in assets, is a
complete financial services provider in Puerto Rico, the United States and the
Caribbean. As the leading financial institution in Puerto Rico, the Corporation
offers full commercial banking services through its principal subsidiary, Banco
Popular, as well as investment banking, auto leasing, and mortgage and personal
loans through specialized subsidiaries. In the United States, the Corporation
has established the largest Hispanic banking franchise, providing banking
solutions to the fastest-growing population segment in the country. The
Corporation continues to use its technological expertise as a competitive
advantage in its Caribbean expansion, and is now exporting its 105 years of
retail banking experience to the region. Popular, Inc. has always been committed
to meeting the needs of individual and business clients through innovation and
to fostering growth in the communities where it does business.
During 1998, Popular, Inc. was organized to reflect its evolution and
diversification. This reorganization has afforded the Corporation a corporate
structure that supports its continued growth into the next millennium. Popular,
Inc. and its over 10,000 employees are focused on improving its processes to
proudly continue finding solutions for customers while enhancing shareholder
value.
<TABLE>
<S> <C>
Financial Highlights 1
Our Business 2
Our Markets 3
Our Creed, Our People 4
Letter to Shareholders 5
Values 14
Community Involvement 15
Management 18
Directors 20
Financial Information 21
</TABLE>
<PAGE> 5
[ORGANIZATIONAL FLOW CHART]
<PAGE> 6
FINANCIAL HIGHLIGHTS
Popular, Inc. has experienced a sustained growth in income and size over the
past ten years. This growth has been driven by a well-defined strategy and
fueled by acquisitions in different markets.
NET INCOME TOTAL ASSETS
(in millions of dollars) (in millions of dollars)
[GRAPH] [GRAPH]
While expanding lines of business and geographical boundaries, Popular, Inc. has
maintained a consistent level of return, as evidenced by our annual return on
average assets and annual return on average equity.
ROA ROE
(percentage) (percentage)
[GRAPH] [GRAPH]
Capital markets have recognized and rewarded Popular, Inc.'s performance and
have demonstrated great confidence in our ability to manage future growth. Since
1996 we have outperformed two of the most significant market indicators, the S&P
500 Index and the S&P Banks Index.
MARKET CAPITALIZATON SHAREHOLDERS' RETURN
(in millions of dollars) (index)
[GRAPH] [GRAPH]
1
<PAGE> 7
OUR MARKETS
PUERTO RICO
PROFILE
- - Population of 3.8 million
- - 42% of the population has no banking relationship
- - 5% annual increase in personal consumption
- - New government incentives to expand capital markets
MAIN BRANDS
Banco Popular
ATH A Toda Hora
Popular Mortgage
Popular Securities
Popular Leasing
Popular Finance
BANCO POPULAR DE PUERTO RICO
The transformation of the distribution system continued with the opening of five
non-traditional branches, for a total of 34, which together with the 160
traditional branches, 421 automated teller machines, 18,794 POS terminals,
TeleBanco Popular telephone banking and PC Banco system make up the most
extensive financial services network in Puerto Rico. It maintains its position
as market leader with $9.5 billion in deposits and $7.2 billion in loans. The
ATH A Toda Hora network continues to be the most extensive in Puerto Rico, with
608 ATMs and worldwide acceptance of its cards.
POPULAR FINANCE
Engaged in small personal loans and second mortgages. Loan portfolio of $171.3
million. Operates 42 offices and six mortgage centers throughout Puerto Rico.
POPULAR LEASING
Leader in the leasing business in Puerto Rico. A total of 34 account executives
offer services from four sales offices. Operates 10 daily rental offices.
POPULAR MORTGAGE
The mortgage origination business in Puerto Rico was consolidated in March 1998.
The network expanded with new regional mortgage centers for a total of 11
offices throughout Puerto Rico with 47 representatives.
POPULAR SECURITIES
Expansion continued with addition of 5 retail investment services sales
representatives for a total of 36. In the institutional business, more than 25
transactions with a total value of over $6 billion were underwritten.
TRANSACTIONS BY CHANNEL
[GRAPH]
UNITED STATES
Profile
- - 30.5 million Hispanics
- - Hispanics are the fastest-growing population segment
- - 77% of the Hispanic population lives in the six states where Popular,
Inc. operates
- - Average household income of $40,200
MAIN BRANDS
Banco Popular
Popular Cash Express
Popular Leasing
Equity One
BANCO POPULAR
NORTH AMERICA
The largest U.S. Hispanic bank continued to grow with the acquisition of First
State Bank of Southern California and Gore-Bronson Bancorp in Chicago. It
operates 32 branches in New York, 19 in Illinois, 14 in California, 10 in New
Jersey, 10 in Florida and 4 in Texas (through Banco Popular, N.A. Texas). The
national business lines of credit cards, retail mortgages, SBA loans, and small
and medium-sized business franchise financing continued to expand.
EQUITY ONE
Engaged in the business of personal and mortgage loan and retail financing to
merchants and dealers. Assets reached $1.4 billion. Increased its operations
with 11 new offices, for a total of 128 offices in 36 states.
POPULAR LEASING, U.S.A.
Subsidiary that offers small ticket equipment leasing with $36.8 million in
assets. Operates 8 offices in 8 states.
POPULAR CASH EXPRESS
A new business for the cashing of checks and money transfers inaugurated in
February 1998. A total of 23 offices in New York, California and Florida, and 28
mobile units in California.
BRANCHES
[GRAPH]
CARIBBEAN AND LATIN AMERICA
Profile
- - 5% growth in the Dominican Republic's annual National Gross Product
- - Lack of electronic networks in those markets
- - High levels of money transfers from the United States
MAIN BRANDS
Banco Popular
Banco Fiduciario
ATH Dominicana
ATH Costa Rica
BANCO POPULAR IN THE VIRGIN ISLANDS
Network of eight branches in the U.S. and British Virgin Islands since 1981.
Four credit centers and three mortgage centers in operation. $497 million in
deposits.
BANCO FIDUCIARIO
Investment in the fourth largest bank in the Dominican Republic. A total of $473
million in assets and $320 million in deposits.
Banco Popular de Puerto Rico officers transferred to actively participate in the
operation.
ATH DOMINICANA
ATH COSTA RICA
Continuous growth of our electronic networks in the region, with an increase of
71% from the total number of transactions processed the previous year.
ATH DOMINICANA AND ATH COSTA RICA TRANSACTIONS
(in thousands)
[GRAPH}
3
<PAGE> 8
Our Creed Banco Popular is a local institution dedicating its efforts
exclusively to the enhancement of the social and economic
conditions in Puerto Rico and inspired by the most sound
principles and fundamental practices of good banking. Banco
Popular pledges its efforts and resources to the development of a
banking service for Puerto Rico within strict commercial
practices and so efficient that it could meet the requirement of
the most progressive community of the world.
These words, written in 1928 by Don Rafael Carrion Pacheco,
Executive Vice President and President (1927-1956), embody the
philosophy of Banco Popular de Puerto Rico and Popular, Inc.
Our People The men and women who work for our institution, from the highest
executive to the employees who handle the most routine tasks,
feel a special pride in serving our customers with care and
dedication. All of them feel the personal satisfaction of
belonging to the "Banco Popular Family", which fosters affection
and understanding among its members, and which at the same time
firmly complies with the highest ethical and moral standards of
behavior.
These words by Don Rafael Carrion Jr., President and Chairman of
the Board (1956-1991) were written in 1988 to commemorate the
95th anniversary of Banco Popular de Puerto Rico and evidence the
commitment of Popular, Inc. employees.
4
<PAGE> 9
LETTER TO SHAREHOLDERS
[PHOTO]
Richard L. Carrion, Chairman, President and Chief Executive Officer
During 1998 we continued on the course set several years ago. Major initiatives
have advanced the Corporation's four strategic principles:
- - Solidifying the Corporation's market leadership position in Puerto Rico,
our main market, by capitalizing on our existing infrastructure.
- - Expanding our franchise in the United States focusing on the Hispanic
segment of the population and on small and middle commercial customers and
also using our electronic and retail banking expertise to expand into the
Caribbean Region.
- - Diversifying into new lines of business in all our markets.
- - Strengthening the quality of our organization to support the accomplishment
of these strategies.
Popular, Inc.'s financial performance was strong despite a year of unpredictable
challenges. Compared to the previous year, net income increased 11% to $232
million. Total assets increased from $19.3 billion to $23.2 billion at the end
of 1998. These results reflect important acquisitions in the United States, the
growth of our commercial business in Puerto Rico, an increase in our investment
portfolio and an important increase in non-interest revenues. Return on average
assets (ROA) remained constant at 1.14% while return on average common equity
(ROE) decreased slightly to 15.41%. The change in ROE is consistent with the
significant investments made to support the dynamic growth and expansion of the
Corporation and the entry into new strategic lines of business in Puerto Rico,
the Caribbean and the mainland United States. By year end, the Corporation's
stock price had increased to $34.00 per share, a 37% increase compared with
$24.75 at the end of 1997, after adjusting for the July 1,1998, 2-for-1 stock
split, effected in the form of a dividend. Five-year total return to common
stockholders amounted to 34% and continued to outperform the S&P 500 Index and
the S&P Banks Index, which amounted to 21.4% and 23.2%, respectively, for the
same period.
Extraordinary challenges for the Corporation during 1998 included our
participation as a minority investor in partnership with GTE in the
privatization of the Puerto Rico Telephone Company (PRTC).
The Corporation's decision to participate in the PRTC transaction was
made after a careful analysis and consideration of all aspects of this
transaction. In particular, we considered that telecommunications
PRICE OF COMMON SHARES
(ADJUST)
[GRAPH]
5
<PAGE> 10
is a vital component of our technological infrastructure in Puerto Rico not only
for our own expansion, but also for the economic well-being of Puerto Rico, our
principal market.
As has been the case with major privatization efforts throughout Latin
America, the PRTC case was a highly publicized and controversial issue in Puerto
Rico. The multiple actions taken by those opposing the transaction targeted our
participation in an effort to discourage our involvement. We stood firm. Our
participation in this transaction is simply another example of our unwavering
commitment to the social and economic welfare of Puerto Rico. We are certain
that this transaction will provide the PRTC with the necessary flexibility and
additional expertise to succeed in today's highly competitive telecommunications
industry.
Total assets increased 20%, from $19.3 billion to $23.2 billion at the end of
1998.
In addition to business and economic reasons, our involvement in this
transaction facilitated the participation of PRTC employees in up to 7% of the
ownership of the company. Employee stock ownership is a concept firmly rooted in
our corporate beliefs and has served us well throughout our history. Popular,
Inc. employees, through their individual participation in our Stock Ownership,
Pension and Profit Sharing Plans own more than 10% of the Corporation's common
stock.
There were other disruptive events during the year. In September,
Puerto Rico and the Dominican Republic suffered the destructive impact of one of
the most intense hurricanes in the region since 1928. Hurricane Georges reached
Puerto Rico on September 21, 1998, causing an estimated $4 billion in damages.
Puerto Rico was declared a federal disaster zone, and the Dominican Republic
suffered similar devastation. Popular, Inc. responded to the emergency with
leadership, care and resources. Immediately, special retail and commercial loans
as well as payment moratoriums were available to ease the burden on our
customers. Furthermore, Popular Mortgage, Inc. our mortgage banking subsidiary
in Puerto Rico, was the first to provide a special FHA 100% financing
alternative to those who, as a result of the hurricane, lost their homes.
Popular, Inc. employees, through their individual participation in our Stock
Ownership, Pension and Profit Sharing Plans own more than 10% of the
Corporation's common stock.
Our appreciation goes to our employees, who stood firm and helped our
Corporation to withstand the force of these events. Our employees demonstrated
through their actions the meaning of corporate citizenship. They are the
embodiment of our values. Elsewhere in this report we provide more perspective
on Popular, Inc.'s community involvement and special
6
<PAGE> 11
PUERTO RICO: SOLIDIFY MARKET LEADERSHIP
THROUGH CONSOLIDATION AND INNOVATION
In the United States,
we are the largest
Hispanic-owned bank and
the 36th largest bank
holding company
in asset size.
In Puerto Rico, Popular, Inc.'s operation continued to solidify its market
leadership position. Main highlights throughout the year include the
consolidation of the mortgage origination business, enhancements to the
traditional delivery system and electronic network, the introduction of various
first-of-a-kind products and the establishment of a new line of business.
island wide initiatives to overcome Hurricane Georges.
In spite of these unexpected challenges, in October 1998 we celebrated
our 105th anniversary with significant milestones. The Corporation occupied the
leadership position in Puerto Rico and the Caribbean Basin Region. In the United
States, as of December 1998, we were the largest Hispanic-owned bank and the
36th largest bank holding company in asset size. We are among the 10 largest
Latin American banks in terms of assets. Nearing the close of this millennium,
we have strengthened our foundation to achieve our goals. We look to the future
with great anticipation of the possibilities this strategic foundation provides,
as we review specific accomplishments achieved during 1998.
In March 1998, we consolidated the mortgage origination division of
Banco Popular, the Corporation's main banking subsidiary, with Popular Mortgage,
Inc., our mortgage banking subsidiary. This important step strengthened the
Corporation's mortgage origination capability by combining more than 60 years of
experience and pioneering spirit of Banco Popular's mortgage division -- the
first to offer FHA loans in Puerto Rico -- with Popular Mortgage's market
expertise. The combined operation, with a 15% market share, will greatly benefit
from a significant increase in marketing investment. The synergies from this
integration will facilitate the goal of becoming the major mortgage originator
in Puerto Rico.
Throughout the year we continued to enhance and expand the traditional
and electronic delivery systems. Our branch network in Puerto Rico added five
new branches located inside large retail stores and in shopping centers. This is
part of the efforts to increase the convenience of our delivery system. To
increase its efficiency, 10 branches were consolidated in areas that provided
customers easy access to another branch. At year end, the branch network was
composed of 161 traditional branches and 37 smaller facilities.
The electronic network also expanded to include 30 additional ATM
machines for a total of 421
7
<PAGE> 12
The integration of Banco Popular's mortgage
origination division and our subsidiary
Popular Mortgage, facilitates the goal of
becoming the major mortgage originator.
machines in the Puerto Rico network. During the year the ATH A Toda Hora network
celebrated its 15th anniversary. The development of this brand has been
supported by a considerable marketing investment. As a result, Popular, Inc. is
the leading provider of electronic services through automated teller machines,
debit cards and POS terminals using its ATH A Toda Hora network. Recognizing the
importance and value of this brand, in the future we will continue to strengthen
the trademark and develop its markets.
In line with our goal of transforming paper-based transactions into
electronic transactions, bill payment capability was included in all automated
teller machines to provide customers with an additional payment alternative.
This new offering complements our TelePago pay-by-phone system established in
1993. During the year the TelePago system processed over 4.5 million payments to
more than 500 merchants. Our TeleBanco Popular telephone banking system
continued to thrive, and at year end was handling more than one million calls
per month. Efforts to increase the use of the voice response unit (VRU) resulted
in 65% of all calls being processed by the VRU, an increase of 5% over last
year.
Our PC banking system, PC Banco, first introduced in April 1997,
continued to grow to more than 45,000 registered customers. The system provides
access to account information, payment and transfer capability. A new electronic
alternative through the Internet was provided to auto loan customers with the
introduction of the Popular AutoNet service. Launched in April 1998 to
facilitate the purchase of new and used cars, the system provides customers the
ability to process an auto loan, and highly competitive offers.
Our progress in electronic services provides increasing convenience to
our customers and efficiency to our operations. As a result of all of these
initiatives, the percentage of transactions processed electronically increased
from 66.8% in December of 1997 to 70.3% in December of 1998.
Innovative products and services were introduced in the retail and
commercial businesses during 1998. In August, in partnership with American
Express, we issued the Banco Popular American Express card. Results of the
launching of this new product, which targets young aspiring professionals,
exceeded all our expectations. As part of our agreement with American Express,
Banco Popular owns exclusive rights to issue this product in Puerto Rico and the
Caribbean
The percentage of transactions processed electronically increased from
66.8% in December of 1997 to 70.3% in December of 1998.
8
<PAGE> 13
Region for a limited period. Our association with this highly recognized and
prestigious brand provides additional opportunities for growth in the region.
New initiatives for commercial customers included the introduction of
the Small Business Administration (SBA), SBAExpress Program. Banco Popular was
the first bank in Puerto Rico to offer SBAExpress, a streamlined process that
facilitates the loan application process and reduces approval time. This new
product is the most recent example of Banco Popular's continuous support to
small businesses in all our markets. Banco Popular is the leading bank in Puerto
Rico in SBA lending with total originations of $87.3 million in 1998. During the
year, we continued to offer specialized programs for particular segments of the
market. Large corporate customers benefited from the third conference on
family-owned businesses conducted jointly by Banco Popular and the Wharton
School of the University of Pennsylvania. The conference provided information on
how to maximize performance through improved decision-making and the alignment
of individual, family and business incentives. Middle market commercial customer
programs included the expansion of Banca de Profesionales (Professional Banking
Program) to certified public accountants, engineers and other professionals.
Recognizing the importance and value of the ATH A. Toda Hora brand, we will
continue to strengthen the trademark and develop its markets.
In line with our diversification efforts, Popular Asset Management, a
division of Banco Popular, was established to provide investment management
services primarily to institutional investors in Puerto Rico. This new business
represents an attractive opportunity, since the market for pension and
investment funds in Puerto Rico is estimated at $19 billion. This operation
complements our offerings to meet the needs of institutional clients such as
public and private pension plans, and university endowments, and high net worth
individuals. As an additional investment alternative, in December 1998 a new
Flexible Allocation Mutual Fund was launched. This is the only fund in Puerto
Rico that provides customers the flexibility to select between high
capitalization stocks or bonds given the individual's investment preference and
risk tolerance.
Banco Popular is the leading bank in Puerto Rico in small business lending with
total originations of $87.3 million.
The implementation of these initiatives and new product introductions
resulted in healthy growth for the retail and commercial banking business.
Retail deposits and loans increased 6% and 5%, respectively, while commercial
deposits increased 10%, loans 11% and fee income 13%.
The Corporation's non-banking subsidiaries in Puerto Rico also
continued to grow and expand their businesses. Popular Leasing & Rental, Inc.,
Banco Popular's leasing
9
<PAGE> 14
UNITED STATES: GROWTH, DIVERSIFICATION AND ORGANIZATION
For our U.S. operation, 1998 was a year of expansion. We extended our banking
network, grew our asset base and established a new line of business. To support
this growth, we reorganized our corporate structure.
subsidiary, launched Popular Connection, a card that provides discounts to its
customers at more than 20 businesses. Popular Finance, Inc., our consumer
finance company, opened four new offices throughout Puerto Rico. In January
1999, the maximum amount allowed by law on small finance loans was increased
from $3,000 to $4,000. Popular Securities Incorporated expanded its retail
operation by offering its equity and fixed income products and financial
advisory services through Banco Popular branches. Throughout the year, Popular
Securities participated in over 25 financial transactions in Puerto Rico and the
United States amounting to more than $6 billion. Transactions performed in the
U.S. market were done through the establishment of a partnership with Morgan
Stanley Dean Witter.
In the years to come we will continue to maximize the infrastructure
and expertise developed in Puerto Rico to reach all segments of the retail and
commercial markets, and use this solid base to enter new businesses and markets.
At year end the U.S. banking network was composed of 89 branches, a 40% increase
from the 63 branches at the end of 1997. Part of this growth came through the
acquisition of Gore-Bronson Bancorp in Illinois with $281 million in total
assets, First State Bank of Southern California in Los Angeles, with $194
million in total assets, one branch from City National Bank, also in Los
Angeles, with $40 million in deposits, and one branch from Statewide Savings
Bank in New Jersey with $4.6 million in deposits. In addition, we established 13
de novo branches in selected Hispanic areas.
To continue increasing the operation's asset base we expanded our
mortgage business by acquiring Online Mortgage, located in California. The
operation provides a complete line of first and second mortgage products that
can furnish almost every applicant a financing solution.
The national credit card effort, which began in 1997, continued to
create awareness of the Banco Popular brand in Hispanic households. The
consumer credit card marketing efforts were spearheaded by the endorsement of
Don Francisco, one of the most well-known and respected Hispanic television
personalities. This initiative will provide us with a strong customer base from
which to cross-sell additional financial products and services. Small business
loans and leasing also
Popular Cash Express is a new line of business that serves the large unbanked
Hispanic population.
10
<PAGE> 15
continued to thrive. Banco Popular was ranked among the top five small business
lenders in New York, Illinois and Florida.
In February we established Popular Cash Express, Inc., a new line of
business, to serve the large unbanked Hispanic population. This segment is of
particular importance to our Hispanic strategy since it is estimated that at
least 60% of Hispanics do not have a transaction account with a financial
institution.
Efforts focused on achieving a common
platform in the U.S. from a legal, regulatory
and operational perspective, to provide
uniform service of the utmost quality.
Popular Cash Express provides check cashing, money transfers, money
orders, bill payment and other fee-based financial services. Popular Cash
Express was established with the acquisition of 14 stores from Mirando J. and
Florida Check Cashers. Throughout the year we expanded the operation with two de
novo offices in New York and three in Florida, and the acquisition of eight
check-cashing outlets and 27 mobile units from Inglewood Quick Check, Inc. in
California.
During 1998 efforts focused on achieving a common platform in the
United States from a legal, regulatory and operational perspective. In June we
inaugurated our U.S. executive offices in Chicago, with all members of the top
management team located in this office. In January 1, 1999, we completed the
legal reorganization of the U.S. operation by consolidating the banking
subsidiaries in California, Florida, New Jersey and Illinois and Banco Popular
branches in New York into one bank named Banco Popular North America. We expect
to incorporate our Texas operations during 1999.
Equity One has expanded into seven additional states for a total of 128
offices in 36 states.
Equity One, Inc., our consumer subsidiary in the United States,
expanded into seven additional states for a total of 128 offices in 36 states.
In October, we welcomed C.E. (Bill) Williams as president.
These acquisitions, business expansions and organizational
restructuring constitute an important step toward reaching our goal of becoming
the bank of choice among Hispanics and small and middle commercial customers
throughout the United States.
11
<PAGE> 16
CARIBBEAN AND LATIN AMERICA: EXPANDING THE BANKING FRANCHISE
In 1998 we continued our penetration of the Caribbean Region by entering the
banking market in the Dominican Republic and growing our previously established
electronic networks.
During the year we completed the acquisition of 45% of Banco Fiduciario, the
fourth largest commercial bank in terms of assets in the Dominican Republic.
Established in 1983, this bank had $473 million in total assets and 27 branches
at year end. The combination of Banco Fiduciario's knowledge of the market and
Banco Popular's retail banking expertise will facilitate the growth and
expansion of the operation.
ASSETS BY GEOGRAPHICAL AREA
(PERCENTAGE)
[GRAPH]
Key personnel from Banco Popular's retail banking, consumer lending, operations
and finance areas were incorporated to the Dominican Republic to complement the
existing management team. Efforts throughout the end of the year focused on
strengthening the operation's credit and risk management process to support the
anticipated growth of this operation.
We completed the
acquisition of 45% of
Banco Fiduciario,
the fourth largest
commercial bank in the
Dominican Republic.
This entry into the banking business complements the electronic network
ATH Dominicana, which was established in 1995. At year end the network was
composed of 333 machines connecting eight banks and was processing more than one
million transactions per month. The Corporation's experience in electronic
networks has also been exported to Costa Rica, where we established ATH Costa
Rica in 1997. The ATH Costa Rica network grew throughout 1998 with the addition
of Banco Popular y de Desarrollo Comunal, one of the largest government-owned
banks in the country. Transactions in both networks increased a total of 71%
compared to last year. As these markets continue to mature and we continue to
develop these ventures, additional electronic alternatives will be offered.
12
<PAGE> 17
ORGANIZATIONAL QUALITY: SUPPORTING OUR BUSINESS OBJECTIVES
To ensure that our organization is prepared to handle the challenges of our
growth in 1998, we continued enhancing the capabilities of our employees,
facilitated the integration of new organizations and prepared the Corporation
technologically for the year 2000.
To facilitate the accomplishment of the Corporation's objectives, we are
constantly developing the capabilities of our personnel. The training undergone
by our employees during the year focused on improving the sales and service
capacity of our branch personnel and on developing our managers' leadership.
In September we completed a corporatewide employee satisfaction survey
to guide our efforts to improve the quality of our organization. This year's
survey had a higher participation rate than our previous surveys; 86% of the
corporation's employees responded. This has provided us a very useful assessment
of employee satisfaction regarding areas such as work environment, compensation
and supervision.
[GRAPH]
To ensure the maximization of consolidations and acquisitions,
significant time and resources were devoted to the integration process. These
efforts involved groups from Popular Mortgage, the new U.S. management team and
Banco Fiduciario in the Dominican Republic.
Throughout the year, significant resources were dedicated to ensure the
Corporation was in compliance with the year 2000. At the end of 1998, the
Corporation's Year 2000 Plan for Puerto Rico and the Caribbean was 86% completed
and in the United States, 94% of the applications were certified as Year 2000
compliant. The project as a whole will be substantially completed by June 30,
1999.
As we expand the Corporation into new markets and businesses, we will
continue to provide innovative products, services and delivery systems for our
customers. At the same time, we will ensure that the principles and values of
integrity and social responsibility that have guided this Corporation are an
integral part of our contribution to these new frontiers.
/s/ Richard L.Carrion
------------------------
Richard L.Carrion
Chairman
President
Chief Executive Officer
13
<PAGE> 18
INSTITUTIONAL VALUES
VALUES
SOCIAL RESPONSIBILITY
We are committed to work for the social and economic well-being of the
communities we serve with particular regard for the lowest socio-economic
component of the population.
FOCUS ON THE CUSTOMER
Our customers are the lifeblood of our organization. We are an institution that
values relationships more than transactions. The needs and satisfaction of our
customers are our primary concern.
INTEGRITY
We are guided by the highest moral and ethical standards. The trust of our
customers is essential for our existence.
PASSION FOR EXCELLENCE
We firmly believe in doing things the right way, the first time, every time.
Continuous improvement and measurement of all our processes are essential for
our success.
INNOVATION
Constant innovation is a competitive advantage. We have a tradition of adopting
new techniques in all business areas to anticipate the changing needs of our
customers.
OUR PEOPLE
We strive to recruit, train and retain the most qualified people. We believe in
a direct relation between our employees' compensation and their commitment to
the organization's objectives, their individual performance, their team's
performance and the Corporation's.
SHAREHOLDER VALUE
Our goal is to produce above-average and consistent financial returns for our
shareholders. Our decisions are based on a long-term view of the future and are
characterized by prudence in assuming risk.
/s/ Richard L. Carrion
Richard L. Carrion
14
<PAGE> 19
OUR COMMUNITY
[COMPUTERIZED ARTS
GRAPHIC DESIGN]
At Popular, Inc., we feel a great responsibility toward our people and their
communities. We believe in being an integral part of the well-being of the
communities we serve. Since our founding in 1893, our mission has focused on
serving and promoting progress among the neediest classes.
In addition, through our donations program and the Banco Popular Foundation, we
support projects that enrich all aspects of community life, from socio-economic
development to education, the arts and sports.
Our banking service is a direct means of promoting the progress of our
communities. Our business goes hand in hand with the efforts of a broad
donations program, and direct aid provided to groups and entities. Likewise, we
participate in visionary projects that pursue their future well-being.
We serve with a tradition that looks to the future, and with that in
mind we handle critical situations proactively. When emergencies or natural
disasters have occurred, we assume a leadership role in reacting effectively. An
example was our response to Hurricane Georges, declared one of the most
significant disasters in the history of Puerto Rico.
We responded with a comprehensive effort on the part of the Bank
through the creation of the Brigada de Todos (Everyone's Brigades). These
Brigades visited more than 24 municipalities, providing critical aid to those
who needed it most.
15
<PAGE> 20
OUR COMMUNITY
We support projects
that enrich [PHOTO]
all aspects of community life. The Bank organized Brigada de Todos, which
brought direct aid to the neediest people
shortly after Hurricane Georges struck the
island.
Every year we make donations to a wide range of activities and
projects. We choose organizations that have the ability to bring about positive
changes. That is the case with Las Gladiolas Sports Association in San Juan.
Several years ago, a volunteer of the organization requested a small donation to
buy materials and organize a sports program in a public housing project. Today,
the program is well-established and we continue to support and stay abreast of
its accomplishments.
In 1998, the Bank also co-sponsored the first exhibition in Puerto Rico
of Picasso prints at the Ponce Art Museum, together with an educational program.
When a teacher at a rural school called to say she had no transportation, we
made arrangements for those children to have access to the exhibit of works by
one of the great artists of the 20th century.
We also contribute to the arts with an active program of exhibitions at
the Rafael Carrion Pacheco Exhibition Hall in the former headquarters of Banco
Popular in Old San Juan. These exhibitions have enriched the discussion of
issues of interest to the community. In 1998, the exhibition The Art of Jack
Delano began its tour of eight cities with large Hispanic populations in the
United States. The first presentation was at the Smithsonian Institution in
Washington, D.C., followed by the Museo del Barrio in New York, and in 1999 it
will be on display in Chicago.
Another dimension of our community program is channeled through the
Banco Popular Foundation, created in 1979 by Rafael Carrion Jr., then president
of Banco Popular. Carrion Jr. wanted to contribute every year to a fund to
provide long-term support to a series of community projects. Since its creation,
the Foundation has invested in a total of 58 non-profit organizations. It
invests in organizations that have the potential to promote volunteerism and the
ability to transform their communities, whether through education or economic
development.
- --------------------------
Distribution of Donations
(percentage)
[GRAPH]
16
<PAGE> 21
Beyond the continuous support of numerous organizations, the Foundation
also contributes to a number of special initiatives each year. The funding for
these projects comes from an annual musical production by Banco Popular, which
promotes the understanding of our popular music. With the proceeds from the sale
of videos, compact discs and cassette tapes of our latest musical production, we
are helping two specialized public schools. The Escuela Libre de Musica will
have a music appreciation room in honor of Rafael Hernandez, the renowned Puerto
Rican composer who was the subject of the most recent musical production. Also,
we will renovate the library at the Central Visual Arts School, one of the
principal public schools in Santurce. The library will be named after our past
president Rafael Carrion Jr., who studied at the school.
In both projects, we are contributing the talents of our internal
resources, such as architects and space planners, in addition to funding.
The 1998 musical production, entitled Romance del Cumbanchero: La
Musica de Rafael Hernandez, was broadcast in Puerto Rico, Orlando, New York, New
Jersey and Chicago as a gift celebrating the Christmas season. The production
included 26 internationally acclaimed musicians and singers including Ricky
Martin, Marc Anthony, Ednita Nazario, Olga Tanon, Marco Antonio Muniz and
Gilberto Santa Rosa.
In solidarity with people who were still in temporary housing due to
Hurricane Georges, we organized Christmas celebrations on the night of the
production's broadcast at 11 shelters throughout Puerto Rico. Dozens of
employees and volunteers joined those in the shelters to have dinner and watch
and enjoy the special.
These talented students from Central Visual Arts School will benefit from a
renovated library with funds from the Banco Popular Foundation.
[PHOTO]
[PHOTO]
The 1998 Christmas music special, Romance del Cumbanchero: La Musica de Rafael
Hernandez brought together more than 26 internationally acclaimed artists and
musicians to honor Puerto Rico's foremost composer.
Our reliable commitment to the community is nurtured day by day by the
vision our founders had in 1893 of serving the neediest classes. Today, 105
years later, we keep this vision alive through our broad community program and
our banking services.
17
<PAGE> 22
MANAGEMENT
[PHOTO]
SENIOR MANAGEMENT COUNCIL
<TABLE>
<S> <C> <C> <C> <C> <C>
CARLOS ROM, JR. LARRY B. KESSLER EMILIO E. PINERO FERRER, ESQ. ROBERTO R. HERENCIA HUMBERTO MARTIN
</TABLE>
<TABLE>
<S> <C> <C>
Popular, Inc. David H. Chafey, Jr. Larry B. Kesler
Banco Popular de Puerto Rico Senior Executive Vice President Executive Vice President
Retail Banking Retail Credit
Richard L. Carrion
Chairman of the Board Jorge A. Junquera Humberto Martin
President Senior Executive Vice President Executive Vice President
Chief Executive Officer Chief Financial Officer Operations
Carlos Rom, Jr.
Executive Vice President
Maria Isabel P. de Burckhart Caribbean and Latin American
Executive Vice President Expansion
Administration
Carlos J. Vazquez
Emilio E. Pinero Ferrer, Esq. Executive Vice President
Executive Vice President Risk Management
Commercial Banking
Roberto R. Herencia
Executive Vice President Brunilda Santos de Alvarez, Esq.
North America Senior Vice President
General Counsel
</TABLE>
18
<PAGE> 23
SENIOR MANAGEMENT COUNCIL
[PHOTO]
<TABLE>
<S> <C> <C> <C> <C>
MARIA ISABEL P.DE BURCKHART CARLOS J. VAZQUEZ DAVID H. CHAFEY, JR. RICHARD L. CARRION JORGE A. JUNQUERA
</TABLE>
SUBSIDIARIES
<TABLE>
<S> <C> <C> <C>
Richard L. Carrion BANCO POPULAR POPULAR FINANCE, INC. CARIBBEAN/LATIN AMERICA
Chairman of the Board North America, Inc. Edgardo Novoa
President Jorge A. Junquera President Carlos Rom, Jr.
Chief Executive Officer President Executive Vice President
POPULAR SECURITIES Caribbean and
Roberto R. Herencia Incorporated Latin American Expansion
Chief Operating Officer Kenneth W. McGrath
President BANCO FIDUCIARIO
Jorge Besosa
NON-BANKING SUBSIDIARIES EQUITY ONE, INC. Chief Operating Officer
C.E. (Bill) Williams
POPULAR MORTGAGE, INC. President ATH DOMINICANA
Silvio Lopez Miguel Gil-Mejia
President Popular Cash Express, Inc. General Manager
Jerome Gagerman
POPULAR LEASING & President ATH COSTA RICA
RENTAL, INC. Luis Diego Escalante
Andres F. Morrell POPULAR LEASING, U.S.A. General Manager
President Bruce D. Horton
President
POPULAR MORTGAGE, U.S.A.
Fred Portner
President
</TABLE>
19
<PAGE> 24
DIRECTORS
POPULAR, INC. BOARD OF DIRECTORS
<TABLE>
<S> <C> <C> <C>
Richard L. Carrion Francisco J. Carreras Jorge A. Junquera Julio E. Vizcarrondo, Jr.
Chairman Educator Senior Executive Vice President President
President Executive Director Popular, Inc. and Banco Popular Chief Executive Officer
Chief Executive Officer Fundacion Angel Ramos, Inc. de Puerto Rico Desarrollos
Metropolitanos, S.E.
David H. Chafey, Jr. Manuel Morales, Jr.
Alfonso F. Ballester Senior Executive Vice President President Samuel T. Cespedes, Esq.
Vice Chairman of the Board Popular, Inc. and Banco Popular Parkview Realty, Inc. Secretary
President de Puerto Rico Board of Directors
Ballester Hermanos, Inc.
Alberto M. Paracchini
Luis E. Dubon, Jr., Esq. Private Investor Brunilda Santos
Antonio Luis Ferre Partner de Alvarez,Esq.
Vice Chairman of the Board Dubon & Dubon Francisco M. Rexach Jr. Assistant Secretary
President President Board of Directors
El Nuevo Dia Capital Assets, Inc.
Hector R. Gonzalez
President Ramon D. Lloveras
Chief Executive Officer J. Adalberto Roig, Jr. San Miguel, Esq.
TPC Communications Chairman Assistant Secretary
of PR, Inc. Antonio Roig Sucesores, Inc. Board of Directors
Juan J. Bermudez
Partner
Bermudez & Longo, S.E. Felix J. Serralles, Jr.
President Ernesto N. Mayoral, Esq.
Chief Executive Officer Assistant Secretary
Destileria Serralles, Inc. Board of Directors
</TABLE>
BANCO POPULAR DE PUERTO RICO BOARD OF DIRECTORS
<TABLE>
<S> <C> <C> <C>
Richard L. Carrion Juan J. Bermudez Hector R. Gonzalez Felix J. Serralles, Jr.
Chairman Partner President President
President Bermudez & Longo, S.E. Chief Executive Officer Chief Executive Officer
Chief Executive Officer TPC Communications Destileria Serralles, Inc.
Esteban D. Bird of PR ,Inc.
Alfonso F. Ballester President Julio E. Vizcarrondo, Jr.
Vice Chairman of the Board Chief Executive Officer Jorge A. Junquera President
President Bird Construction Senior Executive Vice President Chief Executive Officer
Ballester Hermanos, Inc. Company, Inc. Popular, Inc. and Banco Popular Desarrollos
de Puerto Rico Metropolitanos, S.E.
Antonio Luis Ferre Francisco J. Carreras
Vice Chairman of the Board Educator Manuel Morales, Jr. Samuel T. Cespedes, Esq.
President Executive Director President Secretary
El Nuevo Dia Fundacion Angel Ramos, Inc. Parkview Realty, Inc. Board of Directors
David H. Chafey, Jr. Alberto M. Paracchini Brunilda Santos
Juan A. Albors Hernandez Senior Executive Vice President Private Investor de Alvarez, Esq.
Chairman Popular, Inc. and Banco Popular Assistant Secretary
Chief Executive Officer de Puerto Rico Francisco M. Rexach Jr. Board of Directors
Albors Development Corp. President
Luis E. Dubon, Jr., Esq. Capital Assets, Inc. Ramon D. Lloveras
Partner San Miguel, Esq.
Salustiano Alvarez Mendez Dubon & Dubon J. Adalberto Roig, Jr. Assistant Secretary
President Chairman Board of Directors
Mendez & Company, Inc. Antonio Roig Sucesores, Inc.
Ernesto N. Mayoral, Esq.
Jose A. Bechara Bravo Assistant Secretary
President Board of Directors
Empresas Bechara Inc.
</TABLE>
20
<PAGE> 25
FINANCIAL INFORMATION
[FINANCIAL SECTION]
[COVER PAGE]
21
<PAGE> 26
POPULAR, INC.
FINANCIAL DATA INDEX
FINANCIAL REVIEW AND SUPPLEMENTARY INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C>
Management's Discussion and Analysis of
Financial Condition and Results of Operations F-2
Statistical Summaries F-24
FINANCIAL STATEMENTS
Report of Independent Accountants F-29
Consolidated Statements of Condition
as of December 31, 1998 and 1997 F-30
Consolidated Statements of Income
for each of the years in the three-year
period ended December 31, 1998 F-31
Consolidated Statements of Cash Flows
for each of the years in the three-year
period ended December 31, 1998 F-32
Consolidated Statements of Changes in
Stockholders' Equity for each of the
years in the three-year period ended
December 31, 1998 F-33
Notes to Consolidated Financial Statements F-34
</TABLE>
<PAGE> 27
Popular, Inc.
F-2
Management's Discussion and Analysis of Financial Condition and
Results of Operations
This financial discussion contains an analysis of the consolidated financial
position and financial performance of Popular, Inc. and its subsidiaries (the
Corporation) and should be read in conjunction with the consolidated financial
statements, notes and tables included elsewhere in this report. The Corporation
is a bank holding company which offers a wide range of products and services
through its subsidiaries and is engaged in the following businesses:
- - Commercial Banking/Savings and Loans - Banco Popular de Puerto Rico (BPPR),
Banco Popular, N.A. (California), Banco Popular, N.A. (Florida), Banco
Popular, Illinois, Banco Popular, FSB, Banco Popular, N.A. (Texas) and the
recently acquired operations of Bronson-Gore Bank, Irving Bank, Water Tower
Bank, First State Bank of Southern California and Banco Fiduciario
- - Lease Financing - Popular Leasing and Rental, Inc. and Popular Leasing,
U.S.A.
- - Mortgage and Consumer Finance - Popular Mortgage, Inc., Equity One, Inc. and
Popular Finance, Inc.
- - Broker/Dealer - Popular Securities, Incorporated
- - ATM Processing Services - ATH Costa Rica
- - Retail Financial Services - Popular Cash Express
OVERVIEW
The U.S. economy continued its steady growth during 1998. Tame inflation, robust
consumer spending, strong housing and labor markets as well as three rate cuts
by the Federal Reserve all helped spur the U.S. economy, despite the economic
situation in Asia, Russia's debt default, ballooning deficits in Latin America
and turbulent financial markets from August through October. During 1998, the
Federal Reserve trimmed its target fed funds rate 25 basis points for three
successive months, starting in September, lowering it to 4.75%.
Popular, Inc.'s performance for 1998 was characterized by the undertaking of
business strategic initiatives, expanding its franchise in the United States and
the Caribbean while maintaining adequate financial results.
As part of the Corporation's business initiatives, BPPR consolidated its
mortgage origination department into Popular Mortgage, the mortgage lending
subsidiary in Puerto Rico, effective July 1, 1998, in order to create a solid
mortgage origination unit with more flexibility to compete in this aggressive
market.
The Corporation continued its efforts to prepare for the Year 2000 by
modifying, converting, and testing computer systems and date-sensitive operating
equipment. As of December 31, 1998, the information technology plan was 77%
completed while the non-information technology plan was 92% completed.
Meanwhile, during 1998, as part of the Corporation's objective of penetrating
the unbanked segment and expanding its operations in the U.S. market, Popular
Cash Express acquired 15 check cashing outlets in Florida and 8 outlets and 28
mobile check-cashing locations in California. All these facilities offer
services such as check cashing, money transfers, money orders and processing of
payments.
On September 30, 1998, Popular, Inc. became the principal shareholder of
Banco Fiduciario (BF) with the acquisition of 45% in newly issued stock. BF is
the fourth largest bank in the Dominican Republic, with $496 million in total
assets and $320 million in total deposits at date of acquisition.
In October 1998, the Corporation acquired First State Bank of Southern
California. This bank, with $194 million in assets and over $157 million in
deposits upon acquisition, has five branches located in Santa Fe Springs,
Paramount, Lynwood and Los Angeles.
Also in October, the Corporation completed the acquisition of Gore-Bronson
Bancorp (GBB), and its subsidiaries Bronson-Gore Bank, Irving Bank, and Water
Tower Bank with assets of $281 million and deposits of $217 million.
In addition to the acquisitions mentioned above, the Corporation continued
expanding in its established Hispanic markets in order to enhance its branch
network, with the opening of four "de novo" branches in Florida, one in
Illinois, three in Texas, two in California, one in New Jersey, three in New
York and 4
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
TABLE A
Components of Net Income as a Percentage of Average Total Assets
- -------------------------------------------------------------------------------------------
For the Year
- -------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income 4.27% 4.26% 4.18% 4.14% 4.38%
Provision for loan losses (0.67) (0.60) (0.55) (0.46) (0.44)
Securities and trading gains 0.06 0.03 0.02 0.05
Other income 1.36 1.31 1.24 1.18 1.15
- -------------------------------------------------------------------------------------------
5.02 5.00 4.89 4.91 5.09
Operating expenses (3.52) (3.46) (3.32) (3.45) (3.66)
- -------------------------------------------------------------------------------------------
Net income before tax 1.50 1.54 1.57 1.46 1.43
Income tax (0.36) (0.40) (0.43) (0.42) (0.41)
- -------------------------------------------------------------------------------------------
Net income 1.14% 1.14% 1.14% 1.04% 1.02%
===========================================================================================
</TABLE>
<PAGE> 28
Popular, Inc.
F-3
TABLE B
Changes in Net Income and Earnings per Common Share
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
(In thousands, except per common share amounts) DOLLARS PER SHARE Dollars Per share Dollars Per share
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income applicable to common stock
for prior year $ 201,215 $ 1.50 $ 176,800 $ 1.34 $ 138,011 1.05
Increase (decrease) from changes in:
Net interest income 89,057 0.66 102,642 0.78 97,130 0.74
Other operating income 37,264 0.28 39,126 0.30 36,085 0.27
Gain on sale of investment securities 6,665 0.05 (826) (0.01) (2,274) (0.02)
Net loss of minority interest 328
Income tax (210) (3,584) (0.03) (11,108) (0.08)
Trading account profit (281) 3,826 0.03 (1,677) (0.01)
Provision for loan losses (26,606) (0.20) (21,768) (0.16) (24,281) (0.18)
Operating expenses (83,434) (0.62) (95,001) (0.72) (55,086) (0.42)
- ----------------------------------------------------------------------------------------------------------------------------
Subtotal 223,998 1.67 201,215 1.53 176,800 1.35
Change in average common shares(*) (0.02) (0.03) (0.01)
- ----------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stock $ 223,998 $ 1.65 $ 201,215 $ 1.50 $ 176,800 1.34
============================================================================================================================
</TABLE>
(*)Reflects the effect of the issuance of shares of common stock for the
acquisitions completed in 1997, net of the shares repurchased during 1997, plus
the shares issued through the Dividend Reinvestment Plan in the years presented.
The average common shares outstanding for the years presented above were
135,532,086 for 1998, 134,036,964 for 1997 and 132,044,624 for 1996, after
restating for the stock split effected in the form of a dividend of one share
for each share outstanding on July 1, 1998.
- --------------------------------------------------------------------------------
in Puerto Rico. During 1998, Equity One, the Corporation's mortgage and consumer
lending subsidiary in the U.S. mainland, opened 11 new offices for a total of
128 offices in 36 states.
Focusing on the objective of becoming the number one bank for Hispanics in
the United States, the Corporation continued its plan of corporate
reorganization for its U.S. banking subsidiaries. Effective January 1, 1999, the
Corporation reorganized its bank subsidiaries. The resulting structure is
focused in two primary bank subsidiaries: Banco Popular de Puerto Rico and Banco
Popular North America. Banco Popular de Puerto Rico controls the Corporation's
bank operations in Puerto Rico and U.S. and British Virgin Islands, and
maintains a branch in New York and an agency in Chicago. Banco Popular North
America encompasses the U.S. mainland bank operations. The objective of this
reorganization is to consolidate all banking operations within the U.S. mainland
into one legal entity with branches in Florida, California, New York, New Jersey
and Illinois. This new structure will facilitate the communication and
geographic expansion while at the same time increases efficiency and provides
more flexibility to the Corporation. It is expected that Banco Popular, N.A.
(Texas) will become part of Banco Popular North America before 1999 ends.
Popular, Inc.'s rise in earnings for 1998 was primarily the result of a
growth of $89.1 million in net interest income and an increase of $43.6 million
in non-interest income. These improvements were offset, in part, by a rise of
$26.6 million in the provision for loan losses and an increase of $83.4 million
in operating expenses.
Net income amounted to $232.3 million for 1998, exceeding the $209.5 million
reported in 1997 by $22.8 million or 10.9%, while earnings per common share
(EPS) for the year ended 1998 were $1.65, or 10% higher than the $1.50 reported
for 1997.
Most of the acquisitions completed in the past years involved the payment of
a premium over book value which is being amortized over periods ranging from 5
to 15 years. Cash-based earnings, net income adjusted for the impact of such
amortization, may be more indicative of the Corporation's ability to generate
income. However, this method of presentation is not in accordance with generally
accepted accounting principles and is included here only for illustrative
purposes.
<TABLE>
<CAPTION>
Cash-based earnings 1998 1997 Change %
- -------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Net income $232,348 $209,565 10.9%
Add: Amortization
of intangibles 27,860 22,874 21.8
Less: Tax effect (2,146) (2,214)
- -------------------------------------------------------
Cash-based earnings $258,062 $230,225 12.1%
=======================================================
</TABLE>
The Corporation's profitability ratios for 1998 represented returns of 1.14%
on assets (ROA) and 15.41% on common stockholders' equity (ROE), compared with
an ROA and ROE of 1.14% and 15.83%, respectively in 1997. Table A presents a
five-year summary of the components of net income as a percentage of average
assets.
The Corporation's common stock appreciated 37.4% during 1998, from a market
price of $24.75 at December 31, 1997, to $34.00 at the same date in 1998. The
total return on Popular, Inc.'s common stock, including price appreciation and
dividends,
<PAGE> 29
Popular, Inc.
F-4
TABLE C
Selected Financial Data
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONDENSED INCOME STATEMENTS
Interest income $ 1,651,703 $ 1,491,303 $ 1,272,853
Interest expense 778,691 707,348 591,540
- ---------------------------------------------------------------------------------------------------------------
Net interest income 873,012 783,955 681,313
Securities and trading gains 12,586 6,202 3,202
Operating income 278,660 241,396 202,270
Operating expenses 720,354 636,920 541,919
Provision for loan losses 137,213 110,607 88,839
Net loss of minority interest 328
Income tax 74,671 74,461 70,877
Dividends on preferred stock of BPPR
Cumulative effect of accounting changes
- ---------------------------------------------------------------------------------------------------------------
Net income $ 232,348 $ 209,565 $ 185,150
===============================================================================================================
Net income applicable to common stock $ 223,998 $ 201,215 $ 176,800
===============================================================================================================
PER COMMON SHARE DATA*
Net income (basic and diluted) $ 1.65 $ 1.50 $ 1.34
Dividends declared 0.50 0.40 0.35
Book value 11.86 10.37 8.80
Market price 34.00 24.75 16.88
Outstanding shares:
Average 135,532,086 134,036,964 132,044,624
End of period 135,637,327 135,365,408 132,177,012
AVERAGE BALANCES
Net loans $ 11,930,621 $ 10,548,207 $ 9,210,964
Earning assets 19,261,949 17,409,634 15,306,311
Total assets 20,432,382 18,419,144 16,301,082
Deposits 12,270,101 10,991,557 10,461,796
Subordinated notes 125,000 125,000 147,951
Preferred beneficial interest in Popular North America's
junior subordinated deferrable interest debentures
guaranteed by the Corporation 150,000 122,877
Total stockholders' equity 1,553,258 1,370,984 1,193,506
PERIOD END BALANCES
Net loans $ 13,078,795 $ 11,376,607 $ 9,779,028
Allowance for loan losses 267,249 211,651 185,574
Earning assets 21,591,950 18,060,998 15,484,454
Total assets 23,160,357 19,300,507 16,764,103
Deposits 13,672,214 11,749,586 10,763,275
Subordinated notes 125,000 125,000 125,000
Preferred beneficial interest in Popular North America's
junior subordinated deferrable interest debentures
guaranteed by the Corporation 150,000 150,000
Total stockholders' equity 1,709,113 1,503,092 1,262,532
SELECTED RATIOS
Net interest yield (taxable equivalent basis) 4.91% 4.84% 4.77%
Return on average total assets 1.14 1.14 1.14
Return on average common stockholders' equity 15.41 15.83 16.17
Dividend payout ratio to common stockholders 28.42 25.19 24.63
Efficiency ratio 62.55 62.12 61.33
Overhead ratio 49.15 49.66 49.38
Tier I capital to risk-adjusted assets 10.82 12.17 11.63
Total capital to risk-adjusted assets 13.14 14.56 14.18
</TABLE>
*Per share data is based on the average number of shares outstanding during the
periods, except for the book value which is based on total shares at the end of
the periods. All per share data has been adjusted to reflect two stock splits
effected in the form of a dividend on July 1, 1998 and July 1, 1996.
<PAGE> 30
Popular, Inc.
F-5
<TABLE>
<CAPTION>
Year ended December 31,
- -----------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,105,807 $ 887,141 $ 772,136 $ 740,354 $ 794,943 $ 565,807 $ 558,273
521,624 351,633 280,008 300,135 387,134 281,561 302,747
- -----------------------------------------------------------------------------------------------------------------------
584,183 535,508 492,128 440,219 407,809 284,246 255,526
7,153 451 1,418 625 19,376 91 2,529
166,185 140,852 123,762 123,879 112,398 70,865 59,550
486,833 447,846 412,276 366,945 345,738 229,563 207,376
64,558 53,788 72,892 97,633 121,681 53,033 42,603
59,769 50,043 28,151 14,259 6,793 9,240 11,456
385 770 770 807
6,185
- -----------------------------------------------------------------------------------------------------------------------
$ 146,361 $ 124,749 $ 109,404 $ 85,116 $ 64,564 $ 63,366 $ 56,170
=======================================================================================================================
$ 138,011 $ 120,504 $ 109,404 $ 85,116 $ 64,564 $ 63,366 $ 56,170
=======================================================================================================================
$ 1.05 $ 0.92 $ 0.84 $ 0.70 $ 0.54 $ 0.79 $ 0.70
0.29 0.25 0.23 0.20 0.20 0.20 0.20
7.91 6.87 6.38 5.76 5.25 4.92 4.69
9.69 7.04 7.75 7.57 4.82 4.00 5.38
131,632,600 131,192,972 130,804,944 121,845,976 120,142,404 80,467,880 80,056,052
131,794,544 131,352,512 130,929,692 130,619,456 120,375,408 119,769,624 80,149,584
$ 8,217,834 $ 7,107,746 $ 5,700,069 $ 5,150,328 $ 5,302,189 $ 3,377,463 $ 3,132,167
13,244,170 11,389,680 9,894,662 8,779,981 8,199,195 5,461,938 5,318,800
14,118,183 12,225,530 10,683,753 9,528,518 8,944,357 5,836,749 5,676,981
9,582,151 8,837,226 8,124,885 7,641,123 7,198,187 5,039,422 4,782,791
56,850 56,082 73,967 85,585 94,000 50,000 38,082
1,070,482 924,869 793,001 668,990 610,641 407,611 353,844
$ 8,677,484 $ 7,781,329 $ 6,346,922 $ 5,252,053 $ 5,195,557 $ 5,365,917 $ 3,276,389
168,393 153,798 133,437 110,714 94,199 89,335 40,896
14,668,195 11,843,806 10,657,994 9,236,024 8,032,556 8,219,279 5,469,921
15,675,451 12,778,358 11,513,368 10,002,327 8,780,282 8,983,624 5,923,261
9,876,662 9,012,435 8,522,658 8,038,711 7,207,118 7,422,711 4,926,304
175,000 50,000 62,000 74,000 94,000 94,000 50,000
1,141,697 1,002,423 834,195 752,119 631,818 588,884 375,807
4.74% 5.06% 5.50% 6.11% 5.97% 6.30% 5.57%
1.04 1.02 1.02 0.89 0.72 1.09 0.99
14.22 13.80 13.80 12.72 10.57 15.55 15.87
26.21 27.20 25.39 28.33 34.13 25.33 28.14
64.88 66.21 66.94 65.05 66.46 64.65 65.82
53.66 57.24 58.34 55.07 52.47 55.80 56.86
11.91 12.85 12.29 12.88 11.01 10.10 9.47
14.65 14.25 13.95 14.85 13.35 12.74 11.76
</TABLE>
<PAGE> 31
Popular, Inc.
F-6
TABLE D
Net Interest Income - Taxable Equivalent Basis
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions) (In thousands)
Variance
Average Volume Average Yields Interest Attributable to
1998 1997 Variance 1998 1997 Variance 1998 1997 Variance Rate Volume
- --------------------------------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 754 $ 632 $ 122 4.88% 5.36% (0.48)% Money market investment $ 36,781 $ 33,923 $ 2,858 ($ 4,049) $ 6,907
6,290 5,928 362 7.13 6.90 0.23 Investment securities 448,426 409,127 39,299 13,629 25,670
287 302 (15) 6.60 6.55 0.05 Trading 18,943 19,769 (826) 123 (949)
- ------------------------------------------ -------------------------------------------------------
7,331 6,862 469 6.88 6.75 0.13 504,150 462,819 41,331 9,703 31,628
- ------------------------------------------ -------------------------------------------------------
Loans:
5,221 4,427 794 9.24 9.26 (0.02) Commercial and construction 482,234 409,965 72,269 (1,092) 73,361
628 554 74 12.73 12.99 (0.26) Leasing 79,929 72,029 7,900 (1,454) 9,354
3,000 2,699 301 8.57 8.54 0.03 Mortgage 256,902 230,601 26,301 561 25,740
3,082 2,868 214 12.97 13.07 (0.10) Consumer 399,784 374,872 24,912 (8,767) 33,679
- ------------------------------------------ -------------------------------------------------------
11,931 10,548 1,383 10.22 10.31 (0.09) 1,218,849 1,087,467 131,382 (10,752) 142,134
- ------------------------------------------ -------------------------------------------------------
$19,262 $17,410 $1,852 8.95% 8.90% 0.05% TOTAL EARNING ASSETS $1,722,999 $1,550,286 $172,713 $(1,049) $173,762
========================================== =======================================================
Interest bearing deposits:
$1,460 $1,281 $179 3.35% 3.35% 0.00% NOW and money market $ 48,846 $ 42,917 $ 5,929 $ (78) $ 6,007
3,761 3,393 368 3.06 3.08 (0.02) Savings 114,958 104,404 10,554 (1,161) 11,715
4,437 4,024 413 5.58 5.45 0.13 Time deposits 247,688 219,207 28,481 1,258 27,223
- ------------------------------------------ -------------------------------------------------------
9,658 8,698 960 4.26 4.21 0.05 411,492 366,528 44,964 19 44,945
- ------------------------------------------ -------------------------------------------------------
4,623 4,281 342 5.45 5.55 (0.10) Short-term borrowings 251,724 237,738 13,986 (3,978) 17,964
1,646 1,593 53 7.01 6.47 0.54 Medium and long-term debt 115,475 103,082 12,393 8,277 4,116
- ------------------------------------------ -------------------------------------------------------
TOTAL INTEREST BEARING
15,927 14,572 1,355 4.89 4.85 0.04 LIABILITIES 778,691 707,348 71,343 4,318 67,025
2,612 2,294 318 Demand deposits
723 544 179 Other sources of funds
- ------------------------------------------
$19,262 $17,410 $1,852 4.04% 4.06% (0.02)%
==========================================
4.91% 4.84% 0.07% NET INTEREST MARGIN AND
================== NET INTEREST INCOME 944,308 842,938 101,370 $ (5,367) $106,737
===================
4.06% 4.05% 0.01% NET INTEREST SPREAD
==================
TAXABLE EQUIVALENT
ADJUSTMENT
71,296 58,983 12,313
NET INTEREST INCOME --------------------------------
$ 873,012 $ 783,955 $ 89,057
================================
</TABLE>
Note: The changes that are not due solely to volume or rate are allocated to
volume and rate based on the proportion of the change in each category.
- --------------------------------------------------------------------------------
was 39.64% for 1998, compared with 26.04% for the S&P 500 Index.
Further discussion of operating results and the Corporation's financial
condition is presented in the following narrative and tables. In addition, Table
C provides selected financial data for the last 10 years.
RECENT DEVELOPMENTS
On March 2, 1999, the Corporation acquired 9.99% of the Puerto Rico Telephone
Company (PRTC) from the Government of Puerto Rico for $86.9 million. This
acquisition is part of a joint venture with GTE, a telecommunications company,
which acquired a 50% share of PRTC, while the government retains between 44% and
47% of ownership.
Earnings Analysis
NET INTEREST INCOME
Net interest income represents the main source of earnings of Popular, Inc. As
further discussed in the Risk Management section, the Corporation uses several
tools to manage the risks associated with the composition and repricing of
assets and liabilities.
<PAGE> 32
Popular, Inc.
F-7
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions) (In thousands)
Variance
Average Volume Average Yields Interest Attributable to
1997 1996 Variance 1997 1996 Variance 1997 1996 Variance Rate Volume
- ------------------------------------------------ ---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 632 $ 893 $ (261) 5.36% 5.23% 0.13% Money market investment $ 33,923 $ 46,697 $(12,774) $ 1,117 $(13,891)
5,928 4,830 1,098 6.90 6.63 (1.18) Investment securities 409,127 320,386 88,741 13,448 75,293
302 372 (70) 6.55 6.18 0.37 Trading 19,769 23,004 (3,235) 1,328 (4,563)
- ----------------------------------------------- ----------------------------------------------------
6,862 6,095 767 6.75 6.40 0.29 462,819 390,087 72,732 15,893 56,839
- ----------------------------------------------- ----------------------------------------------------
Loans:
4,427 3,687 740 9.26 8.98 0.28 Commercial and construction 409,965 331,129 78,836 10,571 68,265
554 505 49 12.99 12.96 0.03 Leasing 72,029 65,523 6,506 140 6,366
2,699 2,548 151 8.54 8.51 0.03 Mortgage 230,601 216,830 13,771 896 12,875
2,868 2,471 397 13.07 12.85 0.22 Consumer 374,872 317,409 57,463 1,960 55,503
- ----------------------------------------------- ----------------------------------------------------
10,548 9,211 1,337 10.31 10.11 0.20 1,087,467 930,891 156,576 13,567 143,009
- ----------------------------------------------- ----------------------------------------------------
$17,410 $15,306 $2,104 8.90% 8.63% 0.25% TOTAL EARNING ASSETS $1,550,286 $1,320,978 $229,308 $29,460 $199,848
=============================================== ====================================================
Interest bearing deposits:
$ 1,281 $ 1,149 $ 132 3.35% 3.28% 0.07% NOW and money market $ 42,917 $ 37,623 $ 5,294 $ 715 $ 4,579
3,393 3,096 297 3.08 3.03 0.05 Savings 104,404 93,878 10,526 833 9,693
4,024 4,163 (139) 5.45 5.25 0.20 Time deposits 219,207 218,721 486 5,111 (4,625)
- ----------------------------------------------- ----------------------------------------------------
8,698 8,408 290 4.21 4.17 0.04 366,528 350,222 16,306 6,659 9,647
- ----------------------------------------------- ----------------------------------------------------
4,281 3,465 816 5.55 5.33 0.22 Short-term borrowings 237,738 184,682 53,056 10,069 42,987
1,593 905 688 6.47 6.25 0.22 Medium and long-term debt 103,082 56,636 46,446 764 45,682
- ----------------------------------------------- ----------------------------------------------------
TOTAL INTEREST BEARING
14,572 12,778 1,794 4.85 4.63 0.22 LIABILITIES 707,348 591,540 115,808 17,492 98,316
2,294 2,054 240 Demand deposits
544 474 70 Other sources of funds
- -----------------------------------------------
$17,410 $15,306 $2,104 4.06% 3.86% 0.20%
===============================================
4.84% 4.77% 0.07% NET INTEREST MARGIN AND
===================== NET INTEREST INCOME 842,938 729,438 113,500 $11,968 $101,532
=================
4.05% 4.00% 0.05% NET INTEREST SPREAD
=====================
TAXABLE EQUIVALENT
ADJUSTMENT 58,983 48,125 10,858
NET INTEREST INCOME -----------------------------
$783,955 $681,313 $102,642
=============================
</TABLE>
- --------------------------------------------------------------------------------
Net interest income increased $89.1 million for the year ended December 31,
1998, reaching $873.0 million, compared with $783.9 million reported in 1997. In
1996, net interest income totaled $681.3 million.
Table D presents the principal components of the Corporation's net interest
income and net interest margin segregated by major categories of earning assets
and interest bearing liabilities. The interest income derived from some of these
assets is exempt for income tax purposes. Therefore, in order to present all
interest data on a comparable basis, the interest income has been converted to a
taxable equivalent basis using the applicable statutory income tax rates. This
taxable equivalent adjustment amounted to $71.3 million in 1998, $59.0 million
in 1997 and $48.1 million in 1996. The amount of the adjustment has increased
due to a higher average volume of exempt investments.
As presented in the table, average earning assets increased $1.9 billion from
1997 to 1998, being the principal reason for the increase in net interest
income. The rise in average earning assets is primarily related to an increase
in average loans which is the higher yielding category of earning assets.
Commercial loans accounted for more than half of the increase in average
<PAGE> 33
Popular, Inc.
F-8
loans. This increase was attributed to business growth, principally in Puerto
Rico and to the banks acquired throughout the year in the Dominican Republic,
Illinois and California. The acquired banks contributed with $81 million in
average commercial loans at December 31, 1998, while BPPR contributed with an
increase of $537 million in average commercial loans. Also, mortgage loans
increased significantly both in the United States and Puerto Rico, mostly as a
result of the favorable market conditions for refinancing. The commercial
banking institutions of the Corporation contributed with an increase of $200
million in the average mortgage loan portfolio, while the mortgage banking
subsidiaries contributed with $101 million of the growth since 1997. The average
yield on loans decreased by nine basis points mainly due to a lower interest
rate scenario and a strong competitive environment.
The increase in the average yield of the investment portfolio was caused
primarily by two factors. First, during the second half of 1997, the duration of
the investment portfolio was extended to position better the Corporation in an
environment of declining interest rates. Another factor was the increased
emphasis placed on investing in U.S. Agency securities, at the expense of
Treasury obligations which yield less.
Savings accounts and demand deposits also increased, partially attributed to
funds that entered into the banking system in Puerto Rico because of payments by
insurance companies and federal government agencies for claims after hurricane
Georges struck the island in September 1998. Average time deposits also
increased by 10.3%, mainly through deposits captured from retail customers. The
banking operations acquired during 1998 contributed with $111 million in average
total deposits in 1998. The average cost on time deposits increased by 13 basis
points, partially affected by the decrease of $139 million in 936 deposits which
have a lower cost. Table L has a detail of average deposits by category.
The increase in short-term borrowings is directly related to the rise in
investment securities. The increase in the cost of the Corporation's long term
debt during 1998 is attributed to the dramatic rise in the spreads most
corporations had to pay in the credit markets for longer term financing.
The average cost of interest bearing funds increased four basis points, while
the cost of funding earning assets decreased by two basis points, due to a
higher balance of non-interest bearing funds such as demand deposits and
capital. The Corporation's net interest margin, on a taxable equivalent basis,
improved by seven basis points in 1998, as compared to 1997.
PROVISION FOR LOAN LOSSES
The provision for loan losses reflects management's assessment of the adequacy
of the allowance for loan losses to cover potential losses inherent in the loan
portfolio after taking into account the net charge-offs for the current period
and loan impairment. The provision for loan losses in 1998 totaled $137.2
million, a $26.6 million increase from the $110.6 million reported in 1997. The
provision for loan losses for 1996 was $88.8 million. The increase in the
provision for 1998 was based primarily on the growth in the Corporation's loan
portfolio, a rise in net charge-offs and non-performing assets, and current and
expected economic conditions. Net charge-offs for 1998 were $112.9 million,
compared with $97.8 million in 1997 and $72.1 million in 1996. As a percentage
of average loans, net charge-offs were 0.95% in 1998, 0.93% in 1997 and 0.78% in
1996.
Please refer to the Credit Risk Management and Loan Quality section for a
more detailed analysis of the allowance for loan losses, net charge-offs, and
credit quality statistics.
NON-INTEREST INCOME
Non-interest income, excluding securities and trading gains, which consists
primarily of service charges on deposit accounts, credit card fees, other
fee-based services and other revenues, rose $37.3 million or 15.4% when compared
with prior year. As shown in Table E, the increase during 1998 was driven by a
rise of $17.9 million in other service fees, $9.8 million in other operating
income and $9.6 million in service charges on deposit accounts.
The growth in service charges on deposit accounts reflects higher activity on
commercial and retail accounts and higher volume of deposits mostly resulting
from the Corporation's business expansion and acquisitions. Also, contributing
to this growth was an increase in the volume of transactions. Measured as a
percentage of average deposits, service charges were 0.85% in 1998, 0.86% in
1997 and 0.82% in 1996.
Other service fees, which represented 41.8% of non-interest income for the
year, increased $17.9 million or 18.2% from the amount reported in 1997. As
shown in Table E, the rise in other service fees is primarily attributable to
higher credit card fees and merchant discounts which rose $6.6 million, and
higher fees related to the sale and administration of investment products which
rose $2.3 million when compared to 1997. This increase is on line with the
growth of 26.8% in credit card net sales and the increase of 31.8% in the number
of active credit card accounts. Also, the growth in fees related to the sale and
administration of investment products was mainly driven by the performance of
the retail brokerage division of Popular Securities. The increase in trust fees
of $2.1 million mainly resulted from a higher number of Keogh and 401k accounts
and the general rise in the market value of assets. Debit card fees, which
consist primarily of rental income of point-of-sale (POS) terminals and
interchange income contributed $1.9 million to the increase in other service
fees. Its increase mainly resulted from the sustained growth in the number of
POS terminals and in the volume of transactions which increased from a monthly
average of 3,171,000 in December 1997 to 4,010,000 a year later. The number of
POS terminals increased 15.2% to 18,794 as of December 31, 1998, from 16,321 a
year earlier. In addition,
<PAGE> 34
F-9
TABLE E
Other Operating Income
<TABLE>
<CAPTION>
Year ended December 31,
- -------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Five-Year
1998 1997 1996 1995 1994 C.G.R.
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts $103,732 $ 94,141 $ 85,846 $ 78,607 $ 71,727 8.73%
- -------------------------------------------------------------------------------------------------------------------------------
Other service fees:
Credit card fees and discounts 36,038 29,437 23,735 20,676 18,620 16.47
Debit card fees 17,702 15,768 10,430 5,425 3,185 59.70
Sale and administration of
investment products 11,890 9,557 5,384 2,999 1,190
Mortgage servicing fees, net of
amortization 9,131 9,129 7,534 5,956 2,301 25.47
Trust fees 8,873 6,799 6,174 5,851 5,159 16.79
Credit life insurance fees 8,690 9,537 7,955 5,766 4,889 15.27
Other fees 24,251 18,423 15,859 17,052 15,896 13.05
- -------------------------------------------------------------------------------------------------------------------------------
Total other service fees 116,575 98,650 77,071 63,725 51,240 22.11
- -------------------------------------------------------------------------------------------------------------------------------
Other income 58,353 48,605 39,353 23,853 17,885 35.94
- -------------------------------------------------------------------------------------------------------------------------------
Total $278,660 $241,396 $202,270 $166,185 $140,852 17.62%
===============================================================================================================================
Other operating income
to average assets 1.36% 1.31% 1.24% 1.18% 1.15%
Other operating income
to operating expenses 38.68 37.90 37.32 34.14 31.45
===============================================================================================================================
</TABLE>
Popular Cash Express contributed with $1.9 million to the increase in other
fees, mainly resulting from money order sales, check cashing, money transfer and
payment processing fees. The decline in credit life insurance fees resulted
mainly from a lower volume of personal loans originated during 1998. This source
of revenue is expected to decline during 1999 as a result of the enactment of a
statute that requires financial institutions in Puerto Rico to reimburse the
unearned portion of the credit life insurance fee collected, if the loan is
prepaid.
Other operating income for the year ended December 31, 1998, increased $9.7
million or 20.1% when compared to prior year. This increase mainly resulted from
the recording during 1997 of a loss of $3.3 million on the sale of a real estate
asset. Also during 1998, there was a growth of $2.1 million in investment
banking fees when compared to prior year. In addition, the other operating
revenues of the leasing subsidiaries increased $1.8 million mainly as a result
of higher gains on sales of daily rental units and a higher volume of daily
rental income. Moreover, during the year ended December 31, 1998, a nonrecurring
income of $1.7 million was recorded due to a partial recovery of the investment
in common stock of Citizens Bank of Jamaica, which was written down during 1997.
SECURITIES AND TRADING GAINS
During 1998, the Corporation sold $923 million in investment securities
available-for-sale as part of its asset/liability strategy, realizing a net gain
of $8.9 million, including $4.3 million in the sale of equity securities by
Popular Inc.'s holding company. In 1997, $5.2 billion of the investment
securities available-for-sale were sold for a net gain of $2.3 million,
reflecting gains of $6.3 million on the sale of equity securities partially
offset by a loss of $4.0 million on the sale of other securities.
Trading account activities for the year ended December 31, 1998, resulted in
profits of $3.7 million compared with profits of $3.9 million in 1997.
OPERATING EXPENSES
Operating expenses for 1998 increased $83.4 million or 13.1%, principally
reflecting higher personnel costs, professional fees, net occupancy and
equipment expenses. This rise is mainly related to the Corporation's growth and
expansion and the acquisitions made during 1997 and 1998. The operations
acquired in the United States during 1998 accounted for approximately $5.7
million of the increase. Also, the inclusion of BF accounted for approximately
$4.6 million in additional expenses for the year. Table F presents a detail of
operating expenses and various related ratios for the last five years.
Personnel costs, the largest category of operating expenses, increased $30.5
million or 9.9% when compared with 1997. The growth in personnel costs was led
by salaries, mainly resulting
<PAGE> 35
Popular, Inc.
F-10
TABLE F
Operating Expenses
<TABLE>
<CAPTION>
Year ended December 31,
- --------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Five-Year
1998 1997 1996 1995 1994 C.G.R.
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries $247,590 $211,741 $185,946 $172,504 $160,996 10.33%
Pension and other benefits 67,743 69,468 64,609 57,568 45,546 8.66
Profit sharing 22,067 25,684 22,692 19,003 19,205 2.23
- --------------------------------------------------------------------------------------------------------------------------------
Total personnel costs 337,400 306,893 273,247 249,075 225,747 9.34
Equipment expenses 75,302 66,446 57,186 47,854 42,229 18.66
Professional fees 58,087 46,767 36,953 28,677 27,002 20.09
Net occupancy expense 48,607 39,617 36,899 32,850 28,440 13.26
Business promotion 39,376 33,569 26,229 17,801 16,271 18.80
Communications 36,941 33,325 26,470 23,106 20,308 15.21
Other taxes 32,191 30,283 23,214 20,872 19,807 15.01
Amortization of intangibles 27,860 22,874 18,054 20,204 18,003 11.49
Printing and supplies 17,604 15,539 11,964 11,069 8,817 16.54
Other operating expenses:
Transportation and travel 7,968 7,186 5,852 4,424 3,946 17.52
FDIC assessment 1,497 1,499 1,544 10,257 19,346 (39.05)
All other 37,521 32,922 24,307 20,644 17,930 15.25
- --------------------------------------------------------------------------------------------------------------------------------
Subtotal 382,954 330,027 268,672 237,758 222,099 14.29
- --------------------------------------------------------------------------------------------------------------------------------
Total $720,354 $636,920 $541,919 $486,833 $447,846 11.81%
================================================================================================================================
Efficiency ratio 62.55% 62.12% 61.33% 64.88% 66.21%
Personnel costs to average assets 1.65 1.67 1.68 1.76 1.85
Operating expenses to average assets 3.52 3.46 3.32 3.45 3.66
Assets per employee (in millions) $ 2.20 $ 2.18 $ 2.10 $ 2.01 $ 1.68
================================================================================================================================
</TABLE>
from increased employment levels due to the acquired operations and business
expansion, annual merit increases and incentive compensation. Full-time
equivalent employees (FTE) increased to 10,549 at December 31, 1998, from 8,854
at the end of 1997. The acquisitions completed in the United States added 159
FTEs, while BF added 853 FTEs as of the end of the year.
Employee benefits, including profit sharing, decreased $5.3 million when
compared to 1997. The decline in pension costs and other fringe benefits was
primarily related to the improvement in the return of the pension plan assets
which resulted in a credit for 1998. Furthermore, profit sharing expense
decreased $3.6 million, as a result of an amendment to the profit sharing plan
in order to encourage stronger profitability ratios.
Other operating expenses, excluding personnel costs, for the year ended
December 31, 1998, rose $52.9 million when compared with 1997. Professional fees
increased $11.3 million reflecting higher legal, 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. Net occupancy expense
rose $9.0 million, principally due to the sale of an income-producing real
property during the fourth quarter of 1997 and the Corporation's continued
growth and expansion. The increase in equipment expenses of $8.9 million mainly
resulted from the Corporation's geographical expansion and growth in business
activity, expenses related to the Corporation's action plan to address the Year
2000 issue and the expansion of the electronic payment system and the network of
POS terminals. By the end of 1998, the Corporation had increased its automated
teller machine (ATM) network by 95 machines and installed 2,473 additional POS
terminals, when compared with prior year.
Business promotion increased $5.8 million as part of the institutional
campaign launched in the continental United States to emphasize Banco Popular's
image as a Hispanic bank, the promotional efforts related to the credit card
program in the United States and activities related to the recovery of Puerto
Rico after the damages caused by Hurricane Georges. Other operating expenses,
which includes transportation and travel, insurance expenses, interchange and
processing fees related with debit and credit cards, and FDIC assessment among
others, increased $5.4 million mostly as a result of the Corporation's expansion
and the increased volume of credit and debit card transactions. The amortization
of intangibles also reflected an increase of $5.0 million related to the
premiums paid on the operations acquired during 1997 and 1998.
<PAGE> 36
Popular, Inc.
F-11
INCOME TAX EXPENSE
Income tax expense for the year ended December 31,1998, was $74.7 million
compared with $74.5 million in 1997 and $70.9 million in 1996. The rise in
income tax expense resulting from higher pre-tax earnings, was partially offset
by higher benefits of net tax-exempt interest income and by the reversal of $4.0
million of a valuation allowance related to a deferred tax asset that became
realizable during 1998.
As a result of the above, the effective tax rate decreased to 24.3% in 1998,
from 26.2% in 1997 and 27.7% in 1996. The difference between the effective tax
rates and the maximum statutory tax rate for the Corporation, which is 39%, is
primarily due to the interest income earned on certain investments and loans
which is exempt from income tax, net of the disallowance of related expenses
attributable to the exempt income.
Please refer to Note 22 of the consolidated financial statements for
additional information on income taxes.
Impact of the Year 2000 Issue
The Corporation, under the direction of its Year 2000 Office, has been actively
engaged in modifying, converting, and testing its computer systems and
date-sensitive operating equipment. It is also working with customers and
business partners to ascertain their progress toward Year 2000 compliance.
Internal auditors of the Corporation are verifying and validating the work done
in this important project, which has been classified as the top priority of the
Corporation for 1998 and 1999.
A four phase action plan is being used to drive the activities related with
the information technology components (in-house processed core applications;
data processing center computers, software and equipment; networks and
communication backbones; decentralized managed applications; personal computers
with their corresponding software) and date-sensitive operating equipment as
explained below:
Assessment - identification of the components that may be impacted by the
arrival of the new century. Determination of resources needed, time frame and
sequencing of the Year 2000 efforts.
Renovation - modification, conversion, replacement or elimination of
components not Year 2000 ready. Validation testing and verification of the
components by simulating data conditions for the Year 2000.
Implementation - installation of renovated components into production.
INFORMATION TECHNOLOGY
As of December 31, 1998, the information technology action plan was 77%
completed, which is in line with our projection. Following is a summarized
report of actual results by phase, including both mission critical and
non-mission critical systems, and what is expected to be achieved during the
next quarters.
<TABLE>
<CAPTION>
Actual Projected
---------------------------------------------------------
12/31/98 12/31/98 3/31/99 6/30/99 9/30/99
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assessment 96% 97% 100% xxxxxxxx xxxxxxxx
Renovation 85% 87% 98% 100% xxxxxxxx
Validation 71% 71% 87% 100% xxxxxxxx
Implementation 63% 58% 75% 90% 100%
</TABLE>
The expected completion dates are based on assumptions of future events
considering the continued availability of resources and the completion of work
by third parties. Even though the Corporation feels that its current state of
readiness is adequate there is no guarantee that these estimates will be
achieved.
The renovation and validation phases of mission-critical systems (those that
will have a significant adverse impact on the institution's operations and
financial condition) were 93% and 82% completed as of December 31, 1998. The
validation phase of the mission critical systems is scheduled to be completed by
June 30, 1999.
NON-INFORMATION TECHNOLOGY
The action plan of date-sensitive operating equipment, including specialized
banking equipment such as ATMs, statement rendering and check processing
machines, was 92% completed as of December 31, 1998.
Significant third parties with which the Corporation interfaces with regard
to the Year 2000 problem include customers and business partners (counterparts,
technology vendors, service providers, payment and clearing systems, utilities,
etc.). Unreadiness by these third parties would expose the Corporation to a
potential loss, through impairment of business processes and activities.
The Corporation has assessed and is already monitoring the progress of
customers in their efforts to become Year 2000 compliant and the possible
effects of their inability to become Year 2000 compliant. Also, the Corporation
has assessed and is monitoring and testing the progress of its business partners
and counterparts to determine whether they will be able to successfully interact
with the Corporation in the Year 2000.
For the Corporation's operations in the United States, which are highly
dependable on processing service bureaus, several steps have been undertaken to
reduce the exposure. Officers of the Corporation have an active participation in
the client advisory board of the main business partner, which has contracted an
external entity to conduct independent quarterly reviews of the Year 2000 action
plan. Their progress is being monitored through the review of monthly reports
and the detailed test plans that they use to accomplish the validation phase.
<PAGE> 37
Popular, Inc.
F-12
OVERALL STATE OF READINESS
At year end, the Year 2000 Plan for Puerto Rico and the Caribbean, including
information technology components, date-sensitive operating equipment, customers
and business partners was 86% completed. In the U.S. mainland, 94% of the core
applications were already implemented by December 31, 1998. The whole project
will be substantially completed by June 30, 1999.
CONTINGENCY PLANS AND BUSINESS CONTINUITY
Even after thorough testing plans are executed, there is a possibility that
problems may arise in relation to all the changes made to systems and equipment
to ascertain they are ready for the Year 2000. Based on the current status of
the Year 2000 action plans, the Corporation's most reasonably likely worst case
scenario is that an unforeseen hardware or system failure might impair the
execution of one or more critical business processes during a limited period of
time. Business resumption plans are based on the assumption that the Corporation
will correct any hardware or software systems failure within five working days.
The Corporation's strategy is to focus on the assessment, renovation,
validation, and implementation phases of its Year 2000 action plans so as to
limit errors, and therefore the need to implement business resumption plans.
Nevertheless, the Corporation has established company wide business recovery
plans to support critical business processes in case of an unforeseen hardware
or software failure in the Year 2000. These business resumption plans include,
among other things, a business impact analysis, prioritization of business
processes, specific recovery strategies and alternative manual procedures for
critical business processes. Most business resumption plans for critical
operations in Puerto Rico and the United States were completed at December
31,1998. The first phase of testing of the business resumption plans was
completed for the Puerto Rico operations and most of Banco Popular's U.S.
operations. The second phase of tests is scheduled for the second quarter of
1999.
COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
The principal costs of the Year 2000 project are those associated with the
renovation and validation phases. The major portion, however, is being satisfied
using existing resources through the deferral of technology projects, with the
remainder representing incremental costs.
The Information Technology group was reinforced with 55 additional
programmers and other skilled technical personnel to ascertain the availability
of the necessary resources. Other relevant incremental costs are the costs to
contract external consultants to manage the renovation and validation of certain
specific items and scheduled upgrades that were accelerated due to the Year 2000
issue. The Corporation is funding the project through operating cash flows and
does not anticipate that the related incremental costs nor the impact of the
technology development initiatives being deferred will be material to the
financial condition and results of operations of any single year.
Management estimates the total incremental costs of achieving Year 2000
compliance to be approximately $10.8 million over the two-year period ending in
December 31, 1999. Approximately $5.2 million have been incurred at December 31,
1998, of which $2.8 million are related to consultants contracted, $1.9 million
for additional technical employees hired, $0.2 million for new hardware and
software acquired and $0.3 million related to costs to contact customers, retain
technical employees and other costs of the Year 2000 project.
Year 2000 costs are based on management's best estimates, which were derived
utilizing numerous assumptions of future events and other factors. However,
there can be no guarantee that these estimates will be achieved and actual costs
could differ materially from those projected.
STATEMENT OF CONDITION ANALYSIS
The Corporation's total assets as of December 31, 1998, reached $23.2 billion
compared with $19.3 billion as of December 31, 1997, representing an increase of
$3.9 billion or 20.0%. Most of the growth pertains to BPPR, which increased $2.3
billion in total assets from December 31,1997. Also, the newly acquired banking
operation in the Dominican Republic and the acquisitions of banking institutions
in the U.S. contributed each with $473 million to the Corporation's total assets
at December 31, 1998.
EARNING ASSETS
Earning assets at December 31, 1998, amounted to $21.6 billion from $18.1
billion a year earlier and $15.5 billion at December 31, 1996.
Money market investments, trading and investment securities amounted to $8.5
billion at December 31, 1998, representing an increase of $1.8 billion when
compared with the same date in 1997. The increase was mainly reflected in
investment securities which totaled $7.2 billion at December 31, 1998, an
increase of $1.6 billion or 28.3%. The increase in investment securities
resulted mostly from arbitrage opportunities undertaken, mostly through CMOs and
securities of U.S. Government agencies and corporations, that allowed the
Corporation to generate additional net interest income.
As shown in Table G, the Corporation continued to experience significant
growth in loans during 1998. Total loans increased $1.7 billion or 15.0% from
amounts reported at December 31, 1997. Commercial and mortgage loans, which
accounted for the largest increases in the portfolio, rose $1.0 billion and $518
million, respectively. BPPR and the operations
<PAGE> 38
Popular, Inc.
F-13
TABLE G
Loans Ending Balances
<TABLE>
<CAPTION>
As of December 31,
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands)
Five-Year
1998 1997 1996 1995 1994 C.G.R.
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial, industrial and
agricultural $ 5,646,027 $ 4,637,409 $3,822,096 $3,205,031 $2,893,534 18.93%
Construction 257,786 250,111 200,083 215,835 161,265 10.93
Lease financing 645,280 581,927 516,001 498,750 448,236 11.72
Mortgage(*) 3,351,748 2,833,896 2,576,887 2,403,631 2,177,763 16.29
Consumer 3,177,954 3,073,264 2,663,961 2,354,237 2,100,531 11.16
- -----------------------------------------------------------------------------------------------------------------------------
Total $13,078,795 $11,376,607 $9,779,028 $8,677,484 $7,781,329 15.56%
=============================================================================================================================
(*)Includes loans held-for-sale.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
acquired during 1998 contributed with total increases of $316 million and $473
million, respectively, in the commercial loan portfolio. The growth experienced
at BPPR was mostly the result of the continued marketing efforts in the retail
and middle markets.
The rise in the mortgage loan portfolio was mostly attained at the mortgage
banking subsidiaries of the Corporation which contributed with an increase of
$218 million. Also, the banking operations in Puerto Rico and the Virgin Islands
contributed with an increase of $167 million in mortgage loans at December 31,
1998. Furthermore, the commercial banking operations in the United States
contributed with $130 million to the increase. The rise in mortgage loans
principally resulted from the higher demand in mortgage refinancings to
consolidate personal debt mainly due to a lower interest rate scenario in 1998.
Consumer loans, which include personal, auto, marine, credit cards and
reserve lines grew $105 million or 3.4% since December 31, 1997. The commercial
banks acquired during 1998, contributed with a consumer loan portfolio of $78
million at December 31, 1998. Also, the mortgage and consumer finance operations
contributed with an increase of $52 million when compared with the end of 1997.
On the other hand, the other banking operations of the Corporation experienced a
net decrease of $25 million in consumer loans compared to prior year.
The personal loan portfolio, which represented 56.3% of the total consumer
loan portfolio at December 31, 1998, decreased $22 million from $1.8 billion
reported at December 31, 1997, representing 58.9% of the total consumer loan
portfolio. The decrease was mainly at BPPR which experienced a reduction of $86
million in its personal loan portfolio partially due to lower demand and to
mortgage refinancings to consolidate personal debts resulting from the lower
interest rate scenario. This decrease was partially offset by increases of $18
million in the consumer finance subsidiary in Puerto Rico and $35 million due to
the personal loan portfolios of the commercial banks acquired during 1998 at the
mainland and the Dominican Republic.
Credit card loans, which represented 21.1% of the consumer loan portfolio as
of December 31, 1998, rose $117 million to $669 million. The increase in this
category was mostly achieved through business expansion, marketing efforts both
in Puerto Rico and the U.S. and the launching of the American Express / Banco
Popular revolving credit card in Puerto Rico during 1998. The number of active
credit card accounts increased 31.8% from 1997.
Auto and boat secured loans represented about 19% of the total consumer loan
portfolio, while revolving credit represented 3.4% at December 31, 1998.
The Corporation's lease financing portfolio increased $63 million since
December 31, 1997. The rise in truck and vehicles lease financing by the
Corporation's leasing subsidiary in Puerto Rico contributed with $23 million of
the increase. Also, the leasing subsidiary in the United States, engaged in
equipment leasing, contributed with an increase of $21 million.
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Total deposits at December 31, 1998, amounted to $13.6 billion compared with
$11.7 billion on December 31, 1997, an increase of $1.9 billion or 16.4%. Please
refer to Table L for a detail of average deposits by category. The geographic
distribution of the Corporation's total deposits at the end of 1998, included
69.0% in Puerto Rico, 25.0% in the United States and the remaining 6.0% in the
Caribbean region, including deposits from Banco Popular's operations in the U.S.
and British Virgin Islands.
Most of the increase in deposits was attained at BPPR, where total deposits
increased $1.1 billion. The increase was also related to the acquisitions made
during 1998 in California, Illinois and the Dominican Republic, contributing
$691 million in deposits at December 31, 1998. Demand, savings and time
<PAGE> 39
Popular, Inc.
F-14
TABLE H
Capital Adequacy Data
<TABLE>
<CAPTION>
As of December 31,
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Risk-based capital:
Tier I capital $ 1,450,187 $ 1,335,391 $1,121,128 $1,003,072 $ 953,266
Supplementary (Tier II) capital 310,091 263,115 246,350 231,091 104,338
- ---------------------------------------------------------------------------------------------------------------------------------
Total capital $ 1,760,278 $ 1,598,506 $1,367,478 $1,234,163 $1,057,604
=================================================================================================================================
Risk-weighted assets:
Balance sheet items $12,955,995 $10,687,847 $9,368,420 $8,175,420 $7,219,906
Off-balance sheet items 443,926 287,822 275,397 249,529 199,327
- ---------------------------------------------------------------------------------------------------------------------------------
Total risk-weighted assets $13,399,921 $10,975,669 $9,643,817 $8,424,949 $7,419,233
=================================================================================================================================
Ratios:
Tier I capital (minimum required - 4.00%) 10.82% 12.17% 11.63% 11.91% 12.85%
Total capital (minimum required - 8.00%) 13.14 14.56 14.18 14.65 14.25
Leverage ratio (minimum required - 3.00%) 6.72 6.86 6.71 6.66 7.62
Equity to assets 7.60 7.44 7.33 7.58 7.57
Tangible equity to assets 6.50 6.52 6.55 6.60 6.55
Equity to loans 13.02 13.00 12.97 13.03 13.01
Internal capital generation rate 10.06 10.76 10.99 9.36 9.48
=================================================================================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
deposits in BPPR increased 20.3%, 12.9% and 1.62%, respectively, from amounts
reported at the end of 1997. The increase was partially related to funds that
entered into the banking system in Puerto Rico because of payments made by
insurance companies and federal government agencies for claims after hurricane
Georges hit the Island in September 1998.
Borrowed funds, including subordinated notes and capital securities increased
$1.6 billion from December 31, 1998 to $7.3 billion at the end of 1998. The
increase in borrowed funds was used primarily to fund the Corporation's business
expansion, loan growth and arbitrage activities. During 1997, a shelf
registration was filed with the Securities and Exchange Commission, allowing the
Corporation to issue medium-term notes, unsecured debt securities and preferred
stock in an aggregate amount of up to $1 billion.
As part of the investment in BF the Corporation recognized a minority
interest of $28 million as of the end of 1998, which represents the beneficial
interest of the minority investors of BF.
STOCKHOLDERS' EQUITY
At December 31, 1998, the Corporation's total stockholders' equity reached $1.7
billion compared with $1.5 billion on December 31, 1997. This increase was
mostly due to earnings retention. Accumulated other comprehensive income rose
$42 million. Also, the Corporation's Dividend Reinvestment Plan contributed $7.4
million in additional capital since December 31, 1997.
On April 23, 1998, the Corporation's Board of Directors authorized a
two-for-one stock split effected in a form of a dividend and as a result, $412
million were transferred from surplus to common stock.
The Corporation had 4,000,000 shares of preferred stock outstanding at
December 31, 1998. These shares are non-convertible and are redeemable at the
option of the Corporation. Dividends are noncumulative and are payable monthly
at an annual rate per share of 8.35% based on the liquidation preference value
of $25 per share.
The Corporation's objective is to maintain a solid capital position above the
"well capitalized" classification under the federal banking regulations. As
shown in Table H, which presents the capital adequacy information for the
current and previous four years, the Corporation continues to exceed the
well-capitalized guidelines. Tier I and total capital ratios decreased in 1998,
as a result of the acquisitions performed during the year. Further information
is presented in Note 18 to the consolidated financial statements.
Intangible assets totaled $274 million at December 31, 1998, an increase of
$42 million from December 31, 1997. The acquisitions performed in 1998
contributed to most of the increase in intangible assets. Total intangibles
consisted of $172 million in goodwill, $67 million in core deposit intangibles,
$30 million in mortgage servicing rights and $5 million in other intangibles. At
the end of 1997, goodwill totaled $120 million, core deposit intangibles were
$75 million, mortgage servicing rights were $29 million and other intangibles
were $8 million. The average tangible equity increased to $1.31 billion for the
year ended December 31, 1998, from $1.19 billion a year before, an increase of
$125 million or 10.5%. Total tangible equity at December 31, 1998, was $1.43
billion compared with $1.27
<PAGE> 40
Popular, Inc.
F-15
TABLE I
Common Stock Performance
<TABLE>
<CAPTION>
Market Price Cash Book
----------------------- Dividends Value Dividend Price/ Market/
Declared Per Payout Dividend Earnings Book
High Low Per Share Share Ratio Yield (*) Ratio Ratio
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $11.86 28.42% 1.55% 20.61x 286.68%
1st QUARTER $29 11/32 $23 1/32 $0.11
2nd QUARTER 36 5/32 29 7/32 0.11
3rd QUARTER 36 3/4 28 0.14
4th QUARTER 34 25 3/8 0.14
1997 10.37 25.19 1.76 16.50 238.78
1st quarter $18 3/8 $16 17/32 $0.09
2nd quarter 21 7/16 16 7/8 0.09
3rd quarter 27 15/16 20 9/16 0.11
4th quarter 27 3/16 22 7/8 0.11
1996 8.80 24.63 2.65 12.59 191.87
1st quarter $11 9/16 $9 11/16 $0.08
2nd quarter 11 13/14 10 15/16 0.09
3rd quarter 13 7/8 11 5/16 0.09
4th quarter 17 1/2 12 15/16 0.09
1995 7.91 26.21 3.15 9.24 122.55
1st quarter $7 15/16 $7 1/32 $0.07
2nd quarter 8 7/8 7 13/16 0.07
3rd quarter 9 3/4 8 7/8 0.07
4th quarter 9 31/32 9 17/32 0.08
1994 6.87 27.20 3.18 7.66 102.37
1st quarter $8 1/8 $7 11/16 $0.06
2nd quarter 8 3/16 7 3/4 0.06
3rd quarter 8 5/16 7 7/8 0.06
4th quarter 8 1/4 6 3/4 0.07
</TABLE>
(*)Based on the average high and low market price for the four quarters.
Note: All per share data has been adjusted to reflect the two stock splits
effected in the form of a dividend of one share for each share outstanding on
July 1, 1998 and July 1, 1996.
- --------------------------------------------------------------------------------
billion at December 31, 1997. The tangible equity to assets ratio for 1998 and
previous four years is presented in Table H.
Book value per common share increased to $11.86 at December 31, 1998,
compared with $10.37 at year-end 1997. The market value of the Corporation's
common stock at the end of 1998, was $34.00 compared with $24.75 a year earlier.
The total market capitalization was $4.6 billion, compared with $3.4 billion as
of December 31, 1997.
The Corporation's stock is traded on the National Association of Securities
Dealers Automated Quotation (NASDAQ) National Market System under the symbol
BPOP. Table I shows the range of market quotations and cash dividends declared
for each quarter during the last five years. The preferred stock of the
Corporation is also traded on the NASDAQ National Market System under the symbol
BPOPP. Its market value at December 31, 1998 and 1997 was $26.00 per share. As
of February 26, 1999, the Corporation had 10,454 stockholders of record of its
common stock, not including beneficial owners whose shares are held in record
names of brokers or other nominees.
Dividends declared on common stock during 1998 totaled $67.8 million,
compared with $53.7 million in 1997. The Corporation increased its quarterly
dividend from $0.11 to $0.14 per common share, a 27.3% increase, effective on
October 1, 1998. Total dividends declared per common share for 1998 were $0.50
compared with $0.40 in 1997 and $0.35 in 1996. The dividend payout ratio to
common stockholders for the year was 28.42% compared with 25.19% in 1997.
Dividends declared on preferred stock amounted to $8.3 million in 1998 and 1997.
In connection with the acquisition by Banco Popular, FSB (second-tier
subsidiary of Popular North America, Inc.) 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 $20 million. Pursuant to the terms of such financing,
Banco Popular, FSB was not
<PAGE> 41
Popular, Inc.
F-16
permitted to, among other things, declare or pay any dividends on its
outstanding capital stock (unless such dividends were used exclusively for
payment of principal or interest on such RTC loan) or make any distribution of
its assets until payment in full of such promissory note. As of December 31,
1998, the undistributed earnings of Banco Popular, FSB totaled $67 million. This
note was paid in full on January 7, 1999.
Risk Management
The Corporation has specific policies and procedures which structure and
delineate the management of risks, particularly those related with interest rate
exposure, liquidity and credit, all of which are discussed below.
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.
Market risk management is the responsibility of the Board of Directors (the
Board). It establishes policies regarding the assumption and management of
market risk, and delegates its implementation to the Market Risk Committee of
Popular, Inc. (the Committee). The objective of the Committee is to ensure that
the market risk assumed by the Corporation remains within the parameters of the
Board policies.
The primary market risks assumed by Popular, Inc. are interest rate risk,
trading and to a much lesser extent, foreign exchange risk.
The stability and level of the Corporation's net interest income, as well as
its market value of equity, are subject to interest rate volatility. Changes in
interest rates affect both the rates at which the Corporation's assets and
liabilities reprice throughout time, and the market values of most of its assets
and liabilities. Since net interest income accounted for 75% of the
Corporation's gross revenues in 1998, the constant measurement and control of
market risk is a major priority.
Interest rate risk
Interest rate risk (IRR) refers to the impact of interest rate volatility on the
Corporation's net interest income. Depending on the duration and repricing
characteristics of the Corporation's assets, liabilities and off-balance sheet
items, changes in interest rates could either increase or decrease the level of
net interest income. The Committee implements the market risk policies approved
by the Board as well as risk management strategies reviewed and adopted in the
committee meetings.
The Committee is composed of senior officers which meet on a monthly basis.
It could convene more frequently if market conditions warrant. It reviews at
each meeting, measurements of the level of market risk assumed at the
Corporation and discusses current economic and market conditions together with
probable future developments which could impact the Corporation's net interest
income and market value.
The tools used by the Committee include measurements of the level of short
and long-term IRR assumed at the Corporation and its subsidiaries. The
Corporation uses simulation analysis and static gap estimates for measuring
short-term IRR. Duration analysis is used to quantify the level of long-term IRR
assumed, and focuses on the estimated economic value of the Corporation, that
is, the difference between the estimated market value of financial assets less
the estimated value of financial liabilities.
Static gap analysis measures the volume of assets and liabilities at a point
in time and their repricing during future time periods. The repricing volumes
typically include adjustments for anticipated future asset prepayments and for
differences in sensitivity to market rates. The volume of net assets or
liabilities repricing during future periods particularly within one year is used
as an indicator of the degree of short-term interest rate risk being assumed by
the Corporation. Table J presents the Corporation's static gap as of December
31, 1998.
Simulation analysis is another measurement used by the Corporation for
short-term IRR, and it addresses some of the deficiencies of gap analysis. It
involves estimating the effect on net interest income of one or more future
interest rate scenarios as applied to the repricing of the Corporation's current
assets and liabilities and the assumption of new balances. The simulation
analyses reviewed in the Committee are based on various interest rate scenarios.
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 statements are only estimates and may be
different from what actually occurs in the future. As of December 31, 1998, the
difference in projected net interest income within a 12-month period under a
rising and declining rate scenario, which assumes interest rates change by 150
basis points up and down, was $5.4 million and $6.4 million, respectively, which
represented changes of 0.6% and 0.7% in net interest income. These estimated
changes are within the policy guidelines established by the Board.
Longer-term IRR is measured using duration analysis, in particular the
duration of market value of equity. It expresses in general terms, the
sensitivity of the market value of equity to changes in interest rates. The
estimated market value of equity is obtained from the market values of the cash
flows from the Corporation's financial assets and liabilities, which are
primarily payments of interest and repayments of principal. Thus, the market
value of equity incorporates all future cash flows from net
<PAGE> 42
Popular, Inc.
F-17
TABLE J
Interest Rate Sensitivity
<TABLE>
<CAPTION>
As of December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
By Repricing Dates
- ------------------------------------------------------------------------------------------------------------------------------------
After After After
Within three months six months nine months Non-interest
0-30 31-90 but within but within but within After one bearing
(Dollars in thousands) days days six months nine months one year year funds Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Money market investments $ 598,646 $ 345,827 $ 3,326 $ 99 $ 947,898
Investment and trading
securities 1,143,142 746,333 1,040,301 587,238 $ 267,602 $ 3,780,641 7,565,257
Loans 4,204,024 422,783 562,623 575,351 529,598 6,784,416 13,078,795
Other assets $1,568,407 1,568,407
- ------------------------------------------------------------------------------------------------------------------------------------
Total 5,945,812 1,514,943 1,606,250 1,162,688 797,200 10,565,057 1,568,407 23,160,357
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and stockholders'
equity:
Savings, NOW and money market
accounts 713,658 5,072,365 5,786,023
Other time deposits 1,410,334 1,002,185 664,242 342,749 270,582 1,019,790 4,709,882
Federal funds purchased
and securities sold under
agreements to repurchase 3,395,161 539,351 41,988 100,000 4,076,500
Other short-term borrowings 1,078,446 240,194 145,191 70,075 105,176 1,639,082
Notes payable 119,415 240,000 947,745 1,307,160
Subordinated notes and capital
securities 275,000 275,000
Non-interest bearing
deposits 3,176,309 3,176,309
Other non-interest bearing
liabilities 481,288 481,288
Stockholders' equity 1,709,113 1,709,113
- ------------------------------------------------------------------------------------------------------------------------------------
Total 6,717,014 2,021,730 851,421 412,824 375,758 7,414,900 5,366,710 23,160,357
- ------------------------------------------------------------------------------------------------------------------------------------
Off-balance sheet financial
instruments 40,000 100,000 (100,000) (20,000) (20,000)
Interest rate sensitive gap $ (731,202) $ (406,787) $ 654,829 $ 749,864 $ 401,442 $ 3,130,157
Cumulative interest rate
sensitive gap (731,202) (1,137,989) (483,160) 266,704 668,146 3,798,303
Cumulative sensitive gap to
earning assets (3.39%) (5.27%) (2.24%) 1.24% 3.09% 17.59%
===================================================================================================================================
</TABLE>
interest income, whereas other measures of IRR focus primarily on short-term net
interest income. As of December 31, 1998, the estimated duration of the market
value of equity of the Corporation was 7.3 years.
Derivatives are used, to a limited extent, by the Corporation with the
primary objective of controlling exposures to market risk. The primary
instruments used included exchange-traded future contracts and interest rate
swaps. Financial futures are used primarily for hedging the cost of future debt
issuances as well as protecting the value of assets from market risk. Interest
rate swaps are used primarily to synthetically increase the duration of
borrowings. Please refer to note 25 to the consolidated financial statements for
further information on the Corporation's derivative transactions.
Trading securities
The Corporation's trading activities are another source of market risk.
Financial instruments, including, to a limited extent, derivatives such as
interest rate futures and options contracts, are utilized by the Corporation in
connection with its trading activities and are carried at market value. In
conjunction with mortgage banking activities, the Corporation records the
securitization of mortgage loans held-for-sale as a sale of mortgage loans and
the purchase of a mortgage-backed security classified as a trading security.
Realized and unrealized changes in market values are recorded separately in the
trading profit or loss account in the period in which the changes occur.
Interest revenue and expense arising from trading instruments are included in
the income statement as part of the net interest income rather than in the
trading profit or loss account.
In the opinion of management, the size and composition of the trading
portfolio does not represent potentially a significant source of market risk for
the Corporation. It consists primarily of mortgage loans and mortgage-backed
securities in the process of being sold in the secondary markets, and securities
issued by Puerto Rico-based entities for resale to retail custom-
<PAGE> 43
Popular, Inc.
F-18
TABLE K
Maturity Distribution of Earning Assets
<TABLE>
<CAPTION>
As of December 31, 1998
- --------------------------------------------------------------------------------------------------------------------------------
Maturities
---------------------------------------------------------------------------------------
After one year
through five years After five years
---------------------------------------------------------
Fixed Variable Fixed Variable
One year interest interest interest interest
(In thousands) or less rates rates rates rates Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money market securities $ 947,876 $ 22 $ 947,898
Investment and trading securities 3,423,488 $3,317,145 $ 206,085 $ 447,537 30,094 7,424,349
Loans:
Commercial 2,382,689 1,252,450 878,749 610,549 521,590 5,646,027
Construction 234,500 8,574 6,909 3,178 4,625 257,786
Lease financing 176,687 458,898 9,695 645,280
Consumer 943,889 1,531,208 78,177 621,715 2,965 3,177,954
Mortgage 1,052,060 446,642 10,871 1,841,507 668 3,351,748
- --------------------------------------------------------------------------------------------------------------------------------
Total $9,161,189 $7,014,917 $1,180,791 $3,534,181 $559,964 $21,451,042
================================================================================================================================
</TABLE>
Note: Federal Reserve Bank stock, Federal Home Loan Bank stock, and other equity
securities held by the Corporation are not included in this table.
- --------------------------------------------------------------------------------
ers. The Committee utilizes several approaches for measuring its risk, including
duration and value at risk.
At December 31, 1998, the Corporation's trading portfolio represented 1.4% of
total assets or $319 million as compared with 1.2% or $222 million at December
31, 1997, and was composed of the following:
<TABLE>
<CAPTION>
Weighted
Amount Average Yield
- --------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Mortgage-backed securities $169,617 6.64%
Commercial paper 102,323 4.97
U.S. Treasury and agencies 21,224 5.53
Puerto Rico Government obligations 9,551 4.34
Other 16,012 5.54
- ----------------------------------------------------------------
$318,727 5.91%
================================================================
</TABLE>
As of December 31, 1998, the trading portfolio of the Corporation had an
estimated duration of 3.97 years and a one-month value at risk of $6.7 million,
assuming a confidence level of 95%.
Foreign Exchange
In the course of its business, the Corporation occasionally enters into foreign
exchange transactions. These transactions are executed as an intermediary
primarily for its commercial and retail clients, and any foreign exchange
positions assumed by the Corporation as a result are offset in the currency
markets. Management therefore believes that the market risk assumed by the
Corporation in its foreign currency transactions is not significant.
During 1998, the Corporation became the largest shareholder of BF, with the
acquisition of 45% of their common stock. BF is the Dominican Republic's fourth
largest banking institution, and its primary business is offering retail and
commercial banking services. Most of BF's business is conducted in Dominican
pesos (DR$). Local regulations limit the ability of BF to assume unhedged
foreign currency positions. The value of the Corporation's investment in BF may
be affected prospectively by fluctuations in future exchange rates between the
DR$ and US$. However, management does not expect future fluctuations between
these two currencies to affect materially the value of the Corporation's
investment in BF.
LIQUIDITY RISK
Liquidity refers to the ability to fund current operations as well as future
growth. The Corporation utilizes various sources of funding to help ensure that
adequate levels of liquidity are always available. Diversification of funding
sources is a major priority, as it helps protect the liquidity of the
Corporation from market disruptions. Management tries to diversify the sources
of financing used by the Corporation in order to avoid undue reliance on any
particular source. Since the duration and repricing characteristics of the
Corporation's borrowings determine to a major extent the overall interest rate
risk of the Corporation, they are actively managed.
<PAGE> 44
F-19
TABLE L
Average Total Deposits
<TABLE>
<CAPTION>
For the Year
- -----------------------------------------------------------------------------------------------------------------------------------
Five-Year
(In thousands) 1998 1997 1996 1995 1994 C.G.R.
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Private demand $2,261,232 $1,972,052 $1,726,596 $1,571,405 $1,515,158 8.34%
Public demand 346,293 317,248 321,249 268,317 273,565 4.83
Other non-interest bearing accounts 4,251 4,367 5,910 5,983 6,967 (9.41)
- -----------------------------------------------------------------------------------------------------------------------------------
Non-interest bearing 2,611,776 2,293,667 2,053,755 1,845,705 1,795,690 7.78
- -----------------------------------------------------------------------------------------------------------------------------------
Savings accounts 3,748,599 3,393,279 3,095,898 2,913,380 2,839,300 5.71
NOW and money market accounts 1,472,533 1,281,298 1,148,727 1,102,593 1,133,106 5.38
- -----------------------------------------------------------------------------------------------------------------------------------
Savings deposits 5,221,132 4,674,577 4,244,625 4,015,973 3,972,406 5.62
- -----------------------------------------------------------------------------------------------------------------------------------
Certificates of deposit:
Under $100,000 2,155,391 1,216,583 1,307,323 1,281,873 1,160,063 13.19
$100,000 and over 1,421,456 1,865,720 1,371,928 1,034,195 590,305 19.22
936 369,530 508,789 1,020,064 999,384 1,007,147 (18.17)
- -----------------------------------------------------------------------------------------------------------------------------------
Certificates of deposit 3,946,377 3,591,092 3,699,315 3,315,452 2,757,515 7.43
- -----------------------------------------------------------------------------------------------------------------------------------
Public time 289,738 215,243 238,377 175,706 177,534 10.29
Other time 201,078 216,978 225,724 229,315 134,081 8.44
- -----------------------------------------------------------------------------------------------------------------------------------
Other time deposits 490,816 432,221 464,101 405,021 311,615 9.51
- -----------------------------------------------------------------------------------------------------------------------------------
Interest bearing 9,658,325 8,697,890 8,408,041 7,736,446 7,041,536 6.52
- -----------------------------------------------------------------------------------------------------------------------------------
Total $12,270,101 $10,991,557 $10,461,796 $9,582,151 $8,837,226 6.78%
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation raises its funding from a combination of retail and wholesale
markets. Retail sources of funds include retail and commercial demand deposit
accounts as well as time deposits and savings accounts. These are the primary
sources of funds for the Corporation and are usually more stable than financing
from institutional sources. Deposits tend to be less volatile than institutional
borrowings and their cost is less sensitive to changes in market rates.
The extensive branch network of the Corporation in the Puerto Rico market and
its rapidly expanding network in major U.S. markets, have enabled it to maintain
a significant and stable base of deposits. Deposits are the primary source of
funding, although wholesale borrowings are an increasingly important source. At
December 31, 1998, the Corporation's core deposits amounted to $11.5 billion or
83.8% of total deposits, an increase of $1.7 billion or 17.7% from the same date
a year ago. Certificates of deposits with denominations of $100,000 and over as
of December 31, 1998, totaled $2.2 billion, or 16.2% of total deposits. Their
distribution by maturity was as follows:
<TABLE>
<CAPTION>
(In thousands)
--------------------------------
<S> <C>
3 months or less $ 1,453,213
3 to 6 months 204,281
6 to 12 months 218,727
over 12 months 332,126
--------------------------------
$ 2,208,347
================================
</TABLE>
For further details on average deposits for the last five years, please refer
to Table L.
Wholesale or institutional sources of funds include the repo, federal funds
and eurodollar markets, commercial paper, senior debentures and asset
securitizations. Notes 9 through 15 to the consolidated financial statements
present details of the Corporation's deposits and borrowings by type, as of
December 31, 1998 and 1997.
The Corporation's assets, particularly the investment portfolio, are also an
important source of liquidity. The portfolio consists primarily of U.S. Treasury
and Agency securities, which can be used to raise funds in the repo markets. As
of December 31, 1998, the entire investment portfolio totaled $7.2 billion, of
which, $3.2 billion or 44.6% has an expected maturity of one year or less. Also,
refer to Notes 3 and 4 to the consolidated financial statements for further
information on the composition of the available-for-sale and held-to-maturity
investment portfolios.
The Corporation's loan portfolio is another liquidity source since it
generates substantial cash flow as a result of principal and interest payments
and principal prepayments. In particular, mortgage loans and some types of
consumer loans have active secondary markets and can be sold outright, which the
Corporation does with mortgage loans on a regular basis. Table K presents a
maturity distribution of the loan portfolio as of De-
<PAGE> 45
Popular, Inc.
F-20
cember 31, 1998. As of that date $4.8 billion or 36.6% of the loan portfolio
matured within one year.
CREDIT RISK MANAGEMENT AND LOAN QUALITY
One of the Corporation's primary risk exposures is its credit risk, which
represents the possibility of loss from the failure of a borrower or
counterparty to perform according to the terms of a credit-related contract. The
Corporation controls and monitors this risk with policies, procedures and
various levels of managerial involvement.
The Corporation has a Credit Strategy Committee (CRESCO) that oversees all
credit-related activities. This committee is responsible for managing the
Corporation's overall credit exposure and for developing credit policies,
standards and guidelines that define, quantify, and monitor credit risk. Also,
the Corporation has an independent Credit Risk Management Division, which
performs ongoing independent reviews of specific loans for credit quality,
proper documentation and risk management purposes. This division is centralized
and independent of the lending function. It also manages the credit rating
system and tests the adequacy of the allowance for loan losses in accordance
with generally accepted accounting principles (GAAP) and regulatory standards.
The strategies utilized to manage credit risk include the adherence to policies
and procedures established for the initial underwriting of the credit portfolio,
followed by the ongoing monitoring of the portfolio, including the early
identification of potential problems and their resolution. Furthermore, the
Corporation continues emphasizing the development of the credit staff skills and
knowledge and improving the processing technology.
Credit extensions are approved by credit officers of the respective lending
departments. The number and level of officers approval depend on the dollar
amount and risk characteristics of the credit facility. The Corporation obtains
collateral to support credit extensions and commitments, whenever it is
considered necessary. The amount of collateral obtained is based on the credit
assessment of the customer, and may include real or personal property, accounts
receivable, inventory and cash on deposit.
The Corporation's credit risk arises primarily from its $13.1 billion loan
portfolio which, as of December 31, 1998, represented 60.6% of earning assets.
The loan portfolio is well-balanced as the Corporation's credit policies and
procedures emphasize diversification among geographical areas, business and
industry groups, to minimize the adverse impact of any single event or set of
occurrences. The credit risk exposure is spread among individual consumers,
small commercial loans and a diverse base of borrowers engaged in a wide variety
of businesses.
The Corporation has over 870,000 consumer loans and over 42,000 commercial
lending relationships. Only 62 of these relationships have loans outstanding
over $10 million. Highly leveraged transactions and credit facilities to finance
speculative real estate ventures are minimal and there are no LDC loans.
The following risk concentration categories existed at year-end:
Geographic Risk - The asset and revenue composition of the Corporation by
geographical area and by business line segments at December 31, 1998, 1997 and
1996 is further presented in Note 27 to the consolidated financial statements.
At December 31, 1998, the Corporation's commercial banking subsidiaries, its
principal business, operated 198 branches in Puerto Rico, seven in the U.S.
Virgin Islands, one in the British Virgin Islands and 89 in the United States
throughout the states of Illinois, California, Florida, Texas, New York and New
Jersey. Puerto Rico's economic outlook is generally similar to that of the
mainland, and the Government of the Island and its instrumentalities are all
investment-grade rated borrowers in the United States capital markets.
Meanwhile, the Corporation continues diversifying its geographical risk through
several acquisitions of banking and retail financial service institutions
throughout different states in the mainland as described in the Overview section
and Note 1 to the consolidated financial statements. Moreover, in 1998 the
Corporation expanded its operations in the Caribbean with the acquisition of 45%
of BF in the Dominican Republic.
Consumer Credit Risk - Consumer credit risk arises from exposures to credit card
receivables, home mortgages, personal loans and other installment credit
facilities. At December 31, 1998, consumer and residential mortgage loans
amounted to $3.2 billion and $3.4 billion, respectively, with $1.6 million in
unused credits card lines. At December 31, 1998, the secured consumer loan
portfolio was $1.1 billion or 33.9% of the total consumer portfolio.
Industry Risk - Total commercial loans, including commercial real estate and
construction loans, amounted to $5.9 billion at year-end. The Corporation's
strategy to emphasize the use of collateral has resulted in a secured commercial
and construction loan portfolio comprised of approximately $1.6 billion, or
27.6% of the total commercial and construction loan portfolios. These loans are
secured by cash and real estate, consisting primarily of residential,
owner-occupied and income producing properties. Also, at December 31, 1998, the
Corporation had $2.2 billion in unused commitments under lines of credit to
commercial, industrial and agricultural concerns. Commercial and standby letters
of credit totaled $107 million at December 31, 1998. There are no significant
concentrations in any one industry with a substantial portion of the customers
having credit needs of less than $100,000.
Government Risk - As of December 31, 1998, $5.2 billion of the investment
securities represented exposure to the U.S. Government in the form of U.S.
Treasury securities and obligations of U.S. Government agencies and
corporations.
<PAGE> 46
F-21
TABLE M
Non-Performing Assets
<TABLE>
<CAPTION>
As of December 31,
- ----------------------------------------------------------------------------------------------------
(Dollars in thousands) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, industrial and
agricultural $142,371 $106,982 $ 82,381 $ 90,055 $ 53,553
Construction 144 2,704 2,000 4,733 7,994
Lease financing 4,937 1,569 1,599 5,606 4,027
Mortgage 68,527 53,449 43,955 32,066 16,510
Consumer 46,626 30,840 16,320 14,827 12,179
Renegotiated accruing loans 578 3,308 2,742 2,982
Other real estate 32,693 18,012 6,076 7,807 10,390
- ----------------------------------------------------------------------------------------------------
Total $295,876 $213,556 $155,639 $157,836 $107,635
====================================================================================================
Accruing loans past-due
90 days or more $ 24,426 $ 20,967 $ 12,270 $ 11,660 $ 15,012
====================================================================================================
Non-performing assets to loans 2.26% 1.88% 1.59% 1.82% 1.38%
Non-performing loans to loans 2.01 1.72 1.50 1.70 1.21
Non-performing assets to assets 1.28 1.11 0.93 1.01 0.84
Interest lost $ 15,258 $ 11,868 $ 7,696 $ 7,135 $ 5,441
</TABLE>
Note: The Corporation's policy is to place commercial and construction loans
on non-accrual status if payments of principal or interest are past-due
60 days or more. Lease financing receivables and conventional
residential mortgage loans are placed on non-accrual status if payments
are delinquent 90 days or more. Close-end consumer loans are placed on
non-accrual when they become 90 days or more past-due and are
charged-off when they are 120 days past-due. Open-end consumer loans
are not placed on non-accrual status and are charged-off when they are
180 days past-due. Loans past-due 90 days or more and still accruing
are not considered as non-performing loans.
- --------------------------------------------------------------------------------
In addition, $85 million of residential mortgages and $437 million in
commercial loans were insured or guaranteed by the U.S. Government or its
agencies. The Corporation is one of the largest SBA lenders in the United
States. Furthermore, there was $119 million of investment securities
representing obligations of the Puerto Rico Government and political
subdivisions thereof, $56 million of loans issued to or guaranteed by these
same entities and $27 million of loans issued to or guaranteed by the U.S.
Virgin Islands' Government.
NON-PERFORMING ASSETS
Non-performing assets consist of past-due loans on which no interest income is
being accrued, renegotiated loans and other real estate. The Corporation's
policy is to place commercial loans on non-accrual status if payments of
principal or interest are delinquent 60 days rather than the standard industry
practice of 90 days. Financing leases, conventional mortgages and close-end
consumer loans are placed on non-accrual status if payments are delinquent 90
days. Closed-end consumer loans are charged-off when payments are delinquent 120
days. Open end (revolving credit) consumer loans are charged-off if payments are
delinquent 180 days. Certain loans which would be treated as non-accrual loans
pursuant to the foregoing policy, are treated as accruing loans if they are
considered well-secured and in the process of collection. Under the standard
industry practice, close-end consumer loans are charged-off when delinquent 120
days, but are not customarily placed on non-accrual status prior to being
charged-off.
As shown on Table M, all loan categories reflected increases as compared with
December 31, 1997, except for construction loans.
The rise in non-performing commercial loans was mainly attributed to the
inclusion of $20 million in non-performing commercial loans of BF and $3.4
million of the banking operations acquired in the United States during the year.
In both cases, the increases are mainly the result of implementing the
Corporation's more conservative non-accrual policy, as explained above, to the
acquired portfolios and the implementation of U.S. generally accepted accounting
principles to BF's portfolio. Also, there was an increase of 21.7% in the size
of the commercial loan portfolio.
Non-performing consumer loans increased principally as a result of the
inclusion of $10 million in non-performing consumer loans of BF and the high
level of personal bankruptcies in Puerto Rico and the U.S. mainland. Bankruptcy
filings in U.S. federal courts, including Puerto Rico, rose 3 percent in 1998,
breaking the record set the previous year. Personal filings continued to drive
the increase, climbing in 1998 to approximately 1.4 million filings, a 3.6%
increase from 1997. Personal bankruptcies represented 96.9% of all filings in
1998.
In the non-performing mortgage loan category, the banking operations in
Puerto Rico and the Virgin Islands increased $9 million since 1997. Similarly,
the operations in the United States
<PAGE> 47
Popular, Inc.
F-22
TABLE N
Allowance for Loan Losses and Selected Loan Losses Statistics
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 211,651 $ 185,574 $ 168,393 $ 153,798 $ 133,437
Allowances purchased 31,296 13,237 402 3,473
Provision for loan losses 137,213 110,607 88,839 64,558 53,788
- ---------------------------------------------------------------------------------------------------------------------
380,160 309,418 257,634 218,356 190,698
- ---------------------------------------------------------------------------------------------------------------------
Losses charged to the allowance:
Commercial 45,643 55,734 38,017 34,383 27,435
Construction 190 600 2,369 2,046 1,794
Lease financing 23,484 23,085 22,129 6,979 6,860
Mortgage 2,718 2,612 2,189 1,618 1,310
Consumer 92,646 65,559 43,257 33,681 29,545
- ---------------------------------------------------------------------------------------------------------------------
164,681 147,590 107,961 78,707 66,944
- ---------------------------------------------------------------------------------------------------------------------
Recoveries:
Commercial 17,844 18,385 11,498 9,404 6,950
Construction 337 122 207 288 1,374
Lease financing 14,998 15,890 9,749 2,342 3,514
Mortgage 323 356 295 243 5
Consumer 18,268 15,070 14,152 16,467 18,201
- ---------------------------------------------------------------------------------------------------------------------
51,770 49,823 35,901 28,744 30,044
- ---------------------------------------------------------------------------------------------------------------------
Net loans charged-off 112,911 97,767 72,060 49,963 36,900
- ---------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 267,249 $ 211,651 $ 185,574 $ 168,393 $ 153,798
=====================================================================================================================
Loans:
Outstanding at year end $13,078,795 $11,376,607 $9,779,028 $8,677,484 $7,781,329
Average 11,930,621 10,548,207 9,210,964 8,217,834 7,107,746
Ratios:
Allowance for loan losses to year
end loans 2.04% 1.86% 1.90% 1.94% 1.98%
Recoveries to charge-offs 31.44 33.76 33.25 36.52 44.88
Net charge-offs to average loans 0.95 0.93 0.78 0.61 0.52
Net charge-offs earnings coverage 3.93x 4.04x 4.79x 5.42x 6.21x
Allowance for loan losses to net
charge-offs 2.37 2.16 2.58 3.37 4.17
Provision for loan losses to:
Net charge-offs 1.22 1.13 1.23 1.29 1.46
Average loans 1.15% 1.05% 0.96% 0.79% 0.76%
Allowance to non-performing assets 90.32 99.11 119.23 106.69 142.89
=====================================================================================================================
</TABLE>
rose $6 million in non-performing mortgage loans. Higher loan volumes and the
increased level of personal bankruptcies were leading factors for the increase.
The increase in the other real estate category was principally the result of
the inclusion of $8 million from BF and an increase of $6 million at Equity One.
Assuming the standard industry practice of placing commercial loans on
non-accrual status when payments of principal and interest are past due 90 days
or more and excluding the closed-end consumer loans from non-accruing, the
Corporation's non-performing assets at December 31, 1998, would have been $227
million or 1.73% of loans, and the allowance for loan losses would have been
119.8% of non-performing assets. At December 31, 1997 and 1996, adjusted
non-performing assets would have been $167 million or 1.47% of loans and $117
million or 1.19% of loans, respectively. The allowance for loan losses as a
percentage of non-performing assets as of December 31, 1997 and 1996, would have
been 126.9% and 159.0%, respectively.
<PAGE> 48
F-23
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level sufficient to provide for
estimated loan losses based on evaluations of known and inherent risks in the
loan portfolio. The Corporation's management evaluates the adequacy of the
allowance for loan losses on a monthly basis. In determining the allowance,
management considers the portfolio risk characteristics, prior loss experience,
prevailing and projected economic conditions and loan impairment measurement. A
loan is considered impaired when, based on the current information and events,
it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. At December 31, 1998
and 1997, the portion of the allowance for loan losses related to impaired loans
was $36 million and $19 million, respectively. Please refer to Notes 1 and 6 to
the consolidated financial statements for further information related to
impaired loans.
At December 31, 1998, the allowance for loan losses was $267 million or 2.04%
of loans, compared with $212 million or 1.86% at the same date in 1997. At
December 31, 1996, the allowance was $186 million or 1.90% of loans. The
increase resulted from the inclusion of BF, which has a higher ratio of
allowance to cover potential losses, as it is considered a higher risk
portfolio. Based on current and expected economic conditions, the expected level
of net loan losses and the methodology established to evaluate the adequacy of
the allowance for loan losses, management considers that the Corporation's level
of the allowance for loan losses is adequate.
Broken down by major loan categories, the allowance for the last five years
was as follows:
ALLOWANCE FOR LOAN LOSSES
AT DECEMBER 31,
(IN MILLIONS)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $130.2 $101.5 $ 91.8 $ 82.6 $ 73.8
Construction 11.6 10.6 10.5 11.0 10.8
Lease financing 8.3 5.9 3.4 6.4 6.5
Consumer 103.1 82.8 69.6 60.6 56.7
Mortgage 14.0 10.9 10.3 7.8 6.0
- ------------------------------------------------------------
$267.2 $211.7 $185.6 $168.4 $153.8
============================================================
</TABLE>
Table N summarizes the movement in the allowance for loan losses and presents
selected loan loss statistics for the past five years. As this table
demonstrates, net loan losses for the year totaled $112.9 million or 0.95% of
average loans, an increase of $15.1 million or 15.5% from amounts reported in
1997. The rise primarily reflected higher net charge-offs in the consumer loan
portfolio. This rise was partially offset by a reduction in net losses in the
commercial loan portfolio.
Consumer loans net charge-offs totaled $74.4 million, or 2.41% of average
consumer loans for 1998, compared with $50.5 million, or 1.76% of average
consumer loans for 1997. The increase in consumer loans net charge-offs was
principally due to higher levels of bankruptcies in the U.S. mainland and Puerto
Rico which is indicative of general market trends. BPPR had total net
charge-offs of $54.4 million in its consumer loan portfolio, compared with $37.8
million in 1997. Also, the increase in the net charge-offs resulted from the
write-off of $3.9 million of a portfolio of credit cards in the U.S. Total net
losses for the Corporation in its credit card portfolio amounted to
approximately $20.6 million in 1998, compared with $15.6 million in 1997.
Commercial loans net charge-offs amounted to $27.8 million in 1998, compared
with $37.3 million a year earlier. As a percentage of average commercial loans,
this figure decreased to 0.53% in 1998 from 0.84% in 1997. The decrease in
commercial loans net losses was mostly at BPPR and is mainly the result of the
Corporation's conservative charge-off policy applied to loans acquired during
1997, particularly from Roig Commercial Bank, and to greater collection efforts
and improvements in the credit quality of the portfolio.
<PAGE> 49
Popular, Inc.
F-24
Statistical Summary 1994-1998
Statements of Condition
<TABLE>
<CAPTION>
As of December 31,
(In thousands) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 667,707 $ 463,151 $ 492,368 $ 458,173 $ 442,316
- -----------------------------------------------------------------------------------------------------------------------------
Money market investments:
Federal funds sold and securities and mortgages
purchased under agreements to resell 910,430 802,803 778,597 796,417 265,000
Time deposits with other banks 37,206 9,013 19,023 100 100
Bankers' acceptances 262 2,274 2,656 2,202 570
- -----------------------------------------------------------------------------------------------------------------------------
947,898 814,090 800,276 798,719 265,670
- -----------------------------------------------------------------------------------------------------------------------------
Trading securities 318,727 222,303 292,150 330,674 1,670
- -----------------------------------------------------------------------------------------------------------------------------
Investment securities available-for-sale,
at market value 7,020,396 5,239,005 3,415,934 3,209,974 839,226
- -----------------------------------------------------------------------------------------------------------------------------
Investment securities held-to-maturity, at cost 226,134 408,993 1,197,066 1,651,344 2,955,911
- -----------------------------------------------------------------------------------------------------------------------------
Loans held-for-sale 644,159 265,204 255,129 112,806 10,296
- -----------------------------------------------------------------------------------------------------------------------------
Loans 12,783,609 11,457,675 9,854,911 8,883,963 8,066,954
Less-Unearned income 348,973 346,272 331,012 319,285 295,921
Allowance for loan losses 267,249 211,651 185,574 168,393 153,798
- -----------------------------------------------------------------------------------------------------------------------------
12,167,387 10,899,752 9,338,325 8,396,285 7,617,235
- -----------------------------------------------------------------------------------------------------------------------------
Premises and equipment 424,721 364,892 356,697 325,203 324,160
Other real estate 32,693 18,012 6,076 7,807 10,390
Customers' liabilities on acceptances 15,937 1,801 3,100 2,208 902
Accrued income receivable 156,314 118,677 95,487 113,539 78,765
Other assets 263,992 252,040 380,247 125,742 103,088
Intangible assets 274,292 232,587 131,248 142,977 128,729
- -----------------------------------------------------------------------------------------------------------------------------
$23,160,357 $19,300,507 $16,764,103 $15,675,451 $12,778,358
=============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 3,176,309 $ 2,546,836 $ 2,330,704 $ 2,021,658 $ 1,949,244
Interest bearing 10,495,905 9,202,750 8,432,571 7,855,004 7,063,191
- -----------------------------------------------------------------------------------------------------------------------------
13,672,214 11,749,586 10,763,275 9,876,662 9,012,435
Federal funds purchased and securities
sold under agreements to repurchase 4,076,500 2,723,329 1,875,465 3,000,878 1,438,038
Other short-term borrowings 1,639,082 1,287,435 1,404,006 454,707 573,841
Notes payable 1,307,160 1,403,696 986,713 730,428 459,524
Senior debentures 30,000 30,000 30,000
Acceptances outstanding 15,937 1,801 3,100 2,208 902
Other liabilities 437,760 356,568 314,012 263,871 211,195
- -----------------------------------------------------------------------------------------------------------------------------
21,148,653 17,522,415 15,376,571 14,358,754 11,725,935
- -----------------------------------------------------------------------------------------------------------------------------
Subordinated notes 125,000 125,000 125,000 175,000 50,000
- -----------------------------------------------------------------------------------------------------------------------------
Preferred beneficial interest in Popular North
America's junior subordinated deferrable interest
debentures guaranteed by the Corporation 150,000 150,000
Minority interest in consolidated subsidiary 27,591
- -----------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock 100,000 100,000 100,000 100,000 100,000
Common stock 825,690 412,029 396,531 197,692 197,029
Surplus 216,795 602,023 496,582 427,282 409,445
Retained earnings 530,481 395,253 267,719 350,480 272,458
Treasury stock - at cost (39,559) (39,559)
Accumulated other comprehensive income,
net of deferred tax 75,706 33,346 1,700 16,243 (19,366)
Capital reserves 50,000 42,857
- -----------------------------------------------------------------------------------------------------------------------------
1,709,113 1,503,092 1,262,532 1,141,697 1,002,423
- -----------------------------------------------------------------------------------------------------------------------------
$23,160,357 $19,300,507 $16,764,103 $15,675,451 $12,778,358
=============================================================================================================================
</TABLE>
<PAGE> 50
Popular, Inc.
F-25
Statistical Summary 1994-1998
Statements of Income
<TABLE>
<CAPTION>
For the year ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands, except per common share
information) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans $ 1,211,850 $ 1,080,408 $ 924,076 $ 813,137 $ 667,047
Money market investments 36,781 33,923 46,697 23,077 5,186
Investment securities 385,473 358,736 280,610 259,941 214,611
Trading account securities 17,599 18,236 21,470 9,652 297
- -----------------------------------------------------------------------------------------------------------------------------
Total interest income 1,651,703 1,491,303 1,272,853 1,105,807 887,141
Less - Interest expense 778,691 707,348 591,540 521,624 351,633
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income 873,012 783,955 681,313 584,183 535,508
Provision for loan losses 137,213 110,607 88,839 64,558 53,788
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 735,799 673,348 592,474 519,625 481,720
Gain on sale of investment securities 8,933 2,268 3,094 5,368 224
Trading account profit 3,653 3,934 108 1,785 227
All other operating income 278,660 241,396 202,270 166,185 140,852
- -----------------------------------------------------------------------------------------------------------------------------
1,027,045 920,946 797,946 692,963 623,023
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Personnel costs 337,400 306,893 273,247 249,075 225,747
All other operating expenses 382,954 330,027 268,672 237,758 222,099
- -----------------------------------------------------------------------------------------------------------------------------
720,354 636,920 541,919 486,833 447,846
- -----------------------------------------------------------------------------------------------------------------------------
Net loss of minority interest 328
- -----------------------------------------------------------------------------------------------------------------------------
Income before tax and dividends on preferred
stock of BPPR 307,019 284,026 256,027 206,130 175,177
Income tax 74,671 74,461 70,877 59,769 50,043
- -----------------------------------------------------------------------------------------------------------------------------
Income before dividends on preferred
stock of BPPR 232,348 209,565 185,150 146,361 125,134
Dividends on preferred stock of BPPR 385
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 232,348 $ 209,565 $ 185,150 $ 146,361 $ 124,749
=============================================================================================================================
NET INCOME APPLICABLE TO COMMON STOCK $ 223,998 $ 201,215 $ 176,800 $ 138,011 $ 120,504
=============================================================================================================================
EARNINGS PER COMMON SHARE* $ 1.65 $ 1.50 $ 1.34 $ 1.05 $ 0.92
=============================================================================================================================
Cash dividends declared per common share outstanding $ 0.50 $ 0.40 $ 0.35 $ 0.29 $ 0.25
=============================================================================================================================
</TABLE>
*The average common shares used in the computation of earnings and cash dividend
per common share were 135,532,086 for 1998; 134,036,964 for 1997; 132,044,624
for 1996; 131,632,600 for 1995; and 131,192,972 for 1994.
<PAGE> 51
Popular, Inc.
F-26
Statistical Summary 1994-1998
Average Balance Sheet and Summary of Net Interest Income
<TABLE>
<CAPTION>
On a Taxable Equivalent Basis*
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE Average Average
BALANCE INTEREST RATE Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Federal funds sold and securities and
mortgages purchased under agreements
to resell $ 670,072 $ 31,814 4.75% $ 595,715 $ 31,504 5.29%
Time deposits with other banks 82,935 4,889 5.89 34,271 2,181 6.36
Bankers' acceptances 778 78 10.03 2,463 238 9.66
- -----------------------------------------------------------------------------------------------------------------------------------
Total money market investments 753,785 36,781 4.88 632,449 33,923 5.36
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities 3,227,375 231,837 7.18 3,553,347 249,739 7.03
Obligations of other U.S. Government
agencies and corporations 1,477,168 111,332 7.54 967,973 69,709 7.20
Obligations of Puerto Rico, States and
political subdivisions 136,824 9,272 6.78 141,625 9,716 6.86
Collateralized mortgage obligations and
mortgage-backed securities 1,318,097 81,970 6.22 1,150,214 72,245 6.28
Other 130,861 14,015 10.71 114,201 7,718 6.76
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment securities 6,290,325 448,426 7.13 5,927,360 409,127 6.90
- -----------------------------------------------------------------------------------------------------------------------------------
Trading account securities 287,218 18,943 6.60 301,618 19,770 6.55
- -----------------------------------------------------------------------------------------------------------------------------------
Loans (net of unearned income) 11,930,621 1,218,849 10.22 10,548,207 1,087,466 10.31
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets/
Interest income 19,261,949 1,722,999 8.95% 17,409,634 1,550,286 8.90%
- -----------------------------------------------------------------------------------------------------------------------------------
Total non-interest earning assets 1,170,433 1,009,510
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $20,432,382 $18,419,144
===================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Savings and NOW accounts $ 5,221,132 $ 163,805 3.14% $ 4,674,577 $ 147,321 3.15%
Other time deposits 4,437,193 247,687 5.58 4,023,313 219,207 5.45
Short-term borrowings 4,622,549 251,724 5.45 4,280,900 237,738 5.55
Mortgages and notes payable 1,371,372 93,846 6.84 1,345,650 83,936 6.24
Subordinated notes 125,000 8,555 6.84 125,000 8,558 6.85
Guaranteed preferred beneficial interest in
Popular North America's subordinated
debentures 150,000 13,074 8.72 122,877 10,588 8.62
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities/
Interest expense 15,927,246 778,691 4.89 14,572,317 707,348 4.85
- -----------------------------------------------------------------------------------------------------------------------------------
Total non-interest bearing liabilities 2,951,878 2,475,843
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 18,879,124 17,048,160
- -----------------------------------------------------------------------------------------------------------------------------------
Preferred stock of BPPR
- -----------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 1,553,258 1,370,984
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $20,432,382 $18,419,144
===================================================================================================================================
Net interest income on a taxable
equivalent basis $ 944,308 $ 842,938
- -----------------------------------------------------------------------------------------------------------------------------------
Cost of funding earning assets 4.04% 4.06%
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest yield 4.91% 4.84%
===================================================================================================================================
Effect of the taxable equivalent adjustment 71,296 58,983
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income per books $ 873,012 $ 783,955
===================================================================================================================================
</TABLE>
* Shows the effect of the tax exempt status of some loans and investments on
their yield, using the applicable statutory income tax rates. The computation
considers the interest expense disallowance as required by the Puerto Rico
Internal Revenue Code. This adjustment is shown in order to compare the yields
of the tax exempt and taxable assets on a taxable basis.
Note: Average loan balances include the average balance of non-accruing loans.
No interest income is recognized for these loans in accordance with the
Corporation's policy.
<PAGE> 52
F-27
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$878,138 $45,704 5.20% $399,413 $22,823 5.71% $114,215 $4,858 4.25%
12,562 770 6.13 2,661 165 6.20 4,916 300 6.10
2,202 223 10.13 941 89 9.46 332 28 8.43
- ------------------------------------------------------------------------------------------------------------------------------
892,902 46,697 5.23 403,015 23,077 5.73 119,463 5,186 4.34
- ------------------------------------------------------------------------------------------------------------------------------
3,198,912 222,520 6.96 2,893,797 197,554 6.83 2,657,975 164,102 6.17
531,711 34,725 6.53 428,563 30,912 7.21 526,687 33,969 6.45
231,363 11,224 4.85 247,176 14,798 5.99 259,534 14,074 5.42
772,278 46,434 6.01 727,175 47,191 6.49
95,985 5,483 5.71 171,013 6,491 3.80 712,972 37,535 5.26
- ------------------------------------------------------------------------------------------------------------------------------
4,830,249 320,386 6.63 4,467,724 296,946 6.65 4,157,168 249,680 6.01
- ------------------------------------------------------------------------------------------------------------------------------
372,196 23,004 6.18 155,597 9,831 6.32 5,303 368 6.94
- ------------------------------------------------------------------------------------------------------------------------------
9,210,964 930,891 10.11 8,217,834 820,003 9.98 7,107,746 672,974 9.47
- ------------------------------------------------------------------------------------------------------------------------------
15,306,311 1,320,978 8.63% 13,244,170 1,149,857 8.68% 11,389,680 928,208 8.15%
- ------------------------------------------------------------------------------------------------------------------------------
994,771 874,013 835,850
- ------------------------------------------------------------------------------------------------------------------------------
$16,301,082 $14,118,183 $12,225,530
==============================================================================================================================
$4,244,625 $131,499 3.10% $4,015,973 $126,548 3.15% $3,972,406 $116,858 2.94%
4,163,416 218,722 5.25 3,720,473 203,235 5.46 3,069,130 130,868 4.26
3,464,892 184,682 5.33 2,600,246 141,522 5.44 1,856,649 77,537 4.18
757,604 46,417 6.13 598,027 46,149 7.72 376,570 22,420 5.95
147,951 10,220 6.91 56,850 4,170 7.34 56,082 3,950 7.04
- ------------------------------------------------------------------------------------------------------------------------------
12,778,488 591,540 4.63 10,991,569 521,624 4.75 9,330,837 351,633 3.77
- ------------------------------------------------------------------------------------------------------------------------------
2,329,088 2,056,132 1,964,399
- ------------------------------------------------------------------------------------------------------------------------------
15,107,576 13,047,701 11,295,236
- ------------------------------------------------------------------------------------------------------------------------------
5,425
- ------------------------------------------------------------------------------------------------------------------------------
1,193,506 1,070,482 924,869
- ------------------------------------------------------------------------------------------------------------------------------
$16,301,082 $14,118,183 $12,225,530
==============================================================================================================================
$729,438 $628,233 $576,575
- ------------------------------------------------------------------------------------------------------------------------------
3.86% 3.94% 3.09%
- ------------------------------------------------------------------------------------------------------------------------------
4.77% 4.74% 5.06%
==============================================================================================================================
48,125 44,050 41,067
- ------------------------------------------------------------------------------------------------------------------------------
$681,313 $584,183 $535,508
==============================================================================================================================
</TABLE>
<PAGE> 53
Popular, Inc.
F-28
Statistical Summary 1997-1998
Quarterly Financial Data
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
FOURTH THIRD SECOND FIRST Fourth Third Second First
QUARTER QUARTER QUARTER QUARTER Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
(In thousands, except per
common share information)
Interest income $441,649 $410,821 $402,865 $396,368 $404,619 $393,414 $359,005 $ 334,265
Interest expense 210,774 195,780 188,473 183,664 194,919 190,409 168,399 153,621
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income 230,875 215,041 214,392 212,704 209,700 203,005 190,606 180,644
Provision for loan
losses 35,457 34,667 33,524 33,565 31,657 29,849 25,413 23,688
Non-interest income 75,723 69,668 69,837 67,084 68,684 65,790 54,941 55,915
Gain (loss) on sale of
investment securities 465 4,553 3,049 867 2,122 519 1,286 (1,659)
Non-interest expense 194,311 178,618 175,045 172,380 175,408 167,341 152,046 142,125
Net loss
of minority interest 328
- ----------------------------------------------------------------------------------------------------------------------------------
Income Before Income
Taxes 77,623 75,977 78,709 74,710 73,441 72,124 69,374 69,087
Income taxes 15,111 18,397 21,248 19,915 18,119 18,511 18,283 19,548
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 62,512 $ 57,580 $ 57,461 $ 54,795 $ 55,322 $ 53,613 $ 51,091 $ 49,539
==================================================================================================================================
Net income applicable
to common stock $ 60,423 $ 55,493 $ 55,374 $ 52,708 $ 53,234 $ 51,526 $ 49,003 $ 47,452
==================================================================================================================================
Net income per
common share $ 0.44 $ 0.41 $ 0.41 $ 0.39 $ 0.39 $ 0.38 $ 0.37 $ 0.36
- ----------------------------------------------------------------------------------------------------------------------------------
SELECTED AVERAGE BALANCES
(In millions)
Total assets $ 21,939 $ 20,344 $ 19,935 $ 19,486 $ 19,745 $ 19,348 $ 17,625 $ 16,917
Loans 12,699 11,928 11,615 11,467 11,196 11,034 10,164 9,778
Interest earning assets 20,697 19,215 18,770 18,341 18,698 18,315 16,729 15,856
Deposits 12,986 12,082 12,196 11,805 11,536 11,318 10,620 10,477
Interest bearing liabilities 17,071 15,946 15,338 15,033 15,717 15,639 13,737 13,147
- ----------------------------------------------------------------------------------------------------------------------------------
SELECTED RATIOS
Return on assets 1.13% 1.12% 1.16% 1.14% 1.11% 1.10% 1.16% 1.19%
Return on equity 15.84 14.94 15.50 15.36 15.56 15.46 16.07 16.32
</TABLE>
<PAGE> 54
F-29
[PRICEWATERHOUSECOOPERS LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
March 5, 1999
To the Board of Directors
and Stockholders of
Popular, Inc.
In our opinion, the accompanying consolidated statements of condition and the
related consolidated statements of income, of cash flows and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of Popular, Inc. and its subsidiaries at December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Corporation's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/S/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Juan, Puerto Rico
Stamp 1537428 of the P.R.
Society of Certified Public
Accountants has been affixed
to the file copy of this report.
<PAGE> 55
Popular, Inc.
F-30
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997
- --------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share information)
<S> <C> <C>
ASSETS
Cash and due from banks $ 667,707 $ 463,151
- --------------------------------------------------------------------------------------------------
Money market investments:
Federal funds sold and securities and mortgages purchased under
agreements to resell 910,430 802,803
Time deposits with other banks 37,206 9,013
Bankers' acceptances 262 2,274
- --------------------------------------------------------------------------------------------------
947,898 814,090
- --------------------------------------------------------------------------------------------------
Trading securities, at market value 318,727 222,303
Investment securities available-for-sale, at market value 7,020,396 5,239,005
Investment securities held-to-maturity, at cost
(market value $228,039; 1997 - $409,798) 226,134 408,993
Loans held-for-sale 644,159 265,204
- --------------------------------------------------------------------------------------------------
Loans 12,783,609 11,457,675
Less -Unearned income 348,973 346,272
Allowance for loan losses 267,249 211,651
- --------------------------------------------------------------------------------------------------
12,167,387 10,899,752
- --------------------------------------------------------------------------------------------------
Premises and equipment 424,721 364,892
Other real estate 32,693 18,012
Customers' liabilities on acceptances 15,937 1,801
Accrued income receivable 156,314 118,677
Other assets 263,992 252,040
Intangible assets 274,292 232,587
- --------------------------------------------------------------------------------------------------
$ 23,160,357 $ 19,300,507
==================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 3,176,309 $ 2,546,836
Interest bearing 10,495,905 9,202,750
- --------------------------------------------------------------------------------------------------
13,672,214 11,749,586
Federal funds purchased and securities sold under
agreements to repurchase 4,076,500 2,723,329
Other short-term borrowings 1,639,082 1,287,435
Notes payable 1,307,160 1,403,696
Acceptances outstanding 15,937 1,801
Other liabilities 437,760 356,568
- --------------------------------------------------------------------------------------------------
21,148,653 17,522,415
- --------------------------------------------------------------------------------------------------
Subordinated notes 125,000 125,000
- --------------------------------------------------------------------------------------------------
Preferred beneficial interest in Popular North
America's junior subordinated deferrable
interest debentures guaranteed by the Corporation 150,000 150,000
- --------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiary 27,591
- --------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, $25 liquidation value; 10,000,000
shares authorized; 4,000,000 issued and outstanding 100,000 100,000
Common stock, $6 par value; authorized 180,000,000 shares;
issued and outstanding 135,637,327 (1997-135,365,408) 825,690 412,029
Surplus 216,795 602,023
Retained earnings 530,481 395,253
Accumulated other comprehensive income,
net of deferred taxes of $25,101 (1997 - $11,180) 75,706 33,346
Treasury stock-at cost, 1,977,600 shares (39,559) (39,559)
- --------------------------------------------------------------------------------------------------
1,709,113 1,503,092
- --------------------------------------------------------------------------------------------------
$ 23,160,357 $ 19,300,507
==================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 56
Popular, Inc.
F-31
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------
(In thousands, except per share information)
<S> <C> <C> <C>
INTEREST INCOME:
Loans $1,211,850 $1,080,408 $ 924,076
Money market investments 36,781 33,923 46,697
Investment securities 385,473 358,736 280,610
Trading securities 17,599 18,236 21,470
- --------------------------------------------------------------------------------------------------
1,651,703 1,491,303 1,272,853
- --------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits 411,492 366,528 350,221
Short-term borrowings 251,724 237,738 184,682
Long-term debt 115,475 103,082 56,637
- --------------------------------------------------------------------------------------------------
778,691 707,348 591,540
- --------------------------------------------------------------------------------------------------
Net interest income 873,012 783,955 681,313
Provision for loan losses 137,213 110,607 88,839
- --------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 735,799 673,348 592,474
Service charges on deposit accounts 103,732 94,141 85,846
Other service fees 116,575 98,650 77,071
Gain on sale of investment securities 8,933 2,268 3,094
Trading account profit 3,653 3,934 108
Other operating income 58,353 48,605 39,353
- --------------------------------------------------------------------------------------------------
1,027,045 920,946 797,946
- --------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Personnel costs:
Salaries 247,590 211,741 185,946
Profit sharing 22, 067 25,684 22,692
Pension and other benefits 67,743 69,468 64,609
- --------------------------------------------------------------------------------------------------
337,400 306,893 273,247
Net occupancy expense 48,607 39,617 36,899
Equipment expenses 75,302 66,446 57,186
Other taxes 32,191 30,283 23,214
Professional fees 58,087 46,767 36,953
Communications 36,941 33,325 26,470
Business promotion 39,376 33,569 26,229
Printing and supplies 17,604 15,539 11,964
Other operating expenses 46,986 41,607 31,703
Amortization of intangibles 27,860 22,874 18,054
- --------------------------------------------------------------------------------------------------
720,354 636,920 541,919
- --------------------------------------------------------------------------------------------------
Net loss of minority interest 328
- --------------------------------------------------------------------------------------------------
Income before income tax 307,019 284,026 256,027
Income tax 74,671 74,461 70,877
- --------------------------------------------------------------------------------------------------
NET INCOME $ 232,348 $ 209,565 $ 185,150
==================================================================================================
NET INCOME APPLICABLE TO COMMON STOCK $ 223,998 $ 201,215 $ 176,800
==================================================================================================
NET INCOME PER COMMON SHARE (BASIC AND DILUTED) $ 1.65 $ 1.50 $ 1.34
==================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 57
Popular, Inc.
F-32
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 232,348 $ 209,565 $ 185,150
- -----------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization of premises and equipment 62,649 54,523 48,481
Provision for loan losses 137,213 110,607 88,839
Amortization of intangibles 27,860 22,874 18,054
Gain on sale of investment securities available-for-sale (8,933) (2,268) (3,094)
Loss (gain) on disposition of premises and equipment 167 2,681 (123)
Gain on sale of loans (23,036) (23,315) (11,060)
Amortization of premiums and accretion of discounts
on investments 2,945 2,746 8,538
Increase in loans held-for-sale (378,955) (10,075) (142,323)
Amortization of deferred loan origination fees and costs (2,399) (3,019) (3,096)
Net (increase) decrease in trading securities (96,424) 69,847 38,524
Net (increase) decrease in accrued income receivable (35,933) (15,872) 18,665
Net decrease (increase) in other assets 70,005 175,286 (221,070)
Net increase in interest payable 10,138 6,668 11,765
Net decrease in current and deferred taxes (10,546) (28,555) (19,979)
Net increase in postretirement benefit obligation 9,254 7,323 7,977
Net increase in other liabilities 11,190 4,887 29,284
- -----------------------------------------------------------------------------------------------------------------------
Total adjustments (224,805) 374,338 (130,618)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,543 583,903 54,532
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in money market investments (26,726) 9,671 11,110
Purchases of investment securities held-to-maturity (11,713,516) (68,040,431) (28,849,896)
Maturities of investment securities held-to-maturity 11,893,268 68,835,925 29,302,469
Purchases of investment securities available-for-sale (5,372,719) (8,635,781) (5,396,828)
Maturities of investment securities available-for-sale 2,815,884 2,191,521 2,297,528
Sales of investment securities available-for-sale 923,409 5,212,194 2,896,060
Net disbursements on loans (1,558,253) (1,468,552) (1,501,808)
Proceeds from sale of loans 734,417 521,853 515,357
Acquisition of loan portfolios (62,247) (48,481) (16,983)
Assets acquired, net of cash (17,168) (83,404) (7,164)
Acquisition of premises and equipment (103,577) (120,226) (86,162)
Proceeds from sale of premises and equipment 16,630 68,082 9,662
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,470,598) (1,557,629) (826,655)
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 1,189,771 (68,957) 823,907
Net deposits acquired 36,297
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase 1,353,171 790,607 (1,125,413)
Net increase (decrease) in other short-term borrowings 295,281 (116,571) 949,300
Proceeds from issuance of notes payable 176,986 1,246,237 423,670
Payment of notes payable (319,307) (932,853) (167,385)
Payment of senior debentures (30,000)
Payment of subordinated notes (50,000)
Proceeds from issuance of Capital Securities 150,000
Dividends paid (72,021) (59,037) (51,896)
Proceeds from issuance of common stock 7,433 4,642 4,135
Treasury stock acquired (39,559)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,667,611 944,509 806,318
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and due from banks 204,556 (29,217) 34,195
Cash and due from banks at beginning of year 463,151 492,368 458,173
- -----------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 667,707 $ 463,151 $ 492,368
=======================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 58
Popular, Inc.
F-33
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
PREFERRED STOCK:
Balance at beginning and end of year $ 100,000 $ 100,000 $ 100,000
- ----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK:
Balance at beginning of year 412,029 396,531 197,692
Transfer from surplus resulting from stock split 412,426
Transfer from retained earnings resulting from
stock split 198,004
Common stock issued in acquisitions 14,774
Common stock issued under Dividend
Reinvestment Plan 1,235 724 835
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 825,690 412,029 396,531
- ----------------------------------------------------------------------------------------------------------------------------------
SURPLUS:
Balance at beginning of year 602,023 496,582 427,282
Common stock issued under
Dividend Reinvestment Plan 6,198 3,918 3,300
Transfer to common stock resulting from
stock split (412,426)
Common stock issued in acquisitions 81,523
Transfer from retained earnings 21,000 20,000 16,000
Transfer from capital reserves 50,000
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 216,795 602,023 496,582
- ----------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS:
Balance at beginning of year 395,253 267,719 350,480
Net income 232,348 $232,348 209,565 $209,565 185,150 $185,150
Cash dividends declared on common stock (67,770) (53,681) (45,557)
Cash dividends declared on preferred stock (8,350) (8,350) (8,350)
Transfer to common stock resulting from
stock split (198,004)
Transfer to surplus (21,000) (20,000) (16,000)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 530,481 395,253 267,719
- ----------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Balance at beginning of year 33,346 1,700 16,243
Unrealized gains on securities, net of
reclassification adjustment (see disclosure below) 42,575 31,646 (14,543)
Foreign currency translation adjustment (215)
- ----------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income 42,360 42,360 31,646 31,646 (14,543) (14,543)
- ----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income $274,708 $241,211 $170,607
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 75,706 33,346 1,700
- ----------------------------------------------------------------------------------------------------------------------------------
TREASURY STOCK-AT COST (39,559) (39,559)
- ----------------------------------------------------------------------------------------------------------------------------------
CAPITAL RESERVES:
Balance at beginning of year 50,000
Transfer to surplus (50,000)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year
- ----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity $1,709,113 $1,503,092 $1,262,532
==================================================================================================================================
DISCLOSURE OF RECLASSIFICATION AMOUNT:
Unrealized holding gains (losses) arising during the period,
net of tax of $15,648 (1997 - $10,337; 1996 - ($6,524)) $ 49,826 $ 33,267 $(12,378)
Less: reclassification adjustment for gains included
in net income net of tax of $1,727
(1997 - $647; 1996 - $929) 7,251 1,621 2,165
- ----------------------------------------------------------------------------------------------------------------------------------
Net unrealized gains on securities $ 42,575 $ 31,646 $(14,543)
==================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 59
Popular, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-34
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
The accounting and reporting policies of Popular, Inc. and its subsidiaries (the
Corporation) conform with generally accepted accounting principles and with
general practices within the financial industry. The following is a description
of the more significant of these policies:
Nature of operations
Popular, Inc. is a bank holding company offering a full range of financial
services through banking offices in Puerto Rico, the U.S. and British Virgin
Islands, New York, Illinois, New Jersey, Florida, California and Texas.
Moreover, during 1998 the Corporation became the principal shareholder of Banco
Fiduciario (BF) in the Dominican Republic with the acquisition of a 45%
ownership interest therein. The Corporation is also engaged in mortgage and
consumer finance, lease financing, investment banking and broker/dealer
activities, retail financial services and ATM processing services through its
non-banking subsidiaries in Puerto Rico, the United States and Costa Rica. Refer
to note 27 to the consolidated financial statements for further information on
the nature of operations of the Corporation by business segments.
The consolidated financial statements include the accounts of Popular,
Inc. and its subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation.
Acquisitions
For the three-year period ended December 31, 1998, the Corporation completed the
following acquisitions:
<TABLE>
<CAPTION>
(Dollars in millions)
- ---------------------------------------------------------------------------
Consi- Assets
Date Entity deration Acquired Business
===========================================================================
<S> <C> <C> <C> <C>
Oct./98 Inglewood Quik
Check, Inc. 100% cash $ 11 Retail Financial
(California) Services
Oct./98 Gore-Bronson
Bancorp 100% cash $281 Banking
(Illinois)
Oct./98 First State Bank
of Southern
California 100% cash $194 Banking
(California)
Sep./98 Banco Fiduciario 100% cash $496(*) Banking
(Dominican
Republic)
<CAPTION>
(Dollars in millions)
- ---------------------------------------------------------------------------
Consi- Assets
Date Entity deration Acquired Business
===========================================================================
<S> <C> <C> <C> <C>
Apr./98 Mirando J. Corp./ 100% cash $ 6 Retail Financial
Florida Exchange, Ltd. Services
(Florida)
Dec./97 Houston Ban-
corporation 100% cash $ 63 Banking
(Texas)
Jun./97 Roig Commercial 50% cash and
Bank 50% stock $791 Banking
(Puerto Rico)
May/97 National Bancorp,
Inc. 100% stock $189 Banking
(Illinois)
May/97 CBC Bancorp 100% cash $325 Banking
(Illinois)
Apr./97 Seminole National
Bank 100% cash $ 34 Banking
(Florida)
Sep./96 Commerce National
Bank 100% cash $ 75 Banking
(California)
- ------------------------------------------------------------------
</TABLE>
(*) Popular, Inc. became the principal shareholder of Banco Fiduciario (BF) with
the acquisition of a 45% ownership interest therein. BF is being presented as a
consolidated subsidiary of the Corporation, as a result of some control
provisions included in the purchase agreement.
All of the above acquisitions were accounted for as purchases and their
results included in the consolidated statements of income from the date of
acquisition.
Reorganization
Effective January 1, 1999, the Corporation reorganized its bank subsidiaries.
The resulting structure is focused on two primary bank subsidiaries: a New York
State-chartered Federal Reserve System member bank named "Banco Popular North
America" and a Puerto Rico-chartered Federal Reserve System member bank named
"Banco Popular de Puerto Rico." Banco Popular de Puerto Rico controls the
Corporation's bank operations in Puerto Rico and the U.S. and British Virgin
Islands, and maintains a branch in New York and an agency in Chicago. Banco
Popular North America controls the U.S. mainland bank operations with branches
in New York, New Jersey, Illinois, Florida and California. To achieve this
structure, the Corporation's banking operations located in New Jersey, Illinois,
Florida and California were merged into Banco Popular North America effective
January 1, 1999. Certain newly acquired banks, namely First State Bank of
Southern California, and Bronson-Gore Bank,
<PAGE> 60
F-35
The Irving Bank and Water Tower Bank in Illinois, are expected to be merged into
Banco Popular North America in the first quarter of 1999. Also, it is expected
that Banco Popular, N.A. (Texas) will become part of Banco Popular North
America, before 1999 ends.
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Trading securities
Financial instruments, including, to a limited extent, derivatives such as
interest rate futures and options contracts, are utilized by the Corporation in
trading activities and are carried at market value. In conjunction with mortgage
banking activities, the Corporation records the securitization of mortgage loans
held-for-sale as a sale of mortgage loans and the purchase of a mortgage-backed
security classified as a trading security. Realized and unrealized changes in
market values are recorded separately in the trading profit or loss account in
the period in which the changes occur. Interest revenue and expense arising from
trading instruments are included in the income statement as part of net interest
income rather than in the trading profit or loss account.
Securities sold but not yet purchased, which represent the
Corporation's obligation to deliver securities sold which were not owned at the
time of sale, are recorded at market value.
Investment securities
Investment securities are classified in three categories and accounted for as
follows:
- Debt securities that the Corporation has the positive intent and
ability to hold to maturity are classified as securities
held-to-maturity and reported at amortized cost. The Corporation may
not sell or transfer held-to-maturity securities without calling into
question its intent to hold other debt securities to maturity, unless a
nonrecurring or unusual event that could not have been reasonably
anticipated has occurred.
- Debt and equity securities that are bought and held principally for
the purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and losses
included in earnings.
- Debt and equity securities not classified as either securities
held-to-maturity or trading securities are classified as securities
available-for-sale and reported at fair value, with unrealized gains
and losses excluded from earnings and reported net of deferred taxes in
other comprehensive income.
The amortization of premiums is deducted and the accretion of discounts
is added to interest income based on the interest method over the outstanding
period of the related securities. Net realized gains or losses on sales of
investment securities and unrealized loss valuation adjustments considered other
than temporary, if any, on securities available-for-sale and held-to maturity
are reported separately in the statement of income.
Risk management instruments
The Corporation occasionally uses derivative financial instruments, such as
interest rate caps and swaps, in the management of its interest rate exposure.
These instruments are accounted for primarily on an accrual basis. Under the
accrual method, interest income or expense on the derivative contract is accrued
and there is no recognition of unrealized gains and losses on the derivative
instrument. Premiums on option contracts are amortized to interest income or
interest expense over the life of such contracts. Income and expenses arising
from the instruments are recorded in the category appropriate to the related
asset or liability.
Gains and losses related to contracts that are effective hedges are
deferred and recognized in income in the same period as gains and losses on the
hedged item. Gains and losses on early termination of contracts that modify the
characteristics of specified assets or liabilities are deferred and amortized as
an adjustment to the yield of the related assets or liabilities over their
remaining terms.
Loans held-for-sale
Loans held-for-sale are stated at the lower of cost or market, cost being
determined based on the outstanding loan balance less unearned income, and fair
market value determined on an aggregate basis according to secondary market
prices. The amount by which cost exceeds market value, if any, is accounted for
as a valuation allowance with changes included in the determination of net
income for the period in which the change occurs.
<PAGE> 61
Popular, Inc.
F-36
Loans
Loans are stated at the outstanding balance less unearned income and allowance
for loan losses. Fees collected and costs incurred in the origination of new
loans are deferred and amortized using the interest method over the term of the
loan as an adjustment to interest yield. Unearned interest on lease financing
and installment loans is recognized as income on a basis which results in
approximate level rates of return over the term of the loans.
Recognition of interest income on commercial and construction loans is
discontinued when loans are 60 days or more in arrears on payments of principal
or interest or when other factors indicate that collection of principal and
interest is doubtful. Interest accrual for lease financing, conventional
mortgage loans and close-end consumer loans is ceased when loans are 90 days or
more in arrears. Loans designated as non-accruing are not returned to an accrual
status until interest is received on a current basis and those factors
indicative of doubtful collection cease to exist. Close-end consumer loans and
leases are charged-off against the allowance for loan losses when 120 days in
arrears. Open-end (revolving credit) consumer loans are charged-off when 180
days in arrears. Income is generally recognized on open-end consumer loans until
the loans are charged-off.
Lease financing
The Corporation leases passenger and commercial vehicles and equipment to
individual and corporate customers. The finance method of accounting is used to
recognize revenue on lease contracts that meet the criteria specified in SFAS
13, "Accounting for Leases", as amended. Aggregate rentals due over the term of
the leases less unearned income are included in finance lease contracts
receivable. Unearned income is amortized using a method which results in
approximate level rates of return on the principal amounts outstanding. Finance
lease origination fees and costs are deferred and amortized over the average
life of the portfolio as an adjustment to the yield.
All other leases are accounted for under the operating method. Under
this method, revenue is recognized as it becomes due under the terms of the
agreement.
Allowance for loan losses
The Corporation follows a systematic methodology to establish and evaluate the
adequacy of the allowance for loan losses to provide for inherent losses in the
loan portfolio as well as in other credit-related balance sheet and separately
for off-balance sheet financial instruments. This methodology includes the
consideration of factors such as economic conditions, portfolio risk
characteristics, prior loss experience, results of periodic credit reviews of
individual loans and financial accounting standards. The provision for loan
losses charged to current operations is based on such methodology. Loan losses
are charged and recoveries are credited to the allowance for loan losses.
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
future 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 homogeneous loans are collectively
evaluated for impairment based on past experience adjusted for current
conditions. All other loans are evaluated on a loan-by-loan basis. Once a
specific measurement methodology is chosen it is consistently applied unless
there is a significant change in the financial position of the borrower.
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
allowance for impaired loans is part of the Corporation's overall allowance for
loan losses.
Cash payments received on impaired loans are recorded in accordance
with the contractual terms of the loan. The principal portion of the payment is
used to reduce the principal balance of the loan, whereas the interest portion
is recognized as interest income. However, when management believes the ultimate
collectibility of principal is in doubt, the interest portion is then applied to
principal.
Mortgage banking
Mortgage servicing rights, an intangible asset, represents the cost of acquiring
the contractual right to service loans for others. Mortgage loan servicing fees,
which are based on a percentage of the principal balances of the mortgages
serviced, are credited to income as mortgage payments are collected.
The Corporation recognizes as separate assets the rights to service
mortgage loans for others, whether those servicing rights are originated or
purchased. The total cost of mortgage loans to be sold with servicing rights
retained is allocated to the mortgage servicing rights and the loans (without
the mortgage servicing rights), based on their relative fair values. Mortgage
servicing rights are amortized in proportion to and over the period of estimated
net servicing income. In addition, the Corporation assesses capitalized mortgage
servicing rights for impairment based on the fair value of those rights.
<PAGE> 62
F-37
To estimate the fair value of mortgage servicing rights the Corporation
considers prices for similar assets and the present value of expected future
cash flows associated with the servicing rights calculated using assumptions
that market participants would use in estimating future servicing income and
expense. For purposes of evaluating and measuring impairment of capitalized
mortgage servicing rights, the Corporation stratifies such rights based on
predominant risk characteristics of underlying loans, such as loan type, rate
and term. The amount of impairment recognized, if any, is the amount by which
the capitalized mortgage servicing rights per stratum exceed its estimated fair
value. Impairment is recognized through a valuation allowance.
Total loans serviced were $6,040,000,000 at December 31, 1998 (1997 -
$5,400,000,000). The carrying value, estimated fair value and valuation
allowance of capitalized mortgage servicing rights were $29,667,000, $36,210,000
and $11,000, respectively, at December 31, 1998 (1997 - $29,772,000, $36,259,000
and $14,000).
Premises and equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed on a straight-line basis over the
estimated useful life of each type of asset. Amortization of leasehold
improvements is computed over the terms of the respective leases or the
estimated useful lives of the improvements, whichever is shorter. Costs of
maintenance and repairs which do not improve or extend the life of the
respective assets are expensed as incurred. Costs of renewals and betterments
are capitalized. When assets are disposed of, their cost and related accumulated
depreciation are removed from the accounts and any gain or loss is reflected in
the earnings as realized or incurred, respectively.
The Corporation evaluates for impairment its long-lived assets, certain
identifiable intangibles and goodwill related to those assets to be held and
used, and long-lived assets to be disposed of, whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
Other real estate
Other real estate comprises properties acquired through foreclosure. Upon
foreclosure, the recorded amount of the loan is written-down, if required, to
the appraised value less estimated costs of disposal of the real estate acquired
by charging the allowance for loan losses. Subsequent to foreclosure, the
properties are carried at the lower of carrying value or fair value less
estimated costs of disposal. Gains or losses on the sale of these properties are
credited or charged to expense of operating other real estate. The cost of
maintaining and operating such properties is expensed as incurred.
Intangible assets
Intangible assets consist of goodwill and other identifiable intangible assets,
mainly core deposits and mortgage servicing rights. The values of core deposits
and credit customer relationships are amortized using various methods over the
periods benefited, which range from 4 to 10 years. Goodwill represents the
excess of the Corporation's cost of purchased operations over the fair value of
the net assets acquired and is amortized on the straight-line basis over periods
ranging from 7 to 15 years.
Securities sold/purchased under agreements to repurchase/resale
Repurchase and resale agreements are treated as financing transactions
and are carried at the amounts at which the securities will be reacquired or
resold as specified in the respective agreements.
It is the Corporation's policy to take possession of securities
purchased under resale agreements. Such securities, however, are not reflected
in the Corporation's statement of condition. The Corporation monitors the market
value of the underlying securities as compared to the related receivable,
including accrued interest, and requests additional collateral where deemed
appropriate.
It is the Corporation's policy to maintain effective control over
securities sold under agreements to repurchase, accordingly, such securities
continue to be carried on the statements of condition.
Foreign currency translation
Assets and liabilities denominated in foreign currencies are translated to U.S.
dollars using prevailing rates of exchange. Revenues, expenses, gains and losses
are translated using weighted average rates for the period. The resulting
foreign currency translation adjustment from operations for which the functional
currency is other than the U.S. dollar, are reported in other comprehensive
income.
Income taxes
The Corporation uses an asset and liability approach to the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been recognized in the Corporation's financial statements or
tax returns. Deferred income tax assets and liabilities are determined for
differences between financial statement and tax bases of assets and liabilities
that will result in taxable or deductible amounts in the future. The computation
is based on enacted tax laws and rates applicable to periods in which the
temporary differences are expected to be recovered or settled. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized.
<PAGE> 63
Popular, Inc.
F-38
Year 2000 costs
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. All computer programs
that have date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations on normal business activities.
The Corporation's costs of modifying software for Year 2000 compliance
does not result in a liability that is recognized in the financial statements.
Instead, the costs of modifying the software are charged to expense as they are
incurred. Operating losses, if any, that may result if the Corporation, its
suppliers, or customers fail to correct Year 2000 deficiencies are to be
recognized only as they are incurred.
Employees' retirement and other postretirement benefit plans
The Corporation has trusteed, noncontributory retirement and other benefit plans
covering substantially all full-time employees. Pension costs are computed on
the basis of accepted actuarial methods and are charged to current operations.
Net pension costs are based on various actuarial assumptions regarding future
experience under the plan, which include costs for services rendered during the
period, interest costs and return on plan assets, as well as deferral and
amortization of certain items such as actuarial gains or losses. The funding
policy is to contribute to the plan as necessary to provide for services to date
and for those expected to be earned in the future. To the extent that these
requirements are fully covered by assets in the plan, a contribution may not be
made in a particular year.
The Corporation also provides certain health and life insurance
benefits for eligible retirees and their dependents. The cost of postretirement
benefits, which is determined based on actuarial assumptions and estimates of
the costs of providing these benefits in the future, is accrued during the years
that the employee renders the required service.
In 1998, the Corporation adopted SFAS 132, "Employer's Disclosures
about Pensions and Other Postretirement Benefits." This statement only revises
the employer's disclosures about pension and postretirement benefit plans. It
does not change the measurement or recognition of costs or obligations on those
plans. Note 20 provides the required disclosures.
Stock compensation
BPPR provides a stock-based compensation plan for its Senior Management. It is a
three-year incentive plan under which shares of stock of the Corporation are
granted if long-term corporate performance and objectives are met. Compensation
cost is determined based on the market value of the stock at the grant date. The
compensation expense related to each award is recognized when probable, based on
the best estimate of the outcome of the performance condition, on a
straight-line basis over the vesting period.
Transfers and servicing of financial assets and extinguishment of liabilities
In January 1997, the Corporation adopted, SFAS 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities." Certain
provisions related with repurchase agreements, dollar-roll, securities lending,
and similar transactions, which were delayed by SFAS 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125," were adopted in
January 1998. Under these standards, after a transfer of financial assets, an
entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. The adoption of
these statements did not have a material effect on the consolidated financial
statements of the Corporation.
Earnings per common share
Earnings per common share are computed by dividing net income, reduced by
dividends on preferred stock, by the weighted average number of common shares of
the Corporation outstanding during the year. No dilutive potential common shares
were outstanding during the years ended December 31, 1998, 1997 and 1996.
Accordingly, there is no difference between basic and diluted earnings per
share.
Comprehensive income
Effective January 1, 1998, the Corporation adopted SFAS 130, "Reporting
Comprehensive Income." This statement requires the reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a financial statement that is displayed with the same prominence as other
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. The presentation of comprehensive income required by
this statement is included in the statement of changes in stockholders' equity.
Disclosure about segments of an enterprise and related information
In 1998, the Corporation adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement requires the disclosure of
selected information about operating segments in annual financial statements in
the year of adoption and in interim financial reports issued to shareholders
since the second year of application. It also requires related
<PAGE> 64
F-39
disclosures about products and services, geographic areas, and major customers.
Such disclosures are included in Note 27.
Statement of cash flows
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand and amounts due from banks.
Reclassification
Certain minor reclassifications have been made to the 1997 and 1996 consolidated
financial statements to conform with the 1998 presentation.
Recently issued accounting pronouncements
In June 1998, the Financial Accounting Standards Board (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 recognition of all
derivatives as either assets or liabilities in the statement of condition
measured at fair value. It also establishes unique accounting treatment for the
following three different types of hedges: fair value hedges, cash flow hedges
and foreign currency hedges. The accounting for each of the three types of
hedges results in recognizing offsetting changes in value or cash flows of both
the derivative instrument and the hedged item in earnings in the same period.
Changes in the fair value of derivatives that do not meet the criteria of one of
these three types of hedges are included in earnings in the period of change.
The Corporation will adopt this statement effective January 1, 2000. Management
estimates that the adoption of this statement will not have a material effect on
the consolidated financial statements of the Corporation.
In October 1998, the FASB issued SFAS 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise." This statement amends SFAS 65,
"Accounting for Certain Mortgage Banking Activities," and requires that an
entity engaged in mortgage banking activities classify the mortgage-backed
securities or other retained interests resulting from the securitization of
mortgage loans held for sale, based on its ability and intent to sell or hold
those investments. On the date this statement is initially applied, an
enterprise may reclassify mortgage-backed securities and other beneficial
interests retained after the securitization of mortgage loans held-for-sale from
the trading category, except for those with sales commitments in place.
Transfers from the trading category that result from implementing this statement
shall be accounted for in accordance with SFAS 115. The Corporation will adopt
this statement effective January 1, 1999. Management understands that the
adoption of this statement will not have a material effect on the Corporation's
financial position or results of operations.
NOTE 2 - CASH AND DUE FROM BANKS:
The Corporation's subsidiary banks are required by regulatory agencies to
maintain average reserve balances. The amount of those average reserve balances
was approximately $464,838,000 at December 31, 1998 (1997 - $375,820,000).
NOTE 3 - INVESTMENT SECURITIES AVAILABLE-FOR-SALE:
The amortized cost, gross unrealized gains and losses, approximate market value
(or fair value for certain investment securities where no market quotations are
available), weighted average yield and contractual maturities of investment
securities available-for-sale as of December 31, 1998 and 1997 (1996 only market
value is presented) were as follows:
<PAGE> 65
Popular, Inc.
F-40
<TABLE>
<CAPTION>
1998
===================================================================================================
Weighted
Amortized Unrealized Unrealized Market average
cost gains losses value yield
===================================================================================================
(In thousands)
<S> <C> <C> <C> <C> <C>
U.S. TREASURY SECURITIES
(AVERAGE MATURITY OF
1 YEAR AND 4 MONTHS):
Within 1 year $1,885,916 $ 9,888 $1,895,804 6.17%
After 1 to 5 years 1,229,208 33,431 $ 11 1,262,628 5.73
- ---------------------------------------------------------------------------------------------------
3,115,124 43,319 11 3,158,432 6.00
- ---------------------------------------------------------------------------------------------------
Obligations of other
U.S. Government
agencies and corporations
(average maturity of
7 years and 7 months):
Within 1 year 149,046 704 149,750 6.27
After 1 to 5 years 480,042 3,271 103 483,210 5.53
After 5 to 10 years 1,114,443 9,050 6,356 1,117,137 6.26
After 10 years 300,000 2,651 302,651 6.40
- ---------------------------------------------------------------------------------------------------
2,043,531 15,676 6,459 2,052,748 6.11
- ---------------------------------------------------------------------------------------------------
OBLIGATIONS OF P.R.,
STATES AND POLITICAL SUB-
DIVISIONS (AVERAGE
MATURITY OF 9 YEARS
AND 5 MONTHS):
WITHIN 1 YEAR 4,483 241 4,724 6.36
AFTER 1 TO 5 YEARS 13,272 298 13,570 5.43
AFTER 5 TO 10 YEARS 21,612 929 3 22,538 5.64
AFTER 10 YEARS 29,379 645 33 29,991 6.64
- ---------------------------------------------------------------------------------------------------
68,746 2,113 36 70,823 6.07
- ---------------------------------------------------------------------------------------------------
COLLATERALIZED MORT-
GAGE OBLIGATIONS
(AVERAGE MATURITY
OF 25 YEARS):
WITHIN 1 YEAR 7,831 7 7,838 5.97
AFTER 1 TO 5 YEARS 28,998 13 90 28,921 5.47
AFTER 5 TO 10 YEARS 185,782 278 24 186,036 6.18
AFTER 10 YEARS 984,195 2,160 729 985,626 6.18
- ---------------------------------------------------------------------------------------------------
1,206,806 2,458 843 1,208,421 6.16
- ---------------------------------------------------------------------------------------------------
Mortgage-backed
securities
(average maturity
of 22 years and 1 month):
WITHIN 1 YEAR 72 8 80 6.37
AFTER 1 TO 5 YEARS 27,835 6 11 27,830 5.55
AFTER 5 TO 10 YEARS 22,719 315 124 22,910 6.40
AFTER 10 YEARS 286,540 8,554 64 295,030 6.77
- ---------------------------------------------------------------------------------------------------
337,166 8,883 199 345,850 6.64
- ---------------------------------------------------------------------------------------------------
EQUITY SECURITIES
(WITHOUT CONTRACTUAL
MATURITY) 27,688 36,241 63,929 3.96
- ---------------------------------------------------------------------------------------------------
OTHER (AVERAGE MATURITY
OF 2 YEARS AND 2 MONTHS):
WITHIN 1 YEAR 94,696 94,696 5.52
AFTER 1 TO 5 YEARS 2,458 5 2,463 7.66
AFTER 5 TO 10 YEARS 5,169 64 209 5,024 7.21
AFTER 10 YEARS 14,143 93 14,236 7.26
WITHOUT CONTRACTUAL
MATURITY 3,774 3,774 9.55
- ---------------------------------------------------------------------------------------------------
120,240 162 209 120,193 5.97
- ---------------------------------------------------------------------------------------------------
$6,919,301 $108,852 $7,757 $7,020,396 6.08%
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1997 1996
===================================================================================================
Weighted
Amortized Unrealized Unrealized Market average Market
cost gains losses value yield value
===================================================================================================
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. TREASURY SECURITIES
(AVERAGE MATURITY OF
1 YEAR AND 11 MONTHS):
Within 1 year $ 361,577 $ 938 $ 13 $ 362,502 6.21% $ 902,729
After 1 to 5 years 2,746,232 19,625 3 2,765,854 6.11 1,338,776
- ---------------------------------------------------------------------------------------------------
3,107,809 20,563 16 3,128,356 6.12 2,241,505
- ---------------------------------------------------------------------------------------------------
Obligations of other
U.S. Government
agencies and
corporations
(average maturity
of 4 years and
6 months):
Within 1 year 199,100 50 169 198,981 5.73 75,330
After 1 to 5 years 306,661 1,108 124 307,645 6.27 72,801
AFTER 5 TO 10 YEARS 301,062 790 1,988 299,864 6.82 155,344
- ---------------------------------------------------------------------------------------------------
806,823 1,948 2,281 806,490 6.34 303,475
- ---------------------------------------------------------------------------------------------------
Obligations of P.R.,
STATES AND POLITICAL
SUBDIVISIONS (AVERAGE
MATURITY OF 3 YEARS
AND 7 MONTHS):
Within 1 year 9,820 33 30 9,823 5.22 6,830
After 1 to 5 years 7,437 150 31 7,556 5.71 14,632
After 5 to 10 years 17,944 266 18,210 6.29 12,698
After 10 years 25,437 208 96 25,549 6.32 662
- ---------------------------------------------------------------------------------------------------
60,638 657 157 61,138 6.06 34,822
- ---------------------------------------------------------------------------------------------------
COLLATERALIZED MORT-
GAGE OBLIGATIONS
(AVERAGE MATURITY OF 22
YEARS AND 6 MONTHS):
WITHIN 1 YEAR 39
AFTER 1 TO 5 YEARS 40,621 13 15 40,619 6.41 49,012
AFTER 5 TO 10 YEARS 55,703 22 71 55,654 6.42 20,246
AFTER 10 YEARS 703,836 427 338 703,925 6.45 366,793
- ---------------------------------------------------------------------------------------------------
800,160 462 424 800,198 6.44 436,090
- ---------------------------------------------------------------------------------------------------
MORTGAGE-BACKED
SECURITIES (AVERAGE
MATURITY OF 19 YEARS
AND 3 MONTHS):
WITHIN 1 YEAR 79,710 500 135 80,075 7.31 36,566
AFTER 1 TO 5 YEARS 6,732 76 40 6,768 6.90 69,068
AFTER 5 TO 10 YEARS 11,808 340 14 12,134 7.50 974
AFTER 10 YEARS 295,116 5,739 61 300,794 6.35 262,511
- ---------------------------------------------------------------------------------------------------
393,366 6,655 250 399,771 6.59 369,119
- ---------------------------------------------------------------------------------------------------
EQUITY SECURITIES
(WITHOUT CONTRACTUAL
MATURITY) 21,844 17,352 39,196 3.67 12,644
- ---------------------------------------------------------------------------------------------------
OTHER (AVERAGE MATURITY
OF 11 YEARS AND 5 MONTHS):
WITHIN 1 YEAR 204
AFTER 5 TO 10 YEARS 2,889 2 2,887 6.50 10,105
AFTER 10 YEARS 950 19 969 6.26 7,970
- ---------------------------------------------------------------------------------------------------
3,839 19 2 3,856 6.44 18,279
- ---------------------------------------------------------------------------------------------------
$5,194,479 $47,656 $3,130 $5,239,005 6.23% $3,415,934
===================================================================================================
</TABLE>
<PAGE> 66
F-41
The weighted average yield on investment securities available-for-sale
is based on amortized cost, therefore it does not give effect to changes in fair
value.
The expected maturity of collateralized mortgage obligations,
mortgage-backed securities and certain other securities differs from their
contractual maturities because they may be subject to prepayments.
The aggregate amortized cost and approximate market value of investment
securities available-for-sale at December 31, 1998, by contractual maturity are
shown below:
<TABLE>
<CAPTION>
Amortized cost Market value
- ----------------------------------------------------------
(In thousands)
<S> <C> <C>
Within 1 year $2,142,044 $2,152,892
After 1 to 5 years 1,781,813 1,818,622
After 5 to 10 years 1,349,725 1,353,645
After 10 years 1,614,257 1,627,534
- ----------------------------------------------------------
Total 6,887,839 6,952,693
Without contractual maturity 31,462 67,703
- ----------------------------------------------------------
Total investment securities
available-for-sale $6,919,301 $7,020,396
==========================================================
</TABLE>
Proceeds from the sale of investment securities available-for-sale
during 1998 were $923,409,000 (1997 - $5,212,194,000; 1996 - $2,896,060,000).
Gross realized gains and losses on those sales during the year were $9,190,000
and $257,000, respectively (1997 - $6,266,000 and $3,998,000; 1996 - $8,504,000
and $5,440,000). The basis on which cost was determined in computing the
realized gains and losses was the specific identification method.
NOTE 4 - INVESTMENT SECURITIES HELD-TO-MATURITY:
The amortized cost, gross unrealized gains and losses, approximate market value
(or fair value for certain investment securities where no market quotations are
available), weighted average yield and contractual maturities of investment
securities held-to-maturity as of December 31, 1998 and 1997 (1996- only
amortized cost is presented) were as follows:
<TABLE>
<CAPTION>
1998
=====================================================================================
Weighted
Amortized Unrealized Unrealized Market average
cost gains losses value yield
=====================================================================================
(In thousands)
<S> <C> <C> <C> <C> <C>
Obligations of other
U.S. Government
agencies and
corporations
(average maturity
of 3 months):
Within 1 year $ 4,943 $ 4,943 4.98%
- -------------------------------------------------------------------------------------
4,943 4,943 4.98
- -------------------------------------------------------------------------------------
Obligations of P.R.,
States and political
subdivisions
(average maturity
of 5 years and
4 months):
Within 1 year 21,265 $ 83 21,348 3.89
After 1 to 5 years 11,666 822 12,488 7.79
After 5 to 10 years 3,941 127 4,068 7.51
After 10 years 11,375 201 11,576 9.07
- -------------------------------------------------------------------------------------
48,247 1,233 49,480 6.35
- -------------------------------------------------------------------------------------
Collateralized mort-
gage obligations
(average maturity
of 10 years):
After 1 to 5 years 13,932 97 14,029 6.33
After 5 to 10 years 2,868 $11 2,857 5.00
After 10 years 13,301 40 3 13,338 6.24
- -------------------------------------------------------------------------------------
30,101 137 14 30,224 6.16
- -------------------------------------------------------------------------------------
Mortgage-backed
securities (average maturity
of 11 years and 4 months):
After 5 to 10 years 9,743 202 9,945 7.54
After 10 years 23,231 363 26 23,568 7.31
- -------------------------------------------------------------------------------------
32,974 565 26 33,513 7.38
- -------------------------------------------------------------------------------------
Equity securities
(without contractual
maturity) 76,979 76,979 6.31
- -------------------------------------------------------------------------------------
Other
(average maturity of
6 years and 3 months):
Within 1 year 9,045 9,045 3.56
After 1 to 5 years 7,972 7,972 8.14
After 5 to 10 years 4,656 10 4,666 7.82
After 10 years 11,217 11,217 7.80
- -------------------------------------------------------------------------------------
32,890 10 32,900 6.72
- -------------------------------------------------------------------------------------
$226,134 $1,945 $40 $228,039 6.49%
=====================================================================================
</TABLE>
<PAGE> 67
Popular, Inc.
F-42
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------------------------------
Weighted
Amortized Unrealized Unrealized Market average Amortized
cost gains losses value yield cost
=================================================================================================================
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury
securities
Within 1 year: $ 618,934
- -----------------------------------------------------------------------------------------------------------------
618,934
- -----------------------------------------------------------------------------------------------------------------
Obligations of
other U.S.
Government
agencies and
corporations
(average matu-
rity of 2 months):
Within 1 year $156,422 $ 6 $100 $156,328 5.49% 119,701
After 1 to 5 years 20,000
- -----------------------------------------------------------------------------------------------------------------
156,422 6 100 156,328 5.49 139,701
- -----------------------------------------------------------------------------------------------------------------
Obligations of P.R.,
States and political
subdivisions (average
maturity of 6 years
and 9 months):
Within 1 year 8,455 34 16 8,473 7.39 98,073
After 1 to 5 years 17,726 199 6 17,919 7.36 23,993
After 5 to 10 years 11,465 761 47 12,179 8.16 11,839
After 10 years 15,280 199 15,479 8.93 17,397
- -----------------------------------------------------------------------------------------------------------------
52,926 1,193 69 54,050 7.99 151,302
- -----------------------------------------------------------------------------------------------------------------
Collateralized
mortgage obliga-
tions (average
maturity of 13 years
and 8 months)
After 1 to 5 years 19,384 35 19,419 6.89
After 5 to 10 years 4,445 2 4,447 6.75 49,457
After 10 years 39,849 48 180 39,717 6.06 107,809
- -----------------------------------------------------------------------------------------------------------------
63,678 85 180 63,583 6.36 157,266
- -----------------------------------------------------------------------------------------------------------------
Mortgage-backed
securities (average
maturity of 12 years
and 1 month):
After 5 to 10 years 48 48 7.96 52
After 10 years 45,947 374 473 45,848 7.41 55,676
- -----------------------------------------------------------------------------------------------------------------
45,995 374 473 45,896 7.41 55,728
- -----------------------------------------------------------------------------------------------------------------
Equity securities
(without contractual
maturity) 70,771 70,771 5.23 61,407
- -----------------------------------------------------------------------------------------------------------------
Other (average
maturity of 6 years
and 4 months):
Within 1 year 3,150 3,150 5.96 250
After 1 to 5 years 5,645 4 5,649 2.34 6,145
After 5 to 10 years 4,229 4,229 8.24 4,197
After 10 years 6,177 35 6,142 8.01 2,136
- -----------------------------------------------------------------------------------------------------------------
19,201 4 35 19,170 6.06 12,728
- -----------------------------------------------------------------------------------------------------------------
$408,993 $1,662 $857 $409,798 6.15% $1,197,066
=================================================================================================================
</TABLE>
The expected maturity of collateralized mortgage obligations,
mortgage-backed securities and certain other securities differs from their
contractual maturities because they may be subject to prepayments.
The aggregate amortized cost and approximate market value of investment
securities held-to-maturity at December 31, 1998, by contractual maturity are
shown below:
<TABLE>
<CAPTION>
Amortized cost Market value
- --------------------------------------------------------------
(In thousands)
<S> <C> <C>
Within 1 year $ 35,253 $ 35,336
After 1 to 5 years 33,570 34,489
After 5 to 10 years 21,208 21,536
After 10 years 59,124 59,699
- --------------------------------------------------------------
Total 149,155 151,060
Without contractual maturity 76,979 76,979
- --------------------------------------------------------------
Total investment securities
held-to-maturity $226,134 $228,039
==============================================================
</TABLE>
During 1996, investment securities held-to-maturity with an amortized
cost of $2,622,000 were called by the issuer. Proceeds from the sale of those
securities were $2,652,000. Gains realized on this transaction was $30,000.
As of December 31, 1998 and 1997, the investments in obligations that
are payable from and secured by the same source of revenue or taxing authority,
other than the U.S. government, did not exceed 10 percent of stockholders'
equity.
NOTE 5 - PLEDGED ASSETS:
At December 31, 1998, investment securities and loans amounting to
$5,078,009,000 (1997 - $4,067,567,000; 1996 - $2,788,401,000) were pledged to
secure public and trust deposits and securities and mortgages sold under
agreements to repurchase.
<PAGE> 68
F-43
NOTE 6 - LOANS AND ALLOWANCE FOR LOAN LOSSES:
The composition of the loan portfolio at December 31, was as follows:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Loans secured by real estate:
Insured or guaranteed by the U.S.
Government or its agencies $ 85,350 $ 79,673
Guaranteed by the Commonwealth
of Puerto Rico 56,296 63,035
Commercial loans secured by real estate 1,250,210 1,109,213
Residential mortgages 2,595,578 2,432,183
Construction and land development 250,572 190,509
Consumer 424,327 605,204
- -------------------------------------------------------------------------------
4,662,333 4,479,817
Financial institutions 69,120 53,145
Commercial, industrial and agricultural 4,090,906 3,245,706
Lease financing 791,356 722,031
Consumer for household, credit cards
and other consumer expenditures 2,968,618 2,700,661
Other 201,276 256,315
- -------------------------------------------------------------------------------
$12,783,609 $11,457,675
===============================================================================
</TABLE>
As of December 31, 1998, loans on which the accrual of interest income had
been discontinued amounted to $262,604,000 (1997 - $195,544,000; 1996 -
$146,255,000). If these loans had been accruing interest, the additional
interest income realized would have been approximately $15,258,000 (1997-
$11,868,000; 1996 - $7,696,000). In addition, there is $578,000 of renegotiated
loans still accruing interest at December 31, 1998, (1996 - $3,308,000).
Included in the non-accruing loans as of December 31, 1998 were $46,626,000
(1997 - $30,840,000; 1996 - $16,320,000) in consumer loans.
At December 31, the recorded investment in loans that were considered
impaired and the related disclosures are shown below:
<TABLE>
<CAPTION>
December 31,
1998 1997
- -------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Impaired loans with a related allowance $140,905 $ 83,415
Impaired loans that do not require allowance 37,213 37,313
- -------------------------------------------------------------------------------
Total impaired loans $178,118 $120,728
===============================================================================
Allowance for impaired loans $ 36,191 $ 19,141
===============================================================================
Impaired loans measured based
on fair value of collateral $ 83,399 $ 40,713
Impaired loans measured based on
discounted cash flows 94,719 80,015
- ------------------------------------------------------------------------------
$178,118 $120,728
===============================================================================
Average balance of impaired
loans during the year $168,054 $113,348
===============================================================================
Interest income recognized on
impaired loans during the year $ 6,332 $ 6,298
===============================================================================
</TABLE>
The changes in the allowance for loan losses for the year ended December 31,
were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 211,651 $ 185,574 $ 168,393
Reserves acquired 31,296 13,237 402
Provision for loan losses 137,213 110,607 88,839
Recoveries 51,770 49,823 35,901
Loans charged-off (164,681) (147,590) (107,961)
- -------------------------------------------------------------------------------
Balance at end of year $ 267,249 $ 211,651 $ 185,574
===============================================================================
</TABLE>
The components of the net financing leases receivable at December 31, were:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Total minimum lease payments $ 632,669 $ 564,981
Estimated residual value of leased property 155,341 154,034
Deferred origination costs 3,346 3,016
Less - Unearned financing income (146,076) (140,104)
- -------------------------------------------------------------------------------
Net minimum lease payments 645,280 581,927
Less - Allowance for loan losses (8,312) (5,869)
- -------------------------------------------------------------------------------
$ 636,968 $ 576,058
===============================================================================
</TABLE>
Estimated residual value is generally established at amounts expected to be
sufficient to cover the Corporation's investment.
<PAGE> 69
Popular, Inc.
F-44
At December 31, 1998, future minimum lease payments are expected to be received
as follows:
<TABLE>
<CAPTION>
(In thousands)
-------------------------------
<S> <C>
1999 $ 233,609
2000 167,660
2001 124,493
2002 76,632
2003 and thereafter 30,275
-----------------------------
$ 632,669
=============================
</TABLE>
NOTE 7 - RELATED PARTY TRANSACTIONS:
The Corporation grants loans to its directors, executive officers and to certain
related individuals or organizations in the ordinary course of business. The
movement and balance of these loans were as follows:
<TABLE>
<CAPTION>
OFFICERS DIRECTORS TOTAL
----------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Balance at December 31, 1996 $2,975 $ 128,387 $ 131,362
New loans 291 117,762 118,053
Payments (661) (137,539) (138,200)
----------------------------------------------------------------
Balance at December 31, 1997 2,605 108,610 111,215
New loans 512 138,949 139,461
Payments (51) (129,635) (129,686)
---------------------------------------------------------------
Balance at December 31, 1998 $3,066 $ 117,924 $ 120,990
================================================================
</TABLE>
These loans have been consummated on terms no more favorable than those
that would have been obtained if the transaction had been with unrelated
parties.
NOTE 8 - PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost less accumulated depreciation and
amortization as follows:
<TABLE>
<CAPTION>
USEFUL LIFE
IN YEARS 1998 1997
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Land $ 57,703 $ 51,286
- --------------------------------------------------------------------------------
Buildings 15-50 220,206 188,833
Equipment 3-10 382,687 336,826
Leasehold improvements Various 62,904 55,837
- --------------------------------------------------------------------------------
665,797 581,496
Less - Accumulated depreciation
and amortization 335,426 297,244
- --------------------------------------------------------------------------------
330,371 284,252
- --------------------------------------------------------------------------------
Construction in progress 36,647 29,354
- --------------------------------------------------------------------------------
$424,721 $ 364,892
================================================================================
</TABLE>
Depreciation and amortization of premises and equipment for the year
was $62,649,000 (1997 - $54,523,000; 1996 - $48,481,000) of which $10,478,000
(1997 - $10,341,000; 1996 - $9,943,000) was charged to occupancy expense and
$52,171,000 (1997 - $44,182,000; 1996 - $38,538,000) was charged to equipment,
communications and other operating expenses. Occupancy expense is net of
rental income of $9,187,000 (1997 - $16,442,000; 1996 - $16,193,000).
NOTE 9 - DEPOSITS:
Total interest bearing deposits as of December 31, consisted of:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------
(In thousands)
<S> <C> <C>
Savings deposits:
Savings accounts $ 4,107,990 $ 3,584,963
NOW and money
market accounts 1,678,033 1,357,519
- ----------------------------------------------------------
5,786,023 4,942,482
- ----------------------------------------------------------
Certificates of deposit:
Under $100,000 2,501,535 2,246,988
$100,000 and over 2,208,347 2,013,280
- ----------------------------------------------------------
4,709,882 4,260,268
- ----------------------------------------------------------
$10,495,905 $ 9,202,750
==========================================================
</TABLE>
NOTE 10 - FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO
REPURCHASE:
The following table summarizes certain information on federal funds
purchased and securities sold under agreements to repurchase as of December 31:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Federal funds purchased $ 918,555 $ 389,040 $ 158,336
Securities sold under
agreements to repurchase 3,157,945 2,334,289 1,717,129
- --------------------------------------------------------------------------------
Total amount outstanding $4,076,500 $ 2,723,329 $ 1,875,465
================================================================================
Maximum aggregate balance
outstanding at any month-end $4,076,500 $ 3,897,110 $ 2,922,611
================================================================================
Average daily aggregate
balance outstanding $3,166,436 $ 2,836,290 $ 2,521,929
================================================================================
Weighted average interest rate:
For the year 4.96% 5.01% 5.12%
At December 31 4.50 5.51 5.16
</TABLE>
The following table presents the liability associated with the repurchase
transactions (including accrued interest), its maturities and weighted average
interest rates. Also, it includes the carrying amount and approximate market
value of the collateral (including accrued interest) as of December 31, 1998 and
1997. The information excludes repurchase transactions which were collateralized
with securities or other assets held for trading purposes or which have been
obtained under reverse repurchase agreements:
<PAGE> 70
F-45
<TABLE>
<CAPTION>
1998
- ---------------------------------------------------------------------------------
Weighted
Repurchase Carrying value Market Value average
Liability of collateral of collateral interest rate
- ---------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury
securities:
Overnight $ 174,613 $ 179,304 $ 184,965 4.88%
Within 30 days 1,054,749 1,042,020 1,058,075 5.04
After 30 to 90 days 12,577 13,300 13,365 4.94
After 90 days 435,983 454,228 456,624 5.65
- ----------------------------------------------------------------------------
Total 1,677,922 1,688,852 1,713,029 5.18
- ----------------------------------------------------------------------------
Obligations of
other U.S.
Government
agencies and
corporations:
Overnight 24,838 25,121 25,211 4.44
Within 30 days 610,223 628,723 625,207 5.14
After 30 to 90 days 2,176 2,191 2,196 4.03
After 90 days 20,252 21,137 21,213 4.93
- ----------------------------------------------------------------------------
Total 657,489 677,172 673,827 5.10
- ----------------------------------------------------------------------------
Collateralized
mortgage obligations
Within 30 days 24,084 25,248 25,130 5.17
After 90 days 42,129 44,075 44,093 5.25
- ----------------------------------------------------------------------------
Total 66,213 69,323 69,223 5.22
- ----------------------------------------------------------------------------
$2,401,624 $2,435,347 $2,456,079 5.16
============================================================================
<CAPTION>
1997
- ---------------------------------------------------------------------------------------
Weighted
Repurchase Carrying value Market Value average
Liability of collateral of collateral interest rate
- ---------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury
securities:
Overnight $ 275,071 $ 284,814 $ 289,657 8.75%
Within 30 days 313,988 313,330 314,695 5.75
After 30 to 90 days 37,708 39,184 39,372 4.84
After 90 days 476,339 496,354 499,621 5.68
- ----------------------------------------------------------------------------------
Total 1,103,106 1,133,682 1,143,345 6.44
- ----------------------------------------------------------------------------------
Obligations of
other U.S.
Government
agencies and
corporations:
Overnight 6,312 6,326 6,362 4.70
Within 30 days 32,814 33,084 32,665 4.59
After 30 to 90 days 545 550 541 4.12
After 90 days 67,820 71,187 71,467 5.78
- ----------------------------------------------------------------------------------
Total 107,491 111,147 111,035 5.35
- ----------------------------------------------------------------------------------
Obligations of P.R.,
States and political sub-
divisions:
Within 30 days 2,025 1,872 1,909 4.78
After 90 days 5,671 5,429 5,436 4.99
- ----------------------------------------------------------------------------------
Total 7,696 7,301 7,345 4.94
- ----------------------------------------------------------------------------------
Collateralized
mortgage obligations
Overnight 492,981 556,348 556,339 8.39
- ----------------------------------------------------------------------------------
Total 492,981 556,348 556,339 8.39
- ----------------------------------------------------------------------------------
$1,711,274 $1,808,478 $1,818,064 6.93%
==================================================================================
</TABLE>
<PAGE> 71
Popular, Inc.
F-46
NOTE 11 - OTHER SHORT-TERM BORROWINGS:
Other short-term borrowings as of December 31, consisted of:
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Advances under revolving lines of credit
amounting to $457,395,000 (1997 - $605,000,000)
with fixed interest rates ranging from 4.50% to 5.25%
at December 31, 1998 (1997 - 5.95% to 6.75%) $ 30,688 $ 81,700
Commercial paper with various maturities until
June 1999 at rates ranging from 4.60% to 5.83%
(1997 - 5.70% to 5.99%) 342,232 183,999
Term notes maturing in 1998, paying interest
monthly at LIBOR less 3 basis points with a
quarterly reset of interest rate 25,000
Term notes maturing in 1999, paying interest
quarterly at a floating interest rate of 0.125%
(1997 - ranging from 0.25% to 0.75%)
over 3-month LIBOR rate (LIBOR rate at
December 31, 1998 was 5.07%; 1997 - 5.81%) 50,000 66,488
Term notes maturing in 1999, paying interest
monthly at rates ranging from 5.00%
to 10.00% 31,059
Term note maturing in 1999, paying interest
semiannually at floating interest rate of 1.50%
over Fed Fund rate (Interest rate at
December 31, 1998 was 6.94%) 3,975
Term notes, corresponding to BF, maturing in
1999, paying interest at rates ranging from
7.00% to 7.50% and at floating rates of
1.50% over the 3-month LIBOR rate. 35,868
Term notes maturing in 1999, paying interest
semiannually at rates ranging from 5.75% to 8.41%
(1997 - 5.40% to 8.12%) 185,340 111,509
Term funds purchased with maturities until July
1999 at rates ranging from 5.13% to 5.71%
(1997 - 5.64% to 5.93%) 789,300 680,000
Term notes with maturities until August 1999
with fixed rates ranging from 5.25% to 6.29% 166,000 138,500
(1997 - 4.40% to 5.87%)
Others 4,620 239
- ---------------------------------------------------------------------------------------------------------------
$1,639,082 $1,287,435
===============================================================================================================
</TABLE>
The weighted average interest rate of other short-term borrowings at
December 31, 1998 was 6.39% (1997 - 5.60%; 1996 - 5.75%). The maximum aggregate
balance outstanding at any month-end was approximately $1,908,541,000 (1997 -
$1,985,452,000; 1996 - $1,404,006,000). The average aggregate balance
outstanding during the year was approximately $1,675,568,000 (1997 -
$1,609,035,000; 1996 - $883,739,000). The weighted average interest rate during
the year was 5.65% (1997- 5.94%; 1996 - 6.27%).
NOTE 12 - NOTES PAYABLE:
Notes payable outstanding at December 31, consisted of the following:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Term notes with maturities ranging from 2000
through 2005 paying interest semiannually at
fixed rates ranging from 5.63% to 7.72%
(1997 - 5.50% to 8.41%). $883,348 $904,884
Term notes maturing in 2000 paying interest
quarterly at rates ranging from 0.11% to
0.46% (1997 - 0.10% to 0.46%) over the
3-month LIBOR rate and 3-month US Treasury
Bill rate (LIBOR and US Treasury Bill rates
at December 31, 1998 were 5.07% and 4.37%,
respectively; 1997 - 5.81% and 5.35%,
respectively). 64,416 194,366
Term notes with maturities ranging from 2001
through 2025 paying interest monthly at fixed
rates ranging from 5.01% to 7.62% (1997 - 5.92%). 24,437 25,000
Term notes, corresponding to BF, with maturities
ranging from 2000 through 2008 paying interest
at fixed rates ranging from 9.00% to 10.00% and
at floating rates from 1.75% to 3.60% over the
3-month LIBOR rate. 39,348
Promissory notes with maturities ranging from 2000
through 2003 with fixed interest rates ranging
from 5.50% to 6.35% (1997 - 5.50% to 6.35%). 33,200 49,200
Promissory notes with maturities ranging from
2000 through 2005 with floating interest rates
ranging from 85% to 94% (1997 - 87% to 92%)
of the 3-month LIBID rate (LIBID rate at
December 31, 1998 was 5.00%; 1997 - 5.69%). 260,000 230,000
Mortgage notes and other debt with fixed rates
and terms. 2,411 246
- --------------------------------------------------------------------------------
$1,307,160 $1,403,696
================================================================================
</TABLE>
NOTE 13 - SUBORDINATED NOTES:
Subordinated notes at December 31, 1998 and 1997, consisted of $125,000,000
notes issued by the Corporation on December 12, 1995, maturing on December 15,
2005, with interest payable semiannually at 6.75%. The notes issued by the
Corporation are unsecured obligations which are subordinated in right of payment
to the prior payment in full of all present and future senior indebtedness of
the Corporation. These notes do not provide for any sinking fund.
NOTE 14 - PREFERRED BENEFICIAL INTEREST IN POPULAR NORTH AMERICA'S JUNIOR
SUBORDINATED DEFERRABLE INTEREST DEBENTURES GUARANTEED BY THE CORPORATION:
On February 5, 1997, BanPonce Trust I (BPT I), a wholly-owned subsidiary of
Popular North America, issued $150,000,000 of 8.327% Capital Securities Series
A due in 2027. The Capital Securities of BPT I are fully and unconditionally
guaranteed by the Corporation. Additionally, the Capital Securities qualify
for inclusion in Tier I capital under the Risk-Based Capital guidelines.
<PAGE> 72
NOTE 15 - LONG-TERM DEBT MATURITY REQUIREMENTS:
The aggregate amounts of maturities of notes payable, capital securities and
subordinated notes were as follows:
<TABLE>
<CAPTION>
Notes Capital Subordinated
Year payable Securities notes Total
- ----------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
1999 $ 1,925 $1,925
2000 434,402 434,402
2001 235,979 235,979
2002 186,209 186,209
2003 244,056 244,056
Later years 204,589 $150,000 $125,000 479,589
- ----------------------------------------------------------------
Total $1,307,160 $150,000 $125,000 $1,582,160
================================================================
</TABLE>
NOTE 16 - PREFERRED STOCK OF BPPR:
BPPR has 200,000 shares of authorized preferred stock with a par value of $100.
This stock may be issued in series, and the shares of each series shall have
such rights and preferences as shall be fixed by the Board of Directors when
authorizing the issuance of that particular series. At December 31, 1998, there
are no such shares issued or outstanding.
NOTE 17 - STOCKHOLDERS' EQUITY:
The Corporation has 180,000,000 shares of authorized common stock with par value
of $6 per share. At December 31, 1998, there were 135,637,327 (1997 -
135,365,408) shares issued and outstanding, after adjusting for a two-for-one
common stock split effected in the form of a dividend, effective July 1, 1998.
As a result of the split 68,737,693 shares were issued, and $412,426,000 million
were transferred from surplus to common stock. On May 8, 1997, the Board of
Directors approved a stock repurchase program of up to three million shares of
the outstanding common stock of the Corporation. As of December 31, 1998, the
Corporation had purchased 1,977,600 (1997 - 1,977,600) shares under this program
for a total cost of $39,559,000 (1997 - $39,559,000).
The Corporation has a dividend reinvestment plan under which stockholders may
reinvest their quarterly dividends in shares of common stock at a 5% discount
from the market price at the time of issuance. During 1998, shares totaling
271,918 (1997 - 241,452; 1996 - 382,472), equivalent to $7,433,000 (1997 -
$4,642,000; 1996 - $4,135,000) in additional equity, were issued under the plan.
The Corporation has 10,000,000 shares of authorized preferred stock
with no par value. This stock may be issued in one or more series, and the
shares of each series shall have such rights and preferences as shall be fixed
by the Board of Directors when authorizing the issuance of that particular
series. The Corporation has 4,000,000 shares issued and outstanding of Series A
preferred stock. These shares are non-convertible and are redeemable at the
option of the Corporation. The redemption price per share is $26.25 through June
29, 1999, $26.00 from June 30, 1999 through June 29, 2000, $25.75 from June 30,
2000 through June 29, 2001, $25.50 from June 30, 2001 through June 29, 2002 and
$25.00 from June 30, 2002 and thereafter. Dividends on the Series A preferred
stock are noncumulative and are payable monthly at the annual rate of 8.35% of
the liquidation preference of $25.00 per share.
The Corporation's average number of common shares outstanding used in the
computation of net income per common share was 135,532,086 (1997 - 134,036,964;
1996 - 132,044,624). During the year, cash dividends of $0.50 (1997 - $0.40 and
1996 - $0.35) per common share outstanding amounting to $67,770,000 (1997 -
$53,681,000; 1996 - $45,557,000) were declared. In addition, dividends declared
on preferred stock amounted to $8,350,000 (1997 - $8,350,000; 1996 -
$8,350,000).
In connection with the acquisition by Banco Popular, FSB (second-tier
subsidiary of Popular North America, Inc.) 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 $20 million. Pursuant to the terms of such financing,
Banco Popular, FSB was not permitted to, among other things, declare or pay any
dividends on its outstanding capital stock (unless such dividends were used
exclusively for payment of principal or interest on such RTC loan) or make any
distribution of its assets until payment in full of such promissory note. As of
December 31, 1998, the undistributed earnings of Banco Popular, FSB totaled
$66,529,000. This note was paid in full on January 7, 1999.
NOTE 18 - REGULATORY CAPITAL REQUIREMENTS:
The Corporation is subject to various regulatory capital requirements imposed by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Corporation's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Corporation must meet
specific capital guidelines that involve quantitative measures of the
Corporation's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory requirements. The Corporation's capital amounts and
classifications are also subject to qualitative judgements by the regulators
about components, risk weightings and other factors.
<PAGE> 73
Popular, Inc.
F-48
Quantitative measures established by regulation to ensure capital
adequacy require the Corporation to maintain minimum amounts and ratios of Tier
I and total capital to risk-weighted assets, and of Tier I capital to average
assets (leverage ratio) as defined in the regulations. Management has determined
that as of December 31, 1998, the Corporation exceeded all capital adequacy
requirements to which it is subject.
As of December 31, 1998, the Corporation was well capitalized under the
regulatory framework for prompt corrective action and there are no conditions or
events since that date that management believes have changed the institution's
category.
The Corporation's actual and required ratios and amounts of total
risk-based capital, Tier I risk-based capital and Tier I leverage, as of
December 31, were as follows:
<TABLE>
<CAPTION>
Regulatory requirements
- ----------------------------------------------------------------------------------------------
TO BE WELL
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE ACTION
ACTUAL ADEQUACY PURPOSES PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ----------------------------------------------------------------------------------------------
1998
- ----------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk-Weighted Assets):
Consolidated $ 1,760,278 13.14% $1,071,994 8% $ 1,339,992 10%
BPPR 1,316,421 13.00 810,351 8 1,012,938 10
Tier I Capital
(to Risk-Weighted Assets):
Consolidated $ 1,450,187 10.82 535,997 4% 803,995 6%
BPPR 1,188,895 11.74 405,175 4 607,763 6
Tier I Capital
(to Average Assets):
Consolidated $ 1,450,187 6.72% 647,350 3% 1,078,917 5%
BPPR 1,188,895 6.75 528,039 3 880,065 5
<CAPTION>
Regulatory requirements
- -------------------------------------------------------------------------------------------
TO BE WELL
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE ACTION
ACTUAL ADEQUACY PURPOSES PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- -------------------------------------------------------------------------------------------
1997
- -------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk-Weighted Assets):
Consolidated $ 1,598,506 14.56% $ 878,054 8% $1,097,567 10%
BPPR 1,165,509 12.58 741,226 8 926,533 10
Tier I Capital
(to Risk-Weighted Assets):
Consolidated $ 1,335,391 12.17% $ 439,027 4% $ 658,540 6%
BPPR 1,048,899 11.32 370,613 4 555,920 6
Tier I Capital
(to Average Assets):
Consolidated $ 1,335,391 6.86% $ 583,831 3% $ 973,052 5%
BPPR 1,048,899 6.36 494,917 3 824,862 5
</TABLE>
NOTE 19 - INTEREST ON INVESTMENTS:
Interest on investments consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Money market investments:
Federal funds sold and securities
and mortgages purchased under
agreements to resell $ 34,505 $ 31,886 $ 45,697
Time deposits with other banks 2,199 1,799 776
Other 77 238 224
- -------------------------------------------------------------------------------
$ 36,781 $ 33,923 $ 46,697
===============================================================================
Investment securities:
U.S. Treasury securities $193,293 $213,153 $189,300
Obligations of other
U.S. Government agencies
and corporations 112,610 82,205 43,157
Obligations of Puerto Rico,
States and political subdivisions 8,378 8,755 10,902
Collateralized mortgage obligations 47,321 37,786 26,265
Mortgage-backed securities 12,185 10,667 6,456
Other 11,686 6,170 4,530
- -------------------------------------------------------------------------------
$385,473 $358,736 $280,610
===============================================================================
</TABLE>
Interest income on investment securities for the year ended December 31,
1998, includes tax exempt interest of $301,364,000 (1997 - $290,638,000; 1996 -
$229,958,000).
<PAGE> 74
F-49
Exempt interest relates mostly to obligations of the United States and Puerto
Rico governments.
NOTE 20 - EMPLOYEE BENEFITS:
Pension and benefit restoration plans:
All regular employees of BPPR are covered by a noncontributory defined benefit
pension plan. Pension benefits begin to vest after five years of service and are
based on age, years of credited service and final average compensation, as
defined. At December 31, 1998, plan assets consisted primarily of U.S.
Government obligations, high grade corporate bonds and listed stocks, including
5,672,860 shares (1997-5,672,860) of the Corporation with a market value of
approximately $192,877,000 (1997 - $140,403,000). Dividends paid on shares of
the Corporation held by the plan during 1998 amounted to $2,666,000 (1997 -
$2,156,000).
BPPR also has a non-qualified unfunded supplementary pension and profit
sharing plan for those employees whose compensation exceeds the limits
established by ERISA.
The following table sets forth the status of the plans and the amounts
recognized in the consolidated financial statements at December 31:
<TABLE>
<CAPTION>
BENEFIT
PENSION PLAN RESTORATION PLAN TOTAL
- --------------------------------------------------------------------------------
1998
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Change in benefit obligation:
Benefit obligation
at beginning of the year $ 291,058 $ 3,889 $ 294,947
Service cost 12,360 438 12,798
Interest cost 19,926 330 20,256
Plan amendment 79 79
Actuarial loss 21,642 1,258 22,900
Benefits paid (12,872) (2) (12,874)
- --------------------------------------------------------------------------------
Benefit obligation
at end of year $ 332,193 $ 5,913 $ 338,106
================================================================================
Change in plan assets:
Fair value of plan assets
at beginning of the year 368,399 368,399
Actual return on plan assets 91,840 91,840
Employee contribution
repayments 7 7
Benefits paid (12,872) (12,872)
- --------------------------------------------------------------------------------
Fair value of plan assets at
end of year $ 447,374 $ 447,374
================================================================================
Funded (unfunded) status 115,181 (5,913) 109,268
Unrecognized net asset (15,626) (15,626)
Unrecognized net prior
service cost (2,053) 518 (1,535)
Unrecognized net actuarial
(gain) loss (93,387) 2,896 (90,491)
- --------------------------------------------------------------------------------
Prepaid (accrued) pension cost $ 4,115 ($ 2,499) $ 1,616
================================================================================
Amount recognized in the
statement of financial
position consists of:
Prepaid benefit cost $ 4,115 $ 4,115
Accrued benefit liability ($ 2,499) (2,499)
- --------------------------------------------------------------------------------
Net amount recognized $ 4,115 ($ 2,499) $ 1,616
================================================================================
</TABLE>
<PAGE> 75
Popular, Inc.
F-50
<TABLE>
<CAPTION>
BENEFIT
PENSION PLAN RESTORATION PLAN TOTAL
- ------------------------------------------------------------------------------
1997
- ------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Change in benefit obligation:
Benefit obligation
at beginning of the year $ 243,162 $ 2,173 $ 245,335
Service cost 10,847 360 11,207
Interest cost 18,657 226 18,883
Actuarial loss 30,735 1,130 31,865
Benefits paid (12,343) (12,343)
- ------------------------------------------------------------------------------
Benefit obligations
at end of year $ 291,058 $ 3,889 $ 294,947
==============================================================================
Change in plan assets:
Fair value of plan assets
at beginning of the year 293,362 293,362
Actual return on plan assets 87,260 87,260
Employee contribution
repayments 120 120
Benefits paid (12,343) (12,343)
- ------------------------------------------------------------------------------
Fair value of plan assets at
end of year $ 368,399 $ 368,399
===============================================================================
Funded (unfunded) status 77,341 (3,889) 73,452
Unrecognized net asset (18,086) (18,086)
Unrecognized net prior
service cost (2,374) 571 (1,803)
Unrecognized net actuarial
(gain) loss (57,833) 1,847 (55,986)
- ------------------------------------------------------------------------------
Prepaid (accrued) pension
cost $ (952) $ (1,471) $ (2,423)
==============================================================================
Amount recognized in the
statement of financial
position consists of:
Accrued benefit liability $ (952) $ (1,471) $ (2,423)
- -------------------------------------------------------------------------------
Net amount recognized $ (952) $ (1,471) $ (2,423)
===============================================================================
<CAPTION>
Weighted average Benefit
assumptions as of Pension Plan Restoration Plan
December 31: 1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 6.50% 7.00% 7.50% 6.50% 7.00% 7.50%
Expected return on
plan assets 9.00% 9.00% 9.00%
Rate of compensation
increase 4.5 to 4.5 to 4.5 to 4.5 to 4.5 to 4.5 to
8.5% 8.5% 8.5% 8.5% 8.5% 8.5%
<CAPTION>
BENEFIT
PENSION PLAN RESTORATION PLAN
1998 1997 1996 1998 1997 1996
- ------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF
NET PERIODIC PENSION COST:
Service cost $ 12,360 $ 10,847 $ 9,860 $ 438 $360 $172
Interest cost 19,926 18,657 16,645 330 226 94
Expected return
on plan assets (32,618) (25,913) (20,490)
Amortization of
asset obligation (2,461) (2,461) (2,461)
Amortization of
prior service cost (242) (246) (246) 53 53 53
Amortization of
net (gain) loss (2,032) 505 209 130 11
- ------------------------------------------------------------------------------------------------------
Net periodic
(benefit) cost $ (5,067) $ 884 $ 3,813 $1,030 $769 $330
=====================================================================================================
</TABLE>
The accumulated benefit obligation for the benefit restoration plan was
$1,085,500 as of December 31, 1998 (1997 - $489,700).
Retirement and savings plan:
The Corporation also provides contributory retirement and savings plans pursuant
to sections 1165(e) of the Puerto Rico Internal Revenue Code and section 401(k)
of the Internal U.S. Revenue Code, as applicable, for substantially all the
employees of Popular Securities, Equity One, Banco Popular FSB, Banco Popular
N.A. (California), Banco Popular Illinois, Banco Popular, N.A. (Florida), Banco
Popular, N.A. (Texas), First State Bank of Southern California, Gore-Bronson
Bancorp, Popular Finance, Popular Leasing and Popular Mortgage. Employer
contributions are determined based on specific provisions of each plan. The cost
of providing this benefit in 1998 was $3,369,000 (1997 - $2,811,000; 1996 -
$2,163,000).
The Corporation also has a contributory savings plan available to employees
of BPPR. Employees are fully vested in the employer's contribution after seven
years of service. All contributions are invested in shares of the Corporation.
Total savings plan expense was $1,105,000 in 1998 (1997 - $999,000; 1996 -
$863,000). The savings plan held 1,303,398 (1997 - 1,106,586; 1996 - 736,234)
shares of common stock of the Corporation with a market value of approximately
$44,316,000 at December 31, 1998 (1997 - $27,388,000; 1996 - $12,424,000).
Postretirement health care benefits:
In addition to providing pension benefits, BPPR provides certain health care
benefits for retired employees. Substantially all of the employees of BPPR who
are eligible to retire under the pension plan, and provided they reach
retirement age while working for BPPR, may become eligible for these benefits.
<PAGE> 76
Popular, Inc.
F-51
The status of the Corporation's unfunded postretirement benefit plan at
December 31, was as follows:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of the year $ 87,976 $ 83,968
Service cost 4,731 3,852
Interest cost 6,016 5,556
Plan amendment (685)
Benefits paid (3,224) (2,703)
Actuarial loss (gain) 6,472 (2,697)
- --------------------------------------------------------------------------------
Benefit obligation at end of year $ 101,286 $ 87,976
================================================================================
Change in plan assets:
Unfunded status (101,286) (87,976)
Unrecognized net prior service cost 3,806 4,941
Unrecognized net actuarial loss (gain) 18,550 12,284
- --------------------------------------------------------------------------------
Accrued benefit cost $ (78,930) $(70,751)
================================================================================
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation at December 31, 1998 was 6.50% (1997 - 7.00%).
The components of net periodic postretirement benefit cost for the year
ended December 31, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Service cost $ 4,731 $3,852 $ 3,584
Interest cost 6,016 5,556 5,719
Amortization of prior service cost 450 435 435
Amortization of net (gain) loss 206 795
- --------------------------------------------------------------------------------
Net periodic benefit cost $11,403 $9,843 $10,533
================================================================================
</TABLE>
For measurement purposes, an 8% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1998. The rate was
assumed to decrease gradually to 5% for 2001 and remain at that level
thereafter.
Assumed health care trend rates generally have a significant effect on
the amounts reported for a health care plan. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-Percentage 1-Percentage
Point Increase Point Decrease
- --------------------------------------------------------------------------------
<S> <C> <C>
Effect on total service cost and
interest cost components $ 2,219,000 $ (1,735,000)
Effect on postretirement
benefit obligation $18,690,000 $(14,860,000)
</TABLE>
Profit sharing plan:
BPPR also has a profit sharing plan covering substantially all regular
employees. Annual contributions are determined based on the bank's profitability
ratios, as defined in the plan, and are deposited in trust. Profit sharing
expense for the year, including the cash portion paid annually to employees
which represented 50% of the expense for 1998 (1997 and 1996 - 40%), amounted to
$22,647,000 (1997 - $25,954,000; 1996 - $22,859,000).
Long-term incentive plan:
BPPR has a long-term incentive plan for its senior management. Under this plan,
each January 1st the Board of Directors awards senior management a specified
number of shares of common stock of the Corporation contingent upon reaching
some predefined performance measures over periods of three years. The dividends
attributable to these shares are also part of the award. The final number of
shares awarded is subject to a factor based on the level of attainment and are
purchased in the open market.
For the year ended December 31, 1998, the Corporation recognized an
expense of $626,000 (1997 - $1,493,000; 1996 - $837,000) related to this plan,
determined based on the market value of the stock.
NOTE 21 - RENTAL EXPENSE AND COMMITMENTS:
At December 31, 1998, the Corporation was obligated under a number of
noncancelable leases for land, buildings, and equipment which require rentals
(net of related sublease rentals) as follows:
<TABLE>
<CAPTION>
Minimum Sublease
Year payments rentals Net
- ------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
1999 $ 20,198 $ 351 $ 19,847
2000 16,987 353 16,634
2001 14,612 258 14,354
2002 11,680 171 11,509
2003 10,203 119 10,084
Later years 55,367 352 55,015
-------- ------ --------
$129,047 $1,604 $127,443
======== ====== ========
</TABLE>
Total rental expense for the year ended December 31, 1998, was
$26,451,000 (1997 - $23,336,000; 1996 - $21,196,000).
NOTE 22 - INCOME TAX:
The components of income tax expense for the years ended December 31, are
summarized below. Included in these amounts
<PAGE> 77
Popular, Inc.
F-52
are income taxes of $1,606,000 in 1998 (1997 - $747,000; 1996 - $1,480,000),
related to gains on securities transactions.
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Current income tax expense:
Puerto Rico $ 94,913 $ 83,120 $ 81,488
Federal and States 8,914 16,058 15,777
- --------------------------------------------------------------------------------
Subtotal 103,827 99,178 97,265
- --------------------------------------------------------------------------------
Deferred income tax
expense (benefit):
Puerto Rico (27,231) (19,851) (23,589)
Federal and States (1,925) (4,866) (2,799)
- --------------------------------------------------------------------------------
Subtotal (29,156) (24,717) (26,388)
- --------------------------------------------------------------------------------
Total income tax expense $ 74,671 $ 74,461 $ 70,877
================================================================================
</TABLE>
The reasons for the difference between the income tax expense
applicable to income before provision for income taxes and the amount computed
by applying the statutory rate in Puerto Rico, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------
% of % of % of
pre-tax pre-tax pre-tax
Amount Income Amount Income Amount Income
- ----------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Computed income tax at
statutory rate $119,609 39% $110,770 39% $ 99,851 39%
Benefits of net tax exempt
interest income (47,432) (15) (37,860) (13) (29,118) (11)
Federal, States taxes
and other 2,494 1,551 144
- ----------------------------------------------------------------------------------------------------
Income tax expense $ 74,671 24% $ 74,461 26% $ 70,877 28%
====================================================================================================
</TABLE>
The Tax Reform Act of October 1994 in Puerto Rico repealed the reserve
method of determining losses on loans, requiring taxpayers to use the direct
charge-off method and recapture the reserve balance at December 31, 1995 into
income for tax purposes over a four-year period. As a result of this change, the
Corporation is required to pay $15,247,000 in 1999. In 1996, 1997 and 1998, the
Corporation paid $14,763,000, $14,994,000, and $15,247,000, respectively,
related to the afore-mentioned recapture. A deferred tax asset is recognized for
the difference between the tax and accounting bases of the allowance for loan
losses.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and their bases. Significant components of the Corporation's
deferred tax assets and liabilities at December 31, were as follows:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Alternative minimum tax credits
available for carryforward and
other credits $ 20,176 $ 22,353
Net operating loss carryforward available 5,939 7,262
Postretirement and pension benefits 30,725 28,835
Allowance for loan losses 75,365 50,203
Other temporary differences 14,157 15,427
- --------------------------------------------------------------------------------
Total gross deferred tax assets 146,362 124,080
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Differences between the assigned
values and the tax bases of assets
and liabilities recognized in purchase
business combinations 9,514 11,893
Unrealized gain on securities
available-for-sale 25,101 11,180
Other temporary differences 7,709 11,819
- --------------------------------------------------------------------------------
Total gross deferred tax liabilities 42,324 34,892
- --------------------------------------------------------------------------------
Valuation allowance 3,170 5,922
- --------------------------------------------------------------------------------
Net deferred tax asset $100,868 $ 83,266
================================================================================
</TABLE>
At December 31, 1998, the Corporation had $20,176,000 in credits
expiring in annual installments through year 2014 that will reduce the regular
income tax liability in future years. The Corporation had, at the end of 1998,
$16,967,000 in net operating losses (NOL) available to carry over to offset
taxable income in future years until year 2013. Other temporary differences
included as deferred assets are mainly related to the deferral of loan
origination costs and commissions.
A valuation allowance of $3,170,000 is reflected in 1998 (1997 -
$5,922,000), related to deferred tax assets arising from NOL carryforwards and
temporary differences for which the Corporation could not determine the
likelihood of its realizability. Based on the information available, the
Corporation expects to fully realize all other items comprising the net deferred
tax asset as of December 31, 1998.
Under the Puerto Rico Internal Revenue Code, the Corporation and its
subsidiaries are treated as separate taxable entities and are not entitled to
file consolidated tax returns. The Code provides a dividend received deduction
of 100%, on dividends received from "controlled" subsidiaries, subject to
taxation in Puerto Rico.
The Corporation has never received any dividend payments from its U.S.
subsidiaries. Any such dividend paid from a U.S. subsidiary to the Corporation
would be subject to a 30% withholding tax based on the provisions of the U.S.
Internal Revenue Code. The Corporation has not recorded any deferred
<PAGE> 78
Popular, Inc.
F-53
tax liability on the unremitted earnings of its U.S. subsidiaries because the
reinvestment of such earnings is considered permanent. The Corporation believes
that the likelihood of receiving dividend payments from any of its U.S.
subsidiaries in the foreseeable future is remote, based on the significant
expansion it is undertaking in the U.S. mainland.
The Corporation's subsidiaries in the United States file a consolidated
federal income tax return. The Corporation's federal income tax provision for
1998 was $5,054,000 (1997 - $9,583,000; 1996 - $12,281,000). The intercompany
settlements of taxes paid is based on tax sharing agreements which generally
allocates taxes to each entity based on a separate return basis.
NOTE 23 - OFF-BALANCE SHEET LENDING ACTIVITIES AND CONCENTRATION OF CREDIT RISK:
Off-balance sheet risk:
The Corporation is a party to financial instruments with off-balance sheet
credit risk in the normal course of business to meet the financial needs of its
customers. These financial instruments include loan commitments, letters of
credit, and standby letters of credit. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the consolidated statement of condition.
The Corporation's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit, standby letters of credit and financial guarantees written is
represented by the contractual notional amounts of those instruments. The
Corporation uses the same credit policies in making these commitments and
conditional obligations as it does for those reflected on the statement of
condition.
Financial instruments with off-balance sheet credit risk at December
31, whose contract amounts represent potential credit risk were as follows:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Commitments to extend credit:
Credit card lines $1,599,242 $ 964,484
Commercial lines of credit 2,247,464 1,668,221
Other unused commitments 256,445 33,418
Commercial letters of credit 21,232 16,352
Standby letters of credit 86,075 56,244
Commitments to purchase mortgage loans 25,000 25,000
Commitments to originate mortgage loans 83,315
</TABLE>
Commitments to extend credit:
Contractual commitments to extend credit are legally binding agreements to lend
money to customers at predetermined interest rates for a specified period of
time. To extend credit the Corporation evaluates each customer's
creditworthiness. The amount of collateral obtained, if deemed necessary, is
based on management's credit evaluation of the counterparty. Collateral held
varies but may include cash, accounts receivable, inventory, property, plant and
equipment and investment securities, among others. Since many of the loan
commitments may expire without being drawn upon, the total commitment amount
does not necessarily represent future cash requirements.
Letters of credit:
There are two principal types of letters of credit: commercial and standby
letters of credit. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
In most instances, cash items are held by the Corporation to collateralize these
instruments.
In general, commercial letters of credit are short-term instruments
used to finance a commercial contract for the shipment of goods from a seller to
a buyer. This type of letter of credit ensures prompt payment to the seller in
accordance with the terms of the contract. Although the commercial letter of
credit is contingent upon the satisfaction of specified conditions, it
represents a credit exposure if the buyer defaults on the underlying
transaction.
Standby letters of credit are also issued by the Corporation to
disburse funds to a third party beneficiary if the Corporation's customer fails
to perform under the terms of an agreement with the beneficiary. These letters
of credit are used by the customer as a credit enhancement and typically expire
without being drawn upon.
Other commitments:
In 1998, the Corporation entered into a commitment to purchase $25,000,000 of
mortgage loans from another institution with the option of purchasing additional
loans up to $175,000,000. The commitment expires on June 30, 2000. The purchased
mortgage loans will continue to be serviced by the originating institution. As
of December 31, 1998, no loans have been purchased under this agreement. In
1997, the Corporation entered into a similar agreement to purchase up to
$150,000,000 in mortgage loans. The Corporation purchased the full amount
permitted by this commitment before the end of 1998.
Moreover, in 1998, the Corporation entered into a commitment with a
third-party to originate $90,000,000 in thirty-
<PAGE> 79
Popular, Inc.
F-54
year mortgages at an unsubsidized fixed rate of 6.50%. The commitment is for a
period of 26 months, but may be extended for an additional ten-month period
subject to certain conditions. The Corporation entered into certain transactions
to hedge the interest rate risk exposure on this commitment. As of December 31,
1998, loans amounting to $6,685,000 have been originated under this agreement.
Fees received and costs incurred in originating this commitment have been
deferred and are being allocated to the loans originated and will be recognized
when such loans are sold.
Geographic concentration:
A geographic concentration exists within the Corporation's loan portfolio since
most of its business activity is with customers located in Puerto Rico. As of
December 31, 1998, the Corporation had no significant concentrations of credit
risk and no significant exposure to highly leveraged transactions in its loan
portfolio. For further information on the asset composition of the Corporation
by geographical area at December 31, 1998 and 1997, please refer to Note 27 on
Segment Reporting.
Included in total assets of Puerto Rico are investments in obligations
of the U.S. Treasury and U.S. Government agencies amounting to $5.0 billion and
$3.8 billion in 1998 and 1997, respectively.
NOTE 24 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The information about the estimated fair values of financial instruments
required by generally accepted accounting principles is presented hereunder
including some items not recognized in the consolidated statements of condition.
A financial instrument is defined as cash, evidence of an ownership
interest in an entity, or a contract that creates a contractual obligation or
right to deliver to or receive cash or another financial instrument from a
second entity on potentially favorable terms with the first entity. All
nonfinancial instruments and certain other specific items are excluded from the
fair value disclosure requirements.
For those financial instruments with no quoted market prices available,
fair values have been estimated using present value or other valuation
techniques. These techniques are inherently subjective and are significantly
affected by the assumptions used, including the discount rates, estimates of
future cash flows and prepayment assumptions. In that regard, the derived fair
value estimates cannot be substantiated by comparison to independent markets
and, in many cases, could not be realized in immediate settlement of the
instrument.
The fair values reflected herein have been determined based on the
prevailing interest rate environment as of December 31, 1998 and 1997,
respectively. In different interest rate environments, fair value results can
differ significantly, especially for certain fixed rate financial instruments
and non-accrual assets. In addition, the fair values presented do not attempt to
estimate the value of the Corporation's fee generating businesses and
anticipated future business activities, that is, they do not represent the
Corporation's value as a going concern. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the Corporation.
The estimated fair values of the Corporation's financial instruments,
their carrying value and the methodologies used to estimate fair values are
presented below.
Short-term financial instruments:
Short-term financial instruments, both assets and liabilities, have been valued
at their carrying amounts as reflected in the Corporation's consolidated
statements of condition. For these financial instruments, the carrying value
approximates fair value because of the relatively short period of time between
the origination of the instruments and their expected realization. Included in
this category are: cash and due from banks, federal funds sold and securities
and mortgages purchased under agreements to resell, time deposits with other
banks, bankers' acceptances, customers' liabilities on acceptances, accrued
interest receivable, securities sold under agreements to repurchase, acceptances
outstanding and accrued interest payable.
Investment and trading securities:
Investment and trading securities are financial instruments which trade
regularly on secondary markets. The estimated fair value of these securities was
determined using either market prices or dealer quotes, where available, or
quoted market prices of financial instruments with similar characteristics. The
fair value of investment securities available-for-sale and trading securities
equals their carrying value since they are marked-to-market for accounting
purposes. These instruments are detailed in the consolidated statements of
condition and in Notes 3, 4 and 25.
Loans held-for-sale:
Estimated fair value of loans held-for-sale as of December 31, 1998, was
$662,709,000 (1997 - $265,421,000) based on secondary market prices.
Loans:
Estimated fair values have been determined for groups of loans with similar
financial characteristics. Loans were segregated by type such as commercial,
construction, residential mortgage, consumer and credit cards. Each loan
category was further seg-
<PAGE> 80
Popular, Inc.
F-55
mented based on collateral, interest repricing and accrual vs. non-accrual
status. For variable rate loans with frequent repricing terms and no significant
change in credit risk, fair values were based on carrying values.
Commercial loans with fixed rates were segregated into commercial real
estate, cash collateral and other. Consumer loans were segregated by type such
as personal, auto, boat, student, credit cards, reserve lines and home equity
loans. Personal loans were further subdivided in mortgage-guaranteed, cash
collateral and unsecured. The fair values of fixed-rate commercial, construction
and consumer loans were estimated by discounting scheduled cash flows using
prevailing market rates for those loans. For non-accruing loans, the estimated
fair values were based on the discounted value of estimated cash flows. For
these loans, principal-only cash flows were adjusted to reflect projected
charge-offs. Interest cash flows were determined based on historical collection
experience. Residential mortgage loans were valued using quoted market prices,
where available, and market prices of traded loans with similar credit ratings,
interest rates and maturity dates adjusted for estimated prepayments. Generally
accepted accounting principles do not require, nor has the Corporation
performed, a fair valuation of its lease financing portfolio. Therefore, for
presentation purposes only, leases are shown below with fair value equal to its
carrying value.
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------
Estimated Estimated
Carrying fair Carrying fair
value value value value
- ------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Commercial $ 5,646,027 $ 5,679,439 $ 4,637,409 $ 4,646,199
Construction 257,786 256,089 250,111 248,953
Lease financing 645,280 645,280 581,927 581,927
Mortgage 2,707,589 2,763,034 2,568,692 2,614,296
Consumer (including
credit cards) 3,177,954 3,296,252 3,073,264 3,013,351
Less: Allowance
for loan losses 267,249 211,651
- ------------------------------------------------------------------------------------------
$12,167,387 $12,640,094 $10,899,752 $11,104,726
==========================================================================================
</TABLE>
Deposits:
The fair value of deposits with no stated maturity, such as non-interest bearing
demand deposits, savings, NOW and money market accounts, which at December 31,
1998 and 1997, comprised 66% and 64%, respectively, of the Corporation's total
deposits, is equal to the amount payable on demand as of the respective dates.
The fair value of certificates of deposit is based on the discounted value of
contractual cash flows. The discount rate is estimated using the rates offered
at December 31, 1998 and 1997, respectively, for deposits with similar remaining
maturities.
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------
Estimated Estimated
Carrying fair Carrying fair
value value value value
- ----------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Non-interest bearing
deposits $ 3,176,309 $ 3,176,309 $ 2,546,836 $ 2,546,836
Savings accounts 4,107,990 4,107,990 3,584,963 3,584,963
NOW and money market
accounts 1,678,033 1,678,033 1,357,519 1,357,519
Certificates of deposit 4,709,882 4,705,939 4,260,268 4,310,289
- ----------------------------------------------------------------------------------------------
$13,672,214 $13,668,271 $11,749,586 $11,799,607
==============================================================================================
</TABLE>
Borrowings and long-term debt:
Borrowings and long-term debt, which include other short-term borrowings, notes
payable, senior debentures, subordinated notes and capital securities, were
valued using quoted market rates for similar instruments at December 31, 1998
and 1997, respectively. Included within other short-term borrowings at December
31, 1998, were $342,232,000 (1997 - $183,999,000) in commercial paper issued by
the Corporation which has been valued at its carrying amount because of the
relatively short period of time between its origination and maturity.
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------
Estimated Estimated
Carrying fair Carrying fair
value value value value
- ----------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Other short-term
borrowings $1,639,082 $1,640,048 $1,287,435 $1,287,306
Notes payable 1,307,160 1,315,833 1,403,696 1,413,748
Subordinated notes 125,000 126,538 125,000 126,132
Capital securities 150,000 149,115 150,000 158,481
</TABLE>
Commitments to extend credit and standby letters of credit:
Commitments to extend credit were fair valued using the fees currently charged
to enter into similar agreements. For those commitments where a future stream of
fees is charged, the fair value was estimated by discounting the projected cash
flows of fees on commitments which are expected to be disbursed, based on
historical experience. The fair value of letters of credit is based on fees
currently charged on similar agreements. At December 31, 1998, the Corporation
had $4,103,151,000 and $107,307,000 in commitments to extend credit and letters
of credit, respectively (1997 - $2,666,123,000 and $72,596,000). The estimated
fair value of these financial instruments with no carrying value was $7,878,000
(1997 - $8,577,000).
<PAGE> 81
Popular, Inc.
F-56
NOTE 25 - RISK MANAGEMENT AND TRADING ACTIVITIES
The Corporation's exposure to market risk relates to changes in interest rates
or in the fair value of the underlying financial instruments and, to a limited
extent, to fluctuations in foreign currency exchange rates. The operations are
subject to the risk of interest rate fluctuations to the extent that
interest-earning assets and interest-bearing liabilities mature or reprice at
different times or in differing amounts.
Risk management activities are aimed at optimizing net interest income,
consistent with the Corporation's business strategies. Among the various methods
used by the Corporation to measure the risks generated by assets and liabilities
are beta-adjusted gap analysis, simulations and duration analysis.
In managing its market risk the Corporation enters, to a limited
extent, into certain derivative instruments that expose it to credit risk, which
represent the risk that the counterparties might default on their obligations.
To manage the level of credit risk the Corporation deals with counterparties of
good credit standing, enters into master netting agreements whenever possible
and, when appropriate, obtains collateral. Concentrations of credit risk which
arise through the Corporation's off-balance sheet lending activities are
presented in Note 23.
The following table indicates the types of derivative financial
instruments the Corporation held at December 31. The credit exposure is
represented by the fair value of the instruments with a positive market value.
The table should be read in conjunction with the descriptions of these products
and the Corporation's objectives for holding them which immediately follows.
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------------------------------------
Average Average
Notional for the Fair Notional for the Fair
amount year value amount year value
- --------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest rate swaps:
Pay floating/receive
fixed $ 15,000 $ 15,000 $ 477 $ 15,000 $ 20,181 $ 108
Pay fixed/receive
floating 190,000 206,042 (2,732) 215,000 167,180 (1,678)
Interest rate swaptions 62,163 55,668 38,495 32,271 29,360 23,277
Interest rate futures 125,065 28,357
Interest rate options 61,753 65,835 584 60,917 238,830 533
Interest rate caps 3,500 3,500 22 3,413 1,351 41
Interest rate floors 3,500 3,500 (91) 3,413 1,351 (46)
Foreign exchange
contracts 120 877 1,234 1,047
Securities sold not yet
purchased 4,649
</TABLE>
Interest rate swaps:
Interest rate swap agreements generally involve the exchange of fixed and
floating rate interest payment obligations without the exchange of the
underlying principal. Net interest settlements on interest rate swaps are
recorded as an adjustment to interest income or interest expense of the hedged
item.
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Activity of interest rate swaps hedges for the year:
Beginning balance $230,000 $140,000
New swaps 170,000
Matured swaps (25,000) (80,000)
- ------------------------------------------------------------------------------------------
Ending balance $205,000 $230,000
==========================================================================================
Pay floating/receive fixed:
Weighted average receive rate at December 31 6.42% 6.42%
Weighted average pay rate at December 31 5.06 5.94
Pay fixed/receive floating:
Weighted average receive rate at December 31 5.23% 5.88%
Weighted average pay rate at December 31 6.32 6.24
</TABLE>
The agreements were entered into to change the Corporation's interest
rate exposure and they end at the time the related obligation matures. The
variable rates are based on the three-month and six-month LIBOR rates.
Nonperformance by any of the counterparties on this agreement will expose the
Corporation to an interest rate risk.
Interest rate swaptions:
The Corporation enters into options on swaps ("swaption") derivative securities,
which combine the characteristics of interest rate swaps and options, for
hedging purposes. BPPR issues certificates of deposit with returns linked to the
Standard and Poor's 500 index (the index). In order to hedge the cost of these
certificates, positions in swaptions are assumed. These swaptions earn a return
to the Corporation equal to the appreciation in the index throughout the life of
the certificate of deposit issued. In exchange, the Corporation pays the
counterparty a fixed rate of interest.
Interest rate futures:
Financial futures contracts are agreements to buy or sell a notional amount of a
financial instrument at a given time in the future. Options on futures contracts
confer the right from seller to buyer to take a future position at a stated
price. Risks arise from the possible inability of counterparties to meet the
terms of their contracts and from movements in securities values and interest
rates.
<PAGE> 82
F-57
Interest rate options, caps and floors:
Interest rate options are contracts that grant the purchaser, for a premium
payment, the right to either purchase from or sell to the writer of the option a
financial instrument at a specified price within a specified period of time or
on a specified date. Interest rate caps and floors are option-like contracts
that require the writer to pay the purchaser at specified future dates the
amount, if any, by which a specified market interest rate exceeds the fixed cap
rate or falls below the fixed floor rate, applied to a notional principal
amount. The option writer receives a premium for bearing the risk of unfavorable
interest rate changes.
Foreign exchange contracts:
To satisfy the needs of its customers, from time to time, the Corporation enters
into foreign exchange contracts in the spot or futures market. Spot contracts
require the exchange of two currencies at an agreed rate to occur within two
business days of the contract date. Forward and futures contracts to purchase or
sell currencies at a future date settle over periods of up to one year, in
general. Futures and forward contracts are recorded at market value.
Securities sold not yet purchased:
The Corporation enters in securities sold not yet purchased transactions for
hedging strategies and for trading purposes. Various assets and liabilities,
such as investment securities financed by borrowings, are usually hedged to
lock-in spreads and reduce the risk of losses in value due to interest rate
fluctuations.
Open positions on securities sold short for trading purposes are
usually closed at each month-end. The volume of such transactions is not
significant.
Trading activities:
The Corporation maintains limited trading positions in certain financial
instruments and nonfinancial contracts including, to a limited extent,
derivatives. Most of the Corporation's trading activities are limited to the
purchase of debt securities for the purpose of selling them in the near term and
positioning securities for resale to retail customers. Trading activities of the
Corporation are subject to strict guidelines approved by the Board of Directors
and included in the investment policy.
In anticipation of customer demand, the Corporation carries an
inventory of capital market instruments and maintains market liquidity by
quoting bid and offer prices to and trading with other market makers. Positions
are also taken in interest rate sensitive instruments, based on expectations of
future market conditions. These activities constitute the proprietary trading
business and are held by the Corporation to provide customers with financial
products at competitive prices. As trading strategies depend on both
market-making and proprietary positions, given the relationship between
instruments and markets, those activities are managed in concert in order to
maximize net trading revenue.
All trading instruments are subject to market risk, the risk that
future changes in market conditions may make an instrument less valuable or more
onerous. Fluctuations in market prices, interest rates or exchange rates change
the market value of the instruments. As the instruments are recognized at market
value, these changes directly affect reported income. Exposure to market risk is
managed, in accordance with risk limits set by senior management, by buying or
selling instruments or entering into offsetting positions.
At December 31, 1998 and 1997, the Corporation held no futures or
options contracts written for trading purposes. The following table indicates
the fair value and net gains (losses) of derivatives financial instruments held
for trading purposes.
<TABLE>
<CAPTION>
Fair Value
- ------------------------------------------------------------------------------------
At December 31, 1998 Average for the period Net gains
Assets Liabilities Assets Liabilities (losses)
- ------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Futures contracts $0 $0 $0 $38 $150
</TABLE>
<TABLE>
<CAPTION>
Fair Value
- ------------------------------------------------------------------------------------
At December 31, 1998 Average for the period Net gains
Assets Liabilities Assets Liabilities (losses)
- ------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Futures contracts $0 $0 $0 $ 1 $(23)
Options 0 0 0 11 (41)
</TABLE>
The Corporation's credit exposure from off-balance sheet derivative
financial instruments held or issued for trading purposes is represented by the
fair value of the instruments with a positive fair value at that date.
NOTE 26 - SUPPLEMENTAL DISCLOSURE ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS:
During the year ended December 31, 1998, the Corporation paid interest and
income taxes amounting to $768,415,000 and $93,850,000, respectively (1997 -
$703,553,000 and $88,752,000; 1996 - $579,733,000 and $76,324,000). In addition,
loans transferred to other real estate and other property for the year ended
December 31, 1998, amounted to $27,978,000 and $26,775,000, respectively (1997 -
$23,152,000 and $24,968,000).
<PAGE> 83
Popular, Inc.
F-58
NOTE 27 - SEGMENT REPORTING
Popular, Inc. operates three major reportable segments: commercial banking,
mortgage and consumer finance, and lease financing. Management has determined
its reportable segments based on legal entity, which is the way that operating
decisions and performance is measured. These entities have then been aggregated
by products, services and markets with similar characteristics.
The Corporation's commercial banking segment includes all banking
subsidiaries engaged in business in Puerto Rico and U.S., which provide
individuals, corporations and institutions with commercial and retail banking
services, including loans and deposits, trust, mortgage banking and servicing,
asset management, credit cards and other financial services. These services are
offered through a delivery system of 318 branches throughout Puerto Rico, U.S.
and British Virgin Islands, New York, Illinois, California, Florida, Texas and
New Jersey.
The Corporation's mortgage and consumer finance segment includes those
non-banking subsidiaries whose principal activity is originating mortgage and
consumer loans such as Popular Mortgage, Popular Finance and Equity One. The
services of Popular Mortgage and Popular Finance are furnished through 59
offices in Puerto Rico while those of Equity One are provided in 128 offices
throughout 36 states.
The Corporation's lease financing segment provides financing for
vehicles and equipment through 10 offices of Popular Leasing and Rental, Inc. in
Puerto Rico and 8 offices of Popular Leasing, USA in eight states. The "Other"
category includes all holding companies and non-banking subsidiaries which
provide investment banking and broker/dealer activities, as well as those
providing ATM processing services and retail financial services. It also
includes the banking operations of Banco Fiduciario in the Dominican Republic.
The accounting policies of the segments are the same as those described
in the summary of accounting policies. Following are the results of operations
and selected financial information by operating segment for each of the three
years ended December 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Mortgage and
Commercial consumer Lease Elimina-
banking finance financing Other tions Total
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands) 1998
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 751,126 $ 83,940 $ 40,180 $ (2,163) $ (71) $ 873,012
Provision for loan losses 104,374 21,480 11,250 109 137,213
Other income 215,021 31,944 18,828 26,915 (1,462) 291,246
Intangibles amortization 25,602 890 1,237 131 27,860
Depreciation expense 51,830 1,428 8,590 801 62,649
Other operating expenses 532,015 55,798 21,668 20,527 (491) 629,517
Income tax 53,464 13,964 6,258 972 13 74,671
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 198,862 $ 22,324 $ 10,005 $ 2,212 $ (1,055) $ 232,348
=================================================================================================================================
Segment assets $19,973,005 $1,830,134 $678,878 $5,269,381 $(4,591,041) $23,160,357
=================================================================================================================================
<CAPTION>
1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 668,230 $ 76,449 $ 36,648 $ 2,628 $ 783,955
Provision for loan losses 82,095 18,866 9,646 110,607
Other income 201,752 23,741 16,985 5,354 (234) 247,598
Intangibles amortization 20,715 1,001 1,280 (122) 22,874
Depreciation expense 43,898 1,121 8,078 1,426 54,523
Operating expenses 492,009 41,156 20,819 5,959 (420) 559,523
Income tax 55,104 15,067 5,160 (942) 72 74,461
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 176,161 $ 22,979 $ 8,650 $ 1,661 $ 114 $ 209,565
=================================================================================================================================
Segment assets $16,759,606 $1,519,739 $625,436 $3,981,062 $(3,585,336) $19,300,507
=================================================================================================================================
<CAPTION>
1996
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 577,541 $ 62,147 $ 30,588 $ 11,037 $ 681,313
Provision for loan losses 63,271 16,085 9,483 88,839
Other income 165,034 15,335 16,690 8,732 (319) 205,472
Intangibles amortization 15,665 1,231 1,280 (122) 18,054
Depreciation expense 38,725 869 7,250 1,637 48,481
Operating expenses 421,219 31,967 18,518 4,203 (523) 475,384
Income tax 51,346 11,020 3,970 4,461 80 70,877
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 152,349 $ 16,310 $ 6,777 $ 9,590 $ 124 $ 185,150
=================================================================================================================================
Segment assets $14,260,989 $1,343,378 $566,200 $3,368,033 $(2,774,497) $16,764,103
=================================================================================================================================
</TABLE>
Geographic Information
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Revenues(*):
Puerto Rico $1,419,371 $1,297,532 $1,107,679
United States 462,582 390,759 316,694
Other 60,996 50,610 53,952
- ---------------------------------------------------------------------------------------------------------------------------------
Total consolidated revenues $1,942,949 $1,738,901 $1,478,325
=================================================================================================================================
(*) Total revenues include interest income, service charges on deposit accounts,
other service fees, gain on sale of securities, trading account profit, and
other income.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 84
F-59
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Selected Balance Sheet Information:
Puerto Rico
Total assets $16,517,161 $14,301,572 $12,498,375
Loans 7,895,689 7,322,109 6,314,797
Deposits 9,444,199 8,581,277 8,119,424
United States
Total assets $ 5,660,628 $ 4,503,956 $ 3,644,287
Loans 4,556,060 3,686,538 3,053,796
Deposits 3,410,808 2,714,282 2,177,534
Other
Total assets $ 982,568 $ 494,979 $ 621,441
Loans 627,046 367,960 410,436
Deposits 817,207 454,027 466,317
</TABLE>
NOTE 28 - CONTINGENT LIABILITIES:
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.
NOTE 29- POPULAR, INC. (HOLDING COMPANY ONLY) FINANCIAL INFORMATION:
The following condensed financial information presents the financial position of
the Holding Company only as of December 31, 1998 and 1997 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998.
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
December 31,
- -------------------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
ASSETS
Cash $ 524 $ 378
Money market investments 3,700
Investment securities available-for-sale,
at market value 107,175 88,371
Investment in BPPR, at equity 1,438,766 1,255,880
Investment in Banco Popular, Illinois, at equity 132,465 128,089
Investment in Banco Popular, FSB, at equity 165,838 148,038
Investment in Banco Popular, N.A. (California),
at equity 15,597 14,187
Investment in Gore-Bronson Banks, at equity 61,017
Investment in First State Bank of Southern
California, at equity 35,714
Investment in other subsidiaries, at equity 33,160 26,933
Advances to subsidiaries 769,406 691,706
Other assets 3,813 3,683
- -------------------------------------------------------------------------------------------
Total assets $2,767,175 $2,357,265
===========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Securities sold under agreements to repurchase $ 51,438 $ 51,775
Commercial paper 164,515 98,099
Other short-term borrowings 247,072 90,875
Notes payable 436,877 466,088
Accrued expenses and other liabilities 33,160 22,336
Subordinated notes 125,000 125,000
Stockholders' equity 1,709,113 1,503,092
- -------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,767,175 $2,357,265
===========================================================================================
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31,
- -------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Income:
Dividends from subsidiaries $ 70,925 $ 53,000 $ 42,608
Interest on money market and
investment securities 5,052 5,355 4,828
Other operating income 4,674 496 2,394
Interest on advances to
subsidiaries 49,564 45,434 42,047
- -------------------------------------------------------------------------------------------
Total income 130,215 104,285 91,877
- -------------------------------------------------------------------------------------------
Expenses:
Interest expense 58,747 53,182 42,761
Operating expenses 1,133 1,494 1,698
- -------------------------------------------------------------------------------------------
Total expenses 59,880 54,676 44,459
- -------------------------------------------------------------------------------------------
Income before income taxes
and equity in undistributed
earnings of subsidiaries 70,335 49,609 47,418
Income taxes 32 (1,573) 1,109
- -------------------------------------------------------------------------------------------
Income before equity in
undistributed earnings of
subsidiaries 70,303 51,182 46,309
Equity in undistributed earnings
of subsidiaries 162,045 158,383 138,841
- -------------------------------------------------------------------------------------------
Net income $232,348 $ 209,565 $185,150
===========================================================================================
</TABLE>
<PAGE> 85
POPULAR, INC.
F-60
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
- ---------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 232,348 $ 209,565 $ 185,150
- ---------------------------------------------------------------------------------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed earnings
of subsidiaries (162,045) (158,383) (138,841)
Depreciation of premises and
equipment 1,345 1,621
Loss on disposition of premises and
equipment 3,295
Gain on sale of investment securities
available-for-sale (4,303) (824)
Amortization of premiums and
accretion of discounts on investments 25 20 22
Net increase in other assets (130) (335) (914)
Net decrease in current taxes (1,018) (86) (3,182)
Net increase (decrease) in interest
payable 2,376 (4,199)
Net increase (decrease) in other
liabilities 419 (2,190) 4,554
- ---------------------------------------------------------------------------------------
Total adjustments (164,676) (161,357) (136,740)
- ---------------------------------------------------------------------------------------
Net cash provided by operating
activities 67,672 48,208 48,410
- ---------------------------------------------------------------------------------------
Cash flows from investing activities:
Net (increase) decrease in money
market investments (3,700) 55,024 (47,564)
Purchases of investment securities
available-for-sale (7,362) (5,560) (1,538)
Maturities of investment securities
available-for-sale 5,000 682 883
Sales of investment securities
available-for-sale 7,700 2,365
Capital contribution to subsidiaries (119,941) (58,500) (30,000)
Distribution from subsidiary 392
Advances to subsidiaries (77,700) (57,449) (100,940)
Acquisition of premises and equipment (15) (3)
Proceeds from sale of premises and
equipment 34,551
- ---------------------------------------------------------------------------------------
Net cash used in investing
activities (196,003) (28,902) (178,770)
- ---------------------------------------------------------------------------------------
Cash flows from financing activities:
Net decrease in securities sold under
agreements to repurchase (337) (309) (191)
Net increase (decrease) in commercial
paper 66,416 (66,280) (10,349)
Net increase (decrease) in other
short-term borrowings 156,197 (61,126) 30,600
Net (decrease) increase in notes
payable (29,211) 232,550 158,039
Payment of senior debentures (30,000)
Cash dividends paid (72,021) (59,037) (51,896)
Proceeds from issuance of
common stock 7,433 4,642 4,135
Treasury stock acquired (39,559)
- ---------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 128,477 (19,119) 130,338
- ---------------------------------------------------------------------------------------
Net increase (decrease) in cash 146 187 (22)
Cash at beginning of period 378 191 213
- ---------------------------------------------------------------------------------------
Cash at end of period $ 524 $ 378 $ 191
=======================================================================================
</TABLE>
The principal source of income for the Holding Company consists of dividends
from BPPR. As a member subject to the regulations of the Federal Reserve Board,
BPPR must obtain the approval of the Federal Reserve Board for any dividend if
the total of all dividends declared by it in any calendar year would exceed the
total of its net profits for that year, as defined by the Federal Reserve
Board, combined with its retained net profits for the preceding two years. The
payment of dividends by BPPR may also be affected by other regulatory
requirements and policies, such as the maintenance of certain minimum capital
levels described in Note 18.
NOTE 30 - POPULAR INTERNATIONAL BANK, INC. (A SUBSIDIARY OF POPULAR, INC.)
FINANCIAL INFORMATION: The following summarized financial information presents
the consolidated financial position of Popular International Bank, Inc. and its
subsidiaries as of November 30, 1998 and 1997, and the results of their
operations, cash flows and changes in stockholder's equity for each of the three
years in the period ended November 30, 1998. Popular International Bank, Inc.
is the holding company of Popular North America, Inc., including Banco Popular
North America and its wholly-owned subsidiary Popular Cash Express, Inc., Banco
Popular, Illinois, GoreBronson Bancorp, Inc., Banco Popular, N.A. (Texas), Banco
Popular, N.A. (California), First State Bank of Southern California, Banco
Popular, N.A. (Florida) and Banco Popular, FSB (second-tier subsidiaries) and
its wholly-owned subsidiary Equity One, Inc.
<PAGE> 86
F-61
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
November 30,
- -------------------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
ASSETS
Cash $ 241,706 $ 70,315
Money market investments 137,196 36,126
Investment securities available-for-sale,
at market value 281,638 323,152
Investment securities held-to-maturity, at cost 21,007 18,054
Loans held-for-sale 227,639 50,886
Loans 3,127,864 2,127,817
Less: Unearned income 70,434 55,295
Allowance for loan losses 65,859 30,907
- -------------------------------------------------------------------------------------------
2,991,571 2,041,615
- -------------------------------------------------------------------------------------------
Other assets 212,583 93,120
Intangible assets 142,988 82,726
- -------------------------------------------------------------------------------------------
Total assets $ 4,256,328 $ 2,715,994
===========================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Deposits:
Non-interest bearing $ 377,138 $ 211,396
Interest bearing 1,708,774 1,003,792
- -------------------------------------------------------------------------------------------
2,085,912 1,215,188
- -------------------------------------------------------------------------------------------
Federal funds purchased and securities
sold under agreements to repurchase 405,810 24,288
Other short-term borrowings, consisting of
$368,208 in term notes (1997 - $269,732),
and a revolving credit facility with an affiliate
of $60,000 (1997 - $10,000) 428,208 279,732
Notes payable (Note 12) 663,540 704,507
Other liabilities 80,585 52,473
Preferred beneficial interest in Popular
North America's junior subordinated
deferrable interest debentures guaranteed
by the Corporation 150,000 150,000
Minority interest in consolidated subsidiary 27,591
Stockholder's equity 414,682 289,806
- -------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $ 4,256,328 $ 2,715,994
===========================================================================================
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended November 30,
- ---------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Interest and fees:
Loans $ 252,615 $ 192,202 $ 136,824
Money market, trading
and investment securities 22,223 24,658 16,188
- ---------------------------------------------------------------------------------
274,838 216,860 153,012
- ---------------------------------------------------------------------------------
Interest expense:
Deposits 57,584 35,972 24,000
Short-term borrowings 28,701 23,092 22,572
Long-term borrowings 60,723 55,603 35,265
- ---------------------------------------------------------------------------------
147,008 114,667 81,837
- ---------------------------------------------------------------------------------
Net interest income 127,830 102,193 71,175
Provision for loan losses 21,611 17,041 14,299
- ---------------------------------------------------------------------------------
Net interest income after
provision for loan losses 106,219 85,152 56,876
Service charges on deposit accounts 10,211 5,588 2,735
Other service fees 17,917 8,159 4,663
Gain on sale of securities 2,754 339 7,026
Trading account loss (206)
Other operating income 20,239 11,817 5,342
- ---------------------------------------------------------------------------------
157,134 111,055 76,642
- ---------------------------------------------------------------------------------
Operating expenses 145,023 85,031 46,509
- ---------------------------------------------------------------------------------
Net loss of minority interest 328
- ---------------------------------------------------------------------------------
Income before income tax 12,439 26,024 30,133
Income tax 6,990 11,192 12,978
- ---------------------------------------------------------------------------------
Net income $ 5,449 $ 14,832 $ 17,155
=================================================================================
</TABLE>
<PAGE> 87
POPULAR, INC.
F-62
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended November 30,
- --------------------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,449 $ 14,832 $ 17,155
- --------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization of premises
and equipment 6,470 3,136 1,833
Provision for loan losses 21,611 17,041 14,299
Amortization of intangibles 8,756 5,850 3,460
Amortization of deferred loan fees and costs (1,109) (1,529) (1,922)
Amortization of premiums and accretion of
discounts on investments 270 1,271 267
Increase in loans held-for-sale (176,753) (2,817) (24,513)
Gain on sale of investment securities
available-for-sale (2,754) (339) (7,026)
Gain on disposition of premises and
equipment (27) (655)
Gain on sale of loans (14,828) (10,133) (8,049)
Net increase in interest receivable (8,873) (5,395) (1,286)
Net increase in other assets (11,141) (5,312) (1,915)
Net increase in interest payable 1,121 5,008
Net increase (decrease) in current and
deferred taxes 870 (3,556) (1,942)
Net (decrease) increase in other liabilities (622) (1,884) 5,392
- --------------------------------------------------------------------------------------------------
Total adjustments (177,009) 686 (21,402)
- --------------------------------------------------------------------------------------------------
Net cash (used in) provided by
operating activities (171,560) 15,518 (4,247)
- --------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net decrease (increase) in money market
investments 6,012 24,058 (15,676)
Purchases of investment securities held-
to-maturity (7,852) (270) (6,214)
Purchases of investment securities
available-for-sale (798,676) (526,337) (71,955)
Maturities of investment securities held-
to-maturity 4,372 2,750
Sale of investment securities available
for-sale 126,659 506,365 61,205
Maturities of investment securities
available-for-sale 798,667 70,092 98,011
Net disbursements on loans (1,009,462) (539,951) (574,754)
Proceeds from sale of loans 587,005 294,001 285,771
Acquisition of loan portfolios (5,228) (10,853)
Assets acquired, net of cash (17,168) (36,734) (2,656)
Acquisition of premises and equipment (23,541) (17,974) (4,794)
Proceeds from sales of premises and
equipment 1,178 5,857
- --------------------------------------------------------------------------------------------------
Net cash used in investing activities (338,034) (228,996) (231,062)
- --------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposits 137,866 56,092 42,735
Net deposits acquired 36,297
Net increase (decrease) in federal funds
purchased and securities sold under
agreements to repurchase 381,522 (169) 1,040
Net increase (decrease) in other short-
term borrowings 92,110 (130,893) 222,514
Proceeds from issuance of notes payable 94,425 964,931 30,024
Payments of notes payable (181,176) (845,840) (84,885)
Proceeds from issuance of Capital Securities 150,000
Proceeds from issuance of common stock 462 150
Capital contribution from Parent company 119,941 58,039 29,850
- --------------------------------------------------------------------------------------------------
Net cash provided by financing activities 680,985 252,622 241,428
- --------------------------------------------------------------------------------------------------
Net increase in cash and due from banks 171,391 39,144 6,119
Cash and due from banks at beginning of year 70,315 31,171 25,052
- --------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 241,706 $ 70,315 $ 31,171
==================================================================================================
</TABLE>
STATEMENTS OF CHANGES IN
STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Year ended November 30,
- -------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Preferred Stock:
Par value $25; authorized 25,000,000
shares, none issued
Common Stock:
Par value $5; authorized 1,000,000
shares, 792,300 shares issued and
outstanding (1997 - 792,300;
1996 - 700,000)
Balance at beginning of the period $ 3,962 $ 3,500 $ 3,350
Issuance of common stock 462 150
- -------------------------------------------------------------------------------------------
Balance at end of the period 3,962 3,962 3,500
- -------------------------------------------------------------------------------------------
Additional paid-in capital:
Balance at beginning of the period 224,864 132,964 103,114
Capital contribution from Parent
company 119,941 91,900 29,850
- -------------------------------------------------------------------------------------------
Balance at end of the period 344,805 224,864 132,964
- -------------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of the period 59,221 44,389 27,234
Net income 5,449 14,832 17,155
- -------------------------------------------------------------------------------------------
Balance at end of the period 64,670 59,221 44,389
- -------------------------------------------------------------------------------------------
Accumulated other comprehensive
income:
Balance at beginning of the period 1,759 686 5,437
Other comprehensive (loss) income (514) 1,073 (4,751)
- -------------------------------------------------------------------------------------------
Balance at end of period 1,245 1,759 686
- -------------------------------------------------------------------------------------------
Total stockholder's equity $ 414,682 $ 289,806 $ 181,539
===========================================================================================
</TABLE>
STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Year ended November 30,
- -----------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 5,449 $ 14,832 $ 17,155
Other comprehensive income:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the period, net of tax 1,464 1,278 (188)
Less: Reclassification adjustment for
gains included in net income, net of tax 1,763 205 4,563
Foreign currency translation adjustment (215)
- -----------------------------------------------------------------------------------------
Other comprehensive (loss) income (514) 1,073 (4,751)
- -----------------------------------------------------------------------------------------
Comprehensive income $ 4,935 $ 15,905 $ 12,404
=========================================================================================
</TABLE>
<PAGE> 88
F-63
NOTE 31 - POPULAR NORTH AMERICA, INC. (A SECOND - TIER
SUBSIDIARY OF POPULAR, INC.) FINANCIAL INFORMATION:
The following summarized financial information presents the con-
solidated financial position of Popular North America, Inc. and
its subsidiaries, Banco Popular North America and its wholly-
owned subsidiary Banco Popular, Illinois, Gore-Bronson Bancorp,
Inc., Banco Popular, N.A. (Florida), Banco Popular, FSB, includ-
ing its wholly-owned subsidiary Equity One, Inc., Banco Popular
N.A. (California), First State Bank of Southern California, Banco
Popular N.A. (Texas) and Popular Cash Express, Inc. (second
tier subsidiaries) as of November 30, 1998 and 1997, and the
results of their operations, cash flows and changes in
stockholder's equity for each of the three years in the period
ended November 30, 1998.
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
November 30,
- --------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 140,087 $ 70,207
Money market investments 88,511 33,709
Investment securities available-for-sale,
at market value 272,712 323,090
Investment securities held-to-maturity, at cost 21,008 18,054
Loans held-for-sale 227,639 50,886
Loans 2,866,764 2,127,817
Less: Unearned income 70,434 55,295
Allowance for loan losses 40,415 30,907
- --------------------------------------------------------------------------------------
2,755,915 2,041,615
- --------------------------------------------------------------------------------------
Other assets 131,652 90,304
Intangible assets 135,909 82,725
- --------------------------------------------------------------------------------------
Total assets $ 3,773,433 $ 2,710,590
======================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Deposits:
Non-interest bearing $ 336,939 $ 211,396
Interest bearing 1,429,318 1,003,792
- --------------------------------------------------------------------------------------
1,766,257 1,215,188
- --------------------------------------------------------------------------------------
Federal funds purchased and securities sold
under agreements to repurchase 405,810 24,288
Other short-term borrowings, consisting of
$324,733 term notes (1997 - $269,732) and a
revolving credit facility with an affiliate of
$60,000 (1997 - $10,000) 384,733 279,732
Notes payable (Note 12) 624,194 704,507
Other liabilities 61,485 52,190
Preferred beneficial interest in
Popular North America's junior subordinated
deferrable interest debentures guaranteed
by the Corporation 150,000 150,000
Stockholder's equity 380,954 284,685
- --------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $ 3,773,433 $ 2,710,590
======================================================================================
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended November 30,
- -------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Interest and fees:
Loans $ 243,662 $ 192,202 $ 136,824
Money market and investment
securities 21,496 23,089 16,107
- -------------------------------------------------------------------------------
265,158 215,291 152,931
- -------------------------------------------------------------------------------
Interest expense:
Deposits 50,192 35,972 24,000
Short-term borrowings 27,556 23,091 22,572
Long-term borrowings 60,395 55,602 35,265
- -------------------------------------------------------------------------------
138,143 114,665 81,837
- -------------------------------------------------------------------------------
Net interest income 127,015 100,626 71,094
Provision for loan losses 21,502 17,041 14,299
- -------------------------------------------------------------------------------
Net interest income after provision
for loan losses 105,513 83,585 56,795
Service charges on deposit accounts 9,407 5,588 2,735
Other service fees 16,272 8,149 4,663
Gain on sale of securities 2,775 308 7,026
Other operating income 19,294 11,926 5,457
- -------------------------------------------------------------------------------
153,261 109,556 76,676
- -------------------------------------------------------------------------------
Operating expenses 139,557 84,512 46,600
- -------------------------------------------------------------------------------
Income before tax 13,704 25,044 30,076
Income tax 6,990 11,192 12,978
- -------------------------------------------------------------------------------
Net income $ 6,714 $ 13,852 $ 17,098
===============================================================================
</TABLE>
<PAGE> 89
POPULAR, INC.
F-64
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended November 30,
- ---------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,714 $ 13,852 $ 17,098
- ---------------------------------------------------------------------------------------------
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization
of premises and equipment 5,765 3,092 1,833
Provision for loan losses 21,502 17,041 14,299
Amortization of intangibles 8,691 5,850 3,460
Amortization of deferred loan fees
and costs (1,109) (1,529) (1,922)
Amortization of premiums and
accretion of discounts on
investments 269 1,271 267
Increase in loans held-for-sale (176,753) (2,817) (24,513)
Gain on sale of investment securities
available-for-sale (2,774) (309) (7,026)
Gain on disposition of premises
and equipment (26) (655)
Gain on sale of loans (14,828) (10,133) (8,049)
Net increase in interest receivable (4,396) (5,395) (1,286)
Net decrease (increase) in
other assets 4,426 (5,137) (1,884)
Net increase in interest payable 897 5,001
Net decrease in current and
deferred taxes (2,737) (3,556) (1,942)
Net increase (decrease)
in other liabilities 746 (788) 5,392
- ---------------------------------------------------------------------------------------------
Total adjustments (160,327) 1,936 (21,371)
- ---------------------------------------------------------------------------------------------
Net cash (used in) provided by
operating activities (153,613) 15,788 (4,273)
- ---------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net (increase) decrease in money
market investments (32,925) 23,438 (13,912)
Purchases of investment securities
held-to-maturity (7,852) (270) (6,214)
Maturities of investment securities
held-to-maturity 4,372 2,750
Purchases of investment securities
available-for-sale (792,418) (526,272) (71,888)
Sale of investment securities
available-for-sale 126,659 506,255 61,205
Maturities of investment securities
available-for-sale 798,667 70,092 98,011
Net disbursements on loans (1,036,437) (539,951) (574,754)
Proceeds from sale of loans 587,005 294,001 285,771
Acquisition of loan portfolios (5,228) (10,853)
Assets acquired, net of cash (68,406) (36,734) (2,656)
Acquisition of premises and equipment (21,672) (16,542) (4,794)
Proceeds from sale of premises and
equipment 29 5,695
- ---------------------------------------------------------------------------------------------
Net cash used in investing activities (448,206) (228,391) (229,231)
- ---------------------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS (cont.)
<TABLE>
<CAPTION>
Year ended November 30,
- ---------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits 137,775 56,344 42,735
Net deposits acquired 36,297
Net increase (decrease) in federal
funds purchased and securities
sold under agreements to repurchase 388,522 (169) 1,040
Net increase (decrease) in other
short-term borrowings 103,451 (130,892) 222,514
Proceeds from issuance of notes
payable 94,425 964,931 30,024
Payments of notes payable (178,712) (845,840) (84,885)
Proceeds from issuance of Capital
securities 150,000
Capital contribution from Parent
company 89,941 58,500 27,000
- ---------------------------------------------------------------------------------------------
Net cash provided by financing
activities 671,699 252,874 238,428
- ---------------------------------------------------------------------------------------------
Net increase in cash and
due from banks 69,880 40,271 4,924
Cash and due from banks at beginning
of period 70,207 29,936 25,012
- ---------------------------------------------------------------------------------------------
Cash and due from banks at end of
period $ 140,087 $ 70,207 $ 29,936
=============================================================================================
</TABLE>
<PAGE> 90
F-65
STATEMENTS OF CHANGES IN
STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Year ended November 30,
- --------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Preferred Stock:
Par value $0.10; authorized 10,000,000
shares, none issued
Common Stock:
Par value $1; authorized 10,000 shares,
2,000 shares issued and outstanding
Balance at beginning and end
of the period $ 2 $ 2 $ 2
- --------------------------------------------------------------------------------------
Additional paid-in capital:
Balance at beginning of the period 224,603 132,163 105,163
Capital contribution from parent
company 89,941 92,440 27,000
- --------------------------------------------------------------------------------------
Balance at end of the period 314,544 224,603 132,163
- --------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of the period 58,329 44,477 27,379
Net income 6,714 13,852 17,098
- --------------------------------------------------------------------------------------
Balance at end of the period 65,043 58,329 44,477
- --------------------------------------------------------------------------------------
Accumulated other comprehensive
income:
Balance at beginning of the period 1,751 685 5,437
Other comprehensive (loss) income (386) 1,066 (4,752)
- --------------------------------------------------------------------------------------
Balance at end of period 1,365 1,751 685
- --------------------------------------------------------------------------------------
Total stockholder's equity $ 380,954 $ 284,685 $ 177,327
======================================================================================
</TABLE>
STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Year ended November 30,
- -----------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 6,714 $ 13,852 $ 17,098
Other comprehensive income:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the period, net of tax 1,377 1,239 (188)
Less: Reclassification adjustment for
gains included in net income, net of tax 1,763 173 4,564
- -----------------------------------------------------------------------------------------
Other comprehensive (loss) income (386) 1,066 (4,752)
- -----------------------------------------------------------------------------------------
Comprehensive income $ 6,328 $ 14,918 $ 12,346
=========================================================================================
</TABLE>
<PAGE> 91
STOCKHOLDERS' INFORMATION
INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers
ANNUAL MEETING
The 1999 annual stockholders' meeting of Popular, Inc. will be held on Tuesday,
April 27, at 10:00 a.m. at Centro Europa Building in San Juan, Puerto Rico.
Telephone: (787) 765-9800 ext. 5637
Fax: (787) 763-5972
E-mail: [email protected]
ADDITIONAL INFORMATION
Copies of the Annual Report to the Securities and Exchange Commission on Form
10-K and any other financial information may be obtained by writing to:
Amilcar L. Jordan
Senior Vice President
Banco Popular de Puerto Rico
PO Box 362708
San Juan, PR 00936-2708
DESIGN:
BD&E Inc., Pittsburgh, Pennsylvania
ILLUSTRATION:
Roxana Villa
PHOTOGRAPHY:
Tony Vera
PRINTING:
Hoechstetter Printing Company
Bowne of Atlanta, Inc.
22
<PAGE> 92
[LOGO]
PO Box 362708
San Juan, Puerto Rico 00936-2708
<PAGE> 1
EXHIBIT 21.1
POPULAR, INC.
AS OF DECEMBER 31, 1998
Subsidiaries of the registrant
A - Previous to the Reorganization
Banco Popular de Puerto Rico (Banco Popular) - A wholly-owned
subsidiary Bank, incorporated under the laws of Puerto Rico in 1917.
Popular Leasing & Rental, Inc. (Popular Leasing) - A wholly
owned subsidiary of Banco Popular, incorporated under the
laws of Puerto Rico in 1989.
Popular Finance, Inc. (Popular Finance) - A wholly-owned
subsidiary of Banco Popular, incorporated under the laws of
Puerto Rico in 1989.
Popular Mortgage Inc. (Popular Home Mortgage) - A
wholly-owned subsidiary of Banco Popular, incorporated under
the laws of Puerto Rico in 1995.
Popular International Bank, Inc. - A wholly-owned subsidiary,
incorporated under the laws of Puerto Rico in 1992.
ATH Costa Rica, S.A. - A wholly-owned subsidiary of Popular
International Bank, Inc., incorporated under the laws of
Costa Rica in 1996.
Popular North America, Inc. - A wholly-owned subsidiary of
Popular International Bank, Inc., incorporated under the laws
of Delaware in 1991.
Banco Gerencial y Fiduciario Dominicano, S.A. - A subsidiary
of Popular International Bank, Inc., incorporated under the
laws of Dominican Republic in 1983.
Banco Popular, N.A. (New Jersey) (Formerly: Banco Popular,
FSB) - A wholly-owned subsidiary of Popular North America,
Inc., chartered in New Jersey in 1995.
Equity One, Inc. - A wholly-owned subsidiary of Banco
Popular, FSB, incorporated under the laws of Delaware in
1988.
Banco Popular North America, Inc. - A wholly-owned subsidiary
of Popular North America, Inc., incorporated under the laws of
Delaware in 1980.
Banco Popular, Illinois - A wholly-owned subsidiary of Banco
Popular North America, Inc., incorporated under the laws of
Illinois in 1914.
Popular Leasing, U.S.A. - A wholly-owned subsidiary of Banco
Popular, Illinois, incorporated under the laws of Delaware in
1997.
1
<PAGE> 2
Banco Popular National Association (California) - A
wholly-owned subsidiary of Popular North America, Inc.,
incorporated under the laws of California in 1982.
Banco Popular National Association (Florida) - A wholly-owned
subsidiary of Popular North America, Inc., incorporated under
the laws of Florida in 1986.
Banco Popular National Association (Texas) - A wholly-owned
subsidiary of Popular North America, Inc., incorporated under
the laws of Texas in 1985.
BanPonce Trust I - A wholly-owned subsidiary of Popular North
America, Inc., incorporated under the laws of Delaware in
1997.
First State Bank of Southern California - A wholly-owned
subsidiary of Popular North America, Inc., incorporated under
the laws of California in 1949.
The Bronson - Gore Bank In Prospect Heights- A wholly-owned
subsidiary of Popular North America, Inc., incorporated under
the laws of Illinois in 1975.
The Irving Bank - A wholly-owned subsidiary of Popular North
America, Inc., incorporated under the laws of Illinois in
1951.
Water Tower Bank - A wholly-owned subsidiary of Popular North
America, Inc., incorporated under the laws of Illinois in
1973.
Popular Cash Express, Inc. - A wholly-owned subsidiary of
Popular North America, Inc., incorporated under the laws of
Delaware in 1997.
Inglewood Quik Check, Inc. - A wholly-owned subsidiary of
Popular Cash Express, Inc., incorporated under the laws of
California in 1986.
Popular Securities Incorporated - A wholly-owned subsidiary,
incorporated under the laws of Puerto Rico in 1956.
Metropolitana de Prestamos, Inc. - A wholly-owned subsidiary,
incorporated under the laws of Puerto Rico in 1961.
Popular Assets Management, Inc. - A wholly-owned subsidiary,
incorporated under the laws of Puerto Rico in 1994 (Inactive
Corporation).
Puerto Rico Parking Corporation. - A wholly-owned subsidiary,
incorporated under the laws of Puerto Rico in 1963 (Inactive
Corporation).
2
<PAGE> 3
B - After the Reorganization
Banco Popular de Puerto Rico (Banco Popular) - A wholly-owned
subsidiary Bank, incorporated under the laws of Puerto Rico in 1998.
Popular Leasing & Rental, Inc. (Popular Leasing) - A wholly
owned subsidiary of Banco Popular, incorporated under the
laws of Puerto Rico in 1989.
Popular Finance, Inc. (Popular Finance) - A wholly-owned
subsidiary of Banco Popular, incorporated under the laws of
Puerto Rico in 1989.
Popular Mortgage Inc. (Popular Home Mortgage) - A
wholly-owned subsidiary of Banco Popular, incorporated under
the laws of Puerto Rico in 1995.
Popular International Bank, Inc. - A wholly-owned subsidiary,
incorporated under the laws of Puerto Rico in 1992.
ATH Costa Rica, S.A. - A wholly-owned subsidiary of Popular
International Bank, Inc., incorporated under the laws of
Costa Rica in 1996.
Popular North America, Inc. - A wholly-owned subsidiary of
Popular International Bank, Inc., incorporated under the laws
of Delaware in 1991.
Banco Gerencial y Fiduciario Dominicano, S.A. - A subsidiary
of Popular International Bank, Inc., incorporated under the
laws of Dominican Republic in 1983.
Equity One, Inc. - A wholly-owned subsidiary of Popular North
America, Inc., incorporated under the laws of Delaware in
1988.
Popular Holdings USA, Inc. (Formerly: Banco Popular North
America, Inc.) - A wholly-owned subsidiary of Popular North
America, Inc., incorporated under the laws of Delaware in
1980.
Banco Popular North America (Formerly: Banco Popular, New
York) - A wholly-owned subsidiary of Popular Holdings USA,
Inc., incorporated under the laws of New York in 1998.
Popular Leasing, U.S.A. - A wholly-owned subsidiary of Banco
Popular North America, incorporated under the laws of
Delaware in 1997.
3
<PAGE> 4
Banco Popular, National Association (Texas) - A wholly-owned
subsidiary of Popular Holdings USA, Inc., incorporated under
the laws of Texas in 1985.
BanPonce Trust I - A wholly-owned subsidiary of Popular North
America, Inc., incorporated under the laws of Delaware in
1997.
The Bronson - Gore Bank In Prospect Heights - A wholly-owned
subsidiary of Popular North America, Inc., incorporated under
the laws of Illinois in 1975.
The Irving Bank - A wholly-owned subsidiary of Popular North
America, Inc., incorporated under the laws of Illinois in
1951.
Water Tower Bank - A wholly-owned subsidiary of Popular North
America, Inc., incorporated under the laws of Illinois in
1973.
Popular Cash Express, Inc. - A wholly-owned subsidiary of
Popular North America, Inc., incorporated under the laws of
Delaware in 1997.
Inglewood Quik Check, Inc. - A wholly-owned subsidiary of
Popular Cash Express Inc., incorporated under the laws of
California in 1986.
Popular Securities Incorporated - A wholly-owned subsidiary,
incorporated under the laws of Puerto Rico in 1956.
Metropolitana de Prestamos, Inc. - A wholly-owned subsidiary,
incorporated under the laws of Puerto Rico in 1961.
Popular Assets Management, Inc. - A wholly-owned subsidiary,
incorporated under the laws of Puerto Rico in 1994 (Inactive
Corporation).
Puerto Rico Parking Corporation. - A wholly-owned subsidiary,
incorporated under the laws of Puerto Rico in 1963 (Inactive
Corporation).
4
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Popular, Inc.
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 333-26941) of
Popular, Inc. of our report dated March 5, 1999, which appears on page F-29 of
the 1998 Annual Report to Shareholders of Popular, Inc., which is incorporated
by reference in Popular, Inc.'s Annual Report on Form 10K for the year ended
December 31, 1998.
/s/ PriceWaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
San Juan, Puerto Rico
March 19, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF POPLAR, INC. FOR THE TWELVE MONTHS ENDED DECEMBER 31,
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> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1,000
<CASH> 667,707
<INT-BEARING-DEPOSITS> 37,206
<FED-FUNDS-SOLD> 910,430
<TRADING-ASSETS> 318,727
<INVESTMENTS-HELD-FOR-SALE> 7,020,396
<INVESTMENTS-CARRYING> 226,134
<INVESTMENTS-MARKET> 228,039
<LOANS> 13,078,795
<ALLOWANCE> 267,249
<TOTAL-ASSETS> 23,160,357
<DEPOSITS> 13,672,214
<SHORT-TERM> 5,715,582
<LIABILITIES-OTHER> 465,351
<LONG-TERM> 1,582,160
0
100,000
<COMMON> 825,690
<OTHER-SE> 783,423
<TOTAL-LIABILITIES-AND-EQUITY> 23,160,357
<INTEREST-LOAN> 1,211,850
<INTEREST-INVEST> 385,473
<INTEREST-OTHER> 54,380
<INTEREST-TOTAL> 1,651,703
<INTEREST-DEPOSIT> 411,492
<INTEREST-EXPENSE> 778,691
<INTEREST-INCOME-NET> 873,012
<LOAN-LOSSES> 137,213
<SECURITIES-GAINS> 8,933
<EXPENSE-OTHER> 720,682
<INCOME-PRETAX> 307,019
<INCOME-PRE-EXTRAORDINARY> 232,348
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 232,348
<EPS-PRIMARY> 1.65
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.91
<LOANS-NON> 262,604
<LOANS-PAST> 24,426
<LOANS-TROUBLED> 579
<LOANS-PROBLEM> 101,842
<ALLOWANCE-OPEN> 211,651
<CHARGE-OFFS> 164,681
<RECOVERIES> 51,770
<ALLOWANCE-CLOSE> 267,249
<ALLOWANCE-DOMESTIC> 240,196
<ALLOWANCE-FOREIGN> 27,053
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Popular, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
POPULAR, INC.
P.O. BOX 362708
SAN JUAN, PUERTO RICO 00936-2708
-------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, APRIL 27, 1999
--------------------
To the Stockholders of Popular, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Popular, Inc. (the "Meeting") for the year 1999 will be held at 10:00 a.m. on
Tuesday, April 27, 1999, on the third floor of the Centro Europa Building, in
Santurce, Puerto Rico, to consider and act upon the following matters:
(1) To elect seven (7) directors of Popular, Inc. (the
"Corporation") for a three-year term; and
(2) To transact any and all other business as may be properly
brought before the Meeting or any adjournments thereof. Management at
present knows of no other business to be brought before the Meeting.
Stockholders of record at the close of business on March 8, 1999, are
entitled to notice of and vote at the Meeting.
You are cordially invited to attend the Meeting. Whether you plan to
attend or not, please sign and return the enclosed proxy so that the
Corporation may be assured of the presence of a Quorum at the Meeting. A
postage-paid envelope is enclosed for your convenience. FOR THE FIRST TIME THIS
YEAR YOU CAN VOTE BY TELEPHONE OR BY INTERNET, FOR FURTHER DETAILS PLEASE REFER
TO THE ENCLOSED PROXY CARD.
San Juan, Puerto Rico, March 22, 1999.
By Order of the Board of Directors,
SAMUEL T. CESPEDES
Secretary
<PAGE> 3
POPULAR, INC.
P.O. BOX 362708
SAN JUAN, PUERTO RICO 00936-2708
-----------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY APRIL 27, 1999
-----------------
This Proxy statement is furnished in connection with the solicitation
by the Board of Directors of Popular, Inc. (the "Corporation") of Proxies to be
voted at the Annual Meeting of Stockholders (the "Meeting") to be held at 10:00
a.m. on Tuesday, April 27, 1999, on the third floor of the Centro Europa
Building, in Santurce, Puerto Rico, and any adjournments thereof. Enclosed with
this Proxy Statement is the Annual Report, including the financial statements
for the year ended December 31, 1998, duly certified by PricewaterhouseCoopers
as independent public accountants. This Proxy Statement, the enclosed Annual
Report, the Notice of Annual Meeting of Stockholders and the form of proxy are
being sent to stockholders on or about March 22, 1999.
Properly executed proxies received by the Secretary of the Corporation
will be voted at the Meeting in accordance with the instructions which appear
therein and for the purposes indicated on the Notice of Meeting. The Board of
Directors does not intend to present any business at the Meeting other than
those included in the Notice of Meeting. The Board of Directors at this time
knows of no other matters which may come before the Meeting. However, if any
new matters requiring the vote of the stockholders properly come before the
Meeting, proxies may be voted with respect thereto in accordance with the best
judgement of Proxyholders, under the discretionary power granted by
stockholders to their proxies in connection with general matters.
SOLICITATION OF PROXIES
In addition to solicitation by mail, management may participate in the
solicitation of Proxies by telephone, personal interviews or otherwise. The
Board of Directors has engaged the firm of Georgeson & Company Inc. to aid in
the solicitation of Proxies. The cost of solicitation will be borne by the
Corporation and is estimated at $6,500.
REVOCABILITY OF PROXY
Any stockholder giving a proxy has the power to revoke it before the
proxy is exercised. The grantor may revoke the proxy by claiming at the Meeting
the right to vote by himself the shares of stock registered in his name or by
notice of revocation in writing to the President or Secretary of Popular, Inc.,
P.O. Box 362708, San Juan, Puerto Rico 00936-2708, delivered before the proxy
is exercised.
VOTING SECURITIES
The only outstanding voting securities of the Corporation are its
shares of common stock, each share of which entitles the holder thereof to one
vote. Only common stockholders of record at the close of business on March 8,
1999 (the "Record Date"), will be entitled to vote at the Meeting and any
adjournments thereof. On the Record Date there were 135,709,287 shares of
common stock of Popular, Inc. outstanding. The shares covered by any such proxy
that are properly executed and received by management before 10:00 a.m. on the
day of the Meeting will be voted.
2
<PAGE> 4
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of common stock of the Corporation is necessary to
constitute a quorum at the Meeting. Votes cast by proxy or in person at the
Meeting will be counted by the persons appointed by the Corporation as members
of the vote-counting committee for the Meeting. For purposes of determining
quorum, the members of the vote-counting committee will treat abstentions and
brokers non-votes as shares that are present and entitled to vote. A broker
non-vote results when a broker or nominee has expressly indicated in the proxy
that it does not have discretionary authority to vote on a particular matter.
As to the election of Directors, the Proxy Card being provided by the Board of
Directors enables a stockholder to vote for the election of the nominees
proposed by the Board, or to withhold authority to vote for one or more of the
nominees being proposed. Directors will be elected by a majority of the votes
cast. Therefore, abstention and broker non-votes will not have an effect on the
election of directors of the Corporation.
PRINCIPAL STOCKHOLDERS
Following is the information, to the extent known by the persons on
whose behalf this solicitation is made, with respect to any person (including
any "group" as that term is used in Section 13(d)(3) of the Securities and
Exchange Act of 1934, as amended) who is known to the Corporation to be the
beneficial owner of more than 5 percent of the Corporation's voting securities.
<TABLE>
<CAPTION>
Amount and nature Percent
of beneficial of
Title of Class Name and address of beneficial owner ownership (1) Class(2)
- -------------- ------------------------------------ ------------- --------
<S> <C> <C> <C>
Common Banco Popular de Puerto Rico (the "Bank")
As Trustee for Banco Popular de Puerto
Rico Retirement Plan 5,672,860
The Bank as Trustee for the Profit Sharing Plan
for the Employees of Banco Popular de Puerto
Rico 5,320,208
----------
10,993,068 (3) 8.1005
Common State Farm Mutual Automobile Insurance
Company 6,836,524 (4) 5.0376
</TABLE>
- -------------
(1) As of February 26, 1999.
(2) Based on 135,709,287 shares of common stock outstanding.
(3) The Bank, as Trustee, administers both Plans through their
Administrative Committees, with sole voting and investment power.
(4) On January 29, 1999 State Farm Mutual Automobile Insurance Company
("State Farm") and affiliated entities filed a joint statement on
Schedule 13-G with the Securities and Exchange Commission reflecting
its holdings as of December 31, 1998. According to said statement,
State Farm and its affiliates might be deemed to constitute a "group"
within the meaning of Section 13(d)(3) of the Securities Exchange Act
of 1934. State Farm and its affiliates could also be deemed to be the
beneficial owners of 6,836,524 shares of Popular, Inc. However, State
Farm and each such affiliate disclaim beneficial ownership as to all
shares as to which each such person has no right to receive the
proceeds of sale of the shares, and also disclaim that they constitute
a "group".
3
<PAGE> 5
SHARES BENEFICIALLY OWNED BY DIRECTORS,
NOMINEES AND EXECUTIVE OFFICERS OF THE CORPORATION
Following is the information, as of February 26, 1999, as to equity
securities of the Corporation beneficially owned by all current directors,
nominees, the most highly compensated Executive Officers of the Corporation who
are not directors and the total owned by directors, nominees and all Executive
Officers of the Corporation as a group:
COMMON STOCK
<TABLE>
<CAPTION>
Title Amount and Nature Percent of
Name of class of Beneficial Ownership class (1)
---- -------- ------------------------ ----------
<S> <C> <C> <C>
Alfonso F. Ballester .......... Common 1,379,536 (3) 1.0165
Juan J. Bermudez .............. Common 370,595 (4) .2731
Francisco J. Carreras ......... Common 14,757 .0109
Richard L. Carrion ............ Common 1,054,937 (5) .7774
David H. Chafey Jr ........... Common 80,198 (6) .0591
Luis E. Dubon Jr .............. Common 1,510,453 (7) 1.1130
Antonio Luis Ferre ............ Common 2,915,159 (8) 2.1481
Hector R. Gonzalez ............ Common 584,858 (9) .4310
Jorge A. Junquera ............. Common 48,903 (10) .0360
Manuel Morales Jr ............. Common 719,293 (11) .5300
Alberto M. Paracchini ......... Common 112,953 (12) .0832
Francisco M. Rexach Jr ........ Common 153,526 (13) .1131
J. Adalberto Roig Jr .......... Common 476,221 (14) .3509
Felix J. Serralles Jr ......... Common 359,660 (15) .2650
Julio E. Vizcarrondo Jr ....... Common 1,144,449 (16) .8433
Maria Isabel P. de Burckhart... Common 57,105 .0421
Roberto R. Herencia ........... Common 12,334 .0091
Larry B. Kesler ............... Common 40,213 .0296
Humberto Martin ............... Common 67,752 .0499
Emilio E. Pinero .............. Common 32,445 .0239
Carlos Rom Jr ................. Common 23,875 (17) .0176
Carlos J. Vazquez ............. Common 100,129 (18) .0738
All Directors and Executive
Officers of the Corporation
as a group................. Common 11,259,351 8.2967
</TABLE>
PREFERRED STOCK
<TABLE>
Title Amount and Nature Percent of
Name of class of Beneficial Ownership class (2)
------ -------- ----------------------- ----------
<S> <C> <C> <C>
Luis E. Dubon Jr ........... Preferred 7,825(19) .1956
Alberto M. Paracchini ...... Preferred 7,000 .1750
Carlos J. Vazquez .......... Preferred 4,568(20) .1142
All Directors and Executive
Officers of the Corporation
as a group ............... Preferred 19,393 .4848
</TABLE>
4
<PAGE> 6
(1) Based on 135,709,287 shares of common stock outstanding.
(2) Based on 4,000,000 shares of preferred stock outstanding.
(3) Mr. Ballester owns 1,375,536 shares and has indirect investment power
over 4,000 shares owned by his wife. Excludes 1,187,988 shares owned
by his sister, as to all of which shares Mr. Ballester disclaims
indirect voting power.
(4) Excludes 12,443 shares owned by his wife, as to which Mr. Bermudez
disclaims indirect voting power.
(5) Mr. Carrion owns 283,245 shares and also has indirect investment power
over 24,268 shares owned by his children. Junior Investment
Corporation owns 4,288,150 shares of the Corporation. Mr. Carrion owns
17.43% of the shares of said corporation.
(6) Mr. Dubon owns 82,560 shares and has a power of attorney over 115,816
shares owned by his wife, over 76,263 shares held in trust for his
children and 1,235,814 shares owned by various corporations and members
of his family in which Mr. Dubon has direct or indirect ownership.
(7) Mr. Ferre has indirect investment and voting power and claims
beneficial ownership of 2,915,159 shares of the Corporation. Mr. Ferre
owns 2,097 shares and has indirect investment and voting power over
513,880 shares owned by Alfra Investment Corp., 3,200 shares owned by
South Management, Inc. and 400 shares owned by his wife. Mr. Ferre
owns 85.12% of Ferre Investment Fund, Inc., which owns 950,870 shares
of the Corporation. Mr. Ferre also owns 64.39% of the shares of El
Dia, Inc., and has indirect voting power over Alfra Investment Corp.,
which owns 19.10% of El Dia, Inc., which owns in turn 1,444,712 shares
of the Corporation.
(8) Mr. Gonzalez owns 555,506 shares and has voting and investment power
over 29,352 shares of the Corporation owned by TPC Financial Services,
Inc. of which he is President and Chief Executive Officer.
(9) Mr. Junquera owns 48,206 shares and has indirect investment power over
207 shares owned by his wife and over 490 shares owned by his
daughter.
(10) Mr. Morales owns 319,185 shares and has voting power over 400,108
shares owned by his parents, as their attorney-in-fact.
(11) Excludes 1,264 shares owned by his wife, as to which Mr. Paracchini
disclaims beneficial ownership.
(12) Mr. Rexach owns 76,526 shares and has indirect voting power over
63,000 shares owned by his mother, as her attorney-in-fact, and over
14,000 shares held by Capital Assets, Inc. as President and
shareholder.
(13) Mr. Roig owns 451,033 shares and has indirect voting power over 25,188
shares owned by his wife.
(14) Mr. Serralles owns 226,752 shares, and has indirect voting power over
10,292 shares owned by his wife. Mr. Serralles owns 100% of the shares
of each of Capitanejo, Inc. and Fao Investments, Inc., which own
117,020 and 5,596 shares, respectively, of the Corporation.
(15) Mr. Vizcarrondo owns 201,627 shares and has indirect voting power over
183,391 shares owned by his wife. Mr. Vizcarrondo's wife owns 17.71%
of the shares of Junior Investment Corporation, which owns 4,288,150
shares of the Corporation. Mr. Vizcarrondo has indirect voting and
investment power over 920 shares held in trust by Vicar Enterprises,
Inc. for the benefit of his children, for which he disclaims
beneficial ownership. Mr. Vizcarrondo also disclaims beneficial
ownership over 129,214 shares owned by DMI Pension Trust, where he
serves as trustee and member of the investment committee. Excluded
also are 11,882 shares owned by Mr. Vizcarrondo as trustee of the
Suarez Toro Trust, which owns said shares of the Corporation, of which
he disclaims beneficial ownership.
(16) Mrs. Burckhart owns 54,174 shares and has indirect voting power over
2,931 held by her husband as custodian for her daughters.
(17) Mr. Rom owns 23,254 shares and has indirect voting power over 142
shares owned by his wife and 479 shares held by him as custodian for
various members of his family.
(18) Mr. Vazquez owns 7,469 shares and has investment authority over 92,660
shares held by various family members.
(19) Mr. Dubon owns 1,450 preferred shares, and has indirect voting power
over 5,875 preferred shares held in trust by Mr. Luis E. Dubon Jr. for
several persons. Mr. Dubon also has indirect ownership over 500
preferred shares owned by Fundacion Gogui, Inc.
(20) Mr. Vazquez has investment authority over 4,568 preferred shares held
by various family members.
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<PAGE> 7
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Corporation's directors and named executive officers to file with
the Securities and Exchange Commission (SEC) reports of ownership and changes
in ownership of common stock of the Corporation. Officers and directors are
required by SEC regulation to furnish the Corporation with copies of all
Section 16(a) forms they file.
Based solely on review of the copies of such reports furnished to the
Corporation or written representations that no other reports were required, the
Corporation believes that, during the 1998 year, all filing requirements
applicable to its officers and directors were complied with except for one
report, covering one transaction, which was filed late by Salustiano Alvarez
Mendez, Director and by Carlos Rom, Jr., Executive Vice President of the
Corporation, respectively.
BOARD OF DIRECTORS AND COMMITTEES
ELECTION OF DIRECTORS
The Certificate of Incorporation and the Bylaws of the Corporation
establish a classified Board of Directors pursuant to which the Board of
Directors is divided into three classes as nearly equal in number as possible,
with each class having at least three members and with the term of office of
one class expiring each year. Each director serves for a term ending on the
date of the third annual meeting of stockholders following the annual meeting
at which such director was elected.
At the Meeting, seven (7) directors assigned to "Class 3" are to be
elected until the 2002 Annual Meeting of Stockholders or until their respective
successors shall have been elected and qualified. The remaining eight directors
of the Corporation will serve as directors, as follows: until the 2000 Annual
Meeting of Stockholders of the Corporation, in the case of those three
directors assigned to "Class 1", and until the 2001 Annual Meeting of
Stockholders, in the case of those five directors assigned to "Class 2", or in
each case until their successors are duly elected and qualified.
Mr. Salustiano Alvarez Mendez resigned to the Board of Directors
of the Corporation as of April 23, 1998 and rejoined the Board of Directors of
the Bank as of the same date. Mr. Alvarez decision is not due to disagreement
with the Corporation or with any matter relating to the Corporation's
operation.
The people named as proxies in the accompanying Form of Proxy have
advised the Corporation that, unless otherwise instructed, they intend to vote
at the meeting the shares covered by the proxies FOR the election of the seven
nominees named below, and that if any one or more of such nominees should
become unavailable for election they intend to vote such shares FOR the
election of such substitute nominees as the Board of Directors may propose. The
Corporation has no knowledge that any nominee will become unavailable for
election.
Information relating to principal occupation and business experience
during the past five (5) years (including position held with the Corporation or
the Bank), age and the period during which each director has served is set
forth below.
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<PAGE> 8
NOMINEES FOR ELECTION AS DIRECTORS
CLASS 3 DIRECTORS
(TERMS EXPIRING IN 2002)
Juan J. Bermudez: (61 years), Director of the Corporation since 1990.
Electrical Engineer. Partner of Bermudez and Longo, S.E., Decemcor, S.E.,
Unicenter, S.E., Unieast, S.E., Unigardens, S.E., Baldwin Development, S.E.,
Tivoli, S.E., Clearview, S.E., Placid Park, S.E. and PCME Commercial, S.E.
Principal Stockholder and Director of BL Management, Corp., Paseomar Corp.,
PCME Development, Inc., G.S.P. Corp., Unimanagement Corp., LBB Properties, Inc.
and Homes Unlimited Corp. Chairman of the Trust Committee of the Bank. Director
of the Bank since 1985.
Francisco J. Carreras: (66 years), Director of the Corporation since
1990. Former professor of the University of Puerto Rico. Former President of
the Catholic University of P.R. Member of the Board of Trustees of Fundacion
Banco Popular, Inc. Executive Director of Fundacion Angel Ramos, Inc. Chairman
of the Community Reinvestment Committee of the Bank. Director of the Bank since
1979.
Richard L. Carrion: (46 years), Director of the Corporation since
1990. Chairman, President and Chief Executive Officer ("CEO") of the
Corporation, and the Bank. Chairman of Popular International Bank, Inc.,
Popular North America, Inc. and Banco Popular North America. Chairman of the
Board of Trustees of Fundacion Banco Popular, Inc. Director of Equity One,
Inc., Popular Finance, Inc., Popular Leasing & Rental, Inc., Popular Mortgage,
Inc. and Popular Securities Incorporated. Member of the International Olympic
Committee. President of the Puerto Rico Olympic Trust and Member of the Puerto
Rico Olympic Committee. Member of the Board of Directors of the Federal Reserve
Bank of New York, of Bell Atlantic Corporation (a registered public company)
and member of the Benefits & Human Resources Committee of Bell Atlantic
Corporation. Member of the Board of Trustees of the Puerto Rico Committees for
Economic Development. Member of Board of Directors and Compensation Committee
of Pueblo Xtra International, Inc. until March 31, 1995. Former Chairman and
President of Puerto Rico Investors Tax-Free Fund, Inc. I, II, III, IV, V (1994
to December 1998) and of Puerto Rico Tax-Free Target Maturity Fund, Inc. I
(1996 to December 1998) and II (1997 to December 1998). Former Chairman and
President of Puerto Rico Investors Flexible Allocation Fund (December 1998 to
January 1999). Former Member of the Board of the National Museum of American
History, Smithsonian Institution (November 1997 to December 1998). Chairman of
the Executive Committee of the Corporation. Director of the Bank since 1982.
David H. Chafey Jr.: (45 years), Director of the Corporation since
1996. Supervisor of Bank's Retail Banking Group since January 1996. Supervisor
of the Financial Management Group and U.S. Operations until December 1995.
Senior Executive Vice President since October 1995. Chairman of Popular
Securities Incorporated until January 1996. Executive Vice President and
Director of Popular International Bank, Inc. and Popular North America, Inc.
President of Popular International Bank, Inc. and Popular North America, Inc.
until December 1995. Director of Equity One, Inc., Popular Mortgage, Inc.,
Popular Leasing & Rental, Inc., Popular Securities Incorporated and Banco
Popular North America. Chairman of the Board of Popular Finance, Inc. Chairman
of the Board of Puerto Rico Telephone Authority from 1993 thru 1997. Chairman
and President of Puerto Rico Investors Tax-Free Fund, Inc. I, II, III, IV, V,
of Puerto Rico Tax-Free Target Maturity Fund, Inc. I and II and of Puerto Rico
Investors Flexible Allocation Fund since January 1999. Chairman of the Board of
Grupo Guayacan, Inc. President of the San Jorge Children's Research Foundation,
Inc. Member of the Board of United Way of Puerto Rico, National Parks
Conservation Trust of Puerto Rico, of Governor's Economic Council on
Productivity and the Steering Committee of Private Capital of Puerto Rico.
Member of the Finance Committee of Colegio San Ignacio and Vice President of
the Puerto Rico Bankers Association. Director of the Bank since 1994.
Antonio Luis Ferre: (65 years), Director of the Corporation since
1984. Vice Chairman of the Board of Directors of the Corporation and the Bank.
Chairman of the Board of Puerto Rican Cement Co., Inc. (a registered public
company), manufacturers of cement and allied products. President and Editor of
El Dia, Inc., a newspaper publishing company. Director of Metropolitan Life
Insurance Company (a registered company under the Investment Company Act of
1940) until December 1995. Director of Pueblo Xtra International, Inc. until
March 1995. Director of Pueblo Xtra Supermarkets until 1995. Director of
American Airlines until 1994. Director of Banco de Ponce from 1959 to 1990.
Director of the Bank since 1990.
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<PAGE> 9
Alberto M. Paracchini: (66 years), Director of the Corporation since
1984. Former Chairman of the Board of Directors of the Corporation and the
Bank. Former Chairman of Popular North America, Inc., Equity One, Inc., Popular
Finance, Inc. and Popular Leasing & Rental, Inc. Member of the Board of
Trustees of Fundacion Banco Popular, Inc. Chairman of the Board of Trustees,
Sacred Heart University in San Juan, Puerto Rico. Director of Puerto Rican
Cement Co., Inc. (a registered public company). Director of HDA Management
Associates. Director of Equus Management Co., Inc. and Managing General Partner
of Equus Gaming Co., L.P. (a registered public company). Director of Equus
Entertainment Corporation, a subsidiary of Equus Gaming Co., L.P. (registered
public company) and of Venture Capital Fund, Inc. Executive Officer of the
Corporation from 1984 to April 1993. Director of Banco de Ponce from 1959 to
1990. Director of the Bank since 1990.
Felix J. Serralles Jr.: (64 years), Director of the Corporation since
1984. President and Chief Executive Officer of Destileria Serralles, Inc.,
manufacturers and distributors of distilled spirits, and of its affiliate
Mercedita Leasing, Inc. Director of Banco de Ponce from 1966 to 1990. Director
of the Bank since 1990.
CLASS 2 DIRECTORS
(TERMS EXPIRING IN 2001)
Luis E. Dubon Jr.: (64 years), Director of the Corporation since 1984.
Attorney-at-Law and Investor. Partner of the law firm Dubon & Dubon. Director
and stockholder of D Group Capital Corporation, TL Group Corporation, Delta
Maintenance Services Inc. Director and partner of D Group Equity Holding
Associates, S. en C. por A., S.E., and D Group Commercial Equities Associates
S. en C. por A., S.E. Director of American Investment Corp., Fundacion Gogui,
Inc., Carite Resorts Associates, S.en C. por A., S.E., Carite Resorts GP, Inc.,
Carolina Developers Associates, S.en C. por A., S.E., Contorno Developers
Associates, S. en C. por A., S.E., Contorno Developers GP, Inc., D Group
Commercial Equities GP, Inc., D Group Equities Management Services, Inc., D
Group Equity Holding GP, Inc., D Group Realty Services, Inc., Delta Engineering
Services, Inc., Delta Parking System Corporation, Dubon Corporation, Executive
Habitats, Inc., Galeria del Condado Associates, S.en C. por A., S.E., Galeria
del Condado GP, Inc., Imporexco, Inc., Lujoma Corporation, Marina Developers
(Carolina) GP, Inc., Mercantil Caguax Associates, S. en C. por A., S.E.,
Mercantil Caguax GP, Inc., Mercantil Mayaguez Associates, S. en C. por A.,
S.E., Mercantil Mayaguez GP, Inc., Mercantil Pinero Associates, S. en C. por
A., S.E., Mercantil Pinero GP, Inc., Mercantil San Patricio Associates, S. en
C. por A., S.E., Mercantil San Patricio GP, Inc., Metro Center Associates, S.
en C. por A., S.E., Metro Center GP Corporation, Plaza Bellas Artes GP, Inc.,
Plaza Bellas Artes Associates Uno S. en C. por A., S.E., Plaza Bellas Artes GP,
Inc. Uno, Plaza Bellas Artes Associates Dos S. en C. por A., S.E., Plaza Bellas
Artes Associates Tres S. en C. por A., S.E., Plaza Bellas Artes Associates IV,
S. en C. por A., S.E., Plaza del Condado Associates, S. en C. por A., S.E.,
Plaza del Condado GP, Inc., Portilla Corporation, Puerta del Condado
Associates, S. en C. por A., S.E., Puerta del Condado GP, Inc., Resort Equities
Developers GP, Inc., San Jose Building Associates, S. en C. por A., S.E., San
Jose Building GP, Inc., Title & Corporate Services Corporation and San Jose
Development, Inc. Director of Banco de Ponce from 1973 to 1990. Director of the
Bank since 1990.
Hector R. Gonzalez: (65 years), Director of the Corporation since
1984. President and Chief Executive Officer of TPC Communications of PR, Inc.,
owner and operator of cable television systems. President and Chief Executive
Officer of TPC Financial Services, Inc., TPC Cable Media, TelePonce Cable TV
and Telecell Systems. Director of Damas Foundation, Inc. Director of Popular
Finance, Inc. and Popular Mortgage, Inc. Director of Banco de Ponce from 1973
to 1990. Director of the Bank since 1995.
Manuel Morales Jr.: (53 years), Director of the Corporation since
1990. President of Selarom Capital Group, Inc. President of Parkview Realty,
Inc., of the Atrium Office Center, Inc., of HQ Business Center P.R., Inc., of
Executrain of Puerto Rico and of Office & Home, Inc. Honorary General Consul of
Japan in San Juan, Puerto Rico. Trustee of Sacred Heart University in San Juan,
Puerto Rico, of the Caribbean Environmental Development Institute and of
Fundacion Angel Ramos, Inc. Member of the Board of Directors of Better Business
Bureau. Member of the National Advisory Council-United States Small Business
Administration. Member of the Board of Trustees of Fundacion Banco Popular,
Inc. Chairman of the Audit Committee of the Corporation and the Bank. Director
of the Bank since 1978.
Francisco M. Rexach Jr.: (61 years), Director of the Corporation since
1990. President of Ready Mix Concrete, Inc. a subsidiary of PRCC (a registered
public company) until September 1997. President of Capital Assets, Inc. and of
Rexach Consulting Group. Director of Popular Leasing & Rental, Inc., Banco
Popular North America and Banco Gerencial y Fiduciario Dominicano, S.A.
Chairman of the Human Resources and Compensation Committee of the Bank and of
Banco Gerencial y Fiduciario Dominicano, S.A. Director of the Bank since 1984.
8
<PAGE> 10
Julio E. Vizcarrondo Jr.: (64 years), Director of the Corporation
since 1990. Civil Engineer. President, Partner and Chief Executive Officer of
Desarrollos Metropolitanos, S.E., VMV Enterprises Corp., Resort Builders, S.E.,
Metropolitan Builders, S.E., Institutional Builders, S.E., corporations engaged
in the development and construction of residential, commercial, industrial and
institutional projects in Puerto Rico. Director of the Bank since 1984.
CLASS 1 DIRECTORS
(TERMS EXPIRING IN 2000)
Alfonso F. Ballester: (69 years), Director of the Corporation since
1990. Vice Chairman of the Board of Directors of the Corporation and the Bank.
President of Ballester Hermanos, Inc. (Wholesale of provisions and liquors).
Director of Popular International Bank, Inc., Popular North America, Inc.,
Banco Popular North America, Equity One, Inc., Popular Securities Incorporated
and Popular Leasing & Rental, Inc. Chairman of the Commercial Credit Committee
of the Bank. Director of the Bank since 1975.
Jorge A. Junquera: (50 years), Director of the Corporation since 1990.
Supervisor of the Financial Management Group, the U.S. Operations and the
Caribbean and Latin America Expansion Group since January 1996. Supervisor of
the Bank's Retail Banking Group until December 1995. Senior Executive Vice
President since October 1995. President and Director of Popular International
Bank, Inc. and Popular North America, Inc. since January 1996. Director of
Banco Gerencial y Fiduciario Dominicano, S.A. Director and President of Banco
Popular North America. Director of Equity One, Inc., Popular Finance, Inc.,
Banco Popular, N.A. (Texas), Popular Mortgage, Inc. and Popular Leasing &
Rental, Inc. Chairman of the Board of Popular Securities Incorporated.
President of Puerto Rico Tourism Company until February 1997 and President of
Hotel Development Co. Director of YMCA. Director of the Bank since 1990.
J. Adalberto Roig Jr.: (68 years), Director of the Corporation since
1997. Chairman of the Board of Antonio Roig Sucesores, Inc., Desarrollos
Agricolas del Este, S.E., Desarrollos Roig, S.E. and El Ejemplo, S.E. President
of Jarofe Investment, Inc., Ferrocarriles del Este and of East Porto Rico Sugar
Co. Chairman of the Investment Committee of the Bank. Chairman of the Board and
President of Roig Commercial Bank until June 1997.
STANDING COMMITTEES
The Board of Directors of the Corporation met on a monthly basis
during 1998. All directors except Antonio Luis Ferre attended 75% or more of
the meetings of the Board of Directors and the committees of the Board of
Directors on which such directors served.
The Corporation's Board of Directors has a standing Audit and
Executive Committee. The Board of Directors of the Bank, the principal
subsidiary of the Corporation, has a standing Human Resources and Compensation
Committee that may review compensation matters for the Corporation. There is no
standing Nominating Committee but the Executive Committee charter provides that
said Executive Committee may exercise the power to nominate directors. However,
in the past the Executive Committee has not exercised such function and
nominations have been made by the Board of Directors. Information regarding the
Audit and Human Resources Committees follows:
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<PAGE> 11
AUDIT COMMITTEE
The functions of the Audit Committee include reviewing the accounting
principles and practices employed by the Corporation, and compliance with
applicable laws and regulations. The Committee meets with the Corporation's
independent external auditors to review their audit procedures, the report on
their examination of the Corporation's financial statements, and their comments
on the system of internal controls. Also, the Committee oversees the internal
audit function and reviews the reports prepared by the Auditing Division on
their examinations of the operating and business units and for any other
special examinations that may be required. The Committee held four meetings
during the fiscal year ended December 31, 1998.
The Committee members during 1998 were: Juan J. Bermudez, Francisco
J. Carreras, Luis E. Dubon Jr., Manuel Morales Jr., Alberto M. Paracchini and
Julio E. Vizcarrondo Jr. None of the members of the committee are officers or
employees of the Corporation or any of its subsidiaries.
HUMAN RESOURCES AND COMPENSATION COMMITTEE
The functions of the Human Resources and Compensation Committee
include reviewing the compensation and benefits of management and employees,
reviewing the policies related to the performance and compensation of
management and employees, and reviewing the long-range planning for executive
development and succession. The Committee held one meeting during the fiscal
year ended December 31, 1998.
The Committee members during 1998 were: Juan A. Albors, Salustiano
Alvarez Mendez, Esteban D. Bird, Hector R. Gonzalez, Alberto M. Paracchini and
Francisco M. Rexach Jr. None of the members of the Committee are officers or
employees of the Corporation or any of its subsidiaries.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Corporation and its
subsidiaries were entitled to a $12,000 annual retainer. The Board of Directors
of the Corporation has a Stock Deferment Plan, pursuant to which each outside
director of the Corporation is given the option to defer all or a portion of
the $12,000 annual retainer. The deferred portion, plus an additional amount of
$0.25 for each dollar so deferred, being applied toward the purchase in the
open market of shares of the Corporation's common stock on behalf of the
director, with the certificates representing such shares to be retained by the
Corporation until the director's term in every Board terminates. In addition,
each director shall have the right to vote and to receive any dividends payable
on the shares held for said director under the Plan, but no such shares shall
be sold, transferred, assigned, pledged or in any other way encumbered by the
director until the certificates representing such shares are delivered to the
director. In the event that a director is removed for cause from office by
appropriate corporate action or under authority of law, said director (1) shall
be obligated to sell to the Corporation all of the shares acquired with the
deferred retainer amount at a price equal to the lower of (a) the actual cost
of the purchase of said shares and (b) the market price of said shares on the
date the director was discharged, and (2) shall forfeit to the Corporation all
of the shares purchased with any additional contribution. In addition directors
receive $750 for attending each Board of Directors' meeting, $1,000 for
attending each Executive Committee meeting and $500 for attending each of the
other committee meetings. Directors who are employees do not receive fees for
attending Board of Directors and committee meetings.
EXECUTIVE OFFICERS
The following table sets forth the names of the executive officers
(the "Executive Officers") of the Corporation including their age, business
experience during the past five (5) years and the period during which each such
person has served as an Executive Officer of the Corporation or the Bank.
Richard L. Carrion: (46 years), Chairman, President and CEO of the
Corporation. Executive Officer of the Corporation since 1990. For information
about principal occupation and business experience during the past five years
please refer to the Board of Director's section.
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<PAGE> 12
Jorge A. Junquera: (50 years), Senior Executive Vice President of the
Corporation. Executive Officer of the Corporation since 1990. For information
about principal occupation and business experience during the past five years
please refer to the Board of Director's section.
David H. Chafey, Jr.: (45 years), Senior Executive Vice President of
the Corporation. Executive Officer of the Corporation since 1990. For
information about principal occupation and business experience during the past
five years please refer to the Board of Director's section.
Maria Isabel P. de Burckhart: (50 years), Executive Vice President of
the Corporation. Executive Officer of the Corporation since 1990. Supervisor of
the Administration Group. Executive Vice President of the Bank since January
1990. Executive Vice President of Popular North America, Inc. Member of the
Board of Trustees of Fundacion Banco Popular, Inc. Member of the Board of
Directors of Fundacion Ana G. Mendez and of Puerto Rico Community Foundation.
Member of the Board of Directors of the Puerto Rico Convention Bureau from 1993
through October 1998.
Roberto R. Herencia: (39 years), Executive Vice President of the
Corporation. Executive Officer of the Corporation since 1997. Head of the
Corporation's U.S. business expansion. Executive Vice President since January
1997. Director of Popular North America, Inc., Equity One, Inc. and Banco
Popular, N.A. (Texas). Director and Chief Operations Officer of Banco Popular
North America. Senior Vice President from December 1991 to December 1996.
Larry B. Kesler: (61 years), Executive Vice President of the
Corporation. Executive Officer of the Corporation since 1990. Supervisor of the
Individual Credit Group and the Virgin Islands Region. Executive Vice President
of the Bank since January 1990. Chairman of the Board of Directors of Equity
One, Inc., Popular Leasing & Rental, Inc. and Popular Mortgage, Inc. Director
of Popular Finance, Inc.
Humberto Martin: (53 years), Executive Vice President of the
Corporation. Executive Officer of the Corporation since 1986. Supervisor of the
Operations Group. Director of ATH Dominicana, S.A. Executive Vice President of
the Bank since November 1986. Executive Vice President of Popular North
America, Inc.
Emilio E. Pinero: (50 years), Executive Vice President of the
Corporation. Executive Officer of the Corporation since 1990. Supervisor of the
Commercial Banking Group. Executive Vice President of the Bank since January
1990. Director of Popular Mortgage, Inc. and of Popular Leasing & Rental, Inc.
Executive Vice President of Popular North America, Inc. Member of the Board of
Trustees of American Red Cross. Member of the Board of Trustees of Fundacion
Felisa Rincon de Gautier and of Jane Stern Community Library Foundation.
Carlos Rom Jr.: (42 years), Executive Vice President of the
Corporation. Executive Officer of the Corporation since 1997. Head of the
Corporation's Caribbean and Latin America business expansion. Executive Vice
President since January 1997. Director of ATH Dominicana, S.A. and of Banco
Gerencial y Fiduciario Dominicano, S.A. Chairman of the Board of Directors of
ATH Costa Rica, S.A. Senior Vice President from September 1995 to December
1996. Director of Marchand-ICS Group, Inc. and of McConnell Consulting. Vice
President and General Manager of Pizza Hut, a division of Pepsi Co., Inc. from
July 1994 to September 1995.
Carlos J. Vazquez: (40 years), Executive Vice President of the
Corporation. Executive Officer of the Corporation since 1997. Supervisor of the
Corporation's Risk Management Group. Executive Vice President since March 1997.
Director of Equity One, Inc., Popular Securities Incorporated and Popular North
America, Inc. Vice President of J.P. Morgan & Co. Incorporated, of Morgan
Guaranty Trust Co. of N.Y., of J.P. Morgan Securities Ltd., of J.P. Morgan
Securities, Inc. and of J.P. Morgan Venezuela, S.A. from 1982 to 1997.
Samuel T. Cespedes: (62 years), Secretary of the Board of Directors.
Attorney-at-Law. Proprietary partner of the law firm McConnell, Valdes.
Secretary of the Board of Directors of the Corporation and the Bank since 1991.
Secretary of the Board of Directors of Popular North America, Inc., Equity One,
Inc., Popular Leasing & Rental, Inc. and Popular Finance, Inc.
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<PAGE> 13
FAMILY RELATIONSHIPS
Mr. Richard L. Carrion, Chairman of the Board, President and CEO of
the Corporation and the Bank, is brother-in-law of Mr. Julio E. Vizcarrondo
Jr., Director. Mr. Alfonso F. Ballester, Director, is brother-in-law of Mr.
Hector R. Gonzalez, Director. Mr. J. Adalberto Roig Jr., Director, is first
cousin of Mr. Antonio Luis Ferre, Director.
OTHER RELATIONSHIPS, TRANSACTIONS AND EVENTS
During 1998 the Bank engaged the legal services of the law firm of
Dubon & Dubon of which director Luis E. Dubon Jr. is a partner and of
McConnell, Valdes of which Mr. Samuel T. Cespedes, Secretary of the Board of
Directors of the Corporation and the Bank is a partner. The amount of fees paid
to Dubon & Dubon by the Corporation and its subsidiaries during 1998 fiscal
year was $189,488. The amount of fees paid to McConnell Valdes did not exceed
5% of the law firm revenues for its last full fiscal year.
The Bank has had loan transactions with the Corporation's directors
and officers, and with their associates, and proposes to continue such
transactions in the ordinary course of its business, on substantially the same
terms as those prevailing for comparable loan transactions with other people
and subject to the provisions of the Banking Act of the Commonwealth of Puerto
Rico and the applicable federal laws and regulations. The extensions of credit
have not involved nor presently involve more than normal risks of
collectibility or other unfavorable features.
On February 19, 1999 Mr. Luis E. Dubon, Jr., was indicted by a Federal
Grand Jury on charges of conspiracy to use the funds of Advanced Community
Health Services, Inc. and Instituto del SIDA de San Juan for unauthorized
personal benefits and for the unauthorized benefits of others, through a
pattern of deceptive practices designed to create the appearance that the
transactions were legitimate. Mr. Dubon asserts his innocence and requested a
leave of absence from the Board of Directors of the Corporation and the Bank
until such time as the matter is resolved. The Board has agreed to Mr. Dubon's
request for a leave of absence.
EXECUTIVE COMPENSATION PROGRAM
REPORT OF THE BANK'S HUMAN RESOURCES AND COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
OVERVIEW
The Bank's Human Resources and Compensation Committee ("The Human
Resources Committee") consists of six non-employee directors. The Committee
endeavors to keep abreast of competitive compensation practices in regard to
salaries, incentive compensation and supplemental programs, that will retain
top quality executive officers who will enhance shareholder value through
sustained growth.
The Human Resources Committee evaluates and recommends to the Board of
Directors the Corporation's compensation policy for the Chairman of the Board,
President and CEO, and Executive Officers. The Human Resources Committee
considers among other factors, competitive pay practices for developing a
stronger relationship between executive compensation and the Bank's long-term
performance. It is kept appraised of such competitive pay practices by an
independent consultant who conducts a periodical analysis of executive
compensation of a peer group of financial institutions similar in size, scope
and business orientation (the "Peer Group"). On an annual basis the banking
peer group used by the Human Resources Committee for comparison purposes is
reviewed in light of industry developments, and significant
mergers/acquisitions, to ensure that it is consistent with the Corporation's
size and focus. The Peer Group currently consists of twelve regional banking
organizations with a retail banking emphasis.
The Executive Compensation Program for principal officers of the
Corporation's subsidiaries is set according to the industry and geographical
area in which they operate, and is approved by the Board of Directors of each
entity.
12
<PAGE> 14
CHAIRMAN OF THE BOARD, PRESIDENT AND CEO, MR. RICHARD L. CARRION
On an annual basis Mr. Carrion submits to the Corporation's Executive
Committee a plan setting forth both quantitative and intangible goals
applicable to each year and long-term goals. Evaluations will be made against
the goals set forth in the plan.
Therefore, the Executive Committee evaluates Mr. Carrion's performance
by taking into consideration the growth of the organization, implementation of
a diversification strategy, achievement of financial goals, improvements to the
product and service delivery system and development of human resources. The
weight and significance accorded to these factors is subjective in nature and
the weight assigned to each factor in determining compensation adjustments
cannot be quantified.
Mr. Carrion participates in an annual incentive program designed to
enhance achievement of short-term financial goals and to increase shareholder
value. The first incentive component could represent 15% of base salary, if the
net income target is met, and if the net income target is exceeded it could
reach 25%. Although the threshold continues to be 100% of target, the Human
Resources Committee may recommend a discretionary bonus if results obtained are
at least 95% of the pre-established net income target. The second component,
which is based on return on equity (ROE) and is designed to enhance an increase
in shareholder value, could range from 5% to 30% of base salary, depending on
the ROE obtained. Additionally, the bonus award may be increased by 25% when
shareholder return exceeds 20% annually on a consecutive three year period.
Total shareholder return is calculated by taking into account the compounded
annual yield of the stock, considering the market appreciation, dividends
received and dividend reinvestment. This third and last bonus component
recognizes consistent improvement in shareholder value. The maximum total
incentive bonus that may be awarded could be 68.75% of base salary if all
components of the bonus program are achieved.
For 1998, this incentive bonus was 36.59% of base salary. The first
objective of net income after tax was 100% of target net income. The ROE
obtained was 15.41% compared to a minimum of 15% required. Total shareholder
return which was to exceed 20% annually on a consecutive three-year period, was
54.44% for the three-year period ended December 31, 1998.
EXECUTIVE OFFICERS
The group of Executive Officers is composed of two Senior Executive
Vice Presidents and seven Executive Vice Presidents, all of whom participate in
the Profit Sharing, Annual Incentive and Long-Term Incentive Plans. The
President and CEO sets the salary increases and the bonuses to be awarded to
the Executive Officers pursuant to the incentive plans.
The salary increase program allows discretionary salary increases
based on individual performance to be twice than that based on team increases.
It provides the CEO the opportunity to recognize changes in individual
responsibilities and performance levels.
Each Executive Officer participates in the Annual Incentive Plan. In
1998 a bonus of 36.59% of base salary was awarded to them. The net income after
tax was 100% of target net income. The ROE obtained was 15.41% compared to a
minimum of 15% required and total shareholder return which was to exceed 20%
annually on a consecutive three year period, was 54.44% for the three-year
period ended December 31, 1998.
HUMAN RESOURCES AND COMPENSATION COMMITTEE
<TABLE>
<S> <C>
Juan A. Albors Hector R. Gonzalez
Salustiano Alvarez Mendez Alberto M. Paracchini
Esteban D. Bird Francisco M. Rexach Jr.
</TABLE>
13
<PAGE> 15
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid by the
Corporation or its subsidiaries to the ten highest paid Executive Officers of
the Corporation and the two most highly compensated principal officers of the
Corporation's subsidiaries for 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
FISCAL ------------------- ALL OTHER INCENTIVE PLAN
YEAR SALARY(a) BONUS(b) COMPENSATION(c) PAYOUTS(d) TOTAL
----- --------- -------- --------------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Richard L. Carrion...................... 1998 $526,667 $262,552 $ 46,134 $470,142 $1,305,495
Chairman, 1997 500,000 275,942 62,181 91,195 929,318
President and CEO 1996 475,000 399,889 56,558 55,535 986,982
David H. Chafey Jr...................... 1998 393,000 194,560 35,356 281,995 904,911
Senior Executive Vice President 1997 350,000 197,909 44,401 63,240 655,550
of the Corporation 1996 290,451 240,357 35,196 35,660 601,664
Jorge A. Junquera....................... 1998 384,000 189,479 34,722 281,995 890,196
Senior Executive Vice President 1997 350,000 197,954 44,401 64,646 657,001
of the Corporation 1996 291,351 240,468 35,305 36,449 603,573
Larry B. Kesler......................... 1998 258,952 127,899 23,415 196,911 607,177
Executive Vice President 1997 235,648 132,537 29,895 51,488 449,568
of the Corporation 1996 207,488 168,163 25,143 29,023 429,817
Maria Isabel P. de Burckhart............ 1998 244,288 120,664 22,089 190,731 577,772
Executive Vice President 1997 223,187 125,109 28,314 50,349 426,959
of the Corporation 1996 201,285 162,919 24,391 28,377 416,972
Humberto Martin......................... 1998 244,633 120,448 22,120 188,811 576,012
Executive Vice President 1997 225,978 127,075 28,668 48,462 430,183
of the Corporation 1996 198,391 161,198 24,039 27,337 410,965
Emilio E. Pinero........................ 1998 224,552 110,996 20,305 178,512 534,365
Executive Vice President 1997 205,720 115,125 25,927 47,576 394,348
of the Corporation 1996 188,677 152,579 22,863 26,835 390,954
Carlos J. Vazquez (e) ................ 1998 293,645 140,254 21,017 -0- 454,916
Executive Vice President 1997 207,308 179,286 1,770 -0- 388,364
of the Corporation
Roberto R. Herencia..................... 1998 226,600 112,292 19,824 -0- 358,716
Executive Vice President 1997 201,667 112,248 25,584 -0- 339,499
of the Corporation 1996 180,000 88,366 21,782 -0- 290,148
Carlos Rom Jr........................... 1998 201,083 99,045 18,183 -0- 318,311
Executive Vice President 1997 184,500 104,400 23,406 -0- 312,306
of the Corporation 1996 155,100 74,562 18,794 -0- 248,456
Thomas J. Fitzpatrick................... 1998 301,141 925,304 75,985 -0- 1,302,430
Former President of Equity One, Inc. 1997 300,000 867,500 79,209 -0- 1,246,709
(a wholly-owned subsidiary of 1996 275,000 156,000 72,288 -0- 503,288
Popular North America, Inc.)
Kenneth McGrath......................... 1998 175,000 165,200 59,000 -0- 399,200
President of Popular Securities 1997 170,833 194,410 39,750 -0- 404,993
Incorporated (a wholly-owned subsidiary 1996 150,000 188,200 65,750 -0- 403,950
of the Corporation)
</TABLE>
14
<PAGE> 16
- -----------------
(a) Salaries before deductions.
(b) For the Bank's Executive Officers the bonus amount includes Christmas
bonus, the bonus awarded under the Annual Management Incentive
Compensation Plan and the cash portion payable under the Profit Sharing
Plan of the Bank, except in 1997 for Mr. Vazquez's bonus, which does
not includes a Profit Sharing bonus but rather a special bonus of
$49,000 paid with the Corporation's common stock purchased in the open
market. For Mr. Fitzpatrick, the amount includes the annual performance
bonus and a three year long-term incentive bonus payable under his
employment agreement. Mr. Fitzpatrick resigned effective October 30,
1998. For Mr. McGrath, the amount includes Christmas and performance
bonus.
(c) For the Bank's Executive Officers, except for Mr. Vazquez in 1997,
amount includes deferred portion awarded under the Profit Sharing Plan
of the Bank, amounts accrued under the Benefit Restoration Plan, the
amount from the Profit Sharing deferred and allocated to stock Plan and
the Bank's matching contribution to Stock Plan, which are described on
page 17 and 18. In the case of Mr. Vazquez the amount for 1997 only
includes the Bank's matching contribution to Stock Plan. For Mr.
McGrath, amount includes matching contribution to 1165(e) plan and a
deferred portion of the performance bonus. For Mr. Fitzpatrick, these
amounts represent the contribution of Equity One, Inc. pursuant to
Section 401(k) matching and deferred compensation under Supplementary
Executive Retirement Plan. As mentioned above, Mr. Fitzpatrick resigned
effective October 30, 1998. All other compensation does not include the
value of perquisites and other personal benefits because the aggregate
amount of such benefits does not exceed lesser of $50,000 or 10% of
total amount of annual salary and bonus of any named individual.
(d) For the Plan Year ended December 31, 1998, the three year average ROE
target was not achieved, nor the Peer Group three year average median
ROE was exceeded. However, since Popular, Inc.'s average ROE
represented an improvement of 81.76% over the base year ROE compared to
Peer's median ROE, the Human Resources and Compensation Committee
approved a discretionary bonus of 25% of the total stock awarded at the
beginning of the Plan Year, including dividends and adjusted for the
stock splits. On March 11 and 12 of 1999, 48,988 common shares were
purchased in the open market at an average price of $34.91. All
Executive Officers selected to defer the incentive payment, except Mr.
Larry B. Kesler. The alternative to defer is an amendment to the
original Plan that was approved by the Board of Directors in December
1996.
(e) Information presented for 1998, 1997 and 1996, except for Mr. Carlos J.
Vazquez who was appointed Executive Officer in 1997. No disclosure for
1996 is required with respect to this officer.
LONG-TERM INCENTIVE PLAN
The Board of Directors approved in 1994 the Senior Executive Long-Term
Incentive Plan to encourage long-term corporate performance and objectives. A
set percentage of the base salary of each participant at the beginning of each
Plan Year, is used to determine the dollar amount to be divided by an average
closing price of the Corporation's common stock for the Incentive Payment. The
incentive payment shall be made in common stock of the Corporation. All common
stock to be awarded under this program is purchased in the open market.
This Long-Term Incentive Plan divides the incentive payment as
follows: 75% based on the attainment of a pre-established three-year average
ROE objective for the performance period and 25% based on the achievement of an
average ROE greater than the Peer Group's three-year average median ROE.
15
<PAGE> 17
Since 1996 up to 1998, awards of performance shares under the Long-Term
Incentive Plan were granted to the Executive Officers as set forth below:
LONG-TERM INCENTIVE AWARDS
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
NON-STOCK PRICE BASED PLANS
NUMBER OF SHARES
NUMBER PERFORMANCE ----------------
OF PERIOD
NAME YEAR SHARES(a) UNTIL PAYOUT THRESHOLD TARGET MAXIMUM
- ---- ---- --------- ------------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Carrion.......... 1998 10,093.14 1/1/98-12/31/00 -- 10,093.14 20,186.28
1997 15,391.20 1/1/97-12/31/99 -- 15,391.20 30,782.40
1996 12,634.56 1/1/96-12/31/98 -- 12,634.56 25,269.12
David H. Chafey Jr. ........ 1998 8,066.44 1/1/98-12/31/00 -- 8,066.44 16,132.88
1997 11,081.70 1/1/97-12/31/99 -- 11,081.70 22,163.40
1996 7,580.74 1/1/96-12/31/98 -- 7,580.74 15,161.48
Jorge A. Junquera........... 1998 7,848.42 1/1/98-12/31/00 -- 7,848.42 15,696.84
1997 11,081.70 1/1/97-12/31/99 -- 11,081.70 22,163.40
1996 7,580.74 1/1/96-12/31/98 -- 7,580.74 15,161.48
Carlos J. Vazquez .......... 1998 6,050.84 1/1/98-12/31/00 -- 6,050.84 12,101.68
Larry B. Kesler............. 1998 5,300.22 1/1/98-12/31/00 -- 5,300.22 10,600.44
1997 7,415.04 1/1/97-12/31/99 -- 7,415.04 14,830.08
1996 5,292.98 1/1/96-12/31/98 -- 5,292.98 10,585.96
Maria Isabel P. ............ 1998 5,000.08 1/1/98-12/31/00 -- 5,000.08 10,000.16
de Burckhart 1997 6,995.16 1/1/97-12/31/99 -- 6,995.16 13,990.32
1996 5,127.00 1/1/96-12/31/98 -- 5,127.00 10,254.00
Humberto Martin............. 1998 4,989.44 1/1/98-12/31/00 -- 4,989.44 9,978.88
1997 7,110.76 1/1/97-12/31/99 -- 7,110.76 14,221.52
1996 5,075.84 1/1/96-12/31/98 -- 5,075.84 10,151.68
Roberto R. Herencia......... 1998 4,657.38 1/1/98-12/31/00 -- 4,657.38 9,314.76
1997 6,341.20 1/1/97-12/31/99 -- 6,341.20 12,682.40
Emilio E. Pinero............ 1998 4,596.12 1/1/98-12/31/00 -- 4,596.12 9,192.24
1997 6,430.00 1/1/97-12/31/99 -- 6,430.00 12,860.00
1996 4,798.46 1/1/96-12/31/98 -- 4,798.46 9,596.92
Carlos Rom Jr. ............. 1998 4,103.88 1/1/98-12/31/00 -- 4,103.88 8,207.76
1997 5,848.68 1/1/97-12/31/99 -- 5,848.68 11,697.36
</TABLE>
(a) The number of shares have been adjusted to reflect the stock splits of one
share for each share outstanding effected in a form of a dividend, effective
July 1, 1996 and 1998, as applicable.
The share awards shown above are payable at the end of each three-year
performance period if objectives are attained. Dividends that would be payable
on the shares of stock, if they were held by the Executive Officers, will be
credited and become part of the Incentive Payment. At the option of the
participant, a portion equal to the estimated tax due with respect to the
incentive payments of the awards may be paid in cash.
If the Corporation's target is met or exceeded, the share payments
corresponding to the Corporation's and Peer Group's goals are increased
separately by a leverage factor that cannot exceed two times the target share
amounts.
Even if the ROE for the Corporation does not equal or exceed the Peer
three-year average median ROE, the Human Resources and Compensation Committee,
at its own discretion, may recommend the distribution of 25% of the targeted
bonus if the results attained for the Plan Year average represent an
improvement of no less than 25% over the base year.
For the Plan Year ended December 31, 1998, the three year average ROE
target was not achieved, nor the Peer Group three year average median ROE was
exceeded. However, since Popular, Inc.'s average ROE represented an improvement
of
16
<PAGE> 18
81.76% over the base year ROE compared to Peer's median ROE, the Human Resources
and Compensation Committee approved a discretionary bonus of 25% of the total
stock awarded at the beginning of the Plan Year, including dividends and
adjusted for the stock splits. On March 11 and 12 of 1999, 48,988 common shares
were purchased in the open market at an average price of $34.91. All Executive
Officers selected to defer the incentive payment, except Mr. Larry Kesler. This
alternative is an amendment to the original Plan that was approved by the Board
of Directors in December 1996.
OTHER INCENTIVE COMPENSATION PLANS
The Bank has an Annual Management Incentive Plan for different
management levels. Under this Plan, incentive bonuses are based on individual
performance as well as the Corporation or Bank's performance, measured by net
income and ROE. The weight assigned to the Corporation or the Bank's
performance objectives varies according to management level, but the weight of
individual performance applies equally to all managers participating.
The Bank also has an Excellence in Performance Program in which all
employees participate. This program rewards employees for extraordinary
personal contributions that are nonrecurring in nature, typically not
recognizable through merit or promotional salary action, and clearly recognized
as such by management and peers alike.
Additionally, the Bank has several functional incentive programs that
reward employees' productivity in specific areas.
PROFIT SHARING PLAN OF THE BANK
All officers and regular monthly salaried employees of the Bank as of
January 1, 1976, or hired after that date, are active participants in the
Bank's operating earnings under the yearly Profit Sharing Plan, as of the first
day of the calendar month following completion of one year of service.
Under this plan the Bank's annual contribution is determined by the
Board of Directors based on the profits of the Bank for the year. The amount
allocated to each officer or employee is based on his or her earned salary for
the year. The total amount contributed for the year 1998 was $22,992,801. The
total awarded is 40% contributed to the Profit Sharing Plan, 10% to the Stock
Plan and the remainder 50% is paid in cash. However, this year the officers and
employees could elect to increase his (her) contribution to the Stock Plan up
to 15%, as a result of this election 38% was contributed to the Profit Sharing
Plan and 12% to the Stock Plan.
BENEFIT RESTORATION PLAN OF THE BANK
The Internal Revenue Service (IRS) set a limit of $160,000 as the
amount of compensation that may be considered in calculating future retirement
payments from qualified pension plans. This limit applies to the Bank's
Retirement Plan, Profit Sharing and Stock Plan.
The Board of Directors has approved a "Benefit Restoration Plan" for
those officers whose annual compensation is higher than the established limit.
This non-qualified plan will provide those benefits that cannot be accrued
under the Bank's Retirement and Profit Sharing Plan, which are qualified plans.
Benefits under the Benefit Restoration Plan shall be equal to the account
balance that would be provided under the Profit Sharing Plan and equal to the
benefits that would have been accrued under the Retirement Plan. The Plan is
unfunded.
RETIREMENT PLAN OF THE BANK
The Bank has a noncontributory, defined benefit Retirement Plan
covering substantially all regular monthly employees. Monthly salaried
employees are eligible to participate in the Plan following the completion of
one year of service and 21 years of age. Pension costs are funded in accordance
with the minimum funding standards under the Employee Retirement Income
Security Act ("ERISA").
The basis for the Retirement Plan formula is Total Compensation, which
includes Christmas Bonus, incentives, overtime, differentials, Profit Sharing
cash bonuses and any other compensation received by the employees. Benefits are
paid on the basis of a straight life annuity plus supplemental death benefits
and are not reduced for Social Security or other payments received by
participants.
17
<PAGE> 19
Normal retirement age at the Bank is a combination of years of age and
completed years of service totalling 75. Early retirement is at 55 years of age
with 10 years of service. Employees with 30 years of service or more are
provided with a retirement benefit of 40% of Total Compensation. Benefits are
reduced only if the employee retires before age 55. Benefits are subject to the
U.S. Internal Revenue Code limits on compensation and benefits.
The following table sets forth the estimated annual benefits that
would become payable under the Retirement Plan and the Benefit Restoration Plan
based upon certain assumptions as to total compensation levels and years of
service. The amounts payable in this table are not necessarily representative
of amounts that may actually become payable under the plans. The amounts
represent the benefits upon retirement on December 31, 1998, of a participant
at age 65.
<TABLE>
<CAPTION>
TOTAL
COMPENSATION ESTIMATED ANNUAL BENEFITS / YEARS OF SERVICE
- --------------------------------------------------------------------------------------------------------
15 20 25 30 35
--- --- --- --- ---
<S> <C> <C> <C> <C> <C>
$1,400,000 $256,000 $357,000 $459,000 $560,000 $560,000
1,300,000 237,000 332,000 426,000 520,000 520,000
1,200,000 219,000 306,000 393,000 480,000 480,000
1,100,000 201,000 281,000 360,000 440,000 440,000
1,000,000 183,000 255,000 328,000 400,000 400,000
900,000 164,000 230,000 295,000 360,000 360,000
800,000 146,000 204,000 262,000 320,000 320,000
700,000 128,000 179,000 229,000 280,000 280,000
600,000 110,000 153,000 197,000 240,000 240,000
500,000 91,000 128,000 164,000 200,000 200,000
400,000 73,000 102,000 131,000 160,000 160,000
300,000 55,000 77,000 98,000 120,000 120,000
</TABLE>
The 1998 total compensation and estimated years of service at age 65
for the ten highest paid key policy-making Executive Officers of the
Corporation are as follows.
<TABLE>
<CAPTION>
ESTIMATED
1998 YEARS OF
TOTAL SERVICE
COMPENSATION AT AGE 65
------------ ---------
<S> <C> <C>
Richard L. Carrion $1,305,000 41.6
David H. Chafey Jr 905,000 38.6
Jorge A. Junquera 890,000 41.5
Larry B. Kesler 607,000 16.5
Maria Isabel P. de Burckhart 578,000 28.3
Humberto Martin 576,000 40.1
Emilio E. Pinero 534,000 43.2
Carlos J. Vazquez 455,000 26.4
Roberto R. Herencia 359,000 31.7
Carlos Rom Jr 318,000 35.2
</TABLE>
STOCK PLAN OF THE BANK
The Bank has adopted two Stock Plans, one covering employees of the
Bank in Puerto Rico and another covering employees of the Bank in the U.S., and
the British and U.S. Virgin Islands. All regular monthly salaried employees are
eligible to participate in the Stock Plans following the completion of
three-months of service.
The Bank may contribute a discretionary amount based on the profits of
the Bank for the year, which is allocated to each officer or employee based on
his or her basic salary for the year, as determined by the Board of Directors.
The Stock Plans also allow employees to voluntarily elect to defer a
predetermined percentage not to exceed 10% of their pre-tax base compensation
(after tax in the British Virgin Islands) up to a maximum amount as determined
by the applicable tax laws.
18
<PAGE> 20
The Bank will match 50% of the amount contributed by a participant up to a
maximum of 2% of the participant's annual base salary.
All contributions to the Stock Plans will be invested in shares of
common stock of the Corporation which are purchased in the open market.
POPULAR, INC.
PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return
during the measurement period with the cumulative total return, assuming
reinvestment of dividends, of the National Association of Securities Dealers
Automated Quotation (NASDAQ) Stock Market Index and the NASDAQ Bank Composite
Index.
The cumulative total shareholder return was obtained by dividing (i)
the cumulative amount of dividends per share, assuming dividend reinvestment,
since the measurement point, December 31, 1993 plus (ii) the change in the per
share price since the measurement date, by the share price at the measurement
date.
Comparison of Five Year Cumulative Total Return
Total Return as of December 31,
(December 31, 1993 = 100)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
COMPANY/INDEX BASE INDEXED RETURNS ADJUSTED TO BASE PERIOD
PERIOD 12/31/93 12/21/94 12/31/95 12/31/96 12/31/97 12/31/98
POPULAR, INC.** 7.875 100 92.4404 131.2681 231.6418 345.232 481.2323
NASDAQ BANKS COMPOSITE 241.193 100 99.63598 148.3832 195.9083 328.0178 324.902
NASDAQ STOCK MARKET 249.861 100 97.75195 138.2561 170.0149 208.5796 293.209
</TABLE>
19
<PAGE> 21
INDEPENDENT PUBLIC ACCOUNTANTS
On July 1, 1998 Price Waterhouse merged with and into Coopers &
Lybrand. The name of the resulting public accountants firm is
PricewaterhouseCoopers.
The Board of Directors intends to retain the services of
PricewaterhouseCoopers as the independent auditors of the Corporation for the
year 1999. Price Waterhouse had served as independent auditors of the Bank
since 1971 and of the Corporation since May 1991, when it was appointed by the
Board of Directors.
Representatives of PricewaterhouseCoopers will attend the Stockholders
Meeting and will be available to answer any questions that may arise; they will
also have the opportunity to make a statement if they so desire.
INCORPORATION BY REFERENCE
The audited financial statements, certain supplemental financial
information and the Management Discussion and Analysis of Financial Condition
and Results of Operations included in the Corporation's Annual Report to
Stockholders for the year ended December 31, 1998, which accompany this Proxy
Statement are hereby incorporated by reference herein. In addition, all
documents filed by the Corporation pursuant to Section 13(a) of the Securities
Exchange Act of 1934 subsequent to the date of this Proxy Statement and prior
to the Annual Meeting shall be deemed to be incorporated by reference herein.
PROPOSALS OF SECURITY HOLDERS TO BE PRESENTED AT THE 2000
ANNUAL MEETING OF STOCKHOLDERS
Stockholders' proposals intended to be presented at the 2000 Annual
Meeting of Stockholders must be received by the Corporate Secretary, at its
principal executive offices, Popular Center Building, San Juan, Puerto Rico,
00918, not later than November 24, 1999 for inclusion in the Corporation's
Proxy Statement and Form of Proxy relating to the 2000 Annual Meeting of
Stockholders.
OTHER MATTERS
Management does not know of any other matters to be brought before the
Meeting other than those described previously. Proxies in the accompanying form
will confer discretionary authority to Management with respect to any such
other matters presented at the meeting.
To avoid delays in ballot taking and counting, and in order to assure
that your Proxy is voted in accordance with your wishes, compliance with the
following instructions is respectfully requested: upon signing a Proxy as
attorney, executor, administrator, trustee, guardian, authorized officer of a
corporation, or on behalf of a minor, please give full title. If shares are in
the name of more than one recordholder, all should sign.
Whether or not you plan to attend the Meeting, it is very important
that your shares be represented and voted in the Meeting. Accordingly, you are
urged to properly complete, sign, date and return your Proxy Card or vote by
telephone or by Internet.
San Juan, Puerto Rico, March 22, 1999
RICHARD L. CARRION SAMUEL T. CESPEDES
Chairman of the Board, President Secretary
and Chief Executive Officer
YOU MAY REQUEST A COPY OF THE FORM 10K ANNUAL REPORT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION BY CALLING (787) 765-9800 OR WRITING TO AMILCAR JORDAN,
SENIOR VICE PRESIDENT, BANCO POPULAR DE PUERTO RICO, PO BOX 362708, SAN JUAN,
PR 00936-2708.
20
<PAGE> 22
<TABLE>
<CAPTION>
<S> <C>
[POPULAR, INC LOGO] IF YOU WISH TO VOTE BY TELEPHONE, INTERNET OR
MAIL, PLEASE READ THE INSTRUCTIONS BELOW
c/o BANCO POPULAR de PUERTO RICO Popular, Inc. encourages you to take advantage of new and
TRUST DIVISION convenient ways to vote your shares for matters to be covered at
PO BOX 362708 the 1999 Annual Meeting of Stockholders. Please take the
SAN JUAN, PR 00936-2708 opportunity to use one of the three voting methods outlined below
to cast your ballot. We've made it easier than ever.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to vote your proxy. Have your proxy
card in hand when you call. You will be prompted to enter your
12-digit Control Number, which is located above, and then follow
the simple instructions the Vote Voice provides you.
VOTE BY INTERNET WWW.PROXYVOTE.COM
Use the Internet to vote your proxy. Have your proxy card in hand
when you access the web site. You will be prompted to enter
your 12-digit Control Number, which is located above, to obtain
your records and create an electronic ballot.
VOTE BY MAIL
Please mark, sign, date and return this card promptly using the
enclosed postage pre-paid envelope to: Banco Popular de Puerto
Rico, Trust Division, P.O. Box 362708, San Juan, Puerto Rico 00936-2708.
No postage is required if mailed in the United States, Puerto Rico
or the U.S. Virgin Islands.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS; POPULA KEEP THIS PORTION FOR YOUR RECORDS
- -----------------------------------------------------------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
- -----------------------------------------------------------------------------------------------------------------------------------
[POPULAR, INC. LOGO] PROXY
The Board recommends a vote for For Withhold For All To withhold authority to vote, mark "For All Except"
the nominees listed below: All All Except and write the nominee's number on the line below.
ELECTION OF DIRECTORS - Nominees:
1) Juan J. Bermudez, 2) Francisee J. Carroras,
2) Richard L. Carrion, 4) David H. Chafey Jr., [ ] [ ] [ ] ---------------------------------------------------
5) Antonio Luts Ferre, 6) Alberto M. Paracchini,
7) Felix J. Serralles, Jr.
This proxy is Solicited on Behalf of the Board of Directors.
The undersigned hereby appoints Richard L. Carrion, Jorge A. Junquera and David H. Chafey Jr. or any or more of them as Proxies,
each with the power to appoint his substitute, and authorizes them to represent and to vote as designated above all the shares of
common stock of Popular, Inc. held of record by the undersigned on March 8, 1999, at the Annual Meeting of Shareholders to be held
at the Centro Europe Building, 1492 Ponce de Leon Avenue, 3rd Floor, San Juan, Puerto Rico, on April 27, 1999, at 10:00 a.m. or at
any adjournments thereof. The Proxies are further authorized to vote such shares upon any other business that may properly come
before the meeting or any adjournments thereof.
This Proxy, when properly executed, will be voted in the manner directed herein by the undersigned stockholder. IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF ALL THE NOMINEES LISTED ABOVE.
PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES, PUERTO RICO OR THE U.S. VIRGIN ISLANDS. PLEASE SIGN AS YOUR
NAMES APPEAR ON THIS FORM. IF SHARES ARE HELD JOINTLY, ALL OWNERS SHOULD SIGN.
(VEA AL DORSO TEXTO EN ESPANOL)
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Signature (PLEASE SIGN WITHIN BOX) Date Signature (Joint Owners) Date
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