<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
For Quarter Ended March 31, 1999 Commission file number 0 - 13818
------------------ ---------
</TABLE>
POPULAR, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Puerto Rico 66-041-6582
- ------------------------ -------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
</TABLE>
Popular Center Building
209 Munoz Rivera Avenue, Hato Rey
San Juan, Puerto Rico 00918
----------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code (787) 765-9800
-----------------
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report) Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
<TABLE>
<S> <C>
Common Stock $6.00 Par value 135,666,663
- ------------------------------------ ---------------------------------------
(Title of Class) (Shares Outstanding as of May 14, 1999)
</TABLE>
<PAGE> 2
POPULAR, INC.
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information Page
- ------------------------------ ----
<S> <C> <C>
Item 1. Financial Statements
Unaudited consolidated statements of condition - March 31,
1999, December 31, 1998 and March 31, 1998. 3
Unaudited consolidated statements of income - Quarter
ended March 31, 1999 and 1998. 4
Unaudited consolidated statements of comprehensive income -
Quarter ended March 31, 1999 and 1998. 5
Unaudited consolidated statements of cash flows - Quarter
ended March 31, 1999 and 1998. 6
Notes to unaudited consolidated financial statements. 7-17
Item 2. Management's discussion and analysis of financial condition
and results of operation. 18-31
Item 3. Quantitative and qualitative disclosures about market risk 21-22
Part II - Other Information
- ---------------------------
Item 1. Legal proceedings 32
Item 2. Changes in securities - None N/A
Item 3. Defaults upon senior securities - None N/A
Item 4. Submission of matters to a vote of security holders - None N/A
Item 5. Other information 32
Item 6. Exhibits and reports on Form 8-K 32
--- Signature 33
</TABLE>
FORWARD LOOKING INFORMATION. This Quarterly Report on Form 10-Q
contains certain forward looking statements with respect to the adequacy of the
allowance for loan losses, the Corporation's market risk, the effect of legal
proceedings on Popular, Inc.'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 II, Item I. 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.
2
<PAGE> 3
POPULAR, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, December 31, March 31,
(In thousands) 1999 1998 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 596,116 $ 667,707 $ 517,003
- ----------------------------------------------------------------------------------------------------------------
Money market investments:
Federal funds sold and securities and
mortgages purchased under agreements to resell 828,981 910,430 587,579
Time deposits with other banks 36,068 37,206 46,182
Banker's acceptances 563 262 696
- ----------------------------------------------------------------------------------------------------------------
865,612 947,898 634,457
- ----------------------------------------------------------------------------------------------------------------
Investment securities available-for-sale, at 6,544,252 7,020,396 5,906,739
market value
Investment securities held-to-maturity, at cost 484,958 226,134 416,773
Trading account securities, at market value 273,467 318,727 247,735
Loans held-for-sale 475,081 644,159 307,382
Loans 13,339,826 12,783,609 11,582,940
Less - Unearned income 356,662 348,973 347,153
Allowance for loan losses 277,116 267,249 217,708
- ----------------------------------------------------------------------------------------------------------------
Net loans 12,706,048 12,167,387 11,018,079
- ----------------------------------------------------------------------------------------------------------------
Premises and equipment 432,694 424,721 377,189
Other real estate 29,800 32,693 17,285
Customers' liabilities on acceptances 21,208 15,937 1,397
Accrued income receivable 161,258 156,314 132,092
Other assets 315,602 263,992 213,948
Intangible assets 267,979 274,292 228,141
- ----------------------------------------------------------------------------------------------------------------
$23,174,075 $23,160,357 $20,018,220
================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 2,919,926 $ 3,176,309 $ 2,492,547
Interest bearing 10,656,746 10,495,905 9,513,253
- ----------------------------------------------------------------------------------------------------------------
13,576,672 13,672,214 12,005,800
Federal funds purchased and securities sold
under agreements to repurchase 3,651,208 4,076,500 2,959,925
Other short-term borrowings 1,954,489 1,639,082 1,567,346
Notes payable 1,521,093 1,307,160 1,304,268
Acceptances outstanding 21,208 15,937 1,397
Other liabilities 450,411 437,760 358,246
- ----------------------------------------------------------------------------------------------------------------
21,175,081 21,148,653 18,196,982
- ----------------------------------------------------------------------------------------------------------------
Subordinated notes 125,000 125,000 125,000
- ----------------------------------------------------------------------------------------------------------------
Preferred beneficial interests in Popular North America's
junior subordinated deferrable interest debentures
guaranteed by the Corporation 150,000 150,000 150,000
- ----------------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiary 19,512 27,591
- ----------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock 100,000 100,000 100,000
Common stock 826,121 825,690 412,238
Surplus 218,635 216,795 603,445
Retained earnings 573,068 530,481 433,062
Treasury stock-at cost (39,559) (39,559) (39,559)
Accumulated other comprehensive income, net
of deferred taxes of $8,812 (December 31, 1998 - $25,101;
March 31, 1998 - $12,841 26,217 75,706 37,052
- ----------------------------------------------------------------------------------------------------------------
1,704,482 1,709,113 1,546,238
- ----------------------------------------------------------------------------------------------------------------
$23,174,075 $23,160,357 $20,018,220
================================================================================================================
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
3
<PAGE> 4
POPULAR, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter ended
March 31,
(Dollars in thousands, except per share information) 1999 1998
- ----------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME:
Loans $326,033 $293,217
Money market investments 7,933 8,827
Investment securities 105,434 90,259
Trading account securities 4,795 4,065
- ----------------------------------------------------------------------------------
444,195 396,368
- ----------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits 110,823 97,330
Short-term borrowings 69,374 56,248
Long-term debt 27,759 30,086
- ----------------------------------------------------------------------------------
207,956 183,664
- ----------------------------------------------------------------------------------
Net interest income 236,239 212,704
Provision for loan losses 35,771 33,565
- ----------------------------------------------------------------------------------
Net interest income after provision for loan losses 200,468 179,139
Service charges on deposit accounts 28,249 25,338
Other service fees 37,909 26,173
Gain on sale of securities 450 867
Trading account (loss) profit (282) 669
Other operating income 20,731 14,904
- ----------------------------------------------------------------------------------
287,525 247,090
- ----------------------------------------------------------------------------------
OPERATING EXPENSES:
Personnel costs:
Salaries 70,157 59,293
Profit sharing 6,320 5,683
Pension and other benefits 19,559 18,418
- ----------------------------------------------------------------------------------
96,036 83,394
Net occupancy expense 14,258 11,561
Equipment expenses 20,734 18,028
Other taxes 8,265 7,968
Professional fees 15,312 12,878
Communications 10,829 8,824
Business promotion 11,000 8,216
Printing and supplies 4,990 4,003
Other operating expenses 12,847 10,724
Amortization of intangibles 7,620 6,784
- ----------------------------------------------------------------------------------
201,891 172,380
- ----------------------------------------------------------------------------------
Net loss of minority interest 432
- ----------------------------------------------------------------------------------
Income before income tax 86,066 74,710
Income tax 22,402 19,915
- ----------------------------------------------------------------------------------
NET INCOME $ 63,664 $ 54,795
==================================================================================
NET INCOME APPLICABLE TO COMMON STOCK $ 61,577 $ 52,708
==================================================================================
EARNINGS PER COMMON SHARE (BASIC AND DILUTED) $ 0.45 $ 0.39
==================================================================================
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
4
<PAGE> 5
POPULAR, INC.
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter ended
March 31,
(In thousands) 1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Net Income $ 63,664 $54,795
- ---------------------------------------------------------------------------
Other comprehensive income net of tax:
Foreign currency translation adjustment (833)
Unrealized (losses) gains on securities:
Unrealized holding (losses) gains arising
during the period (48,508) 4,311
Less: reclassification adjustment for gains
included in net income, net of tax of
$61 (1998 - $318) 148 605
- ---------------------------------------------------------------------------
Total other comprehensive (loss) income $(49,489) $ 3,706
- ---------------------------------------------------------------------------
Comprehensive income $ 14,175 $58,501
===========================================================================
</TABLE>
5
<PAGE> 6
POPULAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Quarters ended
March 31,
(In thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 63,664 $ 54,795
- ------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization of premises and equipment 17,495 14,205
Provision for loan losses 35,771 33,565
Amortization of intangibles 7,620 6,784
Gain on sale of investment securities available-for-sale (450) (867)
(Gain) loss on disposition of premises and equipment (20) 21
Gain on sale of loans (7,877) (4,974)
Amortization of premiums and accretion of discounts
on investments 670 712
Decrease (increase) in loans held-for-sale 169,077 (42,178)
Amortization of deferred loan fees and costs (509) (196)
Net decrease (increase) in trading securities 45,260 (25,433)
Net increase in interest receivable (4,944) (13,416)
Net (increase) decrease in other assets (46,951) 70,051
Net (decrease) increase in interest payable (16,020) 40
Net increase in current and deferred taxes 32,430 12,233
Net increase in postretirement benefit obligation 3,195 2,161
Net increase (decrease) in other liabilities 1,682 (35,092)
- ------------------------------------------------------------------------------------------------------
Total adjustments 236,429 17,616
- ------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 300,093 72,411
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in money market investments 82,286 179,633
Purchases of investment securities held-to-maturity (1,120,189) (1,081,608)
Maturities of investment securities held-to-maturity 1,050,510 373,475
Purchases of investment securities available-for-sale (2,056,570) (4,835,174)
Maturities of investment securities available-for-sale 2,087,975 4,608,579
Sales of investment securities available-for-sale 194,301 264,482
Net disbursements on loans (887,509) (307,687)
Proceeds from sale of loans 315,535 155,680
Acquisition of loan portfolios (2,275) (4,628)
Acquisition of premises and equipment (28,253) (35,396)
Proceeds from sale of premises and equipment 2,805 9,431
- ------------------------------------------------------------------------------------------------------
Net cash used in investing activities (361,384) (673,213)
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (decrease) increase in deposits (95,541) 216,625
Net deposits acquired 36,297
Net (decrease) increase in federal funds purchased and securities
sold under agreements to repurchase (425,293) 236,596
Net increase in other short-term borrowings 315,407 279,911
Proceeds from issuance of notes payable 1,067,029 301,450
Payments of notes payable (853,097) (400,877)
Dividends paid (21,077) (16,978)
Proceeds from issuance of common stock 2,272 1,630
- ------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (10,300) 654,654
- ------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and due from banks (71,591) 53,852
Cash and due from banks at beginning of period 667,707 463,151
- ------------------------------------------------------------------------------------------------------
Cash and due from banks at end of period $ 596,116 $ 517,003
======================================================================================================
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
6
<PAGE> 7
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share information)
NOTE 1 - CONSOLIDATION
Popular, Inc. (the Corporation) 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. The Corporation is also the principal shareholder of Banco Fiduciario,
S.A. in the Dominican Republic with a 57% ownership interest therein.
Furthermore, the Corporation is 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 10 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. These statements are, in the opinion of management,
a fair statement of the results of the periods presented. These results are
unaudited, but include all necessary adjustments, of a normal recurring nature,
for a fair presentation of such results. Certain reclassifications have been
made to the prior year consolidated financial statements to conform to the 1999
presentation.
NOTE 2 - ACCOUNTING CHANGES
Effective the first quarter of 1999, the Corporation adopted SFAS 134,
"Accounting for Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise." This statement
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, in accordance with SFAS 115. This statement
did not have a material impact on the results of operations or financial
position of the Corporation.
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 flows 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 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.
7
<PAGE> 8
NOTE 3 - INVESTMENT SECURITIES
The average maturities as of March 31, 1999, and market value for the following
investment securities are:
Investment securities available-for-sale:
<TABLE>
<CAPTION>
March 31,
---------
1999 1998
---- ----
Amortized Market Amortized Market
Cost Value Cost Value
----------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury securities (average
maturity of 1 year and 5 months) $2,456,707 $2,477,732 $3,479,951 $3,498,379
Obligations of other U.S. Government
agencies and corporations (average
maturity of 7 years and 10 months) 2,312,930 2,289,475 1,050,998 1,051,667
Obligations of Puerto Rico, States and
political subdivisions (average
maturity of 8 years and 7 months) 75,634 76,549 58,970 59,793
Collateralized mortgage obligations
(average maturity of 21 years and 6 months) 1,140,210 1,142,019 831,877 831,826
Mortgage-backed securities (average
maturity of 23 years and 1 month) 348,127 355,850 396,850 403,844
Equity securities (without contractual
maturity) 122,000 150,483 34,360 57,362
Others (average maturity of 4 years and
2 months) 52,567 52,144 3,839 3,868
----------------------------------------------------------
$6,508,175 $6,544,252 $5,856,845 $5,906,739
==========================================================
</TABLE>
Investment securities held-to-maturity:
<TABLE>
<CAPTION>
March 31,
---------
1999 1998
---- ----
Amortized Market Amortized Market
Cost Value Cost Value
----------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Obligations of other U.S. Government
agencies and corporations (average
maturity of 1 month) $154,966 $160,819 $125,129 $125,130
Obligations of Puerto Rico, States and
political subdivisions (average maturity
of 7 years and 4 months) 31,547 32,590 94,011 94,977
Collateralized mortgage obligations (average
maturity of 11 years and 2 months) 25,999 26,109 52,879 52,981
Mortgage-backed securities (average
maturity of 11 years and 8 months) 31,020 31,269 43,588 44,595
Equity securities (without contractual
maturity) 88,312 88,312 76,264 76,264
Others (average maturity of 5 years
and 7 months) 153,114 153,101 24,902 24,895
----------------------------------------------------
$484,958 $492,200 $416,773 $418,842
====================================================
</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.
8
<PAGE> 9
NOTE 4 - PLEDGED ASSETS
Securities and insured mortgage loans of the Corporation of $4,738,716 (1998 -
$4,329,480) are pledged to secure public and trust deposits and securities and
mortgages sold under repurchase agreements.
NOTE 5 - COMMITMENTS
In the normal course of business there are letters of credit outstanding and
stand-by letters of credit which at March 31, 1999, amounted to $15,664 and
$78,234. There are also outstanding other commitments and contingent
liabilities, such as guarantees and commitments to extend credit, which are not
reflected in the accompanying financial statements. No losses are anticipated as
a result of these transactions.
NOTE 6 - SUBORDINATED NOTES AND PREFERRED BENEFICIAL INTEREST IN POPULAR NORTH
AMERICA'S JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES GUARANTEED BY THE
CORPORATION
Subordinated notes of $125,000 as of March 31, 1999 and 1998 consisted of notes
issued by the Corporation on December 12, 1995, maturing on December 15, 2005,
with interest payable semi-annually at 6.75%.
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 of
its 8.327% 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 of its 8.327% common
securities (liquidation amount $1,000 per common security) were used to
purchase $154,640 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 of Junior
Subordinated Debentures and a related accrued interest receivable of $1,073.
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.
NOTE 7 - STOCKHOLDERS' EQUITY
Authorized common stock is 180,000,000 shares with a par value of $6 per share
of which 135,709,287 were issued and outstanding at March 31, 1999. As of March
31, 1999, a total of 1,977,600 common shares with a total cost of $39,559 were
maintained as treasury stock.
Authorized preferred stock is 10,000,000 shares without par value of which
4,000,000, non-cumulative with a dividend rate of 8.35% and a liquidation
preference value of $25 per share, were issued and outstanding at March 31,
1999.
Popular International Bank, Inc. (PIB) and Popular North America, Inc.'s (PNA)
bank subsidiaries (Banco Popular North America and Banco Popular, National
Association (Texas)) have certain statutory provisions and regulatory
requirements and policies, such as the maintenance of adequate capital, that
limit the amount of dividends they can pay. Other than these limitations, no
other restrictions exist on the ability of PIB and PNA to make dividend and
asset distributions to the Corporation, nor on the ability of PNA's subsidiaries
to make distributions to PNA.
NOTE 8 - EARNINGS PER COMMON SHARE
Earnings per common share (EPS) are calculated based on net income applicable to
common stockholders which amounted to $61,577 for the first quarter of 1999
(1998 - $52,708), after deducting the dividends on preferred stock. EPS are
based on 135,709,287 average shares outstanding for the first quarter of 1999
(1998 - 135,435,096).
9
<PAGE> 10
NOTE 9 - SUPPLEMENTAL DISCLOSURE ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS
During the quarter ended March 31, 1999, the Corporation paid interest and
income taxes amounting to $233,369 and $3,636, respectively (1998 - $181,828 and
$2,613). In addition, the loans receivable transferred to other real estate and
other property for the quarter ended March 31, 1999, amounted to $3,147 and
$5,057, respectively (1998 - $1,790 and $8,131).
NOTE 10 - 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 the U.S. mainland, which provide
individuals, corporations and institutions with commercial and retail banking
services, including loans and deposits, trusts, mortgage banking and servicing,
asset management, credit cards and other financial services. These services are
offered through a delivery system of branches throughout Puerto Rico, the 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 Corporation's lease financing segment provides financing for vehicles and
equipment through Popular Leasing and Rental, Inc. in Puerto Rico and Popular
Leasing, USA in the U.S. mainland. 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 followed by the
Corporation in the ordinary course of business and conform with generally
accepted accounting principles and with general practices within the financial
industry. Following are the results of operations and selected financial
information by operating segments for the first quarter of 1999 and 1998.
10
<PAGE> 11
<TABLE>
<CAPTION>
Mortgage and
Commercial Consumer Lease
banking Finance financing Other Eliminations Total
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands) March 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 202,243 $ 21,170 $ 10,696 $ 2,143 $ (13) $ 236,239
Provision for loan losses 27,036 6,106 2,629 0 0 35,771
Other income 57,929 13,909 5,050 11,567 (1,398) 87,057
Amortization expense 7,062 84 189 285 0 7,620
Depreciation expense 13,562 375 2,246 1,312 0 17,495
Other operating expense,
net of minority interest 141,778 17,009 5,558 12,117 (118) 176,344
Income tax 16,250 4,246 1,937 294 (325) 22,402
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 54,484 $ 7,259 $ 3,187 $ (298) $ (968) $ 63,664
- -----------------------------------------------------------------------------------------------------------------------------
Segment Assets $19,812,764 $1,760,856 $695,302 $ 5,621,060 $(4,715,907) $23,174,075
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Mortgage and
Commercial Consumer Lease
banking Finance financing Other Eliminations Total
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands) March 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 182,838 $ 20,655 $ 10,161 $ (933) $ (17) $ 212,704
Provision for loan losses 25,535 5,151 2,879 0 0 33,565
Other income 51,947 6,513 4,814 4,738 (61) 67,951
Amortization expense 6,244 250 320 (30) 0 6,784
Depreciation expense 11,566 339 2,282 18 0 14,205
Other operating expense 130,535 12,612 5,368 2,998 (122) 151,391
Income tax 15,477 3,440 1,549 (568) 17 19,915
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 45,428 $ 5,376 $ 2,577 $ 1,387 $ 27 $ 54,795
- -----------------------------------------------------------------------------------------------------------------------------
Segment Assets $17,555,655 $1,556,456 $647,467 $ 3,998,271 $(3,739,629) $20,018,220
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
- --------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Revenues*:
Puerto Rico $370,734 $343,315
United States 131,210 108,341
Other 29,308 12,663
- --------------------------------------------------------------------------
Total consolidated revenues $531,252 $464,319
- --------------------------------------------------------------------------
</TABLE>
* Total revenues include interest income, service charges on deposit accounts,
other service fees, gain on sale of securities, trading account profit
(loss), and other income.
11
<PAGE> 12
<TABLE>
<CAPTION>
MARCH 31, March 31,
1999 1998
- ---------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Selected Balance Sheet Information:
Puerto Rico
Total assets $16,693,266 $14,799,930
Loans 8,158,015 7,377,247
Deposits 9,427,049 8,631,686
United States
Total assets $ 5,587,988 $ 4,635,153
Loans 4,674,741 3,763,801
Deposits 3,365,559 2,865,107
Other
Total assets $ 892,821 $ 583,137
Loans 625,489 402,121
Deposits 784,064 509,007
</TABLE>
NOTE 11 - POPULAR INTERNATIONAL BANK, INC. (A WHOLLY-OWNED SUBSIDIARY OF
POPULAR, INC.) FINANCIAL INFORMATION:
The following summarized financial information presents the unaudited
consolidated financial position of Popular International Bank, Inc. (PIB) and
its subsidiaries, ATH Costa Rica, Banco Fiduciario, S.A. and Popular North
America, Inc., including Popular Holdings USA, Inc. and its subsidiaries; Banco
Popular North America and Banco Popular, National Association (Texas); Popular
Cash Express, Inc. and Equity One, Inc. (second-tier subsidiaries), as of
February 28, 1999 and 1998, and the results of their operations for the quarters
then ended.
Effective January 1, 1999 the Corporation completed the first phase of a
reorganization of its U.S. operations. As of that date, most of the banking
subsidiaries in California, Florida, New Jersey and Illinois, and the Banco
Popular branches in New York were merged with and into one bank named Banco
Popular North America (BPNA). Also during the first quarter of 1999 First State
Bank of Southern California, The Bronson-Gore Bank In Prospect Heights, The
Irving Bank and Water Tower Bank, banking subsidiaries that were not part of the
initial phase of the reorganization effected on January 1, were merged with and
into BPNA. Banco Popular, National Association (Texas) is expected to be merged
into BPNA later during 1999 to complete the reorganization. The financial
statements for 1998, presented below, were restated to reflect the
reorganization as if it had been consummated at the beginning of fiscal year
1998.
Popular, Inc. has not presented separate financial statements nor any other
disclosures concerning PIB, other than the following summarized financial
information, because management has determined that such information is not
material to holders of debt securities issued by PIB which are guaranteed by the
Corporation.
12
<PAGE> 13
POPULAR INTERNATIONAL BANK, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands)
<TABLE>
<CAPTION>
February 28,
------------
1999 1998
---- ----
<S> <C> <C>
Assets:
Cash $ 215,652 $ 136,111
Money market investments 107,219 62,362
Investment securities 438,335 456,810
Loans 4,999,610 3,721,449
Less: Unearned income 70,632 56,763
Allowance for loan losses 94,300 46,741
--------------------------
4,834,678 3,617,945
Other assets 294,701 142,603
Intangible assets 148,073 92,016
--------------------------
Total assets $6,038,658 $4,507,847
==========================
Liabilities and Stockholder's Equity:
Deposits $3,657,803 $2,812,382
Short-term borrowings 716,484 425,403
Notes payable 862,820 648,173
Other liabilities 89,438 51,501
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 19,512 0
Stockholder's equity 542,601 420,388
--------------------------
Total liabilities and stockholder's equity $6,038,658 $4,507,847
==========================
</TABLE>
13
<PAGE> 14
POPULAR INTERNATIONAL BANK, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
<TABLE>
<CAPTION>
Quarter ended
February 28,
-------------
1999 1998
-------- -------
<S> <C> <C>
Income:
Interest and fees $122,534 $95,078
Other income 26,741 13,688
-------- -------
Total income 149,275 108,766
-------- -------
Expenses:
Interest expense 63,462 46,619
Provision for loan losses 9,595 10,411
Operating expenses 68,425 44,046
-------- -------
Total expenses 141,482 101,076
-------- -------
Income before income tax 7,793 7,690
Income tax 4,120 2,820
-------- -------
Net income $ 3,673 $ 4,870
======== =======
</TABLE>
14
<PAGE> 15
NOTE 12 - POPULAR NORTH AMERICA, INC. (A SECOND-TIER SUBSIDIARY OF POPULAR,
INC.) FINANCIAL INFORMATION:
The following summarized financial information presents the unaudited
consolidated financial position of Popular North America, Inc. (PNA) and its
wholly-owned subsidiaries, Popular Cash Express, Inc., Equity One, Inc. and
Popular Holdings USA, and its wholly-owned subsidiaries; Banco Popular North
America and Banco Popular, National Association (Texas) as of February 28, 1999
and 1998, and the results of their operations for the quarters then ended.
Effective January 1, 1999 the Corporation completed the first phase of a
reorganization of its U.S. operations. As of that date, most of the banking
subsidiaries in California, Florida, New Jersey and Illinois, and the Banco
Popular branches in New York were merged with and into one bank named Banco
Popular North America (BPNA). Also during the first quarter of 1999 First State
Bank of Southern California, The Bronson-Gore Bank In Prospect Heights, The
Irving Bank and Water Tower Bank, banking subsidiaries that were not part of the
initial phase of the reorganization effected on January 1, were merged with and
into BPNA, Banco Popular, National Association (Texas) is expected to be merged
into BPNA later during 1999 to complete the reorganization. The financial
statements for 1998, presented below, were restated to reflect the
reorganization as if it had been consummated at the beginning of fiscal year
1998.
Popular, Inc. has not presented separate financial statements and any other
disclosures concerning PNA, other than the following summarized financial
information, because management has determined that such information is not
material to holders of debt securities issued by PNA which are guaranteed by the
Corporation.
15
<PAGE> 16
POPULAR NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands)
<TABLE>
<CAPTION>
February 28,
------------
1999 1998
---------- ----------
<S> <C> <C>
Assets:
Cash $ 160,111 $ 135,800
Money market investments 75,692 60,491
Investment securities 400,536 436,714
Loans 4,745,373 3,721,449
Less: Unearned income 70,632 56,763
Allowance for loan losses 69,578 46,741
---------- ----------
4,605,163 3,617,945
Other assets 205,578 139,591
Intangible assets 145,053 92,016
---------- ----------
Total assets $5,592,133 $4,482,557
========== ==========
Liabilities and Stockholder's Equity:
Deposits $3,365,559 $2,812,382
Short-term borrowings 683,306 405,203
Notes payable 823,274 648,173
Other liabilities 59,763 51,201
Preferred beneficial interest in Popular North
America's junior subordinated deferrable
interest debentures guaranteed by the
Corporation 150,000 150,000
Stockholder's equity 510,231 415,598
---------- ----------
Total liabilities and stockholder's equity $5,592,133 $4,482,557
========== ==========
</TABLE>
16
<PAGE> 17
POPULAR NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
<TABLE>
<CAPTION>
Quarter ended
February 28,
-------------
1999 1998
-------- -------
<S> <C> <C>
Income:
Interest and fees $107,853 $ 94,817
Other income 23,406 13,878
-------- --------
Total income 131,259 108,695
-------- --------
Expenses:
Interest expense 51,523 46,397
Provision for loan losses 9,595 10,411
Operating expenses 61,300 43,860
-------- --------
Total expenses 122,418 100,668
-------- --------
Income before income tax 8,841 8,027
Income tax 4,477 2,820
-------- --------
Net income $ 4,364 $ 5,207
======== ========
</TABLE>
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
TABLE A
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
AT MARCH 31, AVERAGE FOR THE QUARTER
------------------------------------------------------------------------------------------
BALANCE SHEET HIGHLIGHTS 1999 1998 Change 1999 1998 Change
(In thousands)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money market investments $ 865,612 $ 634,457 $ 231,155 $ 968,845 $ 700,123 $ 268,722
Investment and trading securities 7,302,677 6,571,247 731,430 7,361,873 6,174,230 1,187,643
Loans 13,458,245 11,543,169 1,915,076 13,211,405 11,466,638 1,744,767
Total assets 23,174,075 20,018,220 3,155,855 22,695,779 19,485,912 3,209,867
Deposits 13,576,672 12,005,800 1,570,872 13,578,244 11,805,324 1,772,920
Borrowings 7,401,790 6,106,539 1,295,251 7,021,406 5,871,602 1,149,804
Stockholders' equity 1,704,482 1,546,238 158,244 1,659,015 1,492,184 166,831
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FIRST QUARTER
-----------------------------------
OPERATING HIGHLIGHTS 1999 1998 Change
(In thousands, except per share information)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income $236,239 $212,704 $23,535
Provision for loan losses 35,771 33,565 2,206
Fees and other income 87,057 67,951 19,106
Other expenses, net of minority 223,861 192,295 31,566
interest
Net income $ 63,664 $ 54,795 $ 8,869
Net income applicable to common $ 61,577 $ 52,708 $ 8,869
stock
Earnings per common share 0.45 0.39 0.06
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIRST QUARTER
SELECTED STATISTICAL ----------------------
INFORMATION 1999 1998
- ----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK DATA- Market price
High $ 37.88 $ 29.34
Low 30.88 23.03
End 30.88 29.34
Book value at period ended 11.82 10.68
Dividend declared 0.14 0.11
Dividend payout ratio 30.84% 28.25%
Price/earnings ratio 18.06X 19.18x
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
PROFITABILITY RATIOS- Return on assets 1.14% 1.14%
Return on common equity 16.03 15.36
Net interest spread (taxable equivalent) 3.89 4.15
Net interest yield (taxable equivalent) 4.77 5.00
Effective tax rate 26.16 26.66
Overhead ratio 48.61 49.10
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
CAPITALIZATION RATIOS- Equity to assets 7.31% 7.66%
Tangible equity to assets 6.19 6.56
Equity to loans 12.56 13.01
Internal capital generation 10.27 10.14
Tier I capital to risk-adjusted assets 10.73 12.17
Total capital to risk-adjusted assets 12.98 14.54
Leverage ratio 6.69 7.11
</TABLE>
- -------------------------------------------------------------------------------
NOTE: All common stock data has been adjusted to reflect the stock split
effected in the form of a dividend on July 1, 1998.
18
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This financial review contains the 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, tables and notes included in this report. The Corporation is a
diversified bank holding company, which offers a wide range of products and
services through its subsidiaries and is engaged in the following businesses:
- - Commercial Banking - Banco Popular de Puerto Rico (BPPR), Banco Popular
North America (BPNA), Banco Popular, National Association (Texas) and
Banco Fiduciario, S.A. (BF)
- - 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, Inc.
NET INCOME
Net income for the first quarter of 1999 was $63.7 million as compared with
$54.8 million reported for the same quarter of 1998 and $62.5 million during the
last quarter of 1998. Earnings per common share (EPS) for the first quarter of
1999 were $0.45, based on 135,709,287 average shares outstanding, or 15.4%
higher than $0.39 for the first quarter of 1998, based on 135,435,096 average
shares outstanding. EPS for the last quarter of 1998 were $0.44, based on
135,637,327 average shares outstanding. Return on assets (ROA) and return on
common equity (ROE) for the quarter ended March 31, 1999 were 1.14% and 16.03%,
respectively, compared with 1.14% and 15.36% for the same period in 1998 and
1.13% and 15.84% for the fourth quarter of 1998.
The rise in the Corporation's net income for the first quarter of 1999, when
compared with the same period a year ago, was driven by an increase of $23.5
million in net interest income and $19.1 million in other revenues. These
increases were partially offset by rises of $29.5 million in operating expenses,
$2.2 million in the provision for loan losses and $2.5 million in income taxes.
19
<PAGE> 20
NET INTEREST INCOME
Net interest income for the first quarter of 1999 grew to $236.2 million,
compared with $212.7 million reported in the same period of 1998 and $230.9
million for the fourth quarter of 1998. On a taxable equivalent basis, net
interest income increased to $256.1 million from $228.0 million reported for the
first quarter of 1998.
The increase of $28.1 million in net interest income on a taxable equivalent
basis was driven by a $34.2 million increase attributable to a higher volume of
earning assets, partially offset by a decrease of $6.1 million due to lower
yields.
For analytical purposes, the interest earned on tax-exempt assets is adjusted to
a taxable equivalent basis assuming the applicable statutory income tax rates.
Table B summarizes the changes in the composition of average earning assets and
interest bearing liabilities, and their respective interest income and expense
and yields and costs, on a taxable equivalent basis, for the first quarter of
1999, as compared with the same quarter in 1998.
The increase of $3.2 billion in average earning assets was primarily related to
the increase in loans, which accounted for $1.7 billion of the total increase.
As seen in Table B, the commercial and mortgage portfolios reflected the major
growth, due to the sustained business expansion of the Corporation and greater
marketing efforts, both in Puerto Rico and the U.S. mainland. Also the
acquisitions made by the Corporation in California, Illinois and the Dominican
Republic during the second half of 1998, accounted for part of the increase in
average loans. Total loans at December 31, 1998, amounted to $13.1 million.
The increase in investment securities, when compared with the first quarter of
1998, mostly relates to an attractive environment for investments and arbitrage
activities, which has driven the Corporation to invest in mortgage-backed
securities, which carry a higher return, and U.S. government obligations. The
income derived from the latter is exempt for income tax purposes in Puerto Rico.
The average yield on earning assets, on a taxable equivalent basis, decreased to
8.68% for the first quarter of 1999, primarily due to a lower yield on loans by
36 basis points when compared with the first quarter in 1998, as a result of a
lower interest rate scenario, a strong competitive environment and a higher
proportion of investment securities within the Corporation's earning assets
portfolio.
The rise in average interest bearing liabilities for the quarter ended March 31,
1999, as compared with the same quarter in 1998, was mostly reflected in average
short-term borrowings and interest bearing deposits, mainly savings and
certificates of deposits. The rise in short-term borrowings was mostly related
to investment and loan growth. The increase in deposits was partially attributed
to funds that entered into the banking system in Puerto Rico as a result of
payments by insurance companies and federal government agencies for claims after
hurricane Georges hit the island in September 1998. Also, the operations
acquired during the second half of 1998, had $484 million in interest bearing
deposits at their respective acquisition dates. Interest bearing liabilities at
December 31, 1998, amounted to $17.8 billion.
20
<PAGE> 21
TABLE B
ANALYSIS OF LEVELS AND YIELDS ON A TAXABLE
EQUIVALENT BASIS
QUARTER ENDED ON MARCH 31,
<TABLE>
<CAPTION>
Average Volume Average Yields
- -------------------------------------------------------------
1999 1998 Variance 1999 1998 Variance
- -------------------------------------------------------------
$(in millions)
<S> <C> <C> <C> <C> <C> <C>
$ 969 $ 700 $ 269 3.32% 5.11% (1.79)% Money market investments
7,044 5,914 1,130 7.05 7.06 (0.01) Investment securities
318 260 58 6.51 6.82 (0.31) Trading
- -------------------------------------------------------------
8,331 6,874 1,457 6.59 6.85 (0.26)
- -------------------------------------------------------------
Loans:
6,113 4,939 1,174 9.13 9.37 (0.24) Commercial
621 589 32 13.10 13.10 -- Leasing
3,318 2,871 447 8.14 8.72 (0.58) Mortgage
3,159 3,068 91 13.02 12.99 (0.03) Consumer
- -------------------------------------------------------------
13,211 11,467 1,744 10.00 10.36 (0.36)
- -------------------------------------------------------------
$21,542 $18,341 $ 3,201 8.68% 9.05% (0.37)% TOTAL EARNING ASSETS
=============================================================
Interest bearing deposits:
$ 1,673 $ 1,379 $ 294 3.16% 3.35% (0.19)% NOW and money market
4,104 3,641 463 2.93 3.08 (0.15) Savings
4,808 4,291 517 5.75 5.51 0.24 Time deposits
- -------------------------------------------------------------
10,585 9,311 1,274 4.25 4.24 0.01
- -------------------------------------------------------------
5,383 4,090 1,293 5.23 5.58 (0.35) Short-term borrowings
1,639 1,781 (142) 6.85 6.83 0.02 Medium and long-term debt
- -------------------------------------------------------------
17,607 15,182 2,425 4.79 4.90 (0.11) TOTAL INTEREST-BEARING
LIABILITIES
2,993 2,494 499 Demand deposits
942 665 277 Other sources of funds
- -------------------------------------------------------------
$21,542 $18,341 $3,201 3.91% 4.05% (0.14)%
=============================================================
4.77% 5.00% (0.23)% NET INTEREST MARGIN AND
==============================
NET INTEREST INCOME
3.89% 4.15% (0.26)% NET INTEREST SPREAD
==============================
Taxable equivalent adjustment
Net interest income
<CAPTION>
Variance
Interest Attributable to
------------------------------------------------------
1999 1998 Variance Rate Volume
------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Money market investments $ 7,932 $ 8,826 $ (894) $ (3,709) $ 2,815
Investment securities 123,348 103,544 19,804 531 19,273
Trading 5,105 4,374 731 (206) 937
------------------------------------------------------
136,385 116,744 19,641 (3,384) 23,025
------------------------------------------------------
Loans:
Commercial 137,552 114,072 23,480 (3,018) 26,498
Leasing 20,357 19,273 1,084 -- 1,084
Mortgage 67,478 62,588 4,890 (4,387) 9,277
Consumer 102,329 99,038 3,291 (326) 3,617
------------------------------------------------------
327,716 294,971 32,745 (7,731) 40,476
------------------------------------------------------
TOTAL EARNING ASSETS $464,101 $411,715 $ 52,386 $(11,115) $ 63,501
======================================================
Interest bearing deposits:
NOW and money market $ 13,036 $ 11,399 $ 1,637 $ (675) $ 2,312
Savings 29,626 27,654 1,972 (993) 2,965
Time deposits 68,161 58,277 9,884 (673) 10,557
------------------------------------------------------
110,823 97,330 13,493 (2,341) 15,834
------------------------------------------------------
Short-term borrowings 69,374 56,247 13,127 (2,727) 15,854
Medium and long-term debt 27,759 30,086 (2,327) 12 (2,339)
------------------------------------------------------
TOTAL INTEREST-BEARING 207,956 183,663 24,293 (5,056) 29,349
LIABILITIES
Demand deposits
Other sources of funds
------------------------------------------------------
NET INTEREST MARGIN AND
NET INTEREST INCOME 256,145 228,052 28,093 $ (6,059) $ 34,152
====================
NET INTEREST SPREAD
Taxable equivalent adjustment 19,906 15,348 4,558
------------------------------
Net interest income $236,239 $212,704 $ 23,535
==============================
</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.
- -------------------------------------------------------------------------------
The average cost of interest bearing liabilities decreased 11 basis points when
compared with the same quarter in 1998. The decrease is mostly attributed to the
lower interest rate scenario that prevailed during the first three months of
1999 as compared with the same quarter of 1998.
The decrease in the yield on earning assets, particularly in the loan portfolio,
together with a higher volume of investment funded with short-term borrowings
caused the net interest yield, on a taxable equivalent basis, to decrease 23
basis points this quarter compared with the first quarter of 1998.
MARKET RISK
Market risk is the risk of economic loss arising from adverse changes in market
rates and prices, such as interest rates, foreign currency exchange rates,
commodity prices, and other relevant market or price changes. The Corporation's
primary market risk exposure is that to interest rates, as primarily interest
rate volatility and its impact on the repricing of assets and liabilities affect
the net interest income. The Corporation maintains a formal asset and liability
management process to quantify, monitor and control interest rate risk and to
assist management in maintaining stability in the net interest margin under
varying interest rate environments.
21
<PAGE> 22
The Corporation uses various techniques to assess the degree of interest rate
risk, including static gap analysis, simulation and duration analysis. Each
focuses on different aspects of the interest rate risk that is assumed at any
point in time, and are therefore used jointly to make informed judgements about
the risk levels and the appropriateness of strategies under consideration. An
interest rate sensitivity analysis, performed at the Corporation level, is the
primary tool used in expressing the potential loss in future earnings resulting
from selected hypothetical changes in interest rates.
Sensitivity is calculated on a monthly basis using a simulation model which
incorporates actual balance sheet figures detailed by maturity and interest
yields or costs, the expected balance sheet dynamics, reinvestments, and other
non-interest related data. Simulations are run using various interest rate
scenarios to determine potential changes to the future earnings of the
Corporation.
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 deposit decay. They should not be relied upon as
indicative of actual results. Further, the computations do not contemplate
actions that management could take to respond to changes in interest rates. By
their nature, these forward-looking choices are only estimates and may be
different from what actually may occur in the future.
Based on the results of the sensitivity analysis as of March 31, 1999, the
change in net interest income on a hypothetical rising rate scenario for the
next twelve months was a $63 thousand decrease and the change for the same
period utilizing a hypothetical declining rate scenario was an increase of $1
million. Both hypothetical rate scenarios consider a gradual change of 150 basis
points during the twelve-month period. These estimated changes are well within
the policy guidelines established by the Board.
In the course of its business, the Corporation occasionally enters into foreign
exchange transactions. These transactions are executed as an intermediary
primarily for its commercial and retail clients, and any foreign exchange
positions assumed by the Corporation as a result are offset in the currency
markets. Management therefore believes that the market risk assumed by the
Corporation in its foreign currency transactions is not significant.
The Corporation is the largest shareholder of BF, a commercial banking
institution in the Dominican Republic, with a 57% ownership interest. Most of
BF's business is conducted in Dominican `pesos' (DR$). Local (DR) 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.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses for the first quarter of 1999 was $35.8 million,
exceeding by $2.2 million the amount recorded for the same period of 1998.
During the fourth quarter of 1998 the provision amounted to $35.5 million. The
elements considered for the increase in the provision for loan losses were the
growth of $1.9 billion in the Corporation's loan portfolio from March 31, 1998
to the same date this year, an increase in non-performing assets and the
Corporation's objective of strengthening its reserve level.
22
<PAGE> 23
As shown in Table C, net charge-offs for the first quarter of 1999 amounted to
$25.9 million, a decrease of $1.6 million or 5.8%, compared with $27.5 million
recorded in the same period of 1998. Net charge-offs for the quarter ended
December 31, 1998 totaled $30.6 million. Net charge-offs represented 0.78% of
average loans for the quarter ended March 31, 1999, compared with 0.96% for the
same period in 1998 and 0.95% for the year ended December 31, 1998.
TABLE C
ALLOWANCE FOR LOAN LOSSES AND SELECTED LOAN LOSSES STATISTICS
<TABLE>
<CAPTION>
FIRST QUARTER
(Dollars in thousands) 1999 1998
- ---------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of period $267,249 $211,651
Provision for loan losses 35,771 33,565
-----------------------
303,020 245,216
-----------------------
Losses charged to the allowance:
Commercial 11,296 9,991
Construction 500 125
Lease financing 5,846 6,185
Mortgage 943 492
Consumer 20,572 22,480
-----------------------
39,157 39,273
-----------------------
Recoveries:
Commercial 2,972 4,040
Construction 2 40
Lease financing 3,918 3,746
Mortgage 294 119
Consumer 6,067 3,820
-----------------------
13,253 11,765
-----------------------
Net loans charged-off (recovered):
Commercial 8,324 5,951
Construction 498 85
Lease financing 1,928 2,439
Mortgage 649 373
Consumer 14,505 18,660
-----------------------
25,904 27,508
-----------------------
Balance at end of period $277,116 $217,708
=======================
Ratios:
Allowance for losses to loans 2.06% 1.89%
Allowance to non-performing assets 92.81 102.04
Allowance to non-performing loans 103.10 111.03
Non-performing assets to loans 2.22 1.85
Non-performing assets to total assets 1.29 1.07
Net charge-offs to average loans 0.78 0.96
Provision to net charge-offs 1.38X 1.22x
Net charge-offs earnings coverage 4.70 3.94
</TABLE>
As shown above, lower net losses were principally in the consumer and lease
financing portfolios, indicative of general market trends as the number of
bankruptcy filings has begun to decline during the beginning of 1999, after
setting breaking record highs during 1998, and to higher recoveries resulting
from continuous collection efforts. Consumer loans net charge-offs represented
1.84% of average consumer loans for the quarter ended March 31, 1999, compared
with 2.43% for the same quarter last year.
23
<PAGE> 24
On the other hand, commercial loans net charge-offs increased $2.4 million for
the quarter ended March 31, 1999, when compared with the same quarter of 1998.
Commercial loans net charge-offs, including construction loans, represented
0.58% of average commercial loans for the quarter ended March 31, 1999, compared
with 0.49% for the same quarter last year. This increase is mostly related to
the growth in the commercial loan portfolio experienced since March 31, 1998, as
further explained in the Balance Sheet Comments section.
The allowance for credit losses is maintained at a level considered appropriate
by management based on its estimate of losses inherent in the loan portfolio.
The methodology established for the evaluation of the adequacy of the allowance
for loan losses includes portfolio risk characteristics, prior loss experience,
results of periodic credit reviews, current and anticipated economic conditions,
as well as loan impairment measurement.
The allowance for loan losses increased to $277 million or 2.06% of loans at the
end of March 31, 1999, compared with $218 million or 1.89% one year earlier, and
$267 million or 2.04% at December 31, 1998. Besides the factors explained above
for the increase in the provision for loan losses, the rise in the allowance
coverage ratio was also the result of the inclusion of BF, which has a higher
ratio of allowance to cover potential losses, as it is considered a higher risk
portfolio.
The Corporation has defined impaired loans as all loans with interest and/or
principal past due 90 days or more and other specific loans for which, based on
current information and events, it is probable that the debtor will be unable to
pay all amounts due according to the contractual terms of the loan agreement.
Loan impairment is measured based on the present value of expected cash flows
discounted at the loan's effective rate, on the observable market price or, on
the fair value of the collateral if the loan is collateral dependent. Large
groups of smaller balance homogeneous loans are collectively evaluated for
impairment based on past experience. All other loans are evaluated on a
loan-by-loan basis. Impaired loans for which the discounted cash flows,
collateral value or market price equals or exceeds its carrying value do not
require an allowance.
The recorded investment in impaired loans at March 31, 1999 was $173 million, an
increase of $51 million from March 31, 1998. The related valuation allowance (as
calculated under SFAS 114) on impaired loans at March 31, 1999, was $36.6
million compared with $22.3 million at the same date in 1998. Average impaired
loans during the first quarter of 1999 and 1998 were $171 million and $122
million, respectively. The Corporation recognized interest income on impaired
loans of $1.8 million and $1.2 million, respectively, for the quarters ended
March 31, 1999 and 1998.
CREDIT QUALITY
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.
Although the Corporation experienced decreases in net charge-off levels in the
first quarter of 1999, non-performing assets as a percentage of total loans
increased when compared with the same period in 1998. Non-performing assets as a
percentage of total loans increased to 2.22% as of March 31, 1999, compared with
1.85% at the same date in 1998. Table D shows information on non-performing
assets as of March 31, 1999,
24
<PAGE> 25
December 31, 1998 and March 31, 1998. All loan categories reflected increases as
compared with March 31, 1998. Compared with balances at December 31, 1998, only
non-performing commercial and mortgage loans reflected increases of $5.8 million
and $0.9 million, respectively. These increases were mostly related to the
growth in the loan portfolios.
TABLE D
NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
MARCH 31, December 31, March 31,
1999 1998 1998
- ---------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Commercial, construction, industrial
and agricultural $148,334 $142,515 $109,150
Lease financing 4,481 4,937 2,627
Mortgage 69,419 68,527 52,841
Consumer 46,555 46,626 31,463
Renegotiated accruing loans 578
Other real estate 29,800 32,693 17,285
------------------------------------------
Total $298,589 $295,876 $213,366
==========================================
Accruing loans past-due
90 days or more $ 24,712 $ 24,426 $ 22,425
==========================================
Non-performing assets to loans 2.22% 2.26% 1.85%
Non-performing assets to assets 1.29 1.28 1.07
</TABLE>
The increase of $85.2 million in non-performing assets from March 31, 1998, was
due in part to the inclusion of $33.5 million of non-performing assets of BF,
acquired in the second half of 1998. Non-performing commercial loans increased
$39.2 million as compared with March 31, 1998, after including $19.5 million of
non-performing assets of BF. Also, the banking operation in Puerto Rico and the
U.S. Virgin Islands reflected an increase of $13.5 million, mostly as a result
of the growth in their loan portfolio. Non-performing mortgage loans increased
$16.6 million, principally due to a rise of $5.0 million in non-performing
mortgage loans at Equity One. Non-performing consumer loans increased $15.1
million, mostly as a result of the inclusion of $7.2 million of non-performing
consumer loans of BF and the large volume of personal bankruptcy filings during
1998. Due to the higher risk nature of BF's loan portfolio, the non-performing
assets of this banking subsidiary were substantially reserved at the end of 1998
and March 31, 1999.
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 March 31, 1999, would have been $226
million or 1.68% of loans, and the allowance for loan losses would have been
1.22% of non-performing assets. At March 31, 1998 and December 31, 1998,
adjusted non-performing assets would have been $160 million and $227 million,
respectively, or 1.39% and 1.73% of loans.
OTHER OPERATING INCOME
Total non-interest income, including securities and trading gains, amounted to
$87.1 million for the first quarter of 1999, compared with $68.0 million for the
same quarter in 1998, an increase of $19.1 million or 28.1%. This rise was
driven by increases of $11.7 million in other service fees, $5.8 million in
other operating income and $2.9 million in service charges on deposit accounts,
partially offset by a decrease of $1.3 million in gain on sale of securities and
trading account profit.
25
<PAGE> 26
The increase in service charges on deposits accounts, compared with the first
quarter of 1998, reflects higher transaction volume and account activity mainly
driven by the acquisitions made after March 31, 1998, and the Corporation's
growth.
Other service fees rose to $37.9 million for the first quarter of 1999, from
$26.2 million for the same quarter of the previous year. As shown in Table E,
the increase in other service fees was mainly due to higher credit card fees and
discounts, check cashing fees, debit card fees, and fees from the sale and
administration of investment products. The increase in credit card fees and
discounts was driven by the rise of 32.2% in credit card net sales and a growth
of 25.8% in the number of credit card active accounts. The launching of the new
Banco Popular American Express card in Puerto Rico in August 1998 was critical
to this growth. Check cashing fees increased $2.1 million as a result of the
expansion of the Corporation's retail financial services subsidiary, and debit
card fees rose $1.3 million, reflecting the increasing trend of new merchants,
point of sale (POS) terminals and transactions. There was a sustained growth in
the number of activated debit cards and in the volume of transactions at
point-of-sale (POS) terminals, which increased from a monthly volume of
approximately 3.6 million in March 1998 to 4.6 million a year later. In
addition, fees related to the sale and administration of investment products
rose $1.7 million, mostly as a result of the issuance of a mutual fund during
the first quarter of 1999, through the Corporation's broker/dealer subsidiary.
Other operating income increased $5.8 million, from $14.9 million for the first
quarter of 1998 to $20.7 million for the same period in 1999. This increase
resulted mainly from a loan securitization of $125 million at Equity One, which
resulted in a pre-tax gain of $3.2 million, and higher gains on sale of mortgage
loans.
During the first three months of 1999, the Corporation realized net gains on
sale of securities and trading transactions amounting to $0.2 million, compared
with gains of $1.5 million in the first quarter of 1998. The net gain in 1999
resulted from a $0.5 million gain on sale of securities, partially offset by a
$0.3 million loss in the trading account.
TABLE E
OTHER OPERATING INCOME
<TABLE>
<CAPTION>
First Quarter
- -------------------------------------------------------------------------------------------------
1999 1998 Change
- -------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Service charges on deposit accounts $28,249 $25,338 $2,911
Other service fees:
Credit cards fees and discounts 12,136 8,067 4,069
Credit life insurance fees 2,173 2,066 107
Debit card fees 5,434 4,112 1,322
Sale and administration of investment
Products 4,498 2,778 1,720
Mortgage servicing fees, net of
Amortization 3,022 2,392 630
Trust fees 2,459 2,000 459
Check cashing fees 2,202 113 2,089
Other fees 5,985 4,645 1,340
-------------------------------------
Subtotal 37,909 26,173 11,736
-------------------------------------
Other income 20,731 14,904 5,827
-------------------------------------
Total $86,889 $66,415 $20,474
=====================================
</TABLE>
26
<PAGE> 27
OPERATING EXPENSES
Operating expenses for the first quarter of 1999 were $201.9 million compared
with $172.4 million for the same quarter in 1998, an increase of $29.5 million,
principally reflecting higher personnel costs, business promotion, equipment
expenses, net occupancy expenses and professional fees.
Personnel costs, the largest category of operating expenses, totaled $96.0
million for the first three months of 1999, compared with $83.4 million for the
same period in 1998, an increase of $12.6 million or 15.2%. Salaries accounted
for the largest portion of the increase in personnel costs, rising $10.9 million
or 18.3% when compared with $59.3 million in 1998. The increase in salaries is
mostly related to the growth of the Corporation through the acquisitions
performed in the U.S. mainland and the Dominican Republic during the second half
of 1998, the expansion of its operations and annual merit increases. Full-time
equivalent employees (FTE) amounted to 10,616 at the end of this quarter, up
1,654 from 8,962 FTEs at the same date in 1998. Pension and other benefits rose
$1.1 million reflecting the impact of the increase in salaries, while profit
sharing rose $0.6 million compared with the first quarter of 1998.
Other operating expenses, excluding personnel costs, increased $16.9 million,
reaching $105.9 million for the first quarter of 1999, compared with $89.0
million for the same period in 1998. The increase in other operating expenses
was mostly in business promotion, which grew $2.8 million, mostly as a result of
the institutional campaign in the continental U.S. and the promotional efforts
related to the credit card program in the U.S. Also, there were expenses related
to the new television and newspaper campaign of Popular Mortgage in Puerto Rico,
after its merger with the mortgage origination department of BPPR during 1998.
Equipment expenses rose $2.7 million mostly due to the investment needed to
support the growth of the Corporation's business activity and geographical
expansion, including costs related to the expansion of the electronic payment
system and new technology. During the first quarter of 1999, the Corporation
increased its automated teller machine (ATM) network by 89 and 2,241 additional
POS terminals were connected in order to expand the electronic delivery
capabilities, when compared with the same period in 1998. In addition, there
were higher expenses related to equipment and software upgrades. Net occupancy
expenses increased $2.7 million mostly as a result of the Corporation's growth
and expansion. The increase in professional fees of $2.4 million mainly resulted
from higher legal and consulting fees for business expansion.
Income tax expense rose $2.5 million from $19.9 million in the first quarter of
1998, to $22.4 million in the same quarter this year, primarily as a result of
the growth in pre-tax earnings. The effective tax rate for the first quarter of
1999 was 26.2% compared with 26.7% for the same period in 1998.
IMPACT OF THE YEAR 2000 ISSUE
The Corporation, under the direction of the 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 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:
27
<PAGE> 28
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 March 31, 1999, the information technology action plan was 87% completed,
which is in line with our 89% 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
------------ ------------- ---------------- ---------------
3/31/99 3/31/99 6/30/99 9/30/99
------------ ------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Assessment 99% 100% xxxxx xxxxxx
Renovation 92% 95% 100% xxxxxx
Validation 83% 85% 100% xxxxxx
Implementation 78% 77% 99% 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 99% and 90% completed, respectively, as of March 31,
1999. 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 March 31, 1999.
Significant third parties with which the Corporation interfaces with regard to
the Year 2000 problem include customers and business partners (counterparties,
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
counterparties 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.
28
<PAGE> 29
OVERALL STATE OF READINESS
At March 31, 1999, the Year 2000 Plan, including information technology
components, date-sensitive operating equipment, customers and business partners
was 91% completed. 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 by December
31,1998. The first round 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 round 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, will be met from
the 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 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 $6.0 million have been incurred at March 31,
1999, of which $0.8 million were incurred during the first quarter of 1999. Of
the above total of $6.0 million, $2.9 million are related to consultants
contracted, $2.5 million for additional technical employees hired, $0.3 million
for new hardware and software acquired and $0.3 million related with 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.
29
<PAGE> 30
BALANCE SHEET COMMENTS
Total assets as of March 31, 1999 reached $23.2 billion compared with $20.0
billion reported as of the same date a year earlier. A significant portion of
the growth relates to the acquisitions made in the second half of 1998, in
California, Illinois and the Dominican Republic. Total assets at December 31,
1998, were $23.2 billion. Earning assets totaled $21.6 billion at March 31,
1999, compared with $21.6 billion at December 31, 1998 and $18.7 billion at
March 31, 1998.
The investment portfolio reached $7.0 billion as of March 31, 1999, a decrease
of $217 million when compared with $7.2 billion as of December 31, 1998.
Investment securities as of March 31, 1998 amounted to $6.3 billion.
As shown in Table F, the loan portfolio increased $379 million as compared with
December 31, 1998, of which $324 million were in commercial, industrial and
agricultural loans. The mortgage loan portfolio increased $49 million from
December 31, 1998, in spite of the loan securitization of $125 million at Equity
One during this quarter. The growth in the commercial loan portfolio resulted
principally from the continued marketing efforts directed to the retail and
middle market and the sustained expansion in the United States. The mortgage
loan portfolio continued rising, mostly due to the favorable low interest rate
environment and increased marketing efforts. The increase in the loan portfolio
compared with the same date last year, was mainly reflected in the commercial
portfolio and the mortgage loan portfolio, which increased $1.2 billion and $509
million, respectively. This increase was related to the acquisitions in the U.S.
mainland and the Dominican Republic and the sustained growth in Puerto Rico.
TABLE F
LOANS ENDING BALANCES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
MARCH 31, December 31, March 31,
1999 1998 1998
- ------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Commercial, industrial and
agricultural $5,970,388 $5,646,027 $4,739,551
Construction 285,796 257,786 260,232
Lease financing 638,693 645,280 593,493
Mortgage * 3,400,340 3,351,748 2,891,053
Consumer 3,163,028 3,177,954 3,058,840
-----------------------------------------------
Total $13,458,245 $13,078,795 $11,543,169
===============================================
</TABLE>
* Includes loans held-for-sale
- -------------------------------------------------------------------------------
Total deposits were $13.6 billion at March 31, 1999, or $96 million lower than
the $13.7 billion reported at December 31, 1998. At March 31, 1998 total
deposits amounted to $12.0 billion. The decrease from December 31, 1998, was
mostly related to the fact that during the last quarter of 1998, a large amount
of funds 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 on September 1998. The increase in total
deposits compared with March 31, 1998, was the result of the acquisitions made
in 1998, the Corporation's continued growth and the aforementioned funds that
entered into the banking system in Puerto Rico in the latter part of 1998.
30
<PAGE> 31
Note 10 to the unaudited consolidated financial statements presents the
distribution of assets, loans and deposits by geographical area at March 31,
1998 and 1999.
Borrowed funds, including subordinated notes and capital securities, amounted to
$7.4 billion at March 31, 1999, from $7.3 billion as of December 31, 1998 and
$6.1 billion at March 31, 1998. The increase in borrowed funds from December 31,
1998 was mainly used to finance loan growth and arbitrage activities. Also,
during this quarter the Corporation issued $255 million in medium-term notes
under the shelf registration filed with the Securities and Exchange Commission
in 1997. These funds were used for payment of commercial paper and medium-term
notes that matured during this quarter.
As part of the investment in BF, the Corporation recognized a minority interest
of $19.5 million as of March 31, 1999, which represents the beneficial interest
of the minority investors of BF. At December 31, 1998, this minority interest
totaled $27.6 million. The decrease was mainly related to the increase in the
ownership interest of the Corporation from 45% at December 31, 1998 to 57% at
March 31, 1999.
The Corporation's stockholders' equity at March 31, 1999 and December 31, 1998
was $1.70 billion and $1.71 billion, respectively, compared with $1.5 billion at
March 31, 1998. The small decrease since December 31, 1998, was the result of a
reduction of $49.5 million in the accumulated other comprehensive income.
The dividend payout ratio to common stockholders for the quarter ended March 31,
1999, was 30.84% compared with 28.25% for the same quarter last year and 28.42%
for the year ended December 31, 1998.
Under the regulatory framework for prompt corrective action, banks and bank
holding companies, which meet or exceed a Tier I ratio of 6%, a total capital
ratio of 10% and a leverage ratio of 5% are considered well capitalized. As
shown on Table G, the Corporation exceeds those regulatory risk-based capital
requirements by wide margins, due to the high level of capital and the
conservative nature of the Corporation's assets.
The market value of the Corporation's common stock at March 31, 1999 was $30.88,
compared with $34.00 at December 31, 1998 and $29.34 at March 31, 1998, after
restating for the stock split effected in the form of a dividend. The
Corporation's market capitalization at March 31, 1999, was $4.2 billion compared
with $4.6 billion as of December 31, 1998 and $4.0 billion at March 31, 1998.
TABLE G
CAPITAL ADEQUACY DATA
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
MARCH 31, December 31, March 31,
1999 1998 1998
- -----------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Risk-based capital
Tier I capital $ 1,492,924 $ 1,450,187 $ 1,365,418
Supplementary (Tier II) capital 313,078 310,091 266,222
---------------------------------------------------
Total capital $ 1,806,002 $ 1,760,278 $ 1,631,640
===================================================
Risk-weighted assets
Balance sheet items $13,490,781 $12,955,995 $10,925,383
Off-balance sheet items 428,202 443,926 295,845
---------------------------------------------------
Total risk-weighted assets $13,918,983 $13,399,921 $11,221,228
===================================================
Ratios:
Tier I capital (minimum required - 4.00%) 10.73% 10.82% 12.17%
Total capital (minimum required - 8.00%) 12.98 13.14 14.54
Leverage ratio (minimum required - 3.00%) 6.69 6.72 7.11
</TABLE>
31
<PAGE> 32
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Corporation is a defendant in a number of legal proceedings arising in the
normal course of business. Management believes, based on the opinion of legal
counsel, that the final disposition of these matters will not have a material
adverse effect on the Corporation's financial position or results of operations.
ITEM 5. OTHER INFORMATION
During this quarter, the Corporation announced its plan to acquire GM Group.
This company provides electronic data processing and consulting services, sale
and rental of electronic data processing equipment, and selling and maintenance
of computer software to clients in Puerto Rico, as well as Venezuela and the
Dominican Republic. With this acquisition, the Corporation will continue making
progress towards its strategic initiative of expanding its electronic
capabilities and diversifying its sources of revenues.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
a) Exhibit No. Exhibit Description Reference
----------- ------------------- ---------
<S> <C> <C>
19 Quarterly Report to Shareholders for the Exhibit "A"
period ended March 31, 1999
27 Financial Data Schedule (for SEC use only) Exhibit "B"
b) One report on Form 8-K was filed for the quarter ended March 31, 1999:
Dated: January 11, 1999
Items reported: Item 5 - Other Events
Item 7 - Financial Statements, Pro-Forma, Financial Information
and Exhibits
</TABLE>
32
<PAGE> 33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be filed on its behalf by the
undersigned thereunto duly authorized.
POPULAR, INC.
(Registrant)
Date: May 14, 1999 By: S/ Jorge A. Junquera
----------------------- ----------------------
Jorge A. Junquera
Senior Executive Vice President
Date: May 14, 1999 By: S/ Amilcar L. Jordan
----------------------- ---------------------
Amilcar L. Jordan, Esq.
Senior Vice President & Comptroller
33
<PAGE> 1
EXHIBIT 19
TO OUR STOCKHOLDERS
Nineteen ninety nine will be a year full of challenges for financial
institutions and businesses in general. For Popular, Inc. these challenges
include finalizing the modifications to the computer systems in order to have
them ready for the Year 2000, completing the integration of the U.S. operations
and diversifying our financial services to provide more quality service and
alternatives to our clients. Besides focusing on these challenges, during the
first quarter of 1999, the Corporation continued reflecting strong financial
performance.
Net income rose to $63.7 million for an increase of $8.9 million or 16.2%
from $54.8 million in the same quarter of 1998. For the last quarter of 1998,
the Corporation reported net income of $62.5 million. On a per common share
basis, net income for the first quarter of 1999 rose to $0.45 from $0.39 for the
same period in 1998 and $0.44 for the last quarter of 1998.
The Corporation's return on assets (ROA) for the first quarter of 1999
amounted to 1.14%, the same as in the first quarter of 1998. The return on
common equity (ROE) for the quarter ended March 31, 1999, increased to 16.03%
from 15.36% for the same period a year earlier. For the fourth quarter of 1998,
the Corporation attained ROA and ROE of 1.13% and 15.84%, respectively.
Earnings for the first quarter of 1999, as compared with the same quarter in
1998, reflected a $23.5 million increase in net interest income as well as a
$19.1 million rise in other operating income. These increases were tempered, in
part, by an increase in operating expenses of $29.5 million, a higher provision
for loan losses of $2.2 million and a rise of $2.5 million in income taxes.
The improvement of $23.5 million in net interest income resulted from a
growth of $3.2 billion in average earning assets, primarily as a result of a
$1.7 billion increase in average loans. The net interest yield, on a taxable
equivalent basis, amounted to 4.77% for the first quarter of 1999, compared with
5.00% for the same period a year earlier.
The provision for loan losses amounted to $35.8 million for the first quarter
of 1999, from $33.6 million in the same period of 1998, reflecting the growth in
the loan portfolio and non-performing assets. Net charge-offs for the quarter
ended March 31, 1999, amounted to $25.9 million as compared with $27.5 million
for the same quarter in 1998, and $30.6 million for the fourth quarter of 1998.
Our investment in new sources of revenues continued showing good results as
all major categories of other income reflected improvements. This growth was
fueled by increases of $4.1 million in credit card fees and discounts, $2.9
million in service charges on deposit accounts, $2.1 million in check cashing
fees and $1.7 million in the sale and administration of investment products. In
addition, the Corporation reflected an increase of $5.8 million in other income
mainly resulting from a $3.2 million gain recorded at Equity One on a $125
million loan securitization.
Operating expenses amounted to $201.9 million for the first quarter of 1999,
up from $172.4 million for the same period a year earlier. The rise of $29.5
million in operating expenses for the three-month period ended March 31, 1999,
was principally attributed to an increase in personnel costs. This category rose
$12.6 million reflecting the salaries and benefits of the operations acquired
during the second half of 1998 as well as annual merit increases. In addition,
business promotion and equipment expenses both rose as a result of the
Corporation's business expansion, particularly in the U.S. mainland, and
investment in new technology.
Total assets at March 31, 1999, were $23.2 billion, up $3.2 billion or 15.8%
from $20.0 billion a year earlier. Loans were $13.5 billion at March 31, 1999,
an increase of 16.6% compared with $11.5 billion at the same date in 1998 and
$13.1 billion at December 31, 1998. Loan growth was mostly led by increases of
$1.3 billion and $0.5 billion in the commercial and mortgage loan portfolios,
respectively, when compared with the amounts reported as of March 31, 1998.
At March 31, 1999, the allowance for loan losses was $277 million or 2.06 %
of loans, compared with $218 million or 1.89% at March 31,1998, and $267 million
or 2.04% at December 31, 1998. Non-performing assets (NPA) amounted to $298
million compared with $213 million at the same date last year and $296 million
at the end of 1998. The increase in NPA was primarily due to the non-performing
assets of Banco Fiduciario, acquired on the third quarter of 1998, which
amounted to $33 million at March 31, 1999, and to the growth in the loan
portfolio.
<PAGE> 2
At March 31, 1999, total deposits were $13.6 billion compared with $12.0
billion at the same date in 1998, principally as a result of a $712 million
increase in savings accounts. Total deposits amounted to $13.7 billion at
December 31, 1998. In addition to the deposits of the acquired operations, the
rise in deposits from March 31, 1998 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. Borrowings increased to $7.4 billion at the end of
the first quarter of 1999, from $6.1 billion a year earlier.
Stockholders' equity totaled $1.7 billion at March 31,1999, compared with
$1.5 billion a year earlier and $1.7 billion as of December 31, 1998. Book value
per common share was $11.82 as of March 31, 1999, compared with $10.68 as of the
same date last year and $11.86 at the end of 1998.
The Corporation's stock market value was $30.88 at the end of the quarter,
compared with $29.34 at March 31, 1998 and $34.00 at December 31, 1998. The
Corporation had a market capitalization of $4.2 billion at March 31, 1999, based
on 135,709,287 common shares outstanding.
Focusing on achieving a common platform in the United States from a legal,
regulatory and operational perspective, on January 1, 1999 the Corporation
substantially completed the previously mentioned reorganization of its U.S.
operations 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. Banco Popular, N.A. (Texas) is expected to become
part of Banco Popular North America later during 1999.
As the year 2000 approaches, we continue making progress towards preparing
our systems for the new century. We have dedicated significant resources to
address the issue as we understand that having our systems operating correctly
is key to serving the needs of our shareholders and customers. As of March 31,
1999, the Year 2000 Plan, including information technology components,
date-sensitive operating equipment, customers and business partners was 91%
completed. The plan as a whole should be substantially completed by June 30,
1999.
Continuing with the Corporation's strategy of penetrating the unbanked
segment, during this quarter, Popular Cash Express acquired Houston Check
Cashers, Inc., with ten offices in Texas, and Valley Check Cashers, Inc., which
operates six stores in Los Angeles, California. In addition, Popular Cash
Express opened one additional store in Los Angeles and one in Arizona. At the
end of the first quarter of 1999, Popular Cash Express was operating 42 stores
in five states plus 31 mobile units in California.
On March 2, 1999, the Corporation acquired 9.99% of the Puerto Rico Telephone
Company (PRTC) from the Government of Puerto Rico. 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.
During this quarter, the Corporation announced its plan to acquire GM Group.
This company provides electronic data processing and consulting services, sale
and rental of electronic data processing equipment, and selling and maintenance
of computer software to clients in Puerto Rico, as well as Venezuela and the
Dominican Republic. With this acquisition, the Corporation will continue making
progress towards its strategic initiative of expanding its electronic
capabilities and diversifying its sources of revenues.
Mr. Esteban D. Bird, a director of Banco Popular de Puerto Rico since 1990
recently passed away. We will certainly miss his sound advice and profoundly
appreciate his many years of dedication to our organization.
Richard L. Carrion
Chairman, President and Chief Executive Officer
<PAGE> 3
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
At March 31, Average for the quarter
----------------------------------- ----------------------------------
BALANCE SHEET HIGHLIGHTS 1999 1998 Change 1999 1998 Change
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Money market investments $ 865,612 $ 634,457 $ 231,155 $ 968,845 $ 700,123 $ 268,722
Investment and trading securities 7,302,677 6,571,247 731,430 7,361,873 6,174,230 1,187,643
Loans 13,458,245 11,543,169 1,915,076 13,211,405 11,466,638 1,744,767
Total assets 23,174,075 20,018,220 3,155,855 22,695,779 19,485,912 3,209,867
Deposits 13,576,672 12,005,800 1,570,872 13,578,244 11,805,324 1,772,920
Borrowings 7,401,790 6,106,539 1,295,251 7,021,406 5,871,602 1,149,804
Stockholders' equity 1,704,482 1,546,238 158,244 1,659,015 1,492,184 166,831
</TABLE>
<TABLE>
<CAPTION>
First quarter
---------------------------------
OPERATING HIGHLIGHTS 1999 1998 Change
(In thousands, except per share information)
<S> <C> <C> <C>
Net interest income $236,239 $212,704 $23,535
Provision for loan losses 35,771 33,565 2,206
Fees and other income 87,057 67,951 19,106
Other expenses 223,861 192,295 31,566
Net income $ 63,664 $ 54,795 $ 8,869
Net income applicable to common stock $ 61,577 $ 52,708 $ 8,869
Earnings per common share 0.45 0.39 0.06
</TABLE>
<TABLE>
<CAPTION>
First quarter
------------------
SELECTED STATISTICAL INFORMATION 1999 1998
<S> <C> <C>
COMMON STOCK DATA
Market price
High $ 37.88 $ 29.34
Low 30.88 23.03
End 30.88 29.34
Book value at period end 11.82 10.68
Dividends declared 0.14 0.11
Dividend payout ratio 30.84% 28.25%
Price/earnings ratio 18.06x 19.18x
PROFITABILITY RATIOS
Return on assets 1.14% 1.14%
Return on common equity 16.03 15.36
Net interest spread (taxable equivalent) 3.89 4.11
Net interest yield (taxable equivalent) 4.77 5.00
Effective tax rate 26.16 26.66
Overhead ratio 48.61 49.10
CAPITALIZATION RATIOS
Equity to assets 7.31% 7.66%
Tangible equity to assets 6.19 6.56
Equity to loans 12.56 13.01
Internal capital generation 10.27 10.14
Tier I capital to risk-adjusted assets 10.73 12.17
Total capital to risk-adjusted assets 12.98 14.54
Leverage ratio 6.69 7.11
CREDIT QUALITY RATIOS
Allowance for losses to loans 2.06% 1.89%
Allowance to non-performing assets 92.84 102.04
Allowance to non-performing loans 103.14 111.03
Non-performing assets to loans 2.22 1.85
Non-performing assets to total assets 1.29 1.07
Net charge-offs to average loans 0.78 0.96
Provision to net charge-offs 1.38x 1.22x
Net charge-offs earnings coverage 4.69 3.94
</TABLE>
Note: All common stock data has been adjusted to reflect the stock split
effected in the form of a dividend on July 1, 1998.
<PAGE> 4
ADDITIONAL INFORMATION
Board Of Directors
Richard L. Carrion, Chairman
Alfonso F. Ballester, Vice Chairman
Antonio Luis Ferre, Vice Chairman
Juan A. Albors Hernandez *
Jose A. Bechara Bravo *
Juan J. Bermudez
Esteban D. Bird *
Francisco J. Carreras
David H. Chafey Jr.
Luis E. Dubon Jr.
Hector R. Gonzalez
Jorge A. Junquera Diez
Manuel Morales Jr.
Alberto M. Paracchini
Francisco M. Rexach Jr.
J. Adalberto Roig Jr.
Felix J. Serralles Nevares
Julio E. Vizcarrondo Jr.
Samuel T. Cespedes, Secretary
* Director of Banco Popular de Puerto Rico only
Executive Officers
Richard L. Carrion, Chairman of the Board,
President and Chief Executive Officer
David H. Chafey Jr., Senior Executive Vice President
Jorge A. Junquera Diez, Senior Executive Vice President
Maria Isabel P. de Burckhart, Executive Vice President
Roberto R. Herencia, Executive Vice President
Larry B. Kesler, Executive Vice President
Humberto Martin, Executive Vice President
Emilio E. Pinero, Executive Vice President
Carlos Rom Jr., Executive Vice President
Carlos J. Vazquez, Executive Vice President
SHAREHOLDER INFORMATION
Shareholder Assistance: Shareholders requiring a change of address, records or
information about lost certificates, dividend checks or dividend reinvestment
should contact:
Banco Popular de Puerto Rico
Trust Division (725)
Popular Center Building
4th Floor Suite 400
209 Munoz Rivera Ave.
Hato Rey, Puerto Rico 00918
Publications: For printed material (annual and quarterly reports, 10-K and 10-Q
reports), contact Mr. Amilcar L. Jordan at the Comptroller's Division at (787)
765-9800 ext. 6101, or VISIT OUR WEB SITE AT HTTP://WWW.POPULARINC.COM. Dividend
Reinvestment Plan: The Corporation has a dividend reinvestment plan that
provides the shareholder a simple, convenient and cost-effective way to acquire
Popular, Inc. common stock.
- - Dividends can be automatically reinvested in additional shares at 95%
of the Average Market Price.
- - Participants may make optional cash payments of at least $25 and not
more than $10,000 per calendar month for investment in additional
shares.
- - No brokerage commissions are charged on purchases under this plan.
- - Participant's funds will be fully invested, because the plan permits
fractions of shares to be credited to a participant's account.
If you would like more information on this plan, please contact our Trust
Division at (787) 756-3908 or (787) 765-9800 exts. 5637, 5525 and 5897.
<PAGE> 5
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CONDITION March 31,
------------------------------
Dollars in thousands 1999 1998
<S> <C> <C>
ASSETS
Cash and due from banks $ 596,116 $ 517,003
------------ ------------
Money market investments:
Federal funds sold and securities and mortgages purchased
under agreements to resell 828,981 587,579
Time deposits with other banks 36,068 46,182
Bankers' acceptances 563 696
------------ ------------
865,612 634,457
------------ ------------
Investment securities available-for-sale, at market value 6,544,252 5,906,739
Investment securities held-to-maturity, at cost 484,958 416,773
Trading account securities, at market value 273,467 247,735
Loans held-for-sale 475,081 307,382
------------ ------------
Loans 13,339,826 11,582,940
Less__ Unearned income 356,662 347,153
Allowance for loan losses 277,116 217,708
------------ ------------
12,706,048 11,018,079
------------ ------------
Premises and equipment 432,694 377,189
Other real estate 29,800 17,285
Customers' liabilities on acceptances 21,208 1,397
Accrued income receivable 161,258 132,092
Other assets 315,602 213,948
Intangible assets 267,979 228,141
------------ ------------
$ 23,174,075 $ 20,018,220
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 2,919,926 $ 2,492,547
Interest bearing 10,656,746 9,513,253
------------ ------------
13,576,672 12,005,800
Federal funds purchased and securities sold under agreements to repurchase 3,915,208 2,959,925
Other short-term borrowings 1,690,489 1,567,346
Notes payable 1,521,093 1,304,268
Acceptances outstanding 21,208 1,397
Other liabilities 450,411 358,246
------------ ------------
21,175,081 18,196,982
------------ ------------
Subordinated notes 125,000 125,000
------------ ------------
Preferred beneficial interests in Popular North America's junior subordinated
deferrable interest debentures guaranteed by the Corporation 150,000 150,000
------------ ------------
Minority interest in consolidated subsidiary 19,512
------------ ------------
Stockholders' equity:
Preferred stock 100,000 100,000
Common stock 826,121 412,238
Surplus 218,635 603,445
Retained earnings 573,068 433,062
Treasury stock, at cost (39,559) (39,559)
Accumulated other comprehensive income, net of deferred taxes 26,217 37,052
------------ ------------
1,704,482 1,546,238
------------ ------------
$ 23,174,075 $ 20,018,220
============ ============
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Dollars in thousands, except per share information Quarter ended
March 31,
------------------------------
1999 1998
<S> <C> <C>
Interest Income:
Loans $326,033 $293,217
Money market investments 7,933 8,827
Investment securities 105,434 90,259
Trading account securities 4,795 4,065
-------- --------
444,195 396,368
-------- --------
Interest Expense:
Deposits 110,823 97,330
Short-term borrowings 69,374 56,248
Long-term debt 27,759 30,086
-------- --------
207,956 183,664
-------- --------
Net interest income 236,239 212,704
Provision for loan losses 35,771 33,565
-------- --------
Net interest income after provision for loan losses 200,468 179,139
Service charges on deposit accounts 28,249 25,338
Other service fees 37,909 26,173
Gain on sale of securities 450 867
Trading account (loss) profit (282) 669
Other operating income 20,731 14,904
-------- --------
287,525 247,090
-------- --------
Operating Expenses:
Personnel costs:
Salaries 70,157 59,293
Profit sharing 6,320 5,683
Pension and other benefits 19,559 18,418
-------- --------
96,036 83,394
Net occupancy expenses 14,258 11,561
Equipment expenses 20,734 18,028
Other taxes 8,265 7,968
Professional fees 15,312 12,878
Communications 10,829 8,824
Business promotion 11,000 8,216
Printing and supplies 4,990 4,003
Other operating expenses 12,847 10,724
Amortization of intangibles 7,620 6,784
-------- --------
201,891 172,380
-------- --------
Income before income tax and minority interest 85,634 74,710
Income tax 22,402 19,915
Net loss of minority interest 432
-------- --------
Net income $ 63,664 $ 54,795
======== ========
Net income applicable to common stock $ 61,577 $ 52,708
======== ========
Earnings per common share (basic and diluted) $ 0.45 $ 0.39
======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1,000
<CASH> 596,116
<INT-BEARING-DEPOSITS> 36,068
<FED-FUNDS-SOLD> 828,981
<TRADING-ASSETS> 273,467
<INVESTMENTS-HELD-FOR-SALE> 6,544,252
<INVESTMENTS-CARRYING> 484,958
<INVESTMENTS-MARKET> 492,200
<LOANS> 13,458,245
<ALLOWANCE> 277,116
<TOTAL-ASSETS> 23,174,075
<DEPOSITS> 13,576,672
<SHORT-TERM> 5,605,697
<LIABILITIES-OTHER> 450,411
<LONG-TERM> 1,796,093
0
100,000
<COMMON> 826,121
<OTHER-SE> 778,361
<TOTAL-LIABILITIES-AND-EQUITY> 23,174,075
<INTEREST-LOAN> 326,033
<INTEREST-INVEST> 105,434
<INTEREST-OTHER> 12,728
<INTEREST-TOTAL> 444,195
<INTEREST-DEPOSIT> 110,823
<INTEREST-EXPENSE> 207,956
<INTEREST-INCOME-NET> 236,239
<LOAN-LOSSES> 35,771
<SECURITIES-GAINS> 450
<EXPENSE-OTHER> 201,891
<INCOME-PRETAX> 86,066
<INCOME-PRE-EXTRAORDINARY> 63,664
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,664
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.77
<LOANS-NON> 268,789
<LOANS-PAST> 24,712
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 110,126
<ALLOWANCE-OPEN> 267,249
<CHARGE-OFFS> 39,157
<RECOVERIES> 13,253
<ALLOWANCE-CLOSE> 277,116
<ALLOWANCE-DOMESTIC> 250,647
<ALLOWANCE-FOREIGN> 26,469
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
