<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2000 Commission file number 0 - 13818
----------------- ---------
POPULAR, INC.
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(Exact name of registrant as specified in its charter)
Puerto Rico 66-041-6582
------------------------ -------------------
(State of incorporation) (I.R.S. Employer
identification No.)
Popular Center Building
209 Munoz Rivera Avenue, Hato Rey
San Juan, Puerto Rico 00918
----------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code (787) 765-9800
--------------
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report) Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock $6.00 Par value 135,881,266
---------------------------- --------------------------------------
(Title of Class) (Shares Outstanding as of May 15, 2000)
<PAGE> 2
POPULAR, INC.
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information Page
- ------------------------------ ----
<S> <C>
Item 1. Financial Statements
Unaudited consolidated statements of condition - March 31, 2000,
December 31, 1999 and March 31, 1999 3
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Unaudited consolidated statements of income - Quarters ended
March 31, 2000 and 1999 4
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Unaudited consolidated statements of comprehensive income -
Quarters ended March 31, 2000 and 1999 5
------
Unaudited consolidated statements of cash flows - Quarters
ended March 31, 2000 and 1999 6
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Notes to unaudited consolidated financial statements 7-21
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Item 2. Management's discussion and analysis of financial condition
and results of operation 22-34
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Item 3. Quantitative and qualitative disclosures about market risk 25
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Part II - Other Information
- ---------------------------
Item 1. Legal proceedings 34
Item 2. Changes in securities - None N/A
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Item 3. Defaults upon senior securities - None N/A
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Item 4. Submission of matters to a vote of security holders - None N/A
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Item 5. Other information 34
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Item 6. Exhibits and reports on Form 8-K 34
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--- Signature 35
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</TABLE>
FORWARD LOOKING INFORMATION. This Quarterly Report on Form 10-Q
contains certain forward looking statements with respect to the adequacy of the
allowance for loan losses, the Corporation's market risk and the effect of legal
proceedings on Popular, Inc.'s financial condition and results of operations.
These forward looking statements involve certain risks, uncertainties, estimates
and assumptions by management.
Various factors could cause actual results to differ from those
contemplated by such forward looking statements. With respect to the adequacy of
the allowance for loan losses and market risk, these factors include, among
others, the rate of growth in the economy, the relative strength and weakness in
the consumer and commercial credit sectors and in the real estate markets, the
performance of the stock and bond market and the magnitude of interest rate
changes. Moreover, the outcome of litigation, as discussed in "Part II, Item I.
Legal Proceedings," is inherently uncertain and depends on judicial
interpretations of law and the findings of judges and juries.
2
<PAGE> 3
POPULAR, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, December 31, March 31,
(In thousands) 2000 1999 1999
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 606,383 $ 663,696 $ 596,116
- --------------------------------------------------------------------------------------------------------------------------------
Money market investments:
Federal funds sold and securities purchased under agreements to resell 850,216 931,123 828,981
Time deposits with other banks 41,692 54,354 36,068
Banker's acceptances 744 517 563
- --------------------------------------------------------------------------------------------------------------------------------
892,652 985,994 865,612
- --------------------------------------------------------------------------------------------------------------------------------
Investment securities available-for-sale, at market value 6,916,382 7,324,950 6,544,252
Investment securities held-to-maturity, at amortized cost 384,365 299,312 484,958
Trading account securities, at market value 208,473 236,610 273,467
Loans held-for-sale, at lower of cost or market 556,813 619,298 475,081
- --------------------------------------------------------------------------------------------------------------------------------
Loans 15,001,946 14,659,400 13,339,826
Less - Unearned income 357,828 370,944 356,662
Allowance for loan losses 293,442 292,010 277,116
- --------------------------------------------------------------------------------------------------------------------------------
14,350,676 13,996,446 12,706,048
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Premises and equipment 437,932 440,971 432,694
Other real estate 32,448 29,268 29,800
Customers' liabilities on acceptances 8,308 12,041 21,208
Accrued income receivable 167,853 175,746 161,258
Other assets 438,706 371,421 315,602
Intangible assets 301,034 304,786 267,979
- --------------------------------------------------------------------------------------------------------------------------------
$ 25,302,025 $ 25,460,539 $ 23,174,075
================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 2,998,252 $ 3,284,949 $ 2,919,926
Interest bearing 11,339,609 10,888,766 10,656,746
- --------------------------------------------------------------------------------------------------------------------------------
14,337,861 14,173,715 13,576,672
Federal funds purchased and securities sold under Agreements to repurchase 4,151,527 4,414,480 3,915,208
Other short-term borrowings 2,441,885 2,612,389 1,690,489
Notes payable 1,965,160 1,852,599 1,521,093
Acceptances outstanding 8,308 12,041 21,208
Other liabilities 418,985 436,718 450,411
- --------------------------------------------------------------------------------------------------------------------------------
23,323,726 23,501,942 21,175,081
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Subordinated notes 125,000 125,000 125,000
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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 subsidiaries 21,006 22,611 19,512
- --------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
- --------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock 100,000 100,000 100,000
Common stock 828,254 827,662 826,121
Surplus 245,719 243,855 218,635
Retained earnings 734,681 694,301 573,068
Treasury stock-at cost (64,150) (64,123) (39,559)
Accumulated other comprehensive (loss) income, net of
deferred taxes of ($40,709) (December 31, 1999 - ($35,993);
March 31, 1999 - $8,812) (162,211) (140,709) 26,217
- --------------------------------------------------------------------------------------------------------------------------------
1,682,293 1,660,986 1,704,482
- --------------------------------------------------------------------------------------------------------------------------------
$ 25,302,025 $ 25,460,539 $ 23,174,075
================================================================================================================================
</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>
Quarters ended
March 31,
(Dollars in thousands, except per share information) 2000 1999
- -----------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME:
Loans $376,520 $326,033
Money market investments 13,248 7,933
Investment securities 112,130 105,434
Trading account securities 3,903 4,795
- -----------------------------------------------------------------------------------------
505,801 444,195
- -----------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits 122,474 110,823
Short-term borrowings 102,825 69,374
Long-term debt 38,262 27,759
- -----------------------------------------------------------------------------------------
263,561 207,956
- -----------------------------------------------------------------------------------------
Net interest income 242,240 236,239
Provision for loan losses 50,013 35,771
- -----------------------------------------------------------------------------------------
Net interest income after provision for loan losses 192,227 200,468
Service charges on deposit accounts 30,223 28,249
Other service fees 47,365 37,909
Gain on sale of securities 13,264 450
Trading account profit (loss) 817 (282)
Other operating income 24,057 20,731
- -----------------------------------------------------------------------------------------
307,953 287,525
- -----------------------------------------------------------------------------------------
OPERATING EXPENSES:
Personnel costs:
Salaries 78,594 70,157
Profit sharing 4,132 6,320
Pension and other benefits 20,498 19,559
- -----------------------------------------------------------------------------------------
103,224 96,036
Net occupancy expense 16,559 14,258
Equipment expenses 23,434 20,734
Other taxes 8,575 8,265
Professional fees 17,678 15,312
Communications 10,802 10,829
Business promotion 14,087 11,000
Printing and supplies 5,172 4,990
Other operating expenses 18,381 12,847
Amortization of intangibles 8,592 7,620
- -----------------------------------------------------------------------------------------
226,504 201,891
- -----------------------------------------------------------------------------------------
Income before income tax and minority interest 81,449 85,634
Income tax 18,756 22,402
Net loss of minority interest 1,496 432
- -----------------------------------------------------------------------------------------
NET INCOME $ 64,189 $ 63,664
=========================================================================================
NET INCOME APPLICABLE TO COMMON STOCK $ 62,102 $ 61,577
=========================================================================================
EARNINGS PER COMMON SHARE (BASIC AND DILUTED) $ 0.46 $ 0.45
=========================================================================================
DIVIDENDS DECLARED PER COMMON SHARES $ 0.16 $ 0.14
=========================================================================================
</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>
Quarters ended
March 31,
(In thousands) 2000 1999
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Income $ 64,189 $ 63,664
------------------------------
Other comprehensive loss, net of tax:
Foreign currency translation adjustment (385) (833)
Unrealized holding losses on securities:
Unrealized holding losses arising during
the period, net of tax of ($1,327) (1999-
($16,301)) (10,828) (48,509)
Less: reclassification adjustment for net gains
included in net income, net of tax of
$3,389 (1999 - $61) 10,290 148
------------------------------
Total other comprehensive loss $(21,503) $(49,490)
------------------------------
Comprehensive income $ 42,686 $ 14,174
==============================
</TABLE>
DISCLOSURE OF ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME:
<TABLE>
<CAPTION>
MARCH 31, December 31, March 31,
(In thousands) 2000 1999 1999
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign currency translation adjustment $ (1,650) $ (1,265) $(1,048)
Unrealized (losses) gains on securities (160,561) (139,444) 27,265
---------------------------------------------
Accumulated other comprehensive (loss) income $(162,211) $(140,709) $26,217
=============================================
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
5
<PAGE> 6
POPULAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the quarters ended
March 31,
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 64,189 $ 63,664
- ----------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization of premises and equipment 18,921 17,495
Provision for loan losses 50,013 35,771
Amortization of intangibles 8,592 7,620
Gain on sale of investment securities available-for-sale (13,264) (450)
Gain on disposition of premises and equipment (2) (20)
Gain on sale of loans (5,359) (7,877)
Amortization of premiums and accretion of discounts on investments 788 670
Decrease in loans held-for-sale 62,485 169,077
Amortization of deferred loan fees and costs (117) (509)
Net decrease in trading securities 28,137 45,260
Net decrease (increase) in accrued income receivable 7,893 (4,944)
Net increase in other assets (47,352) (46,951)
Net decrease in interest payable (33,207) (16,020)
Net increase in current and deferred taxes 7,700 32,430
Net increase in postretirement benefit obligation 2,433 3,195
Net (decrease) increase in other liabilities (8,775) 1,682
- ----------------------------------------------------------------------------------------------------------------
Total adjustments 78,886 236,429
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 143,075 300,093
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in money market investments 93,342 82,286
Purchases of investment securities held-to-maturity (4,517,627) (1,120,189)
Maturities of investment securities held-to-maturity 4,036,370 1,050,510
Purchases of investment securities available-for-sale (513,212) (2,056,570)
Maturities of investment securities available-for-sale 1,232,543 2,087,975
Sales of investment securities available-for-sale 77,078 194,301
Net disbursements on loans (628,637) (887,509)
Proceeds from sale of loans 214,533 315,535
Acquisition of loan portfolios (2,275)
Cash received in acquisition 715
Acquisition of premises and equipment (18,657) (28,253)
Proceeds from sale of premises and equipment 2,779 2,805
- ----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (20,773) (361,384)
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 164,146 (95,541)
Net decrease in federal funds purchased and securities
Sold under agreements to repurchase (262,953) (425,293)
Net (decrease) increase in other short-term borrowings (170,941) 315,407
Proceeds from issuance of notes payable 264,481 1,067,029
Payments of notes payable (151,921) (853,097)
Dividends paid (24,884) (21,077)
Proceeds from issuance of common stock 2,457 2,272
- ----------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (179,615) (10,300)
- ----------------------------------------------------------------------------------------------------------------
Net decrease in cash and due from banks (57,313) (71,591)
Cash and due from banks at beginning of period 663,696 667,707
- ----------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of period $ 606,383 $ 596,116
================================================================================================================
</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. The Corporation is engaged in mortgage and
consumer finance, lease financing, investment banking and broker/dealer
activities, retail financial services, and information technology, ATM and data
processing services through its non-banking subsidiaries in Puerto Rico, the
United States and Costa Rica. Also, in January 2000, the Corporation acquired
CreST, S.A., a local card processor and POS provider in 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 presentation of the results for 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 2000
presentation.
NOTE 2 - ACCOUNTING CHANGES
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 FASB
has delayed the effective date of this statement to fiscal years beginning after
June 15, 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 contractual maturities as of March 31, 2000, and market value for
the following investment securities are:
Investment securities available-for-sale:
<TABLE>
<CAPTION>
March 31,
---------
2000 1999
---- ----
Amortized Market Amortized Market
Cost Value Cost Value
---------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury (average maturity of 1 year
And 7 months) $1,716,151 $1,698,684 $2,456,707 $2,477,732
Obligations of other U.S. Government
Agencies and corporations (average
Maturity of 5 years and 6 months) 3,292,509 3,145,455 2,312,930 2,289,475
Obligations of Puerto Rico, States and
Political subdivisions (average maturity
Of 10 years) 77,330 76,896 75,634 76,549
Collateralized mortgage obligations (average
Maturity of 22 years and 10 months) 1,350,727 1,318,300 1,140,210 1,142,019
Mortgage-backed securities (average maturity
Of 24 years and 3 months) 470,304 473,110 348,127 355,850
Equity securities (without contractual
maturity) 136,929 134,535 122,000 150,483
Others (average maturity of 11 years and 1
months) 73,702 69,402 52,567 52,144
---------------------------------------------------------
$7,117,652 $6,916,382 $6,508,175 $6,544,252
=========================================================
</TABLE>
Investment securities held-to-maturity:
<TABLE>
<CAPTION>
March 31,
---------
2000 1999
---- ----
Amortized Market Amortized Market
Cost Value Cost Value
---------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Obligations of other U.S. Government agencies
and Corporations $154,966 $160,819
Obligations of Puerto Rico, States and
Political subdivisions (average maturity
Of 7 years and 11 months) $147,114 $147,781 31,547 32,590
Collateralized mortgage obligations (average
Maturity of 12 years and 3 months) 17,396 17,188 25,999 26,109
Mortgage-backed securities (average maturity
of 9 years and 5 months) 22,250 22,164 31,020 31,269
Equity securities (without contractual
maturity) 91,188 91,188 88,312 88,312
Others (average maturity of 4 years and 2
months) 106,417 101,349 153,114 153,101
---------------------------------------------------------
$384,365 $379,670 $484,958 $492,200
=========================================================
</TABLE>
8
<PAGE> 9
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.
Stock that is owned by the Corporation to comply with regulatory requirements,
such as Federal Reserve Bank and Federal Home Loan Bank stock, is included as
equity securities held-to-maturity and reported at amortized cost.
NOTE 4 - PLEDGED ASSETS
Securities and loans of the Corporation of $5,099,733 (1999 - $4,738,716) are
pledged to secure public and trust deposits and securities 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, 2000, amounted to $18,190 and
$69,568 (1999 - $15,644 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 consist 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 Popular North America,
Inc. (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 1 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 1 are fully and unconditionally guaranteed by the
Corporation. The assets of BanPonce Trust 1 consisted of $154,640 of Junior
Subordinated Debentures and a related accrued interest receivable of $7,512. 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.
At March 31, 2000, there were 138,042,365 (1999 - 137,686,887) shares issued and
135,747,610 (1999 - 135,709,287) outstanding. As of March 31, 2000, a total of
2,294,755 (1999 - 1,977,600) common shares with a total cost of $64,150 (1999 -
$39,559) were maintained as treasury stock.
Authorized preferred stock consists of 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, 2000
and 1999.
9
<PAGE> 10
Popular International Bank, Inc. (PIB) and Popular North America, Inc.'s (PNA)
bank subsidiaries 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 $62,102 for the first quarter of 2000
(1999 - $61,577), after deducting the dividends on preferred stock. EPS are
based on 135,763,765 average shares outstanding for the first quarter of 2000
(1999 - 135,709,287).
NOTE 9 - SUPPLEMENTAL DISCLOSURE ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS
During the quarter ended March 31, 2000, the Corporation paid interest and
income taxes amounting to $296,768 and $4,157, respectively (1999 - $233,369 and
$3,636). In addition, the loans receivable transferred to other real estate and
other property for the quarter ended March 31, 2000, amounted to $9,872 and
$5,464, respectively (1999 - $3,147 and $5,057).
NOTE 10 - SEGMENT REPORTING
Popular, Inc. operates three major reportable segments: commercial banking,
mortgage and consumer lending, 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, Equity One and Levitt
Mortgage.
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 retail financial services,
investment banking and broker/dealer activities, as well as those providing ATM
processing services, electronic data processing and consulting services, sale
and rental of electronic data processing equipment and selling and maintenance
of computer software. 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 2000 and 1999.
10
<PAGE> 11
<TABLE>
<CAPTION>
Mortgage
and
Commercial consumer Lease
banking lending Financing Other Eliminations Total
- ---------------------------------------------------------------------------------------------------------
(In thousands) March 31, 2000
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 208,354 $ 22,566 $ 11,010 $ 343 $ (33) $ 242,240
Provision for loan losses 38,443 5,483 4,395 1,692 0 50,013
Other income 64,417 10,587 6,310 36,416 (2,004) 115,726
Amortization expense 7,022 161 188 1,221 0 8,592
Depreciation expense 14,216 471 2,422 1,812 0 18,921
Other operating expense 150,787 19,539 6,107 23,608 (1,050) 198,991
Minority interest 1,496 1,496
Income tax 12,351 2,584 1,604 2,482 (265) 18,756
- ---------------------------------------------------------------------------------------------------------
Net income $ 49,952 $ 4,915 $ 2,604 $ 7,440 $ (722) $ 64,189
=========================================================================================================
Segment Assets $21,465,088 $2,235,598 $859,451 $6,332,797 $(5,590,909) $25,302,025
=========================================================================================================
<CAPTION>
Mortgage and
Commercial consumer Lease
banking lending 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 141,778 17,009 5,558 12,549 (118) 176,776
Minority interest 432 432
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>
During the quarter ended March 31, 2000, the Corporation's Bank Holding Company
exercised its conversion right and exchanged its investment in preferred stock
of a financial corporation in Puerto Rico for common stock of the same entity,
resulting in a $13.4 million gain. This gain is included in "other income"
within the "other" reportable segment category.
GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
MARCH 31, March 31,
2000 1999
- -----------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Revenues*
Puerto Rico $430,572 $369,777
United States 159,853 132,167
Other 31,102 29,308
- -----------------------------------------------------------------
Total consolidated revenues $621,527 $531,252
=================================================================
</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 operating income.
11
<PAGE> 12
<TABLE>
<CAPTION>
MARCH 31, March 31,
2000 1999
- ------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Selected Balance Sheet Information:
Puerto Rico
Total assets $17,533,379 $16,616,630
Loans 8,782,436 8,147,861
Deposits 9,734,120 9,427,048
United States
Total assets $6,736,396 $5,664,624
Loans 5,742,799 4,684,895
Deposits 3,624,759 3,365,560
Other
Total assets $1,032,250 $892,821
Loans 675,696 625,489
Deposits 978,982 784,064
</TABLE>
NOTE 11 - POPULAR INTERNATIONAL BANK, INC. (A WHOLLY-OWNED SUBSIDIARY OF
POPULAR, INC.) FINANCIAL INFORMATION:
The following financial information presents the unaudited consolidated
financial position of Popular International Bank, Inc. (PIB) and its
subsidiaries, ATH Costa Rica, CreST, S.A., Banco Fiduciario, S.A. and Popular
North America, Inc., including Popular Holdings USA, Inc. and its wholly-owned
subsidiary Banco Popular North America; Popular Cash Express, Inc. and Equity
One, Inc. (second-tier subsidiaries), as of February 29, 2000 and February
28,1999, and their related statement of income, cash flows and comprehensive
income for each of the quarters then ended. The results of Popular Holdings USA,
Inc. and its subsidiary are included as of March 31, 2000 and 1999. PIB has a
fiscal year that ends on November 30. Accordingly, the consolidated financial
information of PIB presented below, corresponds to the financial information of
PIB included in the consolidated financial statements of Popular, Inc. as of
March 31, 2000 and 1999.
Popular, Inc. has not presented separate financial statements nor any other
disclosures concerning PIB, other than the following 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
(UNAUDITED)
<TABLE>
<CAPTION>
February 29, February 28,
(In thousands) 2000 1999
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 217,135 $ 215,652
Money market investments 93,203 107,219
Investment securities available-for-sale, at market value 331,550 376,777
Investment securities held-to-maturity, at cost 49,104 61,558
Trading account securities, at market value
Loans held-for-sale 18,384 72,694
Loans $ 5,985,444 $ 4,926,915
Less - Unearned income 72,246 70,632
Allowance for loan losses 99,505 94,300
- -------------------------------------------------------------------------------------------------- -----------
5,813,693 4,761,983
- -------------------------------------------------------------------------------------------------- -----------
Premises and equipment 137,817 132,514
Other real estate 24,204 21,664
Customers' liabilities on acceptances 7,824 19,737
Accrued income receivable 44,923 38,784
Other assets 129,392 82,003
Intangible assets 150,341 148,073
- -------------------------------------------------------------------------------------------------- -----------
$ 7,017,570 $ 6,038,658
================================================================================================== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 634,683 $ 629,203
Interest bearing 3,782,391 3,028,600
- -------------------------------------------------------------------------------------------------- -----------
4,417,074 3,657,803
Federal funds purchased and securities sold under
agreements to repurchase 79,116 118,023
Other short-term borrowings 400,503 598,461
Notes payable 1,309,606 862,820
Acceptances outstanding 7,824 19,737
Other liabilities 85,134 69,701
- -------------------------------------------------------------------------------------------------- -----------
6,299,257 5,326,545
- -------------------------------------------------------------------------------------------------- -----------
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 subsidiaries 20,135 19,512
- -------------------------------------------------------------------------------------------------- -----------
Stockholders' equity:
Common stock 3,962 3,961
Surplus 482,226 470,226
Retained earnings 67,885 68,352
Accumulated other comprehensive (loss) income, net of
deferred taxes of ($1,540); (February 28, 1999 - $656) (5,895) 62
- -------------------------------------------------------------------------------------------------- -----------
548,178 542,601
- -------------------------------------------------------------------------------------------------- -----------
$ 7,017,570 $ 6,038,658
================================================================================================== ===========
</TABLE>
13
<PAGE> 14
POPULAR INTERNATIONAL BANK, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter ended
February 29, February 28,
------------ ------------
(In thousands) 2000 1999
---- ----
<S> <C> <C>
INTEREST INCOME:
Loans $141,240 $114,572
Money market investments 761 654
Investment securities 5,564 7,308
- ------------------------------------------------------------------------------------- --------
147,565 122,534
- ------------------------------------------------------------------------------------- --------
INTEREST EXPENSE:
Deposits 48,929 37,030
Short-term borrowings 7,513 11,180
Long-term debt 25,200 15,252
- ------------------------------------------------------------------------------------- --------
81,642 63,462
- ------------------------------------------------------------------------------------- --------
Net interest income 65,923 59,072
Provision for loan losses 13,382 9,595
- ------------------------------------------------------------------------------------- --------
Net interest income after provision for loan losses 52,541 49,477
Service charges on deposit accounts 7,574 6,739
Other service fees 15,128 10,863
Gain on sale of securities 393
Other operating income 4,837 8,746
- ------------------------------------------------------------------------------------- --------
80,080 76,218
- ------------------------------------------------------------------------------------- --------
OPERATING EXPENSES:
Personnel costs:
Salaries 27,563 25,051
Profit sharing 181 713
Pension and other benefits 7,265 6,207
- ------------------------------------------------------------------------------------- --------
35,009 31,971
Net occupancy expense 6,989 6,171
Equipment expenses 5,496 4,122
Other taxes 797 421
Professional fees 8,635 6,560
Communications 3,422 3,229
Business promotion 7,420 5,764
Printing and supplies 2,113 1,897
Other operating expenses 8,877 5,266
Amortization of intangibles 3,717 3,456
- ------------------------------------------------------------------------------------- --------
82,475 68,857
- ------------------------------------------------------------------------------------- --------
Income before income tax and minority interest (2,395) 7,361
Income tax 745 4,120
Net loss on minority interest 1,496 432
===================================================================================== ========
NET (LOSS) INCOME $ (1,644) $ 3,673
===================================================================================== ========
</TABLE>
14
<PAGE> 15
POPULAR INTERNATIONAL BANK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the quarters ended
February 29, February 28,
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (1,644) $ 3,673
- ----------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization of premises and equipment 4,123 3,896
Provision for loan losses 13,382 9,595
Amortization of intangibles 3,717 3,456
Gain on sale of investment securities available-for-sale (393)
(Gain) loss on disposition of premises and equipment (14) 2
Gain on sale of loans (3,541) (7,873)
Amortization of premiums and accretion of discounts
on investments (25) (156)
Decrease in loans held-for-sale 68,751 154,944
Amortization of deferred loan fees and costs (817) (470)
Net decrease in interest receivable 4,515 2,195
Net increase in other assets (39,884) (18,205)
Net decrease in interest payable (21,084) (11,983)
Net (decrease) increase in current and deferred taxes (2,528) 6,344
Net increase (decrease) in other liabilities 18,585 (13,496)
- ----------------------------------------------------------------------------------------------------------------------
Total adjustments 45,180 127,856
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 43,536 131,529
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in money market investments (4,326) 50,339
Purchases of investment securities held-to-maturity (234) (13)
Maturities of investment securities held-to-maturity 20 55,613
Purchases of investment securities available-for-sale (50,763) (1,098,299)
Maturities of investment securities available-for-sale 48,371 1,107,291
Sales of investment securities available-for-sale 388 29,971
Net disbursements on loans (557,958) (565,802)
Proceeds from sale of loans 213,620 308,535
Capital contribution to subsidiaries (2,969) (72,000)
Acquisition of loan portfolios (7,000)
Cash received in acquisition 715
Acquisition of premises and equipment (5,960) (6,225)
Proceeds from sale of premises and equipment 1,686 352
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (357,410) (197,238)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 41,698 (69,540)
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase 38,576 (287,787)
Net increase in other short-term borrowings 47,014 68,430
Proceeds from issuance of notes payable 149,857 969,970
Payments of notes payable (1,285) (773,918)
Capital contribution received from Parent company 12,000 74,047
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 287,860 (18,798)
- ----------------------------------------------------------------------------------------------------------------------
Net decrease in cash and due from banks (26,014) (84,507
Cash and due from banks at beginning of period 243,149 300,159
- ----------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of period $ 217,135 $ 215,652
======================================================================================================================
</TABLE>
15
<PAGE> 16
POPULAR INTERNATIONAL BANK, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Quarters ended
February 29, February 28,
(In thousands) 2000 1999
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net (loss) income $ (1,644) $ 3,673
------------------------------
Other comprehensive loss, net of tax:
Foreign currency translation adjustment (362) (833)
Unrealized holding losses arising during
the period, net of tax of ($480) (1999 - ($495)) (2,682) (589)
Less: reclassification adjustment for gains
Included in net income, net of tax of $61 in 1999 91
------------------------------
Total other comprehensive loss $ (3,044) $ (1,513)
------------------------------
Comprehensive (loss) income $ (4,688) $ 2,160
==============================
</TABLE>
DISCLOSURE OF ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME:
<TABLE>
<CAPTION>
February 29, November 30, February 28,
(In thousands) 2000 1999 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign currency translation adjustment $(1,600) $(1,238) $(1,048)
Unrealized (losses) gains on securities (4,295) (1,613) 1,110
----------------------------------------
Accumulated other comprehensive (loss) income $(5,895) $(2,851) $ 62
========================================
</TABLE>
16
<PAGE> 17
NOTE 12 - POPULAR NORTH AMERICA, INC. (A SECOND-TIER SUBSIDIARY OF POPULAR,
INC.) FINANCIAL INFORMATION:
The following 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 subsidiary Banco Popular North America, as of February
29, 2000 and February 28, 1999, and their related statement of income, cash
flows and comprehensive income for each of the quarters then ended. The results
of Popular Holdings USA, Inc. and its subsidiary are included as of March 31,
2000 and 1999. PNA has a fiscal year that ends on November 30. Accordingly, the
consolidated financial information of PNA presented below, corresponds to the
financial information of PNA included in the consolidated financial statements
of Popular, Inc. as of March 31, 2000 and 1999.
Popular, Inc. has not presented separate financial statements nor any other
disclosures concerning PNA, other than the following 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.
17
<PAGE> 18
POPULAR NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
February 29, February 28,
------------ ------------
(In thousands) 2000 1999
- ---------------------------------------------------------------------------------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 176,218 $ 160,111
Money market investments 58,943 75,692
Investment securities available-for-sale, at market value 316,863 338,979
Investment securities held-to-maturity, at cost 49,104 61,558
Trading account securities, at market value
Loans held-for-sale 18,384 72,694
Loans $ 5,728,219 $4,672,679
Less - Unearned income 72,246 70,632
Allowance for loan losses 77,733 69,578
- ---------------------------------------------------------------------------------- -----------
5,578,240 4,532,469
- ---------------------------------------------------------------------------------- -----------
Premises and equipment 110,681 104,025
Other real estate 12,264 14,868
Customers' liabilities on acceptances 868 292
Accrued income receivable 40,018 35,016
Other assets 94,879 51,376
Intangible assets 137,695 145,053
- ---------------------------------------------------------------------------------- -----------
$ 6,594,157 $5,592,133
================================================================================== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 588,452 $ 588,921
Interest bearing 3,542,098 2,776,638
- ---------------------------------------------------------------------------------- -----------
4,130,550 3,365,559
Federal funds purchased and securities sold under
agreements to repurchase 79,116 116,023
Other short-term borrowings 367,111 567,283
Notes payable 1,274,974 823,274
Acceptances outstanding 868 292
Other liabilities 78,841 59,471
- ---------------------------------------------------------------------------------- -----------
5,931,460 4,931,902
- ---------------------------------------------------------------------------------- -----------
Preferred beneficial interests in Popular North America's
junior subordinated deferrable interest debentures guaranteed
by the Corporation 150,000 150,000
- ---------------------------------------------------------------------------------- -----------
Stockholders' equity:
Common stock 2 2
Surplus 439,964 439,964
Retained earnings 74,764 69,417
Accumulated other comprehensive (loss) income, net of
deferred taxes of $(1,540); (February 28, 1999 - $656) (2,033) 848
- ---------------------------------------------------------------------------------- ----------
512,697 510,231
- ---------------------------------------------------------------------------------- ----------
$ 6,594,157 $5,592,133
================================================================================== ==========
</TABLE>
18
<PAGE> 19
POPULAR NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter ended
February 29, February 28,
------------ ------------
(In thousands) 2000 1999
---- ----
<S> <C> <C>
INTEREST INCOME:
Loans $127,637 $101,146
Money market investments 562 715
Investment securities 5,512 5,991
- ------------------------------------------------------------------- --------
133,711 107,852
- ------------------------------------------------------------------- --------
INTEREST EXPENSE:
Deposits 40,079 26,998
Short-term borrowings 6,480 9,708
Long-term debt 23,927 14,817
- ------------------------------------------------------------------- --------
70,486 51,523
- ------------------------------------------------------------------- --------
Net interest income 63,225 56,329
Provision for loan losses 11,690 9,595
- ------------------------------------------------------------------- --------
Net interest income after provision for loan losses 51,535 46,734
Service charges on deposit accounts 6,417 5,714
Other service fees 13,326 9,083
Gain on sale of securities 389
Other operating income 3,865 8,221
- ------------------------------------------------------------------- --------
75,143 70,141
- ------------------------------------------------------------------- --------
OPERATING EXPENSES:
Personnel costs:
Salaries 24,462 22,187
Profit sharing 181 713
Pension and other benefits 6,975 5,777
- ------------------------------------------------------------------- --------
31,618 28,677
Net occupancy expense 6,321 5,341
Equipment expenses 3,887 3,106
Other taxes 494 357
Professional fees 7,842 5,939
Communications 3,108 2,724
Business promotion 7,135 5,428
Printing and supplies 1,822 1,783
Other operating expenses 6,675 4,609
Amortization of intangibles 3,497 3,336
- ------------------------------------------------------------------- --------
72,399 61,300
- ------------------------------------------------------------------- --------
Income before income tax 2,744 8,841
Income tax 1,985 4,477
=================================================================== ========
NET INCOME $ 759 $ 4,364
=================================================================== ========
</TABLE>
19
<PAGE> 20
POPULAR NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the quarters ended
February 29, February 28,
(In thousands) 2000 1999
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 759 $ 4,364
- --------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization of premises and equipment 2,954 2,666
Provision for loan losses 11,690 9,595
Amortization of intangibles 3,497 3,336
Gain on sale of investment securities available-for-sale (389)
Gain (loss) on disposition of premises and equipment (14) 2
Gain on sale of loans (3,541) (7,873)
Amortization of premiums and accretion of discounts
on investments (25) (156)
Decrease in loans held-for-sale 68,751 154,944
Amortization of deferred loan fees and costs (817) (470)
Net decrease (increase) in interest receivable 4,108 (236)
Net increase in other assets (41,743) (8,908)
Net decrease in interest payable (21,084) (12,001)
Net (decrease) increase in current and deferred taxes (3,407) 4,434
Net increase (decrease) in other liabilities 25,674 (12,225)
- --------------------------------------------------------------------------------------------------------
Total adjustments 46,043 132,719
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 46,802 137,083
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in money market investments (2,822) 33,181
Purchases of investment securities held-to-maturity (234) (13)
Maturities of investment securities held-to-maturity 20 55,613
Purchases of investment securities available-for-sale (50,763) (1,069,597)
Maturities of investment securities available-for-sale 47,445 1,107,291
Sales of investment securities available-for-sale 388 29,971
Net disbursements on loans (548,747) (572,414)
Proceeds from sale of loans 213,620 308,535
Capital contribution to subsidiaries (143,320)
Acquisition of loan portfolios (7,000)
Acquisition of premises and equipment (4,182) (6,256)
Proceeds from sale of premises and equipment 1,612 27
- --------------------------------------------------------------------------------------------------------
Net cash used in investing activities (343,663) (263,982)
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 48,217 (42,129)
Net increase (decrease) in federal funds purchased and securities
sold under agreements to repurchase 38,576 (289,787)
Net increase in other short-term borrowings 42,206 80,728
Proceeds from issuance of notes payable 149,963 969,770
Payments of notes payable (773,918)
Capital contribution received from Parent company 143,806
- --------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 278,962 88,470
- --------------------------------------------------------------------------------------------------------
Net decrease in cash and due from banks (17,899) (38,429)
Cash and due from banks at beginning of period 194,117 198,540
- --------------------------------------------------------------------------------------------------------
Cash and due from banks at end of period $ 176,218 $ 160,111
========================================================================================================
</TABLE>
20
<PAGE> 21
POPULAR NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Quarters ended
February 29, February 28,
(In thousands) 2000 1999
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Net Income $ 759 $ 4,364
-------------------------
Other comprehensive loss, net of tax:
Unrealized holding losses arising during
the period, net of tax of $(480) (1999 - $(495)) (470) (756)
Less: reclassification adjustment for gains
Included in net income, net of tax of $61 in 1999 91
-------------------------
Total other comprehensive loss $(470) $ (847)
-------------------------
Comprehensive income $ 289 $ 3,517
=========================
</TABLE>
DISCLOSURE OF ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME:
<TABLE>
<CAPTION>
February 29, November 30, February 28,
(In thousands) 2000 1999 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized (losses) gains on securities $(2,034) $(1,564) $848
------------------------------------------------
Accumulated other comprehensive (loss) income $(2,034) $(1,564) $848
================================================
</TABLE>
21
<PAGE> 22
TABLE A
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
AT MARCH 31, AVERAGE FOR THE QUARTER
BALANCE SHEET HIGHLIGHTS 2000 1999 Change 2000 1999 Change
(In thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money market investments $ 892,652 $ 865,612 $ 27,040 $ 851,516 $ 694,307 $ 157,209
Investment and trading securities 7,509,220 7,302,677 206,543 7,877,471 7,361,873 515,598
Loans 15,200,931 13,458,245 1,742,686 15,027,521 13,201,405 1,826,116
Total assets 25,302,025 23,174,075 2,127,950 25,466,481 22,695,779 2,770,702
Deposits 14,337,861 13,576,672 761,189 14,147,519 13,578,244 569,275
Borrowings 8,833,572 7,401,790 1,431,782 9,016,053 7,036,406 1,979,647
Stockholders' equity 1,682,293 1,704,482 (22,189) 1,815,021 1,657,898 157,123
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FIRST QUARTER
OPERATING HIGHLIGHTS 2000 1999 Change
(In thousands, except per share information)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income $ 242,240 $ 236,239 $ 6,001
Provision for loan losses 50,013 35,771 14,242
Fees and other income 115,726 87,057 28,669
Other expenses 243,764 223,861 19,903
Net loss of minority interest 1,496 432 1,064
Net income $ 64,189 $ 63,664 $ 525
Net income applicable to common stock $ 62,102 $ 61,577 $ 525
Earnings per common share 0.46 0.45 0.01
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
SELECTED STATISTICAL FIRST QUARTER
Information 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK DATA- Market price
High $ 26.88 $ 37.88
Low 18.63 30.88
End 22.19 30.88
Book value at period ended 11.66 11.82
Dividends declared 0.16 0.14
Dividend payout ratio 34.98% 30.84%
Price/earnings ratio 11.99X 18.06x
- ---------------------------------------------------------------------------------------------------------------------------------
PROFITABILITY RATIOS - Return on assets 1.01% 1.14%
Return on common equity 14.57 16.03
Net interest spread (taxable equivalent) 3.60 4.02
Net interest yield (taxable equivalent) 4.42 4.84
Effective tax rate 23.03 26.16
Overhead ratio 45.73 48.61
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITALIZATION RATIOS - Equity to assets 7.13% 7.31%
Tangible equity to assets 6.01 6.19
Equity to loans 12.08 12.56
Internal capital generation 8.90 10.27
Tier I capital to risk - adjusted assets 10.04 10.73
Total capital to risk - adjusted assets 12.09 12.98
Leverage ratio 6.32 6.69
</TABLE>
22
<PAGE> 23
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) and Banco Fiduciario, S.A. (BF)
- Lease Financing - Popular Leasing and Rental, Inc. and Popular
Leasing, U.S.A.
- Consumer and Mortgage Banking - Popular Mortgage, Inc., Equity One,
Inc. Popular Finance, Inc. and Newco Mortgage Holding Corporation
(d/b/a Levitt Mortgage, Inc.)
- Broker/dealer - Popular Securities, Inc.
- ATM Processing and Information Technology Services - GM Group, ATH
Costa Rica and CreST, S.A.
- Retail Financial Services - Popular Cash Express, Inc.
NET INCOME
The Corporation's net income amounted to $64.2 million for the first quarter of
2000, compared with $63.7 million for the same quarter of 1999. Earnings per
common share (EPS) for the quarter were $0.46 compared with $0.45 reported in
the first quarter of 1999. Net earnings for the last quarter of 1999 were $65.7
million or $0.47 per common share. Return on assets (ROA) and return on common
equity (ROE) for the quarter ended March 31, 2000 were 1.01% and 14.57%,
respectively, compared with 1.14% and 16.03% for the same period in 1999 and
1.05% and 15.06% for the last quarter of 1999.
The Corporation's results of operations for the quarter ended March 31, 2000
reflected increases of $6.0 million in net interest income and $28.7 million in
other revenues when compared with the same quarter of 1999. Operating expenses
rose $24.6 million and the provision for loan losses increased $14.2 million.
NET INTEREST INCOME
Net interest income for the first quarter of 2000 reached $242.2 million,
compared with $236.2 million in the same period of 1999. On a taxable equivalent
basis, net interest income increased to $262.7 million from $256.1 million
reported in the same quarter of 1999.
The growth of $6.6 million in net interest income on a taxable equivalent basis
from the first quarter of 1999 resulted from a $20.6 million increase mainly
attributable to a higher volume of earning assets, partially offset by a $14.0
million decrease due to a lower net interest yield. 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
2000, as compared with the same quarter in 1999.
23
<PAGE> 24
TABLE B
ANALYSIS OF LEVELS AND YIELDS ON A TAXABLE EQUIVALENT BASIS
QUARTER ENDED ON MARCH 31,
<TABLE>
<CAPTION>
Average Volume Average Yields
- -------------------------------------------------------------------------
2000 1999 Variance 2000 1999 Variance
- -------------------------------------------------------------------------
$(in millions)
<S> <C> <C> <C> <C> <C> <C>
$ 852 $ 695 $ 157 6.26% 4.63% 1.63% Money market investments
7,645 7,044 601 6.66 7.05 (0.39) Investment securities
232 318 (86) 8.10 6.51 1.59 Trading
- -------------------------------------------------------------------------
$ 8,729 $ 8,057 $ 672 6.66 6.82 (0.16)
- -------------------------------------------------------------------------
Loans:
7,021 6,103 918 9.45 9.14 0.31 Commercial
671 621 50 12.88 13.10 (0.22) Leasing
4,011 3,318 693 8.54 8.14 0.40 Mortgage
3,325 3,159 166 13.15 13.03 0.12 Consumer
- -------------------------------------------------------------------------
15,028 13,201 1,827 10.18 10.00 0.18
- -------------------------------------------------------------------------
$23,757 $21,258 $2,499 8.88% 8.80% 0.08% TOTAL EARNING ASSETS
=========================================================================
Interest bearing deposits:
$ 1,688 $1,673 $ 15 3.36% 3.16% 0.20% NOW and money market
4,128 4,163 (35) 2.91 2.98 (0.07) Savings
5,260 4,750 510 6.00 5.74 0.26 Time deposits
- -------------------------------------------------------------------------
11,076 10,586 490 4.45 4.25 0.20
- -------------------------------------------------------------------------
6,803 5,383 1,420 6.08 5.23 0.85 Short-term borrowings
2,213 1,653 560 6.95 6.79 0.16 Medium and long-term debt
- -------------------------------------------------------------------------
20,092 17,622 2,470 5.28 4.78 0.50 TOTAL INTEREST-BEARING
LIABILITIES
3,072 2,992 80 Demand deposits
593 644 (51) Other sources of funds
- -------------------------------------------------------------------------
$23,757 $21,258 $2,499 4.46% 3.96% 0.50%
=========================================================================
4.42% 4.84% (0.42)% NET INTEREST MARGIN AND
======================================
NET INTEREST INCOME
3.60% 4.02% (0.42)% NET INTEREST SPREAD
======================================
Taxable equivalent adjustment
Net interest income
<CAPTION>
Variance
Interest Attributable to
---------------------------------------------------------------------------------------
2000 1999 Variance Rate Volume
---------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Money market investments $ 13,248 $ 7,932 $ 5,316 $ 5,391 $ (75)
Investment securities 127,073 123,348 3,725 (7,021) 10,746
Trading 4,672 5,105 (433) 1,124 (1,557)
---------------------------------------------------------------------------------------
144,993 136,385 8,608 (506) 9,114
---------------------------------------------------------------------------------------
Loans:
Commercial 165,022 137,552 27,470 6,085 21,385
Leasing 21,610 20,357 1,253 (347) 1,600
Mortgage 85,635 67,478 18,157 3,484 14,673
Consumer 109,022 102,329 6,693 238 6,455
---------------------------------------------------------------------------------------
381,289 327,716 53,573 9,460 44,113
---------------------------------------------------------------------------------------
TOTAL EARNING ASSETS $526,282 $464,101 $62,181 $ 8,954 $ 53,227
=======================================================================================
Interest bearing deposits:
NOW and money market $ 14,099 $ 13,036 $ 1,063 $ 925 $ 138
Savings 29,887 30,573 (686) (531) (155)
Time deposits 78,488 67,214 11,274 8,294 2,980
---------------------------------------------------------------------------------------
122,474 110,823 11,651 8,688 2,963
---------------------------------------------------------------------------------------
Short-term borrowings 102,825 69,374 33,451 13,196 20,255
Medium and long-term debt 38,262 27,759 10,503 1,045 9,458
---------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING 263,561 207,956 55,605 22,929 32,676
LIABILITIES
Demand deposits
Other sources of funds
---------------------------------------------------------------------------------------
NET INTEREST MARGIN AND
NET INTEREST INCOME 262,721 256,145 6,576 $ (13,975) $ 20,551
===========================
NET INTEREST SPREAD
Taxable equivalent adjustment 20,481 19,906 575
---------------------------------------------------
Net interest income $242,240 $236,239 $ 6,001
===================================================
</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.
Average earning assets rose $2.5 billion primarily due to a higher average loan
portfolio, which grew by $1.8 billion when compared with the same quarter of
1999. Commercial loans and mortgage loans accounted for 88% of the total average
loan increase, resulting primarily from the Corporation's efforts directed to
the retail and middle markets and to higher loan origination and refinancing
activity during 1999, as a result of the prevailing interest rate environment
for these activities and to the Corporation's marketing campaigns. The increase
in average investment securities, when compared with the first quarter of 1999,
reflects increased investment portfolio activity, primarily in the last two
quarters of 1999. The category that increased the most was U.S. Agency
securities, which increased by $1.2 billion over the average balance in the
first quarter of 1999. The income derived from these securities is exempt for
income tax purposes in Puerto Rico.
The increase in the volume of loans was funded mainly through a higher average
volume of borrowings and interest bearing deposits, mainly time deposits. The
increase in borrowed funds was also used to fund the Corporation's business
expansion and for investment portfolio opportunities.
24
<PAGE> 25
The net interest margin, on a taxable equivalent basis, for the quarter ended
March 31, 2000 was 4.42% compared with 4.84% for the first quarter of 1999. This
reduction resulted primarily from an increase of 50 basis points in the average
cost of interest bearing liabilities, mostly due to a higher interest rate
scenario and a higher proportion of short-term borrowings, which grew by 26%
from the first quarter of 1999 and represented 57% of the Corporation's growth
in average interest-bearing liabilities when compared to the average balances
reported for the first quarter of 1999. Since the last few months of 1999, the
cost of short-term financing increased substantially, as money market rates
increased as a result of a tightening policy by the Fed commencing in the latter
part of 1999. In addition, the average cost of interest bearing deposits
increased by 20 basis points when compared with the first quarter of 1999,
primarily related to a higher cost in time deposits due in part to the higher
cost of longer term money and the increases in rates during the latter part of
1999 and the first quarter of 2000.
The rise in the cost of funds was partially offset by an increase in the average
yield on earning assets, which increased, on a taxable equivalent basis, eight
basis points from 8.80% for the first quarter of 1999 to 8.88% during the first
quarter of 2000. This improvement is primarily related to the increase of 18
basis points in the average yield on loans, partially offset by a lower yield on
investment securities.
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.
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 analysis 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 processed 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, 2000, the
change in net interest income on a hypothetical rising rate scenario for the
next twelve months was a $7.3 million increase and the change for the same
period utilizing a hypothetical declining rate scenario was a decrease of $7.5
million. Both hypothetical rate scenarios consider a gradual change of 150 basis
points during the twelve-month period. These estimated changes are well within
the policy guidelines established by the Board.
25
<PAGE> 26
In the course of its business, the Corporation occasionally enters into foreign
exchange transactions as an intermediary primarily for its commercial and retail
clients. Any risk assumed by these transactions is immediately offset in the
foreign exchange markets. Management therefore believes that the market risk
assumed by the Corporation in its foreign currency transactions is not
significant.
The Corporation is the largest shareholder of BF, a commercial banking
institution in the Dominican Republic (DR), with a 57% ownership interest. Most
of BF's business is conducted in Dominican `pesos' (DR$). 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 exchange rate volatility between these two
currencies to affect significantly the value of the Corporation's investment in
BF.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses totaled $50.0 million for the first quarter of
2000, an increase of 39.8% when compared with $35.8 million for the same quarter
of 1999. For the fourth quarter of 1999, the provision was $39.5 million. The
increase in the provision for loan losses resulted from a rise in the
Corporation's loan portfolio, increases in non-performing assets and net
charge-offs. This increase was considered necessary to maintain the adequacy of
the allowance for loan losses and to adjust for changes in the potential losses
embedded in the portfolio due to changes in credit quality. Net charge-offs for
the quarter ended March 31,2000, reached $48.6 million or 1.29% of average
loans, compared with $25.9 million or 0.78% reported for the same period in
1999, and $36.1 million or 0.99% for the fourth quarter of 1999. The rise
primarily reflected higher net charge-offs in the consumer, commercial loan and
lease financing portfolios. Table C summarizes the movement in the allowance for
loan losses and presents selected loan loss statistics for the quarters ended
March 31, 2000 and 1999.
Consumer loans net charge-offs totaled $26.2 million or 3.15% of average
consumer loans in the first quarter of 2000, compared with $14.5 million or
1.84% in the first quarter of 1999. The increases experienced since March 31,
1999 were mostly in the credit card and personal loan portfolios in both, Puerto
Rico and the U.S. mainland. Lease financing net charge-offs totaled $5.0 million
or 3.0% of the average lease financing portfolio for the quarter ended March 31,
2000, compared with $1.9 million or 1.24% for the same quarter last year.
Economic factors such as the increase in personal delinquencies coupled with
lower recovery activity were factors contributing to the increase.
Commercial loans net charge-offs, including construction loans, increased $7.9
million for the quarter ended March 31, 2000, when compared with the same
quarter in 1999. This increase was partly related to the rise in the commercial
loan portfolio, as well as the deterioration in the credit quality of a limited
number of commercial relationships, which included a $3 million charge-off of a
commercial relationship in BPPR and a $2.4 million charge-off of a relationship
in BPNA. Commercial and construction loans net charge-offs represented 0.97% of
the average balance of those loans for the quarter ended March 31, 2000,
compared with 0.58% for the same quarter last year.
26
<PAGE> 27
TABLE C
ALLOWANCE FOR LOAN LOSSES AND SELECTED LOAN LOSSES STATISTICS
<TABLE>
<CAPTION>
FIRST QUARTER
(Dollars in thousands) 2000 1999
- -------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of period $292,010 $267,249
Provision for loan losses 50,013 35,771
-------------------------
342,023 303,020
-------------------------
Losses charged to the allowance:
Commercial 19,488 11,296
Construction 141 500
Lease financing 7,398 5,846
Mortgage 642 943
Consumer 32,198 20,572
-------------------------
59,867 39,157
-------------------------
Recoveries:
Commercial 2,861 2,972
Construction 2
Lease financing 2,371 3,918
Mortgage 61 294
Consumer 5,993 6,067
-------------------------
11,286 13,253
-------------------------
Net loans charged-off (recovered):
Commercial 16,627 8,324
Construction 141 498
Lease financing 5,027 1,928
Mortgage 581 649
Consumer 26,205 14,505
-------------------------
48,581 25,904
-------------------------
Balance at end of period $293,442 $277,116
=========================
Ratios:
Allowance for losses to loans 1.93% 2.06%
Allowance to non-performing assets 81.23 92.81
Allowance to non-performing loans 89.25 103.10
Non-performing assets to loans 2.38 2.22
Non-performing assets to total assets 1.43 1.29
Net charge-offs to average loans 1.29 0.78
Provision to net charge-offs 1.03X 1.38x
Net charge-offs earnings coverage 2.71 4.69
</TABLE>
At March 31, 2000, the allowance for loan losses was $293.4 million,
representing 1.93% of loans, compared with $277.1 million or 2.06% a year
earlier, and $292.0 million or 1.96% at December 31, 1999.
The allowance for loan losses is maintained at a level which is considered by
management to be sufficient to provide for estimated losses based on evaluations
of known and inherent risks in the loan portfolio. The Corporation's management
evaluates the adequacy of the allowance for loan losses on a monthly basis. In
determining the allowance, management considers the portfolio risk
characteristics, the results of periodic credit reviews of individual loans,
prior loss experience, prevailing and projected economic conditions and loan
impairment measurement.
27
<PAGE> 28
The Corporation has defined impaired loans as all loans with interest and/or
principal past due 90 days or more and other specific loans for which, based on
current information and events, it is probable that the debtor will be unable to
pay all amounts due according to the contractual terms of the loan agreement.
Loan impairment is measured based on the present value of expected future cash
flows discounted at the loan's effective rate, on the observable market price of
the loan or on the fair value of the collateral if the loan is collateral
dependent. Large groups of smaller balance homogeneous loans are collectively
evaluated for impairment based on past experience, adjusted for current
conditions. All other loans are evaluated on a loan-by-loan basis. Impaired
loans for which the discounted cash flows, collateral value or market price
equals or exceeds its carrying value do not require an allowance. The allowance
for impaired loans is part of the Corporation's overall allowance for loan
losses.
The following table shows the Corporation's recorded investment in impaired
loans and the related valuation allowance calculated under SFAS No. 114 (as
amended by SFAS No. 118) at March 30, 2000 and March 31, 1999.
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
-------------- --------------
Recorded Valuation Recorded Valuation
Investment Allowance Investment Allowance
---------- --------- ---------- ---------
(In millions)
<S> <C> <C> <C> <C>
Impaired loans:
Valuation allowance required $152.9 $55.3 $136.4 $ 36.6
No valuation allowance required 39.1 36.8
------ ----- ------ ------
Total impaired loans $192.0 $55.3 $173.2 $ 36.6
====== ===== ====== ======
</TABLE>
Average impaired loans during the first quarter of 2000 and 1999 were $178
million and $171 million, respectively. The Corporation recognized interest
income on impaired loans of $1.2 million during the first quarter of 2000 and
$1.8 million during the same period of 1999.
CREDIT QUALITY
Non-performing assets (NPA) consist of past-due loans on which no interest
income is being accrued, renegotiated loans and real estate acquired through
foreclosure. Non-performing assets as of March 31, 2000 amounted to $361.2
million or 2.38% as a percentage of total loans, compared with $298.6 million or
2.22% at March 31, 1999 and $326.1 million or 2.19% at December 31, 1999. A
summary of non-performing assets by loan categories and related ratios is
presented in Tables C and D.
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
industry practice for most U.S. banks which is 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 industry practice for most U.S. banks,
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.
28
<PAGE> 29
TABLE D
NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
MARCH 31, December 31, March 31,
2000 1999 1999
- -------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Commercial, construction, industrial and
agricultural $196,457 $165,472 $148,334
Lease financing 3,818 3,820 4,481
Mortgage 74,493 70,038 69,419
Consumer 54,031 57,515 46,555
Other real estate 32,448 29,268 29,800
---------------------------------------------
Total $361,247 $326,113 $298,589
=============================================
Accruing loans past-due 90 days or more $ 29,434 $ 28,731 $ 24,712
=============================================
Non-performing assets to loans 2.38% 2.19% 2.22%
Non-performing assets to assets 1.43 1.28 1.29
</TABLE>
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, 2000, would have been $274
million or 1.80% of loans, and the allowance for loan losses would have been
107.2% of non-performing assets. At March 31, 1999 and December 31, 1999,
adjusted non-performing assets would have been $226 million or 1.68% of loans
and $247 million or 1.66% of loans, respectively, and the allowance to
non-performing assets would have been 122.6% and 118.2%, respectively.
As Table D presents, the increase in non-performing loans is principally due to
higher non-performing commercial and mortgage loans, which increased $31.0
million and $4.5 million, respectively, from December 31, 1999. The rise in
commercial non-performing loans corresponded principally to the classification
on non-accrual of a limited number of commercial loan relationships in Puerto
Rico and the United States. The increase in non-performing mortgage loans from
December 31, 1999 was principally due to the growth in the mortgage loan
portfolio and higher delinquency levels. As shown in Table D, the other real
estate category also reflected an increase of $3.2 million from the end of 1999,
principally as a result of various properties repossessed by the Corporation's
banking subsidiary in the Dominican Republic.
The rises described above were partially offset by a decrease of $3.5 million in
non-performing consumer loans when compared with December 31, 1999.
Non-performing consumer loans represented 1.63% of the average consumer loan
portfolio at March 31, 2000 compared with 1.82% at December 31, 1999. This
decrease mainly resulted from the fact that the growth in consumer loans was
derived mainly from credit cards, which are not customarily placed on
non-accrual status prior to being charged-off.
29
<PAGE> 30
NON-INTEREST INCOME
Total non-interest income, including securities and trading gains, amounted to
$115.7 million for the first quarter of 2000, compared with $87.1 million for
the same quarter in 1999, an increase of $28.6 million or 32.9%. This rise was
driven by increases of $12.8 million in gain on sale of securities, $9.5 million
in other service fees, $3.3 million in other operating income and $2.0 million
in service charges on deposit accounts.
During the first three months of 2000, the Corporation realized net gains on
sale of securities of $13.3 million compared with $0.5 million for the same
period in 1999. During this quarter, the Corporation exercised its conversion
right and exchanged its investment in preferred stock of a financial corporation
in Puerto Rico for common stock of the same entity, resulting in a $13.4 million
gain. Also, during the quarter, the Corporation realized gains on trading
transactions of $0.8 million compared with losses of $0.3 million for the same
quarter last year.
As shown in Table E, the increase in other service fees, when compared with the
same period in 1999 was mostly attributed to higher processing fees primarily
due to the acquisition of GM Group in July 1999. The increase in credit card
fees and discounts was driven by the growth of 33.1% in credit card active
accounts and to higher credit card sales both in Puerto Rico and the United
States. Check cashing fees also rose, mainly driven by the Corporation's
continued expansion of its retail financial business through Popular Cash
Express. In addition, external payment fees reflected growth mainly due to
higher transaction volume and revisions to transaction rates. These rises were
partially tempered by lower fees on debit card transactions, credit life
insurance and on the sale and administration of investment products. The latter
related mostly to the fact that a new mutual fund was issued by the
Corporation's broker/dealer subsidiary in the first quarter of 1999, while none
was issued the first quarter of 2000.
The increase in other operating income was fueled mainly by fees generated by
the Corporation's investment in Telecomunicaciones de Puerto Rico, Inc. and
other revenues derived by GM Group, such as programming fees, consulting
services for new technology and engineering and system services, among others.
The increase in service charges on deposit accounts was mainly due to the higher
activity on commercial and retail accounts and a higher volume of deposits.
30
<PAGE> 31
TABLE E
NON-INTEREST INCOME
<TABLE>
<CAPTION>
First Quarter
- -----------------------------------------------------------------------------------------------
2000 1999 Change
- -----------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Service charges on deposit accounts $ 30,223 $28,249 $ 1,974
Other service fees:
Credit cards fees and discounts 14,370 12,136 2,234
Processing fees 6,169 6,169
Other fees 6,042 5,035 1,007
Debit card fees 4,891 5,434 (543)
Sale and administration of investment products 3,914 4,498 (584)
Check cash fees 3,530 2,202 1,328
Mortgage servicing fees, net of amortization 2,746 3,022 (276)
Trust fees 2,414 2,459 (45)
Credit life insurance fees 1,751 2,173 (422)
External payments fees 1,538 950 588
---------------------------------------
Subtotal 47,365 37,909 9,456
---------------------------------------
Other operating income 24,057 20,731 3,326
---------------------------------------
Total $101,645 $86,889 $14,756
=======================================
</TABLE>
OPERATING EXPENSES
Operating expenses for the first quarter of 2000 were $226.5 million compared
with $201.9 million for the same quarter in 1999, an increase of $24.6 million
or 12.2%.
Personnel costs, the largest category of operating expenses, totaled $103.2
million for the first three months of 2000, compared with $96.0 million for the
same period in 1999, an increase of $7.2 million or 7.5%. Salaries accounted for
the largest portion of the increase in personnel costs, rising $8.4 million or
12% when compared with the first quarter of 1999, reflecting the acquisition of
GM Group, the continued business expansion and annual merit increases. Full-time
equivalent employees (FTE's) amounted to 11,591 at the end of this quarter, up
975 from 10,616 FTE's at the same date in 1999. Partially offsetting the
increase in salaries was a decrease of $2.2 million in profit sharing expense at
the Corporation's banking subsidiaries when compared with the first quarter of
1999.
Other operating expenses, excluding personnel costs, increased $17.4 million
when compared with the first quarter of 1999. Business promotion rose $3.1
million, primarily as a result of the launching of a new institutional
advertising campaign in Puerto Rico during the last quarter of 1999 and
additional advertising efforts pertaining to the mortgage banking business in
the U.S. mainland. Moreover, equipment expenses rose $2.7 million mostly due to
the aforementioned acquisition of GM Group and higher expenses related to the
depreciation of new equipment and software upgrades acquired throughout 1999 as
part of the Y2K plan. The increase in professional fees of $2.4 million resulted
mainly from consulting and temporary services needed to support the growth of
the Corporation's business activity, coupled with the legal and consulting
expenses incurred in connection with
31
<PAGE> 32
enhancing and improving Banco Popular de Puerto Rico's anti-money laundering
policies and procedures as agreed with the Federal Reserve Bank of New York
during this quarter. Furthermore, other operating expenses grew $5.5 million
primarily due to higher sundry losses, traveling and other miscellaneous
expenses.
Income tax expense decreased $3.6 million from $22.4 million in the first
quarter of 1999, to $18.8 million in the same quarter this year, primarily as a
result of a lower income before tax combined with higher income subject to a
capital gains tax rate. The effective tax rate for the first quarter of 2000 was
23.0% compared with 26.2% for the same period in 1999.
BALANCE SHEET COMMENTS
Total assets as of March 31, 2000 reached $25.3 billion compared with $23.2
billion as of the same date a year earlier. Total assets at December 31, 1999,
were $25.5 billion. Earning assets totaled $23.6 billion at March 31, 2000,
compared with $23.8 billion at December 31, 1999 and $21.6 billion at March 31,
1999.
The investment portfolio reached $7.3 billion as of March 31, 2000, a decrease
of $324 million when compared with $7.6 billion as of December 31, 1999.
Investment securities as of March 31, 1999 amounted to $7.0 billion. Money
market investments decreased $93.3 million and trading account securities
decreased $28.1 million when compared with December 31, 1999.
As shown in Table F, the loan portfolio increased $293 million as compared with
December 31, 1999, of which $216 million were in commercial and $46 million in
mortgage loans. The growth in the commercial loan portfolio resulted principally
from the continued marketing efforts directed to the retail and middle market
and the sustained growth in Puerto Rico and the expansion in the United States.
The increase in the loan portfolio compared with the same date last year was
also reflected in the commercial and mortgage loan portfolios, which increased
$902 million and $579 million, respectively.
TABLE F
LOANS ENDING BALANCES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
MARCH 31, December 31, March 31,
2000 1999 1999
- --------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Commercial, industrial and agricultural $ 6,872,173 $ 6,656,411 $ 5,970,388
Construction 257,888 247,288 285,796
Lease financing 731,803 728,644 638,693
Mortgage* 3,979,474 3,933,663 3,400,340
Consumer 3,359,593 3,341,748 3,163,028
---------------------------------------------------
Total $15,200,931 $14,907,754 $13,458,245
===================================================
</TABLE>
* Includes loans held-for-sale
32
<PAGE> 33
The increase of $67.3 million in other assets when compared with December 31,
1999, was mainly due to an increase in accounts receivables, mostly related to
loan sale and broker/dealer transactions. Also, there was an increase in
deferred taxes, as a result of unrealized losses on securities
available-for-sale.
Total deposits were $14.3 billion at March 31, 2000, or $164 million higher than
the $14.2 billion reported at December 31, 1999. At March 31, 1999 total
deposits amounted to $13.6 billion. Savings and time deposits continued their
growth, increasing $224.0 million and $229 million, respectively, when
compared with December 31, 1999. Demand deposits had a decrease of $288.9
million compared with the amount at December 31, 1999 mainly attributable to
funds held in trust as paying agent on several bonds issues, which were
disbursed at the beginning of 2000.
Borrowed funds, including subordinated notes and capital securities, amounted to
$8.8 billion at March 31, 2000, from $9.2 billion as of December 31, 1999 and
$7.4 billion at March 31, 1999. The increase in borrowed funds was used
primarily to fund the Corporation's business expansion and loan growth.
As part of the investment in BF and Levitt Mortgage, the Corporation recognized
a minority interest of $21.0 million as of March 31, 2000, which represents the
beneficial interest of the minority investors of these two entities. At December
31, 1999, this minority interest totaled $22.6 million.
The Corporation's stockholders' equity at March 31, 2000 and December 31, 1999
was $1.68 billion and $1.66 billion, respectively, compared with $1.70 billion
at March 31, 1999. The small decrease since March 31, 1999, was mostly the
result of a reduction of $188.4 million in the accumulated other comprehensive
income, mainly attributed to unrealized losses on available-for-sale securities.
The dividend payout ratio to common stockholders for the quarter ended March 31,
2000, was 34.98% compared with 30.84% for the same quarter last year and 31.56%
for the year ended December 31, 1999.
Under the regulatory framework for prompt corrective action, banks, 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. Information pertaining to the
Corporation's regulatory risk-based capital requirements is shown on Table H.
The market value of the Corporation's common stock at March 31, 2000 was $22.19,
compared with $27.94 at December 31, 1999 and $30.88 at March 31, 1999. The
Corporation's market capitalization at March 31, 2000, was $3.0 billion compared
with $3.8 billion as of December 31, 1999 and $4.2 billion at March 31, 1999.
33
<PAGE> 34
TABLE H
CAPITAL ADEQUACY DATA
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(Dollars in thousands) MARCH 31, December 31, March 31,
2000 1999 1999
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-based capital
Tier I capital $ 1,583,637 $ 1,557,096 $ 1,492,294
Supplementary (Tier II) capital 323,358 324,519 313,708
------------------------------------------------
Total capital $ 1,906,995 $ 1,881,615 $ 1,806,002
================================================
Risk-weighted assets
Balance sheet items 15,258,355 14,878,731 $13,490,781
Off-balance sheet items 515,180 428,780 428,202
------------------------------------------------
Total risk-weighted assets $15,773,535 $15,307,511 $13,918,983
================================================
Ratios:
Tier I capital (minimum required - 4.00%) 10.04% 10.17% 10.73%
Total capital (minimum required - 8.00%) 12.09% 12.29% 12.98
Leverage ratio (minimum required - 3.00%) 6.32% 6.40% 6.69
</TABLE>
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
On May 3, 2000, Banco Popular de Puerto Rico received from the Federal Reserve
Bank of New York the approval of the plans and programs submitted on March 31,
2000, as required under the terms of Article 7 of the Written Agreement dated
March 9, 2000, relating to Bank Secrecy Act compliance.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
a) Exhibit No. Exhibit Description Reference
----------- ------------------- ---------
<S> <C> <C> <C>
19 Quarterly Report to Shareholders for the Exhibit "A"
period ended March 31, 2000
27 Financial Data Schedule Exhibit "B"
<CAPTION>
b) One report on Form 8-K was filed for the quarter ended March 31, 2000:
<S> <C> <C>
Dated: January 11, 2000
Items reported: Item 5 - Other Events
Item 7 - Financial Statements, Pro-Forma, Financial
Information and Exhibits
</TABLE>
34
<PAGE> 35
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 15, 2000 By: S/ Jorge A. Junquera
----------------------- ----------------------
Jorge A. Junquera
Senior Executive Vice President
Date: May 15, 2000 By: S/ Amilcar L. Jordan
----------------------- ---------------------
Amilcar L. Jordan, Esq.
Senior Vice President & Comptroller
35
<PAGE> 1
TO OUR STOCKHOLDERS
As expected, the first quarter of the year 2000 began with an
aggressive tightening schedule as the Federal Reserve rose the Fed Funds rate 25
basis points twice during this quarter while still another rise is expected.
Popular, Inc.'s net income amounted to $64.2 million or $0.46 per share
for the first quarter of 2000 compared with $63.7 million or $0.45 per share for
the first quarter of 1999. Net income for the first quarter of 2000 represented
annualized return on assets (ROA) and return on common equity (ROE) of 1.01% and
14.57%, respectively. These profitability ratios compare with an ROA of 1.14%
and ROE of 16.03% attained during the first quarter of 1999, and 1.05% and
15.06%, respectively, for the last quarter of 1999.
The results for the first quarter of 2000, when compared with the same
period a year ago, reflected a rise of $6.0 million in net interest income
together with a growth of $28.7 million in other income. Operating expenses rose
$24.6 million while the provision for loan losses increased $14.2 million.
Net interest income for the first quarter of 2000 grew to $242.2
million from $236.2 million for the same period a year earlier. This growth was
primarily due to an increase of $2.5 billion in average earning assets,
particularly a $1.8 billion growth in loans, partially offset by a decrease in
the net interest yield. For the first quarter of 2000, the net interest yield,
on a taxable equivalent basis, was 4.42%, compared to 4.84% for the same period
a year earlier, mainly as a result of a higher cost of interest bearing
liabilities triggered by a higher interest rate scenario. For the last quarter
of 1999, the net interest yield on a taxable equivalent basis was 4.57%.
For the first quarter of 2000, the provision for loan losses amounted
to $50.0 million, compared with $35.8 million for the same period a year
earlier, reflecting the growth in the loan portfolio, non-performing assets and
net charge-offs. Net charge-offs for the first quarter of 2000 were $48.6
million compared to $25.9 million for the same period in 1999, mainly as a
result of increased charge-offs in the consumer and commercial portfolios. Net
charge-offs as a percentage of average loans increased to 1.29% for the
three-month period ended March 31, 2000 from 0.78% for the same period a year
earlier.
Other operating income, excluding securities and trading transactions
amounted to $101.6 million for the first quarter of 2000 compared with $86.9
million for the same period in 1999. Processing fees reflected a significant
growth when compared with the same period in 1999, primarily due to the
acquisition of GM Group in July 1999. Credit card fees and check cashing fees
also rose as a result of the continued business expansion of the credit card
business and Popular Cash Express. In addition, the investment in
Telecomunicaciones de Puerto Rico, Inc. and the operations of GM Group generated
additional revenues during this quarter.
Gains on sale of securities and trading transactions for the quarter
ended March 31, 2000 amounted to $14.1 million compared with $0.2 million for
the same period in 1999. During this quarter, the Corporation exercised its
conversion right and exchanged its investment in preferred stock of a financial
corporation in Puerto Rico for common stock of the same entity, resulting in a
gain of $13.4 million.
Operating expenses for the three-month period ended March 31, 2000,
amounted to $226.5 million, up from $201.9 million for the same period a year
earlier. The rise of $24.6 million in operating expenses for the quarter ended
March 31, 2000, was driven by a $7.2 million increase in personnel costs
principally as a result of the aforementioned acquisition of GM Group, together
with the continued business expansion of the banking operations in the United
States. Equipment expenses, business promotion and other operating expenses rose
reflecting the impact of acquisitions during the second half of 1999, investment
in technology, the new institutional advertising campaign launched during the
last quarter of 1999 coupled with higher sundry losses. Moreover, professional
services also increased due to consulting services needed to support the growth
of the Corporation's business activity.
On the other hand, income tax expense decreased $3.6 million from $22.4
million for the first quarter of 1999 to $18.8 million for the same period in
2000 due to lower income before tax combined with higher income subject to a
capital gains rate.
At March 31, 2000, total assets amounted to $25.3 billion compared with
$23.2 billion at the same date in 1999 and $25.5 billion as of December 31,
1999. Loans at March 31, 2000, increased 13.0% to $15.2 billion compared with
$13.5 billion at the same date in 1999 and $14.9 billion at December 31, 1999.
The growth in the loan portfolio occurred principally in the commercial and
mortgage loan portfolios.
The allowance for loan losses was $293 million or 1.93% of loans as of
March 31, 2000 compared with $277 million or 2.06% at March 31, 1999, and $292
million or 1.96% at December 31, 1999. Non-performing assets amounted to $361
million compared with $299 million at the same date last year and $326 million
at the end of 1999. The rise in non-performing assets corresponded principally
to the classification on non-accrual of a limited number of commercial
relationships in Puerto Rico and the United States.
Total deposits as of March 31, 2000 rose to $14.3 billion from $13.6
billion at the same date in 1999 and $14.2 billion at December 31, 1999, while
borrowings were $8.8 billion at the end of the first quarter of 2000, compared
with $7.4 billion a year earlier and $9.2 billion at December 31, 1999.
Stockholders' equity at March 31, 2000 amounted to $1.68 billion
compared with $1.70 billion at the same date in 1999. Included in stockholders'
equity at March 31, 2000 was $161 million in unrealized losses on securities
available-for-sale, net of tax, compared with $27 million in unrealized gains on
securities available-for-sale, net of tax, a year earlier. At December 31, 1999,
stockholders' equity amounted to $1.66 billion, including $139 million in
unrealized losses on securities available-for-sale.
The Corporation's stock market value was $22.19 at the end of the
quarter, compared with $30.88 at March 31, 1999 and $27.94 at December 31, 1999.
At the end of the first quarter of 2000, the Corporation had a market
capitalization of $3.0 billion and a book value per share of $11.66.
In March 2000, Banco Popular launched a redesigned web site that
includes its new online banking service "Mi Banco Popular". In this new
transactional web site, accessible at www.bancopopular.com, retail clients will
have access to all their financial relations, be able to personalize the
content, and securely conduct transactions over the internet. In addition,
clients will be able to export personal banking information to other software
programs, such as Quicken and Money. "Mi Banco Popular" will complement PC
Banco, the highly successful dial-up PC banking system. The new site offers a
variety of other services such as the ability to open a deposit account, request
a mortgage loan, lease, credit card and even open an investment account with
Popular Securities.
In January 2000, the Corporation acquired CreST, S.A., a local card
processor and POS provider in Costa Rica. This acquisition will allow us to
provide more services to our customers in this area. Meanwhile, on April 6,
2000, Banco Popular North America (BPNA) announced its strategic alliance with
Cendant Mortgage, a division of Cendant Corporation, in order to expand the
mortgage services to the Hispanic markets within the United States. Cendant
Mortgage, a leader in the mortgage banking business in the U.S., will process
and service loans on a private label basis through BPNA's retail sales staff and
telemarketing group. In addition, the alliance calls for the origination of
loans by BPNA through Cendant Corporation's real estate brands: Century 21,
Coldwell Banker, and ERA.
/s/ Richard L. Carrion
- -----------------------
RICHARD L. CARRION
CHAIRMAN
PRESIDENT
CHIEF EXECUTIVE OFFICER
<PAGE> 2
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
March 31, Average for the quarter
- ------------------------- --------------------------------- ----------------------------------------
BALANCE SHEET HIGHLIGHTS 2000 1999 Change 2000 1999 Change
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Money market investments $ 892,652 $865,612 $ 27,040 $ 851,516 $ 694,307 $ 157,209
Investment and trading securities 7,509,220 7,302,677 206,543 7,877,471 7,361,873 515,598
Loans 15,200,931 13,458,245 1,742,686 15,027,521 13,201,405 1,826,116
Total assets 25,302,025 23,174,075 2,127,950 25,466,481 22,695,779 2,770,702
Deposits 14,337,861 13,576,672 761,189 14,147,519 13,578,244 569,275
Borrowings 8,833,572 7,401,790 1,431,782 9,016,053 7,036,406 1,979,647
Stockholders' equity 1,682,293 1,704,482 (22,189) 1,815,021 1,657,898 157,123
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION> First Quarter
---------------------------------
OPERATING HIGHLIGHTS 2000 1999 Change
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share information)
<S> <C> <C> <C>
Net interest income $ 242,240 $236,239 $ 6,001
Provision for loan losses 50,013 35,771 14,242
Fees and other income 115,726 87,057 28,669
Other expenses, net of minority interest 243,764 223,861 19,903
Net income $ 64,189 $ 63,664 $ 525
Net income applicable to common stock $ 62,102 $ 61,577 $ 525
Earnings per common share 0.46 0.45 0.01
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION> First Quarter
-------------------
SELECTED STATISTICAL INFORMATION 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK DATA
Market price
High $26.88 $37.88
Low 18.63 30.88
End 22.19 30.88
Book value at period end 11.66 11.82
Dividends declared 0.16 0.14
Dividends payout ratio 34.98% 30.84%
Price/earnings ratio 11.99% 18.06x
- ------------------------------------------------------------------------------------------------------------------------------------
PROFITABILITY RATIOS
Return on assets 1.01% 1.14%
Return on common equity 14.57 16.03
Net interest spread (taxable equivalent) 3.60 4.02
Net interest yield (taxable equivalent) 4.42 4.84
Effective tax rate 23.03 26.16
Overhead ratio 45.73 48.61
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITALIZATION RATIOS
Equity to assets 7.13% 7.31%
Tangible equity to assets 6.01 6.19
Equity to loans 12.08 12.56
Internal capital generation 8.90 10.27
Tier 1 capital to risk-adjusted assets 10.04 10.73
Total capital to risk-adjusted assets 12.09 12.98
Leverage ratio 6.32 6.69
- ------------------------------------------------------------------------------------------------------------------------------------
CREDIT QUALITY RATIOS
Allowance for losses to loans 1.93% 2.06%
Allowance to non-performing assets 81.23 92.81
Allowance to non-performing loans 89.25 103.10
Non-performing assets to loans 2.38 2.22
Non-performing assets to total assets 1.43 1.29
Net charge-offs to average loans 1.29 0.78
Provision to net charge-offs 1.03x 1.38x
Net charge-offs earnings coverage 2.71 4.69
</TABLE>
<PAGE> 3
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*
Salustiano Alvarez Mendez*
Juan J. Bermudez
Francisco J. Carreras
David H. Chafey 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 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
transactions 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> 4
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
March 31,
---------------------------------------
Dollars in thousands 2000 1999
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 606,383 $ 596,116
- -------------------------------------------------------------------------------------------------------------
Money market investments:
Federal funds sold and securities purchased
under agreements to resell 850,216 828,981
Time deposits with other banks 41,692 36,068
Bankers' acceptances 744 563
- -------------------------------------------------------------------------------------------------------------
892,652 865,612
- -------------------------------------------------------------------------------------------------------------
Investment securities available-for-sale, at market value 6,916,382 6,544,252
Investment securities held-to-maturity, at cost 384,365 484,958
Trading account securities, at market value 208,473 273,467
Loans held-for-sale 556,813 475,081
- -------------------------------------------------------------------------------------------------------------
Loans 15,001,946 13,339,826
Less - Unearned income 357,828 356,662
Allowance for loan losses 293,442 277,116
- -------------------------------------------------------------------------------------------------------------
14,350,676 12,706,048
- -------------------------------------------------------------------------------------------------------------
Premises and equipment 437,932 432,694
Other real estate 32,448 29,800
Customers' liabilities on acceptances 8,308 21,208
Accrued income receivable 167,853 161,258
Other assets 438,706 315,602
Intangible assets 301,034 267,979
- -------------------------------------------------------------------------------------------------------------
$25,302,025 $23,174,075
=============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest bearing $ 2,998,252 $ 2,919,926
Interest bearing 11,339,609 10,656,746
- -------------------------------------------------------------------------------------------------------------
14,337,861 13,576,672
Federal funds purchased and securities sold under agreements
to repurchase 4,151,527 3,651,208
Other short-term borrowings 2,245,885 1,954,489
Notes payable 2,161,160 1,521,093
Acceptances outstanding 8,308 21,208
Other liabilities 418,985 450,411
- -------------------------------------------------------------------------------------------------------------
23,323,726 21,175,081
- -------------------------------------------------------------------------------------------------------------
Subordinated notes 125,000 125,000
- -------------------------------------------------------------------------------------------------------------
Preferred beneficial interest in Popular North America's junior
subordinated deferrable interest debentures guaranteed by the
Corporation 150,000 150,000
- -------------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiaries 21,006 19,512
- -------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock 100,000 100,000
Common stock 828,254 826,121
Surplus 245,719 218,635
Retained earnings 734,681 573,068
Treasury stock, at cost (64,150) (39,559)
Accumulated other comprehensive (loss) income, net of deferred taxes (162,211) 26,217
- -------------------------------------------------------------------------------------------------------------
1,682,293 1,704,482
- -------------------------------------------------------------------------------------------------------------
$25,302,025 $23,174,075
=============================================================================================================
</TABLE>
<PAGE> 5
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION> Quarter ended March 31
---------------------------------
<S> <C> <C>
Dollars in thousands, except per share information 2000 1999
- ------------------------------------------------------------------------------------------------------------
Interest Income:
Loans $376,520 $326,033
Money market investments 13,248 7,933
Investment securities 112,130 105,434
Trading account securities 3,903 4,795
- ------------------------------------------------------------------------------------------------------------
505,801 444,195
- ------------------------------------------------------------------------------------------------------------
Interest Expense:
Deposits 122,474 110,823
Short-term borrowings 102,825 69,374
Long-term debt 38,262 27,759
- ------------------------------------------------------------------------------------------------------------
263,561 207,956
- ------------------------------------------------------------------------------------------------------------
Net interest income 242,240 236,239
Provision for loan losses 50,013 35,771
- ------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 192,227 200,468
Service charges on deposit accounts 30,223 28,249
Other service fees 47,365 37,909
Gain on sale of securities 13,264 450
Trading account profit (loss) 817 (282)
Other operating income 24,057 20,731
- ------------------------------------------------------------------------------------------------------------
307,953 287,525
- ------------------------------------------------------------------------------------------------------------
Operating Expenses:
Personnel costs:
Salaries 78,594 70,157
Profit sharing 4,132 6,320
Pension and other benefits 20,498 19,559
- ------------------------------------------------------------------------------------------------------------
103,224 96,036
Net occupancy expenses 16,559 14,258
Equipment expenses 23,434 20,734
Other taxes 8,575 8,265
Professional fees 17,678 15,312
Communications 10,802 10,829
Business promotion 14,087 11,000
Printing and supplies 5,172 4,990
Other operating expenses 18,381 12,847
Amortization of intangibles 8,592 7,620
- ------------------------------------------------------------------------------------------------------------
226,504 201,891
- ------------------------------------------------------------------------------------------------------------
Income before income tax and minority interest 81,449 85,634
Income tax 18,756 22,402
Net loss of minority interest 1,496 432
- ------------------------------------------------------------------------------------------------------------
NET INCOME $ 64,189 $ 63,664
- ------------------------------------------------------------------------------------------------------------
NET INCOME APPLICABLE TO COMMON STOCK $ 62,102 $ 61,577
- ------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE (BASIC AND DILUTED) $ 0.46 $ 0.45
============================================================================================================
</TABLE>
<PAGE> 6
SUBSIDIARIES
CENTRAL OFFICE
Popular Center
209 Munoz Rivera Avenue
San Juan, Puerto Rico 00918
Telephone: (787) 765-9800
BANCO POPULAR DE PUERTO RICO
Puerto Rico Office
Popular Center
209 Munoz Rivera Avenue
San Juan, Puerto Rico 00918
Telephone: (787) 765-9800
Virgin Islands Office
193 Estate Altona & Welgunst
St. Thomas, Virgin Islands 00802
Telephone: (340) 693-2777
BANCO POPULAR NORTH AMERICA
4000 West North Avenue
Chicago, Illinois 60639
Telephone: (773) 772-8600
BANCO FIDUCIARIO, S.A.
27 de Febrero Ave. #50
Santo Domingo
Republica Doninicana
Telephone: (809) 473-9400
ATH COSTA RICA
Cond. en Oficinas Ofiplaza del Este
Edif D - Piso 1
San Pedro de la Rotonda
dela Bandera
150 metros Oeste
San Jose, Costa Rica
Telephone: (011) 506-280-9796
CREST, S.A.
Costado Este del Banco Central
Calle 2 Entre Ave. Central y Primera
San Jose Centro, Costa Rica
Telephone: (011) 506-257-4112
GM GROUP, INC.
1590 Ponce de Leon Avenue
San Juan, Puerto Rico 00926
Telephone: (787) 751-4343
EQUITY ONE, INC.
Marlton Crossing Office Park
400 Lippincott Drive
Marlton, New Jersey 08053
Telephone: (856) 396-2600
POPULAR MORTGAGE, INC.
268 Ponce de Leon Avenue
San Juan, Puerto Rico 00918
Telephone: (787) 753-0245
LEVITT MORTGAGE
Galeria San Patricio
B-5 Tabonuco St.
Suite 207
Guaynabo, Puerto Rico 00968
Telephone: (787) 749-8787
POPULAR LEASING & RENTAL, INC.
M-1046 Federico Costa St.
Tres Monjltas Industrial
Development
San Juan, Puerto Rico 00903
Telephone: (787) 751-4848
POPULAR LEASING, USA
16296 Westwood
Business Parkdrive
Ellisville, Missouri 63021
Telephone: (609) 273-1119
POPULAR FINANCE, INC.
10 Salud Street
El Senorial Condominium
Suite 613
Ponce, Puerto Rico 00731
Telephone: (787) 844-2860
POPULAR CASH EXPRESS, INC.
6200 North Hiawatha
Suite 200
Chicago, Illinois 60646
Telephone: (773) 205-8300
POPULAR SECURITIES, INC.
Popular Center
209 Munoz Rivera Avenue
Suite 1020
San Juan, Puerto Rico 00918
Telephone: (787) 766-4200
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF POPULAR, INC. FOR THE THREE MONTHS ENDED MARCH 31, 2000
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1,000
<CASH> 606,383
<INT-BEARING-DEPOSITS> 41,692
<FED-FUNDS-SOLD> 850,216
<TRADING-ASSETS> 208,473
<INVESTMENTS-HELD-FOR-SALE> 6,916,382
<INVESTMENTS-CARRYING> 384,365
<INVESTMENTS-MARKET> 379,670
<LOANS> 15,200,931
<ALLOWANCE> 293,442
<TOTAL-ASSETS> 25,302,025
<DEPOSITS> 14,337,861
<SHORT-TERM> 6,397,412
<LIABILITIES-OTHER> 439,991
<LONG-TERM> 2,436,160
0
100,000
<COMMON> 828,254
<OTHER-SE> 754,039
<TOTAL-LIABILITIES-AND-EQUITY> 25,302,025
<INTEREST-LOAN> 376,520
<INTEREST-INVEST> 112,130
<INTEREST-OTHER> 17,151
<INTEREST-TOTAL> 505,801
<INTEREST-DEPOSIT> 122,474
<INTEREST-EXPENSE> 263,561
<INTEREST-INCOME-NET> 242,240
<LOAN-LOSSES> 50,013
<SECURITIES-GAINS> 13,264
<EXPENSE-OTHER> 226,504
<INCOME-PRETAX> 82,945
<INCOME-PRE-EXTRAORDINARY> 64,189
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,189
<EPS-BASIC> 0.46
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.42
<LOANS-NON> 328,799
<LOANS-PAST> 29,434
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 123,206
<ALLOWANCE-OPEN> 292,010
<CHARGE-OFFS> 59,867
<RECOVERIES> 11,286
<ALLOWANCE-CLOSE> 293,442
<ALLOWANCE-DOMESTIC> 269,700
<ALLOWANCE-FOREIGN> 23,742
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
