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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year Ended December 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
Commission File No. 0-13818
POPULAR, INC.
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Incorporated in the Commonwealth of Puerto Rico
IRS Employer Identification No. 66-0416582
Principal Executive Offices:
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209 Munoz Rivera Avenue
Hato Rey, Puerto Rico 00918
Telephone Number: (787) 765-9800
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock ($6.00 par value)
8.35% Non-Cumulative Monthly Income Preferred Stock,
1994 Series A (Liquidation Preference $25.00 Per Share)
Series A Participating Cumulative Preferred Stock Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
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As of February 29, 2000 the Corporation had 135,763,765 shares of common stock
outstanding. The aggregate market value of the common stock held by
non-affiliates of the Corporation was $3,028,890,000 based upon the reported
closing price of $22.31 on the NASDAQ National Market System on that date.
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DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Corporation's Annual Report to Shareholders for the
fiscal year ended December 31, 1999 are incorporated herein by reference in
response to Item 1 of Part I, Items 5 through 8 of Part II and Item 14(a)(1) of
Part IV.
(2) Portions of the Corporation's Proxy Statement relating to the 2000
Annual Meeting of Stockholders of the Corporation are incorporated herein by
reference in response to Items 10 through 13 of Part III.
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TABLE OF CONTENTS
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Page
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PART I
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Item 1 Business 4
Item 2 Properties 13
Item 3 Legal Proceedings 14
Item 4 Submission of Matters to a Vote of Security Holders 14
PART II
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Item 5 Market for Registrant's Common Stock and Related
Stockholder Matters 15
Item 6 Selected Financial Data 16
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 7A Quantitative and Qualitative Disclosures About Market Risk 17
Item 8 Financial Statements and Supplementary Data 17
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 17
PART III
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Item 10 Directors and Executive Officers of the Registrant 17
Item 11 Executive Compensation 17
Item 12 Security Ownership of Certain Beneficial Owners
and Management 17
Item 13 Certain Relationships and Related Transactions 17
PART IV
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Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 18
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PART I
POPULAR, INC.
ITEM 1 BUSINESS
Popular, Inc. (the "Corporation") is a diversified, publicly owned
bank holding company, registered under the Bank Holding Company Act of 1956, as
amended (the "BHC Act") and, accordingly, subject to the supervision and
regulation of the Board of Governors of the Federal Reserve System ("the
Federal Reserve Board"). The Corporation was incorporated in 1984 under the
laws of the Commonwealth of Puerto Rico and is the largest financial
institution in Puerto Rico, with consolidated assets of $25.5 billion, total
deposits of $14.2 billion and stockholders' equity of $1.7 billion at December
31, 1999. Based on total assets at December 31, 1999, the Corporation was the
37th largest bank holding company in the United States.
The Corporation's principal subsidiary, Banco Popular de Puerto Rico
("Banco Popular" or the "Bank"), was incorporated in 1893 and is Puerto Rico's
largest bank with total assets of $18.3 billion, deposits of $10.4 billion and
stockholders' equity of $1.0 billion at December 31, 1999. The Bank accounted
for 72% of the total consolidated assets of the Corporation at December 31,
1999. A consumer-oriented bank, Banco Popular has the largest retail franchise
in Puerto Rico, operating 199 branches and 442 automated teller machines. The
Bank has the largest trust operation in Puerto Rico. The Bank also operates
seven branches in the U.S. Virgin Islands, one branch in the British Virgin
Islands and one branch in New York. Banco Popular's deposits are insured under
the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation
(the "FDIC"). Banco Popular has three subsidiaries, Popular Leasing & Rental,
Inc., Puerto Rico's largest vehicle leasing and daily rental company, Popular
Finance, Inc., a small-loan and second mortgage company with 47 offices in
Puerto Rico, and Popular Mortgage, Inc., a mortgage loan company with 13
offices in Puerto Rico.
The Corporation has three other principal subsidiaries: Popular
Securities, Inc., Popular International Bank, Inc. ("PIB") and GM Group, Inc.
Popular Securities, Inc. is a securities broker-dealer in Puerto Rico with
financial advisory, investment and security brokerage operations for
institutional and retail customers. Popular International Bank, Inc. ("PIB"),
owns all of the outstanding stock of Popular North America, Inc. ("PNA") and
ATH Costa Rica. The latter provides ATM switching and driving services in San
Jose, Costa Rica. In addition, PIB owns 57% of the outstanding stock of Banco
Fiduciario, S. A. ("BF"), a commercial bank in the Dominican Republic with
total assets of $436 million as of December 31, 1999. In July 1999 the
Corporation acquired GM Group, Inc., which provides electronic data processing
and consulting services, sale and rental of electronic data processing
equipment, and sale and maintenance of computer software to clients in ten
countries and through offices in Puerto Rico, Venezuela, Miami and the
Dominican Republic. At December 31, 1999 GM Group, Inc. had total assets of $58
million. In August 1999 the Corporation acquired 85% of Newco Mortgage Holding
Corporation (d/b/a Levitt Mortgage), a mortgage banking organization with
operations in Puerto Rico, as part of the strategic initiative of enhancing its
mortgage business in Puerto Rico. At December 31, 1999, the assets of Levitt
Mortgage totaled $10 million.
PIB is a wholly-owned subsidiary of the Corporation organized in 1992
that operates as an "international banking entity" under the International
Banking Center Regulatory Act of Puerto Rico (the "IBC Act"). PIB is a
registered bank holding company under the BHC Act and is principally engaged in
providing managerial services to its subsidiaries.
PNA, a wholly-owned subsidiary of PIB and an indirect wholly-owned
subsidiary of the Corporation, was organized in 1991 under the laws of the
State of Delaware and is a registered bank holding company under the BHC Act.
PNA functions as a holding company for the Corporation's mainland U.S.
operations. As of December 31, 1999, PNA had four direct subsidiaries, all of
which were wholly-owned: Popular Holdings USA, Inc. ("PHUSA"), the holding
company of Banco Popular North America
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("BPNA") and Banco Popular, N.A. (Texas), Equity One, Inc. a diversified
consumer finance company, Popular Cash Express, Inc., a retail financial
services company and BanPonce Trust 1, a statutory business trust. Banco
Popular, N.A. (Texas) merged with and into BPNA on January 1, 2000.
The banking operations of BPNA in the mainland United States are based
in six states. In New York, BPNA operates 32 branches, which accounted for
aggregate assets of $2.0 billion and total deposits of $1.7 billion at December
31, 1999. BPNA also operates 19 branches in Illinois and 17 in California with
total assets of $1.9 billion and $448 million, respectively, and deposits of
$1.6 billion and $324 million, respectively. In addition, BPNA has 10 branches
in New Jersey with total assets of $440 million and deposits of $354 million as
of December 31, 1999 and eight branches in Florida with aggregate total assets
of $328 million and $132 million in deposits at the same date.
At December 31, 1999, Banco Popular, N.A. (Texas)'s banking operations
had $186 million in assets and $146 million in deposits through five branches.
The deposits of BPNA are insured under BIF by the FDIC.
In addition, BPNA owned all of the outstanding stock of Popular
Leasing, USA, a non-banking subsidiary that offers small ticket equipment
leasing with 10 offices in seven states and total assets of $74 million as of
December 31, 1999.
Equity One, Inc. is engaged in the business of granting personal and
mortgage loans and providing dealer financing through 138 offices in 32 states
with total assets of $1.6 billion as of December 31, 1999. Popular Cash
Express, Inc. offers services such as check cashing, money transfers to other
countries, money order sales and processing of payments through 64 offices and
38 mobile check cashing units in four states in the United States. Its assets
totaled $43 million as of December 31, 1999.
REORGANIZATION
In 1998, the Corporation commenced a program to reorganize and
streamline its operations in the mainland United States. The reorganization
allows the Corporation to take advantage of recent changes in U.S. federal
banking laws involving branch banking across state lines. The reorganization,
which was largely completed on January 1, 1999, was finalized on January 1,
2000 with the merger of Banco Popular, N.A. (Texas) with and into BPNA.
COMPETITION
The business of banking is highly competitive. In addition to
competition from other commercial banks, banks face significant competition
from nonbank financial institutions. Savings associations compete aggressively
with commercial banks for deposits and loans. Credit unions and finance
companies are significant players in the consumer loan market. Investment firms
and retailers are significant competitors for some types of business. Banks
compete for deposits with a broad spectrum of other types of investments such
as mutual funds, stocks and debt securities of corporations, and debt
securities of the federal government, state governments and their respective
agencies. The principal methods of competition for financial services are price
(interest rates paid on deposits, interest rates charged on borrowings, and
fees charged for services) and service (convenience and quality of services
rendered to customers).
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements with respect
to the adequacy of the allowance for loan losses, the Corporation's market risk
and the effect of legal proceedings on the Corporation'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-
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looking statements. With respect to the adequacy of the allowance for loan
losses and market risk, these factors include, among others; the rate of growth
in the economy, the relative strength and weakness in the consumer and
commercial credit sectors and in the real estate markets, the performance of
the stock and bond markets and the magnitude of interest rate changes.
Moreover, the outcome of litigation, as discussed in "Part I, Item 3. Legal
Proceedings" is inherently uncertain and depends on judicial interpretations of
law and the findings of judges and juries.
The Corporation's business is described on pages 1 through 19 of the
Business Review Section of the Annual Report to Shareholders for the year ended
December 31, 1999, which is incorporated herein by reference.
REGULATION AND SUPERVISION
GENERAL
The Corporation, PIB, PNA and PHUSA are bank holding companies subject
to supervision and regulation by the Federal Reserve Board under the BHC Act.
Under the BHC Act prior to recent legislation that significantly altered these
rules, bank holding companies activities and those of their banking and
non-banking subsidiaries have been limited to the business of banking and
activities closely related to banking, and no bank holding company could
directly or indirectly acquire the ownership or control of more than 5% of any
class of voting shares or substantially all of the assets of any company in the
United States, including a bank, without the prior approval of the Federal
Reserve Board. In addition, bank holding companies have generally been
prohibited under the BHC Act from engaging in non-banking activities, subject
to certain exceptions. See "Financial Services Modernization below for
information about the recent legislation that changed these rules."
Banco Popular is considered a foreign bank for purposes of the
International Banking Act of 1978 (the "IBA"). Under the IBA, Banco Popular is
not permitted to operate a branch or agency that is located outside of its
"home state", except to the extent that a national bank with the same home
state is permitted to do so as described under "Interstate Banking and
Legislation" below. Puerto Rico is not considered a state for purposes of these
geographic limitations. Banco Popular has designated the state of New York as
its home state.
Banco Popular and BPNA are subject to supervision and examination by
applicable federal and state banking agencies including, in the case of Banco
Popular, the Federal Reserve Board and the Office of the Commissioner of
Financial Institutions of Puerto Rico and in the case of BPNA, the Federal
Reserve Board and the New York State Banking Department. Banco Popular and BPNA
are subject to requirements and restrictions under federal and state law,
including requirements to maintain reserves against deposits, restrictions on
the types and amounts of loans that may be granted and the interest that may be
charged thereon, and limitations on the types of other investments that may be
made and the types of services that may be offered. Various consumer laws and
regulations also affect the operations of Banco Popular and BPNA. In addition
to the impact of regulations, commercial banks are affected significantly by
the actions of the Federal Reserve Board as it attempts to control the money
supply and credit availability in order to influence the economy. See-
"Financial Services Modernization" below for information about recent
legislation that changed these rules.
On March 9, 2000 Banco Popular entered into an agreement with the
Federal Reserve Bank of New York that imposed a number of compliance, reporting
and control requirements. A substantial portion of the required controls had
been implemented by Banco Popular prior to the date the agreement was signed.
FDICIA
Under the Federal Deposit Insurance Corporation Improvement Act of
1991 and the regulations promulgated thereunder ("FDICIA"), the federal banking
regulators must take prompt corrective action in respect of depository
institutions that do not meet minimum capital requirements. FDICIA establishes
five
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capital tiers: "well capitalized", "adequately capitalized,"
"undercapitalized", "significantly undercapitalized", and "critically
undercapitalized". A depository institution is deemed well capitalized if it
maintains a leverage ratio of at least 5%, a risk-based Tier 1 capital ratio of
at least 6% and a risk-based total capital ratio of at least 10% and is not
subject to any written agreement or directive to meet a specific capital level.
A depository institution is deemed adequately capitalized if it is not well
capitalized but maintains a leverage ratio of at least 4% (or at least 3% if
given the highest regulatory rating and not experiencing or anticipating
significant growth), a risk-based Tier 1 capital ratio of at least 4% and a
risk-based total capital ratio of at least 8%. A depository institution is
deemed undercapitalized if it fails to meet the standards for adequately
capitalized institutions (unless it is deemed significantly or critically
undercapitalized). An institution is deemed significantly undercapitalized if
it has a leverage ratio of less than 3%, a risk-based Tier 1 capital ratio of
less than 3% or a risk-based total capital ratio of less than 6%. An
institution is deemed critically undercapitalized if it has tangible equity
equal to 2% or less of total assets. A depository institution may be deemed to
be in a capitalization category that is lower than is indicated by its actual
capital position if it receives a less than satisfactory examination rating in
any one of four categories.
At December 31, 1999, Banco Popular and BPNA were well capitalized. An
institution's capital category, as determined by applying the prompt corrective
action provisions of law, may not constitute an accurate representation of the
overall financial condition or prospects of the Corporation or its banking
subsidiaries, and should be considered in conjunction with other available
information regarding the Corporation's financial condition and results of
operations.
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
restrictions on borrowing from the Federal Reserve System. In addition,
undercapitalized depository institutions are subject to growth limitations and
are required to submit capital restoration plans. A depository institution's
holding company must guarantee the capital plan, up to an amount equal to the
lesser of 5% of the depository institution's assets at the time it becomes
undercapitalized or the amount of the capital deficiency when the institution
fails to comply with the plan. The federal banking agencies may not accept a
capital plan without determining, among other things, that the plan is based on
realistic assumptions and is likely to succeed in restoring the depository
institution's capital. If a depository institution fails to submit an
acceptable plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions are subject to appointment
of a receiver or conservator.
The capital-based prompt corrective action provisions of FDICIA apply
to FDIC-insured depository institutions such as the subsidiaries of the
Corporation, Banco Popular, BPNA and before January 1, 2000, Banco Popular,
N.A. (Texas), but they are not directly applicable to holding companies such as
the Corporation, PIB, PNA and PHUSA which control such institutions. However,
federal banking agencies have indicated that, in regulating holding companies,
they may take appropriate action at the holding company level based on their
assessment of the effectiveness of supervisory actions imposed upon subsidiary
insured depository institutions pursuant to such provisions and regulations.
HOLDING COMPANY STRUCTURE
Banco Popular and BPNA are subject to restrictions under federal law
that limit the transfer of funds among them and the Corporation, PIB, PNA,
PHUSA and any of the Corporation's other non-banking subsidiaries, whether in
the form of loans, other extensions of credit, investments or asset purchases.
Such transfers by Banco Popular and BPNA to any of the Corporation, PIB, PNA,
PHUSA or any non-banking subsidiaries, are limited in amount to 10% of the
transferring institution's capital stock and surplus and, with respect to the
Corporation and all of its non-banking subsidiaries, to an aggregate of 20% of
the
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transferring institution's capital stock and surplus. For these purposes an
institution's capital stock and surplus includes its total risk-based capital
plus the balance of its allowance for loan losses not included therein.
Furthermore, such loans and extensions of credit are required to be secured in
specified amounts.
Under the Federal Reserve Board policy, a bank holding company such as
the Corporation, PIB, PNA or PHUSA is expected to act as a source of financial
strength to each of its subsidiary banks and to commit resources to support
each subsidiary bank. This support may be required at times when, absent such
policy, the bank holding company might not otherwise provide such support. In
addition, any capital loans by a bank holding company to any of its subsidiary
depository institutions are subordinated in right of payment to deposits and to
certain other indebtedness of such subsidiary depository institution. In the
event of a bank holding company's bankruptcy, any commitment by the bank
holding company to a federal bank regulatory agency to maintain the capital of
a subsidiary depository institution will be assumed by the bankruptcy trustee
and entitled to a priority of payment. Banco Popular and BPNA are currently the
only depository institution subsidiaries of the Corporation, PIB, PNA and
PHUSA.
Because the Corporation, PIB, PNA and PHUSA are holding companies,
their right to participate in the assets of any subsidiary upon the latter's
liquidation or reorganization will be subject to the prior claims of the
subsidiary's creditors (including depositors in the case of subsidiary
depository institutions) except to the extent that the Corporation, PIB, PNA or
PHUSA, as the case may be, may itself be a creditor with recognized claims
against the subsidiary.
Under the Federal Deposit Insurance Act (the "FDIA"), a depository
institution, the deposits of which are insured by the FDIC can be held liable
for any loss incurred by, or reasonably expected to be incurred by, the FDIC in
connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to any
commonly controlled FDIC-insured depository institution "in danger of default".
"Default" is defined generally as the appointment of a conservator or a
receiver, and "in danger of default" is defined generally as the existence of
certain conditions indicating that a default is likely to occur in the absence
of regulatory assistance. Banco Popular and BPNA are both currently
FDIC-insured depository institution subsidiaries of the Corporation. In some
circumstances (depending upon the amount of the loss or anticipated loss
suffered by the FDIC), cross-guarantee liability may result in the ultimate
failure or insolvency of one or more insured depository institutions in a
holding company structure. Any obligation or liability owed by a subsidiary
depository institution to its parent company is subordinated to the subsidiary
bank's cross-guarantee liability with respect to commonly controlled
FDIC-insured depository institutions.
DIVIDEND RESTRICTIONS
The principal source of cash flow for the Corporation is dividends
from Banco Popular. Various statutory provisions limit the amount of dividends
Banco Popular can pay to the Corporation without regulatory approval. As a
member bank subject to the regulation of the Federal Reserve Board, Banco
Popular must obtain the approval of the Federal Reserve Board for any dividend
if the total of all dividends declared by the member bank in any calendar year
would exceed the total of its net profits, as defined by the Federal Reserve
Board, for that year, combined with its retained net profits for the preceding
two years. In addition, a member bank may not pay a dividend in an amount
greater than its undivided profits then on hand after deducting its losses and
bad debts. For this purpose, bad debts are generally defined to include the
principal amount of loans that are in arrears with respect to interest by six
months or more unless such loans are fully secured and in the process of
collection. Moreover, for purposes of this limitation, a member bank is not
permitted to add the balance in its allowance for loan losses account to its
undivided profits then on hand. A member bank may, however, net the sum of its
bad debts, as defined, against the balance in its allowance for loan losses
account and deduct from undivided profits only bad debts, as so defined, in
excess of that account. At December 31, 1999, Banco Popular could have declared
a dividend of approximately $182 million without the approval of the Federal
Reserve Board.
The payment of dividends by Banco Popular and BPNA may also be
affected by other regulatory
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requirements and policies, such as the maintenance of adequate capital. If, in
the opinion of the applicable regulatory authority, a depository institution
under its jurisdiction is engaged in, or is about to engage in, an unsafe or
unsound practice (that, depending on the financial condition of the depository
institution, could include the payment of dividends), such authority may
require, after notice and hearing, that such depository institution cease and
desist from such practice. In addition, all insured depository institutions are
subject to the capital-based limitations required by the FDICIA. See "FDICIA".
See "Puerto Rico Regulation-General" for a description of certain
restrictions on Banco Popular's ability to pay dividends under Puerto Rico law.
FDIC INSURANCE ASSESSMENTS
Banco Popular and BPNA are subject to FDIC deposit insurance
assessments. Pursuant to the FDICIA, the FDIC has adopted a risk-based
assessment system, under which the assessment rate for an insured depository
institution varies according to the level of risk incurred in its activities.
An institution's risk category is based partly upon whether the institution is
well capitalized, adequately capitalized or less than adequately capitalized.
Each insured depository institution is also assigned to one of the following
"supervisory subgroups": "A", "B" or "C". Group "A" institutions are
financially sound institutions with only a few minor weaknesses; Group "B"
institutions are institutions that demonstrate weaknesses that, if not
corrected, could result in significant deterioration; and Group "C"
institutions are institutions for which there is a substantial probability that
the FDIC will suffer a loss in connection with the institution unless effective
action is taken to correct the areas of weakness.
The FDIC reduced the insurance premiums it charges on bank deposits
insured by the BIF to the statutory minimum of $2,000.00 for "well capitalized"
banks, effective January 1, 1996. On September 30, 1996, the Deposit Insurance
Funds Act of 1996 ("DIFA") was signed into law. DIFA repealed the statutory
minimum premium, and currently premiums related to deposits assessed by both
the BIF and the Savings Association Insurance Fund ("SAIF") are to be assessed
at an annual rate of between 0 cents and 27 cents per $100.00 of deposits.
DIFA also separated the Financing Corporation ("FICO") assessment to
service the interest on its bond obligations from the BIF and SAIF assessments.
The amount assessed on individual institutions by the FICO is in addition to
the amount, if any, paid for deposit insurance according to the FDIC's
risk-related assessment rate schedules. The current FICO annual assessment rate
is 2.12 cents per $100 of deposits. As of December 31, 1999, the Corporation
had a BIF deposit assessment base of approximately $14 billion.
BROKERED DEPOSITS
FDIC regulations adopted under the FDICIA govern the receipt of
brokered deposits. Under these regulations, a bank cannot accept, roll over or
renew brokered deposits (which term is defined also to include any deposit with
an interest rate more than 75 basis points above prevailing rates) unless (i)
it is well capitalized or (ii) it is adequately capitalized and receives a
waiver from the FDIC. A bank that is adequately capitalized may not pay an
interest rate on any deposits in excess of 75 basis points over certain
prevailing market rates specified by regulation. There are no such restrictions
on a bank that is well capitalized. The Corporation does not believe the
brokered deposits regulation has had or will have a material effect on the
funding or liquidity of Banco Popular and BPNA.
CAPITAL ADEQUACY
Information about the capital composition of the Corporation as of
December 31, 1999 and for the four previous years is presented in Table H
"Capital Adequacy Data", on page F-14 in the "Management Discussion and
Analysis of Financial Condition and Results of Operations" (MD&A) and is
incorporated herein by reference.
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Under the Federal Reserve Board's risk-based capital guidelines for
bank holding companies and member banks, the minimum guidelines for the ratio
of qualifying total capital ("Total Capital") to risk-weighted assets
(including certain off-balance sheet items, such as standby letters of credit)
is 8%. At least half of the Total Capital is to be comprised of common equity,
retained earnings, minority interest in equity accounts of consolidated
subsidiaries, non-cumulative perpetual preferred stock and a limited amount of
cumulative perpetual preferred stock less goodwill and certain other intangible
assets ("Tier 1 Capital"). The remainder may consist of a limited amount of
subordinated debt, other preferred stock, certain other instruments and a
limited amount of loan and lease loss reserves ("Tier 2 Capital").
In addition, the Federal Reserve Board has established minimum
leverage ratio guidelines for bank holding companies and member banks. These
guidelines provide for a minimum ratio of Tier 1 Capital to total assets, less
goodwill and certain other intangible assets discussed below (the "leverage
ratio") of 3% for bank holding companies and member banks that have the highest
regulatory rating or have implemented the Federal Reserve Board's market risk
capital measure. All other bank holding companies and member banks will be
required to maintain a leverage ratio of 4%. The guidelines also provide that
banking organizations experiencing internal growth or making acquisitions will
be expected to maintain strong capital positions substantially above the
minimum supervisory levels, without significant reliance on intangible assets.
Furthermore, the guidelines indicate that the Federal Reserve Board will
continue to consider a "tangible Tier 1 leverage ratio" and other indicia of
capital strength in evaluating proposals for expansion or new activities. The
tangible Tier 1 leverage ratio is the ratio of a banking organization's Tier 1
Capital less all intangibles, to total assets less all intangibles.
Banco Popular and BPNA are subject to the risk-based and leverage
capital requirements adopted by the Federal Reserve Board. See Consolidated
Financial Statements, Note 18 "Regulatory Capital Requirements" on pages F-49
and F-50, for the capital ratios of the Corporation, Banco Popular and BPNA.
Failure to meet capital guidelines could subject the Corporation and its
depository institutions subsidiaries to a variety of enforcement remedies,
including the termination of deposit insurance by the FDIC and to certain
restrictions on its business. See - "FDICIA".
INTERSTATE BANKING LEGISLATION
The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 permits a bank holding company, with Federal Reserve Board approval, to
acquire banks located in states other than the holding company's home state
without regard to whether the transaction is prohibited under state law. In
addition, national and state banks with different home states are permitted to
merge across state lines, with approval of the appropriate federal banking
agency, unless the home state of a participating bank passed legislation prior
to May 31, 1997 expressly prohibiting interstate mergers. States were allowed
to "opt in" to permit interstate branching by merger prior to June 1, 1997 and
to permit de novo interstate branching. Once a bank has established branches in
a state through an interstate merger transaction, the bank may establish and
acquire additional branches at any location in the state where any bank
involved in the interstate merger transaction could have established or
acquired branches under applicable federal or state law. A bank that has
established a branch in a state through de novo branching may establish and
acquire additional branches in such state in the same manner and to the same
extent as a bank having a branch in such state as a result of an interstate
merger. If a state opted out of interstate branching within the specified time
period, no bank in any other state may establish a branch in the state which
has opted out, whether through an acquisition or de novo. A foreign bank, like
Banco Popular, may branch interstate by merger or de novo to the same extent as
domestic banks in the foreign bank's home state, which, in the case of Banco
Popular, is New York.
FINANCIAL SERVICES MODERNIZATION
On November 12, 1999, the President signed the Gramm-Leach-Bliley Act.
Among other things, the Gramm-Leach-Bliley Act: (i) allows bank holding
companies whose subsidiary depository institutions
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meet management, capital and Community Reinvestment Act standards to engage in
a substantially broader range of nonbanking activities than was previously
permissible, including insurance underwriting and making merchant banking
investments in commercial and financial companies; (ii) allows insurers and
other financial services companies to acquire banks; (iii) removes various
restrictions that previously applied to bank holding company ownership of
securities firms and mutual fund advisory companies; and (iv) establishes the
overall regulatory structure applicable to bank holding companies that also
engage in insurance and securities operations. This part of the
Gramm-Leach-Bliley Act became effective on March 11, 2000.
In order for a bank holding company to engage in the broader range of
activities that are permitted by the Gramm-Leach-Bliley Act. (i) all of its
depository institutions must be well-capitalized and well-managed and (ii) it
must file a declaration with the Federal Reserve Board that it elects to be a
"financial holding company." In addition, to commence any new activity
permitted by the Gramm-Leach-Bliley Act and to acquire any company engaged in
any new activities permitted by the Gramm-Leach-Bliley Act, each insured
depository institution of the financial holding company must have received at
least a "satisfactory" rating in its most recent examination under the
Community Reinvestment Act.
The Gramm-Leach-Bliley Act also modified other laws, including laws
related to financial privacy and community reinvestment. The new financial
privacy provisions generally prohibit financial institutions, including the
Corporation's bank subsidiaries, from disclosing nonpublic personal financial
information to third parties unless customers have the opportunity to "opt out"
of the disclosure.
Various other legislation, including proposals to limit the
investments that a depository institution may make with insured funds, is from
time to time introduced in Congress. The Corporation cannot determine the
ultimate effect that such potential legislation, if enacted, or implementing
regulations, would have upon its financial condition or results of operations.
PUERTO RICO REGULATION
GENERAL
As a commercial bank organized under the laws of Puerto Rico, Banco
Popular is subject to supervision, examination and regulation by the Office of
the Commissioner of Financial Institutions of Puerto Rico (the "Office of the
Commissioner"), pursuant to the Puerto Rico Banking Act of 1933, as amended
(the "Banking Law").
Section 27 of the Banking Law requires that at least ten percent (10%)
of the yearly net income of Banco Popular be credited annually to a reserve
fund. This apportionment must be done every year until the reserve fund is
equal to the total of paid-in capital on common and preferred stock. At the end
of its most recent fiscal year, Banco Popular had a fund established in
compliance with these requirements.
Section 27 of the Banking Law also provides that when the expenditures
of a bank are greater than its receipts, the excess of the former over the
latter must be charged against the undistributed profits of the bank, and the
balance, if any, must be charged against the reserve fund, as a reduction
thereof. If the reserve fund is not sufficient to cover such balance in whole
or in part, the outstanding amount must be charged against the capital account
and no dividend may be declared until said capital has been restored to its
original amount and the reserve fund to 20% of the original capital.
Section 16 of the Banking Law requires every bank to maintain a legal
reserve that, except as otherwise provided by the Office of the Commissioner,
may not be less than 20% of its demand liabilities, excluding government
deposits (federal, state and municipal) which are secured by actual collateral.
If a bank is authorized to establish one or more bank branches in a State of
the United States or in a foreign country, where such branches are subject to
the reserve requirements of that state or country, the Office of the
Commissioner may exempt said branch or branches from the reserve requirements
of Section 16. Pursuant to an order of the Federal Reserve Board dated November
24, 1982, Banco Popular has been
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<PAGE> 12
exempted from the reserve requirements of the Federal Reserve System, with
respect to deposits payable in Puerto Rico.
Section 17 of the Banking Law permits a bank to make loans to any one
person, firm, partnership or corporation, up to an aggregate amount of fifteen
percent 15% of the paid-in capital and reserve fund of the bank. As of December
31, 1999, the legal lending limit for the Bank under this provision was
approximately $91 million. The above limitations do not apply to loans which
are secured by collateral worth at least 25% more than the amount of the loan
up to a maximum aggregate amount of one third of the paid-in capital of the
bank, plus its reserve fund. If the institution is well capitalized and had
been rated 1 in the last examination performed by the Office of the
Commissioner or any regulatory agency, its legal lending limit shall also
include 15% of 50% of its undivided profits and for loans secured by collateral
worth at least 25% more than the amount of the loan, the capital of the bank
shall also include 33 1/3% of 50% of its undivided profits. Institutions rated
2 in their last regulatory examination may include this additional component in
their legal lending limit only with the previous authorization of the Office of
the Commissioner. There are no restrictions under Section 17 on the amount of
loans that are wholly secured by bonds, securities and other evidence of
indebtedness of the Government of the United States or Puerto Rico, or by
current debt bonds, not in default, of municipalities or instrumentalities of
Puerto Rico.
Section 14 of the Banking Law authorizes a bank to conduct certain
financial and related activities directly or through subsidiaries, including
finance leasing of personal property, originating and servicing mortgage loans
and operating a small loan company. Banco Popular engages in these activities
through its wholly-owned subsidiaries, Popular Leasing & Rental, Inc., Popular
Mortgage, Inc. and Popular Finance, Inc., respectively, all of which are
organized and operate in Puerto Rico.
The Finance Board, which is a part of the Office of the Commissioner,
but also includes as its members the Secretary of the Treasury, the Secretary
of Commerce, the Secretary of Consumer Affairs, the President of the Planning
Board, and the President of the Government Development Bank for Puerto Rico,
has the authority to regulate the maximum interest rates and finance charges
that may be charged on loans to individuals and unincorporated businesses in
Puerto Rico. The current regulations of the Finance Board provide that the
applicable interest rate on loans to individuals and unincorporated businesses
(including real estate development loans but excluding certain other personal
and commercial loans secured by mortgages on real estate properties and finance
charges on retail installment sales and for credit card purchases) is to be
determined by free competition.
IBC ACT
Under the IBC Act, without the prior approval of the Office of the
Commissioner, PIB may not amend its articles of incorporation or issue
additional shares of capital stock or other securities convertible into
additional shares of capital stock unless such shares are issued directly to
the shareholders of PIB previously identified in the application to organize
the international banking entity, in which case notification to the Office of
the Commissioner must be given within ten business days following the date of
the issue. Pursuant to the IBC Act, without the prior approval of the Office of
the Commissioner, PIB may not initiate the sale, encumbrance, assignment,
merger or other transfer of shares if by such transaction a person or persons
acting in concert could acquire direct or indirect control of 10% or more of
any class of the PIB's stock. Such authorization must be requested at least 30
days prior to the transaction.
PIB must submit to the Office of the Commissioner a report of its
condition and results of operation on a quarterly basis and its annual audited
financial statement at the close of its fiscal year. Under the IBC Act, PIB may
not deal with "domestic persons" as such term is defined in the IBC Act. Also,
it may only engage in those activities authorized in the IBC Act, the
regulations adopted thereunder and its license.
The IBC Act empowers the Office of the Commissioner to revoke or
suspend, after a hearing, the license of an international banking entity if,
among other things, it fails to comply with the IBC Act,
12
<PAGE> 13
regulations issued by the Office of the Commissioner or the terms of its
license or if the Office of the Commissioner finds that the business of the
international banking entity is conducted in a manner not consistent with the
public interest.
EMPLOYEES
At December 31, 1999, the Corporation employed 11,501 persons. None of
its employees are represented by a collective bargaining group.
SEGMENT DISCLOSURE
Note 27 to the Financial Statements, "Segment Reporting" on pages F-59
and F-60 is herein incorporated by reference.
The principal market for the Corporation is Puerto Rico, where the
Corporation had $18 billion or 72% of its total assets as of December 31, 1999
and earned $1.6 billion or 70% of its total revenues for the year then ended.
Total assets, loans and deposits of commercial banks and financial institutions
in Puerto Rico as of September 30, 1999 were estimated at $74 billion, $36
billion and $32 billion, respectively. At that date the Corporation's
commercial banking operation in the island had an estimated market share of 25%
and 30% in loans and deposits, respectively. As previously mentioned, the
Corporation's leasing operation in Puerto Rico is the largest one in the island
with an estimated 38% market share, while the mortgage and consumer operations
have market shares of approximately 24% and 9%, respectively.
The Corporation has a 57% investment in BF in the Dominican Republic.
As of the December 31, 1999, BF operation had $436 million, $290 million and
$295 million in assets, loans and deposits, respectively, representing
approximately 2% each of the consolidated figures of the Corporation.
ITEM 2. PROPERTIES
As of December 31, 1999, Banco Popular owned (and wholly or partially
occupied) approximately 73 branch premises and other facilities throughout the
Commonwealth and one building in the U.S. Virgin Islands. In addition, as of
such date, Banco Popular leased properties for branch operations in
approximately 130 locations in Puerto Rico and 7 locations in the U.S. Virgin
Islands. At December 31, 1999, BPNA had 112 offices (principally bank branches)
of which 59 were owned and 53 were leased. These offices were located
throughout New York, Illinois, New Jersey, California and Florida. Banco
Popular, N.A. (Texas) had six offices rented and owned one building. The
Corporation's management believes that each of its facilities is well
maintained and suitable for its purpose. The principal properties owned by the
Corporation for banking operations and other services are described below:
Popular Center, the San Juan metropolitan area headquarters, located
at 209 Munoz Rivera Avenue, Hato Rey, Puerto Rico, a 20 story office building.
Approximately 56% of the office space is leased to outside tenants.
Cupey Center Complex, three buildings, one of three stories, and two
of two stories each, located in Cupey, Rio Piedras, Puerto Rico. The computer
center, operational and support services, and a recreational center for
employees are some of the main activities conducted at these facilities. The
facilities are fully occupied by Banco Popular's personnel. An adjacent
two-story building is held for future expansion of the complex and is currently
leased to an outside tenant.
Stop 22 - Santurce building, a twelve-story structure located in
Santurce, Puerto Rico. A branch, the accounting department, the human resources
division and the auditing department are the main activities conducted at this
facility, which is fully occupied by Banco Popular personnel.
Old San Juan building, a twelve-story structure located at Old San
Juan, Puerto Rico. Banco
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<PAGE> 14
Popular occupies approximately 27% of the building for a branch operation, a
regional office, an exhibit room and other facilities. The rest of the building
is rented to outside tenants.
Mortgage Loan Center, a six-story building, a four story building, and
a one story building, located at 153, 167 and 157 Ponce de Leon Avenue, Hato
Rey, Puerto Rico, respectively, are fully occupied by Popular Mortgage, Inc.
and Banco Popular's mortgage servicing departments.
Banco Popular Virgin Islands Center, a three-story building housing a
Banco Popular branch and centralized offices. The building is fully occupied by
Banco Popular personnel.
Dominican Republic building, an eight-story building located at 27 de
febrero Avenue, Santo Domingo. BF's full service branch, the executive offices,
corporate and retail banking division, finance and treasury division, credit
review area and the human resources division, are the main activities conducted
at this facility.
Dominican Republic Parking Lot, a six-story building located at El
Vergel Street #75 in Santo Domingo. This parking lot is used by BF's employees
and customers.
New York building, a nine-story structure with two underground levels
located at 7 West 51st Street, New York City. BPNA occupies approximately 92%
of the office space. The remaining space is rented or available for rent to
outside tenants.
Chicago building, a four-story building located at 4000-4008 West
North Avenue, Chicago, Illinois. BPNA's full service branch, as well as BPNA's
executive offices, human resources division and its operation department, are
the main activities conducted at this facility.
Orlando building, a two-story building located at 5551 Vanguard
Street, Orlando, Florida. BPNA's Credit Card operations, finance and accounting
department and BPNA's operation services are the main activities conducted at
this facility.
Houston building, a one-story building located at 1615 Little York
Road, Houston, Texas. A full service branch of BPNA and its administrative
offices are located at this facility.
ITEM 3. LEGAL PROCEEDINGS
The Corporation and its subsidiaries are defendants in various
lawsuits arising in the ordinary course of business. Management believes, based
on the opinion of legal counsel, that the aggregate liabilities, if any,
arising from such actions would not have a material adverse effect on the
financial position and results of operations of the Corporation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Corporation`s common stock (the "Common Stock") is traded on the
National Association of Securities Dealers Automated Quotation System (NASDAQ)
National Market System under the symbol BPOP. Information concerning the range
of high and low sales prices for the Corporation's common shares
14
<PAGE> 15
for each quarterly period during 1999 and the previous four years, as well as
cash dividends declared is contained under Table I, "Common Stock Performance",
on page F-15 and under the caption "Stockholders' Equity" on page F-14 in the
MD&A, and is incorporated herein by reference.
Information concerning legal or regulatory restrictions on the payment
of dividends by the Corporation and Banco Popular is contained under the
caption "Regulation and Supervision" in Item 1 herein.
As of February 29, 2000, the Corporation had 9,130 stockholders of
record of its Common Stock, not including beneficial owners whose shares are
held in record names of brokers or other nominees. The last sales price for the
Corporation's Common Stock on such date, as quoted on the NASDAQ was $22.31 per
share.
On August 4, 1999, a shelf registration statement filed by the
Corporation, PIB and PNA with the Securities and Exchange Commission became
effective. This shelf registration statement allows the Corporation, PIB and
PNA to issue medium-term notes, debt securities and preferred stock in an
aggregate amount of up to $1.5 billion. On September 7, 1999, PNA issued $250
million aggregate principal amount of medium-term notes due September 15, 2001
under this registration statement. These medium-term notes of PNA are, and any
additional securities of PNA of PIB issued under the registration statement
will be, fully and unconditionally guaranteed by the Corporation.
The Corporation currently has outstanding $125 million aggregate
principal amount of subordinated notes due December 15, 2005 with interest
payable semi-annually at 6.75%. These notes are unsecured, subordinated
obligations which are subordinated in right of payment in full to all present
and future senior indebtedness of the Corporation. These notes do not provide
for any sinking fund.
On February 5, 1997, BanPonce Trust I, a statutory business trust
created under the laws of the State of Delaware that is wholly-owned by PNA and
indirectly wholly-owned by the Corporation, sold to institutional investors
$150,000,000 of its 8.327% Capital Securities Series A (liquidation amount
$1,000 per Capital Security) ("Capital Securities") through certain
underwriters. The proceeds of the issuance, together with the proceeds of the
purchase by PNA of $4,640,000 of BanPonce Trust I's 8.327% common securities
(liquidation amount $1,000 per common security) were used to purchase
$154,640,000 aggregate principal amount of PNA's 8.327% Junior Subordinated
Deferrable Interest Debentures, Series A (the "Junior Subordinated
Debentures"). The 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 I are fully and unconditionally guaranteed by the
Corporation. The assets of BanPonce Trust I consist of $154,640,000 of Junior
Subordinated Debentures and a related accrued interest receivable of $4,292,000
as of December 31, 1999. The Junior Subordinated Debentures mature on February
1, 2027; however, under certain circumstances, the maturity of the Junior
Subordinated Debentures may be shortened (which shortening would result in a
mandatory redemption of the Capital Securities).
The Puerto Rico Internal Revenue Code of 1994, as amended, generally
imposes a withholding tax on the amount of any dividends paid by corporations
to individuals, whether residents of Puerto Rico or not, trusts, estates and
special partnerships at a special 10% withholding tax rate. If the recipient is
a foreign corporation or partnership not engaged in trade or business within
Puerto Rico the withholding tax is also 10%.
Prior to the first dividend distribution for the taxable year,
individuals who are residents of Puerto Rico may elect to be taxed on the
dividends at the regular rates, in which case the special 10% tax will not be
withheld from such year's distributions.
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<PAGE> 16
United States citizen who is non-resident of Puerto Rico will not be
subject to Puerto Rico tax on dividends if said individual's gross income from
sources within Puerto Rico during the taxable year does not exceed $1,300 if
single, or $3,000 if married, and form AS 2732 of the Puerto Rico Treasury
Department,"Withholding Tax Exemption Certificate for the Purpose of Section
1147", is filed with the withholding agent.
U.S. income tax law permits a credit against U.S. income tax
liability, subject to certain limitations, for certain foreign income taxes
paid or deemed paid with respect to such dividends.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item appears in Table C, "Selected
Financial Data", on pages F-4 and F-5 and the text under the caption "Earnings
Analysis" on page F-7 in the MD&A, and is incorporated herein by reference.
The Corporation's ratio of earnings to fixed charges on a consolidated
basis for each of the last five years is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
Ratio of Earnings to Fixed Charges:
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Excluding Interest on Deposits 1.7 1.8 1.8 2.0 2.0
Including Interest on Deposits 1.4 1.4 1.4 1.4 1.4
Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends:
Excluding Interest on Deposits 1.7 1.8 1.8 2.0 2.0
Including Interest on Deposits 1.4 1.4 1.4 1.4 1.4
</TABLE>
For purposes of computing these consolidated ratios, earnings
represent income before income taxes, plus fixed charges. Fixed charges
represent all interest expense (ratios are presented both excluding and
including interest on deposits), the portion of net rental expense which is
deemed representative of the interest factor and the amortization of debt
issuance expense.
The Corporation's long-term senior debt and preferred stock on a
consolidated basis as of December 31 of each of the last five years is:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
(In thousands) 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Long-term obligations $2,127,599 $1,582,161 $1,678,696 $1,111,713 $885,428
Non-Cumulative preferred
stock of the Corporation 100,000 100,000 100,000 100,000 100,000
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by this item appears on page F-2 through F-28
under the caption "MD&A", and is incorporated herein by reference.
Table K, "Maturity Distribution of Earning Assets", on page F-19 in
the MD&A, has been prepared on the basis of expected maturities. The
Corporation does not have a policy with respect to rolling over maturing loans,
but rolls over loans only on a case-by-case basis after review of such loans in
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<PAGE> 17
accordance with the Corporation's lending criteria.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information regarding the market risk of the Corporation's
investments appears on page F-16 through F-18 under the caption " MD&A", and is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item appears on pages F-29 through
F-67, and on page F-28 under the caption "Statistical Summary - Quarterly
Financial Data" in the MD&A and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the captions "Shares Beneficially
Owned by Directors, Nominees and Executive Officers of the Corporation",
"Beneficial Ownership Reporting Compliance", "Board of Directors and
Committees" including the "Nominees for Election as Directors" and "Executive
Officers" of the Corporation's definitive proxy statement to be filed with the
Securities and Exchange Commission on or about March 15, 2000 (the "Proxy
Statement") is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the captions "Executive Compensation Program"
and "Popular, Inc. Performance Graph" of the Proxy Statement is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the captions "Principal Stockholders" and
"Shares Beneficially Owned by Directors, Nominees and Executive Officers of the
Corporation and its Subsidiaries" of the Proxy Statement is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Family Relationships" and "Other
Relationships, Transactions and Events" of the Corporation's Proxy Statement is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. The following financial statements and reports included on pages F-29
through F-67 of the financial review section of the Corporation's
Annual Report to Shareholders, are incorporated herein by reference:
17
<PAGE> 18
(1) Financial Statements:
Report of Independent Accountants
Consolidated Statements of Condition as of December 31, 1999
and 1998
Consolidated Statements of Income for each of the
years in the three-year period ended
December 31, 1999
Consolidated Statements of Cash Flows for each of the years in
the three-year period ended December 31, 1999
Consolidated Statements of Changes in Stockholders' Equity for
each of the years in the three-year period ended December
31, 1999
Consolidated Statements of Comprehensive Income for each of the
years in the three-year period ended December 31, 1999
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules: No schedules are presented
because the information is not applicable or is included in
the Consolidated Financial Statements described in A.1 above
or in the notes thereto.
(3) Exhibits
The exhibits listed on the Exhibits Index on page 21 of this
report are filed herewith or are incorporated herein by
reference.
B. The Corporation filed one report on Form 8-K during the quarter ended
December 31, 1999.
Dated: October 8, 1999
Filed: October 14, 1999
Items reported: Item 5 - Other Events (Operational results for the
quarter and nine month period ended September 30, 1999)
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<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
POPULAR, INC.
(Registrant)
By: /s/ RICHARD L. CARRION
--------------------------------
Richard L. Carrion
Chairman of the Board, President
and Chief Executive Officer
Dated: 02-10-2000 (Principal Executive Officer)
----------
By: /s/ JORGE A. JUNQUERA
--------------------------------
Jorge A. Junquera
Senior Executive Vice President
Dated: 02-10-2000 (Principal Financial Officer)
----------
By: /s/ AMILCAR L. JORDAN
--------------------------------
Amilcar L. Jordan
Senior Vice President
Dated: 02-10-2000 (Principal Accounting Officer)
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ RICHARD L. CARRION Chairman of the Board,
- ------------------------------------ President and Chief
Richard L. Carrion Executive Officer 02-10-2000
--------------
/s/ ALFONSO F. BALLESTER
- ------------------------------------ Vice Chairman of
Alfonso F. Ballester the Board 02-10-2000
--------------
/s/ ANTONIO LUIS FERRE
- ------------------------------------ Vice Chairman of
Antonio Luis Ferre the Board 02-10-2000
--------------
/s/ JUAN J. BERMUDEZ
- ------------------------------------
Juan J. Bermudez Director 02-10-2000
--------------
/s/ FRANCISCO J. CARRERAS
- ------------------------------------
Francisco J. Carreras Director 02-10-2000
--------------
/s/ DAVID H. CHAFEY, JR.
- ------------------------------------
David H. Chafey Jr. Director 02-10-2000
--------------
- ------------------------------------
Luis E. Dubon Jr. Director
--------------
/s/ HECTOR R. GONZALEZ
- ------------------------------------
Hector R. Gonzalez Director 02-10-2000
--------------
/s/ JORGE A. JUNQUERA
- ------------------------------------
Jorge A. Junquera Director 02-10-2000
--------------
/s/ MANUEL MORALES JR
- ------------------------------------
Manuel Morales Jr. Director 02-10-2000
--------------
/s/ ALBERTO M. PARACCHINI
- ------------------------------------
Alberto M. Paracchini Director 02-10-2000
--------------
/s/ FRANCISCO M. REXACH, JR.
- ------------------------------------
Francisco M. Rexach Jr. Director 02-10-2000
--------------
/s/ J. ADALBERTO ROIG, JR.
- ------------------------------------
J. Adalberto Roig Jr. Director 02-10-2000
--------------
</TABLE>
19
<PAGE> 20
<TABLE>
<S> <C> <C>
/s/ FELIX J. SERRALLES JR
- ------------------------------------
Felix J. Serralles Jr. Director 02-10-2000
--------------
/s/ JULIO E. VIZCARRONDO JR
- ------------------------------------
Julio E. Vizcarrondo Jr. Director 02-10-2000
--------------
</TABLE>
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------------------------------------------------------------------
<S> <C>
3.1 Restated Certificate of Incorporation of Popular, Inc., as
amended (English Translation) (incorporated herein by
reference to Exhibit 4(a) to Popular's Registration Statement
No. 333-26941 dated May 12, 1997).
3.2 Bylaws of Popular, Inc., as amended (incorporated herein by
reference to Exhibit 4.2 of Popular's Registration Statement
dated June 8, 1999).
3.3 Form of Certificate representing Popular, Inc.'s common
stock, par value $6.00 (incorporated herein by reference to
Exhibit 4.1 of Popular's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 (File No. 0-13818)).
4.2 Form of Certificate representing the Popular, Inc.'s 8.35%
non-cumulative monthly Income Preferred Stock, 1994 Series
A, Liquidation Preference $25.00 per share.
4.3 Stockholder Protection Rights Agreement, dated as of August
13, 1998, between Popular, Inc. and Banco Popular de Puerto
Rico as Rights Agent, including Form of Rights Certificate
attached as Exhibit B thereto (incorporated herein by
reference to Exhibit 4.1 of Popular's Current Report on Form
8-K (File No. 0-13818), dated August 13, 1998 and filed on
August 21, 1998).
4.4 Certificate of Designation, Preference and Rights of
Popular, Inc.'s Series A Participating Cumulative Preferred
Stock (incorporated herein by reference to Exhibit 99.1 of
Popular's Current Report on Form 8-K dated and filed on
August 3, 1999).
4.5 Indenture, dated February 15, 1995, as supplemented by the
First Supplemental Indenture thereto, dated May 8, 1997,
each between Popular, Inc. and First National Bank of
Chicago, as Trustee (incorporated herein by reference to
Exhibit 4(d) of Popular's Registration Statement No.
333-26941 dated May 12, 1997).
4.6 Second Supplemental Indenture, dated as of August 8, 1999,
to Popular's Indenture, dated as of February 15, 1995, each
between Popular, Inc. and The First National Bank of
Chicago, as Trustee (incorporated herein by reference to
Exhibit 4(e) of Popular's Current Report on Form 8-K (File
No. 0-13818), dated August 5, 1999 and filed on August 17,
1999).
4.7 Subordinated Indenture dated as of November 30, 1995,
between Popular, Inc. and First National Bank of Chicago, as
Trustee (incorporated herein by reference to Exhibit 4(e) of
Popular's Registration Statement No. 333-26941, dated May
12, 1997).
4.8 Indenture, dated as of October 1, 1991, among Popular North
America, Inc., Popular, Inc., as Guarantor, and The First
National Bank of Chicago, as Trustee, as supplemented by the
First Supplemental Indenture thereto, dated February 28,
1995, and by the Second Supplemental Indenture thereto,
dated as of May 8, 1997 (incorporated herein by reference to
Exhibit 4(f) of Popular's Registration Statement No.
333-26941, dated May 12, 1997).
4.9 Third Supplemental Indenture to Popular's Indenture dated as
of October 1, 1991, dated as of August 8, 1999, among
Popular North America, Inc., Popular, Inc. as Guarantor, and
The First National Bank of Chicago, as Trustee (incorporated
herein by reference to Exhibit 4(h) of Popular's Current
Report on Form 8-K (File No. 0-13818), dated August 5, 1999
and filed on August 17, 1999).
4.10 Form of Subordinated Note of Popular, Inc. (incorporated
herein by reference to Exhibit 4(p) of Popular's Current
Report on Form 8-K (File No. 0-13818), dated December 7, 1995
and filed on December 13, 1995).
4.11 Form of Fixed Rate Medium-Term Note, Series 3, of Popular,
Inc. (incorporated herein by reference to Exhibit 4(l) of
Popular's Current Report on Form 8-K (File No. 0-13818),
dated May 23, 1997 and filed on June 11, 1997).
</TABLE>
21
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4.12 Form of Floating Rate Medium-Term Note, Series 3, of
Popular, Inc. (incorporated herein by reference to Exhibit
4(m) of Popular's Current Report on Form 8-K (File No.
0-13818), dated May 23, 1997 and filed on June 11, 1997).
4.13 Form of Fixed Rate Medium-Term Note, Series D, of Popular
North America, Inc., guaranteed by Popular, Inc.
(incorporated herein by reference to Exhibit 4(n) of
Popular's Current Report on Form 8-K (File No. 0-13818),
dated May 23, 1997 and filed on June 11, 1997).
4.14 Form of Floating Rate Medium-Term Note, Series D, of Popular
North America, Inc., guaranteed by Popular, Inc.
(incorporated herein by reference to Exhibit 4(o) of
Popular's Current Report on Form 8-K (File No. 0-13818),
dated May 23, 1997 and filed on June 11, 1997).
4.15 Form of Fixed Rate Medium-Term Note, Series 4, of Popular,
Inc. (incorporated herein by reference to Exhibit 4(o) of
Popular's Current Report on Form 8-K (File No. 0-13818),
dated August 5, 1999 and filed on August 17, 1999).
4.16 Form of Floating Rate Medium-Term Note, Series 4, of
Popular, Inc. (incorporated by reference to Exhibit (4)(p)
of Popular's Current Report on Form 8-K (File No. 0-13818),
dated August 5, 1999 and filed August 17, 1999).
4.17 Form of Fixed Rate Medium-Term Note, Series E, of Popular
North America, Inc., endorsed with the guarantee of Popular,
Inc. (incorporated herein by reference to Exhibit 4(q) of
Popular's Current Report on Form 8-K (File No. 0-13818),
dated August 5, 1999 and filed on August 17, 1999).
4.18 Form of Floating Rate Medium-Term Note, Series E, of Popular
North America, Inc., endorsed with the guarantee of Popular,
Inc. (incorporated herein by reference to Exhibit 4(r) of
Popular's Current Report on Form 8-K (File No. 0-13818),
dated August 5, 1999 and filed on August 17, 1999).
4.19 Administrative Procedures governing Medium-Term Notes,
Series 4, of Popular, Inc. (incorporated herein by reference
to Exhibit 10(a) of Popular's Current Report on Form 8-K
(File No. 0-13818), dated August 5, 1999 and filed on August
17, 1999).
4.20 Administrative Procedures governing Medium-Term Notes,
Series E, of Popular North America, Inc., guaranteed by
Popular, Inc. (incorporated herein by reference to Exhibit
10(b) of Popular's Current Report on Form 8-K (File No.
0-13818), dated August 5, 1999 and filed on August 17,
1999).
10.1 Annual Management Incentive Compensation Plan for certain
Division Supervisors approved in January, 1987 (incorporated
herein by reference to Exhibit 10.8 of Popular's Annual
Report on Form 10-K for the fiscal year ended December 31,
1998 (File No. 0-13818)).
10.2 Amendment to Popular, Inc. Senior Executive Long-Term
Incentive Plan, dated April 23, 1998 (incorporated herein by
reference to Exhibit 10.8.2. of Popular's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 (File
No. 0-13818)).
10.3 Stock Deferment Plan for Popular's outside directors,
effective August 15, 1996 (incorporated herein by reference
to Exhibit 10.9 of Popular's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 (file No. 0-13818)).
10.4 Amended and Restated 364-day Credit Agreement dated as of
October 18, 1999 among Popular, Inc. and Popular North
America, Inc., the lenders named therein and The Chase
Manhattan Bank as Administrative Agent for an aggregate
principal amount of $445,000,000.
10.5 Interest Calculation Agency Agreement, dated as of August 6,
1999, between Popular, Inc. and The First National Bank of
Chicago (incorporated herein by reference to Exhibit 10(c)
of Popular's Current Report on Form 8-K (File No. 0-13818),
dated August 5, 1999 and filed on August 17, 1999).
10.6 Interest Calculation Agency Agreement, dated as of August 6,
1999, between Popular North America, Inc. and The First
National Bank of Chicago (incorporated herein by reference
to Exhibit 10(d) of Popular's Current Report on Form 8-K
(File No. 0-13818), dated August 5, 1999 and filed on August
17, 1999).
10.7 Distribution Agreement, dated October 6, 1995, among
BanPonce Corporation, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, CS First Boston Corporation and First Chicago
Capital Markets, Inc. (incorporated herein by reference to
Exhibit 1(b) of BanPonce's Current Report on Form 8-K (File
No. 0-13818), dated and filed on October 6, 1995).
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22
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10.8 Amendment No. 1, dated May 23, 1997, to the Distribution
Agreement, dated October 6, 1995, among Popular, Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Chase
Securities Inc., Credit Suisse First Boston Corporation and
First Chicago Capital Markets, Inc. (incorporated herein by
reference to Exhibit 1(c) of Popular's Current Report on
Form 8-K (File No. 0-13818), dated May 23, 1997, and filed
on June 11, 1997).
10.9 Amendment No. 2, dated August 6, 1999, to the Distribution
Agreement, dated October 6, 1995, among Popular, Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit
Suisse First Boston Corporation, Chase Securities Inc. and
Popular Securities, Inc. (incorporated herein by reference
to Exhibit 1(d) of Popular's Current Report on Form 8-K
(File No. 0-13818), dated August 5, 1999 and filed on August
17, 1999).
10.10 Distribution Agreement, dated October 11, 1991, among
BanPonce Financial Corp., BanPonce Corporation, Merrill
Lynch, Pierce, Fenner & Smith Incorporated and The First
Boston Corporation (incorporated herein by reference to
Exhibit 1(d) of Popular's Current Report on Form 8-K (File
No. 0-13818), dated May 23, 1997 and filed on June 11,
1997).
10.11 Amendment No. 1, dated December 2, 1993, to the Distribution
Agreement, dated October 11, 1991, among BanPonce Financial
Corp., BanPonce Corporation, Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Credit Suisse First Boston
Corporation (incorporated herein by reference to Exhibit
1(d) of Popular's Current Report on Form 8-K (File No.
0-13818), dated May 23, 1997 and filed on June 11, 1997).
10.12 Amendment No. 2, dated October 6, 1995, to the Distribution
Agreement, dated October 11, 1991, as amended on December 2,
1993, and supplemented on June 16, 1993 and August 1, 1994,
among BanPonce Financial Corp., BanPonce Corporation,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, CS First
Boston Corporation and First Chicago Capital Markets, Inc.
(incorporated herein by reference to Exhibit 1(c) of
BanPonce's Current Report on Form 8-K (File No. 0-13818),
dated and filed on October 6, 1995).
10.13 Amendment No. 3, dated May 23, 1997, to the Distribution
Agreement, dated October 11, 1991, among Popular North
America, Inc., Popular, Inc., Merrill Lynch, Pierce, Fenner
& Smith Incorporated, Chase Securities Inc., Credit Suisse
First Boston Corporation and First Chicago Capital Markets,
Inc. (incorporated herein by reference to Exhibit 1(d) of
Popular's Current Report on Form 8-K (File No. 0-13818),
dated May 23, 1997 and filed on June 11, 1997).
10.14 Amendment No. 4, dated August 6, 1999, to the Distribution
Agreement, dated October 6, 1991, among Popular North
America, Inc., Popular, Inc., Merrill Lynch, Pierce, Fenner
& Smith Incorporated, Credit Suisse First Boston
Corporation, Chase Securities Inc. and Popular Securities,
Inc. (incorporated herein by reference to Exhibit 1(i) of
Popular's Current Report on Form 8-K (File No. 0-13818),
dated August 5, 1999 and filed on August 17, 1999).
12.1 Computation of Ratio of Earnings to Fixed Charges.
13.1 Popular's Annual Report to Shareholders for the year ended
December 31, 1999.
21.1 Schedule of Subsidiaries of Popular, Inc.
23.1 Consents of Independent Accountants.
27.1 Financial Data Schedule.
99.1 Popular's Proxy Statement for the April 25, 2000 Annual
Meeting of Stockholders. Popular, Inc. hereby agrees to
furnish upon request to the Commission a copy of each
instrument defining the rights of holders of senior and
subordinated debt of Popular, Inc., or of any of its
consolidated subsidiaries.
</TABLE>
23
<PAGE> 1
EXHIBIT 4.2
POPULAR, INC.
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF PUERTO RICO
THIS CERTIFICATE IS TRANSFERABLE IN SAN JUAN, PUERTO RICO
NUMBER SHARES
001679
STOCKHOLDER NO. 8.35% NON-CUMULATIVE MONTHLY
INCOME PREFERRED STOCK 1994
SERIES A
CUSIP 733174 20 5
This is to certify that
SPECIMEN
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE 8.35% NON-CUMULATIVE MONTHLY INCOME
PREFERRED STOCK, 1994 SERIES A OF
POPULAR, INC., transferable only on the books of the Corporation by the
holder hereof in person or by its duly authorized attorney upon surrender
of this Certificate properly endorsed. The designations, preferences,
limitations, and relative rights of the 8.35% Non-Cumulative Monthly Income
Preferred Stock, 1994 Series A, are fixed in the Certificate of
Incorporation and the Certificate of Resolution filed in the Department of
State of the Commonwealth of Puerto Rico.
IN WITNESS WHEREOF, the seal of the Corporation is affixed to
this Certificate and is signed by duly authorized officers of the
Corporation.
POPULAR, INC. by
----------------------------------------
Authorized Officer
Date
----------------------------------------
Authorized Officer
<PAGE> 2
TRANSFER
The signature on this transfer must correspond exactly with the name on the
certificate, without changes or abbreviations of any kind.
For value received, I (we) hereby sell and transfer to (Print Name, Address,
Postal Zip Code and Social Security or Taxpayer Number of transferee, and
number of shares transferred):
- --------------------------------------------------------------------------------
shares of the 8.35% NON-CUMULATIVE MONTHLY INCOME PREFERRED STOCK, 1994 SERIES A
represented by this certificate, and do hereby irrevocably appoint and
constitute
- --------------------------------------------------------------------------------
attorney to transfer the said shares on the books of the Corporation, with full
power of substitution on the premises to that effect.
Signed ___________________ Signature guaranteed by ________________ Date ______
(Signature must be guaranteed by a bank, trust company, or firm that is a
member of a registered national securities exchange or of the National
Association of Securities Dealers.)
- --------------------------------------------------------------------------------
The following description of the terms of the 8.35% Non-Cumulative
Monthly Income Preferred Stock, 1994 Series A (the "Series A Preferred Stock")
of Popular, Inc. (the "Corporation") does not purport to be complete and is
subject to and qualified in its entirety by reference to Article Five of the
Certificate of Incorporation of the Corporation and the Certificate of
Resolution of the Series A Preferred Stock, copies of which are filed with the
Department of State of Puerto Rico.
A. DESIGNATION. The shares of such series of Preferred Stock shall
be designated as the "8.35% Non-Cumulative Monthly Income Preferred Stock, 1994
Series A".
B. DIVIDENDS. 1. Holders of record of the Series A Preferred Stock
will be entitled to receive, when, as and if declared by the Board of Directors
of the Corporation, out of funds of the Corporation legally available therefor,
non-cumulative cash dividends at the annual rate per share of 8.35% of the
liquidation preference of $25 per share, or $0.173958 per share per month.
2. Dividends on the Series A Preferred Stock will accrue from
their date of original issuance and will be payable (when, as and if declared
by the Board of Directors of the Corporation out of funds of the Corporation
legally available therefor) monthly in arrears in United States dollars
commencing on July 31, 1994, and on the last day of each calendar month of each
year thereafter to the holders of record of the Series A Preferred Stock as
they appear on the books of the Corporation on the second Business Day (as
defined below) immediately preceding the relevant date of payment.
3. Dividends on the Series A Preferred Stock will be
non-cumulative. The Corporation is not obligated or required to declare or pay
dividends on the Series A Preferred Stock, even if it has funds available for
the payment of such dividends. If the Board of Directors of the Corporation or
an authorized committee thereof does not declare a dividend payable on a
dividend payment date in respect of the Series A Preferred Stock, then the
holders of the Series A Preferred Stock shall have no right to receive a
dividend in respect of the monthly dividend period ending on such dividend
payment date.
4. The amount of dividends payable for any monthly dividend
period will be computed on the basis of twelve 30-day months and a 360-day
year. The amount of dividends payable for any period shorter than a full
monthly dividend period will be computed on the basis of the actual number of
days elapsed in such period.
5. Subject to any applicable fiscal or other laws and
regulations, each dividend payment will be made by dollar check drawn on a
bank in New York, New York or San Juan, Puerto Rico and mailed to the record
holder thereof at such holder's address as it appears on the register for
such Series A Preferred Stock.
6. So long as any shares of the Series A Preferred Stock remain
outstanding, the Corporation shall not declare, set apart, or pay any dividend,
or make any other distribution of assets (other than dividends paid or other
distributions made in stock of the Corporation ranking junior to the Series A
Preferred Stock as to the payment of dividends and as to the distribution of
assets upon liquidation, dissolution, or winding up of the Corporation) on, or
redeem, purchase, set apart, or otherwise acquire (except upon conversion or
exchange for stock of the Corporation ranking junior to the Series A Preferred
Stock as to the payment of dividends and as to the distribution of assets upon
liquidation, dissolution, or winding up of the Corporation), shares of common
stock or any other class of stock of the Corporation ranking junior to the
Series A Preferred Stock as to the payment of dividends or as to the
distribution of assets upon liquidation, dissolution, or winding up of the
Corporation, unless (i) all accrued and unpaid dividends on the Series A
Preferred Stock for the twelve monthly dividend periods ending on the
immediately preceding dividend payment date shall have been paid or are paid
contemporaneously and the full monthly dividend on the Series A Preferred Stock
for the then current month has been or is contemporaneously declared and paid or
declared and set apart for payment and (ii) the Corporation has not defaulted in
the payment of the redemption price of any shares of Series A Preferred Stock
called for redemption.
7. When dividends are not paid in full on the Series A Preferred
Stock and any other shares of stock of the Corporation ranking on a parity as
to the payment of dividends with the Series A Preferred Stock, all dividends
declared upon the Series A Preferred Stock and any such other shares of stock
of the Corporation will be declared pro rata so that the amount of dividends
declared per share on the Series A Preferred Stock and any such other shares of
stock will in all cases bear to each other the same ratio that the liquidation
preference per share of the Series A Preferred Stock and any such other shares
of stock bear to each other.
8. Holders of record of the Series A Preferred Stock will not be
entitled to any dividend, whether payable in cash, property or stock, in excess
of the dividends provided for herein on the shares of Series A Preferred Stock.
C. CONVERSION; EXCHANGE. The Series A Preferred Stock will not be
convertible into or exchangeable for any other securities of the Corporation.
D. REDEMPTION AT THE OPTION OF THE CORPORATION. 1. The shares of
the Series A Preferred Stock are not redeemable prior to June 30, 1994. On
and after that date, the shares of the Series A Preferred Stock will be
redeemable in whole or in part from time to time at the option of the
Corporation, upon not less than thirty nor more than sixty days' notice by
mail, at the following redemption prices, during the twelve-month periods
beginning on June 30 of the following years, plus accrued and unpaid
dividends for the then current monthly dividend period to the date fixed for
redemption: 1998... $26.25; 1999...$26.00; 2000...$25.75; 2001...$25.50; 2002
and thereafter...$25.00.
2. In the event that less than all of the outstanding shares of
the Series A Preferred Stock are to be redeemed in any redemption at the option
of the Corporation, the total number of shares to be redeemed in such
redemption shall be determined by the Board of Directors and the shares to be
redeemed shall be allocated pro rata or by lot as may be determined by the
Board of Directors or by such other method as the Board of Directors may
approve and deem equitable.
3. Notice of any proposed redemption shall be given by the
Corporation by mailing a copy of such notice to the holders of record of the
shares of Series A Preferred Stock to be redeemed, at their address of record,
not more than sixty days nor less than thirty days prior to the redemption date.
4. Notice having been mailed as aforesaid, from and after the
redemption date (unless default be made in the payment of the redemption
price for any shares to be redeemed), all dividends on the shares of Series A
Preferred Stock called for redemption shall cease to accrue and all rights of
the holders of such shares as stockholders of the Corporation by reason of
the ownership of such shares (except the right to receive the redemption
price, on presentation and surrender of the respective certificates
representing the redeemed shares), shall cease on the redemption date.
5. At its option, the Corporation may, on or prior to the
redemption date, irrevocably deposit the aggregate amount payable upon
redemption of the shares of the Series A Preferred Stock to be redeemed with a
bank or trust company designated by the Corporation (the "Depositary") to be
held in trust by the Depositary for payment to the holders of the shares of the
Series A Preferred Stock then to be redeemed. If such deposit is made and the
funds so deposited are made immediately available to the holders of the shares
of the Series A Preferred Stock to be redeemed, the Corporation shall thereupon
be released and discharged (subject to the provisions of Section D.6) from any
obligation to make payment of the amount payable upon redemption of the shares
of the Series A Preferred Stock to be redeemed, and the holders of such shares
shall look only to the Depositary for such payment.
6. Any funds remaining unclaimed at the end of two years from and
after the redemption date in respect of which such funds were deposited shall be
returned to the Corporation forthwith and thereafter the holders of shares of
the Series A Preferred Stock called for redemption with respect to which such
funds were deposited shall look only to the Corporation for the payment of the
redemption price thereof. Any interest accrued on any funds deposited with the
Depositary shall belong to the Corporation and shall be paid to it from time to
time on demand.
E. LIQUIDATION PREFERENCE. 1. Upon any voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation, the then record
holders of shares of Series A Preferred Stock will be entitled to receive out of
the assets of the Corporation available for distribution to shareholders,
distributions upon liquidation in the amount of $25 per share plus an amount
equal to any accrued and unpaid dividends for the current monthly dividend
period to the date of payment.
2. If upon any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the amounts payable with respect to the
Series A Preferred Stock and any other shares of stock of the Corporation
ranking as to any such distribution on a parity with the Series A Preferred
Stock are not paid in full, the holders of the Series A Preferred Stock and of
such other shares will share ratably in any such distribution of assets of the
Corporation in proportion to the full liquidation preferences to which each is
entitled. After payment of the full amount of the liquidation preference to
which they are entitled, the holders of shares of Series A Preferred Stock will
not be entitled to any further participation in any distribution of assets of
the Corporation.
3. If the assets distributable upon any dissolution, liquidation,
or winding up of the Corporation shall be insufficient to permit the payment to
the holders of the Series A Preferred Stock of the full preferential amounts
aforesaid, then such assets or the proceeds thereof shall be distributed among
the holders of the Series A Preferred Stock ratably in proportion to the
respective amounts the holders of such shares of stock would be entitled to
receive if they were paid the full preferential amounts aforesaid.
F. VOTING RIGHTS. 1. Except as described in this Section F, or
except as required by applicable law, holders of the Series A Preferred Stock
will not be entitled to receive notice of or attend or vote at any meeting of
stockholders of the Corporation.
2. If the Corporation does not pay dividends in full on the Series
A Preferred Stock for eighteen consecutive monthly dividend periods, the holders
of outstanding shares of the Series A Preferred Stock, together with the holders
of any other shares of stock of the Corporation having the right to vote for the
election of directors solely in the event of any failure to pay dividends,
acting as a single class without regard to series, will be entitled, by written
notice to the Corporation given by the holders of a majority in liquidation
preference of such shares or by ordinary resolution passed by the holders of a
majority in liquidation preference of such shares present in person or by proxy
at a separate general meeting of such holders convened for the purpose, to
appoint two additional members of the Board of Directors of the Corporation, to
remove any such member from office and to appoint another person in place of
such member. Not later than thirty days after such entitlement arises, if
written notice by a majority of the holders of such shares has not been given as
provided for in the preceding sentence, the Board of Directors or an authorized
committee thereof will convene a separate general meeting for the above purpose.
If the Board of Directors or such authorized committee fails to convene such
meeting within such thirty-day period, the holders of 10% of the outstanding
shares of the Series A Preferred Stock and any such other stock will be entitled
to convene such meeting. The provisions of the Certificate of Incorporation and
By-laws of the Corporation relating to the convening and conduct of general
meetings of stockholders will apply with respect to any such separate general
meeting. Any member of the Board of Directors so appointed shall vacate office
if, following the event which gave rise to such appointment, the Corporation
shall have resumed the payment of dividends in full on the Series A Preferred
Stock and each such other series of stock for twelve consecutive monthly
dividend periods.
3. Any variation or abrogation of the rights, preferences, and
privileges of the Series A Preferred Stock by way of amendment of the
Corporation's Certificate of Incorporation or otherwise (including, without
limitation, the authorization or issuance of any shares of the Corporation
ranking, as to dividend rights or rights on liquidation, winding up and
dissolution, senior to the Series A Preferred Stock) shall not be effective
(unless otherwise required by applicable law) except with the consent in
writing of the holders of at least two-thirds of the outstanding shares of the
Series A Preferred Stock or with the sanction of a special resolution passed at
a separate general meeting by the holders of at least two-thirds in liquidation
preference of the outstanding shares of the Series A Preferred Stock.
Notwithstanding the foregoing, the Corporation may, without the consent or
sanction of the holders of the Series A Preferred Stock, authorize and issue
shares of the Corporation ranking, as to dividend rights and rights on
liquidation, winding up, and dissolution, on a parity with or junior to the
Series A Preferred Stock.
G. RANK. The Series A Preferred Stock will, with respect to dividend
rights and rights on liquidation, winding up, and dissolution, rank (i) senior
to all classes of common stock of the Corporation, to the Corporation's
Series A Participating Cumulative Preferred Stock and to all other equity
securities issued by the Corporation, the terms of which specifically provide
that such equity securities will rank junior to the Series A Preferred Stock
(or to all series of the Preferred Stock in general); (ii) on a parity with all
equity securities issued by the Corporation, the terms of which specifically
provide that such equity securities will rank on a parity with the Series A
Preferred Stock (or to all series of the Preferred Stock in general); and
(iii) junior to all equity securities issued by the Corporation, the terms of
which specifically provide that such equity securities will rank senior to the
Series A Preferred Stock (or to all series of the Preferred Stock in general).
For this purpose, the term "equity securities" does not include debt securities
convertible into or exchangeable for equity securities.
H. FORM OF CERTIFICATE FOR SERIES A PREFERRED STOCK; TRANSFER AND
REGISTRATION. 1. The Series A Preferred Stock shall be issued in registered
form only. The Corporation may treat the record holder of a share of Series A
Preferred Stock, including the Depository Trust Company and its nominee and any
other holder that holds such share on behalf of any other person, as such
record holder appears on the books of the registrar for the Series A Preferred
Stock, as the sole owner of such share for all purposes.
2. The transfer of a share of Series A Preferred Stock may be
registered upon the surrender of the certificate evidencing the share of
Series A Preferred Stock to be transferred, together with the form of transfer
endorsed on it duly completed and executed, at the office of the transfer
agent and registrar.
3. Registration of transfers of shares of Series A Preferred
Stock will be effected without charge by or on behalf of the Corporation, but
upon payment (or the giving of such indemnity as the transfer agent and
registrar may require) in respect of any tax or other governmental charges
which may be imposed in relation to it.
I. NO PREEMPTIVE RIGHTS. Holders of the Series A Preferred Stock will
have no preemptive rights to purchase any securities of the Corporation.
J. NO REPURCHASE AT THE OPTION OF THE HOLDERS; MISCELLANEOUS.
Holders of the Series A Preferred Stock will have no right to require the
Corporation to repurchase any shares of Series A Preferred Stock, and the
shares of Series A Preferred Stock are not subject to any sinking fund or
similar obligation. The Corporation may, at its option, purchase shares of
the Series A Preferred Stock from holders thereof from time to time, by
tender, in privately negotiated transactions or otherwise.
<PAGE> 1
EXHIBIT 10.4
EXECUTION COPY
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AMENDED AND RESTATED 364-DAY CREDIT AGREEMENT
Dated as of October 18, 1999
among
POPULAR, INC.,
POPULAR NORTH AMERICA, INC.,
THE LENDERS NAMED HEREIN
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
CHASE SECURITIES, INC.
as advisor, arranger and book manger
- --------------------------------------------------------------------------------
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TABLE OF CONTENTS
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Article Section Page Page
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I. DEFINITIONS................................................................... 1
1.01. Defined Terms ................................................. 1
1.02. Terms Generally ............................................... 11
1.03. Certain Date References........................................ 12
II. THE CREDITS ................................................................... 12
2.01. Commitments.................................................... 12
2.02. Loans ......................................................... 12
2.03. Competitive Bid Procedure ..................................... 13
2.04. Borrowing Procedure ........................................... 15
2.05. Interest Elections ............................................ 16
2.06. Evidence of Debt;
Repayment of Loans.................................... 17
2.07. Fees .......................................................... 18
2.08. Interest on Loans ............................................. 18
2.09. Default Interest .............................................. 19
2.10. Alternate Rate of Interest .................................... 19
2.11. Termination and Reduction of
Commitments........................................... 19
2.12. Prepayment .................................................... 20
2.13. Reserve Requirements; Change
in Circumstances...................................... 20
2.14. Change in Legality ............................................ 21
2.15. Indemnity ..................................................... 22
2.16. Pro Rata Treatment ............................................ 22
2.17. Sharing of Setoffs ............................................ 23
2.18. Payments ...................................................... 23
2.19. Taxes ......................................................... 24
2.20. Assignment of Commitments
Under Certain Circumstances........................... 26
2.21. Cross Guaranty................................................. 27
2.22. Extension of Termination Date.................................. 28
2.23. Increase in Commitments........................................ 29
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III. REPRESENTATIONS AND WARRANTIES................................................. 30
3.01. Organization; Powers .......................................... 30
3.02. Authorization ................................................. 30
3.03. Enforceability ................................................ 31
3.04. Governmental Approvals ........................................ 31
3.05. Financial Statements .......................................... 31
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3.06. No Material Adverse Change..................................... 31
3.07. Title to Properties; Possession
Under Leases.......................................... 31
3.08. Subsidiaries................................................... 31
3.09. Litigation; Compliance
with Laws............................................. 32
3.10. Agreements..................................................... 32
3.11. Federal Reserve Regulations.................................... 32
3.12. Investment Company Act; Public
Utility Holding Company Act........................... 32
3.13. Use of Proceeds................................................ 32
3.14. Tax Returns.................................................... 32
3.15. No Material Misstatements...................................... 33
3.16. Employee Benefit Plans......................................... 33
3.17. Environmental and Safety
Matters............................................... 33
3.18. Capital Commitments............................................ 33
3.19. Year 2000...................................................... 33
IV. CONDITIONS OF LENDING ......................................................... 34
4.01. All Credit Events ............................................. 34
4.02. First Credit Event ............................................ 34
V. AFFIRMATIVE COVENANTS.......................................................... 35
5.01. Existence; Businesses and
Properties............................................ 35
5.02 Insurance...................................................... 36
5.03 Obligations and Taxes.......................................... 36
5.04. Financial Statements, Reports,
etc................................................... 36
5.05. Litigation and Other Notices .................................. 37
5.06. Employee Benefits.............................................. 38
5.07. Maintaining Records; Access to
Properties and Inspections.................................. 38
5.08 Use of Proceeds................................................ 38
5.09 Continuance of Business........................................ 38
5.10 Compliance with Regulatory
Standards............................................. 38
5.11 Capital Requirements........................................... 39
VI. NEGATIVE COVENANTS............................................................. 39
6.01. Liens ...................................................... 39
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
6.02. Sale and Lease-Back
Transactions.......................................... 40
6.03. Mergers, Consolidations, Sales
of Assets ............................................ 40
6.04 Business of Borrowers and
Subsidiaries.......................................... 40
6.05 Consolidated Tangible
Net Worth............................................. 40
6.06 Ratio of Long-Term Indebtedness
to Total Capitalization............................... 41
6.07 Non-Performing Assets.......................................... 41
6.08 Double Leverage................................................ 41
VII. EVENTS OF DEFAULT.............................................................. 41
VIII. THE ADMINISTRATIVE AGENT....................................................... 43
IX. MISCELLANEOUS ................................................................. 45
9.01. Notices ....................................................... 45
9.02. Survival of Agreement ......................................... 46
9.03. Binding Effect ................................................ 46
9.04. Successors and Assigns ........................................ 46
9.05. Expenses; Indemnity ........................................... 48
9.06. Right of Setoff................................................ 49
9.07. Applicable Law ................................................ 49
9.08. Waivers; Amendment ............................................ 49
9.09 Interest Rate Limitation....................................... 50
9.10. Entire Agreement .............................................. 50
9.11. WAIVER OF JURY TRIAL........................................... 50
9.12. Severability .................................................. 51
9.13. Counterparts .................................................. 51
9.14. Headings ...................................................... 51
9.15. Jurisdiction; Consent to
Service of Process.................................... 51
9.16 Confidentiality................................................ 51
</TABLE>
<PAGE> 6
EXHIBITS AND SCHEDULES
Exhibit A Form of Assignment and Acceptance
Exhibit B Form of Opinion of Borrowers' Counsel
EXHIBIT C Form of Request for Extension of Termination Date
Schedule 2.01 Commitments
Schedule 3.08 Subsidiaries
Schedule 3.09 Litigation; Compliance with Laws
Schedule 6.01 Liens
<PAGE> 7
AMENDED AND RESTATED CREDIT AGREEMENT, dated
as of October 18, 1999, among POPULAR, INC.,
a Puerto Rico corporation ("Popular"),
Popular North America, Inc., a Delaware
corporation ("Popular North America"), and
together with Popular, the "Borrowers"), the
financial institutions from time to time
party hereto, initially consisting of those
listed on Schedule 2.01 (the "Lenders"), and
The Chase Manhattan Bank, a New York banking
corporation, as agent (in such capacity, the
"Administrative Agent") for the Lenders.
The Borrowers, the Lenders and the Administrative Agent are
parties to a Credit Agreement dated as of October 29, 1998, as amended on
February 12, 1999 (the "Pre-Restatement Credit Agreement"), and have agreed,
subject to the conditions set forth in Section 4.02, to amend and restate the
Pre-Restatement Credit Agreement in the form of this Amended and Restated Credit
Agreement.
The Borrowers have requested the Lenders to extend credit in
the form of Revolving Loans (such term and each other capitalized term used but
not defined herein having the meaning given it in Article I) at any time and
from time to time prior to the Termination Date, in an aggregate principal
amount at any time outstanding not in excess of $445,000,000, as such amount may
be increased pursuant to Section 2.23. The Borrowers have requested the Lenders
to provide a procedure pursuant to which a Borrower may invite the Lenders to
bid on an uncommitted basis on short-term borrowings by such Borrower. The
proceeds of the Loans are to be used for general corporate purposes, including
commercial paper back-up.
The Lenders are willing to extend such credit to the Borrowers
on the terms and subject to the conditions set forth herein. Accordingly, the
parties hereto agree as follows:
ARTICLE I. DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the
following terms shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any Loan bearing interest at the
Alternate Base Rate in accordance with the provisions of Article II.
<PAGE> 8
"Administrative Agent Fees" shall have the meaning assigned to
such term in Section 2.07(c).
"Administrative Questionnaire" shall mean an Administrative
Questionnaire in a form supplied by the Administrative Agent.
"Affiliate" shall mean, when used with respect to a specified
person, another person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control with the
person specified.
"Aggregate Revolving Credit Exposure" shall mean the aggregate
amount of the Lenders' Revolving Credit Exposures.
"Alternate Base Rate" shall mean, for any day, a rate per
annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the
greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. If for any reason the
Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Federal
Funds Effective Rate for any reason, including the inability or failure of the
Administrative Agent to obtain sufficient quotations in accordance with the
terms thereof, the Alternate Base Rate shall be determined without regard to
clause (b) of the preceding sentence, as appropriate, until the circumstances
giving rise to such inability no longer exist. Any change in the Alternate Base
Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall
be effective on the effective date of such change in the Prime Rate or the
Federal Funds Effective Rate, respectively.
"Applicable Percentage" means, with respect to any Lender, the
percentage of the total Commitments represented by such Lender's Commitment.
"Applicable Rate" shall mean, with respect to any Eurodollar
Loan (other than any Eurodollar Competitive Loan), or with respect to the
Facility Fees, as the case may be, the Applicable Rate set forth below in the
row across from the caption "Eurodollar Spread" or "Facility Fee", as the case
may be, based upon the ratings by S&P and Moody's, respectively, applicable on
such date to the Index Debt:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Category 1 Category 2 Category 3 Category 4 Category 5
---------- ---------- ---------- ---------- ----------
A/A2 or A-/A3 BBB+/Baa1 BBB/Baa2 BBB-/Baa3/ or
Higher Lower
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Eurodollar Spread (bp) 25.00 30.00 35.00 42.50 50.00
- ------------------------------------------------------------------------------------------------------
Facility Fee (bp) 10.00 12.50 15.00 20.00 25.00
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 9
3
For purposes of the foregoing, (i) if S&P or Moody's shall not
have in effect a rating for the Index Debt (other than by reason of the
circumstances referred to in the last sentence of this definition), then such
rating agency shall be deemed to have established a rating in Category 5; (ii)
if the ratings established or deemed to have been established by S&P and Moody's
for the Index Debt shall fall within different Categories, the Applicable Rate
shall be based on (A) if the ratings are in adjacent categories, the higher of
the two ratings and (B) if the ratings are in non-adjacent categories, the
rating immediately below the higher of the two ratings; and (iii) if the ratings
established or deemed to have been established by S&P and Moody's for the Index
Debt shall be changed (other than as a result of a change in the rating system
of such rating agency), such change shall be effective as of the date on which
it is first announced by the applicable rating agency. Each change in the
Applicable Rate shall apply during the period commencing on the effective date
of such change and ending on the date immediately preceding the effective date
of the next such change. If the rating system of S&P or Moody's shall change, or
if any such rating agency shall cease to be in the business of rating corporate
debt obligations, the Borrowers and the Lenders shall negotiate in good faith to
amend this definition to reflect such changed rating system or the
non-availability of ratings from such rating agency and, pending the
effectiveness of any such amendment, the Applicable Rate shall be determined
using the rating of such rating agency most recently in effect prior to such
change or cessation.
"Assignment and Acceptance" shall mean an assignment and
acceptance entered into by a Lender and an assignee, and accepted by the
Administrative Agent, in the form of Exhibit A or such other form as shall be
approved by the Administrative Agent.
"Availability Period" means the period from and including the
Closing Date to but excluding the earlier of the Termination Date and the date
of termination of the Commitments in accordance with the terms of the Agreement.
"Banco Popular" shall mean the Banco Popular de Puerto Rico, a
Puerto Rico bank.
"Bank Regulatory Authority" shall mean the Board of Governors
of the Federal Reserve System, the Comptroller of the Currency, the Federal
Deposit Insurance Corporation and all other relevant bank regulatory authorities
(including relevant state bank regulatory authorities).
"Bank Subsidiary" shall mean any Subsidiary that is a
commercial bank, banking corporation, savings and loan association, savings
bank, trust company or Edge Act corporation.
"Board" shall mean the Board of Governors of the Federal
Reserve System of the United States.
<PAGE> 10
4
"Borrowing" shall mean a group of Loans of a single Type made
by the Lenders (or, in the case of a Competitive Borrowing, by the Lender or
Lenders whose Competitive Bids have been accepted pursuant to Section 2.03) on a
single date and as to which a single Interest Period is in effect.
"Borrowing Request" shall mean a request by a Borrower in
accordance with the terms of Section 2.04.
"Business Day" shall mean any day other than a Saturday,
Sunday or day on which banks in New York City are authorized or required by law
to close; provided, however, that (i) when used in connection with a Eurodollar
Loan, the term "Business Day" shall also exclude any day on which banks are not
open for dealings in Dollar deposits in the London interbank market and (ii)
when used in Sections 2.03 and 2.04, the Term "Business Day" shall also exclude
any day on which banks in Puerto Rico are authorized or required by law to
close.
"Capital Commitment" shall mean any commitment to the Federal
Deposit Insurance Corporation, the Resolution Trust Corporation, the Director of
the Office of Thrift Supervision, the Comptroller of the Currency, or the Board,
or their predecessors or successors, to maintain the capital of an insured
depository institution.
"Capital Lease Obligations" of any person shall mean the
obligations of such person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
A "Change in Control" shall be deemed to have occurred if (a)
any person or group (within the meaning of Rule 13d-5 of the Securities Exchange
Act of 1934 as in effect on the date hereof) shall own directly or indirectly,
beneficially or of record, shares representing more than 25% of the aggregate
ordinary voting power represented by the issued and outstanding capital stock of
Popular; (b) a majority of the seats (other than vacant seats) on the board of
directors of a Borrower shall at any time have been occupied by persons who were
neither (i) nominated by the board of directors of a Borrower, nor (ii)
appointed by directors so nominated; (c) Popular shall cease to own, directly or
indirectly, all of the outstanding and issued voting stock of Popular North
America; (d) Popular shall cease to own, directly or indirectly, all of the
outstanding and issued capital stock of Banco Popular (other than directors'
qualifying shares); or (e) any person or group shall otherwise directly or
indirectly control Popular.
"Closing Date" shall mean the date of execution of this
Amended and Restated Credit Agreement.
<PAGE> 11
5
"Code" shall mean the Internal Revenue Code of 1986, as the
same may be amended from time to time.
"Commitment" shall mean, with respect to any Lender, such
Lender's Revolving Credit Commitment.
"Competitive Bid" shall mean an offer by a Lender to make a
Competitive Loan pursuant to Section 2.03.
"Competitive Bid Accept/Reject Letter" shall mean a
notification made by a Borrower pursuant to Section 2.03(d) in a form approved
by the Administrative Agent.
"Competitive Bid Rate" shall mean, as to any Competitive Bid
made by a Lender pursuant to Section 2.03(b), (i) in the case of a Eurodollar
Loan, the Margin, and (ii) in the case of a Fixed Rate Loan, the fixed rate of
interest offered by the Lender making such Competitive Bid.
"Competitive Bid Request" shall mean a request made pursuant
to Section 2.03 in a form approved by the Administrative Agent.
"Competitive Borrowing" shall mean a Borrowing consisting of a
Competitive Loan or concurrent Competitive Loans from the Lender or Lenders
whose Competitive Bids for such Borrowing have been accepted by a Borrower under
the bidding procedure described in Section 2.03.
"Competitive Loan" shall mean a Loan from a Lender to a
Borrower pursuant to the bidding procedure described in Section 2.03. Each
Competitive Loan shall be a Eurodollar Competitive Loan or a Fixed Rate Loan.
"Consolidated Net Worth" shall mean at any date the Net Worth
of Popular and its consolidated Subsidiaries on such date, determined on a
consolidated basis in accordance with GAAP.
"Consolidated Tangible Net Worth" shall mean, at any date, (a)
Consolidated Net Worth at such date minus (b) with respect to Popular and its
Subsidiaries (determined on a consolidated basis in accordance with GAAP), the
book value of all Intangibles reflected in clause (a) above.
"Control" shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of a
person, whether through the ownership of voting securities, by contract or
otherwise, and "Controlling" and "Controlled" shall have meanings correlative
thereto.
<PAGE> 12
6
"Credit Event" shall have the meaning assigned to such term in
Section 4.01.
"Default" shall mean any event or condition which upon notice,
lapse of time or both would constitute an Event of Default.
"Dollars" or "$" shall mean lawful money of the United States
of America.
"Equity Investments in Subsidiaries" shall mean, at any date,
Popular's aggregate equity investments in the Subsidiaries, determined in
accordance with GAAP.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as the same may be amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or
not incorporated) that, together with a Borrower, is treated as a single
employer under Section 414 of the Code.
"Eurodollar Borrowing" shall mean a Borrowing comprised of
Eurodollar Loans.
"Eurodollar Competitive Borrowing" shall mean a Borrowing
comprised of Eurodollar Competitive Loans.
"Eurodollar Competitive Loan" shall mean any Competitive Loan
bearing interest at a rate determined by reference to the LIBO Rate in
accordance with the provisions of Article II.
"Eurodollar Loan" shall mean any Eurodollar Revolving Loan or
Eurodollar Competitive Loan.
"Eurodollar Revolving Credit Borrowing" shall mean a Borrowing
comprised of Eurodollar Revolving Loans.
"Eurodollar Revolving Loan" shall mean any Revolving Loan
bearing interest at a rate determined by reference to the LIBO Rate in
accordance with the provisions of Article II.
"Event of Default" shall have the meaning assigned to such
term in Article VII.
"Facility Fee" shall have the meaning assigned to such term in
Section 2.07(a).
"Federal Funds Effective Rate" shall mean, for any day, the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
published on the next succeeding Business Day by the
<PAGE> 13
7
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for the day of such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Fee Letter" shall mean the Fee Letter dated September 17,
1999, among the Borrowers, the Administrative Agent and Chase Securities Inc.
"Fees" shall mean the Facility Fees, the Utilization Fees, the
Administrative Agent Fees and the Participation Fees.
"Financial Officer" of any corporation shall mean the chief
financial officer, principal accounting officer, Treasurer or Controller of such
corporation.
"Fixed Rate Borrowing" shall mean a Borrowing comprised of
Fixed Rate Loans.
"Fixed Rate Loan" shall mean any Competitive Loan bearing
interest at a fixed percentage rate per annum (expressed as a number of basis
points to no more than four decimal places) specified by the Lender making such
Loan in its Competitive Bid.
"GAAP" shall mean generally accepted accounting principles
applied on a consistent basis.
"Governmental Authority" shall mean any Federal, state, local
or foreign court or governmental agency, authority, instrumentality or
regulatory body.
"Guarantee" of or by any person shall mean any obligation,
contingent or otherwise, of such person guaranteeing or having the economic
effect of guaranteeing any Indebtedness of any other person (the "primary
obligor") in any manner, whether directly or indirectly, and including any
obligation of such person, direct or indirect, (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or to
purchase (or to advance or supply funds for the purchase of) any security for
the payment of such Indebtedness, (b) to purchase or lease property, securities
or services for the purpose of assuring the owner of such Indebtedness of the
payment of such Indebtedness or (c) to maintain working capital, equity capital
or any other financial statement condition or liquidity of the primary obligor
so as to enable the primary obligor to pay such Indebtedness; provided, however,
that the term Guarantee shall not include endorsements for collection or deposit
in the ordinary course of business.
"Guarantors" shall mean the Borrowers, in their capacity as
guarantors under Section 2.21.
<PAGE> 14
8
"Indebtedness" of any person shall mean, without duplication,
(a) all obligations of such person for borrowed money or with respect to
deposits or advances of any kind, (b) all obligations of such person evidenced
by bonds, debentures, notes or similar instruments, (c) all obligations of such
person upon which interest charges are customarily paid, (d) all obligations of
such person under conditional sale or other title retention agreements relating
to property or assets purchased by such person, (e) all obligations of such
person issued or assumed as the deferred purchase price of property or services
(excluding trade accounts payable and accrued obligations incurred in the
ordinary course of business), (f) all Indebtedness of others secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on property owned or acquired by such
person, whether or not the obligations secured thereby have been assumed, (g)
all Guarantees by such person of Indebtedness of others, (h) all Capital Lease
Obligations of such person and (i) all obligations of such person as an account
party in respect of letters of credit and bankers' acceptances, excluding (in
all cases) (x) liabilities of any Bank Subsidiary that constitute "deposits"
within the meaning of Section 3(i) of the Federal Deposit Insurance Act, as
amended, and (y) repurchase agreements entered into in the ordinary course of
business with a maturity of less than one year. The Indebtedness of any person
shall include the Indebtedness of any partnership in which such person is a
general partner.
"Index Debt" shall mean the senior, unsecured, non-credit
enhanced, long-term indebtedness for borrowed money of Popular.
"Intangibles" shall mean with respect to any person at any
date the amount of all assets of such person that would be classified as
intangible assets in accordance with GAAP, but in any event including
unamortized debt discount and expense, unamortized organization and
reorganization expense, costs in excess of the net asset value of acquired
companies, patents, copyrights, trade or service marks, franchises, trade names,
goodwill and the amount of any write-up in the book value of any assets
resulting from any revaluation thereof (other than (a) revaluations of tangible
assets arising out of purchase accounting adjustments, (b) revaluations arising
out of foreign currency valuations in accordance with GAAP, and (c) revaluations
pursuant to the Statement of Financial Accounting Standards No. 115).
"Interest Payment Date" shall mean, with respect to any Loan,
the last day of the Interest Period applicable to the Borrowing of which such
Loan is a part and, in the case of a Eurodollar Borrowing with an Interest
Period of more than three months' duration, each day that would have been an
Interest Payment Date had successive Interest Periods of three months' duration
been applicable to such Borrowing, and, in addition, the date of any refinancing
of such Borrowing with a Borrowing of a different Type.
"Interest Period" shall mean (a) as to any Eurodollar
Borrowing, the period commencing on the date of such Borrowing or on the last
day of the immediately preceding Interest Period applicable to such Borrowing,
as the case may be, and ending on the numerically
<PAGE> 15
9
corresponding day (or, if there is no numerically corresponding day, on the last
day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as the
Borrower may elect, (b) as to any ABR Borrowing, the period commencing on the
date of such Borrowing or on the last day of the immediately preceding Interest
Period applicable to such Borrowing, as the case may be, and ending on the
earliest of (i) the next succeeding March 31, June 30, September 30 or December
31, (ii) the Revolving Credit Maturity Date and (iii) the date such Borrowing is
prepaid in accordance with Section 2.12 and (c) as to any Fixed Rate Borrowing,
the period commencing on the date of such Borrowing and ending on the date
specified in the Competitive Bids in which the offer to make the Fixed Rate
Loans comprising such Borrowing were extended, which shall not be earlier than
seven days after the date of such Borrowing or later than 360 days after the
date of such Borrowing; provided, however, that if any Interest Period would end
on a day other than a Business Day, such Interest Period shall be extended to
the next succeeding Business Day unless, in the case of a Eurodollar Borrowing
only, such next succeeding Business Day would fall in the next calendar month,
in which case such Interest Period shall end on the next preceding Business Day.
Interest shall accrue from and including the first day of an Interest Period to
but excluding the last day of such Interest Period.
"LIBO Rate" shall mean, with respect to any Eurodollar
Borrowing, the rate (rounded upwards, if necessary, to the next 1/16 of 1%) at
which Dollar deposits approximately equal in principal amount to (i) in the case
of a Revolving Credit Borrowing, the Administrative Agent's portion of such
Eurodollar Borrowing and (ii) in the case of a Competitive Borrowing, a
principal amount that would have been the Administrative Agent's portion of such
Competitive Borrowing had such Competitive Borrowing been a Revolving Credit
Borrowing, and for a maturity comparable to such Interest Period are offered to
the principal London office of the Administrative Agent in immediately available
funds in the London interbank market at approximately 11:00 a.m., London time,
two Business Days prior to the commencement of such Interest Period.
"Lien" shall mean, with respect to any asset, (a) any
mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest
in or on such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement relating
to such asset and (c) in the case of securities, any purchase option, call or
similar right of a third party with respect to such securities.
"Loan Documents" shall mean this Agreement and the Fee Letter.
"Loans" shall mean the Revolving Loans and the Competitive
Loans.
"Long-Term Indebtedness" shall mean, at any date, all
Indebtedness of Popular and the consolidated Subsidiaries outstanding as of such
date that does not mature or that is treated on the consolidated financial
statements of Popular as not maturing, or otherwise come due and payable, within
one year of such date.
<PAGE> 16
10
"Margin" shall mean, as to any Eurodollar Competitive Loan,
the margin (expressed as a number of basis points per annum in the form of a
decimal to no more than four decimal places) to be added to or subtracted from
the LIBO Rate in order to determine the interest rate applicable to such Loan,
as specified in the Competitive Bid relating to such Loan.
"Margin Stock" shall have the meaning assigned to such term in
Regulation U.
"Material Adverse Effect" shall mean (a) a materially adverse
effect on the business, assets, operations, prospects or condition, financial or
otherwise, of the Borrowers and the Subsidiaries taken as a whole, (b) material
impairment of the ability of any Borrower to perform any of its obligations
under any Loan Document to which it is or will be a party or (c) material
impairment of the rights of or benefits available to the Lenders under any Loan
Document.
"Moody's" shall mean Moody's Investors Service, Inc.
"Multiemployer Plan" shall mean a multiemployer plan as
defined in Section 4001(a)(3) of ERISA to which a Borrower or any ERISA
Affiliate (other than one considered an ERISA Affiliate only pursuant to
subsection (m) or (o) of Code Section 414) is making or accruing an obligation
to make contributions, or has within any of the preceding five plan years made
or accrued an obligation to make contributions.
"Net Worth" with respect to any person at any date shall mean
(i) all amounts which would be included under shareholders' equity on a balance
sheet of such person, as of such date, determined in accordance with GAAP, less
(ii) such person's treasury stock (to the extent included in clause (i) above).
"Nonperforming Assets" shall mean, at any date, the sum, for
Popular and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP) of the following: (a) loans that are at
least 90 days past-due as to principal or interest; (b) loans that are required
to have been placed on nonaccrual status by the relevant Bank Regulatory
Authority for Popular or its Subsidiaries; (c) loans that bear a rate of
interest that has been reduced below market rates due to the deteriorating
financial condition of a borrower; and (d) assets that have been acquired in
satisfaction of indebtedness or have been classified as "in-substance
foreclosures".
"Note" shall mean a promissory note delivered pursuant to
Section 9.04(h).
"Obligations" shall have the meaning assigned to such term in
the first paragraph of Section 2.21.
<PAGE> 17
11
"Participation Fee" shall have the meaning assigned to such
term in Section 2.07(d).
"PBGC" shall mean the Pension Benefit Guaranty Corporation
referred to and defined in ERISA.
"person" shall mean any natural person, corporation, business
trust, joint venture, association, company, partnership or government, or any
agency or political subdivision thereof.
"Plan" shall mean any employee pension benefit plan (other
than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or
Section 412 of the Code that is maintained for current or former employees, or
any beneficiary thereof, of a Borrower or any ERISA Affiliate.
"Pre-Restatement Credit Agreement" shall have the meaning
specified in the preamble.
"Prime Rate" shall mean the rate of interest per annum
publicly announced from time to time by the Administrative Agent as its prime
rate in effect at its principal office in New York City; each change in the
Prime Rate shall be effective on the date such change is publicly announced as
being effective.
"Register" shall have the meaning given such term in Section
9.04(d).
"Regulation U" shall mean Regulation U of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulation X" shall mean Regulation X of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulation Y" shall mean Regulation Y of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Reportable Event" shall mean any reportable event as defined
in Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than a Plan maintained by an ERISA Affiliate that is considered an
ERISA Affiliate only pursuant to subsection (m) or (o) of Code Section 414).
"Required Lenders" shall mean, at any time, Lenders having
Revolving Credit Commitments representing greater than 50% of the sum of all
Revolving Credit Commitments at such time or, for purposes of acceleration
pursuant to clause (ii) of Article VII, Lenders having Loans and unused
Revolving Credit Commitments representing greater than 50% of the sum of all
Loans outstanding and unused Revolving Credit Commitments.
<PAGE> 18
12
"Responsible Officer" of any corporation shall mean any
executive officer or Financial Officer of such corporation and any other officer
or similar official thereof responsible for the administration of the
obligations of such corporation in respect of this Agreement.
"Revolving Credit Borrowing" shall mean a Borrowing comprised
of Revolving Loans.
"Revolving Credit Commitment" shall mean, with respect to each
Lender, the commitment of such Lender to make Revolving Loans hereunder as set
forth in Schedule 2.01, or in the Assignment and Acceptance pursuant to which
such Lender assumed its Revolving Credit Commitment, as applicable, as the same
may be (a) reduced from time to time pursuant to Section 2.11, (b) reduced or
increased from time to time pursuant to assignments by or to such Lender
pursuant to Section 9.04, (c) increased from time to time pursuant to Section
2.23 and (d) extended from time to time pursuant to Section 2.22. The initial
aggregate amount of the Lenders' Revolving Credit Commitments is $445,000,000.
"Revolving Credit Exposure" shall mean, with respect to any
Lender at any time, the aggregate principal amount at such time of all
outstanding Revolving Loans of such Lender.
"Revolving Credit Lender" shall mean a Lender with a Revolving
Credit Commitment.
"Revolving Credit Maturity Date" shall mean the first
anniversary of the Termination Date (as the Termination Date may be extended
pursuant to Section 2.22).
"Revolving Loans" shall mean the revolving loans made by the
Lenders to a Borrower pursuant to Section 2.01. Each Revolving Loan shall be a
Eurodollar Revolving Loan or an ABR Revolving Loan.
"Significant Subsidiary" shall mean any Subsidiary which, at
the time any determination is being made, constitutes a "significant subsidiary"
as defined in Rule 1-02 of Regulation S-X of the Securities and Exchange
Commission, 17 C.F.R. ss. 210.1-02, as in effect on the date hereof.
"S&P" shall mean Standard & Poor's Ratings Group, a division
of McGraw-Hill, Inc.
"Subsidiary" shall mean any corporation, partnership,
association or other business entity (a) of which securities or other ownership
interests representing more than 50% of the equity or more than 50% of the
ordinary voting power or more than 50% of the general partnership interests are,
at the time any determination is being made, owned, controlled or held by either
Borrower, or (b) which is, at the time any determination is made, otherwise
Controlled, by either Borrower or one or more Subsidiaries of either Borrower or
by either Borrower and one or more Subsidiaries of either Borrower.
<PAGE> 19
13
"Termination Date" means October 16, 2000, or, in the case of
any Lender, any later date to which the Termination Date shall have been
extended as to such Lender pursuant to Section 2.22.
"Total Assets" shall mean, at any date, the total assets that
would be included on a balance sheet of Popular and its Subsidiaries (determined
on a consolidated basis in accordance with GAAP) as of such date.
"Total Capitalization" shall mean, at any date, the sum of
Consolidated Net Worth and Long-Term Indebtedness, each determined as of such
date.
"Total Revolving Credit Commitment" shall mean, at any time,
the aggregate amount of the Revolving Credit Commitments, as in effect at such
time.
"Transactions" shall have the meaning assigned to such term in
Section 3.02.
"Type", when used in respect of any Loan or Borrowing, shall
refer to the Rate by reference to which interest on such Loan or on the Loans
comprising such Borrowing is determined. For purposes hereof, "Rate" shall
include the LIBO Rate and the Alternate Base Rate.
"Utilization Fee" shall have the meaning assigned to such term
in Section 2.07(b).
"Withdrawal Liability" shall mean liability to a Multiemployer
Plan as a result of a complete or partial withdrawal from such Multiemployer
Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Terms Generally. The definitions in Section 1.01
shall apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, (a) any reference in this Agreement to any Loan
Document shall mean such document as amended, restated, supplemented or
otherwise modified from time to time and (b) all terms of an accounting or
financial nature shall be construed in accordance with GAAP, as in effect from
time to time; provided, however, that for purposes of determining compliance
with the covenants contained in Article VI, all accounting terms herein shall be
interpreted and all accounting determinations hereunder shall be made in
accordance with GAAP as in effect on the date of this Agreement and applied on a
basis consistent with the application used in the financial statements referred
to in Section 3.05.
<PAGE> 20
14
SECTION 1.03. Certain Date References. All references herein
to "the date hereof" and "the date of this Agreement" shall be deemed references
to the date of this Amended and Restated Credit Agreement.
ARTICLE II. THE CREDITS
SECTION 2.01. Commitments. Subject to the terms and conditions
and relying upon the representations and warranties herein set forth, each
Lender agrees, severally and not jointly, to make Revolving Loans to the
Borrowers, at any time and from time to time during the Availability Period, in
an aggregate principal amount that will not result in such Lender's Revolving
Credit Exposure exceeding such Lender's Revolving Credit Commitment (minus the
amount by which the Competitive Loans outstanding at such time shall be deemed
to have used such Commitment pursuant to Section 2.16), subject, however, to the
conditions that during the Availability Period, (i) at no time shall (A) the sum
of (x) the outstanding aggregate principal amount of all Revolving Credit Loans
made by all Lenders plus (y) the outstanding aggregate principal amount of all
Competitive Loans made by all Lenders exceed (B) the Total Revolving Credit
Commitment and (ii) at all times, the outstanding aggregate principal amount of
all Revolving Loans made by each Lender shall equal the product of (A) the
percentage which its Revolving Credit Commitment represents of the Total
Revolving Credit Commitment times (B) the outstanding aggregate principal amount
of all Revolving Loans. Within the foregoing limits, a Borrower may borrow, pay
or prepay and reborrow Revolving Loans, subject to the terms, conditions and
limitations set forth herein.
SECTION 2.02. Loans. (a) Each Revolving Loan shall be made as
part of a Borrowing consisting of Revolving Loans made by the Lenders ratably in
accordance with their applicable Revolving Credit Commitments; provided,
however, that the failure of any Lender to make any Revolving Loan shall not in
itself relieve any other Lender of its obligation to lend hereunder (it being
understood, however, that no Lender shall be responsible for the failure of any
other Lender to make any Loan required to be made by such other Lender). Each
Competitive Loan shall be made in accordance with the procedures set forth in
Section 2.03. The Loans comprising any Borrowing shall be in an aggregate
principal amount which is (i) an integral multiple of $1,000,000 and not less
than $5,000,000 or (ii) equal to the remaining available balance of the
applicable Commitments.
(b) Subject to Sections 2.10 and 2.14, each Competitive
Borrowing shall be comprised entirely of Eurodollar Competitive Loans or Fixed
Rate Loans, and each other Borrowing shall be comprised entirely of ABR Loans or
Eurodollar Loans as the Borrower may request pursuant to Section 2.03 or 2.04,
as applicable. Each Lender may at its option make any Eurodollar Loan by causing
any domestic or foreign branch or Affiliate of such Lender to make such Loan;
provided that any exercise of such option shall not affect the obligation of a
Borrower to repay such Loan in accordance with the terms of this Agreement.
Borrowings of more than one Type may be outstanding at the same time; provided,
however, that a Borrower shall not be entitled to request any Borrowing which,
if made, would result in more than five Eurodollar
<PAGE> 21
15
Borrowings outstanding hereunder at any time. For purposes of the foregoing,
Borrowings having different Interest Periods, regardless of whether they
commence on the same date, shall be considered separate Borrowings.
(c) Subject to paragraph (f) below, each Lender shall make
each Loan to be made by it hereunder on the proposed date thereof by wire
transfer to such account as the Administrative Agent may designate in federal
funds not later than 11:00 a.m., New York City time, and the Administrative
Agent shall by 12:00 (noon), New York City time, credit the amounts so received
to an account with the Administrative Agent designated by the applicable
Borrower in the applicable Borrowing Request or Competitive Bid Request, which
account must be in the name of the Borrower or, if a Borrowing shall not occur
on such date because any condition precedent herein specified shall not have
been met, return the amounts so received to the respective Lenders.
(d) Unless the Administrative Agent shall have received notice
from a Lender prior to the date of any Borrowing that such Lender will not make
available to the Administrative Agent such Lender's portion of such Borrowing,
the Administrative Agent may assume that such Lender has made such portion
available to the Administrative Agent on the date of such Borrowing in
accordance with paragraph (c) above and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If the Administrative Agent shall have so made funds
available then, to the extent that such Lender shall not have made such portion
available to the Administrative Agent, such Lender and the applicable Borrower
severally agree to repay to the Administrative Agent, in the case of such
Lender, forthwith on demand and, in the case of the applicable Borrower, within
two Business Days of demand, such corresponding amount together with interest
thereon, for each day from the date such amount is made available to such
Borrower until the date such amount is repaid to the Administrative Agent at (i)
in the case of such Borrower, the interest rate applicable at the time to the
Loans comprising such Borrowing and (ii) in the case of such Lender, a rate
determined by the Administrative Agent to represent its cost of overnight or
short-term funds (which determination shall be conclusive absent manifest
error). If such Lender shall repay to the Administrative Agent such
corresponding amount, such amount shall constitute such Lender's Loan as part of
such Borrowing for purposes of this Agreement.
(e) Notwithstanding any other provision of this Agreement, a
Borrower shall not be entitled to request, or to elect to convert or continue,
any Borrowing if the Interest Period requested with respect thereto would end
after the Revolving Credit Maturity Date.
(f) A Borrower may refinance all or any part of a Borrowing
with another Borrowing, subject to the conditions and limitations set forth in
this Agreement (including the condition that the Aggregate Revolving Credit
Exposure after giving effect thereto will not exceed the Total Revolving Credit
Commitment). Any Borrowing or part thereof so refinanced shall be deemed to be
repaid or prepaid in accordance with the applicable provisions of this Agreement
with the proceeds of the new Borrowing, and the proceeds of such new Borrowing,
to the extent they do not exceed the principal amount of the Borrowing being
refinanced, shall
<PAGE> 22
16
not be paid by the Lenders to the Administrative Agent or by the Administrative
Agent to such Borrower pursuant to paragraph (c) above.
SECTION 2.03. Competitive Bid Procedure. (a) In order to
request Competitive Bids, a Borrower shall hand deliver or telecopy to the
Administrative Agent a duly completed Competitive Bid Request (i) in the case of
a Eurodollar Competitive Borrowing, not later than 10:00 a.m., New York City
time, four Business Days before the proposed date of such Borrowing and (ii) in
the case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York City
time, one Business Day before the proposed date of such Borrowing. A Competitive
Bid Request shall not be made within five Business Days after the date of any
previous Competitive Bid Request. No ABR Loan shall be requested in, or made
pursuant to, a Competitive Bid Request. A Competitive Bid Request that does not
conform to a form approved by the Administrative Agent may be rejected by the
Administrative Agent, and the Administrative Agent shall notify the applicable
Borrower of such rejection as promptly as practicable. Each Competitive Bid
Request shall refer to this Agreement and specify (i) whether the Borrowing
being requested is to be a Eurodollar Borrowing or a Fixed Rate Borrowing; (ii)
the date of such Borrowing (which shall be a Business Day); (iii) the number and
the location of the account to which funds are to be disbursed (which shall be
an account that complies with the requirements of Section 2.02(c)); (iv) the
aggregate principal amount of such Borrowing, which shall be a minimum of
$5,000,000 and an integral multiple of $1,000,000; and (v) the Interest Period
with respect thereto (which may not end after the Revolving Credit Maturity
Date). Promptly after its receipt of a Competitive Bid Request that is not
rejected, the Administrative Agent shall by telecopy in a form approved by the
Administrative Agent invite the Revolving Credit Lenders to bid to make
Competitive Loans pursuant to the Competitive Bid Request.
(b) Each Revolving Credit Lender may make one or more
Competitive Bids to the applicable Borrower responsive to a Competitive Bid
Request. Each Competitive Bid by a Revolving Credit Lender must be received by
the Administrative Agent by telecopy in a form approved by the Administrative
Agent, (i) in the case of a Eurodollar Competitive Borrowing, not later than
9:30 a.m., New York City time, three Business Days before the proposed date of
such Competitive Borrowing, and (ii) in the case of a Fixed Rate Borrowing, not
later than 9:30 a.m., New York City time, on the proposed date of such
Competitive Borrowing. Competitive Bids that do not conform to the form of
approved by the Administrative Agent may be rejected by the Administrative
Agent, and the Administrative Agent shall notify the applicable Lender as
promptly as practicable. Each Competitive Bid shall refer to this Agreement and
specify (x) the principal amount (which shall be a minimum of $5,000,000 and an
integral multiple of $1,000,000 and which may equal the entire principal amount
of the Competitive Borrowing requested by the Borrower) of the Competitive Loan
or Loans that the Revolving Credit Lender is willing to make, (y) the
Competitive Bid Rate or Rates at which the Revolving Credit Lender is prepared
to make such Loan or Loans and (z) the Interest Period applicable to such Loan
or Loans and the last day thereof.
(c) The Administrative Agent shall promptly notify the
applicable Borrower by telecopy of the Competitive Bid Rate and the principal
amount of each Competitive Loan in
<PAGE> 23
17
respect of which a Competitive Bid shall have been made and the identity of the
Revolving Credit Lender that shall have made each bid.
(d) The applicable Borrower may, subject only to the
provisions of this paragraph (d), accept or reject any Competitive Bid. Such
Borrower shall notify the Administrative Agent by telephone, confirmed by
telecopy in the form of a Competitive Bid Accept/Reject Letter, whether and to
what extent it has decided to accept or reject each Competitive Bid, (x) in the
case of a Eurodollar Competitive Borrowing, not later than 10:30 a.m., New York
City time, three Business Days before the date of the proposed Competitive
Borrowing, and (y) in the case of a Fixed Rate Borrowing, not later than 10:30
a.m., New York City time, on the proposed date of the Competitive Borrowing;
provided, however, that (i) the failure of such Borrower to give such notice
shall be deemed to be a rejection of each Competitive Bid, (ii) such Borrower
shall not accept a Competitive Bid made at a particular Competitive Bid Rate if
such Borrower has decided to reject a Competitive Bid made at a lower
Competitive Bid Rate, (iii) the aggregate amount of the Competitive Bids
accepted by such Borrower shall not exceed the principal amount specified in the
Competitive Bid Request, (iv) if such Borrower shall accept a Competitive Bid or
Bids made at a particular Competitive Bid Rate but the amount of such
Competitive Bid or Bids would cause the total amount to be accepted by such
Borrower to exceed the amount specified in the Competitive Bid Request, then
such Borrower shall accept a portion of such Competitive Bid or Bids in an
amount equal to the amount specified in the Competitive Bid Request less the
amount of all other Competitive Bids so accepted, which acceptance, in the case
of multiple Competitive Bids at such Competitive Bid Rate, shall be made pro
rata in accordance with the amount of each such Bid, and (v) except pursuant to
clause (iv) above, no Competitive Bid shall be accepted for a Competitive Loan
unless such Competitive Loan is in a minimum principal amount of $5,000,000 and
an integral multiple of $1,000,000; provided further, however, that if a
Competitive Loan must be in an amount less than $5,000,000 because of the
provisions of clause (iv) above, such Competitive Loan may be for a minimum of
$1,000,000 or any integral multiple thereof, and in calculating the pro rata
allocation of acceptances of portions of multiple Competitive Bids at a
particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be
rounded to integral multiples of $1,000,000 in a manner determined by such
Borrower. A notice given by any Borrower pursuant to this paragraph (d) shall be
irrevocable.
(e) The Administrative Agent shall promptly notify each
bidding Revolving Credit Lender by telecopy whether or not its Competitive Bid
has been accepted (and, if so, in what amount and at what Competitive Bid Rate),
and each successful bidder will thereupon become bound, upon the terms and
subject to the conditions hereof, to make the Competitive Loan in respect of
which its Competitive Bid has been accepted.
(f) No Competitive Borrowing shall be requested or made
hereunder if after giving effect thereto any of the conditions set forth in
clause (i) of Section 2.01 would not be met.
<PAGE> 24
18
(g) If the Administrative Agent shall elect to submit a
Competitive Bid in its capacity as a Revolving Credit Lender, it shall submit
such Competitive Bid directly to the applicable Borrower at least one quarter of
an hour earlier than the time by which the other Revolving Credit Lenders are
required to submit their Competitive Bids to the Administrative Agent pursuant
to paragraph (b) above.
SECTION 2.04. Borrowing Procedure. (a) In order to request a
Borrowing (other than a Competitive Loan, as to which this Section 2.04 shall
not apply), the applicable Borrower shall hand deliver or telecopy to the
Administrative Agent a duly completed Borrowing Request in a form approved by
the Administrative Agent (a) in the case of a Eurodollar Borrowing, not later
than 11:00 a.m., New York City time, three Business Days before a proposed
Borrowing, and (b) in the case of an ABR Borrowing, not later than 10:00 a.m.,
New York City time, on the day of such Borrowing; provided, however, that
Borrowing Requests with respect to Borrowings to be made on the Closing Date
may, at the discretion of the Administrative Agent, be delivered later than the
times specified above. Each Borrowing Request shall be irrevocable, signed by or
on behalf of the applicable Borrower and shall specify the following
information: (i) whether the Borrowing then being requested is to be a
Eurodollar Borrowing or an ABR Borrowing; (ii) the date of such Borrowing (which
shall be a Business Day), (iii) the number and location of the account to which
funds are to be disbursed (which shall be an account that complies with the
requirements of Section 2.02(c)); (iv) the amount of such Borrowing; and (v) if
such Borrowing is to be a Eurodollar Borrowing, the Interest Period with respect
thereto; provided, however, that, notwithstanding any contrary specification in
any Borrowing Request, each requested Borrowing shall comply with the
requirements set forth in Section 2.02. If no election as to the Type of
Borrowing is specified in any such notice, then the requested Borrowing shall be
an ABR Borrowing. If no Interest Period with respect to any Eurodollar Borrowing
is specified in any such notice, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration. The Administrative Agent
shall promptly (and in any event on the same day that the Administrative Agent
receives such notice, if received by 1:00 p.m., New York City time, on such day)
advise the applicable Lenders of any notice given pursuant to this Section 2.04
(and the contents thereof), of each Lender's portion of the requested Borrowing.
(b) If the applicable Borrower shall not have delivered a
Borrowing Request in accordance with this Section 2.04 prior to the end of the
Interest Period then in effect for any Revolving Credit Borrowing and requesting
that such Borrowing be refinanced, then such Borrower shall (unless such
Borrower has notified the Administrative Agent, not less than three Business
Days prior to the end of such Interest Period, that such Borrowing is to be
repaid at the end of such Interest Period) be deemed to have delivered a
Borrowing Request requesting that such Borrowing be refinanced with a new
Borrowing of equivalent amount, and such new Borrowing shall be an ABR
Borrowing.
SECTION 2.05. Interest Elections. (a) Each Revolving Credit
Borrowing initially shall be of the Type specified in the applicable Borrowing
Request and, in the case of a Eurodollar Revolving Credit Borrowing, shall have
an initial Interest Period as specified in
<PAGE> 25
19
such Borrowing Request. Thereafter, the Borrower may elect to convert such
Borrowing to a different Type or to continue such Borrowing and, in the case of
a Eurodollar Revolving Credit Borrowing, may elect Interest Periods therefor,
all as provided in this Section. The Borrower may elect different options with
respect to different portions of the affected Borrowing, in which case each such
portion shall be allocated ratably among the Lenders holding the Loans
comprising such Borrowing, and the Loans comprising each such portion shall be
considered a separate Borrowing. This Section shall not apply to Competitive
Borrowings, which may not be converted or continued.
(b) To make an election pursuant to this Section, the Borrower
shall notify the Administrative Agent of such election by telephone by the time
that a Borrowing Request would be required under Section 2.04 if the Borrower
were requesting a Revolving Credit Borrowing of the Type resulting from such
election to be made on the effective date of such election. Each such telephonic
Interest Election Request shall be irrevocable and shall be confirmed promptly
by hand delivery or telecopy to the Administrative Agent of a written Interest
Election Request in a form approved by the Administrative Agent and signed by
the Borrower.
(c) Each telephonic and written Interest Election Request
shall specify the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request
applies and, if different options are being elected with respect to
different portions thereof, the portions thereof to be allocated to
each resulting Borrowing (in which case the information to be specified
pursuant to clauses (iii) and (iv) below shall be specified for each
resulting Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR
Borrowing or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election
Request, the Administrative Agent shall advise each Lender of the details
thereof and of such Lender's portion of each resulting Borrowing.
<PAGE> 26
20
(e) If the Borrower fails to deliver a timely Interest
Election Request with respect to a Eurodollar Revolving Credit Borrowing prior
to the end of the Interest Period applicable thereto, then, unless such
Borrowing is repaid as provided herein, at the end of such Interest Period such
Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary
provision hereof, if an Event of Default has occurred and is continuing and the
Administrative Agent, at the request of the Required Lenders, so notifies the
Borrower, then, so long as an Event of Default is continuing (i) no outstanding
Revolving Borrowing may be converted to or continued as a Eurodollar Borrowing
and (ii) unless repaid, each Eurodollar Revolving Credit Borrowing shall be
converted to an ABR Borrowing at the end of the Interest Period applicable
thereto.
SECTION 2.06. Evidence of Debt; Repayment of Loans. (a) The
outstanding principal balance of each Loan shall be payable on the Revolving
Credit Maturity Date. Each Loan shall bear interest from the date of the first
Borrowing hereunder on the outstanding principal balance thereof as set forth in
Section 2.08.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness to such Lender
resulting from each Loan made by such Lender from time to time, including the
amounts of principal and interest payable and paid such Lender from time to time
under this Agreement.
(c) The Administrative Agent shall maintain accounts in which
it will record (i) the amount of each Loan made hereunder, the Type of each Loan
made and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) the amount of any sum received by
the Administrative Agent hereunder from the Borrower and each Lender's share
thereof.
(d) The entries made in the accounts maintained pursuant to
paragraphs (b) and (c) of this Section 2.06 shall be prima facie evidence of the
existence and amounts of the obligations therein recorded; provided, however,
that the failure of any Lender or the Administrative Agent to maintain such
accounts or any error therein shall not in any manner affect the obligations of
the Borrower to repay the Loans in accordance with their terms.
(e) Notwithstanding any other provision of this Agreement, in
the event any Lender shall request and receive a Note payable to such Lender and
its registered assigns (which Note shall be consistent in all respects with this
Agreement), the interests represented by that Note shall at all times (including
after any assignment of all or part of such interests pursuant to Section 9.04)
be represented by one or more Notes payable to the payee named therein or its
registered assigns.
SECTION 2.07. Fees. (a) The Borrowers agree to pay to the
Administrative Agent for the account of each Lender a facility fee (the
"Facility Fee"), which shall accrue at the Applicable Rate on the average daily
amount of the Commitment of such Lender (whether used or unused) during the
period from and including the date hereof to but excluding the date on
<PAGE> 27
21
which such Commitment terminates; provided that, if such Lender continues to
have any Revolving Credit Exposure after its Commitment terminates, then such
Facility Fee shall continue to accrue on the daily amount of such Lender's
Revolving Credit Exposure from and including the date on which its Commitment
terminates to but excluding the date on which such Lender ceases to have any
Revolving Credit Exposure. Accrued Facility Fees shall be payable in arrears on
the last day of March, June, September and December of each year, commencing on
the first such date to occur after the date hereof, and on the date on which the
Commitments shall have terminated and the Lenders shall have no further
Revolving Credit Exposures. All Facility Fees shall be computed on the basis of
a year of 360 days and shall be payable for the actual number of days elapsed
(including the first day but excluding the last day).
(b) The Borrower shall pay to the Administrative Agent for the
account of each Lender, for each Utilization Fee Day for such Lender, a
utilization fee (a "Utilization Fee") equal to 0.0625% per annum on the
aggregate amount of each Lender's outstanding Loans on such day. Accrued and
unpaid Utilization Fees, if any, shall be payable on the last day of each March,
June, September and December and on the date on which the Commitments shall have
terminated and no Loans shall be outstanding. All Utilization Fees shall be
computed on the basis of a year of 360 days and shall be payable for the actual
number of days elapsed (including the first day but excluding the last day).
"Utilization Fee Day" shall mean (i) as to each Lender with an effective
Commitment, each day on which the outstanding principal amount of Loans made by
all Lenders with effective Commitments shall be greater than 50% of the
aggregate Commitments, and (ii) as to each Lender the Commitment of which has
expired or been terminated, each day on which such Lender has any Loan
outstanding.
(c) The Borrowers agree to pay to the Administrative Agent,
for its own account, the fees set forth in the Fee Letter at the times specified
therein (the "Administrative Agent Fees").
(d) The Borrowers agree to pay to the Administrative Agent for
the accounts of the Lenders participation fees (the "Participation Fees") on the
Closing Date in the amounts separately agreed upon among the Borrowers and the
Administrative Agent.
(e) All Fees shall be paid on the dates due, in immediately
available funds, to the Administrative Agent for distribution, if and as
appropriate, among the Lenders. Once paid, none of the Fees shall be refundable
under any circumstances.
SECTION 2.08. Interest on Loans. (a) Subject to the provisions
of Section 2.09, the Loans comprising each ABR Borrowing shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 365
or 366 days, as the case may be, when determined by reference to the Prime Rate
and over a year of 360 days at all other times) at a rate per annum equal to the
Alternate Base Rate; provided that between November 1, 1999 and January 31,
2000, Loans comprising each ABR Borrowing shall bear interest (computed on the
basis of the actual number of days elapsed over a year of 360 days) at a rate
per annum equal
<PAGE> 28
22
to the highest of (x) the rate otherwise applicable to such Borrowing, (y) Prime
Rate and (z) Federal Funds Effective Rate plus the sum of 1.50% per annum and
the Applicable Rate.
(b) Subject to the provisions of Section 2.09, the Loans
comprising each Eurodollar Borrowing shall bear interest (computed on the basis
of the actual number of days elapsed over a year of 360 days) at a rate per
annum equal to (i) in the case of each Eurodollar Revolving Loan, the LIBO Rate
for the Interest Period in effect for such Borrowing plus the Applicable Rate;
provided that between November 1, 1999 and January 31, 2000, Loans comprising
each Eurodollar Revolving Borrowing shall bear interest (computed on the basis
of the actual number of days elapsed over a year of 360 days) at a rate per
annum equal to the highest of (x) the rate otherwise applicable to such
Borrowing, (y) Prime Rate and (z) Federal Funds Effective Rate plus the sum of
1.50% per annum and the Applicable Rate, and (ii) in the case of each Eurodollar
Competitive Loan, the LIBO Rate for the Interest Period in effect for such
Borrowing plus the Margin offered by the Lender making such Loan and accepted by
the applicable Borrower pursuant to Section 2.03.
(c) Subject to the provisions of Section 2.09, Fixed Rate
Loans shall bear interest (computed on the basis of the actual number of days
elapsed over a year of 360 days) at a rate per annum equal to the fixed rate of
interest offered by the Lender making such Loan and accepted by the applicable
Borrower pursuant to Section 2.03.
(d) Interest on each Loan shall be payable on the Interest
Payment Dates applicable to such Loan except as otherwise provided in this
Agreement. The applicable Alternate Base Rate or LIBO Rate for each Interest
Period or day within an Interest Period, as the case may be, shall be determined
by the Administrative Agent, and such determination shall be conclusive absent
manifest error.
SECTION 2.09. Default Interest. If a Borrower shall default in
the payment of the principal of or interest on any Loan or any other amount
becoming due hereunder, by acceleration or otherwise, such Borrower shall on
demand from time to time pay interest, to the extent permitted by law, on such
defaulted amount up to (but not including) the date of actual payment (after as
well as before judgment) at a rate per annum (computed on the basis of the
actual number of days elapsed over a year of 360 days) equal to the sum of (i)
the Alternate Base Rate (or the rate applicable to each ABR Borrowing between
November 1, 1999 and January 31, 2000, as the case may be), plus (ii) 2.00%.
SECTION 2.10. Alternate Rate of Interest. In the event, and on
each occasion, that on the day two Business Days prior to the commencement of
any Interest Period for a Eurodollar Borrowing the Administrative Agent shall
have determined that Dollar deposits in the principal amount of the Loans
comprising such Borrowing are not generally available in the London interbank
market, or that the rates at which such Dollar deposits are being offered will
not adequately and fairly reflect the cost to any Lender of making or
maintaining its Eurodollar Loan during such Interest Period, or that reasonable
means do not exist for ascertaining the LIBO Rate, the Administrative Agent
shall, as soon as practicable thereafter, give written or telecopy
<PAGE> 29
23
notice of such determination to the Borrowers and the Lenders. In the event of
any such determination, until the Administrative Agent shall have advised the
Borrowers and the Lenders that the circumstances giving rise to such notice no
longer exist, (i) any request by a Borrower for a Eurodollar Revolving Credit
Borrowing pursuant to Section 2.04 shall be deemed to be a request for an ABR
Borrowing and (ii) any request by a Borrower for a Eurodollar Competitive
Borrowing pursuant to Section 2.03 shall be of no force and effect and shall be
denied by the Administrative Agent. Each determination by the Administrative
Agent hereunder shall be conclusive absent manifest error.
SECTION 2.11. Termination and Reduction of Commitments. (a)
Unless previously terminated, the Revolving Credit Commitments shall be
automatically terminated on the Termination Date.
(b) Upon at least three Business Days' prior irrevocable
written or telecopy notice to the Administrative Agent, the Borrowers may at any
time in whole permanently terminate, or from time to time in part permanently
reduce, the Revolving Credit Commitments; provided, however, that (i) each
partial reduction of the Revolving Credit Commitments shall be in an integral
multiple of $1,000,000 and in a minimum principal amount of $5,000,000 and (ii)
the Total Revolving Credit Commitment shall not be reduced to an amount that is
less than the sum of the Aggregate Revolving Credit Exposure and the aggregate
outstanding amount of the Competitive Loans at the time, after giving effect to
any concurrent prepayment of the Loans in accordance with Section 2.12.
(c) Each reduction in the Revolving Credit Commitments
hereunder shall be made ratably among the Lenders in accordance with their
respective Commitments. The Borrowers shall pay to the Administrative Agent for
the account of the Lenders, on the date of each termination or reduction, the
Facility Fees on the amount of the Commitments so terminated or reduced accrued
to the date of such termination or reduction.
SECTION 2.12. Prepayment. (a) Each Borrower shall have the
right at any time and from time to time to prepay any Borrowing (other than a
Competitive Borrowing) consisting of Loans made to such Borrower, in whole or in
part, upon at least three Business Days' prior written or telecopy notice (or
telephone notice promptly confirmed by written or telecopy notice) to the
Administrative Agent before 11:00 a.m., New York City time; provided, however,
that each partial prepayment shall be in an amount which is an integral multiple
of $1,000,000 and not less than $5,000,000. The Borrowers shall not have the
right to prepay any Competitive Borrowing.
(b) In the event of any termination of the Revolving Credit
Commitments prior to the Termination Date, each Borrower shall repay or prepay
all its outstanding Revolving Credit Borrowings on the date of such termination.
In the event of any partial reduction of the Revolving Credit Commitments prior
to the Termination Date, then (i) at or prior to the effective date of such
reduction, the Administrative Agent shall notify the Borrowers and the Revolving
Credit Lenders of the Aggregate Revolving Credit Exposure and (ii) if the
Aggregate Revolving
<PAGE> 30
24
Credit Exposure would exceed the Total Revolving Credit Commitment after giving
effect to such reduction, then the Borrowers shall, on the date of such
reduction, repay or prepay Revolving Credit Borrowings in an amount sufficient
to eliminate such excess.
(c) Each notice of prepayment shall specify the prepayment
date and the principal amount of each Borrowing (or portion thereof) to be
prepaid, shall be irrevocable and shall commit the applicable Borrower to prepay
such Borrowing by the amount stated therein on the date stated therein. All
prepayments under this Section 2.12 shall be subject to Section 2.15 but
otherwise without premium or penalty. All prepayments under this Section 2.12
shall be accompanied by accrued interest on the principal amount being prepaid
to the date of payment.
SECTION 2.13. Reserve Requirements; Change in Circumstances.
(a) If after the date of this Agreement any change in applicable law or
regulation or in the interpretation or administration thereof by any
Governmental Authority charged with the interpretation or administration thereof
(whether or not having the force of law) shall change the basis of taxation of
payments to any Lender of the principal of or interest on any Eurodollar Loan or
Fixed Rate Loan made by such Lender or any Fees or other amounts payable
hereunder (other than changes in respect of taxes imposed on the overall net
income of such Lender by the jurisdiction in which such Lender has its principal
office or by any political subdivision or taxing authority therein), or shall
impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of or credit
extended by such Lender, or shall impose on such Lender or the London interbank
market (or other relevant interbank market) any other condition affecting this
Agreement or Eurodollar Loans or Fixed Rate Loans made by such Lender, and the
result of any of the foregoing shall be to increase the cost to such Lender of
making or maintaining any Eurodollar Loan, or to reduce the amount of any sum
received or receivable by such Lender hereunder (whether of principal, interest
or otherwise) by an amount deemed by such Lender to be material, then each
Borrower will pay to such Lender upon demand such additional amount or amounts
as will compensate such Lender for such additional costs incurred or reduction
suffered.
(b) If any Lender shall have determined that the adoption
after the date hereof of any law, rule, regulation, agreement or guideline
regarding capital adequacy, or any change after the date hereof in any such law,
rule, regulation, agreement or guideline (whether such law, rule, regulation,
agreement or guideline has been adopted) or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof, or compliance by any Lender (or any
lending office of such Lender) or any Lender's holding company with any request
or directive regarding capital adequacy (whether or not having the force of law)
of any Governmental Authority has or would have the effect of reducing the rate
of return on such Lender's capital or on the capital of such Lender's holding
company, if any, as a consequence of this Agreement or the Loans made by such
Lender pursuant hereto to a level below that which such Lender or such Lender's
holding company could have achieved but for such applicability, adoption, change
or compliance (taking into consideration such Lender's policies and the policies
of such Lender's holding company with
<PAGE> 31
25
respect to capital adequacy) by an amount deemed by such Lender to be material,
then from time to time each Borrower shall pay to such Lender such additional
amount or amounts as will compensate such Lender or such Lender's holding
company for any such reduction suffered.
(c) A certificate of a Lender setting forth the amount or
amounts necessary to compensate such Lender or its holding company as specified
in paragraph (a) or (b) above shall be delivered to the Borrowers and shall be
conclusive absent manifest error. Each Borrower shall pay each Lender the amount
shown as due from such Borrower on any such certificate delivered by it within
10 days after its receipt of the same.
(d) Failure or delay on the part of any Lender to demand
compensation for any increased costs or reduction in amounts received or
receivable or reduction in return on capital shall not constitute a waiver of
such Lender's right to demand such compensation. The protection of this Section
shall be available to each Lender regardless of any possible contention of the
invalidity or inapplicability of the law, rule, regulation, agreement, guideline
or other change or condition which shall have occurred or been imposed.
Notwithstanding any other provision of this Section, no Lender shall be entitled
to demand compensation hereunder in respect of any Competitive Loan if it shall
have been aware of the event or circumstance giving rise to such demand at the
time it submitted the Competitive Bid pursuant to which such Loan was made.
SECTION 2.14. Change in Legality. (a) Notwithstanding any
other provision herein, if, after the date hereof, any change in any law or
regulation or in the interpretation thereof by any Governmental Authority
charged with the administration or interpretation thereof shall make it unlawful
for any Lender to make or maintain any Eurodollar Loan or to give effect to its
obligations as contemplated hereby with respect to any Eurodollar Loan, then, by
written notice to the Borrowers and to the Administrative Agent:
(i) such Lender may declare that Eurodollar Loans will not
thereafter (for the duration of such unlawfulness or impracticability)
be made by such Lender hereunder, whereupon such Lender shall not
submit a Competitive Bid in response to a request for a Eurodollar
Competitive Loan and any request for a Eurodollar Borrowing, shall, as
to such Lender only, be deemed a request for an ABR Loan unless such
declaration shall be subsequently withdrawn (or, if a Loan to a
Borrower cannot be made for the reasons specified above, such request
shall be deemed to have been withdrawn); and
(ii) such Lender may require that all outstanding Eurodollar Loans
made by it be converted to ABR Loans, in which event all such
Eurodollar Loans shall be automatically converted to ABR Loans as of
the effective date of such notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal which would otherwise have been applied to
repay the Eurodollar Loans that would have been made by such Lender or the
converted Eurodollar Loans of such
<PAGE> 32
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Lender shall instead be applied to repay the ABR Loans made by such Lender in
lieu of, or resulting from the conversion of, such Eurodollar Loans.
(b) For purposes of this Section 2.14, a notice to a Borrower
by any Lender shall be effective as to each Eurodollar Loan, if lawful, on the
last day of the Interest Period currently applicable to such Eurodollar Loan; in
all other cases such notice shall be effective on the date of receipt by such
Borrower.
SECTION 2.15. Indemnity. The Borrowers shall indemnify each
Lender against any loss or expense which such Lender may sustain or incur as a
consequence of (a) any event, other than a default by such Lender in the
performance of its obligations hereunder, which results in (i) such Lender
receiving or being deemed to receive any amount on account of the principal of
any Loan prior to the end of the Interest Period in effect therefor or (ii) any
Loan to be made by such Lender not being made after notice of such Loan shall
have been given by a Borrower hereunder (any of the events referred to in this
clause (a) being called a "Breakage Event") or (b) any default in the making of
any payment or prepayment required to be made hereunder; provided, however, that
any Breakage Event caused by the prepayment by a Borrower of an ABR Loan shall
not result in such Borrower becoming liable to such Lender pursuant to this
Section 2.15. In the case of any Breakage Event, such loss shall include an
amount equal to the excess, as reasonably determined by such Lender, of (i) its
cost of obtaining funds for the Loan which is the subject of such Breakage Event
for the period from the date of such Breakage Event to the last day of the
Interest Period in effect (or which would have been in effect) for such Loan
over (ii) the amount of interest likely to be realized by such Lender in
redeploying the funds released or not utilized by reason of such Breakage Event
for such period. A certificate of any Lender setting forth any amount or amounts
which such Lender is entitled to receive pursuant to this Section shall be
delivered to the applicable Borrower and shall be conclusive absent manifest
error.
SECTION 2.16. Pro Rata Treatment. Except as provided in the
succeeding sentence with respect to Competitive Borrowings, as required under
Section 2.14 or as required under Section 2.22(c), (a) each Borrowing, each
payment of the Facility Fees and each reduction of the Revolving Credit
Commitments shall be allocated pro rata among the Lenders in accordance with
their respective applicable Commitments (or, as to any Lenders the Commitments
of which have been expired or been terminated, the respective principal amounts
of their outstanding Loans), (b) each payment or prepayment of principal of any
Borrowing (including any Borrowing comprised in part of Loans of Non-Extending
Lenders), each payment of interest on the Loans comprising any Borrowing and
each continuation or conversion of any Borrowing as or to a Borrowing of any
Type shall be allocated pro rata among the Lenders in accordance with the
respective principal amounts of their outstanding Loans comprising such
Borrowing and (c) each payment of Utilization Fees shall be allocated pro rata
among the Lenders in accordance with the amounts of such Utilization Fees
accrued for their respective accounts. Each payment of principal of any
Competitive Borrowing shall be allocated pro rata among the Lenders
participating in such Borrowing in accordance with the respective principal
amounts of their outstanding Competitive Loans comprising such Borrowing. Each
payment of
<PAGE> 33
27
interest on any Competitive Borrowing shall be allocated pro rata among the
Lenders participating in such Borrowing in accordance with the respective
amounts of accrued and unpaid interest on their outstanding Competitive Loans
comprising such Borrowing. For purposes of determining the available Revolving
Credit Commitment of each Lender at any time, each outstanding Competitive
Borrowing shall be deemed to have utilized the Revolving Credit Commitments of
the Lenders (including those Lenders which shall not have made Loans as part of
such Competitive Borrowing) pro rata in accordance with such respective
Revolving Credit Commitments. Each Lender agrees that in computing such Lender's
portion of any Borrowing to be made hereunder, the Administrative Agent may, in
its discretion, round each Lender's percentage of such Borrowing, computed in
accordance with Section 2.01, to the next higher or lower whole Dollar amount.
SECTION 2.17. Sharing of Setoffs. Each Lender agrees that if
it shall, through the exercise of a right of banker's lien, setoff or
counterclaim against a Borrower, or pursuant to a secured claim under Section
506 of Title 11 of the United States Code or other security or interest arising
from, or in lieu of, such secured claim, received by such Lender under any
applicable bankruptcy, insolvency or other similar law or otherwise, or by any
other means, obtain payment (voluntary or involuntary) in respect of any Loan or
Loans as a result of which the unpaid principal portion of its Loans shall be
proportionately less than the unpaid principal portion of the Loans of any other
Lender, it shall be deemed simultaneously to have purchased from such other
Lender at face value, and shall promptly pay to such other Lender the purchase
price for, a participation in the Loans of such other Lender, so that the
aggregate unpaid principal amount of the Loans and participations in Loans held
by each Lender shall be in the same proportion to the aggregate unpaid principal
amount of all Loans then outstanding as the principal amount of its Loans prior
to such exercise of banker's lien, setoff or counterclaim or other event was to
the principal amount of all Loans outstanding prior to such exercise of banker's
lien, setoff or counterclaim or other event; provided, however, that, if any
such purchase or purchases or adjustments shall be made pursuant to this Section
and the payment giving rise thereto shall thereafter be recovered, such purchase
or purchases or adjustments shall be rescinded to the extent of such recovery
and the purchase price or prices or adjustment restored without interest. The
Borrowers expressly consent to the foregoing arrangements and agree that any
Lender holding a participation in a Loan deemed to have been so purchased may
exercise any and all rights of banker's lien, setoff or counterclaim with
respect to any and all moneys owing by a Borrower to such Lender by reason
thereof as fully as if such Lender had made a Loan directly to such Borrower in
the amount of such participation.
SECTION 2.18. Payments. (a) The Borrowers shall make each
payment (including principal of or interest on any Borrowing or any Fees or
other amounts) hereunder and under any other Loan Document not later than 12:00
(noon), New York City time, on the date when due in immediately available funds
by wire transfer to such account as the Administrative Agent may designate. Each
such payment shall be made to the Administrative Agent at its offices at 270
Park Avenue, New York, New York. Each such payment shall be made in Dollars.
<PAGE> 34
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(b) Whenever any payment (including principal of or interest
on any Borrowing or any Fees or other amounts) hereunder or under any other Loan
Document shall become due, or otherwise would occur, on a day that is not a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of
interest or Fees, if applicable.
SECTION 2.19. Taxes. (a) Any and all payments by a Borrower
hereunder and under any other Loan Document shall be made, in accordance with
Section 2.18, free and clear of and without deduction for any and all current or
future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding (i) income taxes imposed on the net
income of the Administrative Agent or any Lender (or any transferee or assignee
thereof, including a participation holder (any such entity a "Transferee")) and
(ii) franchise taxes imposed on the net income of the Administrative Agent or
any Lender (or Transferee), in each case by the jurisdiction under the laws of
which the Administrative Agent or such Lender (or Transferee) is organized or
any political subdivision thereof (all such nonexcluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities, collectively or individually,
being called "Taxes"). If a Borrower shall be required to deduct any Taxes from
or in respect of any sum payable hereunder or under any other Loan Document to
the Administrative Agent or any Lender (or any Transferee), (i) the sum payable
shall be increased by the amount (an "additional amount") necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.19) the Administrative Agent or
such Lender (or Transferee), as the case may be, shall receive an amount equal
to the sum it would have received had no such deductions been made, (ii) such
Borrower shall make such deductions and (iii) such Borrower shall pay the full
amount deducted to the relevant Governmental Authority in accordance with
applicable law.
(b) In addition, each Borrower agrees to bear and to pay to
the relevant Governmental Authority in accordance with applicable law any
current or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies that arise from any payment made hereunder or
under any other Loan Document or from the execution, delivery or registration
of, or otherwise with respect to, this Agreement or any other Loan Document
("Other Taxes").
(c) Each Borrower will indemnify the Administrative Agent and
each Lender (or Transferee) for the full amount of Taxes and Other Taxes paid by
the Administrative Agent or such Lender (or Transferee), as the case may be, and
any liability (including penalties, interest and expenses (including reasonable
attorney's fees and expenses)) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted by
the relevant Governmental Authority. A certificate as to the amount of such
payment or liability prepared by the Administrative Agent or a Lender (or
Transferee), or the Administrative Agent on its behalf, absent manifest error,
shall be final, conclusive and binding for all purposes. Such indemnification
shall be made within 30 days after the date the Administrative Agent or any
Lender (or Transferee), as the case may be, makes written demand therefor.
<PAGE> 35
29
(d) If the Administrative Agent or a Lender (or Transferee)
shall become aware that it is entitled to claim a refund from a Governmental
Authority in respect of Taxes or Other Taxes as to which it has been indemnified
by the Borrowers, or with respect to which a Borrower has paid additional
amounts, pursuant to this Section 2.19, it shall promptly notify such Borrower
of the availability of such refund claim and shall, within 30 days after receipt
of a request by such Borrower, make a claim to such Governmental Authority for
such refund at such Borrower's expense. If the Administrative Agent or a Lender
(or Transferee) receives a refund (including pursuant to a claim for refund made
pursuant to the preceding sentence) in respect of any Taxes or Other Taxes as to
which it determines in its sole discretion that it has been indemnified by the
Borrowers or with respect to which a Borrower has paid additional amounts
pursuant to this Section 2.19, it shall within 30 days from the date of such
receipt pay over such refund to such Borrower (but only to the extent of
indemnity payments made, or additional amounts paid, by such Borrower under this
Section 2.19 with respect to the Taxes or Other Taxes giving rise to such
refund), net of all out-of-pocket expenses of the Administrative Agent or such
Lender (or Transferee) and without interest (other than interest paid by the
relevant Governmental Authority with respect to such refund); provided, however,
that such Borrower, upon the request of the Administrative Agent or such Lender
(or Transferee), agrees to repay the amount paid over to such Borrower (plus
penalties, interest or other charges) to the Administrative Agent or such Lender
(or Transferee) in the event the Administrative Agent or such Lender (or
Transferee) is required to repay such refund to such Governmental Authority.
(e) As soon as practicable after the date of any payment of
Taxes or Other Taxes by a Borrower to the relevant Governmental Authority, such
Borrower will deliver to the Administrative Agent, at its address referred to in
Section 9.01, the original or a certified copy of a receipt issued by such
Governmental Authority evidencing payment thereof.
(f) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section 2.19
shall survive the payment in full of the principal of and interest on all Loans
made hereunder.
(g) Each Lender (or Transferee) that is organized under the
laws of a jurisdiction other than the United States, any State thereof or the
District of Columbia (a "Non-U.S. Lender") shall deliver to the Borrowers and
the Administrative Agent two copies of either United States Internal Revenue
Service Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming
exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of
the Code with respect to payments of "portfolio interest", a Form W-8, or any
subsequent versions thereof or successors thereto (and, if such Non-U.S. Lender
delivers a Form W-8, a certificate representing that such Non-U.S. Lender is not
a bank for purposes of Section 881(c) of the Code, is not a 10-percent
shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of a
Borrower and is not a controlled foreign corporation related to a Borrower
(within the meaning of Section 864(d)(4) of the Code)), properly completed and
duly executed by such Non-U.S. Lender claiming complete exemption from, or
reduced rate of, U.S. Federal withholding tax on payments by a Borrower under
this Agreement and the other Loan Documents. Such forms shall
<PAGE> 36
30
be delivered by each Non-U.S. Lender on or before the date it becomes a party to
this Agreement (or, in the case of a Transferee that is a participation holder,
on or before the date such participation holder becomes a Transferee hereunder)
and on or before the date, if any, such Non-U.S. Lender changes its applicable
lending office by designating a different lending office (a "New Lending
Office"). In addition, each Non-U.S. Lender shall deliver such forms promptly
upon the obsolescence or invalidity of any form previously delivered by such
Non-U.S. Lender. Notwithstanding any other provision of this Section 2.19(g), a
Non-U.S. Lender shall not be required to deliver any form pursuant to this
Section 2.19(g) that such Non-U.S. Lender is not legally able to deliver.
(h) The Borrowers shall not be required to indemnify any
Non-U.S. Lender or to pay any additional amounts to any Non-U.S. Lender, in
respect of United States Federal withholding tax pursuant to paragraph (a) or
(c) above to the extent that (i) the obligation to withhold amounts with respect
to United States Federal withholding tax existed on the date such Non U.S.
Lender became a party to this Agreement (or, in the case of a Transferee that is
a participation holder, on the date such participation holder became a
Transferee hereunder) or, with respect to payments to a New Lending Office, the
date such Non-U.S. Lender designated such New Lending Office with respect to a
Loan; provided, however, that this paragraph (h) shall not apply (x) to any
Transferee or New Lending Office that becomes a Transferee or New Lending Office
as a result of an assignment, participation, transfer or designation made at the
request of a Borrower and (y) to the extent the indemnity payment or additional
amounts any Transferee, or any Lender (or Transferee), acting through a New
Lending Office, would be entitled to receive (without regard to this paragraph
(h)) do not exceed the indemnity payment or additional amounts that the person
making the assignment, participation or transfer to such Transferee, or Lender
(or Transferee) making the designation of such New Lending Office, would have
been entitled to receive in the absence of such assignment, participation,
transfer or designation or (ii) the obligation to pay such additional amounts
would not have arisen but for a failure by such Non-U.S. Lender to comply with
the provisions of paragraph (g) above.
(i) Any Lender (or Transferee) claiming any indemnity payment
or additional amounts payable pursuant to this Section 2.19 shall use reasonable
efforts (consistent with legal and regulatory restrictions) to file any
certificate or document reasonably requested in writing by a Borrower or to
change the jurisdiction of its applicable lending office if the making of such a
filing or change would avoid the need for or reduce the amount of any such
indemnity payment or additional amounts that may thereafter accrue and would
not, in the sole determination of such Lender (or Transferee), be otherwise
disadvantageous to such Lender (or Transferee).
(j) Nothing contained in this Section 2.19 shall require any
Lender (or any Transferee) or the Administrative Agent to make available any of
its tax returns (or any other information that it deems to be confidential or
proprietary).
SECTION 2.20. Assignment of Commitments Under Certain
Circumstances. (a) In the event (i) any Lender delivers a certificate requesting
compensation pursuant to Section 2.13, (ii) any Lender delivers a notice
described in Section 2.14, (iii) a Borrower is
<PAGE> 37
31
required to pay any additional amount to any Lender or any Governmental
Authority on account of any Lender pursuant to Section 2.19 or (iv) the
short-term ratings of any Lender drop below A-1 or P-1, such Borrower may, at
its sole expense, effort and discretion, upon notice to such Lender and the
Administrative Agent, require such Lender to transfer and assign, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all of its interests, rights and obligations under this Agreement
(other than any outstanding Competitive Loans held by it) to an assignee which
shall assume such assigned obligations (which assignee may be another Lender, if
a Lender accepts such assignment); provided that (x) such assignment shall not
conflict with any law, rule or regulation or order of any court or other
Governmental Authority having jurisdiction, (y) such Borrower shall have
received the prior written consent of the Administrative Agent, which consent
shall not unreasonably be withheld, and (z) such Borrower or such assignee shall
have paid to the affected Lender in immediately available funds an amount equal
to the sum of the principal of and interest accrued to the date of such payment
on the outstanding Loans (other than Competitive Loans) of such Lender plus all
Fees and other amounts accrued for the account of such Lender hereunder
(including any amounts under Section 2.13 and Section 2.15); provided further
that if prior to any such transfer and assignment the circumstances or event
that resulted in such Lender's claim for compensation under Section 2.13 or
notice under Section 2.14 or the amounts paid pursuant to Section 2.19, as the
case may be, cease to cause such Lender to suffer increased costs or reductions
in amounts received or receivable or reduction in return on capital, or cease to
have the consequences specified in Section 2.14, or cease to result in amounts
being payable under Section 2.19, as the case may be (including as a result of
any action taken by such Lender pursuant to paragraph (b) below), or if such
Lender shall waive its right to claim further compensation under Section 2.13 in
respect of such circumstances or event or shall withdraw its notice under
Section 2.14 or shall waive its right to further payments under Section 2.19 in
respect of such circumstances or event, as the case may be, then such Lender
shall not thereafter be required to make any such transfer and assignment
hereunder.
(b) If (i) any Lender shall request compensation under Section
2.13, (ii) any Lender delivers a notice described in Section 2.14 or (iii) a
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority on account of any Lender, pursuant to Section 2.19, then,
such Lender shall exercise reasonable efforts (which shall not require such
Lender to incur an unreimbursed loss or unreimbursed cost or expense or
otherwise take any action inconsistent with its internal policies or suffer any
disadvantage or burden deemed by it to be significant) to assign its rights and
delegate and transfer its obligations hereunder to another of its offices,
branches or affiliates, if such assignment would reduce its claims for
compensation under Section 2.13 or enable it to withdraw its notice pursuant to
Section 2.14 or would reduce amounts payable pursuant to Section 2.19, as the
case may be, in the future. The Borrowers hereby agree to pay all reasonable
costs and expenses incurred by any Lender in connection with any such
assignment, delegation and transfer.
SECTION 2.21. Cross Guaranty. Each Guarantor unconditionally
guarantees, as a primary obligor and not merely as a surety, jointly and
severally with the other Guarantor, (a) the due and punctual payment of (i) the
principal of and premium, if any, and interest on the Loans, when and as due,
whether at maturity, by acceleration, upon one or more dates set for
<PAGE> 38
32
prepayment or otherwise, and (ii) all other monetary obligations (other than
those referred to in the preceding clause (i)) of the Borrowers under the Loan
Documents and (b) the due and punctual performance of all covenants, agreements,
obligations and liabilities of the Borrowers under or pursuant to the Loan
Documents (collectively, the "Obligations"). Each Guarantor further agrees that
the Obligations may be extended and renewed, in whole or in part, without notice
to or further assent from it, and that it will remain bound upon its guarantee
notwithstanding any extension or renewal of any Obligation.
Each Guarantor waives presentment to, demand of payment from
and protest to the Borrowers of any of the Obligations, and also waives notice
of acceptance of its guarantee and notice of protest for nonpayment. The
obligations of a Guarantor hereunder shall not be affected by (a) the failure of
any Lender or the Administrative Agent to assert any claim or demand or to
enforce any right or remedy against the Borrowers or the other Guarantor under
the provisions of this Agreement or any of the other Loan Documents or
otherwise; (b) any rescission, waiver, amendment or modification of any of the
terms or provisions of this Agreement any of the other Loan Documents, any
guarantee or any other agreement; or (c) the failure of any Lender to exercise
any right or remedy against any other guarantor of the Obligations.
Each Guarantor further agrees that its guarantee constitutes a
guarantee of payment when due and not of collection, and waives any right to
require that any resort be had by any Lender to any balance of any deposit
account or credit on the books of any Lender in favor or any Borrower or any
other person.
The obligations of each Guarantor hereunder shall not be
subject to any reduction, limitation, impairment or termination for any reason,
including, without limitation, compromise, and shall not be subject to any
defense or setoff, counterclaim, recoupment or termination whatsoever by reason
of the invalidity, illegality or unenforceability of the Obligations or
otherwise. Without limiting the generality of the foregoing, the obligations of
each Guarantor hereunder shall not be discharged or impaired or otherwise
affected by the failure of the Administrative Agent or any Lender to assert any
claim or demand or to enforce any remedy under this Agreement or under any other
Loan Document, any guarantee or any other agreement, by any waiver or
modification in respect of any thereof, by any default, failure or delay, wilful
or otherwise, in the performance of the Obligations, or by any other act or
omission which may or might in any manner or to any extent vary the risk of such
Guarantor or otherwise operate as a discharge of such Guarantor as a matter of
law or equity.
Each Guarantor further agrees that its guarantee shall
continue to be effective or be reinstated, as the case may be, if at any time
payment, or any part thereof, of principal of or interest on any Obligation is
rescinded or must otherwise be restored by the Administrative Agent or any
Lender upon the bankruptcy or reorganization of any of the Borrowers or
otherwise.
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33
In furtherance of the foregoing and not in limitation of any
other right which the Administrative Agent or any Lender may have at law or in
equity against any Guarantor by virtue hereof, upon the failure of a Borrower to
pay any Obligation when and as the same shall become due, whether at maturity,
by acceleration, after notice of prepayment or otherwise, each Guarantor hereby
promises to and will, upon receipt of written demand by the Administrative
Agent, forthwith pay, or cause to be paid, in cash the amount of such unpaid
Obligations, and thereupon each Lender shall, in a reasonable manner, assign the
amount of the Obligations owed to it and paid by such Guarantor pursuant to this
guarantee to such Guarantor, such assignment to be pro tanto to the extent to
which the Obligations in question were discharged by such Guarantor, or make
such disposition thereof as such Guarantor shall direct (all without recourse to
any Lender and without any representation or warranty by any Lender).
Upon payment by a Guarantor of any sums as provided above, all
rights of such Guarantor against a Borrower, as the case may be, arising as a
result thereof by way of right of subrogation or otherwise shall in all respects
be subordinated and junior in right of payment to the prior indefeasible payment
in full of all the Obligations to the Lenders.
SECTION 2.22. Extension of Termination Date. (a) The Borrowers
may, by notice to the Administrative Agent in the form of Exhibit C hereto
(which shall promptly deliver a copy to each of the Lenders) not less than 45
days and not more than 60 days prior to the Termination Date then in effect (the
"Existing Termination Date"), request that the Lenders extend the Termination
Date for an additional 364 days from the Existing Termination Date. Each Lender
shall, by notice to the Borrowers and the Administrative Agent given not less
than 20 and not more than 30 days prior to the Existing Termination Date, advise
the Borrowers whether or not such Lender agrees to such extension (and any
Lender that does not advise the Borrowers on or before the later of such days
shall be deemed to have advised the Borrowers that it will not agree to such
extension).
(b) The Borrower shall have the right, on or before the
Existing Termination Date, to require any Lender which shall have advised or
been deemed to advise the Borrower that it will not agree to an extension of the
Termination Date (each a "Non-Extending Lender") to transfer without recourse
(in accordance with and subject to the restrictions contained in Section 9.04)
all its interests, rights and obligations under this Agreement to one or more
other banks or other financial institutions (any such bank or other financial
institution being called a "Substitute Lender"), which may include any Lender;
provided that (i) such Substitute Lender, if not already a Lender hereunder,
shall have been approved by the Administrative Agent (which approval shall not
be unreasonably withheld) and shall execute all such documentation as the
Administrative Agent shall specify to evidence its status as a Lender hereunder,
(ii) such assignment shall become effective as of the Existing Termination Date
and (iii) the Borrower or such Substitute Lender shall pay to such Non-Extending
Lender in immediately available funds on the effective date of such assignment
the principal of and interest accrued to the date of payment on the Loans made
by it hereunder and all other amounts accrued for its account or owed to it
hereunder.
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34
(c) If (and only if) Lenders (including Substitute Lenders)
holding Commitments that represent at least 66_% of the Total Commitment on the
60th day prior to the Existing Termination Date shall have agreed to extend the
Existing Termination Date (the "Continuing Lenders"), then the Termination Date
shall be extended to the date 364 days after the Existing Termination Date
(provided, that if such date is not a Business Day, then the Termination Date
shall be extended to the next preceding Business Day). The decision to agree or
withhold agreement to any extension of the Termination Date hereunder shall be
at the sole discretion of each Lender. The Commitment of each Non-Extending
Lender (after giving effect to each transfer and assignment pursuant to
paragraph (b) above) shall terminate, any accrued Facility Fee on the amount of
the Commitment of such Non-Extending Lender shall be paid on the Existing
Termination Date and all Loans of such Non-Extending Lender shall become due and
payable, together with all interest accrued thereon and all other amounts owed
to such Lender hereunder, on the Revolving Credit Maturity Date in effect prior
to the extension of the Existing Termination Date.
Notwithstanding the foregoing, no extension of the Termination
Date shall be effective with respect to any Lender unless, on and as of the
Existing Termination Date, the conditions set forth in paragraphs (b) and (c) of
Section 4.01 shall be satisfied (with all references in such paragraphs to a
Credit Event being deemed to be references to such extension) and the Agent
shall have received a certificate to that effect, dated the Existing Termination
Date and executed by a Responsible Officer of the Borrower.
SECTION 2.23. Increase in Commitments. (a) The Borrowers may,
by written notice to the Administrative Agent executed by the Borrowers and one
or more banks or other financial institutions (any such bank or other financial
institution referred to in this clause (a) being called an "Augmenting Lender"),
which may include any Lender, cause the Commitments of the Augmenting Lenders to
be increased (or cause Commitments to be extended by the Augmenting Lenders, as
the case may be) in an amount for each Augmenting Lender set forth in such
notice and an aggregate amount not less than $50,000,000, provided, that the
total Commitments shall in no event be increased to an amount greater than
$500,000,000; provided further, that each Augmenting Lender, if not already a
Lender hereunder, shall be subject to the approval of the Administrative Agent
(which approval shall not be unreasonably withheld) and each Augmenting Lender
shall execute all such documentation as the Administrative Agent shall specify
to evidence its Commitment and its status as a Lender hereunder. Increases and
new Commitments created pursuant to this clause (a) shall become effective on
the date specified in the notice delivered pursuant to this paragraph. Each
existing Lender whose Commitment is not increased pursuant to this Section 2.23
is hereby referred to as a "Non-Increasing Lender". Notwithstanding the
foregoing, no increase in the total Commitments (or in the Commitment of any
Lender) shall become effective under this paragraph unless, (i) on the date of
such increase, the conditions set forth in paragraphs (b) and (c) of Section
4.01 shall be satisfied (with all references in such paragraphs to a Credit
Event being deemed to be references to such increase) and the Administrative
Agent shall have received a certificate to that effect dated such date and
executed by a Financial Officer of the Borrower, and (ii) the Administrative
Agent shall have received (with sufficient copies for each of the Lenders)
documents consistent with those
<PAGE> 41
35
delivered on the Closing Date under clauses (a) and (c) of Section 4.02 as to
the corporate power and authority of the Borrower to borrow hereunder after
giving effect to such increase.
(b) On the effective date (the "Increase Effective Date") of
any increase in the total Commitments pursuant to Section 2.23(a) (the
"Commitment Increase"), (i) the aggregate principal amount of the Loans
outstanding (the "Initial Loans") immediately prior to giving effect to the
Commitment Increase on the Increase Effective Date shall be deemed to be paid,
(ii) each Augmenting Lender that shall have been a Lender prior to the
Commitment Increase shall pay to the Administrative Agent in same day funds an
amount equal to the difference between (A) the product of (1) such Lender's
Applicable Percentage (calculated after giving effect to the Commitment
Increase) multiplied by (2) the amount of the Subsequent Borrowings (as
hereinafter defined) and (B) the product of (1) such Lender's Applicable
Percentage (calculated without giving effect to the Commitment Increase)
multiplied by (2) the amount of the Initial Loans, (iii) each Augmenting Lender
that shall not have been a Lender prior to the Commitment Increase shall pay to
Administrative Agent in same day funds an amount equal to the product of (1)
such Augmenting Lender's Applicable Percentage (calculated after giving effect
to the Commitment Increase) multiplied by (2) the amount of the Subsequent
Borrowings, and (iv) after the Administrative Agent receives the funds specified
in clauses (ii) and (iii) above, the Administrative Agent shall pay to each
Non-Increasing Lender the portion of such funds that is equal to the difference
between (A) the product of (1) such Non-Increasing Lender's Applicable
Percentage (calculated without giving effect to the Commitment Increase)
multiplied by (2) the amount of the Initial Loans, and (B) the product of (1)
such Non-Increasing Lender's Applicable Percentage (calculated after giving
effect to the Commitment Increase) multiplied by (2) the amount of the
Subsequent Borrowings, (v) after the effectiveness of the Commitment Increase,
the Borrower shall be deemed to have made new Borrowings (the "Subsequent
Borrowings") in an aggregate principal amount equal to the aggregate principal
amount of the Initial Loans and of the types and for the Interest Periods
specified in a Borrowing Request delivered to the Administrative Agent in
accordance with Section 2.04, (vi) each Non-Increasing Lender and each
Augmenting Lender shall be deemed to hold its Applicable Percentage of each
Subsequent Borrowing (calculated after giving effect to the Commitment Increase)
and (vii) the Borrower shall pay each Augmenting Lender that shall have been a
Lender prior to the Commitment Increase and each Non-Increasing Lender any and
all accrued but unpaid interest on the Initial Loans. The deemed payments made
pursuant to clause (i) above in respect of each Eurodollar Loan shall be subject
to indemnification by the Borrower pursuant to the provisions of Section 2.15 if
the Increase Effective Date occurs other than on the last day of the Interest
Period relating thereto.
<PAGE> 42
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ARTICLE III. REPRESENTATIONS AND WARRANTIES
Each Borrower represents and warrants to each of the Lenders
that:
SECTION 3.01. Organization; Powers. (a) Each Borrower and each
of the Subsidiaries (i) is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization, (ii) has
all requisite power and authority to own its property and assets and to carry on
its business as now conducted and as proposed to be conducted, (iii) is
qualified to do business in every jurisdiction where such qualification is
required, except where the failure so to qualify would not result in a Material
Adverse Effect, and (iv) has the corporate power and authority to execute,
deliver and perform its obligations under each of the Loan Documents and each
other agreement or instrument contemplated thereby to which it is or will be a
party and, in the case of each Borrower, to borrow hereunder.
(b) Popular is duly registered as a bank holding company under
the Bank Holding Company Act of 1956, as amended.
SECTION 3.02. Authorization. The execution, delivery and
performance by each Borrower of each of the Loan Documents and the borrowings
hereunder (collectively, the "Transactions") (a) have been duly authorized by
all requisite corporate and, if required, stockholder action and (b) will not
(i) violate (A) any provision of law, statute, rule or regulation, or of the
certificate or articles of incorporation or other constitutive documents or
by-laws of such Borrower or any Subsidiary, (B) any order of any Governmental
Authority or (C) any provision of any indenture, agreement or other instrument
to which such Borrower or any Subsidiary is a party or by which any of them or
any of their property is or may be bound, (ii) be in conflict with, result in a
breach of or constitute (alone or with notice or lapse of time or both) a
default under any such indenture, agreement or other instrument or (iii) result
in the creation or imposition of any Lien upon or with respect to any property
or assets now owned or hereafter acquired by such Borrower or any Subsidiary.
SECTION 3.03. Enforceability. This Agreement has been duly
executed and delivered by each Borrower and constitutes, and each other Loan
Document when executed and delivered by such Borrower will constitute, a legal,
valid and binding obligation of such Borrower enforceable against such Borrower
in accordance with its terms.
SECTION 3.04. Governmental Approvals. No action, consent or
approval of, registration or filing with or any other action by any Governmental
Authority is or will be required in connection with the Transactions, except for
such as have been made or obtained and are in full force and effect.
SECTION 3.05. Financial Statements. Popular has heretofore
furnished to the Lenders its consolidated balance sheets and statements of
income and changes in financial condition (i) as of and for the fiscal year
ended December 31, 1998, audited by and accompanied by the opinion of
PricewaterhouseCoopers L.L.P., independent public accountants, and (ii) as
<PAGE> 43
37
of and for the fiscal quarter and portion of the fiscal year ended June 30,
1999. Such financial statements present fairly the financial condition and
results of operations of Popular and its consolidated Subsidiaries as of such
dates and for such periods. Such balance sheets and the notes thereto disclose
all material liabilities, direct or contingent, of the Popular and its
consolidated Subsidiaries as of the dates thereof. Such financial statements
were prepared in accordance with GAAP applied on a consistent basis subject to,
in the case of the statements referred to in clause (ii) above, normal year-end
audit adjustments and the absence of footnotes.
SECTION 3.06. No Material Adverse Change. There has been no
material adverse change in the business, assets, operations, prospects or
condition, financial or otherwise, of the Borrowers and the Subsidiaries, taken
as a whole, since December 31, 1998.
SECTION 3.07. Title to Properties; Possession Under Leases.
(a) Each of the Borrowers and the Subsidiaries has good and marketable title to,
or valid leasehold interests in, all its material properties and assets, except
for minor defects in title that do not interfere with its ability to conduct its
business as currently conducted or to utilize such properties and assets for
their intended purposes. All such material properties and assets are free and
clear of Liens prohibited by Section 6.01.
(b) Each of the Borrowers and the Subsidiaries has complied
with all obligations under all material leases to which it is a party and all
such leases are in full force and effect. Each of the Borrowers and the
Subsidiaries enjoys peaceful and undisturbed possession under all such material
leases.
SECTION 3.08. Subsidiaries. Schedule 3.08 sets forth a
complete and correct list, as of the date hereof, of all Subsidiaries. Except as
set forth in Schedule 3.08, all the issued and outstanding shares of capital
stock or the partnership interests, as the case may be, of each of the
Subsidiaries have been validly issued and are fully paid and nonassessable and
are owned directly or indirectly by either of the Borrowers free and clear of
all Liens whatsoever, and there are no options, warrants, calls, conversion or
exchange rights, commitments or agreements of any character obligating any of
the Subsidiaries to issue, deliver or sell additional shares of capital stock of
any class or any securities convertible into or exchangeable for any such
capital stock or any additional partnership interests.
SECTION 3.09. Litigation; Compliance with Laws. (a) Except as
set forth in Schedule 3.09, there are not any actions, suits or proceedings at
law or in equity or by or before any Governmental Authority now pending or, to
the knowledge of either of the Borrowers, threatened against or affecting either
of the Borrowers or any Subsidiary or any business, property or rights of any
such person (i) which involve any Loan Document or the Transactions or (ii) as
to which there is a reasonable possibility of an adverse determination and
which, if adversely determined, could, individually or in the aggregate, result
in a Material Adverse Effect.
(b) None of the Borrowers or any of the Subsidiaries or any of
their respective material properties or assets is in violation of, nor will the
continued operation of their material
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properties and assets as currently conducted violate, any law, rule or
regulation, or is in default with respect to any judgment, writ, injunction or
decree of any Governmental Authority, where such violation or default could
result in a Material Adverse Effect.
SECTION 3.10. Agreements. (a) Neither of the Borrowers nor any
of the Subsidiaries is a party to any agreement or instrument or subject to any
corporate restriction that has resulted or could result in a Material Adverse
Effect.
(b) Neither of the Borrowers nor any of the Subsidiaries is in
default in any manner under any provision of any indenture or other agreement or
instrument evidencing Indebtedness, or any other material agreement or
instrument to which it is a party or by which it or any of its properties or
assets are or may be bound, where such default could result in a Material
Adverse Effect.
SECTION 3.11. Federal Reserve Regulations. (a) Neither of the
Borrowers nor any of the Subsidiaries is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
(b) No part of the proceeds of any Loan will be used, whether
directly or indirectly, and whether immediately, incidentally or ultimately, (i)
to purchase or carry Margin Stock or to extend credit to others for the purpose
of purchasing or carrying Margin Stock or to refund indebtedness originally
incurred for such purpose, or (ii) for any purpose which entails a violation of,
or which is inconsistent with, the provisions of the Regulations of the Board,
including Regulation U or X.
SECTION 3.12. Investment Company Act; Public Utility Holding
Company Act. Neither of the Borrowers nor any Subsidiary is (a) an "investment
company" as defined in, or subject to regulation under, the Investment Company
Act of 1940 or (b) a "holding company" as defined in, or subject to regulation
under, the Public Utility Holding Company Act of 1935.
SECTION 3.13. Use of Proceeds. The Borrowers will use the
proceeds of the Loans only for the purposes specified in the preamble to this
Agreement.
SECTION 3.14. Tax Returns. Each of the Borrowers and the
Subsidiaries has filed or caused to be filed all Federal, state and local tax
returns required to have been filed by it and has paid or caused to be paid all
taxes due and payable by it and all assessments received by it, except taxes
that are being contested in good faith by appropriate proceedings and for which
a Borrower shall have set aside on its books adequate reserves.
SECTION 3.15. No Material Misstatements. No information,
report, financial statement, exhibit or schedule furnished by or on behalf of a
Borrower to the Administrative Agent or any Lender in connection with the
negotiation of any Loan Document or included therein or delivered pursuant
thereto contained, contains or will contain any material misstatement of fact or
omitted, omits or will omit to state any material fact necessary to make
<PAGE> 45
39
the statements therein, in the light of the circumstances under which they were,
are or will be made, not misleading.
SECTION 3.16. Employee Benefit Plans. Each of the Borrowers
and their respective ERISA Affiliates is in compliance in all material respects
with the applicable provisions of ERISA and the Code and the regulations and
published interpretations thereunder. No Reportable Event has occurred in
respect of any Plan of a Borrower or any ERISA Affiliate. The present value of
all benefit liabilities under each Plan (based on those assumptions used to fund
such Plan) did not, as of the last annual valuation date applicable thereto,
exceed by more than $10,000,000 the value of the assets of such Plan, and the
present value of all benefit liabilities of all underfunded Plans (based on
those assumptions used to fund each such Plan) did not, as of the last annual
valuation dates applicable thereto, exceed by more than $10,000,000 the value of
the assets of all such underfunded Plans. Neither of the Borrowers nor any ERISA
Affiliate has incurred any Withdrawal Liability that materially adversely
affects the financial condition of a Borrower and its ERISA Affiliates taken as
a whole. Neither of the Borrowers nor any ERISA Affiliate has received any
notification that any Multiemployer Plan is in reorganization or has been
terminated, within the meaning of Title IV of ERISA, and no Multiemployer Plan
is reasonably expected to be in reorganization or to be terminated, where such
reorganization or termination has resulted or can reasonably be expected to
result in an increase in the contributions required to be made to such Plan that
would materially and adversely affect the financial condition of a Borrower and
its ERISA Affiliates taken as a whole.
SECTION 3.17. Environmental and Safety Matters. The Borrowers
are aware of no events, conditions or circumstances involving environmental
pollution or contamination or employee health or safety that could reasonably be
expected to result in a Material Adverse Effect.
SECTION 3.18. Capital Commitments. Popular is not a party to
any Capital Commitment, other than such Capital Commitments entered into after
the Closing Date that, individually and in the aggregate, could not reasonably
be expected to have a Material Adverse Effect.
SECTION 3.19. Year 2000. Any reprogramming required to permit
the proper functioning, in and following the year 2000, of (i) the Borrower's
computer systems and equipment containing embedded microchips (including systems
and equipment supplied by others or with which Borrower's systems interface) and
the testing of all such systems and equipment, as so reprogrammed, has been
completed. The cost to the Borrower of such reprogramming and testing and of the
reasonably foreseeable consequences of year 2000 to the Borrower (including,
without limitation, reprogramming errors and the failure of others' systems or
equipment) has not resulted and will not result in a Default or a Material
Adverse Effect. Except for such of the reprogramming referred to in the
preceding sentence as may be necessary, the computer and management information
systems of the Borrower and its Subsidiaries are and,
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40
with ordinary course upgrading and maintenance, will continue for the term of
this Agreement to be, sufficient to permit the Borrower to conduct its business
without Material Adverse Effect.
ARTICLE IV. CONDITIONS OF LENDING
The obligations of the Lenders to make Loans hereunder are
subject to the satisfaction of the following conditions:
SECTION 4.01. All Credit Events. On the date of each
Borrowing, including each Borrowing in which Loans are refinanced with new Loans
as contemplated by Section 2.02(f) (each such event being called a "Credit
Event"):
(a) The Administrative Agent shall have received a notice of
such Borrowing as required by Section 2.03 or 2.04, as applicable (or
such notice shall have been deemed given in accordance with the last
paragraph of Section 2.04).
(b) The representations and warranties set forth in Article
III (other than, in the case of a Borrowing that does not increase the
aggregate outstanding principal amount of the Loans of any Lender,
Sections 3.06 and 3.09(a)) shall be true and correct in all material
respects on and as of the date of such Credit Event with the same
effect as though made on and as of such date, except to the extent such
representations and warranties expressly relate to an earlier date.
(c) Each Borrower shall be in compliance with all the terms
and provisions set forth herein and in each other Loan Document on its
part to be observed or performed, and at the time of and immediately
after such Credit Event, no Event of Default or Default shall have
occurred and be continuing.
Each Credit Event shall be deemed to constitute a representation and warranty by
each Borrower on the date of such Credit Event as to the matters specified in
paragraphs (b) and (c) of this Section 4.01.
SECTION 4.02. First Credit Event. On the Closing Date:
(a) The Administrative Agent shall have received, on behalf of
itself and the Lenders, a favorable written opinion of Estela Martinez
de Miranda, Esq., Assistant Vice President and Legal Counsel for the
Borrowers, substantially to the effect set forth in Exhibit B (A) dated
the Closing Date, (B) addressed to the Administrative Agent and the
Lenders, and (C) covering such other matters relating to the Loan
Documents and the Transactions as the Administrative Agent shall
reasonably request, and the Borrowers hereby instruct such counsel to
deliver such opinion.
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41
(b) All legal matters incident to this Agreement, the
borrowings and extensions of credit hereunder and the other Loan
Documents shall be satisfactory to the Lenders and to Cravath, Swaine &
Moore, counsel for the Administrative Agent.
(c) The Administrative Agent shall have received (i) a copy of
the certificate or articles of incorporation, including all amendments
thereto, of each Borrower, certified as of a recent date by the
Secretary of State of the state of its organization, and a letter
sealed by such Secretary of State from each Borrower requesting a
certificate as to the good standing of each Borrower as of a recent
date from such Secretary of State; (ii) a certificate of the Secretary
or Assistant Secretary of each Borrower dated the Closing Date and
certifying (A) that attached thereto is a true and complete copy of the
by-laws of such Borrower as in effect on the Closing Date and at all
times since a date prior to the date of the resolutions described in
clause (B) below, (B) that attached thereto is a true and complete copy
of resolutions duly adopted by the Board of Directors of such Borrower
authorizing the execution, delivery and performance of the Loan
Documents and the borrowings hereunder, and that such resolutions have
not been modified, rescinded or amended and are in full force and
effect, (C) that the certificate or articles of incorporation of such
Borrower have not been amended since the date of the last amendment
thereto which date will be shown on the certificate of good standing to
be furnished pursuant to Section 5.04(g), and (D) as to the incumbency
and specimen signature of each officer executing any Loan Document or
any other document delivered in connection herewith on behalf of such
Borrower; (iii) a certificate of another officer of each Borrower as to
the incumbency and specimen signature of the Secretary or Assistant
Secretary of such Borrower executing the certificate pursuant to (ii)
above; and (iv) such other documents as the Lenders or Cravath, Swaine
& Moore, counsel for the Administrative Agent, may reasonably request.
(d) The Administrative Agent shall have received a certificate
of each Borrower, dated the Closing Date and signed by a Financial
Officer of such Borrower, confirming compliance with the conditions
precedent set forth in paragraphs (b) and (c) of Section 4.01.
(e) The Administrative Agent shall have received the financial
statements referred to in Section 3.05.
(f) The Administrative Agent shall have received all Fees and
other amounts due and payable hereunder on or prior to the Closing
Date, including, to the extent invoiced, reimbursement or payment of
all out-of-pocket expenses required to be reimbursed or paid by the
Borrowers hereunder or under any other Loan Document.
(g) No Loans shall be outstanding under the Pre-Restatement
Credit Agreement and all interest and fees accrued under such
Pre-Restatement Credit Agreement through the Closing Date shall have
been paid.
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(h) The Administrative Agent shall have received a certificate
of a Financial Officer of each of the Borrowers certifying as to (i)
the termination of the Pre-Restatement Credit Agreement, and (ii) the
payment in full of all obligations of the Borrowers outstanding under
the Pre-Restatement Credit Agreement.
ARTICLE V. AFFIRMATIVE COVENANTS
Each Borrower covenants and agrees with each Lender that so
long as this Agreement shall remain in effect and until the Commitments have
been terminated and the principal of and interest on each Loan, all Fees and all
other expenses or amounts payable under any Loan Document shall have been paid
in full, unless the Required Lenders shall otherwise consent in writing, such
Borrower will, and will cause each of the Subsidiaries to:
SECTION 5.01. Existence; Businesses and Properties. (a) Do or
cause to be done all things necessary to preserve, renew and keep in full force
and effect its legal existence, except as otherwise expressly permitted under
Section 6.04.
(b) Do or cause to be done all things necessary to obtain,
preserve, renew, extend and keep in full force and effect the rights, licenses,
permits, franchises, authorizations, patents, copyrights, trademarks and trade
names material to the conduct of its business; maintain and operate such
business in substantially the manner in which it is presently conducted and
operated (provided that the Borrowers may engage in new businesses not
prohibited by Section 6.04); comply in all material respects with all applicable
laws, rules, regulations and orders of any Governmental Authority, whether now
in effect or hereafter enacted; and at all times maintain and preserve all
property material to the conduct of such business and keep such property in good
repair, working order and condition and from time to time make, or cause to be
made, all needful and proper repairs, renewals, additions, improvements and
replacements thereto necessary in order that the business carried on in
connection therewith may be properly conducted at all times.
SECTION 5.02. Insurance. Keep its insurable properties
adequately insured at all times by financially sound and reputable insurers;
maintain such other insurance, to such extent and against such risks, including
fire and other risks insured against by extended coverage, as is customary with
companies in the same or similar businesses, including public liability
insurance against claims for personal injury or death or property damage
occurring upon, in, about or in connection with the use of any properties owned,
occupied or controlled by it; and maintain such other insurance as may be
required by law.
SECTION 5.03. Obligations and Taxes. Pay its Indebtedness and
other obligations promptly and in accordance with their terms and pay and
discharge promptly when due all taxes, assessments and governmental charges or
levies imposed upon it or upon its income or profits or in respect of its
property, before the same shall become delinquent or in default, as well as all
lawful claims for labor, materials and supplies or otherwise which, if
<PAGE> 49
43
unpaid, might give rise to a Lien upon such properties or any part thereof;
provided, however, that such payment and discharge shall not be required with
respect to any such tax, assessment, charge, levy or claim so long as the
validity or amount thereof shall be contested in good faith by appropriate
proceedings and the Borrower shall have set aside on its books adequate reserves
with respect thereto and such contest operates to suspend collection of the
contested obligation, tax, assessment or charge and enforcement of a Lien.
SECTION 5.04. Financial Statements, Reports, etc. In the case
of Popular, furnish to the Administrative Agent and each Lender:
(a) within 90 days after the end of each fiscal year, its
consolidated balance sheets and related statements of operations,
stockholders' equity and cash flows showing the financial condition of
Popular and its consolidated subsidiaries as of the close of such
fiscal year and the results of its operations and the operations of
such subsidiaries during such year, setting forth in each case in
comparative form the figures for the previous fiscal year, all audited
by PricewaterhouseCoopers L.L.P. or other independent public
accountants of recognized national standing acceptable to the Required
Lenders and accompanied by an opinion of such accountants (which shall
not be qualified in any material respect) to the effect that such
consolidated financial statements fairly present the financial
condition and results of operations of Popular on a consolidated basis
in accordance with GAAP consistently applied;
(b) within 45 days after the end of each of the first three
fiscal quarters of each fiscal year, its consolidated balance sheets
and related statements of operations, stockholders' equity and cash
flows showing the financial condition of Popular and its consolidated
subsidiaries as of the close of such fiscal quarter and the results of
its operations and the operations of such subsidiaries during such
fiscal quarter and the then elapsed portion of the fiscal year, setting
forth in each case in comparative form the figures for the
corresponding quarter and the corresponding portion of the previous
fiscal year, all certified by one of its Financial Officers as fairly
presenting the financial condition and results of operations of Popular
on a consolidated basis in accordance with GAAP consistently applied,
subject to normal year-end audit adjustments;
(c) concurrently with any delivery of financial statements
under (a) or (b) above, a certificate of a Financial Officer (i)
setting forth in reasonable detail the calculations required to
establish whether Popular was in compliance with the requirements of
Sections 6.05, 6.06, 6.07 and 6.08 and (ii) certifying that no Event of
Default or Default has occurred or, if such an Event of Default or
Default has occurred, specifying the nature and extent thereof and any
corrective action taken or proposed to be taken with respect thereto;
(d) promptly after the same become publicly available, copies
of all periodic and other reports, proxy statements and other materials
filed by it with the Securities and Exchange Commission, or any
Governmental Authority succeeding to any of or all the
<PAGE> 50
44
functions of said Commission, or with any national securities exchange,
or distributed to its shareholders, as the case may be;
(e) as soon as is reasonably practicable after the same
becomes available, the "Parent Company Only Financial Statement for
Bank Holding Companies" (report No. FR Y-9LP or any successor form of
the Federal Reserve System) of Popular and Popular North America, Inc.
and the "Consolidated Financial Statements for Bank Holding Companies"
(report no. FR Y-9C or any successor form of the Federal Reserve
System) of Popular that Popular shall have filed with the Board;
(f) promptly upon the request of the Administrative Agent or
any Lender, copies of all call reports of each Significant Subsidiary;
(g) promptly, upon receipt by each Borrower, the certificate
of good standing delivered by the Secretary of State to the Borrower in
response to the Borrower's request for such certificate in the letter
delivered to the Administrative Agent pursuant to Section 4.02(c)(i);
(h) promptly, from time to time, such other information
regarding the operations, business affairs and financial condition of
Popular or any Subsidiary, or compliance with the terms of any Loan
Document, as the Administrative Agent or any Lender may reasonably
request; and
(i) promptly, upon entering such agreement, notice of the
terms of any agreement entered into by Banco Popular after the date of
this Agreement restricting or limiting Banco Popular's right to declare
and make payments of dividends to the Borrower, and any changes to any
existing restrictions or limits on Banco Popular's right to declare or
pay dividends to the Borrower.
SECTION 5.05. Litigation and Other Notices. Furnish to the
Administrative Agent and each Lender prompt written notice of the following:
(a) any Event of Default or Default, specifying the nature and
extent thereof and the corrective action (if any) proposed to be taken
with respect thereto;
(b) the filing or commencement of, or any threat or notice of
intention of any person to file or commence, any action, suit or
proceeding, whether at law or in equity or by or before any
Governmental Authority, against a Borrower or any Affiliate thereof
which could reasonably be expected to result in a Material Adverse
Effect; and
(c) any other development that has resulted in, or could
reasonably be expected to result in, a Material Adverse Effect.
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45
SECTION 5.06. Employee Benefits. (a) Comply in all material
respects with the applicable provisions of ERISA and the Code and (b) furnish to
the Administrative Agent (i) as soon as possible after, and in any event within
30 days after any Responsible Officer of such Borrower or any ERISA Affiliate
knows or has reason to know that, any Reportable Event has occurred that alone
or together with any other Reportable Event could reasonably be expected to
result in liability of such Borrower to the PBGC in an aggregate amount
exceeding $10,000,000, a statement of a Financial Officer setting forth details
as to such Reportable Event and the action that the Borrower proposes to take
with respect thereto, together with a copy of the notice, if any, of such
Reportable Event given to the PBGC, (ii) promptly after receipt thereof, a copy
of any notice that the Borrower or any ERISA Affiliate may receive from the PBGC
relating to the intention of the PBGC to terminate any Plan or Plans (other than
a Plan maintained by an ERISA Affiliate that is considered an ERISA Affiliate
only pursuant to subsection (m) or (o) of Code Section 414) or to appoint a
trustee to administer any such Plan, (iii) within 10 days after the due date for
filing with the PBGC pursuant to Section 412(n) of the Code a notice of failure
to make a required installment or other payment with respect to a Plan, a
statement of a Financial Officer setting forth details as to such failure and
the action that such Borrower proposes to take with respect thereto, together
with a copy of any such notice given to the PBGC and (iv) promptly and in any
event within 30 days after receipt thereof by the Borrower or any ERISA
Affiliate from the sponsor of a Multiemployer Plan, a copy of each notice
received by the Borrower or any ERISA Affiliate concerning (A) the imposition of
Withdrawal Liability or (B) a determination that a Multiemployer Plan is, or is
expected to be, terminated or in reorganization, both within the meaning of
Title IV of ERISA.
SECTION 5.07. Maintaining Records; Access to Properties and
Inspections. Maintain all financial records in accordance with GAAP and permit
any representatives designated by any Lender to visit and inspect the financial
records and the properties of a Borrower or any Subsidiary at reasonable times
and upon reasonable notice and as often as requested and to make extracts from
and copies of such financial records, and permit any representatives designated
by any Lender to discuss the affairs, finances and condition of such Borrower or
any Subsidiary with the officers thereof and independent accountants therefor.
SECTION 5.08. Use of Proceeds. Use the proceeds of the Loans
only for the purposes set forth in the preamble to this Agreement.
SECTION 5.09. Continuance of Business. With respect to
Popular, at all times be a bank holding company duly registered with the Board
under the Bank Holding Company Act of 1956, as amended, and continue (and will
cause each Subsidiary to continue) to (a) engage in business of the same general
type as now conducted by it or any other business permitted under, and in
accordance with, the Bank Holding Company Act of 1956, as amended, and any
regulation of, or ruling by, the Board issued thereunder and (b) unless
otherwise permitted by this Agreement, maintain its corporate existence and keep
in full force and effect all licenses and permits necessary to the proper
conduct of its business.
<PAGE> 52
46
SECTION 5.10. Compliance with Regulatory Standards. At all
times substantially comply with all applicable regulatory guidelines, policy
statements, regulations or other legal requirements and cause each Bank
Subsidiary (other than any Edge Act corporation) to maintain membership with the
Federal Deposit Insurance Corporation.
SECTION 5.11. Capital Requirements. Maintain and cause each of
its Bank Subsidiaries to, (a) maintain (at all times 120 days or more after the
date such person became a Bank Subsidiary), such amount of capital as may be
prescribed from time to time by each Bank Regulatory Authority with jurisdiction
over such Borrower or such Bank Subsidiary, whether by regulation, agreement or
order.
(b) Cause each Bank Subsidiary that is a Significant
Subsidiary to be "adequately capitalized" (within the meaning of 12 U.S.C. 1831,
as amended, reenacted or redesignated from time to time) at all times 120 days
or more after the date such person became a Bank Subsidiary.
ARTICLE VI. NEGATIVE COVENANTS
Each Borrower covenants and agrees with each Lender that, so
long as this Agreement shall remain in effect and until the Commitments have
been terminated and the principal of and interest on each Loan, all Fees and all
other expenses or amounts payable under any Loan Document have been paid in
full, unless the Required Lenders shall otherwise consent in writing, such
Borrower will not, and will not cause or permit any of the Subsidiaries to:
SECTION 6.01. Liens. In the case of the Borrowers, create,
incur, assume or permit to exist any Lien on any property or assets (including
stock or other securities of any person, including any Subsidiary) now owned or
hereafter acquired by it or on any income or revenues or rights in respect of
any thereof, except:
(a) Liens on property or assets of such Borrower existing on
the date hereof and set forth in Schedule 6.01; provided that such
Liens shall secure only those obligations which they secure on the date
hereof;
(b) any Lien existing on any property or asset prior to the
acquisition thereof by such Borrower; provided that (i) such Lien is
not created in contemplation of or in connection with such acquisition
and (ii) such Lien does not apply to any other property or assets of
such Borrower;
(c) Liens for taxes not yet due or which are being contested
in compliance with Section 5.03;
<PAGE> 53
47
(d) carriers', warehousemen's, mechanic's, materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business and securing obligations that are not due and payable or which
are being contested in compliance with Section 5.03;
(e) pledges and deposits made in the ordinary course of
business in compliance with workmen's compensation, unemployment
insurance and other social security laws or regulations;
(f) deposits to secure the performance of bids, trade
contracts (other than for Indebtedness), leases (other than Capital
Lease Obligations), statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in
the ordinary course of business;
(g) zoning restrictions, easements, rights-of-way,
restrictions on use of real property and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate,
are not substantial in amount and do not materially detract from the
value of the property subject thereto or interfere with the ordinary
conduct of the business of such Borrower;
(h) purchase money security interests in real property,
improvements thereto or equipment hereafter acquired (or, in the case
of improvements, constructed) by such Borrower; provided that (i) such
security interests are incurred, and the Indebtedness secured thereby
is created, within 90 days after such acquisition (or construction) and
(ii) such security interests do not apply to any other property or
assets of such Borrower or any Subsidiary;
(i) any Lien (a "replacement Lien") replacing, refinancing,
extending or renewing any Lien permitted under clause (a), (b) or (h)
above; provided that such replacement Lien shall secure only those
obligations that are secured by, and shall not apply to any property of
any Borrower other than property of such Borrower subject to, the Lien
replaced, refinanced, extended or renewed by such replacement Lien on
the date of incurrence of such replacement Lien; and
(j) securities repurchase agreements entered into in the
ordinary course of business with a maturity of less than one year.
SECTION 6.02. Sale and Lease-Back Transactions. In the case of
the Borrowers, enter into any arrangement, directly or indirectly, with any
person whereby it shall sell or transfer any property, real or personal, used or
useful in its business, whether now owned or hereafter acquired, and thereafter
rent or lease such property or other property which it intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
SECTION 6.03. Mergers, Consolidations, Sales of Assets. Merge
into or consolidate with any other person, or permit any other person to merge
into or consolidate with
<PAGE> 54
48
it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a
series of transactions) all or any substantial part of the assets of Popular or
its Subsidiaries, taken as a whole (whether now owned or hereafter acquired),
except that if at the time thereof and immediately after giving effect thereto
no Event of Default or Default shall have occurred and be continuing (a) any
Subsidiary may merge into either Borrower in a transaction in which such
Borrower is the surviving corporation, (b) any Subsidiary may merge into or
consolidate with any other Subsidiary in a transaction in which the surviving
entity is a Subsidiary and (c) a wholly owned Subsidiary (other than a
Subsidiary that owns a substantial portion of the assets of Popular and its
Subsidiaries, taken as a whole) may merge with any person if the surviving
corporation is a Subsidiary.
SECTION 6.04. Business of Borrowers and Subsidiaries. Engage
at any time in any business or business activity other than the business
currently conducted by it and business activities reasonably incidental thereto.
Notwithstanding the previous sentence, either Borrower may acquire, develop or
otherwise engage in any new business (consistent with applicable regulatory
requirements); provided, however, that all such new businesses (taken together)
shall not materially affect the overall nature and character of the business of
Popular and its Subsidiaries (taken as a whole), as currently conducted.
SECTION 6.05. Consolidated Tangible Net Worth. Permit at any
time Consolidated Tangible Net Worth to be less than 5% of Total Assets.
SECTION 6.06. Ratio of Long-Term Indebtedness to Total
Capitalization. Permit at any time the ratio of Long-Term Indebtedness to Total
Capitalization to exceed .65 to 1.0.
SECTION 6.07. Non-Performing Assets. Permit Non-Performing
Assets at any time to exceed 4.5% of total (gross) loans, leases and other owned
real estate, in each case for Popular and its Subsidiaries (determined on a
consolidated basis in accordance with GAAP), as at such time.
SECTION 6.08. Double Leverage. Permit at any time the ratio of
(a) the sum of Equity Investments in Subsidiaries and the Intangibles of Popular
and its consolidated Subsidiaries, in each case determined as of such time, to
(b) Consolidated Net Worth less the goodwill of Popular and its consolidated
Subsidiaries (determined on a consolidated basis in accordance with GAAP), in
each case determined as of such time, to exceed 130%.
<PAGE> 55
49
ARTICLE VII. EVENTS OF DEFAULT
In case of the happening of any of the following events
("Events of Default"):
(a) any representation or warranty made or deemed made in or
in connection with any Loan Document or the borrowings hereunder, or
any representation, warranty, statement or information contained in any
report, certificate, financial statement or other instrument furnished
in connection with or pursuant to any Loan Document, shall prove to
have been false or misleading in any material respect when so made,
deemed made or furnished;
(b) default shall be made in the payment of any principal of
any Loan when and as the same shall become due and payable, whether at
the due date thereof or at a date fixed for prepayment thereof or by
acceleration thereof or otherwise;
(c) default shall be made in the payment of any interest on
any Loan or any Fee or any other amount (other than an amount referred
to in (b) above) due under any Loan Document, when and as the same
shall become due and payable, and such default shall continue
unremedied for a period of three Business Days;
(d) default shall be made in the due observance or performance
by a Borrower or any Subsidiary of any covenant, condition or agreement
contained in Section 5.01(a), 5.05, 5.08 or 5.11 or in Article VI;
(e) default shall be made in the due observance or performance
by a Borrower or any Subsidiary of any covenant, condition or agreement
contained in any Loan Document (other than those specified in (b), (c)
or (d) above) and such default shall continue unremedied for a period
of 30 days after notice thereof from the Administrative Agent or any
Lender to such Borrower;
(f) a Borrower or any Subsidiary shall (i) fail to pay any
principal or interest, regardless of amount, due in respect of any
Indebtedness in a principal amount in excess of $25,000,000 when and as
the same shall become due and payable, or (ii) fail to observe or
perform any other term, covenant, condition or agreement contained in
any agreement or instrument evidencing or governing any such
Indebtedness if the effect of any failure referred to in this clause
(ii) is to cause, or to permit the holder or holders of such
Indebtedness or a trustee on its or their behalf (with or without the
giving of notice, the lapse of time or both) to cause, such
Indebtedness to become due prior to its stated maturity;
(g) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of a Borrower or any
Subsidiary, or of a substantial part of the property or assets of such
Borrower or a Subsidiary, under Title 11 of the United States Code, as
now constituted
<PAGE> 56
50
or hereafter amended, or any other Federal or state bankruptcy,
insolvency, receivership or similar law, (ii) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar
official for such Borrower or any Subsidiary or for a substantial part
of the property or assets of such Borrower or a Subsidiary or (iii) the
winding-up or liquidation of such Borrower or any Subsidiary; and such
proceeding or petition shall continue undismissed for 60 days or an
order or decree approving or ordering any of the foregoing shall be
entered;
(h) a Borrower or any Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking relief under Title
11 of the United States Code, as now constituted or hereafter amended,
or any other Federal or state bankruptcy, insolvency, receivership or
similar law, (ii) consent to the institution of, or fail to contest in
a timely and appropriate manner, any proceeding or the filing of any
petition described in (g) above, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for such Borrower or any Subsidiary or
for a substantial part of the property or assets of such Borrower or
any Subsidiary, (iv) file an answer admitting the material allegations
of a petition filed against it in any such proceeding, (v) make a
general assignment for the benefit of creditors, (vi) become unable,
admit in writing its inability or fail generally to pay its debts as
they become due or (vii) take any action for the purpose of effecting
any of the foregoing;
(i) one or more judgments for the payment of money in an
aggregate amount in excess of $10,000,000 shall be rendered against a
Borrower, any Subsidiary or any combination thereof and the same shall
remain undischarged for a period of 30 consecutive days during which
execution shall not be effectively stayed, or any action shall be
legally taken by a judgment creditor to levy upon assets or properties
of such Borrower or any Subsidiary to enforce any such judgment;
(j) (i) a Reportable Event or Reportable Events, or a failure
to make a required installment or other payment (within the meaning of
Section 412(n)(1) of the Code), shall have occurred with respect to any
Plan or Plans that reasonably could be expected to result in liability
of a Borrower to the PBGC or to a Plan in an aggregate amount exceeding
$10,000,000 and, within 30 days after the reporting of any such
Reportable Event to the Administrative Agent or after the receipt by
the Administrative Agent of a statement required pursuant to Section
5.06(b)(iii) hereof, the Administrative Agent shall have notified such
Borrower in writing that (A) the Required Lenders have made a
determination that, on the basis of such Reportable Event or Reportable
Events or the failure to make a required payment, there are reasonable
grounds for the termination of such Plan or Plans by the PBGC, the
appointment by the appropriate United States district court of a
trustee to administer such Plan or Plans or the imposition of a lien in
favor of a Plan and (B) as a result thereof an Event of Default exists
hereunder; or (ii) a trustee shall be appointed by a United States
district court to administer any such Plan or Plans; or (iii) the PBGC
shall institute proceedings (including giving notice of intent thereof)
to terminate any such Plan or Plans;
<PAGE> 57
51
(k) (i) a Borrower or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred
Withdrawal Liability to such Multiemployer Plan, (ii) such Borrower or
such ERISA Affiliate does not have reasonable grounds for contesting
such Withdrawal Liability or is not contesting such Withdrawal
Liability in a timely and appropriate manner and (iii) the amount of
such Withdrawal Liability specified in such notice, when aggregated
with all other amounts required to be paid to Multiemployer Plans in
connection with Withdrawal Liabilities (determined as of the date or
dates of such notification), either (A) exceeds $10,000,000 or requires
payments exceeding $1,000,000 in any year or (B) is less than
$10,000,000 but any Withdrawal Liability payment remains unpaid 30 days
after such payment is due;
(l) a Borrower or any ERISA Affiliate shall have been notified
by the sponsor of a Multiemployer Plan that such Multiemployer Plan is
in reorganization or is being terminated, within the meaning of Title
IV of ERISA, if solely as a result of such reorganization or
termination the aggregate annual contributions of such Borrower and its
ERISA Affiliates to all Multiemployer Plans that are then in
reorganization or have been or are being terminated have been or will
be increased over the amounts required to be contributed to such
Multiemployer Plans for their most recently completed plan years by an
amount exceeding $1,000,000; or
(m) there shall have occurred a Change in Control;
then, and in every such event (other than an event with respect to a Borrower
described in paragraph (g) or (h) above), and at any time thereafter during the
continuance of such event, the Administrative Agent may, and at the request of
the Required Lenders shall, by notice to the Borrowers, take either or both of
the following actions, at the same or different times: (i) terminate forthwith
the Commitments and (ii) declare the Loans then outstanding to be forthwith due
and payable in whole or in part, whereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and any
unpaid accrued Fees and all other liabilities of the Borrowers accrued hereunder
and under any other Loan Document, shall become forthwith due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived by the Borrowers, anything contained herein or
in any other Loan Document to the contrary notwithstanding; and in any event
with respect to a Borrower described in paragraph (g) or (h) above, the
Commitments shall automatically terminate and the principal of the Loans then
outstanding, together with accrued interest thereon and any unpaid accrued Fees
and all other liabilities of such Borrower accrued hereunder and under any other
Loan Document, shall automatically become due and payable, without presentment,
demand, protest or any other notice of any kind, all of which are hereby
expressly waived by such Borrower, anything contained herein or in any other
Loan Document to the contrary notwithstanding.
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52
ARTICLE VIII. THE ADMINISTRATIVE AGENT
In order to expedite the transactions contemplated by this
Agreement, The Chase Manhattan Bank is hereby appointed to act as Administrative
Agent on behalf of the Lenders. Each of the Lenders and each assignee of any
such Lender, hereby irrevocably authorizes the Administrative Agent to take such
actions on behalf of such Lender or assignee and to exercise such powers as are
specifically delegated to the Administrative Agent by the terms and provisions
hereof and of the other Loan Documents, together with such actions and powers as
are reasonably incidental thereto. The Administrative Agent is hereby expressly
authorized by the Lenders, without hereby limiting any implied authority, (a) to
receive on behalf of the Lenders all payments of principal of and interest on
the Loans and all other amounts due to the Lenders hereunder, and promptly to
distribute to each Lender its proper share of each payment so received; (b) to
give notice on behalf of each of the Lenders to the Borrowers of any Event of
Default specified in this Agreement of which the Administrative Agent has actual
knowledge acquired in connection with its agency hereunder; and (c) to
distribute to each Lender copies of all notices, financial statements and other
materials delivered by a Borrower pursuant to this Agreement as received by the
Administrative Agent.
Neither the Administrative Agent nor any of its directors,
officers, employees or agents shall be liable as such for any action taken or
omitted by any of them except for its or his own gross negligence or wilful
misconduct, or be responsible for any statement, warranty or representation
herein or the contents of any document delivered in connection herewith, or be
required to ascertain or to make any inquiry concerning the performance or
observance by a Borrower of any of the terms, conditions, covenants or
agreements contained in any Loan Document. The Administrative Agent shall not be
responsible to the Lenders for the due execution, genuineness, validity,
enforceability or effectiveness of this Agreement or any other Loan Documents or
other instruments or agreements. The Administrative Agent shall in all cases be
fully protected in acting, or refraining from acting, in accordance with written
instructions signed by the Required Lenders and, except as otherwise
specifically provided herein, such instructions and any action or inaction
pursuant thereto shall be binding on all the Lenders. The Administrative Agent
shall, in the absence of knowledge to the contrary, be entitled to rely on any
instrument or document believed by it in good faith to be genuine and correct
and to have been signed or sent by the proper person or persons. Neither the
Administrative Agent nor any of its directors, officers, employees or agents
shall have any responsibility to the Borrowers on account of the failure of or
delay in performance or breach by any Lender of any of its obligations hereunder
or to any Lender on account of the failure of or delay in performance or breach
by any other Lender or a Borrower of any of their respective obligations
hereunder or under any other Loan Document or in connection herewith or
therewith. The Administrative Agent may execute any and all duties hereunder by
or through agents or employees and shall be entitled to rely upon the advice of
legal counsel selected by it with respect to all matters arising hereunder and
shall not be liable for any action taken or suffered in good faith by it in
accordance with the advice of such counsel.
The Lenders hereby acknowledge that the Administrative Agent
shall be under no duty to take any discretionary action permitted to be taken by
it pursuant to the provisions of this Agreement unless it shall be requested in
writing to do so by the Required Lenders.
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53
Subject to the appointment and acceptance of a successor
Administrative Agent as provided below, the Administrative Agent may resign at
any time by notifying the Lenders and the Borrowers. Upon any such resignation,
the Required Lenders shall have the right to appoint a successor. If no
successor shall have been so appointed by the Required Lenders and shall have
accepted such appointment within 30 days after the retiring Administrative Agent
gives notice of its resignation, then the retiring Administrative Agent may, on
behalf of the Lenders, appoint a successor Administrative Agent which shall be a
bank with an office in New York, New York, having a combined capital and surplus
of at least $500,000,000 or an Affiliate of any such bank. Upon the acceptance
of any appointment as Administrative Agent hereunder by a successor bank, such
successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent and the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder. After the Administrative Agent's resignation hereunder, the
provisions of this Article and Section 9.05 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Administrative Agent.
With respect to the Loans made by it hereunder, the
Administrative Agent in its individual capacity and not as Administrative Agent
shall have the same rights and powers as any other Lender and may exercise the
same as though it were not the Administrative Agent, and the Administrative
Agent and its Affiliates may accept deposits from, lend money to and generally
engage in any kind of business with the Borrowers or any Subsidiary or other
Affiliate thereof as if it were not the Administrative Agent.
Each Lender agrees (i) to reimburse the Administrative Agent,
on demand, in the amount of its pro rata share (based on its Commitments
hereunder) of any expenses incurred for the benefit of the Lenders by the
Administrative Agent, including counsel fees and compensation of agents and
employees paid for services rendered on behalf of the Lenders, which shall not
have been reimbursed by the Borrowers and (ii) to indemnify and hold harmless
the Administrative Agent and any of its directors, officers, employees or
agents, on demand, in the amount of such pro rata share, from and against any
and all liabilities, taxes, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against it in its
capacity as the Administrative Agent or any of them in any way relating to or
arising out of this Agreement or any other Loan Document or any action taken or
omitted by it or any of them under this Agreement or any other Loan Document, to
the extent the same shall not have been reimbursed by the Borrowers; provided
that no Lender shall be liable to the Administrative Agent for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the gross negligence or
wilful misconduct of the Administrative Agent or any of its directors, officers,
employees or agents.
Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent or any other Lender and based on
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance
<PAGE> 60
54
upon the Administrative Agent or any other Lender and based on such documents
and information as it shall from time to time deem appropriate, continue to make
its own decisions in taking or not taking action under or based upon this
Agreement or any other Loan Document, any related agreement or any document
furnished hereunder or thereunder.
ARTICLE IX. MISCELLANEOUS
SECTION 9.01. Notices. Notices and other communications
provided for herein shall be in writing and shall be delivered by hand or
overnight courier service, mailed by certified or registered mail or sent by
telecopy, as follows:
(a) if to a Borrower, to it at Banco Popular Center Building,
209 Munoz Rivera Avenue, San Juan, Puerto Rico 00918, Attention of Mr.
Richard Barrios (Telecopy No. 787-754-9290);
(b) if to the Administrative Agent, to The Chase Manhattan
Bank Agency Services Group, One Chase Manhattan Plaza, New York, New
York 10081, Attention of [Laura Rebecca (Telecopy No. 212-552-7490),
with a copy to The Chase Manhattan Bank, at 270 Park Avenue, New York
10017, Attention of Christine M. Herrick (Telecopy No. 212-270-1789);
and
(c) if to a Lender, to it at its address (or telecopy number)
set forth in Schedule 2.01 or in the Assignment and Acceptance pursuant
to which such Lender shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy or on the date five Business Days after dispatch by certified or
registered mail if mailed, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this Section 9.01 or in accordance with
the latest unrevoked direction from such party given in accordance with this
Section 9.01.
SECTION 9.02. Survival of Agreement. All covenants,
agreements, representations and warranties made by each Borrower herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Lenders and shall survive the making by the Lenders
of the Loans, regardless of any investigation made by the Lenders or on their
behalf, and shall continue in full force and effect as long as the principal of
or any accrued interest on any Loan or any Fee or any other amount payable under
this Agreement or any other Loan Document is outstanding and unpaid and so long
as the Commitments have not been terminated.
<PAGE> 61
55
SECTION 9.03. Binding Effect. This Agreement shall become
effective when it shall have been executed by the Borrowers and the
Administrative Agent and when the Administrative Agent shall have received
counterparts hereof which, when taken together, bear the signatures of each of
the other parties hereto, and thereafter shall be binding upon and inure to the
benefit of the parties hereto and their respective permitted successors and
assigns.
SECTION 9.04. Successors and Assigns. (a) Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the permitted successors and assigns of such party; and all
covenants, promises and agreements by or on behalf of each Borrower, the
Administrative Agent or the Lenders that are contained in this Agreement shall
bind and inure to the benefit of their respective successors and assigns.
(b) Each Lender may assign to one or more assignees all or a
portion of its interests, rights and obligations under this Agreement (including
all or a portion of its Commitment and the Loans at the time owing to it);
provided, however, that (i) except in the case of an assignment to a Lender or
an Affiliate of such Lender, each Borrower and the Administrative Agent must
give their prior written consent to such assignment (which consent shall not be
unreasonably withheld), (ii) the amount of the Commitment of the assigning
Lender subject to each such assignment (determined as of the date the Assignment
and Acceptance with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $5,000,000, (iii) the parties to
each such assignment shall execute and deliver to the Administrative Agent an
Assignment and Acceptance, together with a processing and recordation fee of
$3,500 and (iv) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire. Upon acceptance and
recording pursuant to paragraph (e) of this Section 9.04, from and after the
effective date specified in each Assignment and Acceptance, which effective date
shall be at least five Business Days after the execution thereof, (A) the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and obligations of a
Lender under this Agreement and (B) the assigning Lender thereunder shall, to
the extent of the interest assigned by such Assignment and Acceptance, be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto but shall continue to be entitled to the benefits of Sections
2.13, 2.15, 2.19 and 9.05, as well as to any Fees accrued for its account and
not yet paid).
(c) By executing and delivering an Assignment and Acceptance,
the assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and that
its Revolving Credit Commitment, and the outstanding balances of its Revolving
Loans and Competitive Loans, in each case without giving effect to assignments
thereof which have not become effective, are as set forth in such Assignment and
Acceptance, (ii) except as set forth in (i) above, such assigning Lender makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in
<PAGE> 62
56
connection with this Agreement, or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement, any other
Loan Document or any other instrument or document furnished pursuant hereto, or
the financial condition of the Borrowers or any Subsidiary or the performance or
observance by the Borrowers or any Subsidiary of any of its obligations under
this Agreement, any other Loan Document or any other instrument or document
furnished pursuant hereto; (iii) such assignee represents and warrants that it
is legally authorized to enter into such Assignment and Acceptance; (iv) such
assignee confirms that it has received a copy of this Agreement, together with
copies of the most recent financial statements, if any, delivered pursuant to
Section 5.04 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (v) such assignee will independently and without
reliance upon the Administrative Agent, such assigning Lender or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement; (vi) such assignee appoints and authorizes the
Administrative Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to the Administrative Agent by
the terms hereof, together with such powers as are reasonably incidental
thereto; and (vii) such assignee agrees that it will perform in accordance with
their terms all the obligations which by the terms of this Agreement are
required to be performed by it as a Lender.
(d) The Administrative Agent, acting for this purpose as an
agent of the Borrowers, shall maintain at one of its offices in The City of New
York a copy of each Assignment and Acceptance delivered to it and a register for
the recordation of the names and addresses of the Lenders, and the Commitment
of, and principal amount of the Loans owing to, each Lender pursuant to the
terms hereof from time to time (the "Register"). The entries in the Register
shall be conclusive and the Borrowers, the Administrative Agent and the Lenders
may treat each person whose name is recorded in the Register pursuant to the
terms hereof as a Lender hereunder for all purposes of this Agreement,
notwithstanding notice to the contrary. The Register shall be available for
inspection by the Borrowers and any Lender, at any reasonable time and from time
to time upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee, an Administrative
Questionnaire completed in respect of the assignee (unless the assignee shall
already be a Lender hereunder), the processing and recordation fee referred to
in paragraph (b) above and, if required, the written consent of each Borrower
and the Administrative Agent to such assignment, the Administrative Agent shall
(i) accept such Assignment and Acceptance, (ii) record the information contained
therein in the Register and (iii) give prompt notice thereof to the Lenders. No
assignment shall be effective unless it has been recorded in the Register as
provided in this paragraph (e).
(f) Each Lender may without the consent of the Borrowers or
the Administrative Agent sell participations to one or more banks or other
entities in all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans owing to it);
provided, however, that (i) such Lender's obligations under this Agreement shall
remain unchanged, (ii) such Lender shall remain solely responsible to the other
parties hereto
<PAGE> 63
57
for the performance of such obligations, (iii) the participating banks or other
entities shall be entitled to the benefit of the cost protection provisions
contained in Sections 2.13, 2.15 and 2.19 to the same extent as if they were
Lenders; provided that no such participating bank or entity shall be entitled to
receive any greater amount pursuant to such Sections than a Lender would have
been entitled to receive in respect of the amount of the participation sold by
such Lender to such participating bank or entity had no sale occurred, and (iv)
the Borrowers, the Administrative Agent and the Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement, and such Lender shall retain the sole right to
enforce the obligations of the Borrowers relating to the Loans and to approve
any amendment, modification or waiver of any provision of this Agreement (other
than amendments, modifications or waivers decreasing any fees payable hereunder
or the amount of principal of or the rate at which interest is payable on the
Loans, extending any scheduled principal payment date or date fixed for the
payment of interest on the Loans or changing or extending the Commitments).
(g) Any Lender or participant may, in connection with any
assignment or participation or proposed assignment or participation pursuant to
this Section 9.04, disclose to the assignee or participant or proposed assignee
or participant any information relating to a Borrower furnished to such Lender
by or on behalf of the Borrowers; provided that, prior to any such disclosure of
information designated by a Borrower as confidential, each such assignee or
participant or proposed assignee or participant shall execute an agreement
whereby such assignee or participant shall agree (subject to customary
exceptions) to preserve the confidentiality of such confidential information on
terms no less restrictive than those applicable to the Lenders pursuant to
Section 9.16.
(h) Any Lender may at any time assign all or any portion of
its rights under this Agreement to a Federal Reserve Bank to secure extensions
of credit by such Federal Reserve Bank to such Lender; provided that no such
assignment shall release a Lender from any of its obligations hereunder or
substitute any such Bank for such Lender as a party hereto. In order to
facilitate such an assignment to a Federal Reserve Bank, the applicable Borrower
shall, at the request of the assigning Lender, duly execute and deliver to the
assigning Lender a promissory note or notes evidencing the Loans made to such
Borrower by the assigning Lender hereunder.
(i) A Borrower shall not assign or delegate any of its rights
or duties hereunder without the prior written consent of the Administrative
Agent and each Lender, and any attempted assignment without such consent shall
be null and void.
SECTION 9.05. Expenses; Indemnity. (a) Each Borrower agrees to
pay all out-of-pocket expenses incurred by the Administrative Agent in
connection with the preparation and administration of this Agreement and the
other Loan Documents or in connection with any amendments, modifications or
waivers of the provisions hereof or thereof (whether or not the transactions
hereby contemplated shall be consummated) or incurred by the Administrative
Agent or any Lender in connection with the enforcement or protection of their
rights in connection with this Agreement and the other Loan Documents or in
connection with the Loans
<PAGE> 64
58
made issued hereunder, including the fees, charges and disbursements of Cravath,
Swaine & Moore, counsel for the Administrative Agent, and, in connection with
any such enforcement or protection, the fees, charges and disbursements of any
other counsel for the Administrative Agent or any Lender.
(b) Each Borrower agrees to indemnify the Administrative Agent
and each Lender, each Affiliate of any of the foregoing persons and each of
their respective directors, officers, employees and agents (each such person
being called an "Indemnitee") against, and to hold each Indemnitee harmless
from, any and all losses, claims, damages, liabilities and related expenses,
including reasonable counsel fees, charges and disbursements, incurred by or
asserted against any Indemnitee arising out of, in any way connected with, or as
a result of (i) the execution or delivery of this Agreement or any other Loan
Document or any agreement or instrument contemplated thereby, the performance by
the parties thereto of their respective obligations thereunder or the
consummation of the Transactions and the other transactions contemplated
thereby, (ii) the use of the proceeds of the Loans, or (iii) any claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether or not any Indemnitee is a party thereto; provided that such indemnity
shall not, as to any Indemnitee, be available to the extent that such losses,
claims, damages, liabilities or related expenses are determined by a court of
competent jurisdiction by final and nonappealable judgment to have resulted from
the gross negligence or wilful misconduct of such Indemnitee.
(c) The provisions of this Section 9.05 shall remain operative
and in full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the expiration of the Commitments, the invalidity
or unenforceability of any term or provision of this Agreement or any other Loan
Document, or any investigation made by or on behalf of the Administrative Agent
or any Lender. All amounts due under this Section 9.05 shall be payable on
written demand therefor.
SECTION 9.06. Right of Setoff. If an Event of Default shall
have occurred and be continuing, each Lender is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by such Lender
to or for the credit or the account of the applicable Borrower against any of
and all the obligations of such Borrower now or hereafter existing under this
Agreement and other Loan Documents held by such Lender, irrespective of whether
or not such Lender shall have made any demand under this Agreement or such other
Loan Document and although such obligations may be unmatured. The rights of each
Lender under this Section are in addition to other rights and remedies
(including other rights of setoff) which such Lender may have.
SECTION 9.07. Applicable Law. THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS (OTHER THAN AS EXPRESSLY SET FORTH IN OTHER LOAN DOCUMENTS) SHALL
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK.
<PAGE> 65
59
SECTION 9.08. Waivers; Amendment. (a) No failure or delay of
the Administrative Agent or any Lender in exercising any power or right
hereunder or under any Loan Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Administrative Agent and the
Lenders hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies which they would otherwise have. No waiver
of any provision of this Agreement or any other Loan Document or consent to any
departure by a Borrower therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) below, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice or demand on a Borrower in any case shall entitle such Borrower
to any other or further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by each of the Borrowers and the Required Lenders;
provided, however, that no such agreement shall (i) decrease the principal
amount of any Loan, or extend the maturity of or any scheduled principal payment
date or date for the payment of any interest on any Loan, or waive or excuse any
such payment or any part thereof, or decrease the rate of interest on any Loan,
without the prior written consent of each Lender affected thereby, (ii) change
or extend the Commitment of any Lender or postpone the date for the payment
thereof, or decrease the Facility Fees of any Lender or postpone the date for
the payment thereof, in each case without the prior written consent of such
Lender, or (iii) amend or modify the provisions of Section 2.16 or 2.21, the
provisions of this Section or the definition of "Required Lenders", or release
any Guarantor from its agreements pursuant to Section 2.21, without the prior
written consent of each Lender; provided further that no such agreement shall
amend, modify or otherwise affect the rights or duties of the Administrative
Agent hereunder or under any other Loan Document without the prior written
consent of the Administrative Agent.
SECTION 9.09. Interest Rate Limitation. Notwithstanding
anything herein to the contrary, if at any time the interest rate applicable to
any Loan, together with all fees, charges and other amounts which are treated as
interest on such Loan under applicable law (collectively the "Charges"), shall
exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for,
charged, taken, received or reserved by the Lender holding such Loan in
accordance with applicable law, the rate of interest payable in respect of such
Loan hereunder, together with all Charges payable in respect thereof, shall be
limited to the Maximum Rate and, to the extent lawful, the interest and Charges
that would have been payable in respect of such Loan but were not payable as a
result of the operation of this Section shall be cumulated and the interest and
Charges payable to such Lender in respect of other Loans or periods shall be
increased (but not above the Maximum Rate therefor) until such cumulated amount,
together with interest thereon at the Federal Funds Effective Rate to the date
of repayment, shall have been received by such Lender.
<PAGE> 66
60
SECTION 9.10. Entire Agreement. This Agreement and the other
Loan Documents constitute the entire contract between the parties relative to
the subject matter hereof. Any previous agreement among the parties with respect
to the subject matter hereof is superseded by this Agreement and the other Loan
Documents. Nothing in this Agreement or in the other Loan Documents, expressed
or implied, is intended to confer upon any party other than the parties hereto
and thereto any rights, remedies, obligations or liabilities under or by reason
of this Agreement or the other Loan Documents.
SECTION 9.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS
APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION 9.11.
SECTION 9.12. Severability. In the event any one or more of
the provisions contained in this Agreement or in any other Loan Document should
be held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein and therein
shall not in any way be affected or impaired thereby. The parties shall endeavor
in good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.
SECTION 9.13. Counterparts. This Agreement may be executed in
counterparts (and by different parties hereto on different counterparts), each
of which shall constitute an original but all of which when taken together shall
constitute a single contract, and shall become effective as provided in Section
9.03. Delivery of an executed signature page to this Agreement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Agreement.
SECTION 9.14. Headings. Article and Section headings and the
Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and are not to affect the construction of, or to be taken
into consideration in interpreting, this Agreement.
SECTION 9.15. Jurisdiction; Consent to Service of Process. (a)
Each Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive
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61
jurisdiction of any New York State court or Federal court of the United States
of America sitting in New York City, and any appellate court from any thereof,
in any action or proceeding arising out of or relating to this Agreement or the
other Loan Documents, or for recognition or enforcement of any judgment, and
each of the parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be heard and
determined in such New York State or, to the extent permitted by law, in such
Federal court. Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that any Lender may otherwise
have to bring any action or proceeding relating to this Agreement or the other
Loan Documents against a Borrower or its properties in the courts of any
jurisdiction.
(b) Each Borrower hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this agreement or the other
Loan Documents in any New York State court or Federal court sitting in New York
City. Each of the parties hereto hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to the maintenance
of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 9.01. Nothing
in this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 9.16. Confidentiality. The Administrative Agent and
each of the Lenders agrees to keep confidential (and to use its best efforts to
cause its respective agents and representatives to keep confidential) the
Information (as defined below) and all copies thereof, extracts therefrom and
analyses or other materials based thereon, except that the Administrative Agent
or any Lender shall be permitted to disclose Information (a) to such of its
respective officers, directors, employees, agents, affiliates and
representatives as need to know such Information, (b) to the extent requested by
any regulatory authority, (c) to the extent otherwise required by applicable
laws and regulations or by any subpoena or similar legal process, (d) in
connection with any suit, action or proceeding relating to the enforcement of
its rights hereunder or under the other Loan Documents or (e) to the extent such
Information (i) becomes publicly available other than as a result of a breach of
this Agreement or (ii) becomes available to the Administrative Agent or any
Lender on a nonconfidential basis from a source other than a Borrower. For the
purposes of this Section, "Information" shall mean all financial statements,
certificates, reports, agreements and information (including all analyses,
compilations and studies prepared by the Administrative Agent or any Lender
based on any of the foregoing) that are received from a Borrower and related to
a Borrower, any shareholder of a Borrower or any employee, customer or supplier
of a Borrower, other than any of the foregoing that were available to the
Administrative Agent or any Lender on a nonconfidential basis prior to its
disclosure thereto by a Borrower, and which are in the case of Information
provided after the date hereof, clearly identified at the time of delivery as
confidential. The provisions of this
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62
Section 9.16 shall remain operative and in full force and effect regardless of
the expiration and term of this Agreement.
[The remainder of this page is left blank intentionally.]
<PAGE> 69
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
POPULAR, INC.,
by
----------------------------
Name:
Title:
by
----------------------------
Name:
Title:
POPULAR NORTH AMERICA, INC.,
by
----------------------------
Name:
Title:
by
----------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, individually
and as Administrative Agent,
by
----------------------------
Name:
Title:
<PAGE> 70
64
BARCLAYS BANK PLC
by
----------------------------
Name:
Title:
<PAGE> 71
65
ARGENTARIA, CAJA POSTAL Y BANCO
HIPOTECARIO, S.A.
by
----------------------------
Name:
Title:
<PAGE> 72
66
THE BANK OF NOVA SCOTIA
by
----------------------------
Name:
Title:
<PAGE> 73
67
BANK ONE N.A.
by
----------------------------
Name:
Title:
<PAGE> 74
68
CARIPLO-CASSA DI RISPARMIO DELLE
PROVINCIE LOMBARDE S.P.A.
by
----------------------------
Name:
Title:
by
----------------------------
Name:
Title:
<PAGE> 75
69
CREDIT SUISSE FIRST BOSTON
by
----------------------------
Name:
Title:
by
----------------------------
Name:
Title:
<PAGE> 76
70
CITIBANK, N.A.
by
----------------------------
Name:
Title:
<PAGE> 77
71
COMERICA BANK
by
----------------------------
Name:
Title:
<PAGE> 78
72
LASALLE BANK NATIONAL ASSOCIATION
by
----------------------------
Name:
Title:
<PAGE> 79
73
NORDDEUTSCHE LANDESBANK
by
----------------------------
Name:
Title:
by
----------------------------
Name:
Title:
<PAGE> 80
74
BANCO BILBAO VIZCAYA S.A.
by
----------------------------
Name:
Title:
<PAGE> 81
75
BANCA MONTE DEI PASCHI DI SIENA
by
----------------------------
Name:
Title:
by
----------------------------
Name:
Title:
<PAGE> 82
76
MELLON BANK, N.A.
by
----------------------------
Name:
Title:
<PAGE> 83
EXHIBIT A
[Form of]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Amended and Restated 364-Day Credit Agreement
dated as of October 18, 1999 (the "Credit Agreement"), among Popular, Inc., a
Puerto Rico corporation ("Popular"), Popular North America, Inc., a Delaware
corporation ("Popular North America") (each a "Borrower", and collectively, the
"Borrowers"), the lenders from time to time party thereto, initially consisting
of those listed on Schedule 2.01 thereto (the "Lenders") and The Chase Manhattan
Bank, as administrative agent for the Lenders (in such capacity, the
"Administrative Agent"). Terms defined in the Credit Agreement are used herein
with the same meanings.
1. The Assignor hereby sells and assigns, without recourse, to the
Assignee, and the Assignee hereby purchases and assumes, without recourse, from
the Assignor, effective as of the Effective Date set forth below (but not prior
to the registration of the information contained herein in the Register pursuant
to Section 9.04(e) of the Credit Agreement), the interests set forth below (the
"Assigned Interest") in the Assignor's rights and obligations under the Credit
Agreement, including, without limitation, the amounts and percentages set forth
below of (i) the Commitments of the Assignor on the Effective Date and (ii) the
Loans owing to the Assignor which are outstanding on the Effective Date. Each of
the Assignor and the Assignee hereby makes and agrees to be bound by all the
representations, warranties and agreements set forth in Section 9.04(c) of the
Credit Agreement, a copy of which has been received by each such party. From and
after the Effective Date (i) the Assignee shall be a party to and be bound by
the provisions of the Credit Agreement and, to the extent of the interests
assigned by this Assignment and Acceptance, have the rights and obligations of a
Lender thereunder and under the Loan Documents and (ii) the Assignor shall, to
the extent of the interests assigned by this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement.
2. This Assignment and Acceptance is being delivered to the
Administrative Agent together with (i) if the Assignee is organized under the
laws of a jurisdiction outside the United States, the forms specified in Section
2.19(g) of the Credit Agreement, duly completed and executed by such Assignee,
(ii) if the Assignee is not already a Lender under the Credit Agreement, an
Administrative Questionnaire in a form supplied by the Administrative Agent and
(iii) a processing and recordation fee of $3,500.
3. This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of New York.
Date of Assignment:
Legal Name of Assignor:
<PAGE> 84
Legal Name of Assignee:
Assignee's Address for Notices:
Effective Date of Assignment
(may not be fewer than 5 Business
Days after the Date of Assignment):
<TABLE>
<CAPTION>
Percentage Assigned of
Applicable
Principal Amount Facility/Commitment (set forth,
Assigned (and to at least 8 decimals, as a
Identifying information percentage of the Facility and
as to individual the aggregate Commitments of
Competitive Loans) all Lenders thereunder)
Facility/Commitment ------------------ -----------------------
<S> <C> <C>
$ %
Revolving Credit
Competitive Loans
</TABLE>
3
The terms set forth above and
on the reverse side hereof are
hereby agreed to: Accepted (*)
_________________, as Assignor THE CHASE MANHATTAN BANK,
as Administrative Agent
By: By:
--------------------------- -------------------------
Name: Name:
Title: Title:
_________________, as Assignee POPULAR, INC.
By: By:
--------------------------- -------------------------
Name: Name:
Title: Title:
POPULAR NORTH AMERICA, INC.
By:
-------------------------
Name:
Title:
<PAGE> 85
EXHIBIT B
<PAGE> 86
EXHIBIT C
FORM OF REQUEST FOR EXTENSION OF TERMINATION DATE
-----------------, ----
The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Dear Madam or Sir:
We refer to Section ___ of the Amended and Restated 364-Day Credit
Agreement dated as of October 18, 1999 among Popular, Inc., Popular North
America, Inc. the Banks listed on the signature pages thereof, and the
Chase Manhattan Bank, as Administrative Agent, and hereby request that the
Banks extend the Termination Date (as defined therein) to _____, ____. The
undersigned hereby represents to the Administrative Agent and the Banks
that as of the date hereof no Default or Event of Default exists.
Very truly yours,
POPULAR, INC.,
By:
------------------------------
Title:
POPULAR NORTH AMERICA,
By:
------------------------------
Title:
<PAGE> 87
SCHEDULE 2.01
Commitments
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
CONTACT PERSON
NAME AND ADDRESS AND TELEPHONE COMMITMENT (U.S.$)
OF THE LENDERS AND TELECOPY NUMBERS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
THE CHASE MANHATTAN BANK Ms. Christine Herrick $50,000,000.00
270 Park Avenue Tel: 212-270-9747
New York, NY 10017 Fax: 212-270-1789
- ----------------------------------------------------------------------------------------------------
ARGENTARIA, CAJA POSTAL Y BANCO HIPOTECARIO, S.A. Emilio Cristobal $25,000,000.00
320 Park Avenue Tel: 212-605-7423
New York, NY 10022 Fax: 212-319-0823
- ----------------------------------------------------------------------------------------------------
BANCA MONTE DEI PASCHI DI SIENA S.P.A. NEW YORK BRANCH Nick Kanaris $25,000,000.00
55 East 59th Street Tel: 212-891-3655
(9th Floor) Fax: 212-891-3661
New York, NY 10022-1112
- ----------------------------------------------------------------------------------------------------
BANCO BILBAO VIZCAYA S.A. (Puerto Rico) Elizabeth Loza $25,000,000.00
P.O. Box 364745 Tel: 787-766-6973
San Juan, PR 00936-4745 Fax: 787-766-6963
- ----------------------------------------------------------------------------------------------------
THE BANK OF NOVA SCOTIA John Neylan $15,000,000.00
One Liberty Plaza Tel: 212-225-5065
(25th Floor) Fax: 212-225-5286
New York, NY 10006
- ----------------------------------------------------------------------------------------------------
BANK ONE N.A. Elizabeth Johnston $50,000,000.00
1 Bank One Plaza, 20th Fl. Tel: 312-732-1301
(Suite 0556) Fax: 312-732-1786
Chicago, IL 60670-0556
- ----------------------------------------------------------------------------------------------------
BARCLAYS BANK PLC Harry Brautigam $50,000,000.00
801 Brickell Avenue Tel: 305-579-8578
(18th Floor) Fax: 305-358-9504
Miami, FL 33131
- ----------------------------------------------------------------------------------------------------
CARIPLO-CASSA DI RISPARMIO DELLE PROVINCIE LOMBARDE Lola Molins $25,000,000.00
S.P.A. Tel: 212-527-8747
10 East 53rd Street Fax: 212-527-8777
New York, NY 10022
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 88
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
CONTACT PERSON
NAME AND ADDRESS AND TELEPHONE COMMITMENT (U.S.$)
OF THE LENDERS AND TELECOPY NUMBERS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
CITIBANK, N.A. Rudolf Zamora $25,000,000.00
P.O. Box 70301 Tel: 787-771-2810
San Juan, PR 00936-8301 Fax: 787-766-1116
- ----------------------------------------------------------------------------------------------------
COMERICA BANK Laura Wrocklage $25,000,000.00
One Detroit Center Tel: 313-222-6178
500 Woodward Avenue (M/C3330) Fax: 313-222-7421
Detroit, MI 48226
- ----------------------------------------------------------------------------------------------------
CREDIT SUISSE FIRST BOSTON Jay Schall $35,000,000.00
11 Madison Avenue Tel: 212-325-9010
New York, NY 10010-3692 Fax: 212-325-8320
- ----------------------------------------------------------------------------------------------------
LASALLE BANK NATIONAL ASSOCIATION Jeff Borden $35,000,000.00
135 South LaSalle Street Tel: 312-904-2754
Chicago, IL 60603 Fax: 312-904-6352
- ----------------------------------------------------------------------------------------------------
MELLON BANK, N.A. Geoffrey Callahan $35,000,000.00
One Mellon Bank Center Tel: 412-234-9364
(Room 4425) Fax: 412-234-9047
Pittsburgh, PA 15258-0001
- ----------------------------------------------------------------------------------------------------
NORDDEUTSCHE LANDESBANK GIROZENTRALE NEW YORK BRANCH Stephen Hunter $25,000,000.00
AND/OR CAYMAN ISLANDS BRANCH Tel: 212-812-6803
1114 Avenue of the Americas, 37th Floor Fax: 212-812-6860
New York, NY 10036
- ----------------------------------------------------------------------------------------------------
</TABLE>
Total Commitment $445,000,000.00
<PAGE> 89
Schedule 3.08
Subsidiaries
Popular, Inc. is the owner of all issued and outstanding shares of common
stock of:
a. Banco Popular De Puerto Rico which, in turn, owns as
subsidiaries: Popular Finance, Inc., Popular Leasing @ Rental,
Inc. and Popular Mortgage, Inc.
Besides Popular, Inc. is the owner of the following wholly-owned
subsidiaries:
b. Popular International Bank, Inc.
Popular North America Inc. is a wholly-owned subsidiary of
Popular International Bank, Inc., and is the parent of Banco
Popular North America, Banco Popular (Texas), Equity One,
Inc., and Popular Cash Express, Inc. Banco Popular North
America is the owner of Popular Leasing, U.S.
c. Popular Securities, Inc.
d. G. M. Group
<PAGE> 90
Schedule 3.09
Litigation; Compliance with Laws
None
<PAGE> 91
Schedule 6.01
Liens as of September 30, 1999.
A. Securities Pledged for potential daylight overdrafts in Popular, Inc.
demand deposit account with Popular de Puerto Rico (at par value):
<TABLE>
<S> <C>
1. Non Voting Common Stock of Venture
Capital Fund, Inc. (1,500 shares)................................... $ 1,500,000
2. Municipality of Bayamon-Municipal Revenue Bond
1995 Series A, at 8.50% due 6/30/05................................. 250,000
3. Doral Financial Corporation 8% Convertible
Preferred Stock (8,460 shares)...................................... 8,460,000
4. Tax Credit Enhanced Film Fund of
Puerto Rico (75 shares of common stock)............................. 1,500,000
-----------
TOTAL $11,710,000
</TABLE>
<PAGE> 1
EXHIBIT 12.1
POPULAR, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Income before income taxes 340,224 306,691 284,026 256,027 206,130
Fixed charges:
Interest expense 897,932 778,692 707,348 591,540 521,624
Estimated interest component
of net rental payments 10,970 8,817 7,779 7,065 6,012
Total fixed charges including
interest on deposits 908,902 787,509 715,127 598,605 527,636
Less: Interest on deposits 452,215 411,492 366,528 350,221 329,783
Total fixed charges excluding
interest on deposits 456,687 376,017 348,599 248,384 197,853
Income before income taxes and
fixed charges (including interest
on deposits) $1,249,126 $1,094,200 $999,153 $854,632 $733,766
Income before income taxes and
fixed charges (excluding interest
on deposits) $ 796,911 $ 682,708 $632,625 $504,411 $403,983
Preferred stock dividends 8,350 8,350 8,350 8,350 8,350
Ratio of earnings to fixed charges
Including Interest on Deposits 1.4 1.4 1.4 1.4 1.4
Excluding Interest on Deposits 1.7 1.8 1.8 2.0 2.0
Ratio of earnings to fixed charges & Preferred Stock Dividends
Including Interest on Deposits 1.4 1.4 1.4 1.4 1.4
Excluding Interest on Deposits 1.7 1.8 1.8 2.0 2.0
</TABLE>
<PAGE> 1
[POPULAR, INC. LOGO]
[COMPUTERIZED ARTS GRAPHIC DESIGN]
ACHIEVE
EXCELLENCE
1999
ANNUAL
REPORT
<PAGE> 2
THE VALUES, THE VISION AND THE WILL
TO ACHIEVE EXCELLENCE
Popular, Inc., a bank holding company with $25.5 billion in assets, is a
complete financial services provider with operations in Puerto Rico, the United
States, the Caribbean and Latin America. As the leading financial institution in
Puerto Rico, the Corporation offers full individual and commercial banking
services through its principal subsidiary, Banco Popular, as well as investment
banking, auto leasing, mortgage, personal loans, and information processing
through specialized subsidiaries. In the United States, the Corporation has
established the largest Hispanic financial services franchise, providing
solutions to the fastest growing population segment in the country. The
Corporation continues to use its technological expertise as a competitive
advantage on its Caribbean and Latin American expansion, and is now exporting
its 106 years of retail banking experience to the region. Popular, Inc. has
always been committed to meeting the needs of individual and business clients
through innovation and to fostering growth in the communities where it does
business.
Popular, Inc. is focused on achieving excellence with employees, customers,
shareholders and the communities it serves.
[INSTITUTIONAL FLOW CHART]
<PAGE> 3
1999 FINANCIAL HIGHLIGHTS
<TABLE>
<S> <C>
FINANCIAL HIGHLIGHTS 1
OUR MARKETS 2
OUR CREED, OUR PEOPLE 4
LETTER TO SHAREHOLDERS 5
OUR COMMUNITY 17
MANAGEMENT 20
BOARDS OF DIRECTORS 22
FINANCIAL INFORMATION 23
</TABLE>
[GRAPH]
<PAGE> 4
PROFILE OUR MARKETS
PUERTO RICO
- - 3.9 MILLION POPULATION
- - LOCAL ECONOMY GROWING AT APPROXIMATELY 3.5%
- - 42% OF THE POPULATION IS UNBANKED, WHICH PRESENTS AN INTERESTING
OPPORTUNITY TO EXPAND PRODUCTS AND SERVICES
MAIN BRANDS
Banco Popular, ATH Network, Popular Mortgage, Popular Leasing, Popular
Securities, Popular Finance, Popular Asset Management, GM Group, Levitt Mortgage
BANCO POPULAR DE PUERTO RICO
Offers the most extensive distribution network in Puerto Rico, with 199
branches, 442 proprietary automated teller machines (ATMs), 22,163 point-of-sale
(POS) terminals, telephone banking through TeleBanco Popular (retail and
commercial), PC Banco system and Web Cash Manager. It maintains its position as
market leader with $9.8 billion in deposits and $7.9 billion in loans. The ATH
Network is the most extensive in Puerto Rico, with 555 ATMs and worldwide
acceptance of its cards.
POPULAR MORTGAGE
Among the top three mortgage origination businesses in Puerto Rico, it expanded
with the acquisition of 85% of Levitt Mortgage. It now operates 13 mortgage
centers and the number of representatives increased from 47 to 66.
UNITED STATES
- - 33.9 MILLION HISPANICS
- - IN 20 YEARS, ONE OUT OF EVERY FIVE RESIDENTS IN THE U.S. WILL BE
HISPANIC
- - AVERAGE U.S. HISPANIC HOUSEHOLD INCOME OF $43,570
MAIN BRANDS
Banco Popular, Popular Cash Express, Popular Leasing, Equity One
BANCO POPULAR NORTH AMERICA
The largest U.S. Hispanic bank consolidated its banking regions to operate under
one organization, Banco Popular North America. At year end, it had a total of 91
branches in six states and continued to expand its national lines of business:
credit cards, retail mortgages, SBA loans, and small and medium-sized business
franchise lending.
CARIBBEAN/LATIN AMERICA
- - IN THE DOMINICAN REPUBLIC, POPULATION OF 8.5 MILLION AND ECONOMY
GROWING AT OVER 7%
- - HIGH LEVELS OF MONEY TRANSFERS FROM THE U.S.
- - LACK OF ELECTRONIC NETWORKS IN THE REGIONS
MAIN BRANDS
Banco Popular, Banco Fiduciario, ATH Dominicana, ATH Costa Rica, CreST, S.A.
BANCO POPULAR VIRGIN ISLANDS
Operations consist of eight branches, four credit centers and three mortgage
centers in the U.S. and British Virgin Islands. Deposits reached $616 million.
BANCO FIDUCIARIO
Investment in the fourth largest bank in the Dominican Republic. Total of $436
million in assets and $295 million in deposits.
2
<PAGE> 5
20-YEAR SUMMARY
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER COMMON SHARE DATA) 1980 1981 1982 1983 1984
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL INFORMATION
Net Interest Income $ 130.0 $ 135.9 $ 151.7 $ 144.9 $ 156.8
Non-Interest Income 14.2 15.8 15.9 19.6 19.0
Operating Expenses 101.3 109.4 121.2 127.3 137.2
Net Income 23.5 24.3 27.3 26.8 29.8
----------- ----------- ----------- ----------- -----------
Total Assets $ 2,630.1 $ 2,677.9 $ 2,727.0 $ 2,974.1 $ 3,526.7
Net Loans 988.4 1,007.6 976.8 1,075.7 1,373.9
Deposits 2,060.5 2111.7 2,208.2 2,347.5 2,870.7
Total Stockholders' Equity 122.1 142.3 163.5 182.2 203.5
----------- ----------- ----------- ----------- -----------
Market Capitalization $ 45.0 $ 66.4 $ 99.0 $ 119.3 $ 159.8
ROA 0.92% 0.90% 0.96% 0.95% 0.94%
ROE 19.96% 18.36% 17.99% 15.86% 15.83%
PER COMMON SHARE(1)
Earnings $ 0.34 $ 0.34 $ 0.38 $ 0.37 $ 0.41
Dividends (Declared) 0.07 0.06 0.08 0.11 0.12
Book Value 1.66 1.93 2.22 2.47 2.76
Market Price 1.01 0.92 1.38 1.66 2.22
ASSETS BY GEOGRAPHICAL AREA
Puerto Rico 95.53% 94.65% 94.63% 93.70% 91.31%
United States 4.47% 5.14% 5.01% 5.23% 7.52%
Caribbean 0.00% 0.22% 0.36% 1.07% 1.17%
----------- ----------- ----------- ----------- -----------
Total 100.00% 100.00% 100.00% 100.00% 100.00%
TRADITIONAL DELIVERY SYSTEM
Commercial Banking Branches
Puerto Rico 110 110 110 112 113
Virgin Islands 1 2 3 3
United States 7 7 7 6 9
Banco Fiduciario (D.R.)
----------- ----------- ----------- ----------- -----------
Subtotal 117 118 119 121 125
----------- ----------- ----------- ----------- -----------
Non-Commercial Banking Branches
Equity One
Popular Cash Express(2)
Popular Finance
Popular Leasing
Popular Leasing, U.S.A
Popular Mortgage
Popular Securities
Levitt Mortgage
GM Group
----------- ----------- ----------- ----------- -----------
Subtotal
----------- ----------- ----------- ----------- -----------
Total 117 118 119 121 125
ELECTRONIC DELIVERY SYSTEM
ATMs
Owned
Puerto Rico 30 78
Caribbean
United States
Subtotal 30 78
Driven
Puerto Rico 6
Caribbean
----------- ----------- ----------- ----------- -----------
Subtotal 6
----------- ----------- ----------- ----------- -----------
Total 30 84
TRANSACTIONS (IN MILLIONS)
Electronic Transactions 0.6 4.4
Items Processed 94.8 96.9 98.5 102.1 110.3
EMPLOYEES (FTES)(3) 3,838 3,891 3,816 3,832 4,110
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER COMMON SHARE DATA) 1985 1986 1987 1988 1989
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL INFORMATION
Net Interest Income $ 174.9 $ 184.2 $ 207.7 $ 232.5 $ 260.9
Non-Interest Income 26.8 41.4 41.0 54.9 63.3
Operating Expenses 156.0 168.4 185.7 195.6 212.4
Net Income 32.9 38.3 38.3 47.4 56.3
----------- ----------- ----------- ----------- -----------
Total Assets $ 4,141.7 $ 4,531.8 $ 5,389.6 $ 5,706.5 $ 5,972.7
Net Loans 1,715.7 2,271.0 2,768.5 3,096.3 3,320.6
Deposits 3,365.3 3,820.2 4,491.6 4,715.8 4,926.3
Total Stockholders' Equity 226.4 283.1 308.2 341.9 383.0
----------- ----------- ----------- ----------- -----------
Market Capitalization $ 216.0 $ 304.0 $ 260.0 $ 355.0 $ 430.1
ROA 0.89% 0.88% 0.76% 0.85% 0.99%
ROE 15.59% 15.12% 13.09% 14.87% 15.87%
PER COMMON SHARE(1)
Earnings $ 0.46 $ 0.50 $ 0.48 $ 0.59 $ 0.70
Dividends (Declared) 0.14 0.15 0.17 0.17 0.20
Book Value 3.07 3.46 3.77 4.19 4.69
Market Price 3.00 4.00 3.34 4.44 5.38
ASSETS BY GEOGRAPHICAL AREA
Puerto Rico 92.42% 91.67% 94.22% 93.45% 92.18%
United States 6.47% 7.23% 5.01% 5.50% 6.28%
Caribbean 1.11% 1.10% 0.77% 1.05% 1.54%
----------- ----------- ----------- ----------- -----------
Total 100.00% 100.00% 100.00% 100.00% 100.00%
TRADITIONAL DELIVERY SYSTEM
Commercial Banking Branches
Puerto Rico 115 124 126 126 128
Virgin Islands 3 3 3 3 3
United States 9 9 9 10 10
Banco Fiduciario (D.R.)
----------- ----------- ----------- ----------- -----------
Subtotal 127 136 138 139 141
----------- ----------- ----------- ----------- -----------
Equity One
Popular Cash Express(2)
Popular Finance 14 17 18
Popular Leasing 4
Popular Leasing, U.S.A
Popular Mortgage
Popular Securities
Levitt Mortgage
GM Group
----------- ----------- ----------- ----------- -----------
Subtotal 14 17 22
----------- ----------- ----------- ----------- -----------
Total 127 136 152 156 163
ELECTRONIC DELIVERY SYSTEM
ATMs
Owned
Puerto Rico 94 113 136 153 151
Caribbean 3 3 3
United States
----------- ----------- ----------- ----------- -----------
Subtotal 94 113 139 156 154
----------- ----------- ----------- ----------- -----------
Driven
Puerto Rico 36 51 55 68 65
Caribbean
----------- ----------- ----------- ----------- -----------
Subtotal 36 51 55 68 65
----------- ----------- ----------- ----------- -----------
Total 130 164 194 224 219
TRANSACTIONS (IN MILLIONS)
Electronic Transactions 7.0 8.3 12.7 14.9 16.1
Items Processed 123.8 134.0 139.1 159.8 161.9
EMPLOYEES (FTES)(3) 4,314 4,400 4,699 5,131 5,213
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER COMMON SHARE DATA) 1990 1991 1992 1993 1994
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL INFORMATION
Net Interest Income $ 284.2 $ 407.8 $ 440.2 $ 492.1 $ 535.5
Non-Interest Income 70.9 131.8 124.5 125.2 141.3
Operating Expenses 229.6 345.7 366.9 412.3 447.8
Net Income 63.4 64.6 85.1 109.4 124.7
----------- ----------- ------------ ------------ ------------
Total Assets $ 8,983.6 $ 8,780.3 $ 10,002.3 $ 11,513.4 $ 12,778.4
Net Loans 5,373.3 5,195.6 5,252.1 6,346.9 7,781.3
Deposits 7,422.7 7,207.1 8,038.7 8,522.7 9,012.4
Total Stockholders' Equity 588.9 631.8 752.1 834.2 1,002.4
----------- ----------- ------------ ------------ ------------
Market Capitalization $ 479.1 $ 579.0 $ 987.8 $ 1,014.7 $ 923.7
ROA 1.09% 0.72% 0.89% 1.02% 1.02%
ROE 15.55% 10.57% 12.72% 13.80% 13.80%
PER COMMON SHARE(1)
Earnings $ 0.79 $ 0.54 $ 0.70 $ 0.84 $ 0.92
Dividends (Declared) 0.20 0.20 0.20 0.23 0.25
Book Value 4.92 5.25 5.76 6.38 6.87
Market Price 4.00 4.81 7.56 7.75 7.03
ASSETS BY GEOGRAPHICAL AREA
Puerto Rico 88.59% 86.67% 87.33% 79.42% 75.86%
United States 9.28% 10.92% 10.27% 16.03% 19.65%
Caribbean 2.13% 2.41% 2.40% 4.55% 4.49%
----------- ----------- ------------ ------------ ------------
Total 100.00% 100.00% 100.00% 100.00% 100.00%
TRADITIONAL DELIVERY SYSTEM
Commercial Banking Branches
Puerto Rico 173 161 162 165 166
Virgin Islands 3 3 3 8 8
United States 24 24 30 32 34
Banco Fiduciario (D.R.)
----------- ----------- ------------ ------------ ------------
Subtotal 200 188 195 205 208
----------- ----------- ------------ ------------ ------------
Equity One 27 41 58 73
Popular Cash Express(2)
Popular Finance 26 26 26 26 28
Popular Leasing 9 9 9 8 10
Popular Leasing, U.S.A
Popular Mortgage
Popular Securities
Levitt Mortgage
GM Group
----------- ----------- ------------ ------------ ------------
Subtotal 35 62 76 92 111
----------- ----------- ------------ ------------ ------------
Total 235 250 271 297 319
ELECTRONIC DELIVERY SYSTEM
ATMs
Owned
Puerto Rico 211 206 211 234 262
Caribbean 3 3 3 8 8
United States 6 11 26
----------- ----------- ------------ ------------ ------------
Subtotal 214 209 220 253 296
----------- ----------- ------------ ------------ ------------
Driven
Puerto Rico 54 73 81 86 88
Caribbean
----------- ----------- ------------ ------------ ------------
Subtotal 54 73 81 86 88
----------- ----------- ------------ ------------ ------------
Total 268 282 301 339 384
TRANSACTIONS (IN MILLIONS)
Electronic Transactions 18.0 23.9 28.6 33.2 43.0
Items Processed 164.0 166.1 170.4 171.8 174.5
EMPLOYEES (FTES)(3) 7,023 7,006 7,024 7,533 7,606
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER COMMON SHARE DATA) 1995 1996 1997 1998 1999
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL INFORMATION
Net Interest Income $ 584.2 $ 681.3 $ 784.0 $ 873.0 $ 953.7
Non-Interest Income 173.3 205.5 247.6 291.2 372.9
Operating Expenses 486.8 541.9 636.9 720.4 837.5
Net Income 146.4 185.2 209.6 232.3 257.6
------------ ------------ ------------ ------------ ------------
Total Assets $ 15,675.5 $ 16,764.1 $ 19,300.5 $ 23,160.4 $ 25,460.5
Net Loans 8,677.5 9,779.0 11,376.6 13,077.8 14,907.8
Deposits 9,876.7 10,763.3 11,749.6 13,672.2 14,173.7
Total Stockholders' Equity 1,141.7 1,262.5 1,503.1 1,709.1 1,661.0
------------ ------------ ------------ ------------ ------------
Market Capitalization $ 1,276.8 $ 2,230.5 $ 3,350.3 $ 4,602.4 3,907.5
ROA 1.04% 1.14% 1.14% 1.14% 1.08%
ROE 14.22% 16.17% 15.83% 15.41% 15.45%
PER COMMON SHARE(1)
Earnings $ 1.05 $ 1.34 $ 1.50 $ 1.65 $ 1.84
Dividends (Declared) 0.29 0.35 0.40 0.50 0.60
Book Value 7.91 8.80 10.37 11.86 11.51
Market Price 9.69 16.88 24.75 34.00 27.94
ASSETS BY GEOGRAPHICAL AREA
Puerto Rico 75.49% 73.88% 74.10% 71.32% 71.54%
United States 20.76% 22.41% 23.34% 24.44% 24.58%
Caribbean 3.75% 3.71% 2.56% 4.24% 3.88%
------------ ------------ ------------ ------------ ------------
Total 100.00% 100.00% 100.00% 100.00% 100.00%
TRADITIONAL DELIVERY SYSTEM
Commercial Banking Branches
Puerto Rico 166 178 201 198 199
Virgin Islands 8 8 8 8 8
United States 40 44 63 89 91
Banco Fiduciario (D.R.) 27 31
------------ ------------ ------------ ------------ ------------
Subtotal 214 230 272 322 329
------------ ------------ ------------ ------------ ------------
Equity One 91 102 117 128 138
Popular Cash Express(2) 51 102
Popular Finance 31 39 44 48 47
Popular Leasing 9 8 10 10 12
Popular Leasing, U.S.A 7 8 10
Popular Mortgage 3 3 3 11 13
Popular Securities 1 2 2 2
Levitt Mortgage 2
GM Group 4
------------ ------------ ------------ ------------ ------------
Subtotal 134 153 183 258 330
------------ ------------ ------------ ------------ ------------
Total 348 383 455 580 659
ELECTRONIC DELIVERY SYSTEM
ATMs
Owned
Puerto Rico 281 327 391 421 442
Caribbean 8 9 17 59 68
United States 38 53 71 94 99
------------ ------------ ------------ ------------ ------------
Subtotal 327 389 479 574 609
------------ ------------ ------------ ------------ ------------
Driven
Puerto Rico 120 162 170 187 102
Caribbean 97 192 265 851
------------ ------------ ------------ ------------ ------------
Subtotal 120 259 362 452 953
------------ ------------ ------------ ------------ ------------
Total 447 648 841 1,026 1,562
TRANSACTIONS (IN MILLIONS)
Electronic Transactions 56.6 78.0 111.2 130.5 159.4
Items Processed 175.0 173.7 171.9 170.9 171.0
EMPLOYEES (FTES)(3) 7,815 7,996 8,854 10,549 11,501
</TABLE>
1 Per common share data adjusted for stock splits in 1981, 1985, 1989,
1996 and 1998.
2 Number of offices for Popular Cash Express include mobile units, 28 in
1998, and 38 in 1999.
3 Includes 853 FTEs from Banco Fiduciario in the Dominican Republic,
partially owned by Popular, Inc.
<PAGE> 6
ACHIEVE EXCELLENCE
POPULAR LEASING
Leader in Puerto Rico's leasing business with a total of 36 account executives
who offer service from 12 sales and daily rental offices.
POPULAR SECURITIES
Offers full investment services from Banco Popular's branches in Puerto Rico
through 45 retail sales representatives. In the institutional business, during
the last five years it participated in more than 100 transactions with a value
of over $19 billion.
POPULAR FINANCE
Ranked among the top consumer finance institutions in Puerto Rico, it is engaged
in small personal loans and second mortgages. It operates 45 offices and six
mortgage centers, with a portfolio of $193.2 million.
POPULAR ASSET MANAGEMENT
Institutional investment management services with more than $2 billion in assets
under management.
GM GROUP
Main service provider of integrated solutions in the processing business with
offices in San Juan, Caracas, Santo Domingo and Miami. It has clients from 10
Latin American countries.
POPULAR CASH EXPRESS
The check-cashing operation expanded its business to three new markets. It
currently has a total of 64 offices and 38 mobile units in five states and
Washington, D.C. Assets total $43.0 million.
POPULAR LEASING, U.S.A.
Subsidiary that offers small-ticket equipment leasing with $74.4 million in
assets. Operates 10 offices in seven states.
EQUITY ONE
Subsidiary engaged in the business of personal and mortgage loans and retail
financing to merchants and dealers. Assets reached $1.6 billion. Operates 138
offices in 32 states.
ATH DOMINICANA
The largest ATM network in the Dominican Republic. ATM and POS transactions
increased by 48% during 1999.
ATH COSTA RICA
ATM driving and administration business in Costa Rica. Transactions increased by
355%. Recently entered the POS acquiring business with the acquisition of CreST,
S.A.
3
<PAGE> 7
VALUES
SOCIAL RESPONSIBILITY
We are committed to work for the social and economic well-being of the
communities we serve with particular regard for the lowest socio-economic
component of the population.
FOCUS ON THE CUSTOMER
Our customers are the lifeblood of our organization. We are an institution that
values relationships more than transactions. The needs and satisfaction of our
customers are our primary concern.
INTEGRITY
We are guided by the highest moral and ethical standards. The trust of our
customers is essential for our existence.
PASSION FOR EXCELLENCE
We firmly believe in doing things the right way, the first time, every time.
Continuous improvement and measurement of all our processes are essential for
our success.
OUR CREED Banco Popular is a local institution dedicating its efforts
exclusively to the enhancement of the social and economic conditions in Puerto
Rico and inspired by the most sound principles and fundamental practices of good
banking. Banco Popular pledges its efforts and resources to the development of a
banking service for Puerto Rico within strict commercial practices and so
efficient that it could meet the requirement of the most progressive community
of the world.
These words, written in 1928 by Don Rafael Carrion Pacheco, Executive Vice
President and President (1927-1956), embody the philosophy of Popular, Inc.
OUR PEOPLE The men and women who work for our institution, from the highest
executive to the employees who handle the most routine tasks, feel a special
pride in serving our customers with care and dedication. All of them feel the
personal satisfaction of belonging to the "Banco Popular Family", which fosters
affection and understanding among its members, and which at the same time firmly
complies with the highest ethical and moral standards of behavior.
These words by Don Rafael Carrion Jr., President and Chairman of the Board
(1956-1991) were written in 1988 to commemorate the 95th anniversary of Banco
Popular de Puerto Rico and reflect our commitment to human resources.
4
<PAGE> 8
INNOVATION
Constant innovation is a competitive advantage. We have a tradition of adopting
new techniques in all business areas to anticipate the changing needs of our
customers.
OUR PEOPLE
We strive to recruit, train and retain the most qualified people. We believe in
a direct relation between our employees' compensation and their commitment to
the organization's objectives, their individual performance, their team's
performance and the Corporation's.
SHAREHOLDER VALUE
Our goal is to produce above-average and consistent financial returns for our
shareholders. Our decisions are based on a long-term view of the future and are
characterized by prudence in assuming risk.
LETTER TO SHAREHOLDERS
[PHOTO]
Richard L. Carrion, Chairman, President and Chief Executive Officer
In the past 106 years, Banco Popular de Puerto Rico has grown and
evolved into Popular, Inc., a diversified financial services corporation. But
the values that have inspired us have remained constant. These values motivate
us, they provide meaning to our actions and they inspire us to persevere,
especially when faced with great challenges.
Inspired by these values, we have crafted a vision that has guided our
steps for over a decade. Our strategic plan reflects our vision. Each of our
strategic principles represents an aspect of our vision, an integral part of the
whole, since they are all intertwined. Fortress Puerto Rico recognizes that
Puerto Rico is our principal market, but that rather than let success turn us
complacent, we must constantly strengthen our position. Our experience
5
<PAGE> 9
LETTER TO SHAREHOLDERS
in Puerto Rico has led us to expand our operations to markets that are natural
to us - Hispanics in the United States and our neighboring Caribbean and Latin
American countries - in an effort to develop a PanAmerican Bank. In addition to
geographic expansion, we are constantly looking to diversify our sources of
income by offering more alternatives to our customers - Diversification. None of
this would be possible without an organization committed to the Corporation's
goals - Organizational Quality. We need our employees to excel at what they do,
to develop and enhance our professional capabilities and processes, and to
always seek additional efficiencies.
We have summarized each of these strategic principles with a verb,
because principles must be translated into action. Values and vision, by
themselves, can remain just a goal. The most important ingredient is our
individual and collective will to make it happen. That will to be the best at
what we do allowed us to fulfill our expectations for 1999.
[GRAPH]
At year-end, the Corporation reported net income of $257.6 million, a
10.9% increase compared to 1998. Total assets amounted to $25.5 billion,
compared with $23.2 billion at December 1998. This growth reflects the
Corporation's continued business expansion in Puerto Rico, the Caribbean and
Latin America and the continental United States. Earnings per common share (EPS)
increased from $1.65 in 1998 to $1.84 in 1999, an increase of 11.5%, while
return on average equity (ROE) and assets (ROA) were 15.45% and 1.08%,
respectively, compared with 15.41% and 1.14% for 1998.
Popular, Inc. stock (BPOP) closed at $27.94 at December 31, 1999, a
decline of 17.83% over the same period last year. Over a ten-year period, our
stock's total return has averaged 21.20% annually, outperforming broad and
industry-specific market indexes.
STRENGTHEN Throughout the last century, we have built a formidable franchise in
Puerto Rico, our home base and principal market. Notwithstanding our success, we
are convinced that we must continue to strengthen our position by segmenting our
client base and aligning our products and delivery channels to serve the unique
needs of our customers in the most efficient manner. This commitment is what we
call Fortress Puerto Rico.
In terms of our banking franchise, we continued to improve the
coverage and convenience of our traditional, electronic and online delivery
systems. Our complete delivery system is our competitive advantage in our
efforts to attract new clients as well as broaden our relationships with current
clients.
6
<PAGE> 10
FORTRESS PUERTO RICO RECOGNIZES THAT PUERTO RICO IS OUR PRINCIPAL MARKET, BUT
THAT RATHER THAN LET SUCCESS TURN US COMPLACENT, WE MUST CONSTANTLY STRENGTHEN
OUR POSITION.
We continued the reconfiguration of our branch system in Puerto Rico
by adding more branches in convenient locations and high-traffic areas. By
year-end, our extensive banking branch network included a total of 199 branches,
of which 22 were in-store branches.
We began to deploy a new sales and service standard computing
platform in all of the Bank's branches. This new system is designed as a sales
tool and will assist branch employees in offering the right product to each
customer. With it, our employees will provide our clients faster and more
efficient service, spending less time on administrative tasks and more time
serving them.
Banco Popular also strengthened its position as Puerto Rico's leading
driver of electronic transactions in 1999. The continuous growth of electronic
transactions in recent years has truly transformed Puerto Rico's banking system,
and has allowed us to efficiently offer more convenience to customers. The
number of electronic transactions as a percentage of total transactions
increased from 76% in December 1998 to 78% in December 1999. Our various
electronic delivery channels contributed to these results.
Our ATH (A Toda Hora) network of automated teller machines and
point-of-sale terminals continued to grow and improve in 1999. We added 21 new
ATMs, for a total of 442, and 3,369 additional POS terminals, for a total of
22,000 terminals in 18,500 businesses throughout the island. Our complete
network processed over 129 million transactions during 1999.
Our telephone banking system, TeleBanco Popular, received over 19
million calls, a 12.5% increase over last year, evidence of the greater
acceptance of the telephone as a practical channel to obtain information and
conduct transactions.
Recognizing that the future of online banking is on the Internet, we
have developed various projects that allow our clients to conduct a wide variety
of transactions online. We began in 1998 with Popular AutoNet
(www.popularautonet.com), an online service for auto loan customers in Puerto
Rico. This year we implemented Web Cash Manager, which offers commercial clients
detailed account information on the Internet. We expect to launch a new service,
Mi Banco Popular, in early 2000. This new functional web site will allow our
retail clients to personalize contents, access all financial relations, and
securely conduct transactions over the Internet. The new system will replace PC
Banco, the highly successful dial-up PC banking system introduced in 1997.
7
<PAGE> 11
LETTER TO SHAREHOLDERS
In addition to the expansion and development of new delivery
alternatives, we developed new products and services to remain competitive and
meet the changing needs of our clients.
We introduced Popular Balanced IRA, a fund managed by Popular Asset
Management that includes equity and fixed income securities from Puerto Rico and
the United States. This new product offers our customers the benefit of a higher
return on their investment than traditional fixed-interest products, and expands
our product offerings. We also expanded the options for opening individual
retirement accounts, through any branch, TeleBanco Popular, PC Banco, and a
dedicated web site, www.irapopular.com. Our 1999 IRA campaign results proved our
undisputed leadership in this important portion of the market.
In June we expanded our successful partnership with American Express by
launching the Banco Popular American Express Platinum Card, the first platinum
card issued in Puerto Rico. This new credit card product is targeted toward the
upscale market. The combination of these two strong brands has proved a great
formula for success. We expect to repeat the success of the Banco Popular
American Express Card launched last year.
[GRAPH]
Banco Popular was the first institution in Puerto Rico and among the
first in the United States to participate in a new program sponsored by the U.S.
Treasury Department that offers an electronic transfer account (ETA) to federal
benefits recipients. Acceso ETA is a low-cost account that allows clients to
receive their benefits via direct deposit, advancing our goal of transforming
paper-based transactions to electronic. It offers full access to all traditional
and electronic distribution channels. It also fits our strategy to attract
clients from among the unbanked and underbanked, since many benefit recipients
currently do not have a bank account.
We continued seeking new products, services and value-added solutions
for our commercial clients in Puerto Rico. They have benefited from the
development of innovative products and services tailored to specific markets, as
well as programs developed to enhance the performance of their business. Last
year we continued to branch out with our Professional Banking Program, Banca de
Profesionales. Our commitment to the small and middle market commercial segment
was evidenced by our collaboration with the Small Business Administration in the
creation of a Business Resource Center at Sacred Heart University in Puerto
Rico. This center contains a wealth of free information and resources for small
8
<PAGE> 12
business owners and aspiring entrepreneurs. For this segment we also launched
new products such as Prospera, a fixed-term, fixed-payment loan and InfoFax, a
service that provides daily balance statements via fax to businesses without
access to computers.
An important initiative undertaken by Banco Popular de Puerto Rico in
1999 was a new refocused and revitalized marketing campaign. Launched to
coincide with the Corporation's 106th anniversary, the institutional campaign
communicates that "Whatever you want to achieve, this is your Bank". In addition
to illustrating the multiple ways our banking services help people achieve their
personal, family and business goals, the campaign conveys the message that our
commitment to Puerto Rico transcends business relationships in our continuous
contributions to the many community-building and culture-promoting activities
that we support.
An essential element of our Fortress Puerto Rico principle is the
strength that comes from all of the units that complement our banking franchise
and expand our financial services offering. Through these operations, we support
our clients in the purchase of their homes, in the financing of their
automobiles, in managing their investments. In essence, in meeting all their
financial needs.
Popular Mortgage, our mortgage-origination subsidiary, continued to
expand and enhance its services. The company developed a new image-building
campaign to position itself as a strong contender in this market. Under the
theme "Easy. Reliable.", we emphasize our commitment to streamlining the loan
application process and offering a variety of rate-competitive products to meet
the different priorities of different customers. In May, we launched the Popular
Mortgage-American Airlines AAdvantage Program. As part of an alliance with
American Airlines, we are offering mortgage customers up to 30,000 AAdvantage
frequent flier miles when they sign a mortgage loan with Popular Mortgage. This
is an exclusive program with Popular Mortgage and is the first of its kind in
the mortgage industry in Puerto Rico. Two innovative products were introduced:
the Biweekly Mortgage, which lets clients make payments every 14 days, and the
Mixed-Use Property Mortgage, which allows customers to use residential mortgages
for mixed commercial-residential properties. We expanded the reach of our
mortgage operations, opening two new offices in 1999, and relocated another five
to more convenient locations. In August we acquired 85% of Levitt Mortgage, a
mortgage bank with strong presence in the new project loan origination market.
9
<PAGE> 13
OUR EXPERIENCE IN PUERTO RICO HAS LED US TO EXPAND OUR OPERATIONS TO NATURAL
MARKETS - HISPANICS IN THE UNITED STATES AND OUR NEIGHBORING CARIBBEAN AND LATIN
AMERICAN COUNTRIES - IN AN EFFORT TO DEVELOP A PANAMERICAN BANK.
Popular Leasing & Rental, Inc., improved the efficiency of its core
business operations in 1999 and branched out into leasing of high-tech equipment
through a strategic alliance with El Camino Resources, Ltd., the largest leasing
company of this type in the United States. This partnership will focus on the
leasing of high-tech equipment in Puerto Rico, such as telecommunications
systems, hospital and medical equipment and heavy machinery. In addition, we
capitalized on our relationship with American Airlines by offering, for a
limited time, frequent flier miles in the AAdvantage program for new leases.
[GRAPH]
Popular Finance, our consumer lending subsidiary, opened three new
branches, bringing the total islandwide to 47. To increase customer convenience
and choices, Popular Finance began to sell money orders and prepaid cellular
phone cards in all of its offices and to receive payments for utility and other
bills.
This year, Popular Securities' institutional investment banking group
participated in more than 25 financial transactions with a total value of over
$6 billion. With regard to its retail operations, it continued its steady growth
by adding more investment representatives during the year to expand our
islandwide coverage through the Banco Popular branch network. We also launched
an aggressive Keogh account campaign spearheaded by a series of seminars
throughout Puerto Rico. And for individual investors, Popular Securities created
PopularStreet, a quarterly newsletter that reviews market trends and announces
the company's new investment products.
EXPAND In the United States, the major thrust of our strategy is to maintain
steady growth in areas of the United States with a high concentration of
Hispanics. Although we have been servicing this market since we established our
first branch in New York in 1961, we have aggressively expanded during the past
five years. We are developing our franchise through
10
<PAGE> 14
delivery system growth and expansion of our business lines, with the clear goal
of becoming the principal financial services provider to Hispanics in the United
States.
In order to better serve our market and implement our strategies more
efficiently, during 1999 we made significant improvements to our organization.
The corporate reorganization of Banco Popular's operations in the United
States took effect on January 1, 1999. The creation of Banco Popular North
America will allow us to improve internal communications and achieve
administrative efficiency by consolidating support divisions and by enabling
better integration of our information and telecommunications systems. The
unification of our U.S. franchise enabled us to roll out our first nationally
marketed deposit products. For example, our Dream CD campaign attracted over
$265 million in deposits in a very short period of time, evidence of the
efficiency achieved by the restructuring and the high potential for growth. We
also established a new separate Board of Directors for Banco Popular North
America to provide U.S. operations with additional insight and guidance.
Beyond our corporate restructuring, we completed comprehensive
marketing and financial assessments to focus future efforts concerning our brand
and our distribution system growth. We expanded and reconfigured our branch
network, opening three branches in California and one in Texas, and
consolidating two in Florida. We ended the year with 91 branches in six states.
The U.S. Credit Card Division, one of our national lines of business,
carried out a spirited marketing campaign driven by customer contests, employee
incentives and an expanded Hispanic affinity program.
One of our newer businesses, Popular Cash Express, grew significantly
during the past year. It now ranks among the top ten check-cashing operations in
the United States and is the second-largest mobile check-cashing operator with
38 trucks. Committed to serving the unbanked and underbanked, Popular Cash
Express opened or acquired 41 new locations for a total of 64 and entered three
new markets: Texas, Arizona and Washington, D.C. The centralization of financial
and accounting functions in California has improved efficiency and a newly
formed product development team is focusing on new products designed especially
to appeal to unbanked and underbanked customers.
Our mortgage business originated $390 million in residential mortgages
in its six U.S. markets in 1999. It restructured its centralized mortgage
processing operation in California to increase efficiency, and hired new
management and sales teams.
11
<PAGE> 15
LETTER TO SHAREHOLDERS
Regarding our national commercial lines of business, in 1999 we
solidified our position as a national leader in Small Business Administration
(SBA) and minority lending. Banco Popular North America originated $99.1 million
in SBA loans. We are among the top SBA lenders in New York, Chicago and Florida.
SBA lending is a crucial lifeline for Hispanic entrepreneurs in the United
States, and our partnership with them is clearly in line with our intent to grow
with this community and contribute to its economic development.
Franchise lending is a niche market with considerable potential for
growth, and we increased our participation in 1999. The Franchise Lending
section surpassed our budgeted goal of $200 million in loans before the end of
November and finished the year with an increase of 59.6% over 1998.
[GRAPH]
Popular Leasing, U.S.A., has shown continuous improvement and
exceeded the budgeted goal of $40 million in sales by November. Two new offices
were opened, for a total of 10 in seven states. The company's marketing strategy
focuses on equipment leasing through vendors and customers in nearly every state
through a toll-free number (1-800-829-9411) and a web site
(www.popularleasingusa.com).
Equity One turned in a favorable performance in 1999 by changing the
emphasis on certain products to reflect the downturn in the refinancing segment
of the mortgage market. We also focused on increasing the diversity of products
in each of our offices. We ended the year with 138 offices in 32 states. In the
third quarter, Equity One opened a new call center, which allows us to offer
more complete and convenient service to our clients.
In the Caribbean and Latin America we have continued to invest in our
banking franchises. In March, we opened our new regional office in the Virgin
Islands. The state-of-the-art building provides spacious accommodations for the
region's central offices and a modern branch with eight drive-through windows.
The headquarters serves St. Thomas, St. Croix and Tortola. In addition to a new
bank center, Banco Popular Virgin Islands inaugurated a new marketing campaign
designed to position the bank as the most complete provider of financial
services in the region. Performance for 1999 was promising, with a 24% increase
in deposits to $616 million and a 7% increase in loans to $390 million.
12
<PAGE> 16
IN ADDITION TO GEOGRAPHIC EXPANSION, WE ARE CONSTANTLY LOOKING TO DIVERSIFY OUR
SOURCES OF INCOME BY OFFERING MORE ALTERNATIVES TO OUR CUSTOMERS.
In the Dominican Republic, we increased our ownership of Banco
Fiduciario to 57% and completed the integration of Popular, Inc. management
specialists into a reorganized management structure, solidifying the alliance we
established in 1998. The new team identified and prioritized areas to be
improved and set to work accomplishing the strategic plan. Moving forward, our
principal strategy is growing our retail business and reducing the cost of
funds. To support this strategy we have increased the number of retail outlets
from 27 to 31 branches and will develop new marketing communications strategies.
Our expertise and resources in electronic banking have provided an
effective entry into Caribbean and Latin American markets. The two ATM/POS
networks we have developed so far, in the Dominican Republic and Costa Rica,
have experienced tremendous growth.
ATH Dominicana added six institutions to its membership list, which
at year-end included all the major financial institutions in the country.
Transaction volume increased 48%, surpassing expectations. A significant portion
of this growth has come from the POS platform, which alone processed over one
million transactions. After connecting the ATMs of the principal financial
institutions, we see the POS segment as the next logical step to grow the
network.
In ATH Costa Rica, transaction volume increased by 335% over 1998.
The number of institutions on the network more than doubled, growing from eight
to 18. ATH Costa Rica also reached an agreement with MasterCard International
that paved the way for including MasterCard and CIRRUS-affiliated cards among
those accepted by ATH Costa Rica ATMs. We expect to continue this growth with
the acquisition of CreST, a local card processor and POS provider. This
acquisition will definitely expand our capabilities in the country and the
region by allowing us to penetrate more rapidly the POS segment.
DIVERSIFY
Throughout the years, the incorporation and growth of other financial
services have strengthened our Corporation. The diversification strategy stems
from our commitment to seek new sources of revenue and to serve all our clients'
financial needs. We continuously strive to anticipate these needs, and we evolve
to serve them in the way our clients expect of us. This allows us to deepen our
relationship with current clients and attract new ones.
13
<PAGE> 17
4 EXCEL
WE NEED OUR EMPLOYEES TO EXCEL AT WHAT THEY DO, TO DEVELOP AND ENHANCE OUR
CAPABILITIES AND SEEK ADDITIONAL EFFICIENCIES -- ORGANIZATIONAL QUALITY.
On June 30, 1999, we finalized the acquisition of GM Group, Inc., the
largest, most advanced, and most complete information systems services
organization in the Caribbean Basin. With offices in San Juan, Caracas, Santo
Domingo and Miami, GM Group today offers an array of IT services in 10 Latin
American countries and Puerto Rico. GM Group has been successfully and
consistently fulfilling the information systems needs of banks, public
utilities, insurance companies, universities, government agencies, service
companies, manufacturers, retailers and other clients for over 30 years. Puerto
Rico is part of the nationwide Electronic Benefits Transfer (EBT) program, which
seeks to deliver federal government benefits electronically to improve cost
efficiencies and increase convenience. This year, GM Group was awarded the
contract to be the federal government's local partner in the processing of all
related transactions and launched a pilot program. This initiative is very much
in line with our strategy of transforming Puerto Rico's payment system. GM Group
will allow us to remain in the vanguard of all aspects of information systems
and to expand our electronic processing businesses in Puerto Rico, the Caribbean
and Latin America.
[GRAPH]
EXCEL While our strategic plan is a reflection of our shared vision, our values
dictate our way of doing business. One of these values calls for a passion for
excellence. To achieve our strategic goals we need to have an organization
focused on quality. Therefore, we are constantly reinforcing the quality of our
organization to develop an infrastructure that affords us the tools to realize
our vision.
The success of our business is founded on people. Recognizing the
importance compensation has on attracting and retaining the best talent, we are
in the process of re-evaluating our compensation and benefits system for most
subsidiaries. The new options will allow us to offer more benefits to our
employees in a more efficient manner. They will also afford us the internal
flexibility to adapt to the specific characteristics of each market.
14
<PAGE> 18
Achieving excellence demands continuous learning. To ensure that our
employees continue to develop the skills and abilities needed to excel in their
jobs, we emphasize in-job training and professional preparation. Through our
Corporate Development Center, established in 1992, this year we focused our
efforts on five areas: credit review and analysis, managerial skills, sales,
customer service and information systems. This was done in response to the
evolution of our industry, and will better prepare our employees to tend to our
customers' needs.
Technology allows us to have better, stronger relationships with our
customers. We have expanded the technological capabilities of our systems to
process transactions faster and more efficiently. We have also equipped our
employees with the right tools to tend to our clients through all our delivery
channels. We have also improved our customer data bases to expand our
understanding of our customers and better develop products and services to
satisfy their needs.
Our expansion and diversification have given the Corporation greater
reach and potential for growth, and as we branch out we place special efforts to
unite under a common identity. Thus, last year we again prioritized efforts to
integrate new subsidiaries into our corporate culture. We want the new members
of Popular, Inc. to adopt as their own the great tradition that we uphold, and
to enrich it with their unique contributions. As with previous acquisitions we
have dedicated the necessary resources to ensure the maximization of the
acquisition. In the case of GM Group, the most important elements we acquired
are the intellectual property and the human capital. We focused on accommodating
employee needs and making the transition as smooth as possible, both for GM and
Banco Popular employees.
On October 3, 1999, we celebrated Nuestra Gran Reunion (Our
Grand Gathering). Attended by over 6,500 Popular, Inc. employees, the meeting
was an opportunity for Puerto Rico employees from throughout the Corporation to
come together. We reviewed our principles, shared our successes and discussed
future opportunities and challenges. I took advantage of the occasion to
challenge all of us to continue aspiring for, and seeking, excellence at every
level. Excellence in our personal lives, excellence in the service we offer our
clients, excellence in our relationship with the community, excellence in adding
value to our shareholders. Despite the seriousness of the occasion, the
enthusiasm was sincere and truly contagious, because we realized we share the
same values, goals and commitment.
15
<PAGE> 19
We have a service commitment with our clients. We are focused on
satisfying our clients' needs, helping them achieve their goals. We are
committed to offering our employees the best and most challenging professional
environment, and our employees have a commitment to deliver our promise to our
clients. We are committed to our shareholders to honor and respect the trust
they place on us, and to follow sound business practices to maximize the value
of our investments. We have a commitment to the community to be a responsible
corporate citizen, to be an agent of change and foster growth and prosperity.
This commitment is shared by the people who serve on our Board of
Directors. This year, one of our members, Esteban D. Bird, passed away. Mr. Bird
served on the Board of Banco Popular de Puerto Rico since 1991 and on the Board
of Banco de Ponce for the two previous years. We extend our condolences to his
family, along with our gratitude for his significant contributions to our
organization throughout the years.
We are extremely proud of our achievements and look forward to the
challenges of the future. Our success will continue to be inspired by our
values, planned by our vision, and forged by our will.
/s/ Richard L. Carrion
- --------------------------
RICHARD L. CARRION
CHAIRMAN
PRESIDENT
CHIEF EXECUTIVE OFFICER
16
<PAGE> 20
OUR COMMUNITY
NEW STRATEGIES TO ENRICH OUR COMMUNITY.
Popular, Inc.'s sense of social responsibility dates back more than 100 years,
when the founders of Banco Popular de Puerto Rico set to establish an
institution that would offer financial services to those who needed them most.
But the call to service went beyond that, and translated into significant
philanthropic efforts. Banco Popular became an important force in the
modernization of Puerto Rican society. Officials and employees proved once and
again that the institution's involvement was not limited to offering banking
services, but that it had a social mission to accomplish as well.
During 1999, more than 100 non-profit institutions benefited from the
Bank's donations program, which disbursed more than $1.5 million for civic,
community, cultural, educational and sports projects. The donations program
focuses mainly on institutions that work for the solution of socioeconomic and
housing problems in low-income areas.
As we have entered new markets, the reach of our social initiatives
has expanded to include the communities we serve outside Puerto Rico. In the
United States, we focus our efforts on education and youth-related initiatives,
with a strong emphasis on Hispanics and other minority groups. We have formed
joint partnerships with national and regional organizations of great drive and
credibility, such as the American Red Cross, to extend the impact of our
contributions. As in Puerto Rico, an important aspect of our participation in
the community is the active involvement of our employees, a direct result of
our efforts to promote and support a culture of volunteerism in our
organization.
In the '70s, as the Bank's social role evolved and grew, and
philanthropy established itself as a central part of its creed and set of
beliefs, the need for a structure to ensure consistency and continuity was
recognized. As a result, in 1979, Rafael Carrion Jr., then Chairman of the
Board and former President of the Bank, established the Banco Popular
Foundation to institutionalize the Bank's commitment to the community. Thus,
throughout the last two decades, our donations program and the Banco Popular
Foundation have been a source of significant support and funding for many
projects and institutions in the communities we serve.
17
<PAGE> 21
FOUNDATION
THE BANCO POPULAR FOUNDATION HAS BEEN CREATED TO SUPPORT EFFORTS DEDICATED
TO IMPROVE THE QUALITY OF LIFE FOR PUERTO RICANS. IT FULFILLS ITS MISSION
BY PROMOTING IN THE COMMUNITY A GENUINE ASPIRATION FOR EXCELLENCE, AND
INSPIRING IN OUR YOUTH A SENSE OF FULFILLMENT.
[GRAPH]
Because initiatives that broaden our youth's intellectual and
spiritual horizons are the foundation for a better society, we have focused our
efforts on education. More than 60 institutions have benefited from the
Foundation's support. For example, in 1999, we made possible the establishment
of a music room at the Escuela Libre de Musica Ernesto Ramos Antonini. This
music room will provide these gifted students state-of-the-art equipment to
further their studies. Another important initiative was the renovation of the
library at the Escuela Central de Artes Visuales (Central Visual Arts School),
which will be named in honor of Rafael Carrion Jr., a graduate of that high
school.
The Foundation is committed to facilitating access to education to
students who have demonstrated outstanding academic talent and dedication. The
Rafael Carrion Jr. Scholarship Fund, established in 1992, has granted a total
of 554 scholarships to help defray college education costs for the children of
our employees and retirees. Another nine scholarships have been awarded to
Puerto Rican students to study at the Wharton School of the University of
Pennsylvania.
We also seek to foster the preservation of our popular culture,
heritage and values. An annual musical production is an important part of these
efforts, which also generate funds to support related initiatives and
institutions. The 1999 production, Con la Musica por Dentro: Cien Anos de
Historia, provided a lively overview of music in Puerto Rico during the
century. Students from the Central Visual Arts School were chosen to design the
promotion materials.
The Rafael Carrion Pacheco Exhibition Hall commemorated its 10th
anniversary during the year. In the last decade, it has presented important
exhibitions and forums about matters relevant to our culture and social
reality. The most recent exhibition, EntreSiglos Puerto Rico 1890-1910,
documented daily life at the turn of the century. It attracted a record
attendance, with more than 18,000 visitors during its year-long presentation.
18
<PAGE> 22
ENRICH
DURING THE LAST 20 YEARS, WE HAVE SUPPORTED OVER 200 ORGANIZATIONS THAT PROMOTE
COMMUNITY DEVELOPMENT, EDUCATION, SOCIAL WELFARE, SPORTS AND CULTURE.
AIDS FOUNDATION
AMERICAN CANCER SOCIETY
AMERICAN RED CROSS
ANA G. MENDEZ FOUNDATION
BILL'S KITCHEN
BOYS AND GIRLS CLUBS
BOY SCOUTS OF AMERICA
CATHOLIC UNIVERSITY OF PUERTO RICO
EASTER SEAL SOCIETY
FONDITA DE JESUS SOUP KITCHEN
HEAD START PROGRAMS
INTER AMERICAN UNIVERSITY OF PUERTO RICO
JANE STERN DORADO COMMUNITY LIBRARY
JUAN DOMINGO EN ACCION COMMUNITY PROGRAM
LITTLE LEAGUES
MUSCULAR DYSTROPHY ASSOCIATION
NATIONAL COALITION FOR THE HOMELESS
PARALYZED VETERANS OF AMERICA
PENINSULA DE CANTERA RESIDENTS COUNCIL
PUERTO RICO COMMUNITY FOUNDATION
PUERTO RICO CONSERVATORY OF MUSIC
PUERTO RICO GOLF ASSOCIATION
PUERTO RICO SYMPHONY ORCHESTRA
RONALD MCDONALD PUERTO RICO CHAPTER
SACRED HEART UNIVERSITY
SALVATION ARMY
SAN FRANSICO EDUCATIONAL CENTER
UNITED WAY
UNIVERSITY OF PUERTO RICO
YMCA
The past 20 years have given us the opportunity to strengthen the
Foundation enough to convert it into the Corporation's philanthropic arm. These
years have also given us the insight to refine our vision and chart the
Foundation's future course. As part of this process, we have embraced
excellence as part of our philanthropic goals. While we work in our traditional
areas of focus, we will seek to promote excellence by instilling the value of
aspiring and seeking excellence in all our community endeavors.
Consistent with the Foundation's new direction, we redefined our
mission and identified key areas in which we would focus our efforts:
The Banco Popular Foundation has been created to support efforts
dedicated to improve the quality of life for Puerto Ricans. It fulfills its
mission by promoting in the community a genuine aspiration for excellence, and
inspiring in our youth a sense of fulfillment.
To fulfill our mission, we will continue providing the financial
support that is crucial for endeavors of this sort. However, recognizing the
need for technical and managerial assistance as much as grant dollars, we will
promote a more active approach, prompting others who also share our vision and
passion for excellence to become directly involved with the causes they
support.
At Our Grand Gathering of Popular, Inc.'s employees in Puerto Rico,
special emphasis was placed on the Corporation's long-standing commitment and
sense of social responsibility to the communities it serves. We made a direct
appeal to all employees to get involved, to be an active agent of change and
progress. Therefore, we will direct our efforts more and more to provide for
employee involvement, giving them the opportunity to enhance their vision of
excellence, share it with others and promote them in our communities.
19
<PAGE> 23
MANAGEMENT
SENIOR MANAGEMENT COUNCIL
POPULAR, INC.
[PHOTO]
RICHARD L. CARRION
CHAIRMAN
PRESIDENT
CHIEF EXECUTIVE OFFICER
[PHOTO] [PHOTO]
DAVID H. CHAFEY, JR. JORGE A. JUNQUERA
SENIOR EXECUTIVE VICE PRESIDENT SENIOR EXECUTIVE VICE PRESIDENT
RETAIL BANKING CHIEF FINANCIAL OFFICER
[PHOTO] [PHOTO]
MARIA ISABEL P. DE BURCKHART ROBERTO R. HERENCIA
EXECUTIVE VICE PRESIDENT EXECUTIVE VICE PRESIDENT
ADMINISTRATION NORTH AMERICA
[PHOTO] [PHOTO]
LARRY B. KESLER HUMBERTO MARTIN
EXECUTIVE VICE PRESIDENT EXECUTIVE VICE PRESIDENT
RETAIL CREDIT OPERATIONS
[PHOTO] [PHOTO]
EMILIO E. PINERO FERRER, ESQ. CARLOS ROM JR.
EXECUTIVE VICE PRESIDENT EXECUTIVE VICE PRESIDENT
COMMERCIAL BANKING CARIBBEAN AND LATIN AMERICAN EXPANSION
[PHOTO] [PHOTO]
CARLOS J. VAZQUEZ BRUNILDA SANTOS DE ALVAREZ, ESQ.
EXECUTIVE VICE PRESIDENT SENIOR VICE PRESIDENT
RISK MANAGEMENT GENERAL COUNSEL
20
<PAGE> 24
MANAGEMENT GROUP
POPULAR, INC.
<TABLE>
<S> <C> <C> <C>
PUERTO RICO Valentino I. McBean Jorge R. Hernandez, Esq. Orlando Berges
Virgin Islands Region Electronic Banking Finance and Administration
BANCO POPULAR DE PUERTO RICO
Richard L. Carrion COMMERCIAL BANKING GROUP Hector Torres L. Gene Beube
Chairman Emilio E. Pinero Ferrer, Esq. Security Risk Management
President
Chief Executive Officer Maria M. Fuentes RISK MANAGEMENT GROUP Emily Arean
Structured Finance Carlos J. Vazquez Human Resources
OFFICE OF THE PRESIDENT Jesus Aldarondo
Tere Loubriel Arnaldo Soto Couto Operational Risk Manuel Chinea
Year 2000 Office Construction Loans Management Marketing
Ramon D. Lloveras, Esq. Cynthia Toro Jose A. Mendez Victor Perez
Legal Division Business Banking General Auditor Operations
RETAIL BANKING GROUP Ricardo Toro Dianna Soler, Esq. Jose Riera
David H. Chafey Jr. Corporate Banking Corporate Compliance Popular Cash Express
Jorge Biaggi FINANCIAL MANAGEMENT GROUP Felix Villamil Donald R. Simanoff
Hato Rey Region Jorge A. Junquera Credit Risk Management Consumer Lending
Francisco Cestero Richard Barrios Other Subsidiaries Vernon V. Aguirre
Ponce Region Investments and Treasury POPULAR MORTGAGE, INC. California Region
Silvio Lopez
Felix Leon Luis R. Cintron, Esq. Mercedes F. McCall
Eastern Region Trust POPULAR LEASING & RENTAL, INC. Florida Region
Andres F. Morrell
Carlos J. Mangual Amilcar L. Jordan, Esq. William Sperling
Caguas Region Comptroller POPULAR FINANCE, INC. Illinois Region
Edgardo Novoa
Wilbert Medina Ivan Pagan Jose A. Torres
Arecibo/Manati Region Acquisitions and Corporate POPULAR SECURITIES, INC. New York/New Jersey Region
Investments Kenneth W. McGrath
Maritza Mendez Javier Ubarri
Rio Piedras Region ADMINISTRATION GROUP GM GROUP, INC. Texas Region
Maria Isabel P. de Burckhart Julio J. Pascual
Miguel Ripoll Other Subsidiaries
San Juan Region Ginoris Lopez-Lay LEVITT MORTGAGE EQUITY ONE, INC.
Strategic Planning Silvio Lopez C.E. (Bill) Williams
Carlos Rodriguez and Marketing
Western Region UNITED STATES POPULAR CASH EXPRESS, INC.
Lourdes Perez Diaz Gary Gagerman
Eli Sepulveda Jr. Public Relations and BANCO POPULAR
Bayamon Region Communications NORTH AMERICA, INC. POPULAR LEASING, U.S.A.
Richard L. Carrion Bruce D. Horton
Juan Guerrero Luz M. Tous de Torres Chairman
Financial and Investment Corporate Real Estate CARIBBEAN AND LATIN AMERICA
Services Jorge A. Junquera
Human Resources President Carlos Rom Jr.
Nestor O. Rivera
Retail Banking OPERATIONS GROUP Roberto R. Herencia BANCO FIDUCIARIO
Humberto Martin Chief Operating Officer Jorge J. Besosa
Lizzie Rosso
Alternative Delivery Segundo Bernier ATH DOMINICANA
Channels Operations Miguel Gil-Mejia
RETAIL CREDIT GROUP Victor V. Echevarria ATH COSTA RICA
Larry B. Kesler Information Technology Luis Diego Escalante
Linda C. Colon Ileana M. Gonzalez
Individual Lending Operational Financial
Support
Raul Colon
Mortgage Servicing
</TABLE>
21
<PAGE> 25
BOARDS OF DIRECTORS
<TABLE>
<S> <C> <C> <C>
POPULAR, INC. Julio E. Vizcarrondo Jr. Francisco J. Carreras BANCO POPULAR NORTH AMERICA
Richard L. Carrion President Educator Richard L. Carrion
Chairman of the Board Chief Executive Officer Executive Director Chairman of the Board
President Desarrollos Metropolitanos, S.E. Fundacion Angel Ramos, Inc.
Chief Executive Officer Jorge A. Junquera
Samuel T. Cespedes, Esq. David H. Chafey Jr. President
Alfonso F. Ballester Secretary Senior Executive Vice President Banco Popular North America
Vice Chairman of the Board Board of Directors Banco Popular de Puerto Rico
President Roberto R. Herencia
Ballester Hermanos, Inc. Brunilda Santos de Hector R. Gonzalez Chief Operating Officer
Alvarez, Esq. President Banco Popular North America
Antonio Luis Ferre Assistant Secretary Chief Executive Officer
Vice Chairman of the Board Board of Directors TPC Communications Francisco M. Rexach Jr.
President of PR, Inc. President
El Nuevo Dia Ramon D. Lloveras, Esq. Capital Assets, Inc.
Assistant Secretary Jorge A. Junquera
Juan J. Bermudez Board of Directors Senior Executive Vice President Richard Speer
Partner Banco Popular de Puerto Rico President
Bermudez & Longo, S.E. Ernesto N. Mayoral, Esq. Speer & Associates, Inc.
Assistant Secretary Manuel Morales Jr.
Francisco J. Carreras Board of Directors President Alfonso F. Ballester
Educator Parkview Realty, Inc. President
Executive Director BANCO POPULAR DE PUERTO RICO Ballester Hermanos, Inc.
Fundacion Angel Ramos, Inc. Richard L. Carrion Alberto M. Paracchini
Chairman of the Board Private Investor Felix J. Serralles Jr.
David H. Chafey Jr. President President
Senior Executive Vice President Chief Executive Officer Francisco M. Rexach Jr. Chief Executive Officer
Popular, Inc. President Destileria Serralles, Inc.
Alfonso F. Ballester Capital Assets, Inc.
Hector R. Gonzalez Vice Chairman of the Board Julio E. Vizcarrondo Jr.
President President J. Adalberto Roig Jr. President
Chief Executive Officer Ballester Hermanos, Inc. Chairman Chief Executive Officer
TPC Communications Antonio Roig Sucesores, Inc. Desarrollos Metropolitanos, S.E.
of PR, Inc. Antonio Luis Ferre
Vice Chairman of the Board Felix J. Serralles Jr. Lcda. Brunilda Santos de
Jorge A. Junquera President President Alvarez, Esq.
Senior Executive Vice President El Nuevo Dia Chief Executive Officer Secretary
Popular, Inc. Destileria Serralles, Inc. Board of Directors
Juan A. Albors Hernandez
Manuel Morales Jr. Chairman Julio E. Vizcarrondo Jr.
President President President
Parkview Realty, Inc. Chief Executive Officer Chief Executive Officer
Albors Development Corp. Desarrollos Metropolitanos, S.E.
Alberto M. Paracchini
Private Investor Salustiano Alvarez Mendez Samuel T. Cespedes, Esq.
President Secretary
Francisco M. Rexach Jr. Mendez & Company, Inc. Board of Directors
President
Capital Assets, Inc. Jose A. Bechara Bravo Brunilda Santos de Alvarez,
President Esq.
J. Adalberto Roig Jr. Empresas Bechara Inc. Assistant Secretary
Chairman Board of Directors
Antonio Roig Sucesores, Inc. Juan J. Bermudez
Partner Ramon D. Lloveras, Esq.
Felix J. Serralles Jr. Bermudez & Longo, S.E. Assistant Secretary
President Board of Directors
Chief Executive Officer
Destileria Serralles, Inc. Ernesto N. Mayoral, Esq.
Assistant Secretary
Board of Directors
</TABLE>
22
<PAGE> 26
FINANCIAL REVIEW AND
SUPPLEMENTARY INFORMATION
<TABLE>
<S> <C>
Management's Discussion and Analysis of
Financial Condition and Results of Operations F-2
Statistical Summaries F-24
FINANCIAL STATEMENTS
Report of Independent Accountants F-29
Consolidated Statements of Condition
as of December 31, 1999 and 1998 F-30
Consolidated Statements of Income
for each of the years in the three-year
period ended December 31, 1999 F-31
Consolidated Statements of Cash Flows
for each of the years in the three-year
period ended December 31, 1999 F-32
Consolidated Statements of Changes in
Stockholders' Equity for each of the
years in the three-year period ended
December 31, 1999 F-33
Consolidated Statements of Comprehensive
Income for each of the years in the three-year
period ended December 31, 1999 F-34
Notes to Consolidated Financial Statements F-35
</TABLE>
F-1
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This financial discussion contains an analysis of the consolidated financial
position and financial performance of Popular, Inc. and its subsidiaries (the
Corporation) and should be read in conjunction with the consolidated financial
statements, notes and tables included elsewhere in this report. The Corporation
is a bank holding company, which offers a wide range of products and services
through its subsidiaries and is engaged in the following businesses:
- - Commercial Banking - Banco Popular de Puerto Rico (BPPR), Banco Popular
North America (BPNA), Banco Popular, N.A. (Texas), merged into BPNA on
January 1, 2000, 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 Company (d/b/a
Levitt Mortgage, Inc.)
- - Broker/Dealer - Popular Securities Inc.
- - ATM Processing and Information Technology Services and Products - ATH
Costa Rica and GM Group
- - Retail Financial Services - Popular Cash Express, Inc.
OVERVIEW
During 1999, Europe finally achieved monetary union with the widely expected
Euro, while in the U.S., an early wave of refinancing and an outstanding stock
market performance generated expanding wealth, which continued to fuel demand.
The economy grew at a faster pace than anticipated, prompting the Federal
Reserve in July to begin a tightening cycle. In fact, by the end of 1999, Gross
Domestic Product (GDP) had grown 4.2%, the target Fed Funds rate was at 5.50%
and the Fed was expecting to raise rates further.
Popular, Inc. began 1999 with the corporate reorganization of its U.S.
banking subsidiaries, consolidating most banking operations within the U.S.
mainland into one legal entity, Banco Popular North America, with offices in
Florida, California, New York, New Jersey and Illinois. This new structure
facilitates the communication and geographic expansion, while at the same time
increases efficiency and provides more flexibility to the Corporation.
Furthermore, in January 2000, Banco Popular, N.A. (Texas) became part of Banco
Popular North America.
On March 2, 1999, the Corporation acquired 9.99% of Telecomunicaciones
de Puerto Rico, Inc. (TELPRI) from the Government of Puerto Rico. As part of the
transaction GTE, a telecommunications company, acquired a 40% share of TELPRI,
while the government retained 44% ownership. With this investment, the
Corporation strengthened its ties with the future of telecommunications in
Puerto Rico.
Later during the year, the Corporation acquired GM Group, Inc., a
leading company in information technology services and products in Puerto Rico
and the Caribbean, with offices in San Juan, Caracas, Santo Domingo and Miami,
servicing customers in ten countries in America. Also, the Corporation acquired
85% of Levitt Mortgage, a mortgage banking organization with operations in
Puerto Rico, as part of the strategic initiative of enhancing its mortgage
business in Puerto Rico.
In addition to the acquisitions mentioned above, the Corporation
increased its presence in its established Hispanic markets, with three
additional branches in the United States and one in Puerto Rico. Equity One, the
Corporation's consumer and mortgage financing subsidiary in the U.S. mainland,
had 10 more offices at the end of 1999 for a total of 138 offices in 32 states.
Continuing with the Corporation's objective of penetrating the unbanked
segment, during 1999 Popular Cash Express acquired 26 check cashing outlets,
opened 14 stores and operated 10 additional mobile check-cashing locations. All
these facilities offer services such as check cashing, money transfers, money
orders and processing of payments.
TABLE A
Components of Net Income as a Percentage of Average Total Assets
<TABLE>
<CAPTION>
For the Year
- ---------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income 4.01% 4.27% 4.26% 4.18% 4.14%
Provision for loan losses (0.63) (0.67) (0.60) (0.55) (0.46)
Securities and trading gains 0.06 0.03 0.02 0.05
Other income 1.57 1.36 1.31 1.24 1.18
- ---------------------------------------------------------------------------------------------------------
4.95 5.02 5.00 4.89 4.91
Operating expenses (3.52) (3.52) (3.46) (3.32) (3.45)
- ---------------------------------------------------------------------------------------------------------
Net income before tax and minority interest 1.43 1.50 1.54 1.57 1.46
Income tax (0.36) (0.36) (0.40) (0.43) (0.42)
Net loss of minority interest 0.01
- ---------------------------------------------------------------------------------------------------------
Net income 1.08% 1.14% 1.14% 1.14% 1.04%
=========================================================================================================
</TABLE>
F-2
<PAGE> 28
TABLE B
Changes in Net Income and Earnings per Common Share
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per common share amounts) DOLLARS PER SHARE Dollars Per share Dollars Per share
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income applicable to common stock
for prior year $ 223,998 $ 1.65 $ 201,215 $ 1.50 $ 176,800 $ 1.34
Increase (decrease) from changes in:
Other operating income 95,200 0.70 37,264 0.28 39,126 0.30
Net interest income 80,726 0.60 89,057 0.66 102,642 0.78
Net loss of minority interest 2,126 0.02 328
Trading account profit (5,235) (0.04) (281) 3,826 0.03
Gain on sale of investment securities (8,295) (0.06) 6,665 0.05 (826) (0.01)
Income tax (10,449) (0.08) (210) (3,584) (0.03)
Provision for loan losses (11,735) (0.09) (26,606) (0.20) (21,768) (0.16)
Operating expenses (117,128) (0.86) (83,434) (0.62) (95,001) (0.72)
- ----------------------------------------------------------------------------------------------------------------------------------
Subtotal 249,208 1.84 223,998 1.67 201,215 1.53
Change in average common shares* (0.02) (0.03)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stock $ 249,208 1.84 $ 223,998 $ 1.65 $ 201,215 $ 1.50
==================================================================================================================================
</TABLE>
* Reflects the effect of the issuance of shares of common stock for the
acquisitions completed, net of the shares repurchased, plus the shares issued
through the Dividend Reinvestment Plan in the years presented. The average
common shares outstanding for the years presented above were 135,585,634 for
1999, 135,532,086 for 1998, and 134,036,964 for 1997, after restating for the
stock split effected in the form of a dividend of one share for each share
outstanding on July 1, 1998.
- --------------------------------------------------------------------------------
The Corporation's financial results for 1999 continued its increasing
trend. Net income amounted to $257.6 million, exceeding the $232.4 million
reported in 1998 by $25.2 million or 10.9%, while earnings per common share
(EPS) for the year ended 1999 were $1.84, or 11.5% higher than the $1.65
reported for 1998.
Popular, Inc.'s earnings in 1999 reflected an increase of $80.7 million
in net interest income as well as a rise of $81.7 million in non-interest
income. The increase in net interest income mostly resulted from the growth in
average earning assets, particularly average loans, while the growth in
non-interest income reflected our strategic objective of diversifying sources of
revenue. These increases were tempered by an increase in operating expenses of
$117.1 million, a higher provision for loan losses of $11.7 million and a rise
of $10.4 million in income taxes. The increase in operating expenses reflected
the Corporation's business growth and expansion, including the impact of the
acquisitions performed in the latter part of 1998 and during 1999, while the
higher provision was necessary to provide for the increased levels in the loan
portfolio, net charge-offs and non-performing assets.
The Corporation's return on average assets (ROA) for 1999 was 1.08%
compared with 1.14% in 1998, while the return on common stockholders' equity was
15.45% in 1999 compared with 15.41% in 1998. Table A presents a five-year
summary of the components of net income as a percentage of average assets.
Total assets amounted to $25.5 billion at December 31, 1999, compared
with $23.2 billion a year earlier. Loans were $14.9 billion at December 31,
1999, an increase of 14.0% compared with $13.1 billion at the same date in 1998.
Loan growth was led by increases in the commercial and mortgage loan portfolios.
Total deposits amounted to $14.2 billion as of December 31, 1999,
compared with $13.7 billion at the same date in 1998. The rise in deposits was
principally reflected in time deposits.
Stockholders' equity totaled $1.66 billion at December 31, 1999
compared with $1.71 billion a year earlier. At December 31, 1999, the market
value and book value per share of the Corporation's common stock was $27.94 and
$11.51, respectively, compared with $34.00 and $11.86 at the same date in 1998.
On August 12, 1999, the Board of Directors declared a quarterly cash
dividend of $0.16 per common share for the third quarter of 1999. This
represented a 14.3% increase over the $0.14 per share paid in previous quarterly
cash dividends.
Most of the acquisitions completed in the past years involved the
payment of a premium which is being amortized over periods ranging from 4 to 15
years. Cash-based earnings, net income adjusted for the impact of such
amortization, may be more indicative of the Corporation's ability to generate
income. This method of presentation is not in accordance with generally accepted
accounting principles and is included here for illustrative purposes only.
F-3
<PAGE> 29
TABLE C
Selected Financial Data
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONDENSED INCOME STATEMENTS
Interest income $ 1,851,670 $ 1,651,703 $ 1,491,303
Interest expense 897,932 778,691 707,348
- --------------------------------------------------------------------------------------------------------------------
Net interest income 953,738 873,012 783,955
Securities and trading (losses) gains (944) 12,586 6,202
Operating income 373,860 278,660 241,396
Operating expenses 837,482 720,354 636,920
Provision for loan losses 148,948 137,213 110,607
Net loss of minority interest 2,454 328
Income tax 85,120 74,671 74,461
Dividends on preferred stock of BPPR
Cumulative effect of accounting changes
- --------------------------------------------------------------------------------------------------------------------
Net income $ 257,558 $ 232,348 $ 209,565
====================================================================================================================
Net income applicable to common stock $ 249,208 $ 223,998 $ 201,215
====================================================================================================================
PER COMMON SHARE DATA(*)
Net income (basic and diluted) $ 1.84 $ 1.65 $ 1.50
Dividends declared 0.60 0.50 0.40
Book value 11.51 11.86 10.37
Market price 27.94 34.00 24.75
Outstanding shares:
Average 135,585,634 135,532,086 134,036,964
End of period 135,654,292 135,637,327 135,365,408
AVERAGE BALANCES
Net loans $ 13,901,290 $ 11,930,621 $ 10,548,207
Earning assets 22,244,959 19,261,949 17,409,634
Total assets 23,806,372 20,432,382 18,419,144
Deposits 13,791,338 12,270,101 10,991,557
Subordinated notes 125,000 125,000 125,000
Preferred beneficial interest in Popular North America's
junior subordinated deferrable interest debentures
guaranteed by the Corporation 150,000 150,000 122,877
Total stockholders' equity 1,712,792 1,553,258 1,370,984
PERIOD END BALANCES
Net loans $ 14,907,754 $ 13,078,795 $ 11,376,607
Allowance for loan losses 292,010 267,249 211,651
Earning assets 23,754,620 21,591,950 18,060,998
Total assets 25,460,539 23,160,357 19,300,507
Deposits 14,173,715 13,672,214 11,749,586
Subordinated notes 125,000 125,000 125,000
Preferred beneficial interest in Popular North America's
junior subordinated deferrable interest debentures
guaranteed by the Corporation 150,000 150,000 150,000
Total stockholders' equity 1,660,986 1,709,113 1,503,092
SELECTED RATIOS
Net interest yield (taxable equivalent basis) 4.65% 4.91% 4.84%
Return on average total assets 1.08 1.14 1.14
Return on average common stockholders' equity 15.45 15.41 15.83
Dividend payout ratio to common stockholders 31.56 28.42 25.19
Efficiency ratio 63.08 62.55 62.12
Overhead ratio 48.71 49.15 49.66
Tier I capital to risk-adjusted assets 10.17 10.82 12.17
Total capital to risk-adjusted assets 12.29 13.14 14.56
</TABLE>
* Per share data is based on the average number of shares outstanding
during the periods, except for the book value which is based on total
shares at the end of the periods. All per share data has been adjusted
to reflect two stock splits effected in the form of a dividend on July
1, 1998 and July 1, 1996.
F-4
<PAGE> 30
<TABLE>
<CAPTION>
Year ended December 31,
- ------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,272,853 $ 1,105,807 $ 887,141 $ 772,136 $ 740,354 $ 794,943 $ 565,807
591,540 521,624 351,633 280,008 300,135 387,134 281,561
- ------------------------------------------------------------------------------------------------------------------
681,313 584,183 535,508 492,128 440,219 407,809 284,246
3,202 7,153 451 1,418 625 19,376 91
202,270 166,185 140,852 123,762 123,879 112,398 70,865
541,919 486,833 447,846 412,276 366,945 345,738 229,563
88,839 64,558 53,788 72,892 97,633 121,681 53,033
70,877 59,769 50,043 28,151 14,259 6,793 9,240
385 770 770 807
6,185
- ------------------------------------------------------------------------------------------------------------------
$ 185,150 $ 146,361 $ 124,749 $ 109,404 $ 85,116 $ 64,564 $ 63,366
==================================================================================================================
$ 176,800 $ 138,011 $ 120,504 $ 109,404 $ 85,116 $ 64,564 $ 63,366
==================================================================================================================
$ 1.34 $ 1.05 $ 0.92 $ 0.84 $ 0.70 $ 0.54 $ 0.79
0.35 0.29 0.25 0.23 0.20 0.20 0.20
8.80 7.91 6.87 6.38 5.76 5.25 4.92
16.88 9.69 7.04 7.75 7.57 4.82 4.00
132,044,624 131,632,600 131,192,972 130,804,944 121,845,976 120,142,404 80,467,880
132,177,012 131,794,544 131,352,512 130,929,692 130,619,456 120,375,408 119,769,624
$ 9,210,964 $ 8,217,834 $ 7,107,746 $ 5,700,069 $ 5,150,328 $ 5,302,189 $ 3,377,463
15,306,311 13,244,170 11,389,680 9,894,662 8,779,981 8,199,195 5,461,938
16,301,082 14,118,183 12,225,530 10,683,753 9,528,518 8,944,357 5,836,749
10,461,796 9,582,151 8,837,226 8,124,885 7,641,123 7,198,187 5,039,422
147,951 56,850 56,082 73,967 85,585 94,000 50,000
1,193,506 1,070,482 924,869 793,001 668,990 610,641 407,611
$ 9,779,028 $ 8,677,484 $ 7,781,329 $ 6,346,922 $ 5,252,053 $ 5,195,557 $ 5,365,917
185,574 168,393 153,798 133,437 110,714 94,199 89,335
15,484,454 14,668,195 11,843,806 10,657,994 9,236,024 8,032,556 8,219,279
16,764,103 15,675,451 12,778,358 11,513,368 10,002,327 8,780,282 8,983,624
10,763,275 9,876,662 9,012,435 8,522,658 8,038,711 7,207,118 7,422,711
125,000 175,000 50,000 62,000 74,000 94,000 94,000
1,262,532 1,141,697 1,002,423 834,195 752,119 631,818 588,884
4.77% 4.74% 5.06% 5.50% 6.11% 5.97% 6.30%
1.14 1.04 1.02 1.02 0.89 0.72 1.09
16.17 14.22 13.80 13.80 12.72 10.57 15.55
24.63 26.21 27.20 25.39 28.33 34.13 25.33
61.33 64.88 66.21 66.94 65.05 66.46 64.65
49.38 53.66 57.24 58.34 55.07 52.47 55.80
11.63 11.91 12.85 12.29 12.88 11.01 10.10
14.18 14.65 14.25 13.95 14.85 13.35 12.74
</TABLE>
F-5
<PAGE> 31
TABLE D
Net Interest Income - Taxable Equivalent Basis
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions) (In thousands)
Variance
Average Volume Average Yields Interest Attributable to
1999 1998 Variance 1999 1998 Variance 1999 1998 Variance Rate Volume
- -------------------------------------------------- ---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 681 $ 754 $ (73) 4.91% 4.88% 0.03% Money market investment $ 33,434 $ 36,781 $ (3,347) $ (1,111) $ (2,236)
7,349 6,290 1,059 6.79 7.13 (0.34) Investment securities 499,046 448,426 50,620 (18,929) 69,549
314 287 27 6.56 6.60 (0.04) Trading 20,584 18,943 1,641 (110) 1,751
- -------------------------------------------------- ---------------------------------------------------
8,344 7,331 1,013 6.63 6.88 (0.25) 553,064 504,150 48,914 (20,150) 69,064
- -------------------------------------------------- ---------------------------------------------------
Loans:
6,378 5,221 1,157 9.13 9.24 (0.11) Commercial and construction 582,571 482,234 100,337 (5,358) 105,695
690 628 62 12.50 12.73 (0.23) Leasing 86,291 79,929 6,362 (1,494) 7,856
3,605 3,000 605 8.04 8.57 (0.53) Mortgage 289,757 256,902 32,855 (16,590) 49,445
3,228 3,082 146 13.06 12.97 0.09 Consumer 421,711 399,784 21,927 (569) 22,496
- -------------------------------------------------- ---------------------------------------------------
13,901 11,931 1,970 9.93 10.22 (0.29) 1,380,330 1,218,849 161,481 (24,011) 185,492
- -------------------------------------------------- ---------------------------------------------------
$22,245 $19,262 $2,983 8.69% 8.95% (0.26)% TOTAL EARNING ASSETS $1,933,394 $1,722,999 $210,395 $(44,161) $254,556
================================================== Interest bearing deposits: ===================================================
$ 1,746 $ 1,460 $ 286 3.08% 3.35% (0.27)% NOW and money market $ 53,687 $ 48,846 $ 4,841 $ (3,922) $ 8,763
4,132 3,761 371 2.91 3.06 (0.15) Savings 120,259 114,958 5,301 (6,432) 11,733
4,874 4,437 437 5.71 5.58 0.13 Time deposits 278,269 247,688 30,581 12,989 17,592
- -------------------------------------------------- ---------------------------------------------------
10,752 9,658 1,094 4.21 4.26 (0.05) 452,215 411,492 40,723 2,635 38,088
- -------------------------------------------------- ---------------------------------------------------
5,993 4,623 1,370 5.30 5.45 (0.15) Short-term borrowings 317,646 251,724 65,922 (6,514) 72,436
1,833 1,646 187 6.99 7.01 (0.02) Medium and long-term debt 128,071 115,475 12,596 (203) 12,799
- -------------------------------------------------- ---------------------------------------------------
TOTAL INTEREST BEARING
18,578 15,927 2,651 4.83 4.89 (0.06) LIABILITIES 897,932 778,691 119,241 (4,082) 123,323
3,039 2,612 427 Demand deposits
628 723 (95) Other sources of funds
- --------------------------------------------------
$22,245 $19,262 $2,983 4.04% 4.04% (0.00%)
==================================================
4.65% 4.91% (0.26%) NET INTEREST MARGIN AND
====================== NET INTEREST INCOME 1,035,462 944,308 91,154 $(40,079) $131,233
3.86% 4.06% (0.20%) NET INTEREST SPREAD ==================
======================
TAXABLE EQUIVALENT
ADJUSTMENT 81,724 71,296 10,428
-------------------------------
NET INTEREST INCOME $ 953,738 $ 873,012 $ 80,726
===============================
</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.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cash-based earnings 1999 1998 Change %
- ------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Net income $ 257,558 $ 232,348 10.9%
Add: Amortization
of intangibles 31,788 27,860 14.1
Less: Tax effect (1,537) (2,146) (28.4)
- ------------------------------------------------------------------------------
Cash-based earnings $ 287,809 $ 258,062 11.5%
==============================================================================
</TABLE>
The Corporation's transition to the Year 2000 occurred without
experiencing any significant problems in its computer systems and other date
sensitive operating equipment, and business is proceeding as usual throughout
all its subsidiaries. The ATM network and point-of-sale (POS) terminals, as well
as all branches continue operating normally after the commencement of the Year
2000. The Corporation will continue to monitor other critical dates in the
future to fulfill this corporate-wide effort that actively began in 1997.
Further discussion of operating results and the Corporation's financial
condition is presented in the following narrative and tables. In addition, Table
C provides selected financial data for the past 10 years.
This report 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
F-6
<PAGE> 32
<TABLE>
<CAPTION>
Year ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions) (In thousands)
Variance
Average Volume Average Yields Interest Attributable to
1998 1997 Variance 1998 1997 Variance 1998 1997 Variance Rate Volume
- -------------------------------------------------- ---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 754 $ 632 $ 122 4.88% 5.36% (0.48)% Money market investment $ 36,781 $ 33,923 $ 2,858 $ (4,049) $ 6,907
6,290 5,928 362 7.13 6.90 0.23 Investment securities 448,426 409,127 39,299 13,629 25,670
287 302 (15) 6.60 6.55 0.05 Trading 18,943 19,769 (826) 123 (949)
- -------------------------------------------------- ---------------------------------------------------
7,331 6,862 469 6.88 6.75 0.13 504,150 462,819 41,331 9,703 31,628
- -------------------------------------------------- ---------------------------------------------------
Loans:
5,221 4,427 794 9.24 9.26 (0.02) Commercial and construction 482,234 409,965 72,269 (1,092) 73,361
628 554 74 12.73 12.99 (0.26) Leasing 79,929 72,029 7,900 (1,454) 9,354
3,000 2,699 301 8.57 8.54 0.03 Mortgage 256,902 230,601 26,301 561 25,740
3,082 2,868 214 12.97 13.07 (0.10) Consumer 399,784 374,872 24,912 (8,767) 33,679
- -------------------------------------------------- --------------------------------------------------
11,931 10,548 1,383 10.22 10.31 (0.09) 1,218,849 1,087,467 131,382 (10,752) 142,134
- -------------------------------------------------- --------------------------------------------------
$19,262 $17,410 $1,852 8.95% 8.90% 0.05% TOTAL EARNING ASSETS $1,722,999 $1,550,286 $172,713 $ (1,049) $173,762
================================================== Interest bearing deposits: ==================================================
$ 1,460 $ 1,281 $ 179 3.35% 3.35% 0.00% NOW and money market $ 48,846 $ 42,917 $ 5,929 $ (78) $ 6,007
3,761 3,393 368 3.06 3.08 (0.02) Savings 114,958 104,404 10,554 (1,161) 11,715
4,437 4,024 413 5.58 5.45 0.13 Time deposits 247,688 219,207 28,481 1,258 27,223
- -------------------------------------------------- --------------------------------------------------
9,658 8,698 960 4.26 4.21 0.05 411,492 366,528 44,964 19 44,945
- -------------------------------------------------- --------------------------------------------------
4,623 4,281 342 5.45 5.55 (0.10) Short-term borrowings 251,724 237,738 13,986 (3,978) 17,964
1,646 1,593 53 7.01 6.47 0.54 Medium and long-term debt 115,475 103,082 12,393 8,277 4,116
- -------------------------------------------------- TOTAL INTEREST BEARING --------------------------------------------------
15,927 14,572 1,355 4.89 4.85 0.04 LIABILITIES 778,691 707,348 71,343 4,318 67,025
2,612 2,294 318 Demand deposits
723 544 179 Other sources of funds
- --------------------------------------------------
$19,262 $17,410 $1,852 4.04% 4.06% (0.02)%
==================================================
4.91% 4.84% 0.07% NET INTEREST MARGIN AND
====================== NET INTEREST INCOME 944,308 842,938 101,370 $(5,367) $106,737
4.06% 4.05% 0.01% NET INTEREST SPREAD =================
====================== TAXABLE EQUIVALENT
ADJUSTMENT 71,296 58,983 12,313
-------------------------------
NET INTEREST INCOME $ 873,012 $783,955 $89,057
===============================
</TABLE>
the Corporation'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.
EARNINGS ANALYSIS
NET INTEREST INCOME
Net interest income represents the excess of interest income generated by the
Corporation's earning assets over the interest expense on deposits and borrowed
funds. It is the main source of earnings of Popular, Inc. The level of net
interest income is primarily determined by variations in the volume and mix of
earning assets and interest bearing liabilities and changes in their related
yields and costs. The latter is principally affected by the repricing
characteristics of these assets and liabilities and the prevailing interest rate
environment.
During the period from 1997 to 1999, the average key index rates, which
impact most financial instruments of the Corporation, were as follows:
F-7
<PAGE> 33
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------
<S> <C> <C> <C>
Prime rate 8.00% 8.35% 8.44%
Fed funds rate 4.95 5.35 5.49
3-month LIBOR 5.42 5.56 5.74
3-month Treasury 4.76 4.89 5.19
2-year Treasury 5.42 5.12 5.97
FNMA 30-year 7.66 7.11 7.90
</TABLE>
As further discussed in the Risk Management section, the Corporation
has a comprehensive set of policies and procedures that are utilized to monitor
and control the risk associated with the composition and repricing of its
earning assets and interest bearing liabilities.
Net interest income for the year ended December 31, 1999 amounted to
$953.7 million, compared with $873.0 million reported in 1998. This represents a
9.2% increase over prior year's results. In 1997, net interest income totaled
$784.0 million.
Table D presents the different components of net interest income
segregated by its major categories. The Corporation's investment and loan
portfolios include assets that derive tax-exempt interest income. In order to
present the data on a comparable basis, the interest income generated by these
assets has been converted to a taxable equivalent basis, using the applicable
statutory income tax rates. This adjustment amounted to $81.7 million in 1999,
$71.3 million in 1998 and $59.0 million in 1997. The increase in this adjustment
experienced during the past years was mostly due to a higher average volume of
exempt investments. As a percentage of average earning assets this adjustment
has remained relatively stable, averaging 37 basis points in 1999 and 1998 and
34 basis points in 1997.
The increase of $91.2 million in net interest income, on a taxable
equivalent basis, in 1999 was the net effect of a positive variance of $131.2
million due to a higher volume of average earning assets and a negative variance
of $40.0 million due to a lower net interest margin. The increase of $101.4
million in net interest income, on a taxable equivalent basis, from 1997 to 1998
was the result of a positive variance of $106.7 million due to a higher volume
of earning assets and a negative variance of $5.3 million due to changes in
average yields and costs. In 1998, the variance due to volume was mostly due to
a higher volume of loans. The variance due to yields was the result of a lower
average yield on loans and a higher cost of interest bearing liabilities,
partially offset by a higher yield on investments and a higher volume of
non-interest bearing funds. As a result of the above, the Corporation's net
interest margin, on a taxable equivalent basis, improved by seven points to
4.91% in 1998, from 4.84% in 1997.
The rise in net interest income in 1999 was mostly due to the increase
of $3.0 billion or 15.5% experienced in average earning assets from 1998. This
increase resulted mainly from the growth of $2.0 billion in the average loan
portfolio. Commercial and mortgage loans accounted for 89.4% of the increase in
the average loan balance. The increase resulted from the Corporation's sustained
business growth and the aggressive marketing campaign to attract mortgage loans.
Also, a boom in the construction business in Puerto Rico has increased the
family units available in the market, which coupled with the relatively low
level of interest rates contributed to the rise in mortgage loans. In addition,
the acquisition during the last quarter of 1998 of banking businesses in
Illinois, California and the Dominican Republic contributed to the increase in
the average loan balance as of December 31, 1999. The yield on average loans
decreased by 29 basis points during 1999. This is primarily related to the lower
yield generated by mortgage loans as a result of the increase in that portfolio,
both new and refinanced loans, and the lower yield on commercial loans due to an
environment of lower interest rates as compared with 1998.
As shown in Table D, the average volume of the investment portfolio
increased by $1.0 billion principally related to greater arbitrage activity
during the year. The category that increased the most was U.S. Agency
securities, which increased by $1.6 billion over the average balance in 1998.
The income derived from these securities is exempt for income tax purposes in
Puerto Rico. The average interest yield on investment securities decreased by 34
basis points to 6.79%, from 7.13% reported in 1998, mostly as a result of the
lower market rates.
As a result of the decreases in the average yield on loans and
investment securities, and the changes in the mix of these portfolios, the
average yield on earning assets decreased 26 basis points to 8.69% in 1999.
Average interest bearing deposits experienced an 11.3% increase during
the current year, while average non-interest bearing deposits grew by 16.3%. The
rise was mostly related to the increase in time deposits, mainly retail
deposits, and average demand deposits. Also, average savings, NOW and money
market deposits experienced growth when compared with 1998. Table L presents a
detail of average deposits by category. The average cost of interest bearing
deposits decreased by five basis points compared with 1998. The decrease in the
average cost of interest bearing deposits relates to the lower cost in savings
accounts, NOW and money market deposits primarily related to the lower interest
rate environment, partially offset by a higher cost in time deposits due in part
to the higher cost of longer term money and an increase in rates during the
latter part of the year.
The increase in the average balance of short-term borrowings, which are
mainly comprised of Fed funds, repurchase agreements and commercial paper, was
primarily used to fund the growth in the investment portfolio.
F-8
<PAGE> 34
TABLE E
Non-Interest Income
<TABLE>
<CAPTION>
Year ended December 31,
- -------------------------------------------------------------------------------------------------------------------------
Five-Year
(Dollars in thousands) 1999 1998 1997 1996 1995 C.G.R.
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts $118,187 $103,732 $ 94,141 $ 85,846 $ 78,607 10.50%
- -------------------------------------------------------------------------------------------------------------------------
Other service fees:
Credit card fees and discounts 49,233 36,038 29,437 23,735 20,676 21.47
Debit card fees 22,785 17,702 15,768 10,430 5,425 48.22
Sale and administration of
investment products 17,452 11,890 9,557 5,384 2,999 71.10
Check cashing fees 11,999 2,631 414 482
Mortgage servicing fees, net of
amortization 11,300 9,131 9,129 7,534 5,956 37.48
Trust fees 9,928 8,873 6,799 6,174 5,851 13.99
Processing fees 8,312
Credit life insurance fees 6,903 8,690 9,537 7,955 5,766 7.14
Other fees 31,815 21,620 18,009 15,377 17,052 14.89
- -------------------------------------------------------------------------------------------------------------------------
Total other service fees 169,727 116,575 98,650 77,071 63,725 27.07
- -------------------------------------------------------------------------------------------------------------------------
Other income 85,946 58,353 48,605 39,353 23,853 36.88
- -------------------------------------------------------------------------------------------------------------------------
Total $373,860 $278,660 $241,396 $202,270 $166,185 21.56%
=========================================================================================================================
Non-interest income
to average assets 1.57% 1.36% 1.31% 1.24% 1.18%
Non-interest income
to operating expenses 44.64 38.68 37.90 37.32 34.14
=========================================================================================================================
</TABLE>
During the last few months of 1999, the cost of short-term financing in
the money markets increased substantially compared with the rates more closely
controlled by the Fed. This had an adverse effect on the Corporation's cost of
funds primarily during the last quarter, as money market rates increased more
than was expected as a result of a tightening policy by the Fed in November.
Management believes that this increase was due primarily to substantially
greater demand for funding maturing over the year-end, due to Y2K risk. After
the year-end, money market rates reverted to more normal levels relative to Fed
policy.
The Corporation's net interest margin, on a taxable equivalent basis,
decreased by 26 basis points as a result of the decrease of 26 basis points
experienced in the average yield on earning assets, the increase in relatively
high cost funding sources, and to a lesser extent, the impact of the Y2K factor
as explained above.
PROVISION FOR LOAN LOSSES
The provision for loan losses reflects management's assessment of the
adequacy of the allowance for loan losses to cover losses inherent in the loan
portfolio after taking into account the net charge-offs for the current period
and loan impairment. The provision for loan losses in 1999 was $148.9 million,
exceeding net charge-offs in 1999 by $24.2 million, compared with a provision of
$137.2 million in 1998 and $110.6 million in 1997. The increase in the provision
for 1999 is primarily the result of a rise in the Corporation's loan portfolio,
increases in net charge-offs and non-performing assets, and current and expected
economic conditions.
Please refer to the Credit Risk Management and Loan Quality section for
a more detailed analysis of the allowance for loan losses, net charge-offs, and
credit quality statistics.
NON-INTEREST INCOME
Non-interest income has become an increasingly important contributor to the
growth in the Corporation's revenues. The Corporation has increased its other
income by expanding the range of services offered to customers and by building
more customer relationships, taking advantage of its technological leadership in
the Island and its expansion within and outside Puerto Rico. As shown in Table
E, non-interest income, excluding securities and trading gains, grew to $373.9
million in 1999, an increase of $95.2 million or 34.2% from the amount reported
in 1998. In 1997, these revenues totaled $241.4 million. As a percentage of
average assets, these revenues
F-9
<PAGE> 35
TABLE F
Operating Expenses
<TABLE>
<CAPTION>
Year ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
Five-Year
(Dollars in thousands) 1999 1998 1997 1996 1995 C.G.R.
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries $289,995 $247,590 $211,741 $185,946 $172,504 12.49%
Pension and other benefits 72,820 67,743 69,468 64,609 57,568 9.84
Profit sharing 23,881 22,067 25,684 22,692 19,003 4.45
- ---------------------------------------------------------------------------------------------------------------------------
Total personnel costs 386,696 337,400 306,893 273,247 249,075 11.37
- ---------------------------------------------------------------------------------------------------------------------------
Equipment expenses 88,334 75,302 66,446 57,186 47,854 15.91
Professional fees 67,955 58,087 46,767 36,953 28,677 20.27
Net occupancy expense 60,814 48,607 39,617 36,899 32,850 16.42
Business promotion 45,938 39,376 33,569 26,229 17,801 23.07
Communications 43,146 36,941 33,325 26,470 23,106 16.27
Other taxes 33,290 32,191 30,283 23,214 20,872 10.94
Amortization of intangibles 31,788 27,860 22,874 18,054 20,204 12.04
Printing and supplies 20,709 17,604 15,539 11,964 11,069 18.62
Other operating expenses:
Transportation and travel 10,426 7,968 7,186 5,852 4,424 21.45
FDIC assessment 1,782 1,497 1,499 1,544 10,257 (37.93)
All other 46,604 37,521 32,922 24,307 20,644 21.05
- ---------------------------------------------------------------------------------------------------------------------------
Subtotal 450,786 382,954 330,027 268,672 237,758 15.21
- ---------------------------------------------------------------------------------------------------------------------------
Total $837,482 $720,354 $636,920 $541,919 $486,833 13.34%
===========================================================================================================================
Efficiency ratio 63.08% 62.55% 62.12% 61.33% 64.88%
Personnel costs to average assets 1.62 1.65 1.67 1.68 1.76
Operating expenses to average assets 3.52 3.53 3.46 3.32 3.45
Assets per employee (in millions) $ 2.21 $ 2.20 $ 2.18 $ 2.10 $ 2.01
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
represented 1.57%, 1.36% and 1.31% for 1999, 1998 and 1997, respectively. The
sustained increase in most categories in recent years has helped to consistently
improve the ratio of non-interest income to operating expenses from 34.14% in
1995 to 44.64% in 1999.
Service charges on deposit accounts grew to $118.2 million for the year
ended December 31, 1999, an increase of 13.9% over the amount reported in 1998.
The increase from 1998 was primarily attributable to a higher volume of
deposits, partly resulting from the Corporation's growth and expansion, the
offering of new deposit accounts and revisions to the fee structure. Also, there
was an increase in the volume of transactions with commercial accounts. In 1997
these revenues totaled $94.1 million. The increase of $9.6 million from 1997 to
1998, was mostly related to higher activity in commercial and retail accounts
and a higher volume of deposits resulting from business expansion and
acquisitions. Measured as a percentage of average deposits, service charges were
0.86% in 1999, 0.85% in 1998 and 0.86% in 1997.
Other service fees increased $53.2 million or 45.6% from 1998. Higher
credit card fees and discounts led this rise, growing $13.2 million from 1998,
reflecting a higher portfolio level, increased fees and higher customer
activity. The launching of Banco Popular American Express card in Puerto Rico in
August 1998, as well as the growth of the credit card business in the U.S.
mainland were critical to this rise. Also contributing to the growth in other
service fees from 1998 were higher check cashing fees by $9.4 million, basically
driven by the expansion of the Corporation's retail financial subsidiary in the
United States. The $8.3 million in processing fees are associated to fees
generated by GM Group, acquired in the second half of 1999. In addition, fees
related to the sale and administration of investment products reflected growth,
driven by the performance of the retail brokerage division of Popular
Securities, which included the issuance of the Puerto Rico Investors Tax-Free
Fund VI and the Puerto Rico Flexible Allocation Fund.
The growth in debit card fees reflected higher rental income from POS
terminals and interchange income, and the sustained growth in the volume of
transactions. Average monthly transactions increased to 5,155,000 in December
1999 from 4,010,000 in December 1998. The number of POS terminals increased
17.9% to 22,163 as of December 1999, from 18,794 a year earlier. Other service
fees categories also reflected
F-10
<PAGE> 36
growth, as further detailed in Table E, partly driven by the subsidiaries
acquired during the second half of 1998. Partially offsetting these rises were
lower credit life insurance fees resulting from the enactment of a statute
during 1999 that requires financial institutions in Puerto Rico to reimburse the
unearned portion of the credit life insurance fee collected if the loan is
prepaid. In 1997 other service fees amounted to $98.7 million. The increase of
$17.9 million from 1997 to 1998, was primarily attributable to higher credit
card fees, higher fees related to the sale and administration of investment
products, and increases in trust fees and debit card fees.
Other service fees have experienced a compounded growth rate of 27.1%
over the last five years and have been an increasingly important component of
non-interest income. They represented 45.4% of non-interest income in 1999,
compared with 38.3% in 1995.
Other operating income in 1999 amounted to $85.9 million, 47.3% higher
than the amount reported in 1998. The increase in other income was fueled by
$7.2 million in fees earned from the Corporation's investment in TELPRI,
beginning in March 1999. Also contributing to the rise were $5.6 million in fees
earned by GM Group and increases in gains on sale of SBA and mortgage loans.
During the last quarter of 1999, BPPR sold $39 million in SBA loans, realizing a
$2.5 million gain on the transaction. Also, during 1999 Equity One securitized
$320 million in loans, which resulted in pre-tax gains of $7.9 million. In 1997
other operating income totaled $48.6 million. The increase of $9.7 million from
1997 to 1998, was mostly due to a loss on the sale of a real estate asset
recorded in 1997, higher investment banking fees and higher revenues derived
from the daily rental business.
SECURITIES AND TRADING GAINS/LOSSES
During 1999, the Corporation sold $168 million in investment securities
available-for-sale as part of its asset/liability strategy, realizing a net gain
of $0.6 million. In 1998, $923 million of the investment securities
available-for-sale were sold for a net gain of $8.9 million, including gains of
$4.3 million on the sale of equity securities by Popular, Inc.'s holding
company. Trading account activities for the year ended December 31, 1999,
resulted in losses of $1.6 million compared with profits of $3.7 million in
1998.
OPERATING EXPENSES
The Corporation's operating expenses for the year ended December 31, 1999 were
$837.5 million, representing an increase of $117.1 million or 16.3% over the
previous year. Operating expenses for 1997 totaled $636.9 million. As a
percentage of average assets, operating expenses maintained their level at 3.52%
in 1999 compared with 3.53% in 1998 and 3.46% in 1997. The acquisitions
performed during the latter part of 1998 in the Dominican Republic and in 1999
in Puerto Rico accounted for approximately $38.8 million of the increase in
1999. Also, the acquisitions of the banking operations in Illinois and
California during the latter part of 1998, contributed to the increase in
operating expenses. Table F presents a detail of operating expenses for the last
five years.
Personnel expenses, the largest category of operating expenses,
increased $49.3 million during 1999, or 14.6% from $337.4 million in 1998.
Salaries, its main component, rose 17.1% primarily as a result of increased
employment levels due to acquired operations, business expansion, incentive
compensation, annual merit increases and additional personnel hired for the Y2K
project. Full-time equivalent employees increased to 11,501 at December 31, 1999
from 10,549 at the end of 1998. The ratio of assets per employee remained at
$2.21 million in 1999 from $2.20 million in 1998, while personnel costs as a
percentage of average assets decreased slightly to 1.62% from 1.65% in 1998.
Employee benefits, including profit sharing expense, rose $6.9 million
or 7.7% to $96.7 million in 1999, compared with $89.8 million in 1998 and $95.2
million in 1997. The rise in fringe benefits was primarily related to increases
in the costs of post-retirement health benefits, medical plan costs and higher
payroll tax expenses resulting from the increase in salaries. Partially
offsetting these increases was a decline in pension costs, mostly resulting from
an improvement in the expected return of the pension plan assets. Furthermore,
profit sharing expense rose $1.8 million, as a result of stronger profitability
ratios at BPPR.
Personnel expenses totaled $306.9 million in 1997. The increase of
$30.5 million from 1997 to 1998, was reflected in salaries, which increased
$35.8 million, mainly resulting from increased employment levels due to
acquisitions and business expansion, annual merit increases and incentive
compensation. Employee benefits, including profit sharing, decreased $5.3
million as a result of lower pension plan costs due to a higher return on the
pension plan assets, and a decrease in profit sharing expense because of an
amendment to the profit sharing plan to encourage stronger profitability ratios.
Operating expenses, excluding personnel costs, totaled $450.8 million
for the year ended December 31, 1999, compared with $383.0 million in 1998. The
increase from 1998 includes the impact of the operations acquired during the
latter part of 1998 and in 1999. Equipment and communications expenses grew a
combined $19.2 million or 17.1% in 1999. Net occupancy expenses rose $12.2
million or 25.1% from 1998. These increases were mostly due to investments
required to support the growth of the Corporation's business activity,
geographical expansion and the impact of the operations acquired. The expansion
of the electronic payment system and network of POS terminals contributed to the
rise in these expense categories. Since the end of 1998, the Corporation
F-11
<PAGE> 37
had increased its automated teller machine (ATM) network by 35 machines, and
3,369 POS terminals had been added to its electronic delivery system. By the end
of 1999, the Corporation owned 609 ATMs and 22,163 POS terminals. The rise in
professional fees of $9.9 million when compared with 1998, reflected the
expenditures associated with consulting and technical support fees related to
the expansion of the business and expenses corresponding to the operations
acquired as described before.
Business promotion rose $6.6 million or 16.7% in 1999, mainly due to a
new institutional advertising campaign launched in Puerto Rico for Banco Popular
and also due to the marketing efforts to expand the mortgage banking business in
Puerto Rico and the retail banking business in the Dominican Republic. The rise
of $11.8 million in other operating expenses was mostly related to higher
interchange and processing expenses on credit cards, as a result of the growth
of the credit card business, and to rises in other expenses such as travelling
costs associated with the Corporation's expansion, and expenses related to
foreclosed properties. The amortization of intangibles also reflected an
increase of $3.9 million related to the premiums paid on the operations acquired
in the latter part of 1998 and during 1999.
In 1997, operating expenses, excluding personnel costs, were $330.0
million. The increase of $52.9 million from 1997 to 1998, was mostly reflected
in professional fees, net occupancy expenses, equipment expenses, business
promotion and the amortization of intangibles. The rise in most of these
categories reflected the Corporation's growth and expansion, and also included
the impact of the operations acquired in the latter part of 1998.
INCOME TAX EXPENSE
Income tax expense for the year ended December 31, 1999, was $85.1 million
compared with $74.7 million in 1998 and $74.5 million in 1997. The increase in
1999 was primarily due to higher pre-tax earnings for the current year and the
reversal of $1.7 million of a valuation allowance related to a deferred tax
asset that became realizable in 1999 as compared with $4.0 million realized in
1998. This increase was partially offset by higher benefits resulting from
higher net tax-exempt interest income.
The effective tax rate increased to 25.0% in 1999, from 24.3% in 1998
and 26.2% in 1997. The difference between the effective tax rates and the
maximum statutory tax rate for the Corporation, which is 39%, is primarily due
to the interest income earned on certain investments and loans which is exempt
from income tax, net of the disallowance of related expenses attributable to the
exempt income.
Please refer to Note 22 to the consolidated financial statements for
additional information on income taxes.
IMPACT OF THE YEAR 2000 ISSUE
The Corporation, after being actively engaged for the past two years in
modifying and testing its computer systems, as well as ensuring that customers
and business partners did likewise, completed successfully the rollover to the
Year 2000. This was accomplished without operational problems or business
disruptions. All our systems and equipment worked as usual on the critical dates
of January 1, 2 and 3 and thereafter. Contingency plans did not have to be
activated and the deposit balances were not affected despite concerns by some
outside parties. This demonstrated the success of our Year 2000 project and our
communication campaign. However, the Corporation's contingency plans developed
to support critical business processes in case an unforeseen hardware or
software failure occurs were completed and tested and are still in place.
COSTS TO ADDRESS THE YEAR 2000 ISSUE
The principal costs of the Year 2000 project were those related with the
renovation and validation phases. The major part of these expenses was met from
the existing resources through the deferral of technology projects and the use
of existing technical personnel. The remainder represented incremental costs.
The incremental costs were mainly related to additional programmers and
other skilled technical personnel, external consultants used in specific tasks
during the project, and scheduled upgrades to the equipment that were
accelerated due to the Year 2000 issue. The Corporation funded its project
through operating cash flows. The incremental costs and the impact of the
deferral of technology development initiatives were not material to the
financial condition and results of operations of 1998 or 1999.
The total incremental costs of achieving Year 2000 compliance were
approximately $10.2 million over the two-year period ended on December 31, 1999.
Of this total, $3.6 million was related to consultants contracted, $4.0 million
to additional technical employees hired, $1.4 million to new hardware and
software acquired and $1.2 million to communication and other miscellaneous
expenses. The $10.2 million spent over the life of the project included $5.2
million in 1998 and $5.0 million in 1999.
STATEMENT OF CONDITION ANALYSIS
The Corporation's total assets as of December 31, 1999 reached $25.5 billion,
representing an increase of $2.3 billion or 9.9% compared with $23.2 billion a
year earlier and $19.3 billion in 1997.
F-12
<PAGE> 38
TABLE G
Loans Ending Balances
<TABLE>
<CAPTION>
As of December 31,
- ----------------------------------------------------------------------------------------------------------------------------
Five-Year
(In thousands) 1999 1998 1997 1996 1995 C.G.R.
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial, industrial and
agricultural $ 6,656,411 $ 5,646,027 $ 4,637,409 $3,822,096 $3,205,031 18.13%
Construction 247,288 257,786 250,111 200,083 215,835 8.93
Lease financing 728,644 645,280 581,927 516,001 498,750 10.21
Mortgage* 3,933,663 3,351,748 2,833,896 2,576,887 2,403,631 12.55
Consumer 3,341,748 3,177,954 3,073,264 2,663,961 2,354,237 9.73
- --------------------------------------------------------------------------------------------------------------------------
Total $14,907,754 $13,078,795 $11,376,607 $9,779,028 $8,677,484 13.89%
==========================================================================================================================
*Includes loans held-for-sale
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
EARNING ASSETS
Earning assets at December 31, 1999 increased to $23.8 billion from $21.6
billion at December 31, 1998 and $18.1 billion at the same date in 1997.
Money market investments, investment and trading securities amounted to
$8.8 billion at December 31, 1999, representing an increase of $334 million when
compared with $8.5 billion at December 31, 1998. The increase was mainly
reflected in investment securities which totaled $7.6 billion at December 31,
1999, $378 million or 5.2% higher than $7.2 billion at December 31, 1998. This
increase resulted mostly from an attractive environment for investments and
arbitrage opportunities undertaken by the Corporation mostly through securities
of U.S. Government agencies and corporations, which allowed the Corporation to
generate additional revenues. Also, during 1999, $151 million in trading
securities, mostly tax-exempt mortgage-backed securities, were reclassified to
available-for-sale and held-to-maturity securities, as permitted by a new
accounting pronouncement adopted by the Corporation during 1999. Please refer to
Note 1 to the consolidated financial statements for more details on this
pronouncement.
As shown in Table G, the Corporation continued to experience growth in
its loan portfolio during 1999. Total loans increased $1.8 billion or 14.0% from
December 31, 1998. Commercial and mortgage loans, which accounted for the
largest increases in the portfolio, rose $1.0 billion and $582 million,
respectively. This growth in the commercial loan portfolio resulted principally
from the continued marketing efforts directed to the retail and middle market,
the sustained growth in Puerto Rico and the expansion in the United States.
The rise in the mortgage loan portfolio was principally attained in
Puerto Rico with an increase of $385 million, at the banking operations in the
U.S. mainland with $140 million and at Equity One with $55 million. The latter
was achieved despite loan securitizations of $125 million and $195 million made
by Equity One in the first and third quarters of 1999, respectively. The rise in
mortgage loans has been attained as a result of higher loan origination and
refinancing activity as a result of a favorable interest rate environment,
particularly during the first half of 1999, and increased marketing efforts.
Consumer loans, which include personal, auto and boat, credit cards and
reserve lines grew $164 million or 5.2% since December 31, 1998. The growth in
this loan category was led by an increase of $91 million in the U.S. mainland
operations, $67 million at BPPR, and $22 million at Popular Finance.
Personal loans, the largest category of consumer loans with 50.9%,
experienced a decrease of $88 million, totaling $1.7 billion as of December 31,
1999. The decrease was mostly related to the high volume of refinancing activity
of mortgage loans, which are utilized in many cases to prepay personal loans.
Credit card loans, which represented 26.0% of the consumer loan
portfolio as of December 31, 1999, rose $198 million to $868 million. The
increase in this category was mostly achieved through business expansion,
marketing efforts both in Puerto Rico and the U.S. mainland and the launching of
the American Express / Banco Popular revolving credit card in Puerto Rico during
the latter part of 1998. The number of active credit card accounts increased
18.1% from 1998.
Auto and boat secured loans represented about 19.1% of the total
consumer loan portfolio, while revolving credit lines represented 4.0% at
December 31, 1999.
The Corporation's lease financing portfolio increased $83 million from
1998. The Corporation's leasing subsidiary in the United States, engaged in
equipment leasing, contributed $35 million of the increase. Also, the rise in
truck and vehicles sales in Puerto Rico contributed to generate a higher volume
of leases. As a result, the lease financing portfolio in Puerto Rico increased
$22 million.
The increase of $107 million in other assets as compared with December
31, 1998, was mainly due to an increase in deferred taxes, as a result of the
unrealized loss on securities available-for-sale. Intangible assets increased
$31 million since December 31,
F-13
<PAGE> 39
TABLE H
Capital Adequacy Data
<TABLE>
<CAPTION>
As of December 31,
- --------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Risk-based capital:
Tier I capital $ 1,557,096 $ 1,450,187 $ 1,335,391 $ 1,121,128 $ 1,003,072
Supplementary (Tier II) capital 324,519 310,091 263,115 246,350 231,091
- --------------------------------------------------------------------------------------------------------------------------------
Total capital $ 1,881,615 $ 1,760,278 $ 1,598,506 $ 1,367,478 $ 1,234,163
================================================================================================================================
Risk-weighted assets:
Balance sheet items $ 14,878,731 $ 12,955,995 $ 10,687,847 $ 9,368,420 $ 8,175,420
Off-balance sheet items 428,780 443,926 287,822 275,397 249,529
- --------------------------------------------------------------------------------------------------------------------------------
Total risk-weighted assets $ 15,307,511 $ 13,399,921 $ 10,975,669 $ 9,643,817 $ 8,424,949
================================================================================================================================
Ratios:
Tier I capital (minimum required - 4.00%) 10.17% 10.82% 12.17% 11.63% 11.91%
Total capital (minimum required - 8.00%) 12.29 13.14 14.56 14.18 14.65
Leverage ratio (minimum required - 3.00%) 6.40 6.72 6.86 6.71 6.66
Equity to assets 7.19 7.60 7.44 7.33 7.58
Tangible equity to assets 6.09 6.50 6.52 6.55 6.60
Equity to loans 12.32 13.02 13.00 12.97 13.03
Internal capital generation rate 10.77 10.06 10.76 10.99 9.36
================================================================================================================================
</TABLE>
1998, as a result of acquisitions, as further detailed in the Stockholders'
Equity section.
DEPOSITS AND OTHER INTEREST BEARING LIABILITIES
Total deposits at December 31, 1999 amounted to $14.2 billion compared with
$13.7 billion on December 31, 1998, an increase of $502 million or 3.7%.
Interest bearing deposits increased $393 million or 3.7%, mostly in certificates
of deposit. Non-interest bearing deposits rose $109 million or 3.4%. Despite
concerns by outside parties, deposit balances were not affected by the Y2K
issue. Refer to Table L for a detail of average deposits by category. The
geographic distribution of the Corporation's total deposits at the end of 1999,
included 69% in Puerto Rico, 25% in the United States and the remaining 6% in
the Caribbean region, including deposits from BPPR's operations in the Virgin
Islands.
The increase in deposits was reflected in time and demand deposits,
which rose $434 million or 9.2% and $109 million or 3.4%, respectively, from
amounts reported in 1998. The increase in time deposits was mostly experienced
in retail deposits, resulting from the Corporation's marketing efforts to obtain
longer term funds in anticipation to the rising trend of market interest rates
and funding needs. Demand deposits continued their growing trend based on the
continued development of products and services and the Corporation's growth and
expansion. On the other hand, saving, NOW and money market accounts had a
decrease of $41 million compared with the amount as of December 31, 1998. This
decrease is attributable to the strong competitive environment and a shift to
time deposits paying higher rates.
Borrowed funds, including subordinated notes and capital securities
increased $1.9 billion from $7.3 billion on December 31, 1998 to $9.2 billion at
the end of 1999. The increase in borrowed funds was used primarily to fund the
Corporation's business expansion, loan growth and arbitrage activities. On
August 4, 1999, a "shelf" registration was filed with the Securities and
Exchange Commission, allowing the Corporation and some subsidiaries to issue
medium-term notes, unsecured debt securities and preferred stock in an aggregate
amount of up to $1.5 billion. During 1999, the Corporation issued $250 million
in medium-term notes under this shelf registration.
As part of the investment in BF and Levitt Mortgage, the Corporation
recognized a minority interest, which amounted to $23 million as of December 31,
1999, representing the beneficial interest of the minority investors of these
two entities. As of December 31, 1998, this minority interest totaled $28
million. The decrease from the end of 1998 was mainly attributed to the increase
in the ownership interest of the Corporation in BF from 45% to 57%, partially
offset by the minority interest of Levitt Mortgage, acquired during the second
half of 1999.
STOCKHOLDERS' EQUITY
The Corporation's stockholders' equity at December 31, 1999 was $1.66 billion
compared with $1.71 billion at the end of 1998. This slight decrease from 1998,
despite the increase in retained earnings, was due to a reduction of $216
million in accumulated other comprehensive income, mostly attributed to
unrealized losses on available-for-sale securities. Also, during 1999 the
Corporation repurchased at a cost of $54 million a total of 1,811,727 shares of
its
F-14
<PAGE> 40
TABLE I
Common Stock Performance
<TABLE>
<CAPTION>
Market Price Cash Book
-------------------------- Dividends Value Dividend Price/ Market/
Declared Per Payout Dividend Earnings Book
High Low Per Share Share Ratio Yield * Ratio Ratio
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 $11.51 31.56% 1.90% 15.18x 242.72%
4TH QUARTER $32 $ 25 7/16 $0.16
3RD QUARTER 31 25 13/16 0.16
2ND QUARTER 37 7/8 28 13/16 0.14
1ST QUARTER 37 7/8 30 7/8 0.14
1998 11.86 28.42 1.55 20.61 286.68
4th quarter $34 $ 25 3/8 $0.14
3rd quarter 36 3/4 28 0.14
2nd quarter 36 5/32 29 7/32 0.11
1st quarter 29 11/32 23 1/32 0.11
1997 10.37 25.19 1.76 16.50 238.78
4th quarter $27 3/16 $ 22 7/8 $0.11
3rd quarter 27 15/16 20 9/16 0.11
2nd quarter 21 7/16 16 7/8 0.09
1st quarter 18 3/8 16 17/32 0.09
1996 8.80 24.63 2.65 12.59 191.87
4th quarter $17 1/2 $ 12 15/16 $0.09
3rd quarter 13 7/8 11 5/16 0.09
2nd quarter 11 13/14 10 15/16 0.09
1st quarter 11 9/16 9 11/16 0.08
1995 7.91 26.21 3.15 9.24 122.55
4th quarter $9 31/32 $ 9 17/32 $0.08
3rd quarter 9 3/4 8 7/8 0.07
2nd quarter 8 7/8 7 13/16 0.07
1st quarter 7 15/16 7 1/32 0.07
</TABLE>
* Based on the average high and low market price for the four quarters.
Note: All per share data has been adjusted to reflect the two stock splits
effected in the form of a dividend of one share for each share outstanding
on July 1, 1998 and July 1, 1996.
common stock under the stock repurchase program approved by its Board of
Directors on May 8, 1997.
Dividends declared on common stock during 1999 totaled $81.4 million,
compared with $67.8 million in 1998. On August 12, 1999, the Corporation's
Board of Directors declared a quarterly cash dividend of $0.16 per common
share. This represented a 14.3% increase over the $0.14 per common share paid
in the previous quarterly cash dividends. Total dividends declared per common
share for 1999 were $0.60 compared with $0.50 in 1998 and $0.40 in 1997. The
dividend payout ratio to common stockholders for the year was 31.56% compared
with 28.42% in 1998. Dividends declared on the preferred stock amounted to $8.3
million in 1999 and 1998.
The Corporation has a Dividend Reinvestment Plan for its stockholders.
This plan offers the stockholders the opportunity to automatically reinvest
their dividends in shares of common stock at a 5% discount from the average
market price at the time of issuance. During 1999, 328,693 shares, equivalent
to $9.4 million in additional capital, were issued under the plan. In 1998,
271,918 shares, representing $7.4 million in additional capital, were issued
under this plan.
The Corporation had 4 million shares of preferred stock outstanding at
December 31, 1999. These shares are non-convertible and are redeemable at the
option of the Corporation. Dividends are non-cumulative and are payable monthly
at an annual rate per share of 8.35% based on the liquidation preference value
of $25 per share.
As shown in Table H, which presents the Corporation's capital
adequacy information for 1999 and previous four years, the Corporation
continues to exceed the well-capitalized guidelines under the federal banking
regulations. Further information is presented in Note 18 to the consolidated
financial statements.
F-15
<PAGE> 41
Intangible assets totaled $305 million at December 31, 1999, an
increase of $31 million from $274 million at December 31, 1998. The
acquisitions of GM Group and Levitt Mortgage added $46 million in intangible
assets at their acquisition dates. Total intangibles consisted of $215 million
in goodwill, $52 million in core deposit intangibles, $32 million in mortgage
servicing rights and $6 million in other intangibles.
At the end of 1998 goodwill totaled $172 million, core deposit
intangibles were $67 million, mortgage servicing rights were $30 million and
other intangibles were $5 million. The average tangible equity increased to
$1.43 billion for the year ended December 31, 1999, from $1.31 billion a year
before, an increase of $119 million or 9.0%. Total tangible equity at December
31, 1999 was $1.36 billion compared with $1.43 billion at December 31, 1998.
The tangible equity to assets ratio for 1999 was 6.09% compared with 6.50% in
1998.
Book value per common share was $11.51 at December 31, 1999 compared
with $11.86 at year-end 1998. The market value of the Corporation's common
stock at the end of 1999 was $27.94 compared with $34.00 a year earlier. The
total market capitalization was $3.8 billion compared with $4.6 billion as of
December 31, 1998.
The Corporation's stock is traded on the National Association of
Securities Dealers Automated Quotation (NASDAQ) National Market System under
the symbol BPOP. Table I shows the range of market quotations and cash
dividends declared for each quarter during the last five years. The preferred
stock of the Corporation is also traded on the NASDAQ National Market System
under the symbol BPOPP. Its market value at December 31, 1999 and 1998 was
$25.38 and $26.00 per share, respectively. As of February 29, 2000, the
Corporation had 9,130 stockholders of record of its common stock, not including
beneficial owners whose shares are held in record names of brokers or other
nominees.
RISK MANAGEMENT
During 1999 the Corporation established a Risk Management Committee composed of
members of the Board of Directors. This committee monitors and approves
policies and procedures and evaluates the Corporation's activities affected
by credit, market, operational, legal, liquidity, reputation and strategic
risks.
The Corporation has specific policies and procedures which structure
and delineate the management of risks, particularly those related to interest
rate exposure, liquidity and credit, all of which are discussed below.
MARKET RISK
Market risk refers to the impact of changes in interest rates on the
Corporation's net interest income, market value of portfolio equity and
trading operations. It also arises from fluctuations in the value of some
foreign currencies against the U.S. dollar. Despite the varied nature of market
risks, the primary source of market risk at the Corporation is the impact of
changes in interest rates.
The stability and level of the Corporation's net interest income,
as well as its market value of equity, are subject to interest rate volatility.
Changes in interest rates affect both the rates at which the Corporation's
assets and liabilities reprice throughout time, and the market values of most
of its assets and liabilities. Since net interest income accounted for 71.9% of
the Corporation's gross revenues in 1999, the constant measurement and
control of market risk is a major priority.
The Corporation's Board of Directors (the Board) is responsible for
establishing policies regarding the assumption and management of market risk,
and delegates their implementation to the Market Risk Committee (the Committee)
of Popular Inc. The objective of the Committee is to ensure that the market
risk assumed by the Corporation remains within the parameters of the Board
policies.
Interest Rate Risk
Interest rate risk (IRR) refers to the impact of changes in interest rates on
the Corporation's net interest income. Depending on the duration and
repricing characteristics of the Corporation's assets, liabilities and
off-balance sheet items, changes in interest rates could either increase or
decrease the level of net interest income. The Committee implements the market
risk policies approved by the Board as well as risk management strategies
reviewed and adopted in Committee meetings.
The Committee measures and monitors the level of short and long-term
IRR assumed at the Corporation and its subsidiaries. It uses simulation
analysis and static gap estimates for measuring short-term IRR. Duration
analysis is used to quantify the level of long-term IRR assumed, and focuses on
the estimated economic value of the Corporation, that is, the difference
between the estimated market value of financial assets less the estimated
market value of financial liabilities.
Static gap analysis measures the volume of assets and liabilities at a
point in time and their repricing during future time periods. The repricing
volumes typically include adjustments for anticipated future asset prepayments,
and for differences in sensitivity to market rates. The volume of net assets or
liabilities repricing during future periods, particularly within one year, is
used as one short-term indicator of IRR. Table J presents the static gap
estimate for the Corporation as of December 31, 1999.
Simulation analysis is another measurement used by the Corporation for
short-term IRR, and it addresses some of the deficiencies of gap analysis. It
involves estimating the effect on net interest income of one or more future
interest rate sce-
F-16
<PAGE> 42
TABLE J
Interest Rate Sensitivity
<TABLE>
<CAPTION>
As of December 31, 1999
- ------------------------------------------------------------------------------------
By Repricing Dates
- ------------------------------------------------------------------------------------
After
Within three months
0-30 31-90 but within
(Dollars in thousands) days days six months
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Money market investments $ 414,807 $ 496,278 $ 73,515
Investment and trading securities 1,517,466 602,747 223,945
Loans 4,473,811 900,092 654,637
Other assets
- ------------------------------------------------------------------------------------
Total 6,406,084 1,999,117 952,097
- ------------------------------------------------------------------------------------
Liabilities and stockholders' equity:
Savings, NOW and money market
accounts 725,992
Other time deposits 1,500,510 935,289 768,214
Federal funds purchased and securities
sold under agreements to repurchase 2,336,944 1,810,036 130,000
Other short-term borrowings 1,510,902 702,044 177,675
Notes payable 150 240,000 25,000
Subordinated notes and capital
securities
Non-interest bearing deposits
Other non-interest bearing liabilities
Stockholders' equity
- ------------------------------------------------------------------------------------
Total 6,074,498 3,687,369 1,100,889
- ------------------------------------------------------------------------------------
Off-balance sheet financial instruments 20,000
Interest rate sensitive gap 351,586 (1,688,252) (148,792)
Cumulative interest rate
sensitive gap 351,586 (1,336,666) (1,485,458)
Cumulative sensitive gap to
earning assets 1.48% (5.63)% (6.25)%
==================================================================================
<CAPTION>
As of December 31, 1999
- ------------------------------------------------------------------------------------
By Repricing Dates
After After
six months nine months Non-interest
but within but within After one bearing
(Dollars in thousands) nine months one year year funds Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Money market investments $ 1,394 $ 985,994
Investment and trading securities $ 96,250 $ 723,774 4,696,690 7,860,872
Loans 627,320 615,184 7,636,710 14,907,754
Other assets $1,705,919 1,705,919
- --------------------------------------------------------------------------------------------------------------
Total 723,570 1,338,958 12,334,794 1,705,919 25,460,539
- --------------------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity:
Savings, NOW and money market
accounts 5,018,543 5,744,535
Other time deposits 343,294 282,442 1,314,482 5,144,231
Federal funds purchased and securities
sold under agreements to repurchase 17,500 120,000 4,414,480
Other short-term borrowings 159,022 59,954 2,792 2,612,389
Notes payable 1,587,449 1,852,599
Subordinated notes and capital
securities 275,000 275,000
Non-interest bearing deposits 3,284,949 3,284,949
Other non-interest bearing liabilities 471,370 471,370
Stockholders' equity 1,660,986 1,660,986
- --------------------------------------------------------------------------------------------------------------
Total 502,316 359,896 8,318,266 5,417,305 25,460,539
- --------------------------------------------------------------------------------------------------------------
Off-balance sheet financial instruments (20,000)
Interest rate sensitive gap 221,254 979,062 3,996,528
Cumulative interest rate
sensitive gap (1,264,204) (285,142) 3,711,386
Cumulative sensitive gap to
earning assets (5.32)% (1.20)% 15.62%
===============================================================================================================
</TABLE>
narios as applied to the repricing of the Corporation's current assets and
liabilities and the assumption of new balances. The simulation analyses
reviewed in the Committee are based on various interest rate scenarios, and
include assumptions made related to the prepayment of the Corporation's
amortizing loans and securities, and the sensitivity of the Corporation's
cost of retail deposits to changes in market rates. The computations do not
contemplate actions management could take to respond to changes in interest
rates. Computations of the prospective effects of hypothetical interest rate
changes should not be relied upon as indicative of actual results. By their
nature, these forward looking statements are only estimates and may be
different from what actually occurs in the future. As of December 31, 1999, the
difference in projected net interest income under a rising and declining rate
scenario, which assumes interest rates change by 150 basis points up and down,
within a twelve-month period, was an increase of $5.6 million and a decrease of
$6.2 million, respectively, which represented changes of 0.5% and 0.6% in net
interest income. These estimated changes are within the policy guidelines
established by the Board.
Duration analysis measures longer-term IRR, in particular the duration
of market value of equity. It expresses in general terms the sensitivity of the
market value of equity to changes in interest rates. The estimated market value
of equity is obtained from the market values of the cash flows from the
Corporation's financial assets and liabilities, which are primarily payments
of interest and repayments of principal. Thus, the market value of equity
incorporates most future cash flows from net interest income, whereas other
measures of IRR focus primarily on short-term net interest income. As of
December 31, 1999, the estimated duration of the market value of equity of the
Corporation was 5.3 years.
Duration measures the average length of a financial asset or
liability. In particular it equals the weighted average maturity of all the
cash flows of a financial asset or liability where the weights are equal to the
present value of each cash flow. The present value of cash flows
F-17
<PAGE> 43
occurring in the future is its estimated market value as of a certain date. The
sensitivity of the market value of a financial asset or liability to changes in
interest rates is primarily a function of its duration. In general terms, the
longer the duration of an asset or liability is, the greater is the sensitivity
of its market value to interest rate changes. Since duration measures the
length of a financial asset or liability, it is usually expressed in terms of
years or months.
Derivatives are used, to a limited extent, by the Corporation with the
primary objective of controlling exposures to market risk. The primary
instruments used include exchange-traded futures contracts and interest rate
swaps. Financial futures are used primarily for hedging the cost of future debt
issuances as well as protecting the value of assets from market risk. Interest
rate swaps are used primarily to synthetically increase the duration of
borrowings. Please refer to Note 25 to the consolidated financial statements
for further information on the Corporation's derivative transactions.
Trading
The Corporation's trading activities are another source of market risk. These
are mostly related to its mortgage banking and broker/dealer activities in
Puerto Rico. The Corporation assumes positions in financial instruments,
including futures and options, in the course of these activities that are
carried at market value. Interest revenue and expense arising from trading
securities are included in the income statement as part of net interest income
and not included in trading profits or losses.
In the opinion of management, the size and composition of the trading
portfolio does not represent a potentially significant source of market risk
for the Corporation. It consists primarily of mortgage loans and
mortgage-backed securities in the process of being sold in the secondary
markets, and securities issued by Puerto Rico-based entities for resale to
retail customers. The Committee utilizes several approaches for measuring its
risk, including duration and value at risk.
As of December 31, 1999 the trading portfolio of the Corporation
amounted to $237 million and represented 0.9% of total assets, compared with
$319 million and 1.4% a year earlier. This portfolio was composed of the
following assets as of December 31, 1999:
<TABLE>
<CAPTION>
Weighted
Amount Average Yield
-------------- -------------
(In thousands)
<S> <C> <C>
Mortgage-backed securities $ 51,288 6.62%
Commercial paper 106,094 5.10
U.S. Treasury and agencies 62,989 5.89
Puerto Rico Government obligations 6,569 6.41
Other 9,670 5.58
-------- ----
$236,610 5.70%
======== ====
</TABLE>
As of December 31, 1999, the trading portfolio of the Corporation had
an estimated duration of 1.1 years and a one-month value at risk of $1.0
million, assuming a confidence level of 95%.
Foreign Exchange
In the ordinary course of business, the Corporation occasionally enters into
foreign exchange transactions as an intermediary for its retail and commercial
clients. Any risk assumed by these transactions is immediately offset in the
foreign exchange markets. Management therefore believes that the market risk
assumed by the Corporation in its foreign currency transactions is not
significant.
As of December 31, 1999 the Corporation held a 57% interest in BF.
This banking institution is located in the Dominican Republic, thus most of
its business is conducted in Dominican pesos (DR$). Local regulations limit the
ability of BF to assume unhedged foreign currency positions. The value of the
Corporation's investment in BF may be affected prospectively by fluctuations
in the value of the DR$ against the 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.
LIQUIDITY RISK
Liquidity refers to the ability to fund current operations, including the cash
flow requirements of depositors and borrowers as well as future growth. The
Corporation utilizes various sources of funding to help ensure that adequate
levels of liquidity are always available. Diversification of funding sources is
a major priority, as it helps protect the liquidity of the Corporation from
market disruptions. Since the duration and repricing characteristics of the
Corporation's borrowings determine to a major extent the overall interest
rate and liquidity risk of the Corporation, they are actively managed.
The Corporation raises its funding from a combination of retail and
wholesale markets. Retail sources of funds include individual and corporate
depositors in the markets where the Corporation competes. These are the primary
sources of funds for the Corporation and are usually more stable than financing
from institutional sources. Wholesale or institutional sources of funds
comprise primarily other financial intermediaries such as commercial banks,
securities dealers, investment companies, insurance companies, as well as
non-financial corporations. Deposits tend to be less volatile than
institutional borrowings and their cost is less sensitive to changes in market
rates.
The extensive branch network of the Corporation in the Puerto Rico
market and its rapidly expanding network in major U.S. markets, have enabled it
to maintain a significant and stable base of deposits. Deposits are the primary
source of funding, although wholesale borrowings are an increasingly important
F-18
<PAGE> 44
TABLE K
Maturity Distribution of Earning Assets
<TABLE>
<CAPTION>
As of December 31, 1999
- -----------------------------------------------------------------------------------------------------------------------
Maturities
----------------------------------------------------------------------------------
After one year
through five years After five years
-----------------------------------------------------
Fixed Variable Fixed Variable
One year interest interest interest interest
(In thousands) or less rates rates rates rates Total
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money market securities $ 985,970 $ 24 $ 985,994
Investment and trading securities 1,879,241 $2,953,721 331,482 $2,004,006 $ 461,195 7,629,645
Loans:
Commercial 2,796,181 1,503,860 1,086,343 854,707 415,320 6,656,411
Construction 213,283 9,943 6,879 7,897 9,286 247,288
Lease financing 173,644 549,486 5,51414 728,644
Consumer 892,530 1,481,251 164,191 799,927 3,849 3,341,748
Mortgage 446,899 624,294 212,973 2,281,140 368,357 3,933,663
- ----------------------------------------------------------------------------------------------------------------------
Total $7,387,748 $7,122,555 $1,801,892 $5,953,191 $1,258,007 $23,523,393
======================================================================================================================
</TABLE>
Note: Federal Reserve Bank stock, Federal Home Loan Bank stock, and other
equity securities held by the Corporation are not included in this table.
source. At December 31, 1999, the Corporation's core deposits amounted to
$11.8 billion or 83.1% of total deposits, an increase of $314 million or 2.7%
from the same date a year ago. Certificates of deposit with denominations of
$100,000 and over as of December 31, 1999 totaled $2.4 billion, or 16.9% of
total deposits. Their distribution by maturity was as follows:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
3 months or less $1,536,496
3 to 6 months 215,956
6 to 12 months 217,364
over 12 months 425,916
----------
$2,395,732
==========
</TABLE>
For further detail on average deposits for the last five years, please
refer to Table L.
Wholesale or institutional sources of funding include the repo,
federal funds and Eurodollar markets, commercial paper, senior debentures and
asset securitizations. Notes 9 through 15 to the consolidated financial
statements present details of the Corporation's deposits and borrowings by
type, as of December 31, 1999 and 1998.
The Corporation's assets, particularly the investment portfolio, are
also an important source of liquidity. This portfolio consists primarily of
liquid U.S. Treasury and Agency securities that can be used to raise funds in
the repo markets. As of December 31, 1999, investment securities totaled $7.6
billion, of which $1.7 billion or 21.8% has an expected maturity of one year or
less. Also, refer to Notes 3 and 4 to the consolidated financial statements for
further information on the composition of the available-for-sale and
held-to-maturity investment portfolios.
Another important liquidity source for the Corporation is its loan
portfolio since it generates substantial cash flow resulting from principal and
interest payments and principal prepayments. The loan portfolio can also be
used to obtain funding in the capital markets. In particular, mortgage loans
and some types of consumer loans and to a lesser extent commercial loans, have
highly developed secondary markets, which the Corporation uses on a regular
basis. Table K presents a maturity distribution of the loan portfolio as of
December 31, 1999. As of that date $4.5 billion or 30.3% of the loan portfolio
matured within one year.
CREDIT RISK MANAGEMENT AND LOAN QUALITY
One of the Corporation's primary risk exposures is its credit risk, which
represents the possibility of loss from the failure of a borrower or
counterparty to perform according to the terms of a credit-related contract.
The Corporation identifies, measures, controls and monitors this risk with
policies, procedures and various levels of managerial involvement.
Credit extensions are approved by credit officers of the respective
lending departments. The number and level of officer approvals depends on the
dollar amount and risk characteristics of the credit facility. The Corporation
receives collateral to support credit extensions and commitments, whenever it
is considered necessary.
The Corporation has a Credit Strategy Committee (CRESCO) that oversees
all credit-related activities. This
F-19
<PAGE> 45
TABLE L
Average Total Deposits
<TABLE>
<CAPTION>
For the Year
- ------------------------------------------------------------------------------------------------------------------
Five-Year
(In thousands) 1999 1998 1997 1996 1995 C.G.R.
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Demand $ 3,032,001 $ 2,607,525 $ 2,289,300 $ 2,047,845 $1,839,722 11.13%
Other non-interest bearing accounts 6,881 4,251 4,367 5,910 5,983 (0.25)
- ----------------------------------------------------------------------------------------------------------------
Non-interest bearing 3,038,882 2,611,776 2,293,667 2,053,755 1,845,705 11.10
- ----------------------------------------------------------------------------------------------------------------
Savings accounts 4,132,397 3,748,599 3,393,279 3,095,898 2,913,380 7.79
NOW and money market accounts 1,745,579 1,472,533 1,281,298 1,148,727 1,102,593 9.03
- ----------------------------------------------------------------------------------------------------------------
Savings deposits 5,877,976 5,221,132 4,674,577 4,244,625 4,015,973 8.15
- ----------------------------------------------------------------------------------------------------------------
Certificates of deposit:
Under $100,000 2,664,174 2,155,391 1,216,583 1,307,323 1,281,873 18.08
$100,000 and over 1,601,861 1,421,456 1,865,720 1,371,928 1,034,195 22.10
936 297,122 369,530 508,789 1,020,064 999,384 (21.66)
- ----------------------------------------------------------------------------------------------------------------
Certificates of deposit 4,563,157 3,946,377 3,591,092 3,699,315 3,315,452 10.60
- ----------------------------------------------------------------------------------------------------------------
Other time deposits 311,323 490,816 432,221 464,101 405,021 (0.02)
- ----------------------------------------------------------------------------------------------------------------
Interest bearing 10,752,456 9,658,325 8,697,890 8,408,041 7,736,446 8.83
- ----------------------------------------------------------------------------------------------------------------
Total $13,791,338 $12,270,101 $10,991,557 $10,461,796 $9,582,151 9.31%
================================================================================================================
</TABLE>
committee is responsible for managing the Corporation's overall credit
exposure and for developing credit policies, standards and guidelines that
define, quantify, and monitor credit risk. Through the CRESCO, senior
management reviews asset quality ratios, trends and forecasts, problem loans
and the methodology for assessing the adequacy of the reserve for loan losses.
Also, the Corporation has an independent Credit Risk Management
Division (CRMD). This division is centralized and independent of the lending
function. It manages the credit rating system and tests the adequacy of the
allowance for loan losses in accordance with generally accepted accounting
principles (GAAP) and regulatory standards. The CRMD manages and controls the
Corporation's credit risk utilizing various techniques through the different
stages of the credit process. A CRMD representative, who oversees the adherence
to policies and procedures established for the initial underwriting of the
credit portfolio, is a permanent non-voting member of the Executive Credit
Committee. Another strategy followed by the CRMD to help manage credit risk is
the ongoing monitoring of the portfolio, including potential areas of concern
for specific borrowers and/or geographic regions. All commercial borrowers with
loans which are past due over 90 days, have filed bankruptcy, or based on its
risk profile are considered problem loans, are handled by specialized workout
officers, objectively and independently from the originating unit. This group
consistently evaluates those loan exposures to provide for a prompt recognition
and accounting of loss exposures.
The Corporation also has an independent Credit Process Review Group
within the CRMD, which performs annual comprehensive credit process reviews of
several middle market, construction and corporate banking lending groups, as
well as reviews the work performed by outside loan review firms providing
services to the Corporation in the U.S. mainland. This group examines the risk
profile of each originating unit along with each unit's credit
administration effectiveness, the quality of the credit and collateral
documentation, and the adequacy of its staffing levels and competency.
Furthermore, the Corporation continues emphasizing the development of the
credit staff's skills and knowledge and improving the processing technology.
At December 31, 1999, the Corporation's credit risk was centered in
its $14.9 billion loan portfolio, which represented 62.8% of earning assets.
The portfolio composition for the last five years is presented in Table G. For
other risks associated with off-balance sheet lending activities, please refer
to Note 23 to the consolidated financial statements.
The loan portfolio is well-balanced as the Corporation's credit
policies and procedures emphasize diversification among geographical areas,
business and industry groups, to minimize the adverse impact of any single
event or set of occurrences.
The Corporation continues diversifying its geographical risk as a
result of its expansion strategy throughout various markets in the United
States and the Caribbean, as described in the Overview section and Note 1 to
the consolidated financial statements. The Corporation' asset and revenue
composition
F-20
<PAGE> 46
TABLE M
Non-Performing Assets
<TABLE>
<CAPTION>
As of December 31,
- -----------------------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, industrial and
agricultural $163,968 $142,371 $106,982 $ 82,381 $ 90,055
Construction 1,504 144 2,704 2,000 4,733
Lease financing 3,820 4,937 1,569 1,599 5,606
Mortgage 70,038 68,527 53,449 43,955 32,066
Consumer 57,515 46,626 30,840 16,320 14,827
Renegotiated accruing loans 578 3,308 2,742
Other real estate 29,268 32,693 18,012 6,076 7,807
- -----------------------------------------------------------------------------------------------
Total $326,113 $295,876 $213,556 $155,639 $157,836
===============================================================================================
Accruing loans past-due
90 days or more $ 28,731 $ 24,426 $ 20,967 $ 12,270 $ 11,660
===============================================================================================
Non-performing assets to loans 2.19% 2.26% 1.88% 1.59% 1.82%
Non-performing loans to loans 1.99 2.01 1.72 1.50 1.70
Non-performing assets to assets 1.28 1.28 1.11 0.93 1.01
Interest lost $ 20,428 $ 15,258 $ 11,868 $ 7,696 $ 7,135
</TABLE>
Note: The Corporation's policy is to place commercial and construction loans on
non-accrual status if payments of principal or interest are past-due 60
days or more. Lease financing receivables and conventional residential
mortgage loans are placed on non-accrual status if payments are
delinquent 90 days or more. Close-end consumer loans are placed on
non-accrual when they become 90 days or more past-due and are charged-off
when they are 120 days past-due. Open-end consumer loans are not placed
on non-accrual status and are charged-off when they are 180 days
past-due. Loans past-due 90 days or more and still accruing are not
considered as non-performing loans.
by geographical area and by business line segments is further presented in Note
27 to the consolidated financial statements. Although Puerto Rico continues to
be the Corporation's main market, its share of the total loan portfolio has
decreased from 64.4% in 1997 and 60.4% in 1998 to 59.3% in 1999. Puerto
Rico's economic outlook is generally similar to that of the mainland and its
Government and its instrumentalities are all investment-grade rated borrowers
in the United States capital markets.
The Corporation's credit risk exposure is spread among individual
consumers, small commercial loans and a diverse base of borrowers engaged in a
wide variety of businesses. The Corporation has approximately 895,000 consumer
loans and over 41,000 commercial lending relationships. Only 62 of these
relationships have loans outstanding over $10 million. Highly leveraged
transactions and credit facilities to finance speculative real estate ventures
are minimal and there are no LDC loans.
The Corporation limits its exposure to concentrations of credit risk
by the nature of its lending limits, as approximately 24.7% of total commercial
and construction loans outstanding are secured by real estate or cash
collateral. In addition, the secured consumer loan portfolio was $1.1 billion
or 33.2% of the total consumer portfolio at December 31, 1999. Furthermore,
there are no significant concentrations in any one industry with a substantial
portion of the customers having credit needs of less than $250,000.
On a monthly basis, the Corporation's CRMD, senior management and
the Risk Management Committee evaluate possible industry risk concentrations.
Moreover, the Corporation is exposed to government risk. As further
detailed in Notes 3 and 4 to the consolidated financial statements, a
substantial portion of the Corporation's investment securities represented
exposure to the U.S. Government in the form of U.S. Treasury securities and
obligations of U.S. Government agencies and corporations. In addition, $80
million of residential mortgages and $479 million in commercial loans were
insured or guaranteed by the U.S. Government or its agencies. The Corporation
is one of the largest SBA lenders in the United States. Furthermore, there was
$135 million of investment securities representing obligations of the Puerto
Rico Government and political subdivisions thereof, $49 million of loans issued
to or guaranteed by these same entities and $34 million of loans issued to or
guaranteed by the U.S. and British Virgin Islands' Governments.
NON-PERFORMING ASSETS
Non-performing assets consist of past-due loans that are no longer accruing
interest, renegotiated loans and real estate acquired through foreclosure.
Non-performing assets were $326
F-21
<PAGE> 47
TABLE N
Allowance for Loan Losses and Selected Loan Losses Statistics
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 267,249 $ 211,651 $ 185,574 $ 168,393 $ 153,798
Allowances purchased 515 31,296 13,237 402
Provision for loan losses 148,948 137,213 110,607 88,839 64,558
- -----------------------------------------------------------------------------------------------------
416,712 380,160 309,418 257,634 218,356
- -----------------------------------------------------------------------------------------------------
Losses charged to the allowance:
Commercial 51,011 45,643 55,734 38,017 34,383
Construction 651 190 600 2,369 2,046
Lease financing 23,009 23,484 23,085 22,129 6,979
Mortgage 3,977 2,718 2,612 2,189 1,618
Consumer 104,062 92,646 65,559 43,257 33,681
- -----------------------------------------------------------------------------------------------------
182,710 164,681 147,590 107,961 78,707
- -----------------------------------------------------------------------------------------------------
Recoveries:
Commercial 18,589 17,844 18,385 11,498 9,404
Construction 169 337 122 207 288
Lease financing 15,839 14,998 15,890 9,749 2,342
Mortgage 771 323 356 295 243
Consumer 22,640 18,268 15,070 14,152 16,467
- -----------------------------------------------------------------------------------------------------
58,008 51,770 49,823 35,901 28,744
- -----------------------------------------------------------------------------------------------------
Net loans charged-off 124,702 112,911 97,767 72,060 49,963
- -----------------------------------------------------------------------------------------------------
Balance at end of year $ 292,010 $ 267,249 $ 211,651 $ 185,574 $ 168,393
=====================================================================================================
Loans:
Outstanding at year end $14,907,754 $13,078,795 $11,376,607 $9,779,028 $8,677,484
Average 13,901,290 11,930,621 10,548,207 9,210,964 8,217,834
Ratios:
Allowance for loan losses to year
end loans 1.96% 2.04% 1.86% 1.90% 1.94%
Recoveries to charge-offs 31.75 31.44 33.76 33.25 36.52
Net charge-offs to average loans 0.90 0.95 0.93 0.78 0.61
Net charge-offs earnings coverage 3.92x 3.93x 4.04x 4.79x 5.42x
Allowance for loan losses to net
charge-offs 2.34 2.37 2.16 2.58 3.37
Provision for loan losses to:
Net charge-offs 1.19 1.22 1.13 1.23 1.29
Average loans 1.07% 1.15% 1.05% 0.96% 0.79%
Allowance to non-performing assets 89.54 90.32 99.11 119.23 106.69
=====================================================================================================
</TABLE>
million and $296 million at December 31, 1999 and 1998, respectively. A summary
of non-performing assets by loan categories and related ratios is presented in
Tables M and N.
The Corporation's policy is to place commercial loans on
non-accrual status if payments of principal or interest are delinquent 60 days
rather than the standard industry practice of 90 days. Financing leases,
conventional mortgages and close-end consumer loans are placed on non-accrual
status if payments are delinquent 90 days. Close-end consumer loans are
charged-off when payments are delinquent 120 days. Open-end (revolving credit)
consumer loans are charged-off if payments are delinquent 180 days. Certain
loans which would be treated as non-accrual loans pursuant to the foregoing
policy, are treated as accruing loans if they are considered well-secured and
in the process of collection. Under the standard industry practice, close-end
consumer loans are charged-off when delinquent 120 days, but are not
customarily placed on non-accrual status prior to being charged-off.
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 close-end consumer loans from non-accruing, the
Corporation's non-performing assets at December 31, 1999, would have been
$247 million or 1.66% of loans, and the allowance for loan losses would have
been 118.2% of non-performing assets. At December 31, 1998 and 1997, adjusted
non-
F-22
<PAGE> 48
performing assets would have been $227 million or 1.73% of loans and $167
million or 1.47% of loans, respectively. The allowance for loan losses as a
percentage of adjusted non-performing assets as of December 31, 1998 and 1997,
would have been 118.0% and 126.9%, respectively.
As Table M presents, the increase in non-performing assets is
principally due to higher non-performing commercial loans and consumer loans.
The rise of $22 million in non-performing commercial loans was attributed to a
$26 million increase in non-per-forming commercial loans at BF in the
Dominican Republic, principally resulting from the placement in non-accrual
status of two large commercial relationships. The Corporation has intensified
its credit management efforts to address the increase in non-accruing loans at
this banking institution.
Non-performing consumer loans represented 1.78% of the average
consumer loan portfolio at December 31, 1999, compared with 1.51% at the same
date in the prior year. Nonperforming consumer loans increased mainly as a
result of the high level of personal bankruptcies in Puerto Rico and the U.S.
mainland, increased delinquency levels and the growth in the consumer loan
portfolio. The decrease in the other real estate category was principally the
result of successful collection efforts through the legal process of several
real estate secured loans.
Once a loan is placed in non-accrual status the interest previously
accrued and uncollected is charged against current earnings and thereafter,
income is recorded only to the extent of any interest collected. The interest
income that would have been realized had these loans been performing in
accordance with their original terms amounted to $20.4 million in 1999,
compared with $15.3 million in 1998 and $11.9 million in 1997.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level sufficient to provide
for estimated loan losses based on evaluations of known and inherent risks in
the loan portfolio. The Corporation's management evaluates the adequacy of
the allowance for loan losses on a monthly basis. In determining the allowance,
management considers the portfolio risk characteristics, prior loss experience,
prevailing and projected economic conditions and loan impairment measurement. A
loan is considered impaired when, based on the current information and events,
it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. Please refer to Notes
1 and 6 to the consolidated financial statements for further information
related to impaired loans and the methodology used by the Corporation for their
measurement.
At December 31, 1999, the allowance for loan losses was $292 million
or 1.96% of loans, compared with $267 million or 2.04% at the same date in
1998. At December 31, 1997, the allowance was $212 million or 1.86% of loans.
The decrease in the allowance to ending loans coverage ratio was attributed to
the fact that most of the increase in the loan portfolio was realized in a
relatively low-risk portfolio, like mortgages, whereas consumer loans, which
are considered the higher-risk portfolio, only had a modest increase. Based on
current and expected economic conditions, the expected level of net loan losses
and the methodology established to evaluate the adequacy of the allowance for
loan losses, management considers that the Corporation's level of the allowance
for loan losses is adequate.
Broken down by major loan categories, the allowance for the last five
years was as follows:
ALLOWANCE FOR LOAN LOSSES
AT DECEMBER 31,
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $ 140.5 $ 130.2 $ 101.5 $ 91.8 $ 82.6
Construction 8.7 11.6 10.6 10.5 11.0
Lease financing 9.2 8.3 5.9 3.4 6.4
Consumer 119.0 103.1 82.8 69.6 60.6
Mortgage 14.6 14.0 10.9 10.3 7.8
- -------------------------------------------------------------------------------
$ 292.0 $ 267.2 $ 211.7 $ 185.6 $ 168.4
===============================================================================
</TABLE>
Table N summarizes the movement in the allowance for loan losses and
presents selected loan loss statistics for the past five years. As this table
demonstrates, net loan losses for 1999 totaled $124.7 million, an increase of
$11.8 million or 10.4% from 1998. The rise primarily reflected higher net
charge-offs in the consumer and commercial loan portfolios. However, net
charge-offs as a percentage of average loans decreased from 0.95% in 1998 to
0.90% in 1999.
Commercial loans net charge-offs amounted to $32.4 million in 1999,
compared with $27.8 million a year earlier. As a percentage of average
commercial loans, this figure slightly decreased from 0.56% in 1998 to 0.53% in
1999.
Consumer loans net charge-offs totaled $81.4 million or 2.52% of
average consumer loans for 1999, compared with $74.4 million or 2.41% of
average consumer loans for 1998. Net charge-offs increased $4.3 million in
personal loans and $3.7 million in credit cards. These increases were
principally due to the high level of bankruptcies in the U.S. mainland and
Puerto Rico, which is indicative of general market trends. Also, the banking
operation in the Dominican Republic was responsible for a rise of $2.5 million
in consumer loans net charge-offs.
Lease financing net charge-offs decreased $1.3 million in 1999, from
$8.5 million in 1998, whereas mortgage loans net charge-offs increased to $3.2
million from $2.4 million in 1998.
F-23
<PAGE> 49
STATISTICAL SUMMARY 1995-1999
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
As of December 31,
(In thousands) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 663,696 $ 667,707 $ 463,151 $ 492,368 $ 458,173
- ----------------------------------------------------------------------------------------------------------------------------
Money market investments:
Federal funds sold and securities purchased
under agreements to resell 931,123 910,430 802,803 778,597 796,417
Time deposits with other banks 54,354 37,206 9,013 19,023 100
Bankers' acceptances 517 262 2,274 2,656 2,202
- ----------------------------------------------------------------------------------------------------------------------------
985,994 947,898 814,090 800,276 798,719
- ----------------------------------------------------------------------------------------------------------------------------
Trading securities 236,610 318,727 222,303 292,150 330,674
- ----------------------------------------------------------------------------------------------------------------------------
Investment securities available-for-sale,
at market value 7,324,950 7,020,396 5,239,005 3,415,934 3,209,974
- ----------------------------------------------------------------------------------------------------------------------------
Investment securities held-to-maturity, at cost 299,312 226,134 408,993 1,197,066 1,651,344
- ----------------------------------------------------------------------------------------------------------------------------
Loans held-for-sale 619,298 644,159 265,204 255,129 112,806
- ----------------------------------------------------------------------------------------------------------------------------
Loans 14,659,400 12,783,609 11,457,675 9,854,911 8,883,963
Less - Unearned income 370,944 348,973 346,272 331,012 319,285
Allowance for loan losses 292,010 267,249 211,651 185,574 168,393
- ----------------------------------------------------------------------------------------------------------------------------
13,996,446 12,167,387 10,899,752 9,338,325 8,396,285
- ----------------------------------------------------------------------------------------------------------------------------
Premises and equipment 440,971 424,721 364,892 356,697 325,203
Other real estate 29,268 32,693 18,012 6,076 7,807
Customers' liabilities on acceptances 12,041 15,937 1,801 3,100 2,208
Accrued income receivable 175,746 156,314 118,677 95,487 113,539
Other assets 371,421 263,992 252,040 380,247 125,742
Intangible assets 304,786 274,292 232,587 131,248 142,977
- ----------------------------------------------------------------------------------------------------------------------------
$25,460,539 $23,160,357 $19,300,507 $16,764,103 $15,675,451
============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 3,284,949 $ 3,176,309 $ 2,546,836 $ 2,330,704 $ 2,021,658
Interest bearing 10,888,766 10,495,905 9,202,750 8,432,571 7,855,004
- ----------------------------------------------------------------------------------------------------------------------------
14,173,715 13,672,214 11,749,586 10,763,275 9,876,662
Federal funds purchased and securities
sold under agreements to repurchase 4,414,480 4,076,500 2,723,329 1,875,465 3,000,878
Other short-term borrowings 2,612,389 1,639,082 1,287,435 1,404,006 454,707
Notes payable 1,852,599 1,307,160 1,403,696 986,713 730,428
Senior debentures 30,000 30,000
Acceptances outstanding 12,041 15,937 1,801 3,100 2,208
Other liabilities 436,718 437,760 356,568 314,012 263,871
- ----------------------------------------------------------------------------------------------------------------------------
23,501,942 21,148,653 17,522,415 15,376,571 14,358,754
- ----------------------------------------------------------------------------------------------------------------------------
Subordinated notes 125,000 125,000 125,000 125,000 175,000
- ----------------------------------------------------------------------------------------------------------------------------
Preferred beneficial interest in Popular North
America's junior subordinated deferrable interest
debentures guaranteed by the Corporation 150,000 150,000 150,000
- ----------------------------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiary 22,611 27,591
- ----------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock 100,000 100,000 100,000 100,000 100,000
Common stock 827,662 825,690 412,029 396,531 197,692
Surplus 243,855 216,795 602,023 496,582 427,282
Retained earnings 694,301 530,481 395,253 267,719 350,480
Treasury stock - at cost (64,123) (39,559) (39,559)
Accumulated other comprehensive income,
net of deferred tax (140,709) 75,706 33,346 1,700 16,243
Capital reserves 50,000
- ----------------------------------------------------------------------------------------------------------------------------
1,660,986 1,709,113 1,503,092 1,262,532 1,141,697
- ----------------------------------------------------------------------------------------------------------------------------
$25,460,539 $23,160,357 $19,300,507 $16,764,103 $15,675,451
============================================================================================================================
</TABLE>
F-24
<PAGE> 50
STATISTICAL SUMMARY 1995-1999
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the year ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------
(In thousands, except per common share
information) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans $1,373,158 $1,211,850 $1,080,408 $ 924,076 $ 813,137
Money market investments 33,434 36,781 33,923 46,697 23,077
Investment securities 425,907 385,473 358,736 280,610 259,941
Trading account securities 19,171 17,599 18,236 21,470 9,652
- ----------------------------------------------------------------------------------------------------------------------------
Total interest income 1,851,670 1,651,703 1,491,303 1,272,853 1,105,807
Less - Interest expense 897,932 778,691 707,348 591,540 521,624
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income 953,738 873,012 783,955 681,313 584,183
Provision for loan losses 148,948 137,213 110,607 88,839 64,558
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 804,790 735,799 673,348 592,474 519,625
Gain on sale of investment securities 638 8,933 2,268 3,094 5,368
Trading account (loss) profit (1,582) 3,653 3,934 108 1,785
All other operating income 373,860 278,660 241,396 202,270 166,185
- ----------------------------------------------------------------------------------------------------------------------------
1,177,706 1,027,045 920,946 797,946 692,963
- ----------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Personnel costs 386,696 337,400 306,893 273,247 249,075
All other operating expenses 450,786 382,954 330,027 268,672 237,758
- ----------------------------------------------------------------------------------------------------------------------------
837,482 720,354 636,920 541,919 486,833
- ----------------------------------------------------------------------------------------------------------------------------
Income before tax and minority interest 340,224 306,691 284,026 256,027 206,130
Income tax 85,120 74,671 74,461 70,877 59,769
Net loss of minority interest 2,454 328
- ----------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 257,558 $ 232,348 $ 209,565 $ 185,150 $ 146,361
============================================================================================================================
NET INCOME APPLICABLE TO COMMON STOCK $ 249,208 $ 223,998 $ 201,215 $ 176,800 $ 138,011
============================================================================================================================
EARNINGS PER COMMON SHARE* $ 1.84 $ 1.65 $ 1.50 $ 1.34 $ 1.05
============================================================================================================================
CASH DIVIDENDS DECLARED PER COMMON SHARE OUTSTANDING $ 0.60 $ 0.50 $ 0.40 $ 0.35 $ 0.29
============================================================================================================================
</TABLE>
*The average common shares used in the computation of earnings and cash
dividend per common share were 135,585,634 for 1999; 135,532,086 for 1998;
134,036,964 for 1997; 132,044,624 for 1996; and 131,632,600 for 1995.
F-25
<PAGE> 51
STATISTICAL SUMMARY 1995-1999
AVERAGE BALANCE SHEET AND SUMMARY OF NET INTEREST INCOME
<TABLE>
<CAPTION>
On a Taxable Equivalent Basis*
- ------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE Average Average
BALANCE INTEREST RATE Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Federal funds sold and securities purchased
under agreements to resell $ 537,436 $ 24,238 4.51% $ 670,072 $ 31,814 4.75%
Time deposits with other banks 143,154 9,144 6.39 82,935 4,889 5.89
Bankers' acceptances 516 52 10.08 778 78 10.03
- ------------------------------------------------------------------------------------------------------------------------------
Total money market investments 681,106 33,434 4.91 753,785 36,781 4.88
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities 2,479,827 169,683 6.84 3,227,375 231,837 7.18
Obligations of other U.S. Government
agencies and corporations 3,028,577 200,649 6.63 1,477,168 111,332 7.54
Obligations of Puerto Rico, States and
political subdivisions 138,185 9,100 6.59 136,824 9,272 6.78
Collateralized mortgage obligations and
mortgage-backed securities 1,246,582 92,960 7.46 1,318,097 81,970 6.22
Other 455,488 26,654 5.85 130,861 14,015 10.71
- ------------------------------------------------------------------------------------------------------------------------------
Total investment securities 7,348,659 499,046 6.79 6,290,325 448,426 7.13
- ------------------------------------------------------------------------------------------------------------------------------
Trading account securities 313,904 20,584 6.56 287,218 18,943 6.60
- ------------------------------------------------------------------------------------------------------------------------------
Loans (net of unearned income) 13,901,290 1,380,330 9.93 11,930,621 1,218,849 10.22
- ------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets/
Interest income 22,244,959 $1,933,394 8.69% 19,261,949 $1,722,999 8.95%
- ------------------------------------------------------------------------------------------------------------------------------
Total non-interest earning assets 1,561,413 1,170,433
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $23,806,372 $20,432,382
==============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Savings and NOW accounts $ 5,877,976 $ 173,946 2.96% $ 5,221,132 $ 163,805 3.14%
Other time deposits 4,874,480 278,269 5.71 4,437,193 247,687 5.58
Short-term borrowings 5,992,445 317,646 5.30 4,622,549 251,724 5.45
Mortgages and notes payable 1,558,410 106,639 6.84 1,371,372 93,846 6.84
Subordinated notes 125,000 8,555 6.84 125,000 8,555 6.84
Guaranteed preferred beneficial interest in
Popular North America's subordinated
debentures 150,000 12,877 8.58 150,000 13,074 8.72
- ------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities/
Interest expense 18,578,311 897,932 4.83 15,927,246 778,691 4.89
- ------------------------------------------------------------------------------------------------------------------------------
Total non-interest bearing liabilities 3,515,269 2,951,878
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 22,093,580 18,879,124
- ------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 1,712,792 1,553,258
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $23,806,372 $20,432,382
==============================================================================================================================
Net interest income on a taxable
equivalent basis $1,035,462 $ 944,308
- ------------------------------------------------------------------------------------------------------------------------------
Cost of funding earning assets 4.04% 4.04%
- ------------------------------------------------------------------------------------------------------------------------------
Net interest yield 4.65% 4.91%
==============================================================================================================================
Effect of the taxable equivalent adjustment 81,724 71,296
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income per books $ 953,738 $ 873,012
==============================================================================================================================
</TABLE>
* Shows the effect of the tax exempt status of some loans and investments on
their yield, using the applicable statutory income tax rates. The computation
considers the interest expense disallowance as required by the Puerto Rico
Internal Revenue Code. This adjustment is shown in order to compare the
yields of the tax exempt and taxable assets on a taxable basis. Note: Average
loan balances include the average balance of non-accruing loans. No interest
income is recognized for these loans in accordance with the Corporation's
policy.
F-26
<PAGE> 52
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 595,715 $ 31,504 5.29% $ 878,138 $ 45,704 5.20% $ 399,413 $ 22,823 5.71%
34,271 2,181 6.36 12,562 770 6.13 2,661 165 6.20
2,463 238 9.66 2,202 223 10.13 941 89 9.46
- ---------------------------------------------------------------------------------------------------------------------------------
632,449 33,923 5.36 892,902 46,697 5.23 403,015 23,077 5.73
- ---------------------------------------------------------------------------------------------------------------------------------
3,553,347 249,739 7.03 3,198,912 222,520 6.96 2,893,797 197,554 6.83
967,973 69,709 7.20 531,711 34,725 6.53 428,563 30,912 7.21
141,625 9,716 6.86 231,363 11,224 4.85 247,176 14,798 5.99
1,150,214 72,245 6.28 772,278 46,434 6.01 727,175 47,191 6.49
114,201 7,718 6.76 95,985 5,483 5.71 171,013 6,491 3.80
- ---------------------------------------------------------------------------------------------------------------------------------
5,927,360 409,127 6.90 4,830,249 320,386 6.63 4,467,724 296,946 6.65
- ---------------------------------------------------------------------------------------------------------------------------------
301,618 19,770 6.55 372,196 23,004 6.18 155,597 9,831 6.32
- ---------------------------------------------------------------------------------------------------------------------------------
10,548,207 1,087,466 10.31 9,210,964 930,891 10.11 8,217,834 820,003 9.98
- ---------------------------------------------------------------------------------------------------------------------------------
17,409,634 $1,550,286 8.90% 15,306,311 $1,320,978 8.63% 13,244,170 $1,149,857 8.68%
- ---------------------------------------------------------------------------------------------------------------------------------
1,009,510 994,771 874,013
- ---------------------------------------------------------------------------------------------------------------------------------
$18,419,144 $16,301,082 $14,118,183
=================================================================================================================================
$ 4,674,577 $ 147,321 3.15% $ 4,244,625 $ 131,499 3.10% $ 4,015,973 $ 126,548 3.15%
4,023,313 219,207 5.45 4,163,416 218,722 5.25 3,720,473 203,235 5.46
4,280,900 237,738 5.55 3,464,892 184,682 5.33 2,600,246 141,522 5.44
1,345,650 83,936 6.24 757,604 46,417 6.13 598,027 46,149 7.72
125,000 8,558 6.85 147,951 10,220 6.91 56,850 4,170 7.34
122,877 10,588 8.62
- ---------------------------------------------------------------------------------------------------------------------------------
14,572,317 707,348 4.85 12,778,488 591,540 4.63 10,991,569 521,624 4.75
- ---------------------------------------------------------------------------------------------------------------------------------
2,475,843 2,329,088 2,056,132
- ---------------------------------------------------------------------------------------------------------------------------------
17,048,160 15,107,576 13,047,701
- ---------------------------------------------------------------------------------------------------------------------------------
1,370,984 1,193,506 1,070,482
- ---------------------------------------------------------------------------------------------------------------------------------
$18,419,144 $16,301,082 $14,118,183
=================================================================================================================================
$ 842,938 $ 729,438 $ 628,233
- ---------------------------------------------------------------------------------------------------------------------------------
4.06% 3.86% 3.94%
- ---------------------------------------------------------------------------------------------------------------------------------
4.84% 4.77% 4.74%
=================================================================================================================================
58,983 48,125 44,050
- ---------------------------------------------------------------------------------------------------------------------------------
$ 783,955 $ 681,313 $ 584,183
=================================================================================================================================
</TABLE>
F-27
<PAGE> 53
STATISTICAL SUMMARY 1998-1999
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
(In thousands, except per Fourth Third Second First Fourth Third Second First
common share information) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income $485,542 $468,532 $453,401 $444,195 $441,649 $410,821 $402,865 $396,368
Interest expense 245,686 229,740 214,550 207,956 210,774 195,780 188,473 183,664
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income 239,856 238,792 238,851 236,239 230,875 215,041 214,392 212,704
Provision for loan
losses 39,466 37,080 36,631 35,771 35,457 34,667 33,524 33,565
Non-interest income 102,047 96,984 86,640 86,607 75,723 69,668 69,837 67,084
Gain (loss) on sale of
investment securities (137) 39 286 450 465 4,553 3,049 867
Non-interest expense 215,670 214,704 205,217 201,891 194,311 178,618 175,045 172,380
- ----------------------------------------------------------------------------------------------------------------------------
Income before income
tax and minority interest 86,630 84,031 83,929 85,634 77,295 75,977 78,709 74,710
Income tax 21,497 20,887 20,334 22,402 15,111 18,397 21,248 19,915
Net loss of minority
interest 574 1,066 382 432 328
- ----------------------------------------------------------------------------------------------------------------------------
Net income $ 65,707 $ 64,210 $ 63,977 $ 63,664 $ 62,512 $ 57,580 $ 57,461 $ 54,795
============================================================================================================================
Net income applicable
to common stock $ 63,618 $ 62,123 $ 61,890 $ 61,577 $ 60,423 $ 55,493 $ 55,374 $ 52,708
============================================================================================================================
Net income per
common share $ 0.47 $ 0.46 $ 0.46 $ 0.45 $ 0.44 $ 0.41 $ 0.41 $ 0.39
- ----------------------------------------------------------------------------------------------------------------------------
SELECTED AVERAGE BALANCES
(In millions)
Total assets $ 24,733 $ 24,115 $ 23,655 $ 22,696 $ 21,939 $ 20,344 $ 19,935 $ 19,486
Loans 14,573 14,132 13,681 13,201 12,699 11,928 11,615 11,467
Interest earning assets 23,060 22,546 22,093 21,258 20,761 19,149 18,770 18,341
Deposits 13,965 13,802 13,816 13,578 13,035 12,033 12,196 11,805
Interest bearing liabilities 19,388 18,874 18,406 17,622 17,120 15,897 15,488 15,182
- ----------------------------------------------------------------------------------------------------------------------------
SELECTED RATIOS
Return on assets 1.05% 1.06% 1.08% 1.14% 1.13% 1.12% 1.16% 1.14%
Return on equity 15.06 15.23 15.53 16.03 15.84 14.94 15.50 15.36
</TABLE>
F-28
<PAGE> 54
REPORT OF INDEPENDENT ACCOUNTANTS
[PRICEWATERHOUSECOOPERS LOGO]
To the Board of Directors and Stockholders of Popular, Inc.
In our opinion, the accompanying consolidated statements of condition and the
related consolidated statements of income, of comprehensive income, of changes
in stockholders' equity and cash flows present fairly, in all material
respects, the financial position of Popular, Inc. and its subsidiaries at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Corporation's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/S/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
San Juan, Puerto Rico
February 24, 2000
Stamp 1603157 of the P.R.
Society of Certified Public
Accountants has been affixed
to the file copy of this report.
F-29
<PAGE> 55
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
December 31,
-----------------------------
Dollars in thousands, except per share information 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 663,696 $ 667,707
- ---------------------------------------------------------------------------------------------------------------
Money market investments:
Federal funds sold and securities purchased under
agreements to resell 931,123 910,430
Time deposits with other banks 54,354 37,206
Bankers' acceptances 517 262
- ---------------------------------------------------------------------------------------------------------------
985,994 947,898
- ---------------------------------------------------------------------------------------------------------------
Trading securities, at market value 236,610 318,727
Investment securities available-for-sale, at market value 7,324,950 7,020,396
Investment securities held-to-maturity, at amortized cost
(market value $295,075; 1998 - $228,039) 299,312 226,134
Loans held-for-sale, at lower of cost or market 619,298 644,159
- ---------------------------------------------------------------------------------------------------------------
Loans 14,659,400 12,783,609
Less - Unearned income 370,944 348,973
Allowance for loan losses 292,010 267,249
- ---------------------------------------------------------------------------------------------------------------
13,996,446 12,167,387
- ---------------------------------------------------------------------------------------------------------------
Premises and equipment 440,971 424,721
Other real estate 29,268 32,693
Customers' liabilities on acceptances 12,041 15,937
Accrued income receivable 175,746 156,314
Other assets 371,421 263,992
Intangible assets 304,786 274,292
- ---------------------------------------------------------------------------------------------------------------
$ 25,460,539 $ 23,160,357
===============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 3,284,949 $ 3,176,309
Interest bearing 10,888,766 10,495,905
- ---------------------------------------------------------------------------------------------------------------
14,173,715 13,672,214
Federal funds purchased and securities sold under agreements to repurchase 4,414,480 4,076,500
Other short-term borrowings 2,612,389 1,639,082
Notes payable 1,852,599 1,307,160
Acceptances outstanding 12,041 15,937
Other liabilities 436,718 437,760
- ---------------------------------------------------------------------------------------------------------------
23,501,942 21,148,653
- ---------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------
Commitments and contingencies
- ---------------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiaries 22,611 27,591
- ---------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, $25 liquidation value; 10,000,000 shares authorized;
4,000,000 issued and outstanding 100,000 100,000
Common stock, $6 par value; 180,000,000 shares authorized;
137,943,619 shares issued (1998 - 137,614,927) and 135,654,292 shares
outstanding (1998 - 135,637,327) 827,662 825,690
Surplus 243,855 216,795
Retained earnings 694,301 530,481
Accumulated other comprehensive (loss) income,
net of deferred taxes of ($35,993) (1998 - $25,174) (140,709) 75,706
Treasury stock - at cost, 2,289,327 shares (1998 - 1,977,600) (64,123) (39,559)
- ---------------------------------------------------------------------------------------------------------------
1,660,986 1,709,113
- ---------------------------------------------------------------------------------------------------------------
$ 25,460,539 $ 23,160,357
===============================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-30
<PAGE> 56
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------
(In thousands, except per share information) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Loans $ 1,373,158 $1,211,850 $1,080,408
Money market investments 33,434 36,781 33,923
Investment securities 425,907 385,473 358,736
Trading securities 19,171 17,599 18,236
- ---------------------------------------------------------------------------------------------------------------------------------
1,851,670 1,651,703 1,491,303
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits 452,215 411,492 366,528
Short-term borrowings 317,646 251,724 237,738
Long-term debt 128,071 115,475 103,082
- ---------------------------------------------------------------------------------------------------------------------------------
897,932 778,691 707,348
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income 953,738 873,012 783,955
Provision for loan losses 148,948 137,213 110,607
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 804,790 735,799 673,348
Service charges on deposit accounts 118,187 103,732 94,141
Other service fees 169,727 116,575 98,650
Gain on sale of investment securities 638 8,933 2,268
Trading account (loss) profit (1,582) 3,653 3,934
Other operating income 85,946 58,353 48,605
- ---------------------------------------------------------------------------------------------------------------------------------
1,177,706 1,027,045 920,946
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Personnel costs:
Salaries 289,995 247,590 211,741
Profit sharing 23,881 22,067 25,684
Pension and other benefits 72,820 67,743 69,468
- ---------------------------------------------------------------------------------------------------------------------------------
386,696 337,400 306,893
Net occupancy expense 60,814 48,607 39,617
Equipment expenses 88,334 75,302 66,446
Other taxes 33,290 32,191 30,283
Professional fees 67,955 58,087 46,767
Communications 43,146 36,941 33,325
Business promotion 45,938 39,376 33,569
Printing and supplies 20,709 17,604 15,539
Other operating expenses 58,812 46,986 41,607
Amortization of intangibles 31,788 27,860 22,874
- ---------------------------------------------------------------------------------------------------------------------------------
837,482 720,354 636,920
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income tax and minority interest 340,224 306,691 284,026
Income tax 85,120 74,671 74,461
Net loss of minority interest 2,454 328
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 257,558 $ 232,348 $ 209,565
=================================================================================================================================
NET INCOME APPLICABLE TO COMMON STOCK $ 249,208 $ 223,998 $ 201,215
=================================================================================================================================
NET INCOME PER COMMON SHARE (BASIC AND DILUTED) $ 1.84 $ 1.65 $ 1.50
=================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-31
<PAGE> 57
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------
(In thousands) 1999 1998 1997
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 257,558 $ 232,348 $ 209,565
- ---------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization of premises and equipment 71,320 62,649 54,523
Provision for loan losses 148,948 137,213 110,607
Amortization of intangibles 31,788 27,860 22,874
Gain on sale of investment securities available-for-sale (638) (8,933) (2,268)
Loss on disposition of premises and equipment 365 167 2,681
Gain on sale of loans (24,158) (23,036) (23,315)
Amortization of premiums and accretion of discounts
on investments 6,878 2,945 2,746
Net decrease (increase) in loans held-for-sale 26,818 (378,955) (10,075)
Amortization of deferred loan origination fees and costs (713) (2,399) (3,019)
Net decrease (increase) in trading securities 82,117 (96,424) 69,847
Net increase in accrued income receivable (19,414) (35,933) (15,872)
Net (increase) decrease in other assets (38,201) 70,005 175,286
Net increase in interest payable 18,592 10,138 6,668
Net decrease in current and deferred taxes (50,987) (10,546) (28,555)
Net increase in postretirement benefit obligation 9,708 9,254 7,323
Net increase in other liabilities 28,709 11,190 4,887
- ---------------------------------------------------------------------------------------------------------------------------------
Total adjustments 291,132 (224,805) 374,338
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 548,690 7,543 583,903
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in money market investments (38,096) (26,726) 9,671
Purchases of investment securities held-to-maturity (6,070,728) (11,713,516) (68,040,431)
Maturities of investment securities held-to-maturity 6,095,690 11,893,268 68,835,925
Purchases of investment securities available-for-sale (6,305,513) (5,372,719) (8,635,781)
Maturities of investment securities available-for-sale 5,467,356 2,815,884 2,191,521
Sales of investment securities available-for-sale 168,337 923,409 5,212,194
Net disbursements on loans (2,921,860) (1,558,253) (1,468,552)
Proceeds from sale of loans 920,421 734,417 521,853
Acquisition of loan portfolios (5,945) (62,247) (48,481)
Assets acquired, net of cash (1,718) (17,168) (83,404)
Acquisition of premises and equipment (108,428) (103,577) (120,226)
Proceeds from sale of premises and equipment 24,923 16,630 68,082
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,775,561) (2,470,598) (1,557,629)
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 501,501 1,189,771 (68,957)
Net deposits acquired 36,297
Net increase in federal funds purchased and
securities sold under agreements to repurchase 337,980 1,353,171 790,607
Net increase (decrease) in other short-term borrowings 972,474 295,281 (116,571)
Proceeds from issuance of notes payable 789,436 176,986 1,246,237
Payment of notes payable (246,701) (319,307) (932,853)
Payment of senior debentures (30,000)
Proceeds from issuance of Capital Securities 150,000
Dividends paid (87,012) (72,021) (59,037)
Proceeds from issuance of common stock 9,387 7,433 4,642
Treasury stock acquired (54,205) (39,559)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,222,860 2,667,611 944,509
- ---------------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and due from banks (4,011) 204,556 (29,217)
Cash and due from banks at beginning of year 667,707 463,151 492,368
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 663,696 $ 667,707 $ 463,151
=================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-32
<PAGE> 58
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCK:
Balance at beginning and end of year $ 100,000 $ 100,000 $ 100,000
- ---------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK:
Balance at beginning of year 825,690 412,029 396,531
Transfer from surplus resulting from stock split 412,426
Common stock issued in acquisitions 14,774
Common stock issued under Dividend
Reinvestment Plan 1,972 1,235 724
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 827,662 825,690 412,029
- ---------------------------------------------------------------------------------------------------------------------------------
SURPLUS:
Balance at beginning of year 216,795 602,023 496,582
Common stock issued under
Dividend Reinvestment Plan 7,415 6,198 3,918
Transfer to common stock resulting from
stock split (412,426)
Treasury stock issued for acquisition 15,645
Common stock issued in acquisitions 81,523
Transfer from retained earnings 4,000 21,000 20,000
=================================================================================================================================
Balance at end of year 243,855 216,795 602,023
- ---------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS:
Balance at beginning of year 530,481 395,253 267,719
Net income 257,558 232,348 209,565
Cash dividends declared on common stock (81,388) (67,770) (53,681)
Cash dividends declared on preferred stock (8,350) (8,350) (8,350)
Transfer to surplus (4,000) (21,000) (20,000)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 694,301 530,481 395,253
- ---------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME:
Balance at beginning of year 75,706 33,346 1,700
Other comprehensive (loss) income, net of taxes (216,415) 42,360 31,646
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (140,709) 75,706 33,346
- ---------------------------------------------------------------------------------------------------------------------------------
TREASURY STOCK - AT COST (64,123) (39,559) (39,559)
- ---------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity $ 1,660,986 $1,709,113 $1,503,092
=================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-33
<PAGE> 59
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 257,558 $ 232,348 $ 209,565
- ---------------------------------------------------------------------------------------------------------------------------------
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment (1,050) (215)
Unrealized (losses) gains on securities:
Unrealized holding (losses) gains arising during the period,
net of tax of ($61,064) (1998 - $15,721; 1997 - $10,337) (215,140) 49,826 33,267
Less: reclassification adjustment for gains or losses included
in net income, net of tax of $106 (1998 - $1,727; 1997 - $647) 225 7,251 1,621
- ---------------------------------------------------------------------------------------------------------------------------------
Total other comprehensive (loss) income (216,415) 42,360 31,646
- ---------------------------------------------------------------------------------------------------------------------------------
Comprehensive income, net of taxes $ 41,143 $ 274,708 $ 241,211
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
DISCLOSURE OF ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME:
Year ended December 31,
------------------------------------------------
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign currency translation adjustment $ (1,265) $ (215)
Unrealized (losses) gains on securities (139,444) 75,921 $ 33,346
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive (loss) income $ (140,709) $ 75,706 $ 33,346
=================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-34
<PAGE> 60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting and reporting policies of Popular, Inc. and its subsidiaries (the
Corporation) conform with generally accepted accounting principles and with
general practices within the financial industry. The following is a description
of the more significant of these policies:
Nature of operations
Popular, Inc. is a bank holding company offering a full range of financial
services through banking offices in Puerto Rico, the U.S. and British Virgin
Islands, New York, Illinois, New Jersey, Florida, California and Texas. The
Corporation is also the principal shareholder of Banco Fiduciario (BF) 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 ATM processing services through its non-banking
subsidiaries in Puerto Rico, the United States and Costa Rica. Also, effective
July 1, 1999, the Corporation acquired GM Group, a leading company in
information technology and data processing in Puerto Rico and the Caribbean with
offices in San Juan, Caracas, Santo Domingo and Miami, servicing customers in 10
countries in America. Note 27 to the consolidated financial statements presents
further information on the nature of operations of the Corporation by business
segments.
The consolidated financial statements include the accounts of Popular, Inc. and
its subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation.
Acquisitions
For the three-year period ended December 31, 1999, the Corporation completed the
following acquisitions:
<TABLE>
<CAPTION>
(Dollars in millions)
- ---------------------------------------------------------------------------------
Consi- Assets
Date Entity deration Acquired Business
=================================================================================
<S> <C> <C> <C> <C>
Aug./99 Newco Mortgage 100% cash $ 7* Mortgage
Holding Corporation Banking
(d/b/a Levitt Mortgage)
(Puerto Rico)
Jul./99 GM Group 100% stock $ 69 Technology
(Puerto Rico) Services
Apr./99 Telemex, Inc. 100% cash $1.5 Retail
(Arizona) Financial
Services
Feb./99 Valley Check 100% cash $1.9 Retail
Cashers, Inc. Financial
(California) Services
Jan./99 Houston Check 100% cash $2.5 Retail
Cashers, Inc. Financial
(Texas) Services
Oct./98 Inglewood 100% cash $ 11 Retail
Quik Check, Inc. Financial
(California) Services
Oct./98 Gore-Bronson
Bancorp 100% cash $281 Banking
(Illinois)
Oct./98 First State Bank
of Southern
California 100% cash $194 Banking
(California)
Sep./98 Banco Fiduciario 100% cash $496* Banking
(Dominican
Republic)
Apr./98 Mirando J. Corp./ 100% cash $ 6 Retail
Florida Exchange Financial
Ltd. (Florida) Services
Dec./97 Houston Ban-
corporation 100% cash $ 63 Banking
(Texas)
Jun./97 Roig Commercial 50% cash and
Bank 50% stock $791 Banking
(Puerto Rico)
May/97 National Bancorp,
Inc. 100% stock $189 Banking
(Illinois)
May/97 CBC Bancorp 100% cash $325 Banking
(Illinois)
Apr./97 Seminole National
Bank 100% cash $ 34 Banking
(Florida)
</TABLE>
* Popular, Inc. is the principal shareholder of Banco Fiduciario (BF) and Levitt
Mortgage, Inc. with a 57% and 85% ownership interest, respectively, at December
31, 1999. Both are presented as consolidated subsidiaries of the Corporation.
All of the above acquisitions were accounted for as purchases and their
results included in the consolidated statements of income from the date of
acquisition.
Reorganization
During 1999 the Corporation reorganized its U.S. operations. The Corporation's
banking subsidiaries in California, Florida, New Jersey and Illinois, and the
Banco Popular branches in New York were merged with and into one bank named
Banco
F-35
<PAGE> 61
Popular North America (BPNA). Banco Popular, N.A. (Texas) was subsequently
merged into Banco Popular North America effective January 1, 2000.
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Trading securities
Financial instruments, including, to a limited extent, derivatives such as
interest rate futures and options contracts, are utilized by the Corporation in
trading activities and are carried at market value. Realized and unrealized
changes in market values are recorded separately in the trading profit or loss
account in the period in which the changes occur. Interest revenue and expense
arising from trading instruments are included in the income statement as part of
net interest income rather than in the trading profit or loss account.
Securities sold but not yet purchased, which represent the
Corporation's obligation to deliver securities sold which were not owned at the
time of sale, are recorded at market value.
Investment securities
Investment securities are classified in three categories and accounted for as
follows:
- Debt securities that the Corporation has the positive intent
and ability to hold to maturity are classified as securities
held-to-maturity and reported at amortized cost. The
Corporation may not sell or transfer held-to-maturity
securities without calling into question its intent to hold
other debt securities to maturity, unless a nonrecurring or
unusual event that could not have been reasonably anticipated
has occurred. Stock that is owned by the Corporation to comply
with regulatory requirements, such as Federal Reserve Bank and
Federal Home Loan Bank stock, is also included in this
category.
- Debt and equity securities that are bought and held
principally for the purpose of selling them in the near term
are classified as trading securities and reported at fair
value, with unrealized gains and losses included in earnings.
- Debt and equity securities not classified as either securities
held-to-maturity or trading securities are classified as
securities available-for-sale and reported at fair value, with
unrealized gains and losses excluded from earnings and
reported net of deferred taxes in other comprehensive income.
The amortization of premiums is deducted and the accretion of discounts
is added to interest income based on the interest method over the outstanding
period of the related securities. Net realized gains or losses on sales of
investment securities and unrealized loss valuation adjustments considered other
than temporary, if any, on securities available-for-sale and held-to maturity
are reported separately in the statement of income.
Risk management instruments
The Corporation occasionally uses derivative financial instruments, such as
interest rate caps and swaps, in the management of its interest rate exposure.
These instruments are accounted for primarily on an accrual basis. Under the
accrual method, interest income or expense on the derivative contract is accrued
and there is no recognition of unrealized gains and losses on the derivative
instrument. Premiums on option contracts are amortized to interest income or
interest expense over the life of such contracts. Income and expenses arising
from the instruments are recorded in the category appropriate to the related
asset or liability.
Gains and losses related to contracts that are effective hedges are
deferred and recognized in income in the same period as gains and losses on the
hedged item. Gains and losses on early termination of contracts that modify the
characteristics of specified assets or liabilities are deferred and amortized as
an adjustment to the yield of the related assets or liabilities over their
remaining terms.
Loans held-for-sale
Loans held-for-sale are stated at the lower of cost or market, cost being
determined based on the outstanding loan balance less unearned income, and fair
market value determined on an aggregate basis according to secondary market
prices. The amount by which cost exceeds market value, if any, is accounted for
as a valuation allowance with changes included in the determination of net
income for the period in which the change occurs.
Loans
Loans are stated at the outstanding balance less unearned income and allowance
for loan losses. Fees collected and costs incurred in the origination of new
loans are deferred and amortized using the interest method over the term of the
loan as an adjustment to interest yield. Unearned interest on lease financing
and installment loans is recognized as income on a
F-36
<PAGE> 62
basis which results in approximate level rates of return over the term of the
loans.
Recognition of interest income on commercial and construction loans is
discontinued when loans are 60 days or more in arrears on payments of principal
or interest or when other factors indicate that collection of principal and
interest is doubtful. Interest accrual for lease financing, conventional
mortgage loans and close-end consumer loans is ceased when loans are 90 days or
more in arrears. Loans designated as non-accruing are not returned to an accrual
status until interest is received on a current basis and those factors
indicative of doubtful collection cease to exist. Close-end consumer loans and
leases are charged-off against the allowance for loan losses when 120 days in
arrears. Open-end (revolving credit) consumer loans are charged-off when 180
days in arrears. Income is generally recognized on open-end consumer loans until
the loans are charged-off.
Lease financing
The Corporation leases passenger and commercial vehicles and equipment to
individual and corporate customers. The finance method of accounting is used to
recognize revenue on lease contracts that meet the criteria specified in
Statement of Financial Accounting Standards (SFAS) 13, "Accounting for Leases",
as amended. Aggregate rentals due over the term of the leases less unearned
income are included in finance lease contracts receivable. Unearned income is
amortized using a method which results in approximate level rates of return on
the principal amounts outstanding. Finance lease origination fees and costs are
deferred and amortized over the average life of the portfolio as an adjustment
to the yield.
All other leases are accounted for under the operating method. Under
this method, revenue is recognized as it becomes due under the terms of the
agreement.
Allowance for loan losses
The Corporation follows a systematic methodology to establish and evaluate the
adequacy of the allowance for loan losses to provide for inherent losses in the
loan portfolio as well as in other credit-related financial instruments. This
methodology includes the consideration of factors such as economic conditions,
portfolio risk characteristics, prior loss experience, results of periodic
credit reviews of individual loans and financial accounting standards. The
provision for loan losses charged to current operations is based on such
methodology. Loan losses are charged and recoveries are credited to the
allowance for loan losses.
The Corporation has defined impaired loans as all loans with interest
and/or principal past due 90 days or more and other specific loans for which,
based on current information and events, it is probable that the debtor will be
unable to pay all amounts due according to the contractual terms of the loan
agreement. Loan impairment is measured based on the present value of expected
future cash flows discounted at the loan's effective rate, on the observable
market price 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. Once
a specific measurement methodology is chosen it is consistently applied unless
there is a significant change in the financial position of the borrower.
Impaired loans for which the discounted cash flows, collateral value or market
price equals or exceeds its carrying value do not require an allowance. The
allowance for impaired loans is part of the Corporation's overall allowance for
loan losses.
Cash payments received on impaired loans are recorded in accordance
with the contractual terms of the loan. The principal portion of the payment is
used to reduce the principal balance of the loan, whereas the interest portion
is recognized as interest income. However, when management believes the ultimate
collectibility of principal is in doubt, the interest portion is then applied to
principal.
Servicing assets
Servicing rights, an intangible asset, represents the cost of acquiring the
contractual right to service loans for others. Loan servicing fees, which are
based on a percentage of the principal balances of the loans serviced, are
credited to income as loan payments are collected.
The Corporation recognizes as separate assets the rights to service
loans for others, whether those servicing rights are originated or purchased.
The total cost of loans to be sold with servicing rights retained is allocated
to the servicing rights and the loans (without the servicing rights), based on
their relative fair values. Servicing rights are amortized in proportion to and
over the period of estimated net servicing income. In addition, the Corporation
assesses capitalized servicing rights for impairment based on the fair value of
those rights.
To estimate the fair value of servicing rights the Corporation
considers prices for similar assets and the present value of expected future
cash flows associated with the servicing rights calculated using assumptions
that market participants would use in estimating future servicing income and
expense. For purposes of evaluating and measuring impairment of capitalized
servicing rights, the Corporation stratifies such rights based on predominant
risk characteristics of underlying loans, such as loan type, rate and term. The
amount of impairment recognized, if any, is the amount by which the capitalized
servicing rights per stratum exceed its estimated fair value. Impairment is
recognized through a valuation allowance.
F-37
<PAGE> 63
Total loans serviced for others were $4,007,345,000 at December 31,
1999 (1998 - $3,674,092,000). The carrying value, estimated fair value and
valuation allowance of capitalized servicing rights were $33,852,000,
$45,273,000 and $14,000, respectively, at December 31, 1999 (1998 - $29,667,000,
$36,210,000 and $11,000).
Premises and equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed on a straight-line basis over the
estimated useful life of each type of asset. Amortization of leasehold
improvements is computed over the terms of the respective leases or the
estimated useful lives of the improvements, whichever is shorter. Costs of
maintenance and repairs which do not improve or extend the life of the
respective assets are expensed as incurred. Costs of renewals and betterments
are capitalized. When assets are disposed of, their cost and related accumulated
depreciation are removed from the accounts and any gain or loss is reflected in
earnings as realized or incurred, respectively.
The Corporation evaluates for impairment its long-lived assets, certain
identifiable intangibles and goodwill related to those assets to be held and
used, and long-lived assets to be disposed of, whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
Other real estate
Other real estate comprises properties acquired through foreclosure. Upon
foreclosure, the recorded amount of the loan is written-down, if required, to
the appraised value less estimated costs of disposal of the real estate
acquired, by charging the allowance for loan losses. Subsequent to foreclosure,
the properties are carried at the lower of carrying value or fair value less
estimated costs of disposal. Gains or losses on the sale of these properties are
credited or charged to expense of operating other real estate. The cost of
maintaining and operating such properties is expensed as incurred.
Intangible assets
Intangible assets consist of goodwill and other identifiable intangible assets,
mainly core deposits and servicing rights. The values of core deposits and
credit customer relationships are amortized using various methods over the
periods benefited, which range from 4 to 10 years. Goodwill represents the
excess of the Corporation's cost of purchased operations over the fair value of
the net assets acquired and is amortized on the straight-line basis over periods
ranging from 7 to 15 years.
Securities sold/purchased under agreements to repurchase/resale
Repurchase and resale agreements are treated as financing transactions and are
carried at the amounts at which the securities will be reacquired or resold as
specified in the respective agreements.
It is the Corporation's policy to take possession of securities
purchased under resale agreements. However, the counterparties to such
agreements maintain effective control over such securities, accordingly, are not
reflected in the Corporation's statement of condition. The Corporation monitors
the market value of the underlying securities as compared to the related
receivable, including accrued interest, and requests additional collateral where
deemed appropriate.
It is the Corporation's policy to maintain effective control over
securities sold under agreements to repurchase, accordingly, such securities
continue to be carried on the statements of condition.
Foreign currency translation
Assets and liabilities denominated in foreign currencies are translated to U.S.
dollars using prevailing rates of exchange. Revenues, expenses, gains and losses
are translated using weighted average rates for the period. The resulting
foreign currency translation adjustment from operations for which the functional
currency is other than the U.S. dollar, is reported in other comprehensive
income.
Income taxes
The Corporation uses an asset and liability approach to the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been recognized in the Corporation's financial statements or
tax returns. Deferred income tax assets and liabilities are determined for
differences between financial statement and tax bases of assets and liabilities
that will result in taxable or deductible amounts in the future. The computation
is based on enacted tax laws and rates applicable to periods in which the
temporary differences are expected to be recovered or settled. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized.
Employees' retirement and other postretirement benefit plans
Banco Popular de Puerto Rico (BPPR) and BPNA have trusteed, noncontributory
retirement and other benefit plans covering substantially all full-time
employees. Pension costs are computed on the basis of accepted actuarial methods
and are charged to current operations. Net pension costs are based on various
actuarial assumptions regarding future experience under the plan, which include
costs for services rendered during the period, interest costs and return on plan
assets, as
F-38
<PAGE> 64
well as deferral and amortization of certain items such as actuarial gains or
losses. The funding policy is to contribute to the plan as necessary to provide
for services to date and for those expected to be earned in the future. To the
extent that these requirements are fully covered by assets in the plan, a
contribution may not be made in a particular year.
BPPR also provides certain health and life insurance benefits for
eligible retirees and their dependents. The cost of postretirement benefits,
which is determined based on actuarial assumptions and estimates of the costs of
providing these benefits in the future, is accrued during the years that the
employee renders the required service.
Stock compensation
BPPR provides a stock-based compensation plan for its Senior Management. It is a
three-year incentive plan under which shares of stock of the Corporation are
granted if long-term corporate performance and objectives are met. Compensation
cost is determined based on the market value of the stock. The compensation
expense related to each award is recognized when probable, based on the best
estimate of the outcome of the performance condition.
Transfers and servicing of financial assets and extinguishment of liabilities
In January 1997, the Corporation adopted, SFAS 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities." Certain
provisions related with repurchase agreements, dollar-roll, securities lending,
and similar transactions, which were delayed by SFAS 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125," were adopted in
January 1998. Under these standards, after a transfer of financial assets, the
Corporation recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. The adoption of
these statements did not have a material effect on the consolidated financial
statements of the Corporation.
Earnings per common share
Earnings per common share are computed by dividing net income, reduced by
dividends on preferred stock, by the weighted average number of common shares of
the Corporation outstanding during the year. No dilutive potential common shares
were outstanding during the years ended December 31, 1999, 1998 and 1997.
Accordingly, there is no difference between basic and diluted earnings per
share.
Comprehensive income
Effective January 1, 1998, the Corporation adopted SFAS 130, "Reporting
Comprehensive Income." Comprehensive income is defined as the change in equity
of a business enterprise during a period from transactions and other events and
circumstances, except those resulting from investments by owners and
distributions to owners. The presentation of comprehensive income required by
this statement is included in a separate statement of comprehensive income.
Disclosure about segments of an enterprise and related information
In 1998, the Corporation adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Note 27 includes the required
disclosure of selected information about operating segments, products and
services, and geographic areas.
Accounting for Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise
In 1999, the Corporation adopted SFAS 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise." This statement requires that an entity engaged
in mortgage banking activities classify the mortgage-backed securities or other
retained interests resulting from the securitization of mortgage loans
held-for-sale, based on its ability and intent to sell or hold those
investments, in accordance with SFAS 115. During 1999, the Corporation
reclassified $150,740,000 in securities held for trading to the
available-for-sale and held-to-maturity categories based on the adoption
provisions of SFAS 134.
Statement of cash flows
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand and amounts due from banks.
Reclassifications
Certain minor reclassifications have been made to the 1998 and 1997 consolidated
financial statements to conform with the 1999 presentation.
F-39
<PAGE> 65
Recently issued accounting pronouncements and regulations
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires recognition of all
derivatives as either assets or liabilities in the statement of condition
measured at fair value. It also establishes unique accounting treatment for the
following three different types of hedges: fair value hedges, cash flow hedges
and foreign currency hedges. The accounting for each of the three types of
hedges results in recognizing offsetting changes in value or cash flows of both
the derivative instrument and the hedged item in earnings in the same period.
Changes in the fair value of derivatives that do not meet the criteria of one of
these three types of hedges are included in earnings in the period of change.
The 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.
Uniform Retail Credit Classification and Account Management Policy
On February 10, 1999, the Federal Financial Institutions Examination Council
(FFIEC) issued a revised Uniform Retail Credit Classification and Account
Management Policy. This policy statement updates and expands the classification
policy for retail credit loans that was first issued in 1980. The policy retains
and clarifies a requirement to charge-off all open-end loans, such as credit
card loans, which are 180 days or more past due. Close-end loans, such as
installment loans, should be charged-off after they are 120 days delinquent. In
addition, based on the revised policy, unsecured retail loans to borrowers who
declare bankruptcy should generally be charged-off within 60 days of receipt of
notification of filing from the bankruptcy court, or within the charge-off time
frames adopted in the classification policy, whichever is shorter. Also, the
revised policy details criteria that should be met before banks may consider a
delinquent open-end loan current, such as the process of account reaging,
extension and deferral. Changes in the policies and practices should be
implemented by December 31, 2000. Management understands that the adoption of
these revisions will not have a material effect on the consolidated financial
statements of the Corporation.
NOTE 2 - CASH AND DUE FROM BANKS:
The Corporation's subsidiary banks are required by regulatory agencies to
maintain average reserve balances. The amount of those average reserve balances
was approximately $531,324,000 at December 31, 1999 (1998 - $464,838,000).
NOTE 3 - INVESTMENT SECURITIES AVAILABLE-FOR-SALE:
The amortized cost, gross unrealized gains and losses, approximate market value
(or fair value for certain investment securities where no market quotations are
available), weighted average yield and contractual maturities of investment
securities available-for-sale as of December 31, 1999 and 1998 (1997 - only
market value is presented) were as follows:
F-40
<PAGE> 66
<TABLE>
<CAPTION>
1999
- ----------------------------------------------------------------------------------------------------------
Weighted
Amortized Unrealized Unrealized Market average
cost gains losses value yield
- ----------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities
(average maturity of
1 year and 7 months):
Within 1 year $ 621,487 $ 985 $ 620,502 5.34%
After 1 to 5 years 1,396,617 12,942 1,383,675 5.69
- ------------------------------------------------------------------------------------------------------------
2,018,104 13,927 2,004,177 5.58
- ------------------------------------------------------------------------------------------------------------
Obligations of other
U.S. Government
agencies and corporations
(average maturity of
5 years and 3 months):
Within 1 year 733,917 $ 9 720 733,206 5.62
After 1 to 5 years 1,026,476 13,963 1,012,513 5.57
After 5 to 10 years 1,456,566 102,571 1,353,995 6.19
After 10 years 300,000 32,312 267,688 6.40
- ------------------------------------------------------------------------------------------------------------
3,516,959 9 149,566 3,367,402 5.91
- ------------------------------------------------------------------------------------------------------------
Obligations of P.R.,
States and political
subdivisions (average
maturity of 10 years):
Within 1 year 2,485 3 2,488 5.14
After 1 to 5 years 13,349 33 98 13,284 5.75
After 5 to 10 years 29,741 248 393 29,596 5.96
After 10 years 30,137 750 337 30,550 5.91
- ------------------------------------------------------------------------------------------------------------
75,712 1,034 828 75,918 5.88
- ------------------------------------------------------------------------------------------------------------
Collateralized mort-
gage obligations
(average maturity
of 23 years and 2 months):
Within 1 year 6,878 3 6,881 6.83
After 1 to 5 years 35,492 29 35,463 6.80
After 5 to 10 years 91,848 61 1,397 90,512 6.36
After 10 years 1,089,877 243 26,914 1,063,206 6.65
- ------------------------------------------------------------------------------------------------------------
1,224,095 307 28,340 1,196,062 6.63
- ------------------------------------------------------------------------------------------------------------
Mortgage-backed
securities
(average maturity
of 24 years and 5 months):
Within 1 year 36 36 9.80
After 1 to 5 years 23,447 704 22,743 5.54
After 5 to 10 years 28,935 190 444 28,681 6.81
After 10 years 431,622 7,888 1,809 437,701 6.71
- ------------------------------------------------------------------------------------------------------------
484,040 8,078 2,957 489,161 6.66
- ------------------------------------------------------------------------------------------------------------
Equity securities
(without contractual
maturity) 126,430 15,405 54 141,781 0.58
- ------------------------------------------------------------------------------------------------------------
Other (average maturity
of 7 years and 9 months):
Within 1 year 894 894 14.00
After 1 to 5 years 9,901 2,186 7,715 3.01
After 5 to 10 years 5,131 183 4,948 6.35
After 10 years 28,176 5 3,279 24,902 5.05
Without contractual
maturity 10,945 1,045 11,990 3.57
- ------------------------------------------------------------------------------------------------------------
55,047 1,050 5,648 50,449 4.66
- ------------------------------------------------------------------------------------------------------------
$7,500,387 $ 25,883 $ 201,320 $ 7,324,950 5.89%
============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------------------------------------------
Weighted
Amortized Unrealized Unrealized Market average Market
cost gains losses value yield value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
U.S. Treasury securities
(average maturity of
1 year and 4 months):
Within 1 year $1,885,916 $ 9,888 $1,895,804 6.17% $ 362,502
After 1 to 5 years 1,229,208 33,431 $ 11 1,262,628 5.73 2,765,854
- --------------------------------------------------------------------------------------------------------------------
3,115,124 43,319 11 3,158,432 6.00 3,128,356
- --------------------------------------------------------------------------------------------------------------------
Obligations of other
U.S. Government
agencies and corporations
(average maturity of
7 years and 7 months):
Within 1 year 149,046 704 149,750 6.27 198,981
After 1 to 5 years 480,042 3,271 103 483,210 5.53 307,645
After 5 to 10 years 1,114,443 9,050 6,356 1,117,137 6.26 299,864
After 10 years 300,000 2,651 302,651 6.40
- --------------------------------------------------------------------------------------------------------------------
2,043,531 15,676 6,459 2,052,748 6.11 806,490
- --------------------------------------------------------------------------------------------------------------------
Obligations of P.R.,
States and political
subdivisions (average
maturity of 9 years and
5 months):
Within 1 year 4,483 241 4,724 6.36 9,823
After 1 to 5 years 13,272 298 13,570 5.43 7,556
After 5 to 10 years 21,612 929 3 22,538 5.64 18,210
After 10 years 29,379 645 33 29,991 6.64 25,549
- --------------------------------------------------------------------------------------------------------------------
68,746 2,113 36 70,823 6.07 61,138
- --------------------------------------------------------------------------------------------------------------------
Collateralized mort-
gage obligations
(average maturity of
25 years):
Within 1 year 7,831 7 7,838 5.97
After 1 to 5 years 28,998 13 90 28,921 5.47 40,619
After 5 to 10 years 185,782 278 24 186,036 6.18 55,654
After 10 years 984,195 2,160 729 985,626 6.18 703,925
- --------------------------------------------------------------------------------------------------------------------
1,206,806 2,458 843 1,208,421 6.16 800,198
- --------------------------------------------------------------------------------------------------------------------
Mortgage-backed
securities (average
maturity of 22 years
and 1 month):
Within 1 year 72 8 80 6.37 80,075
After 1 to 5 years 27,835 6 11 27,830 5.55 6,768
After 5 to 10 years 22,719 315 124 22,910 6.40 12,134
After 10 years 286,540 8,554 64 295,030 6.77 300,794
- --------------------------------------------------------------------------------------------------------------------
337,166 8,883 199 345,850 6.64 399,771
- --------------------------------------------------------------------------------------------------------------------
Equity securities
(without contractual
maturity) 27,688 36,241 63,929 3.96 39,196
- --------------------------------------------------------------------------------------------------------------------
Other (average maturity
of 2 years and 2 months):
Within 1 year 94,696 94,696 5.52
After 1 to 5 years 2,458 5 2,463 7.66
After 5 to 10 years 5,169 64 209 5,024 7.21 2,887
After 10 years 14,143 93 14,236 7.26 969
Without contractual
maturity 3,774 3,774 9.55
- --------------------------------------------------------------------------------------------------------------------
120,240 162 209 120,193 5.97 3,856
- --------------------------------------------------------------------------------------------------------------------
$6,919,301 $108,852 $ 7,757 $7,020,396 6.08% $5,239,005
====================================================================================================================
</TABLE>
F-41
<PAGE> 67
The weighted average yield on investment securities available-for-sale is
based on amortized cost, therefore it does not give effect to changes in fair
value.
The expected maturity of collateralized mortgage obligations, mortgage-backed
securities and certain other securities differs from their contractual
maturities because they may be subject to prepayments.
The aggregate amortized cost and approximate market value of investment
securities available-for-sale at December 31, 1999, by contractual maturity are
shown below:
<TABLE>
<CAPTION>
(In thousands) Amortized cost Market value
- --------------------------------------------------------------------------------
<S> <C> <C>
Within 1 year $1,365,697 $1,364,007
After 1 to 5 years 2,505,282 2,475,393
After 5 to 10 years 1,612,221 1,507,732
After 10 years 1,879,812 1,824,047
- --------------------------------------------------------------------------------
Total 7,363,012 7,171,179
Without contractual maturity 137,375 153,771
- --------------------------------------------------------------------------------
Total investment securities
available-for-sale $7,500,387 $7,324,950
================================================================================
</TABLE>
Proceeds from the sale of investment securities available-for-sale during
1999 were $168,337,000 (1998 - $923,409,000; 1997 - $5,212,194,000). Gross
realized gains and losses on those sales during the year were $978,000 and
$340,000, respectively (1998 - $9,190,000 and $257,000; 1997 - $6,266,000 and
$3,998,000). The basis on which cost was determined in computing the realized
gains and losses was the specific identification method.
NOTE 4 - INVESTMENT SECURITIES HELD-TO-MATURITY:
The amortized cost, gross unrealized gains and losses, approximate market value
(or fair value for certain investment securities where no market quotations are
available), weighted average yield and contractual maturities of investment
securities held-to-maturity as of December 31, 1999 and 1998 (1997 - only
amortized cost is presented) were as follows:
<TABLE>
<CAPTION>
1999
- -------------------------------------------------------------------------------------------------
Weighted
Amortized Unrealized Unrealized Market average
cost gains losses value yield
- -------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Obligations of P.R.,
States and political
subdivisions
(average maturity
of 7 years and
4 months):
Within 1 year $ 4,067 $ 3 $ 11 $ 4,059 6.31%
After 1 to 5 years 15,199 299 47 15,451 7.76
After 5 to 10 years 5,289 136 108 5,317 6.73
After 10 years 34,224 68 397 33,895 7.15
- -------------------------------------------------------------------------------------------------
58,779 506 563 58,722 7.21
- -------------------------------------------------------------------------------------------------
Collateralized mort-
gage obligations
(average maturity
of 12 years and
4 months):
After 1 to 5 years 9,586 45 9,631 7.27
After 10 years 9,344 19 70 9,293 7.04
- -------------------------------------------------------------------------------------------------
18,930 64 70 18,924 7.16
- -------------------------------------------------------------------------------------------------
Mortgage-backed
securities (average maturity
of 9 years and 5 months):
After 5 to 10 years 21,298 161 21,459 7.34
After 10 years 2,461 2,461 6.75
- -------------------------------------------------------------------------------------------------
23,759 161 23,920 7.28
- -------------------------------------------------------------------------------------------------
Equity securities
(without contractual
maturity held for
regulatory purposes) 89,445 89,445 6.19
- -------------------------------------------------------------------------------------------------
Other
(average maturity of
4 years and 3 months):
Within 1 year 6,008 15 5,993 5.67
After 1 to 5 years 58,518 1,820 56,698 5.13
After 5 to 10 years 43,873 2,500 41,373 5.41
- -------------------------------------------------------------------------------------------------
108,399 4,335 104,064 5.27
- -------------------------------------------------------------------------------------------------
$299,312 $ 731 $ 4,968 $295,075 6.21%
=================================================================================================
</TABLE>
F-42
<PAGE> 68
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------------------------------
Weighted Amortized
Amortized Unrealized Unrealized Market average yield
cost gains losses value cost
- --------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Obligations of
other U.S.
Government
agencies and
corporations
(average maturity
of 3 months):
Within 1 year $ 4,943 $ 4,943 4.98% $156,422
- --------------------------------------------------------------------------------------------------------
4,943 4,943 4.98 156,422
- --------------------------------------------------------------------------------------------------------
Obligations of P.R.,
States and political
subdivisions (average
maturity of 5
years and
4 months):
Within 1 year 21,265 $ 83 21,348 3.89 8,455
After 1 to 5 years 11,666 822 12,488 7.79 17,726
After 5 to 10 years 3,941 127 4,068 7.51 11,465
After 10 years 11,375 201 11,576 9.07 15,280
- --------------------------------------------------------------------------------------------------------
48,247 1,233 49,480 6.35 52,926
- --------------------------------------------------------------------------------------------------------
Collateralized
mortgage obliga-
tions (average
maturity of
10 years):
After 1 to 5 years 13,932 97 14,029 6.33 19,384
After 5 to 10 years 2,868 $ 11 2,857 5.00 4,445
After 10 years 13,301 40 3 13,338 6.24 39,849
- --------------------------------------------------------------------------------------------------------
30,101 137 14 30,224 6.16 63,678
- --------------------------------------------------------------------------------------------------------
Mortgage-backed
securities (average
maturity of 11 years
and 4 months):
After 5 to 10 years 9,743 202 9,945 7.54 48
After 10 years 23,231 363 26 23,568 7.31 45,947
- --------------------------------------------------------------------------------------------------------
32,974 565 26 33,513 7.38 45,995
- --------------------------------------------------------------------------------------------------------
Equity securities
(without contractual
maturity held for re-
gulatory purposes) 76,979 76,979 6.31 70,771
- --------------------------------------------------------------------------------------------------------
Other (average
maturity of 6 years
and 3 months):
Within 1 year 9,045 9,045 3.56 3,150
After 1 to 5 years 7,972 7,972 8.14 5,645
After 5 to 10 years 4,656 10 4,666 7.82 4,229
After 10 years 11,217 11,217 7.80 6,177
- --------------------------------------------------------------------------------------------------------
32,890 10 32,900 6.72 19,201
- --------------------------------------------------------------------------------------------------------
$226,134 $ 1,945 $ 40 $228,039 6.49% $408,993
========================================================================================================
</TABLE>
The expected maturity of collateralized mortgage obligations, mortgage-backed
securities and certain other securities differs from their contractual
maturities because they may be subject to prepayments.
The aggregate amortized cost and approximate market value of investment
securities held-to-maturity at December 31, 1999, by contractual maturity are
shown below:
<TABLE>
<CAPTION>
(In thousands) Amortized cost Market value
- --------------------------------------------------------------------------------
<S> <C> <C>
Within 1 year $ 10,075 $ 10,052
After 1 to 5 years 83,303 81,780
After 5 to 10 years 70,460 68,149
After 10 years 46,029 45,649
- --------------------------------------------------------------------------------
Total 209,867 205,630
Without contractual maturity 89,445 89,445
- --------------------------------------------------------------------------------
Total investment securities
held-to-maturity $299,312 $295,075
================================================================================
</TABLE>
During 1999, investment securities held-to-maturity with an amortized cost of
$1,410,000 were called by the issuer. Proceeds from the sale of those securities
were $1,435,000. Gains realized on these transactions were $25,000.
As of December 31, 1999 and 1998, the investments in obligations that are
payable from and secured by the same source of revenue or taxing authority,
other than the U.S. government, did not exceed 10 percent of stockholders'
equity.
NOTE 5 - PLEDGED ASSETS:
At December 31, 1999, investment securities and loans amounting to
$6,319,366,000 (1998 - $5,078,009,000) were pledged to secure public and trust
deposits and securities and mortgages sold under agreements to repurchase.
F-43
<PAGE> 69
NOTE 6 - LOANS AND ALLOWANCE FOR LOAN LOSSES:
The composition of the loan portfolio at December 31, was as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Loans secured by real estate:
Insured or guaranteed by the U.S.
Government or its agencies $ 79,926 $ 85,350
Guaranteed by the Commonwealth
of Puerto Rico 49,135 56,296
Commercial loans secured by real estate 1,315,135 1,250,210
Residential conventional mortgages 3,199,873 2,595,578
Construction and land development 257,511 250,572
Consumer 391,597 424,327
- --------------------------------------------------------------------------------
5,293,177 4,662,333
Financial institutions 74,017 69,120
Commercial, industrial and agricultural 5,070,801 4,090,906
Lease financing 882,362 791,356
Consumer for household, credit cards
and other consumer expenditures 3,170,266 2,968,618
Other 168,777 201,276
- --------------------------------------------------------------------------------
$14,659,400 $12,783,609
================================================================================
</TABLE>
As of December 31, 1999, loans on which the accrual of interest income had
been discontinued amounted to $294,847,000 (1998 - $262,604,000; 1997 -
$195,544,000). If these loans had been accruing interest, the additional
interest income realized would have been approximately $20,428,000 (1998 -
$15,258,000; 1997- $11,868,000). In addition, there were $578,000 of
renegotiated loans still accruing interest at December 31, 1998. Non-accruing
loans as of December 31, 1999 include $57,515,000 (1998 - $46,626,000; 1997 -
$30,840,000) in consumer loans.
The recorded investment in loans that were considered impaired at December 31,
and the related disclosures follow:
<TABLE>
<CAPTION>
December 31,
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans with a related allowance $149,803 $140,905
Impaired loans that do not require allowance 30,311 37,213
- --------------------------------------------------------------------------------
Total impaired loans $180,114 $178,118
================================================================================
Allowance for impaired loans $ 51,252 $ 36,191
================================================================================
Impaired loans measured based
on fair value of collateral $ 87,790 $ 83,399
Impaired loans measured based on
discounted cash flows 92,324 94,719
- --------------------------------------------------------------------------------
$180,114 $178,118
================================================================================
Average balance of impaired
loans during the year $175,459 $168,054
================================================================================
Interest income recognized on
impaired loans during the year $ 9,747 $ 6,332
================================================================================
</TABLE>
The changes in the allowance for loan losses for the year ended December 31,
were as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 267,249 $ 211,651 $ 185,574
Reserves acquired 515 31,296 13,237
Provision for loan losses 148,948 137,213 110,607
Recoveries 58,008 51,770 49,823
Loans charged-off (182,710) (164,681) (147,590)
- --------------------------------------------------------------------------------
Balance at end of year $ 292,010 $ 267,249 $ 211,651
================================================================================
</TABLE>
The components of the net financing leases receivable at December 31, were:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Total minimum lease payments $ 727,380 $ 632,669
Estimated residual value of leased property 150,799 155,341
Deferred origination costs 4,183 3,346
Less - Unearned financing income (153,718) (146,076)
- --------------------------------------------------------------------------------
Net minimum lease payments 728,644 645,280
Less - Allowance for loan losses (9,163) (8,312)
- --------------------------------------------------------------------------------
$ 719,481 $ 636,968
================================================================================
</TABLE>
F-44
<PAGE> 70
Estimated residual value is generally established at amounts expected to be
sufficient to cover the Corporation's investment.
At December 31, 1999, future minimum lease payments are expected to be
received as follows:
<TABLE>
<CAPTION>
(In thousands)
- ---------------------------------------------
<S> <C>
2000 $220,428
2001 176,076
2002 149,545
2003 109,177
2004 and thereafter 72,154
- ---------------------------------------------
$727,380
=============================================
</TABLE>
NOTE 7 - RELATED PARTY TRANSACTIONS:
The Corporation grants loans to its directors, executive officers and to certain
related individuals or organizations in the ordinary course of business. The
movement and balance of these loans were as follows:
<TABLE>
<CAPTION>
(In thousands) Officers Directors Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1997 $ 2,605 $ 108,610 $ 111,215
New loans 512 190,951 191,463
Payments (51) (129,635) (129,686)
- --------------------------------------------------------------------------------
Balance at December 31, 1998 3,066 169,926 172,992
New loans 482 331,883 332,365
Payments (475) (302,299) (302,774)
- --------------------------------------------------------------------------------
Balance at December 31, 1999 $ 3,073 $ 199,510 $ 202,583
================================================================================
</TABLE>
These loans have been consummated on terms no more favorable than those that
would have been obtained if the transaction had been with unrelated parties.
NOTE 8 - PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost less accumulated depreciation and
amortization as follows:
<TABLE>
<CAPTION>
Useful life
(In thousands) in years 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 61,265 $ 57,703
- --------------------------------------------------------------------------------
Buildings 15-50 246,060 220,206
Equipment 3-10 424,341 382,687
Leasehold improvements Various 69,746 62,904
- --------------------------------------------------------------------------------
740,147 665,797
Less - Accumulated depreciation
and amortization 380,788 335,426
- --------------------------------------------------------------------------------
359,359 330,371
- --------------------------------------------------------------------------------
Construction in progress 20,347 36,647
- --------------------------------------------------------------------------------
$440,971 $424,721
================================================================================
</TABLE>
Depreciation and amortization of premises and equipment for the year was
$71,320,000 (1998 - $62,649,000; 1997 - $54,523,000) of which $13,285,000 (1998
- - $10,478,000; 1997 - $10,341,000) was charged to occupancy expense and
$58,035,000 (1998 - $52,171,000; 1997 - $44,182,000) was charged to equipment,
communications and other operating expenses. Occupancy expense is net of rental
income of $9,937,000 (1998 - $9,187,000; 1997 - $16,442,000).
NOTE 9- DEPOSITS:
Total interest bearing deposits as of December 31, consisted of:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- -------------------------------------------------------
<S> <C> <C>
Savings deposits:
Savings accounts $ 4,093,788 $ 4,107,990
NOW and money
market accounts 1,650,747 1,678,033
- -------------------------------------------------------
5,744,535 5,786,023
- -------------------------------------------------------
Certificates of deposit:
Under $100,000 2,748,499 2,501,535
$100,000 and over 2,395,732 2,208,347
- -------------------------------------------------------
5,144,231 4,709,882
- -------------------------------------------------------
$10,888,766 $10,495,905
=======================================================
</TABLE>
F-45
<PAGE> 71
A summary of certificates of deposit by maturity as of December 31, 1999,
follows:
<TABLE>
<CAPTION>
(In thousands)
- --------------------------------------------------------------------------------
<S> <C>
2000 $3,698,181
2001 775,611
2002 186,886
2003 92,630
2004 264,234
2005 and thereafter 126,689
- --------------------------------------------------------------------------------
$5,144,231
================================================================================
</TABLE>
NOTE 10 - FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO
REPURCHASE:
The following table summarizes certain information on federal funds
purchased and securities sold under agreements to repurchase as of December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased $ 28,039 $ 918,555 $ 389,040
Securities sold under
agreements to repurchase 4,386,441 3,157,945 2,334,289
- --------------------------------------------------------------------------------
Total amount outstanding $4,414,480 $4,076,500 $2,723,329
================================================================================
Maximum aggregate balance
outstanding at any month-end $4,414,480 $4,076,500 $3,897,110
================================================================================
Average monthly aggregate
balance outstanding $3,831,131 $3,166,436 $2,836,290
================================================================================
Weighted average interest rate:
For the year 5.02% 4.96% 5.01%
At December 31 5.75 4.50 5.51
</TABLE>
The following table presents the liability associated with the repurchase
transactions (including accrued interest), its maturities and weighted average
interest rates. Also, it includes the amortized cost and approximate market
value of the collateral (including accrued interest) as of December 31, 1999 and
1998. The information excludes repurchase transactions which were collateralized
with securities or other assets held for trading purposes or which have been
obtained under reverse repurchase agreements:
<TABLE>
<CAPTION>
1999
- -----------------------------------------------------------------------------
Amortized Market Value Weighted
Repurchase Cost of of average
Liability collateral collateral interest rate
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury
securities
Within 30 days $ 909,376 $ 917,318 $ 911,089 5.62%
After 30 to 90 days 402,264 407,169 404,123 5.39
After 90 days 424,379 435,166 436,836 6.06
- --------------------------------------------------------------------------------
Total 1,736,019 1,759,653 1,752,048 5.67
- --------------------------------------------------------------------------------
Obligations of
other U.S.
Government
agencies and
corporations
Overnight 40,009 40,091 38,336 4.65
Within 30 days 1,067,672 1,131,220 1,068,111 5.75
After 30 to 90 days 196,265 205,454 203,638 5.40
After 90 days 20,264 22,458 22,103 5.10
- --------------------------------------------------------------------------------
Total 1,324,210 1,399,223 1,332,188 5.65
- --------------------------------------------------------------------------------
Mortgage-backed
securities
Within 30 days 39,951 43,151 42,948 5.83
After 30 to 90 days 26,849 29,228 29,027 6.04
- --------------------------------------------------------------------------------
Total 66,800 72,379 71,975 5.91
- --------------------------------------------------------------------------------
Collateralized mortgage
obligations
Overnight 14,328 22,348 22,348 5.20
Within 30 days 200,159 219,717 213,477 5.52
After 30 to 90 days 152,124 173,984 173,408 5.81
After 90 days 49,317 50,776 48,976 5.55
- --------------------------------------------------------------------------------
415,928 466,825 458,209 5.62
- --------------------------------------------------------------------------------
$3,542,957 $3,698,080 $3,614,420 5.66%
================================================================================
</TABLE>
F-46
<PAGE> 72
<TABLE>
<CAPTION>
1998
- --------------------------------------------------------------------------------
Weighted
Repurchase Amortized Cost Market Value average
Liability of collateral of collateral interest rate
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury
securities
Overnight $ 174,613 $ 179,304 $ 184,965 4.88%
Within 30 days 1,054,749 1,042,020 1,058,075 5.04
After 30 to 90 days 12,577 13,300 13,365 4.94
After 90 days 435,983 454,228 456,624 5.65
- --------------------------------------------------------------------------------
Total 1,677,922 1,688,852 1,713,029 5.18
- --------------------------------------------------------------------------------
Obligations of
other U.S.
Government
agencies and
corporations
Overnight 24,838 25,121 25,211 4.44
Within 30 days 610,223 628,723 625,207 5.14
After 30 to 90 days 2,176 2,191 2,196 4.03
After 90 days 20,252 21,137 21,213 4.93
- --------------------------------------------------------------------------------
Total 657,489 677,172 673,827 5.10
- --------------------------------------------------------------------------------
Collateralized
mortgage obligations
Within 30 days 24,084 25,248 25,130 5.17
After 90 days 42,129 44,075 44,093 5.25
- --------------------------------------------------------------------------------
Total 66,213 69,323 69,223 5.22
- --------------------------------------------------------------------------------
$2,401,624 $2,435,347 $2,456,079 5.16%
================================================================================
</TABLE>
NOTE 11 - OTHER SHORT-TERM BORROWINGS:
Other short-term borrowings as of December 31, consisted of:
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Advances under revolving lines of credit
amounting to $1,000,000,000 (1998-$457,395,000)
with fixed interest rates ranging from 5.25% to 5.98%
at December 31, 1999 (1998 - 4.50% to 5.25%) $ 420,500 $ 30,688
Commercial paper at rates ranging from 4.50% to
7.00% (1998 - 4.60% to 5.83%) 257,705 342,232
Term notes paying interest quarterly at floating
interest rates of 0.05% to 0.46% (1998 - 0.125%)
over the 3-month LIBOR rate (3-month LIBOR
rate at December 31, 1999 was 6.00%; 1998 - 5.07%) 241,062 200,000
Term notes paying interest monthly at a fixed rate of
6.25% (1998 - 5.00% to 10.00%) 32,828 31,059
Term notes paying interest semiannually at rates
ranging from 5.50% to 7.72% (1998 - 5.75% to 8.41%) 343,659 185,340
Term funds purchased at rates ranging from 5.15%
to 6.52% (1998 - 5.13% to 5.71%) 1,242,336 789,300
Others 74,299 60,463
- -----------------------------------------------------------------------------------
$2,612,389 $1,639,082
===================================================================================
</TABLE>
The weighted average interest rate of other short-term borrowings at December
31, 1999 was 5.75% (1998 - 6.39%; 1997 - 5.60%). The maximum aggregate balance
outstanding at any month-end was approximately $2,714,549,000 (1998 -
$1,908,541,000; 1997 - $1,985,452,000). The average aggregate balance
outstanding during the year was approximately $2,197,118,000 (1998 -
$1,675,568,000; 1997 - $1,609,035,000). The weighted average interest rate
during the year was 5.69% (1998 - 5.65%; 1997- 5.94%).
F-47
<PAGE> 73
NOTE 12 - NOTES PAYABLE:
Notes payable outstanding at December 31, consisted of the following:
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Term notes with maturities ranging from 2001
through 2008 paying interest semiannually at
fixed rates ranging from 5.63% to 7.43%
(1998 - 5.63% to 7.72%) $1,466,820 $ 883,348
Term notes maturing in 2000 paying interest
quarterly at rates ranging from 0.11%
to 0.46% over the 3-month LIBOR rate and
3-month US Treasury Bill rate in 1998 (LIBOR
and US Treasury Bill rates at December 31, 1998
were 5.07% and 4.37%, respectively) 64,416
Term notes with maturities ranging from 2001
through 2028 paying interest monthly at fixed
rates ranging from 5.01% to 7.62% 97,405 24,437
Promissory notes with maturities ranging from
2001 through 2005 with floating interest rates
ranging from 85% to 94% of the 3-month LIBID
rate (LIBID rate at December 31, 1999 was 5.875%;
1998 - 5.00%) 240,000 260,000
Promissory notes with maturities until 2003 paying
interest at a fixed rate of 6.35% (1998 - 5.50% to 6.35%) 8,400 33,200
Mortgage notes and other debt 39,974 41,759
- ----------------------------------------------------------------------------------------
$1,852,599 $1,307,160
========================================================================================
</TABLE>
NOTE 13 - SUBORDINATED NOTES:
Subordinated notes at December 31, 1999 and 1998, consisted of $125,000,000
issued by the Corporation on December 12, 1995, maturing on December 15, 2005,
with interest payable semiannually at 6.75%. The notes issued by the Corporation
are unsecured obligations which are subordinated in right of payment to the
prior payment in full of all present and future senior indebtedness of the
Corporation. These notes do not provide for any sinking fund.
NOTE 14 - PREFERRED BENEFICIAL INTEREST IN POPULAR NORTH AMERICA'S JUNIOR
SUBORDINATED DEFERRABLE INTEREST DEBENTURES GUARANTEED BY THE CORPORATION:
On February 5, 1997, BanPonce Trust I (BPT), a wholly-owned subsidiary of
Popular North America, issued $150,000,000 of 8.327% Capital Securities Series A
due in 2027. The Capital Securities of BPT are fully and unconditionally
guaranteed by the Corporation. Additionally, the Capital Securities qualify for
inclusion in Tier I capital under the Risk-Based Capital guidelines.
NOTE 15 - LONG-TERM DEBT MATURITY REQUIREMENTS:
The aggregate amounts of maturities of notes payable, capital securities and
subordinated notes were as follows:
<TABLE>
<CAPTION>
Notes Capital Subordinated
Year payable Securities notes Total
- ------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
2001 $ 912,041 $912,041
2002 258,770 258,770
2003 205,626 205,626
2004 407,056 407,056
Later years 69,106 $150,000 $125,000 344,106
- ------------------------------------------------------------------------------
Total $1,852,599 $150,000 $125,000 $2,127,599
- ------------------------------------------------------------------------------
</TABLE>
NOTE 16 - PREFERRED STOCK OF BPPR:
BPPR has 200,000 shares of authorized preferred stock with a par value of $100.
This stock may be issued in series, and the shares of each series shall have
such rights and preferences as shall be fixed by the Board of Directors when
authorizing the issuance of that particular series. At December 31, 1999, there
are no such shares issued or outstanding.
NOTE 17 - STOCKHOLDERS' EQUITY:
The Corporation has 180,000,000 shares of authorized common stock with par value
of $6 per share. At December 31, 1999, there were 137,943,619 (1998 -
137,614,927) shares issued and 135,654,292 shares outstanding (1998 -
135,637,327). On May 8, 1997, the Board of Directors approved a stock repurchase
program of up to three million shares of the outstanding common stock of the
Corporation. As of December 31, 1999, the Corporation had purchased 2,289,327
(1998 - 1,977,600) shares under this program at a total cost of $64,123,000
(1998 - $39,559,000).
The Corporation has a dividend reinvestment plan under which
stockholders may reinvest their quarterly dividends in shares of common stock at
a 5% discount from the market price at the time of issuance. During 1999, shares
totaling 328,693 (1998 - 271,918; 1997 - 241,452), equivalent to $9,387,000
(1998 - $7,433,000; 1997 - $4,642,000) in additional equity, were issued under
the plan.
The Corporation has 10,000,000 shares of authorized preferred stock
with no par value. This stock may be issued in one or more series, and the
shares of each series shall have such rights and preferences as shall be fixed
by the Board of Directors when authorizing the issuance of that particular
series. The Corporation has 4,000,000 shares issued and
F-48
<PAGE> 74
outstanding of Series A preferred stock. These shares are non-convertible and
are redeemable at the option of the Corporation. The redemption price per share
is $26.00 through June 29, 2000, $25.75 from June 30, 2000 through June 29,
2001, $25.50 from June 30, 2001 through June 29, 2002 and $25.00 from June 30,
2002 and thereafter. Dividends on the Series A preferred stock are noncumulative
and are payable monthly at the annual rate of 8.35% of the liquidation
preference of $25.00 per share.
The Corporation's average number of common shares outstanding used in
the computation of net income per common share was 135,585,634 (1998 -
135,532,086; 1997 - 134,036,964). During the year, cash dividends of $0.60 (1998
- - $0.50; 1997 - $0.40) per common share outstanding amounting to $81,389,000
(1998 - $67,770,000; 1997 - $53,681,000) were declared. In addition, dividends
declared on preferred stock amounted to $8,350,000 (1998 - $8,350,000; 1997 -
$8,350,000).
NOTE 18 - REGULATORY CAPITAL REQUIREMENTS:
The Corporation is subject to various regulatory capital requirements imposed by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Corporation's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Corporation must meet
specific capital guidelines that involve quantitative measures of the
Corporation's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory requirements. The Corporation's capital amounts and
classifications are also subject to qualitative judgements by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Corporation to maintain minimum amounts and ratios of Tier
I and total capital to risk-weighted assets, and of Tier I capital to average
assets (leverage ratio) as defined in the regulations. Management has determined
that as of December 31, 1999, the Corporation exceeded all capital adequacy
requirements to which it is subject.
As of December 31, 1999, BPPR and BPNA were well capitalized under the
regulatory framework for prompt corrective action and there are no conditions or
events since that date that management believes have changed the institution's
category. The 1998 ratios and amounts of total risk based capital, Tier I
risk-based capital and Tier I leverage were restated to reflect the
reorganization of the U. S. banking operations described in Note 1. The
consolidated information for BPNA excludes Banco Popular N.A. (Texas). The
information for BPPR is presented on a consolidated basis.
The Corporation's actual and required ratios and amounts of total
risk-based capital, Tier I risk-based capital and Tier I leverage, as of
December 31, were as follows:
<TABLE>
<CAPTION>
Regulatory requirements
- -------------------------------------------------------------------------------------------------------------
To be well
capitalized
under prompt
For capital corrective action
Actual adequacy purposes provisions
Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------------------
1999
- -------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total Capital
(to Risk-Weighted Assets):
Consolidated $1,881,615 12.29% $1,224,601 8% N/A
BPPR 1,135,435 11.26 806,660 8 $1,008,325 10%
BPNA 348,897 10.43 267,615 8 334,519 10
Tier I Capital
(to Risk-Weighted Assets):
Consolidated $1,557,096 10.17% $612,300 4% N/A
BPPR 1,008,627 10.00 403,330 4 $ 604,995 6%
BPNA 306,916 9.17 133,808 4 200,711 6
Tier I Capital
(to Average Assets):
Consolidated $1,557,096 6.40% $729,523 3% N/A
BPPR 1,008,627 5.74 527,113 3 $ 878,521 5%
BPNA 306,916 7.03 131,000 3 218,333 5
</TABLE>
F-49
<PAGE> 75
<TABLE>
<CAPTION>
Regulatory requirements
- -------------------------------------------------------------------------------------------------------------
To be well
capitalized
under prompt
For capital corrective action
Actual adequacy purposes provisions
Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------------------
1999
- -------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total Capital
(to Risk-Weighted Assets):
Consolidated $1,760,278 13.14% $1,071,994 8% N/A
BPPR 1,185,390 13.64 695,135 8 $868,919 10%
BPNA 310,535 10.43 238,180 8 297,725 10
Tier I Capital
(to Risk-Weighted Assets):
Consolidated $1,450,187 10.82% $ 535,997 4% N/A
BPPR 1,075,970 12.38 347,567 4 $521,351 6%
BPNA 273,220 9.18 119,090 4 178,635 6
Tier I Capital
(to Average Assets):
Consolidated $1,450,187 6.72% $ 647,350 3% N/A
BPPR 1,075,970 6.81 474,247 3 $790,411 5%
BPNA 273,220 7.54 108,682 3 181,137 5
</TABLE>
NOTE 19 - INTEREST ON INVESTMENTS:
Interest on investments consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Money market investments:
Federal funds sold and securities
purchased under agreements to resell $ 32,049 $ 34,505 $ 31,886
Time deposits with other banks 1,380 2,199 1,799
Other 5 77 238
- --------------------------------------------------------------------------------
$ 33,434 $ 36,781 $ 33,923
================================================================================
Investment securities:
U.S. Treasury securities $146,014 $193,293 $213,153
Obligations of other
U.S. Government agencies
and corporations 162,280 90,141 58,405
Obligations of Puerto Rico,
States and political subdivisions 7,562 8,378 8,755
Collateralized mortgage obligations 70,891 47,321 37,786
Mortgage-backed securities 26,368 34,654 34,467
Other 12,792 11,686 6,170
- --------------------------------------------------------------------------------
$425,907 $385,473 $358,736
================================================================================
</TABLE>
Interest income on investment securities for the year ended December
31, 1999, includes tax exempt interest of $330,411,000 (1998 - $301,364,000;
1997 - $290,638,000). Exempt interest relates mostly to obligations of the
United States and Puerto Rico governments.
F-50
<PAGE> 76
NOTE 20 - EMPLOYEE BENEFITS:
Pension and benefit restoration plans:
All regular employees of BPPR and BPNA are covered by a noncontributory defined
benefit pension plan. Pension benefits begin to vest after five years of service
and are based on age, years of credited service and final average compensation,
as defined. At December 31, 1999, plan assets consisted primarily of U.S.
Government obligations, high grade corporate bonds and listed stocks, including
5,672,860 shares (1998 - 5,672,860) of the Corporation with a market value of
approximately $158,486,000 (1998 - $192,877,000). Dividends paid on shares of
the Corporation held by the plan during 1999 amounted to $3,290,000 (1998 -
$2,666,000).
BPPR and BPNA also have a non-qualified unfunded supplementary pension
and profit sharing plans for those employees whose compensation exceeds the
limits established by ERISA.
The following table sets forth the aggregate status of the plans and
the amounts recognized in the consolidated financial statements at December 31:
<TABLE>
<CAPTION>
Benefit
Pension Plan Restoration Plan Total
- ----------------------------------------------------------------------------------
1999
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Change in benefit obligation: (In thousands)
Benefit obligation
at beginning of the year $ 332,193 $ 5,913 $ 338,106
Service cost 13,633 716 14,349
Interest cost 21,084 510 21,594
Plan amendment 7,995 7,995
Actuarial (gain) loss (55,445) 352 (55,093)
Benefits paid (13,216) (12) (13,228)
- ----------------------------------------------------------------------------------
Benefit obligation
at end of year 306,244 7,479 313,723
==================================================================================
Change in plan assets:
Fair value of plan assets
at beginning of the year 447,374 447,374
Actual return on plan assets 3,880 3,880
Benefits paid (13,216) (13,216)
- ----------------------------------------------------------------------------------
Fair value of plan assets at
end of year 438,038 438,038
==================================================================================
Funded (unfunded) status 131,794 (7,479) 124,315
Unrecognized net asset (13,165) (13,165)
Unrecognized net prior
service cost 6,181 464 6,645
Unrecognized net actuarial
(gain) loss (108,142) 2,859 (105,283)
- ----------------------------------------------------------------------------------
Prepaid (accrued) pension
cost 16,668 (4,156) 12,512
==================================================================================
Amount recognized in the
statement of financial
position consists of:
Prepaid benefit cost 17,949 17,949
Accrued benefit liability (1,281) (4,344) (5,625)
Intangible assets 188 188
- ----------------------------------------------------------------------------------
Net amount recognized $ 16,668 $( 4,156) $ 12,512
==================================================================================
</TABLE>
<TABLE>
<CAPTION>
Benefit
Pension Plan Restoration Plan Total
- ----------------------------------------------------------------------------------
1999
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Change in benefit obligation: (In thousands)
Benefit obligation
at beginning of the year $ 291,058 $ 3,889 $ 294,947
Service cost 12,360 438 12,798
Interest cost 19,926 330 20,256
Plan amendment 79 79
Actuarial loss 21,642 1,258 22,900
Benefits paid (12,872) (2) (12,874)
- ---------------------------------------------------------------------------------
Benefit obligations
at end of year 332,193 5,913 338,106
=================================================================================
Change in plan assets:
Fair value of plan assets
at beginning of the year 368,399 368,399
Actual return on plan assets 91,840 91,840
Employee contribution
repayments 7 7
Benefits paid (12,872) (12,872)
- ---------------------------------------------------------------------------------
Fair value of plan assets at
end of year 447,374 447,374
=================================================================================
Funded (unfunded) status 115,181 (5,913) 109,268
Unrecognized net asset (15,626) (15,626)
Unrecognized net prior
service cost (2,053) 518 (1,535)
Unrecognized net actuarial
(gain) loss (93,387) 2,896 (90,491)
- ---------------------------------------------------------------------------------
Prepaid (accrued) pension
cost 4,115 (2,499) 1,616
=================================================================================
Amount recognized in the
statement of financial
position consists of:
Prepaid benefit cost 4,115 4,115
Accrued benefit liability (2,499) (2,499)
- ---------------------------------------------------------------------------------
Net amount recognized $ 4,115 $( 2,499) $ 1,616
=================================================================================
</TABLE>
<TABLE>
<CAPTION>
Weighted average Benefit
assumptions as of Pension Plan Restoration Plan
December 31: 1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.75% 6.50% 7.00% 7.75% 6.50% 7.00%
Expected return on
plan assets 9.00% 9.00% 9.00%
Rate of compensation
increase 4.5 to 4.5 to 4.5 to 4.5 to 4.5 to 4.5 to
8.5% 8.5% 8.5% 8.5% 8.5% 8.5%
</TABLE>
F-51
<PAGE> 77
<TABLE>
<CAPTION>
Benefit
Pension Plan Restoration Plan
1999 1998 1997 1999 1998 1997
- ---------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Components of net
periodic pension cost:
Service cost $ 13,633 $ 12,360 $ 10,847 $ 716 $ 438 $360
Interest cost 21,084 19,926 18,657 510 330 226
Expected return
on plan assets (39,723) (32,618) (25,913)
Amortization of
asset obligation (2,461) (2,461) (2,461)
Amortization of
prior service cost (239) (242) (246) 53 53 53
Amortization of
net (gain) loss (4,848) (2,032) 391 209 130
- --------------------------------------------------------------------------------------------
Net periodic
(benefit) cost $(12,554) $( 5,067) $ 884 $1,670 $1,030 $769
============================================================================================
</TABLE>
The accumulated benefit obligation for BPPR's benefit restoration plan
was $4,306,700 as of December 31, 1999 (1998 - $1,085,500). The accumulated
benefit obligation for BPNA's pension plan and restoration plan were $576,200
and $8,400, respectively, as of December 31, 1999. BPNA's plans held no assets
as of December 31, 1999.
Retirement and savings plan:
The Corporation also provides contributory retirement and savings plans pursuant
to sections 1165(e) of the Puerto Rico Internal Revenue Code and section 401(k)
of the Internal U.S. Revenue Code, as applicable, for substantially all the
employees of Popular Securities, Equity One, Banco Popular North America,
Popular Finance, Popular Leasing, Popular Mortgage, GM Group and Popular Cash
Express. Employer contributions are determined based on specific provisions of
each plan. The cost of providing this benefit in 1999 was $5,256,000 (1998 -
$3,369,000; 1997 - $2,811,000).
The Corporation also has a contributory savings plan available to
employees of BPPR. Employees are fully vested in the employer's contribution
after seven years of service. All contributions are invested in shares of the
Corporation. Total savings plan expense was $1,005,000 in 1999 (1998 -
$1,105,000; 1997 - $999,000). The savings plan held 1,334,433 (1998 - 1,303,398;
1997 - 1,106,586) shares of common stock of the Corporation with a market value
of approximately $37,281,000 at December 31, 1999 (1998 - $44,316,000; 1997 -
$27,388,000).
Postretirement health care benefits:
In addition to providing pension benefits, BPPR provides certain health care
benefits for retired employees. Substantially all of the employees of BPPR who
are eligible to retire under the pension plan, and provided they reach
retirement age while working for BPPR, may become eligible for these benefits.
The status of the Corporation's unfunded postretirement benefit plan at
December 31, was as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- ----------------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning
of the year $ 101,286 $ 87,976
Service cost 5,395 4,731
Interest cost 7,007 6,016
Plan amendment (180) (685)
Benefits paid (2,921) (3,224)
Actuarial (gain) loss (12,401) 6,472
- ----------------------------------------------------------------------
Benefit obligation at end of year $ 98,186 $ 101,286
======================================================================
Change in plan assets:
Unfunded status $( 98,186) $(101,286)
Unrecognized net prior service cost 3,260 3,806
Unrecognized net actuarial loss (gain) 4,879 18,550
- ----------------------------------------------------------------------
Accrued benefit cost $( 90,047) $( 78,930)
=======================================================================
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation at December 31, 1999 was 7.75% (1998 - 6.50%).
The components of net periodic postretirement benefit cost for the year
ended December 31, were as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 5,395 $ 4,731 $3,852
Interest cost 7,007 6,016 5,556
Amortization of prior service cost 366 450 435
Amortization of net loss 1,270 206
- ------------------------------------------------------------------------
Net periodic benefit cost $14,038 $11,403 $9,843
========================================================================
</TABLE>
For measurement purposes, a 7% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999. The rate was
assumed to decrease gradually to 5% for 2001 and remain at that level
thereafter.
F-52
<PAGE> 78
Assumed health care trend rates generally have a significant effect on
the amounts reported for a health care plan. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-Percentage 1-Percentage
Point Increase Point Decrease
- -----------------------------------------------------------------------
<S> <C> <C>
Effect on total service cost and
interest cost components $ 2,355,000 $( 1,831,000)
Effect on postretirement
benefit obligation $14,610,000 $(11,799,000)
</TABLE>
Profit sharing plan:
BPPR also has a profit sharing plan covering substantially all regular
employees. Annual contributions are determined based on the bank's profitability
ratios, as defined in the plan, and are deposited in trust. Profit sharing
expense for the year, including the cash portion paid annually to employees
which represented 50% of the expense for 1999 and 1998 (1997 - 40%), amounted to
$23,561,000 (1998 - $22,647,000; 1997 - $25,954,000).
Long-term incentive plan:
BPPR has a long-term incentive plan for its senior management, which was amended
in 1999. Based on the provisions of the new plan, the incentive is determined
based on the performance of the Corporation's stock compared to the combined
performance of the S&P500 Index and the S&P Financial Index during a three-year
period. The incentive is awarded in shares of the Corporation, which are
purchased in the open market.
For the year ended December 31, 1999, the Corporation recognized an
expense of $168,000 (1998 - $626,000; 1997 - $1,493,000) related to this plan.
NOTE 21 - RENTAL EXPENSE AND COMMITMENTS:
At December 31, 1999, the Corporation was obligated under a number of
noncancelable leases for land, buildings, and equipment which require rentals
(net of related sublease rentals) as follows:
<TABLE>
<CAPTION>
Minimum Sublease
Year payments rentals Net
- -----------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
2000 $ 26,055 $ 396 $ 25,659
2001 21,804 283 21,521
2002 16,715 232 16,483
2003 14,137 140 13,997
2004 11,670 84 11,586
Later years 63,184 275 62,909
- -----------------------------------------------------------
$153,565 $ 1,410 $152,155
===========================================================
</TABLE>
Total rental expense for the year ended December 31, 1999, was
$32,909,000 (1998 - $26,451,000; 1997 - $23,336,000).
NOTE 22 - INCOME TAX:
The components of income tax expense for the years ended December 31, are
summarized below. Included in these amounts are income taxes of $270,000 in 1999
(1998 - $1,606,000; 1997 - $747,000), related to gains on securities
transactions.
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current income tax expense:
Puerto Rico $ 92,177 $ 94,913 $ 83,120
Federal and States 9,399 8,914 16,058
- -------------------------------------------------------------------------------
Subtotal 101,576 103,827 99,178
- -------------------------------------------------------------------------------
Deferred income tax
expense (benefit):
Puerto Rico (14,378) (27,231) (19,851)
Federal and States (2,078) (1,925) (4,866)
- -------------------------------------------------------------------------------
Subtotal (16,456) (29,156) (24,717)
- -------------------------------------------------------------------------------
Total income tax expense $ 85,120 $ 74,671 $ 74,461
===============================================================================
</TABLE>
The reasons for the difference between the income tax expense
applicable to income before provision for income taxes and the amount computed
by applying the statutory rate in Puerto Rico, were as follows:
F-53
<PAGE> 79
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------
% of % of % of
pre-tax pre-tax pre-tax
(Dollars in thousands) Amount Income Amount Income Amount Income
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed income tax at
statutory rate $ 132,687 39% $ 119,609 39% $ 110,770 39%
Benefits of net tax exempt
interest income (54,405) (16) (47,432) (15) (37,860) (13)
Federal, States taxes
and other 6,838 2 2,494 1,551
- --------------------------------------------------------------------------------------------
Income tax expense $ 85,120 25% $ 74,671 24% $ 74,461 26%
============================================================================================
</TABLE>
The Puerto Rico Internal Revenue Code of 1994 repealed the reserve
method of determining losses on loans, requiring taxpayers to use the direct
charge-off method and recapture the reserve balance at December 31, 1995 into
income for tax purposes over a four-year period. In 1997, 1998 and 1999, the
Corporation paid $14,982,000, $15,243,000, and $15,253,000, respectively,
related to the aforementioned recapture. A deferred tax asset is recognized for
the difference between the tax and accounting bases of the allowance for loan
losses.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and their bases. Significant components of the Corporation's
deferred tax assets and liabilities at December 31, were as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- --------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Alternative minimum tax credits
available for carryforward and
other credits $ 18,047 $ 20,176
Net operating loss carryforward available 6,287 5,939
Postretirement and pension benefits 29,625 30,725
Allowance for loan losses 104,231 75,365
Unrealized loss on securities available-for-sale 35,993
Other temporary differences 31,857 13,614
- --------------------------------------------------------------------------
Total gross deferred tax assets 226,040 145,819
- --------------------------------------------------------------------------
Deferred tax liabilities:
Differences between the assigned
values and the tax bases of assets
and liabilities recognized in purchase
business combinations 7,552 8,971
Unrealized gain on securities available-for-sale 25,174
Other temporary differences 11,511 7,636
- --------------------------------------------------------------------------
Total gross deferred tax liabilities 19,063 41,781
- --------------------------------------------------------------------------
Valuation allowance 713 3,170
- --------------------------------------------------------------------------
Net deferred tax asset $206,264 $100,868
==========================================================================
</TABLE>
At December 31, 1999, the Corporation had $18,047,000 in credits
expiring in annual installments through year 2016 that will reduce the regular
income tax liability in future years. The Corporation had, at the end of 1999,
$24,488,000 in net operating losses (NOL) available to carry over to offset
taxable income in future years until year 2002. Other temporary differences
included as deferred assets are mainly related to the deferral of loan
origination costs and commissions.
A valuation allowance of $713,000 is reflected in 1999 (1998 -
$3,170,000), related to deferred tax assets arising from temporary differences
for which the Corporation could not determine the likelihood of its
realizability. Based on the information available, the Corporation expects to
fully realize all other items comprising the net deferred tax asset as of
December 31, 1999.
Under the Puerto Rico Internal Revenue Code, the Corporation and its
subsidiaries are treated as separate taxable entities and are not entitled to
file consolidated tax returns. The Code provides a dividend received deduction
of 100%, on dividends received from "controlled" subsidiaries subject to
taxation in Puerto Rico.
The Corporation has never received any dividend payments from its U.S.
subsidiaries. Any such dividend paid from a U.S. subsidiary to the Corporation
would be subject to a 30% withholding tax based on the provisions of the U.S.
Internal Revenue Code. The Corporation has not recorded any deferred tax
liability on the unremitted earnings of its U.S. subsidiaries because the
reinvestment of such earnings is considered permanent. The Corporation believes
that the likelihood of receiving dividend payments from any of its U.S.
subsidiaries in the foreseeable future is remote based on the significant
expansion it is undertaking in the U.S. mainland.
The Corporation's subsidiaries in the United States file a consolidated
federal income tax return. The Corporation's federal income tax provision for
1999 was $7,048,000 (1998 - $5,054,000; 1997 - $9,583,000). The intercompany
settlements of taxes paid is based on tax sharing agreements which generally
allocates taxes to each entity based on a separate return basis.
NOTE 23 - OFF-BALANCE SHEET LENDING ACTIVITIES AND CONCENTRATION OF CREDIT RISK:
Off-balance sheet risk:
The Corporation is a party to financial instruments with off-balance sheet
credit risk in the normal course of business to meet the financial needs of its
customers. These financial instruments include loan commitments, letters of
credit, and standby letters of credit. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the consolidated statements of condition.
F-54
<PAGE> 80
The Corporation's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit, standby letters of credit and financial guarantees written is
represented by the contractual notional amounts of those instruments. The
Corporation uses the same credit policies in making these commitments and
conditional obligations as it does for those reflected on the statements of
condition.
Financial instruments with off-balance sheet credit risk at December
31, whose contract amounts represent potential credit risk were as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- -----------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit:
Credit card lines $2,064,785 $1,599,242
Commercial lines of credit 2,093,470 2,247,464
Other unused commitments 180,804 256,445
Commercial letters of credit 22,926 21,232
Standby letters of credit 62,022 86,075
Commitments to purchase mortgage loans 100,000 25,000
Commitments to originate mortgage loans 20,014 83,315
Other commitments 3,000
</TABLE>
Commitments to extend credit:
Contractual commitments to extend credit are legally binding agreements to lend
money to customers at predetermined interest rates for a specified period of
time. To extend credit the Corporation evaluates each customer's
creditworthiness. The amount of collateral obtained, if deemed necessary, is
based on management's credit evaluation of the counterparty. Collateral held
varies but may include cash, accounts receivable, inventory, property, plant and
equipment and investment securities, among others. Since many of the loan
commitments may expire without being drawn upon, the total commitment amount
does not necessarily represent future cash requirements.
Letters of credit:
There are two principal types of letters of credit: commercial and standby
letters of credit. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
In most instances, cash items are held by the Corporation to collateralize these
instruments.
In general, commercial letters of credit are short-term instruments
used to finance a commercial contract for the shipment of goods from a seller to
a buyer. This type of letter of credit ensures prompt payment to the seller in
accordance with the terms of the contract. Although the commercial letter of
credit is contingent upon the satisfaction of specified conditions, it
represents a credit exposure if the buyer defaults on the underlying
transaction.
Standby letters of credit are also issued by the Corporation to
disburse funds to a third party beneficiary if the Corporation's customer fails
to perform under the terms of an agreement with the beneficiary. These letters
of credit are used by the customer as a credit enhancement and typically expire
without being drawn upon.
Other commitments:
In 1999, the Corporation entered into a commitment to purchase $100,000,000 of
mortgage loans from another institution with the option of purchasing additional
loans up to $175,000,000. The commitment expires on June 30, 2001. The purchased
mortgage loans will continue to be serviced by the originating institution. As
of December 31, 1999, no loans have been purchased under this agreement. In
1998, the Corporation entered into a similar agreement to purchase up to
$175,000,000 in mortgage loans. The Corporation purchased the full amount of
this commitment before the end of 1999.
Moreover, in 1998, the Corporation entered into a commitment with a
third-party to originate $90,000,000 in thirty-year mortgages at an unsubsidized
fixed rate of 6.50%. The commitment expires on February 2000, but may be
extended for an additional ten-month period subject to certain conditions. As of
December 31, 1999, loans amounting to $69,986,000 have been originated under
this agreement. Fees received and costs incurred in originating this commitment
have been deferred and are being allocated to the loans originated.
Geographic concentration:
A geographic concentration exists within the Corporation's loan portfolio since
most of its business activity is with customers located in Puerto Rico. As of
December 31, 1999, the Corporation had no significant concentrations of credit
risk and no significant exposure to highly leveraged transactions in its loan
portfolio. Note 27 provides further information on the asset composition of the
Corporation by geographical area at December 31, 1999 and 1998.
Included in total assets of Puerto Rico are investments in obligations
of the U.S. Treasury and U.S. Government agencies amounting to $5.2 billion and
$5.0 billion in 1999 and 1998, respectively.
F-55
<PAGE> 81
NOTE 24 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS:
The fair value of financial instruments is the amount at which an asset or
obligation could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. Fair value estimates are made at a
specific point in time based on the type of financial instrument and relevant
market information. Many of these estimates involve various assumptions and
estimates as of a specific point in time, and may vary significantly from
amounts that will be realized in actual transactions.
The information about the estimated fair values of financial
instruments presented hereunder excludes all nonfinancial instruments and
certain other specific items.
For those financial instruments with no quoted market prices available,
fair value have been estimated using present value or other valuation
techniques, as well as management best judgment with respect to current economic
conditions, including discount rates, estimates of future cash flows and
prepayment assumptions.
The fair values reflected herein have been determined based on the
prevailing interest rate environment as of December 31, 1999 and 1998,
respectively. In different interest rate environments, fair value results can
differ significantly, especially for certain fixed rate financial instruments
and non-accrual assets. In addition, the fair values presented do not attempt to
estimate the value of the Corporation's fee generating businesses and
anticipated future business activities, that is, they do not represent the
Corporation's value as a going concern. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the Corporation.
The following methods and assumptions were used to estimate the fair
values of significant financial instruments at December 31, 1999 and 1998.
Short-term financial assets and liabilities have relatively short
maturities, or no defined maturities, and little or no credit risk. The carrying
amounts reported in the consolidated statements of condition approximate fair
value. Included in this category are: cash and due from banks, federal funds
sold and securities purchased under agreements to resell, time deposits with
other banks, bankers acceptances, customers' liabilities on acceptances, accrued
interest receivable, federal funds purchased and securities sold under
agreements to repurchase, short-term borrowings, acceptances outstanding and
accrued interest payable.
Trading and investment securities are financial instruments, which
regularly trade on secondary markets. The estimated fair value of these
securities was determined using either market prices or dealer quotes, where
available, or quoted market prices of financial instruments with similar
characteristics. Trading account securities and securities available-for-sale
are reported at their respective fair values in the consolidated statements of
condition since they are marked-to market for accounting purposes. These
instruments are detailed in the consolidated statements of condition and in
Notes 3, 4 and 25.
The estimated fair value for loans held-for-sale is based on secondary
market prices. The fair values of the loan portfolio have been determined for
group of loans with similar characteristics. Loans were segregated by type such
as commercial, construction, residential mortgage, consumer and credit cards.
Each loan category was further segmented based on loan characteristics,
including repricing term and pricing. The fair value of most fixed-rate loans
was estimated by discounting scheduled cash flows using interest rates currently
being offered on loans with similar terms. For variable rate loans with frequent
repricing terms, fair values were based on carrying values. The fair values for
certain mortgage loans are based on quoted market prices. Prepayment assumptions
have been applied to the mortgage and installment loan portfolio. The fair value
of the loans was also reduced by an estimate of credit losses inherent in the
portfolio. Generally accepted accounting principles do not require nor the
Corporation has performed a fair valuation of its lease financing portfolio,
therefore it is included in the loan totals at its carrying amount.
The fair value of deposits with no stated maturity, such as
non-interest bearing demand deposits, savings, NOW and money market accounts is
equal to the amount payable on demand as of the respective dates. The fair value
of certificates of deposit is based on the discounted value of contractual cash
flows, using interest rates currently being offered on certificates with similar
maturities.
Borrowings and long-term debt, which include notes payable, senior
debentures, subordinated notes and capital securities, were valued using quoted
market rates for similar instruments at December 31, 1999 and 1998,
respectively.
Commitments to extend credit were fair valued using the fees currently
charged to enter into similar agreements. For those commitments where a future
stream of fees is charged, the fair value was estimated discounting the
projected cash flows of fees on commitments, which are expected to be disbursed,
based on historical experience. The fair value of letters of credit is based on
fees currently charged on similar agreements.
Carrying amounts and estimated fair values for financial instruments at
December 31 were:
F-56
<PAGE> 82
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and short-term
investments $ 1,649,689 $ 1,649,689 $ 1,615,605 $ 1,615,605
Trading securities 236,610 236,610 318,727 318,727
Investment securities
available-for-sale 7,324,950 7,324,950 7,020,396 7,020,396
Investment securities
held-to-maturity 299,312 295,076 226,134 228,039
Loans held-for sale 619,298 619,743 644,159 662,709
Loans, net 13,996,446 13,902,072 12,167,387 12,640,094
FINANCIAL LIABILITIES:
Deposits $14,173,715 $14,135,259 $13,672,214 $13,668,271
Federal funds purchased 49,940 49,940 918,555 918,555
Securities sold under
agreements to repurchase 4,364,540 4,364,540 3,157,945 3,157,945
Short-term borrowings 2,612,389 2,612,389 1,639,082 1,639,082
Notes payable 1,852,599 1,781,786 1,307,160 1,315,833
Subordinated notes 125,000 116,604 125,000 126,538
Capital securities 150,000 154,665 150,000 149,115
COMMITMENTS TO EXTEND
CREDIT AND STANDBY LETTERS
OF CREDIT:
Commitments to extend
credit $ 4,339,059 $ 8,391 $ 4,103,151 $ 7,044
Letters of credit 84,948 1,847 107,307 834
</TABLE>
NOTE 25 - RISK MANAGEMENT AND TRADING ACTIVITIES
The Corporation's exposure to market risk relates to changes in interest rates
or in the fair value of the underlying financial instruments and, to a limited
extent, to fluctuations in foreign currency exchange rates. The operations are
subject to the risk of interest rate fluctuations to the extent that
interest-earning assets and interest-bearing liabilities mature or reprice at
different times or in differing amounts.
Risk management activities are aimed at optimizing net interest income,
consistent with the Corporation's business strategies. Among the various methods
used by the Corporation to measure the risks generated by assets and liabilities
are beta-adjusted gap analysis, simulations and duration analysis.
In managing its market risk the Corporation enters, to a limited
extent, into certain derivative instruments that expose it to credit risk, which
represents the risk that the counterparties might default on their obligations.
To manage the level of credit risk the Corporation deals with counterparties of
good credit standing, enters into master netting agreements whenever possible
and, when appropriate, obtains collateral. Concentrations of credit risk which
arise through the Corporation's off-balance sheet lending activities are
presented in Note 23.
The following table indicates the types of derivative financial
instruments the Corporation held at December 31. The credit exposure is
represented by the fair value of the instruments with a positive market value.
The following table should be read in conjunction with the descriptions of these
products and the Corporation's objectives for holding them which immediately
follows:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------------------------------
Average Average
Notional for the Fair Notional for the Fair
amount year value amount year value
- --------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest rate swaps:
Pay floating/receive
fixed $ 15,000 $ 15,000 $ 20 $ 15,000 $ 15,000 $ 477
Pay fixed/receive
floating 35,000 100,792 (133) 190,000 206,042 (2,732)
Interest rate swaptions 80,456 77,533 38,995 62,163 55,668 38,495
Interest rate futures 125,065
Interest rate options 21,416 23,631 1,882 61,753 65,835 584
Interest rate caps 2,713 2,713 57 3,500 3,500 22
Interest rate floors 2,713 2,713 (17) 3,500 3,500 (91)
Foreign exchange
contracts 1,930 2,485 877
Securities sold not yet
purchased 413 120 4,649
</TABLE>
Interest rate swaps:
Interest rate swap agreements generally involve the exchange of fixed and
floating rate interest payment obligations without the exchange of the
underlying principal. Net interest settlements on interest rate swaps are
recorded as an adjustment to interest income or interest expense of the hedged
item.
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
Activity of interest rate swaps
hedges for the year:
Beginning balance $ 205,000 $ 230,000
Matured swaps (155,000) (25,000)
- ---------------------------------------------------------------------------------
Ending balance $ 50,000 $ 205,000
=================================================================================
Pay floating/receive fixed:
Weighted average receive rate at December 31 6.42% 6.42%
Weighted average pay rate at December 31 6.09 5.06
Pay fixed/receive floating:
Weighted average receive rate at December 31 5.38% 5.23%
Weighted average pay rate at December 31 6.75 6.32
</TABLE>
F-57
<PAGE> 83
The agreements were entered into to change the Corporation's interest
rate exposure and they end at the time the related obligation matures. The
variable rates are based on the three-month and six-month LIBOR rates.
Nonperformance by any of the counterparties on this agreement will expose the
Corporation to an interest rate risk.
Interest rate swaptions:
The Corporation enters into options on swaps ("swaption") derivative securities,
which combine the characteristics of interest rate swaps and options, for
hedging purposes. BPPR issues certificates of deposit with returns linked to the
Standard and Poor's 500 index (the index). In order to hedge the cost of these
certificates, positions in swaptions are assumed. These swaptions earn a return
to the Corporation equal to the appreciation in the index throughout the life of
the certificate of deposit issued. In exchange, the Corporation pays the
counterparty a fixed rate of interest.
Interest rate futures and forwards:
Futures and forwards are contracts for the delayed delivery of securities in
which the seller agrees to deliver on a specified future date, a specified
instrument, at a specified price or yield. The credit risk inherent in futures
is the risk that the exchange party may default. The credit risk inherent in
forwards arises from the potential inability of counterparties to meet the terms
of their contracts. Both futures and forwards are also subject to the risk of
movements in interest rates or in the value of the underlying securities or
instruments.
Forward contracts include "when-issued securities." When-issued
securities are commitments to purchase or sell securities authorized for
issuance but not yet actually issued. Accordingly, they are not recorded on the
balance sheet until issued. Risks arise from the possible inability of
counterparties to meet the terms of their contracts and from movements in
securities values and interest rates.
Interest rate options, caps and floors:
Interest rate options are contracts that grant the purchaser, for a premium
payment, the right to either purchase from or sell to the writer of the option a
financial instrument at a specified price within a specified period of time or
on a specified date. Interest rate caps and floors are option-like contracts
that require the writer to pay the purchaser at specified future dates the
amount, if any, by which a specified market interest rate exceeds the fixed cap
rate or falls below the fixed floor rate, applied to a notional principal
amount. The option writer receives a premium for bearing the risk of unfavorable
interest rate changes.
Foreign exchange contracts:
To satisfy the needs of its customers, from time to time, the Corporation enters
into foreign exchange contracts in the spot or futures market. Spot contracts
require the exchange of two currencies at an agreed rate to occur within two
business days of the contract date. Forward and futures contracts to purchase or
sell currencies at a future date settle over periods of up to one year, in
general. Futures and forward contracts are recorded at market value.
Securities sold not yet purchased:
The Corporation enters in securities sold not yet purchased transactions for
hedging strategies and for trading purposes. Various assets and liabilities,
such as investment securities financed by borrowings, are usually hedged to
lock-in spreads and reduce the risk of losses in value due to interest rate
fluctuations.
Open positions on securities sold short for trading purposes are
usually closed at each month-end. The volume of such transactions is not
significant.
Trading activities:
The Corporation maintains limited trading positions in certain financial
instruments and nonfinancial contracts including, to a limited extent,
derivatives. Most of the Corporation's trading activities are limited to the
purchase of debt securities for the purpose of selling them in the near term and
positioning securities for resale to retail customers. Trading activities of the
Corporation are subject to strict guidelines approved by the Board of Directors
and included in the investment policy.
In anticipation of customer demand, the Corporation carries an
inventory of capital market instruments and maintains market liquidity by
quoting bid and offer prices to and trading with other market makers. Positions
are also taken in interest rate sensitive instruments, based on expectations of
future market conditions. These activities constitute the proprietary trading
business and are held by the Corporation to provide customers with financial
products at competitive prices. As trading strategies depend on both
market-making and proprietary positions, given the relationship between
instruments and markets, those activities are managed in concert in order to
maximize net trading revenue.
All trading instruments are subject to market risk, the risk that
future changes in market conditions may make an instrument less valuable or more
onerous. Fluctuations in market prices, interest rates or exchange rates change
the market value of the instruments. As the instruments are recognized at market
value, these changes directly affect reported income. Exposure to market risk is
managed, in accordance with risk limits
F-58
<PAGE> 84
set by senior management, by buying or selling instruments or entering into
offsetting positions.
At December 31, 1999 and 1998, the Corporation held no futures or
options contracts written for trading purposes. The following table indicates
the fair value and net gains (losses) of derivatives financial instruments held
for trading purposes.
<TABLE>
<CAPTION>
Fair Value
- ------------------------------------------------------------------------------------
At December 31, 1999 Average for the period Net gains
Assets Liabilities Assets Liabilities (losses)
- ------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Futures contracts $ (7)
Forward contracts $50 $123 $1,476
</TABLE>
<TABLE>
<CAPTION>
Fair Value
- ------------------------------------------------------------------------------------
At December 31, 1999 Average for the period Net gains
Assets Liabilities Assets Liabilities (losses)
- ------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Futures contracts $38 $(150)
</TABLE>
The Corporation's credit exposure from off-balance sheet derivative
financial instruments held or issued for trading purposes is represented by the
fair value of the instruments with a positive fair value at that date.
NOTE 26 - SUPPLEMENTAL DISCLOSURE ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS:
During the year ended December 31, 1999, the Corporation paid interest and
income taxes amounting to $879,340,000 and $132,504,000, respectively (1998 -
$768,415,000 and $93,850,000; 1997 - $703,553,000 and $88,752,000). In addition,
loans transferred to other real estate and other property for the year ended
December 31, 1999, amounted to $29,290,000 and $24,959,000, respectively (1998 -
$27,978,000 and $26,775,000).
NOTE 27 - 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 are made 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, which provide individuals, corporations and institutions with
commercial and retail banking services, including loans and deposits, trust,
mortgage banking and servicing, asset management, credit cards and other
financial services. These services are offered through a delivery system of 298
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 lending segment includes those
non-banking subsidiaries whose principal activity is originating mortgage and
consumer loans such as Popular Mortgage, Levitt Mortgage, Popular Finance and
Equity One. The services of Popular Mortgage, Levitt Mortgage and Popular
Finance are furnished through 62 offices in Puerto Rico while those of Equity
One are provided in 138 offices throughout 32 states.
The Corporation's lease financing segment provides financing for
vehicles and equipment through 12 offices of Popular Leasing and Rental, Inc. in
Puerto Rico and 10 offices of Popular Leasing, USA in 7 states. 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 described
in the summary of accounting policies. Following are the results of operations
and selected financial information by operating segment for each of the three
years ended December 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Mortgage and
Commercial consumer Lease
(In thousands) banking lending financing Other Eliminations Total
- ---------------------------------------------------------------------------------------------------------------------------
1999
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 817,122 $ 90,656 $ 42,772 $ 3,255 $ (67) $ 953,738
Provision for loan losses 112,881 26,457 8,022 1,588 148,948
Other income 249,446 45,084 18,912 65,816 (6,342) 372,916
Intangibles amortization 28,143 436 754 2,455 31,788
Depreciation expense 55,776 1,852 8,347 5,345 71,320
Other operating expenses 576,817 70,624 25,040 63,829 (1,936) 734,374
Net loss of minority interest 2,454 2,454
Income tax 67,094 12,685 7,526 (1,036) (1,149) 85,120
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 225,857 $ 23,686 $ 11,995 $ (656) $ (3,324) $ 257,558
===========================================================================================================================
Segment assets $21,736,663 $2,148,084 $733,063 $ 6,350,477 $(5,507,748) $25,460,539
===========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 751,126 $ 83,940 $ 40,180 $ (2,163) $ (71) $ 873,012
Provision for loan losses 104,374 21,480 11,250 109 137,213
Other income 215,021 31,944 18,828 26,915 (1,462) 291,246
Intangibles amortization 25,602 890 1,237 131 27,860
Depreciation expense 51,830 1,428 8,590 801 62,649
Operating expenses 532,015 55,798 21,668 20,855 (491) 629,845
Net loss of minority interest 328 328
Income tax 53,464 13,964 6,258 972 13 74,671
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 198,862 $ 22,324 $ 10,005 $ 2,212 $ (1,055) $ 232,348
===========================================================================================================================
Segment assets $19,973,005 $1,830,134 $678,878 $ 5,269,381 $(4,591,041) $23,160,357
===========================================================================================================================
</TABLE>
F-59
<PAGE> 85
<TABLE>
<CAPTION>
Mortgage and
Commercial consumer Lease
(In thousands) banking lending financing Other Eliminations Total
- -----------------------------------------------------------------------------------------------------------------------------
1997
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 668,230 $ 76,449 $ 36,648 $ 2,628 $ 783,955
Provision for loan losses 82,095 18,866 9,646 110,607
Other income 201,752 23,741 16,985 5,354 (234) 247,598
Intangibles amortization 20,715 1,001 1,280 (122) 22,874
Depreciation expense 43,898 1,121 8,078 1,426 54,523
Operating expenses 492,009 41,156 20,819 5,959 (420) 559,523
Income tax 55,104 15,067 5,160 (942) 72 74,461
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 176,161 $ 22,979 $ 8,650 $ 1,661 $ 114 $ 209,565
=============================================================================================================================
Segment assets $16,759,606 $1,519,739 $625,436 $ 3,981,062 $(3,585,336) $19,300,507
=============================================================================================================================
</TABLE>
Geographic Information
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Revenues*:
Puerto Rico $1,555,059 $1,419,371 $1,297,532
United States 555,052 462,582 390,759
Other 114,475 60,996 50,610
- ---------------------------------------------------------------------------------
Total consolidated revenues $2,224,586 $1,942,949 $1,738,901
=================================================================================
</TABLE>
* Total revenues include interest income, service charges on deposit accounts,
other service fees, gain on sale of securities, trading account profit, and
other income.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------
(In thousands)
Selected Balance Sheet Information:
<S> <C> <C> <C>
Puerto Rico
Total assets $18,213,576 $16,517,161 $14,301,572
Loans 8,840,740 7,895,689 7,322,109
Deposits 9,792,129 9,444,199 8,581,277
United States
Total assets $ 6,258,029 $ 5,660,628 $ 4,503,956
Loans 5,387,799 4,556,060 3,686,538
Deposits 3,472,839 3,410,808 2,714,282
Other
Total assets $ 988,934 $ 982,568 $ 494,979
Loans 679,215 627,046 367,960
Deposits 908,747 817,207 454,027
</TABLE>
NOTE 28 - CONTINGENT LIABILITIES:
The Corporation is a defendant in a number of legal proceedings arising in the
normal course of business. Management believes, based on the opinion of legal
counsel, that the final disposition of these matters will not have a material
adverse effect on the Corporation's financial position or results of operations.
NOTE 29 - POPULAR, INC. (HOLDING COMPANY ONLY)
FINANCIAL INFORMATION:
The following condensed financial information presents the financial position of
the Holding Company only as of December 31, 1999 and 1998 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999.
The financial information related to the investment in subsidiaries,
presented below, was restated to reflect the U.S. reorganization explained in
Note 1.
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------------------
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash $ 332 $ 524
Money market investments 35,500 3,700
Investment securities available-for-sale,
at market value 126,716 107,175
Investment in BPPR, at equity 1,048,739 1,309,976
Investment in Banco Popular North America, at equity 429,180 412,220
Investment in GM Group, at equity 46,020
Investment in other subsidiaries, at equity 141,735 160,361
Advances to subsidiaries 895,448 769,406
Other assets 10,057 3,813
- ----------------------------------------------------------------------------------
Total assets $2,733,727 $2,767,175
==================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Securities sold under agreements to repurchase $ 51,438
Commercial paper $ 133,117 164,515
Other short-term borrowings 297,933 247,072
Notes payable 484,715 436,877
Accrued expenses and other liabilities 31,976 33,160
Subordinated notes 125,000 125,000
Stockholders' equity 1,660,986 1,709,113
- ----------------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,733,727 $2,767,175
==================================================================================
</TABLE>
F-60
<PAGE> 86
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
Year ended December 31,
- ---------------------------------------------------------------------------
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends from subsidiaries $ 314,348 $ 70,925 $ 53,000
Interest on money market and
investment securities 3,696 5,052 5,355
Other operating income 7,232 4,674 496
Interest on advances to
subsidiaries 57,219 49,564 45,434
- ---------------------------------------------------------------------------
Total income 382,495 130,215 104,285
- ---------------------------------------------------------------------------
Expenses:
Interest expense 64,739 58,747 53,182
Operating expenses 2,155 1,133 1,494
- ---------------------------------------------------------------------------
Total expenses 66,894 59,880 54,676
- ---------------------------------------------------------------------------
Income before income taxes
and equity in undistributed
earnings of subsidiaries 315,601 70,335 49,609
Income taxes 32 (1,573)
- ---------------------------------------------------------------------------
Income before equity in
undistributed earnings of
subsidiaries 315,601 70,303 51,182
Equity in undistributed earnings
of subsidiaries (dividends in
excess of annual net earnings
of subsidiaries) (58,043) 162,045 158,383
- ---------------------------------------------------------------------------
Net income $ 257,558 $ 232,348 $209,565
===========================================================================
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
- ------------------------------------------------------------------------------------------
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 257,558 $ 232,348 $ 209,565
- ------------------------------------------------------------------------------------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed earnings
of subsidiaries 58,043 (162,045) (158,383)
Depreciation of premises and
equipment 1,345
Loss on disposition of premises and
equipment 3,295
Gain on sale of investment securities
available-for-sale (4,303) (824)
Amortization of premiums and
accretion of discounts on investments 17 25 20
Net increase in other assets (6,244) (130) (335)
Net decrease in current taxes (5,359) (1,018) (86)
Net increase (decrease) in interest payable 1,557 2,376 (4,199)
Net increase (decrease) in other liabilities 5,207 419 (2,190)
- ------------------------------------------------------------------------------------------
Total adjustments 53,221 (164,676) (161,357)
- ------------------------------------------------------------------------------------------
Net cash provided by operating
activities 310,779 67,672 48,208
- ------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net (increase) decrease in money
market investments (31,800) (3,700) 55,024
Purchases of investment securities
available-for-sale (94,299) (7,362) (5,560)
Maturities of investment securities
available-for-sale 50,000 5,000 682
Sales of investment securities
available-for-sale 3,308 7,700 2,365
Capital contribution to subsidiaries (5,100) (119,941) (58,500)
Distribution from subsidiary 8,642
Advances to subsidiaries (126,042) (77,700) (57,449)
Acquisition of premises and equipment (15)
Proceeds from sale of premises and
equipment 34,551
- ------------------------------------------------------------------------------------------
Net cash used in investing
activities (195,291) (196,003) (28,902)
- ------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net decrease in securities sold under
agreements to repurchase (51,438) (337) (309)
Net (decrease) increase in commercial
paper (31,398) 66,416 (66,280)
Net increase (decrease) in other
short-term borrowings 50,861 156,197 (61,126)
Net increase (decrease) in notes
payable 47,838 (29,211) 232,550
Payment of senior debentures (30,000)
Cash dividends paid (87,012) (72,021) (59,037)
Proceeds from issuance of
common stock 9,387 7,433 4,642
Treasury stock acquired (53,918) (39,559)
- ------------------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (115,680) 128,477 (19,119)
- ------------------------------------------------------------------------------------------
Net (decrease) increase in cash (192) 146 187
Cash at beginning of period 524 378 191
- ------------------------------------------------------------------------------------------
Cash at end of period $ 332 $ 524 $ 378
==========================================================================================
</TABLE>
F-61
<PAGE> 87
The principal source of income for the Holding Company consists of
dividends from BPPR. As a member subject to the regulations of the Federal
Reserve Board, BPPR must obtain the approval of the Federal Reserve Board for
any dividend if the total of all dividends declared by it in any calendar year
would exceed the total of its net profits for that year, as defined by the
Federal Reserve Board, combined with its retained net profits for the preceding
two years. The payment of dividends by BPPR may also be affected by other
regulatory requirements and policies, such as the maintenance of certain minimum
capital levels described in Note 18.
NOTE 30 - POPULAR INTERNATIONAL BANK, INC. (A SUBSIDIARY OF POPULAR, INC.)
FINANCIAL INFORMATION:
The following summarized financial information presents the consolidated
financial position of Popular International Bank, Inc. and its subsidiaries as
of November 30, 1999 and 1998, and the results of their operations and cash
flows for each of the three years in the period ended November 30, 1999. Popular
International Bank, Inc. is the holding company of ATH Costa Rica and Popular
North America, Inc., including Popular Holdings USA, Inc. and it subsidiaries;
Banco Popular North America and Banco Popular, N.A. (Texas); Popular Cash
Express, Inc. and Equity One, Inc. (second tier subsidiaries). It also owns 57%
of the outstanding common stock of Banco Fiduciario, S.A. The results of Popular
Holdings USA, Inc. and its subsidiaries are included as of December 31, 1999 and
1998.
As previously mentioned in Note 1, the financial information for 1998
and 1997, presented below, was restated to reflect the U.S. reorganization as if
it had been consummated at the beginning of fiscal year 1997.
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
November 30,
- ---------------------------------------------------------------------------------
(In thousands) 1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash $ 243,149 $ 297,764
Money market investments 88,877 88,648
Investment securities available-for-sale,
at market value 332,203 507,621
Investment securities held-to-maturity, at cost 48,890 21,008
Loans held-for-sale 87,135 207,183
Loans 5,669,057 4,573,802
Less: Unearned income 78,712 70,434
Allowance for loan losses 103,846 92,173
- ---------------------------------------------------------------------------------
5,486,499 4,411,195
- ---------------------------------------------------------------------------------
Other assets 298,098 281,258
Intangible assets 151,034 150,318
- ---------------------------------------------------------------------------------
Total assets $6,735,885 $5,964,995
=================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Deposits:
Non-interest bearing $ 626,374 $ 617,298
Interest bearing 3,749,001 3,038,798
- ---------------------------------------------------------------------------------
4,375,375 3,656,096
- ---------------------------------------------------------------------------------
Federal funds purchased and securities
sold under agreements to repurchase 40,540 405,810
Other short-term borrowings, consisting of
$346,131 in term notes (1998 - $409,579),
and a revolving credit facility with an affiliate
of $60,000 in 1998 346,131 469,579
Notes payable 1,167,955 618,540
Other liabilities 93,286 96,946
Preferred beneficial interest in Popular
North America's junior subordinated
deferrable interest debentures guaranteed
by the Corporation 150,000 150,000
Minority interest in consolidated subsidiary 21,741 27,591
Stockholder's equity 540,857 540,433
- ---------------------------------------------------------------------------------
Total liabilities and stockholder's equity $6,735,885 $5,964,995
=================================================================================
</TABLE>
F-62
<PAGE> 88
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended November 30,
- ----------------------------------------------------------------------------
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and fees:
Loans $ 490,043 $381,521 $317,210
Money market, trading
and investment securities 28,485 28,990 33,930
- ----------------------------------------------------------------------------
518,528 410,511 351,140
- ----------------------------------------------------------------------------
Interest expense:
Deposits 154,309 108,764 86,395
Short-term borrowings 43,059 33,641 29,587
Long-term borrowings 74,685 63,573 56,092
- ----------------------------------------------------------------------------
272,053 205,978 172,074
- ----------------------------------------------------------------------------
Net interest income 246,475 204,533 179,066
Provision for loan losses 53,147 49,283 29,041
- ----------------------------------------------------------------------------
Net interest income after
provision for loan losses 193,328 155,250 150,025
Service charges on deposit accounts 28,841 21,116 16,362
Other service fees 50,329 20,380 11,596
Gain on sale of securities 592 2,665 339
Trading account loss (205)
Other operating income 25,718 20,880 12,231
- ----------------------------------------------------------------------------
298,808 220,086 190,553
- ----------------------------------------------------------------------------
Operating expenses 291,174 208,525 145,500
- ----------------------------------------------------------------------------
Income before income tax and
minority interest 7,634 11,561 45,053
Income tax 5,209 2,691 20,032
Net loss of minority interest 2,425 328
- ----------------------------------------------------------------------------
Net income $ 4,850 $ 9,198 $ 25,021
============================================================================
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended November 30,
- -----------------------------------------------------------------------------------------------
(In thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,850 $ 9,198 $ 25,021
- -----------------------------------------------------------------------------------------------
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization of premises
and equipment 15,708 9,527 5,958
Provision for loan losses 53,147 49,283 29,041
Amortization of intangibles 13,963 10,472 7,566
Amortization of deferred loan fees and costs (1,829) (1,109) (1,248)
Amortization of premiums and accretion of
discounts on investments 127 269 1,244
Decrease (increase) in loans held-for-sale 140,503 (176,753) (2,817)
Gain on sale of investment securities
available-for-sale (592) (2,665) (339)
Loss (gain) on disposition of premises and
equipment 19 (27) (496)
Gain on sale of loans (21,654) (14,828) (10,133)
Net increase in interest receivable (8,459) (7,818) (5,267)
Net decrease (increase) in other assets 48 (30,122) 363
Net (decrease) increase in interest payable (9,348) 1,121 4,339
Net (decrease) increase in current and
deferred taxes (9,166) 870 (3,492)
Net increase (decrease) in other liabilities 8,672 (1,090) (4,607)
- -----------------------------------------------------------------------------------------------
Total adjustments 181,139 (162,870) 20,112
- -----------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 185,989 (153,672) 45,133
- -----------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net increase in money market investments 68,681 44,349 29,621
Purchases of investment securities held-
to-maturity (74,990) (4,232)
Purchases of investment securities
available-for-sale (1,676,821) (894,252) (701,048)
Maturities of investment securities held-
to-maturity 57,651 79,778 35,446
Sale of investment securities available
for-sale 72,087 126,659 649,907
Maturities of investment securities
available-for-sale 1,696,081 800,296 70,092
Net disbursements on loans (1,958,083) (1,023,310) (576,372)
Proceeds from sale of loans 920,421 587,005 294,001
Acquisition of loan portfolios (5,228) (10,853)
Capital contribution to subsidiary 2,761
Assets acquired, net of cash (603) (17,168) (36,734)
Acquisition of premises and equipment (24,058) (32,749) (21,817)
Proceeds from sales of premises and
equipment 1,228 1,178 5,857
- -----------------------------------------------------------------------------------------------
Net cash used in investing activities (840,655) (408,432) (266,132)
- -----------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposits 648,033 204,714 76,641
Net deposits acquired 36,297
Net (decrease) increase in federal funds
purchased and securities sold under
agreements to repurchase (365,270) 277,336 4,017
Net (decrease) increase in other short-
term borrowings (176,978) 143,480 (131,184)
Proceeds from issuance of notes payable 615,790 144,501 939,931
Payments of notes payable (121,524) (181,176) (845,916)
Proceeds from issuance of Capital Securities 150,000
Proceeds from issuance of common stock 462
Capital contribution from Parent company 119,941 58,039
- -----------------------------------------------------------------------------------------------
Net cash provided by financing activities 600,051 745,093 251,990
- -----------------------------------------------------------------------------------------------
Net (decrease) increase in cash and due from banks (54,615) 182,989 30,991
Cash and due from banks at beginning of year 297,764 114,775 83,784
- -----------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 243,149 $ 297,764 $ 114,775
===============================================================================================
</TABLE>
F-63
<PAGE> 89
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Year ended November 30,
- ----------------------------------------------------------------------------------
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred Stock:
Par value $25; authorized 25,000,000
shares, none issued
Common Stock:
Par value $5; authorized 1,000,000
shares, 792,300 shares issued and
outstanding (1998 and 1997 - 792,300)
Balance at beginning of the period $ 3,962 $ 3,962 $ 3,500
Issuance of common stock 462
- ----------------------------------------------------------------------------------
Balance at end of the period 3,962 3,962 3,962
- ----------------------------------------------------------------------------------
Additional paid-in capital:
Balance at beginning of the period 470,226 350,285 132,964
Capital contribution from Parent
company 116,192 207,132
Retained earnings capitalized upon
the reorganization 3,749 10,189
- ----------------------------------------------------------------------------------
Balance at end of the period 470,226 470,226 350,285
- ----------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of the period 64,670 59,221 44,389
Net income 4,850 9,198 25,021
Retained earnings capitalized upon
the reorganization (3,749) (10,189)
- ----------------------------------------------------------------------------------
Balance at end of the period 69,520 64,670 59,221
- ----------------------------------------------------------------------------------
Accumulated other comprehensive
income:
Balance at beginning of the period 1,575 2,033 626
Other comprehensive (loss) income (4,426) (458) 1,407
- ----------------------------------------------------------------------------------
Balance at end of the period (2,851) 1,575 2,033
- ----------------------------------------------------------------------------------
Total stockholder's equity $ 540,857 $ 540,433 $415,501
==================================================================================
</TABLE>
STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Year ended November 30,
- ----------------------------------------------------------------------------------------
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 4,850 $ 9,198 $25,021
Other comprehensive (loss) income:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the period, net of tax
of $(688) (1998 - $(203); 1997 - $622) (3,232) 1,520 1,612
Less: Reclassification adjustment for
gains included in net income, net of tax
of $91 (1998 - $958; 1997 - $136) 171 1,763 205
Foreign currency translation adjustment (1,023) (215)
- ----------------------------------------------------------------------------------------
Total other comprehensive (loss) income (4,426) (458) 1,407
- ----------------------------------------------------------------------------------------
Comprehensive income, net of taxes $ 424 $ 8,740 $26,428
========================================================================================
</TABLE>
DISCLOSURE OF ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME:
<TABLE>
<CAPTION>
Year ended December 31,
- --------------------------------------------------------------------
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------
<S> <C> <C>
Foreign currency translation
adjustment $(1,238) $ (215)
- --------------------------------------------------------------------
Unrealized gains (losses) on
securities (1,613) 1,790 $2,033
- --------------------------------------------------------------------
Accumulated other
comprehensive (loss) income $(2,851) $ 1,575 $2,033
====================================================================
</TABLE>
NOTE 31 - POPULAR NORTH AMERICA, INC.
(A SECOND - TIER SUBSIDIARY OF POPULAR, INC.) FINANCIAL
INFORMATION:
The following summarized financial information presents the consolidated
financial position of Popular North America, Inc. and its subsidiaries, Popular
Cash Express, Inc., Equity, One, Inc. and Popular Holdings USA, Inc., and its
wholly-owned subsidiaries, Banco Popular North America and Banco Popular, N.A.
(Texas) as of November 30, 1999 and 1998, and the results of their operations
and cash flows for each of the three years in the period ended November 30,
1999. The results of Popular Holdings USA, Inc. and its subsidiaries are
included as of December 31, 1999 and 1998.
As previously mentioned in Note 1, the financial information for 1998 and
1997, presented below, was restated to reflect the U.S. reorganization as if it
had been consummated at the beginning of fiscal year 1997.
F-64
<PAGE> 90
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
November 30,
- --------------------------------------------------------------------------------
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 194,117 $ 196,146
Money market investments 56,121 39,963
Investment securities available-for-sale,
at market value 314,379 498,695
Investment securities held-to-maturity, at cost 48,890 21,008
Loans held-for-sale 87,135 207,183
- -------------------------------------------------------------------------------
Loans 5,412,101 4,312,703
Less: Unearned income 78,712 70,434
Allowance for loan losses 79,888 66,730
- -------------------------------------------------------------------------------
5,253,501 4,175,539
- -------------------------------------------------------------------------------
Other assets 218,555 200,326
Intangible assets 141,025 143,239
- -------------------------------------------------------------------------------
Total assets $6,313,723 $5,482,099
===============================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Deposits:
Non-interest bearing $ 591,454 $ 577,099
Interest bearing 3,490,879 2,759,342
- -------------------------------------------------------------------------------
4,082,333 3,336,441
- -------------------------------------------------------------------------------
Federal funds purchased and securities sold
under agreements to repurchase 40,540 405,810
Other short-term borrowings, consisting of
$324,905 term notes (1998 - $366,103) and
a revolving credit facility with an affiliate
of $60,000 in 1998 324,905 426,103
Notes payable 1,125,012 579,194
Other liabilities 78,536 77,847
Preferred beneficial interest in
Popular North America's junior subordinated
deferrable interest debentures guaranteed
by the Corporation 150,000 150,000
Stockholder's equity 512,397 506,704
- -------------------------------------------------------------------------------
Total liabilities and stockholder's equity $6,313,723 $5,482,099
===============================================================================
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended November 30,
- -----------------------------------------------------------------------------
(In thousands) 1999 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and fees:
Loans $438,991 $372,569 $317,210
Money market and
investment securities 26,021 28,263 32,362
- -----------------------------------------------------------------------------
465,012 400,832 349,572
- -----------------------------------------------------------------------------
Interest expense:
Deposits 118,053 101,372 86,396
Short-term borrowings 37,479 32,496 29,585
Long-term borrowings 72,422 63,246 56,092
- -----------------------------------------------------------------------------
227,954 197,114 172,073
- -----------------------------------------------------------------------------
Net interest income 237,058 203,718 177,499
Provision for loan losses 51,558 49,174 29,041
- -----------------------------------------------------------------------------
Net interest income after provision
for loan losses 185,500 154,544 148,458
Service charges on deposit accounts 24,911 20,312 16,362
Other service fees 43,381 18,734 11,586
Gain on sale of securities 516 2,686 309
Trading account profit 1
Other operating income 23,431 19,936 12,339
- -----------------------------------------------------------------------------
277,739 216,213 189,054
Operating expenses 261,466 203,059 144,981
- -----------------------------------------------------------------------------
Income before tax 16,273 13,154 44,073
Income tax 7,321 2,691 20,032
- -----------------------------------------------------------------------------
Net income $ 8,952 $ 10,463 $ 24,041
=============================================================================
</TABLE>
F-65
<PAGE> 91
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended November 30,
- -------------------------------------------------------------------------------------------------
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 8,952 $ 10,463 $ 24,041
- -------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization
of premises and equipment 11,428 8,823 5,914
Provision for loan losses 51,558 49,174 29,041
Amortization of intangibles 13,546 10,407 7,566
Amortization of deferred loan fees
and costs (1,829) (1,109) (1,248)
Amortization of premiums and
accretion of discounts on
investments 127 269 1,244
Decrease (increase) in loans held-for-sale 140,503 (176,753) (2,817)
Gain on sale of investment securities
available-for-sale (516) (2,686) (309)
Loss (gain) on disposition of premises
and equipment 19 (26) (496)
Gain on sale of loans (21,654) (14,828) (10,133)
Net decrease in interest receivable (9,346) (3,333) (5,267)
Net (increase) decrease in
other assets (7,004) (14,555) 538
Net (decrease) increase in interest payable (9,772) 897 4,332
Net decrease in current and
deferred taxes (4,021) (2,737) (3,492)
Net increase (decrease)
in other liabilities 20,439 268 (3,511)
- -------------------------------------------------------------------------------------------------
Total adjustments 183,478 (146,189) 21,362
- -------------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 192,430 (135,726) 45,403
- -------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net decrease in money
market investments 52,752 12,413 29,001
Purchases of investment securities
held-to-maturity (74,990) (4,232)
Maturities of investment securities
held-to-maturity 57,651 79,778 35,446
Purchases of investment securities
available-for-sale (1,667,854) (887,994) (700,983)
Sale of investment securities
available-for-sale 72,087 126,659 649,797
Maturities of investment securities
available-for-sale 1,696,081 800,296 70,092
Net disbursements on loans (1,952,035) (1,050,285) (576,372)
Proceeds from sale of loans 920,421 587,005 294,001
Acquisition of loan portfolios (5,228) (10,853)
Capital contribution to subsidiary (32,486)
Assets acquired, net of cash (603) (68,406) (36,734)
Acquisition of premises and
equipment (22,083) (30,880) (20,385)
Proceeds from sale of premises and
equipment 50 29 5,695
- -------------------------------------------------------------------------------------------------
Net cash used in investing activities (876,019) (511,603) (265,527)
- -------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposits 674,646 204,623 76,893
Net deposits acquired 36,297
Net (decrease) increase in federal
funds purchased and securities
sold under agreements to repurchase (365,270) 277,336 4,017
Net (decrease) increase in other
short-term borrowings (161,650) 154,822 (131,183)
Proceeds from issuance of notes
payable 622,711 144,501 939,931
Payments of notes payable (125,121) (178,712) (845,916)
Proceeds from issuance of Capital
securities 150,000
Capital contribution from Parent
company 36,244 89,941 58,500
- -------------------------------------------------------------------------------------------------
Net cash provided by financing
activities 681,560 728,808 252,242
- -------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and
due from banks (2,029) 81,479 32,118
Cash and due from banks at beginning
of period 196,146 114,667 82,549
- -------------------------------------------------------------------------------------------------
Cash and due from banks at end of
period $ 194,117 $ 196,146 $ 114,667
=================================================================================================
</TABLE>
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Year ended November 30,
- ---------------------------------------------------------------------------------------
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred Stock:
Par value $0.10; authorized 1,000
shares, none issued
Common Stock:
Par value $1; authorized 10,000 shares,
2,000 shares issued and outstanding
Balance at beginning and end
of the period $ 2 $ 2 $ 2
- ---------------------------------------------------------------------------------------
Additional paid-in capital:
Balance at beginning of the period 439,964 350,023 132,163
Capital contribution from parent
company 86,192 207,671
Retained earnings capitalized upon
the reorganization 3,749 10,189
- ---------------------------------------------------------------------------------------
Balance at end of the period 439,964 439,964 350,023
- ---------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of the period 65,043 58,329 44,477
Net income 8,952 10,463 24,041
Retained earnings capitalized upon
the reorganization (3,749) (10,189)
- ---------------------------------------------------------------------------------------
Balance at end of the period 73,995 65,043 58,329
- ---------------------------------------------------------------------------------------
Accumulated other comprehensive
income:
Balance at beginning of the period 1,695 2,025 625
Other comprehensive (loss) income (3,259) (330) 1,400
- ---------------------------------------------------------------------------------------
Balance at end of the period (1,564) 1,695 2,025
- ---------------------------------------------------------------------------------------
Total stockholder's equity $ 512,397 $ 506,704 $ 410,379
=======================================================================================
</TABLE>
F-66
<PAGE> 92
STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Year ended November 30,
- -----------------------------------------------------------------------------------------
(In thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 8,952 $ 10,463 $24,041
Other comprehensive (loss) income:
Unrealized (losses) gains on securities:
Unrealized holding (losses) gains
arising during the period, net of tax
of $(688) (1998 - $(203); 1997 - $622) (3,088) 1,433 1,573
Less: Reclassification adjustment for
gains included in net income, net of tax
of $91 (1998 - $958; 1997 - $136) 171 1,763 173
- -----------------------------------------------------------------------------------------
Other comprehensive (loss) income (3,259) (330) 1,400
- -----------------------------------------------------------------------------------------
Comprehensive income, net of taxes $ 5,693 $ 10,133 $25,441
=========================================================================================
</TABLE>
DISCLOSURE OF ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME:
<TABLE>
<CAPTION>
Year ended December 31,
- ------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Unrealized (losses) gains on
securities $(1,564) $1,695 $2,025
==================================================================
Accumulated other
comprehensive income $(1,564) $1,695 $2,025
==================================================================
</TABLE>
F-67
<PAGE> 93
STOCKHOLDERS' INFORMATION
INDEPENDENT PUBLIC ACCOUNTANTS
PRICEWATERHOUSECOOPERS
ANNUAL MEETING
THE 2000 ANNUAL STOCKHOLDERS' MEETING
OF POPULAR, INC. WILL BE HELD ON TUESDAY,
APRIL 25, AT 10:30 A.M. AT CENTRO EUROPA
BUILDING IN SAN JUAN, PUERTO RICO.
TELEPHONE: (787) 765-9800 EXT. 5637
FAX: (787) 763-5972
E-MAIL: [email protected]
ADDITIONAL INFORMATION
COPIES OF THE ANNUAL REPORT TO THE
SECURITIES AND EXCHANGE COMMISSION
ON FORM 10-K
AND ANY OTHER FINANCIAL INFORMATION MAY BE OBTAINED BY WRITING TO:
AMILCAR L. JORDAN
SENIOR VICE PRESIDENT
BANCO POPULAR DE PUERTO RICO
P.O. BOX 362708
SAN JUAN, PR 00936-2708
DESIGN:
BD&E INC., PITTSBURGH, PENNSYLVANIA
PHOTOGRAPHY:
TONY VERA
PRINTING:
HOECHSTETTER PRINTING COMPANY
BOWNE OF ATLANTA, INC.
<PAGE> 94
P.O. BOX 362708
SAN JUAN
PUERTO RICO
00936-2708
<PAGE> 1
EXHIBIT 21.1
POPULAR, INC.
AS OF DECEMBER 31, 1999
Subsidiaries of the registrant
Banco Popular de Puerto Rico, (Banco Popular) - A wholly-owned
subsidiary Bank, incorporated under the laws of Puerto Rico in 1998.
Popular Leasing & Rental , Inc. (Popular Leasing) - A
wholly-owned subsidiary of Banco Popular, incorporated under
the laws of Puerto Rico in 1989.
Popular Finance, Inc. (Popular Finance) - A wholly-owned
subsidiary of Banco Popular, incorporated under the laws of
Puerto Rico in 1989.
Popular Mortgage, Inc. (Popular Home Mortgage) - A
wholly-owned subsidiary of Banco Popular, incorporated under
the laws of Puerto Rico in 1995.
Popular International Bank, Inc. - A wholly-owned subsidiary,
incorporated under the laws of Puerto Rico in 1992.
ATH Costa Rica, S.A.- A wholly-owned subsidiary of Popular
International Bank, Inc., incorporated under the laws of Costa
Rica in 1996.
Popular North America, Inc. - A wholly-owned subsidiary of
Popular International Bank, Inc., incorporated under the laws
of Delaware in 1991.
Banco Fiduciario, S.A. (Formerly: Banco Gerencial y Fiduciario
Dominicano, S.A.) - A subsidiary of Popular International
Bank, Inc., incorporated under the laws of Dominican Republic
in 1983.
Equity One, Inc. - A wholly-owned subsidiary of Popular North
America, Inc., incorporated under the laws of Delaware in
1980.
Popular Holdings USA, Inc. - A wholly-owned subsidiary of
Popular North America, Inc., incorporated under the laws of
Delaware in 1988.
Banco Popular North America - A wholly-owned subsidiary of
Popular Holdings USA, Inc., incorporated under the laws of New
York in 1998.
Popular Leasing, U.S.A. - A wholly-owned subsidiary of Banco
Popular North America, incorporated under the laws of Delaware
in 1997.
BPNA Real Estate Holdings, Inc. - A wholly-owned subsidiary of
Banco Popular North America, incorporated under the laws of
New Jersey in 1999.
BPNA Real Estate, Inc. - A wholly-owned subsidiary of BPNA
Real Estate Holdings, Inc., incorporated under the laws of New
York in 1999.
Banco Popular, National Association (Texas) - A wholly-owned
subsidiary of Popular Holdings USA, Inc., incorporated under
the laws of Texas in 1985.
BanPonce Trust I - A wholly-owned subsidiary of Popular North
America, Inc., incorporated under the laws of Delaware in
1997.
<PAGE> 2
Popular Cash Express, Inc. - A wholly-owned subsidiary of
Popular North America, Inc., incorporated under the laws of
Delaware in 1997.
Popular Securities, Inc. - A wholly-owned subsidiary,
incorporated under the laws of Puerto Rico in 1956.
Metropolitana de Prestamos, Inc. - A wholly-owned subsidiary,
incorporated under the laws of Puerto Rico in 1961 (Inactive
Corporation).
Popular Assets Management, Inc. - A wholly-owned subsidiary,
incorporated under the laws of Puerto Rico in 1994 (Inactive
Corporation).
Puerto Rico Parking Corporation - A wholly-owned subsidiary,
incorporated under the laws of Puerto Rico in 1963 (Inactive
Corporation).
GM Group, Inc. - A wholly-owned subsidiary, incorporated under the laws
of Puerto Rico in 1989.
Newco Mortgage Holding Corporation (Levitt Mortgage) - A wholly-owned
subsidiary, incorporated under the laws of Puerto Rico in 1999.
<PAGE> 1
EXHIBIT 23.1
[PRICEWATERHOUSECOOPERS LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-82507) of Popular, Inc. of our report dated
February 24, 2000 relating to the financial statements, which appears on page
F-29 of the 1999 Annual Report to Shareholders of Popular, Inc., which is
incorporated by reference in Popular, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1999.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
San Juan, Puerto Rico
March 10, 2000
<PAGE> 2
EXHIBIT 23.1
[PRICEWATERHOUSECOOPERS LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-80167) of Popular, Inc. of our report dated
February 24, 2000 relating to the financial statements, which appears on page
F-29 of the 1999 Annual Report to Shareholders of Popular, Inc. which is
incorporated by reference in Popular, Inc.'s Annual Report on Form 10K for the
year ended December 31, 1999.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
San Juan, Puerto Rico
March 10, 2000
<PAGE> 3
EXHIBIT 23.1
[PRICEWATERHOUSECOOPERS LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-80169) of Popular, Inc. of our report dated
February 24, 2000 relating to the financial statements, which appears on page
F-29 of the 1999 Annual Report to Shareholders of Popular, Inc., which is
incorporated by reference in Popular, Inc.'s Annual Report on Form 10K for
the year ended December 31, 1999.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
San Juan, Puerto Rico
March 10, 2000
<PAGE> 4
EXHIBIT 23.1
[PRICEWATERHOUSECOOPERS LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-94703) of Popular, Inc. of our report dated
February 24, 2000 relating to the financial statements, which appears on page
F-29 of the 1999 Annual Report to Shareholders of Popular, Inc., which is
incorporated by reference in Popular, Inc.'s Annual Report on Form 10K for the
year ended December 31, 1999.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
San Juan, Puerto Rico
March 10, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FINANCIAL
STATEMENTS OF POPULAR, INCORPORATED FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 663,696
<INT-BEARING-DEPOSITS> 54,354
<FED-FUNDS-SOLD> 931,123
<TRADING-ASSETS> 236,610
<INVESTMENTS-HELD-FOR-SALE> 7,324,950
<INVESTMENTS-CARRYING> 299,312
<INVESTMENTS-MARKET> 295,075
<LOANS> 14,907,754
<ALLOWANCE> 292,010
<TOTAL-ASSETS> 25,460,539
<DEPOSITS> 14,173,715
<SHORT-TERM> 7,026,869
<LIABILITIES-OTHER> 459,329
<LONG-TERM> 2,127,599
0
100,000
<COMMON> 827,662
<OTHER-SE> 733,324
<TOTAL-LIABILITIES-AND-EQUITY> 25,460,539
<INTEREST-LOAN> 1,373,158
<INTEREST-INVEST> 425,907
<INTEREST-OTHER> 52,605
<INTEREST-TOTAL> 1,851,670
<INTEREST-DEPOSIT> 452,215
<INTEREST-EXPENSE> 897,932
<INTEREST-INCOME-NET> 953,739
<LOAN-LOSSES> 148,948
<SECURITIES-GAINS> 638
<EXPENSE-OTHER> 837,482
<INCOME-PRETAX> 342,678
<INCOME-PRE-EXTRAORDINARY> 257,558
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 257,558
<EPS-BASIC> 1.84
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.65
<LOANS-NON> 296,845
<LOANS-PAST> 28,731
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 117,114
<ALLOWANCE-OPEN> 267,249
<CHARGE-OFFS> 182,710
<RECOVERIES> 58,008
<ALLOWANCE-CLOSE> 292,010
<ALLOWANCE-DOMESTIC> 266,135
<ALLOWANCE-FOREIGN> 25,875
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
POPULAR, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
POPULAR, INC.
P.O. BOX 362708
SAN JUAN, PUERTO RICO 00936-2708
----------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, APRIL 25, 2000
----------------------------------
To the Stockholders of Popular, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Popular, Inc. (the "Meeting") for the year 2000 will be held at 10:30 a.m. on
Tuesday, April 25, 2000, on the third floor of the Centro Europa Building, in
Santurce, Puerto Rico, to consider and act upon the following matters:
(1) To elect four (4) directors of Popular, Inc. (the "Corporation")
for a three-year term; and
(2) To transact any and all other business as may be properly brought
before the Meeting or any adjournments thereof. Management at present
knows of no other business to be brought before the Meeting.
Stockholders of record at the close of business on March 6, 2000, are
entitled to notice of and to vote at the Meeting.
You are cordially invited to attend the Meeting. Whether you plan to
attend or not, please sign and return the enclosed proxy so that the Corporation
may be assured of the presence of a quorum at the Meeting. A postage-paid
envelope is enclosed for your convenience. REMEMBER THAT YOU CAN VOTE BY
TELEPHONE OR BY INTERNET; FOR FURTHER DETAILS PLEASE REFER TO THE ENCLOSED PROXY
CARD.
San Juan, Puerto Rico, March 15, 2000.
By Order of the Board of Directors,
SAMUEL T. CESPEDES
Secretary
<PAGE> 3
POPULAR, INC.
P.O. BOX 362708
SAN JUAN, PUERTO RICO 00936-2708
--------------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, APRIL 25, 2000
--------------------------
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Popular, Inc. (the "Corporation") of proxies to be
voted at the Annual Meeting of Stockholders (the "Meeting") to be held at 10:30
a.m. on Tuesday, April 25, 2000, on the third floor of the Centro Europa
Building, in Santurce, Puerto Rico, and any adjournments thereof. Enclosed with
this Proxy Statement is the Corporation's Annual Report (the "Annual Report"),
including the financial statements for the year ended December 31, 1999, duly
certified by PricewaterhouseCoopers LLP as independent public accountants. This
Proxy Statement, the enclosed Annual Report, the Notice of Annual Meeting of
Stockholders and the form of proxy are being sent to stockholders on or about
March 15, 2000. Shareholders are entitled to vote by telephone or by Internet
following the detailed instructions included in the Proxy Card, as authorized by
the Puerto Rico Corporation Law and the Bylaws of the Corporation.
Properly executed proxies received by the Secretary of the Corporation
will be voted at the Meeting in accordance with the instructions which appear
therein and for the purposes indicated on the Notice of Meeting. The Board of
Directors does not intend to present any business at the Meeting other than that
described in the Notice of Meeting. The Board of Directors at this time knows of
no other matters which may come before the Meeting. However, if any new matters
requiring the vote of the stockholders are properly presented before the
Meeting, proxies may be voted with respect thereto in accordance with the best
judgment of Proxyholders, under the discretionary power granted by stockholders
to their proxies in connection with general matters.
SOLICITATION OF PROXIES
In addition to solicitation by mail, management may participate in the
solicitation of Proxies by telephone, personal interviews or otherwise. The
Board of Directors has engaged the firm of Georgeson & Company Inc. to aid in
the solicitation of Proxies. The cost of solicitation will be borne by the
Corporation and is estimated at $6,500.
REVOCABILITY OF PROXY
Any stockholder giving a proxy has the power to revoke it before the
proxy is exercised. At the Meeting the grantor may revoke the proxy by
reclaiming the right to vote the shares of stock registered in the grantor's
name or by notice of revocation in writing to the President or Secretary of
Popular, Inc., P.O. Box 362708, San Juan, Puerto Rico 00936-2708, delivered
before the proxy is exercised.
VOTING SECURITIES
The only outstanding voting securities of the Corporation are its
shares of common stock (the "common stock"), each share of which entitles the
holder thereof to one vote. Only common stockholders of record at the close of
business on March 6, 2000 (the "Record Date"), will be entitled to vote at the
Meeting and any adjournments thereof. On the Record Date there were 135,763,765
shares of common stock of Popular, Inc. issued and outstanding. The shares
covered by any such proxy that is properly executed and received by management
before 10:30 a.m. on the day of the Meeting will be voted.
2
<PAGE> 4
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of common stock of the Corporation is necessary to
constitute a quorum at the Meeting. Votes cast by proxy or in person at the
Meeting will be counted by the persons appointed by the Corporation as members
of the vote-counting committee for the Meeting. For purposes of determining a
quorum, the members of the vote-counting committee will treat abstentions and
brokers non-votes as shares that are present and entitled to vote. A broker
non-vote results when a broker or nominee has expressly indicated in the proxy
that it does not have discretionary authority to vote on a particular matter. As
to the election of Directors, the Proxy Card being provided by the Board of
Directors enables a stockholder to vote for the election of the nominees
proposed by the Board, or to withhold authority to vote for one or more of the
nominees being proposed. Directors will be elected by a majority of the votes
cast. Therefore, abstentions and broker non-votes will not have an effect on the
election of directors of the Corporation.
PRINCIPAL STOCKHOLDERS
Following is the information, to the extent known by the persons on
whose behalf this solicitation is made, with respect to any person (including
any "group" as that term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended) who is known to the Corporation to be the beneficial
owner of more than five percent (5%) of the Corporation's voting securities.
<TABLE>
<CAPTION>
Amount and nature Percent
of beneficial of
Title of Class Name and address of beneficial owner ownership (1) Class (2)
- -------------- ------------------------------------ ----------------- ---------
<S> <C> <C> <C>
Common Banco Popular de Puerto Rico (the "Bank")
As Trustee for Banco Popular de Puerto
Rico Retirement Plan 5,672,860
The Bank as Trustee for the Profit Sharing Plan
for the Employees of Banco Popular de Puerto
Rico 5,320,208
----------
10,993,068 (3) 8.0972
Common State Farm Mutual Automobile Insurance
Company 7,749,124 (4) 5.7078
</TABLE>
- -----------------------
(1) As of February 29, 2000.
(2) Based on 135,763,765 shares of common stock outstanding.
(3) The Bank, as Trustee, administers both Plans through their
Administrative Committees, with sole voting and investment power.
(4) On February 5, 2000 State Farm Mutual Automobile Insurance Company
("State Farm") and affiliated entities filed a joint statement on
Schedule 13-G with the Securities and Exchange Commission reflecting
their holdings as of December 31, 1999. According to said statement,
State Farm and its affiliates might be deemed to constitute a "group"
within the meaning of Section 13(d)(3) of the Securities Exchange Act
of 1934. State Farm and its affiliates could also be deemed to be the
beneficial owners of 7,749,124 shares of Popular, Inc. However, State
Farm and each such affiliate disclaim beneficial ownership as to all
shares as to which each such person has no right to receive the
proceeds of sale of the shares, and also disclaim that they constitute
a "group".
3
<PAGE> 5
SHARES BENEFICIALLY OWNED BY DIRECTORS,
NOMINEES AND EXECUTIVE OFFICERS OF THE CORPORATION AND ITS SUBSIDIARIES
Following is the information, as of February 29, 2000, as to equity
securities of the Corporation beneficially owned by all current directors,
nominees, the most highly compensated Executive Officers of the Corporation and
its subsidiaries who are not directors and the total owned by directors,
nominees and all Executive Officers of the Corporation and its subsidiaries as a
group:
COMMON STOCK
<TABLE>
<CAPTION>
Title Amount and Nature Percent of
Name of class of Beneficial Ownership class(1)
---- -------- ----------------------- ---------
<S> <C> <C> <C>
Alfonso F. Ballester ................... Common 1,395,173(3) 1.0276
Juan J. Bermudez ....................... Common 466,831(4) .3439
Francisco J. Carreras .................. Common 15,506 .0114
Richard L. Carrion ..................... Common 1,106,490(5) .8150
David Chafey Jr ........................ Common 81,687 .0602
Antonio Luis Ferre ..................... Common 2,915,695(6) 2.1476
Hector R. Gonzalez ..................... Common 614,416(7) .4526
Jorge A. Junquera ...................... Common 62,345(8) .0459
Manuel Morales Jr ...................... Common 727,330(9) .5357
Alberto M. Paracchini .................. Common 113,490(10) .0836
Francisco M. Rexach Jr ................. Common 192,916(11) .1421
J. Adalberto Roig Jr ................... Common 476,735(12) .3512
Felix J. Serralles Jr .................. Common 429,660(13) .3165
Julio E. Vizcarrondo Jr ................ Common 1,181,766(14) .8705
Maria Isabel P. de Burckhart ........... Common 65,269(15) .0481
Roberto R. Herencia .................... Common 12,687 .0093
Larry B. Kesler ........................ Common 45,106 .0332
Humberto Martin ........................ Common 75,038 .0553
Emilio E. Pinero ....................... Common 38,243 .0282
Carlos Rom Jr .......................... Common 24,388(16) .0180
Carlos J. Vazquez ...................... Common 104,186(17) .0767
Kenneth McGrath ........................ Common 3,953 .0029
Cameron E. Williams .................... Common 200 .0001
All Directors and Executive Officers
of the Corporation and its subsidiaries
as a group ........................... Common 10,149,110 7.4756
</TABLE>
PREFERRED STOCK
<TABLE>
<CAPTION>
Title Amount and Nature Percent of
Name of class of Beneficial Ownership class(2)
---- -------- ----------------------- ---------
<S> <C> <C> <C>
Alberto M. Paracchini .................. Preferred 7,000 .1750
Carlos J. Vazquez ...................... Preferred 4,568(18) .1142
All Directors and Executive Officers
of the Corporation as a group ......... Preferred 11,568 .2892
</TABLE>
4
<PAGE> 6
<TABLE>
<S> <C>
(1) Based on 135,763,765 shares of common stock outstanding.
(2) Based on 4,000,000 shares of preferred stock outstanding.
(3) Mr. Ballester owns 1,391,173 shares and has indirect investment power
over 4,000 shares owned by his wife. Excludes 1,187,988 shares owned by
his sister, as to all of which shares Mr. Ballester disclaims
beneficial ownership.
(4) Excludes 12,745 shares owned by his wife, as to which Mr. Bermudez
disclaims beneficial ownership.
(5) Mr. Carrion owns 299,740 shares and also has indirect investment power
over 24,421 shares owned by his children. Junior Investment Corporation
owns 4,372,999 shares of the Corporation. Mr. Carrion owns 17.89% of
the shares of said corporation.
(6) Mr. Ferre has direct or indirect investment and voting power as to
2,915,695 shares of the Corporation. Mr. Ferre owns 2,633 shares and
has indirect investment and voting power over 513,880 shares owned by
ALFRA Investment Corp., 3,200 shares owned by South Management, Inc.
and 400 shares owned by his wife. Mr. Ferre owns 85.12% of Ferre
Investment Fund, Inc., which owns 950,870 shares of the Corporation.
Ferre Investment Fund, Inc. and ALFRA Investment Corporation in turn
own 69.39% and 20.57%, respectively, of El Dia, Inc., which owns
1,444,712 shares of the Corporation.
(7) Mr. Gonzalez owns 585,064 shares and has voting and investment power
over 29,352 shares of the Corporation owned by TPC Financial Services,
Inc. of which he has control.
(8) Mr. Junquera owns 61,635 shares and has indirect investment power over
211 shares owned by his wife and over 499 shares owned by his children.
(9) Mr. Morales owns 319,722 shares and has voting power over 407,608
shares owned by his parents, as their attorney-in-fact.
(10) Excludes 1,264 shares owned by his wife, as to which Mr. Paracchini
disclaims beneficial ownership.
(11) Mr. Rexach owns 85,416 shares and has indirect voting power over 93,500
shares owned by his mother, as her attorney-in-fact, and over 14,000
shares held by Capital Assets, Inc. as President and shareholder.
(12) Mr. Roig owns 451,547 shares and has indirect voting power over 25,188
shares owned by his wife.
(13) Mr. Serralles owns 226,752 shares, and has indirect voting power over
10,292 shares owned by his wife. Mr. Serralles owns 100% of the shares
of each of Capitanejo, Inc. and Fao Investments, Inc., which own
117,020 and 5,596 shares, respectively, of the Corporation and has
indirect ownership of 70,000 shares owned by Destileria Serralles, Inc.
(14) Mr. Vizcarrondo owns 202,179 shares and has indirect voting power over
184,576 shares owned by his wife. Mr. Vizcarrondo's wife owns 18.18% of
the shares of Junior Investment Corporation, which owns 4,372,999
shares of the Corporation. Mr. Vizcarrondo has indirect voting and
investment power over 1,334 shares held in trust by Vicar Enterprises,
Inc. for the benefit of his children, for which he disclaims beneficial
ownership. Mr. Vizcarrondo also disclaims beneficial ownership over
131,278 shares owned by DMI Pension Trust, where he serves as trustee
and member of the investment committee.
(15) Mrs. Burckhart owns 62,274 shares and has indirect voting power over
2,995 held by her husband as custodian for her daughters.
(16) Mr. Rom owns 23,756 shares and has indirect voting power over 145
shares owned by his wife and 487 shares held by him as custodian for
various members of his family.
(17) Mr. Vazquez owns 10,526 shares and has investment authority over 93,660
shares held by various family members.
(18) Mr. Vazquez has investment authority over 4,568 preferred shares held
by various family members.
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Corporation's directors and named executive officers to file with
the Securities and Exchange Commission (SEC) reports of ownership and changes in
ownership of common stock of the Corporation. Officers and directors are
required by SEC regulation to furnish the Corporation with copies of all Section
16(a) forms they file.
Based solely on a review of the copies of such reports furnished to the
Corporation or written representations that no other reports were required, the
Corporation believes that, with respect to 1999, all filing requirements
applicable to its officers and directors were complied with except for one
report, covering one transaction, filed late by each of Messrs. Juan J. Bermudez
and Felix J. Serralles Jr., both directors of the Corporation.
5
<PAGE> 7
BOARD OF DIRECTORS AND COMMITTEES;
ELECTION OF DIRECTORS
The Certificate of Incorporation and the Bylaws of the Corporation
establish a classified Board of Directors pursuant to which the Board of
Directors is divided into three classes as nearly equal in number as possible,
with each class having at least three members and with the term of office of one
class expiring each year. Each director serves for a term ending on the date of
the third annual meeting of stockholders following the annual meeting at which
such director was elected or until his successor has been elected and qualified.
To better balance the three classes in accordance with the Certificate of
Incorporation and Bylaws of the Corporation, one director previously assigned to
"Class 2" and two directors previously assigned to "Class 3" are nominated for
election as set forth below.
At the Meeting, four (4) directors assigned to "Class 1" are to be
elected to serve until the 2003 Annual Meeting of Stockholders or until their
respective successors shall have been elected and qualified. The remaining eight
directors of the Corporation will serve as directors, as follows: until the 2001
Annual Meeting of Stockholders of the Corporation, in the case of those three
directors assigned to "Class 2", and until the 2002 Annual Meeting of
Stockholders, in the case of those five directors assigned to "Class 3", or in
each case until their successors are elected and qualified.
The policy of the Board of Directors, as set forth in a resolution
adopted on January 8, 1991, provides that no person shall be nominated for
election or reelection as director of the Board if, at the date of the Annual
Meeting of Stockholders or during the term to be served, such person would
attain seventy two (72) years of age. Messrs. Alfonso F. Ballester and J.
Adalberto Roig Jr. would attain seventy two (72) years of age during the term to
be served. In accordance with Board policy, Messrs. Ballester and Roig will not
be nominated for reelection as directors. Mr. Luis E. Dubon Jr, resigned from
the Board of Directors of the Corporation as of February 23, 2000. Mr. Dubon's
decision was not due to disagreement with the Corporation on any matter relating
to the Corporation's operations, policies or practices. Mr. Dubon was member of
"Class 2" of the Board of Directors.
The people named as proxies in the accompanying Form of Proxy have
advised the Corporation that, unless otherwise instructed, they intend to vote
at the Meeting the shares covered by the proxies FOR the election of the four
nominees named below, and that if any one or more of such nominees should become
unavailable for election they intend to vote such shares FOR the election of
such substitute nominees as the Board of Directors may propose. The Corporation
has no knowledge that any nominee will become unavailable for election.
Information relating to principal occupation and business experience
during the past five (5) years (including position held with the Corporation or
the Bank), age and the period during which each director has served is set forth
below.
NOMINEES FOR ELECTION AS DIRECTORS
CLASS 1 DIRECTORS
(TERMS EXPIRING IN 2003)
JUAN J. BERMUDEZ: (62 years), Director of the Corporation since 1990.
Electrical Engineer. Partner of Bermoedez and Longo, S.E., Unicenter, S.E.,
Unieast, S.E., Unigardens, S.E., Clearview, S.E., Placid Park, S.E. and PCME
Commercial, S.E. Principal Stockholder and Director of BL Management, Corp.,
Paseomar Corp., PCME Development, Inc., G.S.P. Corp., Unimanagement Corp., LBB
Properties, Inc. and Homes Unlimited Corp. Director of the Bank, Popular
Securities, Inc., Popular Leasing & Rental, Inc., Popular Finance, Inc. and
Popular Mortgage, Inc. Chairman of the Trust Committee of the Bank.
RICHARD L. CARRION: (47 years), Director of the Corporation since 1990.
Chairman, President and Chief Executive Officer ("CEO") of the Corporation and
the Bank. Chairman of Popular International Bank, Inc., Popular North America,
Inc., Banco Popular North America and Popular Cash Express, Inc. Chairman of the
Board of Trustees of Fundacion Banco Popular, Inc. Director of Equity One, Inc.,
Popular Finance, Inc., Popular Leasing & Rental, Inc., Popular Mortgage, Inc.,
Popular Securities, Inc., Banco Fiduciario, S.A. and GM Group, Inc. Member of
the International Olympic Committee. President of the Puerto Rico Olympic
Trust and Member of the Puerto Rico Olympic Committee. Member of the Board of
Directors of Bell Atlantic Corporation (a registered public company) and member
of the Benefits & Human Resources Committee of Bell Atlantic Corporation. Member
of the Board of Trustees of the Puerto Rico Committee for Economic Development.
Former Chairman and President of Puerto Rico Investors Tax-Free Fund, Inc. I,
II, III, IV, V (1994 to December 1998) and of Puerto Rico Tax-Free Target
Maturity Fund, Inc. I (1996 to December 1998) and II (1997 to December 1998).
Former Chairman and President
6
<PAGE> 8
of Puerto Rico Investors Flexible Allocation Fund (December 1998 to January
1999). Former Member of the Board of the National Museum of American History,
Smithsonian Institution (November 1997 to December 1998). Member of the Board of
Directors of Telecomunicaciones de Puerto Rico, Inc. (TELPRI). Chairman of the
Executive Committee of the Corporation.
JORGE A. JUNQUERA: (51 years), Director of the Corporation since 1990.
Chief Financial Officer ("CFO") of the Corporation and the Bank. Supervisor of
the Financial Management Group, the U.S. Operations and the Caribbean and Latin
America Expansion Group since January 1996. Supervisor of the Bank's Retail
Banking Group until December 1995. Senior Executive Vice President since October
1995. President and Director of Popular International Bank, Inc. and Popular
North America, Inc. since January 1996. Director and President of Banco Popular
North America. Director of the Bank, Equity One, Inc., Banco Fiduciario, S.A.,
ATH Dominicana, S.A. and Popular Cash Express, Inc. Director of Popular
Mortgage, Inc., Popular Finance, Inc. and Popular Leasing & Rental, Inc. until
December 1998. Chairman of the Board of Popular Securities, Inc. President of
Puerto Rico Tourism Company until February 1997 and President of Hotel
Development Co. Director of YMCA and of PRISMA: El Exploratorio, Inc.
FRANCISCO M. REXACH JR.: (62 years), Director of the Corporation since
1990. President of Ready Mix Concrete, Inc., a subsidiary of PRCC (a registered
public company) until September 1997. President of Capital Assets, Inc. and of
Rexach Consulting Group. Director of the Bank, Popular International Bank, Inc.,
Popular North America, Inc., Banco Popular North America, Banco Fiduciario,
S.A., Popular Cash Express, Inc. and Equity One, Inc. Chairman of the Human
Resources and Compensation Committees of the Bank and of Banco Fiduciario, S.A.
CLASS 3 DIRECTORS
(TERMS EXPIRING IN 2002)
FRANCISCO J. CARRERAS: (67 years), Director of the Corporation since
1990. Former professor of the University of Puerto Rico. Former President of the
Catholic University of P.R. Member of the Board of Trustees of Fundacion Banco
Popular, Inc. Executive Director of Fundacion Angel Ramos, Inc. Chairman of the
Community Reinvestment Committee of the Bank. Director of the Bank.
DAVID H. CHAFEY JR.: (46 years), Director of the Corporation since
1996. Supervisor of the Bank's Retail Banking Group since January 1996.
Supervisor of the Financial Management Group and U.S. Operations until December
1995. Senior Executive Vice President since October 1995. Chairman of Popular
Securities, Inc. until January 1996. Senior Executive Vice President of Popular
International Bank, Inc. and Popular North America, Inc. President of Popular
International Bank, Inc. and Popular North America, Inc. until December 1995.
Director of the Bank, Popular Mortgage, Inc., Popular Leasing & Rental, Inc., GM
Group, Inc. and Popular Securities, Inc. Director of Equity One, Inc. and Banco
Popular North America until December 1999. Chairman of the Board of Popular
Finance, Inc. Chairman of the Board of Puerto Rico Telephone Authority from 1993
thru 1997. Chairman and President of Puerto Rico Investors Tax-Free Fund, Inc.
I, II, III, IV, V, VI, of Puerto Rico Tax-Free Target Maturity Fund, Inc. I and
II and of Puerto Rico Investors Flexible Allocation Fund since January 1999.
Chairman of the Board of Grupo Guayacan, Inc. President of the San Jorge
Children's Research Foundation, Inc. Vice President of the Puerto Rico Bankers
Association. Director of Visa International for the Caribbean and Latin America.
ANTONIO LUIS FERRE: (66 years), Director of the Corporation since 1984.
Vice Chairman of the Board of Directors of the Corporation and the Bank.
Chairman of the Board of Puerto Rican Cement Co., Inc. (a registered public
company), manufacturers of cement and allied products. President and Editor of
El Dia, Inc. and of Primera Hora, newspaper publishing companies. President of
Advanced Graphic Printing, a commercial printing company. Chairman of the Board
of Virtual, Inc., and Internet company. Director of Metropolitan Life Insurance
Company (a registered company under the Investment Company Act of 1940) until
December 1995.
ALBERTO M. PARACCHINI: (67 years), Director of the Corporation since
1984. Former Chairman of the Board of Directors of the Corporation and the Bank.
Former Chairman of Popular North America, Inc., Equity One, Inc., Popular
Finance, Inc. and Popular Leasing & Rental, Inc. Member of the Board of Trustees
of Fundacion Banco Popular, Inc. Chairman of the Board of Trustees of Sacred
Heart University in San Juan, Puerto Rico. Director of Puerto Rican Cement Co.,
Inc. (a registered public company). Director of Equus Management Co., Inc. and
Managing General Partner of Equus Gaming Co., L.P. (a registered public
company). Director of Equus Entertainment Corporation, a subsidiary of Equus
Gaming Co., L.P. (registered public company) and of Venture Capital Fund, Inc.
Director of the Bank.
FELIX J. SERRALLES JR.: (65 years), Director of the Corporation since
1984. President and Chief Executive Officer of Destileria Serralles, Inc.,
manufacturers and distributors of distilled spirits, and of its affiliate
Mercedita Leasing, Inc. Director of the Bank, Popular International Bank, Inc.,
Popular North America, Inc., Banco Popular North America, Popular Cash Express,
Inc. and Equity One, Inc.
7
<PAGE> 9
CLASS 2 DIRECTORS
(TERMS EXPIRING IN 2001)
HECTOR R. GONZALEZ: (66 years), Director of the Corporation since 1984.
President and Chief Executive Officer of TPC Communications of PR, Inc., owner
and operator of cable television systems. President and Chief Executive Officer
of TPC Financial Services, Inc., TPC Cable Media, TelePonce Cable TV and
Telecell Systems. Director of Damas Foundation, Inc. and Damas Hospital, Inc.
Director of the Bank, Popular Finance, Inc., Popular Mortgage, Inc., Popular
Leasing & Rental, Inc. and Popular Securities, Inc. Member of the Board of
Trustees of Sacred Heart University in San Juan, Puerto Rico.
MANUEL MORALES JR.: (54 years), Director of the Corporation since 1990.
President of Selarom Capital Group, Inc. President of Parkview Realty, Inc., the
Atrium Office Center, Inc., HQ Business Center P.R., Inc., Executrain of Puerto
Rico and Office & Home, Inc. Honorary General Consul of Japan in San Juan,
Puerto Rico. Member of the Board of Trustees of Sacred Heart University in San
Juan, Puerto Rico, of the Caribbean Environmental Development Institute and of
Fundacion Angel Ramos, Inc. Member of the Board of Directors of the Better
Business Bureau. Member of the National Advisory Council-United States Small
Business Administration. Member of the Board of Trustees of Fundacion Banco
Popular, Inc. Dean of Consular Corps of Puerto Rico. Chairman of the Audit
Committee of the Corporation and the Bank. Director of the Bank.
JULIO E. VIZCARRONDO JR.: (65 years), Director of the Corporation since
1990. Civil Engineer. President, Partner and Chief Executive Officer of
Desarrollos Metropolitanos, S.E., VMV Enterprises Corp., Resort Builders, S.E.,
Metropolitan Builders, S.E. and Institutional Builders, S.E., corporations
engaged in the development and construction of residential, commercial,
industrial and institutional projects in Puerto Rico. Director of the Bank,
Popular International Bank, Inc., Popular North America, Inc., Banco Popular
North America, Popular Cash Express, Inc. and Equity One, Inc.
The Board of Directors of the Corporation met on a monthly basis during
1999. All directors except Messrs. Antonio Luis Ferre, J. Adalberto Roig Jr.,
Felix J. Serralles Jr. and Mr. Luis E. Dubon Jr., who was on a leave of absence
from the Board from February 1999 until his resignation from the Board attended
to 75% or more to the meetings of the Board of Directors and the committees of
the Board of Directors on which such directors served.
STANDING COMMITTEES
The Corporation's Board of Directors (the "Board") has standing Audit,
Risk Management and Executive Committees. The Board of Directors of the Bank,
the principal subsidiary of the Corporation, has a standing Human Resources and
Compensation Committee that may review compensation matters for the Corporation.
There is no standing Nominating Committee but the Executive Committee charter
provides that the Executive Committee may exercise the power to nominate
directors. However, in the past the Executive Committee has not exercised such
function and nominations have been made by the Board.
AUDIT COMMITTEE
The functions of the Audit Committee include reviewing the accounting
principles and practices employed by the Corporation, and compliance with
applicable laws and regulations. The Committee meets with the Corporation's
independent external auditors to review their audit procedures, the report on
their examination of the Corporation's financial statements, and their comments
on the system of internal controls. Also, the Committee oversees the internal
audit function and reviews the reports prepared by the Auditing Division on
their examinations of the operating and business units and for any other special
examinations that may be required. The management of the Corporation is
responsible for the preparation, presentation and integrity of the Corporation's
financial statements. Management and the internal auditing division are
responsible for maintaining appropriate accounting and financial reporting
principles and policies and internal controls and procedures designed to ensure
compliance with accounting standards and applicable laws and regulations. The
external auditors are responsible for planning and carrying out a proper audit
and reviews and other procedures. The members of the Audit Committee are not
full-time employees of the Corporation or its subsidiaries and are not
accountants or auditors by profession or experts in the fields of accounting or
auditing. As such, it is not the duty or responsibility of the Audit Committee
or its members to conduct "field work" or other types of auditing or accounting
reviews or procedures, and each member of the Audit Committee is entitled to
rely on the integrity of those persons and organizations within and outside the
Corporation from which the Audit Committee receives information and the accuracy
of the financial and other information provided to the Audit Committee by such
persons or organizations, absent actual knowledge to the contrary. The Committee
held four meetings during the fiscal year ended December 31, 1999.
8
<PAGE> 10
The Committee members during 1999 were: Juan J. Bermudez, Francisco J.
Carreras, Manuel Morales Jr., Alberto M. Paracchini, J. Adalberto Roig Jr. and
Felix J. Serralles Jr.
HUMAN RESOURCES AND COMPENSATION COMMITTEE
The functions of the Human Resources and Compensation Committee include
reviewing the compensation and benefits of management and employees, reviewing
the policies related to the performance and compensation of management and
employees, and reviewing the long-range planning for executive development and
succession. The Committee held two meetings during the fiscal year ended
December 31, 1999.
The Committee members during 1999 were: Juan A. Albors, Salustiano
Alvarez Mendez, Francisco J. Carreras, Hector R. Gonzalez, Alberto M. Paracchini
and Francisco M. Rexach Jr. None of the members of the Committee are officers or
employees of the Corporation or any of its subsidiaries.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Corporation and its subsidiaries
were entitled to a $12,000 annual retainer. The Board has a Stock Deferment
Plan, pursuant to which each outside director of the Corporation is given the
option to defer all or a portion of the $12,000 annual retainer. The deferred
portion, plus an additional amount of $0.25 for each dollar so deferred, is
applied toward the purchase in the open market of shares of the Corporation's
common stock on behalf of the director. The certificates representing such
shares are retained by the Corporation until the director's term in office as a
director of the Corporation (and the Bank) terminates. In addition, each
director has the right to vote and to receive any dividends payable on the
shares held for said director under the Plan, but no such shares may be sold,
transferred, assigned, pledged or in any other way encumbered by the director
until the certificates representing such shares are delivered to the director.
In the event that a director is duly removed from office for cause, said
director (1) shall be obliged to sell to the Corporation all of the shares
acquired with the deferred retainer amount at a price equal to the lower of (a)
the actual purchase price of said shares and (b) the market price of said shares
on the date the director was discharged, and (2) shall forfeit to the
Corporation any shares purchased with the Corporation's additional contribution.
In addition, directors receive $750 for attending each Board meeting,
$1,000 for attending each Executive Committee meeting and $500 for attending
each of the other committee meetings. Directors who are employees do not receive
fees for attending Board and committee meetings.
EXECUTIVE OFFICERS
The following information sets forth the names of the executive
officers (the "Executive Officers") of the Corporation including their age,
business experience during the past five (5) years and the period during which
each such person has served as an Executive Officer of the Corporation or the
Bank.
RICHARD L. CARRION: (47 years), Chairman, President and CEO of the
Corporation. Executive Officer of the Corporation since 1990. For information
about principal occupation and business experience during the past five years
please refer to the Board of Directors section.
JORGE A. JUNQUERA: (51 years), Senior Executive Vice President of the
Corporation. Executive Officer of the Corporation since 1990. For information
about principal occupation and business experience during the past five years
please refer to the Board of Directors section.
DAVID H. CHAFEY JR.: (46 years), Senior Executive Vice President of the
Corporation. Executive Officer of the Corporation since 1990. For information
about principal occupation and business experience during the past five years
please refer to the Board of Directors section.
MARIA ISABEL P. DE BURCKHART: (51 years), Executive Vice President of
the Corporation. Executive Officer of the Corporation since 1990. Supervisor of
the Administration Group. Executive Vice President of the Bank since January
1990. Executive Vice President of Popular International Bank, Inc. and Popular
North America, Inc. Member of the Board of Trustees of Fundacion Banco Popular,
Inc. Member of the Board of Directors of Fundacion Ana G. Mendez and of Puerto
Rico
9
<PAGE> 11
Community Foundation. Member of the Board of Directors of the Puerto Rico
Convention Bureau from 1993 through October 1998. Secretary of the Board of
Directors of the Bankers Club since 1998.
ROBERTO R. HERENCIA: (40 years), Executive Vice President of the
Corporation. Executive Officer of the Corporation since 1997. Head of the
Corporation's U.S. business expansion. Executive Vice President of the Bank
since January 1997. Director of Popular International Bank, Inc., Popular North
America, Inc., Popular Cash Express, Inc. and Equity One, Inc. Director and
Chief Operations Officer of Banco Popular North America. Senior Vice President
from December 1991 to December 1996.
LARRY B. KESLER: (62 years), Executive Vice President of the
Corporation. Executive Officer of the Corporation since 1990. Supervisor of the
Individual Credit Group and the Virgin Islands Region. Executive Vice President
of the Bank since January 1990. Chairman of the Board of Directors of Equity
One, Inc., Popular Leasing & Rental, Inc. and Popular Mortgage, Inc. Executive
Vice President of Popular International Bank, Inc. and Popular North America,
Inc. Director of Popular Finance, Inc.
HUMBERTO MARTIN: (54 years), Executive Vice President of the
Corporation. Executive Officer of the Corporation since 1986. Supervisor of
the Operations Group. Director of ATH Dominicana, S.A. Executive Vice President
of the Bank since November 1986. Executive Vice President of Popular
International Bank, Inc. and Popular North America, Inc. Director of GM Group,
Inc.
EMILIO E. PINERO: (51 years), Executive Vice President of the
Corporation. Executive Officer of the Corporation since 1990. Supervisor of the
Commercial Banking Group. Executive Vice President of the Bank since January
1990. Director of Popular Mortgage, Inc. and Popular Leasing & Rental, Inc.
Executive Vice President of Popular International Bank, Inc. and Popular North
America, Inc. Member of the Board of Trustees of American Red Cross, Fundacion
Luis Muaeoz Marin, Fundacion del Colegio de CPA de Puerto Rico and Jane Stern
Community Library Foundation.
CARLOS ROM JR.: (43 years), Executive Vice President of the
Corporation. Executive Officer of the Corporation since 1997. Head of the
Corporation's Caribbean and Latin America business expansion. Executive Vice
President of the Bank since January 1997. Executive Vice President of Popular
International Bank, Inc. Director of ATH Dominicana, S.A. and of Banco
Fiduciario, S.A. Vice President of the Board of Directors of ATH Costa Rica,
S.A. Senior Vice President from September 1995 to December 1996. Director of
Marchand-ICS Group, Inc. Vice President and General Manager of Pizza Hut, a
division of Pepsi Co., Inc. from July 1994 to September 1995.
CARLOS J. VAZQUEZ: (41 years), Executive Vice President of the
Corporation. Executive Officer of the Corporation since 1997. Supervisor of the
Corporation's Risk Management Group. Executive Vice President of the Bank since
March 1997. Director of Popular Securities, Inc. Vice President of J.P. Morgan &
Co. Incorporated, Morgan Guaranty Trust Co. of N.Y., J.P. Morgan Securities Ltd.
and J.P. Morgan Securities, Inc. from 1982 to 1997. President of J.P. Morgan
Venezuela, S.A. from 1995 to 1997.
SAMUEL T. CESPEDES: (63 years), Secretary of the Board of Directors.
Attorney-at-Law. Proprietary partner of the law firm McConnell Valdes. Secretary
of the Board of Directors of the Corporation and the Bank since 1991. Secretary
of the Board of Directors of Popular North America, Inc., Equity One, Inc.,
Popular Leasing & Rental, Inc. and Popular Finance, Inc.
FAMILY RELATIONSHIPS
Mr. Richard L. Carrion, Chairman of the Board, President and CEO of the
Corporation and the Bank, is brother-in-law of Mr. Julio E. Vizcarrondo Jr.
OTHER RELATIONSHIPS, TRANSACTIONS AND EVENTS
During 1999 the Bank engaged the legal services of the law firm of
McConnell Valdes of which Mr. Samuel T. Cespedes, Secretary of the Board of
Directors of the Corporation and the Bank is a partner. The amount of fees paid
to McConnell Valdes did not exceed 5% of the law firm's revenues for its last
full fiscal year.
The Bank has had loan transactions with the Corporation's directors and
officers, and with their associates, and proposes to continue such transactions
in the ordinary course of its business, on substantially the same terms as those
prevailing for comparable loan transactions with other people and subject to the
provisions of the Banking Act of the Commonwealth of
10
<PAGE> 12
Puerto Rico and the applicable federal laws and regulations. The extensions of
credit have not involved and do not currently involve more than normal risks of
collectibility or other unfavorable features.
EXECUTIVE COMPENSATION PROGRAM
REPORT OF THE BANK'S HUMAN RESOURCES AND COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
OVERVIEW
The Bank's Human Resources and Compensation Committee (the "Human
Resources Committee") consists of six non-employee directors of the Bank. The
Committee endeavors to keep abreast of competitive compensation practices with
regard to salaries, incentive compensation and supplemental programs in order to
assist the Corporation in attracting and retaining the most qualified executive
officers whose contributions and experience help the Corporation sustain growth,
thereby enhancing shareholders value.
The Human Resources Committee evaluates and recommends to the Board the
Corporation's compensation policy for the Chairman of the Board, President and
CEO and the Executive Officers. The Human Resources Committee considers, among
other factors, competitive pay practices for developing a stronger relationship
between executive compensation and the Bank's long-term performance. It is kept
apprised of such competitive pay practices by an independent consultant who
conducts a periodic analysis of executive compensation of a peer group of
financial institutions similar in size, scope and business orientation ( the
"Peer Group"). On an annual basis the banking Peer Group used by the Committee
for comparative purposes is reviewed in light of industry developments, and
significant mergers/acquisitions, in order to ensure that it remains consistent
with the Corporation's size and focus. The Peer Group currently consists of ten
regional banking organizations with a retail banking emphasis.
The executive compensation program for principal officers of the
Corporation's subsidiaries is set according to the industry and geographical
area in which each operates and is approved by the Board of Directors of each
respective subsidiary.
CHAIRMAN OF THE BOARD, PRESIDENT AND CEO, MR. RICHARD L. CARRION
On an annual basis, Mr. Carrion submits to the Corporation's Executive
Committee a plan setting forth both quantitative and qualitative goals for the
fiscal year, and objectives for the medium and long-term. In evaluating and
setting compensation the Human Resources Committee considers the Corporation's
performance with respect to the goals set forth in the plan. Therefore, the
Executive Committee evaluates Mr. Carrion's performance by taking into
consideration the growth of the organization, implementation of a
diversification strategy, achievement of financial goals, improvements to the
product and service delivery system and development of human resources. The
weight and significance accorded to these factors is subjective in nature.
Mr. Carrion participates in an annual incentive program designed to
encourage the achievement of short-term financial goals and to increase
shareholder value. The first incentive component could represent 15% of base
salary, if the net income target is met, and if the net income target is
exceeded it could reach 25%. Although the threshold continues to be 100% of
target, the Human Resources Committee may recommend a discretionary bonus if
results obtained are at least 95% of the pre-established net income target. The
second component, which is based on return on equity (ROE) and is designed to
encourage an increase in shareholder value, could range from 5% to 30% of base
salary, depending on the ROE obtained. Additionally, the bonus award may be
increased by 25% when shareholder return exceeds 20% annually for a consecutive
three-year period. Total shareholder return is calculated by taking into account
the compounded annual yield of the stock, considering the market appreciation,
dividends received or dividend reinvestment. This third and last bonus component
recognizes consistent improvement in shareholder value. The maximum total
incentive bonus that may be awarded could be 68.75% of base salary if all
components of the bonus program are achieved.
For 1999, this incentive bonus was 37.26% of Mr. Carrion's base salary.
The first objective of net income after tax was 100% of target net income. The
ROE obtained was 15.45% thereby exceeding the required minimum of 15%. Total
shareholder
11
<PAGE> 13
return, which was to exceed 20% annually for a consecutive three-year period,
was 20.27% for the three-year period ended December 31, 1999. Mr. Carrion
recommended to the Committee that it consider the bonus on a future date. This
was accepted by all the members of the Committee.
EXECUTIVE OFFICERS
The group of Executive Officers is composed of two Senior Executive
Vice Presidents of the Corporation and seven Executive Vice Presidents of the
Corporation (the "Executive Officers") all of whom participate in the Profit
Sharing, Annual Incentive and Long-Term Incentive Plans of the Bank. The
President and CEO sets the salary increases and the bonuses to be awarded to the
Executive Officers pursuant to the incentive plans.
The salary increase program allows discretionary salary increases based
on individual performance to be twice the increases of the Executive Officers as
a group. It provides the CEO the opportunity to recognize changes in individual
responsibilities and performance levels.
Each Executive Officer participates in the Annual Incentive Plan. In
1999, a bonus of 37.26% of base salary was awarded to each Executive Officer.
This bonus was based on the fact that the Corporation's net income after tax was
100% of target net income, ROE obtained was 15.45%, exceeding the required
minimum of 15%, and total shareholder return which was to exceed 20% annually
for a consecutive three-year period, was 20.27% for the three-year period ended
December 31, 1999.
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid by the
Corporation or its subsidiaries to the ten highest paid Executive Officers of
the Corporation and the two most highly compensated principal officers of the
Corporation's subsidiaries for 1999.
HUMAN RESOURCES AND COMPENSATION COMMITTEE
Juan A. Albors Hector R. Gonzalez
Salustiano Alvarez Mendez Alberto M. Paracchini
Francisco J. Carreras Francisco M Rexach Jr.
12
<PAGE> 14
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
FISCAL ANNUAL COMPENSATION ALL OTHER ANNUAL INCENTIVE PLAN
NAME AND PARTICIPANT POSITION YEAR SALARY(A) BONUS(B) COMPENSATION(C) PAYOUTS(D) TOTAL
- ----------------------------- ---- --------- -------- ---------------- -------------- -----
<S> <C> <C> <C> <C> <C> <C>
Richard L. Carrion 1999 $540,000 $72,164 $ 53,327 -0- $ 665,491
Chairman, 1998 526,667 262,552 46,134 $470,142 1,305,495
President and CEO 1997 500,000 275,942 62,181 91,195 929,318
David H. Chafey Jr. 1999 412,920 209,480 41,638 -0- 664,038
Senior Executive Vice President 1998 393,000 194,560 35,356 281,995 904,911
of the Corporation 1997 350,000 197,909 44,401 63,240 655,550
Jorge A. Junquera 1999 401,760 203,866 40,752 -0- 646,378
Senior Executive Vice President 1998 384,000 189,479 34,722 281,995 890,196
of the Corporation 1997 350,000 197,954 44,401 64,646 657,001
Carlos J. Vazquez 1999 309,742 157,075 31,418 N/A 498,235
Executive Vice President 1998 293,645 140,254 21,017 N/A 454,916
of the Corporation 1997 207,308 179,286 1,770 N/A 388,364
Larry B. Kesler 1999 271,317 137,646 27,521 -0- 436,484
Executive Vice President 1998 258,952 127,899 23,415 196,911 607,177
of the Corporation 1997 235,648 132,537 29,895 51,488 449,568
Maria Isabel P. de Burckhart 1999 255,954 129,860 25,963 -0- 411,777
Executive Vice President 1998 244,288 120,664 22,089 190,731 577,772
of the Corporation 1997 223,187 125,109 28,314 50,349 426,959
Humberto Martin 1999 255,409 129,554 25,907 -0- 410,870
Executive Vice President 1998 244,633 120,448 22,120 188,811 576,012
of the Corporation 1997 225,978 127,075 28,668 48,462 430,183
Roberto R. Herencia 1999 238,411 120,894 23,476 -0- 382,781
Executive Vice President 1998 226,600 112,292 19,824 N/A 358,716
of the Corporation 1997 201,667 112,248 25,584 N/A 339,499
Emilio E. Pinero 1999 235,275 119,449 23,865 -0- 378,589
Executive Vice President 1998 224,552 110,996 20,305 178,512 534,365
of the Corporation 1997 205,720 115,125 25,927 47,576 394,348
Carlos Rom Jr. 1999 210,077 106,546 21,309 -0- 337,932
Executive Vice President 1998 201,083 99,045 18,183 N/A 318,311
of the Corporation 1997 184,500 104,400 23,406 N/A 312,306
Kenneth McGrath 1999 180,000 224,200 75,000 N/A 479,200
President of Popular Securities, Inc. 1998 175,000 165,200 59,000 N/A 399,200
(a wholly-owned subsidiary 1997 170,833 194,410 39,750 N/A 404,993
of the Corporation)
Cameron E. Williams(e) 1999 250,000 150,000 62,000 N/A 462,000
President of Equity One, Inc.
(a wholly-owned subsidiary
of Popular North America, Inc.)
</TABLE>
- --------------------------------
(a) Salaries before deductions.
(b) The bonus amount for the Bank's Executive Officers includes a Christmas
bonus, the bonus awarded under the Annual Management Incentive
Compensation Plan, and the cash portion payable under the Profit
Sharing Plan of the Bank. For Mr. Vazquez the 1997 bonus does not
include a Profit Sharing bonus but rather a special bonus of $49,000
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<PAGE> 15
paid with the Corporation's common stock purchased in the open market.
For Mr. McGrath, the amount includes Christmas and performance bonus.
For Mr. Williams, the amount includes the annual performance bonus.
(c) For the Bank's Executive Officers, except for Mr. Vazquez in 1997, the
amount includes deferred portion awarded under the Profit Sharing Plan
of the Bank, amounts accrued under the Benefit Restoration Plan, the
amount from the Profit Sharing deferred and allocated to Stock Plan and
the Bank's matching contribution to Stock Plan, which are described on
pages 15 through 17. In the case of Mr. Vazquez, the amount for 1997
only includes the Bank's matching contribution to Stock Plan. For Mr.
McGrath, amount includes matching contribution to an 1165(e) plan and a
deferred portion of the performance bonus. For Mr. Williams, amount
represents the contribution of Equity One, Inc. pursuant to Section
401(k) matching and deferred compensation under Supplementary Executive
Retirement Plan. Does not include the value of perquisites and other
personal benefits because the aggregate amount of such benefits does
not exceed the lesser of $50,000 or 10% of total amount of annual
salary and bonus of any named individual.
d) For the 1997-1999 Long-Term Incentive Plan, the performance of Popular,
Inc.'s stock during the three-year period did not equal or exceed the
three-year combined performance of the S&P 500 Index and the S&P
Financials Index. In addition, the three-year average ROE target was
not achieved, nor was the Peer Group three-year average median ROE
exceeded. Also, Popular, Inc.'s average ROE did not represent an
improvement over the base year ROE compared to the Peer Group's median
ROE. Therefore, none of the shares assigned at the beginning of the
plan were awarded.
e) Information presented for 1999, 1998 and 1997, except for Mr. Cameron
E. Williams who was appointed President of Equity One, Inc. in 1999. No
disclosure is required with respect to this officer.
LONG-TERM INCENTIVE PLAN
Since 1994, the Executive Officers participate in a Long-Term Incentive
Plan, the goal of which is to encourage long-term corporate performance and
objectives. This Plan divided the incentive payment as follows: 75% based on the
attainment of a preestablished three-year average ROE objective for the
performance period and 25% based on the achievement of an average ROE greater
than the Peer Group's three-year average median ROE. If the ROE for the
Corporation does not equal or exceed the Peer three-year average median ROE, the
Human Resources Committee, at its own discretion, may recommend the distribution
of 25% of the targeted bonus if the average results attained for the Plan year
represent an improvement of no less than 25% over the base year. The incentive
percentage is established depending on the participant's base salary at the
beginning of the three-year period. The resulting dollar amount is divided by
the average closing price of the Corporation's common stock.
On April 27, 1999, the Board approved an amendment to the Long-Term
Incentive Plan changing the calculation of the amount of the incentive awarded.
Thereafter, the incentive will be determined based on the market performance of
the Corporation's common stock as compared to the combined performance of the
S&P 500 Index and the S&P Financials Index during the three-year period of the
plan. Beginning in 2000 the S&P Banks Index will be also included in the
calculation of the Long-Term Incentive Plan. The range to determine the
percentage of base salaries is as follows:
<TABLE>
<CAPTION>
Range
-----
Score Incentive
----- ---------
<S> <C>
<100% 0%
100-109 15%
110-119 25%
120-129 50%
130-139 75%
140-149 100%
150 and over 110%
</TABLE>
The score represents the relationship of the performance of the
Corporation's common stock during the three-year period, compared with the
average appreciation of the S&P 500 Index and the S&P Financials Index. If the
Corporation's target is met or exceeded, the share payments corresponding to the
Corporation's and Peer Group's goals are increased up to 110% of the base salary
of the participant at the end of the Plan year.
The three-year period for the 1997-1999 and 1998-2000 Long-Term
Incentive Plans had not concluded when the amendment became effective. A
transition rule was approved for these plans to allow a proportional calculation
based on the method used at the inception of each plan and the new method.
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<PAGE> 16
For both Plans the incentive payment shall be made in common stock of
the Corporation. All common stock to be awarded under this program is purchased
in the open market. The incentive payment could be deferred, at the option of
the participant, until his (her) retirement or it could be paid in common stock
of the Corporation. If the payment is made in common stock of the Corporation a
portion equal to the estimated tax due may be paid in cash.
The estimated maximum shares that could be awarded to the Executive
Officers under the 1999-2001 Long-Term Incentive Plan are set forth below:
LONG-TERM INCENTIVE AWARDS
<TABLE>
<CAPTION>
ESTIMATED
NUMBER PERFORMANCE
OF PERIOD
NAME SHARES (A) UNTIL PAYOUT
---- ---------- ------------
<S> <C> <C>
Richard L. Carrion 22,603.22 1/1/99-12/31/01
David H. Chafey Jr. 17,395.44 1/1/99-12/31/01
Jorge A. Junquera 16,925.29 1/1/99-12/31/01
Carlos J. Vazquez 13,048.76 1/1/99-12/31/01
Larry B. Kesler 11,430.03 1/1/99-12/31/01
Maria Isabel P. de Burckhart 10,782.78 1/1/99-12/31/01
Humberto Martin 10,759.84 1/1/99-12/31/01
Roberto R. Herencia 10,043.74 1/1/99-12/31/01
Emilio E. Pinero 9,911.60 1/1/99-12/31/01
Carlos Rom Jr. 8,850.08 1/1/99-12/31/01
</TABLE>
(a) The estimated maximum number of shares was calculated based on the
base salary of the participant at January 31, 2000 and the average closing price
of the Corporation's common stock from November 1, 1999 to February 29, 2000.
For the 1997-1999 Long-Term Incentive Plan, the performance of Popular,
Inc.'s stock during the three-year period did not equal or exceeded the
three-year combined performance of the S&P 500 Index and the S&P Financials
Index. In addition, the three-year average ROE target was not achieved, nor was
the Peer Group three-year average median ROE exceeded. Also, Popular, Inc.'s
average ROE did not represent an improvement over the base year ROE compared to
the Peer Group's median ROE. Therefore, the total shares assigned at the
beginning of the plan were not awarded.
OTHER INCENTIVE COMPENSATION PLANS OF THE BANK
The Bank has an Annual Management Incentive Plan for different
management levels. Under this Plan, incentive bonuses are based on individual
performance as well as the Corporation or Bank's performance, measured by net
income and ROE. The weight assigned to the Corporation or the Bank's performance
objectives varies according to management level, but the individual performance
is a criterion for all managers participating.
The Bank also has an Excellence in Performance Program in which all
employees participate. This program rewards employees for extraordinary personal
contributions that are nonrecurring in nature, typically not recognizable
through merit or promotional salary action, and clearly recognized as such by
management and peers alike.
Additionally, the Bank has several functional incentive programs that
reward employees' productivity in specific areas.
PROFIT SHARING PLAN OF THE BANK
All officers and regular monthly salaried employees of the Bank are
active participants in the Bank's Profit Sharing Plan, as of the first day of
the calendar month following the completion of one year of service.
15
<PAGE> 17
Under this plan, the Board of Directors determines the Bank's annual
contribution based on the profits of the Bank for the year. The amount allocated
to each officer or employee is based on his or her earned salary for the year.
The total amount contributed for the year 1999 was $23,840,757. Of the total
awarded 40% is contributed to the Profit Sharing Plan, 10% to the Stock Plan and
the remainder (50%) is paid in cash. However, since 1998 each officer and
employee may elect to increase his (her) contribution to the Stock Plan up to
15%; as a result of this election 38% was contributed to the Profit Sharing Plan
and 12% to the Stock Plan.
BENEFIT RESTORATION PLAN OF THE BANK
The Internal Revenue Service (IRS) set a limit of $160,000 as the
amount of compensation that may be considered in calculating future retirement
payments from qualified pension plans. This limit applies to the Bank's
Retirement Plan, Profit Sharing and Stock Plan.
The Board of Directors has approved a "Benefit Restoration Plan" for
those officers whose annual compensation is higher than the established limit.
This non-qualified plan will provide those benefits that cannot be accrued under
the Bank's Retirement and Profit Sharing Plan, which are qualified plans.
Benefits under the Benefit Restoration Plan shall be equal to the account
balance that would be provided under the Profit Sharing Plan and equal to the
benefits that would have been accrued under the Retirement Plan. The Plan is
unfunded.
RETIREMENT PLAN OF THE BANK
The Bank has a noncontributory, defined benefit Retirement Plan
covering substantially all regular monthly employees. Monthly salaried employees
are eligible to participate in the Plan following the completion of one year of
service and 21 years of age. Pension costs are funded in accordance with the
minimum funding standards under the Employee Retirement Income Security Act
("ERISA").
The basis for the Retirement Plan formula is total compensation, which
includes Christmas Bonus, incentives, overtime, differentials, Profit Sharing
cash bonuses and any other compensation received by the employees. Benefits are
paid on the basis of a straight life annuity plus supplemental death benefits
and are not reduced for Social Security or other payments received by
participants.
Normal retirement age at the Bank is a combination of years of age and
completed years of service totalling 75. Early retirement is at 55 years of age
with 10 years of service. Employees with 30 years of service or more are
provided with a retirement benefit of 40% of total compensation. Benefits are
reduced only if the employee retires before age 55. Benefits are subject to the
U.S. Internal Revenue Code limits on compensation and benefits.
The following table sets forth the estimated annual benefits that would
become payable under the Retirement Plan and the Benefit Restoration Plan based
upon certain assumptions as to total compensation levels and years of service.
The amounts shown in this table are not necessarily representative of amounts
that may actually become payable under the plans. The amounts represent the
benefits upon retirement on December 31, 1999, of a participant at age 65.
16
<PAGE> 18
<TABLE>
<CAPTION>
TOTAL
COMPENSATION ESTIMATED ANNUAL BENEFITS / YEARS OF SERVICE
15 20 25 30 35
-- -- -- -- --
<S> <C> <C> <C> <C> <C>
$1,400,000 $256,000 $ 357,000 $ 459,000 $ 560,000 $560,000
1,300,000 237,000 332,000 426,000 520,000 520,000
1,200,000 219,000 306,000 393,000 480,000 480,000
1,100,000 201,000 281,000 360,000 440,000 440,000
1,000,000 183,000 255,000 328,000 400,000 400,000
900,000 164,000 230,000 295,000 360,000 360,000
800,000 146,000 204,000 262,000 320,000 320,000
700,000 128,000 179,000 229,000 280,000 280,000
600,000 110,000 153,000 197,000 240,000 240,000
500,000 91,000 128,000 164,000 200,000 200,000
400,000 73,000 102,000 131,000 160,000 160,000
300,000 55,000 77,000 98,000 120,000 120,000
</TABLE>
The 1999 total compensation and estimated years of service at age 65
for the ten highest paid key policy-making Executive Officers of the Corporation
are as follows.
<TABLE>
<CAPTION>
ESTIMATED
1999 YEARS OF
TOTAL SERVICE
COMPENSATION AT AGE 65
------------ ---------
<S> <C> <C>
Richard L. Carrion $ 665,000 41.6
David H. Chafey Jr. 664,000 39.8
Jorge A. Junquera 646,000 41.5
Carlos J. Vazquez 498,000 26.4
Larry B. Kesler 436,000 16.5
Maria Isabel P. de Burckhart 412,000 33.7
Humberto Martin 411,000 40.1
Roberto R. Herencia 383,000 31.7
Emilio E. Pinero 379,000 43.2
Carlos Rom Jr. 338,000 35.2
</TABLE>
STOCK PLAN OF THE BANK
The Bank has adopted two Stock Plans, one covering employees of the
Bank in Puerto Rico and another covering employees of the Bank in the British
and U.S. Virgin Islands. All regular monthly salaried employees of the Bank are
eligible to participate in the Stock Plans following the completion of
three-months of service (30 days of service for British and U.S. Virgin Islands'
employees).
The Bank may contribute a discretionary amount based on the profits of
the Bank for the year, which is allocated to each officer or employee based on
his or her basic salary for the year, as determined by the Board. The Stock
Plans also allow employees to voluntarily elect to defer a predetermined
percentage not to exceed 10% of their pre-tax base compensation (after tax in
the British Virgin Islands) up to a maximum amount as determined by the
applicable tax laws. The Bank will match 50% of the amount contributed by a
participant up to a maximum participant contribution of two percent (2%) (six
percent (6%) for the British and U.S. Virgin Islands' employees) of the
participant's annual base salary.
STOCK PLAN OF BANCO POPULAR NORTH AMERICA
Banco Popular North America has adopted a defined contribution plan
("401(k) Plan") covering all employees. All regular monthly salaried employees
are eligible to participate in the 401(k) Plan following the completion of 30
days of service.
17
<PAGE> 19
The 401(k) Plan also allows employees to voluntarily elect to defer a
predetermined percentage not to exceed 10% of their pre-tax base compensation up
to a maximum amount as determined by the applicable tax laws. Banco Popular
North America will match 50% (100% if the participant elect to invest his (her)
contribution in the Corporation's common stock) of the amount contributed by a
participant up a maximum of six percent (6%) of the participant's annual base
salary.
DEFERRED COMPENSATION PLAN OF POPULAR SECURITIES, INC.
Popular Securities, Inc. maintains a non-qualified deferred
compensation plan under which a selected group of highly compensated employees
of Popular Securities, Inc. are required to defer a portion of their incentive
performance bonus. The amount deferred and interest credits are paid to
participants as follows: (a) 50% on or before January 31 of the second fiscal
year following the fiscal year for which such amounts were contributed and (b)
50% on or before January 31 of the third fiscal year following the fiscal year
for which such amounts were contributed.
On October 22, 1999, Popular Securities, Inc. created a "Rabbi Trust"
(the "Trust") to invest the amounts deferred under the non-qualified deferred
compensation plan, if so elected by the participant. The Trust assets are
subject to the claims of Popular Securities, Inc.'s creditors in the event of
Popular Securities, Inc.'s insolvency until paid to non-qualified deferred
compensation plan participants at such times as specified above. The principal
balance held by the Trust and any realized and unrealized appreciation are
exclusively for the benefit of the non-qualified deferred compensation plan's
participants. The earnings on the principal of the Trust are for the exclusive
benefit of Popular Securities, Inc.
EMPLOYEE BENEFIT PLAN OF POPULAR SECURITIES, INC.
Popular Securities, Inc. maintains a contributory savings plan
(1165(e)) which is available to employees with more than one year of service.
Popular Securities, Inc.'s contributions include a matching contribution and an
additional profit sharing contribution. Employees are fully vested on these
contributions after five years of service.
DEFERRED COMPENSATION PLAN OF EQUITY ONE, INC.
Equity One, Inc. adopted a deferred compensation plan designed to
provide a post retirement benefit to several key executives. Equity One, Inc.
purchases flexible, variable life insurance policies for each participant and
names itself as beneficiary. The cash surrender values of the policies are
expected to pay benefits to the participants upon their retirement. Should the
participant terminate their employment prior to retirement, they are entitled to
their vested portion of their account.
EMPLOYEE BENEFIT PLAN OF EQUITY ONE, INC.
Equity One, Inc. sponsors a defined contribution plan (401(k)) covering
all eligible employees. Contributions to this plan are in the form of employee
salary deferrals which are subject to an employer matching contribution up to a
specified limit at the discretion of Equity One, Inc.
18
<PAGE> 20
POPULAR, INC.
PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return during
the measurement period with the cumulative total return, assuming reinvestment
of dividends, of the National Association of Securities Dealers Automated
Quotation System (NASDAQ) Stock Market Index and the NASDAQ Bank Composite
Index.
The cumulative total shareholder return was obtained by dividing (i)
the cumulative amount of dividends per share, assuming dividend reinvestment,
since the measurement point, December 31, 1994 plus (ii) the change in the per
share price since the measurement date, by the share price at the measurement
date.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
TOTAL RETURN AS OF DECEMBER 31
(DECEMBER 31, 1994=100)
[GRAPH]
<TABLE>
<CAPTION>
COMPANY/INDEX BASE
PERIOD 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
<S> <C> <C> <C> <C> <C> <C> <C>
POPULAR, INC. 7.03125 100.00 137.78 240.00 352.00 483.56 397.33
NASDAQ BANKS COMPOSITE 240.176 100.00 149.00 196.73 329.39 327.11 314.42
NASDAQ STOCK MARKET 244.532 100.00 141.33 173.89 213.07 300.25 542.43
</TABLE>
19
<PAGE> 21
INDEPENDENT PUBLIC ACCOUNTANTS
The Board intends to retain the services of PricewaterhouseCoopers LLP
as the independent auditors of the Corporation for the year 2000.
PricewaterhouseCoopers LLP (former Price Waterhouse) served as independent
auditors of the Bank since 1971 and of the Corporation since May 1991, when it
was appointed by the Board.
Representatives of PricewaterhouseCoopers LLP will attend the Meeting
and will be available to answer any appropriate questions that may arise; they
will also have the opportunity to make a statement if they so desire.
PROPOSALS OF SECURITY HOLDERS TO BE PRESENTED AT THE 2001
ANNUAL MEETING OF STOCKHOLDERS
Stockholders' proposals intended to be presented at the 2001 Annual
Meeting of Stockholders must be received by the Corporation's Secretary, at its
principal executive offices, Popular Center Building, San Juan, Puerto Rico,
00918, not later than November 24, 2000 for inclusion in the Corporation's
Proxy Statement and Form of Proxy relating to the 2001 Annual Meeting of
Stockholders.
OTHER MATTERS
Management does not know of any other matters to be brought before the
Meeting other than those described previously. Proxies in the accompanying form
will confer discretionary authority to the Proxyholders with respect to any such
other matters presented at the meeting.
To avoid delays in ballot taking and counting, and in order to assure
that your Proxy is voted in accordance with your wishes, compliance with the
following instructions is respectfully requested: upon signing a Proxy as
attorney, executor, administrator, trustee, guardian, authorized officer of a
corporation, or on behalf of a minor, please give full title. If shares are in
the name of more than one recordholder, all should sign.
Whether or not you plan to attend the Meeting, it is very important
that your shares be represented and voted in the Meeting. Accordingly, you are
urged to properly complete, sign, date and return your Proxy Card or vote by
telephone or by Internet.
San Juan, Puerto Rico, March 15, 2000
RICHARD L. CARRION SAMUEL T. CESPEDES
Chairman of the Board, President Secretary
and Chief Executive Officer
YOU MAY REQUEST A COPY OF THE REPORT ON FORM 10K FILED WITH THE SEC BY CALLING
(787) 765-9800 OR WRITING TO AMILCAR JORDAN, SENIOR VICE PRESIDENT, BANCO
POPULAR DE PUERTO RICO, P.O. BOX 362708, SAN JUAN, PR 00936-2708.
20
<PAGE> 22
[POPULAR, INC. LOGO]
c/o BANCO POPULAR de PUERTO RICO
TRUST DIVISION
PO BOX 362708
SAN JUAN, PR 00936-2708
IF YOU WISH TO VOTE BY TELEPHONE, INTERNET OR MAIL,
PLEASE READ THE INSTRUCTIONS BELOW.
Popular, Inc. encourages you to take advantage of new and convenient ways to
vote your shares for matters to be covered at the 2000 Annual Meeting of
Stockholders. Please take the opportunity to use one of the three voting
methods outlined below to cast your ballot.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to vote your proxy. Have your proxy card in hand
when you call. You will be prompted to enter your 12-digit Control Number,
which is located above, and then follow the simple instructions the Vote Voice
provides you.
VOTE BY INTERNET WWW.PROXYVOTE.COM
Use the Internet to vote your proxy. Have your proxy card in hand when you
access the web site. You will be prompted to enter your 12-digit Control
Number, which is located above, to obtain your records and create an electronic
ballot.
VOTE BY MAIL
Please mark, sign, date and return this card promptly using the enclosed
postage pre-paid envelope to: BANCO POPULAR de PUERTO RICO, TRUST DIVISION,
PO BOX 362708, SAN JUAN, PUERTO RICO 00936-2708. No postage is required if
mailed in the United States, Puerto Rico or the U.S. Virgin Islands.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
KEEP THIS PORTION FOR YOUR RECORDS
- --------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
[POPULAR, INC. LOGO] PROXY
The Board recommends a vote for the nominees listed below:
ELECTION OF DIRECTORS -- NOMINEES:
1) JUAN J. BERMUDEZ, 2) RICHARD L. CARRION,
3) JORGE A. JUNQUERA, 4) FRANCISCO M. REXACH JR.
FOR ALL WITHHOLD ALL FOR ALL EXCEPT
[ ] [ ] [ ]
To withhold authority to vote, mark "For All Except" and write the nominee's
number on the line below.
________________________________________________________________________________
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Richard L. Carrion, Jorge A. Junquera and David
H. Chafey Jr. or any one or more of them as Proxies, each with the power to
appoint his substitute, and authorizes them to represent and to vote as
designated above all the shares of common stock of Popular, Inc. held of record
by the undersigned on March 6, 2000, at the Annual Meeting of Shareholders to be
held at the Centro Europa Building, 1492 Ponce de Leon Avenue, 3rd Floor, San
Juan, Puerto Rico, on April 25, 2000, at 10:30 a.m. or at any adjournments
thereof. The Proxies are further authorized to vote such shares upon any other
business that may properly come before the meeting or any adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" THE ELECTION OF ALL THE NOMINEES LISTED ABOVE.
PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
PLEASE SIGN AS YOUR NAME APPEARS ON THIS FORM. IF SHARES ARE HELD JOINTLY,
ALL OWNERS SHOULD SIGN.
(VEA AL DORSO TEXTO EN ESPANOL)
_________________________________________ _______________________________
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
