<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2000 Commission file number 0 - 13818
---------------- ---------
POPULAR, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Puerto Rico 66-041-6582
------------------------ -------------------
(State of incorporation) (I.R.S. Employer
identification No.)
Popular Center Building
209 Munoz Rivera Avenue, Hato Rey
San Juan, Puerto Rico 00918
----------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code (787) 765-9800
--------------
Not Applicable
-------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report) Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock $6.00 Par value 136,009,462
---------------------------- ------------------------------------------
(Title of Class) (Shares Outstanding as of August 14, 2000)
<PAGE> 2
POPULAR, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Unaudited consolidated statements of condition - June 30, 2000,
December 31, 1999 and June 30, 1999. 3
Unaudited consolidated statements of income - Quarters and six months
ended June 30, 2000 and 1999. 4
Unaudited consolidated statements of comprehensive income (loss)-
Quarters and six months ended June 30, 2000 and 1999. 5
Unaudited consolidated statements of cash flows - Six months
ended June 30, 2000 and 1999. 6
Notes to unaudited consolidated financial statements. 7-21
Item 2. Management's discussion and analysis of financial condition
and results of operations. 22-36
Item 3. Quantitative and qualitative disclosures about market risk 26
Part II - Other Information
Item 1. Legal proceedings 36
Item 2. Changes in securities - None N/A
Item 3. Defaults upon senior securities - None N/A
Item 4. Submission of matters to a vote of security holders 36
Item 5. Other information 37
Item 6. Exhibits and reports on Form 8-K 37
--- Signature 38
</TABLE>
FORWARD LOOKING INFORMATION. This Quarterly Report on Form 10-Q
contains certain forward looking statements with respect to the adequacy of the
allowance for loan losses, the Corporation's market risk and the effect of legal
proceedings on Popular, Inc.'s financial condition and results of operations.
These forward looking statements involve certain risks, uncertainties, estimates
and assumptions by management.
Various factors could cause actual results to differ from those
contemplated by such forward looking statements. With respect to the adequacy of
the allowance for loan losses and market risk, these factors include, among
others, the rate of growth in the economy, the relative strength and weakness in
the consumer and commercial credit sectors and in the real estate markets, the
performance of the stock and bond market and the magnitude of interest rate
changes. Moreover, the outcome of litigation, as discussed in "Part II, Item I.
Legal Proceedings," is inherently uncertain and depends on judicial
interpretations of law and the findings of judges and juries.
2
<PAGE> 3
POPULAR, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, December 31, June 30,
(In thousands) 2000 1999 1999
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 698,012 $ 663,696 $ 567,143
------------------------------------------------------------------------------------------------------------------------------
Money market investments:
Federal funds sold and securities purchased under
agreements to resell 1,159,754 931,123 715,618
Time deposits with other banks 31,206 54,354 74,986
Banker's acceptances 551 517 681
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1,191,511 985,994 791,285
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Investment securities available-for-sale, at market value 7,137,188 7,324,950 6,804,004
Investment securities held-to-maturity, at amortized cost 383,887 299,312 316,860
Trading account securities, at market value 190,458 236,610 320,416
Loans held-for-sale, at lower of cost or market 790,831 619,298 603,643
------------------------------------------------------------------------------------------------------------------------------
Loans 15,335,791 14,659,400 13,655,881
Less - Unearned income 352,018 370,944 372,132
Allowance for loan losses 305,526 292,010 282,590
------------------------------------------------------------------------------------------------------------------------------
14,678,247 13,996,446 13,001,159
------------------------------------------------------------------------------------------------------------------------------
Premises and equipment 437,181 440,971 440,167
Other real estate 36,426 29,268 30,018
Customers' liabilities on acceptances 5,735 12,041 14,768
Accrued income receivable 176,540 175,746 160,146
Other assets 429,584 371,421 355,510
Intangible assets 295,646 304,786 260,502
------------------------------------------------------------------------------------------------------------------------------
$ 26,451,246 $ 25,460,539 $ 23,665,621
==============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 3,067,579 $ 3,284,949 $ 3,278,464
Interest bearing 11,392,875 10,888,766 10,623,923
------------------------------------------------------------------------------------------------------------------------------
14,460,454 14,173,715 13,902,387
Federal funds purchased and securities sold under
agreements to repurchase 4,937,816 4,414,480 3,319,780
Other short-term borrowings 2,854,035 2,612,389 2,554,433
Notes payable 1,752,722 1,852,599 1,531,723
Acceptances outstanding 5,735 12,041 14,768
Other liabilities 407,260 436,718 396,604
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24,418,022 23,501,942 21,719,695
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Subordinated notes 125,000 125,000 125,000
------------------------------------------------------------------------------------------------------------------------------
Preferred beneficial interests in Popular North America's
Junior subordinated deferrable interest debentures guaranteed
by the Corporation 150,000 150,000 150,000
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Minority interest in consolidated subsidiaries 21,334 22,611 20,244
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Commitments and contingencies
------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock 100,000 100,000 100,000
Common stock 828,959 827,662 826,595
Surplus 247,479 243,855 220,559
Retained earnings 775,975 694,301 616,022
Treasury stock-at cost (64,150) (64,123) (72,524)
Accumulated other comprehensive loss, net of deferred taxes
of $(39,339) (December 31, 1999 - $(35,993); June 30, 1999 -
$(11,595)) (151,373) (140,709) (39,970)
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1,736,890 1,660,986 1,650,682
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$ 26,451,246 $ 25,460,539 $ 23,665,621
==============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
3
<PAGE> 4
POPULAR, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter ended Six months ended
June 30, June 30,
(Dollars in thousands, except per share information) 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $ 392,437 $ 335,739 $ 768,957 $ 661,772
Money market investments 14,308 7,500 27,556 15,433
Investment securities 114,624 105,411 226,754 210,845
Trading account securities 3,405 4,751 7,308 9,546
---------------------------------------------------------------------------------------------------------------------------------
524,774 453,401 1,030,575 897,596
---------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits 129,399 110,147 251,873 220,970
Short-term borrowings 113,684 73,138 216,509 142,513
Long-term debt 35,775 31,265 74,037 59,024
---------------------------------------------------------------------------------------------------------------------------------
278,858 214,550 542,419 422,507
---------------------------------------------------------------------------------------------------------------------------------
Net interest income 245,916 238,851 488,156 475,089
Provision for loan losses 48,719 36,631 98,732 72,402
---------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 197,197 202,220 389,424 402,687
Service charges on deposit accounts 30,831 29,731 61,054 57,980
Other service fees 55,443 39,691 102,808 77,600
Gain on sale of securities 329 286 13,593 736
Trading account profit (loss) 693 (582) 1,510 (863)
Other operating income 21,989 17,800 46,046 38,531
---------------------------------------------------------------------------------------------------------------------------------
306,482 289,146 614,435 576,671
---------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Personnel costs:
Salaries 77,301 69,983 155,895 140,140
Profit sharing 5,569 6,084 9,701 12,403
Pension and other benefits 15,341 18,572 35,839 38,131
---------------------------------------------------------------------------------------------------------------------------------
98,211 94,639 201,435 190,674
Net occupancy expense 16,177 14,715 32,736 28,974
Equipment expenses 25,079 21,557 48,513 42,291
Other taxes 8,341 7,941 16,916 16,206
Professional fees 16,826 17,356 34,504 32,668
Communications 12,034 10,580 22,836 21,409
Business promotion 12,572 12,209 26,659 23,209
Printing and supplies 5,313 4,828 10,485 9,818
Other operating expenses 16,282 13,806 34,663 26,653
Amortization of intangibles 8,537 7,586 17,129 15,206
---------------------------------------------------------------------------------------------------------------------------------
219,372 205,217 445,876 407,108
---------------------------------------------------------------------------------------------------------------------------------
Income before income tax and minority interest 87,110 83,929 168,559 169,563
Income tax 21,684 20,334 40,440 42,736
Net (gain) loss of minority interest (303) 382 1,193 814
---------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 65,123 $ 63,977 $ 129,312 $ 127,641
=================================================================================================================================
NET INCOME APPLICABLE TO COMMON STOCK $ 63,036 $ 61,890 $ 125,137 $ 123,466
=================================================================================================================================
EARNINGS PER COMMON SHARE (BASIC AND DILUTED) $ 0.46 $ 0.46 $ 0.92 $ 0.91
=================================================================================================================================
DIVIDENDS DECLARED PER COMMON SHARE $ 0.16 $ 0.14 $ 0.32 $ 0.28
=================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
4
<PAGE> 5
POPULAR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter ended Six months ended
June 30, June 30,
(In thousands) 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income $ 65,123 $ 63,977 $ 129,312 $ 127,641
------------------------------------------------------------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment 88 (62) (297) (895)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during the period, net of tax of $1,458 (1999 - $(20,407))
for the quarter and $131 (1999 - $(36,696)) for the
six-month period 10,991 (65,989) 163 (114,497)
Less: reclassification adjustment for gains
included in net income, net of tax of $88 (1999 -
$78) for the quarter and $3,477 (1999 - $139)
for the six-month period 241 135 10,530 283
------------------------------------------------------------
Total other comprehensive income (loss) $ 10,838 $ (66,186) $ (10,664) $(115,675)
------------------------------------------------------------
Comprehensive income (loss) $ 75,961 $ (2,209) $ 118,648 $ 11,966
============================================================
</TABLE>
DISCLOSURE OF ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS):
<TABLE>
<CAPTION>
JUNE 30, December 31, June 30,
(In thousands) 2000 1999 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign currency translation adjustment $ (1,562) $ (1,265) $ (1,110)
Unrealized losses on securities (149,811) (139,444) (38,860)
-----------------------------------------------------
Accumulated other comprehensive loss $ (151,373) $ (140,709) $ (39,970)
=====================================================
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
5
<PAGE> 6
POPULAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended
June 30,
(In thousands) 2000 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 129,312 $ 127,641
-----------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization of premises and equipment 38,488 34,837
Provision for loan losses 98,732 72,402
Amortization of intangibles 17,129 15,206
Gain on sale of investment securities available-for-sale (13,593) (736)
Loss on disposition of premises and equipment 47 108
Gain on sale of loans (8,813) (11,651)
Amortization of premiums and accretion of discounts on investments 1,088 3,221
(Increase) decrease in loans held-for-sale (171,533) 40,516
Amortization of deferred loan fees and costs (2,104) 12
Net decrease (increase) in trading securities 46,152 (1,689)
Net increase in interest receivable (794) (3,831)
Net increase in other assets (26,831) (54,991)
Net decrease in interest payable (8,751) (311)
Net increase in current and deferred taxes (24,514) (40,113)
Net increase in postretirement benefit obligation 3,447 4,144
Net decrease in other liabilities (20,106) (1,136)
-----------------------------------------------------------------------------------------------------------------------------
Total adjustments (71,956) 55,988
-----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 57,356 183,629
-----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in money market investments (205,517) 156,613
Purchases of investment securities held-to-maturity (4,735,460) (3,933,805)
Maturities of investment securities held-to-maturity 4,649,771 4,082,963
Purchases of investment securities available-for-sale (1,463,371) (3,856,526)
Maturities of investment securities available-for-sale 1,565,792 3,534,843
Sales of investment securities available-for-sale 89,648 149,025
Net disbursements on loans (1,004,874) (1,385,302)
Proceeds from sale of loans 349,896 477,970
Acquisition of loan portfolios (144,925) (2,490)
Assets acquired, net of cash 715
Acquisition of premises and equipment (37,996) (62,059)
Proceeds from sale of premises and equipment 4,600 11,668
-----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (931,721) (827,100)
-----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 286,739 230,173
Net increase (decrease) in federal funds purchased and securities
sold under agreements to repurchase 523,336 (756,721)
Net increase in other short-term borrowings 241,209 915,351
Proceeds from issuance of notes payable 303,208 394,569
Payments of notes payable (403,085) (170,006)
Dividends paid (47,620) (42,164)
Proceeds from issuance of common stock 4,921 4,670
Treasury stock acquired (27) (32,965)
-----------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 908,681 542,907
-----------------------------------------------------------------------------------------------------------------------------
Net increase in cash and due from banks 34,316 (100,564)
Cash and due from banks at beginning of period 663,696 667,707
============================================================================================================================
Cash and due from banks at end of period $ 698,012 $ 567,143
============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
6
<PAGE> 7
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share information)
NOTE 1 - CONSOLIDATION
Popular, Inc. (the Corporation) is a bank holding company offering a full range
of financial services through banking offices in Puerto Rico, the U.S. and
British Virgin Islands, New York, Illinois, New Jersey, Florida, California and
Texas. The Corporation is also the principal shareholder of Banco Fiduciario,
S.A. in the Dominican Republic. The Corporation is engaged in mortgage and
consumer finance, lease financing, investment banking and broker/dealer
activities, retail financial services, and information technology, ATM and data
processing services through its non-banking subsidiaries in Puerto Rico, the
United States and Costa Rica. Also, in January 2000, the Corporation acquired
CreST, S.A., a local card processor and POS provider in Costa Rica. Refer to
note 10 to the consolidated financial statements for further information on the
nature of operations of the Corporation by business segments.
The consolidated financial statements include the accounts of Popular, Inc. and
its subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation. These statements are, in the opinion of management,
a fair presentation of the results for the periods presented. These results are
unaudited, but include all necessary adjustments, of a normal recurring nature,
for a fair presentation of such results. Certain reclassifications have been
made to the prior year consolidated financial statements to conform to the 2000
presentation.
NOTE 2 - ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." Later in
June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities," amending certain provisions of SFAS
133. These statements establish accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. They require recognition of all
derivatives as either assets or liabilities in the statement of condition
measured at fair value. They also establish unique accounting treatment for the
following three different types of hedges: fair value hedges, cash flows hedges
and foreign currency hedges. The accounting for each of the three types of
hedges results in recognizing offsetting changes in value or cash flows of both
the derivative instrument and the hedged item in earnings in the same period.
Changes in the fair value of derivatives that do not meet the criteria of one of
these types of hedges are included in earnings in the period of change. The FASB
has delayed the effective date of these statements to fiscal years beginning
after June 15, 2000. Management estimates that the adoption of the statements
will not have a material effect on the consolidated financial statements of the
Corporation.
7
<PAGE> 8
NOTE 3 - INVESTMENT SECURITIES
The average contractual maturities as of June 30, 2000, and market value for the
following investment securities are:
Investment securities available-for-sale:
<TABLE>
<CAPTION>
June 30,
--------
2000 1999
---- ----
AMORTIZED MARKET Amortized Market
COST VALUE Cost Value
------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury (average maturity of 1 year
and 4 months) $ 1,736,034 $ 1,721,602 $ 2,434,112 $ 2,436,440
Obligations of other U.S. Government
agencies and corporations (average
maturity of 5 years and 6 months) 3,513,201 3,372,838 2,631,361 2,553,441
Obligations of Puerto Rico, States and
political subdivisions (average maturity
of 10 years and 2 months) 78,784 78,233 73,716 72,417
Collateralized mortgage obligations (average
maturity of 23 years and 5 months) 1,301,343 1,272,453 1,184,577 1,180,034
Mortgage-backed securities (average maturity
of 24 years and 5 months) 489,265 489,018 346,945 352,399
Equity securities (without contractual maturity) 138,289 136,573 126,567 153,034
Others (average maturity of 10 years and 8 months) 69,422 66,471 57,181 56,239
------------------------------------------------------------------
$ 7,326,338 $ 7,137,188 $ 6,854,459 $ 6,804,004
==================================================================
</TABLE>
Investments held to maturity:
<TABLE>
<CAPTION>
June 30,
--------
2000 1999
---- ----
AMORTIZED MARKET Amortized Market
COST VALUE Cost Value
--------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Obligations of other U.S. Government agencies and
corporations (average maturity of 1 month) $ 9,130 $ 9,140
Obligations of Puerto Rico, States and
political subdivisions (average maturity
of 8 years and 2 months) 139,386 138,567 $ 66,569 $ 64,255
Collateralized mortgage obligations (average
maturity of 12 years and 2 months) 16,196 16,089 22,009 22,100
Mortgage-backed securities (average maturity of
9 years and 11 months) 21,077 20,826 27,029 27,295
Equity securities (without contractual maturity) 91,638 91,638 91,769 91,769
Others (average maturity of 4 years and 2 months) 106,460 101,657 109,484 104,970
--------------------------------------------------------------------
$ 383,887 $ 377,917 $ 316,860 $ 310,389
====================================================================
</TABLE>
8
<PAGE> 9
The expected maturity of collateralized mortgage obligations, mortgage-backed
securities and certain other securities differs from their contractual
maturities because they may be subject to prepayments.
Stock that is owned by the Corporation to comply with regulatory requirements,
such as Federal Reserve Bank and Federal Home Loan Bank stock, is included as
equity securities held-to-maturity and reported at amortized cost.
NOTE 4 - PLEDGED ASSETS
Securities and loans of the Corporation of $5,687,994 (1999 - $4,872,805) are
pledged to secure public and trust deposits and securities sold under repurchase
agreements.
NOTE 5 - COMMITMENTS
In the normal course of business there are letters of credit outstanding and
stand-by letters of credit which at June 30, 2000, amounted to $19,562 and
$66,162 (1999 - $16,073 and $91,045). There are also outstanding other
commitments and contingent liabilities, such as guarantees and commitments to
extend credit, which are not reflected in the accompanying financial statements.
No losses are anticipated as a result of these transactions.
NOTE 6 - SUBORDINATED NOTES AND PREFERRED BENEFICIAL INTEREST IN POPULAR NORTH
AMERICA'S JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES GUARANTEED
BY THE CORPORATION
Subordinated notes of $125,000 consist of notes issued by the Corporation on
December 12, 1995, maturing on December 15, 2005, with interest payable
semi-annually at 6.75%.
On February 5, 1997, BanPonce Trust I, a statutory business trust created under
the laws of the State of Delaware that is wholly-owned by Popular North America,
Inc. (PNA) and indirectly wholly-owned by the Corporation, sold to institutional
investors $150,000 of its 8.327% Capital Securities Series A (liquidation amount
$1,000 per Capital Security) through certain underwriters. The proceeds of the
issuance, together with the proceeds of the purchase by PNA of $4,640 of its
8.327% common securities (liquidation amount $1,000 per common security) were
used to purchase $154,640 aggregate principal amount of PNA 8.327% Junior
Subordinated Deferrable Interest Debentures, Series A (the "Junior Subordinated
Debentures"). These capital securities qualify as Tier 1 capital, are fully and
unconditionally guaranteed by the Corporation, and are presented in the
Consolidated Statements of Condition as "Guaranteed Preferred Beneficial
Interest in Popular North America's Subordinated Debentures." The obligations of
PNA under the Junior Subordinated Debentures and its guarantees of the
obligations of BanPonce Trust 1 are fully and unconditionally guaranteed by the
Corporation. The assets of BanPonce Trust 1 consisted of $154,640 of Junior
Subordinated Debentures and a related accrued interest receivable of $4,292. The
Junior Subordinated Debentures mature on February 1, 2027; however, under
certain circumstances, the maturity of the Junior Subordinated Debentures (which
shortening would result in a mandatory redemption of the Capital Securities) may
be shortened.
NOTE 7 - STOCKHOLDERS' EQUITY
Authorized common stock is 180,000,000 shares with a par value of $6 per share.
At June 30, 2000, there were 138,159,859 (1999 - 137,765,872) shares issued and
135,865,104 (1999 - 134,698,572) outstanding. As of June 30, 2000, a total of
2,294,755 (1999 - 3,067,300) common shares with a total cost of $64,150 (1999 -
$72,524) were maintained as treasury stock.
Authorized preferred stock consists of 10,000,000 shares without par value of
which 4,000,000, non-cumulative with a dividend rate of 8.35% and a liquidation
preference value of $25 per share, were issued and outstanding at June 30, 2000
and 1999.
9
<PAGE> 10
Popular International Bank, Inc. (PIB) and Popular North America, Inc.'s (PNA)
bank subsidiaries have certain statutory provisions and regulatory requirements
and policies, such as the maintenance of adequate capital, that limit the amount
of dividends they can pay. Other than these limitations, no other restrictions
exist on the ability of PIB and PNA to make dividend and asset distributions to
the Corporation, nor on the ability of PNA's subsidiaries to make distributions
to PNA.
NOTE 8 - EARNINGS PER COMMON SHARE
Earnings per common share (EPS) are calculated based on net income applicable to
common stockholders which amounted to $63,036 for the second quarter of 2000
(1999 - $61,890) and $125,137 for the six months ended June 30, 2000 (1999 -
$123,466), after deducting the dividends on preferred stock. EPS are based on
135,878,677 average shares outstanding for the second quarter of 2000 (1999 -
135,491,324), and 135,821,221 average shares outstanding for the first six
months of 2000 (1999 - 135,599,703).
NOTE 9 - SUPPLEMENTAL DISCLOSURE ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS
During the six-month period ended June 30, 2000, the Corporation paid interest
and income taxes amounting to $551,170 and $61,781, respectively (1999 -
$422,817 and $81,437). In addition, the loans receivable transferred to other
real estate and other property for the six-month period ended June 30, 2000,
amounted to $17,653 and $12,634, respectively (1999 - $6,192 and $9,364).
NOTE 10 - SEGMENT REPORTING
Popular, Inc. operates three major reportable segments: commercial banking,
mortgage and consumer lending, and lease financing. Management has determined
its reportable segments based on legal entity, which is the way that operating
decisions and performance is measured. These entities have then been aggregated
by products, services and markets with similar characteristics.
The Corporation's commercial banking segment includes all banking subsidiaries
engaged in business in Puerto Rico and the U.S. mainland, which provide
individuals, corporations and institutions with commercial and retail banking
services, including loans and deposits, trusts, mortgage banking and servicing,
asset management, credit cards and other financial services. These services are
offered through a delivery system of branches throughout Puerto Rico, the U.S.
and British Virgin Islands, New York, Illinois, California, Florida, Texas and
New Jersey.
The Corporation's mortgage and consumer finance segment includes those
non-banking subsidiaries whose principal activity is originating mortgage and
consumer loans such as Popular Mortgage, Popular Finance, Equity One and Levitt
Mortgage.
The Corporation's lease financing segment provides financing for vehicles and
equipment through Popular Leasing and Rental, Inc. in Puerto Rico and Popular
Leasing, USA in the U.S. mainland. The "Other" category includes all holding
companies and non-banking subsidiaries which provide retail financial services,
investment banking and broker/dealer activities, as well as those providing ATM
processing services, electronic data processing and consulting services, sale
and rental of electronic data processing equipment and selling and maintenance
of computer software. It also includes the banking operations of Banco
Fiduciario in the Dominican Republic.
The accounting policies of the segments are the same as those followed by the
Corporation in the ordinary course of business and conform with generally
accepted accounting principles and with general practices within the financial
industry. Following are the results of operations and selected financial
information by operating segments for the second quarter and the six-month
period ended June 30, 2000 and 1999.
10
<PAGE> 11
<TABLE>
<CAPTION>
Mortgage and
Commercial consumer Lease
banking finance financing Other Eliminations Total
------------------------------------------------------------------------------------------------------------------------------
(In thousands) QUARTER ENDED JUNE 30, 2000
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 211,211 $ 23,119 $ 10,498 $ 1,123 $ (35) $ 245,916
Provision for loan losses 34,631 7,205 4,948 1,935 48,719
Other income 60,871 9,500 5,038 36,740 (2,864) 109,285
Amortization expense 6,971 161 189 1,216 8,537
Depreciation expense 14,532 843 2,305 1,887 19,567
Other operating expenses 137,816 18,470 5,603 30,294 (915) 191,268
Minority interest 22 (325) (303)
Income tax 20,191 1,977 894 (856) (522) 21,684
------------------------------------------------------------------------------------------------------------------------------
Net income $ 57,941 $ 3,985 $ 1,597 $ 3,062 $ (1,462) $ 65,123
------------------------------------------------------------------------------------------------------------------------------
Segment Assets $ 22,275,886 $ 2,512,861 $875,729 $ 6,645,141 $ (5,858,371) $ 26,451,246
------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Mortgage and
Commercial consumer Lease
banking finance financing Other Eliminations Total
------------------------------------------------------------------------------------------------------------------------------
(In thousands) SIX-MONTH PERIOD ENDED JUNE 30, 2000
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 419,565 $ 45,685 $ 21,508 $ 1,466 $ (68) $ 488,156
Provision for loan losses 73,074 12,688 9,343 3,627 98,732
Other income 125,288 20,087 11,348 73,156 (4,868) 225,011
Amortization expense 13,993 322 377 2,437 17,129
Depreciation expense 28,748 1,314 4,727 3,699 38,488
Other operating expenses 288,603 38,009 11,710 53,902 (1,965) 390,259
Minority interest 22 1,171 1,193
Income tax 32,542 4,561 2,498 1,626 (787) 40,440
------------------------------------------------------------------------------------------------------------------------------
Net income $ 107,893 $ 8,900 $ 4,201 $ 10,502 $ (2,184) $ 129,312
------------------------------------------------------------------------------------------------------------------------------
Segment Assets $ 22,275,886 $ 2,512,861 $875,729 $ 6,645,141 $ (5,858,371) $ 26,451,246
------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Mortgage and
Commercial consumer Lease
banking finance financing Other Eliminations Total
------------------------------------------------------------------------------------------------------------------------------
(In thousands) QUARTER ENDED JUNE 30, 2000
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 203,958 $ 22,931 $ 10,651 $ 1,311 $ 238,851
Provision for loan losses 28,036 6,398 1,814 383 36,631
Other income 61,076 8,930 5,202 12,760 $ (1,042) 86,926
Amortization expense 7,057 84 189 256 7,586
Depreciation expense 13,847 415 2,167 913 17,342
Other operating expenses 144,199 17,698 6,204 12,293 (105) 180,289
Minority interest 382 382
Income tax 16,227 2,429 2,033 (110) (245) 20,334
------------------------------------------------------------------------------------------------------------------------------
Net income $ 55,668 $ 4,837 $ 3,446 $ 718 $ (692) $ 63,977
------------------------------------------------------------------------------------------------------------------------------
Segment Assets $ 20,245,986 $ 1,916,340 $722,881 $ 5,820,924 $ (5,040,510) $ 23,665,621
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
Mortgage and
Commercial consumer Lease
banking finance financing Other Eliminations Total
------------------------------------------------------------------------------------------------------------------------------
(In thousands) SIX-MONTH PERIOD ENDED JUNE 30, 1999
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 406,200 $ 44,101 $ 21,347 $ 3,454 $ (13) $ 475,089
Provision for loan losses 55,072 12,504 4,443 383 72,402
Other income 119,006 22,839 10,252 24,327 (2,440) 173,984
Amortization expense 14,119 168 378 541 15,206
Depreciation expense 27,409 790 4,413 2,225 34,837
Other operating expenses 285,977 34,707 11,762 24,842 (223) 357,065
Minority interest 814 814
Income tax 32,477 6,675 3,970 184 (570) 42,736
------------------------------------------------------------------------------------------------------------------------------
Net income $ 110,152 $ 12,096 $ 6,633 $ 420 $ (1,660) $ 127,641
------------------------------------------------------------------------------------------------------------------------------
Segment Assets $ 20,245,986 $ 1,916,340 $722,881 $ 5,820,924 $ (5,040,510) $ 23,665,621
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the quarter ended March 31, 2000, the Corporation's Bank Holding Company
exercised its conversion right and exchanged its investment in preferred stock
of a financial corporation in Puerto Rico for common stock of the same entity,
resulting in a $13.4 million gain. This gain is included in "other income"
within the "other" reportable segment category.
<TABLE>
<CAPTION>
GEOGRAPHIC INFORMATION Quarter ended Six-month period ended
JUNE 30, June 30, JUNE 30, June 30,
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Revenues*
Puerto Rico $ 433,611 $ 376,110 $ 864,183 $ 745,888
United States 167,891 135,773 327,744 267,940
Other 32,557 28,444 63,659 57,752
------------------------------------------------------------------------------------------------------------------
Total consolidated revenues $ 634,059 $ 540,327 $ 1,255,586 $ 1,071,580
------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total revenues include interest income, service charges on deposit
accounts, other service fees, gain (loss) on sale of securities,
trading account profit (loss), and other income.
<TABLE>
<CAPTION>
JUNE 30, June 30,
2000 1999
-----------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Selected Balance Sheet Information:
Puerto Rico:
Total assets $18,289,327 $16,914,395
Loans 8,954,743 8,353,280
Deposits 9,631,099 9,725,275
United States:
Total assets $7,097,333 $5,814,436
Loans 6,113,555 4,893,810
Deposits 3,829,456 3,344,581
Other:
Total assets $1,064,586 $936,790
Loans 706,306 640,302
Deposits 999,899 832,531
</TABLE>
12
<PAGE> 13
NOTE 11 - POPULAR INTERNATIONAL BANK, INC. (A WHOLLY-OWNED SUBSIDIARY OF
POPULAR, INC.) FINANCIAL INFORMATION:
The following financial information presents the unaudited consolidated
financial position of Popular International Bank, Inc. (PIB) and its
subsidiaries, ATH Costa Rica, CreST, S.A., Banco Fiduciario, S.A. and Popular
North America, Inc., including Popular Holdings USA, Inc. and its wholly-owned
subsidiary Banco Popular North America; Popular Cash Express, Inc. and Equity
One, Inc. (second-tier subsidiaries), as of May 31, 2000 and May 31,1999, and
their related statements of income, cash flows and comprehensive income for each
of the quarters and six-months periods then ended. The results of Popular
Holdings USA, Inc. and its subsidiary are included as of June 30, 2000 and 1999.
PIB has a fiscal year that ends on November 30. Accordingly, the consolidated
financial information of PIB presented below, corresponds to the financial
information of PIB included in the consolidated financial statements of Popular,
Inc. as of June 30, 2000 and 1999.
Popular, Inc. has not presented separate financial statements nor any other
disclosures concerning PIB, other than the following financial information.
Management understands that such information is not material to holders of debt
securities issued by PIB which are guaranteed by the Corporation.
13
<PAGE> 14
POPULAR INTERNATIONAL BANK, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
MAY 31, May 31,
(In thousands) 2000 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 224,649 $ 205,831
Money market investments 77,561 84,105
Investment securities available-for-sale, at market value 350,172 349,726
Investment securities held-to-maturity, at amortized cost 48,237 54,720
Trading account securities, at market value
Loans held-for-sale, at lower of cost or market 59,649 157,509
----------------------------------------------------------------------------------------------------------
Loans 6,334,990 5,059,315
Less - Unearned income 76,543 76,849
Allowance for loan losses 103,900 93,812
----------------------------------------------------------------------------------------------------------
6,154,547 4,888,654
----------------------------------------------------------------------------------------------------------
Premises and equipment 142,182 135,293
Other real estate 26,751 21,666
Customers' liabilities on acceptances 4,898 13,184
Accrued income receivable 48,007 42,526
Other assets 95,564 89,128
Intangible assets 146,311 144,801
----------------------------------------------------------------------------------------------------------
$ 7,378,528 $ 6,187,143
=========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 653,501 $ 624,402
Interest bearing 3,920,195 3,011,405
----------------------------------------------------------------------------------------------------------
4,573,696 3,635,807
Federal funds purchased and securities sold under
agreements to repurchase 75,148 81,473
Other short-term borrowings 590,617 905,084
Notes payable 1,309,224 752,497
Acceptances outstanding 4,898 13,184
Other liabilities 107,479 86,394
----------------------------------------------------------------------------------------------------------
6,661,062 5,474,439
----------------------------------------------------------------------------------------------------------
Preferred beneficial interests in Popular North America's
Junior subordinated deferrable interest debentures guaranteed
By the Corporation 150,000 150,000
----------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiaries 20,485 20,244
----------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock 3,962 3,962
Surplus 482,226 470,226
Retained earnings 66,786 70,123
Accumulated other comprehensive loss, net of
deferred taxes of $(1,791); (May 31, 1999 - $(838)) (5,993) (1,851)
----------------------------------------------------------------------------------------------------------
546,981 542,460
----------------------------------------------------------------------------------------------------------
$ 7,378,528 $ 6,187,143
=========================================================================================================
</TABLE>
14
<PAGE> 15
POPULAR INTERNATIONAL BANK, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter ended Six months ended
May 31, May 31,
(In thousands) 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $ 149,739 $ 119,995 $ 290,979 $ 234,567
Money market investments 774 600 1,535 1,254
Investment securities 5,756 5,609 11,320 12,917
-------------------------------------------------------------------------------------------------------------------------
156,269 126,204 303,834 248,738
-------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits 52,029 35,874 100,958 72,904
Short-term borrowings 9,197 11,713 16,710 22,893
Long-term debt 26,227 17,081 51,427 32,333
-------------------------------------------------------------------------------------------------------------------------
87,453 64,668 169,095 128,130
-------------------------------------------------------------------------------------------------------------------------
Net interest income 68,816 61,536 134,739 120,608
Provision for loan losses 18,893 11,399 32,275 20,994
-------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for 49,923 50,137 102,464 99,614
loan losses
Service charges on deposit accounts 7,863 7,470 15,437 14,209
Other service fees 15,932 12,765 31,060 23,628
Gain on sale of securities 247 640
Other operating income 3,322 4,942 8,159 13,688
-------------------------------------------------------------------------------------------------------------------------
77,040 75,561 157,120 151,779
-------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Personnel costs:
Salaries 26,644 25,734 54,207 50,785
Profit sharing 168 315 349 1,028
Pension and other benefits 7,588 6,445 14,853 12,652
-------------------------------------------------------------------------------------------------------------------------
34,400 32,494 69,409 64,465
Net occupancy expense 7,050 6,351 14,039 12,522
Equipment expenses 5,989 4,411 11,485 8,533
Other taxes 746 480 1,543 901
Professional fees 8,915 8,671 17,550 15,231
Communications 3,721 3,438 7,143 6,667
Business promotion 5,988 5,762 13,408 11,526
Printing and supplies 2,247 2,209 4,360 4,106
Other operating expenses 6,735 5,733 15,612 10,999
Amortization of intangibles 3,686 3,427 7,403 6,883
-------------------------------------------------------------------------------------------------------------------------
79,477 72,976 161,952 141,833
-------------------------------------------------------------------------------------------------------------------------
(Loss) income before income tax and minority
loan losses (2,437) 2,585 (4,832) 9,946
Income tax (1,663) 1,195 (918) 5,315
Net (gain) loss of minority interest (325) 382 1,171 814
-------------------------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME $ (1,099) $ 1,772 $ (2,743) $ 5,445
=========================================================================================================================
</TABLE>
15
<PAGE> 16
POPULAR INTERNATIONAL BANK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended
MAY 31, May 31,
(In thousands) 2000 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (2,743) $ 5,445
------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization of premises and equipment 8,817 7,364
Provision for loan losses 32,275 20,994
Amortization of intangibles 7,403 6,883
Gain on sale of investment securities available-for-sale (640)
(Gain) loss on disposition of premises and equipment (16) 38
Gain on sale of loans (5,222) (11,647)
Amortization of premiums and accretion of discounts
on investments (33) 136
Decrease in loans held-for-sale 27,486 70,129
Amortization of deferred loan fees and costs (3,692) (442)
Net decrease (increase) in interest receivable 1,431 (1,547)
Net increase in other assets (184) (20,074)
Net increase in interest payable 7,722 1,415
Net (decrease) increase in current and deferred taxes (5,235) 2,247
Net increase in other liabilities 8,470 3,026
------------------------------------------------------------------------------------------------------------
Total adjustments 79,222 77,882
------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 76,479 83,327
------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in money market investments 11,316 73,453
Purchases of investment securities held-to-maturity (1,163) (30)
Maturities of investment securities held-to-maturity 1,816 51,851
Purchases of investment securities available-for-sale (76,357) (1,489,566)
Maturities of investment securities available-for-sale 55,391 1,491,257
Sales of investment securities available-for-sale 184 71,674
Net disbursements on loans (933,501) (876,561)
Proceeds from sale of loans 354,778 477,970
Capital contribution to subsidiaries -- (78,125)
Acquisition of loan portfolios (126,421)
Assets acquired, net of cash 715
Acquisition of premises and equipment (12,183) (13,490)
Proceeds from sale of premises and equipment 199 1,333
------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (725,226) (290,234)
------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 198,321 (91,536)
Net increase (decrease) in federal funds purchased and securities
sold under agreements to repurchase 34,608 (324,338)
Net increase in other short-term borrowings 237,128 375,054
Proceeds from issuance of notes payable 167,329 179,462
Payments of notes payable (19,139) (93,734)
Capital contribution received from Parent company 12,000 67,671
------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 630,247 112,579
------------------------------------------------------------------------------------------------------------
Net decrease in cash and due from banks (18,500) (94,328)
Cash and due from banks at beginning of period 243,149 300,159
------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of period $ 224,649 $ 205,831
============================================================================================================
</TABLE>
16
<PAGE> 17
POPULAR INTERNATIONAL BANK, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter ended Six months ended
May 31, May 31,
(In thousands) 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net (loss) income $(1,099) $ 1,772 $(2,743) $ 5,445
-------------------------------------------------------
Other comprehensive loss, net of tax:
Foreign currency translation adjustment 65 (62) (297) (895)
Unrealized holding losses arising during
the period, net of tax of $(251) (1999 - $(1,425))
for the quarter and $(731) (1999 - $(1,708) for the
six-month period (163) (1,745) (2,845) (2,334)
Less: reclassification adjustment for gains included in net
income (loss), net tax of $69 for the quarter in 1999 and
$130 for the six-month period in 1999 106 197
-------------------------------------------------------
Total other comprehensive loss $ (98) $(1,913) $(3,142) $(3,426)
-------------------------------------------------------
Comprehensive (loss) income $(1,197) $ (141) $(5,885) $ 2,019
=======================================================
</TABLE>
DISCLOSURE OF ACCUMULATED OTHER COMPREHENSIVE LOSS:
<TABLE>
<CAPTION>
MAY 31, November 30, May 31,
(In thousands) 2000 1999 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign currency translation adjustment $(1,535) $(1,238) $(1,110)
Unrealized losses on securities (4,458) (1,613) (741)
----------------------------------------------
Accumulated other comprehensive loss $(5,993) $(2,851) $(1,851)
==============================================
</TABLE>
NOTE 12 - POPULAR NORTH AMERICA, INC. (A SECOND-TIER SUBSIDIARY OF
POPULAR, INC.) FINANCIAL INFORMATION:
The following financial information presents the unaudited consolidated
financial position of Popular North America, Inc. (PNA) and its wholly-owned
subsidiaries, Popular Cash Express, Inc., Equity One, Inc. and Popular Holdings
USA, and its wholly-owned subsidiary Banco Popular North America, as of May 31,
2000 and May 31, 1999, and their related statements of income, cash flows and
comprehensive income for each of the quarters and six-month periods then ended.
The results of Popular Holdings USA, Inc. and its subsidiary are included as of
June 30, 2000 and 1999. PNA has a fiscal year that ends on November 30.
Accordingly, the consolidated financial information of PNA presented below,
corresponds to the financial information of PNA included in the consolidated
financial statements of Popular, Inc. as of June 30, 2000 and 1999.
17
<PAGE> 18
Popular, Inc. has not presented separate financial statements nor any other
disclosures concerning PNA, other than the following financial information.
Management understands that such information is not material to holders of debt
securities issued by PNA which are guaranteed by the Corporation.
POPULAR NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
MAY 31, May 31,
(In thousands) 2000 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 177,014 $ 153,518
Money market investments 50,504 24,590
Investment securities available-for-sale, at market value 334,140 331,359
Investment securities held-to-maturity, at cost 48,237 54,720
Trading account securities, at market value
Loans held-for-sale 59,649 157,509
------------------------------------------------------------------------------------------------------------
Loans
6,043,793 4,810,294
Less - Unearned income 76,543 76,849
Allowance for loan losses 80,646 69,085
------------------------------------------------------------------------------------------------------------
5,886,604 4,664,360
------------------------------------------------------------------------------------------------------------
Premises and equipment 112,361 107,406
Other real estate 11,961 14,818
Customers' liabilities on acceptances 137 390
Accrued income receivable 43,798 37,098
Other assets 61,720 55,978
Intangible assets 133,870 143,164
------------------------------------------------------------------------------------------------------------
$6,919,995 $ 5,744,910
============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 610,818 $ 582,970
Interest bearing 3,669,430 2,761,611
------------------------------------------------------------------------------------------------------------
4,280,248 3,344,581
Federal funds purchased and securities sold under
agreements to repurchase 75,148 81,473
Other short-term borrowings 540,447 868,940
Notes payable 1,260,445 713,288
Acceptances outstanding 137 390
Other liabilities 102,441 75,756
------------------------------------------------------------------------------------------------------------
6,258,866 5,084,428
------------------------------------------------------------------------------------------------------------
Preferred beneficial interests in Popular North America's
Junior subordinated deferrable interest debentures guaranteed
by the Corporation 150,000 150,000
------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock 2 2
Surplus 439,964 439,964
Retained earnings 73,771 71,882
Accumulated other comprehensive loss, net of
deferred taxes of $(1,791); (May 31, 1999 - $(838)) (2,608) (1,366)
------------------------------------------------------------------------------------------------------------
511,129 510,482
------------------------------------------------------------------------------------------------------------
$6,919,995 $ 5,744,910
============================================================================================================
</TABLE>
18
<PAGE> 19
POPULAR NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter ended Six months ended
May 31, May 31,
(In thousands) 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $135,674 $106,888 $263,311 $208,034
Money market investments
566 533 1,128 1,248
Investment securities 5,628 5,548 11,140 11,539
-------------------------------------------------------------------------------------------------------------------
141,868 112,969 275,579 220,821
-------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits 42,821 26,606 82,900 53,604
Short-term borrowings 8,193 10,507 14,673 20,215
Long-term debt 25,214 16,495 49,141 31,312
-------------------------------------------------------------------------------------------------------------------
76,228 53,608 146,714 105,131
-------------------------------------------------------------------------------------------------------------------
Net interest income 65,640 59,361 128,865 115,690
Provision for loan losses 16,958 11,016 28,648 20,611
-------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan 48,682 48,345 100,217 95,079
Service charges on deposit accounts 6,652 6,366 13,069 12,080
Other service fees 14,131 10,941 27,457 20,024
Gain on sale of securities 176 565
Other operating income
2,231 4,137 6,096 12,358
-------------------------------------------------------------------------------------------------------------------
71,696 69,965 146,839 140,106
-------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Personnel costs:
Salaries 23,619 23,140 48,081 45,327
Profit sharing 168 315 349 1,028
Pension and other benefits 7,272 6,104 14,247 11,881
-------------------------------------------------------------------------------------------------------------------
31,059 29,559 62,677 58,236
Net occupancy expense 6,319 5,512 12,640 10,853
Equipment expenses 4,346 3,381 8,233 6,487
Other taxes 522 444 1,016 801
Professional fees 8,371 8,453 16,213 14,392
Communications 3,388 2,949 6,496 5,673
Business promotion 5,659 5,509 12,794 10,937
Printing and supplies 1,966 1,988 3,788 3,771
Other operating expenses 6,789 4,851 13,464 9,460
Amortization of intangibles 3,448 3,393 6,945 6,729
--------------------------------------------------------------------------------------------------------------------
71,867 66,039 144,266 127,339
-------------------------------------------------------------------------------------------------------------------
(Loss) Income before income tax and minority (171) 3,926 2,573 12,767
Income tax 821 1,461 2,806 5,938
-------------------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME $ (992) $ 2,465 $ (233) $ 6,829
==================================================================================================================
</TABLE>
19
<PAGE> 20
POPULAR NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended
MAY 31, May 31,
(In thousands) 2000 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (233) $ 6,829
------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization of premises and equipment 6,450 5,352
Provision for loan losses 28,648 20,611
Amortization of intangibles 6,945 6,729
Gain on sale of investment securities available-for-sale (564)
(Gain) loss on disposition of premises and equipment (16) 38
Gain on sale of loans (5,222) (11,647)
Amortization of premiums and accretion of discounts
on investments (33) 136
Decrease in loans held-for-sale 27,486 70,129
Amortization of deferred loan fees and costs (3,692) (442)
Net decrease (increase) in interest receivable 328 (2,318)
Net increase in other assets (4,756) (12,339)
Net increase in interest payable 7,881 1,372
Net increase in current and deferred taxes (8,388) (1,642)
Net increase (decrease) in other liabilities 24,558 (406)
------------------------------------------------------------------------------------------------------------
Total adjustments 80,189 75,009
------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 79,956 81,838
------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in money market investments 5,617 84,283
Purchases of investment securities held-to-maturity (1,163) (30)
Maturities of investment securities held-to-maturity 1,816 51,851
Purchases of investment securities available-for-sale (76,348) (1,480,731)
Maturities of investment securities available-for-sale 55,391 1,491,257
Sales of investment securities available-for-sale 184 71,674
Net disbursements on loans (869,706) (887,540)
Proceeds from sale of loans 337,817 477,970
Capital contribution to subsidiaries (60,000) (163,922)
Acquisition of loan portfolios (126,421) (12,659)
Acquisition of premises and equipment (7,774)
Proceeds from sale of premises and equipment 30 328
------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (740,557) (367,519)
------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 197,915 (63,107)
Net increase (decrease) in federal funds purchased and securities
sold under agreements to repurchase 34,608 (324,338)
Net increase in other short-term borrowings 215,542 382,384
Proceeds from issuance of notes payable 149,877 179,462
Payments of notes payable (14,444) (93,596)
Capital contribution received from Parent company 60,000 159,854
------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 643,498 240,659
------------------------------------------------------------------------------------------------------------
Net decrease in cash and due from banks (17,103) (45,022)
Cash and due from banks at beginning of period 194,117 198,540
------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of period $ 177,014 $ 153,518
============================================================================================================
</TABLE>
20
<PAGE> 21
POPULAR NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter ended Six months ended
May 31, May 31,
(In thousands) 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net (loss) income $ (992) $ 2,465 $ (233) $ 6,829
-------------------------------------------------------
Other comprehensive loss, net of tax:
Unrealized losses on securities:
Unrealized holding losses arising
during the period, net of tax of $(251) (1999 - $(1,425))
for the quarter and $(731) (1999 - $(1,708) for the six-
month period (574) (2,108) (1,044) (2,864)
Less: reclassification adjustment for gains
included in net income, net of tax of $69 for the quarter
in 1999 and $130 for the six-month period in 1999 106 197
-------------------------------------------------------
Total other comprehensive loss $ (574) $(2,214) $(1,044) $(3,061)
-------------------------------------------------------
Comprehensive income (loss) $(1,566) $ 251 $(1,277) $ 3,768
=======================================================
</TABLE>
DISCLOSURE OF ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS):
<TABLE>
MAY 31, November 30, May 31,
(In thousands) 2000 1999 1999
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized losses on securities $(2,608) $(1,564) $(1,366)
---------------------------------------
Accumulated other comprehensive loss $(2,608) $(1,564) $(1,366)
=======================================
</TABLE>
21
<PAGE> 22
TABLE A
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
AT JUNE 30, AVERAGE FOR THE SIX MONTHS
---------------------------------------------------------------------------
BALANCE SHEET HIGHLIGHTS 2000 1999 Change 2000 1999 Change
(In thousands)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money market investments $ 1,191,511 $ 791,285 $ 400,226 $ 882,850 $ 687,542 $ 195,308
Investment and trading securities 7,711,533 7,441,280 270,253 7,810,596 7,547,412 263,184
Loans 15,774,604 13,887,392 1,887,212 15,354,380 13,442,576 1,911,804
Total assets 26,451,246 23,665,621 2,785,625 25,719,423 23,178,177 2,541,246
Deposits 14,460,454 13,902,387 558,067 14,284,696 13,697,877 586,819
Borrowings 9,819,573 7,680,936 2,138,637 9,120,375 7,334,285 1,786,090
Stockholders' equity 1,736,890 1,650,682 86,208 1,836,261 1,678,159 158,102
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
SECOND QUARTER SIX MONTHS
---------------------------------------------------------------------------
OPERATING HIGHLIGHTS 2000 1999 Change 2000 1999 Change
(In thousands, except per share information)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $245,916 $238,851 $ 7,065 $488,156 $475,089 $13,067
Provision for loan losses 48,719 36,631 12,088 98,732 72,402 26,330
Fees and other income 109,285 86,926 22,359 225,011 173,984 51,027
Other expenses, net of minority interest 241,359 225,169 16,190 485,123 449,030 36,093
Net income $ 65,123 $ 63,977 $ 1,146 $129,312 $127,641 $ 1,671
Net income applicable to common stock $ 63,036 $ 61,890 $ 1,146 $125,137 $123,466 $ 1,671
Earnings per common share $ 0.46 $ 0.46 $ 0.92 $ 0.91 $ 0.01
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
SELECTED STATISTICAL INFORMATION SECOND QUARTER SIX MONTHS
------------------------------------------------------------------------------
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK DATA- Market price
High $23.56 $32.88 $26.88 $37.88
Low 19.06 28.81 18.63 28.81
End 19.06 30.31 19.06 30.31
Book value at period end 12.05 11.51 12.05 11.51
Dividends declared 0.16 0.14 0.32 0.28
Dividend payout ratio 34.46% 30.70% 34.72% 30.77%
Price/earnings ratio 10.30X 17.22x 10.30X 17.22x
--------------------------------------------------------------------------------------------------------------------------
PROFITABILITY RATIOS - Return on assets 1.01% 1.08% 1.01% 1.11%
Return on common equity 14.43 15.53 14.50 15.78
Net interest spread (taxable equivalent) 3.46 3.89 3.54 3.95
Net interest yield (taxable equivalent) 4.30 4.68 4.36 4.76
Effective tax rate 24.89 24.23 23.99 25.20
Overhead ratio 44.77 49.53 45.24 49.07
Efficiency ratio 61.94 62.94 63.87 62.71
--------------------------------------------------------------------------------------------------------------------------
CAPITALIZATION RATIOS - Equity to assets 7.15% 7.18% 7.14% 7.24%
Tangible equity to assets 6.08 6.13 6.05 6.16
Equity to loans 11.85 12.40 11.96 12.47
Internal capital generation 8.89 10.12 8.90 10.19
Tier I capital to risk - adjusted assets 10.09 10.37 10.09 10.37
Total capital to risk - adjusted assets 12.12 12.59 12.12 12.59
Leverage ratio 6.42 6.37 6.42 6.37
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This financial review contains the analysis of the consolidated financial
position and financial performance of Popular, Inc. and its subsidiaries (the
Corporation) and should be read in conjunction with the consolidated financial
statements, tables and notes included in this report. The Corporation is a
diversified bank holding company, which offers a wide range of products and
services through its subsidiaries and is engaged in the following businesses:
- Commercial Banking - Banco Popular de Puerto Rico (BPPR), Banco Popular
North America (BPNA) and Banco Fiduciario, S.A. (BF)
- Lease Financing - Popular Leasing and Rental, Inc. and Popular Leasing,
U.S.A.
- Consumer and Mortgage Lending - Popular Mortgage, Inc., Equity One, Inc.
Popular Finance, Inc. and Levitt Mortgage
- Broker / Dealer - Popular Securities, Inc.
- ATM Processing and Information Technology Services - GM Group, ATH Costa
Rica and CreST, S.A.
- Retail Financial Services - Popular Cash Express, Inc.
NET INCOME
The Corporation's net income amounted to $65.1 million for the second quarter of
2000, compared with $64.0 million for the same quarter of 1999. Earnings per
common share (EPS) for the second quarter of 1999 and 2000 were $0.46 based on
135,491,324 and 135,878,677 average common shares outstanding for each
respective quarter. Net earnings for the first quarter of 2000 were $64.2
million or $0.46 per common share based on 135,763,765 average common shares
outstanding. Return on assets (ROA) and return on common equity (ROE) for the
quarter ended June 30, 2000 were 1.01% and 14.43%, respectively, compared with
1.08% and 15.53%, for the same period in 1999. For the first quarter of 2000
these ratios were 1.01% and 14.57%.
The Corporation's results of operations for the quarter ended June 30, 2000
reflected increases of $7.1 million in net interest income and $22.4 million in
other revenues when compared with the same quarter of 1999. These improvements
were partially offset by rises of $14.2 million in operating expenses and $12.1
million in the provision for loan losses.
For the first six months of 2000, the Corporation's net earnings rose to $129.3
million, compared with $127.6 million for the same period in 1999. EPS for the
first six months of 2000 were $0.92 compared with $0.91 for the same period of
1999. ROA and ROE for the period ended June 30, 2000 were 1.01% and 14.50%
respectively, compared with 1.11% and 15.78% for the same period last year.
NET INTEREST INCOME
Net interest income for the second quarter of 2000 reached $245.9 million,
compared with $238.8 million reported for the same period in 1999, and $242.2
million for the first quarter of 2000. On a taxable equivalent basis, net
interest income increased to $262.1 million from $258.2 million reported in the
same quarter of 1999.
The growth of $3.9 million in net interest income, on a taxable equivalent
basis, compared with the second quarter of 1999, resulted from a $24.5 million
increase mainly due to a higher volume of earning assets, partially offset by
23
<PAGE> 24
a $20.6 million decrease due to a lower net interest yield. For analytical
purposes, the interest earned on tax-exempt assets is adjusted to a taxable
equivalent basis assuming the applicable statutory income tax rates.
Table B summarizes the changes in the composition of average earning assets and
interest bearing liabilities, and their respective interest income and expense
and yields and costs, on a taxable equivalent basis, for the second quarter of
2000, as compared with the same quarter in 1999.
TABLE B
ANALYSIS OF LEVELS AND YIELDS ON A TAXABLE EQUIVALENT BASIS
QUARTER ENDED ON JUNE 30,
<TABLE>
<CAPTION>
Variance
Attributable
Average Volume Average Yields Interest to
---------------------------------------------------------- --------------------------------------------
2000 1999 Variance 2000 1999 Variance 2000 1999 Variance Rate Volume
---------------------------------------------------------- --------------------------------------------
($ in millions) (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 912 $ 680 $ 232 6.31% 4.47% 1.84% Money market investments $ 14,308 $ 7,500 $ 6,808 $ 3,295 $ 3,513
7,537 7,403 134 6.88 6.67 0.21 Investment securities 129,393 122,926 6,467 4,501 1,966
207 328 (121) 6.63 6.24 0.39 Trading 3,413 5,042 (1,629) 340 (1,969)
---------------------------------------------------------- --------------------------------------------
8,656 8,411 245 6.81 6.48 0.33 147,114 135,468 11,646 8,136 3,510
---------------------------------------------------------- --------------------------------------------
Loans:
7,226 6,347 879 9.67 9.13 0.54 Commercial 173,744 142,867 30,877 10,183 20,694
794 618 176 11.20 12.67 (1.47) Leasing 22,228 19,559 2,669 (2,451) 5,120
4,261 3,515 746 8.11 8.04 0.07 Mortgage 86,407 70,644 15,763 631 15,132
3,400 3,201 199 13.11 13.09 0.02 Consumer 111,454 104,199 7,255 306 6,949
---------------------------------------------------------- --------------------------------------------
15,681 13,681 2,000 10.07 9.94 0.13 393,833 337,269 56,564 8,669 47,895
---------------------------------------------------------- --------------------------------------------
$24,337 $22,092 $2,245 8.91% 8.62% 0.29% TOTAL EARNING ASSETS $540,947 $472,737 $68,210 $ 16,805 $51,405
========================================================== ============================================
Interest bearing deposits:
$ 1,728 $ 1,720 $ 8 3.43% 3.11% 0.32% NOW and money market $ 14,757 $ 13,207 $ 1,550 $ 1,468 $ 82
4,210 4,226 (16) 3.04 3.04 0.00 Savings 31,841 31,710 131 310 (179)
5,411 4,789 622 6.15 5.52 0.63 Time deposits 82,801 65,230 17,571 9,027 8,544
---------------------------------------------------------- --------------------------------------------
11,349 10,735 614 4.59 4.16 0.43 129,399 110,147 19,252 10,805 8,447
---------------------------------------------------------- --------------------------------------------
7,114 5,855 1,259 6.43 5.07 1.36 Short-term borrowings 113,684 73,138 40,546 27,018 13,528
2,102 1,807 295 6.84 7.00 (0.16) Medium and long-term debt 35,775 31,265 4,510 (409) 4,919
---------------------------------------------------------- --------------------------------------------
TOTAL INTEREST-BEARING
20,565 18,397 2,168 5.45 4.73 0.72 LIABILITIES 278,858 214,550 64,308 37,414 26,894
3,073 3,081 (8) Demand deposits
699 614 85 Other sources of funds
---------------------------------------------------------- --------------------------------------------
$24,337 $22,092 $2,245 4.61% 3.94% 0.67%
==========================================================
4.30% 4.68% (0.38)% NET INTEREST MARGIN AND
============================
NET INTEREST INCOME $262,089 $258,187 $ 3,902 $(20,609) $24,511
==================
3.46% 3.89% (0.43)% NET INTEREST SPREAD
============================
Taxable equivalent
adjustment 16,173 19,336 (3,163)
-------------------------
Net interest income $245,916 $238,851 $ 7,065
=========================
</TABLE>
Note: The changes that are not due solely to volume or rate are allocated to
volume and rate based on the proportion of the change in each category.
Average earning assets rose $2.2 billion primarily due to a higher average loan
portfolio by $2.0 billion when compared with the same quarter in 1999.
Commercial loans and mortgage loans accounted for 81% of the total increase in
average loans. The increase resulted from the Corporation's efforts directed to
the retail and middle
24
<PAGE> 25
markets and to a higher loan origination and refinancing activity experienced
during 1999 that increased the mortgage loan volume, as a result of the
prevailing interest rate environment for these activities in the earlier part of
1999 and to the Corporation's marketing campaign.
The increase in average interest bearing liabilities for the second quarter of
2000, as compared with the same quarter in 1999, was mostly reflected in average
borrowings and time deposits. These funds were used primarily to fund the
Corporation's business expansion, loan growth and investment portfolio
opportunities.
The net interest margin for the quarter ended June 30, 2000, on a taxable
equivalent basis, decreased to 4.30% from 4.68% for the same period in 1999.
This reduction was driven by a higher cost of interest bearing liabilities,
mostly borrowed money, together with a higher proportion of borrowed money to
total interest-bearing liabilities. A rising interest rate scenario has moved
the Corporation's cost of interest-bearing liabilities up by 72 basis points,
mainly in the cost of borrowed money and time deposits. The Federal Reserve
started, in June 1999, a tightening cycle increasing the federal funds rate six
times since then for a total of 175 basis points.
The increase in the cost of funds was partially offset by a higher average yield
on earning assets, which increased by 29 basis points, on a taxable equivalent
basis, when compared with the same quarter in 1999. This improvement is
primarily related to the increase of 13 basis points in the average yield on
loans, mainly in commercial loans, and a higher return in the money market,
investment and trading portfolios.
For the six-month period ended June 30, 2000, net interest income, on a taxable
equivalent basis, increased $10.5 million, when compared with $514.3 million in
the same period of 1999. The increase in the average volume of earning assets,
partially offset by an increase in the average volume of interest-bearing
liabilities, triggered a positive variance of $36.9 million due to levels. An
unfavorable variance of $26.4 million due to changes in interest rates and in
the mix of the portfolios offset this variance.
As shown in Table C average earning assets increased by $2.4 billion for the
six-month period ended June 30, 2000, when compared with $21.7 billion reported
in the same period of 1999. Loans accounted for 81% of the total increase in
average earning assets. Average interest-bearing liabilities increased $2.3
billion when compared with the six-month period ended June 30, 1999.
The increase in the cost of interest-bearing liabilities, partially offset by
the increase in the yield on earning assets, on a taxable equivalent basis,
resulted in a lower net interest yield by 40 basis points, which decreased from
4.76% in the first six months of 1999 to 4.36% in the same period of 2000. As
previously explained, the decline in the net interest margin was mostly the
result of a higher interest rate scenario that prevailed during the first six
months of 2000 as compared to 1999, and to a higher proportion of borrowings and
time deposits, which carry a higher cost.
25
<PAGE> 26
TABLE C
ANALYSIS OF LEVELS AND YIELDS ON A TAXABLE EQUIVALENT BASIS
YEAR-TO-DATE JUNE 30,
<TABLE>
<CAPTION>
Variance
Attributable
Average Volume Average Yields Interest to
------------------------------------------------------ ----------------------------------------------------
2000 1999 Variance 2000 1999 Variance 2000 1999 Variance Rate Volume
------------------------------------------------------ ----------------------------------------------------
($ in millions) (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 882 $ 688 $ 194 6.28% 4.53% 1.75% Money market investments $ 27,556 $ 15,433 $ 12,123 $ 7,106 $ 5,017
7,591 7,224 367 6.77 6.84 (0.07) Investment securities 256,466 246,275 10,191 (2,937) 13,128
220 323 (103) 7.41 6.34 1.07 Trading 8,085 10,146 (2,061) 1,547 (3,608)
----------------------------------------------------- -----------------------------------------------------
8,693 8,235 458 6.73 6.63 0.10 292,107 271,854 20,253 5,716 14,537
----------------------------------------------------- -----------------------------------------------------
Loans:
7,124 6,226 898 9.56 9.08 0.48 Commercial 338,766 280,418 58,348 16,271 42,077
732 619 113 11.97 12.89 (0.92) Leasing 43,838 39,917 3,921 (2,979) 6,900
4,136 3,417 719 8.32 8.09 0.23 Mortgage 172,042 138,122 33,920 4,093 29,827
3,362 3,180 182 13.14 13.03 0.11 Consumer 220,476 206,528 13,948 523 13,425
----------------------------------------------------- -----------------------------------------------------
15,354 13,442 1,912 10.13 9.94 0.19 775,122 664,985 110,137 17,908 92,229
----------------------------------------------------- -----------------------------------------------------
$24,047 $21,677 $2,370 8.90% 8.68% 0.22% TOTAL EARNING ASSETS $1,067,229 $936,839 $130,390 $ 23,624 $106,766
===================================================== =====================================================
Interest bearing deposits
$ 1,708 $ 1,697 $11 3.40% 3.12% 0.28% NOW and money market $ 28,856 $ 26,243 $ 2,613 $ 2,396 $ 217
4,189 4,195 (6) 2.96 2.99 (0.03) Savings 61,727 62,282 (555) (669) 114
5,315 4,769 546 6.10 5.60 0.50 Time deposits 161,290 132,445 28,845 11,796 17,049
----------------------------------------------------- -----------------------------------------------------
11,212 10,661 551 4.52 4.18 0.34 251,873 220,970 30,903 13,523 17,380
----------------------------------------------------- -----------------------------------------------------
6,969 5,623 1,346 6.25 5.11 1.14 Short-term borrowings 216,509 142,513 73,996 36,386 37,610
2,151 1,711 440 6.92 6.95 (0.03) Medium and long-term debt 74,037 59,024 15,013 148 14,865
----------------------------------------------------- ----------------------------------------------------
TOTAL INTEREST-BEARING
20,332 17,995 2,337 5.36 4.73 0.63 LIABILITIES 542,419 422,507 119,912 50,057 69,855
3,073 3,037 36 Demand deposits
642 645 (3) Other sources of funds
----------------------------------------------------- ----------------------------------------------------
$24,047 $21,677 $2,370 4.54% 3.92% 0.62%
=====================================================
4.36% 4.76% (0.40)%NET INTEREST MARGIN AND
===========================
NET INTEREST INCOME $ 524,810 $514,332 $ 10,478 $(26,433) $ 36,911
==================
3.54% 3.95% (0.41)%NET INTEREST SPREAD
===========================
Taxable equivalent 36,654 39,243 (2,589)
adjustment --------------------------------
Net interest income $ 488,156 $475,089 $ 13,067
================================
</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.
MARKET RISK
Market risk is the risk of economic loss arising from adverse changes in market
rates and prices, such as interest rates, foreign currency exchange rates,
commodity prices, and other relevant market or price changes. The Corporation's
primary market risk exposure is to interest rates, as primarily interest rate
volatility and its impact on the repricing of assets and liabilities affect the
net interest income. The Corporation maintains a formal asset and liability
management process to quantify, monitor and control interest rate risk and to
assist management in maintaining stability in the net interest margin under
varying interest rate environments.
The Corporation uses various techniques to assess the degree of interest rate
risk, including static gap analysis, simulation and duration analysis. Each
focuses on different aspects of the interest rate risk that is assumed at any
point in time, and are therefore used jointly to make informed judgements about
the risk levels and the
26
<PAGE> 27
appropriateness of strategies under consideration. An interest rate sensitivity
analysis, performed at the Corporation level, is the primary tool used in
expressing the potential changes in future earnings resulting from selected
hypothetical changes in interest rates.
Sensitivity analysis is calculated on a monthly basis using a simulation model
which incorporates actual balance sheet figures detailed by maturity and
interest yields or costs, the expected balance sheet dynamics, reinvestments,
and other non-interest related data. Simulations are processed using various
interest rate scenarios to determine potential changes to the future earnings of
the Corporation.
Computations of the prospective effects of hypothetical interest rate changes
are based on many assumptions, including relative levels of market interest
rates, loan prepayments and deposit decay. They should not be relied upon as
indicative of actual results. Further, the computations do not contemplate
actions that management could take to respond to changes in interest rates. By
their nature, these forward-looking choices are only estimates and may be
different from what actually may occur in the future.
Based on the results of the sensitivity analysis as of June 30, 2000, the change
in net interest income on a hypothetical rising rate scenario for the next
twelve months was a $2.9 million increase and the change for the same period
utilizing a hypothetical declining rate scenario was a decrease of $2.9 million.
Both hypothetical rate scenarios consider a gradual change of 150 basis points
during the twelve-month period. These estimated changes are well within the
policy guidelines established by the Board.
In the course of its business, the Corporation occasionally enters into foreign
exchange transactions. These transactions are executed as an intermediary
primarily for its commercial and retail clients, and any foreign exchange
positions assumed by the Corporation as a result are offset in the currency
markets. Management therefore believes that the market risk assumed by the
Corporation in its foreign currency transactions is not significant.
The Corporation is the largest shareholder of BF, a commercial banking
institution in the Dominican Republic, with a 57% ownership interest. Most of
BF's business is conducted in Dominican `pesos' (DR$). Local (DR) regulations
limit the ability of BF to assume unhedged foreign currency positions. The value
of the Corporation's investment in BF may be affected prospectively by
fluctuations in future exchange rates between the DR$ and US$. However,
management does not expect future exchange rate volatility between these two
currencies to affect significantly the value of the Corporation's investment in
BF.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses for the second quarter of 2000, increased $12.1
million or 33.0% when compared with the same period of 1999. For the six-month
period ended June 30, 2000 the provision totaled $98.7 million, an increase of
$26.3 million or 36.4% compared with the same period in 1999. The rise in the
provision for loan losses was mostly due to the growth of $1.9 billion in the
Corporation's loan portfolio from June 30, 1999 to the same date this year, and
increases in non-performing assets and net charge-offs. Table D summarizes the
movement in the allowance for loan losses and presents selected loan loss
statistics for the quarters and six-month periods ended June 30, 2000 and 1999.
Additional information regarding the allowance and asset quality appears in the
Credit Quality section.
27
<PAGE> 28
TABLE D
ALLOWANCE FOR LOAN LOSSES AND SELECTED LOAN LOSSES STATISTICS
<TABLE>
<CAPTION>
Second Quarter First Six Months
(Dollars in thousands) 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of period $293,442 $277,116 $292,010 $267,249
Allowance purchased 1,481 1,481
Provision for loan losses 48,719 36,631 98,732 72,402
-------------------------------------------------------
343,642 313,747 392,223 339,651
-------------------------------------------------------
Losses charged to the allowance:
Commercial 15,636 14,026 35,124 25,322
Construction 4 145 500
Lease financing 8,574 5,795 15,972 11,641
Mortgage 1,550 910 2,192 1,853
Consumer 29,511 26,180 61,709 46,752
-------------------------------------------------------
55,275 46,911 115,142 86,068
-------------------------------------------------------
Recoveries:
Commercial 5,600 5,786 8,461 8,758
Construction 89 91
Lease financing 5,384 4,547 7,755 8,465
Mortgage 120 88 181 382
Consumer 6,055 5,244 12,048 11,311
-------------------------------------------------------
17,159 15,754 28,445 29,007
-------------------------------------------------------
Net loans charged-off (recovered):
Commercial 10,036 8,240 26,663 16,564
Construction 4 (89) 145 409
Lease financing 3,190 1,248 8,217 3,176
Mortgage 1,430 822 2,011 1,471
Consumer 23,456 20,936 49,661 35,441
-------------------------------------------------------
38,116 31,157 86,697 57,061
-------------------------------------------------------
Balance at end of period $305,526 $282,590 $305,526 $282,590
=======================================================
Ratios:
Allowance for losses to loans 1.94% 2.03% 1.94% 2.03%
Allowance to non-performing assets 80.30 93.26 80.30 93.26
Allowance to non-performing loans 88.80 103.51 88.80 103.51
Non-performing assets to loans 2.41 2.18 2.41 2.18
Non-performing assets to total assets 1.44 1.28 1.44 1.28
Net charge-offs to average loans 0.97 0.91 1.13 0.85
Provision to net charge-offs 1.28X 1.18x 1.14X 1.27x
Net charge-offs earnings coverage 3.56 3.87 3.08 4.24
</TABLE>
Net charge-offs for the second quarter of 2000, increased $7.0 million or 22.3%
when compared with the same quarter of 1999. When compared with the first
quarter of 2000, net charge-offs showed a decrease of $10.5 million. Net
charge-offs represented 0.97% of average loans for the quarter ended June 30,
2000, compared with 0.91% for
28
<PAGE> 29
the same period in 1999 and 1.29% in the first quarter of 2000. Net losses for
the quarter were principally in the consumer, lease financing and commercial
loan portfolios.
Consumer loans net charge-offs rose $2.5 million, representing 2.76% of average
consumer loans for the quarter ended June 30, 2000, compared with 2.62% for the
second quarter of 1999. The increases experienced since June 30, 1999 were
mostly in the credit card and personal loan portfolios in both, Puerto Rico and
the U.S. mainland, mainly due to an increase in personal delinquencies.
Commercial loans net charge-offs, including construction loans, increased $1.9
million for the quarter ended June 30, 2000, when compared with the same quarter
of 1999. Commercial loans net charge-offs, including construction loans,
represented 0.56% of average commercial loans for the quarter ended June 30,
2000, compared with 0.51% for the same quarter last year. This increase is
mostly related to the growth in the commercial loan portfolio, as well as the
deterioration in the credit quality of a limited number of commercial
relationships in Puerto Rico and the United States.
Lease financing net charge-offs totaled $3.2 million or 1.61% of the average
lease financing portfolio for the quarter ended June 30, 2000, compared with
$1.2 million or 0.81% for the same quarter last year. This rise is mostly due to
a $2.5 million charge-off related to an external fraud scheme that was unveiled
during this quarter in our U.S. operations, and represented the balance not
covered by insurance.
Net charge-offs for the six-month period ended June 30, 2000, reached $86.7
million or 1.13% of average loans, compared with $57.1 million or 0.85% for the
same period of 1999. Similarly to the quarter results, the increase in net
credit losses for the six-month period ended June 30, 2000 was mostly reflected
in the commercial, consumer and lease financing portfolios.
The increase of $9.8 million in commercial net charge-offs, including
construction loans, when compared to the same six-months last year was also
related to the rise in the commercial loan portfolio, as well as the
deterioration of the credit quality of a limited number of commercial
relationships. Commercial and construction loans net charge-offs represented
0.75% of the average balance of those loans for the six-months ended June 30,
2000, compared with 0.55% for the same period last year.
Consumer loans net charge-offs totaled $49.7 million or 2.95% of average
consumer loans in the six-month period ended June 30, 2000, compared with $35.4
million or 2.23% in the same period of 1999. Lease financing net charge-offs
totaled $8.2 million or 2.25% of the average lease financing portfolio for the
first six months of 2000, compared with $3.2 million or 1.0% for the same period
last year. Besides the increase in net-charge offs related to the external fraud
scheme, other factors such as the increase in personal delinquencies coupled
with lower recovery activity in the lease financing portfolio during the first
quarter of 2000, contributed to the rise in net charge-offs for the period.
At June 30, 2000, the allowance for loan losses was $305.5 million, representing
1.94% of loans, compared with $282.6 million or 2.03% a year earlier, and $292.0
million or 1.96% at December 31, 1999.
The allowance for loan losses is maintained at a level, which is considered by
management to be sufficient to provide for estimated losses based on evaluations
of known and inherent risks in the loan portfolio. The Corporation's management
evaluates the adequacy of the allowance for loan losses on a monthly basis. In
determining the allowance, management considers the portfolio risk
characteristics, the results of periodic credit reviews of individual loans,
prior loss experience, and prevailing and projected economic conditions and loan
impairment measurement.
The Corporation has defined impaired loans as all loans with interest and/or
principal past due 90 days or more and other specific loans for which, based on
current information and events, it is probable that the debtor will be unable to
pay all amounts due according to the contractual terms of the loan agreement.
Loan impairment is measured based
29
<PAGE> 30
on the present value of expected future cash flows discounted at the loan's
effective rate, on the observable market price of the loan or on the fair value
of the collateral if the loan is collateral dependent. Large groups of smaller
balance homogeneous loans are collectively evaluated for impairment based on
past experience, adjusted for current conditions. All other loans are evaluated
on a loan-by-loan basis. Impaired loans for which the discounted cash flows,
collateral value or market price equals or exceeds its carrying value do not
require an allowance. The allowance for impaired loans is part of the
Corporation's overall allowance for loan losses.
The following table shows the Corporation's recorded investment in impaired
loans and the related valuation allowance calculated under SFAS No. 114 (as
amended by SFAS No. 118) at June 30, 2000 and June 30, 1999.
<TABLE>
<CAPTION>
JUNE 30, 2000 June 30, 1999
RECORDED VALUATION Recorded Valuation
INVESTMENT ALLOWANCE Investment Allowance
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Impaired loans:
Valuation allowance required $156 $53 $132 $30
No valuation allowance required 37 35
--------------------------------------------------------------
Total impaired loans $193 $53 $167 $30
--------------------------------------------------------------
</TABLE>
Average impaired loans during the second quarter of 2000 and 1999 were $188
million and $170 million, respectively. The Corporation recognized interest
income on impaired loans of $1.3 million and $1.6 million, respectively, for the
quarters ended June 30, 2000 and 1999.
CREDIT QUALITY
Non-performing assets consist of past-due loans on which no interest income is
being accrued and other real estate. A summary of non-performing assets by loan
categories and related ratios is presented in Tables D and E.
The Corporation's policy is to place commercial loans on non-accrual status if
payments of principal or interest are delinquent 60 days rather than the
industry practice for most U.S. banks which is 90 days. Financing leases,
conventional mortgages and close-end consumer loans are placed on non-accrual
status if payments are delinquent 90 days. Closed-end consumer loans are
charged-off when payments are delinquent 120 days. Open-end (revolving credit)
consumer loans are charged-off if payments are delinquent 180 days. Certain
loans which would be treated as non-accrual loans pursuant to the foregoing
policy, are treated as accruing loans if they are considered well-secured and in
the process of collection. Under the industry practice for most U.S. banks,
close-end consumer loans are charged-off when delinquent 120 days, but are not
customarily placed on non-accrual status prior to being charged-off.
As presented in Table E, the rise in non-performing assets was reflected mostly
in non-performing commercial, lease financing and consumer loans, which rose
$47.1 million, $12.6 million and $7.3 million, respectively, when compared with
June 30, 1999. Non-performing assets increased $54.4 million when compared to
amounts reported as of December 31, 1999, principally in the commercial, lease
financing and mortgage loan portfolios. Non-performing assets as a percentage of
total loans amounted to 2.41% as of June 30, 2000, compared with 2.18% at the
same date in 1999 and 2.19% as of December 31, 1999.
30
<PAGE> 31
TABLE E
NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
JUNE 30, December 31, June 30,
2000 1999 1999
-------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Commercial, construction, industrial and agricultural $199,289 $165,472 $152,233
Lease financing 15,674 3,820 3,053
Mortgage 74,333 70,038 70,264
Consumer 54,756 57,515 47,457
Other real estate 36,426 29,268 30,018
------------------------------------------------------
Total $380,478 $326,113 $303,025
======================================================
Accruing loans past-due 90 days or more $ 29,954 $ 28,731 $ 23,206
======================================================
Non-performing assets to loans 2.41% 2.19% 2.18%
Non-performing assets to assets 1.44 1.28 1.28
</TABLE>
The rise in commercial non-performing loans since December 31, 1999 corresponded
principally to the classification on non-accrual of a limited number of
commercial loan relationships in Puerto Rico and the United States, as well as
the growth in the portfolio. Most of the increase in non-performing leases is
due to the inclusion of $13 million in leases that became delinquent due to the
aforementioned external fraud scheme that was exposed during the quarter. The
Corporation expects to recover this balance from the insurance companies, which
have already confirmed coverage. The increase in non-performing mortgage loans
from December 31, 1999 was principally due to the growth in the mortgage loan
portfolio and higher delinquency levels. As displayed in Table E, the other real
estate category also reflected an increase of $7.2 million from the end of 1999,
principally as a result of various properties repossessed by the Corporation's
banking subsidiary in the Dominican Republic.
The rises described above were partially offset by a decrease of $2.8 million in
non-performing consumer loans when compared with December 31, 1999.
Non-performing consumer loans represented 1.63% of the average consumer loan
portfolio at June 30, 2000 compared with 1.78% at December 31, 1999. This
decrease mainly resulted from the fact that the growth in consumer loans was
derived mainly from credit cards, which are not customarily placed on
non-accrual status prior to being charged-off.
At June 30, 2000, the allowance for loan losses as a percentage of
non-performing assets was 80.30% compared with 93.26% at June 30, 1999 and
89.54% at December 31, 1999.
Assuming the standard industry practice of placing commercial loans on
non-accrual status when payments of principal and interest are past due 90 days
or more and excluding the closed-end consumer loans from non-accruing, the
Corporation's non-performing assets at June 30, 2000, would have been $310
million or 1.96% of loans, and the allowance for loan losses would have been
98.7% of non-performing assets. At June 30, 1999 and December 31, 1999, adjusted
non-performing assets would have been $222 million or 1.60% of loans and $247
million or 1.66% of loans, respectively, and the allowance to non-performing
assets would have been 127.0% and 118.2%, respectively.
31
<PAGE> 32
NON-INTEREST INCOME
Non-interest income, including securities and trading gains amounted to $109.3
million for the quarter ended June 30, 2000, compared with $86.9 million for the
same period in 1999. As seen on Table F, the rise in non-interest income was
principally driven by an increase of $15.8 million in other service fees, $4.2
million in other operating income, and $1.1 million in service charges on
deposit accounts.
TABLE F
NON-INTEREST INCOME
<TABLE>
<CAPTION>
Second Quarter Year-to-Date
----------------------------------------------------------------------------------------------------------------------------
2000 1999 Change 2000 1999 Change
----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 30,831 $29,731 $ 1,100 $ 61,054 $ 57,980 $ 3,074
------------------------------------------------------------------------------
Other service fees:
Credit cards fees and discounts 18,305 12,105 6,200 32,675 23,004 9,671
Debit card fees 7,300 5,323 1,977 12,191 10,417 1,774
Processing fees 6,859 6,859 13,028 13,028
Other fees 6,767 7,412 (645) 12,809 14,070 (1,261)
Sale and administration of investment
products 4,582 4,027 555 8,496 8,526 (30)
Check cashing fees 3,681 2,811 870 7,211 5,003 2,208
Mortgage servicing fees, net of
amortization 2,967 2,584 383 5,713 5,568 145
Trust fees 2,323 2,595 (272) 4,737 5,056 (319)
External payments fees 1,588 1,351 237 3,126 2,301 825
Credit life insurance fees 1,071 1,483 (412) 2,822 3,655 (833)
------------------------------------------------------------------------------
Subtotal 55,443 39,691 15,752 102,808 77,600 25,208
------------------------------------------------------------------------------
Other income 21,989 17,800 4,189 46,046 38,531 7,515
------------------------------------------------------------------------------
Total $108,263 $87,222 $ 21,041 $209,908 $174,111 $ 35,797
==============================================================================
</TABLE>
Other service fees, which represented 50.7% of non-interest income for the
second quarter of 2000, increased $15.8 million or 39.7% from the amount
reported in 1999. The continued business expansion as well as the acquisition of
GM Group, early in the third quarter of 1999, were the driving factors for the
growth in non-interest income. As shown in Table F, the increase in other
service fees from the same quarter last year is mostly attributable to the rise
in processing fees, credit card fees and discounts, debit card and check-cashing
fees. The increase in processing fees was mostly driven by the aforementioned
acquisition of GM Group. Credit card fees and discounts rose 51.2% when compared
with the second quarter ended June 30, 1999, principally as a result of late
payment and cash advance fees implemented during March 2000 in Puerto Rico upon
the enactment of a new regulation authorizing these charges, and to the growth
in credit card sales and active accounts. Banco Popular's American Express card,
originally launched in August 1998, reflected an increase of 63.14% in active
accounts and 125.7% in average outstanding balances, when compared with the
quarter ended June 30, 1999. Moreover, our U.S. mainland credit card portfolio
rose 39.7% in active accounts and 72.9% average outstanding balances when
compared to the same quarter in 1999. The rise in debit card fees, which consist
primarily of rental income of point-of-sale (POS) terminals and interchange
income, was the result of a sustained growth in the number of POS terminals and
in the volume of transactions. The increase in check-cashing fees was the result
of the growth of the Corporation's retail financial services subsidiary, Popular
Cash Express. This subsidiary operated 70 stores in five states plus 41 mobile
32
<PAGE> 33
units at the end of the second quarter of 2000, compared with 48 stores and 32
mobile units as of June 30, 1999. The rises described above were partially
offset by lower other fees and credit life insurance fees. The latter has been
negatively affected upon the enactment of a new regulation that requires
financial institutions to reimburse the unearned portion of the credit life
insurance fees on loans prepaid.
The increase in other income when compared with the same quarter a year earlier,
was mostly attributed to revenues derived by GM Group, corresponding mainly to
programming fees, consulting services for new technology and system engineering
services, among others. Service charges on deposit accounts reflected higher
activity on commercial accounts.
For the six-month period ended June 30, 2000 and 1999, non-interest income,
including securities and trading gains, totaled $225.0 million and $174.0
million, respectively. Processing fees, credit card fees and discounts,
check-cashing fees and debit card fees within the other service fees category,
all reflected significant growth when compared with the six-month period ended
June 30, 1999, mainly due to the same reasons explained above. The increase in
other income of $7.5 million when compared with the six-month period a year
earlier was mostly due to revenues generated by GM Group, and higher revenues
derived from the Corporation's investment in Telecomunicaciones de Puerto Rico,
Inc. (TELPRI). These rises in other income were partially offset by lower gains
on sale of loans and lower underwriting fees and other revenues derived by the
Corporation's broker/dealer subsidiary due to lower related activity for the
year.
OPERATING EXPENSES
Operating expenses for the second quarter of 2000 were $219.4 million, compared
with $205.2 million for the same quarter in 1999, an increase of $14.2 million,
or 6.9%.
Personnel costs, the largest category of operating expenses, totaled $98.2
million for the second quarter of 1999, an increase of $3.6 million or 3.8% when
compared with the same period of 1999. Salaries accounted for the largest
portion of the increase in personnel costs rising $7.3 million. This rise
resulted from increased employment levels due to the Corporation's business
expansion and the acquisitions of GM Group, Levitt Mortgage and Crest, S.A. made
after the second quarter of 1999, and to normal merit increases. Full-time
equivalent employees (FTE's) amounted to 11,619 at the end of this quarter, up
808 from 10,811 FTE's at the same date in 1999. Partially offsetting the
increase in salaries was a reduction of $3.2 million in pension and other
benefits, mainly as a result of revisions made to Banco Popular de Puerto Rico's
health insurance plan effective April 1, 2000, and to lower pension and
post-retirement benefit expenses.
Other operating expenses, excluding personnel costs, increased $10.6 million,
reaching $121.2 million for the second quarter of 2000, compared with $110.6
million for the same period in 1999. The increase was mostly attributed to rises
in equipment, net occupancy, communications and other operating expenses. The
increase in equipment expenses of $3.5 million and in net occupancy expenses of
$1.5 million, when compared with the same quarter a year earlier, was mainly due
to the Corporation's expenditures associated to new technology and systems
enhancements, and the Corporation's growth and expansion. The increase of $1.5
million in communication expenses was mostly related to the acquisition of GM
Group earlier in the third quarter of 1999, and to a growth in the electronic
banking network of ATMs and POS terminals and in the volume of electronic
transactions, which require additional communication lines and associated costs.
Other operating expenses grew primarily due to higher sundry losses, travelling
and miscellaneous expenses, and to costs associated with the operations of GM
Group.
For the first six months of 2000, operating expenses rose to $445.9 million from
$407.1 million for the same period in 1999. Besides the reasons for the
increases described above which also apply for the six-month period, the
Corporation experienced rises in business promotion expenses, professional fees
and in the amortization of intangibles, when compared with the six-month period
ended June 30, 1999. Business promotion rose mostly due to advertising costs
associated with the credit cards operations, IRA campaigns and the launching of
the internet site "Mi Banco Popular", as well as business promotional efforts
launched by Equity One during the year. The rise
33
<PAGE> 34
in professional fees resulted mainly from consulting and temporary services
needed to support the growth of the Corporation's business activity, coupled
with the legal and consulting expenses incurred in connection with enhancing and
improving Banco Popular de Puerto Rico's anti-money laundering policies and
procedures as agreed with the Federal Reserve Bank of New York. The increase in
the amortization of intangibles was mostly associated with the aforementioned
acquisition of GM Group.
BALANCE SHEET COMMENTS
Total assets as of June 30, 2000 were $26.5 billion compared with $23.7 billion
and $25.5 billion at June 30, 1999 and December 31, 1999, respectively. Earning
assets increased $0.9 billion, reaching $24.7 billion as of June 30, 2000, from
$23.8 billion as of December 31, 1999. Earning assets totaled $22.1 billion at
June 30, 1999.
The investment portfolio reached $7.5 billion as of June 30, 2000 compared with
$7.6 billion as of December 31, 1999, and $7.1 billion as of June 30, 1999. The
increase from June 30, 1999 is mostly related to increased investment portfolio
activity in the second half of 1999. Money market investments increased $400
million and trading securities decreased $130 million when compared with June
30, 1999. These same categories reflected a rise of $206 million and a reduction
of $46 million, respectively, when compared with December 31, 1999. The increase
in money market investments from the end of 1999 was mostly associated with
securities purchased under agreements to resell.
As presented in Table G, the loan portfolio increased $867 million, reaching
$15.8 billion when compared with December 31, 1999. Total loans amounted to
$13.9 billion at June 30, 1999. The growth was mostly reflected in the
commercial, including construction, and mortgage loan portfolios, which
contributed with 88.9% or $771 million of the increase since the end of 1999.
The growth in the commercial loan portfolio resulted principally from the
continued marketing efforts directed to the retail and middle market, mostly in
our U.S. banking operations, which contributed with a rise of $285 million since
December 31, 1999. The increase in the loan portfolio compared with the same
date last year was also reflected in the commercial, including construction, and
mortgage loan portfolios, which increased $817 million and $783 million,
respectively.
TABLE G
LOANS ENDING BALANCES
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
JUNE 30, December 31, June 30,
2000 1999 1999
----------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Commercial, industrial and agricultural $ 6,957,801 $ 6,656,411 $ 6,128,351
Construction 281,790 247,288 293,845
Lease financing 743,191 728,644 663,146
Mortgage * 4,368,381 3,933,663 3,585,512
Consumer 3,423,441 3,341,748 3,216,538
----------------------------------------------
Total $15,774,604 $14,907,754 $13,887,392
==============================================
</TABLE>
* Includes loans held-for-sale
The increase of $58.2 million in other assets when compared with December 31,
1999 is mainly due to an increase in prepaid taxes, receivables from brokers and
dealers and other accounts receivables, mostly related to revenues derived from
the investment in TELPRI.
34
<PAGE> 35
Total deposits were $14.5 billion at June 30, 2000, an increase of $287 million
when compared with the $14.2 billion reported at December 31, 1999. Most of the
growth was realized in time deposits, which increased $367 million from December
31, 1999 mainly as a result of the higher interest rate scenario, which has
prompted clients to invest in longer term funds which derive a higher interest
rate of return. Savings deposits increased $141 million, while demand deposits
decreased $221 million when compared with the amount at December 31, 1999. The
decrease in demand deposits is mainly attributable to a reduction in the funds
held in trust for the benefit of third parties and lower commercial checking
account balances. At June 30, 1999 total deposits amounted to $13.9 billion.
Borrowed funds, including subordinated notes and capital securities, amounted to
$9.8 billion at June 30, 2000, compared with $9.2 billion as of December 31,
1999 and $7.7 billion at June 30, 1999. The increase in borrowed funds from
December 31, 1999 was mainly used to finance loan growth.
As part of the investment in BF and Levitt Mortgage, the Corporation recognized
a minority interest of $21.3 million as of June 30, 2000, which represents the
beneficial interest of the minority investors of these two entities. At June 30,
1999, this minority interest totaled $20.2 million.
The Corporation's stockholders' equity at June 30, 2000 was $1.74 billion
compared with $1.66 billion and $1.65 billion at December 31, 1999 and June 30,
1999, respectively. Included in stockholders equity at June 30, 2000 were $150
million in unrealized losses on securities available-for-sale, net of tax,
compared with $139 million and $39 million in unrealized losses on securities
available-for-sale, net of taxes, as of December 31, 1999 and June 30, 1999,
respectively.
Under the regulatory framework for prompt corrective action, banks, which meet
or exceed a Tier I ratio of 6%, a total capital ratio of 10% and a leverage
ratio of 5% are considered well capitalized. Information pertaining to the
Corporation's regulatory risk-based capital requirements is shown on Table H.
The market value of the Corporation's common stock at June 30, 2000 was $19.06,
compared with $27.94 at December 31, 1999 and $30.31 at June 30, 1999. The
Corporation's market capitalization at June 30, 2000, was $2.6 billion, compared
with $3.8 billion as of December 31, 1999 and $4.1 billion at June 30, 1999.
35
<PAGE> 36
TABLE H
CAPITAL ADEQUACY DATA
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
JUNE 30, December 31, June 30,
2000 1999 1999
(Dollars in thousands)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-based capital
Tier I capital $ 1,640,921 $ 1,557,096 $ 1,481,761
Supplementary (Tier II) capital 329,591 324,519 316,608
-------------------------------------------------------
Total capital $ 1,970,512 $ 1,881,615 $ 1,798,369
=======================================================
Risk-weighted assets
Balance sheet items 15,732,466 14,878,731 $13,773,374
Off-balance sheet items 528,748 428,780 512,093
-------------------------------------------------------
Total risk-weighted assets $16,261,214 $15,307,511 $14,285,467
=======================================================
Ratios:
Tier I capital (minimum required - 4.00%) 10.09% 10.17% 10.37%
Total capital (minimum required - 8.00%) 12.12% 12.29% 12.59
Leverage ratio (minimum required - 3.00%) 6.42% 6.40% 6.37
</TABLE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Corporation is a defendant in a number of legal proceedings arising in the
normal course of business. Management believes, based on the opinion of legal
counsel, that the final disposition of these matters will not have a material
adverse effect on the Corporation's financial position or results of operations.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Corporation held its Annual Stockholder's Meeting on April 25, 2000, at
which common stockholders elected the following four directors: Juan J.
Bermudez, Richard L. Carrion, Jorge A. Junquera and Francisco M. Rexach Jr.
All four directors were elected for a three year term with favorable votes
ranging from 90.05% to 90.68% of the voting shares issued and outstanding which
amounted to 135,763,765 as of the record date, March 6, 2000. A 90.71% of the
common shares issued an outstanding as of the mentioned record date, were
represented at the meeting, which complied with the quorum required by law.
36
<PAGE> 37
ITEM 5. OTHER INFORMATION
During this quarter the Corporation acquired Centro Finance, a small personal
loan company that operates nine offices in Puerto Rico with a loan portfolio of
approximately $23 million. The operations of Centro Finance became part of
Popular Finance, which will now operate 53 branches throughout the island.
In addition, on July 1, 2000, Popular North America purchased Aurora National
Bank in Illinois. This bank operates two branches with approximately $111
million in deposits and $81 million in loans. With the acquisition of Aurora
National Bank and two new branches opened during this quarter in New Jersey and
Florida, Banco Popular North America now operates 95 branches in the U.S.
mainland.
With the objective of providing more services to our customers and participating
in the competitive insurance business, effective July 1, 2000, Popular, Inc.
created Banco Popular, National Association, a national bank in Orlando, Florida
that will oversee the operations of the recently created Popular Insurance.
Popular Insurance will begin operations immediately as it is simultaneously
acquiring the operations of R&B Insurance Agency, Inc., whose management has a
vast experience in the insurance business in Puerto Rico.
During the end of the second quarter of 2000, the Corporation signed a letter of
intent to sell its ownership interest in Banco Fiduciario to a local financial
institution in the Dominican Republic. The transaction, which was awaiting
regulatory approval from local regulatory agencies, will be effective in August
2000.
During the month of July, the Corporation signed an agreement for the sale of
its credit card operations in the United States. This transaction is awaiting
the approval from the regulatory agencies. The agency agreement signed by the
buyer will enable the Corporation to continue offering credit cards,
particularly in the Hispanic market.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
a) Exhibit No. Exhibit Description Reference
----------- ---------------------------------------- -----------
<S> <C> <C>
19 Quarterly Report to Shareholders for the Exhibit "A"
period ended June 30, 2000
27 Financial Data Schedule Exhibit "B"
</TABLE>
b) One report on Form 8-K was filed for the quarter ended June 30, 2000:
Dated: April 10, 2000
Items reported: Item 5 - Other Events
37
<PAGE> 38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be filed on its behalf by the
undersigned thereunto duly authorized.
POPULAR, INC.
(Registrant)
Date: August 14, 2000 By: /s/ Jorge A. Junquera
--------------- -----------------------------------
Jorge A. Junquera
Senior Executive Vice President
Date: August 14, 2000 By: /s/ Amilcar L. Jordan
--------------- -----------------------------------
Amilcar L. Jordan, Esq.
Senior Vice President & Comptroller
38
