1
TO OUR STOCKHOLDERS
For the quarter ended June 30, 2000, Popular, Inc. reported net income of $65.1
million or $0.46 per share, compared with $64.0 million or $0.46 per share for
the same period in 1999. The results for the second quarter of 2000 represented
an annualized return on assets (ROA) of 1.01% and a return on common equity
(ROE) of 14.43%. For this same period in 1999, the profitability ratios were
1.08% and 15.53%, respectively, compared with 1.01% and 14.57%, respectively,
for the first quarter of 2000.
For the six-month period ended June 30, 2000, net income reached $129.3
million or $0.92 per common share, while the ROA and ROE were 1.01% and 14.50%,
respectively. These figures compare with a net income of $127.6 million and a
ROA of 1.11% and a ROE of 15.78% for the same period a year earlier.
The financial performance for the second quarter of 2000, when compared
with the same period a year ago, reflected a rise of $7.1 million in net
interest income coupled with a growth of $22.4 million in other revenues. On the
other hand, operating expenses rose $14.2 million while the provision for loan
losses increased $12.1 million.
Net interest income for the second quarter of 2000 rose to $245.9
million from $238.9 million for the same period a year earlier. This growth in
net interest income was triggered by an increase of $2.2 billion in average
earning assets, mainly a $2.0 billion growth in loans, partially offset by a
decrease in the net interest yield. For the second quarter of 2000, the net
interest yield, on a taxable equivalent basis, was 4.30%, compared with 4.68%
for the same period a year earlier. The reduction in the net interest yield was
driven by an increase in the cost of interest bearing liabilities as a result of
a higher interest rate scenario together with an increase in the proportion of
short-term borrowings to total interest-bearing liabilities. For the first
quarter of 2000, the net interest yield on a taxable equivalent basis was 4.42%.
For the second quarter of 2000, the provision for loan losses amounted
to $48.7 million, compared with $36.6 million for the same period a year
earlier, reflecting the continued growth in the loan portfolio and the rise in
non-performing assets and net charge-offs. Net charge-offs for the second
quarter of 2000 were $38.1 million compared with $31.2 million for the same
period in 1999. Net charge-offs as a percentage of average loans increased to
0.97% for the second quarter of 2000, from 0.91% for the same period in 1999.
Net charge-offs for the first quarter of 2000 were $48.6 million or 1.29% of
average loans.
Other operating income, excluding securities and trading transactions
amounted to $108.3 million for the second quarter of 2000, compared with $87.2
million for the same period in 1999. Categories such as credit card fees and
discounts, debit card fees and processing fees all reflected a significant
growth when compared with the second quarter of 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 other operating income.
Operating expenses for the three-month period ended June 30, 2000,
amounted to $219.4 million up from $205.2 million for the same period a year
earlier. Higher personnel costs, equipment expenses and other operating expenses
prompted the rise. Personnel costs increased $3.6 million mainly as a result of
the acquisition of GM Group together with the continued business expansion of
the banking and check-cashing operations in the United States. Partially
offsetting this increase was a reduction in the medical plan expense of Banco
Popular de Puerto Rico as a result of revisions made to the plan effective April
1, 2000, and to lower pension and post-retirement expenses. Equipment and other
operating expenses, rose reflecting the impact of the acquisition of GM Group as
well as the investment in technology, coupled with higher sundry losses. When
compared with the first quarter of 2000, the Corporation experienced a decrease
of $7.1 million or 3.1% in operating expenses.
Popular, Inc.'s total assets grew to $26.5 billion at June 30, 2000,
compared with $23.7 billion at the same date in 1999 and $25.3 billion as of
March 31, 2000. Loans rose 13.6% from $13.9 billion at June 30, 1999, to $15.8
billion a year later. The commercial and mortgage loan portfolios both reflected
a strong demand contributing 84.8% of the increase. At March 31, 2000, loans
amounted to $15.2 billion.
At June 30, 2000, the allowance for loan losses was $306 million or
1.94% of loans, compared with $283 million or 2.03% and $293 million or 1.93% at
June 30, 1999, and March 31, 2000, respectively. Non-performing assets amounted
to $379 million at June 30, 2000, compared with $303 million at the same date
last year and $361 million at the end of the first quarter of 2000. Most of the
increase in non-performing assets was triggered by the classification as
non-accrual of a limited number of commercial loan relationships in Puerto Rico
and the United States whose credit quality has deteriorated. In addition, the
rise since the first quarter of 2000 was primarily due to the inclusion as
non-accrual of $13 million in leases in our U.S. operations that became
delinquent due to an external fraud scheme that was exposed during this quarter.
The Corporation expects to recover this balance from the insurance companies,
which have already confirmed coverage.
Total deposits as of June 30, 2000, rose to $14.5 billion from $13.9
billion at the same date in 1999 and $14.3 billion at March 31, 2000, while
borrowings were $9.8 billion at the end of the second quarter of 2000, compared
with $7.7 billion a year earlier and $8.8 billion at March 31, 2000.
Stockholders' equity at June 30, 2000, amounted to $1.74 billion
compared with $1.65 billion at the same date in 1999. Included in stockholders'
equity at June 30, 2000, were $150 million in unrealized losses on securities
available-for-sale, net of tax, compared with $39 million in unrealized losses
on securities available-for-sale, net of tax, a year earlier. At March 31, 2000,
stockholders' equity amounted to $1.68 billion including $161 million in
unrealized losses on securities available-for-sale.
The Corporation's stock market value was $19.06 at the end of the
quarter, compared with $22.19 at March 31, 2000, and $30.31 at June 30, 1999. At
the end of the second quarter of 2000, the Corporation had a market
capitalization of $2.6 billion and a book value per common share of $12.05.
During this quarter we continued our business expansion in Puerto Rico with the
acquisition of Centro Finance, a small personal loan company
2
that operates nine offices 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.
The Annual Stockholders Meeting of Popular, Inc. was held on April 25, 2000. A
90.71% of the common shares issued and outstanding as of the record date of
March 6, 2000, were represented at the meeting, which complied with the quorum,
required by law. All four directors nominated for re-election were elected for a
three-year term.
Mr. Alfonso F. Ballester, a director since 1990, and Mr. J. Adalberto Roig Jr.,
a director since 1997, both retired from the Board of Directors of the
Corporation upon reaching the mandatory retirement age. We are sincerely
grateful for their dedication, valuable contributions and support to our
organization.
/s/ Richard L. Carrion
- -----------------------
RICHARD L. CARRION
CHAIRMAN
PRESIDENT
CHIEF EXECUTIVE OFFICER
3
FINANCIAL HIGHLIGHTS
At June 30, Average for the six months
----------------------------- ----------------------------------
BALANCE SHEET HIGHLIGHTS 2000 1999 Change 2000 1999 Change
- -------------------------------------------------------------------------------------------------------------------
(In thousands)
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 9,120,856 7,355,493 1,765,363
Stockholders' equity 1,736,890 1,650,682 86,208 1,836,261 1,678,159 158,102
- -----------------------------------------------------------------------------------------------------------------
Second quarter Six months
------------------------------- --------------------------------
OPERATING HIGHLIGHTS 2000 1999 Change 2000 1999 Change
- -----------------------------------------------------------------------------------------------------------------
(In thousands, except per share information)
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
- -----------------------------------------------------------------------------------------------------------------
Second quarter Six months
---------------- ----------------
SELECTED STATISTICAL INFORMATION 2000 1999 2000 1999
- -----------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------
CREDIT QUALITY RATIOS
Allowance for losses to loans 1.94% 2.03% 1.94% 2.03%
Allowance to non-performing assets 80.55 93.26 80.55 93.26
Allowance to non-performing loans 89.10 103.51 89.10 103.51
Non-performing assets to loans 2.40 2.18 2.40 2.18
Non-performing assets to total assets 1.43 1.28 1.43 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
4
ADDITIONAL INFORMATION
BOARD OF DIRECTORS
Richard L. Carrion, Chairman
Antonio Luis Ferre, Vice Chairman **
Juan A. Albors Hernandez *
Alfonso F. Ballester *
Jose A. Bechara Bravo *
Salustiano Alvarez Mendez*
Juan J. Bermudez
Francisco J. Carreras
Jose B. Carrion Jr. *
David H. Chafey Jr.
Maria Luisa Ferre *
Hector R. Gonzalez
Jorge A. Junquera Diez **
Manuel Morales Jr.
Alberto M. Paracchini
Francisco M. Rexach Jr.
J. Adalberto Roig Jr. *
Felix J. Serralles Nevares
Julio E. Vizcarrondo Jr.
Samuel T. Cespedes, Secretary
* Director of Banco Popular de Puerto Rico only
** Director of Popular, Inc. only
EXECUTIVE OFFICERS
Richard L. Carrion, Chairman of the Board,
President and Chief Executive Officer
David H. Chafey Jr., Senior Executive Vice President
Jorge A. Junquera Diez, Senior Executive Vice President
Maria Isabel P. de Burckhart, Executive Vice President
Roberto R. Herencia, Executive Vice President
Larry B. Kesler, Executive Vice President
Humberto Martin, Executive Vice President
Emilio E. Pinero, Executive Vice President
Carlos J. Vazquez, Executive Vice President
SHAREHOLDER INFORMATION
SHAREHOLDER ASSISTANCE: Shareholders requiring a change of address, records or
information about lost certificates, dividend checks or dividend reinvestment
should contact:
Banco Popular de Puerto Rico
Popular Center Building - 4th Floor
Trust Division (725)
209 Munoz Rivera Ave.
Hato Rey, Puerto Rico 00918
PUBLICATIONS: For printed material (annual and quarterly reports, 10-K and 10-Q
reports), contact Mr. Amilcar L. Jordan at the Comptroller's Division at (787)
765-9800 ext. 6101, or VISIT OUR WEB SITE AT HTTP://WWW.POPULARINC.COM.
DIVIDEND REINVESTMENT PLAN: The Corporation has a dividend reinvestment plan
that provides the shareholder a simple, convenient and cost-effective way to
acquire Popular, Inc. common stock.
- - Dividends can be automatically reinvested in additional shares at 95%
of the Average Market Price.
- - Participants may make optional cash payments of at least $25 and not
more than $10,000 per calendar month for investment in additional
shares.
- - No brokerage commissions are charged on purchases under this plan.
- - Participant's funds will be fully invested, because the plan permits
fractions of shares to be credited to a participant's account.
If you would like more information on this plan, please contact our Trust
Division at (787) 756-3908 or (787) 765-9800 exts. 5637, 5525 and 5897.
5
CONSOLIDATED STATEMENTS OF CONDITION
June 30,
---------------------------
Dollars in thousands 2000 1999
- ---------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 698,012 $ 567,143
- ---------------------------------------------------------------------------------------------------------
Money market investments:
Federal funds sold and securities purchased
under agreements to resell 1,159,754 715,618
Time deposits with other banks 31,206 74,986
Bankers' acceptances 551 681
- ---------------------------------------------------------------------------------------------------------
1,191,511 791,285
- ---------------------------------------------------------------------------------------------------------
Investment securities available-for-sale, at market value 7,137,188 6,804,004
Investment securities held-to-maturity, at amortized cost 383,887 316,860
Trading account securities, at market value 190,458 320,416
Loans held-for-sale, at lower of cost or market 790,831 603,643
- ---------------------------------------------------------------------------------------------------------
Loans 15,335,791 13,655,881
Less - Unearned income 352,018 372,132
Allowance for loan losses 305,526 282,590
- ---------------------------------------------------------------------------------------------------------
14,678,247 13,001,159
- ---------------------------------------------------------------------------------------------------------
Premises and equipment 437,181 440,167
Other real estate 36,426 30,018
Customers' liabilities on acceptances 5,735 14,768
Accrued income receivable 176,540 160,146
Other assets 429,584 355,510
Intangible assets 295,646 260,502
- ---------------------------------------------------------------------------------------------------------
$26,451,246 $23,665,621
=========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 3,082,424 $ 3,278,464
Interest bearing 11,378,030 10,623,923
- ---------------------------------------------------------------------------------------------------------
14,460,454 13,902,387
Federal funds purchased and securities sold under agreements to
repurchase 4,937,816 3,319,780
Other short-term borrowings 2,854,035 2,554,433
Notes payable 1,752,722 1,531,723
Acceptances outstanding 5,735 14,768
Other liabilities 407,260 396,604
- ---------------------------------------------------------------------------------------------------------
24,418,022 21,719,695
- ---------------------------------------------------------------------------------------------------------
Subordinated notes 125,000 125,000
Preferred beneficial interest in Popular North America's
junior subordinated deferrable interest debentures guaranteed
by the Corporation 150,000 150,000
- ---------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiaries 21,334 20,244
- ---------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock 100,000 100,000
Common stock 828,959 826,595
Surplus 247,479 220,559
Retained earnings 775,975 616,022
Treasury stock, at cost (64,150) (72,524)
Accumulated other comprehensive loss, net of deferred taxes (151,373) (39,970)
- ---------------------------------------------------------------------------------------------------------
1,736,890 1,650,682
- ---------------------------------------------------------------------------------------------------------
$26,451,246 $23,665,621
=========================================================================================================
6
CONSOLIDATED STATEMENTS OF INCOME
Quarter ended Six months ended
June 30, June 30,
-----------------------------------------------
Dollars in thousands, except per share information 2000 1999 2000 1999
- -----------------------------------------------------------------------------------------------------------------
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 expenses 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
=================================================================================================================
7
SUBSIDIARIES
CENTRAL OFFICE
Popular Center
209 Munoz Rivera Avenue
San Juan, Puerto Rico 00918
Telephone: (787) 765-9800
BANCO POPULAR DE PUERTO RICO
Puerto Rico Office
Popular Center
209 Munoz Rivera Avenue
San Juan, Puerto Rico 00918
Telephone: (787) 765-9800
Virgin Islands Office
193 Estate Altona & Welgunst
St. Thomas, Virgin Islands 00802
Telephone: (340) 693-2777
BANCO POPULAR NORTH AMERICA
4000 West North Avenue
Chicago, Illinois 60639
Telephone: (773) 772-8600
BANCO FIDUCIARIO, S.A.
27 de Febrero Ave. #50
Santo Domingo
Republica Dominicana
Telephone: (809) 473-9400
ATH COSTA RICA
Cond. en Oficinas Ofiplaza del Este
Edif. D - Piso 1
San Pedro de la Rotonda
de la Bandera
150 metros Oeste
San Jose, Costa Rica
Telephone: (011) 506-280-9796
CREST, S.A.
Costado Este del Banco Central
Calle 2 Entre Ave. Central y Primera
San Jose Centro, Costa Rica
Telephone: (011) 506-257-4112
GM GROUP, INC.
1590 Ponce de Leon Avenue
San Juan, Puerto Rico 00926
Telephone: (787) 751-4343
EQUITY ONE, INC.
Marlton Crossing Office Park
400 Lippincott Drive
Marlton, New Jersey 08053
Telephone: (856) 396-2600
POPULAR MORTGAGE, INC.
268 Ponce de Leon Avenue
San Juan, Puerto Rico 00918
Telephone: (787) 753-0245
LEVITT MORTGAGE
Galeria San Patricio
B-5 Tabonuco St.
Suite 207
Guaynabo, Puerto Rico 00968
Telephone: (787) 749-8787
POPULAR LEASING & RENTAL, INC.
M-1046 Federico Costa St.
Tres Monjitas Industrial
Development
San Juan, Puerto Rico 00903
Telephone: (787) 751-4848
POPULAR LEASING, USA
16296 Westwood
Business Parkdrive
Ellisville, Missouri 63021
Telephone: (609) 273-1119
POPULAR FINANCE, INC.
10 Salud Street
El Senorial Condominium
Suite 613
Ponce, Puerto Rico 00731
Telephone: (787) 844-2860
POPULAR CASH EXPRESS, INC.
6200 North Hiawatha
Suite 200
Chicago, Illinois 60646
Telephone: (773) 205-8300
POPULAR SECURITIES, INC.
Popular Center
209 Munoz Rivera Avenue
Suite 1020
San Juan, Puerto Rico 00918
Telephone: (787) 766-4200
[POPULAR LOGO]