1
EXHIBIT 19
LETTER TO SHAREHOLDERS
Our Corporation completed the second quarter of 2001 with a net income of $77.5
million or $0.55 per common share, representing an increase of $12.4 million
over the $65.1 million or $0.46 per common share reported for the same quarter
in 2000. The second quarter results represented an annualized return on assets
(ROA) of 1.14% and a return on common equity (ROE) of 15.36%, compared with
1.01% and 14.43%, respectively, for the same period in 2000. For the first
quarter of 2001, ROA and ROE were 1.09% and 15.25%, respectively.
For the first six-months of 2001 net earnings amounted to $151.8
million or $1.08 per common share, an increase of $22.5 million compared with
$129.3 million or $0.92 reported for the same period in 2000. ROA and ROE for
the first six-months of 2001 were 1.12% and 15.31%, respectively, compared with
1.01% and 14.50%, respectively, for the same period a year earlier.
During this quarter, the Federal Reserve again reacted to economic
conditions by reducing the Federal funds target rate by 125 basis points
reaching 3.75% on June 27, 2001. The low interest rate scenario had a positive
effect on our net interest margin as the net interest income for the quarter
ended June 30, 2001, reached $267.3 million, representing an increase of $21.4
million or 8.7% over the $245.9 million reported for the same period a year
earlier. The net interest margin of the Corporation, on a taxable equivalent
basis, increased to 4.47% for the second quarter of 2001, from 4.30% in the
second quarter of 2000. Also, our Corporation reflected growth in most
categories of other income, including service charges on deposit accounts,
directly related to higher commercial deposit account activity and to newly
implemented fees on deposit accounts. Other income categories reflecting sound
growth were insurance commissions debit card fees, processing fees and gains on
sale of loans.
The provision for loan losses for the second quarter of 2001 amounted
to $49.5 million, compared with $48.7 million for the second quarter of 2000,
while net charge-offs amounted to $41.7 million and $38.1 million for the
second quarter of 2001 and 2000, respectively.
Operating expenses amounted to $232.5 million for the second quarter
of 2001. This constituted an increase of $13.1 million or 6.0% when compared
with $219.4 million for the same period a year earlier. The rise in operating
expenses was mostly a result of higher personnel costs, particularly higher
pension and medical plan costs, as well as net occupancy expenses, operating
taxes and other expenses. Income tax expense also rose by $5.7 million to $27.3
million for the second quarter of 2001.
Popular, Inc.'s total assets grew to $27.9 billion at June 30, 2001,
compared with $26.5 billion at the same date in 2000 and $27.3 billion at March
31, 2001. Loans rose 9.0% from $15.8 billion at June 30, 2000 to $17.2 billion
at June 30, 2001. At March 31, 2001, loans amounted to $16.5 billion. Total
deposits at June 30, 2001, amounted to $15.6 billion from $14.5 billion at the
same date in 2000 and $15.1 billion at March 31, 2001.
Stockholders' equity at June 30, 2001 amounted to $2.2 billion
compared with $1.7 billion at the same date in 2000. Included in stockholders'
equity at June 30, 2001 were $75 million in unrealized gains on securities
available-for-sale, net of tax, compared with $150 million in unrealized losses
a year earlier. At March 31, 2001, stockholders' equity amounted to $2.1
billion, including $81 million in unrealized gains on securities
available-for-sale.
The Corporation's stock price was $32.94 at the end of the quarter,
compared with $19.06 at June 30, 2000, and $29.45 at March 31, 2001. At the end
of the second quarter of 2001, the Corporation had a market capitalization of
$4.5 billion and a book value per share of $15.17.
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I am very pleased to inform that on May 9, 2001, the Board of Directors
declared a dividend of $0.20 per common share for the second quarter of 2001,
which represents a 25% increase over the $0.16 declared per common share in
previous quarters.
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Our continuing effort for expansion and diversification has provided us with a
greater ability and potential for growth. During this quarter, Popular, Inc.
acquired 19.9% of the voting common stock as well as a 13.1% of non-voting
stock of Coqui.com. This company owns PRTC.net and Coqui.net, which together
form the leading Internet service provider in Puerto Rico. This investment
allows us to expand in the Internet market and offer our customers enhanced
on-line products and services as part of our e-commerce initiatives.
In an effort to continue fulfilling our customer's financial needs, we
have introduced a new Internet service, plazapop.com, for the Bank's commercial
clients. This service allows commercial clients to have their own Internet page
and have access to thousands of potential customers in Puerto Rico with the
capability to offer online sales. This new service represents an added value
for commercial customers, in particular small and medium-size companies.
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In addition, during this quarter we exercised our option to purchase
19.99% in Centro Financiero BHD, S.A., the third largest private financial
institution in the Dominican Republic.
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We are very enthusiastic about the record-breaking performance of Popular
Mortgage, the Corporation's mortgage loan subsidiary in Puerto Rico, which has
reached unprecedented levels in mortgage loan closings during this year,
triggered by the interest rate reductions, as well as, an aggressive marketing
campaign, its staff performance and the development of innovative products. The
volume of loan closings by this subsidiary in the period ended June 30, 2001,
increased by approximately 75% when compared with the same period last year.
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The Annual Stockholders Meeting of Popular, Inc. was held on April 23, 2001. An
83.54% of the common shares issued and outstanding as of the record date of
March 5, 2001, were represented at the meeting, complying with the quorum
required by law. All four directors nominated for re-election were elected for
a three-year term. During the meeting, the 2000 Corporation's Annual Report was
discussed and approved. In addition, the 2001 Stock Option Plan created to
attain and retain highly qualified personnel and to provide additional
incentive to employees and directors was presented and approved.
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As an incentive to promote capital investment in Puerto Rico, the local
government amended the Puerto Rico Internal Revenue Code to reduce the tax rate
on capital gains effective for taxable years beginning after December 31, 2000.
Long-term capital gains derived from the sale or exchange of capital assets
located in Puerto Rico will be taxed at 10% for individuals, estates and trusts
and at 12.5% for corporations and partnerships, previously 20% and 25%,
respectively.
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Based on financial results as of the end of 2000, our Corporation has been
ranked 29th in total revenues among the top financial corporations of the
United States, and is number 571 of the top 1,000 highest-revenue producing
companies in the nation. We are committed to maintain our focus on long-term
growth and profitability and generate consistent above-average results for our
stockholders.
RICHARD L. CARRION
CHAIRMAN
PRESIDENT
CHIEF EXECUTIVE OFFICER
3
Popular, Inc. 2001 Quarterly
Financial Highlights
At June 30, Average for the six months
BALANCE SHEET HIGHLIGHTS 2001 2000 Change 2001 2000 Change
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(In thousands)
Money market investments $ 1,063,854 $ 1,191,511 $ (127,657) $ 949,489 $ 882,850 $ 66,639
Investment and trading securities 7,991,158 7,711,533 279,625 8,466,557 7,810,596 655,961
Loans 17,192,246 15,774,604 1,417,642 16,496,421 15,354,380 1,142,041
Total assets 27,850,903 26,451,246 1,399,657 27,448,384 25,719,423 1,728,961
Deposits 15,569,785 14,460,454 1,109,331 15,087,417 14,284,696 802,721
Borrowings 9,639,656 9,819,573 (179,917) 9,876,743 9,120,375 756,368
Stockholders' equity 2,166,129 1,736,890 429,239 2,044,659 1,836,261 208,398
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Second quarter Six months
OPERATING HIGHLIGHTS 2001 2000 Change 2001 2000 Change
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(In thousands, except per share information)
Net interest income $ 267,313 $ 245,916 $ 21,397 $ 523,030 $ 488,156 $ 34,874
Provision for loan losses 49,462 48,719 743 99,496 98,732 764
Fees and other income 119,505 109,285 10,220 234,472 225,011 9,461
Other expenses, net of minority inter 259,819 241,359 18,460 506,923 485,123 21,800
Cumulative effect of accounting changes -- -- -- 686 -- 686
Net income $ 77,537 $ 65,123 $ 12,414 $ 151,769 $ 129,312 $ 22,457
Net income applicable to common stock$ 75,450 $ 63,036 $ 12,414 $ 147,594 $ 125,137 $ 22,457
Earnings per common share $ 0.55 $ 0.46 $ 0.09 $ 1.08 $ 0.92 $ 0.16
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Second quarter Six months
SELECTED STATISTICAL INFORMATION 2001 2000 2001 2000
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COMMON STOCK DATA
Market price
High $32.94 $23.56 $32.94 $26.88
Low 28.44 19.06 25.25 18.63
End 32.94 19.06 32.94 19.06
Book value at period end 15.17 12.05 15.17 12.05
Dividends declared 0.20 0.16 0.36 0.32
Dividend payout ratio 28.86% 34.46% 29.50% 34.72%
Price/earnings ratio 15.46x 10.30x 15.46x 10.30x
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PROFITABILITY RATIOS
Return on assets 1.14% 1.01% 1.12% 1.01%
Return on common equity 15.36 14.43 15.31 14.50
Net interest spread (taxable equivalent) 3.72 3.46 3.56 3.54
Net interest yield (taxable equivalent) 4.47 4.30 4.34 4.36
Effective tax rate 26.07 24.89 26.51 23.99
Overhead ratio 42.26 44.77 41.68 45.24
Efficiency ratio 60.17 61.94 59.76 63.87
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CAPITALIZATION RATIOS
Equity to assets 7.62% 7.15% 7.45% 7.14%
Tangible equity to assets 6.68 6.08 6.51 6.05
Equity to loans 12.34 11.85 12.39 11.96
Internal capital generation 9.32 8.89 9.64 8.90
Tier I capital to risk-adjusted assets 10.60 10.09 10.60 10.09
Total capital to risk-adjusted assets 12.57 12.12 12.57 12.12
Leverage ratio 6.89 6.42 6.89 6.42
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CREDIT QUALITY RATIOS
Allowance for losses to loans 1.82% 1.94% 1.82% 1.94%
Allowance to non-performing assets 81.90 80.30 81.90 80.30
Allowance to non-performing loans 88.56 88.80 88.56 88.80
Non-performing assets to loans 2.23 2.41 2.23 2.41
Non-performing assets to total assets 1.37 1.44 1.37 1.44
Net charge-offs to average loans 0.99 0.97 0.94 1.13
Provision to net charge-offs 1.19x 1.28x 1.28x 1.14x
Net charge-offs earnings coverage 3.70 3.56 3.92 3.08
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Popular, Inc. 2001 Quarterly
CONSOLIDATED STATEMENTS OF CONDITION
June 30,
In thousands 2001 2000
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ASSETS
Cash and due from banks $ 580,592 $ 698,012
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Money market investments:
Federal funds sold and securities purchased
under agreements to resell 1,052,960 1,159,754
Time deposits with other banks 10,424 31,206
Bankers' acceptances 470 551
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1,063,854 1,191,511
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Investment securities available-for-sale, at market value 7,463,660 7,228,826
Investment securities held-to-maturity, at amortized cost 247,812 292,249
Trading account securities, at market value 279,686 190,458
Loans held-for-sale, at lower of cost or market 914,071 790,831
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Loans 16,604,911 15,335,791
Less - Unearned income 326,736 352,018
Allowance for loan losses 313,337 305,526
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15,964,838 14,678,247
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Premises and equipment 395,804 437,181
Other real estate 28,741 36,426
Customers' liabilities on acceptances 1,673 5,735
Accrued income receivable 190,013 176,540
Other assets 451,101 429,584
Intangible assets 269,058 295,646
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$27,850,903 $26,451,246
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LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest bearing $ 3,144,623 $ 3,067,579
Interest bearing 12,425,162 11,392,875
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15,569,785 14,460,454
Federal funds purchased and securities sold under
agreements to repurchase 4,157,279 4,937,816
Other short-term borrowings 2,828,347 2,854,035
Notes payable 2,379,030 1,752,722
Acceptances outstanding 1,673 5,735
Other liabilities 472,745 407,260
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25,408,859 24,418,022
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Subordinated notes 125,000 125,000
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Preferred beneficial interest in Popular
North America's junior subordinated deferrable
interest debentures guaranteed by the Corporation 150,000 150,000
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Minority interest in consolidated subsidiaries 915 21,334
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STOCKHOLDERS' EQUITY:
Preferred stock 100,000 100,000
Common stock 831,408 828,959
Surplus 264,414 247,479
Retained earnings 963,605 775,975
Treasury stock, at cost (66,136) (64,150)
Accumulated other comprehensive income (loss), net of tax 72,838 (151,373)
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2,166,129 1,736,890
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$27,850,903 $26,451,246
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</Table>
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Popular, Inc. 2001 Quarterly
CONSOLIDATED STATEMENTS OF INCOME
Quarter ended Six months ended
June 30, June 30,
Dollars in thousands, except per share information 2001 2000 2001 2000
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INTEREST INCOME:
Loans $ 391,841 $ 392,437 $ 785,406 $ 768,957
Money market investments 13,026 14,308 28,332 27,556
Investment securities 116,038 114,624 254,097 226,754
Trading account securities 4,297 3,405 7,818 7,308
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525,202 524,774 1,075,653 1,030,575
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INTEREST EXPENSE:
Deposits 131,022 129,399 263,799 251,873
Short-term borrowings 84,933 113,684 205,454 216,509
Long-term debt 41,934 35,775 83,370 74,037
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257,889 278,858 552,623 542,419
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Net interest income 267,313 245,916 523,030 488,156
Provision for loan losses 49,462 48,719 99,496 98,732
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Net interest income after provision for loan losses 217,851 197,197 423,534 389,424
Service charges on deposit accounts 36,310 30,831 70,968 61,054
Other service fees 58,907 55,443 117,082 102,808
Net (loss) gain on sale of securities (2,152) 329 (1,862) 13,593
Trading account profit 945 693 1,254 1,510
Net gain on derivatives 1,652 -- 1,021 --
Other operating income 23,843 21,989 46,009 46,046
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337,356 306,482 658,006 614,435
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OPERATING EXPENSES:
Personnel costs:
Salaries 78,884 77,301 156,662 155,895
Profit sharing 4,018 5,569 9,115 9,701
Pension and other benefits 23,841 15,341 45,860 35,839
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106,743 98,211 211,637 201,435
Net occupancy expenses 17,726 16,177 34,921 32,736
Equipment expenses 24,575 25,079 48,702 48,513
Other taxes 9,809 8,341 18,619 16,916
Professional fees 16,842 16,826 32,227 34,504
Communications 12,085 12,034 23,972 22,836
Business promotion 13,159 12,572 23,704 26,659
Printing and supplies 4,490 5,313 8,809 10,485
Other operating expenses 20,189 16,282 36,120 34,663
Amortization of intangibles 6,860 8,537 13,736 17,129
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232,478 219,372 452,447 445,876
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Income before income tax, minority interest and cumulative
effect of accounting changes 104,878 87,110 205,559 168,559
Income tax 27,337 21,684 54,488 40,440
Net (gain) loss of minority interest (4) (303) 12 1,193
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Income before cumulative effect of accounting changes 77,537 65,123 151,083 129,312
Cumulative effect of accounting changes, net of tax -- -- 686 --
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NET INCOME $ 77,537 $ 65,123 $ 151,769 $ 129,312
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NET INCOME APPLICABLE TO COMMON STOCK $ 75,450 $ 63,036 $ 147,594 $ 125,137
==============================================================================================================================
EARNINGS PER COMMON SHARE (BASIC AND DILUTED) (BEFORE AND
AFTER CUMULATIVE EFFECT OF ACCOUNTING CHANGES) $ 0.55 $ 0.46 $ 1.08 $ 0.92
==============================================================================================================================
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ADDITIONAL INFORMATION
Board of Directors
Richard L. Carrion, Chairman
Antonio Luis Ferre, Vice Chairman **
Juan A. Albors Hernandez *
Jose A. Bechara Bravo *
Juan J. Bermudez
Francisco J. Carreras
Jose B. Carrion Jr.
David H. Chafey Jr.
Maria Luisa Ferre *
Hector R. Gonzalez
Jorge A. Junquera **
Guillermo Martinez *
Manuel Morales Jr.
Alberto M. Paracchini
Francisco M. Rexach Jr.
J. Adalberto Roig Jr. *
Felix J. Serralles Nevares
Jon E. Slater *
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, Senior Executive Vice President
Maria Isabel P. de Burckhart, Executive Vice President
Roberto R. Herencia, Executive Vice President
Larry B. Kesler, Executive Vice President
Tere Loubriel, Executive Vice President
Humberto Martin, Executive Vice President
Brunilda Santos de Alvarez, Executive Vice President
Emilio E. Pinero, Executive Vice President
Carlos J. Vazquez, Executive Vice President
Shareholders' Information
Shareholders' 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.
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 Popular, National Association
5551 Vanguard Street
Suite 100
Orlando, Florida 32819
Telephone: (407) 370-7482
ATH Costa Rica/CreST, S.A.
Tournon Neighborhood, accross to
newspaper La Republica,
ATH Building
San Jose, Costa Rica
Telephone: (506) 257-9011
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
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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 Insurance, Inc.
270 Munoz Rivera Avenue
McConnell Bldg. 6th Floor
Hato Rey, Puerto Rico 00918
Telephone: (787) 759-0080