SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-13818
POPULAR, INC.
Incorporated in the Commonwealth of Puerto Rico
IRS Employer Identification No. 66-0416582
Principal Executive Offices:
209 Munoz Rivera Avenue
Hato Rey, Puerto Rico 00918
Telephone Number: (809) 765-9800
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock ($6.00 par value)
Series A Participating Cumulative Preferred Stock Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ].
As of June 28, 2002, the aggregate market value of the common stock held by
non-affiliates of the Corporation was $4,454,761,000 based upon the reported
closing price of $33.68 on the NASDAQ National Market System on that date.
As of February 28, 2003, there were 132,576,590 shares of the Corporation's
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Corporation's Annual Report to Shareholders for the
fiscal year ended December 31, 2002 are incorporated herein by reference in
response to Item 1 of Part I, Items 5 through 8 of Part II and Item 15 (a)(1) of
Part IV.
(2) Portions of the Corporation's Proxy Statement relating to the 2003
Annual Meeting of Stockholders of the Corporation are incorporated herein by
reference in response to Items 10 through 13 of Part III.
FORWARD-LOOKING STATEMENTS
Certain statements in this report are "forward-looking" statements
within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.
This report contains certain forward-looking statements with respect to the
adequacy of the allowance for loan losses, the Corporation's market risk and the
effect of legal proceedings on the Corporation's financial condition and results
of operations. These forward-looking statements involve certain risks,
uncertainties, estimates and assumptions by management.
Various factors could cause actual results to differ from those
contemplated by such forward-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 or weakness in the consumer and commercial credit
sectors and in the real estate markets,
- - the performance of the stock and bond markets,
- - possible new bank regulations and
- - the magnitude of interest rate changes.
Moreover, the outcome of litigation, as discussed in "Part I, Item 3.
Legal Proceedings", is inherently uncertain and depends on judicial
interpretations of law and the findings of judges and juries.
The Corporation's actual results may differ materially from those
included in the forward-looking statements. All statements contained herein that
are not clearly historical in nature are forward-looking, and the words
"anticipate," "believe," "expect," "estimate," "project" and similar expressions
are generally intended to identify forward-looking statements. All
forward-looking statements included in this document are based upon information
available to the Corporation as of the date of this document, and we assume no
obligation to update or revise any such forward-looking statements.
2
TABLE OF CONTENTS
Page
----
PART I
Item 1 Business .................................................................. 4
Item 2 Properties ................................................................ 14
Item 3 Legal Proceedings ......................................................... 15
Item 4 Submission of Matters to a Vote of Security Holders........................ 16
PART II
Item 5 Market for Registrant's Common Stock and Related
Stockholder Matters...................................................... 16
Item 6 Selected Financial Data ................................................... 18
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................... 18
Item 7A Quantitative and Qualitative Disclosures About Market Risk................. 19
Item 8 Financial Statements and Supplementary Data .............................. 19
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ..................................... 19
PART III
Item 10 Directors and Executive Officers of the Registrant ........................ 19
Item 11 Executive Compensation .................................................... 19
Item 12 Security Ownership of Certain Beneficial Owners
and Management .......................................................... 19
Item 13 Certain Relationships and Related Transactions ............................ 19
Item 14 Controls and Procedures.................................................... 19
PART IV
Item 15 Exhibits, Financial Statement Schedules and
Reports on Form 8-K ..................................................... 20
Signatures................................................................. 21
Certifications............................................................. 23
3
PART I
POPULAR, INC.
ITEM 1. BUSINESS
GENERAL
Popular, Inc. (the "Corporation") is a diversified, publicly owned bank
holding company, registered under the Bank Holding Company Act of 1956, as
amended (the "BHC Act") and, accordingly, subject to the supervision and
regulation of the Board of Governors of the Federal Reserve System ("the Federal
Reserve Board"). The Corporation was incorporated in 1984 under the laws of the
Commonwealth of Puerto Rico and is the largest financial institution in Puerto
Rico, with consolidated assets of $33.7 billion, total deposits of $17.6 billion
and stockholders' equity of $2.4 billion at December 31, 2002. Based on total
assets at December 31, 2002, the Corporation was the 34th largest bank holding
company in the United States.
The Corporation's principal subsidiary, Banco Popular de Puerto Rico
("Banco Popular" or the "Bank"), was incorporated in 1893 and is Puerto Rico's
largest bank with consolidated total assets of $21.5 billion, deposits of $12.8
billion and stockholders' equity of $1.5 billion at December 31, 2002. The Bank
accounted for 64% of the total consolidated assets of the Corporation at
December 31, 2002. A consumer-oriented bank, Banco Popular has the largest
retail franchise in Puerto Rico, operating 195 branches and 551 automated teller
machines. The Bank has the largest trust operation in Puerto Rico. The Bank also
operates seven branches in the U.S. Virgin Islands, one branch in the British
Virgin Islands and one branch in New York. Banco Popular's deposits are insured
under the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance
Corporation (the "FDIC"). Banco Popular has three subsidiaries, Popular Auto,
Inc., (formerly Popular Leasing and Rental, Inc.), Puerto Rico's largest vehicle
financing, leasing and daily rental company, Popular Finance, Inc., a small-loan
and second mortgage company with 37 offices in Puerto Rico, and Popular
Mortgage, Inc., a mortgage loan company with 29 offices in Puerto Rico.
The Corporation has three other principal subsidiaries: Popular
Securities, Inc., Popular International Bank, Inc. ("PIB") and GM Group, Inc.
Popular Securities, Inc. is a securities broker-dealer in Puerto Rico with
financial advisory, investment and security brokerage operations for
institutional and retail customers. PIB owns the outstanding stock of Popular
North America, Inc. ("PNA"), ATH Costa Rica, CreST and Popular Insurance V.I.,
Inc., an insurance agency. ATH Costa Rica and CreST provide ATM switching and
driving services in San Jose, Costa Rica. GM Group, Inc. provides electronic
data processing and consulting services, sale and rental of electronic data
processing equipment, and sale and maintenance of computer software to clients
in the United States, the Caribbean and Latin America through offices in Puerto
Rico, Venezuela, Miami and the Dominican Republic. At December 31, 2002, GM
Group, Inc. had total assets of $100.8 million. In addition, Popular, Inc. has
an 85% investment in Levitt Mortgage Corporation (formerly Newco Mortgage
Holding Corporation), a mortgage loan company with operations in Puerto Rico. At
December 31, 2002, the assets of Levitt Mortgage totaled $75.2 million.
PIB is a wholly owned subsidiary of the Corporation organized in 1992
that operates as an "international banking entity" under the International
Banking Center Regulatory Act of Puerto Rico (the "IBC Act"). PIB is a
registered bank holding company under the BHC Act and is principally engaged in
providing managerial services to its subsidiaries.
PNA, a wholly-owned subsidiary of PIB and an indirect wholly-owned
subsidiary of the Corporation, was organized in 1991 under the laws of the State
of Delaware and is a registered bank holding company under the BHC Act. PNA
functions as a holding company for the Corporation's mainland U.S. operations.
As of December 31, 2002, PNA had five direct subsidiaries, all of which were
wholly-owned: Banco Popular North America ("BPNA"), a full service commercial
bank incorporated in the state of New York, Equity One, Inc., a diversified
consumer finance company, Popular Cash Express, Inc., a retail financial
services company, BanPonce Trust I, a statutory business trust, and Banco
Popular, National Association ("Banco Popular, N.A."), a federally chartered
national bank with its main office in Orlando,
4
Florida. Banco Popular, N.A. commenced operations as a full service commercial
bank on July 1, 2000. As of December 31, 2002, it operated one branch, its
assets amounted to $36.1 million and it had deposits of $17.8 million. Popular
Insurance, Inc., a wholly-owned non-bank subsidiary of Banco Popular, N.A. and
an indirect subsidiary of PNA, also commenced operations on July 1, 2000.
Popular Insurance, Inc. is a general insurance agency that offers insurance
products in Puerto Rico. As of December 31, 2002, its assets amounted to $29.3
million.
The banking operations of BPNA in the mainland United States are based
in six states. In New York, BPNA operated 32 branches, which accounted for
aggregate assets of $2.5 billion and total deposits of $2.2 billion at December
31, 2002. BPNA also operated 21 branches in Illinois and 17 in California with
total assets of $1.5 billion and $568 million, respectively, and deposits of
$1.3 billion and $426 million, respectively. In addition, BPNA had 11 branches
in New Jersey with total assets of $341 million and deposits of $577 million as
of December 31, 2002 and ten branches in Florida with total assets of $248
million and deposits of $265 million. In Texas, BPNA operated five branches with
aggregate assets of $498 million and total deposits of $130 million at the same
date. The deposits of BPNA are insured under the BIF by the FDIC.
In addition, BPNA owned all of the outstanding stock of Popular
Leasing, USA, a non-banking subsidiary that offers small ticket equipment
leasing with 14 offices in 11 states and total assets of $149 million as of
December 31, 2002. Popular Insurance Agency USA, Inc. is also a wholly owned
subsidiary of BPNA. Popular Insurance Agency USA, Inc. acts as an agent or
broker for issuing insurance and began operations in January 2002. Its assets
totaled $0.3 million as of December 31, 2002.
Equity One, Inc., a wholly owned subsidiary of PNA, is engaged in the
business of granting personal and mortgage loans and providing dealer financing
through 153 offices in 26 states. It had total assets of $4.8 billion as of
December 31, 2002. Popular Cash Express, Inc., a wholly owned subsidiary of PNA,
offers services such as check cashing, money transfers to other countries, money
order sales and processing of payments through 136 offices and 59 mobile check
cashing units in five states and in Washington, D.C. Its assets totaled $72.3
million as of December 31, 2002.
COMPETITION
The business of banking is highly competitive. In addition to
competition from other commercial banks, banks face significant competition from
nonbank financial institutions. Savings associations compete aggressively with
commercial banks for deposits and loans. Credit unions and finance companies are
significant players in the consumer loan market. Investment firms and retailers
are significant competitors for some types of business. Banks compete for
deposits with a broad spectrum of other types of investments such as mutual
funds, stocks and debt securities of corporations, and debt securities of the
federal government, state governments and their respective agencies. The
principal methods of competition for financial services are price (interest
rates paid on deposits, interest rates charged on borrowings and fees charged
for services) and service (convenience and quality of services rendered to
customers).
The Corporation's business is described on pages 2 through 32 of the
Business Review Section of the Annual Report to Shareholders for the year ended
December 31, 2002, which is incorporated herein by reference.
5
REGULATION AND SUPERVISION
GENERAL
The Corporation, PIB and PNA are bank holding companies subject to
supervision and regulation by the Federal Reserve Board under the BHC Act. Under
the BHC Act prior to recent legislation that significantly altered these rules,
bank holding companies activities and those of their banking and non-banking
subsidiaries were limited to the business of banking and activities closely
related to banking, and no bank holding company could directly or indirectly
acquire ownership or control of more than 5% of any class of voting shares or
substantially all of the assets of any company in the United States, including a
bank, without the prior approval of the Federal Reserve Board. In addition, bank
holding companies generally have been prohibited under the BHC Act from engaging
in non-banking activities, unless they were found by the Federal Reserve Board
to be closely related to banking. See "- Financial Services Modernization" below
for information about the recent legislation that changed these rules.
Banco Popular is considered a foreign bank for purposes of the
International Banking Act of 1978 (the "IBA"). Under the IBA, Banco Popular is
not permitted to operate a branch or agency that is located outside of its "home
state", except to the extent that a national bank with the same home state is
permitted to do so as described under "-Interstate Banking Legislation" below.
Puerto Rico is not considered a state for purposes of these geographic
limitations. Banco Popular has designated the state of New York as its home
state.
Banco Popular, BPNA and Banco Popular, N.A. are subject to supervision
and examination by applicable federal and state banking agencies including, in
the case of Banco Popular, the Federal Reserve Board and the Office of the
Commissioner of Financial Institutions of Puerto Rico, in the case of BPNA, the
Federal Reserve Board and the New York State Banking Department and in the case
of Banco Popular, N.A., the Office of the Comptroller of the Currency ("OCC").
Banco Popular, BPNA and Banco Popular, N.A. are subject to requirements and
restrictions under federal and state law, including requirements to maintain
reserves against deposits, restrictions on the types and amounts of loans that
may be granted and the interest that may be charged thereon, and limitations on
the other types of investments that may be made and the types of services that
may be offered. Various consumer laws and regulations also affect the operations
of Banco Popular, BPNA and Banco Popular, N.A. See "- Financial Services
Modernization" below for information about recent legislation that changed these
rules. In addition to the impact of regulations, commercial banks are affected
significantly by the actions of the Federal Reserve Board as it attempts to
control the money supply and credit availability in order to influence the
economy.
FDICIA
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
and the regulations promulgated thereunder ("FDICIA"), the federal banking
regulators must take prompt corrective action in respect of depository
institutions that do not meet minimum capital requirements. FDICIA establishes
five capital tiers: "well capitalized", "adequately capitalized",
"undercapitalized", "significantly undercapitalized", and "critically
undercapitalized". A depository institution is deemed well capitalized if it
maintains a leverage ratio of at least 5%, a risk-based Tier 1 capital ratio of
at least 6% and a risk-based total capital ratio of at least 10% and is not
subject to any written agreement or directive to meet a specific capital level.
A depository institution is deemed adequately capitalized if it is not well
capitalized but maintains a leverage ratio of at least 4% (or at least 3% if
given the highest regulatory rating and not experiencing or anticipating
significant growth), a risk-based Tier 1 capital ratio of at least 4% and a
risk-based total capital ratio of at least 8%. A depository institution is
deemed undercapitalized if it fails to meet the standards for adequately
capitalized institutions (unless it is deemed significantly or critically
undercapitalized). An institution is deemed significantly undercapitalized if it
has a leverage ratio of less than 3%, a risk-based Tier 1 capital ratio of less
than 3% or a risk-based total capital ratio of less than 6%. An institution is
deemed critically undercapitalized if it has tangible equity equal to 2% or less
of total assets. A depository institution may be deemed to be in a
capitalization category that is lower than is indicated by its actual capital
position if it receives a less than satisfactory examination rating in any one
of four categories.
6
At December 31, 2002, Banco Popular, BPNA and Banco Popular, N.A. were
all well capitalized. An institution's capital category, as determined by
applying the prompt corrective action provisions of law, may not constitute an
accurate representation of the overall financial condition or prospects of the
institution, and the capital condition of the Corporation's banking subsidiaries
should be considered in conjunction with other available information regarding
the Corporation's financial condition and results of operations.
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
restrictions on borrowing from the Federal Reserve System. In addition,
undercapitalized depository institutions are subject to growth limitations and
are required to submit capital restoration plans. A depository institution's
holding company must guarantee the capital plan, up to an amount equal to the
lesser of 5% of the depository institution's assets at the time it becomes
undercapitalized or the amount of the capital deficiency when the institution
fails to comply with the plan. The federal banking agencies may not accept a
capital plan without determining, among other things, that the plan is based on
realistic assumptions and is likely to succeed in restoring the depository
institution's capital. If a depository institution fails to submit an acceptable
plan, it is treated as if it is significantly undercapitalized. Significantly
undercapitalized depository institutions may be subject to a number of
requirements and restrictions, including orders to sell sufficient voting stock
to become adequately capitalized, requirements to reduce total assets and
cessation of receipt of deposits from correspondent banks. Critically
undercapitalized depository institutions are subject to appointment of a
receiver or conservator.
The capital-based prompt corrective action provisions of FDICIA apply
to FDIC-insured depository institutions such as Banco Popular, BPNA and Banco
Popular, N.A., but they are not directly applicable to holding companies such as
the Corporation, PIB and PNA, which control such institutions. However, federal
banking agencies have indicated that, in regulating holding companies, they may
take appropriate action at the holding company level based on their assessment
of the effectiveness of supervisory actions imposed upon subsidiary insured
depository institutions pursuant to such provisions and regulations.
HOLDING COMPANY STRUCTURE
Banco Popular, BPNA and Banco Popular, N.A. are subject to restrictions
under federal law that limit the transfer of funds by any of them to the
Corporation, PIB, PNA, or any of the Corporation's other non-banking
subsidiaries, whether in the form of loans, other extensions of credit,
investments or asset purchases. Such transfers by Banco Popular, BPNA and Banco
Popular, N.A. to any of the Corporation, PIB, PNA, or any non-banking
subsidiaries are limited in amount to 10% of the transferring institution's
capital stock and surplus and, with respect to the Corporation and all of its
non-banking subsidiaries, to an aggregate of 20% of the transferring
institution's capital stock and surplus. For these purposes an institution's
capital stock and surplus includes its total risk-based capital plus the balance
of its allowance for loan losses not included therein. Furthermore, any such
loans and extensions of credit are required to be secured in specified amounts.
In addition, federal law requires that any transaction between Banco Popular,
BPNA or Banco Popular, N.A., on the one hand, and the Corporation, PIB, PNA or
any of the Corporation's other non-banking subsidiaries, on the other hand, be
carried out on an arm's length basis.
Under the Federal Reserve Board policy, a bank holding company such as
the Corporation, PIB or PNA is expected to act as a source of financial strength
to each of its subsidiary banks and to commit resources to support each
subsidiary bank. This support may be required at times when, absent such policy,
the bank holding company might not otherwise provide such support. In addition,
any capital loans by a bank holding company to any of its subsidiary depository
institutions are subordinated in right of payment to deposits and to certain
other indebtedness of such subsidiary depository institution. In the event of a
bank holding company's bankruptcy, any commitment by the bank holding company to
a federal bank
7
regulatory agency to maintain the capital of a subsidiary depository institution
will be assumed by the bankruptcy trustee and entitled to a priority of payment.
Banco Popular, BPNA and Banco Popular, N.A. are currently the only depository
institution subsidiaries of the Corporation, PIB and PNA.
Because the Corporation, PIB and PNA are holding companies, their right
to participate in the assets of any subsidiary upon the latter's liquidation or
reorganization will be subject to the prior claims of the subsidiary's creditors
(including depositors in the case of subsidiary depository institutions) except
to the extent that the Corporation, PIB or PNA, as the case may be, may itself
be a creditor with recognized claims against the subsidiary.
Under the Federal Deposit Insurance Act (the "FDIA"), a depository
institution whose deposits are insured by the FDIC can be held liable for any
loss incurred by, or reasonably expected to be incurred by, the FDIC in
connection with (i) the default of a commonly controlled FDIC-insured depository
institution or (ii) any assistance provided by the FDIC to any commonly
controlled FDIC-insured depository institution "in danger of default". "Default"
is defined generally as the appointment of a conservator or a receiver, and "in
danger of default" is defined generally as the existence of certain conditions
indicating that a default is likely to occur in the absence of regulatory
assistance. Banco Popular, BPNA and Banco Popular, N.A. are currently
FDIC-insured depository institution subsidiaries of the Corporation and subject
to this cross-guarantee liability. In some circumstances (depending upon the
amount of the loss or anticipated loss suffered by the FDIC), cross-guarantee
liability may result in the ultimate failure or insolvency of one or more
insured depository institutions in a holding company structure. Any obligation
or liability owed by a subsidiary depository institution to its parent company
is subordinated to the subsidiary depository institution's cross-guarantee
liability with respect to commonly controlled FDIC-insured depository
institutions.
DIVIDEND RESTRICTIONS
The principal source of cash flow for the Corporation is dividends from
Banco Popular. Various statutory provisions limit the amount of dividends Banco
Popular may pay to the Corporation without regulatory approval. As a member bank
subject to the regulation of the Federal Reserve Board, Banco Popular must
obtain the approval of the Federal Reserve Board for any dividend if the total
of all dividends declared by the member bank in any calendar year would exceed
the total of its net profits, as defined by the Federal Reserve Board, for that
year, combined with its retained net profits for the preceding two years. In
addition, a member bank may not pay a dividend in an amount greater than its
undivided profits then on hand after deducting its losses and bad debts. For
this purpose, bad debts are generally defined to include the principal amount of
loans that are in arrears with respect to interest by six months or more unless
such loans are fully secured and in the process of collection. Moreover, for
purposes of this limitation, a member bank is not permitted to add the balance
in its allowance for loan losses account to its undivided profits then on hand.
A member bank may, however, net the sum of its bad debts, as defined, against
the balance in its allowance for loan losses account and deduct from undivided
profits only bad debts, as so defined, in excess of that account. At December
31, 2002, Banco Popular could have declared a dividend of approximately $163
million without the approval of the Federal Reserve Board.
The payment of dividends by Banco Popular, BPNA and Banco Popular, N.A.
may also be affected by other regulatory requirements and policies, such as the
maintenance of adequate capital. If, in the opinion of the applicable regulatory
authority, a depository institution under its jurisdiction is engaged in, or is
about to engage in, an unsafe or unsound practice (that, depending on the
financial condition of the depository institution, could include the payment of
dividends), such authority may require, after notice and hearing, that such
depository institution cease and desist from such practice. In addition, all
FDIC-insured depository institutions are subject to the capital-based
limitations required by the FDICIA. See "-FDICIA" above.
See "-Puerto Rico Regulation-General" below for a description of
certain restrictions on Banco Popular's ability to pay dividends under Puerto
Rico law.
8
FDIC INSURANCE ASSESSMENTS
Banco Popular, BPNA and Banco Popular, N.A. are subject to FDIC deposit
insurance assessments. Pursuant to the FDICIA, the FDIC has adopted a risk-based
assessment system, under which the assessment rate for an insured depository
institution varies according to the level of risk incurred in its activities. An
institution's risk category is based partly upon whether the institution is well
capitalized, adequately capitalized or less than adequately capitalized. Each
FDIC-insured depository institution is also assigned to one of the following
"supervisory subgroups": "A", "B" or "C". Group "A" institutions are financially
sound institutions with only a few minor weaknesses; Group "B" institutions are
institutions that demonstrate weaknesses that, if not corrected, could result in
significant deterioration; and Group "C" institutions are institutions for which
there is a substantial probability that the FDIC will suffer a loss in
connection with the institution unless effective action is taken to correct the
areas of weakness.
Currently premiums related to deposits assessed by both the BIF and the
Savings Association Insurance Fund ("SAIF") are to be assessed at an annual rate
of between 0 cents and 27 cents per $100.00 of deposits.
The Deposit Insurance Funds Act of 1996 also separated the Financing
Corporation ("FICO") assessment to service the interest on its bond obligations
from the BIF and SAIF assessments. The amount assessed on individual
institutions by the FICO is in addition to the amount, if any, paid for deposit
insurance according to the FDIC's risk-related assessment rate schedules. The
current FICO annual assessment rate is 1.68 cents per $100 of deposits. As of
December 31, 2002, the Corporation had a BIF deposit assessment base of
approximately $16.9 billion.
Because of favorable loss experience and a healthy reserve ratio in the
BIF, well capitalized and well managed banks, including the Corporation's bank
subsidiaries, have in recent years paid no premiums for FDIC insurance. In the
future, even well capitalized and well managed banks may be required to pay
premiums on deposit insurance. It is not possible to determine when any such
premiums will become assessable or the level of such premiums.
BROKERED DEPOSITS
FDIC regulations adopted under FDICIA govern the receipt of brokered
deposits. Under these regulations, a bank cannot accept, roll over or renew
brokered deposits (which term is defined also to include any deposit with an
interest rate more than 75 basis points above prevailing rates) unless (i) it is
well capitalized or (ii) it is adequately capitalized and receives a waiver from
the FDIC. A bank that is adequately capitalized may not pay an interest rate on
any deposits in excess of 75 basis points over certain prevailing market rates
specified by regulation. There are no such restrictions on a bank that is well
capitalized. The Corporation does not believe the brokered deposits regulation
has had or will have a material effect on the funding or liquidity of Banco
Popular, BPNA or Banco Popular, N.A.
CAPITAL ADEQUACY
Information about the capital composition of the Corporation as of
December 31, 2002 and for the four previous years is presented in Table H
"Capital Adequacy Data" on page 17 in the "Management's Discussion and Analysis
of Financial Condition and Results of Operations" (MD&A).
Under the Federal Reserve Board's risk-based capital guidelines for
bank holding companies and member banks, the minimum ratio of qualifying total
capital ("Total Capital") to risk-weighted assets (including certain off-balance
sheet items, such as standby letters of credit) is 8%. At least half of the
Total Capital is to be comprised of common equity, retained earnings, minority
interest in equity accounts of consolidated subsidiaries, qualifying
non-cumulative perpetual preferred stock and a limited amount of cumulative
perpetual preferred stock less goodwill and certain other intangible assets
("Tier 1 Capital"). The remainder may consist of a limited amount of
subordinated debt, other preferred stock, certain other instruments and a
limited amount of loan and lease loss reserves ("Tier 2 Capital").
9
In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies and member banks. These guidelines
provide for a minimum ratio of Tier 1 Capital to total assets, less goodwill and
certain other intangible assets discussed below (the "leverage ratio") of 3% for
bank holding companies and member banks that have the highest regulatory rating
or have implemented the Federal Reserve Board's market risk capital measure. All
other bank holding companies and member banks are required to maintain a minimum
leverage ratio of 4%. The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions are expected to maintain
strong capital positions substantially above the minimum supervisory levels,
without significant reliance on intangible assets. Furthermore, the guidelines
indicate that the Federal Reserve Board will continue to consider a "tangible
Tier 1 leverage ratio" and other indicia of capital strength in evaluating
proposals for expansion or new activities. The tangible Tier 1 leverage ratio is
the ratio of a banking organization's Tier 1 Capital less all intangibles, to
total assets less all intangibles.
Banco Popular and BPNA are subject to the risk-based and leverage
capital requirements adopted by the Federal Reserve Board. Banco Popular, N.A.
is subject to substantially similar requirements of the OCC. See Consolidated
Financial Statements, Note 20 "Regulatory Capital Requirements" on page 58 for
the capital ratios of the Corporation, Banco Popular and BPNA. Failure to meet
capital guidelines could subject the Corporation and its depository institution
subsidiaries to a variety of enforcement remedies, including the termination of
deposit insurance by the FDIC and to certain restrictions on its business. See
"- FDICIA".
The U.S. federal bank regulatory agencies' risk-capital guidelines are
based upon the 1988 capital accord of the Basel Committee on Banking Supervision
(the "BIS"). The BIS is a committee of central banks and bank
supervisors/regulators from the major industrialized countries that develops
broad policy guidelines that each country's supervisors can use to determine the
supervisory policies they apply. In January 2001 the BIS released a proposal to
replace the 1988 capital accord with a new capital accord that would set capital
requirements for operational risk and refine the existing capital requirements
for credit risk and market risk exposures. Operational risk is defined to mean
the risk of direct or indirect loss resulting from inadequate or failed internal
processes, people and systems or from external events. The 1988 capital accord
does not include separate capital requirements for operational risk. The events
of September 11, 2001 demonstrate the importance for financial institutions of
managing operational risks. The BIS intends to finalize the new capital accord
in the fourth quarter of 2003, allowing for implementation of the new framework
in each country at year-end 2006. The ultimate timing for a new accord, and the
specifics of capital assessments for addressing operational risk, are uncertain.
However, the Corporation expects that a new capital accord addressing
operational risk will eventually be adopted by the BIS and implemented by the
U.S. federal bank regulatory agencies. The Corporation cannot determine whether
new capital requirements that may arise out of a new BIS capital accord will
increase or decrease minimum capital requirements applicable to the Corporation
and its subsidiaries.
INTERSTATE BANKING LEGISLATION
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
permits a bank holding company, with Federal Reserve Board approval, to acquire
banks located in states other than the holding company's home state without
regard to whether the transaction is prohibited under state law. In addition,
national and state banks with different home states are permitted to merge
across state lines, with approval of the appropriate federal banking agency,
unless the home state of a participating bank passed legislation prior to May
31, 1997 expressly prohibiting interstate mergers. States are also allowed to
permit de novo interstate branching. Once a bank has established branches in a
state through an interstate merger transaction, the bank may establish or
acquire additional branches at any location in the state where any bank involved
in the interstate merger transaction could have established or acquired branches
under applicable federal or state law. A bank that has established a branch in a
state through de novo branching (if permitted under state laws) may establish
and acquire additional branches in such state in the same manner and to the same
extent as a bank having a branch in such state as a result of an interstate
merger. If a state
10
opted out of interstate branching within the specified time period, no bank in
any other state may establish a branch in the state that has opted out, whether
through an acquisition or de novo. A foreign bank, like Banco Popular, may
establish branches interstate by merger or de novo to the same extent as
domestic banks in the foreign bank's home state, which, in the case of Banco
Popular, is New York.
FINANCIAL SERVICES MODERNIZATION
The Gramm-Leach-Bliley Act was enacted on November 12, 1999. Among
other things, the Gramm-Leach-Bliley Act: (i) allows bank holding companies
whose subsidiary depository institutions meet management, capital and Community
Reinvestment Act standards to engage in a substantially broader range of
nonbanking activities than was previously permissible, including insurance
underwriting and making merchant banking investments in commercial and financial
companies; (ii) allows insurers and other financial services companies to
acquire banks; (iii) removes various restrictions that previously applied to
bank holding company ownership of securities firms and mutual fund advisory
companies; and (iv) establishes the overall regulatory structure applicable to
bank holding companies that also engage in insurance and securities operations.
This part of the Gramm-Leach-Bliley Act became effective on March 11, 2000.
In order for a bank holding company to engage in the broader range of
activities that are permitted by the Gramm-Leach-Bliley Act (i) all of its
depository institution subsidiaries must be well capitalized (as described
above) and well managed and (ii) it must file a declaration with the Federal
Reserve Board that it elects to be a "financial holding company." A depository
institution is deemed to be "well managed" if at its most recent inspection,
examination or subsequent review by the appropriate federal banking agency (or
the appropriate state banking agency), the depository institution received at
least a "satisfactory" composite rating and at least a "satisfactory" rating for
management. In addition, to commence any new activity permitted by the
Gramm-Leach-Bliley Act and to acquire any company engaged in any new activities
permitted by the Gramm-Leach-Bliley Act, each insured depository institution
subsidiary of the financial holding company must have received at least a
"satisfactory" rating in its most recent examination under the Community
Reinvestment Act.
The Federal Reserve Bank of New York approved Popular, Inc.'s election
to become a financial holding company effective April 30, 2002.
The Gramm-Leach-Bliley Act also modified other laws, including laws
related to financial privacy and community reinvestment. The new financial
privacy provisions generally prohibit financial institutions, including the
Corporation's bank subsidiaries, from disclosing nonpublic personal financial
information to third parties unless customers have the opportunity to "opt out"
of the disclosure.
In January 2002, the federal bank regulators adopted rules, effective
April 1, 2002, governing the regulatory capital treatment of equity investments
in nonfinancial companies. The federal rules require a series of marginal
capital charges on covered equity investments that increase with the level of
those investments as a percentage of the Corporation's Tier 1 capital. With
certain exceptions, the rules require that the Corporation and its bank
subsidiaries deduct from Tier 1 capital the appropriate percentage set out
below:
11
Aggregate Carrying Value of Required Deductions From
Covered Nonfinancial Equity Tier 1 Capital as a
Investments as a percentage of percentage of the Carrying
Tier 1 Capital Value of the Investments
------------------------------- ---------------------------
<15% 8%
> 15% but <25% 12%
-
>25% 25%
-
The adoption of this rule did not have a material effect on the
Corporation's capital requirements during 2002.
Various other legislation, including proposals to limit the investments
that a depository institution may make with insured funds, is from time to time
introduced in Congress. The Corporation cannot determine the ultimate effect
that such potential legislation, if enacted, or implementing regulations would
have upon its financial condition or results of operations.
On October 26, 2001, the President signed into law comprehensive
anti-terrorism legislation known as the USA PATRIOT Act of 2001 (the "USA
Patriot Act"). Title III of the USA Patriot Act substantially broadened the
scope of U.S. anti-money laundering laws and regulations by imposing
significant new compliance and due diligence obligations, creating new crimes
and penalties and expanding the extra-territorial jurisdiction of the United
States.
The U.S. Treasury Department ("Treasury") has issued a number of
regulations implementing the USA Patriot Act that apply certain of its
requirements to financial institutions, including the Corporation's bank
subsidiaries. The regulations impose new obligations on financial institutions
to maintain appropriate policies, procedures and controls to detect, prevent
and report money laundering and terrorist financing. Treasury is expected to
issue a number of additional regulations that will further clarify the USA
Patriot Act's requirements.
Failure of a financial institution to comply with the USA Patriot Act's
requirements could have serious legal and reputational consequences for the
institution. [The Corporation has adopted appropriate policies, procedures and
controls to address compliance with the requirements of the USA Patriot Act
under the existing regulations. It will continue to revise and update its
policies, procedures and controls to reflect changes required by the USA Patriot
Act and Treasury's regulations.] The Corporation believes that the cost of
compliance with Title III of the USA Patriot Act is not likely to be material to
the Corporation.
PUERTO RICO REGULATION
GENERAL. As a commercial bank organized under the laws of Puerto Rico,
Banco Popular is subject to supervision, examination and regulation by the
Office of the Commissioner of Financial Institutions of Puerto Rico (the "Office
of the Commissioner"), pursuant to the Puerto Rico Banking Act of 1933, as
amended (the "Banking Law").
Section 27 of the Banking Law requires that at least ten percent (10%)
of the yearly net income of Banco Popular be credited annually to a reserve
fund. This apportionment must be done every year until the reserve fund is equal
to the total of paid-in capital on common and preferred stock. At the end of its
most recent fiscal year, Banco Popular had a fund established in compliance with
these requirements.
Section 27 of the Banking Law also provides that when the expenditures
of a bank are greater than its receipts, the excess of the former over the
latter must be charged against the undistributed profits of the bank, and the
balance, if any, must be charged against the reserve fund as a reduction
thereof. If the reserve fund is not sufficient to cover such balance in whole or
in part, the outstanding amount must be charged against the capital account and
no dividend may be declared until said capital has been restored to its original
amount and the reserve fund to 20% of the original capital.
Section 16 of the Banking Law requires every bank to maintain a legal
reserve that, except as otherwise provided by the Office of the Commissioner,
may not be less than 20% of its demand liabilities, excluding government
deposits (federal, state and municipal) which are secured by collateral. If a
bank is authorized to establish one or more bank branches in a state of the
United States or in a foreign country, where such branches are subject to the
reserve requirements of that state or country, the Office of the Commissioner
may exempt said branch or branches from the reserve requirements of Section 16.
Pursuant to an order of the Federal Reserve Board dated November 24, 1982, Banco
Popular has been exempted from the reserve requirements of the Federal Reserve
System with respect to deposits payable in Puerto Rico. Accordingly, Banco
Popular is subject to the reserve requirements prescribed by the Banking Law.
12
Section 17 of the Banking Law permits a bank to make loans to any one
person, firm, partnership or corporation, up to an aggregate amount of fifteen
percent (15%) of the paid-in capital and reserve fund of the bank. As of
December 31, 2002, the legal lending limit for the Bank under this provision was
approximately $93.7 million. The above limitations do not apply to loans which
are secured by collateral worth at least 25% more than the amount of the loan up
to a maximum aggregate amount of one third of the paid-in capital of the bank,
plus its reserve fund. If the institution is well capitalized and had been rated
1 in the last examination performed by the Office of the Commissioner or any
regulatory agency, its legal lending limit shall also include 15% of 50% of its
undivided profits and for loans secured by collateral worth at least 25% more
than the amount of the loan, the capital of the bank shall also include 33 1/3%
of 50% of its undivided profits. Institutions rated 2 in their last regulatory
examination may include this additional component in their legal lending limit
only with the previous authorization of the Office of the Commissioner. There
are no restrictions under Section 17 on the amount of loans that are wholly
secured by bonds, securities and other evidence of indebtedness of the
Government of the United States or Puerto Rico, or by current debt bonds, not in
default, of municipalities or instrumentalities of Puerto Rico.
Section 14 of the Banking Law authorizes a bank to conduct certain
financial and related activities directly or through subsidiaries, including
finance leasing of personal property, originating and servicing mortgage loans
and operating a small loan company. Banco Popular engages in these activities
through its wholly-owned subsidiaries, Popular Auto, Inc., Popular Mortgage,
Inc. and Popular Finance, Inc., respectively, all of which are organized and
operate in Puerto Rico.
The Finance Board, which includes as its members the Commissioner of
Financial Institutions, the Secretary of the Treasury, the Secretary of
Commerce, the Secretary of Consumer Affairs, the President of the Planning
Board, and the President of the Government Development Bank for Puerto Rico, has
the authority to regulate the maximum interest rates and finance charges that
may be charged on loans to individuals and unincorporated businesses in Puerto
Rico. The current regulations of the Finance Board provide that the applicable
interest rate on loans to individuals and unincorporated businesses (including
real estate development loans but excluding certain other personal and
commercial loans secured by mortgages on real estate properties and finance
charges on retail installment sales and for credit card purchases) is to be
determined by free competition.
IBC ACT. Under the IBC Act, without the prior approval of the Office of
the Commissioner, PIB may not amend its articles of incorporation or issue
additional shares of capital stock or other securities convertible into
additional shares of capital stock unless such shares are issued directly to the
shareholders of PIB previously identified in the application to organize the
international banking entity, in which case notification to the Office of the
Commissioner must be given within ten business days following the date of the
issue. Pursuant to the IBC Act, without the prior approval of the Office of the
Commissioner, PIB may not initiate the sale, encumbrance, assignment, merger or
other transfer of shares if by such transaction a person or persons acting in
concert could acquire direct or indirect control of 10% or more of any class of
PIB's stock. Such authorization must be requested at least 30 days prior to the
transaction.
PIB must submit to the Office of the Commissioner a report of its
condition and results of operation on a quarterly basis and its annual audited
financial statements at the close of its fiscal year. Under the IBC Act, PIB may
not deal with "domestic persons" as such term is defined in the IBC Act. Also,
it may only engage in those activities authorized in the IBC Act, the
regulations adopted thereunder and its license.
The IBC Act empowers the Office of the Commissioner to revoke or
suspend, after a hearing, the license of an international banking entity if,
among other things, it fails to comply with the IBC Act, regulations issued by
the Office of the Commissioner or the terms of its license or if the Office of
the Commissioner finds that the business of the international banking entity is
conducted in a manner not consistent with the public interest.
13
Employees
At December 31, 2002, the Corporation employed directly 10,959 persons.
None of its employees are represented by a collective bargaining group.
SEGMENT DISCLOSURE
Note 32 to the Financial Statements, "Segment Reporting" on pages 68
and 69 is herein incorporated by reference.
The principal market for the Corporation is Puerto Rico, where the
Corporation had $22.3 billion or 66% of its total assets as of December 31, 2002
and earned $1.2 billion or 69% of its total revenues for the year then ended.
Total assets, loans and deposits of commercial banks and financial institutions
in Puerto Rico as of December 31, 2002 were estimated at $67 billion, $36
billion and $38 billion, respectively. At that date the Corporation's commercial
banking operation in the island had an estimated market share of 27% and 30% in
loans and deposits, respectively.
AVAILABILITY ON WEBSITE
We make available free of charge, through our investor relations
section at our website, http://www.popularinc.com, our Form 10-K, Form 10-Q and
Form 8-K reports and all amendments to those reports as soon as reasonably
practicable after such material is electronically filed with or furnished to the
Securities and Exchange Commission.
The public may read and copy any materials the Corporation files with
the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington,
DC 20549. In addition, the public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC at its web
site (http://www.sec.gov).
ITEM 2. PROPERTIES
As of December 31, 2002, Banco Popular owned (and wholly or partially
occupied) approximately 90 branch premises and other facilities throughout the
Commonwealth, 27 lots held for future development or for parking facilities also
in Puerto Rico, and one building in the U.S. Virgin Islands. In addition, as of
such date, Banco Popular leased properties for branch operations in
approximately 127 locations in Puerto Rico and 7 locations in the U.S. Virgin
Islands. At December 31, 2002, BPNA had 108 offices (principally bank branches)
of which 48 were owned and 60 were leased. These offices were located throughout
New York, Illinois, New Jersey, California, Texas and Florida. The Corporation's
management believes that each of its facilities is well maintained and suitable
for its purpose. The principal properties owned by the Corporation for banking
operations and other services are described below:
Popular Center, the San Juan metropolitan area headquarters, located at
209 Munoz Rivera Avenue, Hato Rey, Puerto Rico, a 20 story office building.
Approximately 50% of the office space is leased to outside tenants.
Cupey Center Complex, three buildings, one of three stories, and two of
two stories each, located in Cupey, Rio Piedras, Puerto Rico. The computer
center, operational and support services, and a recreational center for
employees are some of the main activities conducted at these facilities. The
facilities are fully occupied by Banco Popular's personnel. An adjacent
two-story building held for future expansion is partially occupied by Banco
Popular personnel and a parking garage building with capacity for 1,000 cars was
completed during 2002.
14
Stop 22 - Santurce building, a twelve story structure located in
Santurce, Puerto Rico. A branch, the accounting department, the human resources
division and the auditing department are the main activities conducted at this
facility, which is fully occupied by Banco Popular personnel.
Centro Europa Building - a seven-story office and retail building in
Santurce, Puerto Rico was acquired during 2002. The Bank's training center
occupies approximately 26% of this building. The remaining space is rented to
outside tenants.
Old San Juan building, a twelve-story structure located at Old San
Juan, Puerto Rico. Banco Popular occupies approximately 43% of the building for
a branch operation, a regional office, an exhibit room and other facilities. The
rest of the building is rented or available for rent to outside tenants.
Mortgage Loan Center, a four story building located at 167 Ponce de
Leon Avenue, Hato Rey, Puerto Rico is fully occupied by Popular Mortgage, Inc.
The buildings at 153 and 157 Ponce de Leon, which housed the Mortgage Servicing
Division, were demolished during 2002 and a new office and parking building is
under construction at the site. The Mortgage Servicing Division was relocated to
a recently acquired two-story building at the Corporate Office Park in Guaynabo,
Puerto Rico.
Guaynabo Corporate Office Park Building, a two story building located
in Guaynabo. This building is occupied by Banco Popular's mortgage servicing
departments. In addition, Popular Mortgage, Inc., Popular Insurance, Inc. and an
outside tenant have leased spaces.
Altamira building, a new nine-story office building is under
construction in Rio Piedras, Puerto Rico. A seven-level parking garage is also
part of this project that will house the centralized offices of Popular
Mortgage, Inc. and Popular Auto, Inc. It will also include a full service branch
and the Mortgage Servicing Division of Banco Popular.
Banco Popular Virgin Islands Center, a three-story building housing a
Banco Popular branch and centralized offices. The building is fully occupied by
Banco Popular personnel.
New York building, a nine-story owned structure with two underground
levels located at 7 West 51st Street, New York City. BPNA occupies approximately
40% of the office space. The remaining space is 16% rented and 44% available for
rent to outside tenants.
Chicago building, a six-story building located at 9600 West Bryn Mawr
Avenue, Rosemont, Illinois, is a new location for BPNA's executive offices,
human resources division and operations department. BPNA was relocated to these
facilities in October 2002, renting four floors in this building, allowing it to
consolidate these functions in one location.
ITEM 3. LEGAL PROCEEDINGS
On January 16, 2003 the U.S. District Court for the District of Puerto
Rico approved a Deferred Prosecution Agreement (the "Agreement") among Banco
Popular, the U.S. Department of Justice, the Board of Governors of the Federal
Reserve System, and the Financial Crimes Enforcement Network of the U.S.
Department of the Treasury ("FinCEN"). The Agreement concludes an investigation
related principally to the circumstances surrounding the activities of a former
customer of the Bank, including Banco Popular's reporting and compliance
efforts, as well as certain other customers. The former customer has pleaded
guilty to money laundering, including in connection with transactions made
through an account at Banco Popular. No current or former Bank officer, director
or employee has been charged with a crime or accused of benefiting financially
from the transactions described in the Agreement.
Under the Agreement, Banco Popular agreed to the filing of a one-count
information charging it with failure to file suspicious activity reports in a
timely and complete manner. The Agreement provides for Banco Popular to forfeit
$21.6 million to the United States, and resolves all claims the United States,
15
FinCEN or the Federal Reserve may have against Banco Popular arising from the
matters that were subject to investigation.
This settlement also terminates the Written Agreement Banco Popular
signed with the Federal Reserve Bank of New York on March 9, 2000, which
required enhancements to Banco Popular's anti-money laundering and Bank Secrecy
Act program. The Federal Reserve found Banco Popular to be fully compliant with
the Written Agreement on November 26, 2001. Finally, the Agreement provides that
the court will dismiss the information and the Deferred Prosecution Agreement
will expire 12 months following the settlement, provided that Banco Popular
complies with its obligations under the Agreement.
On February 19, 2003, a derivative action was filed by a shareholder of
Popular, Inc. in the United States District Court for the District of Puerto
Rico in connection with the above -described matters against certain current and
former directors of Popular, Inc. alleging that the defendants breached their
fiduciary duties by failing to take the necessary steps to comply with the Bank
Secrecy Act and to implement sufficient controls to permit them to exercise
their oversight responsibilities and ensure compliance with Federal and state
laws. The action seeks, on behalf of Popular, Inc., monetary damages from the
defendants and attorneys' fees. Popular, Inc. does not expect that the foregoing
civil action will have a material impact on Popular, Inc.'s operations or
consolidated financial statements.
The Corporation and its subsidiaries are defendants in various lawsuits
arising in the ordinary course of business. Management believes, based on the
opinion of legal counsel, that the aggregate liabilities, if any, arising from
such actions would not have a material adverse effect on the financial position
and results of operations of the Corporation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Corporation's common stock (the "Common Stock") is traded on the
National Association of Securities Dealers Automated Quotation System (NASDAQ)
National Market System under the symbol BPOP. Information concerning the range
of high and low sales prices for the Corporation's common shares for each
quarterly period during 2002 and the previous four years, as well as cash
dividends declared is contained under Table I, "Common Stock Performance", on
page 18 and under the caption "Stockholders' Equity" on page 17 in the MD&A, and
is incorporated herein by reference.
Information concerning legal or regulatory restrictions on the payment
of dividends by the Corporation and Banco Popular is contained under the caption
"Regulation and Supervision" in Item 1 herein.
As of February 28, 2003, the Corporation had 11,117 stockholders of
record of its Common Stock, not including beneficial owners whose shares are
held in record names of brokers or other nominees. The last sales price for the
Corporation's Common Stock on such date, as quoted on the NASDAQ was $33.89 per
share.
Effective January 22, 2002, Popular, Inc. redeemed all of the
outstanding shares of its 8.35% Non-Cumulative Monthly Income Preferred Stock,
1994 Series A (NASDAQ: BPOPP). The redemption payment was $25.6276 per share of
the Series A Preferred Stock, consisting of the redemption price plus an amount
representing accrued and unpaid dividends for the current monthly dividend
period up to, but excluding, the redemption date.
16
On November 19, 2001, a shelf registration statement filed by the
Corporation, PIB and PNA with the Securities and Exchange Commission on November
13, 2001, became effective. This shelf registration statement allows the
Corporation, PIB and PNA to issue debt securities and preferred stock in an
aggregate amount of up to $2.0 billion, of which $1.9 billion was available as
of December 31, 2002. On February 21, 2003 a prospectus supplement was filed by
the Corporation under the shelf registration statement offering to the public
6,500,000 shares of 6.375% Noncumulative Monthly Income Preferred Stock, 2003
Series A at an offering price of $25.00 per share.
The Corporation currently has $125 million in subordinated notes
outstanding due December 15, 2005 with interest payable semi-annually at 6.75%.
These notes are unsecured obligations, which are subordinated in right of
payment in full to all present and future senior indebtedness of the
Corporation. These notes do not provide for any sinking fund.
On February 5, 1997, BanPonce Trust I, a statutory business trust
created under the laws of the State of Delaware that is wholly-owned by PNA and
indirectly wholly-owned by the Corporation, sold to institutional investors
$150,000,000 of its 8.327% Capital Securities Series A (liquidation amount
$1,000 per Capital Security) ("Capital Securities") through certain
underwriters. The proceeds of the issuance, together with the proceeds of the
purchase by PNA of $4,640,000 of BanPonce Trust I's 8.327% common securities
(liquidation amount $1,000 per common security) were used to purchase
$154,640,000 aggregate principal amount of PNA's 8.327% Junior Subordinated
Deferrable Interest Debentures, Series A (the "Junior Subordinated Debentures").
As of December 31, 2002, the Corporation had reacquired $6,000,000 of the
Capital Securities. The Capital Securities qualify as Tier 1 capital, are fully
and unconditionally guaranteed by the Corporation, and are presented in the
Consolidated Statements of Condition as "Guaranteed Preferred Beneficial
Interest in Popular North America's Subordinated Debentures." The obligations of
PNA under the Junior Subordinated Debentures and its guarantees of the
obligations of BanPonce Trust I are fully and unconditionally guaranteed by the
Corporation. The assets of BanPonce Trust I consist of $148,640,000 of Junior
Subordinated Debentures and a related accrued interest receivable of $4,126,000
as of December 31, 2002. The Junior Subordinated Debentures mature on February
1, 2027; however, under certain circumstances, the maturity of the Junior
Subordinated Debentures may be shortened (which shortening would result in a
mandatory redemption of the Capital Securities).
The Puerto Rico Internal Revenue Code of 1994, as amended, generally
imposes a withholding tax on the amount of any dividends paid by corporations to
individuals, whether residents of Puerto Rico or not, trusts, estates and
foreign corporations or partnerships not engaged in trade or business within
Puerto Rico at a special 10% withholding tax rate. If the recipient is a foreign
corporation or partnership engaged in trade or business within Puerto Rico or a
domestic corporation the dividend will be taxed at regular rates but will be
allowed an 85% dividend received deduction.
Prior to the first dividend distribution for the taxable year,
individuals who are residents of Puerto Rico may elect to be taxed on the
dividends at the regular rates, in which case the special 10% tax will not be
withheld from such year's distributions.
A United States citizen who is a non-resident of Puerto Rico will not
be subject to Puerto Rico tax on dividends if said individual's gross income
from sources within Puerto Rico during the taxable year does not exceed $1,300
if single, or $3,000 if married, and form AS 2732 of the Puerto Rico Treasury
Department, "Withholding Tax Exemption Certificate for the Purpose of Section
1147", is filed with the withholding agent.
U.S. income tax law permits a credit against U.S. income tax liability,
subject to certain limitations, for certain foreign income taxes paid or deemed
paid with respect to such dividends.
17
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item appears in Table C, "Selected
Financial Data", on pages 4 and 5 and the text under the caption "Earnings
Analysis" on page 8 in the MD&A, and is incorporated herein by reference.
The Corporation's ratio of earnings to fixed charges on a consolidated
basis for each of the last five years is as follows:
Year ended December 31,
------------------------------------------------
Ratio of Earnings to Fixed Charges:
2002 2001 2000 1999 1998
------------------------------------------------
Excluding Interest on Deposits 2.1 1.8 1.6 1.7 1.8
Including Interest on Deposits 1.5 1.4 1.3 1.4 1.4
Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends:
Excluding Interest on Deposits 2.1 1.8 1.6 1.7 1.8
Including Interest on Deposits 1.5 1.4 1.3 1.4 1.4
For purposes of computing these consolidated ratios, earnings represent
income before income taxes, plus fixed charges. Fixed charges represent all
interest expense (ratios are presented both excluding and including interest on
deposits), the portion of net rental expense, which is deemed representative of
the interest factor and the amortization of debt issuance expense.
The Corporation's long-term senior debt and preferred stock on a
consolidated basis as of December 31 of each of the last five years is:
Year ended December 31,
-----------------------------------------------------------------------
(In thousands) 2002 2001 2000 1999 1998
-----------------------------------------------------------------------
Long-term obligations $4,567,853 $4,009,211 $1,451,912 $2,127,599 $1,582,160
Non-cumulative preferred
stock of the Corporation -0- 100,000 100,000 100,000 100,000
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by this item appears on page 2 through 34
under the caption "MD&A", and is incorporated herein by reference.
Table K, "Maturity Distribution of Earning Assets", on page 21 in the
MD&A, has been prepared on the basis of expected maturities. The Corporation
does not have a policy with respect to rolling over maturing loans, but rolls
over loans only on a case-by-case basis after review of such loans in accordance
with the Corporation's lending criteria.
18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information regarding the market risk of the Corporation's
investments appears on page 19 through 22 under the caption " MD&A", and is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item appears on pages 35 through 79,
and on page 30 under the caption "Statistical Summary - 2001-2002 Quarterly
Financial Data" in the Annual Report and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the captions "Shares Beneficially Owned
by Directors and Executive Officers of the Corporation", "Beneficial Ownership
Reporting Compliance", "Board of Directors and Committees" including the
"Nominees for Election as Directors" and "Executive Officers" of the
Corporation's definitive proxy statement to be filed with the Securities and
Exchange Commission on or about March 18, 2003 (the "Proxy Statement") is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the caption "Executive Compensation Program" and
under the caption "Popular, Inc. Performance Graph" of the Proxy Statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information under the captions "Principal Stockholders", "Shares
Beneficially Owned by Directors and Executive Officers of the Corporation" and
"Equity Compensation Plan Information" of the Corporation's Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Family Relationships" and "Other
Relationships, Transactions and Events" of the Corporation's Proxy Statement is
incorporated herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this Annual Report on
Form 10-K, an evaluation was carried out under the supervision and with the
participation of Popular, Inc.'s management, including its Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rule
13a-14(c) under the Securities Exchange Act of 1934). Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the design and operation of these disclosure controls and procedures were
effective. No significant changes were made in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.
19
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. The following financial statements and reports included on pages 35
through 79 of the financial review section of the Corporation's Annual
Report to Shareholders are incorporated herein by reference:
(1) Financial Statements:
Report of Independent Accountants
Consolidated Statements of Condition as of December 31, 2002
and 2001
Consolidated Statements of Income for each of the years in
the three-year period ended December 31, 2002
Consolidated Statements of Cash Flows for each of the years in
the three-year period ended December 31, 2002
Consolidated Statements of Changes in Stockholders' Equity
for each of the years in the three-year period ended
December 31, 2002
Consolidated Statements of Comprehensive Income for each of the
years in the three-year period ended December 31, 2002
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules: No schedules are presented
because the information is not applicable or is included in
the Consolidated Financial Statements described in A.1 above
or in the notes thereto.
(3) Exhibits
The exhibits listed on the Exhibits Index on page xx of this
report are filed herewith or are incorporated herein by
reference.
B. The Corporation filed two reports on Form 8-K during the quarter ended
December 31, 2002.
Dated: October 9, 2002
Filed: October 10, 2002
Items reported: Item 5 - Other Events (Operational results for the
quarter and nine month period ended September 30, 2002)
Dated: November 1, 2002
Filed: November 4, 2002
Items reported: Item 5 - Other Events (Certifications of the Chief
Executive Officer and Chief Financial Officer required under new
Exchange Act Rules 13a-14 and 15d-14).
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
POPULAR, INC.
(Registrant)
By: S\RICHARD L. CARRION
----------------------------------
Richard L. Carrion
Chairman of the Board, President
and Chief Executive Officer
Dated: 03-13-03 (Principal Executive Officer)
----------
By: S\JORGE A. JUNQUERA
----------------------------------
Jorge A. Junquera
Senior Executive Vice President
Dated: 03-13-03 (Principal Financial Officer)
----------
By: S\AMILCAR L. JORDAN
----------------------------------
Amilcar L. Jordan
Senior Vice President
Dated: 03-13-03 (Principal Accounting Officer)
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
S\RICHARD L. CARRION Chairman of the Board,
- -------------------------- President and Chief
Richard L. Carrion Executive Officer 03-13-03
--------
S\ANTONIO LUIS FERRE Vice Chairman of
- -------------------------- the Board
Antonio Luis Ferre 03-13-03
--------
S\JUAN J. BERMUDEZ
- --------------------------
Juan J. Bermudez Director 03-13-03
--------
S/JOSE B. CARRION
- -------------------------
Jose B. Carrion Jr. Director 03-13-03
--------
S\DAVID H. CHAFEY
- --------------------------
David H. Chafey Jr. Director 03-13-03
--------
S\HECTOR R. GONZALEZ
- --------------------------
Hector R. Gonzalez Director 03-13-03
--------
S\JORGE A. JUNQUERA
- --------------------------
Jorge A. Junquera Director 03-13-03
--------
21
S\MANUEL MORALES
- --------------------------
Manuel Morales Jr. Director 03-13-03
--------
S\FRANCISCO M. REXACH
- --------------------------
Francisco M. Rexach Jr. Director 03-13-03
--------
S\FELIX J. SERRALLES
- --------------------------
Felix J. Serralles Jr. Director 03-13-03
--------
S\JULIO E. VIZCARRONDO
- --------------------------
Julio E. Vizcarrondo Jr. Director 03-13-03
--------
22
CERTIFICATION
I, Richard L. Carrion, certify that:
1. I have reviewed this annual report on Form 10-K of Popular, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual
report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 17, 2003
By: S/ Richard L. Carrion
-----------------------
Chief Executive Officer
23
CERTIFICATION
I, Jorge A. Junquera, certify that:
1. I have reviewed this annual report on Form 10-K of Popular, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual
report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 17, 2003
By: S/ Jorge A. Junquera
----------------------
Chief Financial Officer
24
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Restated Certificate of Incorporation of Popular, Inc., as
amended (English Translation) (incorporated herein by
reference to Exhibit 4(a) to Popular's Registration Statement
No. 333-26941 dated May 12, 1997).
3.2 Bylaws of Popular, Inc., as amended (incorporated herein by
reference to Exhibit 4.2 of Popular's Registration Statement
dated June 8, 1999).
3.3 Form of Certificate representing Popular, Inc.'s common stock,
par value $6.00 (incorporated herein by reference to Exhibit
4.1 of Popular's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 (File No. 0-13818)).
4.3 Stockholder Protection Rights Agreement, dated as of August
13, 1998, between Popular, Inc. and Banco Popular de Puerto
Rico as Rights Agent, including Form of Rights Certificate
attached as Exhibit B thereto (incorporated herein by
reference to Exhibit 4.1 of Popular's Current Report on Form
8-K (File No. 0-13818), dated August 13, 1998 and filed on
August 21, 1998).
4.5 Indenture, dated February 15, 1995, as supplemented by the
First Supplemental Indenture thereto, dated May 8, 1997, each
between Popular, Inc. and First National Bank of Chicago, as
Trustee (incorporated herein by reference to Exhibit 4(d) of
Popular's Registration Statement No. 333-26941 dated May 12,
1997).
4.6 Second Supplemental Indenture, dated as of August 5, 1999, to
Popular's Indenture, dated as of February 15, 1995, each
between Popular, Inc. and The First National Bank of Chicago,
as Trustee (incorporated herein by reference to Exhibit 4(e)
of Popular's Current Report on Form 8-K (File No. 0-13818),
dated August 5, 1999 and filed on August 17, 1999).
4.7 Subordinated Indenture dated as of November 30, 1995, between
Popular, Inc. and First National Bank of Chicago, as Trustee
(incorporated herein by reference to Exhibit 4(e) of Popular's
Registration Statement No. 333-26941, dated May 12, 1997).
4.8 Indenture, dated as of October 1, 1991, among Popular North
America, Inc., Popular, Inc., as Guarantor, and The First
National Bank of Chicago, as Trustee, as supplemented by the
First Supplemental Indenture thereto, dated February 28, 1995,
and by the Second Supplemental Indenture thereto, dated as of
May 8, 1997 (incorporated herein by reference to Exhibit 4(f)
of Popular's Registration Statement No. 333-26941, dated May
12, 1997).
4.9 Third Supplemental Indenture to Popular's Indenture dated as
of October 1, 1991, dated as of August 8, 1999, among Popular
North America, Inc., Popular, Inc. as Guarantor, and The First
National Bank of Chicago, as Trustee (incorporated herein by
reference to Exhibit 4(h) of Popular's Current Report on Form
8-K (File No. 0-13818), dated August 5, 1999 and filed on
August 17, 1999).
4.11 Form of Fixed Rate Medium-Term Note, Series 3, of Popular,
Inc. (incorporated herein by reference to Exhibit 4(l) of
Popular's Current Report on Form 8-K (File No. 0-13818), dated
May 23, 1997 and filed on June 11, 1997).
4.12 Form of Floating Rate Medium-Term Note, Series 3, of Popular,
Inc. (incorporated herein by reference to Exhibit 4(m) of
Popular's Current Report on Form 8-K (File No. 0-13818), dated
May 23, 1997 and filed on June 11, 1997).
4.13 Form of Fixed Rate Medium-Term Note, Series D, of Popular
North America, Inc., guaranteed by Popular, Inc. (incorporated
herein by reference to Exhibit 4(n) of Popular's Current
Report on Form 8-K (File No. 0-13818), dated May 23, 1997 and
filed on June 11, 1997).
4.14 Form of Floating Rate Medium-Term Note, Series D, of Popular
North America, Inc., guaranteed by Popular, Inc. (incorporated
herein by reference to Exhibit 4(o) of Popular's Current
Report on Form 8-K (File No. 0-13818), dated May 23, 1997 and
filed on June 11, 1997).
4.15 Form of Fixed Rate Medium-Term Note, Series 4, of Popular,
Inc. (incorporated herein by reference to Exhibit 4(o) of
Popular's Current Report on Form 8-K (File No. 0-13818), dated
August 5, 1999 and filed on August 17, 1999).
4.16 Form of Floating Rate Medium-Term Note, Series 4, of Popular,
Inc. (incorporated by reference to Exhibit (4)(p) of Popular's
Current Report on Form 8-K (File No. 0-13818), dated August 5,
1999 and filed August 17, 1999).
25
4.17 Form of Fixed Rate Medium-Term Note, Series E, of Popular
North America, Inc., endorsed with the guarantee of Popular,
Inc. (incorporated herein by reference to Exhibit 4(q) of
Popular's Current Report on Form 8-K (File No. 0-13818), dated
August 5, 1999 and filed on August 17, 1999).
4.18 Form of Floating Rate Medium-Term Note, Series E, of Popular
North America, Inc., endorsed with the guarantee of Popular,
Inc. (incorporated herein by reference to Exhibit 4(r) of
Popular's Current Report on Form 8-K (File No. 0-13818), dated
August 5, 1999 and filed on August 17, 1999).
4.19 Administrative Procedures governing Medium-Term Notes, Series
4, of Popular, Inc. (incorporated herein by reference to
Exhibit 10(a) of Popular's Current Report on Form 8-K (File
No. 0-13818), dated August 5, 1999 and filed on August 17,
1999).
4.20 Administrative Procedures governing Medium-Term Notes, Series
E, of Popular North America, Inc., guaranteed by Popular, Inc.
(incorporated herein by reference to Exhibit 10(b) of
Popular's Current Report on Form 8-K (File No. 0-13818), dated
August 5, 1999 and filed on August 17, 1999).
4.21 Junior Subordinated Indenture, among BanPonce Financial Corp.,
(Popular North America, Inc.) BanPonce Corporation (Popular,
Inc) and the First National Bank of Chicago, as Debenture
Trustee (incorporated herein by reference to Exhibit (4)(a) of
Popular's Current Report on Form 8-K (File No. 0-13818), dated
and file on February 19, 1997).
4.22 Amended and Restated Trust Agreement of BanPonce Trust I,
among BanPonce Financial Corp., (Popular North America, Inc.)
as Depositor, BanPonce Corporation, (Popular, Inc.) as
Guarantor, The First National Bank of Chicago, as Property
Trustee, First Chicago Delaware, Inc., as Delaware Trustee,
and the Administrative Trustee named therein (incorporated
herein by reference to Exhibit (4)(f) of Popular's Current
Report on Form 8-K (File No. 0-13818) dated and filed on
February 19, 1997).
4.23 Form of Capital Security Certificate for BanPonce Trust I
(incorporated herein by reference to Exhibit (4)(g) of
Popular's Current Report on Form 8-K (File No. 0-13818), dated
and filed on February 19, 1997).
4.24 Guarantee Agreement relating to BanPonce Trust I, by and among
BanPonce Financial Corp., (Popular North America, Inc.) as
Guarantor, BanPonce Corporation, (Popular, Inc.) as Additional
Guarantor, and the First National Bank of Chicago, as
Guarantee Trustee (incorporated herein by reference to Exhibit
(4)(h) of Popular's Current Report on Form 8-K (File No.
0-13818), dated and filed on February 19, 1997).
4.25 Form of Junior Subordinated Deferrable Interest Debenture for
BanPonce Financial Corp. (Popular North America, Inc.)
(incorporated herein by reference to Exhibit (4)(i) of
Popular's Current Report on Form 8-K (File No. 0-13818), dated
and filed on February 19, 1997).
4.26 Form of Subordinated Note of Popular, Inc. (incorporated
herein by reference to Exhibit 4.10 of Popular's Annual Report
on Form 10-K for the fiscal year ended December 31, 1999 (File
No. 0-13818).
4.27 Form of Certificate representing the Popular, Inc.'s 6.375%
Non-Cumulative Monthly Income Preferred Stock, 2003 Series A.
(incorporated herein by reference to Exhibit 99.1 of Popular's
Current Report on Form 8-K dated and filed on February 26,
2003).
4.28 Certificate of Designation, Preference and Rights of Popular,
Inc.'s 6.375% Non-Cumulative Monthly Income Preferred Stock,
2003 Series A (incorporated herein by reference to Exhibit
99.1 of Popular's Current Report on Form 8-K dated and filed
on February 26, 2003).
10.1 Annual Management Incentive Compensation Plan for certain
Division Supervisors approved in January, 1987 (incorporated
herein by reference to Exhibit 10.8 of Popular's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998 (File
No. 0-13818)).
10.2 Amendment to Popular, Inc. Senior Executive Long-Term
Incentive Plan, dated April 23, 1998 (incorporated herein by
reference to Exhibit 10.8.2. of Popular's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 (File
No. 0-13818)).
10.3 Popular, Inc. 2001 Stock Option Plan (incorporated by
reference to Exhibit 4.4 of Popular's Registration Statement
on Form S-8, dated May 10, 2001).
26
10.4 Amended and Restated 364-day Credit Agreement, dated as of
October 10, 2001, among Popular, Inc. and Popular North
America, Inc., the lenders named therein and The Chase
Manhattan Bank as Administrative Agent for an aggregate
principal amount of $315,000,000. (Incorporated herein by
reference to Exhibit 10.4 of Popular's Annual Report on Form
10-K for the fiscal year ended December 31, 2001).
10.5 Interest Calculation Agency Agreement, dated as of August 6,
1999, between Popular, Inc. and The First National Bank of
Chicago (incorporated herein by reference to Exhibit 10(c) of
Popular's Current Report on Form 8-K (File No. 0-13818), dated
August 5, 1999 and filed on August 17, 1999).
10.6 Interest Calculation Agency Agreement, dated as of August 6,
1999, between Popular North America, Inc. and The First
National Bank of Chicago (incorporated herein by reference to
Exhibit 10(d) of Popular's Current Report on Form 8-K (File
No. 0-13818), dated August 5, 1999 and filed on August 17,
1999).
10.7 Amendment No. 1, dated May 23, 1997, to the Distribution
Agreement, dated October 6, 1995, among Popular, Inc., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Chase Securities
Inc., Credit Suisse First Boston Corporation and First Chicago
Capital Markets, Inc. (incorporated herein by reference to
Exhibit 1(c) of Popular's Current Report on Form 8-K (File No.
0-13818), dated May 23, 1997, and filed on June 11, 1997).
10.8 Amendment No. 2, dated August 6, 1999, to the Distribution
Agreement, dated October 6, 1995, among Popular, Inc., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse
First Boston Corporation, Chase Securities Inc. and Popular
Securities, Inc. (incorporated herein by reference to Exhibit
1(d) of Popular's Current Report on Form 8-K (File No.
0-13818), dated August 5, 1999 and filed on August 17, 1999).
10.9 Distribution Agreement, dated October 11, 1991, among BanPonce
Financial Corp., BanPonce Corporation, Merrill Lynch, Pierce,
Fenner & Smith Incorporated and The First Boston Corporation
(incorporated herein by reference to Exhibit 1(d) of Popular's
Current Report on Form 8-K (File No. 0-13818), dated May 23,
1997 and filed on June 11, 1997).
10.10 Amendment No. 1, dated December 2, 1993, to the Distribution
Agreement, dated October 11, 1991, among BanPonce Financial
Corp., BanPonce Corporation, Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Credit Suisse First Boston Corporation
(incorporated herein by reference to Exhibit 1(d) of Popular's
Current Report on Form 8-K (File No. 0-13818), dated May 23,
1997 and filed on June 11, 1997).
10.11 Amendment No. 3, dated May 23, 1997, to the Distribution
Agreement, dated October 11, 1991, among Popular North
America, Inc., Popular, Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Chase Securities Inc., Credit Suisse First
Boston Corporation and First Chicago Capital Markets, Inc.
(incorporated herein by reference to Exhibit 1(d) of Popular's
Current Report on Form 8-K (File No. 0-13818), dated May 23,
1997 and filed on June 11, 1997).
10.12 Amendment No. 4, dated August 6, 1999, to the Distribution
Agreement, dated October 6, 1991, among Popular North America,
Inc., Popular, Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Credit Suisse First Boston Corporation, Chase
Securities Inc. and Popular Securities, Inc. (incorporated
herein by reference to Exhibit 1(i) of Popular's Current
Report on Form 8-K (File No. 0-13818), dated August 5, 1999
and filed on August 17, 1999).
10.13 Banco Popular de Puerto Rico Employees' Stock Plan (Puerto
Rico) (incorporated herein by reference to Popular's
Registration Statement on Form S-8 (333-80169), dated June 8,
1999). (Incorporated herein by reference to Exhibit 10.15 of
Popular's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000).
10.13a Certificate of Resolution of the Board of Director of Banco
Popular de Puerto Rico, authorizing Amendments to the Banco
Popular de Puerto Rico Employees' Stock Plan (Puerto Rico).
(Incorporated herein by reference to Exhibit 10.15a of
Popular's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000).
10.14 Distribution Agreement of the Banco Popular de Puerto Rico
Bank Notes, dated September 24, 1996, among Banco Popular de
Puerto Rico, Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Bear Stearns & Co. Inc. and
Credit Suisse First Boston Corporation. (Incorporated herein
by reference to Exhibit 10.16 of Popular's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000).
27
10.15 Amendment, dated May 12, 2000, to The Distribution Agreement,
dated September 24, 1996, among Banco Popular de Puerto Rico,
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Bear Stearns & Co., Inc. and Credit Suisse First
Boston Corporation. (Incorporated herein by reference to
Exhibit 10.17 of Popular's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000).
10.16 Issuing and Paying Agency Agreement of the Banco Popular de
Puerto Rico Bank Notes, dated September 24, 1996, among Banco
Popular de Puerto Rico and The Chase Manhattan Bank.
(Incorporated herein by reference to Exhibit 10.18 of
Popular's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000).
10.17 Amendment No. 1, dated May 12, 2000 to Issuing and Paying
Agency Agreement, dated September 24, 1996, among Banco
Popular de Puerto Rico and The Chase Manhattan Bank.
(Incorporated herein by reference to Exhibit 10.19 of
Popular's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000).
10.18 Interest Calculation Agreement of the Banco Popular de Puerto
Rico Notes, dated September 24, 1996, among Banco Popular de
Puerto Rico and The Chase Manhattan Bank. (Incorporated herein
by reference to Exhibit 10.20 of Popular's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000).
10.19 Amendment No. 1, dated May 12, 2000 to the Interest
Calculation Agreement, dated September 24, 1996, among Banco
Popular de Puerto Rico and The Chase Manhattan Bank.
(Incorporated herein by reference to Exhibit 10.21 of
Popular's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000).
10.20 Amended Administrative Procedures for Fixed and Floating Rate
Bank Notes, dated May 12, 2000 to Exhibit G of The
Distribution Agreement, dated September 24, 1996, among Banco
Popular de Puerto Rico, Merrill Lynch & Co., Merrill Lynch
Pierce, Fenner & Smith Incorporated, Bear Stearns & Co., Inc.
and Credit Suisse First Boston Corporation. (Incorporated
herein by reference to Exhibit 10.22 of Popular's Annual
Report on Form 10-K for the fiscal year ended December 31,
2000).
10.21 Form of Global Fixed and Floating Rate Bank Note of the Banco
Popular de Puerto Rico Bank Notes, dated September 24, 1996
and amended through Administrative Procedures, dated May 12,
2000. (Incorporated herein by reference to Exhibit 10.23 of
Popular's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000).
10.22 Amended and Restated Credit Agreement, dated October 13, 2000,
among Popular, Inc., Popular North America, Inc., The Lenders
named Herein, The Chase Manhattan Bank, as Administrative
Agent for The Lenders and Bank One, N.A. and Barclays Bank
PLC-Miami Agency, as Agents for the Lenders and Chase
Securities, Inc., as advisor, arranger and book manager.
(Incorporated herein by reference to Exhibit 10.24 of
Popular's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000).
10.23 Distribution Agreement, dated October 6, 1995, among BanPonce
Corporation (Popular, Inc.), Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Credit Suisse First Boston Corporation and
First Chicago Capital Markets, Inc. (incorporated herein by
reference to Exhibit 10.7 of Popular's Annual Report on Form
10-K for the fiscal year ended December 31, 1999 (File No.
0-13818).
10.24 Amendment No. 2, dated October 6, 1995, to The Distribution
Agreement, dated October 11, 1991, as amended on December 2,
1993, and supplemented on June 16, 1993 and August 1, 1994,
among BanPonce Financial Corp. (Popular North America, Inc.),
BanPonce Corporation (Popular, Inc.), Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Credit Suisse First Boston
Corporation and First Chicago Capital Markets, Inc.
(incorporated herein by reference to Exhibit 10.12 of
Popular's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 (File No. 0-13818).
10.25 Amended and Restated 364-day Credit Agreement, dated as of
October 11, 2002, among Popular, Inc. and Popular North
America, Inc., the lenders named therein and JP Morgan Chase
Bank as Administrative Agent for an aggregate principal amount
of $315,000,000.
28
10.26 Deferred Prosecution Agreement dated as of January 16, 2003,
among Banco Popular de Puerto Rico, a wholly-owned subsidiary
of Popular, Inc., the U.S. Department of Justice, the Board of
Governors of the Federal Reserve Bank System and the Financial
Crimes Enforcement Network of the U.S. Department of the
Treasury (incorporated herein by reference to Exhibit 10.25 of
Popular Inc.'s Current Report on Form 8-K, filed on February
6, 2003).
10.27 Equity One Inc. Savings and Retirement Plan (incorporated by
reference to Exhibit 4.4 of Popular, Inc.'s Registration
Statement on Form S-8, dated November 1, 2002).
12.1 Computation of Ratio of Earnings to Fixed Charges.
13.1 Popular's Annual Report to Shareholders for the year ended
December 31, 2002.
21.1 Schedule of Subsidiaries of Popular, Inc.
23.1 Consent of Independent Accountants.
99.1 Popular's Proxy Statement for the April 30, 2003 Annual
Meeting of Stockholders.
99.2 Code of Ethics
Popular, Inc. hereby agrees to furnish upon request to the
Commission a copy of each instrument defining the rights of
holders of senior and subordinated debt of Popular, Inc., or of
any of its consolidated subsidiaries.
29