1
(POPULAR, INC. LOGO)
2nd
Quarter Report
June 30, 1998
2
To Our Stockholders
Popular, Inc. (the Corporation) reported net income of $57.5 million for the
quarter ended June 30, 1998, reflecting an increase of 12.5% over the $51.1
million earned in the same period in 1997. Earnings per common share (EPS) for
the quarter, after adjusting for the common stock split in the form of a
dividend of one share for each share outstanding, effective on July 1, 1998,
were $0.41 per common share, compared with $0.37 per common share for the
quarter ended June 30, 1997. Net earnings for the first quarter of 1998, were
$54.8 million or $0.39 per common share.
The second quarter results represented rates of return of 1.16% on assets
(ROA) and 15.50% on common equity (ROE) compared with 1.16% and 16.07%,
respectively, for the same quarter of 1997. For the first quarter of 1998, the
Corporation attained an ROA and ROE of 1.14% and 15.36%, respectively.
For the six-month period ended June 30, 1998, net income reached $112.3
million, or $0.80 per share, with an ROA and ROE of 1.15% and 15.43%,
respectively. For the same period in 1997, net income was $100.6 million, or
$0.73 per share, with an ROA and ROE of 1.17% and 16.17%, respectively.
The Corporation's results of operations for the quarter ended June 30, 1998,
when compared with the same quarter of 1997, reflected an increase of $23.8
million in net interest income coupled with an increase of $16.7 million in
other revenues. These improvements were partially tempered by rises of $8.1
million in the provision for loan losses, $23.0 million in operating expenses
and $3.0 million in income taxes.
The increase in net interest income was mainly attributed to the growth in
average earning assets, reflecting the Corporation's acquisitions during the
second quarter of 1997, as well as an increase in loans and investment
securities due to business expansion. The growth in non-interest income was
primarly achieved through higher gains on loans sold, increases in credit card
fees and discounts and debit card fees due to the continuous expansion of the
electronic payment system, and a higher activity on commercial and retail
accounts.
The provision for loan losses reflected the increase in loan volume,
non-performing assets and net charge-offs, as well as the Corporation's
commitment to maintain its allowance for loan losses at an adequate level. The
increase in operating expenses was reflected in most categories and was directly
related to the acquisitions made during the second quarter of 1997, the growth
in the business activities, and expenditures associated with new technology.
The Corporation's total assets at June 30, 1998, reached $20.0 billion
compared with $19.1 billion a year ago, while total deposits amounted to $12.1
billion as of June 30, 1998, an increase of 6.1% from June 30, 1997. The
Corporation's capital increased to $1.6 billion at June 30, 1998, compared with
$1.4 billion a year earlier.
The Corporation's common stock market value was $33.25 per share at the end
of the quarter, representing an appreciation of 64.7% and 13.3% from the market
value of $20.19 at June 30, 1997, and $29.34 at March 31, 1998, respectively.
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The Annual Stockholders Meeting of Popular, Inc. was held on April 23, 1998.
An 80.77% of the common shares issued and outstanding as of the record date of
March 4, 1998, were represented at the meeting, which complied with the quorum
required by law. All five directors nominated for re-election were elected for a
three-year term. The Corporation's Annual Report was discussed, as well as some
of the Corporation's strategic goals. In addition, it was announced at the
meeting that the Board of Directors had approved the aforementioned stock split
in the form of a dividend.
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In April 1998, the Corporation through its subsidiary, Popular Cash Express,
completed the acquisition of 13 check cashing outlets in Florida, which offer
services such as check cashing, money transfers to other countries, money order
sales and processing of payments. This acquisition is considered an important
step toward the Corporation's objective of penetrating the unbanked segment.
In an effort to become a more efficient competitor in the Puerto Rico
mortgage banking market, the Corporation consolidated Banco Popular de Puerto
Rico's mortgage origination division into its mortgage subsidiary, Popular
Mortgage, effective on July 1, 1998.
Also, the Corporation is in the process of acquiring a small mortgage
processing company in Los Angeles, California,
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which serves as the processor of mortgages to third parties. This acquisition
will offer a good opportunity to originate residential mortgage loans throughout
the United States in a more efficient way.
As previously announced, Popular, Inc. is awaiting regulatory approval to
become the principal shareholder of Banco Gerencial & Fiduciario Dominicano,
S.A. Through this transaction the Corporation will acquire a 45 percent share in
the bank through newly issued common stock. Banco Gerencial is the fourth
largest bank in the Dominican Republic with $389 million in total assets and
over $31 million in equity.
Recently, the Corporation announced its agreement to acquire from the
government of Puerto Rico a 5% share of Puerto Rico Telephone Company (PRTC) for
$37.5 million. The agreement is a joint venture with a telecommunications
company, which will acquire a 50% share of PRTC, while the government retains
between 44% and 47% of ownership. The transaction was already approved by the
local legislature and is pending approval from the federal agencies. The
Corporation believes this is an important step for the future of
telecommunications in Puerto Rico, its principal market, and the economy of
Puerto Rico, in view of the recent changes in federal regulations associated to
the telecommunication's industry.
/s/ Richard L. Carrion
---------------------------
Richard L. Carrion
Chairman, President and
Chief Executive Officer
4
Financial Highlights
Popular, Inc.
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BALANCE SHEET HIGHLIGHTS AT JUNE 30, AVERAGE FOR THE SIX MONTHS
(In thousands) 1998 1997 Change 1998 1997 Change
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Money market investments $ 694,487 $ 869,567 $(175,080) $ 732,328 $ 663,047 $ 69,281
Investment and trading securities 6,278,074 5,992,137 285,937 6,283,034 5,659,576 623,458
Loans 11,753,213 10,909,365 843,848 11,541,256 9,972,014 1,569,242
Total assets 19,997,636 19,145,844 851,792 19,711,518 17,272,791 2,438,727
Deposits 12,102,594 11,405,516 697,078 12,001,807 10,548,874 1,452,933
Borrowings 5,950,082 5,941,675 8,407 5,728,283 5,126,364 601,919
Stockholders' equity 1,593,693 1,424,130 169,563 1,512,723 1,301,369 211,354
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OPERATING HIGHLIGHTS SECOND QUARTER SIX MONTHS
(In thousands, except per share information) 1998 1997 Change 1998 1997 Change
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Net interest income $214,392 $190,606 $23,786 $427,096 $371,250 $55,846
Provision for loan losses 33,524 25,413 8,111 67,089 49,100 17,989
Fees and other income 72,886 56,227 16,659 140,837 110,482 30,355
Other expenses 196,293 170,329 25,964 388,588 332,002 56,586
Net income $ 57,461 $ 51,091 $ 6,370 $112,256 $100,630 $11,626
Net income applicable to common stock $ 55,374 $ 49,004 $ 6,370 $108,081 $ 96,455 $11,626
Earnings per common share 0.41 0.37 0.04 0.80 0.73 0.07
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SELECTED STATISTICAL SECOND QUARTER SIX MONTHS
INFORMATION 1998 1997 1998 1997
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COMMON STOCK DATA - Market price
High $36.16 $21.44 $36.16 $21.44
Low 29.22 16.88 23.03 16.53
End 33.25 20.19 33.25 20.19
Book value at period end 11.02 9.70 11.02 9.70
Dividends declared 0.11 0.09 0.22 0.18
Dividend payout ratio 26.90% 24.29% 27.56% 24.67%
Price/earnings ratio 21.18X 14.32x 21.18X 14.32x
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PROFITABILITY RATIOS - Return on assets 1.16% 1.16% 1.15% 1.17%
Return on common equity 15.50 16.07 15.43 16.17
Net interest spread (taxable equivalent) 4.03 4.03 4.07 4.06
Net interest yield (taxable equivalent) 4.93 4.91 4.97 4.91
Effective tax rate 27.00 26.35 26.83 27.32
Overhead ratio 47.65 50.27 48.37 49.48
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CAPITALIZATION RATIOS - Equity to assets 7.69% 7.51% 7.67% 7.54%
Tangible equity to assets 6.63 6.82 6.60 6.81
Equity to loans 13.20 13.02 13.11 13.07
Internal capital generation 10.56 11.19 10.35 11.14
Tier I capital to risk-adjusted assets 12.35 12.56 12.35 12.56
Total capital to risk-adjusted assets 14.70 14.98 14.70 14.98
Leverage ratio 7.17 7.71 7.17 7.71
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CREDIT QUALITY RATIOS - Allowance for losses to loans 1.91% 1.89% 1.91% 1.89%
Allowance to non-performing assets 99.59 97.87 99.59 97.87
Allowance to non-performing loans 109.47 104.58 109.47 104.58
Non-performing assets to loans 1.91 1.94 1.91 1.94
Non-performing assets to total assets 1.12 1.10 1.12 1.10
Net charge-offs to average loans 0.94 0.90 0.95 0.82
Provision to net charge-offs 1.23X 1.11x 1.23X 1.20x
Net charge-offs earnings coverage 4.13 4.14 4.03 4.60
NOTE: All common stock data has been adjusted to reflect the stock split
effected in the form of a dividend on July 1, 1998.
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Additional Information
BOARD OF DIRECTORS
Richard L. Carrion, Chairman
Alfonso F. Ballester, Vice Chairman
Antonio Luis Ferre, Vice Chairman
Juan A. Albors Hernandez *
Salustiano Alvarez Mendez *
Jose A. Bechara Bravo *
Juan J. Bermudez
Esteban D. Bird *
Francisco J. Carreras
David H. Chafey, Jr.
Luis E. Dubon, Jr.
Hector R. Gonzalez
Jorge A. Junquera Diez
Manuel Morales, Jr.
Alberto M. Paracchini
Francisco M. Rexach, Jr.
J. Adalberto Roig, Jr.
Felix J. Serralles Nevares
Julio E. Vizcarrondo, Jr.
Samuel T. Cespedes, Secretary
* Director of Banco Popular de Puerto Rico only
EXECUTIVE OFFICERS
Richard L. Carrion, Chairman of the Board,
President and Chief Executive Officer
David H. Chafey, Jr., Senior Executive Vice President
Jorge A. Junquera Diez, Senior Executive Vice President
Maria Isabel Burckhart, Executive Vice President
Roberto R. Herencia, Executive Vice President
Larry Kesler, Executive Vice President
Humberto Martin, Executive Vice President
Emilio E. Pinero, Executive Vice President
Carlos Rom, Jr., Executive Vice President
Carlos J. Vazquez, Executive Vice President
SHAREHOLDER INFORMATION
SHAREHOLDER ASSISTANCE - Shareholders requiring a change of address, records or
information about lost certificates, dividend checks or dividend reinvestment
should contact:
Banco Popular de Puerto Rico
Trust Division (725)
Popular Center Building
4th Floor Suite 400
209 Ponce de Leon Ave.
Hato Rey, Puerto Rico 00918
PUBLICATIONS - For printed material (annual and quarterly reports, 10-K and 10-Q
reports), contact Mr. Amilcar L. Jordan at the Comptroller's Division at (787)
765-9800 ext. 6101.
DIVIDEND REINVESTMENT PLAN - The Corporation has a dividend reinvestment plan
which provides the shareholder a simple, convenient and cost-effective way to
acquire Popular, Inc. common stock.
- - Dividends can be automatically reinvested in additional shares at 95% of the
Average Market Price.
- - Participants may make optional cash payments of at least $25 and not more
than $10,000 per calendar month for investment in additional shares.
- - No brokerage commissions are charged on purchases under this plan.
- - Participant's funds will be fully invested, because the plan permits
fractions of shares to be credited to a participant's account.
If you would like more information on this plan, please contact our Trust
Department at (787) 756-3908, (787) 765-9800 ext. 5637, 5525 and 5897.
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Consolidated Statements of Condition Popular, Inc.
June 30,
(In thousands) 1998 1997
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ASSETS
Cash and due from banks ......................................... $ 500,941 $ 609,160
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Money market investments:
Federal funds sold and securities and mortgages
purchased under agreements to resell ......................... 650,881 847,171
Time deposits with other banks ................................. 42,779 20,020
Bankers' acceptances ........................................... 827 2,376
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694,487 869,567
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Investment securities available-for-sale,
at market value ................................................ 5,795,668 4,905,562
Investment securities held-to-maturity, at cost ................. 232,316 745,826
Trading account securities, at market value ..................... 250,090 340,749
Loans held-for-sale ............................................. 338,566 314,916
Loans ........................................................... 11,767,063 10,969,960
Less--Unearned income .......................................... 352,416 375,511
Allowance for loan losses ........................... 224,045 206,719
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11,190,602 10,387,730
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Premises and equipment .......................................... 380,684 388,970
Other real estate ............................................... 20,283 10,285
Customers' liabilities on acceptances ........................... 454 2,542
Accrued income receivable ....................................... 128,897 109,346
Other assets .................................................... 239,267 229,909
Intangible assets ............................................... 225,381 231,282
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$19,997,636 $19,145,844
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing ......................................... $ 2,585,256 $ 2,496,684
Interest bearing ............................................. 9,517,338 8,908,832
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12,102,594 11,405,516
Federal funds purchased and securities sold
under agreements to repurchase ............................... 2,672,811 2,623,292
Other short-term borrowings .................................... 1,864,562 1,630,976
Notes payable .................................................. 1,137,709 1,412,407
Acceptances outstanding ........................................ 454 2,542
Other liabilities .............................................. 350,813 371,981
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18,128,943 17,446,714
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Subordinated notes ............................................. 125,000 125,000
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Preferred beneficial interests in Popular North America's junior
subordinated deferrable interest debentures guaranteed by the
Corporation ................................................. 150,000 150,000
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Stockholders' equity:
Preferred stock ................................................ 100,000 100,000
Common stock ................................................... 412,426 411,697
Surplus ........................................................ 604,983 579,878
Retained earnings .............................................. 473,531 340,267
Treasury stock - at cost ....................................... (39,559) (14,017)
Unrealized gains on securities available-for-sale, net of
deferred taxes ............................................... 42,312 6,305
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1,593,693 1,424,130
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$19,997,636 $19,145,844
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7
Consolidated Statements of Income Popular, Inc.
Quarter ended Six months ended
June 30, June 30,
(Dollars in thousands, except per share information) 1998 1997 1998 1997
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INTEREST INCOME:
Loans ............................................. $296,476 $260,804 $589,693 $507,157
Money market investments .......................... 9,192 8,515 18,018 17,382
Investment securities ............................. 93,177 84,646 183,436 159,757
Trading account securities ........................ 4,020 5,040 8,085 8,974
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402,865 359,005 799,232 693,270
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INTEREST EXPENSE:
Deposits .......................................... 101,777 87,092 199,108 173,287
Short-term borrowings ............................. 58,330 56,409 114,577 103,771
Long-term debt .................................... 28,366 24,898 58,451 44,962
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188,473 168,399 372,136 322,020
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Net interest income ............................... 214,392 190,606 427,096 371,250
Provision for loan losses ......................... 33,524 25,413 67,089 49,100
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Net interest income after provision for loan losses 180,868 165,193 360,007 322,150
Service charges on deposit accounts ............... 25,494 22,214 50,832 44,033
Other service fees ................................ 28,818 24,785 54,991 46,954
Gain (loss) on sale of securities ................. 3,049 1,286 3,917 (374)
Trading account profit ............................ 1,311 817 1,981 1,250
Other operating income ............................ 14,214 7,125 29,116 18,619
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253,754 221,420 500,844 432,632
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OPERATING EXPENSES:
Personnel costs:
Salaries ........................................ 59,623 50,344 118,916 98,689
Profit sharing .................................. 6,264 6,788 11,947 13,228
Pension and other benefits ...................... 16,770 17,307 35,188 34,007
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82,657 74,439 166,051 145,924
Net occupancy expenses ............................ 11,737 8,743 23,298 17,745
Equipment expenses ................................ 18,481 16,777 36,509 31,628
Other taxes ....................................... 7,899 7,311 15,867 13,756
Professional fees ................................. 13,816 10,923 26,694 20,826
Communications .................................... 9,194 7,750 18,017 15,331
Business promotion ................................ 8,917 7,980 17,133 13,937
Printing and supplies ............................. 4,415 3,127 8,418 6,771
Other operating expenses .......................... 11,080 10,155 21,804 18,974
Amortization of intangibles ....................... 6,849 4,841 13,633 9,279
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175,045 152,046 347,424 294,171
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Income before taxes ............................... 78,709 69,374 153,420 138,461
Income tax ........................................ 21,248 18,283 41,164 37,831
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NET INCOME ........................................ $ 57,461 $ 51,091 $112,256 $100,630
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NET INCOME APPLICABLE TO COMMON STOCK ............. $ 55,374 $ 49,004 $108,081 $ 96,455
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EARNINGS PER COMMON SHARE ......................... $ 0.41 $ 0.37 $ 0.80 $ 0.73
=========================================
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Subsidiaries
CENTRAL OFFICE
Popular Center
209 Munoz Rivera Avenue
San Juan, Puerto Rico 00918
Telephone: (787) 765-9800
ATH COSTA RICA
Cond. en Oficinas Ofiplaza
del Este
Edif. D- Piso 1, San Pedro
150 metros Oeste de la
Rotonda de la Bandera
San Jose, Costa Rica
Telephone: (011) 506-280-9796
BANCO POPULAR DE PUERTO RICO
PUERTO RICO OFFICE
Popular Center
209 Munoz Rivera Avenue
San Juan, Puerto Rico 00918
Telephone: (787) 765-9800
NEW YORK OFFICE
7 West 51st St.
New York, N.Y. 10019
Telephone: (212) 315-2800
VIRGIN ISLANDS OFFICE
80 Kronprindsens Gade
Kronprindsens Quarter
Charlotte Amalie, St. Thomas
U.S. Virgin Islands 00802
Telephone: (809) 774-2300
BANCO POPULAR, FSB
500 Bloomfield Avenue
Newark, New Jersey 07107
Telephone: (201) 484-6525
BANCO POPULAR, ILLINOIS
4000 West North Avenue
Chicago, Illinois 60639
Telephone: (773) 772-8600
BANCO POPULAR, N.A. (CALIFORNIA)
6001 E. Washington Blvd.
City of Commerce
California 90040
Telephone: (213) 724-8800
BANCO POPULAR, N.A. (FLORIDA)
5551 Vanguard Street
Suite 100
Orlando, Florida 32819
Telephone: (407) 370-8000
BANCO POPULAR, N.A. (TEXAS)
1615 Little York Road
Houston, Texas 77093
Telephone: (281) 539-8600
EQUITY ONE, INC.
523 Fellowship Road, Suite 220
Mt. Laurel, New Jersey 08054
Telephone: (609) 273-1119
METROPOLITANA DE PRESTAMOS, INC.
State Road #2 Km. 6.8
Villa Caparra
Guaynabo, Puerto Rico 00966
Telephone: (787) 792-9292
POPULAR FINANCE, INC.
10 Salud Street
El Senorial Condominium
Suite 613
Ponce, Puerto Rico 00731
Telephone: (787) 844-2860
POPULAR MORTGAGE, INC.
268 Ponce de Leon Avenue
San Juan, Puerto Rico 00918
Telephone: (787) 753-0245
POPULAR LEASING AND RENTAL, INC.
M-1046 Federico Costa St.
Tres Monjitas Industrial
Development
San Juan, Puerto Rico 00903
Telephone: (787) 751-4848
POPULAR SECURITIES INCORPORATED
Popular Center
Suite 1020
San Juan, Puerto Rico 00918
Telephone: (787) 766-4200
POPULAR CASH EXPRESS
6200 North Hiawatha
Suite 200
Chicago, IL 60646
Telephone: (773) 205-8300
(POPULAR, INC. LOGO)