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SECURITIES AND EXCHANGE COMMISSION
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WASHINGTON, D.C. 20549
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FORM 10 - Q
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QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1999 Commission file number 0 - 13818
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POPULAR, INC.
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(Exact name of registrant as specified in its charter)
Puerto Rico 66-041-6582
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(State of incorporation) (I.R.S. Employer
identification No.)
Popular Center Building
209 Munoz Rivera Avenue, Hato Rey
San Juan, Puerto Rico 00918
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(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code (787) 765-9800
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Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report) Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock $6.00 Par value 135,754,292
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(Title of Class) (Shares Outstanding as of November 15, 1999)
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POPULAR, INC.
INDEX
Part I - Financial Information Page
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Item 1. Financial Statements
Unaudited consolidated statements of condition - September 30,
1999, December 31, 1998 and September 30, 1998. 3
Unaudited consolidated statements of income - Quarters and nine
months ended September 30, 1999 and 1998. 4
Unaudited consolidated statements of comprehensive income -
quarters and nine months ended September 30, 1999 and 1998. 5
Unaudited consolidated statements of cash flows - Nine months
ended September 30, 1999 and 1998. 6
Notes to unaudited consolidated financial statements. 7-22
Item 2. Management's discussion and analysis of financial condition
and results of operation. 23-41
Item 3. Quantitative and qualitative disclosures about market risk 29
Part II - Other Information
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Item 1. Legal proceedings 41
Item 2. Changes in securities - None N/A
Item 3. Defaults upon senior securities - None N/A
Item 4. Submission of matters to a vote of security holders - None N/A
Item 5. Other information - none N/A
Item 6. Exhibits and reports on Form 8-K 42
--- Signature 43
FORWARD LOOKING INFORMATION. This Quarterly Report on Form 10-Q
contains certain forward looking statements with respect to the adequacy of the
allowance for loan losses, the Corporation's market risk, the effect of legal
proceedings on Popular, Inc.'s financial condition and results of operations and
the Year 2000 issue. These forward looking statements involve certain risks,
uncertainties, estimates and assumptions by management.
Various factors could cause actual results to differ from those
contemplated by such forward looking statements. With respect to the adequacy of
the allowance for loan losses and market risk, these factors include, among
others, the rate of growth in the economy, the relative strength and weakness in
the consumer and commercial credit sectors and in the real estate markets, the
performance of the stock and bond markets, the magnitude of interest rate
changes and the potential effects of the Year 2000 issue. Moreover, the outcome
of litigation, as discussed in "Part II, Item I. Legal Proceedings," is
inherently uncertain and depends on judicial interpretations of law and the
findings of judges and juries. The information regarding Year 2000 compliance is
based on management's current assessment. However, this is an ongoing process
involving continual evaluation, and unanticipated problems could develop that
could cause compliance to be more difficult or costly than currently
anticipated.
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POPULAR, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED)
SEPTEMBER 30, December 31, September 30,
(In thousands) 1999 1998 1998
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ASSETS
Cash and due from banks $ 719,681 $ 667,707 $ 543,565
- -----------------------------------------------------------------------------------------------------------------------------
Money market investments:
Federal funds sold and securities and mortgages
purchased under agreements to resell 789,592 910,430 720,511
Time deposits with other banks 47,501 37,206 102,525
Banker's acceptances 507 262 360
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837,600 947,898 823,396
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Investment securities available-for-sale, at market value 6,938,363 7,020,396 6,223,460
Investment securities held-to-maturity, at cost 311,914 226,134 258,032
Trading account securities, at market value 337,300 318,727 253,129
Loans held-for-sale 526,263 644,159 495,241
Loans 13,945,910 12,783,609 12,217,822
Less - Unearned income 375,092 348,973 350,536
Allowance for loan losses 288,382 267,249 245,382
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13,282,436 12,167,387 11,621,904
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Premises and equipment 442,162 424,721 408,919
Other real estate 27,926 32,693 25,743
Customers' liabilities on acceptances 10,488 15,937 16,288
Accrued income receivable 159,415 156,314 141,184
Other assets 371,268 263,992 242,472
Intangible assets 310,767 274,292 220,260
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$ 24,275,583 $ 23,160,357 $ 21,273,593
=============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 2,994,189 $ 3,176,309 $ 2,665,500
Interest bearing 10,775,859 10,495,905 9,882,250
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13,770,048 13,672,214 12,547,750
Federal funds purchased and securities sold
under agreements to repurchase 4,157,275 4,076,500 3,469,382
Other short-term borrowings 2,294,827 1,639,082 1,504,316
Notes payable 1,659,361 1,307,160 1,341,530
Acceptances outstanding 10,488 15,937 16,288
Other liabilities 407,981 437,760 391,826
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22,299,980 21,148,653 19,271,092
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Subordinated notes 125,000 125,000 125,000
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Preferred beneficial interests in Popular North America's
junior subordinated deferrable interest debentures guaranteed
by the Corporation 150,000 150,000 150,000
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Minority interest in consolidated subsidiary 23,281 27,591 30,609
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Stockholders' equity:
Preferred stock 100,000 100,000 100,000
Common stock 827,045 825,690 825,200
Surplus 237,892 216,795 194,033
Retained earnings 656,407 530,481 510,046
Treasury stock-at cost (60,151) (39,559) (39,559)
Accumulated other comprehensive income (loss), net of
deferred taxes of $(19,437) (December 31, 1998 -
$25,101; September 30, 1998 - $34,882) (83,871) 75,706 107,172
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1,677,322 1,709,113 1,696,892
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$ 24,275,583 $ 23,160,357 $ 21,273,593
=============================================================================================================================
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
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POPULAR, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Quarter ended Nine months ended
September 30, September 30,
(Dollars in thousands, except per share information) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
Loans $349,295 $302,403 $1,011,067 $892,096
Money market investments 8,272 9,566 23,705 27,585
Investment securities 105,736 93,977 316,581 277,413
Trading account securities 5,229 4,875 14,775 12,960
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468,532 410,821 1,366,128 1,210,054
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INTEREST EXPENSE:
Deposits 113,303 101,239 334,273 300,346
Short-term borrowings 84,071 66,611 226,584 181,189
Long-term debt 32,366 27,930 91,390 86,382
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229,740 195,780 652,247 567,917
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Net interest income 238,792 215,041 713,881 642,137
Provision for loan losses 37,080 34,667 109,482 101,756
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Net interest income after provision for loan losses 201,712 180,374 604,399 540,381
Service charges on deposit accounts 29,935 26,344 87,915 77,176
Other service fees 44,374 28,557 121,974 83,548
Gain on sale of securities 39 4,553 775 8,469
Trading account (loss) profit (698) 506 (1,561) 2,486
Other operating income 23,373 14,261 61,904 43,379
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298,735 254,595 875,406 755,439
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OPERATING EXPENSES:
Personnel costs:
Salaries 75,153 61,267 215,294 180,183
Profit sharing 5,485 5,618 17,888 17,565
Pension and other benefits 18,752 17,433 56,883 52,621
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99,390 84,318 290,065 250,369
Net occupancy expense 15,469 12,260 44,442 35,558
Equipment expenses 22,908 18,533 65,199 55,042
Other taxes 8,717 8,035 24,923 23,902
Professional fees 17,090 14,218 49,758 40,912
Communications 10,831 9,444 32,240 27,462
Business promotion 11,916 9,751 35,125 26,884
Printing and supplies 5,321 4,490 15,139 12,908
Other operating expenses 14,949 10,679 41,602 32,483
Amortization of intangibles 8,113 6,890 23,319 20,523
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214,704 178,618 621,812 526,043
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Income before income tax and minority interest 84,031 75,977 253,594 229,396
Income tax 20,887 18,397 63,623 59,560
Net loss of minority interest (1,066) 0 (1,880) 0
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NET INCOME $64,210 $57,580 $191,851 $169,836
===================================================================================================================
NET INCOME APPLICABLE TO COMMON STOCK $62,123 $55,493 $185,589 $163,574
===================================================================================================================
EARNINGS PER COMMON SHARE (BASIC AND DILUTED) $0.46 $0.41 $1.37 $1.21
===================================================================================================================
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
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POPULAR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Quarter ended Nine months ended
September 30, September 30,
(In thousands) 1999 1998 1999 1998
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Net Income $ 64,210 $ 57,580 $ 191,851 $169,836
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Other comprehensive income net of tax:
Foreign currency translation adjustment 2 (893)
Unrealized (losses) gains on securities:
Unrealized holding (losses) gains arising
during the period net of tax of $(7,842) (1998 - $20,650)
for the quarter and $(44,538) (1998 - $23,702) for the
nine-month period (43,867) 69,172 (158,365) 80,732
Less: reclassification adjustment for gains or losses
included in net income, net of tax of $8 (1998 -
$239) for the quarter and $147 (1998 - $1,617)
for the nine-month period 36 4,313 319 6,906
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Total other comprehensive income (Loss) $ (43,901) $ 64,859 $(159,577) $ 73,826
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Comprehensive income $ 20,309 $122,439 $ 32,274 $243,662
=========================================================
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
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POPULAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended
September 30,
(In thousands) 1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 191,851 $ 169,836
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Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization of premises and equipment 51,930 46,020
Provision for loan losses 109,482 101,756
Amortization of intangibles 23,319 20,523
Gain on sale of investment securities available-for-sale (775) (8,469)
Loss on disposition of premises and equipment 188 46
Gain on sale of loans (19,594) (17,572)
Amortization of premiums and accretion of discounts on investments 5,330 2,057
Decrease (increase) in loans held-for-sale 119,853 (230,038)
Amortization of deferred loan fees and costs (1,587) (284)
Net increase in trading securities (18,573) (30,826)
Net increase in interest receivable (3,083) (20,803)
Net (increase) decrease in other assets (58,391) 49,343
Net increase (decrease) in interest payable 2,519 (2,150)
Net (decrease) increase in current and deferred taxes (44,639) 16,363
Net increase in postretirement benefit obligation 6,370 6,547
Net decrease in other liabilities (12,793) (18,998)
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Total adjustments 159,556 (86,485)
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Net cash provided by operating activities 351,407 83,351
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in money market investments 110,297 68,899
Purchases of investment securities held-to-maturity (4,747,145) (10,081,965)
Maturities of investment securities held-to-maturity 4,760,946 10,236,353
Purchases of investment securities available-for-sale (5,164,587) (4,243,287)
Maturities of investment securities available-for-sale 4,797,241 2,471,881
Sales of investment securities available-for-sale 156,383 893,441
Net disbursements on loans (2,027,339) (1,122,887)
Proceeds from sale of loans 811,474 596,617
Acquisition of loan portfolios (5,945) (43,630)
Assets acquired, net of cash (2,322) (4,094)
Cash received in acquisition 51,238
Acquisition of premises and equipment (78,465) (74,473)
Proceeds from sale of premises and equipment 13,337 15,297
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Net cash used in investing activities (1,376,125) (1,236,610)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in deposits 97,835 439,009
Net deposits acquired 36,297
Net increase in federal funds purchased and securities
sold under agreements to repurchase 80,775 746,053
Net increase in other short-term borrowings 654,912 162,064
Proceeds from issuance of notes payable 474,212 7,139
Payments of notes payable (124,716) (111,114)
Dividends paid (63,187) (50,955)
Proceeds from issuance of common stock 6,808 5,180
Treasury stock, acquired (49,947)
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Net cash provided by financing activities 1,076,692 1,233,673
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Net increase in cash and due from banks 51,973 80,414
Cash and due from banks at beginning of period 667,707 463,151
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Cash and due from banks at end of period $ 719,681 $ 543,565
===================================================================================================================
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share information)
NOTE 1 - CONSOLIDATION
Popular, Inc. (the Corporation) is a bank holding company offering a full range
of financial services through banking offices in Puerto Rico, the U.S. and
British Virgin Islands, New York, Illinois, New Jersey, Florida, California and
Texas. The Corporation is also the principal shareholder of Banco Fiduciario,
S.A. in the Dominican Republic with a 57% ownership interest therein.
Furthermore, the Corporation is engaged in mortgage and consumer finance, lease
financing, investment banking and broker/dealer activities, retail financial
services and ATM processing services through its non-banking subsidiaries in
Puerto Rico, the United States and Costa Rica. Also, effective July 1, 1999, the
Corporation acquired GM Group. This company 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 Puerto
Rico, as well as Venezuela and the Dominican Republic. Refer to note 10 to the
consolidated financial statements for further information on the nature of
operations of the Corporation by business segments.
The consolidated financial statements include the accounts of Popular, Inc. and
its subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation. These statements are, in the opinion of management,
a fair presentation of the results for the periods presented. These results are
unaudited, but include all necessary adjustments, of a normal recurring nature,
for a fair presentation of such results. Certain reclassifications have been
made to the prior year consolidated financial statements to conform to the 1999
presentation.
NOTE 2 - ACCOUNTING CHANGES
Effective the first quarter of 1999, the Corporation adopted SFAS 134,
"Accounting for Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held For Sale by a Mortgage Banking Enterprise." This statement
requires that an entity engaged in mortgage banking activities classify the
mortgage-backed securities or other retained interests resulting from the
securitization of mortgage loans held for sale, based on its ability and intent
to sell or hold those investments, in accordance with SFAS 115. This statement
did not have a material impact on the results of operations or financial
position of the Corporation.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires recognition of all
derivatives as either assets or liabilities in the statement of condition
measured at fair value. It also establishes unique accounting treatment for the
following three different types of hedges: fair value hedges, cash flows hedges
and foreign currency hedges. The accounting for each of the three types of
hedges results in recognizing offsetting changes in value or cash flows of both
the derivative instrument and the hedged item in earnings in the same period.
Changes in the fair value of derivatives that do not meet the criteria of one of
these types of hedges are included in earnings in the period of change. As
issued, this statement was effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999, though the FASB delayed its effective date one
year to fiscal years beginning after June 15, 2000 based on the provisions of
SFAS No. 137. Management estimates that the adoption of this statement will not
have a material effect on the consolidated financial statements of the
Corporation.
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NOTE 3 - INVESTMENT SECURITIES
The average maturities as of September 30, 1999, and market value for the
following investment securities are:
Investment securities available-for-sale:
September 30,
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1999 1998
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Amortized Market Amortized Market
Cost Value Cost Value
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(In thousands)
U.S. Treasury (average maturity of 1 year
And 5 months) $2,020,076 $2,020,396 $3,116,113 $3,180,266
Obligations of other U.S. Government
Agencies and corporations (average
Maturity of 6 years and 2 months) 3,128,304 3,024,547 1,704,220 1,743,857
Obligations of Puerto Rico, States and
Political subdivisions (average maturity
of 9 years and 5 months) 76,410 75,534 54,227 56,593
Collateralized mortgage obligations (average
Maturity of 23 years and 3 months) 1,279,323 1,258,911 798,904 802,746
Mortgage-backed securities (average maturity
of 22 years and 7 months) 347,661 351,740 367,484 376,165
Equity securities (without contractual maturity) 133,241 152,097 28,697 52,051
Others (average maturity of 9 years and 10 months) 55,548 55,138 11,761 11,782
----------------------------------------------------------------------
$7,040,563 $6,938,363 $6,081,406 $6,223,460
======================================================================
Investment securities held-to-maturity:
September 30,
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1999 1998
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Amortized Market Amortized Market
Cost Value Cost Value
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(In thousands)
Obligations of other U.S. Government agencies and
Corporations $ 4,881 $ 4,881
Obligations of Puerto Rico, States and
Political subdivisions (average maturity
of 10 years and 11 months) $ 62,863 $ 62,794 69,218 70,714
Collateralized mortgage obligations (average
Maturity of 10 years and 11 months) 19,780 19,872 35,171 35,343
Mortgage-backed securities (average maturity of
3 years and 5 months) 25,181 25,353 36,182 37,551
Equity securities (without contractual maturity) 91,795 91,795 77,730 77,730
Others (average maturity of 4 years and 6 months) 112,295 107,911 34,850 34,865
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$311,914 $307,725 $258,032 $261,084
==============================================================
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The expected maturity of collateralized mortgage obligations, mortgage-backed
securities and certain other securities differs from their contractual
maturities because they may be subject to prepayments.
NOTE 4 - PLEDGED ASSETS
Securities and insured mortgage loans of the Corporation of $4,777,406 (1998 -
$4,833,416) are pledged to secure public and trust deposits and securities and
mortgages sold under repurchase agreements.
NOTE 5 - COMMITMENTS
In the normal course of business there are letters of credit outstanding and
stand-by letters of credit which at September 30, 1999, amounted to $26,997 and
$66,980 (1998 - $38,370 and $59,423). There are also outstanding other
commitments and contingent liabilities, such as guarantees and commitments to
extend credit, which are not reflected in the accompanying financial statements.
No losses are anticipated as a result of these transactions.
NOTE 6 - SUBORDINATED NOTES AND PREFERRED BENEFICIAL INTEREST IN POPULAR NORTH
AMERICA'S JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES GUARANTEED
BY THE CORPORATION
Subordinated notes of $125,000 as of September 30, 1999 and 1998 consisted of
notes issued by the Corporation on December 12, 1995, maturing on December 15,
2005, with interest payable semi-annually at 6.75%.
On February 5, 1997, BanPonce Trust I, a statutory business trust created under
the laws of the State of Delaware that is wholly-owned by Popular North America,
Inc. (PNA) and indirectly wholly-owned by the Corporation, sold to institutional
investors $150,000 of its 8.327% Capital Securities Series A (liquidation amount
$1,000 per Capital Security) through certain underwriters. The proceeds of the
issuance, together with the proceeds of the purchase by PNA of $4,640 of its
8.327% common securities (liquidation amount $1,000 per common security) were
used to purchase $154,640 aggregate principal amount of PNA 8.327% Junior
Subordinated Deferrable Interest Debentures, Series A (the "Junior Subordinated
Debentures"). These capital securities qualify as Tier 1 capital, are fully and
unconditionally guaranteed by the Corporation, and are presented in the
Consolidated Statements of Condition as "Guaranteed Preferred Beneficial
Interest in Popular North America's Subordinated Debentures." The obligations of
PNA under the Junior Subordinated Debentures and its guarantees of the
obligations of BanPonce Trust 1 are fully and unconditionally guaranteed by the
Corporation. The assets of BanPonce Trust 1 consisted of $154,640 of Junior
Subordinated Debentures and a related accrued interest receivable of $7,512. The
Junior Subordinated Debentures mature on February 1, 2027; however, under
certain circumstances, the maturity of the Junior Subordinated Debentures (which
shortening would result in a mandatory redemption of the Capital Securities) may
be shortened.
NOTE 7 - STOCKHOLDERS' EQUITY
Authorized common stock is 180,000,000 shares with a par value of $6 per share
of which 135,700,258 were issued and outstanding at September 30, 1999. During
the third quarter of 1999, the Corporation repurchased a total of 573,300 shares
of its common stock under the stock repurchase program approved by its Board of
Directors on May 8, 1997. As of September 30, 1999, a total of 2,140,600 common
shares with a total cost of $60,151 were maintained as treasury stock.
Authorized preferred stock consists of 10,000,000 shares without par value of
which 4,000,000, non-cumulative with a dividend rate of 8.35% and a liquidation
preference value of $25 per share, were issued and outstanding at September 30,
1999.
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Popular International Bank, Inc. (PIB) and the bank subsidiaries of Popular
North America, Inc. (PNA), Banco Popular North America and Banco Popular,
National Association (Texas), have certain statutory provisions and regulatory
requirements and policies, such as the maintenance of adequate capital, that
limit the amount of dividends they can pay. Other than these limitations, no
other restrictions exist on the ability of PIB and PNA to make dividend and
asset distributions to the Corporation, nor on the ability of PNA's subsidiaries
to make distributions to PNA.
NOTE 8 - EARNINGS PER COMMON SHARE
Earnings per common share (EPS) are calculated based on net income applicable to
common stockholders which amounted to $62,123 for the third quarter of 1999
(1998 - $55,493) and $185,589 for the nine months ended September 30, 1999 (1998
- - $163,574), after deducting the dividends on preferred stock. EPS are based on
135,379,215 average shares outstanding for the third quarter of 1999 (1998 -
135,555,652) and 135,525,400 average shares outstanding for the first nine
months of 1999 (1998 - 135,496,620).
NOTE 9 - SUPPLEMENTAL DISCLOSURE ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS
During the nine-month period ended September 30, 1999, the Corporation paid
interest and income taxes amounting to $642,876 and $110,175, respectively (1998
- - $575,885 and $80,810). In addition, the loans receivable transferred to other
real estate and other property for the nine month period ended September 30,
1999, amounted to $8,470 and $9,991, respectively (1998 - $6,208 and $20,449).
NOTE 10 - SEGMENT REPORTING
Popular, Inc. operates three major reportable segments: commercial banking,
mortgage and consumer finance, and lease financing. Management has determined
its reportable segments based on legal entity, which is the way that operating
decisions and performance is measured. These entities have then been aggregated
by products, services and markets with similar characteristics.
The Corporation's commercial banking segment includes all banking subsidiaries
engaged in business in Puerto Rico and the U.S. mainland, which provide
individuals, corporations and institutions with commercial and retail banking
services, including loans and deposits, trusts, mortgage banking and servicing,
asset management, credit cards and other financial services. These services are
offered through a delivery system of branches throughout Puerto Rico, the U.S.
and British Virgin Islands, New York, Illinois, California, Florida, Texas and
New Jersey.
The Corporation's mortgage and consumer finance segment includes those
non-banking subsidiaries whose principal activity is originating mortgage and
consumer loans such as Popular Mortgage, Popular Finance, Equity One and Levitt
Mortgage.
The Corporation's lease financing segment provides financing for vehicles and
equipment through Popular Leasing and Rental, Inc. in Puerto Rico and Popular
Leasing, USA in the U.S. mainland. The "Other" category includes all holding
companies and non-banking subsidiaries which provide retail financial services,
investment banking and broker/dealer activities, as well as those providing ATM
processing services, electronic data processing and consulting services, sale
and rental of electronic data processing equipment and selling and maintenance
of computer software. It also includes the banking operations of Banco
Fiduciario in the Dominican Republic.
The accounting policies of the segments are the same as those followed by the
Corporation in the ordinary course of business and conform with generally
accepted accounting principles and with general practices within the financial
industry. Following are the results of operations and selected financial
information by operating segments for the second quarter and nine-month period
ended on September 30, 1999 and 1998.
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Mortgage and
Commercial Consumer Lease
banking Finance Financing Other Eliminations Total
- -------------------------------------------------------------------------------------------------------------
(In thousands) Quarter ended September 30, 1999
- -------------------------------------------------------------------------------------------------------------
Net interest income $ 204,616 $ 23,751 $ 10,680 $ (233) $ (22) $ 238,792
Provision for loan losses 28,758 5,870 1,855 597 37,080
Other income 62,357 12,305 4,853 18,738 (1,230) 97,023
Amortization expense 7,042 109 188 774 8,113
Depreciation expense 13,553 489 2,123 928 17,093
Other operating expense, net
of minority interest 146,315 18,555 6,721 17,512 (671) 188,432
Income tax 16,048 3,978 1,863 (853) (149) 20,887
- -------------------------------------------------------------------------------------------------------------
Net income $ 55,257 $ 7,055 $ 2,783 $ (453) $ (432) $ 64,210
- -------------------------------------------------------------------------------------------------------------
Segment Assets $20,698,974 $1,878,820 $734,328 $6,064,867 $(5,101,406) $24,275,583
- -------------------------------------------------------------------------------------------------------------
Mortgage and
Commercial Consumer Lease
banking Finance Financing Other Eliminations Total
- -------------------------------------------------------------------------------------------------------------
(In thousands) Nine-month period ended September 30, 1999
- -------------------------------------------------------------------------------------------------------------
Net interest income $ 610,815 $ 67,852 $ 32,027 $ 3,222 $ (35) $ 713,881
Provision for loan losses 83,830 18,374 6,298 980 109,482
Other income 181,365 35,144 15,105 43,064 (3,671) 271,007
Amortization expense 21,161 277 566 1,315 23,319
Depreciation expense 40,962 1,279 6,536 3,153 51,930
Other operating expense, net
of minority interest 432,292 53,262 18,483 41,540 (894) 544,683
Income tax 48,525 10,653 5,833 (669) (719) 63,623
- -------------------------------------------------------------------------------------------------------------
Net income $ 165,410 $ 19,151 $ 9,416 $ (33) $ (2,093) $ 191,851
- -------------------------------------------------------------------------------------------------------------
Segment Assets $20,698,974 $1,878,820 $734,328 $6,064,867 $(5,101,406) $24,275,583
- -------------------------------------------------------------------------------------------------------------
11
12
Mortgage and
Commercial Consumer Lease
banking Finance Financing Other Eliminations Total
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands) Quarter ended September 30, 1998
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income $ 184,435 $ 20,820 $ 10,362 $ (555) $ (21) $ 215,041
Provision for loan losses 26,260 5,826 2,581 34,667
Other income 53,895 7,461 4,631 8,297 (63) 74,221
Amortization expense 6,285 251 320 34 6,890
Depreciation expense 13,069 387 1,982 8 15,446
Other operating expense 132,182 14,148 5,841 4,237 (126) 156,282
Income tax 13,387 3,100 1,675 219 16 18,397
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 47,147 $ 4,569 $ 2,594 $ 3,244 $ 26 $ 57,580
- -----------------------------------------------------------------------------------------------------------------------------
Segment Assets $18,102,016 $1,701,799 $661,323 $4,850,251 $(4,041,796) $21,273,593
=============================================================================================================================
Mortgage and
Commercial Consumer Lease
banking Finance Financing Other Eliminations Total
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands) Nine-month period ended September 30, 1998
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income $ 551,995 $ 62,039 $ 30,059 $ (1,905) $ (51) $ 642,137
Provision for loan losses 77,585 16,267 7,904 101,756
Other income 159,737 21,944 14,322 19,241 (186) 215,058
Amortization expense 18,817 751 960 (5) 20,523
Depreciation expense 38,320 1,012 6,517 171 46,020
Other operating expense 391,927 40,069 16,547 11,323 (366) 459,500
Income tax 44,137 10,152 4,715 506 50 59,560
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 140,946 $ 15,732 $ 7,738 $ 5,341 $ 79 $ 169,836
- -----------------------------------------------------------------------------------------------------------------------------
Segment Assets $18,102,016 $1,701,799 $661,323 $4,850,251 $(4,041,796) $21,273,593
=============================================================================================================================
GEOGRAPHIC INFORMATION
Quarter ended Nine-month period ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------
(In thousands)
Revenues*
Puerto Rico $393,126 $357,038 $1,141,272 $1,050,987
United States 144,262 115,299 409,944 335,663
Other 28,167 12,705 85,919 38,462
- -------------------------------------------------------------------------------------------------------
Total consolidated revenues $565,555 $485,042 $1,637,135 $1,425,112
=======================================================================================================
* Total revenues include interest income, service charges on deposit accounts,
other service fees, gain on sale of securities, trading account profit, and
other income.
12
13
SEPTEMBER 30, September 30,
1999 1998
- -------------------------------------------------------------------------------
(IN THOUSANDS)
Selected Balance Sheet Information:
Puerto Rico
Total assets $15,644,143 $15,557,641
Loans 8,487,511 7,643,958
Deposits 9,523,739 8,840,314
United States
Total assets $ 6,026,379 $ 4,894,414
Loans 4,943,027 4,080,455
Deposits 3,380,518 2,897,508
Other
Total assets $ 2,605,061 $ 821,538
Loans 666,543 638,114
Deposits 865,791 809,928
NOTE 11 - POPULAR INTERNATIONAL BANK, INC. (A WHOLLY-OWNED SUBSIDIARY OF
POPULAR, INC.) FINANCIAL INFORMATION:
The following summarized financial information presents the unaudited
consolidated financial position of Popular International Bank, Inc. (PIB) and
its subsidiaries, ATH Costa Rica, Banco Fiduciario, S.A. and Popular North
America, Inc., including Popular Holdings USA, Inc. and its subsidiaries; Banco
Popular North America and Banco Popular, National Association (Texas); Popular
Cash Express, Inc. and Equity One, Inc. (second-tier subsidiaries), as of August
31, 1999 and 1998, and their related statement of income, cash flows and
comprehensive income for the nine-month periods then ended.
Effective January 1, 1999 the Corporation completed the first phase of a
reorganization of its U.S. operations. As of that date, most of the banking
subsidiaries in California, Florida, New Jersey and Illinois, and the Banco
Popular branches in New York were merged with and into one bank named Banco
Popular North America (BPNA). Also during the first quarter of 1999, First State
Bank of Southern California, The Bronson-Gore Bank in Prospect Heights, The
Irving Bank and Water Tower Bank, banking subsidiaries which were not part of
the initial phase of the reorganization effected on January 1, were merged with
and into BPNA. Banco Popular, National Association (Texas) is expected to be
merged into BPNA to complete the reorganization. The financial
information for 1998, presented below, was restated to reflect the
reorganization as if it had been consummated at the beginning of fiscal year
1998.
Popular, Inc. has not presented separate financial statements nor any other
disclosures concerning PIB, other than the following summarized financial
information, because management has determined that such information is not
material to holders of debt securities issued by PIB which are guaranteed by the
Corporation.
13
14
POPULAR INTERNATIONAL BANK, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands)
August 31,
----------
1999 1998
---- ----
Assets:
Cash $ 275,119 $ 234,336
Money market investments 262,610 95,210
Investment and trading securities 390,973 390,760
Loans 5,293,087 4,360,225
Less: Unearned income 80,003 67,698
Allowance for loan losses 96,557 62,290
------------------------------
5,116,527 4,230,237
Other assets 298,477 225,347
Intangibles assets 153,650 92,201
------------------------------
Total assets $6,497,356 $5,268,091
==============================
Liabilities and Stockholder's Equity:
Deposits $3,922,014 $3,150,192
Short-term borrowings 846,489 704,851
Notes payable 927,528 696,403
Other liabilities 82,073 78,463
Preferred beneficial interest in Popular North
America's junior subordinated deferrable
interest debentures guaranteed by the
Corporation 150,000 150,000
Minority interest in consolidated subsidiary 22,386 30,608
Stockholder's equity 546,866 457,574
------------------------------
Total liabilities and stockholder's equity $6,497,356 $5,268,091
==============================
14
15
POPULAR INTERNATIONAL BANK, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
Quarter ended Nine months ended
August 31, August 31,
---------- ----------
1999 1998 1999 1998
---- ---- ---- ----
Income:
Interest and fees $131,710 $100,476 $380,448 $293,206
Other income 28,962 15,376 81,128 45,136
-------------------------- --------------------------
Total income 160,672 115,852 461,576 338,342
-------------------------- --------------------------
Expenses:
Interest expense 68,977 49,966 197,107 144,797
Provision for loan losses 11,891 10,443 32,886 28,992
Operating expenses 73,677 50,823 214,696 142,836
-------------------------- --------------------------
Total expenses 154,545 111,232 444,689 316,625
-------------------------- --------------------------
Income before income tax 6,127 4,620 16,887 21,717
Income tax 2,236 2,444 7,551 9,536
-------------------------- --------------------------
$ 3,891 $ 2,176 $ 9,336 $ 12,181
========================== ==========================
15
16
POPULAR INTERNATIONAL BANK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended
August 31,
(In thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,336 $ 12,181
- ------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization of premises and equipment 10,242 6,181
Provision for loan losses 32,886 28,992
Amortization of intangibles 10,363 7,397
Gain on sale of investment securities available-for-sale (627) (2,573)
Gain on disposition of premises and equipment (5) (25)
Gain on sale of loans (19,590) (12,215)
Amortization of premiums and accretion of discounts
on investments 4 188
Decrease (increase) in loans held-for-sale 193,072 (113,554)
Amortization of deferred loan fees and costs (2,571) 1,020
Net increase in interest receivable (491) (3,363)
Net increase in other assets (19,299) (6,996)
Net decrease in interest payable (6,858) (10,409)
Net (decrease) increase in current and deferred taxes (570) 2,272
Net (decrease) increase in other liabilities (21,138) 24,756
- ------------------------------------------------------------------------------------------------------------
Total adjustments 175,418 (78,329)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 184,754 (66,148)
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in money market investments (105,051) (85,983)
Purchases of investment securities held-to-maturity (94)
Maturities of investment securities held-to-maturity 53,869
Purchases of investment securities available-for-sale (1,556,009) (764,028)
Maturities of investment securities available-for-sale 1,568,283 742,816
Sales of investment securities available-for-sale 73,622 121,788
Net disbursements on loans (1,405,531) (771,785)
Proceeds from sale of loans 811,474 449,807
Capital contribution to subsidiaries (155,221)
Assets acquired, net of cash (4,094)
Acquisition of loan portfolios (5,228)
Cash received in acquisition 51,238
Acquisition of premises and equipment (17,800) (13,781)
Proceeds from sale of premises and equipment 1,272 754
- ------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (575,871) (433,811)
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in deposits 194,671 179,844
Net deposits acquired 36,297
Net (decrease) increase in federal funds purchased and securities
sold under agreements to repurchase (172,213) 166,450
Net increase in other short-term borrowings 82,859 70,403
Proceeds from issuance of notes payable 281,206 72,806
Payments of notes payable (20,446) (67,719)
Capital contribution received from Parent company 155,221
- ------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 366,077 613,302
- ------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and due from banks (25,040) 113,343
Cash and due from banks at beginning of period 300,159 120,993
- ------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of period $ 275,119 $ 234,336
============================================================================================================
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
16
17
POPULAR INTERNATIONAL BANK, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Quarter ended Nine months ended
August 31, August 31,
---------- ----------
(In thousands) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
Net Income $ 3,891 $ 2,176 $ 9,336 $12,181
-------------------------------------------------------------
Other comprehensive income net of tax:
Unrealized (losses) gains on securities:
Foreign currency translation adjustment 2 (883)
Unrealized holding (losses) gains arising during
the period net of tax of $310 (1998 - $475)
for the quarter and $(1,418) (1998 - $363) for the
nine month period 498 1,159 (1,835) 2,088
Less: reclassification adjustment for gains included
In net income, net of tax of $(2) (1998 - $52)
for the quarter and $104 (1998 - $913)
for the nine-month period (4) 97 194 1,696
-------------------------------------------------------------
Total other comprehensive income (loss) $ 504 $ 1,062 $(2,912) $ 392
-------------------------------------------------------------
Comprehensive income $ 4,395 $ 3,238 $ 6,424 $12,573
=============================================================
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
17
18
NOTE 12 - POPULAR NORTH AMERICA, INC. (A SECOND-TIER SUBSIDIARY OF POPULAR,
INC.) FINANCIAL INFORMATION:
The following summarized financial information presents the unaudited
consolidated financial position of Popular North America, Inc. (PNA) and its
wholly-owned subsidiaries, Popular Cash Express, Inc., Equity One, Inc. and
Popular Holdings USA, and its wholly-owned subsidiaries, Banco Popular North
America and Banco Popular, National Association (Texas) as of August 31, 1999
and 1998, and their related statement of income, cash flows and comprehensive
income for the nine-month periods then ended.
Effective January 1, 1999 the Corporation completed the first phase of a
reorganization of its U.S. operations. As of that date, most of the banking
subsidiaries in California, Florida, New Jersey and Illinois, and the Banco
Popular branches in New York were merged with and into one bank named Banco
Popular North America (BPNA). Also during the first quarter of 1999, First State
Bank of Southern California, The Bronson-Gore Bank in Prospect Heights, The
Irving Bank and Water Tower Bank, banking subsidiaries which were not part of
the initial phase of the reorganization effected on January 1, were merged with
and into BPNA. Banco Popular, National Association (Texas) is expected to be
merged into BPNA to complete the reorganization. The financial information for
1998, presented below, was restated to reflect the reorganization as if it had
been consummated at the beginning of fiscal year 1998.
Popular, Inc. has not presented separate financial statements nor any other
disclosures concerning PNA, other than the following summarized financial
information, because management has determined that such information is not
material to holders of debt securities issued by PNA which are guaranteed by the
Corporation.
18
19
POPULAR NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands)
August 31,
----------
1999 1998
---- ----
Assets:
Cash $ 208,731 $ 152,987
Money market investments 231,708 15,079
Investment securities 371,277 383,006
Loans 5,055,309 4,083,153
Less: Unearned income 80,003 67,698
Allowance for loan losses 71,191 47,958
---------- ----------
4,904,115 3,967,497
Other assets 214,711 152,691
Intangibles assets 143,479 91,436
---------- ----------
Total assets $6,074,021 $4,762,696
========== ==========
Liabilities and Stockholder's Equity:
Deposits $3,621,528 $2,830,628
Short-term borrowings 825,116 645,035
Notes payable 892,730 654,594
Other liabilities 68,160 58,887
Preferred beneficial interest in Popular North
America's junior subordinated deferrable
interest debentures guaranteed by the
Corporation 150,000 150,000
Stockholder's equity 516,487 423,552
---------- ----------
Total liabilities and stockholder's equity $6,074,021 $4,762,696
========== ==========
19
20
POPULAR NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
Quarter ended Nine months ended
August 31, August 31,
---------- ----------
1999 1998 1999 1998
---- ---- ---- ----
Income:
Interest and fees $119,045 $100,443 $339,866 $292,863
Other income 25,747 15,269 70,773 45,197
-------------------------- --------------------------
Total income 144,792 115,712 410,639 338,060
-------------------------- --------------------------
Expenses:
Interest expense 57,855 49,894 162,986 144,428
Provision for loan losses 11,294 10,443 31,905 28,992
Operating expenses 66,833 50,565 194,172 142,177
-------------------------- --------------------------
Total expenses 135,982 110,902 389,063 315,597
-------------------------- --------------------------
Income before income tax 8,810 4,810 21,576 22,463
Income tax 3,305 2,444 9,242 9,536
-------------------------- --------------------------
Net income $ 5,505 $ 2,366 $ 12,334 $ 12,927
========================== ==========================
20
21
POPULAR NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended
August 31,
(In thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,334 $ 12,927
- ------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization of premises and equipment 7,665 6,055
Provision for loan losses 31,905 28,992
Amortization of intangibles 10,134 7,397
Gain on sale of investment securities available-for-sale (551) (2,573)
Gain on disposition of premises and equipment (5) (19)
Gain on sale of loans (19,590) (12,215)
Amortization of premiums and accretion of discounts
on investments 4 188
(Decrease) increase in loans held-for-sale 193,072 (113,554)
Amortization of deferred loan fees and costs (2,571) 1,020
Net increase in interest receivable (1,225) (3,363)
Net increase in other assets (6,270) (6,971)
Net decrease in interest payable (7,067) (10,447)
Net (decrease) increase in current and deferred taxes (3,083) 2,272
Net decrease in other liabilities (6,299) (4,797)
- ------------------------------------------------------------------------------------------------------------
Total adjustments 196,119 (108,015)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 208,453 (95,088)
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in money market investments (94,811) (86,473)
Purchases of investment securities held-to-maturity (94)
Maturities of investment securities held-to-maturity 53,869
Purchases of investment securities available-for-sale (1,545,847) (759,022)
Maturities of investment securities available-for-sale 1,568,283 742,816
Sales of investment securities available-for-sale 73,622 121,789
Net disbursements on loans (1,427,795) (771,785)
Proceeds from sale of loans 811,474 449,807
Capital contribution to subsidiaries (32,376) (125,421)
Assets acquired, net of cash (4,094)
Acquisition of loan portfolios (5,228)
Acquisition of premises and equipment (16,792) (13,629)
Proceeds from sale of premises and equipment 216 22
- ------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (610,157) (451,312)
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in deposits 213,840 179,844
Net deposits acquired 36,297
Net (decrease) increase in federal funds purchased and securities
sold under agreements to repurchase (172,213) 161,450
Net increase in other short-term borrowings 104,960 70,403
Proceeds from issuance of notes payable 281,206 72,806
Payments of notes payable (15,898) (67,719)
Capital contribution received from Parent company 125,421
- ------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 411,895 578,502
- ------------------------------------------------------------------------------------------------------------
Net increase in cash and due from banks 10,191 32,102
Cash and due from banks at beginning of period 198,540 120,885
- ------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of period $ 208,731 $ 152,987
============================================================================================================
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
21
22
POPULAR NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Quarter ended Nine months ended
August 31, August 31,
---------- ----------
(In thousands) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
Net Income $ 5,505 $2,366 $ 12,334 $12,927
------------------------------------------------------------
Other comprehensive income net of tax:
Unrealized (losses) gains on securities:
Unrealized holding (losses) gains arising during
the period, net of tax of $310 (1998 - $475) for
the quarter and $(1,418) (1998 - $363) for the
nine-month period 496 1,019 (2,367) 1,942
Less: reclassification adjustment for gains included
in net income, net of tax of $(2) (1998 - $52)
for the quarter and $104(1998 - $913) for the
nine-month period (4) 97 194 1,696
------------------------------------------------------------
Total other comprehensive income $ 500 $ 922 $ (2,561) $ 246
------------------------------------------------------------
Comprehensive income $ 6,005 $3,288 $ 9,773 $13,173
============================================================
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
22
23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
TABLE A
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------------
AT SEPTEMBER 30, AVERAGE FOR THE NINE MONTHS
--------------------------------------------------------------------------------------
BALANCE SHEET HIGHLIGHTS 1999 1998 Change 1999 1998 Change
(In thousands)
- ----------------------------------------------------------------------------------------------------------------------------
Money market investments $ 837,600 $ 823,396 $ 14,204 $ 683,173 $ 725,530 $ (42,357)
Investment and trading securities 7,587,577 6,734,621 852,956 7,612,418 6,359,326 1,253,092
Loans 14,097,081 12,362,527 1,734,554 13,684,777 11,671,654 2,013,123
Total assets 24,275,583 21,273,593 3,001,990 23,493,991 19,924,608 3,569,383
Deposits 13,770,048 12,547,750 1,222,298 13,732,917 12,012,414 1,720,503
Borrowings 8,386,463 6,590,228 1,796,235 7,591,165 6,042,423 1,548,742
Stockholders' equity 1,677,322 1,696,891 (19,569) 1,691,540 1,533,104 158,436
- ----------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
THIRD QUARTER NINE MONTHS
-------------------------------------------------------------------
OPERATING HIGHLIGHTS 1999 1998 Change 1999 1998 Change
(In thousands, except per share information)
- -------------------------------------------------------------------------------------------------------------------
Net interest income $238,792 $215,041 $23,751 $713,881 $642,137 $71,744
Provision for loan losses 37,080 34,667 2,413 109,482 101,756 7,726
Fees and other income 97,023 74,221 22,802 271,007 215,058 55,949
Other expenses 234,525 197,015 37,510 683,555 585,603 97,952
Net income $ 64,210 $ 57,580 $ 6,630 $191,851 $169,836 $22,015
Net income applicable to common stock $ 62,123 $ 55,493 $ 6,630 $185,589 $163,574 $22,015
Earnings per common share 0.46 0.41 0.05 1.37 1.21 0.16
- -------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
SELECTED STATISTICAL THIRD QUARTER NINE MONTHS
-------------------------------------------
INFORMATION 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA- Market price
High $31.00 $36.75 $37.88 $36.75
Low 25.81 28.00 25.81 23.03
End 27.75 28.38 27.75 28.38
Book value at period ended 11.62 11.80 11.62 11.80
Dividends declared 0.16 0.14 0.44 0.36
Dividends payout ratio 30.48% 26.86% 30.67% 27.32%
Price/earnings ratio 15.33X 17.74x 15.33X 17.74x
- ---------------------------------------------------------------------------------------------------------------
PROFITABILITY RATIOS - Return on assets 1.06% 1.12% 1.09% 1.14%
Return on common equity 15.23 14.94 15.59 15.26
Net interest spread (taxable equivalent) 3.80 4.03 3.89 4.09
Net interest yield (taxable equivalent) 4.59 4.86 4.69 4.93
Effective tax rate 24.86 24.21 25.09 25.96
Overhead ratio 49.28 48.55 49.14 48.43
- ---------------------------------------------------------------------------------------------------------------
CAPITALIZATION RATIOS - Equity to assets 7.12% 7.73% 7.20% 7.69%
Tangible equity to assets 6.01 6.72 6.11 6.64
Equity to loans 12.15 13.19 12.36 13.14
Internal capital generation 9.40 9.28 9.93 9.98
Tier I capital to risk - adjusted assets 10.32 12.05 10.32 12.05
Total capital to risk - adjusted assets 12.49 14.42 12.49 14.42
Leverage ratio 6.36 7.37 6.36 7.37
23
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This financial review contains an analysis of the consolidated financial
position and financial performance of Popular, Inc. and its subsidiaries (the
Corporation) and should be read in conjunction with the consolidated financial
statements, tables and notes included in this report. The Corporation is a
diversified bank holding company, which offers a wide range of products and
services through its subsidiaries and is engaged in the following businesses:
- Commercial Banking - Banco Popular de Puerto Rico (BPPR),
Banco Popular North America (BPNA), Banco Popular, National
Association (Texas) and Banco Fiduciario, S.A. (BF)
- Lease Financing - Popular Leasing and Rental, Inc. and Popular
Leasing, U.S.A.
- Mortgage and Consumer Finance - Popular Mortgage, Inc., Newco
Mortgage Holding Company (d/b/a Levitt Mortgage, Inc.), Equity
One, Inc. and Popular Finance, Inc.
- Broker / dealer - Popular Securities Incorporated
- ATM Processing Services - ATH Costa Rica
- Information Technology Services and Products - GM Group
- Retail Financial Services - Popular Cash Express, Inc.
Effective July 1, 1999, the Corporation completed the acquisition of GM Group in
exchange of 1.5 million shares of the Corporation. The transaction was accounted
for as a purchase. GM Group is a leading company in information technology
services and products in Puerto Rico and the Caribbean with offices in San Juan,
Caracas, Santo Domingo and Miami, and provides services to customers in twelve
Latin American countries. The company provides electronic data processing and
consulting services, sales and rental of electronic data processing equipment,
and sales and maintenance of computer software.
In addition, on August 3, 1999 the Corporation acquired 85% of the shares of
Newco Mortgage Holding Company (d/b/a Levitt Mortgage, Inc.), a mortgage
origination company, with operations in Puerto Rico.
NET INCOME
The Corporation reported net income of $64.2 million for the third quarter of
1999, compared with $57.6 million for the same quarter of 1998, an increase of
$6.6 million or 11.5%. Earnings per common share (EPS) for the quarter were
$0.46, based on 135,379,215 average shares outstanding, compared with $0.41
reported on the third quarter of 1998, based on 135,555,652 average shares
outstanding. Net earnings for the first and second quarter of 1999 were $63.7
million and $64.0 million, respectively, or $0.45 and $0.46 per common share,
based on 135,709,287 and 135,491,324 average shares outstanding. Return on
assets (ROA) and return on common equity (ROE) for the quarter ended September
30, 1999 were 1.06% and 15.23%, respectively, compared with 1.12% and 14.94% for
the same period in 1998. For the second quarter of 1999 these ratios were 1.08%
and 15.53%.
24
25
The Corporation's results of operations for the quarter ended September 30,
1999, reflected increases of $23.8 million in net interest income and $22.8
million in other revenues when compared with the same quarter of 1998. These
improvements were partially offset by increases of $36.1 million in operating
expenses, $2.4 million in the provision for loan losses and $2.5 million in
income taxes.
For the first nine months of 1999, the Corporation's net earnings amounted to
$191.9 million, compared with $169.8 million for the same period in 1998. EPS
for the first nine months of 1999 were $1.37, compared with $1.21 for the same
period of 1998. ROA and ROE for the first nine months of 1999 were 1.09% and
15.59% respectively, compared with 1.14% and 15.26% for the same period last
year.
NET INTEREST INCOME
Net interest income for the third quarter of 1999 increased 11.0% when compared
with the same period of 1998. On a taxable equivalent basis, net interest income
increased to $258.5 million from $233.4 million reported in the same quarter of
1998.
The growth of $25.1 million in net interest income on a taxable equivalent basis
from the third quarter of 1998 was driven by a $34.1 million increase
attributable to a higher volume of earning assets, partially offset by a $9.0
million decrease due to a lower net interest yield. For analytical purposes, the
interest earned on tax-exempt assets is adjusted to a taxable equivalent basis
assuming the applicable statutory income tax rates.
Table B summarizes the changes in the composition of average earning assets and
interest bearing liabilities, and their respective interest income and expense
and yields and costs, on a taxable equivalent basis, for the third quarter of
1999, as compared with the same quarter in 1998.
The increase of $3.4 billion in average earning assets was primarily related to
the increase in loans, which accounted for $2.2 billion of the total increase.
As seen in Table B, the commercial and mortgage portfolios reflected the major
growth, mostly due to the sustained business expansion of the Corporation.
The increase in average investment securities, when compared with the third
quarter of 1998, mostly relates to a rise in arbitrage activities in the
investment portfolio. The income derived from these activities is mostly exempt
for income tax purposes in Puerto Rico.
The average yield on earning assets, on a taxable equivalent basis, decreased 28
basis points from 8.91% for the third quarter of 1998 to 8.63% during the third
quarter of 1999. This decline resulted primarily from a lower yield on
investment securities by 46 basis points and a lower yield on loans by 27 basis
points mainly in commercial and mortgage loans. The reduction in the average
yields on investment securities and loans mostly resulted from a lower interest
rate scenario and a strong competitive environment in the loan business.
The increase in average interest bearing liabilities for the third quarter of
1999, as compared with the same quarter of 1998, was mostly reflected in average
short-term borrowings and interest bearing deposits, mainly in NOW and money
market accounts, certificates of deposits and IRA accounts. The increase in
borrowings was used to finance the loan growth and the expansion of the
Corporation and was also due to arbitrage opportunities undertaken during the
quarter.
25
26
TABLE B
ANALYSIS OF LEVELS AND YIELDS ON A TAXABLE EQUIVALENT BASIS
QUARTER ENDED ON SEPTEMBER 30,
Variance
Average Volume Average Yields Interest Attribute to
- ------------------------------------------------------- ----------------------------------------------------
1999 1998 Variance 1999 1998 Variance 1999 1998 Variance Rate Volume
- ------------------------------------------------------- ----------------------------------------------------
$(in millions) (in thousands)
$ 674 $ 752 $ (78) 4.86% 5.05% (0.19)% Money market investments $ 8,272 $ 9,567 $(1,295) $ (37) $(1,258)
7,410 6,199 1,211 6.64 7.10 (0.46) Investment securities 123,379 110,467 12,912 (8,375) 21,287
330 310 20 7.24 6.52 0.72 Trading 6,024 5,098 926 580 346
- ------------------------------------------------------- ----------------------------------------------------
$ 8,414 $ 7,261 $1,153 6.52 6.86 (0.34) 137,675 125,132 12,543 (7,832) 20,375
- ------------------------------------------------------- ----------------------------------------------------
Loans:
6,477 5,151 1,326 8.99 9.24 (0.25) Commercial 146,735 119,972 26,763 (3,354) 30,117
683 635 48 13.31 13.17 0.14 Leasing 22,736 20,911 1,825 220 1,605
3,717 3,035 682 8.00 8.48 (0.48) Mortgage 74,340 64,322 10,018 (3,786) 13,804
3,265 3,107 158 13.09 12.69 0.40 Consumer 106,811 98,880 7,931 2,214 5,717
- ------------------------------------------------------- ----------------------------------------------------
14,142 11,928 2,214 9.88 10.15 (0.27) 350,622 304,085 46,537 (4,706) 51,243
- ------------------------------------------------------- ----------------------------------------------------
$22,556 $19,189 $3,367 8.63% 8.91% (0.28)% TOTAL EARNING ASSETS $488,297 $429,217 $59,080 $(12,538) $71,618
======================================================= ====================================================
Interest bearing
deposits:
$ 1,871 $ 1,431 $ 440 2.91% 3.38% (0.47)% NOW and money market $ 13,715 $ 12,188 $ 1,527 $ (1,638) $3,165
4,144 3,706 438 2.90 3.09 (0.19) Savings 30,330 28,890 1,440 (1,676) 3,116
4,760 4,424 336 5.77 5.39 0.38 Time deposits 69,257 60,161 9,096 3,344 5,752
- ------------------------------------------------------- ----------------------------------------------------
10,775 9,561 1,214 4.17 4.20 (0.03) 113,302 101,239 12,063 30 12,033
- ------------------------------------------------------- ----------------------------------------------------
5,891 4,729 1,162 5.66 5.59 0.07 Short-term borrowings 84,072 66,611 17,461 170 17,291
2,193 1,636 557 5.86 6.78 (0.92) Medium and long-term debt 32,366 27,931 4,435 (3,762) 8,197
- ------------------------------------------------------- ----------------------------------------------------
18,859 15,926 2,933 4.83 4.88 (0.05) TOTAL INTEREST-BEARING 229,740 195,781 33,959 (3,562) 37,521
LIABILITIES
3,027 2,501 526 Demand deposits
670 762 (92) Other sources of funds
- ------------------------------------------------------- ----------------------------------------------------
$22,556 $19,189 $3,367 4.04% 4.05% (0.01)%
======================================================
4.59% 4.86% (0.27)% NET INTEREST MARGIN AND
======================
NET INTEREST INCOME $258,557 $233,436 $25,121 $(8,976) $34,097
==================
3.80% 4.03% (0.23)% NET INTEREST SPREAD
======================
Taxable equivalent 19,765 18,395 1,370
adjustment ------------------------------
Net interest income $238,792 $215,041 $23,751
==============================
Note: The changes that are not due solely to volume or rate are allocated to
volume and rate based on the proportion of the change in each category.
26
27
The increase in average interest-bearing deposits partially relates to funds
that entered into the banking system in Puerto Rico during the latter part of
1998, attributed to payments by insurance companies and federal government
agencies for claims after hurricane Georges hit the island. The level of
deposits in Banco Popular de Puerto Rico has remained steady since then.
The average cost of interest bearing liabilities decreased five basis points
when compared with the same quarter of 1998. The decrease is mostly attributed
to the lower interest rate scenario that prevailed during the first half of 1999
as compared with the same period in 1998.
A higher volume of investment securities funded with short-term borrowing and
the decrease in the yield in the loan portfolio, caused the net interest yield,
on a taxable equivalent basis, to decrease 27 basis points this quarter compared
with the third quarter of 1998.
For the nine-month period ended September 30, 1999, net interest income, on a
taxable equivalent basis, increased $80.1 million, compared with the same period
of 1998. The increase in the average volume of earning assets, partially offset
by an increase in the average volume of interest bearing liabilities, caused a
positive variance of $104.6 million, which was offset by a negative variance of
$24.5 million due to changes in rates and the mix of the portfolios.
As shown in Table C average earning assets increased by $3.2 billion for the
first nine months of 1999, when compared with $18.8 billion reported in the same
period of 1998, of which 62% represented an increase in average loans and 37% in
investment securities. Average interest bearing liabilities increased $2.8
billion when compared with the nine-month period ended September 30, 1998. The
continued growth of the Corporation and the acquisitions in the latter part of
1998 were responsible for this growth.
The decline in the yield on earning assets, on a taxable equivalent basis,
partially offset by a decline in the cost of interest bearing liabilities,
resulted in a lower net interest yield by 24 basis points to 4.69% reported for
the first nine months of 1999. As previously explained, the decline in the net
interest margin was mostly the result of a lower interest rate scenario that
prevailed during the first nine months of 1999 as compared to 1998 and the
arbitrage activities undertaken by the Corporation to take advantage of market
conditions.
27
28
TABLE C
ANALYSIS OF LEVELS AND YIELDS ON A TAXABLE EQUIVALENT BASIS
YEAR-TO-DATE SEPTEMBER 30,
Variance
Average Volume Average Yields Interest Attribute to
- ---------------------------------------------------- -------------------------------------------------------
1999 1998 Variance 1999 1998 Variance 1999 1998 Variance Rate Volume
- ---------------------------------------------------- -------------------------------------------------------
$(in millions) (in thousands)
$ 683 $ 726 $ (43) 4.64% 5.08% (0.44)% Money market investments 23,705 $ 27,585 $ (3,880) $ (2,084) $ (1,796)
7,287 6,081 1,206 6.77 7.07 (0.30) Investment securities 369,653 321,922 47,731 (13,571) 61,302
325 278 47 6.64 6.69 (0.05) Trading 16,170 13,917 2,253 (100) 2,353
- ---------------------------------------------------- -------------------------------------------------------
$ 8,295 $ 7,085 $1,210 6.59 6.85 (0.26) 409,528 363,424 46,104 (15,755) 61,859
- ---------------------------------------------------- -------------------------------------------------------
Loans:
6,317 5,043 1,274 9.04 9.27 (0.23) Commercial 427,154 349,622 77,532 (8,835) 86,367
641 628 13 13.03 12.81 0.22 Leasing 62,653 60,321 2,332 1,038 1,294
3,518 2,937 581 8.05 8.62 (0.57) Mortgage 212,462 189,756 22,706 (13,009) 35,715
3,209 3,064 145 13.03 12.96 0.07 Consumer 313,339 297,547 15,792 (1,182) 16,974
- ---------------------------------------------------- -------------------------------------------------------
13,685 11,672 2,013 9.91 10.26 (0.35) 1,015,608 897,246 118,362 (21,988) 140,350
- ---------------------------------------------------- -------------------------------------------------------
$21,980 $18,757 $3,223 8.66% 8.98% (0.32)% TOTAL EARNING ASSETS $1,425,136 $1,260,670 $164,466 $ (37,743) $202,209
==================================================== =======================================================
Interest bearing
deposits:
$ 1,755 $ 1,425 $330 3.04% 3.37% (0.33)% NOW and money market $ 39,959 $ 35,907 $ 4,052 $ (3,470) $ 7,522
4,141 3,698 443 2.91 3.09 (0.18) Savings 90,039 85,378 4,661 (5,762) 10,423
4,803 4,360 443 5.69 5.49 0.20 Time deposits 204,275 179,061 25,214 7,897 17,317
- ---------------------------------------------------- -------------------------------------------------------
10,699 9,483 1,216 4.18 4.23 (0.05) 334,273 300,346 33,927 (1,335) 35,262
- ---------------------------------------------------- -------------------------------------------------------
5,770 4,378 1,392 5.25 5.53 (0.28) Short-term borrowings 226,584 181,189 45,395 (9,216) 54,611
1,821 1,665 156 6.71 6.93 (0.22) Medium and long-term 91,390 86,382 5,008 (2,674) 7,682
debt
- ---------------------------------------------------- -------------------------------------------------------
18,290 15,526 2,764 4.77 4.89 (0.12) TOTAL INTEREST-BEARING 652,247 567,917 84,330 (13,225) 97,555
LIABILITIES
3,034 2,529 505 Demand deposits
656 702 (46) Other sources of funds
- ---------------------------------------------------- ------------------------------------------------------
$21,980 $18,757 $3,223 3.97% 4.05% (0.08)%
====================================================
4.69% 4.93% (0.24)% NET INTEREST MARGIN AND
=========================
NET INTEREST INCOME $ 772,889 $ 692,753 $80,136 $(24,518) $104,654
===================
3.89% 4.09% (0.20)% NET INTEREST SPREAD
=========================
Taxable equivalent
adjustment 59,008 50,616 8,392
-------------------------------
Net interest income $ 713,881 $ 642,137 $71,744
===============================
Note: The changes that are not due solely to volume or rate are allocated to
volume and rate based on the proportion of the change in each category.
28
29
MARKET RISK
Market risk is the risk of economic loss arising from adverse changes in market
rates and prices, such as interest rates, foreign currency exchange rates,
commodity prices, and other relevant market or price changes. The Corporation's
primary market risk exposure is that to interest rates, as primarily interest
rate volatility and its impact on the repricing of assets and liabilities affect
the net interest income. The Corporation maintains a formal asset and liability
management process to quantify, monitor and control interest rate risk and to
assist management in maintaining stability in the net interest margin under
varying interest rate environments.
The Corporation uses various techniques to assess the degree of interest rate
risk, including static gap analysis, simulation and duration analysis. Each
focuses on different aspects of the interest rate risk that is assumed at any
point in time, and are therefore used jointly to make informed judgements about
the risk levels and the appropriateness of strategies under consideration. An
interest rate sensitivity analysis, performed at the Corporation level, is the
primary tool used in expressing the potential loss in future earnings resulting
from selected hypothetical changes in interest rates.
Sensitivity is calculated on a monthly basis using a simulation model which
incorporates actual balance sheet figures detailed by maturity and interest
yields or costs, the expected balance sheet dynamics, reinvestments, and other
non-interest related data. Simulations are run using various interest rate
scenarios to determine potential changes to the future earnings of the
Corporation.
Computations of the prospective effects of hypothetical interest rate changes
are based on many assumptions, including relative levels of market interest
rates, loan prepayments and deposit decay. They should not be relied upon as
indicative of actual results. Further, the computations do not contemplate
actions that management could take to respond to changes in interest rates. By
their nature, these forward-looking choices are only estimates and may be
different from what actually may occur in the future.
Based on the results of the sensitivity analysis as of September 30, 1999, the
change in net interest income on a hypothetical rising rate scenario for the
next twelve months would be a $13.5 million increase and the change for the same
period utilizing a hypothetical declining rate scenario would be a decrease of
$10.8 million. Both hypothetical rate scenarios consider a gradual change of 150
basis points during the twelve-month period. These estimated changes are well
within the policy guidelines established by the Board.
In the course of its business, the Corporation occasionally enters into foreign
exchange transactions. These transactions are executed as an intermediary
primarily for its commercial and retail clients, and any foreign exchange
positions assumed by the Corporation as a result are offset in the currency
markets. Management therefore believes that the market risk assumed by the
Corporation in its foreign currency transactions is not significant.
The Corporation is the largest shareholder of BF, a commercial banking
institution in the Dominican Republic, with a 57% ownership interest. Most of
BF's business is conducted in Dominican `pesos' (DR$). Local (DR) regulations
limit the ability of BF to assume unhedged foreign currency positions. The value
of the Corporation's investment in BF may be affected prospectively by
fluctuations in future exchange rates between the DR$ and US$. However,
management does not expect future fluctuations between these two currencies to
affect materially the value of the Corporation's investment in BF.
The proximity and additional risks posed by the turn of the year have resulted
in the adoption of strategies by the Corporation to help reduce the degree of
liquidity risk at year-end. Among these strategies are the extension of the
average maturity of the Corporation's borrowings, the establishment of highly
reliable funding sources and the placement of investment portfolio maturities
near year-end. These strategies, taken together, shall help reduce the
liquidity risk of the Corporation during the final quarter of 1999.
29
30
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses totaled $37.1 million for the third quarter of
1999, an increase of 7.0% when compared with $34.7 million for the same quarter
of 1998. For the second quarter of 1999 the provision was $36.6 million. For the
nine-month period ended September 30, 1999, the provision for loan losses
increased 7.6%, from $101.8 million for the same period of 1998. The growth in
the loan portfolio coupled with the increase in non-performing assets and net
charge-offs were the major reasons for the increase in the provision. Net
charge-offs for the quarter ended September 30, 1999, reached $31.6 million or
0.89% of average loans, compared with $27.7 million or 0.93% reported for the
same quarter in 1998, and $31.2 million or 0.91% of average loans for the
quarter ended on June 30, 1999. Table D presents other related information for
the quarter ended September 30, 1999 and 1998 and for the first nine months of
1999 and 1998.
Net losses for the quarter were principally in the consumer loans. Consumer
loans net charge-offs totaled $22.4 million or 2.74% of average consumer loans
in the third quarter of 1999, compared with $20.9 million or 2.62% in the second
quarter of 1999 and $17.6 million or 2.26% in the third quarter of 1998. The
increase in consumer loans net charge-offs as compared with the third quarter of
1998, is mostly due to the impact of a revised Uniform Retail Credit
Classification and Account Management Policy issued by the Federal Reserve Bank.
This policy among other things establishes more strict requirements in the
charge-offs of close-end and open-end retail credit loans, high renewal rate
loans and loans in bankruptcy status.
On the other hand, commercial loans net charge-offs, including construction
loans, decreased $1.6 million for the quarter ended September 30, 1999, when
compared with the same quarter in 1998. Commercial and construction loans net
charge-offs, represented 0.37% the average balance of those loans for the
quarter ended September 30, 1999, compared with 0.58% for the same quarter last
year.
For the nine-month period ended September 30, 1999, net charge-offs amounted to
$88.7 million or 0.86% of average loans, compared with $82.4 million or 0.94% of
average loans recorded a year ago. The increase in net credit losses was
reflected in all loan categories, mainly in the commercial and consumer loan
portfolios. The rise of $3.6 million in the commercial portfolio, including
construction loans, when compared with the nine-month period ended September 30,
1998 was mostly the result of a $3 million charge-off of a commercial
relationship in the New York banking operations during the second quarter of
1999.
At September 30, 1999, the allowance for loan losses was $288.4 million,
representing 2.05% of loans, as compared with $245.4 million or 1.98% one year
earlier, and $267.2 million or 2.04% at December 31, 1998.
30
31
TABLE D
ALLOWANCE FOR LOAN LOSSES AND SELECTED LOAN LOSSES STATISTICS
THIRD QUARTER FIRST NINE MONTHS
(Dollars in thousands) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------
Balance at beginning of period $282,590 $224,045 $267,249 $211,651
Allowances purchased 325 14,332 325 14,332
Provision for loan losses 37,080 34,667 109,482 101,756
---------------------------------------------------
319,995 273,044 377,056 327,739
---------------------------------------------------
Losses charged to the allowance:
Commercial 10,495 13,183 35,817 32,732
Construction 151 651 190
Lease financing 5,408 5,052 17,049 16,191
Mortgage 1,086 709 2,939 1,990
Consumer 28,368 22,115 75,120 69,634
---------------------------------------------------
45,508 41,059 131,576 120,737
---------------------------------------------------
Recoveries:
Commercial 4,660 5,469 13,418 13,370
Construction 30 208 121 249
Lease financing 2,990 3,122 11,455 11,113
Mortgage 242 50 624 224
Consumer 5,973 4,548 17,284 13,424
---------------------------------------------------
13,895 13,397 42,902 38,380
---------------------------------------------------
Net loans charged-off (recovered):
Commercial 5,835 7,714 22,399 19,362
Construction 121 (208) 530 (59)
Lease financing 2,418 1,930 5,594 5,078
Mortgage 844 659 2,315 1,766
Consumer 22,395 17,567 57,836 56,210
---------------------------------------------------
31,613 27,662 88,674 82,357
---------------------------------------------------
Balance at end of period $288,382 $245,382 $288,382 $245,382
===================================================
Ratios:
Allowance for losses to loans 2.05% 1.98% 2.05% 1.98%
Allowance to non-performing assets 86.56 87.17 86.56 87.17
Allowance to non-performing loans 94.48 95.94 94.48 95.94
Non-performing assets to loans 2.36 2.28 2.36 2.28
Non-performing assets to total assets 1.37 1.32 1.37 1.32
Net charge-offs to average loans 0.89 0.93 0.86 0.94
Provision to net charge-offs 1.17X 1.25x 1.23X 1.24x
Net charge-offs earnings coverage 3.83 4.00 4.09 4.02
31
32
Management considers that the allowance for loan losses is adequate to absorb
potential write-offs of the loan portfolio, based on the process established to
assess its adequacy. This process incorporates portfolio risk characteristics,
results of periodic credit reviews, prior loss experience, current and
anticipated economic conditions and loan impairment measurement. Table D
provides a summary of activity in the allowance for losses and shows selected
loan loss statistics for the quarters and the nine-month periods ended September
30, 1998 and 1999. Additional information regarding the allowance and asset
quality appears in the Credit Quality section.
The Corporation has defined impaired loans as all loans with interest and/or
principal past due 90 days or more and other specific loans for which, based on
current information and events, it is probable that the debtor will be unable to
pay all amounts due according to the contractual terms of the loan agreement.
Loan impairment is measured based on the present value of expected cash flows
discounted at the loan's effective rate, on the observable market price or, on
the fair value of the collateral if the loan is collateral dependent. Large
groups of smaller balance homogeneous loans are collectively evaluated for
impairment based on past experience. All other loans are evaluated on a
loan-by-loan basis. Impaired loans for which the discounted cash flows,
collateral value or market price equals or exceeds its carrying value do not
require an allowance.
The following table shows the Corporation's recorded investment in impaired
loans and the related valuation allowance calculated under SFAS No. 114 (as
amended by SFAS No. 118) at September 30, 1999 and September 30, 1998.
September 30, 1999 September 30, 1998
------------------ ------------------
Recorded Valuation Recorded Valuation
Investment Allowance Investment Allowance
---------- --------- ---------- ---------
(In millions)
Impaired loans:
Valuation allowance required $142 $ 51 $114 $ 30
No valuation allowance required 36 39
---- ---- ---- ----
Total impaired loans $178 $ 51 $153 $ 30
==== ==== ==== ====
Average impaired loans during the third quarter of 1999 and 1998 were $162
million and $138 million, respectively. The Corporation recognized interest
income on impaired loans of $1.7 million during both quarters ended September
30, 1999 and 1998.
CREDIT QUALITY
Non-performing assets consist of past-due loans on which no interest income is
being accrued, renegotiated loans and other real estate. The Corporation's
policy is to place commercial loans on non-accrual status if payments of
principal or interest are delinquent 60 days rather than the standard industry
practice of 90 days. Financing leases, conventional mortgages and close-end
consumer loans are placed on non-accrual status if payments are delinquent 90
days. Closed-end consumer loans are charged-off when payments are delinquent 120
days. Open-end (revolving credit) consumer loans are charged-off if payments are
delinquent 180 days. Certain loans which would be treated as non-accrual loans
pursuant to the foregoing policy, are treated as accruing loans if they are
considered well-secured and in the process of collection. Under the standard
industry practice, close-end consumer loans are charged-off when delinquent 120
days, but are not customarily placed on non-accrual status prior to being
charged-off.
32
33
Table E shows information on non-performing assets as of September 30, 1999,
December 31, 1998 and September 30, 1998. NPA were $303 million or 2.18% of
loans at June 30, 1999. Non-performing assets as a percentage of total loans
amounted to 2.36% as of September 30, 1999, compared with 2.28% at the same date
in 1998 and 2.26% as of December 31, 1998.
TABLE E
NON-PERFORMING ASSETS
- -----------------------------------------------------------------------------------------------
SEPTEMBER 30, December 31, September 30,
1999 1998 1998
- -----------------------------------------------------------------------------------------------
(Dollars in thousands)
Commercial, construction, industrial
And agricultural $176,641 $142,515 $149,504
Lease financing 3,619 4,937 3,185
Mortgage 72,802 68,527 60,248
Consumer 52,181 46,626 42,828
Renegotiated accruing loans 0 578 0
Other real estate 27,926 32,693 25,743
------------------------------------------------
Total $333,169 $295,876 $281,508
================================================
Accruing loans past-due
90 days or more $ 25,028 $ 24,426 $ 24,427
================================================
Non-performing assets to loans 2.36% 2.26% 2.28%
Non-performing assets to assets 1.37 1.28 1.32
33
34
All loan categories reflected increases in non-performing assets as compared
with September 30, 1998. The non-performing commercial loans, including
construction loans, and mortgage loans increased $27.1 million and $12.6
million, respectively, while the consumer and lease financing non-performing
loans increased $9.4 million and $0.4 million, respectively. The increase in
non-performing commercial loans of $27.1 million when compared to September 30,
1998 was mainly attributed to the rise of $16 million in non-performing
commercial loans of BF, partly attributed to the placement in non-accrual status
of two large commercial relationships in the Dominican Republic in the third
quarter of 1999. Also, our banking operations in the U.S. reflected rises due in
part to the operations acquired in the fourth quarter of 1998 in California and
Illinois. The latter increases were mainly the result of implementing the
Corporation's more conservative non-accrual policy. Moreover, the banking
operations in Puerto Rico and the U.S. Virgin Islands reflected an increase of
$4.3 million, mostly as a result of the continued growth in these portfolios.
The increase in non-performing mortgage loans was principally due to a rise of
$8.2 million in non-performing mortgage loans at Equity One and $2.8 million at
the Corporation's banking operations in the U.S., mainly as a result of the
aforementioned acquisitions. The non-performing consumer loan portfolio also
showed a rise, principally due to an increase of $4 million in Popular Finance
mainly caused by the growth in the loan portfolio and a higher delinquency in
the portfolio guaranteed by real estate. In addition, the other real estate
category increased $2.2 million principally as a result of a rise in BF of $4.5
million.
At September 30, 1999, the allowance for loan losses as a percentage of
non-performing assets was 86.56% compared with 93.26% at June 30, 1999 and
90.32% at December 31, 1998. The reduction in the allowance coverage ratio is
mostly attributed to the rise in non-performing assets of BF.
Assuming the standard industry practice of placing commercial loans on
non-accrual status when payments of principal and interest are past due 90 days
or more and excluding the closed-end consumer loans from non-accruing, the
Corporation's non-performing assets at September 30, 1999, would have been $238
million or 1.69% of loans, and the allowance for loan losses would have been
120.9% of non-performing assets. At September 30, 1998 and December 31, 1998,
adjusted non-performing assets would have been $210 million and $227 million,
respectively, or 1.70% and 1.73% of loans.
OTHER OPERATING INCOME
Other operating income, excluding securities and trading gains amounted to $97.7
million for the third quarter ended September 30, 1999, compared with $69.2
million for the same period in 1998. As seen on Table F, the rise in other
income was principally driven by an increase of $4.2 million in credit card fees
and discounts, $3.3 million in processing fees, $3.6 million in service charges
on deposit accounts, $3.2 million in other fees, and $9.1 million in other
income. For the nine-month periods ended September 30, 1999 and 1998, these
revenues were $271.8 million and $204.1 million, respectively.
Service charges on deposit accounts reflect higher activity on commercial and
retail accounts and a higher volume of deposits mostly resulting from the
Corporation's business expansion and acquisitions. Other service fees, which
represented 45.4% of non-interest income for the third quarter of 1999,
increased $15.8 million or 55.4% from the amount reported in 1998. This increase
is mostly attributed to the expansion of the Corporation's operations due to
acquisitions and business growth. As shown in Table F, most categories reflected
increases in other service fees when compared with the same quarter last year.
The growth was mostly experienced in the credit card and retail financial
businesses, among others.
The growth in the credit card business resulted from increased fees and higher
credit card net sales compared with September 30, 1998. The launching of Banco
Popular American Express card in Puerto Rico
34
35
in August 1998, as well as the growth of the credit card business in the U.S.
mainland has been critical to this rise. The increase in the check-cashing
category is basically driven by the expansion of the Corporation's retail
financial services subsidiary, which provides services such as check-cashing,
money transfers to other countries, money order sales and processing of
payments. This subsidiary operated 60 stores in four states plus 34 mobile units
at the end of the third quarter of 1999, compared with 13 stores in one state
as of September 30, 1998. Also contributing to the rise in other services fees
are $3.3 million in processing fees generated by the recently acquired
subsidiary GM Group.
TABLE F
OTHER OPERATING INCOME
Third Quarter First Nine Months
- --------------------------------------------------------------------------------------------------------------------
1999 1998 Change 1999 1998 Change
- --------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Service charges on deposit accounts $29,935 $26,344 $ 3,591 $ 87,915 $ 77,176 $10,739
Other service fees:
Credit cards fees and discounts 12,805 8,565 4,240 35,809 25,374 10,435
Debit card fees 5,829 4,441 1,388 16,246 13,139 3,107
Sale and administration of investment
Products 4,688 2,891 1,797 13,214 8,877 4,337
Processing fees 3,333 3,333 3,333 3,333
Mortgage servicing fees, net of
Amortization 2,717 2,157 560 8,285 6,836 1,449
Check cashing fees 2,601 824 1,777 9,203 1,344 7,859
Trust fees 2,543 2,471 72 7,599 6,708 891
Credit life insurance fees 1,648 2,162 (514) 5,303 6,412 (1,109)
Other fees 8,210 5,046 3,164 22,982 14,858 8,124
------------------------------------------------------------------------
Subtotal 44,374 28,557 15,817 121,974 83,548 38,426
Other income 23,373 14,261 9,112 61,904 43,379 18,525
------------------------------------------------------------------------
Total $97,682 $69,162 $28,520 $271,793 $204,103 $67,690
========================================================================
In addition, contributing to the rise in other service fees are fees from the
sale and administration of investment products, mostly related to the issuance
of a new mutual fund (PRITFF VI) during the quarter ended September 30, 1999.
Furthermore, the increase in debit card fees, which consist primarily of rental
income of point-of-sale (POS) terminals and interchange income, mainly resulted
from the sustained growth in the number of POS terminals and the volume of
transactions. The monthly average volume of transactions was 4,952,030 million
in September 1999 compared to 3,799,984 million a year earlier. Other fees
increased $3.2 million mainly driven by the subsidiaries acquired after the
second quarter of 1998. Partially offsetting these increases, was a decline in
credit life insurance fees resulting from the enactment of a statute during
1999, that requires financial institutions in Puerto Rico to reimburse the
unearned portion of the credit life insurance fee collected if the loan is
prepaid.
The increase in other income was fueled mainly by a $4.7 million gain resulting
from the sale of $195 million in loans securitized during this quarter. Also,
fees generated from the Corporation's joint venture in Puerto Rico's local
telephone company and other revenues generated by GM Group, contributed to the
rise in other operating income when compared with the same quarter last year.
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OPERATING EXPENSES
Operating expenses for the third quarter of 1999 were $214.7 million compared
with $178.6 million for the same quarter in 1998, an increase of $36.1 million.
For the first nine months of 1999, operating expenses rose to $621.8 million
from $526 million for the same period in 1998.
Personnel costs, the largest category of operating expenses, totaled $99.4
million for the third quarter of 1999, an increase of $15.1 million or 18% when
compared with the same period of 1998. Salaries accounted for the largest
portion of the increase rising $13.9 million. This rise mostly resulted from
increased employment levels due to the Corporation's continued growth and
expansion. The Corporation's expansion included the acquisitions made in
California, Illinois and the Dominican Republic during the latter part of 1998,
and the acquisition of GM Group and Levitt Mortgage during this quarter.
Full-time equivalent employees (FTE's) amounted to 11,355 at the end of this
quarter, up 2,030 from 9,325 FTE's at the same date in 1998.
Other operating expenses, excluding personnel costs, increased $21 million,
reaching $115.3 million for the third quarter of 1999, compared with $94.3
million for the same period in 1998. This increase was mostly reflected in
equipment, net occupancy expenses, professional fees and business promotion
expenses. The rise of $4.4 million in equipment expenses was mostly due to
investment needed to support the growth of the Corporation's business activity
and geographical expansion, including costs related to new technology and
systems enhancements, and costs related to the expansion of the electronic
payment system. Since the end of the third quarter of 1998, the Corporation
increased its automated teller machine (ATM) network by 31 and 2,915 additional
POS terminals were connected in order to expand the electronic delivery
capabilities. Net occupancy increased $3.2 million mostly as a result the
Corporation's growth and expansion. The increase of $2.9 million in professional
fees reflected expenditures associated with consulting and technical support
fees related to the expansion of the U.S. operations and expenses corresponding
to the operations acquired during the latter part of 1998 and 1999. The rise of
$2.2 million in business promotion is mainly due to a new institutional
advertising campaign launched in Puerto Rico for Banco Popular and to marketing
efforts to expand the mortgage banking business in Puerto Rico and the retail
banking business in the Dominican Republic. The rise of $4.3 million in other
operating expenses mostly relates to increases in interchange and processing
expenses on credit cards, sundry losses, expenses incurred on foreclosed
properties, travel and other expenses.
Income tax expense rose $2.5 million from $18.4 million in the third quarter of
1998, to $20.9 million in the same quarter this year, primarily as a result of
the growth in pre-tax earnings. The effective tax rate for the third quarter of
1999 was 24.9% compared with 24.2% for the same period in 1998.
IMPACT OF THE YEAR 2000 ISSUE
The Corporation, after being actively engaged in modifying, converting, and
testing its computer systems and date-sensitive operating equipment for the past
two years, is finally ready for the Year 2000. During this period it also worked
with customers and business partners to ascertain their progress toward Year
2000 compliance. Internal auditors of the Corporation have verified and
validated the work done in this important project, which has been classified as
the top priority of the Corporation for 1999. As of September 30, 1999, the
majority of the project has been completed, leaving mainly additional testing
and communication efforts for the remaining of 1999.
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A four phase action plan was used to drive the activities related with the
information technology components (in-house processed core applications; data
processing center computers, software and equipment; networks and communication
backbones; decentralized managed applications; personal computers with their
corresponding software) and date-sensitive operating equipment as explained
below:
ASSESSMENT - identification of the components that may be
impacted by the arrival of the new century.
Determination of resources needed, time
frame and sequencing of the Year 2000
efforts,
RENOVATION - modification, conversion, replacement or
elimination of components not Year 2000
ready,
VALIDATION - testing and verification of the components
by simulating data conditions for the Year
2000,
IMPLEMENTATION - installation of renovated components into
production.
NON-INFORMATION TECHNOLOGY
The action plan of date-sensitive operating equipment, including specialized
banking equipment such as ATMs, statement rendering and check processing
machines, was 100% completed as of June 30, 1999.
Significant third parties with which the Corporation interfaces with regard to
the Year 2000 problem include customers and business partners (counterparties,
technology vendors, service providers, payment and clearing systems, utilities,
etc.). Unreadiness by these third parties would expose the Corporation to a
potential loss, through impairment of business processes and activities.
The Corporation has assessed and is monitoring the progress of customers in
their efforts to become Year 2000 compliant and the possible effects of their
inability to become Year 2000 compliant. Also, the Corporation has assessed and
is monitoring and testing the progress of its business partners and
counterparties to determine whether they will be able to successfully interact
with the Corporation in the Year 2000.
Before June 30, 1999, the processing service bureaus of the Corporation's
operations in the United States certified 100% of the applications presently
used as Year 2000 compliant.
CONTINGENCY PLANS AND BUSINESS CONTINUITY
Even after thorough testing plans are executed, there is a possibility that
problems may arise in relation to all the changes made to systems and equipment
to ascertain they are ready for the Year 2000. Based on the current status of
the Year 2000 action plans, the Corporation's most reasonably likely worst case
scenario is that an unforeseen hardware or system failure might impair the
execution of one or more critical business processes during a limited period of
time. Business resumption plans are based on the assumption that the Corporation
will correct any hardware or software systems failure within five working days.
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The Corporation's strategy was to focus on the assessment, renovation,
validation, and implementation phases of its Year 2000 action plans so as to
limit errors, and therefore the need to implement business resumption plans.
Nevertheless, the Corporation has established company-wide business recovery
plans to support critical business processes in case of an unforeseen hardware
or software failure in the Year 2000. These business resumption plans include,
among other things, a business impact analysis, prioritization of business
processes, specific recovery strategies and alternative manual procedures for
critical business processes. All business resumption plans for critical
operations in Puerto Rico and the United States were completed and tested by
June 30,1999.
The Corporation has also developed an Event Management Plan to be implemented
during December 1999 and the beginning of the Year 2000. The plan includes a
vacation freeze to make sure that all our employees are available in case any
problem arise. It also covers the establishment of command centers throughout
the different geographical areas and an internal and external communications
plan. Instructions for tests of equipment and applications on January 1, 2000
are also included. We are confident that with this plan we will be ready to
handle any unforeseen circumstance effectively.
COMMUNICATION PLANS
As the year 2000 rapidly approaches many customers have indicated that they may
withdraw large quantities of cash at the end of 1999, responding to
sensationalist Y2K media coverage. To prevent this and minimize the possibility
of large quantities of cash being withdrawn at the end of the year, we have
developed a communication campaign. The objective of the campaign is to explain
what the Corporation has done to renovate, test and certify all its date
sensitive systems, applications and equipment. The contingency plans that have
been prepared are also described to indicate that even if problems arise
customer service will not be significantly affected. The existence of back-up
records and the FDIC's insurance are mentioned as added assurances to our
customers.
COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
The principal costs of the Year 2000 project are those associated with the
renovation and validation phases. The major portion, however, was met from the
existing resources through the deferral of technology projects, with the
remainder representing incremental costs.
The Information Technology group was reinforced with additional programmers and
other skilled technical personnel to ascertain the availability of the necessary
resources. Other relevant incremental costs are the costs to contract external
consultants to manage the renovation and validation of certain specific items
and scheduled upgrades that were accelerated due to the Year 2000 issue. The
Corporation is funding the project through operating cash flows. The related
incremental costs, and the impact of the technology development initiatives
being deferred were not material to the financial condition and results of
operations of 1998, nor it is anticipated to be for 1999.
Management estimates the total incremental costs of achieving Year 2000
compliance to be approximately $11.2 million over the two-year period ending in
December 31, 1999. Approximately $9.8 million had been incurred as of September
30, 1999, of which $4.6 million were incurred during the first nine months of
1999. Of the above total of $9.8 million, $3.5 million are related to
consultants contracted, $4.0 million for additional technical employees hired,
$1.1 million for new hardware and software acquired and $1.2 million related
with costs to contact customers, retain technical employees and other costs of
the Year 2000 project.
Year 2000 costs are based on management's best estimates, which were derived
utilizing numerous assumptions of future events and other factors. However,
there can be no guarantee that these estimates will be achieved and actual costs
could differ materially from those projected.
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BALANCE SHEET COMMENTS
At September 30, 1999, the Corporation's total assets reached $24.3 billion from
$21.3 billion reported at September 30, 1998 an increase of $3.0 billion or
14.1%. Most of this rise relates to the Corporation's business growth,
particularly at the banking subsidiaries, and to the acquisitions made after
September 30, 1998, as previously described. Total assets at December 31, 1998,
were $23.2 billion. Earning assets reached $22.5 billion as of September 30,
1999, compared with $21.6 billion as of December 31, 1998 and $19.9 billion at
September 30, 1998.
The investment portfolio totaled $7.3 billion as of September 30, 1999 compared
with $7.2 billion as of December 31, 1998. Investment securities as of September
30, 1998 amounted to $6.5 billion. The increase from September 30, 1998 is
mostly related to an attractive environment for investments and arbitrage
opportunities undertaken by the Corporation, as previously explained in the Net
Interest Income section.
As shown on Table G, the growth of $1.0 billion in loans as compared with
December 31, 1998 was mostly reflected in the commercial and mortgage loan
portfolios, which contributed with $0.8 million or 80% of the total increase.
The growth in the commercial loan portfolio resulted principally from the
continued marketing efforts directed to the retail and middle market, the
sustained growth in Puerto Rico and the expansion in the United States. The
mortgage loan portfolio continued rising from the end of 1998 despite the loan
securitizations of $125 million and $195 million made by Equity One in the first
and third quarters of 1999, respectively. The increase in the mortgage loan
portfolio has been attained as a result of higher loan origination and
refinancing activity as a result of a favorable interest rate environment,
particularly during the last quarter of 1998 and the first half of 1999, and
increased marketing efforts.
TABLE G
LOANS ENDING BALANCES
- ----------------------------------------------------------------------------------------
SEPTEMBER 30, December 31, September 30,
1999 1998 1998
- ----------------------------------------------------------------------------------------
(Dollars in thousands)
Commercial, industrial and
agricultural $ 6,169,886 $ 5,646,027 $ 5,273,229
Construction 308,148 257,786 235,299
Lease financing 712,258 645,280 638,824
Mortgage * 3,638,853 3,351,748 3,084,325
Consumer 3,267,936 3,177,954 3,130,850
---------------------------------------------------
Total $14,097,081 $13,078,795 $12,362,527
===================================================
* Includes loans held-for-sale
- --------------------------------------------------------------------------------
The increase of $107 million in other assets as compared with December 31, 1998,
was mainly due to an increase in deferred tax assets at Banco Popular and to the
businesses acquired in the third quarter of 1999.
Total deposits at September 30, 1999, were $13.8 billion or $97.8 million higher
than the $13.7 billion reported at December 31, 1998. Non-interest bearing
deposits decreased $182 million as compared with December 31, 1998, mainly at
Banco Popular. Most of this decrease relates to funds held in trust as paying
agent on several bond issues at December 31, 1998, subsequently disbursed at the
beginning of the first quarter. Savings and time deposits continued their
growth, increasing $94 million and $191 million, respectively, as compared with
December 31, 1998. At September 30, 1998, total deposits amounted to $12.5
billion. The geographic distribution of the Corporation's total deposits as of
September 30, 1999, included 69.2% in Puerto Rico, 24.5% in the United States,
and 6.3% in the Caribbean region, compared with 69.1%, 24.9% and 6.0%,
respectively at December 31, 1998.
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Borrowed funds, including subordinated notes and capital securities, increased
to $8.4 billion at September 30, 1999, compared with $7.3 billion and $6.6
billion at December 31, 1998 and September 30, 1998, respectively. Borrowed
funds were used primarily to finance loan growth. On August 4, 1999, a "shelf"
registration was filed with the Securities and Exchange Commission, allowing the
Corporation and some subsidiaries to issue medium-term notes, unsecured debt
securities and preferred stock in an aggregate amount of up to $1.5 billion. The
Corporation guarantees these securities. As of September 30, 1999, the
Corporation has not issued any debt under this new "shelf" registration.
As part of its investments in BF and Levitt Mortgage, the Corporation recognized
a minority interest, which amounts to $23.3 million as of September 30, 1999,
representing the beneficial interest of the minority investors of these two
entities. As of December 31, 1998, this minority interest totaled $27.6 million.
The decrease from the end of 1998 was mainly attributed to the increase in the
ownership interest of the Corporation in BF from 45% to 57% at September 30,
1999, partially offset by the new acquisition of Levitt Mortgage during this
quarter.
The Corporation's stockholder's equity at September 30, 1999 and December 31,
1998 was $1.68 billion and $1.71 billion, respectively, compared with $1.70
billion at September 30, 1998. The decrease since December 31, 1998 was the
result of a reduction of $160 million in accumulated other comprehensive income,
mostly attributed to unrealized losses on available-for-sale securities. Also,
for the nine-month period ended September 30, 1999 the Corporation repurchased a
total of 1,663,000 of its common stock under the stock repurchase program
approved by its Board of Directors on May 8, 1997 at a cost of $49.9 million.
The dividend payout ratio to common stockholders for the quarter ended September
30, 1999, was 30.48% compared with 26.86% for the same quarter last year. For
the nine-month periods ended September 30, 1999 and 1998, these ratios were
30.67% and 27.32%, respectively. On August 12, 1998, the Corporation's Board of
Directors declared a quarterly cash dividend of $0.16 per common share. This
represents a 14.3% increase over the $0.14 per common share paid in the previous
quarterly cash dividends. The dividend was paid on October 1, 1999 to
shareholders of record on September 10, 1999.
Under the prompt corrective action provisions, banks and bank holding companies
which meet or exceed a Tier I ratio of 6%, a total capital ratio of 10% and a
leverage ratio of 5% are considered well-capitalized. As shown on Table I, the
Corporation exceeds those regulatory risk-based capital requirements for
well-capitalized institutions, due to the high level of capital and the
conservative nature of the Corporation's assets.
The market value of the Corporation's common stock at September 30, 1999, was
$27.75, compared with $34.00 at December 31, 1998 and $28.38 at September 30,
1998. The Corporation's market capitalization at September 30, 1999, was $3.8
billion compared with $4.6 billion as of December 31, 1998 and $3.9 billion at
September 30, 1998.
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TABLE H
CAPITAL ADEQUACY DATA
- -------------------------------------------------------------------------------------------------------
September 30, December 31, September 30,
1999 1998 1998
- -------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Risk-based capital
Tier I capital $ 1,506,356 $ 1,450,187 $ 1,476,823
Supplementary (Tier II) capital 316,948 310,091 289,818
------------------------------------------------
Total capital $ 1,823,304 $ 1,760,278 $ 1,766,641
================================================
Risk-weighted assets
Balance sheet items $14,137,776 $12,955,995 $11,986,235
Off-balance sheet items 454,816 443,926 267,437
------------------------------------------------
Total risk-weighted assets $14,592,592 $13,399,921 $12,253,672
================================================
Ratios:
Tier I capital (minimum required - 4.00%) 10.32% 10.82% 12.05%
Total capital (minimum required - 8.00%) 12.49 13.14 14.42
Leverage ratio (minimum required - 3.00%) 6.36 6.72 7.37
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Corporation is a defendant in a number of legal proceedings arising in the
normal course of business. Management believes, based on the opinion of legal
counsel, that the final disposition of these matters will not have a material
adverse effect on the Corporation's financial position or results of operations.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit No. Exhibit Description Reference
----------- ------------------- ---------
19 Quarterly Report to Shareholders for the Exhibit "A"
period ended September 30, 1999
27 Financial Data Schedule (for SEC use only) Exhibit "B"
b) Three reports on Form 8-K were filed for the quarter ended September 30,
1999:
Dated: July 8, 1999, July 15, 1999 and August 5, 1999
Items reported: Item 5 - Other Events
Item 7 - Financial Statements, Pro-Forma, Financial
Information and Exhibits
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be filed on its behalf by the
undersigned thereunto duly authorized.
POPULAR, INC.
(Registrant)
Date: November 15, 1999 By: S/ Jorge A. Junquera
----------------------- ----------------------
Jorge A. Junquera
Senior Executive Vice President
Date: November 15, 1999 By: S/ Amilcar L. Jordan
------------------------ -----------------------
Amilcar L. Jordan, Esq.
Senior Vice President & Comptroller
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