EX-13.1 16 g67461ex13-1.txt REGISTRANT'S ANNUAL REPORT 1 EXHIBIT 13.1 [LOGO] [PHOTO] Serving Our Clients Solidifying Our Markets Securing Our Future 2000 Popular, Inc. Annual Report 2 SECURING OUR FUTURE Popular, Inc., a bank holding company with $28 billion in assets, is a complete financial services provider with operations in Puerto Rico, the United States, the Caribbean and Latin America. As the leading financial institution in Puerto Rico, the Corporation offers full individual and commercial banking services through its principal subsidiary, Banco Popular, as well as investment banking, auto leasing, mortgage, personal loans, insurance, and information processing through specialized subsidiaries. In the United States, the Corporation has established the largest Hispanic financial services franchise, providing solutions to the fastest-growing population segment in the country. The Corporation continues to use its technological expertise and experience in commercial banking as a competitive advantage on its Caribbean and Latin America expansion, and is exporting its 107 years of retail banking experience to the region. Popular, Inc. has always been committed to meeting the needs of individual and business clients through innovation, and to fostering growth in the communities where it does business. [GRAPH] 3 FINANCIAL HIGHLIGHTS 1 VALUES, OUR CREED, OUR PEOPLE 2 STRATEGIC OBJECTIVES 3 LETTER TO SHAREHOLDERS 4 OUR BUSINESS 6 OUR COMMUNITY 15 MANAGEMENT 18 BOARDS OF DIRECTORS 20 FINANCIAL INFORMATION F-1
4 Popular, Inc. 2000 Annual Report FINANCIAL HIGHLIGHTS NET INCOME TOTAL ASSETS dollars in millions dollars in millions [CHART] [CHART] ROA ROE percentage percentage [CHART] [CHART] MARKET CAPITALIZATION EARNINGS PER SHARE dollars in millions dollars [CHART] [CHART] 1 5 VALUES Social Responsibility We are committed to work for the social and economic well-being of the communities we serve with particular regard for the lowest socioeconomic component of the population. Focus on the Customer Our customers are the lifeblood of our organization. We are an institution that values relationships more than transactions. The needs and satisfaction of our customers are our primary concern. Integrity We are guided by the highest moral and ethical standards. The trust of our customers is essential for our existence. Passion for Excellence We firmly believe in doing things the right way, the first time, every time. Continuous improvement and measurement of all our processes is essential for our success. Innovation Constant innovation is a competitive advantage. We adopt new techniques in all business areas to anticipate the changing needs of our customers. Our People We believe that our working environment should be characterized by affection and discipline. We strive to attract, develop and retain the most qualified people. We recognize and reward the performance of excellence by the individual, the team and the Corporation. Shareholder Value Our goal is to produce above-average and consistent financial returns for our shareholders. Our decisions are based on a long-term view of the future and are characterized by prudence in assuming risk. OUR CREED Banco Popular is a local institution dedicating its efforts exclusively to the enhancement of the social and economic conditions in Puerto Rico and inspired by the most sound principles and fundamental practices of good banking. Banco Popular pledges its efforts and resources to the development of a banking service for Puerto Rico within strict commercial practices and so efficient that it could meet the requirement of the most progressive community of the world. These words, written in 1928 by Don Rafael Carrion Pacheco, Executive Vice President and President (1927-1956), embody the philosophy of Popular, Inc. OUR PEOPLE The men and women who work for our institution, from the highest executive to the employees who handle the most routine tasks, feel a special pride in serving our customers with care and dedication. All of them feel the personal satisfaction of belonging to the "Banco Popular Family", which fosters affection and understanding among its members, and which at the same time firmly complies with the highest ethical and moral standards of behavior. These words by Don Rafael Carrion Jr., President and Chairman of the Board (1956-1991) were written in 1988 to commemorate the 95th anniversary of Banco Popular de Puerto Rico, and reflect our commitment to human resources. 2 6 HISTORICAL FINANCIAL SUMMARY (Dollars in millions, except per common share data)
1980 1981 1982 1983 1984 1985 1986 ---------------------------------------------------------------------------------------------------------------------------------- SELECTED FINANCIAL INFORMATION ---------------------------------------------------------------------------------------------------------------------------------- Net Interest Income $ 130.0 $ 135.9 $ 151.7 $ 144.9 $ 156.8 $ 174.9 $ 184.2 Non-Interest Income 14.2 15.8 15.9 19.6 19.0 26.8 41.4 Operating Expenses 101.3 109.4 121.2 127.3 137.2 156.0 168.4 Net Income 23.5 24.3 27.3 26.8 29.8 32.9 38.3 ---------------------------------------------------------------------------------------------------------------------------------- Total Assets $2,630.1 $2,688.7 $2,727.0 $ 2,974.1 $ 3,526.7 $ 4,141.7 $ 4,531.8 Net Loans 988.4 1,007.6 976.8 1,075.7 1,373.9 1,715.7 2,271.0 Deposits 2,060.5 2,111.7 2,208.2 2,347.5 2,870.7 3,365.3 3,820.2 Total Stockholders' Equity 122.1 142.3 163.5 182.2 203.5 226.4 283.1 ---------------------------------------------------------------------------------------------------------------------------------- Market Capitalization $ 45.0 $ 66.4 $ 99.0 $ 119.3 $ 159.8 $ 216.0 $ 304.0 ROA 0.92% 0.90% 0.96% 0.95% 0.94% 0.89% 0.88% ROE 19.96% 18.36% 17.99% 15.86% 15.83% 15.59% 15.12% ---------------------------------------------------------------------------------------------------------------------------------- PER COMMON SHARE(1) ---------------------------------------------------------------------------------------------------------------------------------- Earnings $ 0.34 $ 0.34 $ 0.38 $ 0.37 $ 0.41 $ 0.46 $ 0.50 Dividends (Declared) 0.07 0.06 0.08 0.11 0.12 0.14 0.15 Book Value 1.66 1.93 2.22 2.47 2.76 3.07 3.46 Market Price 1.01 0.92 1.38 1.66 2.22 3.00 4.00 ---------------------------------------------------------------------------------------------------------------------------------- ASSETS BY GEOGRAPHICAL AREA ---------------------------------------------------------------------------------------------------------------------------------- Puerto Rico 95.53% 94.65% 94.63% 93.70% 91.31% 92.42% 91.67% United States 4.47% 5.14% 5.01% 5.23% 7.52% 6.47% 7.23% Other 0.00% 0.22% 0.36% 1.07% 1.17% 1.11% 1.10% ---------------------------------------------------------------------------------------------------------------------------------- Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% ---------------------------------------------------------------------------------------------------------------------------------- TRADITIONAL DELIVERY SYSTEM ---------------------------------------------------------------------------------------------------------------------------------- Banking Branches Puerto Rico 110 110 110 112 113 115 124 Virgin Islands 1 2 3 3 3 3 United States 7 7 7 6 9 9 9 Dominican Republic ---------------------------------------------------------------------------------------------------------------------------------- Subtotal 117 118 119 121 125 127 136 ---------------------------------------------------------------------------------------------------------------------------------- Non-Banking Offices Equity One Popular Cash Express Popular Finance Popular Leasing Popular Leasing, U.S.A. Popular Mortgage Popular Securities Levitt Mortgage GM Group ---------------------------------------------------------------------------------------------------------------------------------- Subtotal ---------------------------------------------------------------------------------------------------------------------------------- Total 117 118 119 121 125 127 136 ---------------------------------------------------------------------------------------------------------------------------------- ELECTRONIC DELIVERY SYSTEM ---------------------------------------------------------------------------------------------------------------------------------- ATMs Owned Puerto Rico 30 78 94 113 Caribbean United States ---------------------------------------------------------------------------------------------------------------------------------- Subtotal 30 78 94 113 ---------------------------------------------------------------------------------------------------------------------------------- Driven Puerto Rico 6 36 51 Caribbean ---------------------------------------------------------------------------------------------------------------------------------- Subtotal 6 36 51 ---------------------------------------------------------------------------------------------------------------------------------- Total 30 84 130 164 ---------------------------------------------------------------------------------------------------------------------------------- BPPR TRANSACTIONS (IN MILLIONS) ---------------------------------------------------------------------------------------------------------------------------------- Electronic Transactions 0.6 4.4 7.0 8.3 Items Processed 94.8 96.9 98.5 102.1 110.3 123.8 134.0 ---------------------------------------------------------------------------------------------------------------------------------- EMPLOYEES (FTEs) 3,838 3,891 3,816 3,832 4,110 4,314 4,400 ---------------------------------------------------------------------------------------------------------------------------------- 1987 1988 1989 1990 1991 1992 ----------------------------------------------------------------------------------------------------------------------------- SELECTED FINANCIAL INFORMATION ----------------------------------------------------------------------------------------------------------------------------- Net Interest Income $ 207.7 $ 232.5 $ 260.9 $ 284.2 $ 407.8 $ 440.2 Non-Interest Income 41.0 54.9 63.3 70.9 131.8 124.5 Operating Expenses 185.7 195.6 212.4 229.6 345.7 366.9 Net Income 38.3 47.4 56.3 63.4 64.6 85.1 ----------------------------------------------------------------------------------------------------------------------------- Total Assets $ 5,389.6 $ 5,706.5 $ 5,972.7 $ 8,983.6 $ 8,780.3 $ 10,002.3 Net Loans 2,768.5 3,096.3 3,320.6 5,373.3 5,195.6 5,252.1 Deposits 4,491.6 4,715.8 4,926.3 7,422.7 7,207.1 8,038.7 Total Stockholders' Equity 308.2 341.9 383.0 588.9 631.8 752.1 ----------------------------------------------------------------------------------------------------------------------------- Market Capitalization $ 260.0 $ 355.0 $ 430.1 $ 479.1 $ 579.0 $ 987.8 ROA 0.76% 0.85% 0.99% 1.09% 0.72% 0.89% ROE 13.09% 14.87% 15.87% 15.55% 10.57% 12.72% ----------------------------------------------------------------------------------------------------------------------------- PER COMMON SHARE(1) ----------------------------------------------------------------------------------------------------------------------------- Earnings $ 0.48 $ 0.59 $ 0.70 $ 0.79 $ 0.54 $ 0.70 Dividends (Declared) 0.17 0.17 0.20 0.20 0.20 0.20 Book Value 3.77 4.19 4.69 4.92 5.25 5.76 Market Price 3.34 4.44 5.38 4.00 4.81 7.56 ----------------------------------------------------------------------------------------------------------------------------- ASSETS BY GEOGRAPHICAL AREA ----------------------------------------------------------------------------------------------------------------------------- Puerto Rico 94.22% 93.45% 92.18% 88.59% 86.67% 87.33% United States 5.01% 5.50% 6.28% 9.28% 10.92% 10.27% Other 0.77% 1.05% 1.54% 2.13% 2.41% 2.40% ----------------------------------------------------------------------------------------------------------------------------- Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% ----------------------------------------------------------------------------------------------------------------------------- TRADITIONAL DELIVERY SYSTEM ----------------------------------------------------------------------------------------------------------------------------- Banking Branches Puerto Rico 126 126 128 173 161 162 Virgin Islands 3 3 3 3 3 3 United States 9 10 10 24 24 30 Dominican Republic ----------------------------------------------------------------------------------------------------------------------------- Subtotal 138 139 141 200 188 195 ----------------------------------------------------------------------------------------------------------------------------- Non-Banking Offices Equity One 27 41 Popular Cash Express Popular Finance 14 17 18 26 26 26 Popular Leasing 4 9 9 9 Popular Leasing, U.S.A. Popular Mortgage Popular Securities Levitt Mortgage GM Group ----------------------------------------------------------------------------------------------------------------------------- Subtotal 14 17 22 35 62 76 ----------------------------------------------------------------------------------------------------------------------------- Total 152 156 163 235 250 271 ----------------------------------------------------------------------------------------------------------------------------- ELECTRONIC DELIVERY SYSTEM ----------------------------------------------------------------------------------------------------------------------------- ATMs Owned Puerto Rico 139 156 151 211 206 211 Caribbean 3 3 3 3 United States 6 ----------------------------------------------------------------------------------------------------------------------------- Subtotal 139 156 154 214 209 220 ----------------------------------------------------------------------------------------------------------------------------- Driven Puerto Rico 55 68 65 54 73 81 Caribbean ----------------------------------------------------------------------------------------------------------------------------- Subtotal 55 68 65 54 73 81 ----------------------------------------------------------------------------------------------------------------------------- Total 194 224 219 268 282 301 ----------------------------------------------------------------------------------------------------------------------------- BPPR TRANSACTIONS (IN MILLIONS) ----------------------------------------------------------------------------------------------------------------------------- Electronic Transactions 12.7 14.9 16.1 18.0 23.9 28.6 Items Processed 139.1 159.8 161.9 164.0 166.1 170.4 ----------------------------------------------------------------------------------------------------------------------------- EMPLOYEES (FTEs) 4,699 5,131 5,213 7,023 7,006 7,024 ----------------------------------------------------------------------------------------------------------------------------- 1993 1994 1995 1996 1997 1998 -------------------------------------------------------------------------------------------------------------------------------- SELECTED FINANCIAL INFORMATION -------------------------------------------------------------------------------------------------------------------------------- Net Interest Income $ 492.1 $ 535.5 $ 584.2 $ 681.3 $ 784.0 $ 873.0 Non-Interest Income 125.2 141.3 173.3 205.5 247.6 291.2 Operating Expenses 412.3 447.8 486.8 541.9 636.9 720.4 Net Income 109.4 124.7 146.4 185.2 209.6 232.3 -------------------------------------------------------------------------------------------------------------------------------- Total Assets $ 11,513.4 $ 12,778.4 $ 15,675.5 $ 16,764.1 $ 19,300.5 $ 23,160.4 Net Loans 6,346.9 7,781.3 8,677.5 9,779.0 11,376.6 13,077.8 Deposits 8,522.7 9,012.4 9,876.7 10,763.3 11,749.6 13,672.2 Total Stockholders' Equity 834.2 1,002.4 1,141.7 1,262.5 1,503.1 1,709.1 -------------------------------------------------------------------------------------------------------------------------------- Market Capitalization $ 1,014.7 $ 923.7 $ 1,276.8 $ 2,230.5 $ 3,350.3 $ 4,602.4 ROA 1.02% 1.02% 1.04% 1.14% 1.14% 1.14% ROE 13.80% 13.80% 14.22% 16.15% 15.83% 15.41% -------------------------------------------------------------------------------------------------------------------------------- PER COMMON SHARE(1) -------------------------------------------------------------------------------------------------------------------------------- Earnings $ 0.84 $ 0.92 $ 1.05 $ 1.34 $ 1.50 $ 1.65 Dividends (Declared) 0.23 0.25 0.29 0.35 0.40 0.50 Book Value 6.38 6.87 7.91 8.80 10.37 11.86 Market Price 7.75 7.03 9.69 16.88 24.75 34.00 -------------------------------------------------------------------------------------------------------------------------------- ASSETS BY GEOGRAPHICAL AREA -------------------------------------------------------------------------------------------------------------------------------- Puerto Rico 79.42% 75.86% 75.49% 73.88% 74.10% 71.32% United States 16.03% 19.65% 20.76% 22.41% 23.34% 24.44% Other 4.55% 4.49% 3.75% 3.71% 2.56% 4.24% -------------------------------------------------------------------------------------------------------------------------------- Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% -------------------------------------------------------------------------------------------------------------------------------- TRADITIONAL DELIVERY SYSTEM -------------------------------------------------------------------------------------------------------------------------------- Banking Branches Puerto Rico 165 166 166 178 201 194 Virgin Islands 8 8 8 8 8 8 United States 32 34 40 44 63 88 Dominican Republic 27 -------------------------------------------------------------------------------------------------------------------------------- Subtotal 205 208 214 230 272 317 -------------------------------------------------------------------------------------------------------------------------------- Non-Banking Offices Equity One 58 73 91 102 117 132 Popular Cash Express 27 Popular Finance 26 28 31 39 44 48 Popular Leasing 8 10 9 8 10 10 Popular Leasing, U.S.A. 7 8 Popular Mortgage 3 3 3 11 Popular Securities 1 2 2 Levitt Mortgage GM Group -------------------------------------------------------------------------------------------------------------------------------- Subtotal 92 111 134 153 183 238 -------------------------------------------------------------------------------------------------------------------------------- Total 297 319 348 383 455 555 -------------------------------------------------------------------------------------------------------------------------------- ELECTRONIC DELIVERY SYSTEM -------------------------------------------------------------------------------------------------------------------------------- ATMs Owned Puerto Rico 234 262 281 327 391 421 Caribbean 8 8 8 9 17 24 United States 11 26 38 53 71 94 -------------------------------------------------------------------------------------------------------------------------------- Subtotal 253 296 327 389 479 539 -------------------------------------------------------------------------------------------------------------------------------- Driven Puerto Rico 86 88 120 162 170 187 Caribbean 97 192 265 -------------------------------------------------------------------------------------------------------------------------------- Subtotal 86 88 120 259 362 452 -------------------------------------------------------------------------------------------------------------------------------- Total 339 384 447 648 841 991 -------------------------------------------------------------------------------------------------------------------------------- BPPR TRANSACTIONS (IN MILLIONS) -------------------------------------------------------------------------------------------------------------------------------- Electronic Transactions 33.2 43.0 56.6 78.0 111.2 130.5 Items Processed 171.8 174.5 175.0 173.7 171.9 170.9 -------------------------------------------------------------------------------------------------------------------------------- EMPLOYEES (FTEs) 7,533 7,606 7,815 7,996 8,854 10,549 -------------------------------------------------------------------------------------------------------------------------------- 1999 2000 -------------------------------------------------------------------- SELECTED FINANCIAL INFORMATION -------------------------------------------------------------------- Net Interest Income $ 953.7 $ 982.8 Non-Interest Income 372.9 465.1 Operating Expenses 837.5 877.5 Net Income 257.6 276.1 -------------------------------------------------------------------- Total Assets $ 25,460.5 $ 28,057.1 Net Loans 14,907.8 16,057.1 Deposits 14,173.7 14,804.9 Total Stockholders' Equity 1,661.0 1,993.6 -------------------------------------------------------------------- Market Capitalization $ 3,907.5 $ 3,578.1 ROA 1.08% 1.04% ROE 15.45% 15.00% -------------------------------------------------------------------- PER COMMON SHARE(1) -------------------------------------------------------------------- Earnings $ 1.84 $ 1.97 Dividends (Declared) 0.60 0.64 Book Value 11.51 13.92 Market Price 27.94 26.31 -------------------------------------------------------------------- ASSETS BY GEOGRAPHICAL AREA -------------------------------------------------------------------- Puerto Rico 70.95% 71.80% United States 25.17% 25.83% Other 3.88% 2.37% -------------------------------------------------------------------- Total 100.00% 100.00% -------------------------------------------------------------------- TRADITIONAL DELIVERY SYSTEM -------------------------------------------------------------------- Banking Branches Puerto Rico 199 199 Virgin Islands 8 8 United States 91 95 Dominican Republic 31 -- -------------------------------------------------------------------- Subtotal 329 302 -------------------------------------------------------------------- Non-Banking Offices Equity One 138 136 Popular Cash Express 64 132 Popular Finance 51 61 Popular Leasing 12 12 Popular Leasing, U.S.A. 10 11 Popular Mortgage 13 21 Popular Securities 2 3 Levitt Mortgage 2 2 GM Group 4 4 -------------------------------------------------------------------- Subtotal 296 382 -------------------------------------------------------------------- Total 625 684 -------------------------------------------------------------------- ELECTRONIC DELIVERY SYSTEM -------------------------------------------------------------------- ATMs Owned Puerto Rico 442 478 Caribbean 65 37 United States 99 109 -------------------------------------------------------------------- Subtotal 606 624 -------------------------------------------------------------------- Driven Puerto Rico 102 118 Caribbean 851 920 -------------------------------------------------------------------- Subtotal 953 1,038 -------------------------------------------------------------------- Total 1,559 1,662 -------------------------------------------------------------------- BPPR TRANSACTIONS (IN MILLIONS) -------------------------------------------------------------------- Electronic Transactions 159.4 199.5 Items Processed 171.0 160.2 -------------------------------------------------------------------- EMPLOYEES (FTEs) 11,501 10,651 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(1) Per common share data adjusted for stock splits in 1981, 1985, 1989, 1996 and 1998. 7 Popular, Inc. 2000 Annual Report STRATEGIC OBJECTIVES FORTRESS PUERTO RICO STRENGTHEN OUR COMPETITIVE POSITION IN OUR PRINCIPAL MARKET, PUERTO RICO: - Aligning our distribution systems with the different market segments; - Using electronic means to bring financial services to the unbanked and to offer more services, in more places, with greater convenience at a lower cost, to our current and prospective customers. PANAMERICAN BANK EXPAND OUR BUSINESS FRANCHISE OUTSIDE PUERTO RICO THROUGH TWO INITIATIVES THAT COMPLEMENT AND SUPPORT EACH OTHER: - In the United States, maintaining our growth in highly concentrated Hispanic areas, with emphasis on the small and middle commercial markets; - In the Caribbean, using our competitive advantage in electronic banking to become the principal financial entity in the region. DIVERSIFICATION Continue diversifying our financial services to offer more alternatives to our customers. ORGANIZATIONAL QUALITY Strengthen our organization to achieve excellence in our results: - Fully developing the capabilities of our employees; - Aligning our organization with our business objectives; - Continuously enhancing our processes. 3 8 [PHOTO] LETTER TO SHAREHOLDERS TOTAL RETURN INCLUDING DIVIDEND AND DIVIDEND REINVESTMENT [CHART] The year 2000 was a challenging one. The economy felt the impact of higher oil prices, an erosion in consumer confidence and several increases in interest rates with the concomitant downturn in the financial markets. This was reflected in the price of our stock, which closed at $26.31, a decline of 5.8% from December 31, 1999. Your company reported net income of $276.1 million in the year 2000, an increase of 7.2% over 1999. Earnings per common share (EPS) totaled $1.97, compared with $1.84 in 1999. Total assets amounted to $28 billion, 10% higher than in the previous year. These results translated into a return on assets (ROA) of 1.04% and a return on common equity (ROE) of 15.0%. These results are magnified by the various challenges, some unexpected, that we had to face. Our Y2K transition went smoothly, as a result of the thorough efforts undertaken in previous years. We also devoted much time and effort to excel in our compliance with all Bank Secrecy Act procedures and regulations, signing a formal Written Agreement with the Federal Reserve Bank of New York to that effect. In the Dominican Republic, we sold our participation in Banco Fiduciario to the larger Banco Hipotecario Dominicano and retained an option to acquire 20% of the resulting institution. Your company reported net income of $276.1 million in the year 2000, an increase of 7.2% over 1999. After an effort of nearly four years, we concluded that it made sense to sell our U.S. credit card portfolio and to enter into a strategic alliance with Metris in order to continue to offer this product to our current customers and to make further inroads in the U.S. Hispanic market. Likewise, we entered into an agreement with Cendant, which will allow us to increase our production of home mortgages and also better serve the U.S. Hispanic market. 4 9 Popular, Inc. 2000 Annual Report A STORY OF CONTINUOUS GROWTH All these efforts were accompanied with a sensible budget control of all the Corporation's expenses without curtailing our strategic investments. On a more positive note, we completed the consolidation of various processing activities formerly performed at Banco Popular into GM Group, the processing company acquired in 1999. We launched an important new subsidiary, Popular Insurance, and entered the market for the distribution of insurance products. We also acquired Centro Finance in Puerto Rico, a small finance company subsequently merged into Popular Finance, and Aurora National Bank in Illinois, which was merged into our Banco Popular North America operations. Mi Banco Popular, our Internet banking initiative, was introduced in May, and ended the year 2000 with nearly 60,000 subscribers, well in excess of our expectations. We will continue to build on the success of this product in the coming months. 10 YEARS OF GROWTH dollars in millions [CHART] Our achievements this year, and every year, come as a result of the efforts of Our People, more than 10,000 individuals who are committed to our values and our vision. We are guided by a Board of Directors that is equally committed to our future. At this year's Stockholders' Annual Meeting, Alfonso Ballester and Salustiano Alvarez will retire from the Board of Banco Popular de Puerto Rico upon reaching the mandatory retirement age. We are grateful for their many contributions throughout the years. Mr. Ballester has served on the Board of Banco Popular for 26 years and, until recently, was Vice Chairman of Popular, Inc. We were also saddened by the death of Don Julio Vizcarrondo Vivas, who served on the Banco Popular Board from 1975 to 1982 and on the Board of the Banco Popular Foundation from its inception until his death. The end of the year marked the tenth anniversary of the merger with BanPonce Corporation, an important turning point for our corporation. In 1990, our combined market capitalization was $510 million. Ten years later, we have a market capitalization of $3.6 billion, which translates into a compound annual growth rate of 22%. This transaction exemplifies our focus on long-term growth and profitability. It demonstrates that our horizon is longer than the next quarter, or even the next year. It is rather a story of continuous growth, as can be seen in the Historical Financial Summary. Inspired by our values and guided by our strategies, we look ahead with optimism to a new year of serving our clients, solidifying our markets and securing our future. /s/ Richard L. Carrion Richard L. Carrion Chairman President Chief Executive Officer 5 10 [PHOTO] DISTRIBUTION NETWORK Puerto Rico - 199 branches - 478 ATMs - 25,000 point-of-sale terminals - TeleBanco Popular - telephone banking - Mi Banco Popular - online banking - 9 Commercial Banking Centers United States - 95 branches in 6 states - 109 ATMs - Popular Net Banking - online banking Caribbean - 8 branches - 12 ATMs - 779 point-of-sale terminals - Popular TeleBank - telephone banking Our Business RETAIL AND COMMERCIAL BANKING $15 BILLION IN DEPOSITS BANCO POPULAR DE PUERTO RICO, Popular, Inc.'s main subsidiary and the largest commercial bank in Puerto Rico, offers individuals and businesses a wide variety of financial products and services. With $10 billion in deposits and $8 billion in loans, it is the leader in both markets. Banco Popular has the most extensive and complete distribution network on the island, with 199 branches, 478 ATMs, a 24-hour call center and various alternative delivery channels. The year 2000 was marked by technological innovation and expansion for the Bank through new and diverse distribution channels, products and services. As part of its commitment to offer greater convenience to its clients, Banco Popular introduced its online banking service Mi Banco Popular, www.bppr.com, in May 2000. The new Internet site allows clients to access account information for checking and savings accounts, credit cards, IRAs, CDs, leases and loans. Clients can also transfer funds, pay their bills online, apply for loans and credit cards and open deposit accounts. By year end, Mi Banco Popular boasted more than 60,000 subscribers and figured among the top five local websites visited by Puerto Ricans. Constantly looking for new and attractive alternatives for its individual clients, Banco Popular, in an alliance with Celulares Telefonica, began offering clients the ability to purchase prepaid cellular minutes with their ATH (A Toda Hora) ATM card by telephone. Banco Popular de Puerto Rico also offers a complete line of products, services and value-added solutions to small and mid-sized businesses, corporations, government and not-for-profit organizations. It has nine Commercial Banking Centers (CBCs) located throughout the island to offer convenience and personal service to its commercial clients. Business clients also benefited from new products and services launched this year, such as TeleNomina, a service that allows clients to process their payroll using TelePago Popular, our telephone payment system. In addition, the Bank expanded its family-owned business program to include small and mid-sized businesses, offering four conferences during 2000. 6 11 Popular, Inc. 2000 Annual Report In the United States, BANCO POPULAR NORTH AMERICA (BPNA) is the largest Hispanic bank, offering individuals and businesses a wide variety of credit and deposit products. The Bank has 95 branches located in California (16), Florida (9), Illinois (21), New Jersey (12), New York (32), and Texas (5), states that are home to over 80% of all Hispanics in the United States. BPNA continued to expand its presence with the opening of three new branches and the acquisition of Aurora National Bank in Chicago, Illinois. During 2000, BPNA also introduced Popular Net Banking, an Internet banking service that allows customers to review their account balances and transaction history for the past 90 days, transfer money between specified Banco Popular accounts and pay their bills online. In the year 2000, BPNA created national line of 16 deposit products, both retail and commercial, to substitute more than 245 products that resulted from the Bank's acquisitions and rapid growth. The effort, led by a newly created and centralized Marketing and Product Development Division, focused on selecting the most attractive features from the vast number of existing products. The uniformity achieved will undoubtedly result in greater client satisfaction and operational efficiency. BPNA has traditionally focused significant efforts on Small Business Administration (SBA) and minority lending. In 2000, Banco Popular originated approximately $100 million in new loans, which placed the Bank among the top SBA lenders in the nation. $13 BILLION IN TOTAL LOANS [PHOTO] Popular, Inc. conducts its banking business in the Caribbean through BANCO POPULAR VIRGIN ISLANDS. Its network consists of eight branches in the U.S. and British Virgin Islands. With a team of more than 220 employees, Banco Popular has established itself as one of the leading institutions in the area. Deposits at year end totaled $722 million, an increase of 17% over the previous year. Offers a full range of banking products and services in Puerto Rico, the United States and the Caribbean. [PHOTO] 7 12 [PHOTO] MORTGAGE & CONSUMER LENDING $5.4 BILLION IN ORIGINATIONS POPULAR MORTGAGE, Banco Popular de Puerto Rico's mortgage subsidiary, has more than 60 years' experience and is the second mortgage origination business in Puerto Rico. It continued to expand and enhance its distribution network, opening seven new mortgage centers for a total of 21 located throughout the island. As part of its strategy to offer more choices to its clients, Popular Mortgage introduced several products and services during the year 2000: a personal loan with mortgage collateral, a mortgage that does not require income verification, a 100% loan-to-value mortgage loan with cash collateral and a loan for individuals with damaged credit. Popular Mortgage also introduced CasaFacil, a service that allows clients to process and originate mortgage and construction loans over the telephone. In the United States, BANCO POPULAR, NATIONAL ASSOCIATION and BANCO POPULAR NORTH AMERICA together originated approximately $150 million in new mortgages during the year 2000. It was also a year of important steps in the business, with the establishment of a marketing and processing alliance with Cendant Mortgage, a leading mortgage lender in the United States. In accordance with the partnership, Cendant processes and services loans on a private label basis. In addition, the Bank originates loans through Cendant's real estate brands, such as Century 21, Coldwell Banker and ERA. 8 13 Popular, Inc. 2000 Annual Report POPULAR FINANCE, ranked among the top consumer finance institutions in Puerto Rico, is engaged in small personal loans and second mortgages. Popular Finance acquired Centro Finance Corporation in May 2000, increasing its portfolio by 17% and adding seven branches to its network, for a total of 61. In 2000 the subsidiary saw a significant increase in the volume of mortgage loans, a result of a comprehensive sales training program for employees and an advertising campaign created for print media and television. In the United States, EQUITY ONE is engaged in the business of personal and mortgage loans and retail financing to merchants and dealers. With $2.0 billion in total loans and assets reaching $2.1 billion, Equity One operates through an extensive network of 136 offices located throughout 30 states. In the year 2000, Equity One relocated its Headquarters and Operations Center to a state-of-the-art facility. It enhanced its operational infrastructure through additional investments in areas such as marketing, technology and human resources. In addition, it undertook an initiative to enhance the quality of customer service, leading to an 8% increase in its customer base. Provides tailored financing alternatives to meet individual needs. [PHOTO] DISTRIBUTION NETWORK PUERTO RICO - Popular Finance has 54 offices and 7 mortgages centers in 37 municipalities - Popular Mortgage has 21 offices in 16 municipalities UNITED STATES - Equity One has 136 offices in 30 states - Banco Popular, National Association originates residential mortgages through Banco Popular North America, Cendant real estate brands and brokers throughout the continental U.S. 9 14 [PHOTO] Assets dollars in thousands [CHART] LEASING $120 MILLION IN REVENUES POPULAR LEASING is the leader in the leasing business in Puerto Rico. With a network of 12 offices and a team of 250 employees, Popular Leasing offers individual and commercial clients a wide variety of leasing alternatives. In addition to vehicle leasing, it offers medical, industrial, construction, telecommunications and computer equipment leasing in an alliance with El Camino Resources, a leading leasing company in the United States. Popular Leasing also has a fleet of over 1,100 passenger vehicles and commercial units for daily rental. During 2000, the company expanded by acquiring two local portfolios, thereby strengthening its leadership position in the market. It also introduced several products and services, such as a lease program with Dell computers for individuals and small and mid-sized businesses, and Starting Connection, a vehicle and equipment lease program for graduating college students. In the United States, the Corporation conducts its leasing business through POPULAR LEASING, U.S.A., a subsidiary of Banco Popular North America. The company offers small-ticket equipment leasing in 11 offices located in eight states. Its professional staff has years of experience in leasing, providing tailored solutions and quality services to its diverse client base. In addition, at Popular Leasing's website, www.popularleasingusa.com, clients can obtain information about the company and submit applications online. During the year 2000, Popular Leasing doubled its staff and established new executive offices in Ellisville, Missouri. Assets grew by over 40% from the previous year, totaling $105 million at year end. Delivers leasing solutions to individuals and businesses in Puerto Rico and the United States. 10 15 [PHOTO] Advises all customers, from starting investors to large corporations, on how to achieve their financial goals. Assets Under Management percentage [CHART] INVESTMENT $13 BILLION IN ASSETS UNDER MANAGEMENT POPULAR SECURITIES is the subsidiary dedicated to providing investment and financial advising services to individuals and institutions in Puerto Rico. In the retail business, Popular Securities offers the sale of securities, financial advising, and full investment services through 48 representatives available at more than 190 Banco Popular branches and three independent branches. In order to complement its brick-and-mortar distribution system and increase customer convenience, Popular Securities launched Online Investing in 2000. This new Internet service, accessible at www.popularsecurities.com, allows clients to buy and sell stock, bonds and mutual funds at a discount, and review market information and news. On the institutional side, Popular Securities handles bond issues for the Commonwealth of Puerto Rico and local corporations, and provides financial advisory services to a wide variety of public and private entities. During the year 2000, Popular Securities participated in 22 transactions totaling $4.9 billion. Two divisions of Banco Popular de Puerto Rico complement the investment services offered by Popular Securities. POPULAR ASSET MANAGEMENT, established in 1998, provides institutional investment management services, and reached $2.3 billion in assets under management by year end. The TRUST DIVISION, with a long-standing tradition of service, offers administration services for employee benefit plans, corporate and personal trusts, and supplies various services to local mutual funds. 11 16 [PHOTO] Serves more than 100 independent agents and brokers in Puerto Rico. INSURANCE Popular, Inc. further diversified its business during the year 2000 through both the acquisition of a local insurance agency and the creation of POPULAR INSURANCE, INC. As a subsidiary of Banco Popular, National Association, Popular Insurance is a general agency that offers insurance products in Puerto Rico. Representing various major insurance companies, both as a general agency and as a corporate agent, Popular Insurance serves more than 100 independent agents and brokers while seeking to become the principal service provider for this important industry group on the island. Popular Insurance presently provides insurance services to several affiliated companies. It operates two offices - one on the offshore island of Culebra and one in San Juan - and plans to add several sales offices throughout Puerto Rico during 2001. Currently, the staff is composed of 37 well-experienced employees, a number that will grow to serve the 2001 projected sales volume. At year end, Popular Insurance assets totaled $8.9 million. Popular Insurance's plans for the future include expanding the array of products and services it offers, as well as maximizing the use of technology to increase product accessibility in the marketplace while reducing processing and operating costs. 12 17 Popular, Inc. 2000 Annual Report PROCESSING $80 MILLION IN REVENUES In 2000, Popular, Inc. completed the integration into the Corporation of GM Group, the leading provider of information system (IS) services in the Caribbean Basin acquired in 1999. With offices in San Juan, Caracas, Santo Domingo and Miami, GM GROUP has a solid record of achievement in Puerto Rico and over 10 Latin American countries. Clients such as banks, public utilities, insurance companies, universities, government agencies, service companies, manufacturers and retailers have had their IS needs fulfilled by GM Group for the past three decades. In addition to data processing, GM Group's core business, it is also involved in software and hardware sales, systems design and implementation, consulting, business recovery services and systems education. As part of the integration process, RED ATH, the largest ATM network in Puerto Rico, was transferred to GM Group to capitalize on its resources and expertise. By year end, Red ATH connected over 850 ATMs and 35,700 point-of-sale (POS) terminals throughout the island. Popular, Inc.'s expertise and resources in electronic banking, now enhanced by GM Group, have provided a competitive advantage in Caribbean and Latin American markets. The ATM/POS networks developed in the Dominican Republic and Costa Rica have experienced remarkable growth recent years. ATH DOMINICANA is the largest ATM network in the Dominican Republic, connecting 818 ATMs and 9,711 POS terminals from 17 institutions. ATH COSTA RICA, the Corporation's ATM driving and administration business in Costa Rica, connects over 150 ATMs from 22 financial institutions and 5,000 POS terminals. In 2000, ATH Costa Rica purchased CreST, S.A., a local card processor and POS acquirer, greatly expanding its capabilities in the country. The company concentrated efforts in consolidating at the physical, operational and human resources levels to swiftly leverage the new opportunities brought about by the acquisition. Provides innovative solutions to clients, allowing them to stay in the forefront of technology. [PHOTO] ATH Network Transactions in millions [CHART] 13 18 CONSUMER SERVICES [PHOTO] DISTRIBUTION NETWORK [CHART] $2.7 MILLION CHECKS PROCESSED POPULAR CASH EXPRESS, Popular, Inc.'s subsidiary dedicated to the business of check cashing and money transfers, now ranks 7th among all check-cashing operations in the United States. Since over half of the 32 million Hispanics in the United States are unbanked, the Corporation recognized the need for an alternative approach to complement Banco Popular North America's efforts to become the principal financial services provider to Hispanics. In 1998, Popular, Inc. made the strategic decision of establishing Popular Cash Express as an effective tool to attract the unbanked population and to eventually draw it into the financial mainstream. Offers financial alternatives to the unbanked population in the United States. Since its creation, Popular Cash Express has quickly expanded, and now has operations in Arizona, California, Florida, New York, Texas and Washington, D.C., all of which have a very high concentration of Hispanics. It offers a wide variety of retail financial services, such as check cashing, wire transfers, utility payments and money orders. More recently, PCE has expanded on this format by offering additional services that have not generally been offered at traditional check-cashing locations, such as insurance, travel services and other value-added products. Locations are clean, spacious, well-lighted and manned with bilingual staff to service its large Spanish-speaking customer base. Popular Cash Express experienced dramatic growth/expansion in 2000. It opened 22 offices and added 8 mobile units, for a total of 86 and 46, respectively. Revenues increased by 45%. Given its strategic importance as a tool to attract the unbanked, the Corporation plans to continue Popular Cash Express' expansion and evolution. Closer links between check-cashing locations and Banco Popular North America traditional banking branches will be developed, hybrid locations will be established and intermediate products will be introduced. In that way, when consumers are ready to pursue more traditional banking services, Popular, Inc. will be ready to meet their future needs. 14 19 Popular, Inc. 2000 Annual Report The Banco Popular Foundation has been created to support efforts dedicated to improve the quality of life for Puerto Ricans. It fulfills its mission by promoting in the community a genuine aspiration for excellence, and instilling in our youth a sense of accomplishment. Donations Granted by Banco Popular Foundation dollars in thousands [CHART] [PHOTO] OUR COMMUNITY Community involvement has been a mainstay of Banco Popular's 107-year history. The Bank was established in 1893 to provide financial services to those who needed it most, but its vision went beyond business and reached out to the community it served. Ever since its early stages, the institution's social responsiveness has been manifested in a twofold commitment: a strong donations and corporate sponsorship program, and employee participation in non-profit organizations. As the Bank continued to grow, its social responsibility strategy evolved. It was understood that its community involvement required a philanthropic structure that went beyond corporate sponsorship and assumed an enabling role in education and the development of our communities. This paved the way for the establishment of the Banco Popular Foundation in 1979. THE BANCO POPULAR FOUNDATION originated from the vision of Rafael Carrion Jr., who devoted his entire professional career - 59 years - to Banco Popular. As President of the Bank, Chairman of the Board and Chief Executive Officer, he promoted numerous initiatives that made him feel, as he used to say, responsible and proud that Banco Popular was ever present in promoting the island's progress and well-being. Two decades after its establishment, the Foundation's objective remains unaltered: to involve ourselves actively and effectively in the improvement of the quality of life in the communities we serve. Our focus is primarily on education, attention to the special needs of the most disadvantaged, support for opportunities for positively 15 20 [PHOTO] shaping our youth, promoting self-sufficiency projects for community development and sponsorship of the arts and our culture. The Foundation obtains its financial support from Banco Popular de Puerto Rico and the Bank's annual musical production. In addition, in a program established in 2000, employees voluntarily contributed more than $186,000 through paycheck deduction. Over the years, a large number of Popular, Inc. employees have demonstrated their commitment to working actively for the social, economic and educational well-being of Puerto Rico. In 2000, more than 1,200 employees expressed interest in being part of the Banco Popular Foundation Volunteer Program, which will be in operation in 2001. Our employees will work hand in hand with schools; homes for the elderly; shelters for victims of abuse; libraries and other projects that positively impact children and youths; heads of households and the elderly; people who are left behind, homeless, sick - in essence, those who search for a better life. During the year 2000, the Foundation awarded more than 36 new grants, ranging from helping to fund the Nueva Escuela Juan Ponce de Leon, the only public elementary Montessori school for children with special needs, to a voluntary service learning pilot for university students to get them involved in their communities while studying. Another major project included contributions to the Jane Stern Dorado Community Library. The 2000 musical production was titled Guitarra Mia: A Tribute to Jose Feliciano. In his honor, the Foundation is renovating a music room at the Instituto Loaiza Cordero, a school for visually impaired students. In the United States, funds will be donated to the Lighthouse International, an institution that Jose Feliciano attended in his youth. The Banco Popular Foundation also manages the Rafael Carrion Jr. Scholarship Fund, established in 1992 with the funds accumulated in Carrion Jr.'s profit sharing plan and in his savings account at the employee's cooperative. Over the 16 21 Popular, Inc. 2000 Annual Report STRENGTHENING OUR COMMUNITY STRATEGY past eight years, $995,300 have been awarded in 707 scholarships to children of employees and retirees of Popular, Inc. In addition, the Foundation also established the Rafael Carrion Jr. Scholarship with a contribution of $370,500 for Puerto Rican students studying at The Wharton School at the University of Pennsylvania. Eleven scholarships have been granted since the fund was begun in 1994. Another type of community involvement for the Foundation is its vigorous program of exhibitions at the Rafael Carrion Pacheco Exhibition Hall in the former Banco Popular headquarters in Old San Juan. In the last decade, 14 exhibitions have been presented that have enriched the cultural life of the island and deepened the debate on subjects of community interest. The most recent, Acanga, 100 Years of Puerto Rican Music, attracted more than 14,000 people in its first six months. BANCO POPULAR DE PUERTO RICO, the Corporation's main subsidiary, also continues with a strong donations and sponsorship program. During the year 2000, approximately $1.4 million were donated to more than 200 non-profit organizations. Of the donations, 82% were for civic and community activities. Among the most significant contributions are the sponsorship of the Raul Julia Theater at the new Puerto Rico Museum of Art; the renovation of Teatro Oliver in Arecibo; Neighborhood Revitalization Initiatives in Caguas, Ponce and San Juan; Sacred Heart University and the Federal Reserve Board's joint economics program for high school students; and the Puerto Rico Community Foundation. In the continental United States, several organizations in the communities we serve received financial contributions from Banco Popular North America. Through the Foundation and other programs, Popular, Inc. maintains its strong commitment to involve ourselves actively and effectively in the development of the community in which we operate to promote the highest values and a passion for excellence, focused mainly on our youth. The guiding spirit in awarding these and future grants is to promote excellence in our relationship with the community. We will seek the participation and commitment of others who also share our vision and passion for excellence in the coming years. [PHOTO] 17 22 SENIOR MANAGEMENT COUNCIL [PHOTO] [PHOTO] [PHOTO] RICHARD L. CARRION DAVID H. CHAFEY JR. JORGE A. JUNQUERA Chairman, President Senior Executive Vice President Senior Executive Vice President Chief Executive Officer Retail Banking Chief Financial Officer [PHOTO] [PHOTO] [PHOTO] [PHOTO] MARIA ISABEL BURCKHART ROBERTO R. HERENCIA LARRY B. KESLER TERE LOUBRIEL Executive Vice President Executive Vice President Executive Vice President Executive Vice President Administration North America Retail Credit Human Resources [PHOTO] [PHOTO] [PHOTO] [PHOTO] HUMBERTO MARTIN EMILIO E. PINERO FERRER, ESQ. BRUNILDA SANTOS DE ALVAREZ,ESQ. CARLOS J. VAZQUEZ Executive Vice President Executive Vice President Executive Vice President Executive Vice President Operations Commercial Banking Legal Risk Management
18 23 Popular, Inc. 2000 Annual Report MANAGEMENT GROUP POPULAR, INC. PUERTO RICO COMMERCIAL BANKING GROUP OPERATIONS GROUP UNITED STATES Emilio E. Pinero Ferrer, Esq. Humberto Martin BANCO POPULAR DE BANCO POPULAR PUERTO RICO Arnaldo Soto Couto Luis O. Abreu NORTH AMERICA, INC. Richard L. Carrion Construction Loans Operational Financial Richard L. Carrion Chairman Support Chairman President Cynthia Toro Chief Executive Officer Business Banking Segundo Bernier Operations Jorge A. Junquera RETAIL BANKING GROUP Ricardo Toro President David H. Chafey Jr. Corporate Banking Victor V. Echevarria Information Technology Roberto R. Herencia Jorge Biaggi FINANCIAL MANAGEMENT GROUP Chief Operating Officer Hato Rey Region Jorge A. Junquera Otto Rosario Transaction Processing Orlando Berges Francisco Cestero Richard Barrios Finance and Ponce Region Investments and Treasury Hector Torres Administration Security Felix Leon Luis R. Cintron, Esq. L. Gene Beube Eastern Region Trust RISK MANAGEMENT GROUP Risk Management Carlos J. Vazquez Carlos J. Mangual Amilcar L. Jordan, Esq. Manuel Chinea Caguas Region Comptroller Jesus Aldarondo Marketing and Product Operational Risk Development Wilbert Medina Ivan Pagan Management Arecibo/Manati Region Acquisitions and Corporate Victor Perez Investments Ana Carmen Alemany Operations Maritza Mendez Credit Risk Management Rio Piedras Region ADMINISTRATION GROUP Jose Riera Maria Isabel Burckhart Maria de Lourdes Jimenez Popular Cash Express Miguel Ripoll Corporate Compliance San Juan Region Ginoris Lopez-Lay Donald R. Simanoff Strategic Planning Jose A. Mendez Consumer Lending Carlos Rodriguez and Marketing General Auditor Western Region Vernon V. Aguirre Lourdes Perez Diaz Other Subsidiaries California Region Eli Sepulveda Jr. Public Relations and POPULAR MORTGAGE, INC. Bayamon Region Communications Silvio Lopez Mercedes F. McCall Florida Region Juan Guerrero Luz M. Tous de Torres POPULAR LEASING & RENTAL, INC. Financial and Investment Corporate Real Estate Andres Morrell William Sperling Services Illinois Region HUMAN RESOURCES GROUP POPULAR FINANCE, INC. Nestor O. Rivera Tere Loubriel Edgardo Novoa Jose A. Torres Retail Banking New York/New Jersey Tere Loubriel POPULAR SECURITIES, INC. Region Lizzie Rosso Human Resources Kenneth W. McGrath Alternative Delivery Javier Ubarri Channels LEGAL GROUP GM GROUP, INC. Texas Region Brunilda Santos de Alvarez, Julio J. Pascual RETAIL CREDIT GROUP Esq. Other Subsidiaries Larry B. Kesler ATH DOMINICANA BANCO POPULAR, Eduardo J. Negron, Esq. Miguel Gil-Mejia NATIONAL ASSOCIATION Linda C. Colon Legal Division Jorge A. Junquera Individual Lending ATH COSTA RICA Luis Diego Escalante EQUITY ONE, INC. Raul Colon C.E. (Bill) Williams Mortgage Servicing POPULAR INSURANCE, INC. Ramon D. Lloveras, Esq. POPULAR CASH EXPRESS, INC. Valentino I. McBean (Interim) Gary Gagerman Virgin Islands Region POPULAR LEASING, U.S.A. Bruce D. Horton
19 24 Popular, Inc. 2000 Annual Report BOARDS OF DIRECTORS POPULAR, INC. Samuel T. Cespedes, Esq. Maria Luisa Ferre BANCO POPULAR Richard L. Carrion Secretary Executive Vice President NORTH AMERICA Chairman of the Board Board of Directors Grupo Ferre Rangel Richard L. Carrion President Chairman of the Board Chief Executive Officer Brunilda Santos de Hector R. Gonzalez Alvarez, Esq. President Assistant Secretary Chief Executive Officer Jorge A. Junquera Antonio Luis Ferre Board of Directors Ventek Group, Inc. President Vice Chairman of the Board Banco Popular North America Chairman Eduardo J. Negron, Esq. Manuel Morales Jr. El Nuevo Dia Assistant Secretary President Roberto R. Herencia Board of Directors Parkview Realty, Inc. Chief Operating Officer Banco Popular North America Juan J. Bermudez Ernesto N. Mayoral, Esq. Alberto M. Paracchini Partner Assistant Secretary Private Investor Francisco M. Rexach Jr. Bermudez & Longo, S.E. Board of Directors President Francisco M. Rexach Jr. Capital Assets, Inc. Francisco J. Carreras President Educator BANCO POPULAR Capital Assets, Inc. Richard N. Speer Jr. Executive Director DE PUERTO RICO President Fundacion Angel Ramos, Inc. Richard L. Carrion J. Adalberto Roig Jr. Speer & Associates, Inc. Chairman of the Board Chairman David H. Chafey Jr. President Antonio Roig Sucesores, Inc. Alfonso F. Ballester Senior Executive Vice President Chief Executive Officer President Popular, Inc. Felix J. Serralles Jr. Ballester Hermanos, Inc. President Hector R. Gonzalez Alfonso F. Ballester Chief Executive Officer Felix J. Serralles Jr. President Vice Chairman of the Board Destileria Serralles, Inc. President Chief Executive Officer President Chief Executive Officer Ventek Group, Inc. Ballester Hermanos, Inc. Julio E. Vizcarrondo Jr. Destileria Serralles, Inc. President Jorge A. Junquera Chief Executive Officer Julio E. Vizcarrondo Jr. Senior Executive Vice President Juan A. Albors Hernandez Desarrollos Metropolitanos, S.E. President Popular, Inc. Chairman, President Chief Executive Officer Chief Executive Officer Samuel T. Cespedes, Esq. Desarrollos Metropolitanos, S.E. Manuel Morales Jr. Albors Development Corp. Secretary President Board of Directors Brunilda Santos de Alvarez, Esq. Parkview Realty, Inc. Salustiano Alvarez Mendez Secretary President Brunilda Santos de Alvarez, Esq. Board of Directors Alberto M. Paracchini Mendez & Company, Inc. Assistant Secretary Private Investor Board of Directors Eduardo J. Negron, Esq. Jose A. Bechara Bravo Assistant Secretary Francisco M. Rexach Jr. President Eduardo J. Negron, Esq. Board of Directors President Empresas Bechara Inc. Assistant Secretary Capital Assets, Inc. Board of Directors Juan J. Bermudez Felix J. Serralles Jr. Partner Ernesto N. Mayoral, Esq. President Bermudez & Longo, S.E. Assistant Secretary Chief Executive Officer Board of Directors Destileria Serralles, Inc. Francisco J. Carreras Educator Julio E. Vizcarrondo Jr. Executive Director President Fundacion Angel Ramos, Inc. Chief Executive Officer Desarrollos Metropolitanos, S.E. Jose B. Carrion Jr. Chairman and President (Retired) Barros & Carrion, Inc. David H. Chafey Jr. Senior Executive Vice President Banco Popular de Puerto Rico
20 25 STOCKHOLDERS' INFORMATION INDEPENDENT PUBLIC ACCOUNTANTS PricewaterhouseCoopers ANNUAL MEETING The 2001 Annual Stockholders' Meeting of Popular, Inc. will be held on Monday, April 23, at 10:30 a.m. at Centro Europa Building in San Juan, Puerto Rico. Telephone: (787) 765-9800 ext. 5637, 5527 Fax: (787) 763-5972 E-mail: popular-stck-transfer@bppr.com ADDITIONAL INFORMATION Copies of the Annual Report to the Securities and Exchange Commission on Form 10-K and any other financial information may be obtained by writing to: Amilcar L. Jordan Senior Vice President Banco Popular de Puerto Rico PO Box 362708 San Juan, PR 00936-2708 Design: BD&E Inc., Pittsburgh, Pennsylvania Photography: Ric Evans Portrait Photography: Tony Vera Printing: Hoechstetter Printing Company Bowne of Atlanta, Inc. 26 P.O. BOX 362708 SAN JUAN PUERTO RICO 00936-2708 27 FINANCIAL REVIEW AND SUPPLEMENTARY INFORMATION Management's Discussion and Analysis of Financial Condition and Results of Operations F-2 Statistical Summaries F-24 Financial Statements Report of Independent Accountants F-29 Consolidated Statements of Condition as of December 31, 2000 and 1999 F-30 Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998 F-31 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 F-32 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998 F-33 Consolidated Statements of Comprehensive Income for the years ended December 31, 2000, 1999 and 1998 F-34 Notes to Consolidated Financial Statements F-35
F-1 28 Management's Discussion and Analysis of Financial Condition and Results of Operations This financial discussion 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, notes and tables included elsewhere in this report. The Corporation is a 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), and Banco Popular, National Association (BP, NA) - Lease Financing - Popular Leasing and Rental, Inc. and Popular Leasing, U.S.A. - Consumer and Mortgage Banking - Popular Mortgage, Inc., Equity One, Inc., Popular Finance, Inc. and Newco Mortgage Holding Corporation (d/b/a Levitt Mortgage) - Broker/Dealer - Popular Securities, Inc. - Processing and Information Technology Services and Products - GM Group, ATH Costa Rica and CreST, S.A. - Retail Financial Services - Popular Cash Express, Inc. - Insurance Agency - Popular Insurance, Inc. OVERVIEW During the second half of 2000, the U.S. economy has slowed dramatically. The effect of higher interest rates and energy prices lowered consumer spending by the end of the year. The NASDAQ reflected its worst performance since its inception in 1971 and the Dow Jones Industrial Average and the Standard & Poor's 500 showed declines. By the end of 2000, the Federal Reserve changed its bias to an easing one due to increasing recession risks, which resulted in lowering the fed funds rate by 100 basis points during January 2001 to 5.5%. The Corporation began 2000 with the acquisition of CreST, S.A., a card processor and point-of-sale (POS) provider in Costa Rica. On April 6, 2000, BPNA announced its strategic alliance with Cendant Mortgage, a division of Cendant Corporation, in order to expand the mortgage services to the Hispanic markets within the United States. Cendant Mortgage, a leader in the mortgage banking business in the U.S., is currently processing and servicing loans on a private label basis through BPNA's retail sales staff and telemarketing group. In addition, the alliance calls for the origination of loans by BPNA through Cendant Corporation's real estate brands: Century 21, Coldwell Banker, and ERA. During the second quarter of 2000, the Corporation continued its business expansion in Puerto Rico with the acquisition of Centro Finance, a small consumer loan company, with nine offices and a loan portfolio of approximately $23 million at date of acquisition. The operations of Centro Finance became part of Popular Finance. Also, Popular North America acquired Aurora National Bank, which operated two branches in Illinois with approximately $111 million in deposits and $81 million in loans at date of acquisition. This financial institution was later merged into BPNA. Continuing with the Corporation's objective of providing more services to our customers and participating in the competitive insurance business, on July 1, 2000, Popular, Inc. created Banco Popular, National Association, a national bank in Orlando, Florida that oversees the operations of Popular Insurance, Inc.; formerly R&B Insurance Agency. On August 24, 2000, as part of a merger agreement between Banco Fiduciario (BF) and another financial institution in the Dominican Republic, the Corporation sold its ownership in BF. The Corporation retained an option to acquire a minority interest in the resulting new financial institution. In addition, effective August 21, 2000, the Corporation sold its credit card operations in the United States to Metris Companies, Inc. The signed agreement enables the Corporation to continue offering credit cards, particularly in the Hispanic market. The Corporation earns a fee, while Metris retains the portfolio and any resulting credit risk. Table A Components of Net Income as a Percentage of Average Total Assets
For the Year ---------------------------------------------------------------- 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Net interest income 3.70% 4.01% 4.27% 4.26% 4.18% Provision for loan losses (0.73) (0.63) (0.67) (0.60) (0.55) Securities and trading gains 0.05 -- 0.06 0.03 0.02 Other income 1.70 1.57 1.36 1.31 1.24 ---- ---- ---- ---- ---- 4.72 4.95 5.02 5.00 4.89 Operating expenses (3.30) (3.52) (3.52) (3.46) (3.32) ---- ---- ---- ---- ---- Net income before tax and minority interest 1.42 1.43 1.50 1.54 1.57 Income tax (0.38) (0.36) (0.36) (0.40) (0.43) Net loss of minority interest -- 0.01 -- -- -- ---- ---- ---- ---- ---- Net income 1.04% 1.08% 1.14% 1.14% 1.14% ==== ==== ==== ==== ====
F-2 29 Table B Changes in Net Income and Earnings per Common Share
2000 1999 1998 ------------------------------------------------------------------------------------ (In thousands, except per common share amounts) DOLLARS PER SHARE Dollars Per share Dollars Per share ------------------------------------------------------------------------------------ Net income applicable to common stock for prior year $ 249,208 $ 1.84 $ 223,998 $1.65 $ 201,215 $1.50 Increase (decrease) from changes in: Other operating income 77,807 0.57 95,200 0.70 37,264 0.28 Net interest income 29,023 0.21 80,726 0.60 89,057 0.66 Gain on sale of investment securities 10,563 0.08 (8,295) (0.06) 6,665 0.05 Trading account profit (loss) 3,812 0.03 (5,235) (0.04) (281) -- Net loss of minority interest (1,302) (0.01) 2,126 0.02 328 -- Income tax (15,677) (0.12) (10,449) (0.08) (210) -- Operating expenses (39,989) (0.29) (117,128) (0.86) (83,434) (0.62) Provision for loan losses (45,692) (0.34) (11,735) (0.09) (26,606) (0.20) --------- ------ --------- ----- --------- ----- Subtotal 267,753 1.97 249,208 1.84 223,998 1.67 Change in average common shares(*) -- -- -- -- -- (0.02) --------- ------ --------- ----- --------- ----- Net income applicable to common stock $ 267,753 $ 1.97 $ 249,208 $1.84 $ 223,998 $1.65 ========= ====== ========= ===== ========= =====
(*) Reflects the effect of the issuance of shares of common stock for the acquisitions completed, net of the shares repurchased, plus the shares issued through the Dividend Reinvestment Plan in the years presented. The average common shares outstanding for the years presented above were 135,907,476 for 2000, 135,585,634 for 1999, and 135,532,086 for 1998. The Corporation's net income for 2000 amounted to $276.1 million, an increase of $18.5 million or 7.2% over the net income of $257.6 million in 1999. Earnings per common share (EPS) for the year were $1.97 or 7.1% higher than the $1.84 in 1999. The Corporation's return on assets (ROA) for 2000 was 1.04% compared with 1.08% in 1999, while the return on common equity (ROE) was 15.0% in 2000 compared with 15.45% in 1999. Table A presents a five-year summary of the components of net income as a percentage of average assets. At December 31, 2000 the market value and book value per share of the Corporation's common stock was $26.31 and $13.92, respectively compared with $27.94 and $11.51 at the same date in 1999. Most of the acquisitions completed in the past years involved the payment of a premium, which is being amortized over periods ranging from 4 to 15 years. Cash-based earnings, net income adjusted for the impact of such amortization, may be more indicative of the Corporation's ability to generate income. This method of presentation is not in accordance with generally accepted accounting principles and is included here for illustrative purposes only.
Cash-based earnings 2000 1999 Change % (Dollars in thousands) --------- --------- -------- Net income $ 276,103 $ 257,558 7.2% Add: Amortization of intangibles 34,558 31,788 8.7 Less: Tax effect (1,689) (1,537) 9.9 --------- --------- --- Cash-based earnings $ 308,972 $ 287,809 7.4% ========= ========= ===
Further discussion of operating results and the Corporation's financial condition is presented in the following narrative and tables. In addition, Table C provides selected financial data for the past 10 years. This report contains certain forward-looking statements with respect to the adequacy of the allowance for loan losses, the Corporation's market risk and the effect of legal proceedings on the Corporation's financial condition and results of operations. These forward-looking statements involve certain risks, uncertainties, estimates and assumptions by management. Various factors could cause actual results to differ from those contemplated by such forward-looking statements. EARNINGS ANALYSIS Net Interest Income Net interest income is the main source of earnings of Popular, Inc. It represents the difference or spread between interest and fee income generated by the Corporation's earnings assets over the interest F-3 30 Table C Selected Financial Data
(In thousands, except per share data) 2000 1999 1998 ------------ ------------- ------------ CONDENSED INCOME STATEMENTS Interest income $ 2,150,157 $ 1,851,670 $ 1,651,703 Interest expense 1,167,396 897,932 778,691 ------------ ------------- ------------ Net interest income 982,761 953,738 873,012 ------------ ------------- ------------ Securities and trading gains (losses) 13,431 (944) 12,586 Operating income 451,667 373,860 278,660 Operating expenses 877,471 837,482 720,354 Provision for loan losses 194,640 148,948 137,213 Net loss of minority interest 1,152 2,454 328 Income tax 100,797 85,120 74,671 Dividends on preferred stock of BPPR -- -- -- Cumulative effect of accounting changes -- -- -- ------------ ------------- ------------ Net income $ 276,103 $ 257,558 $ 232,348 ============ ============= ============ Net income applicable to common stock $ 267,753 $ 249,208 $ 223,998 ============ ============= ============ PER COMMON SHARE DATA(*) Net income (basic and diluted) $ 1.97 $ 1.84 $ 1.65 Dividends declared 0.64 0.60 0.50 Book value 13.92 11.51 11.86 Market price 26.31 27.94 34.00 Outstanding shares: Average 135,907,476 135,585,634 135,532,086 End of period 135,998,617 135,654,292 135,637,327 AVERAGE BALANCES Net loans (**) $ 15,801,887 $ 13,901,290 $ 11,930,621 Earning assets 24,893,366 22,244,959 19,261,949 Total assets 26,569,755 23,806,372 20,432,382 Deposits 14,508,482 13,791,338 12,270,101 Subordinated notes 125,000 125,000 125,000 Preferred beneficial interest in Popular North America's junior subordinated deferrable interest debentures guaranteed by the Corporation 150,000 150,000 150,000 Total stockholders' equity 1,884,525 1,712,792 1,553,258 PERIOD END BALANCES Net loans (**) $ 16,057,085 $ 14,907,754 $ 13,078,795 Allowance for loan losses 290,653 292,010 267,249 Earning assets 26,339,431 23,754,620 21,591,950 Total assets 28,057,051 25,460,539 23,160,357 Deposits 14,804,907 14,173,715 13,672,214 Subordinated notes 125,000 125,000 125,000 Preferred beneficial interest in Popular North America's junior subordinated deferrable interest debentures guaranteed by the Corporation 150,000 150,000 150,000 Total stockholders' equity 1,993,644 1,660,986 1,709,113 SELECTED RATIOS Net interest yield (taxable equivalent basis) 4.23% 4.65% 4.91% Return on average total assets 1.04 1.08 1.14 Return on average common stockholders' equity 15.00 15.45 15.41 Dividend payout ratio to common stockholders 32.47 31.56 28.42 Efficiency ratio 61.57 63.08 62.55 Overhead ratio 41.96 48.71 49.15 Tier I capital to risk-adjusted assets 10.44 10.17 10.82 Total capital to risk-adjusted assets 12.37 12.29 13.14
(*) Per share data is based on the average number of shares outstanding during the periods, except for the book value which is based on total shares at the end of the periods. All per share data has been adjusted to reflect two stock splits effected in the form of a dividend on July 1, 1998 and July 1, 1996. (**) Includes loans held-for-sale F-4 31
Year ended December 31, ----------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 1992 1991 ------------ ------------- ------------- ------------ ------------ ------------- ------------- $ 1,491,303 $ 1,272,853 $ 1,105,807 $ 887,141 $ 772,136 $ 740,354 $ 794,943 707,348 591,540 521,624 351,633 280,008 300,135 387,134 ------------ ------------ ------------ ------------ ------------ ------------ ------------ 783,955 681,313 584,183 535,508 492,128 440,219 407,809 ------------ ------------ ------------ ------------ ------------ ------------ ------------ 6,202 3,202 7,153 451 1,418 625 19,376 241,396 202,270 166,185 140,852 123,762 123,879 112,398 636,920 541,919 486,833 447,846 412,276 366,945 345,738 110,607 88,839 64,558 53,788 72,892 97,633 121,681 74,461 70,877 59,769 50,043 28,151 14,259 6,793 -- -- -- 385 770 770 807 -- -- -- -- 6,185 -- -- ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 209,565 $ 185,150 $ 146,361 $ 124,749 $ 109,404 $ 85,116 $ 64,564 ============ ============ ============ ============ ============ ============ ============ $ 201,215 $ 176,800 $ 138,011 $ 120,504 $ 109,404 $ 85,116 $ 64,564 ============ ============ ============ ============ ============ ============ ============ $ 1.50 $ 1.34 $ 1.05 $ 0.92 $ 0.84 $ 0.70 $ 0.54 0.40 0.35 0.29 0.25 0.23 0.20 0.20 10.37 8.80 7.91 6.87 6.38 5.76 5.25 24.75 16.88 9.69 7.04 7.75 7.57 4.82 134,036,964 132,044,624 131,632,600 131,192,972 130,804,944 121,845,976 120,142,404 135,365,408 132,177,012 131,794,544 131,352,512 130,929,692 130,619,456 120,375,408 $ 10,548,207 $ 9,210,964 $ 8,217,834 $ 7,107,746 $ 5,700,069 $ 5,150,328 $ 5,302,189 17,409,634 15,306,311 13,244,170 11,389,680 9,894,662 8,779,981 8,199,195 18,419,144 16,301,082 14,118,183 12,225,530 10,683,753 9,528,518 8,944,357 10,991,557 10,461,796 9,582,151 8,837,226 8,124,885 7,641,123 7,198,187 125,000 147,951 56,850 56,082 73,967 85,585 94,000 122,877 -- -- -- -- -- -- 1,370,984 1,193,506 1,070,482 924,869 793,001 668,990 610,641 $ 11,376,607 $ 9,779,028 $ 8,677,484 $ 7,781,329 $ 6,346,922 $ 5,252,053 $ 5,195,557 211,651 185,574 168,393 153,798 133,437 110,714 94,199 18,060,998 15,484,454 14,668,195 11,843,806 10,657,994 9,236,024 8,032,556 19,300,507 16,764,103 15,675,451 12,778,358 11,513,368 10,002,327 8,780,282 11,749,586 10,763,275 9,876,662 9,012,435 8,522,658 8,038,711 7,207,118 125,000 125,000 175,000 50,000 62,000 74,000 94,000 150,000 -- -- -- -- -- -- 1,503,092 1,262,532 1,141,697 1,002,423 834,195 752,119 631,818 4.84% 4.77% 4.74% 5.06% 5.50% 6.11% 5.97% 1.14 1.14 1.04 1.02 1.02 0.89 0.72 15.83 16.17 14.22 13.80 13.80 12.72 10.57 25.19 24.63 26.21 27.20 25.39 28.33 34.13 62.12 61.33 64.88 66.21 66.94 65.05 66.46 49.66 49.38 53.66 57.24 58.34 55.07 52.47 12.17 11.63 11.91 12.85 12.29 12.88 11.01 14.56 14.18 14.65 14.25 13.95 14.85 13.35
F-5 32 Table D Net Interest Income - Taxable Equivalent Basis
Year ended December 31, =================================================================================================================================== (Dollars in millions) (In thousands) Variance Average Volume Average Yields Interest Attributable to 2000 1999 Variance 2000 1999 Variance 2000 1999 Variance Rate Volume ------- ------- -------- ----- ----- -------- ---------- ---------- -------- -------- -------- $ 933 $ 681 $ 252 6.68% 4.91% 1.77% Money market investments $ 62,356 $ 33,434 $ 28,922 $ 14,565 $ 14,357 7,945 7,349 596 6.85 6.79 0.06 Investment securities 544,608 499,046 45,562 1,660 43,902 213 314 (101) 7.33 6.56 0.77 Trading 15,624 20,584 (4,960) 2,218 (7,178) ------- ------- ------ ---- ---- ---- ---------- ---------- -------- -------- -------- 9,091 8,344 747 6.85 6.63 0.22 622,588 553,064 69,524 18,443 51,081 ------- ------- ------ ---- ---- ---- ---------- ---------- -------- -------- -------- Loans: Commercial 7,216 6,378 838 9.66 9.13 0.53 and construction 696,903 582,148 114,755 35,149 79,606 770 690 80 11.80 12.56 (0.76) Leasing 90,906 86,714 4,192 (5,429) 9,621 4,405 3,605 800 8.27 8.04 0.23 Mortgage 364,269 289,757 74,512 9,287 65,225 3,411 3,228 183 13.05 13.06 (0.01) Consumer 445,038 421,711 23,327 1,785 21,542 ------- ------- ------ ----- ----- ---- ---------- ---------- -------- -------- -------- 15,802 13,901 1,901 10.11 9.93 0.18 1,597,116 1,380,330 216,786 40,792 175,994 ------- ------- ------ ----- ----- ---- ---------- ---------- -------- -------- -------- $24,893 $22,245 $2,648 8.92% 8.69% 0.23% TOTAL EARNING ASSETS $2,219,704 $1,933,394 $286,310 $ 59,235 $227,075 ======= ======= ====== ===== ===== ==== ========== ========== ======== ======== ======== Interest bearing deposits: $ 1,811 $ 1,746 $ 65 3.60% 3.08% 0.52% NOW and money market $ 65,195 $ 53,687 $ 11,508 $ 9,144 $ 2,364 4,113 4,132 (19) 2.89 2.91 (0.02) Savings 118,823 120,259 (1,436) (1,612) 176 5,549 4,874 675 6.22 5.71 0.51 Time deposits 345,355 278,269 67,086 20,224 46,862 ------- ------- ------ ----- ----- ---- ---------- ---------- -------- -------- -------- 11,473 10,752 721 4.61 4.21 0.40 529,373 452,215 77,158 27,756 49,402 ------- ------- ------ ----- ----- ---- ---------- ---------- -------- -------- -------- 7,781 5,993 1,788 6.53 5.30 1.23 Short-term borrowings 508,029 317,646 190,383 81,120 109,263 1,894 1,833 61 6.87 6.99 (0.12) Medium and long-term debt 129,994 128,071 1,923 (2,135) 4,058 ------- ------- ------ ----- ----- ---- ---------- ---------- -------- -------- -------- TOTAL INTEREST BEARING 21,148 18,578 2,570 5.52 4.83 0.69 LIABILITIES 1,167,396 897,932 269,464 106,741 162,723 3,035 3,039 (4) Demand deposits 710 628 82 Other sources of funds ------- ------- ------ ----- ----- ---- $24,893 $22,245 $2,648 4.69% 4.04% 0.65% ======= ======= ====== ===== ===== ==== 4.23% 4.65% (0.42%) NET INTEREST MARGIN AND ===== ===== ==== NET INTEREST INCOME 1,052,308 1,035,462 16,846 $(47,506) $64,352 ======== ======= 3.40% 3.86% (0.46%) NET INTEREST SPREAD ===== ===== ==== TAXABLE EQUIVALENT ADJUSTMENT 69,547 81,724 (12,177) ---------- ---------- ------- NET INTEREST INCOME $ 982,761 $ 953,738 $29,023 ========== ========== ======= 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.
expense paid on deposits and borrowed funds. It is normally impacted by fluctuations in the volumes and mix of earning assets and interest-bearing liabilities, changes in interest rates and by the repricing characteristics of these assets and liabilities. The average key index rates for the years 1998 through 2000, which impacted most financial instruments of the Corporation, were as follows:
2000 1999 1998 ---- ---- ---- Prime rate 9.23% 8.00% 8.35% Fed funds rate 6.26 4.95 5.35 3-month LIBOR 6.54 5.42 5.56 3-month Treasury 5.98 4.76 4.89 2-year Treasury 6.20 5.42 5.12 FNMA 30-year 8.14 7.66 7.11
As further discussed in the Risk Management section, the Corporation has a comprehensive set of policies and procedures that is utilized to monitor and control the risk associated with the F-6 33
Year ended December 31, =================================================================================================================================== (Dollars in millions) (In thousands) Variance Average Volume Average Yields Interest Attributable to 1999 1998 Variance 1999 1998 Variance 1999 1998 Variance Rate Volume ------- ------- -------- ----- ----- -------- ---------- ---------- -------- -------- -------- $ 681 $ 754 $ (73) 4.91% 4.88% 0.03% Money market investments $ 33,434 $ 36,781 $ (3,347) $ (985) $ (2,362) 7,349 6,290 1,059 6.79 7.13 (0.34) Investment securities 499,046 448,426 50,620 (18,929) 69,549 314 287 27 6.56 6.60 (0.04) Trading 20,584 18,943 1,641 (110) 1,751 ------- ------- ------ ----- ----- ----- ---------- ---------- -------- -------- -------- 8,344 7,331 1,013 6.63 6.88 (0.25) 553,064 504,150 48,914 (20,024) 68,938 ------- ------- ------ ----- ----- ----- ---------- ---------- -------- -------- -------- Loans: Commercial 6,378 5,221 1,157 9.13 9.24 (0.11) and construction 582,148 482,234 99,914 (5,712) 105,626 690 628 62 12.56 12.73 (0.17) Leasing 86,714 79,929 6,785 (1,100) 7,885 3,605 3,000 605 8.04 8.57 (0.53) Mortgage 289,757 256,902 32,855 (16,590) 49,445 3,228 3,082 146 13.06 12.97 0.09 Consumer 421,711 399,784 21,927 (569) 22,496 ------- ------- ------ ----- ----- ----- ---------- ---------- -------- -------- -------- 13,901 11,931 1,970 9.93 10.22 (0.29) 1,380,330 1,218,849 161,481 (23,971) 185,452 ------- ------- ------ ----- ----- ----- ---------- ---------- -------- -------- -------- $22,245 $19,262 $2,983 8.69% 8.95% (0.26)% TOTAL EARNING ASSETS $1,933,394 $1,722,999 $210,395 $(43,995) $254,390 ======= ======= ====== ===== ===== ===== ========== ========== ======== ======== ======== Interest bearing deposits: $ 1,746 $ 1,460 $ 286 3.08% 3.35% (0.27)% NOW and money market $ 53,687 $ 48,846 $ 4,841 $ (3,922) $8,763 4,132 3,761 371 2.91 3.06 (0.15) Savings 120,259 114,958 5,301 (6,432) 11,733 4,874 4,437 437 5.71 5.58 0.13 Time deposits 278,269 247,688 30,581 12,989 17,592 ------- ------- ------ ----- ----- ----- ---------- ---------- -------- -------- -------- 10,752 9,658 1,094 4.21 4.26 (0.05) 452,215 411,492 40,723 2,635 38,088 ------- ------- ------ ----- ----- ----- ---------- ---------- -------- -------- -------- 5,993 4,623 1,370 5.30 5.45 (0.15) Short-term borrowings 317,646 251,724 65,922 (3,932) 69,854 1,833 1,646 187 6.99 7.01 (0.02) Medium and long-term debt 128,071 115,475 12,596 (203) 12,799 ------- ------- ------ ----- ----- ----- ---------- ---------- -------- -------- -------- TOTAL INTEREST BEARING 18,578 15,927 2,651 4.83 4.89 (0.06) LIABILITIES 897,932 778,691 119,241 (1,500) 120,741 3,039 2,612 427 Demand deposits 628 723 (95) Other sources of funds ------- ------- ------ ----- ----- ----- $22,245 $19,262 $2,983 4.04% 4.04% (0.00)% ======= ======= ====== ===== ===== ===== 4.65% 4.91% (0.26)% NET INTEREST MARGIN AND ===== ===== ==== NET INTEREST INCOME 1,035,462 944,308 91,154 $(42,495) $133,649 3.86% 4.06% (0.20)% NET INTEREST SPREAD ======== ======== ===== ===== ==== TAXABLE EQUIVALENT ADJUSTMENT 81,724 71,296 10,428 ---------- ---------- ------- $ 953,738 $ 873,012 $80,726 NET INTEREST INCOME ========== ========== =======
composition and repricing of its earning assets and interest-bearing liabilities and to assist management in maintaining stability in the net interest margin under varying interest rate environments. Net interest income for the year ended December 31, 2000 reached $982.8 million, an increase of $29.1 million or 3.0% when compared with $953.7 million reported in 1999. In 1998, net interest income amounted to $873.0 million. Table D presents the different components of net interest income segregated by its major categories. It is presented on a taxable equivalent basis, to facilitate the comparison among loans and investment securities whose income is exempt for income tax purposes. The conversion is done using the applicable statutory income tax rates. Non-accrual loans have been included in the respective average loan, and lease balances. Average outstanding securities balances are based upon amortized cost excluding any unrealized gains or losses on securities available-for-sale. The taxable equivalent adjustment amounted to $69.5 million in the year 2000 compared with $81.7 million in 1999 and $71.3 million in 1998. The decline in the adjustment relates to an increase of 69 basis points in the average cost of interest bearing liabilities compared to an increase of six basis points in investment securities, thus increasing significantly the interest expense disallowance F-7 34 required by the Internal Revenue Code of Puerto Rico and reducing the benefit derived from the exempt interest income. The taxable equivalent adjustment rose from 1998 to 1999 mostly due to a higher average volume of exempt investments. The increase of $16.8 million in net interest income, on a taxable equivalent basis, was the effect of a favorable variance of $64.3 million due to a higher volume of average earning assets and a negative variance of $47.5 million due to a lower net interest margin. Average earning assets increased by $2.6 billion or 11.9% from $22.2 billion in 1999. This increase was primarily attributed to the growth of $1.9 billion or 13.7% in the average loan portfolio. Commercial and mortgage loans accounted for 86.2% of the increase in the average loan balance. The rise resulted from the Corporation's sustained business growth and to a continuous aggressive marketing campaign to attract mortgage loans. The yield on average loans increased by 18 basis points, mainly as a result of the Federal Reserve's tightening policy during mid-1999 and 2000, which affected positively the yield on commercial loans. Although other loan categories were also positively impacted by the hike in rates, due to the fact that approximately 50% of the commercial and construction loan portfolios have floating or adjustable rates, the increase in the yield of commercial loans accounted for almost 59% of the total increase in interest income associated to yields. As shown in Table D, the average volume of the investment portfolio and money markets increased by $596 million and $252 million, respectively, from 1999. The growth in investment securities was comprised principally of U.S. agency securities, which are tax exempt in Puerto Rico, partially offset by lower average levels of U.S. Treasury securities. This reduction was mostly attributable to management's focus on the replacement of lower-yielding assets to better position its investment portfolio due to the prevailing interest rate scenarios. The average yield on investment securities, on a taxable equivalent basis, increased to 6.85% from 6.79% reported in 1999, while the average yield on money market investments also increased to 6.68% from 4.91% in 1999, mostly as a result of higher market rates. As a result of the increase in the average yield on loans and investment securities, due to the higher interest rate scenario that prevailed during 2000, and the changes in the composition of these portfolios, the average yield on earning assets increased 23 basis points from 8.69% in 1999 to 8.92% in 2000. The higher volume of earnings assets was primarily funded by increases of $721 million in interest bearing deposits and $1.8 billion in borrowings. Non-interest-bearing deposits remained stable at $3.0 billion. The rise in interest bearing deposits was principally attributed to higher levels of time deposits. Table L presents a detail of average deposits by category. The average cost of interest bearing deposits increased by 40 basis points from 1999 due to a higher interest rate environment. Average short-term borrowings, comprised of Fed funds, repurchase agreements and commercial paper, rose $1.8 billion or 29.8% since 1999, whereas their average cost increased by 123 basis points reflecting the rise in market rates as stated above. Net interest margin is the difference between the average yield obtained on earning assets and the average rate paid for all liabilities used to fund those assets, including both interest and non-interest sources of funds. The net interest margin of the Corporation, on a taxable equivalent basis, declined 42 basis points from 4.65% in 1999 to 4.23% in 2000. This margin was highly impacted by the changes in interest rates imposed by the Federal Reserve during mid-1999 and 2000. Since the Corporation had a liability sensitive structure, its borrowings and deposits repriced at a faster pace than its earning assets, thus resulting in a decrease in the net interest margin in 2000. During the last months of 2000 market rates started to stabilize and in January 2001 the Federal Reserve decreased the federal funds rate and discount rate by 100 points to 5.5% and 5.0%, respectively. These actions were taken in light of further weakening of sales and production, and in the context of lower consumer confidence, tight conditions in some segments of financial markets and high-energy prices debilitating household and business purchasing power. In the event interest rates continue to decline in 2001, the Corporation could experience a slightly positive effect in its net interest margin, as the cost of funds should decrease at a more rapid pace than the yield on earning assets. As shown in Table D, net interest income, on a taxable equivalent basis, amounted to $1.0 billion in 1999, up $91.2 million, or 9.7%, compared to 1998. This increase was attributable to a higher level of average earning assets in 1999, partially offset by a lower net interest margin. Average earning assets were $22.2 billion, compared with $19.2 billion in 1998, an increase of $3.0 billion or 15.5%. Commercial and mortgage loans, as well as investment securities, were the primary areas of growth in earning assets in 1999. The net interest margin on a taxable equivalent basis for 1999 decreased by 26 basis points when compared to 1998. This variance was the result of a decrease in the yield on average earning assets, primarily due to an environment of lower interest rates as compared with 1998. Also, the cost of short-term financing in the money markets increased substantially during the last few months of 1999. This had an adverse effect on the Corporation's cost of funds primarily during the last quarter of 1999, as money market rates increased more than was expected as a result of a tightening policy by the Fed in November 1999. Provision for Loan Losses The provision for loan losses reflects management's assessment of the adequacy of the allowance for loan losses to cover losses inherent in the loan portfolio after taking into account the net charge-offs for the current period and loan impairment. The provision for loan losses was $194.6 million for the year ended December 31, 2000, an increase of $45.7 million, or 30.7%, from $148.9 million recorded in 1999. The provision for loan losses amounted to $137.2 million in 1998. The increase in the provision for loan losses was primarily the result of a rise in the level of charge-offs and non-performing assets, loan growth and the inherent risk in the loan portfolio. F-8 35 Table E Non-Interest Income
Year ended December 31, ------------------------------------------------------------------------------------------------------------------------------ Five-Year (Dollars in thousands) 2000 1999 1998 1997 1996 C.G.R. ---------------------- ---- ---- ---- ---- ---- ------ Service charges on deposit accounts $125,519 $118,187 $103,732 $ 94,141 $ 85,846 9.81% -------- -------- -------- -------- -------- ----- Other service fees: Credit card fees and discounts 60,652 49,233 36,038 29,437 23,735 24.02 Debit card fees 30,513 22,785 17,702 15,768 10,430 41.26 Sale and administration of investment products 17,298 17,452 11,890 9,557 5,384 41.97 Check cashing fees 14,505 11,999 2,631 414 482 Mortgage servicing fees, net of amortization 12,561 11,300 9,131 9,129 7,534 16.10 Trust fees 9,481 9,928 8,873 6,799 6,174 10.13 Processing fees 28,528 8,312 Insurance fees 10,423 6,903 8,690 9,537 7,955 12.57 External payments 6,319 4,975 3,158 2,204 2,216 20.45 Other fees 26,754 26,840 18,462 15,805 13,161 9.43 -------- -------- -------- -------- -------- ----- Total other service fees 217,034 169,727 116,575 98,650 77,071 26.80 -------- -------- -------- -------- -------- ----- Other income 109,114 85,946 58,353 48,605 39,353 49.22 -------- -------- -------- -------- -------- ----- Total $451,667 $373,860 $278,660 $241,396 $202,270 21.77% ======== ======== ======== ======== ======== ===== Non-interest income to average assets 1.70% 1.57% 1.36% 1.31% 1.24% Non-interest income to operating expenses 51.47 44.64 38.68 37.90 37.32 ======== ======== ======== ======== ========
The Credit Risk Management and Loan Quality section includes a more detailed analysis of the allowance for loan losses, net charge-offs, and credit quality statistics. Non-Interest Income The Corporation through its business expansion strategies continues to emphasize growth in fee revenue with services beyond traditional lending and deposit activities. Non-interest income, excluding securities and trading gains, amounted to $451.7 million in 2000, compared with $373.9 million in 1999, representing an increase of $77.8 million, or 20.8%. This increase was almost twice the increase in operating expenses in 2000 driving the ratio of non-interest income to operating expenses to above 51% for the first time. In 1998, these revenues totaled $278.7 million. The increase during 2000 was driven by a rise of $47.3 million in other service fees, $23.2 million in other operating income and $7.3 million in service charges on deposit accounts. Non-interest income categories compared to the previous four years are presented in Table E. As a percentage of average assets, these revenues represented 1.70%, 1.57% and 1.36% for 2000, 1999 and 1998, respectively. The sustained increase in most categories has helped to consistently improve the ratio of non-interest income to operating expenses from 37.32% in 1996 to 51.47% in 2000. Service charges on deposits accounts totaled $125.5 million in 2000, an increase of 6.2% from the $118.2 million reported in 1999. The increase from 1999 was primarily the result of higher activity on commercial accounts, together with new account and transactional charges implemented in commercial and retail deposit accounts. Somewhat tempering the rise in service charges on deposit accounts were lower charges on demand deposit accounts and returned checks. In 1998, these revenues amounted to $103.7 million. Measured as a percentage of average deposits, service charges were 0.87% in 2000, 0.86% in 1999 and 0.85% in 1998. Other service fees were $217.0 million an increase of 27.9% from 1999. Most categories exhibited growth in 2000, with strong increases recorded in processing fees, credit card fees and discounts, and debit card fees. Higher processing fees, which rose $20.2 million from 1999, were primarily generated by GM Group, acquired in mid-1999. Credit card fees and discounts grew $11.4 million or 23.2% when compared with 1999. This overall increase was mostly attributed to the implementation in Puerto Rico, early this year, of late payment and cash advance fees on credit cards, and to an increase in customer activity. Debit card fees, consisting principally of interchange income and other fees from debit card and ATM usage, as well as rental income from point-of-sale (POS) terminals increased $7.7 million or 33.9% from the $22.8 million reported in 1999. F-9 36 Table F Operating Expenses
Year ended December 31, -------------------------------------------------------------------------------------- Five-Year (Dollars in thousands) 2000 1999 1998 1997 1996 C.G.R. -------- -------- -------- -------- -------- --------- Salaries $306,529 $289,995 $247,590 $211,741 $185,946 12.18% Pension and other benefits 68,734 72,820 67,743 69,468 64,609 3.61 Profit sharing 18,913 23,881 22,067 25,684 22,692 (0.09) -------- -------- -------- -------- -------- ----- Total personnel costs 394,176 386,696 337,400 306,893 273,247 9.62 -------- -------- -------- -------- -------- ----- Equipment expenses 98,022 88,334 75,302 66,446 57,186 15.42 Net occupancy expense 67,720 60,814 48,607 39,617 36,899 15.57 Professional fees 65,889 67,955 58,087 46,767 36,953 18.10 Business promotion 46,791 45,938 39,376 33,569 26,229 21.32 Communications 45,689 43,146 36,941 33,325 26,470 14.61 Amortization of intangibles 34,558 31,788 27,860 22,874 18,054 11.33 Other taxes 34,125 33,290 32,191 30,283 23,214 10.33 Printing and supplies 20,828 20,709 17,604 15,539 11,964 13.48 Other operating expenses: Transportation and travel 10,112 10,426 7,968 7,186 5,852 17.98 FDIC assessment 2,846 1,782 1,497 1,499 1,544 (22.62) All other 56,715 46,604 37,521 32,922 24,307 22.40 -------- -------- -------- -------- -------- ----- Subtotal 483,295 450,786 382,954 330,027 268,672 15.24 -------- -------- -------- -------- -------- ----- Total $877,471 $837,482 $720,354 $636,920 $541,919 12.50% ======== ======== ======== ======== ======== ===== Efficiency ratio 61.57% 63.08% 62.55% 62.12% 61.33% Personnel costs to average assets 1.48 1.62 1.65 1.67 1.68 Operating expenses to average assets 3.30 3.52 3.53 3.46 3.32 Assets per employee (in millions) $ 2.63 $ 2.21 $ 2.20 $ 2.18 $ 2.10 ======== ======== ======== ======== =========
Average debit card monthly transactions increased to 6,085,000 as of December 31, 2000, from 5,155,000 a year earlier. The number of POS terminals installed increased 16.4% to 25,788 in December 31, 2000. Insurance fees totaled $10.4 million for the year 2000, an increase of $3.5 million from 1999, most of which was related to commission income generated by Popular Insurance, incorporated in midyear 2000. Also contributing to the growth in other service fees from 1999 were higher check cashing fees by $2.5 million. This rise was mostly attributed to the expansion of the Corporation's retail financial services subsidiary in the United States, which added 30 new branches during the year to its existing network of stores and mobile units. Other income in 2000 amounted to $109.1 million, representing an increase of $23.2 million, or 27.0%, from 1999. Other income increased mostly as the result of higher gains in the sale of loans and loans held for sale by approximately $4.8 million and to other revenues derived by GM Group, mainly associated with consulting services for new technology, sale of equipment and other engineering services. Also, contributing to the rise were the $8.8 million pretax gain realized on the sale of the credit card operations in the U.S. mainland and the $0.5 million gain on the sale of the Corporation's ownership interest in BF. Also, included in other income are higher fees generated by the Corporation's investment in Telecomunicaciones de Puerto Rico, Inc. (TELPRI) of $3.6 million. As shown in Table E, in 1999, non-interest income, excluding securities and trading gains, increased $95.2 million or 34.2% from the $278.7 million reported in 1998. Service charges on deposit accounts grew $14.5 million or 13.9% over the amount reported in 1998, mostly as a result of higher volume of deposits due to the Corporation's growth and expansion and the offering of new deposit accounts. Also, the growth was related to increases in the volume of transactions with commercial accounts and revisions to the fee structure. Other service fees increased $53.2 million or 45.6% from 1998. Higher credit card fees and discounts led the rise, reflecting a higher portfolio level, increased fees and higher customer activity. Also, contributing to the growth from 1998 were higher check cashing fees driven by the expansion of the Corporation's retail financial subsidiary in the United States, higher processing fees associated to fees generated by GM Group and higher debit card fees from electronic transactions. In addition, fees related to the sale and administration of investment products reflected growth mostly associated to the issuance of various mutual funds during the year. These rises were partially offset by lower credit life insurance fees. Other income, including gain F-10 37 on sale of loans and loans held for sale, rose $27.6 million or 47.3% from 1998, partly due to fees resulting from the Corporation's investment in TELPRI and the acquisition of GM Group in 1999, and higher gains on the sale of mortgage and SBA loans. Securities and Trading Gains/Losses During 2000, the Corporation sold $819 million in investment securities available-for-sale. Gain on sale of securities amounted to $11.2 million, an increase of $10.6 million, compared with $0.6 million at the end of 1999. A $13.4 million gain was recognized in 2000 when the Corporation exercised its conversion right to exchange its investment in preferred stock of a financial corporation in Puerto Rico for common stock of the same entity. This gain was partially offset by net losses generated upon the sale of low-yielding securities. In 1999, $168 million in the investment securities available-for- sale were sold for a net gain of $0.6 million, compared with $923 million and $8.9 million, respectively, in 1998. Trading account activities for the year ended December 31, 2000, resulted in profits of $2.2 million compared with losses of $1.6 million in 1999 and profits of $3.7 million in 1998. Operating Expenses The Corporation's operating expenses for 2000 totaled $877.5 million, an increase of $40.0 million or 4.8%, compared to 1999. As a percentage of average assets, operating expenses decreased to 3.30% in 2000, compared with 3.52% in 1999 and 3.53% in 1998. The Corporation's efficiency ratio declined from 63.08% in 1999 to 61.57% in 2000. The decrease reflects both improved expense management and increased revenues for the year. Table F presents a detail of operating expenses and various related ratios for the last five years. Personnel costs, the largest category of operating expenses, increased $7.5 million or 1.9%, over the amounts reported in prior year. The rise in personnel costs was led by a $16.5 million increase in salary expenses, which resulted mostly from annual merit increases and business expansion. Pension and other employee benefits, including profit sharing, amounted to $87.6 million for the year ended December 31, 2000, a decrease of $9.1 million or 9.4% from 1999. This decline was mostly attributed to lower pension and post-retirement benefit expenses and to a decrease in the profit sharing expense resulting from lower profitability ratios. There were 10,651 full-time equivalent employees (FTE's) at December 31, 2000, compared with 11,501 in 1999, representing a decrease of 850 employees. This reduction in headcount was mostly attributed to employees of Banco Fiduciario and the credit card operations in the U.S. These operations had approximately 766 and 121 FTE's, respectively, as of the end of 1999. The ratio of assets per employee rose to $2.63 million in 2000 from $2.21 million in 1999, while personnel costs as a percentage of average assets decreased to 1.48% from 1.62% in 1999. Operating expenses, excluding personnel costs, totaled $483.3 million for the year ended December 31, 2000, an increase of $32.5 million or 7.2%, when compared with $450.8 million in 1999. Equipment and communication expenses grew a combined $12.2 million or 9.3% in 2000. The increase is partly attributed to the acquisition of GM Group in the second half of 1999 and higher expenses related to the depreciation of new equipment acquired throughout 1999 as part of the Y2K plan. Also, the rise is associated with the enhancement of the Corporation's electronic delivery capabilities, including its ATM's and POS networks, and the launching in the Internet of a redesigned web site that includes online banking services. Net occupancy expenses rose $6.9 million or 11.4% from 1999, largely reflecting increased depreciation and operating costs associated with the Corporation's growth and continued business expansion. Other operating expenses, which consist primarily of sundry losses, travelling expenses, interchange and processing expenses related to debit and credit cards, and FDIC assessments, among others, increased $10.9 million or 18.5% from 1999. Higher sundry losses, FDIC assessments, expenses related to foreclosed properties and higher interchange and processing expenses on credit and debit cards were the principal factors for the increase in other operating expenses. The amortization of intangibles also reflected an increase of $2.8 million related to premiums paid on the operations acquired during 2000 and the latter part of 1999. Partially offsetting these increases were lower professional fees, which decreased by $2.1 million or 3.0% from 1999. In 1999, personnel costs amounted to $386.7 million. The increase of $49.3 million from 1998 to 1999, was mostly reflected in salaries, mainly due to increased employment levels, annual merit increases, incentive compensation and additional personnel hired for the Y2K project. Fringe benefits also rose mostly due to higher post-retirement health benefits, medical plan costs, and profit sharing expenses. These rises were partially offset by a decline in pension costs. Other operating expenses in 1999 were $450.8 million compared with $383.0 million in 1998. Almost all categories of operating expenses reflected rises. These increases were mostly to support the growth of the Corporation's business activity, geographical expansion and the impact of the operations acquired. These included occupancy expenses, equipment expenses, marketing efforts, consulting and technical support fees, and travelling costs, among others. Income Tax Expense Income tax expense for the year ended December 31,2000, was $100.8 million compared with $85.1 million in 1999. The increase in 2000 was primarily due to higher pretax earnings for the current year and lower benefits from net tax-exempt interest income. The effective tax rate increased to 26.8% in 2000, from 25.0% in 1999 and 24.3% in 1998, mostly as a result of higher taxable income at the U.S. banking operations, associated to the gain on the sale of the credit card operations. This income is subject to a higher tax rate, which includes federal and state taxes. In addition, the disallowance of interest expense attributed to tax-exempt investments in Puerto Rico increased due to the higher cost of F-11 38 funds. The difference between the effective tax rates and the maximum statutory tax rate for the Corporation, which is 39%, is primarily due to the interest income earned on certain investments and loans which is exempt from income tax, net of the disallowance of related expenses. In 1998, income tax expense was $74.7 million and rose $10.4 million or 14.0% in 1999. The increase in 1999 was primarily due to higher pretax earnings and a lower reversal of $1.7 million of a valuation allowance related to a deferred tax asset that became realizable in 1999 as compared with $4.0 million realized in 1998. This increase was partially offset by higher benefits resulting from higher net tax-exempt interest income. Please refer to Note 25 to the consolidated financial statements for additional information on income taxes. Fourth Quarter Results Net income reached $75.5 million or $0.54 per common share for the quarter ended December 31, 2000, compared with $65.7 million or $0.47 per common share for the same quarter in 1999. The results for the fourth quarter of 2000 represented an annualized return on assets of 1.09% and a return on common equity of 15.72%, compared with 1.05% and 15.06%, respectively, for the same period in 1999. The Corporation's results of operations for the quarter ended December 31, 2000 reflected increases of $5.9 million in net interest income and $17.5 million in other revenues, when compared with the same quarter in 1999. Operating expenses reflected a reduction of $5.0 million compared with the same quarter in 1999. These favorable variances were partially offset by increases of $11.2 million in income taxes and $6.8 million in the provision for loan losses. The growth in net interest income over the fourth quarter of 1999 was primarily due to an increase of $2.9 billion in average earning assets driven principally by a $1.6 billion increase in the average loan portfolio, mainly commercial and mortgage loans. The increase in the volume of earning assets was funded mainly through a higher average volume of borrowings and interest-bearing deposits. The net interest yield on a taxable equivalent basis for the quarter ended December 31, 2000, was 4.06%, compared with 4.55% for the fourth quarter of 1999. The reduction in the net interest yield resulted from an increase of 60 basis points in the average cost of interest bearing liabilities, mostly as a result of a higher interest rate scenario and a higher proportion of short-term borrowings, partially offset by an increase of seven basis points in the average yield on earning assets. The provision for loan losses was $46.2 million, up $6.8 million or 17.2% from $39.4 million in the fourth quarter of 1999. The increase reflects the growth in the loan portfolio, and a rise in non-performing assets and net charge-offs. Net charge-offs were $50.9 million or 1.25% of average loans, compared with $36.0 million or 0.99% for the same period in 1999. The rise in net charge-offs was partially related to the adoption of the Revised Uniform Retail Credit Classification and Account Management Policy, which is further discussed in the Non-performing Assets section. Non-interest income, including securities and trading gains, grew $17.5 million or 17.1%, reaching $119.4 million for the fourth quarter of 2000, compared with $101.9 million for the same period in 1999. The growth in non-interest income was led by an increase of $8.3 million in other service fees, $9.1 million in other operating income and $1.6 million in service charges on deposit accounts, partially offset by higher losses on sale of securities of $2.4 million. Higher debit card fees, processing income and insurance commissions led the growth in other service fees. Other income for the fourth quarter of 2000 included a $6.4 million pre-tax gain recognized upon the $190 million loan securitization performed by Equity One in the quarter, as well as a $3.8 million gain triggered by the sale of approximately $293 million in mortgage loans by BPPR. Operating expenses for the fourth quarter of 2000 decreased $5.0 million or 2.3%, from $215.7 million in the fourth quarter of 1999. This decline was principally as a result of lower personnel costs by $4.3 million or 4.4% and professional fees by $3.1 million or 17.0%. Remaining combined categories of operating expenses rose $2.4 million or 2.4%, reflecting higher expenses largely in equipment, net occupancy and other general operating expense categories. STATEMENT OF CONDITION ANALYSIS The Corporation's total assets as of December 31, 2000 reached $28.1 billion, representing an increase of $2.6 billion, compared with $25.5 billion a year earlier. Total assets amounted to $23.2 billion in 1998. Despite the sale of BF and the credit card operations in the United States, the Corporation experienced a 10.2% increase in assets since December 31, 1999, mostly due to the Corporation's business growth, attributed principally to its banking operations in Puerto Rico. Total assets of BF and the U.S. credit card operations were $436 million and $153 million, respectively, at December 31, 1999. Earning Assets The Corporation's earning assets reached $26.3 billion at December 31, 2000, compared with $23.8 billion at December 31, 1999 and $21.6 billion at the same date in 1998. Money market investments, investment and trading securities amounted to $10.3 billion at December 31, 2000, representing an increase of $1.5 billion when compared with $8.8 billion at December 31, 1999. The increase was mainly reflected in investment securities, which totaled $9.1 billion at December 31, 2000, or $1.5 billion and 18.8% higher than the $7.6 billion at December 31, 1999. The growth was mostly attributed to investment opportunities undertaken during the year, mostly related to U.S. agency securities, which are tax-exempt in Puerto Rico. The Corporation continued to experience loan growth during 2000. Total loans increased $1.1 billion or 7.7% from amounts reported in 1999. As derived from Table G, mortgage and commercial loans, F-12 39 Table G Loans Ending Balances
As of December 31, ---------------------------------------------------------------------------------------- Five-Year (Dollars in thousands) 2000 1999 1998 1997 1996 C.G.R. ------------ ------------ ------------ ------------ ------------ --------- Commercial, industrial and agricultural $ 7,013,834 $ 6,656,411 $ 5,646,027 $ 4,637,409 $ 3,822,096 16.96% Construction 258,197 247,288 257,786 250,111 200,083 3.65 Lease financing 816,714 728,644 645,280 581,927 516,001 10.37 Mortgage(*) 4,643,646 3,933,663 3,351,748 2,833,896 2,576,887 14.08 Consumer(*) 3,324,694 3,341,748 3,177,954 3,073,264 2,663,961 7.15 ------------ ------------ ------------ ------------ ------------ ------ Total $ 16,057,085 $ 14,907,754 $ 13,078,795 $ 11,376,607 $ 9,779,028 13.10% ============ ============ ============ ============ ============ ======
(*)Includes loans held-for-sale. including construction loans, accounted for the largest increases in the portfolio, rising $710 million and $368 million, respectively from the amounts reported as of December 31, 1999. This growth was achieved despite various asset sale transactions, which took place during the year, including the sale of BF which had $290 million in loans at the end of 1999, and sale transactions involving mortgage loans, which are described below. The rise in the mortgage loan portfolio of $710 million or 18.0% since 1999 was the result of higher loan originations and aggressive marketing efforts. These loans increased even when the Corporation performed a mortgage loan securitization of $190 million at Equity One and a sale of mortgage loans of approximately $293 million at BPPR during last quarter of 2000. The commercial loan portfolio, including construction loans, was $7.3 billion at December 31, 2000, an increase of 5.3% compared to 1999. 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. This increase was partially offset by the sale of BF, which had $236 million in commercial loans as of December 31, 1999. BPNA reflected a healthy growth, comprising 65.9% of the Corporation's total loan growth. The rise at this banking institution was mostly in the form of medallion, other SBA and franchise loans, among others. Consumer loans, which include personal, auto and boat, credit cards and reserve lines, decreased $17 million since December 31, 1999 mainly resulting from the sale of the U.S. credit card portfolio during the third quarter of 2000. The latter totaled $156 million at December 31, 1999. Personal loans, the largest category of consumer loans, represented 51.6% of the consumer loan portfolio, a slight increase of $15.7 million or 0.9% from the end of 1999. Credit card loans, which represented 22.8% of the consumer loan portfolio as of December 31, 2000, decreased $109 million, mainly due to the aforementioned sale of the U.S. credit card portfolio. In Puerto Rico, the credit card portfolio increased by $61.9 million mostly related to American Express. Auto and boat secured loans represented about 20.6% of the total consumer loan portfolio, while other revolving credit represented 5.0% at December 31, 2000. These two categories combined increased $76.5 million. This increase was mostly achieved through business expansion and marketing efforts both in Puerto Rico and the United States. The Corporation's lease financing portfolio increased $88.1 million or 12.1% from 1999. This rise was mostly associated to lease financing portfolios acquired during the year from a local financial institution in Puerto Rico of $66.8 million at date of acquisition. In addition, the Corporation's leasing subsidiary in the United States, engaged in equipment leasing, contributed with $7.6 million of the increase. Deposits, other interest bearing liabilities and minority interest Total deposits at December 31, 2000 amounted to $14.8 billion compared with $14.2 billion at December 31, 1999, an increase of $631 million or 4.5%. The moderate growth in deposits reflects increased competition for consumer deposits and heightened consumer sensitivity to interest rates. Interest bearing deposits increased $806 million or 7.4%, mostly in certificates of deposit. Non-interest bearing deposits decreased $175 million or 5.3% from 1999. The growth in deposits was partially affected by the sale of BF, which had $295 million in total deposits as of the end of 1999. Refer to Table L for a detail of average deposits by category. The geographic distribution of the Corporation's total deposits at the end of 2000, included 67.4% in Puerto Rico, 27.7% in the United States and the remaining 4.9% in the Caribbean region, including deposits from BPPR's operations in the U.S. and British Virgin Islands. The increase in deposits was mainly reflected in brokered CD's and other time deposits, which rose $304 million or 197% and $289 million or 5.8%, respectively, from amounts reported in 1999. Brokered CD's consist of certificate of deposits purchased from a broker acting as an agent for depositors and usually have a higher interest rate than regular CD's. The increase in time deposits was mostly experienced in retail deposits, resulting from the F-13 40 Table H Capital Adequacy Data
As of December 31, ---------------------------------------------------------------------------------- (Dollars in thousands) 2000 1999 1998 1997 1996 -------------- -------------- -------------- -------------- -------------- Risk-based capital: Tier I capital $ 1,741,004 $ 1,557,096 $ 1,450,187 $ 1,335,391 $ 1,121,128 Supplementary (Tier II) capital 321,627 324,519 310,091 263,115 246,350 -------------- -------------- -------------- -------------- -------------- Total capital $ 2,062,631 $ 1,881,615 $ 1,760,278 $ 1,598,506 $ 1,367,478 ============== ============== ============== ============== ============== Risk-weighted assets: Balance sheet items $ 16,173,005 $ 14,878,731 $ 12,955,995 $ 10,687,847 $ 9,368,420 Off-balance sheet items 496,735 428,780 443,926 287,822 275,397 -------------- -------------- -------------- -------------- -------------- Total risk-weighted assets $ 16,669,740 $ 15,307,511 $ 13,399,921 $ 10,975,669 $ 9,643,817 ============== ============== ============== ============== ============== Ratios: Tier I capital (minimum required - 4.00%) 10.44% 10.17% 10.82% 12.17% 11.63% Total capital (minimum required - 8.00%) 12.37 12.29 13.14 14.56 14.18 Leverage ratio (minimum required - 3.00%) 6.40 6.40 6.72 6.86 6.71 Equity to assets 7.09 7.19 7.60 7.44 7.33 Tangible equity to assets 6.06 6.09 6.50 6.52 6.55 Equity to loans 11.93 12.32 13.02 13.00 12.97 Internal capital generation rate 9.59 9.80 10.06 10.76 10.99 ============== ============== ============== ============== ==============
Corporation's marketing efforts. In addition, savings, NOW and money market accounts had an increase of $208 million or 3.6% from 1999. On the other hand, demand deposits had a decrease of $175 million or 5.3% compared with amounts reported as of December 31, 1999. This decrease is mostly attributable to a reduction in the funds held in trust for the benefit of third parties. During 2000, an increased reliance was placed on borrowed funds to support earning asset growth. Borrowed funds, including subordinated notes and capital securities, increased $1.6 billion or 17.8%, from $9.2 billion on December 31, 1999 to $10.8 billion at the end of 2000. Most of the increase in borrowed funds was obtained through short-term funding sources. The increase in funds was mostly in the form of federal funds and advances under revolving lines of credit. As part of the investment in subsidiaries, the Corporation recognized a minority interest, amounting to $0.9 million as of December 31, 2000, which mostly represented the beneficial interest of the minority investors of Levitt Mortgage. As of December 31, 1999, this minority interest totaled $23 million. The decrease from the end of 1999 was mainly attributed to the aforementioned sale of BF. Stockholders' Equity The Corporation's stockholder's equity at December 31, 2000 was $1.99 billion compared with $1.66 billion at the end of 1999. Besides the increase in retained earnings, stockholder's equity also rose as a result of an increase of $144 million in accumulated other comprehensive income. The latter included $4 million in unrealized gains on securities available-for-sale, net of deferred taxes, as of December 31, 2000, compared with $139 million in unrealized losses, net of deferred taxes, in prior year. During 2000 the Corporation repurchased a total of 104,878 shares of its common stock at a cost of $2.1 million. Dividends declared on common stock during 2000 totaled $87.0 million, compared with $81.4 million in 1999. Total dividends declared per common share for 2000 were $0.64 compared with $0.60 in 1999. The dividend payout ratio to common stockholders for the year was 32.47% compared with 31.56% in 1999. The Corporation has a Dividend Reinvestment Plan for its stockholders. This plan offers the stockholders the opportunity to automatically reinvest their dividends in shares of common stock at a 5% discount from the average market price at the time of issuance. During 2000, a total of 449,203 shares, equivalent to $9.8 million in additional capital, were issued under the plan. In 1999, 328,693 shares representing $9.4 million in additional capital were issued under this plan. The Corporation had 4 million shares of preferred stock outstanding at December 31, 2000. These shares are non-convertible and are redeemable at the option of the Corporation. Dividends are non-cumulative and are payable monthly at an annual rate per share. Dividends declared on the Corporation's preferred stock amounted to $8.3 million in 2000 and 1999 of 8.35% based on the liquidation preference value of $25 per share. As shown in Table H, which presents the Corporation's capital adequacy information for the current and previous four years, the Corporation continues to exceed the well-capitalized guidelines under the federal banking regulations. Further information is also presented in Note 19 to the consolidated financial statements. F-14 41 Table I Common Stock Performance
Cash Book Market Price Dividends Value Dividend Price/ Market/ ---------------------- Declared Per Payout Dividend Earnings Book High Low Per Share Share Ratio Yield (*) Ratio Ratio -------- -------- --------- ------ -------- --------- -------- ------- 2000 $13.92 32.47% 2.75% 13.36X 188.95% 4TH QUARTER $27 7/8 $23 1/2 $ 0.16 3RD QUARTER 27 1/16 19 5/8 0.16 2ND QUARTER 23 9/16 19 1/16 0.16 1ST QUARTER 26 7/8 18 5/8 0.16 1999 11.51 31.56 1.90 15.18 242.72 4th quarter $32 $25 7/16 $ 0.16 3rd quarter 31 25 13/16 0.16 2nd quarter 32 7/8 28 13/16 0.14 1st quarter 37 7/8 30 7/8 0.14 1998 11.86 28.42 1.55 20.61 286.68 4th quarter $34 $25 3/8 $ 0.14 3rd quarter 36 3/4 28 0.14 2nd quarter 36 5/32 29 7/32 0.11 1st quarter 29 11/32 23 1/32 0.11 1997 10.37 25.19 1.76 16.50 238.78 4th quarter $27 3/16 $22 7/8 $ 0.11 3rd quarter 27 15/16 20 9/16 0.11 2nd quarter 21 7/16 16 7/8 0.09 1st quarter 18 3/8 16 17/32 0.09 1996 8.80 24.63 2.65 12.59 191.87 4th quarter $17 1/2 $12 15/16 $ 0.09 3rd quarter 13 7/8 11 5/16 0.09 2nd quarter 11 13/14 10 15/16 0.09 1st quarter 11 9/16 9 11/16 0.08
(*) Based on the average high and low market price for the four quarters. Note: All per share data has been adjusted to reflect the two stock splits effected in the form of a dividend of one share for each share outstanding on July 1, 1998 and July 1, 1996. Intangible assets totaled $282 million at December 31, 2000, a decrease of $23 million from $305 million at December 31, 1999. This decrease is mainly due to the amortization of intangibles in the normal course of business and to the exclusion of the intangible assets of BF, which amounted to $10 million as of December 31, 1999. Total intangibles consisted of $194 million in goodwill, $46 million in core deposit intangibles, $39 million in mortgage servicing rights and $3 million in other intangibles. At the end of 1999 goodwill totaled $215 million, core deposit intangibles were $52 million, mortgage-servicing rights were $32 million and other intangibles were $6 million. The average tangible equity increased to $1.59 billion for the year ended December 31, 2000, from $1.43 billion a year before, an increase of $160 million or 11.1%. Total tangible equity at December 31, 2000 was $1.71 billion compared with $1.36 billion at December 31, 1999. The tangible equity to assets ratio for 2000 was 6.06% compared with 6.09 % in 1999. Book value per common share was $13.92 at December 31, 2000 compared with $11.51 at year-end 1999. The market value of the Corporation's common stock at the end of 2000 was $26.31 compared with $27.94 a year earlier. The total market capitalization was $3.6 billion as of December 31, 2000 compared with $3.8 billion as of the same date in the previous year. The Corporation's stock is traded on the National Association of Securities Dealers Automated Quotation (NASDAQ) National Market System under the symbol BPOP. Table I shows the range of market quotations and cash dividends declared for each quarter during the last five years. The preferred stock of the Corporation is also traded on the NASDAQ National Market System under the symbol BPOPP. Its market value at December 31, 2000 and 1999 was $25.50 and $25.38 per share, respectively. As of February 28, 2001 the Corporation had 9,061 stockholders of record of its F-15 42 common stock, not including beneficial owners whose shares are held in record names of brokers or other nominees. Risk Management A Risk Management Committee composed of members of the Board of Directors of the Corporation monitors and approves policies and procedures and evaluates the Corporation's activities affected by credit, market, operational, legal, liquidity, reputation and strategic risks. The Corporation has specific policies and procedures which structure and delineate the management of risks, particularly those related with interest rate exposure, liquidity and credit, all of which are discussed below. Market Risk Market risk refers to the impact of changes in interest rates on the Corporation's net interest income, market value of portfolio equity and trading operations. It also arises from fluctuations in the value of some foreign currencies against the U.S. dollar. Despite the varied nature of market risks, the primary source of market risk at the Corporation is the impact of changes in interest rates. The stability and level of the Corporation's net interest income, as well as its market value of equity, are subject to interest rate volatility. Changes in interest rates affect both the rates at which the Corporation's assets and liabilities reprice throughout time, and the market values of most of its assets and liabilities. Since net interest income is the main source of earnings of the Corporation, the constant measurement and control of market risk is a major priority. The Corporation's Board of Directors (the Board) is responsible for establishing policies regarding the assumption and management of market risk, and delegates their implementation to the Market Risk Committee (the Committee) of Popular Inc. The Committee's primary goal is to ensure that the market risk assumed by the Corporation remains within the parameters of the Board policies. Interest rate risk Interest rate risk (IRR) refers to the impact of changes in interest rates on the Corporation's net interest income. Depending on the duration and repricing characteristics of the Corporation's assets, liabilities and off-balance sheet items, changes in interest rates could either increase or decrease the level of net interest income. The Committee implements the market risks policies approved by the Board as well as risk management strategies reviewed and adopted in Committee meetings. The Committee measures and monitors the level of short and long-term IRR assumed at the Corporation and its subsidiaries. It uses simulation analysis and static gap estimates for measuring short-term IRR. Duration analysis is used to quantify the level of long-term IRR assumed, and focuses on the estimated economic value of the Corporation, that is, the difference between the estimated market value of financial assets less the estimated value of financial liabilities. Static gap analysis measures the volume of assets and liabilities at a point in time and their repricing during future time periods. The repricing volumes typically include adjustments for anticipated future asset prepayments, and for differences in sensitivity to market rates. The volume of net assets or liabilities repricing during future periods, particularly within one year, is used as one short-term indicator of IRR. Table J presents the static gap estimate for the Corporation as of December 31, 2000. These static measurements do not reflect the results of any projected activity and are best used as early indicators of potential interest rate exposures. Simulation analysis is another measurement used by the Corporation for short-term IRR, and it addresses some of the deficiencies of gap analysis. It involves estimating the effect on net interest income of one or more future interest rate scenarios as applied to the repricing of the Corporation's current assets and liabilities and the assumption of new balances. The simulation analyses reviewed in the Committee are based on various interest rate scenarios, and include assumptions made related to the prepayment of the Corporation's amortizing loans and securities, and the sensitivity of the Corporation's cost of retail deposits to changes in market rates. The computations do not contemplate actions management could take to respond to changes in interest rates. Computations of the prospective effects of hypothetical interest rate changes should not be relied upon as indicative of actual results. By their nature, these forward-looking statements are only estimates and may be different from what actually occurs in the future. As of December 31, 2000, the difference in projected net interest income under a rising and declining rate scenario, which assumes interest rates change by 150 basis points up and down, within a twelve-month period, was a decrease of $1.1 million and an increase of $0.9 million, respectively, which represented changes of 0.1% and 0.08% in net interest income. These estimated changes are within the policy guidelines established by the Board. Duration analysis measures longer-term IRR, in particular the duration of market value of equity. It expresses in general terms the sensitivity of the market value of equity to changes in interest rates. The estimated market value of equity is obtained from the market values of the cash flows from the Corporation's financial assets and liabilities, which are primarily payments of interest and repayments of principal. Thus, the market value of equity incorporates most future cash flows from net interest income, whereas other measures of IRR focus primarily on short-term net interest income. As of December 31, 2000, the estimated duration of the market value of equity of the Corporation was 6.25 years compared with 5.3 years as of the same date a year earlier. Duration measures the average length of a financial asset or liability. In particular it equals the weighted average maturity of all the cash flows of a financial asset or liability where the weights are equal to the present value of each cash flow. The present value of cash flows occurring in the future is its estimated market value as of a certain date. The sensitivity of the market value of a financial asset or liability to changes in interest rates is primarily a function of its duration. In general terms, the longer the duration of an asset or liability is, the greater is the F-16 43 Table J Interest Rate Sensitivity
As of December 31, 2000 ------------------------------------------------------------------------------------- By Repricing Dates ------------------------------------------------------------------------------------- After After After Within three months six months nine months 0-30 31-90 but within but within but within (Dollars in thousands) days days six months nine months one year ----------- ----------- ------------- ------------- ------------- Assets: Money market investments $ 137,244 $ 797,342 $ 133,100 Investment and trading securities 1,487,551 1,534,937 492,489 $ 230,855 $ 682,353 Loans 5,011,008 683,511 801,100 598,848 533,937 ----------- ----------- ----------- ----------- ----------- Other assets Total 6,635,803 3,015,790 1,426,689 829,703 1,216,290 ----------- ----------- ----------- ----------- ----------- Liabilities and stockholders' equity: Savings, NOW and money market accounts 675,362 Other time deposits 1,256,964 923,820 1,139,830 531,801 451,316 Federal funds purchased and securities sold under agreements to repurchase 3,357,716 1,294,830 191,569 Other short-term borrowings 1,675,164 1,514,897 391,668 439,490 347,993 Notes payable 50,000 210,000 Subordinated notes and capital securities Non-interest bearing deposits Other non-interest bearing liabilities Stockholders' equity ----------- ----------- ----------- ----------- ----------- Total $ 7,015,206 $ 3,943,547 $ 1,723,067 $ 971,291 $ 799,309 ----------- ----------- ----------- ----------- ----------- Off-balance sheet financial instruments 20,000 15,000 Interest rate sensitive gap (359,403) (927,757) (281,378) (141,588) (416,981) Cumulative interest rate sensitive gap (359,403) (1,287,160) (1,568,538) (1,710,126) (1,293,145) Cumulative sensitive gap to earning assets (1.36)% (4.89)% (5.96)% (6.49)% (4.91)% =========== =========== =========== =========== =========== Non-interest After one bearing year funds Total ----------- ----------- ----------- Assets: Money market investments $ 932 $ 1,068,618 Investment and trading securities 4,785,543 9,213,728 Loans 8,428,681 16,057,085 Other assets $1,717,620 $1,717,620 ------------ ----------- ----------- Total 13,215,156 1,717,620 28,057,051 ------------ ----------- ----------- Liabilities and stockholders' equity: Savings, NOW and money market accounts 5,277,530 5,952,892 Other time deposits 1,438,399 5,742,130 Federal funds purchased and securities sold under agreements to repurchase 120,000 4,964,115 Other short-term borrowings 4,369,212 Notes payable 916,912 1,176,912 Subordinated notes and capital securities 275,000 275,000 Non-interest bearing deposits 3,109,885 3,109,885 Other non-interest bearing liabilities 473,261 473,261 Stockholders' equity 1,993,644 1,993,644 ------------ ----------- ----------- Total $ 8,027,841 $5,576,790 $28,057,051 ------------ ----------- ----------- Off-balance sheet financial instruments (35,000) Interest rate sensitive gap 5,152,315 Cumulative interest rate sensitive gap 3,859,170 Cumulative sensitive gap to earning assets 14.65% ============ =========== ===========
sensitivity of its market value to interest rate changes. Since duration measures the length of a financial asset or liability, it is usually expressed in terms of years or months. Derivatives are used, to a limited extent, by the Corporation with the primary objective of controlling exposures to market risk. The primary instruments used included exchange-traded futures contracts and interest rate swaps. Financial futures are used primarily for hedging the cost of future debt issuance as well as protecting the value of assets from market risk. Interest rate swaps are used primarily to hedge the risk of certificates of deposits by the Corporation to retail customers, whose return is based on an equity index. Please refer to Note 28 to the consolidated financial statements for further information on the Corporation's derivative transactions. Trading The Corporation's trading activities are another source of market risk. These are mostly related to its mortgage banking and broker/dealer activities in Puerto Rico. The Corporation assumes positions in financial instruments, including futures and options, in the course of these activities that are carried at market value. Interest revenue and expense arising from trading securities are included in the income statement as part of net interest income and not included in trading profits or losses. In the opinion of management, the size and composition of the trading portfolio does not represent a potentially significant source of market risk for the Corporation. It consists primarily of securities issued by Puerto Rico-based entities for resale to retail customers and mortgage-backed securities in the process of being sold in the F-17 44 TABLE K Maturity Distribution of Earning Assets
As of December 31, 2000 -------------------------------------------------------------------------------------------- Maturities -------------------------------------------------------------------------------------------- After one year through five years After five years -------------------------------------------------------------------------------------------- Fixed Variable Fixed Variable One year interest interest interest interest (In thousands) or less rates rates rates rates Total ---------- ---------- ---------- ---------- ---------- ----------- Money market securities $1,067,661 $ 932 $ 25 -- -- $ 1,068,618 Investment and trading securities 2,302,195 2,796,822 377,745 $2,702,224 $ 779,091 8,958,077 Loans: Commercial 2,281,076 1,710,977 738,588 1,300,020 983,173 7,013,834 Construction 36,502 11,051 5,513 14,948 190,183 258,197 Lease financing 228,134 577,465 -- 11,115 -- 816,714 Mortgage 1,023,039 1,703,416 242,536 1,367,546 307,109 4,643,646 Consumer 1,060,894 1,437,211 -- 826,589 -- 3,324,694 ---------- ---------- ---------- ---------- ---------- ----------- Total $7,999,501 $8,237,874 $1,364,407 $6,222,442 $2,259,556 $26,083,780 ========== ========== ========== ========== ========== ===========
Note: Federal Reserve Bank stock, Federal Home Loan Bank stock, and other equity securities held by the Corporation are not included in this table. secondary markets. The Committee utilizes several approaches for measuring its risk, including duration and value at risk. As of December 31, 2000 the trading portfolio of the Corporation amounted to $153 million and represented 0.5% of total assets, compared with $237 million and 0.9% a year earlier. This portfolio was composed of the following as of December 31, 2000:
Weighted Amount Average Yield -------- ------------- (Dollars in thousands) Mortgage-backed securities $ 20,546 7.42% Commercial paper 104,375 6.80 U.S. Treasury and agencies 14,205 6.66 Puerto Rico Government obligations 4,588 6.85 Other 9,359 7.00 -------- ---- $153,073 6.88% ======== ====
As of December 31, 2000, the trading portfolio of the Corporation had an estimated duration of 1.05 years and a one-month value at risk of $0.6 million, assuming a confidence level of 95%. Foreign Exchange In the ordinary course of business, the Corporation occasionally enters into foreign exchange transactions. These transactions are executed as an intermediary primarily for its retail and commercial clients. Any risk assumed by these transactions is immediately offset in the foreign exchange markets. Management therefore believes that the market risk assumed by the Corporation in its foreign currency transactions is not significant. The Corporation conducts business in the Latin American markets through several of its processing and information technology services and products subsidiaries. Although not significant, some of these businesses are conducted in the country's particular foreign currency. However, management does not expect future exchange volatility between the U.S. dollar and the particular foreign currency to affect significantly the value of the Corporation's investment in these subsidiaries. Liquidity Risk Liquidity refers to the ability to fund current operations, including the cash flow requirements of depositors and borrowers as well as future growth. The Corporation utilizes various sources of funding to help ensure that adequate levels of liquidity are always available. Diversification of funding sources is a major priority, as it helps protect the liquidity of the Corporation from market disruptions. Since the duration and repricing characteristics of the Corporation's borrowings determine to a major extent the overall interest rate risk of the Corporation, they are actively managed. The Corporation raises its funding from a combination of retail and wholesale markets. Retail sources of funds include individual and corporate depositors in the markets where the Corporation competes. These are the primary sources of funds for the Corporation and are usually more stable than financing from institutional sources. This stability is enhanced by the Corporation's market share participation in its primary markets. The Corporation has also established borrowing relationships with the FHLB and other correspondent banks, which further support and enhance liquidity. Wholesale or institutional sources of funds comprise primarily other financial intermediaries such as commercial banks, securities F-18 45 Table L Average Total Deposits
For the Year ------------------------------------------------------------------------------------ Five-Year (Dollars in thousands) 2000 1999 1998 1997 1996 C.G.R. ----------- ---------- ----------- ----------- ----------- --------- Demand $ 3,030,307 $ 3,032,001 $ 2,607,525 $ 2,289,300 $2,047,845 10.50% Other non-interest bearing accounts 4,976 6,881 4,251 4,367 5,910 (3.62) ----------- ----------- ----------- ----------- ----------- ------ Non-interest bearing 3,035,283 3,038,882 2,611,776 2,293,667 2,053,755 10.46 ----------- ----------- ----------- ----------- ----------- ------ Savings accounts 4,113,338 4,132,397 3,761,160 3,393,279 3,095,898 7.14 NOW and money market accounts 1,811,352 1,745,579 1,459,972 1,281,298 1,148,727 10.44 ----------- ----------- ----------- ----------- ----------- ------ Savings deposits 5,924,690 5,877,976 5,221,132 4,674,577 4,244,625 8.09 ----------- ----------- ----------- ----------- ----------- ------ Certificates of deposit: Under $100,000 2,507,702 2,664,174 2,155,391 1,216,583 1,307,323 14.36 $100,000 and over 2,646,312 1,601,861 1,421,456 1,865,720 1,371,928 20.67 936 259,203 297,122 369,530 508,789 1,020,064 (23.65) ----------- ----------- ----------- ----------- ----------- ------ Certificates of deposit 5,413,217 4,563,157 3,946,377 3,591,092 3,699,315 10.30 ----------- ----------- ----------- ----------- ----------- ------ Other time deposits 135,292 311,323 490,816 432,221 464,101 (19.69) ----------- ----------- ----------- ----------- ----------- ------ Interest bearing 11,473,199 10,752,456 9,658,325 8,697,890 8,408,041 8.20 ----------- ----------- ----------- ----------- ----------- ------ Total $14,508,482 $13,791,338 $12,270,101 $10,991,557 $10,461,796 8.65% =========== =========== =========== =========== =========== ======
dealers, investment companies, insurance companies, as well as non-financial corporations. Deposits tend to be less volatile than institutional borrowings and their cost is less sensitive to changes in market rates. The extensive branch network of the Corporation in the Puerto Rico market and its rapidly expanding network in major U.S. markets, have enabled it to maintain a significant and stable base of deposits. Deposits are the primary source of funding, although wholesale borrowings are an increasingly important source. At December 31, 2000, the Corporation's core deposits amounted to $12.2 billion or 82.3% of total deposits, an increase of $400 million or 3.4% from the same date a year ago. Certificates of deposits with denominations of $100,000 and over as of December 31, 2000 totaled $2.6 billion, or 17.7% of total deposits. Their distribution by maturity was as follows:
(In thousands) 3 months or less $ 1,323,526 3 to 6 months 441,992 6 to 12 months 371,983 over 12 months 489,042 ----------- $ 2,626,543 ===========
For further detail on average deposits for the last five years, please refer to Table L. Wholesale or institutional sources of funding includes the repos, federal funds and Eurodollar markets, commercial paper, senior debentures and asset securitizations. Notes 10 through 16 to the consolidated financial statements present details of the Corporation's deposits and borrowings by type, as of December 31, 2000 and 1999. Another important liquidity source of the Corporation is its assets, particularly the investment portfolio. This portfolio consists primarily of liquid U.S. Treasury and Agency securities that can be used to raise funds in the repo markets. As of December 31, 2000, the entire investment portfolio, excluding trading securities, totaled $9.1 billion, of which, $2.1 billion or 23.7% has an expected maturity of one year or less. Also, refer to Notes 4 and 5 to the consolidated financial statements for further information on the composition of the available-for-sale and held-to-maturity investment portfolios. The Corporation's loan portfolio is another important source of liquidity since it generates substantial cash flow resulting from principal and interest payments and principal prepayments. The loan portfolio can also be used to obtain funding in the capital markets. In particular, mortgage loans and some types of consumer loans and to lesser extent commercial loans, have highly developed secondary markets, which the Corporation uses on a regular basis. Table K presents a maturity distribution of the loan portfolio as of December 31, 2000. As of that date $4.6 billion or 28.8% of the loan portfolio is expected to mature within one year. Credit Risk Management and Loan Quality In conducting business activities, the Corporation is exposed to the possibility that borrowers or counterparties may default on their credit obligations to the Corporation. The Corporation's credit exposure is centered in its loan portfolio, which at December 31, 2000 totaled $16.1 billion, or 61.0% of its earning assets. For other risks associated with off-balance sheet lending activities, please refer to Note 26 to the consolidated financial statements. F-19 46 Popular, Inc. manages credit risk by maintaining sound underwriting standards, monitoring and evaluating the quality of the loan portfolio, its trends and collectibility, assessing reserves and loan concentrations, recruiting qualified credit officers, implementing and monitoring lending policies and collateral requirements, and instituting procedures to ensure appropriate actions to comply with laws and regulations. Included in the policies, primarily determined by the amount and type of loan, are various approval levels. The Corporation receives collateral to support credit extensions and commitments, whenever it is considered necessary. Generally, such collateral is in the form of real and personal property, cash on deposit or other highly liquid instruments. The Corporation has a Credit Strategy Committee (CRESCO) that oversees all credit-related activities. This Committee is responsible for managing the Corporation's overall credit exposure and for developing credit policies, standards and guidelines that define, quantify, and monitor credit risk. Through the CRESCO, senior management reviews asset quality ratios, trends and forecasts, the methodology for assessing the adequacy of the reserve for loan losses, problem loans, and establishes the provision for loan losses. Also, the Corporation has an independent Credit Risk Management Division (CRDM). This division is centralized and independent of the lending function. It manages the credit rating system and tests the adequacy of the allowance for loan losses in accordance with generally accepted accounting principles (GAAP) and regulatory standards. The CRDM manages and controls the Corporation's credit risk utilizing various techniques through the different stages of the credit process. Specialized workout officers, independent from the originating unit, handle substantially all commercial loans which are past due over 90 days, have filed bankruptcy, or based on their risk profile are considered problem loans. A CRDM representative who oversees the adherence to policies and procedures established for the initial underwriting of the credit portfolio is a permanent non-voting member of the Executive Credit Committee. The Corporation also has an independent Credit Process Review Group within the CRDM which performs annual comprehensive credit process reviews of several middle market, construction and corporate banking lending groups, as well as reviews the work performed by outside loan review firms providing services to the Corporation in the U.S. mainland. This group examines the risk profile of each originating unit along with each unit's credit administration effectiveness, the quality of the credit and collateral documentation, its regulatory compliance and the adequacy of its staffing levels and competency. Furthermore, the Corporation continues emphasizing the development of the credit staff skills and knowledge and improving the processing technology. Also, in the minimization of credit risk, the Corporation strives to maintain a credit risk profile that is diverse in terms of product type, industry concentration, geographic distribution and borrower or counterparty concentration. The Corporation's credit risk exposure is spread among individual consumers, small commercial loans and a diverse base of borrowers engaged in a wide variety of businesses. The Corporation has over 816,000 consumer loans and over 40,000 commercial lending relationships. Only 80 of these relationships have loans outstanding over $10 million. Highly leveraged transactions and credit facilities to finance speculative real estate ventures are minimal and there are no LDC loans. The Corporation limits its exposure to concentrations of credit risk by the nature of its lending limits as approximately 26.7% of total commercial and construction loans outstanding are secured by real estate or cash collateral. In addition, the secured consumer loan portfolio was $1.2 billion or 34.9% of the total consumer portfolio at December 31, 2000. Furthermore, there are no significant concentrations in any one industry with a substantial portion of the customers having credit needs of less than $250,000. The Corporation also manages exposure to a single borrower, industry or product type through participations, loan sales and securitizations. Moreover, on a quarterly basis, the Corporation's CRMD, senior management and the Risk Management Committee evaluate possible industry risk concentrations. The Corporation does conduct business in a geographically concentrated area as its main market continues to be Puerto Rico. However, the Corporation continues its efforts to diversify its geographic risk as a result of its expansion strategy throughout various markets in the United States and the Caribbean. Puerto Rico's share of the total loan portfolio has decreased from 64.4% in 1997 to 58.4% in 2000. The Corporation's asset and revenue composition by geographical area and by business line segments is further presented in Note 30 to the consolidated financial statements. Puerto Rico's economic outlook is generally similar to that of the mainland and its Government and its instrumentalities are all investment-grade rated borrowers in the United States capital markets. Moreover, the Corporation is exposed to government risk. A total of $67 million of residential mortgages and $397 million in commercial loans were insured or guaranteed by the U.S. Government or its agencies at December 31, 2000. The Corporation continues to be one of the largest SBA lenders in the United States. Furthermore, there were $71 million of loans issued to or guaranteed by Puerto Rico Government and political subdivisions and $45 million of loans issued to or guaranteed by the U.S. Virgin Islands' Government. Non-Performing Assets Non-performing assets consist of past-due loans that are no longer accruing interest, renegotiated loans and real estate acquired through foreclosure. A summary of non-performing assets by loan categories and related ratios are presented in Table M. 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. F-20 47 Table M Non-Performing Assets
As of December 31, ------------------------------------------------------------------------------- (Dollars in thousands) 2000 1999 1998 1997 1996 ------------------------------------------------------------------------------- Commercial, industrial and agricultural $169,535 $163,968 $142,371 $106,982 $ 82,381 Construction 2,867 1,504 144 2,704 2,000 Lease financing 7,152 3,820 4,937 1,569 1,599 Mortgage 99,861 70,038 68,527 53,449 43,955 Consumer 43,814 57,515 46,626 30,840 16,320 Renegotiated accruing loans 578 3,308 Other real estate 23,518 29,268 32,693 18,012 6,076 -------- -------- -------- -------- -------- Total $346,747 $326,113 $295,876 $213,556 $155,639 ======== ======== ======== ======== ======== Accruing loans past-due 90 days or more $ 21,599 $ 28,731 $ 24,426 $ 20,967 $ 12,270 ======== ======== ======== ======== ======== Non-performing assets to loans 2.16% 2.19% 2.26% 1.88% 1.59% Non-performing loans to loans 2.01 1.99 2.01 1.72 1.50 Non-performing assets to assets 1.24 1.28 1.28 1.11 0.93 Interest lost $ 23,129 $ 20,428 $ 15,258 $ 11,868 $ 7,696 ======== ======== ======== ======== ========
Note: The Corporation's policy is to place commercial and construction loans on non-accrual status if payments of principal or interest are past-due 60 days or more. Lease financing receivables and conventional residential mortgage loans are placed on non-accrual status if payments are delinquent 90 days or more. Close-end consumer loans are placed on non-accrual when they become 90 days or more past-due and are charged-off when they are 120 days past-due. Open-end consumer loans are not placed on non-accrual status and are charged-off when they are 180 days past-due. Loans past-due 90 days or more and still accruing are not considered as non-performing loans. 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. On February 10, 1999, the Federal Financial Institutions Examination Council (FFIEC) issued a revised Uniform Retail Credit Classification and Account Management Policy. This policy statement updates and expands the classification policy for retail credit loans. The policy, among other things, requires that unsecured retail loans to borrowers who declare bankruptcy be charged-off within 60 days of receipt of notification of filing from the bankruptcy court, or within the charge-off time frames adopted in the classification policy, whichever is shorter. Also, the revised policy details criteria that should be met before banks may consider a delinquent open-end loan current, such as in the process of account re-aging, extension and deferral. Changes in the policies and practices were effective on December 31, 2000. Non-performing assets amounted to $346.7 million or 2.16% of loans as of December 31, 2000, compared with $326.1 million or 2.19% in 1999. The allowance for loan losses as a percentage of non-performing assets, as of December 31, 2000 and 1999, was 83.82% and 89.54%, respectively. Non-performing commercial loans, including construction loans, increased by $6.9 million since December 31, 1999. They represented 2.37% of the commercial and construction loan portfolio at December 31, 2000 compared with 2.40% in 1999. This rise resulted notwithstanding the impact of the sale of BF, whose non-performing commercial loans amounted to $45.5 million as of the end of 1999. The overall increase since December 31, 1999 corresponded principally to the growth in the Corporation's loan portfolio. Also, deteriorating economic conditions, resulting from a higher interest rate scenario and higher energy prices, negatively impacted some of the Corporation's customer margins and cash flows. Non-performing financing leases amounted to $7.2 million or 0.88% of leases at December 31, 2000, compared with $3.8 million or 0.52% in 1999. Moreover, non-performing mortgage loans reflected a rise of $29.8 million since December 31, 1999, mostly as a result of the growth in the mortgage loan portfolio and higher delinquency levels in this loan category. Non-performing mortgage loans were 2.15% of mortgage loans for 2000, compared with 1.78% in 1999. Non-performing consumer loans totaled $43.8 million or 1.32% of consumer loans at December 31, 2000, compared with $57.5 million or 1.72% of consumer loans at the same date in 1999. This monetary decline was mainly due to the sale of the Corporation's ownership interest in BF, which had $10.5 million in non-performing consumer loans as of the end of 1999. Also, the Corporation's banking operations reflected lower non-performing consumer loans mostly as a result of the acceleration of charge-offs to comply with F-21 48 the new policy dictated by the FFIEC, and to the current credit environment, which has prompted the Corporation to tighten its credit criteria for unsecured consumer borrowings and to set objective standards to price loans according to risk levels. The net increase in non-performing loans was partly offset by lower balances in other real estate assets, mostly attributed to the operations of BF, which had $9.4 million in other real estate as of December 31, 1999. 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 December 31, 2000, would have been $273 million or 1.70% of loans, and the allowance for loan losses would have been 106.49% of non-performing assets. At December 31, 1999 and 1998, adjusted non-performing assets would have been $247 million or 1.66% of loans and $227 million or 1.73% of loans, respectively. The allowance for loan losses as a percentage of non-performing assets as of December 31, 1999 and 1998, would have been 118.2% and 118.0%, respectively. Once a loan is placed in non-accrual status the interest previously accrued and uncollected is charged against current earnings and thereafter, income is recorded only to the extent of any interest collected. The interest income that would have been realized had these loans been performing in accordance with their original terms amounted to $23.1 million in 2000, compared with $20.4 million in 1999 and $15.3 million in 1998. Allowance for Loan Losses The allowance for loan losses is maintained at a level which is considered sufficient to provide for estimated loan losses based on evaluations of known and inherent risks in the loan portfolio. The Corporation's management evaluates the adequacy of the allowance for loan losses on a monthly basis. In determining the allowance, management considers the portfolio risk characteristics, prior loss experience, the results of periodic credit reviews of individual loans, prevailing conditions and loan impairment measurement. A loan is considered impaired when, based on the current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Please refer to Notes 1 and 7 to the consolidated financial statements for further information related to impaired loans and the methodology used by the Corporation for their measurement. At December 31, 2000, the allowance for loan losses was $291 million or 1.81% of loans, compared with $292 million or 1.96% at the same date in 1999. At December 31, 1998, the allowance was $267 million or 2.04% of loans. The decrease in the allowance to loans ratio resulted mostly from the sale of Banco Fiduciario (BF), which had a higher ratio of allowance to total loans to cover potential losses. Moreover, the decrease in this ratio was attributed to the fact that most of the increase in the loan portfolio was realized in relatively low-risk portfolio like mortgages, whereas consumer loans, which are considered the higher-risk portfolio, had a modest decrease, due in part to the sale of the Corporation's U.S. credit card portfolio. Based on current economic conditions, the expected level of net loan losses and the methodology established to evaluate the adequacy of the allowance for loan losses, management considers that the Corporation continues enjoying an adequate position in its allowance for loan losses. Broken down by major loan categories, the allowance for the last five years was as follows: ALLOWANCE FOR LOAN LOSSES AS OF DECEMBER 31,
(In millions) 2000 1999 1998 1997 1996 --------- --------- --------- --------- --------- Commercial $ 120.6 $ 140.5 $ 130.2 $ 101.5 $ 91.8 Construction 8.1 8.7 11.6 10.6 10.5 Lease financing 18.6 9.2 8.3 5.9 3.4 Mortgage 12.0 14.6 14.0 10.9 10.3 Consumer 131.4 119.0 103.1 82.8 69.6 --------- --------- --------- --------- --------- $ 290.7 $ 292.0 $ 267.2 $ 211.7 $ 185.6 ========= ========= ========= ========= =========
Table N summarizes the movement in the allowance for loan losses and presents selected loan loss statistics for the past five years. As this table demonstrates, net loan losses for the year totaled $180.1 million, an increase of $55.4 million or 44.4% from amounts reported in 1999. The rise primarily reflected higher net charge-offs in the consumer and commercial loan portfolio. Net charge-offs as a percentage of average loans increased during the year from 0.90% in 1999 to 1.14% in 2000. Commercial loans net charge-offs, including construction loans, amounted to $56.4 million in 2000, compared with $32.9 million a year earlier. As a percentage of average commercial loans, this figure increased from 0.52% in 1999 to 0.78% in 2000. The rise in commercial loans net charge-offs was mostly related to the growth of the commercial loan portfolio, as well as the deterioration of the credit quality of a limited number of commercial relationships. The allowance for commercial and construction loans decreased $19.9 million, mostly attributed to lower balances of impaired loans corresponding mainly to BF, partly offset by the impact of factors such as higher delinquencies and current economic conditions. Consumer loans net charge-offs totaled $104.4 million or 3.06% of average consumer loans for 2000, compared with $81.4 million or 2.52% of average consumer loans for 1999. The increase in consumer loans net charge-offs was principally due to the growth in the portfolio, higher delinquency levels, as well as the impact of accelerating certain charge-offs to comply with the new federal regulatory requirements dictated in the revised Uniform Retail Credit Classification and Account Management Policy, which was described previously. The impact of this adoption approximated $10.2 million in additional net charge-offs in the year 2000. F-22 49 Table N Allowance for Loan Losses and Selected Loan Losses Statistics
(Dollars in thousands) 2000 1999 1998 1997 1996 ------------ ----------- ------------ ----------- ---------- Balance at beginning of year $ 292,010 $ 267,249 $ 211,651 $ 185,574 $ 168,393 Allowances (sold) purchased (15,869) 515 31,296 13,237 402 Provision for loan losses 194,640 148,948 137,213 110,607 88,839 ------------ ----------- ------------ ----------- ---------- 470,781 416,712 380,160 309,418 257,634 ------------ ----------- ------------ ----------- ---------- Losses charged to the allowance: Commercial 73,585 51,011 45,643 55,734 38,017 Construction 145 651 190 600 2,369 Lease financing 32,256 23,009 23,484 23,085 22,129 Mortgage 5,615 3,977 2,718 2,612 2,189 Consumer 129,430 104,062 92,646 65,559 43,257 ------------ ----------- ------------ ----------- ---------- 241,031 182,710 164,681 147,590 107,961 ------------ ----------- ------------ ----------- ---------- Recoveries: Commercial 17,352 18,589 17,844 18,385 11,498 Construction 9 169 337 122 207 Lease financing 17,797 15,839 14,998 15,890 9,749 Mortgage 717 771 323 356 295 Consumer 25,028 22,640 18,268 15,070 14,152 ------------ ----------- ------------ ----------- ---------- 60,903 58,008 51,770 49,823 35,901 ------------ ----------- ------------ ----------- ---------- Net loans charged-off (recovered): Commercial 56,233 32,422 27,799 37,349 26,519 Construction 136 482 (147) 478 2,162 Lease financing 14,459 7,170 8,486 7,195 12,380 Mortgage 4,898 3,206 2,395 2,256 1,894 Consumer 104,402 81,422 74,378 50,489 29,105 ------------ ----------- ------------ ----------- ---------- 180,128 124,702 112,911 97,767 72,060 ------------ ----------- ------------ ----------- ---------- Balance at end of year $ 290,653 $ 292,010 $ 267,249 $ 211,651 $ 185,574 ============ =========== ============ =========== ========== Loans: Outstanding at year end $ 16,057,085 $14,907,754 $ 13,078,795 $11,376,607 $9,779,028 Average 15,801,887 13,901,290 11,930,621 10,548,207 9,210,964 Ratios: Allowance for loan losses to year end loans 1.81% 1.96% 2.04% 1.86% 1.90% Recoveries to charge-offs 25.27 31.75 31.44 33.76 33.25 Net charge-offs to average loans 1.14 0.90 0.95 0.93 0.78 Net charge-offs earnings coverage 3.17x 3.92x 3.93x 4.04x 4.79x Allowance for loan losses to net charge-offs 1.61 2.34 2.37 2.16 2.58 Provision for loan losses to: Net charge-offs 1.08 1.19 1.22 1.13 1.23 Average loans 1.23% 1.07% 1.15% 1.05% 0.96% Allowance to non-performing assets 83.82 89.54 90.32 99.11 119.23 ============ =========== ============ =========== ==========
Lease financing net charge-offs totaled $14.5 million or 1.88% of the average lease financing portfolio for the year ended December 31, 2000, compared with $7.2 million or 1.04% for the same period last year. This rise is in part due to a $3.1 million charge-off related to an external fraud scheme that was unveiled during the year in the Corporation's U.S. operations, and represented the balance not covered by insurance. Also, the rise was impacted by the rise in the portfolio and a higher level of delinquencies. These factors contributed to a higher allowance for lease financing losses when compared to prior years. Mortgage loans net charge-offs increased to $4.9 million in 2000 from $3.2 million in 1999, mostly as a result of the growth in the portfolio. The allowance for loan losses assigned to the mortgage loan portfolio has remained at low levels because these loans are adequately secured by real estate and the amounts due on the loans are generally recovered in foreclosure. F-23 50 Statistical Summary 1996-2000 Statements of Condition
As of December 31, (In thousands) 2000 1999 1998 1997 1996 ------------ ------------ ------------ ------------ ----------- ASSETS Cash and due from banks $ 726,051 $ 663,696 $ 667,707 $ 463,151 $ 492,368 ------------ ------------ ------------ ------------ ----------- Money market investments: Federal funds sold and securities purchased under agreements to resell 1,057,320 931,123 910,430 802,803 778,597 Time deposits with other banks 10,908 54,354 37,206 9,013 19,023 Bankers' acceptances 390 517 262 2,274 2,656 ------------ ------------ ------------ ------------ ----------- 1,068,618 985,994 947,898 814,090 800,276 ------------ ------------ ------------ ------------ ----------- Trading securities 153,073 236,610 318,727 222,303 292,150 Investment securities available-for-sale, at market value 8,704,478 7,324,950 7,020,396 5,239,005 3,415,934 Investment securities held-to-maturity, at amortized cost 356,177 299,312 226,134 408,993 1,197,066 Loans held-for-sale, at lower of cost or market 823,901 619,298 644,159 265,204 255,129 ------------ ------------ ------------ ------------ ----------- Loans 15,580,379 14,659,400 12,783,609 11,457,675 9,854,911 Less- Unearned income 347,195 370,944 348,973 346,272 331,012 Allowance for loan losses 290,653 292,010 267,249 211,651 185,574 ------------ ------------ ------------ ------------ ----------- 14,942,531 13,996,446 12,167,387 10,899,752 9,338,325 ------------ ------------ ------------ ------------ ----------- Premises and equipment 405,772 440,971 424,721 364,892 356,697 Other real estate 23,518 29,268 32,693 18,012 6,076 Customers' liabilities on acceptances 1,647 12,041 15,937 1,801 3,100 Accrued income receivable 202,540 175,746 156,314 118,677 95,487 Other assets 367,150 371,421 263,992 252,040 380,247 Intangible assets 281,595 304,786 274,292 232,587 131,248 ------------ ------------ ------------ ------------ ----------- $ 28,057,051 $ 25,460,539 $ 23,160,357 $ 19,300,507 $16,764,103 ============ ============ ============ ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits: Non-interest bearing $ 3,109,885 $ 3,284,949 $ 3,176,309 $ 2,546,836 $ 2,330,704 Interest bearing 11,695,022 10,888,766 10,495,905 9,202,750 8,432,571 ------------ ------------ ------------ ------------ ----------- 14,804,907 14,173,715 13,672,214 11,749,586 10,763,275 Federal funds purchased and securities sold under agreements to repurchase 4,964,115 4,414,480 4,076,500 2,723,329 1,875,465 Other short-term borrowings 4,369,212 2,612,389 1,639,082 1,287,435 1,404,006 Notes payable 1,176,912 1,852,599 1,307,160 1,403,696 986,713 Senior debentures 30,000 Acceptances outstanding 1,647 12,041 15,937 1,801 3,100 Other liabilities 470,687 436,718 437,760 356,568 314,012 ------------ ------------ ------------ ------------ ----------- 25,787,480 23,501,942 21,148,653 17,522,415 15,376,571 ------------ ------------ ------------ ------------ ----------- Subordinated notes 125,000 125,000 125,000 125,000 125,000 ------------ ------------ ------------ ------------ ----------- Preferred beneficial interest in Popular North America's junior subordinated deferrable interest debentures guaranteed by the Corporation 150,000 150,000 150,000 150,000 -- ------------ ------------ ------------ ------------ ----------- Minority interest in consolidated subsidiaries 927 22,611 27,591 -- -- ------------ ------------ ------------ ------------ ----------- Stockholders' equity: Preferred stock 100,000 100,000 100,000 100,000 100,000 Common stock 830,356 827,662 825,690 412,029 396,531 Surplus 260,984 243,855 216,795 602,023 496,582 Retained earnings 865,082 694,301 530,481 395,253 267,719 Treasury stock - at cost (66,214) (64,123) (39,559) (39,559) Accumulated other comprehensive income (loss), net of taxes 3,436 (140,709) 75,706 33,346 1,700 ------------ ------------ ------------ ------------ ----------- 1,993,644 1,660,986 1,709,113 1,503,092 1,262,532 ------------ ------------ ------------ ------------ ----------- $ 28,057,051 $ 25,460,539 $ 23,160,357 $ 19,300,507 $16,764,103 ============ ============ ============ ============ ===========
F-24 51 Statistical Summary 1996-2000 Statements of Income
For the year ended December 31, ------------------------------------------------------------------------ (In thousands, except per common share information) 2000 1999 1998 1997 1996 ---------- ----------- ---------- ---------- ---------- INTEREST INCOME: Loans $1,586,832 $ 1,373,158 $1,211,850 $1,080,408 $ 924,076 Money market investments 62,356 33,434 36,781 33,923 46,697 Investment securities 486,198 425,907 385,473 358,736 280,610 Trading account securities 14,771 19,171 17,599 18,236 21,470 ---------- ----------- ---------- ---------- ---------- Total interest income 2,150,157 1,851,670 1,651,703 1,491,303 1,272,853 Less - Interest expense 1,167,396 897,932 778,691 707,348 591,540 ---------- ----------- ---------- ---------- ---------- Net interest income 982,761 953,738 873,012 783,955 681,313 Provision for loan losses 194,640 148,948 137,213 110,607 88,839 ---------- ----------- ---------- ---------- ---------- Net interest income after provision for loan losses 788,121 804,790 735,799 673,348 592,474 Gain on sale of investment securities 11,201 638 8,933 2,268 3,094 Trading account profit (loss) 2,230 (1,582) 3,653 3,934 108 All other operating income 451,667 373,860 278,660 241,396 202,270 ---------- ----------- ---------- ---------- ---------- 1,253,219 1,177,706 1,027,045 920,946 797,946 ---------- ----------- ---------- ---------- ---------- OPERATING EXPENSES: Personnel costs 394,176 386,696 337,400 306,893 273,247 All other operating expenses 483,295 450,786 382,954 330,027 268,672 ---------- ----------- ---------- ---------- ---------- 877,471 837,482 720,354 636,920 541,919 ---------- ----------- ---------- ---------- ---------- Income before tax and minority interest 375,748 340,224 306,691 284,026 256,027 Income tax 100,797 85,120 74,671 74,461 70,877 Net loss of minority interest 1,152 2,454 328 -- -- ---------- ----------- ---------- ---------- ---------- NET INCOME $ 276,103 $ 257,558 $ 232,348 $ 209,565 $ 185,150 ========== =========== ========== ========== ========== NET INCOME APPLICABLE TO COMMON STOCK $ 267,753 $ 249,208 $ 223,998 $ 201,215 $ 176,800 ========== =========== ========== ========== ========== NET INCOME PER COMMON SHARE (BASIC AND DILUTED)(*) $ 1.97 $ 1.84 $ 1.65 $ 1.50 $ 1.34 ========== =========== ========== ========== ========== DIVIDENDS DECLARED PER COMMON SHARE $ 0.64 $ 0.60 $ 0.50 $ 0.40 $ 0.35 ========== =========== ========== ========== ==========
(*) The average common shares used in the computation of earnings and cash dividend per common share were 135,907,476 for 2000; 135,585,634 for 1999; 135,532,086 for 1998; 134,036,964 for 1997; and 132,044,624 for 1996. F-25 52 Statistical Summary 1996-2000 Average Balance Sheet and Summary of Net Interest Income On a Taxable Equivalent Basis(*) (Dollars in thousands)
2000 1999 -------------------------------------- ------------------------------------ AVERAGE AVERAGE Average Average BALANCE INTEREST RATE Balance Interest Rate ----------- ----------- ------- ----------- ---------- ------- ASSETS Interest earning assets: Federal funds sold and securities purchased under agreements to resell $ 914,604 $ 61,238 6.70% $ 536,905 $ 24,470 4.56% Time deposits with other banks 17,723 1,062 5.99 143,685 8,912 6.20 Bankers' acceptances 559 56 10.02 516 52 10.08 ----------- ----------- ----- ----------- ---------- ----- Total money market investments 932,886 62,356 6.68 681,106 33,434 4.91 ----------- ----------- ----- ----------- ---------- ----- U.S. Treasury securities 1,762,129 115,801 6.57 2,479,828 169,683 6.84 Obligations of other U.S. Government agencies and corporations 3,958,406 288,214 7.28 3,028,577 200,649 6.63 Obligations of Puerto Rico, States and political subdivisions 126,768 8,398 6.62 138,184 9,100 6.59 Collateralized mortgage obligations and mortgage-backed securities 1,838,016 107,959 5.87 1,246,582 92,960 7.46 Other 260,143 24,236 9.32 455,488 26,654 5.85 ----------- ----------- ----- ----------- ---------- ----- Total investment securities 7,945,462 544,608 6.85 7,348,659 499,046 6.79 ----------- ----------- ----- ----------- ---------- ----- Trading account securities 213,131 15,624 7.33 313,904 20,584 6.56 ----------- ----------- ----- ----------- ---------- ----- Loans (net of unearned income) 15,801,887 1,597,116 10.11 13,901,290 1,380,330 9.93 ----------- ----------- ----- ----------- ---------- ----- Total interest earning assets/ Interest income 24,893,366 $ 2,219,704 8.92% 22,244,959 $1,933,394 8.69% ----------- ----------- ----- ----------- ---------- ----- Total non-interest earning assets 1,676,389 1,561,413 ----------- ----------- TOTAL ASSETS $26,569,755 $23,806,372 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Interest bearing liabilities: Savings and NOW accounts $ 5,924,690 $ 184,018 3.11% $ 5,877,976 $ 173,946 2.96% Other time deposits 5,548,509 345,355 6.22 4,874,480 278,269 5.71 Short-term borrowings 7,781,030 508,029 6.53 5,992,445 317,646 5.30 Mortgages and notes payable 1,618,517 108,572 6.71 1,558,410 106,639 6.84 Subordinated notes 125,000 8,545 6.84 125,000 8,555 6.84 Guaranteed preferred beneficial interest in Popular North America's subordinated debentures 150,000 12,877 8.58 150,000 12,877 8.58 ----------- ----------- ----- ----------- ---------- ----- Total interest bearing liabilities/ Interest expense 21,147,746 1,167,396 5.52 18,578,311 897,932 4.83 ----------- ----------- ----- ----------- ---------- ----- Total non-interest bearing liabilities 3,537,484 3,515,269 ----------- ----------- Total liabilities 24,685,230 22,093,580 ----------- ----------- Stockholders' equity 1,884,525 1,712,792 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $26,569,755 $23,806,372 =========== =========== Net interest income on a taxable equivalent basis $ 1,052,308 $1,035,462 ----------- ---------- Cost of funding earning assets 4.69% 4.04% ----- ----- Net interest yield 4.23% 4.65% ===== ===== Effect of the taxable equivalent adjustment 69,547 81,724 ----------- ---------- Net interest income per books $ 982,761 $ 953,738 =========== ==========
(*) Shows the effect of the tax exempt status of some loans and investments on their yield, using the applicable statutory income tax rates. The computation considers the interest expense disallowance as required by the Puerto Rico Internal Revenue Code. This adjustment is shown in order to compare the yields of the tax exempt and taxable assets on a taxable basis. Note: Average loan balances include the average balance of non-accruing loans. No interest income is recognized for these loans in accordance with the Corporation's policy. F-26 53
1998 1997 1996 --------------------------------------- ------------------------------------- -------------------------------------- Average Average Average Average Average Average Balance Interest Rate Balance Interest Rate Balance Interest Rate ----------- ----------- ------- ----------- ---------- ------- ----------- ---------- ------- $ 670,072 $ 31,814 4.75% $ 595,715 $ 31,504 5.29% $ 878,138 $ 45,704 5.20% 82,935 4,889 5.89 34,271 2,181 6.36 12,562 770 6.13 778 78 10.03 2,463 238 9.66 2,202 223 10.13 ----------- ----------- ----- ----------- ---------- ------ ----------- ---------- ----- 753,785 36,781 4.88 632,449 33,923 5.36 892,902 46,697 5.23 ----------- ----------- ----- ----------- ---------- ------ ----------- ---------- ----- 3,227,375 231,837 7.18 3,553,347 249,739 7.03 3,198,912 222,520 6.96 1,477,168 111,332 7.54 967,973 69,709 7.20 531,711 34,725 6.53 136,824 9,272 6.78 141,625 9,716 6.86 231,363 11,224 4.85 1,318,097 81,970 6.22 1,150,214 72,245 6.28 772,278 46,434 6.01 130,861 14,015 10.71 114,201 7,718 6.76 95,985 5,483 5.71 ----------- ----------- ----- ----------- ---------- ------ ----------- ---------- ----- 6,290,325 448,426 7.13 5,927,360 409,127 6.90 4,830,249 320,386 6.63 ----------- ----------- ----- ----------- ---------- ------ ----------- ---------- ----- 287,218 18,943 6.60 301,618 19,770 6.55 372,196 23,004 6.18 ----------- ----------- ----- ----------- ---------- ------ ----------- ---------- ----- 11,930,621 1,218,849 10.22 10,548,207 1,087,466 10.31 9,210,964 930,891 10.11 ----------- ----------- ----- ----------- ---------- ------ ----------- ---------- ----- 19,261,949 $ 1,722,999 8.95% 17,409,634 $1,550,286 8.90% 15,306,311 $1,320,978 8.63% ----------- ----------- ----- ----------- ---------- ------ ----------- ---------- ----- 1,170,433 1,009,510 994,771 ----------- ----------- ----------- $20,432,382 $18,419,144 $16,301,082 =========== =========== =========== $ 5,221,132 $ 163,805 3.14% $ 4,674,577 $ 147,321 3.15% $ 4,244,625 $ 131,499 3.10% 4,437,193 247,687 5.58 4,023,313 219,207 5.45 4,163,416 218,722 5.25 4,622,549 251,724 5.45 4,280,900 237,738 5.55 3,464,892 184,682 5.33 1,371,372 93,846 6.84 1,345,650 83,936 6.24 757,604 46,417 6.13 125,000 8,555 6.84 125,000 8,558 6.85 147,951 10,220 6.91 150,000 13,074 8.72 122,877 10,588 8.62 ----------- ----------- ----- ----------- ---------- ------ ----------- ---------- ----- 15,927,246 778,691 4.89 14,572,317 707,348 4.85 12,778,488 591,540 4.63 ----------- ----------- ----- ----------- ---------- ------ ----------- ---------- ----- 2,951,878 2,475,843 2,329,088 ----------- ----------- ----------- 18,879,124 17,048,160 15,107,576 ----------- ----------- ----------- 1,553,258 1,370,984 1,193,506 ----------- ----------- ----------- $20,432,382 $18,419,144 $16,301,082 =========== =========== =========== $ 944,308 $ 842,938 $ 729,438 ----------- ---------- ---------- 4.04% 4.06% 3.86% ---- ---- ---- 4.91% 4.84% 4.77% ==== ==== ==== 71,296 58,983 48,125 ----------- ---------- ---------- $ 873,012 $ 783,955 $ 681,313 =========== ========== ==========
F-27 54 Statistical Summary 1999-2000 Quarterly Financial Data
2000 1999 -------------------------------------------- --------------------------------------------- (In thousands, except per FOURTH THIRD SECOND FIRST Fourth Third Second First common share information) QUARTER QUARTER QUARTER QUARTER Quarter Quarter Quarter Quarter -------------------------- -------- -------- -------- -------- ------- -------- -------- -------- SUMMARY OF OPERATIONS Interest income $558,408 $561,174 $524,774 $505,801 $485,542 $468,532 $453,401 $444,195 Interest expense 312,659 312,318 278,858 263,561 245,686 229,740 214,550 207,956 -------- -------- -------- -------- ------- -------- -------- -------- Net interest income 245,749 248,856 245,916 242,240 239,856 238,792 238,851 236,239 Provision for loan losses 46,242 49,666 48,719 50,013 39,466 37,080 36,631 35,771 Non-interest income 121,900 120,579 108,956 102,462 102,047 96,984 86,640 86,607 Gain (loss) on sale of investment securities (2,539) 147 329 13,264 (137) 39 286 450 Non-interest expense 210,691 220,904 219,372 226,504 215,670 214,704 205,217 201,891 -------- -------- -------- -------- ------- -------- -------- -------- Income before income tax and minority interest 108,177 99,012 87,110 81,449 86,630 84,031 83,929 85,634 Income tax 32,695 27,662 21,684 18,756 21,497 20,887 20,334 22,402 Net loss (gain) of minority interest 17 (58) (303) 1,496 574 1,066 382 432 -------- -------- -------- -------- ------- -------- -------- -------- Net income $ 75,499 $ 71,292 $ 65,123 $ 64,189 $65,707 $ 64,210 $ 63,977 $ 63,664 ======== ======== ======== ======== ======= ======== ======== ======== Net income applicable to common stock $ 73,410 $ 69,205 $ 63,036 $ 62,102 $63,618 $ 62,123 $ 61,890 $ 61,577 ======== ======== ======== ======== ======= ======== ======== ======== Net income per common share $ 0.54 $ 0.51 $ 0.46 $ 0.46 $ 0.47 $ 0.46 $ 0.46 $ 0.45 -------- -------- -------- -------- ------- -------- -------- -------- SELECTED AVERAGE BALANCES (In millions) Total assets $ 27,599 $ 27,271 $ 25,972 $ 25,467 $24,733 $ 24,115 $ 23,655 $ 22,696 Loans 16,223 16,309 15,681 15,028 14,573 14,132 13,681 13,201 Interest earning assets 25,953 25,553 24,337 23,757 23,060 22,546 22,092 21,258 Deposits 14,706 14,770 14,422 14,148 13,965 13,802 13,816 13,578 Interest bearing liabilities 22,108 21,821 20,565 20,100 19,388 18,889 18,397 17,589 -------- -------- -------- -------- ------- -------- -------- -------- SELECTED RATIOS Return on assets 1.09% 1.04% 1.01% 1.01% 1.05% 1.06% 1.08% 1.14% Return on equity 15.72 15.24 14.43 14.57 15.06 15.23 15.53 16.03
F-28 55 Report of Independent Accountants [PRICEWATERHOUSECOOPERS LOGO] To the Board of Directors and Stockholders of Popular, Inc. In our opinion, the accompanying consolidated statements of condition and the related consolidated statements of income, of comprehensive income, of changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Popular, Inc. and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Corporation's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accor- dance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PRICEWATERHOUSECOOPERS LLP San Juan, Puerto Rico February 19, 2001 Stamp 1678244 of the P.R. Society of Certified Public Accountants has been affixed to the file copy of this report. F-29 56 Consolidated Statements of Condition
December 31, ----------------------------- (In thousands, except per share information) 2000 1999 -------------------------------------------- ------------ ------------ ASSETS Cash and due from banks $ 726,051 $ 663,696 ------------ ------------ Money market investments: Federal funds sold and securities purchased under agreements to resell 1,057,320 931,123 Time deposits with other banks 10,908 54,354 Bankers' acceptances 390 517 ------------ ------------ 1,068,618 985,994 ------------ ------------ Trading securities, at market value: Pledged securities with creditors' right to repledge 124,016 170,291 Other trading securities 29,057 66,319 Investment securities available-for-sale, at market value: Pledged securities with creditors' right to repledge 3,657,729 3,848,108 Other securities available-for-sale 5,046,749 3,476,842 Investment securities held-to-maturity, at amortized cost (market value $350,018; 1999 - $295,075) 356,177 299,312 Loans held-for-sale, at lower of cost or market 823,901 619,298 ------------ ------------ Loans 15,580,379 14,659,400 Less - Unearned income 347,195 370,944 Allowance for loan losses 290,653 292,010 ------------ ------------ 14,942,531 13,996,446 ------------ ------------ Premises and equipment 405,772 440,971 Other real estate 23,518 29,268 Customers' liabilities on acceptances 1,647 12,041 Accrued income receivable 202,540 175,746 Other assets 367,150 371,421 Intangible assets 281,595 304,786 ------------ ------------ $ 28,057,051 $ 25,460,539 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits: Non-interest bearing $ 3,109,885 $ 3,284,949 Interest bearing 11,695,022 10,888,766 ------------ ------------ 14,804,907 14,173,715 Federal funds purchased and securities sold under agreements to repurchase 4,964,115 4,414,480 Other short-term borrowings 4,369,212 2,612,389 Notes payable 1,176,912 1,852,599 Acceptances outstanding 1,647 12,041 Other liabilities 470,687 436,718 ------------ ------------ 25,787,480 23,501,942 ------------ ------------ Subordinated notes 125,000 125,000 ------------ ------------ Preferred beneficial interest in Popular North America's junior subordinated deferrable interest debentures guaranteed by the Corporation 150,000 150,000 ------------ ------------ Commitments and contingencies Minority interest in consolidated subsidiaries 927 22,611 ------------ ------------ Stockholders' equity: Preferred stock, $25 liquidation value; 10,000,000 shares authorized; 4,000,000 issued and outstanding 100,000 100,000 Common stock, $6 par value; 180,000,000 shares authorized; 138,392,822 shares issued (1999 - 137,943,619) and 135,998,617 shares outstanding (1999 - 135,654,292) 830,356 827,662 Surplus 260,984 243,855 Retained earnings 865,082 694,301 Accumulated other comprehensive income (loss), net of tax of $1,683 (1999 - ($35,993)) 3,436 (140,709) Treasury stock - at cost, 2,394,205 shares (1999 - 2,289,327) (66,214) (64,123) ------------ ------------ 1,993,644 1,660,986 ------------ ------------ $ 28,057,051 $ 25,460,539 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. F-30 57 Consolidated Statements of Income
Year ended December 31, ------------------------------------------------ (In thousands, except per share information) 2000 1999 1998 ---------- ----------- ---------- INTEREST INCOME: Loans $1,586,832 $ 1,373,158 $1,211,850 Money market investments 62,356 33,434 36,781 Investment securities 486,198 425,907 385,473 Trading securities 14,771 19,171 17,599 ---------- ----------- ---------- 2,150,157 1,851,670 1,651,703 ---------- ----------- ---------- INTEREST EXPENSE: Deposits 529,373 452,215 411,492 Short-term borrowings 508,029 317,646 251,724 Long-term debt 129,994 128,071 115,475 ---------- ----------- ---------- 1,167,396 897,932 778,691 ---------- ----------- ---------- Net interest income 982,761 953,738 873,012 Provision for loan losses 194,640 148,948 137,213 ---------- ----------- ---------- Net interest income after provision for loan losses 788,121 804,790 735,799 Service charges on deposit accounts 125,519 118,187 103,732 Other service fees 217,034 169,727 116,575 Gain on sale of investment securities 11,201 638 8,933 Trading account profit (loss) 2,230 (1,582) 3,653 Other operating income 109,114 85,946 58,353 ---------- ----------- ---------- 1,253,219 1,177,706 1,027,045 ---------- ----------- ---------- OPERATING EXPENSES: Personnel costs: Salaries 306,529 289,995 247,590 Profit sharing 18,913 23,881 22, 067 Pension and other benefits 68,734 72,820 67,743 ---------- ----------- ---------- 394,176 386,696 337,400 Net occupancy expenses 67,720 60,814 48,607 Equipment expenses 98,022 88,334 75,302 Other taxes 34,125 33,290 32,191 Professional fees 65,889 67,955 58,087 Communications 45,689 43,146 36,941 Business promotion 46,791 45,938 39,376 Printing and supplies 20,828 20,709 17,604 Other operating expenses 69,673 58,812 46,986 Amortization of intangibles 34,558 31,788 27,860 ---------- ----------- ---------- 877,471 837,482 720,354 ---------- ----------- ---------- Income before income tax and minority interest 375,748 340,224 306,691 Income tax 100,797 85,120 74,671 Net loss of minority interest 1,152 2,454 328 NET INCOME $ 276,103 $ 257,558 $ 232,348 ========== =========== ========== NET INCOME APPLICABLE TO COMMON STOCK $ 267,753 $ 249,208 $ 223,998 ========== =========== ========== NET INCOME PER COMMON SHARE (BASIC AND DILUTED) $ 1.97 $ 1.84 $ 1.65 ========== =========== ========== DIVIDENDS DECLARED PER COMMON SHARE $ 0.64 $ 0.60 $ 0.50 ========== =========== ==========
The accompanying notes are an integral part of the consolidated financial statements. F-31 58 Consolidated Statements of Cash Flows
Year ended December 31, ---------------------------------------------------- (In thousands) 2000 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 276,103 $ 257,558 $ 232,348 ----------- ----------- ------------ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of premises and equipment 76,848 71,320 62,649 Provision for loan losses 194,640 148,948 137,213 Net amortization of intangibles 34,558 31,788 27,860 Net gain on sale of investment securities available-for-sale (11,201) (638) (8,933) Net loss on disposition of premises and equipment 210 365 167 Net gain on sale of loans (7,935) (2,717) (2,265) Net amortization of premiums and accretion of discounts on investments 920 6,878 2,945 Net (increase) decrease in loans held-for-sale (204,603) 26,818 (378,955) Net amortization of deferred loan origination fees and costs (5,265) (713) (2,399) Net decrease (increase) in trading securities 83,537 82,117 (96,424) Net increase in accrued income receivable (32,526) (19,414) (35,933) Net (increase) decrease in other assets (29,116) (38,201) 70,005 Net increase in interest payable 24,901 18,592 10,138 Net decrease in current and deferred taxes (11,234) (50,987) (10,546) Net increase in postretirement benefit obligation 3,844 9,708 9,254 Net increase in other liabilities 18,625 28,423 11,190 ----------- ----------- ------------ Total adjustments 136,203 312,287 (204,034) ----------- ----------- ------------ Net cash provided by operating activities 412,306 569,845 28,314 ----------- ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Net increase in money market investments (113,403) (38,096) (26,726) Purchases of investment securities held-to-maturity (5,517,411) (6,070,728) (11,713,516) Maturities and redemptions of investment securities held-to-maturity 5,458,897 6,095,690 11,893,268 Purchases of investment securities available-for-sale (4,797,570) (6,305,513) (5,372,719) Maturities of investment securities available-for-sale 2,784,494 5,467,356 2,815,884 Proceeds from sales of investment securities available-for-sale 818,955 168,337 923,409 Net disbursements on loans (1,850,576) (2,943,301) (1,585,069) Proceeds from sale of loans 1,024,637 920,421 740,462 Acquisition of loan portfolios (589,178) (5,945) (62,247) Assets acquired, net of cash (8,453) (1,718) (17,168) Acquisition of premises and equipment (75,147) (108,428) (103,577) Proceeds from sale of premises and equipment 11,631 24,923 16,630 Cash transferred due to sale of investment in subsidiary (46,899) ----------- ----------- ------------ Net cash used in investing activities (2,900,023) (2,797,002) (2,491,369) ----------- ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 926,171 501,501 1,189,771 Net deposits acquired 36,297 Net increase in federal funds purchased and securities sold under agreements to repurchase 549,635 337,980 1,353,171 Net increase in other short-term borrowings 1,794,575 972,474 295,281 Proceeds from issuance of notes payable 291,819 789,436 176,986 Payment of notes payable (924,563) (246,701) (319,307) Dividends paid (95,297) (87,012) (72,021) Proceeds from issuance of common stock 9,823 9,387 7,433 Treasury stock acquired (2,091) (53,919) ----------- ----------- ------------ Net cash provided by financing activities 2,550,072 2,223,146 2,667,611 ----------- ----------- ------------ Net increase (decrease) in cash and due from banks 62,355 (4,011) 204,556 Cash and due from banks at beginning of year 663,696 667,707 463,151 ----------- ----------- ------------ Cash and due from banks at end of year $ 726,051 $ 663,696 $ 667,707 =========== =========== ============
The accompanying notes are an integral part of the consolidated financial statements. F-32 59 Consolidated Statements of Changes in Stockholders' Equity
Year ended December 31, ------------------------------------------------- (In thousands) 2000 1999 1998 ---------- ----------- ---------- PREFERRED STOCK: Balance at beginning and end of year $ 100,000 $ 100,000 $ 100,000 ---------- ----------- ---------- COMMON STOCK: Balance at beginning of year 827,662 825,690 412,029 Transfer from surplus resulting from stock split 412,426 Common stock issued under Dividend Reinvestment Plan 2,694 1,972 1,235 ---------- ----------- ---------- Balance at end of year 830,356 827,662 825,690 ---------- ----------- ---------- SURPLUS: Balance at beginning of year 243,855 216,795 602,023 Common stock issued under Dividend Reinvestment Plan 7,129 7,415 6,198 Transfer to common stock resulting from stock split (412,426) Treasury stock issued for acquisition 15,645 Transfer from retained earnings 10,000 4,000 21,000 ---------- ----------- ---------- Balance at end of year 260,984 243,855 216,795 ---------- ----------- ---------- RETAINED EARNINGS: Balance at beginning of year 694,301 530,481 395,253 Net income 276,103 257,558 232,348 Cash dividends declared on common stock (86,972) (81,388) (67,770) Cash dividends declared on preferred stock (8,350) (8,350) (8,350) Transfer to surplus (10,000) (4,000) (21,000) ---------- ----------- ---------- Balance at end of year 865,082 694,301 530,481 ---------- ----------- ---------- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): Balance at beginning of year (140,709) 75,706 33,346 Other comprehensive income (loss), net of taxes 144,145 (216,415) 42,360 ---------- ----------- ---------- Balance at end of year 3,436 (140,709) 75,706 ---------- ----------- ---------- TREASURY STOCK - AT COST: Balance at beginning of year (64,123) (39,559) (39,559) Purchase of common stock (2,091) (53,919) Treasury stock issued in acquisitions 29,355 ---------- ----------- ---------- Balance at end of year (66,214) (64,123) (39,559) ---------- ----------- ---------- Total stockholders' equity $1,993,644 $ 1,660,986 $1,709,113 ========== =========== ==========
The accompanying notes are an integral part of the consolidated financial statements. F-33 60 Consolidated Statements of Comprehensive Income
Year ended December 31, ---------------------------------------------------- (In thousands) 2000 1999 1998 ----------- ----------- ------------ Net income $ 276,103 $ 257,558 $ 232,348 ----------- ----------- ------------ Other comprehensive income (loss), net of tax: Foreign currency translation adjustment (1,297) (1,050) (215) Less: reclassification adjustment for foreign currency translation loss realized upon the sale of investment in a foreign entity (1,678) Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the period, net of tax of $40,042 (1999 - ($61,064); 1998 - $15,721) 153,280 (215,140) 49,826 Less: reclassification adjustment for gains or losses included in net income, net of tax of $2,366 (1999 - $106; 1998 - $1,727) 9,516 225 7,251 ----------- ----------- ------------ Total other comprehensive income (loss), net of tax 144,145 (216,415) 42,360 ----------- ----------- ------------ Comprehensive income $ 420,248 $ 41,143 $ 274,708 =========== =========== ============ Disclosure of accumulated other comprehensive income (loss): Year ended December 31, ---------------------------------------------------- (In thousands) 2000 1999 1998 ----------- ----------- ------------ Foreign currency translation adjustment $ (884) $ (1,265) $ (215) ----------- ----------- ------------ Unrealized gains (losses) on securities 4,320 (139,444) 75,921 ----------- ----------- ------------ Accumulated other comprehensive income (loss) $ 3,436 $ (140,709) $ 75,706 =========== =========== ============
The accompanying notes are an integral part of the consolidated financial statements. F-34 61 Notes to Consolidated Financial Statements NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The accounting and reporting policies of Popular, Inc. and its subsidiaries (the Corporation) conform with generally accepted accounting principles and with general practices within the financial industry. The following is a description of the most significant of these policies: Nature of operations Popular, Inc. is a bank holding company offering a full range of financial services through banking offices in Puerto Rico, the United States and the U.S. and British Virgin Islands. The Corporation is also engaged in mortgage and consumer finance, lease financing, investment banking and broker/dealer activities, retail financial services and information technology, ATM and data processing services through its non-banking subsidiaries in Puerto Rico, the United States and the Caribbean and Central America. Furthermore, effective July 1, 2000, the Corporation entered into the insurance business through the creation of Banco Popular, National Association and its subsidiary Popular Insurance, Inc. Note 30 to the consolidated financial statements presents further information about the Corporation's business segments. As part of a merger agreement between Banco Fiduciario (BF) and another local financial institution in the Dominican Republic, the Corporation sold its 57% ownership interest in BF on August 24, 2000. The Corporation retained an option to acquire a minority interest in the resulting new financial institution. Principles of consolidation The consolidated financial statements include the accounts of Popular, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Use of estimates in the preparation of financial statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Trading securities The Corporation utilizes financial instruments, including, to a limited extent, derivatives such as interest rate futures and options contracts, in trading activities and are carried at market value. Realized and unrealized changes in market values are recorded separately in the trading profit or loss account in the period in which the changes occur. Interest revenue and expense arising from trading instruments are included in the income statement as part of net interest income rather than in the trading profit or loss account. Securities sold but not yet purchased, which represent the Corporation's obligation to deliver securities sold which were not owned at the time of sale, are recorded at market value. Investment securities Investment securities are classified in three categories and accounted for as follows: - Debt securities that the Corporation has the intent and ability to hold to maturity are classified as securities held-to-maturity and reported at amortized cost. The Corporation may not sell or transfer held-to-maturity securities without calling into question its intent to hold other debt securities to maturity, unless a nonrecurring or unusual event that could not have been reasonably anticipated has occurred. Stock that is owned by the Corporation to comply with regulatory requirements, such as Federal Reserve Bank and Federal Home Loan Bank (FHLB) stock, is also included in this category. - Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. - Debt and equity securities not classified as either securities held-to-maturity or trading securities are classified as securities available-for-sale and reported at fair value, with unrealized gains and losses excluded from earnings and reported net of taxes in other comprehensive income. The amortization of premiums is deducted and the accretion of discounts is added to interest income based on a method which approximates the interest method over the outstanding period of the related securities. The cost of securities sold is determined by specific identification. Net realized gains or losses on sales of investment securities and unrealized loss valuation adjustments considered other than temporary, if any, on securities available-for-sale and held-to maturity are reported separately in the statement of income. In 1999, the Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 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 No. 115, "Accounting for Certain Investments in Debt and Equity Securities." During 1999, the Corporation reclassified $150,740,000 in securities held for trading to the available-for-sale and held-to-maturity categories based on the adoption provisions of SFAS No. 134. Risk management instruments The Corporation occasionally uses derivative financial instruments, such as interest rate caps and swaps, in the management of its interest F-35 62 rate exposure. These instruments are accounted for primarily on an accrual basis. Under the accrual method, interest income or expense on the derivative contract is accrued and there is no recognition of unrealized gains and losses on the derivative instrument. Premiums or discounts on option contracts are amortized to interest income or interest expense over the life of such contracts. Income and expenses arising from the instruments are recorded in the category appropriate to the related asset or liability. Gains and losses related to contracts that are effective hedges are deferred and recognized in income in the same period as gains and losses on the hedged item. Gains and losses on early termination of contracts that modify the characteristics of specified assets or liabilities are deferred and amortized as an adjustment to the yield of the related assets or liabilities over their remaining terms. Loans held-for-sale Loans held-for-sale are stated at the lower of cost or market, cost being determined based on the outstanding loan balance less unearned income, and fair market value determined on an aggregate basis according to secondary market prices. The amount by which cost exceeds market value, if any, is accounted for as a valuation allowance with changes included in the determination of net income for the period in which the change occurs. Loans Loans are stated at the outstanding balance less unearned income and allowance for loan losses. Fees collected and costs incurred in the origination of new loans are deferred and amortized using the interest method over the term of the loan as an adjustment to interest yield. Recognition of interest income on commercial and construction loans is discontinued when loans are 60 days or more in arrears on payments of principal or interest or when other factors indicate that collection of principal and interest is doubtful. Interest accrual for lease financing, conventional mortgage loans and close-end consumer loans is ceased when loans are 90 days or more in arrears. Loans designated as non-accruing are not returned to an accrual status until interest is received on a current basis and those factors indicative of doubtful collection cease to exist. Close-end consumer loans and leases are charged-off against the allowance for loan losses when 120 days in arrears. Open-end (revolving credit) consumer loans are charged-off when 180 days in arrears. Income is generally recognized on open-end consumer loans until the loans are charged-off. During 2000 the Corporation adopted the revised Uniform Retail Credit Classification and Account Management Policy issued by the Federal Financial Institutions Examination Council (FFIEC) in 1999. Based on the revised policy, unsecured retail loans to borrowers who declare bankruptcy are charged-off within 60 days of receipt of notification of filing from the bankruptcy court, or within the charge-off time frames adopted in the classification policy, whichever is shorter. The revised policy details criteria that must be met before the Corporation may consider a delinquent open-end loan current, such as the process of account re-aging, extension and deferral. The adoption of the revisions to this policy did not have a material effect on the consolidated financial statements of the Corporation. Lease financing The Corporation leases passenger and commercial vehicles and equipment to individual and corporate customers. The finance method of accounting is used to recognize revenue on lease contracts that meet the criteria specified in SFAS No. 13, "Accounting for Leases", as amended. Aggregate rentals due over the term of the leases less unearned income are included in finance lease contracts receivable. Unearned income is amortized using a method which results in approximate level rates of return on the principal amounts outstanding. Finance lease origination fees and costs are deferred and amortized over the average life of the portfolio as an adjustment to the yield. Revenue for other leases is recognized as it becomes due under the terms of the agreement. Allowance for loan losses The Corporation follows a systematic methodology to establish and evaluate the adequacy of the allowance for loan losses to provide for inherent losses in the loan portfolio. This methodology includes the consideration of factors such as current economic conditions, portfolio risk characteristics, prior loss experience, results of periodic credit reviews of individual loans and financial accounting standards. The provision for loan losses charged to current operations is based on such methodology. Loan losses are charged and recoveries are credited to the allowance for loan losses. The Corporation has defined impaired loans as 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 future cash flows discounted at the loan's effective rate, on the observable market price of the loan 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 adjusted for current conditions. Larger balance commercial loans are evaluated on a loan- by-loan basis. Once a specific measurement methodology is chosen, it is consistently applied unless there is a significant change in the financial position of the borrower. Impaired loans for which the discounted cash flows, collateral value or market price is less than its carrying value requires an allowance. The allowance for impaired loans is part of the Corporation's overall allowance for loan losses. Cash payments received on impaired loans are recorded in accordance with the contractual terms of the loan. The principal portion of the payment is used to reduce the principal balance of the loan, F-36 63 whereas the interest portion is recognized as interest income. However, when management believes the ultimate collectibility of principal is in doubt, the interest portion is then applied to principal. Servicing assets Servicing asset, an intangible asset, represents the cost of acquiring the contractual right to service loans for others. Loan servicing fees, which are based on a percentage of the principal balances of the loans serviced, are credited to income as loan payments are collected. The Corporation recognizes as separate assets the rights to service loans for others, whether those servicing assets are originated or purchased. The total cost of loans to be sold with servicing assets retained is allocated to the servicing assets and the loans (without the servicing asset), based on their relative fair values. Servicing assets are amortized in proportion to and over the period of estimated net servicing income. In addition, the Corporation assesses capitalized servicing assets for impairment based on the fair value of those assets. To estimate the fair value of servicing assets the Corporation considers prices for similar assets and the present value of expected future cash flows associated with the servicing assets calculated using assumptions that market participants would use in estimating future servicing income and expense, including, discount rates, anticipated prepayment and credit loss rates. For purposes of evaluating and measuring impairment of capitalized servicing assets, the Corporation stratifies such assets based on predominant risk characteristics of underlying loans, such as loan type, rate and term. The amount of impairment recognized, if any, is the amount by which the capitalized servicing assets per stratum exceed its estimated fair value. Impairment is recognized through a valuation allowance with changes included in net income for the period in which the change occurs. Interest-only securities The Corporation periodically sells residential mortgage loans to a qualifying special-purpose entity (SPE), which in turn issue asset-based securities to investors. The Corporation retains an interest in the loans sold in the form of a residual or interest-only security and may also retain other subordinated interests in the receivables sold to the SPE. The residual or interest-only security represents the present value of future excess cash flows resulting from the difference between the finance charge income received from the obligors on the loans and the interest paid to the investors in the assets-backed securities, net of credit losses, servicing fees and other expenses. In the course of business the Corporation also acquires interest-only securities in the secondary market. The interest-only securities are classified as available-for-sale securities and are measured at fair value. Factors considered in the valuation model for calculating the fair value of these subordinated interests are market discount rates, anticipated prepayment and loss rates on the underlying assets. Premises and equipment Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed on a straight-line basis over the estimated useful life of each type of asset. Amortization of leasehold improvements is computed over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Costs of maintenance and repairs which do not improve or extend the life of the respective assets are expensed as incurred. Costs of renewals and betterments are capitalized. When assets are disposed of, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reflected in earnings as realized or incurred, respectively. The Corporation evaluates for impairment its long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used, and long-lived assets to be disposed of, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Other real estate Other real estate comprises properties acquired through foreclosure. Upon foreclosure, the recorded amount of the loan is written-down, if required, to the appraised value less estimated costs of disposal of the real estate acquired, by charging the allowance for loan losses. Subsequent to foreclosure, the properties are carried at the lower of carrying value or fair value less estimated costs of disposal. Gains or losses on the sale of these properties are credited or charged to expense of operating other real estate. The cost of maintaining and operating such properties is expensed as incurred. Intangible assets Intangible assets consist of goodwill and other identifiable intangible assets, mainly core deposits and servicing rights. The values of core deposits and credit customer relationships are amortized using various methods over the periods benefited, which range from 4 to 10 years. Goodwill represents the excess of the Corporation's cost of purchased operations over the fair value of the net assets acquired and is amortized on the straight-line basis over 15 years. Securities sold/purchased under agreements to repurchase/resell Repurchase and resell agreements are treated as financing transactions and are carried at the amounts at which the securities will be reacquired or resold as specified in the respective agreements. It is the Corporation's policy to take possession of securities purchased under resell agreements. However, the counterparties to such agreements maintain effective control over such securities, accordingly, they are not reflected in the Corporation's statement of condition. The Corporation monitors the market value of the underlying securities as compared to the related receivable, including accrued interest, and requests additional collateral where deemed appropriate. F-37 64 It is the Corporation's policy to maintain effective control over securities sold under agreements to repurchase, accordingly, such securities continue to be carried on the statement of condition. Foreign currency translation Assets and liabilities denominated in foreign currencies are translated to U.S. dollars using prevailing rates of exchange. Revenues, expenses, gains and losses are translated using weighted average rates for the period. The resulting foreign currency translation adjustment from operations for which the functional currency is other than the U.S. dollar, is reported in other comprehensive income. Income taxes The Corporation uses an asset and liability approach to the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Corporation's financial statements or tax returns. Deferred income tax assets and liabilities are determined for differences between financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. The computation is based on enacted tax laws and rates applicable to periods in which the temporary differences are expected to be recovered or settled. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. Employees' retirement and other postretirement benefit plans Banco Popular de Puerto Rico (BPPR) and Banco Popular North America (BPNA) have trusteed, noncontributory retirement and other benefit plans covering substantially all full-time employees. Pension costs are computed on the basis of accepted actuarial methods and are charged to current operations. Net pension costs are based on various actuarial assumptions regarding future experience under the plan, which include costs for services rendered during the period, interest costs and return on plan assets, as well as deferral and amortization of certain items such as actuarial gains or losses. The funding policy is to contribute to the plan as necessary to provide for services to date and for those expected to be earned in the future. To the extent that these requirements are fully covered by assets in the plan, a contribution may not be made in a particular year. BPPR also provides certain health and life insurance benefits for eligible retirees and their dependents. The cost of postretirement benefits, which is determined based on actuarial assumptions and estimates of the costs of providing these benefits in the future, is accrued during the years that the employee renders the required service. Stock compensation BPPR provides a stock-based compensation plan for its Senior Management. It is a three-year incentive plan under which shares of common stock of the Corporation are granted if long-term corporate performance and objectives are met. SFAS No. 123, "Accounting for Stock-Based Compensation" established a fair value based method of accounting for stock-based compensation plans and encourages entities to adopt that method of accounting for their employee stock compensation plans. This pronouncement also allows an entity to continue to measure compensation cost for those plans based on APB Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees" and disclose the pro forma net income and net income per share as if the fair value method had been applied in measuring cost. Compensation cost is determined based on the market value of the stock as required by the variable accounting provisions of APB 25 and is recognized when probable, based on the best estimate of the outcome of the performance condition. For this compensation plan, the accounting under APB 25 and SFAS 123 is the same. Therefore, no additional disclosures are necessary as required by SFAS 123. Transfers and servicing of financial assets and extinguishment of liabilities After a transfer of financial assets, the Corporation recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. Comprehensive income Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances, except those resulting from investments by owners and distributions to owners. The presentation of comprehensive income is included in a separate statement of comprehensive income. Earnings per common share Earnings per common share are computed by dividing net income, reduced by dividends on preferred stock, by the weighted average number of common shares of the Corporation outstanding during the year. No dilutive potential common shares were outstanding during the years ended December 31, 2000, 1999 and 1998. Accordingly, there is no difference between basic and diluted earnings per share. Statement of cash flows For purposes of reporting cash flows, cash and cash equivalents include cash on hand and amounts due from banks. Reclassifications Certain reclassifications have been made to the 1999 and 1998 consolidated financial statements to conform with the 2000 presentation. F-38 65 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AND REGULATIONS Accounting for derivative instruments and hedging activities In June 2000, the Financial Accounting Standards Board ("FASB") issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" - an Amendment of FASB Statement No. 133." This statement addresses a limited number of issues causing implementation difficulties for numerous entities required to apply SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 and SFAS 138 establish accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The statements require recognition of all derivatives as either assets or liabilities in the statement of condition measured at fair value. They also establish unique accounting treatment for the following three different types of hedges: fair value hedges, cash flow 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 three types of hedges are included in earnings in the period of change. The Corporation adopted these statements on January 1, 2001. In managing its market risk the Corporation enters, to a limited extent, into certain derivatives primarily interest rate swaps, interest rate swaptions and interest-rate caps and floors embedded in interest-bearing contracts. As of December 31, 2000, the Corporation had $50,000,000 in notional amount of interest rate swaps, which will be accounted for as hedged instruments under SFAS No. 133, as amended. In addition, there are $118,664,000 in notional amount of interest rate swaptions, which are related to certificates of deposit with returns linked to the Standard and Poor's 500 index through an embedded option which will be bifucarted in accordance with the pronouncement. The interest-rate caps and floors embedded in the interest bearing contracts are clearly and closely related to the economic characteristics of the contract and as stated in the pronouncement will not be bifurcated from the host contract. The initial impact of the adoption of SFAS No. 133 on net income and other comprehensive income was approximately $686,000 (net of tax) and $254,000 (net of tax), respectively. As permitted by SFAS No. 133, the Corporation also reclassified $29,526,000 of its held-to-maturity securities as available-for-sale securities. This reclassification resulted in its recording a net of tax cumulative-effect-type adjustment of $390,000 (gain) in other comprehensive income. Transfer and Servicing of Financial Assets and Liabilities The FASB recently issued SFAS No. 140, "Accounting for Transfer and Servicing of Financial Assets and Liabilities - A Replacement of SFAS 125." This statement revises the standards of accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of the provisions of SFAS 125 without reconsideration. This statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. It is effective for transfers and servicing of financial assets and extinguishment of liabilities occurring after March 31, 2001. This statement is also effective for recognition and reclassification of collateral and disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. Management believes that the full adoption of this statement will not have a material effect on the consolidated financial statements of the Corporation. Required disclosures for collateral and securitization transactions are incorporated in these financial statements. NOTE 2 - CASH AND DUE FROM BANKS: The Corporation's subsidiary banks are required by regulatory agencies to maintain average reserve balances. The amount of those required average reserve balances was approximately $439,609,000 at December 31, 2000 (1999 - $531,324,000). NOTE 3 - SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL: The securities underlying the agreements to resell were delivered to, and are held by, the Corporation. The counterparties to such agreements maintain effective control over such securities. Although the Corporation is permitted by contract or custom to repledge the securities, it has agreed to resell to the counterparties the same or substantially similar securities at the maturity of the agreements. The fair value of the collateral securities received by the Corporation on these transactions as of December 31, were as follows:
(In thousands) 2000 1999 -------- -------- Repledged $899,363 $727,570 Not repledged 57,465 47,504 -------- -------- Total $956,828 $775,074 ======== ========
The repledged securities were used as underlying securities for repurchase agreements transactions. NOTE 4 - INVESTMENT SECURITIES AVAILABLE-FOR-SALE: The amortized cost, gross unrealized gains and losses, approximate market value (or fair value for certain investment securities where no market quotations are available), weighted average yield and contractual maturities of investment securities available-for-sale as of December 31, 2000 and 1999 (1998 - only market value is presented) were as follows: F-39 66
2000 ----------------------------------------------------------------------------- Gross Gross Weighted Amortized unrealized unrealized Market average cost gains losses value yield ----------------------------------------------------------------------------- (Dollars in thousands) U.S. Treasury securities (average maturity of 1 year and 1 month): Within 1 year $ 589,795 $ 174 $ 348 $ 589,621 5.49% After 1 to 5 years 550,749 6,374 557,123 5.94 ---------- ------- ---------- ---------- ---- 1,140,544 6,548 348 1,146,744 5.71 ---------- ------- ---------- ---------- ---- Obligations of other U.S. Government agencies and corporations (average maturity of 4 years and 9 months): Within 1 year 1,255,343 1,420 501 1,256,262 6.07 After 1 to 5 years 1,826,198 15,370 414 1,841,154 6.84 After 5 to 10 years 1,620,131 1,869 30,355 1,591,645 6.35 After 10 years 300,000 11,392 288,608 6.40 ---------- ------- ---------- ---------- ---- 5,001,672 18,659 42,662 4,977,669 6.46 ---------- ------- ---------- ---------- ---- Obligations of P.R., States and political subdivisions (average maturity of 10 years and 5 months): Within 1 year 2,895 1 16 2,880 5.44 After 1 to 5 years 9,054 55 35 9,074 5.99 After 5 to 10 years 23,206 354 120 23,440 6.20 After 10 years 35,523 1,197 836 35,884 5.56 ---------- ------- ---------- ---------- ---- 70,678 1,607 1,007 71,278 5.82 ---------- ------- ---------- ---------- ---- Collateralized mort- gage obligations (average maturity of 23 years and 5 months): After 1 to 5 years 28,975 10 28,965 7.05 After 5 to 10 years 80,547 779 126 81,200 6.61 After 10 years 1,443,022 4,859 4,761 1,443,120 7.03 ---------- ------- ---------- ---------- ---- 1,552,544 5,638 4,897 1,553,285 7.01 ---------- ------- ---------- ---------- ---- Mortgage-backed securities (average maturity of 23 years and 3 months): Within 1 year 14 14 6.38 After 1 to 5 years 19,587 1,026 18,561 5.58 After 5 to 10 years 20,806 67 135 20,738 6.77 After 10 years 660,437 3,048 6,811 656,674 6.70 ---------- ------- ---------- ---------- ---- 700,844 3,115 7,972 695,987 6.67 ---------- ------- ---------- ---------- ---- Equity securities (without contractual maturity) 138,101 27,101 997 164,205 0.71 ---------- ------- ---------- ---------- ---- Other (average maturity of 11 years and 9 months): Within 1 year 6,784 6,784 8.14 After 1 to 5 years 776 25 751 6.09 After 5 to 10 years 7,849 88 305 7,632 6.01 After 10 years 78,683 1,699 239 80,143 7.68 ---------- ------- ---------- ---------- ---- 94,092 1,787 569 95,310 7.56 ---------- ------- ---------- ---------- ---- $8,698,475 $64,455 $ 58,452 $8,704,478 6.39% ========== ======= ========== ========== ==== 1999 1998 ---------------------------------------------------------------------------------------- Gross Gross Weighted Amortized unrealized unrealized Market average Market cost gains losses value yield value ---------------------------------------------------------------------------------------- (Dollars in thousands) U.S. Treasury securities (average maturity of 1 year and 7 months): Within 1 year $ 621,487 $ 985 $ 620,502 5.34% $ 1,895,804 After 1 to 5 years 1,396,617 12,942 1,383,675 5.69 1,262,628 ---------- ---------- ---------- ---------- ---- ----------- 2,018,104 13,927 2,004,177 5.58 3,158,432 ---------- ---------- ---------- ---------- ---- ----------- Obligations of other U.S. Government agencies and corporations (average maturity of 5 years and 3 months): Within 1 year 733,917 $ 9 720 733,206 5.62 149,750 After 1 to 5 years 1,026,476 13,963 1,012,513 5.57 483,210 After 5 to 10 years 1,456,566 102,571 1,353,995 6.19 1,117,137 After 10 years 300,000 32,312 267,688 6.40 302,651 ---------- ---------- ---------- ---------- ---- ----------- 3,516,959 9 149,566 3,367,402 5.91 2,052,748 ---------- ---------- ---------- ---------- ---- ----------- Obligations of P.R., States and political subdivisions (average maturity of 10 years): Within 1 year 2,485 3 2,488 5.14 4,724 After 1 to 5 years 13,349 33 98 13,284 5.75 13,570 After 5 to 10 years 29,741 248 393 29,596 5.96 22,538 After 10 years 30,137 750 337 30,550 5.91 29,991 ---------- ---------- ---------- ---------- ---- ----------- 75,712 1,034 828 75,918 5.88 70,823 ---------- ---------- ---------- ---------- ---- ----------- Collateralized mort- gage obligations (average maturity of 23 years and 2 months): Within 1 year 6,878 3 6,881 6.83 7,838 After 1 to 5 years 35,492 29 35,463 6.80 28,921 After 5 to 10 years 91,848 61 1,397 90,512 6.36 186,036 After 10 years 1,089,877 243 26,914 1,063,206 6.65 985,626 ---------- ---------- ---------- ---------- ---- ----------- 1,224,095 307 28,340 1,196,062 6.63 1,208,421 ---------- ---------- ---------- ---------- ---- ----------- Mortgage-backed securities (average maturity of 24 years and 5 months): Within 1 year 36 36 9.80 80 After 1 to 5 years 23,447 704 22,743 5.54 27,830 After 5 to 10 years 28,935 190 444 28,681 6.81 22,910 After 10 years 431,622 7,888 1,809 437,701 6.71 295,030 ---------- ---------- ---------- ---------- ---- ----------- 484,040 8,078 2,957 489,161 6.66 345,850 ---------- ---------- ---------- ---------- ---- ----------- Equity securities (without contractual maturity) 126,430 15,405 54 141,781 0.58 63,929 ---------- ---------- ---------- ---------- ---- ----------- Other (average maturity of 10 years and 11 months): Within 1 year 894 894 14.00 94,696 After 1 to 5 years 9,901 2,186 7,715 3.01 2,463 After 5 to 10 years 5,131 183 4,948 6.35 5,024 After 10 years 39,121 1,050 3,279 36,892 4.64 18,010 ---------- ---------- ---------- ---------- ---- ----------- 55,047 1,050 5,648 50,449 4.66 120,193 ---------- ---------- ---------- ---------- ---- ----------- $7,500,387 $ 25,883 $ 201,320 $7,324,950 5.89% $ 7,020,396 ========== ========== ========== ========== ==== ===========
F-40 67 The weighted average yield on investment securities available-for-sale is based on amortized cost, therefore it does not give effect to changes in fair value. The expected maturities of collateralized mortgage obligations, mortgage-backed securities and certain other securities differ from their contractual maturities because they may be subject to prepayments. The aggregate amortized cost and approximate market value of investment securities available-for-sale at December 31, 2000, by contractual maturity are shown below:
(In thousands) Amortized cost Market value -------------- -------------- ------------ Within 1 year $1,854,831 $1,855,561 After 1 to 5 years 2,435,339 2,455,628 After 5 to 10 years 1,752,539 1,724,655 After 10 years 2,517,665 2,504,429 ---------- ---------- Total 8,560,374 8,540,273 Without contractual maturity 138,101 164,205 ---------- ---------- Total investment securities available-for-sale $8,698,475 $8,704,478 ========== ==========
Proceeds from the sale of investment securities available-for-sale during 2000 were $818,955,000 (1999 - $168,337,000; 1998 - $923,409,000). Gross realized gains and losses on those sales during the year were $17,048,000 and $5,847,000, respectively (1999 - $978,000 and $340,000; 1998 - $9,190,000 and $257,000). NOTE 5 - INVESTMENT SECURITIES HELD-TO-MATURITY: The amortized cost, gross unrealized gains and losses, approximate market value (or fair value for certain investment securities where no market quotations are available), weighted average yield and contractual maturities of investment securities held-to-maturity as of December 31, 2000 and 1999 (1998 - only amortized cost is presented) were as follows:
2000 -------------------------------------------------------------- Gross Gross Weighted Amortized unrealized unrealized Market average cost gains losses value yield --------- ---------- ---------- -------- -------- (Dollars in thousands) Obligations of other U.S. Government agencies and corporations (average maturity of 1 month): Within 1 year $ 11,061 $ 48 $ 14 $ 11,095 6.37% -------- ------- ------- -------- ----- Obligations of P.R., States and political subdivisions (average maturity of 9 years and 3 months): Within 1 year 35,400 13 35,387 3.76 After 1 to 5 years 13,988 170 85 14,073 7.75 After 5 to 10 years 5,960 112 179 5,893 6.72 After 10 years 63,247 196 1,329 62,114 7.21 -------- ------- ------- -------- ----- 118,595 478 1,606 117,467 6.22 -------- ------- ------- -------- ----- Collateralized mortgage obligations (average maturity of 13 years and 6 months): After 1 to 5 years 5,011 6 5,017 7.52 After 10 years 7,358 17 164 7,211 6.68 -------- ------- ------- -------- ----- 12,369 23 164 12,228 7.02 -------- ------- ------- -------- ----- Mortgage-backed securities (average maturity of 9 years and 6 months): After 1 to 5 years 64 64 10.63 After 5 to 10 years 16,679 375 17,054 7.36 After 10 years 2,001 9 1,992 6.71 -------- ------- ------- -------- ----- 18,744 375 9 19,110 7.30 -------- ------- ------- -------- ----- Equity securities (without contractual maturity held for regulatory purposes) 91,446 91,446 6.16 -------- -------- ----- Other (average maturity of 3 years and 8 months): Within 1 year 13,276 208 13,068 5.17 After 1 to 5 years 63,357 3,116 60,241 5.22 After 5 to 10 years 27,329 1,966 25,363 5.47 -------- ------- -------- ----- 103,962 5,290 98,672 5.28 -------- ------- -------- ----- $356,177 $ 924 $ 7,083 $350,018 6.02% ======== ======= ======= ======== =====
F-41 68
1999 1998 ---------------------------------------------------------------- ---------- Gross Gross Weighted Amortized unrealized unrealized Market average Amortized cost gains losses value yield cost --------- ---------- ---------- -------- -------- ---------- (Dollars in thousands) Obligations of other U.S. Government agencies and corporations $ 4,943 -------- $ 4,943 -------- Obligations of P.R., States and political subdivisions (average maturity of 7 years and 4 months): Within 1 year $ 4,067 $ 3 $ 11 $ 4,059 6.31% 21,265 After 1 to 5 years 15,199 299 47 15,451 7.76 11,666 After 5 to 10 years 5,289 136 108 5,317 6.73 3,941 After 10 years 34,224 68 397 33,895 7.15 11,375 -------- ------- -------- -------- ---- -------- 58,779 506 563 58,722 7.21 48,247 -------- ------- -------- -------- ---- -------- Collateralized mortgage obligations (average maturity of 12 years and 4 months): After 1 to 5 years 9,586 45 9,631 7.27 13,932 After 5 to 10 years 2,868 After 10 years 9,344 19 70 9,293 7.04 13,301 -------- ------- -------- -------- ---- -------- 18,930 64 70 18,924 7.16 30,101 -------- ------- -------- -------- ---- -------- Mortgage-backed securities (average maturity of 9 years and 5 months): After 5 to 10 years 21,298 161 21,459 7.34 9,743 After 10 years 2,461 2,461 6.75 23,231 -------- -------- ---- -------- 23,759 161 23,920 7.28 32,974 -------- ------- -------- ---- -------- Equity securities (without contractual maturity held for regulatory purposes) 89,445 89,445 6.19 76,979 ------- -------- ---- -------- Other (average maturity of 4 years and 3 months): Within 1 year 6,008 15 5,993 5.67 9,045 After 1 to 5 years 58,518 1,820 56,698 5.13 7,972 After 5 to 10 years 43,873 2,500 41,373 5.41 4,656 After 10 years 11,217 -------- 108,399 4,335 104,064 5.27 32,890 -------- -------- -------- ---- -------- $299,312 $ 731 $ 4,968 $295,075 6.21% $226,134 ======== ======= ======== ======== ==== ========
The expected maturities of collateralized mortgage obligations, mortgage-backed securities and certain other securities differ from their contractual maturities because they may be subject to prepayments. The aggregate amortized cost and approximate market value of investment securities held-to-maturity at December 31, 2000, by contractual maturity are shown below:
(In thousands) Amortized cost Market value -------------- -------------- ------------ Within 1 year $ 59,737 $ 59,550 After 1 to 5 years 82,420 79,395 After 5 to 10 years 49,968 48,310 After 10 years 72,606 71,317 -------- -------- Total 264,731 258,572 Without contractual maturity 91,446 91,446 -------- -------- Total investment securities held-to-maturity $356,177 $350,018 ======== ========
During 1999, investment securities held-to-maturity with an amortized cost of $1,410,000 were called by the issuer. Proceeds from the sale of those securities were $1,435,000. Gains realized on these transactions were $25,000. As of December 31, 2000 and 1999, the investments in obligations that are payable from and secured by the same source of revenue or taxing authority, other than the U.S. government, did not exceed 10 percent of stockholders' equity. NOTE 6 - PLEDGED ASSETS: At December 31, 2000 and 1999, securities and loans were pledged to secure public and trust deposits, securities sold under agreements to repurchase and other borrowings. The classification and carrying amount of pledged assets, which the secured parties are not permitted to sell or repledge the collateral as of December 31, were as follows:
(In thousands) 2000 1999 -------------- ---------- ---------- Investment securities available-for-sale $1,617,134 $1,559,881 Investment securities held-to-maturity 6,798 10,886 Loans 585,230 -- ---------- ---------- $2,209,162 $1,570,767 ========== ==========
Securities that the creditor has the right by custom or contract to repledge have been reclassified in the consolidated statements of condition. F-42 69 NOTE 7 - LOANS AND ALLOWANCE FOR LOAN LOSSES: The composition of the loan portfolio at December 31, was as follows:
(In thousands) 2000 1999 -------------- ----------- ----------- Loans secured by real estate: Insured or guaranteed by the U.S. Government or its agencies $ 67,057 $ 79,926 Guaranteed by the Commonwealth of Puerto Rico 71,225 49,135 Commercial loans secured by real estate 1,499,422 1,315,135 Residential conventional mortgages 3,701,143 3,199,873 Construction and land development 308,545 257,511 Consumer 372,790 391,597 ----------- ----------- 6,020,182 5,293,177 Financial institutions 68,879 74,017 Commercial, industrial and agricultural 5,263,682 5,070,801 Lease financing 988,787 882,362 Consumer for household, credit cards and other consumer expenditures 3,113,727 3,170,266 Other 125,122 168,777 ----------- ----------- $15,580,379 $14,659,400 =========== ===========
As of December 31, 2000, loans on which the accrual of interest income had been discontinued amounted to $319,188,000 (1999 - $294,847,000; 1998 - $262,604,000). If these loans had been accruing interest, the additional interest income realized would have been approximately $23,129,000 (1999 - $20,428,000; 1998 - $15,258,000). In addition, there were $578,000 of renegotiated loans still accruing interest at December 31, 1998. Non-accruing loans as of December 31, 2000 include $43,814,000 (1999 - $57,515,000; 1998 - $46,626,000) in consumer loans. The recorded investment in loans that were considered impaired at December 31, and the related disclosures follow:
December 31, ------------------------ (In thousands) 2000 1999 -------------- -------- -------- Impaired loans with a related allowance $112,503 $149,803 Impaired loans that do not require allowance 42,491 30,311 -------- -------- Total impaired loans $154,994 $180,114 ======== ======== Allowance for impaired loans $ 27,308 $ 51,252 ======== ======== Impaired loans measured based on fair value of collateral $ 55,062 $ 87,790 Impaired loans measured based on discounted cash flows 99,932 92,324 -------- -------- $154,994 $180,114 ======== ======== Average balance of impaired loans during the year $175,756 $175,459 ======== ======== Interest income recognized on impaired loans during the year $ 5,060 $ 9,747 ======== ========
The changes in the allowance for loan losses for the year ended December 31, were as follows:
(In thousands) 2000 1999 1998 -------------- --------- --------- --------- Balance at beginning of year $ 292,010 $ 267,249 $ 211,651 Net reserves (sold) acquired (15,869) 515 31,296 Provision for loan losses 194,640 148,948 137,213 Recoveries 60,903 58,008 51,770 Loans charged-off (241,031) (182,710) (164,681) --------- --------- --------- Balance at end of year $ 290,653 $ 292,010 $ 267,249 ========= ========= =========
The components of the net financing leases receivable at December 31, were:
(In thousands) 2000 1999 -------------- --------- --------- Total minimum lease payments $ 820,528 $ 727,380 Estimated residual value of leased property 162,403 150,799 Deferred origination costs 5,856 4,183 Less - Unearned financing income (172,073) (153,718) --------- --------- Net minimum lease payments 816,714 728,644 Less - Allowance for loan losses (18,549) (9,163) --------- --------- $ 798,165 $ 719,481 ========= =========
Estimated residual value is generally established at amounts expected to be sufficient to cover the Corporation's investment. At December 31, 2000, future minimum lease payments are expected to be received as follows:
(In thousands) -------------- 2001 $297,583 2002 231,165 2003 160,735 2004 96,255 2005 and thereafter 34,790 -------- $820,528 ========
NOTE 8 - RELATED PARTY TRANSACTIONS: The Corporation grants loans to its directors, executive officers and to certain related individuals or organizations in the ordinary course of business. The movement and balance of these loans were as follows:
Executive (In thousands) Officers Directors Total -------------- --------- --------- --------- Balance at December 31, 1998 $ 3,066 $ 169,926 $ 172,992 New loans 482 331,883 332,365 Payments (475) (302,299) (302,774) ------- --------- --------- Balance at December 31, 1999 $ 3,073 $ 199,510 $ 202,583 New loans 1,778 227,886 229,664 Payments (997) (260,576) (261,573) ------- --------- --------- Balance at December 31, 2000 $ 3,854 $ 166,820 $ 170,674 ======= ========= =========
F-43 70 These loans have been consummated on terms no more favorable than those that would have been obtained if the transaction had been with unrelated parties. NOTE 9 - PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less accumulated depreciation and amortization as follows:
Useful life (In thousands) in years 2000 1999 -------------- ----------- -------- -------- Land $ 58,596 $ 61,265 -------- -------- Buildings 15-50 238,098 246,060 Equipment 2-10 443,816 424,341 Leasehold improvements Various 73,092 69,746 ------- -------- -------- 755,006 740,147 Less - Accumulated depreciation and amortization 418,057 380,788 -------- -------- 336,949 359,359 -------- -------- Construction in progress 10,227 20,347 -------- -------- $405,772 $440,971 ======== ========
Depreciation and amortization of premises and equipment for the year was $76,848,000 (1999 - $71,320,000; 1998 - $62,649,000) of which $13,805,000 (1999 - $13,285,000; 1998 - $10,478,000) was charged to occupancy expense and $63,043,000 (1999 - $58,035,000; 1998 - $52,171,000) was charged to equipment, communications and other operating expenses. Occupancy expense is net of rental income of $9,878,000 (1999 - $9,937,000; 1998 - $9,187,000). NOTE 10 - DEPOSITS: Total interest bearing deposits as of December 31, consisted of:
(In thousands) 2000 1999 --------------- ----------- ----------- Savings deposits: Savings accounts $ 4,075,563 $ 4,093,788 NOW and money market accounts 1,877,329 1,650,747 5,952,892 5,744,535 Certificates of deposit: Under $100,000 3,115,587 2,748,499 $100,000 and over 2,626,543 2,395,732 5,742,130 5,144,231 $11,695,022 $10,888,766
A summary of certificates of deposit by maturity as of December 31, 2000, follows:
(In thousands) -------------- 2001 $4,303,731 2002 703,627 2003 166,453 2004 219,446 2005 243,793 2006 and thereafter 105,080 ---------- $5,742,130 ==========
At December 31, 2000, the Corporation had brokered certificates of deposit amounting to $458,235,000 (1999 - $154,151,000). NOTE 11 - FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE: The following table summarizes certain information on federal funds purchased and securities sold under agreements to repurchase as of December 31:
(In thousands) 2000 1999 1998 -------------- ---------- ---------- ---------- Federal funds purchased $ 687,914 $ 28,039 $ 918,555 Securities sold under agreements to repurchase 4,276,201 4,386,441 3,157,945 ---------- ---------- ---------- Total amount outstanding $4,964,115 $4,414,480 $4,076,500 ========== ========== ========== Maximum aggregate balance outstanding at any month-end $5,236,644 $4,414,480 $4,076,500 ========== ========== ========== Average monthly aggregate balance outstanding $4,585,945 $3,831,131 $3,166,436 ========== ========== ========== Weighted average interest rate: For the year 6.22% 5.02% 4.96% At December 31 6.74 5.75 4.50 ========== ========== ==========
The following table presents the liability associated with the repurchase transactions (including accrued interest), its maturities and weighted average interest rates. Also, it includes the amortized cost and approximate market value of the collateral (including accrued interest) as of December 31, 2000 and 1999. The information excludes repurchase agreement transactions which were collateralized with securities or other assets held for trading purposes or which have been obtained under resell agreements: F-44 71
2000 ------------------------------------------------------------------ Weighted Repurchase Amortized Cost Market Value average Liability of collateral of collateral interest rate ---------- -------------- ------------- ------------- (Dollars in thousands) U.S. Treasury securities Overnight $ 6,725 $ 7,065 $ 7,060 6.45% Within 30 days 675,160 673,655 677,361 6.46 After 90 days 258,063 267,309 268,755 6.36 ---------- ---------- ---------- ---- Total 939,948 948,029 953,176 6.43 ---------- ---------- ---------- ---- Obligations of other U.S. Government agencies and corporations Overnight 300 301 303 4.50 Within 30 days 862,583 843,568 846,280 6.14 After 30 to 90 days 778,467 813,154 808,168 7.59 After 90 days 220,241 225,122 228,160 6.60 ---------- ---------- ---------- ---- Total 1,861,591 1,882,145 1,882,911 6.82 ---------- ---------- ---------- ---- Mortgage - backed securities Overnight 1,500 1,510 1,499 3.62 Within 30 days 86,817 91,662 90,142 6.53 After 30 to 90 days 52,590 56,707 55,449 6.37 ---------- ---------- ---------- ---- Total 140,907 149,879 147,090 6.44 ---------- ---------- ---------- ---- Collateralized mortgage obligations Overnight 21,032 19,749 19,700 3.62 Within 30 days 246,520 258,102 258,857 6.61 After 30 to 90 days 76,954 82,426 83,115 6.57 After 90 days 41,890 45,494 45,452 6.85 ---------- ---------- ---------- ---- 386,396 405,771 407,124 6.47 ---------- ---------- ---------- ---- $3,328,842 $3,385,824 $3,390,301 6.65% ========== ========== ========== ====
1999 ------------------------------------------------------------------ Weighted Repurchase Amortized Cost Market Value average Liability of collateral of collateral interest rate ---------- -------------- ------------- ------------- (Dollars in thousands) U.S. Treasury securities Within 30 days $ 909,376 $ 917,318 $ 911,089 5.62% After 30 to 90 days 402,264 407,169 404,123 5.39 After 90 days 424,379 435,166 436,836 6.06 ---------- ---------- ---------- ---- Total 1,736,019 1,759,653 1,752,048 5.67 ---------- ---------- ---------- ---- Obligations of other U.S. Government agencies and corporations Overnight 40,009 40,091 38,336 4.65 Within 30 days 1,067,672 1,131,220 1,068,111 5.75 After 30 to 90 days 196,265 205,454 203,638 5.40 After 90 days 20,264 22,458 22,103 5.10 ---------- ---------- ---------- ---- Total 1,324,210 1,399,223 1,332,188 5.65 ---------- ---------- ---------- ---- Mortgage - backed securities Within 30 days 39,951 43,151 42,948 5.83 After 30 to 90 days 26,849 29,228 29,027 6.04 ---------- ---------- ---------- ---- Total 66,800 72,379 71,975 5.91 ---------- ---------- ---------- ---- Collateralized mortgage obligations Overnight 14,328 22,348 22,348 5.20 Within 30 days 200,159 219,717 213,477 5.52 After 30 to 90 days 152,124 173,984 173,408 5.81 After 90 days 49,317 50,776 48,976 5.55 ---------- ---------- ---------- ---- Total 415,928 466,825 458,209 5.62 ---------- ---------- ---------- ---- $3,542,957 $3,698,080 $3,614,420 5.66% ========== ========== ========== ====
F-45 72 NOTE 12 - OTHER SHORT-TERM BORROWINGS: Other short-term borrowings as of December 31, consisted of:
(Dollars in thousands) 2000 1999 ---------------------- ---------- ---------- Advances under revolving lines of credit - with fixed interest rates ranging from 6.65% to 7.11% at December 31, 2000 (1999 - 5.25% to 5.98%) $ 595,000 $ 420,500 - with floating interest rate of 0.10% under the 3-month LIBOR (3-month LIBOR rate at December 31, 2000 was 6.40%) 50,000 Commercial paper at rates ranging from 5.75% to 7.00% (1999 - 4.50% to 7.00%) 360,427 257,705 Term notes paying interest quarterly at floating interest rates of 0.10% (1999 - 0.05% to 0.46%) over the 3-month LIBOR rate (3-month LIBOR rate at December 31, 2000 was 6.40%; 1999 - 6.00%) 253,000 241,062 Term notes paying interest quarterly at floating interest rates of 94% to 100% of LIBID rate (LIBID rate at December 31, 2000 was 6.25%) 30,000 Term notes paying interest monthly at rates ranging from 6.25% to 6.77% (1999 - 6.25%) 134,527 32,828 Term notes paying interest semiannually at rates ranging from 5.63% to 7.38% (1999 - 5.50% to 7.72%) 857,197 343,659 Term funds purchased at rates ranging from 6.54% to 7.11% (1999 - 5.15% to 6.52%) 2,082,972 1,242,336 Others 6,089 74,299 ---------- ---------- $4,369,212 $2,612,389 ========== ==========
The weighted average interest rate of other short-term borrowings at December 31, 2000 was 6.74% (1999 - 5.75%; 1998 - 6.39%). The maximum aggregate balance outstanding at any month-end was approximately $4,369,212,000 (1999 - $2,714,549,000; 1998 - $1,908,541,000). The average aggregate balance outstanding during the year was approximately $3,346,151,000 (1999 - $2,197,118,000; 1998 - $1,675,568,000). The weighted average interest rate during the year was 6.65% (1999 - 5.69%; 1998 - 5.65%). At December 31, 2000, the Corporation had $1,200,000,000 in available lines of credit with the Federal Home Loan Bank (1999 - $1,000,000,000), of which $885,000,000 remained unused at the end of 2000 (1999 - $750,000,000). The FHLB advances are secured by securities and mortgage loans under a collateral agreement. The Corporation also had available $1,290,000,000 in other lines of credit (1999 - $965,000,000) of which $835,000,000 remained unused at the end of 2000 (1999 - $794,500,000). These lines included a warehouse line facility of $500,000,000 at December 31, 2000, which advances are secured by mortgage loans. NOTE 13 - NOTES PAYABLE: Notes payable outstanding at December 31, consisted of the following:
(Dollars in thousands) 2000 1999 ---------------------- ---------- ---------- Advances under revolving lines of credit - maturing in 2002, paying interest monthly at a fixed rate of 6.88% $ 50,000 - maturing in 2002, paying interest quarterly at a floating interest rate of 0.10% under the 3-month LIBOR (3-month LIBOR rate at December 31, 2000 was 6.40%) 75,000 Term notes with maturities ranging from 2002 through 2008 paying interest semiannually at fixed rates ranging from 5.63% to 8.13% (1999 - 5.63% to 7.43%) 612,596 $1,466,820 Term notes maturing in 2002 paying interest quarterly at rates ranging from 0.24% to 0.25% over the 3-month LIBOR rate (3-month LIBOR rate at December 31, 2000 was 6.40%) 50,000 Term notes with maturities ranging from 2002 through 2030 paying interest monthly at fixed rates ranging from 5.01% to 7.62% 163,300 97,405 Promissory notes with maturities ranging from 2002 through 2005 with floating interest rates ranging from 85% to 92% of the 3-month LIBID rate (LIBID rate at December 31, 2000 was 6.25%; 1999 - 5.875%) 210,000 240,000 Promissory notes with maturities until 2003 paying interest at a fixed rate of 6.35% 8,400 8,400 Mortgage notes and other debt 7,616 39,974 ---------- ---------- $1,176,912 $1,852,599 ========== ==========
NOTE 14 - SUBORDINATED NOTES: Subordinated notes at December 31, 2000 and 1999, consisted of $125,000,000 issued by the Corporation on December 12, 1995, maturing on December 15, 2005, with interest payable semiannually at 6.75%. The notes issued by the Corporation are unsecured obligations which are subordinated in right of payment to the prior payment in full of all present and future senior indebtedness of the Corporation. These notes do not provide for any sinking fund. F-46 73 NOTE 15 - PREFERRED BENEFICIAL INTEREST IN POPULAR NORTH AMERICA'S JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES GUARANTEED BY THE CORPORATION: On February 5, 1997, BanPonce Trust I (BPT), a wholly-owned subsidiary of Popular North America, issued $150,000,000 of 8.327% Capital Securities Series A due in 2027. The Capital Securities of BPT are fully and unconditionally guaranteed by the Corporation. Additionally, the Capital Securities qualify for inclusion in Tier I capital under the Risk-Based Capital guidelines. NOTE 16 - LONG-TERM DEBT MATURITY REQUIREMENTS: The aggregate amounts of maturities of notes payable, capital securities and subordinated notes were as follows:
Notes Capital Subordinated Year payable Securities notes Total ----- ---------- -------------- ------------ ---------- (In thousands) 2002 $ 499,613 $ 499,613 2003 201,945 201,945 2004 254,760 254,760 2005 165,953 $125,000 290,953 Later years 54,641 $150,000 204,641 ---------- -------- ---------- Total $1,176,912 $150,000 $125,000 $1,451,912 ========== ======== ======== ==========
NOTE 17 - PREFERRED STOCK OF BPPR: BPPR has 200,000 shares of authorized preferred stock with a par value of $100. This stock may be issued in series, and the shares of each series shall have such rights and preferences as shall be fixed by the Board of Directors when authorizing the issuance of that particular series. At December 31, 2000, there are no such shares issued or outstanding. NOTE 18 - STOCKHOLDERS' EQUITY: The Corporation has 180,000,000 shares of authorized common stock with par value of $6 per share. At December 31, 2000, there were 138,392,822 (1999 - 137,943,619) shares issued and 135,998,617 shares outstanding (1999 - 135,654,292). As of December 31, 2000, the Corporation had 2,394,205 shares (1999 - 2,289,327) in treasury stock at a total cost of $66,214,000 (1999 - $64,123,000). The Corporation has a dividend reinvestment plan under which stockholders may reinvest their quarterly dividends in shares of common stock at a 5% discount from the market price at the time of issuance. During 2000, shares totaling 449,203 (1999 - 328,693; 1998 - 271,918), equivalent to $9,823,000 (1999 - $9,387,000; 1998 - $7,433,000) in additional equity, were issued under the plan. The Corporation has 10,000,000 shares of authorized preferred stock with no par value. This stock may be issued in one or more series, and the shares of each series shall have such rights and preferences as shall be fixed by the Board of Directors when authorizing the issuance of that particular series. The Corporation has 4,000,000 shares issued and outstanding of Series A preferred stock. These shares are non-convertible and are redeemable at the option of the Corporation. The redemption price per share is $25.75 through June 29, 2001, $25.50 from June 30, 2001 through June 29, 2002 and $25.00 from June 30, 2002 and thereafter. Dividends on the Series A preferred stock are noncumulative and are payable monthly at the annual rate of 8.35% of the liquidation preference of $25.00 per share. The Corporation's average number of common shares outstanding used in the computation of net income per common share was 135,907,476 (1999 - 135,585,634; 1998 - 135,532,086). During the year, cash dividends of $0.64 (1999 - $0.60; 1998 - $0.50) per common share outstanding amounting to $86,972,000 (1999 - $81,388,000; 1998 - $67,770,000) were declared. In addition, dividends declared on preferred stock amounted to $8,350,000 (1999 - $8,350,000; 1998 - $8,350,000). NOTE 19 - REGULATORY CAPITAL REQUIREMENTS: The Corporation is subject to various regulatory capital requirements imposed by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of the Corporation's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory requirements. The Corporation's capital amounts and classifications are also subject to qualitative judgements by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Corporation to maintain minimum amounts and ratios of Tier I and total capital to risk-weighted assets, and of Tier I capital to average assets (leverage ratio) as defined in the regulations. Management has determined that as of December 31, 2000, the Corporation exceeded all capital adequacy requirements to which it is subject. As of December 31, 2000, BPPR and BPNA were well capitalized under the regulatory framework for prompt corrective action and there are no conditions or events since that date that management believes have changed the institution's category. The 1999 ratios of F-47 74 Tier I and total capital to risk-weighted assets, and of Tier I capital to average assets for BPNA were restated to reflect the merger of Banco Popular N.A. (Texas) into BPNA effected on January 1, 2000. The information for BPPR is presented on a consolidated basis. The Corporation's actual and required ratios and amounts of total risk-based capital, Tier I risk-based capital and Tier I leverage, as of December 31, were as follows:
(Dollars in thousands) Regulatory requirements ---------------------- ---------------------------------------------------------------------------------- To be well capitalized under prompt For capital corrective action Actual adequacy purposes provisions ----------------------- --------------------- ---------------------- Amount Ratio Amount Ratio Amount Ratio ---------- ----- ---------- ----- ---------- ----- 2000 Total Capital (to Risk-Weighted Assets): Consolidated $2,062,631 12.37% $1,333,579 8% N/A BPPR 1,318,126 11.89 886,883 8 $1,108,604 10% BPNA 408,362 10.85 301,047 8 376,309 10 Tier I Capital (to Risk-Weighted Assets): Consolidated $1,741,004 10.44% $ 666,790 4% N/A BPPR 1,178,736 10.63 443,442 4 $ 665,163 6% BPNA 361,115 9.60 150,524 4 225,785 6 Tier I Capital (to Average Assets): Consolidated $1,741,004 6.40% $ 816,030 3% N/A BPPR 1,178,736 6.34 557,405 3 $ 929,009 5% BPNA 361,115 7.35 147,440 3 245,734 5 ========== ===== ========== === ========== ===
(Dollars in thousands) Regulatory requirements ---------------------- ---------------------------------------------------------------------------------- To be well capitalized under prompt For capital corrective action Actual adequacy purposes provisions ----------------------- --------------------- ---------------------- Amount Ratio Amount Ratio Amount Ratio ---------- ----- ---------- ----- ---------- ----- 1999 Total Capital (to Risk-Weighted Assets): Consolidated $1,881,615 12.29% $1,224,601 8% N/A BPPR 1,135,435 11.26 806,660 8 $1,008,325 10% BPNA 356,748 10.39 274,622 8 343,277 10 Tier I Capital (to Risk-Weighted Assets): Consolidated $1,557,096 10.17% $ 612,300 4% N/A BPPR 1,008,627 10.00 403,330 4 $ 604,995 6% BPNA 313,664 9.14 137,311 4 205,966 6 Tier I Capital (to Average Assets): Consolidated $1,557,096 6.40% $ 729,523 3% N/A BPPR 1,008,627 5.74 527,113 3 $ 878,521 5% BPNA 313,664 7.01 134,266 3 223,777 5 ========== ===== ========== === ========== ===
NOTE 20 - SERVICING ASSETS: The changes in servicing assets for the years ended December 31, were as follows:
(In thousands) 2000 1999 1998 -------------- -------- -------- -------- Balance at beginning of year $ 33,866 $ 29,678 $ 29,787 Rights originated 14,404 11,072 5,439 Rights purchased 697 632 1,069 Amortization (8,851) (7,516) (6,617) -------- -------- -------- Balance at end of year 40,116 33,866 29,678 Less: Valuation allowance 562 14 11 -------- -------- -------- Balance at end of year, net of valuation allowance $ 39,554 $ 33,852 $ 29,667 ======== ======== ========
Total loans serviced for others were $4,867,348,000 at December 31, 2000 (1999 - $4,007,345,000). The estimated fair value of capitalized servicing rights were $52,671,000 at December 31, 2000 (1999 - $44,466,000). The activity in the valuation allowance for impairment of recognized servicing assets for the years ended December 31, were as follows:
(In thousands) 2000 1999 1998 -------------- ----- ---- ---- Balance at beginning of year $ 14 $11 $14 Additions charged to operations 548 3 Reductions credited to operations (3) --- Balance at end of year $ 562 $14 $11 ===== === ===
NOTE 21 - SALES OF RECEIVABLES: During the year ended December 31, 2000, the Corporation retained servicing responsibilities and other subordinated interests on various securitization transactions and whole loan sales of residential mortgage loans. The Corporation retained servicing responsibilities and other subordinated interests in the form of interest-only securities in a securitization transaction involving a qualifying SPE at the end of the year. The investors and the securitization trust have no recourse to the Corporation's other assets for failure of debtors to pay when due. The Corporation's retained interests are subordinated to the investors' interests. For the year 2000, the Corporation recognized pretax gains of $6,409,000 on this securitization transaction. Proceeds received from the SPE amounted to $190,107,000 on this new securitization. In the course of certain residential mortgage whole loan sales in 2000, the Corporation retained subordinated interests, including retained servicing responsibilities or interest only securities. The retained interests are subject to prepayment, credit and interest rate risks on the transferred financial assets. During 2000, the Corporation also retained servicing assets on residential mortgage loans securitized F-48 75 in the form of trading and investment securities. Pretax gains of $22,865,000 were realized on these securitization transactions and the whole loan sales involving retained interests, which took place in 2000. The Corporation receives average annual servicing fees based on a percentage of the outstanding loan balance. Those average fees are ranging from 0.35 to 0.50 percent for mortgage loans and 1.0 percent for loans guaranteed by Small Business Administration (SBA) loans. Valuation methodologies used in determining the fair value of the retained interests, including servicing assets and interest-only securities, are disclosed in Note 1 of the consolidated financial statements. Key economic assumptions used in measuring the retained interests at the date of the securitization and whole loan sales completed during the year ended December 31, 2000, were as follows:
Residential Mortgage Loans -------------------------- Prepayment speed 8.7 - 18.0% Weighted average life (in years) 13.6 - 18.1 Expected credit losses 0.0 - 0.40% Discount rate 11.0 - 14.0% ===========
At December 31, 2000, key economic assumptions and the sensitivity of the current value of residual cash flows to immediate 10 percent and 20 percent adverse changes in those assumptions for retained interests as of the end of the year are as follows:
Residential (Dollars in thousands) Mortgage Loans SBA Loans ---------------------- -------------- ----------- Carrying amount of retained interests $ 65,100 $ 717 Fair value of retained interests 78,217 717 Weighted average life (in years) 14.1 - 14.5 10.7 Prepayment Speed Assumption (annual rate) 11.7 - 19.3% 21% Impact on fair value of 10% adverse change $ (2,506) $ (57) Impact on fair value of 20% adverse change (4,834) (109) Expected Credit Losses (annual rate) 0.0 - 0.34% -- Impact on fair value of 10% adverse change $ (478) -- Impact on fair value of 20% adverse change (953) -- Discount rate (annual rate) 11.0 - 12.9% 10.0% Impact on fair value of 10% adverse change $ (3,355) $ (15) Impact on fair value of 20% adverse change (7,363) (30) ========== ======
These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10 percent variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption; in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the sensitivities. The expected credit losses for the residential mortgage loans securitized / sold during the year ended December 31, 2000, are estimated at rates ranging from 0.0% to 0.40% for 2001 and 2002. No credit losses are anticipated on the retained servicing assets derived from the sale of SBA loans which took place in 1999 since the participation sold is fully guaranteed by SBA. Quantitative information about delinquencies, net credit losses, and components of securitized financial assets and other assets managed together with them by the Corporation for the year ended December 31, 2000, follows:
Total Principal Principal Amount Amount of Loans, 60 days of more Net Credit (In thousands) net of unearned past due Losses -------------- --------------- ---------------- ---------- Loans (owned and managed): Commercial $ 7,303,525 $172,857 $ 56,369 Lease financing 816,714 18,036 14,459 Mortgage 6,054,471 213,155 5,162 Consumer 3,324,694 90,131 104,402 Less: Loans securitized / sold (1,442,319) Loans held-for-sale (823,901) ------------ Loans held in portfolio $ 15,233,184 $494,179 $180,392 ============ ======== ========
NOTE 22 - INTEREST ON INVESTMENTS: Interest on investments for the year ended December 31, consisted of the following:
(In thousands) 2000 1999 1998 -------------- -------- -------- -------- Money market investments: Federal funds sold and securities purchased under agreements to resell $ 61,238 $ 32,049 $ 34,505 Time deposits with other banks 1,062 1,380 2,199 Other 56 5 77 -------- -------- -------- $ 62,356 $ 33,434 $ 36,781 ======== ======== ======== Investment securities: U.S. Treasury securities $110,655 $146,014 $193,293 Obligations of other U.S. Government agencies and corporations 233,116 162,280 90,141 Obligations of Puerto Rico, States and political subdivisions 7,834 7,562 8,378 Collateralized mortgage obligations 90,847 70,891 47,321 Mortgage-backed securities 32,330 26,368 34,654 Other 11,416 12,792 11,686 -------- -------- -------- $486,198 $425,907 $385,473 ======== ======== ========
Interest income on investment securities for the year ended December 31, 2000, includes tax exempt interest of $353,920,000 (1999 - $330,411,000; 1998 - $301,364,000). Exempt interest relates mostly to obligations of the United States and Puerto Rico governments. F-49 76 NOTE 23 - EMPLOYEE BENEFITS: Pension and benefit restoration plans All regular employees of BPPR and BPNA are covered by a noncontributory defined benefit pension plan. Pension benefits begin to vest after five years of service and are based on age, years of credited service and final average compensation, as defined. At December 31, 2000, plan assets consisted primarily of U.S. Government obligations, high grade corporate bonds and listed stocks, including 5,672,860 shares (1999 - 5,672,860) of the Corporation with a market value of approximately $149,264,000 (1999 - $158,486,000). Dividends paid on shares of the Corporation held by the plan during 2000 amounted to $3,631,000 (1999 - $3,290,000). BPPR and BPNA also have a non-qualified unfunded supplementary pension and profit sharing plans for those employees whose compensation exceeds the limits established by ERISA. The following table sets forth the aggregate status of the plans and the amounts recognized in the consolidated financial statements at December 31:
Benefit Pension Plan Restoration Plan Total ------------ ---------------- --------- 2000 ----------------------------------------------- (In thousands) Change in benefit obligation: Benefit obligation at beginning of the year $ 306,244 $ 7,479 $ 313,723 Service cost 9,468 580 10,048 Interest cost 21,369 717 22,086 Plan amendment Actuarial (gain) loss (2,732) 2,597 (135) Benefits paid (14,800) (14) (14,814) --------- --------- --------- Benefit obligation at end of year 319,549 11,359 330,908 ========= ========= ========= Change in plan assets: Fair value of plan assets at beginning of the year 438,038 438,038 Actual return on plan assets 2,189 2,189 Employer contributions 1,505 1,505 Benefits paid (14,800) (14,800) --------- --------- Fair value of plan assets at end of year 426,932 426,932 ========= ========= Funded (unfunded) status 107,383 (11,359) 96,024 Unrecognized net asset (10,704) (10,704) Unrecognized net prior service cost 5,726 411 6,137 Unrecognized net actuarial (gain) loss (68,838) 5,133 (63,705) --------- --------- --------- Prepaid (accrued) pension cost 33,567 (5,815) 27,752 ========= ========= ========= Amount recognized in the statement of financial position consists of: Prepaid benefit cost 34,228 34,228 Accrued benefit liability (661) (6,226) (6,887) Intangible assets 411 411 --------- --------- --------- Net amount recognized $ 33,567 $ (5,815) $ 27,752 ========= ========= =========
Benefit Pension Plan Restoration Plan Total ------------ ---------------- --------- 1999 ----------------------------------------------- (In thousands) Change in benefit obligation: Benefit obligation at beginning of year $ 332,193 $ 5,913 $ 338,106 Service cost 13,633 716 14,349 Interest cost 21,084 510 21,594 Plan amendment 7,995 7,995 Actuarial (gain) loss (55,445) 352 (55,093) Benefits paid (13,216) (12) (13,228) --------- --------- --------- Benefit obligations at end of year 306,244 7,479 313,723 ========= ========= ========= Change in plan assets: Fair value of plan assets at beginning of year 447,374 447,374 Actual return on plan assets 3,880 3,880 Benefits paid (13,216) (13,216) --------- --------- Fair value of plan assets at end of year 438,038 438,038 ========= ========= Funded (unfunded) status 131,794 (7,479) 124,315 Unrecognized net asset (13,165) (13,165) Unrecognized net prior service cost 6,181 464 6,645 Unrecognized net actuarial (gain) loss (108,142) 2,859 (105,283) --------- --------- --------- Prepaid (accrued) pension cost 16,668 (4,156) 12,512 ========= ========= ========= Amount recognized in the statement of financial position consists of: Prepaid benefit cost 17,949 17,949 Accrued benefit liability (1,281) (4,344) (5,625) Intangible assets 188 188 --------- --------- --------- Net amount recognized $ 16,668 $ (4,156) $ 12,512 ========= ========= =========
Benefit Weighted average Pension Plan Restoration Plan assumptions as of ------------------------------------------------------------------------------------ December 31: 2000 1999 1998 2000 1999 1998 ----------------- ---- ---- ---- ---- ---- ---- Discount rate 7.25% 7.75% 6.50% 7.25% 7.75% 6.50% Expected return on plan assets 8.50% 9.00% 9.00% Rate of compensation increase 3.5 to 4.5 to 4.5 to 3.5 to 4.5 to 4.5 to 7.5% 8.5% 8.5% 7.5% 8.5% 8.5% ---- ---- ---- ---- ---- ----
F-50 77
Benefit Pension Plan Restoration Plan 2000 1999 1998 2000 1999 1998 -------- -------- -------- ------ ------ ------ (In thousands) Components of net periodic pension cost: Service cost $ 9,468 $ 13,633 $ 12,360 $ 580 $ 716 $ 438 Interest cost 21,369 21,084 19,926 717 510 330 Expected return on plan assets (36,646) (39,723) (32,618) Amortization of asset obligation (2,461) (2,461) (2,461) Amortization of prior service cost (benefit) 455 (239) (242) 53 53 53 Amortization of net (gain) loss (7,578) (4,848) (2,032) 323 391 209 -------- -------- -------- ------ ------ ------ Net periodic (benefit) cost $(15,393) $(12,554) $ (5,067) $1,673 $1,670 $1,030 ======== ======== ======== ====== ====== ======
Retirement and savings plan The Corporation also provides contributory retirement and savings plans pursuant to sections 1165 (e) of the Puerto Rico Internal Revenue Code and section 401 (k) of the Internal U.S. Revenue Code, as applicable, for substantially all the employees of Popular Securities, Equity One, Banco Popular North America, Popular Finance, Popular Leasing, Popular Insurance, Popular Mortgage, GM Group and Popular Cash Express. Employer contributions are determined based on specific provisions of each plan. The cost of providing this benefit in 2000 was $5,444,000 (1999 - $5,256,000; 1998 - $3,369,000). The Corporation also has a contributory savings plan available to employees of BPPR. Employees are fully vested in the employer's contribution after seven years of service. All contributions are invested in shares of the Corporation. Total savings plan expense was $988,000 in 2000 (1999 - $1,005,000; 1998 - $1,105,000). The savings plan held 1,590,695 (1999 - 1,334,433; 1998 - 1,303,398) shares of common stock of the Corporation with a market value of approximately $41,855,000 at December 31, 2000 (1999 - $37,281,000; 1998 - $44,316,000). Postretirement health care benefits In addition to providing pension benefits, BPPR provides certain health care benefits for retired employees. Substantially all of the employees of BPPR who are eligible to retire under the pension plan, and provided they reach retirement age while working for BPPR, may become eligible for these benefits. The status of the Corporation's unfunded postretirement benefit plan at December 31, was as follows:
(In thousands) 2000 1999 -------------- ---------- ---------- Change in benefit obligation: Benefit obligation at beginning of the year $ 98,186 $ 101,286 Service cost 2,455 5,395 Interest cost 6,212 7,007 Plan amendment (12,530) (180) Benefits paid (4,127) (2,921) Actuarial loss (gain) 711 (12,401) ---------- ---------- Benefit obligation at end of year $ 90,907 $ 98,186 ========== ========== Change in plan assets: Unfunded status $ (90,907) $ (98,186) Unrecognized net prior service (benefit) cost (8,574) 3,260 Unrecognized net actuarial loss 5,590 4,879 ---------- ---------- Accrued benefit cost $ (93,891) $ (90,047) ========== ==========
The weighted average discount rate used in determining the accumulated postretirement benefit obligation at December 31, 2000 was 7.25% (1999 - 7.75%). The components of net periodic postretirement benefit cost for the year ended December 31, were as follows:
(In thousands) 2000 1999 1998 -------------- -------- -------- -------- Service cost $ 2,455 $ 5,395 $ 4,731 Interest cost 6,212 7,007 6,016 Amortization of prior service (benefit) cost (696) 366 450 Amortization of net loss 1,270 206 -------- -------- -------- Net periodic benefit cost $ 7,971 $ 14,038 $ 11,403 ======== ======== ========
For measurement purposes, a 6% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2000. The rate was assumed to decrease gradually to 5% for 2001 and remain at that level thereafter. In February 2000, the Corporation adopted a plan amendment affecting only those employees retiring after February 1, 2001. The amendments provide that the Corporation's assumed cost will be capped to 3% of the annual health care cost increase. Assumed health care trend rates generally have a significant effect on the amounts reported for a health care plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
1-Percentage 1-Percentage Point Increase Point Decrease -------------- -------------- Effect on total service cost and interest cost components $ 389,000 $ (326,000) Effect on postretirement benefit obligation $ 3,882,000 $ (3,354,000) ============ ============
F-51 78 Profit sharing plan BPPR also has a profit sharing plan covering substantially all regular employees. Annual contributions are determined based on the bank's profitability ratios, as defined in the plan, and are deposited in trust. Profit sharing expense for the year, including the cash portion paid annually to employees which represented 50% of the expense, amounted to $18,234,000 (1999 - $23,561,000; 1998 - $22,647,000). Long-term incentive plan BPPR has a long-term incentive plan for its senior management, which was amended in 1999. Based on the provisions of the new plan, the incentive is determined based on the performance of the Corporation's stock compared to the combined performance of the S&P 500 Index, S&P Financial Index and the S&P Banks Index during the three-year period of the plan. The incentive is awarded in shares of the Corporation, which are purchased in the open market. For the year ended December 31, 2000, the Corporation recognized an expense of $96,000 (1999 - $168,000; 1998 - $626,000) related to this plan. NOTE 24 - RENTAL EXPENSE AND COMMITMENTS: At December 31, 2000, the Corporation was obligated under a number of noncancelable leases for land, buildings, and equipment which require rentals (net of related sublease rentals) as follows:
Minimum Sublease Year payments rentals Net -------- -------- -------- (In thousands) 2001 $ 29,701 $ 823 $ 28,878 2002 23,584 576 23,008 2003 20,082 361 19,721 2004 16,688 161 16,527 2005 13,132 149 12,983 Later years 68,046 256 67,790 -------- -------- -------- $171,233 $ 2,326 $168,907 ======== ======== ========
Total rental expense for the year ended December 31, 2000, was $39,331,000 (1999 - $32,909,000; 1998 - $26,451,000). NOTE 25 - INCOME TAX: The components of income tax expense for the years ended December 31, are summarized below. Included in these amounts are income taxes of $2,490,000 in 2000 (1999 - $270,000; 1998 - $1,606,000), related to gains on securities transactions.
(In thousands) 2000 1999 1998 -------------- ---------- ---------- ---------- Current income tax expense: Puerto Rico $ 93,352 $ 92,177 $ 94,913 Federal and States 17,622 9,399 8,914 ---------- ---------- ---------- Subtotal 110,974 101,576 103,827 Deferred income tax benefit: Puerto Rico (7,577) (14,378) (27,231) Federal and States (2,600) (2,078) (1,925) ---------- ---------- ---------- Subtotal (10,177) (16,456) (29,156) ---------- ---------- ---------- Total income tax expense $ 100,797 $ 85,120 $ 74,671 ========== ========== ==========
The reasons for the difference between the income tax expense applicable to income before provision for income taxes and the amount computed by applying the statutory rate in Puerto Rico, were as follows:
2000 1999 1998 ----------------------- ----------------------- --------------------- %of %of %of pre-tax pre-tax pre-tax (Dollars in thousands) Amount Income Amount Income Amount Income ---------------------- ---------- ------- ---------- ------- ---------- ------- Computed income tax at statutory rates $ 146,542 39% $ 132,687 39% $ 119,609 39% Benefits of net tax exempt interest income (46,164) (12) (54,405) (16) (47,432) (15) Federal, States taxes and other 419 6,838 2 2,494 ---------- ------- ---------- ------- ---------- ------- Income tax expense $ 100,797 27% $ 85,120 25% $ 74,671 24%
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Significant components of the Corporation's deferred tax assets and liabilities at December 31, were as follows:
(In thousands) 2000 1999 -------------- ---------- ---------- Deferred tax assets: Alternative minimum tax credits available for carryforward and other credits $ 16,034 $ 18,047 Net operating loss carryforward available 1,377 6,287 Postretirement and pension benefits 25,497 29,625 Allowance for loan losses 113,899 104,231 Unrealized loss on securities available-for-sale 35,993 Other temporary differences 15,970 31,857 ---------- ---------- Total gross deferred tax assets 172,777 226,040 ---------- ---------- Deferred tax liabilities: Differences between the assigned values and the tax bases of assets and liabilities recognized in purchase business combinations 1,635 7,552 Unrealized gain on securities available-for-sale 1,683 Other temporary differences 14,066 11,511 ---------- ---------- Total gross deferred tax liabilities 17,384 19,063 ---------- ---------- Valuation allowance 713 713 ---------- ---------- Net deferred tax asset $ 154,680 $ 206,264 ========== ==========
F-52 79 At December 31, 2000, the Corporation had $16,034,000 in credits expiring in annual installments through year 2016 that will reduce the regular income tax liability in future years. The Corporation had, at the end of 2000, $3,748,877 in net operating losses (NOL) available to carry over to offset taxable income in future years until year 2002. Other temporary differences included as deferred assets are mainly related to the deferral of loan origination costs and commissions. A valuation allowance of $713,000 is reflected in 2000 and 1999, related to deferred tax assets arising from temporary differences for which the Corporation could not determine the likelihood of its realizability. Based on the information available, the Corporation expects to fully realize all other items comprising the net deferred tax asset as of December 31, 2000. Under the Puerto Rico Internal Revenue Code, the Corporation and its subsidiaries are treated as separate taxable entities and are not entitled to file consolidated tax returns. The Code provides a dividend received deduction of 100%, on dividends received from "controlled" subsidiaries subject to taxation in Puerto Rico. The Corporation has never received any dividend payments from its U.S. subsidiaries. Any such dividend paid from a U.S. subsidiary to the Corporation would be subject to a 30% withholding tax based on the provisions of the U.S. Internal Revenue Code. The Corporation has not recorded any deferred tax liability on the unremitted earnings of its U.S. subsidiaries because the reinvestment of such earnings is considered permanent. The Corporation believes that the likelihood of receiving dividend payments from any of its U.S. subsidiaries in the foreseeable future is remote based on the significant expansion it is undertaking in the U.S. mainland. The Corporation's subsidiaries in the United States file a consolidated federal income tax return. The Corporation's federal income tax provision for 2000 was $14,636,000 (1999 - $7,048,000; 1998 - $5,054,000). The intercompany settlements of taxes paid is based on tax sharing agreements which generally allocates taxes to each entity based on a separate return basis. NOTE 26 - OFF-BALANCE SHEET LENDING ACTIVITIES AND CONCENTRATION OF CREDIT RISK: Off-balance sheet risk The Corporation is a party to financial instruments with off-balance sheet credit risk in the normal course of business to meet the financial needs of its customers. These financial instruments include loan commitments, letters of credit, and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of condition. The Corporation's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, standby letters of credit and financial guarantees written is represented by the contractual notional amounts of those instruments. The Corporation uses the same credit policies in making these commitments and conditional obligations as it does for those reflected on the statements of condition. Financial instruments with off-balance sheet credit risk at December 31, whose contract amounts represent potential credit risk were as follows:
(In thousands) 2000 1999 -------------- ---------- ---------- Commitments to extend credit: Credit card lines $1,787,601 $2,064,785 Commercial lines of credit 2,465,540 2,093,470 Other unused commitments 275,656 180,804 Commercial letters of credit 13,962 22,926 Standby letters of credit 103,705 62,022 Commitments to purchase mortgage loans 100,000 100,000 Commitments to originate mortgage loans 20,014 Other commitments 3,000 ---------- ----------
Commitments to extend credit Contractual commitments to extend credit are legally binding agreements to lend money to customers at predetermined interest rates for a specified period of time. To extend credit the Corporation evaluates each customer's creditworthiness. The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation of the counterparty. Collateral held varies but may include cash, accounts receivable, inventory, property, plant and equipment and investment securities, among others. Since many of the loan commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. Letters of credit There are two principal types of letters of credit: commercial and standby letters of credit. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. In most instances, cash items are held by the Corporation to collateralize these instruments. In general, commercial letters of credit are short-term instruments used to finance a commercial contract for the shipment of goods from a seller to a buyer. This type of letter of credit ensures prompt payment to the seller in accordance with the terms of the contract. Although the commercial letter of credit is contingent upon the satisfaction of specified conditions, it represents a credit exposure if the buyer defaults on the underlying transaction. Standby letters of credit are also issued by the Corporation to disburse funds to a third party beneficiary if the Corporation's customer fails to perform under the terms of an agreement with the beneficiary. These letters of credit are used by the customer as a credit enhancement and typically expire without being drawn upon. F-53 80 Other commitments In 2000, the Corporation entered into a commitment to purchase $100,000,000 of mortgage loans from another institution with the option of purchasing additional loans up to $175,000,000. The commitment expires on June 30, 2002. The purchased mortgage loans will continue to be serviced by the originating institution. As of December 31, 2000, no loans have been purchased under this agreement. In 1999, the Corporation entered into a similar agreement to purchase up to $175,000,000 in mortgage loans. The Corporation purchased the full amount of this commitment before the end of 2000. In 1999, the Corporation had a remaining commitment with a third party to originate $20,014,000 in thirty-year mortgages at an unsubsidized fixed rate of 6.50%. The commitment expired during 2000. Geographic concentration A geographic concentration exists within the Corporation's loan portfolio since a significant portion of its business activity is with customers located in Puerto Rico. As of December 31, 2000, the Corporation had no significant concentrations of credit risk and no significant exposure to highly leveraged transactions in its loan portfolio. Note 30 provides further information on the asset composition of the Corporation by geographical area as of December 31, 2000 and 1999. Included in total assets of Puerto Rico are investments in obligations of the U.S. Treasury and U.S. Government agencies amounting to $5.9 billion and $5.2 billion in 2000 and 1999, respectively. NOTE 27 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS: The fair value of financial instruments is the amount at which an asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time based on the type of financial instrument and relevant market information. Many of these estimates involve various assumptions and estimates, and may vary significantly from amounts that could be realized in actual transactions. The information about the estimated fair values of financial instruments presented hereunder excludes all nonfinancial instruments and certain other specific items. For those financial instruments with no quoted market prices available, fair value have been estimated using present value or other valuation techniques, as well as management best judgment with respect to current economic conditions, including discount rates, estimates of future cash flows and prepayment assumptions. The fair values reflected herein have been determined based on the prevailing interest rate environment as of December 31, 2000 and 1999, respectively. In different interest rate environments, fair value estimates can differ significantly, especially for certain fixed rate financial instruments and non-accrual assets. In addition, the fair values presented do not attempt to estimate the value of the Corporation's fee generating businesses and anticipated future business activities, that is, they do not represent the Corporation's value as a going concern. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Corporation. The following methods and assumptions were used to estimate the fair values of significant financial instruments at December 31, 2000 and 1999. Short-term financial assets and liabilities have relatively short maturities, or no defined maturities, and little or no credit risk. The carrying amounts reported in the consolidated statements of condition approximate fair value. Included in this category are: cash and due from banks, federal funds sold and securities purchased under agreements to resell, time deposits with other banks, bankers acceptances, customers' liabilities on acceptances, accrued interest receivable, federal funds purchased and securities sold under agreements to repurchase, short-term borrowings, acceptances outstanding and accrued interest payable. Trading and investment securities are financial instruments, which regularly trade on secondary markets. The estimated fair value of these securities was determined using either market prices or dealer quotes, where available, or quoted market prices of financial instruments with similar characteristics. Trading account securities and securities available-for-sale are reported at their respective fair values in the consolidated statements of condition since they are marked-to market for accounting purposes. These instruments are detailed in the consolidated statements of condition and in Notes 4, 5 and 28. The estimated fair value for loans held-for-sale is based on secondary market prices. The fair values of the loan portfolio have been determined for group of loans with similar characteristics. Loans were segregated by type such as commercial, construction, residential mortgage, consumer and credit cards. Each loan category was further segmented based on loan characteristics, including repricing term and pricing. The fair value of most fixed-rate loans was estimated by discounting scheduled cash flows using interest rates currently being offered on loans with similar terms. For variable rate loans with frequent repricing terms, fair values were based on carrying values. The fair values for certain mortgage loans are based on quoted market prices. Prepayment assumptions have been applied to the mortgage and installment loan portfolio. The fair value of the loans was also reduced by an estimate of credit losses inherent in the portfolio. Generally accepted accounting principles do not require nor the Corporation has performed a fair valuation of its lease financing portfolio, therefore it is included in the loan totals at its carrying amount. The fair value of deposits with no stated maturity, such as noninterest bearing demand deposits, savings, NOW and money market F-54 81 accounts is, for purpose of this disclosure, equal to the amount payable on demand as of the respective dates. The fair value of certificates of deposit is based on the discounted value of contractual cash flows, using interest rates currently being offered on certificates with similar maturities. Borrowings and long-term debt, which include notes payable, senior debentures, subordinated notes and capital securities, were valued using quoted market rates for similar instruments at December 31, 2000 and 1999, respectively. Commitments to extend credit were fair valued using the fees currently charged to enter into similar agreements. For those commitments where a future stream of fees is charged, the fair value was estimated discounting the projected cash flows of fees on commitments, which are expected to be disbursed, based on historical experience. The fair value of letters of credit is based on fees currently charged on similar agreements. Carrying amounts and estimated fair values for financial instruments at December 31 were:
(In thousands) 2000 1999 -------------- ---------------------------- ---------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ------------ ------------ ------------ ------------ Financial Assets: Cash and short-term investments $ 1,794,669 $ 1,794,669 $ 1,649,690 $ 1,649,690 Trading securities 153,073 153,073 236,610 236,610 Investment securities available-for-sale 8,704,478 8,704,478 7,324,950 7,324,950 Investment securities held-to-maturity 356,177 350,018 299,312 295,076 Loans held-for sale 823,901 824,923 619,298 619,743 Loans, net 14,942,531 15,281,966 13,996,446 13,902,072 Financial Liabilities: Deposits $ 14,804,907 $ 14,318,131 $ 14,173,715 $ 14,135,259 Federal funds purchased 687,914 687,914 28,039 28,039 Securities sold under agreements to repurchase 4,276,201 4,276,201 4,386,441 4,386,441 Short-term borrowings 4,369,212 4,369,212 2,612,389 2,612,389 Notes payable 1,176,912 1,278,627 1,852,599 1,781,786 Subordinated notes 125,000 122,538 125,000 116,604 Capital securities 150,000 153,442 150,000 154,665 Commitments to extend credit and standby letters of credit: Commitments to extend credit $ 4,528,797 $ 7,275 $ 4,339,059 $ 8,391 Letters of credit 117,667 4,721 84,948 1,847 ============ ============ ============ ============
NOTE 28 - RISK MANAGEMENT AND TRADING ACTIVITIES: The Corporation's exposure to market risk relates to changes in interest rates or in the fair value of the underlying financial instruments and, to a limited extent, to fluctuations in foreign currency exchange rates. The operations are subject to the risk of interest rate fluctuations to the extent that interest-earning assets and interest-bearing liabilities mature or reprice at different times or in differing amounts. Risk management activities are aimed at optimizing net interest income, consistent with the Corporation's business strategies. Among the various methods used by the Corporation to measure the risks generated by assets and liabilities are beta-adjusted gap analysis, simulations and duration analysis. In managing its market risk the Corporation enters, to a limited extent, into certain derivative instruments that expose it to credit risk, which represents the risk that the counterparties might default on their obligations. To manage the level of credit risk the Corporation deals with counterparties of good credit standing, enters into master netting agreements whenever possible and, when appropriate, obtains collateral. Concentrations of credit risk which arise through the Corporation's off-balance sheet lending activities are presented in Note 26. The following table indicates the types of derivative financial instruments the Corporation held at December 31. The credit exposure is represented by the fair value of the instruments with a positive market value. The following table should be read in conjunction with the descriptions of these products and the Corporation's objectives for holding them which immediately follows:
(In thousands) 2000 1999 -------------- ------------------------------------ ------------------------------------ Average Average Notional for the Fair Notional for the Fair amount year value amount year value -------- -------- -------- -------- -------- -------- Interest rate swaps: Pay floating/receive fixed $ 15,000 $ 15,000 $ (24) $ 15,000 $ 15,000 $ 20 Pay fixed/receive floating 35,000 35,000 (133) 35,000 100,792 (133) Interest rate swaptions 118,664 105,511 32,571 80,456 77,533 38,995 Interest rate options 17,891 19,561 451 21,416 23,631 1,882 Interest rate caps 2,363 2,494 16 2,713 2,713 57 Interest rate floors 2,363 2,494 (28) 2,713 2,713 (17) Forward contracts 15,000 1,250 (80) Foreign exchange contracts 919 3,991 1,930 2,485 Securities sold not yet purchased 486 413 ======== ======== ======== ======== ======== ========
Interest rate swaps Interest rate swap agreements generally involve the exchange of fixed and floating interest rate payment obligations without the exchange of the underlying principal. Net interest settlements on interest rate swaps are recorded as an adjustment to interest income or interest expense of the hedged item. F-55 82
(In thousands) 2000 1999 -------------- ------------ ------------ Activity of interest rate swaps hedges for the year: Beginning balance $ 50,000 $ 205,000 Matured swaps (155,000) ------------ ------------ Ending balance $ 50,000 $ 50,000 ============ ============ Pay floating/receive fixed: Weighted average receive rate at December 31 6.42% 6.42% Weighted average pay rate at December 31 6.42 6.09 Pay fixed/receive floating: Weighted average receive rate at December 31 6.56% 5.38% Weighted average pay rate at December 31 6.75 6.75 ------------ ------------
The agreements were entered into to change the Corporation's interest rate exposure and they end at the time the related obligation matures. The variable rates are based on the three-month and six-month LIBOR rates. Nonperformance by any of the counterparties on this agreement will expose the Corporation to an interest rate risk. Interest rate swaptions The Corporation enters into options on swaps ("swaption") derivative securities, which combine the characteristics of interest rate swaps and options, for hedging purposes. BPPR issues certificates of deposit with returns linked to the Standard and Poor's 500 index (the index). In order to hedge the cost of these certificates, positions in swaptions are assumed. These swaptions earn a return to the Corporation equal to the appreciation in the index throughout the life of the certificate of deposit issued. In exchange, the Corporation pays the counterparty a fixed rate of interest. Interest rate futures and forwards Futures and forwards are contracts for the delayed delivery of securities in which the seller agrees to deliver on a specified future date, a specified instrument, at a specified price or yield. The credit risk inherent in futures is the risk that the exchange party may default. The credit risk inherent in forwards arises from the potential inability of counterparties to meet the terms of their contracts. Both futures and forwards are also subject to the risk of movements in interest rates or in the value of the underlying securities or instruments. Forward contracts include "when-issued securities." When-issued securities are commitments to purchase or sell securities authorized for issuance but not yet actually issued. Accordingly, they are not recorded on the balance sheet until issued. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movements in securities values and interest rates. Interest rate options, caps and floors Interest rate options are contracts that grant the purchaser, for a premium payment, the right to either purchase from or sell to the writer of the option a financial instrument at a specified price within a specified period of time or on a specified date. Interest rate caps and floors are option-like contracts that require the writer to pay the purchaser at specified future dates the amount, if any, by which a specified market interest rate exceeds the fixed cap rate or falls below the fixed floor rate, applied to a notional principal amount. The option writer receives a premium for bearing the risk of unfavorable interest rate changes. Foreign exchange contracts To satisfy the needs of its customers, from time to time, the Corporation enters into foreign exchange contracts in the spot or futures market. Spot contracts require the exchange of two currencies at an agreed rate to occur within two business days of the contract date. Forward and futures contracts to purchase or sell currencies at a future date settle over periods of up to one year, in general. Securities sold not yet purchased The Corporation enters in securities sold not yet purchased transactions for hedging strategies and for trading purposes. Various assets and liabilities, such as investment securities financed by borrowings, are usually hedged to lock-in spreads and reduce the risk of losses in value due to interest rate fluctuations. Open positions on securities sold short for trading purposes are usually closed at each month-end. The volume of such transactions is not significant. Trading activities The Corporation maintains limited trading positions in certain financial instruments and nonfinancial contracts including, to a limited extent, derivatives. Most of the Corporation's trading activities are limited to the purchase of debt securities for the purpose of selling them in the near term and positioning securities for resale to retail customers. Trading activities of the Corporation are subject to strict guidelines approved by the Board of Directors and included in the investment policy. In anticipation of customer demand, the Corporation carries an inventory of capital market instruments and maintains market liquidity by quoting bid and offer prices to and trading with other market makers. Positions are also taken in interest rate sensitive instruments, based on expectations of future market conditions. These activities constitute the proprietary trading business and are held by the Corporation to provide customers with financial products at competitive prices. As trading strategies depend on both market- making and proprietary positions, given the relationship between instruments and markets, those activities are managed in concert in order to maximize net trading revenue. All trading instruments are subject to market risk, the risk that future changes in market conditions may make an instrument less valuable or more onerous. Fluctuations in market prices, interest F-56 83 rates or exchange rates change the market value of the instruments. As the instruments are recognized at market value, these changes directly affect reported income. Exposure to market risk is managed, in accordance with risk limits set by senior management, by buying or selling instruments or entering into offsetting positions. At December 31, 2000 the Corporation held no future contracts written for trading purposes. At December 31, 1999 the Corporation held no futures or options contracts written for trading purposes. The following table indicates the fair value and net gains (losses) of derivatives financial instruments held for trading purposes.
(In thousands) Fair Value -------------- ----------------------------------------------------------- At December 31, 2000 Average for the period Net gains Assets Liabilities Assets Liabilities (losses) ------ ----------- ------ ----------- --------- Options $ 25 $ (25) $ 9 $ (9) $ 2 Forward contracts (127) 56 (92) (438) (In thousands) Fair Value -------------- -------------------------------------------------------- At December 31, 1999 Average for the period Net gains Assets Liabilities Assets Liabilities (losses) ------ ----------- ------ ----------- --------- Futures contracts $ (7) Forward contracts $ 50 $ 123 $1,476
The Corporation's credit exposure from off-balance sheet derivative financial instruments held or issued for trading purposes is represented by the fair value of the instruments with a positive fair value at that date. NOTE 29 - SUPPLEMENTAL DISCLOSURE ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS: During the year ended December 31, 2000, the Corporation paid interest and income taxes amounting to $1,142,495,000 and $117,920,000, respectively (1999 - $879,340,000 and $132,871,000; 1998 - $768,415,000 and $93,850,000). In addition, loans transferred to other real estate and other property for the year ended December 31, 2000, amounted to $31,148,000 and $25,403,000, respectively (1999 - $29,290,000 and $24,959,000). In connection with the sale of the investment in BF, the Corporation received a note receivable (denominated in U.S. dollars) for $22,500,000, which earns interest at 9.5%. NOTE 30 - SEGMENT REPORTING: Popular, Inc. operates three major reportable segments: commercial banking, mortgage and consumer lending, and lease financing. Management has determined its reportable segments based on legal entity, which is the way that operating decisions are made 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, which provide individuals, corporations and institutions with commercial and retail banking services, including loans and deposits, trust, mortgage banking and servicing, asset management, credit cards and other financial services. These services are offered through a delivery system of 304 branches throughout Puerto Rico, the U.S. and British Virgin Islands, and the United States. The Corporation's mortgage and consumer lending segment includes those non-banking subsidiaries whose principal activity is originating mortgage and consumer loans such as Popular Mortgage, Levitt Mortgage, Popular Finance and Equity One. The services of Popular Mortgage, Levitt Mortgage and Popular Finance are furnished through 84 offices in Puerto Rico while those of Equity One are provided in 136 offices throughout 30 states. The Corporation's lease financing segment provides financing for vehicles and equipment through 12 offices of Popular Leasing and Rental, Inc. in Puerto Rico and 11 offices of Popular Leasing, USA in 8 states. The "Other" category includes all holding companies and non-banking subsidiaries which provide insurance agency services, 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. As of December 31, 1998 and 1999, it also included the banking operations of BF in the Dominican Republic. The Corporation's ownership interest in BF was sold during 2000. The accounting policies of the segments are the same as those described in the summary of accounting policies. Following are the results of operations and selected financial information by operating segment for each of the three years ended December 31:
Mortgage and Commercial consumer Lease Elimina- (In thousands) banking lending financing Other tions Total -------------- ------------ ------------ ---------- ------------ ------------ ------------ 2000 ---------------------------------------------------------------------------------------------------- Net interest income $ 845,575 $ 92,373 $ 43,546 $ 1,408 $ (141) $ 982,761 Provision for loan losses 137,774 29,250 21,761 5,855 194,640 Other income 253,112 50,119 21,620 148,891 (8,644) 465,098 Intangibles amortization 28,399 717 754 4,688 34,558 Depreciation expense 58,055 3,342 9,018 6,433 76,848 Other operating expenses 556,782 73,471 22,629 115,713 (2,530) 766,065 Net loss of minority interest 48 1,104 1,152 Income tax 81,314 12,201 4,181 4,641 (1,540) 100,797 ------------ ------------ ---------- ------------ ------------ ------------ Net income $ 236,363 $ 23,559 $ 6,823 $ 14,073 $ (4,715) $ 276,103 ============ ============ ========== ============ ============ ============ Segment assets $ 23,880,191 $ 2,848,464 $ 957,175 $ 6,240,372 $ (5,869,151) $ 28,057,051 ============ ============ ========== ============ ============ ============
F-57 84
Mortgage and Commercial consumer Lease Elimina- (In thousands) banking lending financing Other tions Total ------------ ------------ ---------- ------------ ------------ ------------ 1999 ---------------------------------------------------------------------------------------------------- Net interest income $ 817,122 $ 90,656 $ 42,772 $ 3,255 $ (67) $ 953,738 Provision for loan losses 112,881 26,457 8,022 1,588 148,948 Other income 249,446 45,084 18,912 65,816 (6,342) 372,916 Intangibles amortization 28,143 436 754 2,455 31,788 Depreciation expense 55,776 1,852 8,347 5,345 71,320 Other operating expenses 576,817 70,624 25,040 63,829 (1,936) 734,374 Net loss of minority interest 2,454 2,454 Income tax 67,094 12,685 7,526 (1,036) (1,149) 85,120 ------------ ------------ ---------- ------------ ------------ ------------ Net income $ 225,857 $ 23,686 $ 11,995 $ (656) $ (3,324) $ 257,558 ============ ============ ========== ============ ============ ============ Segment assets $ 21,736,663 $ 2,148,084 $ 733,063 $ 6,350,477 $ (5,507,748) $ 25,460,539 ============ ============ ========== ============ ============ ============ Mortgage and Commercial consumer Lease Elimina- (In thousands) banking lending financing Other tions Total ------------ ------------ ---------- ------------ ------------ ------------ 1998 ---------------------------------------------------------------------------------------------------- Net interest income $ 751,126 $ 83,940 $ 40,180 $ (2,163) $ (71) $ 873,012 Provision for loan losses 104,374 21,480 11,250 109 137,213 Other income 215,021 31,944 18,828 26,915 (1,462) 291,246 Intangibles amortization 25,602 890 1,237 131 27,860 Depreciation expense 51,830 1,428 8,590 801 62,649 Operating expenses 532,015 55,798 21,668 20,855 (491) 629,845 Net loss of minority interest 328 328 Income tax 53,464 13,964 6,258 972 13 74,671 ------------ ------------ ---------- ------------ ------------ ------------ Net income $ 198,862 $ 22,324 $ 10,005 $ 2,212 $ (1,055) $ 232,348 ============ ============ ========== ============ ============ ============ Segment assets $ 19,973,005 $ 1,830,134 $ 678,878 $ 5,269,381 $ (4,591,041) $ 23,160,357 ============ ============ ========== ============ ============ ============
GEOGRAPHIC INFORMATION
(In thousands) 2000 1999 1998 -------------- ---------- ---------- ---------- Revenues(*): Puerto Rico $1,808,295 $1,548,804 $1,419,371 United States 694,192 561,307 462,582 Other 112,768 114,475 60,996 ---------- ---------- ---------- Total consolidated revenues $2,615,255 $2,224,586 $1,942,949 ========== ========== ==========
(*) Total revenues include interest income, service charges on deposit accounts, other service fees, gain on sale of securities, trading account profit, and other income.
(In thousands) 2000 1999 1998 -------------- ------------ ------------ ------------ Selected Balance Sheet Information: Puerto Rico Total assets $ 20,146,184 $ 18,064,388 $ 16,517,161 Loans 9,370,627 8,767,843 7,895,689 Deposits 9,974,677 9,792,129 9,444,199 United States Total assets $ 7,246,259 $ 6,407,217 $ 5,660,628 Loans 6,264,014 5,460,696 4,556,060 Deposits 4,107,994 3,472,839 3,410,808 Other Total assets $ 664,608 $ 988,934 $ 982,568 Loans 422,444 679,215 627,046 Deposits 722,236 908,747 817,207 ============ ============ ============
NOTE 31 - CONTINGENT LIABILITIES: 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. NOTE 32 - POPULAR, INC. (HOLDING COMPANY ONLY) FINANCIAL INFORMATION: The following condensed financial information presents the financial position of the Holding Company only as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31. The financial information related to the investment in subsidiaries, presented below, was restated to reflect the U.S. reorganization which took place in 1999. As part of this reorganization, the Banco Popular branches in New York were merged with and into BPNA. Statements of Condition
December 31, (In thousands) 2000 1999 -------------- ---------- ---------- ASSETS Cash $ 283 $ 332 Money market investments 20,837 35,500 Investment securities available-for-sale, at market value 151,413 126,716 Investment in BPPR and subsidiaries, at equity 1,344,703 1,048,739 Investment in Popular International Bank and subsidiaries, at equity 573,375 540,866 Investment in other subsidiaries, at equity 87,696 76,069 Advances to subsidiaries 515,547 895,448 Loans to a former subsidiary 28,226 Other assets 23,136 10,057 ---------- ---------- Total assets $2,745,216 $2,733,727 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Commercial paper $ 51,987 $ 133,117 Other short-term borrowings 325,726 297,933 Notes payable 212,011 484,715 Accrued expenses and other liabilities 36,848 31,976 Subordinated notes 125,000 125,000 Stockholders' equity 1,993,644 1,660,986 ---------- ---------- Total liabilities and stockholders' equity $2,745,216 $2,733,727 ========== ==========
F-58 85 Statements of Income
Year ended December 31, (In thousands) 2000 1999 1998 -------------- ---------- ---------- ---------- Income: Dividends from subsidiaries $ 88,000 $ 314,348 $ 70,925 Interest on money market and investment securities 2,718 3,696 5,052 Other operating income 10,818 7,232 346 Gain on sale of securities 12,001 4,303 Interest on advances to subsidiaries 49,295 57,219 49,564 Interest on loans to a former subsidiary 1,068 ---------- ---------- ---------- Total income 163,900 382,495 130,190 ---------- ---------- ---------- Expenses: Interest expense 59,690 64,739 58,747 Provision for loan losses 1,365 Operating expenses 2,454 2,155 1,108 ---------- ---------- ---------- Total expenses 63,509 66,894 59,855 ---------- ---------- ---------- Income before income taxes and equity in undistributed earnings of subsidiaries 100,391 315,601 70,335 Income taxes 3,354 32 ---------- ---------- ---------- Income before equity in undistributed earnings of subsidiaries 97,037 315,601 70,303 Equity in undistributed earnings of subsidiaries (dividends in excess of annual net earnings of subsidiaries) 179,066 (58,043) 162,045 ---------- ---------- ---------- Net income $ 276,103 $ 257,558 $ 232,348 ========== ========== ==========
Statements of Cash Flows
Year ended December 31, (In thousands) 2000 1999 1998 -------------- ----------- ---------- ---------- Cash flows from operating activities: Net income $ 276,103 $ 257,558 $ 232,348 ---------- ---------- ---------- Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiaries (dividends in excess of annual net earnings of subsidiaries) (179,066) 58,043 (162,045) Net gain on sale of investment securities available-for-sale (12,001) (4,303) Amortization of premiums and accretion of discounts on investments 17 25 Net increase in other assets (18,539) (5,494) (1,515) Net increase (decrease) in current and deferred taxes 6,826 (6,108) 367 Net (decrease) increase in interest payable (605) 1,557 2,376 Net increase in other liabilities 5,451 5,207 419 ---------- ---------- ---------- Total adjustments (197,934) 53,222 (164,676) ---------- ---------- ---------- Net cash provided by operating activities 78,169 310,780 67,672 ---------- ---------- ---------- Cash flows from investing activities: Net decrease (increase) in money market investments 14,663 (31,800) (3,700) Purchases of investment securities available-for-sale (37,318) (94,299) (7,362) Maturities of investment securities available-for-sale 13,503 50,000 5,000 Proceeds from sales of investment securities available-for-sale 19,950 3,308 7,700 Capital contribution to subsidiaries (25,747) (5,100) (119,941) Distribution from subsidiary 8,642 Net change in advances to subsidiaries 350,310 (126,042) (77,700) ---------- ---------- ---------- Net cash provided by (used in) investing activities 335,361 (195,291) (196,003) ---------- ---------- ---------- Cash flows from financing activities: Net decrease in securities sold under agreements to repurchase (51,438) (337) Net (decrease) increase in commercial paper (81,130) (31,398) 66,416 Net increase in other short-term borrowings 27,793 50,861 156,197 Net (decrease) increase in notes payable (272,704) 47,838 (29,211) Cash dividends paid (95,297) (87,012) (72,021) Proceeds from issuance of common stock 9,823 9,387 7,433 Treasury stock acquired (2,064) (53,919) ---------- ---------- ---------- Net cash (used in) provided by financing activities (413,579) (115,681) 128,477 ---------- ---------- ---------- Net (decrease) increase in cash (49) (192) 146 Cash at beginning of year 332 524 378 ---------- ---------- ---------- Cash at end of year $ 283 $ 332 $ 524 ========== ========== ==========
The principal source of income for the Holding Company consists of dividends from BPPR. As a member subject to the regulations of the Federal Reserve Board, BPPR must obtain the approval of the Federal Reserve Board for any dividend if the total of all dividends declared by it in any calendar year would exceed the total of its net F-59 86 profits for that year, as defined by the Federal Reserve Board, combined with its retained net profits for the preceding two years. The payment of dividends by BPPR may also be affected by other regulatory requirements and policies, such as the maintenance of certain minimum capital levels described in Note 19. At December 31, 2000, BPPR could have declared a dividend of approximately $205,088,000 without the approval of the Federal Reserve Bank. NOTE 33 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF GUARANTOR AND ISSUERS OF GUARANTEED SECURITIES REGISTERED: The following condensed consolidating financial information presents the financial position of Popular, Inc. Holding Company (PIHC), Popular International Bank, Inc. (PIBI), Popular North America, Inc. (PNA) and all other subsidiaries of the Corporation as of December 31, 1999 and 2000, and the results of their operations and cash flows for each of the three years in the period ended December 31, 2000. PIBI, PNA, and their wholly-owned subsidiaries, except BPNA and Banco Popular, National Association (BP,N.A.), have a fiscal year that ends on November 30. Accordingly, the consolidated financial information of PIBI and PNA as of November 30, 1998, 1999 and 2000, corresponds to their financial information included in the consolidated financial statements of Popular, Inc. as of December 31, 1998, 1999, and 2000, respectively. PIHC, PIBI and PNA are authorized issuers of debt securities and preferred stock under a shelf registration filed with the SEC that became effective on August 4, 1999. PIBI is an operating subsidiary of PIHC and is the holding company of its wholly-owned subsidiaries, ATH Costa Rica, CreST, S.A., and PNA. The ownership interest in BF, sold in 2000, was also part of PIBI during 1998 and 1999. PNA is an operating subsidiary of PIBI and is the holding company of its wholly-owned subsidiaries, Popular Cash Express, Inc., Equity One, Inc., BPNA and BP, N.A., including its wholly-owned subsidiary Popular Insurance, Inc. PIHC fully and unconditionally guarantees all registered debt securities and preferred stock issued by PIBI and PNA. As described in Note 32 of these financial statements, the principal source of cash flows for PIHC consists of dividends from BPPR. F-60 87 Statement of Condition
Year ended December 31, 2000 ------------------------------------------------------------------------------------ Popular, Inc. PIBI PNA All other Elimination Popular, Inc. (In thousands) Holding Co. Holding Co. Holding Co. subsidiaries Entries Consolidated -------------- ------------- ------------ ----------- ------------ ----------- ------------ ASSETS Cash and due from banks $ 283 $ 18 $ 288 $ 822,672 $ (97,210) $ 726,051 Money market investments 20,837 326 60 1,944,366 (896,971) 1,068,618 Investment securities available-for-sale, at market value 151,413 12,577 6,342 8,534,146 8,704,478 Investment securities held-to-maturity, at amortized cost 510,817 (154,640) 356,177 Trading account securities, at market value 153,073 153,073 Investment in subsidiaries, at equity 2,005,774 542,158 741,505 139,053 (3,428,490) Loans held-for-sale, at lower of cost or market 823,901 823,901 ----------- ----------- ----------- ----------- ----------- ----------- Loans 543,773 22,500 1,842,515 15,629,152 (2,457,561) 15,580,379 Less - Unearned income 347,195 347,195 Allowance for loan losses 290,653 290,653 ----------- ----------- ----------- ----------- ----------- ----------- 543,773 22,500 1,842,515 14,991,304 (2,457,561) 14,942,531 ----------- ----------- ----------- ----------- ----------- ----------- Premises and equipment 405,772 405,772 Other real estate 23,518 23,518 Customers' liabilities on acceptances 1,647 1,647 Accrued income receivable 1,113 590 12,051 209,278 (20,492) 202,540 Other assets 22,023 895 4,937 340,614 (1,319) 367,150 Intangible assets 282,048 (453) 281,595 ----------- ----------- ----------- ----------- ----------- ----------- $ 2,745,216 $ 579,064 $ 2,607,698 $29,182,209 $(7,057,136) $28,057,051 =========== =========== =========== =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits: Non-interest bearing $ 3,207,037 $ (97,152) $ 3,109,885 Interest bearing 11,738,916 (43,894) 11,695,022 ----------- ----------- ----------- 14,945,953 (141,046) 14,804,907 Federal funds purchased and securities sold under agreements to repurchase $ 68,700 5,033,117 (137,702) 4,964,115 Other short-term borrowings $ 377,713 $ 5,414 1,336,063 4,298,732 (1,648,710) 4,369,212 Notes payable 212,011 633,254 1,997,722 (1,666,075) 1,176,912 Acceptances outstanding 1,647 1,647 Other liabilities 36,848 275 37,267 421,807 (25,510) 470,687 ----------- ----------- ----------- ----------- ----------- ----------- 626,572 5,689 2,075,284 26,698,978 (3,619,043) 25,787,480 ----------- ----------- ----------- ----------- ----------- ----------- Subordinated notes 125,000 125,000 ----------- ----------- Preferred beneficial interests in Popular North America's Junior subordinated deferrable interest debentures Guaranteed by the Corporation 150,000 150,000 ----------- ----------- ----------- Minority interest in consolidated subsidiaries 105 822 927 ----------- ----------- ----------- Stockholders' equity: Preferred stock 100,000 100,000 Common stock 830,356 3,962 2 72,575 (76,539) 830,356 Surplus 260,984 485,676 439,964 1,328,053 (2,253,693) 260,984 Retained earnings 865,082 83,576 90,434 949,552 (1,123,562) 865,082 Treasury stock, at cost (66,214) (314) 314 (66,214) Accumulated other comprehensive income (loss), net of taxes 3,436 161 2,014 (16,740) 14,565 3,436 ----------- ----------- ----------- ----------- ----------- ----------- 1,993,644 573,375 532,414 2,333,126 (3,438,915) 1,993,644 ----------- ----------- ----------- ----------- ----------- ----------- $ 2,745,216 $ 579,064 $ 2,607,698 $29,182,209 $(7,057,136) $28,057,051 =========== =========== =========== =========== =========== ===========
F-61 88 Statement of Condition
Year ended December 31, 1999 ---------------------------------------------------------------------------------------- Popular, Inc. PIBI PNA All other Elimination Popular, Inc. (In thousands) Holding Co. Holding Co. Holding Co. subsidiaries Entries Consolidated -------------- ------------- ------------ ----------- ------------ ----------- ------------- ASSETS Cash and due from banks $ 332 $ 227 $ 664 $ 693,238 $ (30,765) $ 663,696 Money market investments 35,500 3,258 21,503 1,720,305 (794,572) 985,994 Investment securities available-for-sale, at market value 126,716 13,525 5,330 7,180,179 (800) 7,324,950 Investment securities held-to-maturity, at amortized cost 453,952 (154,640) 299,312 Trading account securities, at market value 236,610 236,610 Investment in subsidiaries, at equity 1,665,674 539,288 620,332 113,145 (2,938,439) Loans held-for-sale, at lower of cost or market 619,298 619,298 ------------ ------------ ------------ ------------ ----------- ------------ Loans 895,448 16,961 1,427,775 14,706,699 (2,387,483) 14,659,400 Less - Unearned income 370,944 370,944 Allowance for loan losses 292,010 292,010 ------------ ------------ ------------ ------------ ----------- ------------ 895,448 16,961 1,427,775 14,043,745 (2,387,483) 13,996,446 ------------ ------------ ------------ ------------ ----------- ------------ Premises and equipment 440,971 440,971 Other real estate 29,268 29,268 Customers' liabilities on acceptances 12,041 12,041 Accrued income receivable 122 196 672 187,232 (12,476) 175,746 Other assets 9,935 593 4,782 357,057 (946) 371,421 Intangible assets 305,373 (587) 304,786 ------------ ------------ ------------ ------------ ----------- ------------ $ 2,733,727 $ 574,048 $ 2,081,058 $ 26,392,414 $ (6,320,708) $ 25,460,539 ============ ============ ============ ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits: Non-interest bearing $ 3,315,609 $ (30,660) $ 3,284,949 Interest bearing 11,510,011 (621,245) 10,888,766 ------------ ------------ ------------ 14,825,620 (651,905) 14,173,715 Federal funds purchased and securities sold under agreements to repurchase 4,521,700 (107,220) 4,414,480 Other short-term borrowings $ 431,050 $ 25,719 $ 324,657 2,950,906 (1,119,943) 2,612,389 Notes payable 484,715 7,007 1,201,412 1,622,821 (1,463,356) 1,852,599 Acceptances outstanding 12,041 12,041 Other liabilities 31,976 455 42,582 376,593 (14,888) 436,718 ------------ ------------ ------------ ------------ ----------- ------------ 947,741 33,181 1,568,651 24,309,681 (3,357,312) 23,501,942 ------------ ------------ ------------ ------------ ----------- ------------ Subordinated notes 125,000 125,000 ------------ ------------ Preferred beneficial interests in Popular North America's Junior subordinated deferrable interest debentures Guaranteed by the Corporation 150,000 150,000 ------------ ------------ Minority interest in consolidated subsidiaries 22,611 22,611 ----------- ------------ Stockholders' equity: Preferred stock 100,000 100,000 Common stock 827,662 3,962 2 62,445 (66,409) 827,662 Surplus 243,855 470,226 439,964 1,273,797 (2,183,987) 243,855 Retained earnings 694,301 69,529 74,005 750,111 (893,645) 694,301 Treasury stock, at cost (64,123) (287) 287 (64,123) Accumulated other comprehensive income (loss), net of taxes (140,709) (2,850) (1,564) (153,333) 157,747 (140,709) ------------ ------------ ------------ ------------ ----------- ------------ 1,660,986 540,867 512,407 1,932,733 (2,986,007) 1,660,986 ------------ ------------ ------------ ------------ ----------- ------------ $ 2,733,727 $ 574,048 $ 2,081,058 $ 26,392,414 $ (6,320,708) $ 25,460,539 ============ ============ ============ ============ ============ ============
F-62 89 Consolidated Statement of Income
Year ended December 31, 2000 ------------------------------------------------------------------------------------------ Popular, Inc. PIBI PNA Other Elimination Popular, Inc. (In thousands) Holding Co. Holding Co. Holding Co. Subsidiaries Entries Consolidated -------------- ------------- ----------- ------------ ------------ ------------ ------------- INTEREST INCOME: Loans $ 50,363 $ 876 $ 119,316 $ 1,589,626 $ (173,349) $1,586,832 Money market investments 855 81 189 118,585 (57,354) 62,356 Investment securities 1,863 2 715 496,603 (12,985) 486,198 Trading account securities 14,771 14,771 --------- --------- ----------- ----------- ----------- ---------- 53,081 959 120,220 2,219,585 (243,688) 2,150,157 --------- --------- ----------- ----------- ----------- ---------- INTEREST EXPENSE: Deposits 553,471 (24,098) 529,373 Short-term borrowings 30,354 552 54,030 522,091 (98,998) 508,029 Long-term debt 29,336 142 72,646 148,321 (120,451) 129,994 --------- --------- ----------- ----------- ----------- ---------- 59,690 694 126,676 1,223,883 (243,547) 1,167,396 --------- --------- ----------- ----------- ----------- ---------- Net interest (loss) income (6,609) 265 (6,456) 995,702 (141) 982,761 Provision for loan losses 1,365 193,275 194,640 --------- --------- ----------- ----------- ----------- ---------- Net interest (loss) income after provision for loan losses (7,974) 265 (6,456) 802,427 (141) 788,121 Service charges on deposit accounts 125,519 125,519 Other service fees 218,853 (1,819) 217,034 Gain (loss) on sale of securities 12,001 (800) 11,201 Trading account profit 2,230 2,230 Other operating income 10,818 1,279 103,842 (6,825) 109,114 --------- --------- ----------- ----------- ----------- ---------- 14,845 1,544 (6,456) 1,252,071 (8,785) 1,253,219 --------- --------- ----------- ----------- ----------- ---------- OPERATING EXPENSES: Personnel costs: Salaries 280 306,249 306,529 Profit sharing 18,913 18,913 Pension and other benefits 46 68,688 68,734 --------- ----------- ----------- ---------- 326 393,850 394,176 Net occupancy expenses 12 67,724 (16) 67,720 Equipment expenses 1 98,021 98,022 Other taxes 1,350 32,775 34,125 Professional fees 473 9 228 67,126 (1,947) 65,889 Communications 19 45,670 45,689 Business promotion 46,791 46,791 Printing and supplies 2 20,826 20,828 Other operating expenses 609 50 421 69,160 (567) 69,673 Amortization of intangibles 34,558 34,558 --------- --------- ----------- ----------- ----------- ---------- 2,454 397 649 876,501 (2,530) 877,471 --------- --------- ----------- ----------- ----------- ---------- Income (losses) before income tax and equity in earnings (losses) of subsidiaries 12,391 1,147 (7,105) 375,570 (6,255) 375,748 Income tax 3,354 (2,590) 101,573 (1,540) 100,797 Net loss of minority interest 1,152 1,152 --------- --------- ----------- ----------- ----------- ---------- Income (losses) before equity in earnings (losses) of subsidiaries 9,037 1,147 (4,515) 275,149 (4,715) 276,103 Equity in earnings of subsidiaries 267,066 12,900 20,944 9,271 (310,181) --------- --------- ----------- ----------- ----------- ---------- NET INCOME $ 276,103 $ 14,047 $ 16,429 $ 284,420 $ (314,896) $ 276,103 ========= ========= =========== =========== =========== ==========
F-63 90 Consolidated Statement of Income
Year ended December 31, 1999 ------------------------------------------------------------------------------------------ Popular, Inc. PIBI PNA Other Elimination Popular, Inc. (In thousands) Holding Co. Holding Co. Holding Co. Subsidiaries Entries Consolidated -------------- ------------- ----------- ------------ ------------ ------------ ------------- INTEREST INCOME: Loans $ 57,219 $ 484 $ 80,093 $ 1,375,630 $ (140,268) $1,373,158 Money market investments 662 263 2,418 64,359 (34,268) 33,434 Investment securities 3,034 2 720 435,035 (12,884) 425,907 Trading account securities 19,171 19,171 --------- --------- ----------- ----------- ----------- ---------- 60,915 749 83,231 1,894,195 (187,420) 1,851,670 --------- --------- ----------- ----------- ----------- ---------- INTEREST EXPENSE: Deposits 460,358 (8,143) 452,215 Short-term borrowings 22,525 922 22,822 354,270 (82,893) 317,646 Long-term debt 42,214 100 66,445 115,629 (96,317) 128,071 --------- --------- ----------- ----------- ----------- ---------- 64,739 1,022 89,267 930,257 (187,353) 897,932 --------- --------- ----------- ----------- ----------- ---------- Net (loss) interest income (3,824) (273) (6,036) 963,938 (67) 953,738 Provision for loan losses 148,948 148,948 --------- --------- ----------- ----------- ----------- ---------- Net interest income (loss) after provision for loan losses (3,824) (273) (6,036) 814,990 (67) 804,790 Service charges on deposit accounts 118,187 118,187 Other service fees 171,025 (1,298) 169,727 Gain on sale of securities 216 422 638 Trading account loss (1,582) (1,582) Other operating income 7,232 608 4 83,147 (5,045) 85,946 --------- --------- ----------- ----------- ----------- ---------- 3,408 335 (5,816) 1,186,189 (6,410) 1,177,706 --------- --------- ----------- ----------- ----------- ---------- OPERATING EXPENSES: Personnel costs: Salaries 235 289,760 289,995 Profit sharing 23,881 23,881 Pension and other benefits 43 72,777 72,820 --------- ----------- ---------- 278 386,418 386,696 Net occupancy expenses 12 60,802 60,814 Equipment expenses 1 88,346 (13) 88,334 Other taxes 835 32,455 33,290 Professional fees 1,307 11 699 67,807 (1,869) 67,955 Communications 2 43,144 43,146 Business promotion 45,938 45,938 Printing and supplies 10 20,699 20,709 Other operating expenses 42 9 58,815 (54) 58,812 Amortization of intangibles 31,788 31,788 --------- --------- ----------- ----------- ----------- ---------- 2,155 343 708 836,212 (1,936) 837,482 --------- --------- ----------- ----------- ----------- ---------- Income (losses) before income tax and equity in earnings (losses) of subsidiaries 1,253 (8) (6,524) 349,977 (4,474) 340,224 Income tax (2,277) 88,546 (1,149) 85,120 Net loss of minority interest 2,454 2,454 --------- --------- ----------- ----------- ----------- ---------- Income (losses) before equity in earnings (losses) of subsidiaries 1,253 (8) (4,247) 263,885 (3,325) 257,558 Equity in earnings of subsidiaries 256,305 4,858 13,199 13,180 (287,542) --------- --------- ----------- ----------- ----------- ---------- NET INCOME $ 257,558 $ 4,850 $ 8,952 $ 277,065 $ (290,867) $ 257,558 ========= ========= =========== =========== =========== ==========
F-64 91 Consolidated Statement of Income
Year ended December 31, 1998 ------------------------------------------------------------------------------------------ Popular, Inc. PIBI PNA Other Elimination Popular, Inc. (In thousands) Holding Co. Holding Co. Holding Co. Subsidiaries Entries Consolidated -------------- ------------- ----------- ------------ ------------ ------------ ------------- INTEREST INCOME: Loans $ 49,564 $ 69,401 $ 1,222,126 $ (129,241) $1,211,850 Money market investments 121 $ 351 2,337 49,632 (15,660) 36,781 Investment securities 4,931 1 386 393,032 (12,877) 385,473 Trading account securities 244 17,355 17,599 --------- --------- --------- ----------- ----------- ---------- 54,616 596 72,124 1,682,145 (157,778) 1,651,703 --------- --------- --------- ----------- ----------- ---------- INTEREST EXPENSE: Deposits 412,942 (1,450) 411,492 Short-term borrowings 25,800 678 24,175 268,056 (66,985) 251,724 Long-term debt 32,947 49,587 122,212 (89,271) 115,475 --------- --------- --------- ----------- ----------- ---------- 58,747 678 73,762 803,210 (157,706) 778,691 --------- --------- --------- ----------- ----------- ---------- Net interest (loss) income (4,131) (82) (1,638) 878,935 (72) 873,012 Provision for loan losses 137,213 137,213 --------- --------- --------- ----------- ----------- ---------- Net interest (loss) income after provision for loan losses (4,131) (82) (1,638) 741,722 (72) 735,799 Service charges on deposit accounts 103,732 103,732 Other service fees 116,406 169 116,575 Gain on sale of securities 4,303 1,971 2,659 8,933 Trading account loss (206) 3,859 3,653 Other operating income 346 468 1,672 57,499 (1,632) 58,353 --------- --------- --------- ----------- ----------- ---------- 518 180 2,005 1,025,877 (1,535) 1,027,045 --------- --------- --------- ----------- ----------- ---------- OPERATING EXPENSES: Personnel costs: Salaries 218 247,372 247,590 Profit sharing 22,067 22,067 Pension and other benefits 38 67,705 67,743 --------- --------- --------- ----------- ----------- ---------- 256 337,144 337,400 Net occupancy expenses (25) 12 48,620 48,607 Equipment expenses 20 75,354 (72) 75,302 Other taxes 743 31,448 32,191 Professional fees 328 4 1,297 56,878 (420) 58,087 Communications 36,941 36,941 Business promotion 39,376 39,376 Printing and supplies 6 17,598 17,604 Other operating expenses 36 15 953 45,982 46,986 Amortization of intangibles 27,860 27,860 --------- --------- --------- ----------- ----------- ---------- 1,108 287 2,250 717,201 (492) 720,354 --------- --------- --------- ----------- ----------- ---------- Income (losses) before income tax and equity in earnings (losses) of subsidiaries (590) (107) (245) 308,676 (1,043) 306,691 Income tax 32 (1,000) 75,626 13 74,671 Net loss of minority interest 328 328 --------- --------- --------- ----------- ----------- ---------- Income (losses) before equity in earnings (losses) of subsidiaries (622) (107) 755 233,378 (1,056) 232,348 Equity in earnings of subsidiaries 232,970 9,305 9,708 13,891 (265,874) --------- --------- --------- ----------- ----------- ---------- NET INCOME $ 232,348 $ 9,198 $ 10,463 $ 247,269 $ (266,930) $ 232,348 ========= ========= ========= =========== =========== ==========
F-65 92 Statement of Cash Flow
Year ended December 31, 2000 ----------------------------------------------------------------------------------------------------------------------------------- Popular, Inc. PIBI PNA Other Elimination Popular, Inc. (In thousands) Holding Co. Holding Co. Holding Co. subsidiaries Entries Consolidated -------------- ------------ ----------- ----------- ------------ ----------- ------------- Cash flows from operating activities: Net income $ 276,103 $ 14,047 $ 16,429 $ 284,420 $(314,896) $ 276,103 --------- --------- --------- ----------- --------- ----------- Adjustments to reconcile net income to cash provided by operating activities: Equity in undistributed earnings of subsidiaries (267,066) (12,900) (20,944) (9,271) 310,181 Depreciation and amortization of premises and equipment 76,848 76,848 Provision for loan losses 1,365 193,275 194,640 Amortization of intangibles 34,558 34,558 Net gain on sale of investment securities available-for-sale (12,001) 800 (11,201) Net loss on disposition of premises and equipment 210 210 Net gain on sale of loans (7,935) (7,935) Amortization of premiums and accretion of discounts on investments (430) 1,350 920 Increase in loans held-for-sale (204,603) (204,603) Amortization of deferred loan fees and costs (5,265) (5,265) Net decrease in trading securities 83,537 83,537 Net increase in interest receivable (991) (394) (11,379) (27,779) 8,017 (32,526) Net increase in other assets (18,913) (302) (155) (9,984) 238 (29,116) Net (decrease) increase in interest payable (605) (210) (3,585) 29,301 24,901 Net increase (decrease) in current and deferred taxes 6,826 (2,165) (17,268) 1,373 (11,234) Net increase in postretirement benefit obligation 3,844 3,844 Net increase in other liabilities 5,451 31 435 26,502 (13,794) 18,625 --------- --------- --------- ----------- --------- ----------- Total adjustments (285,934) (13,775) (38,223) 168,120 306,015 136,203 --------- --------- --------- ----------- --------- ----------- Net cash (used in) provided by operating activities (9,831) 272 (21,794) 452,540 (8,881) 412,306 --------- --------- --------- ----------- --------- ----------- Cash flows from investing activities: Net decrease (increase) in money market investment 14,663 2,931 21,443 (254,838) 102,398 (113,403) Purchases of investment securities held-to-maturity (5,517,411) (5,517,411) Maturities of investment securities held-to-maturity 5,458,897 5,458,897 Purchases of investment securities available-for-sale (37,318) (298) (4,759,954) (4,797,570) Maturities of investment securities available-for-sale 13,503 2,771,791 (800) 2,784,494 Proceeds from sales of investment securities available-for-sale 19,950 799,005 818,955 Net repayments (disbursements) on loans 350,310 16,392 (414,741) (1,872,615) 70,078 (1,850,576) Proceeds from sale of loans 1,024,637 1,024,637 Acquisition of loan portfolios (589,178) (589,178) Capital contribution to Subsidiary (25,747) (7,943) (97,390) (10,174) 141,254 Assets acquired, net of cash (8,453) (8,453) Acquisition of premises and equipment (75,147) (75,147) Proceeds from sale of premises and equipment 11,631 11,631 Cash transferred due to sale of investment in subsidiary (46,899) (46,899) Merger of Popular Holdings USA in PNA 455 (455) Dividends received from subsidiary 88,000 (88,000) --------- --------- --------- ----------- --------- ----------- Net cash provided by (used in) investing activities 423,361 11,380 (490,531) (3,068,708) 224,475 (2,900,023) --------- --------- --------- ----------- --------- ----------- Cash flows from financing activities: Net increase in deposits 413,493 512,678 926,171 Net increase in federal funds purchases and securities sold under agreements to repurchase 68,700 511,417 (30,482) 549,635 Net (decrease) increase in other short-term borrowings (53,337) (20,304) 1,011,407 1,385,576 (528,767) 1,794,575 Proceeds from issuance of notes payable 457,998 (166,179) 291,819 Payments of notes payable (272,704) (7,007) (568,158) (40,154) (36,540) (924,563) Dividends paid to parent company (88,000) 88,000 Dividends paid (95,297) (95,297) Proceeds from issuance of common stock 9,823 9,823 Treasury stock acquired (2,064) (27) (2,091) Capital contribution from parent 15,450 105,299 (120,749) --------- --------- --------- ----------- --------- ----------- Net cash (used in) provided by financing activities (413,579) (11,861) 511,949 2,745,602 (282,039) 2,550,072 --------- --------- --------- ----------- --------- ----------- Net (decrease) increase in cash and due from banks (49) (209) (376) 129,434 (66,445) 62,355 Cash and due from banks at beginning of year 332 227 664 693,238 (30,765) 663,696 --------- --------- --------- ----------- --------- ----------- Cash and due from banks at end of year $ 283 $ 18 $ 288 $ 822,672 $ (97,210) $ 726,051 ========= ========= ========= =========== ========= ===========
F-66 93 Statement of Cash Flow
Year ended December 31, 1999 ----------------------------------------------------------------------------------------------------------------------------------- Popular, Inc. PIBI PNA Other Elimination Popular, Inc. (In thousands) Holding Co. Holding Co. Holding Co. subsidiaries Entries Consolidated -------------- ------------ ----------- ----------- ------------ ----------- ------------- Cash flows from operating activities: Net income $ 257,558 $ 4,850 $ 8,952 $ 277,065 $(290,867) $ 257,558 --------- --------- --------- ----------- --------- ----------- Adjustments to reconcile net income to cash provided by operating activities: Equity in undistributed earnings of subsidiaries (256,305) (4,858) (13,199) (13,180) 287,542 Depreciation and amortization of premises and equipment 71,320 71,320 Provision for loan losses 148,948 148,948 Amortization of intangibles 31,788 31,788 Net gain on sale of investment securities available-for-sale (216) (422) (638) Net loss on disposition of premises and equipment 365 365 Net gain on sale of loans (2,717) (2,717) Amortization of premiums and accretion of discounts on investments 17 6,861 6,878 Decrease in loans held-for-sale 26,818 26,818 Amortization of deferred loan fees and costs (713) (713) Net decrease in trading securities 82,117 82,117 Net decrease (increase) in interest receivable 1,063 (187) (356) (26,550) 6,616 (19,414) Net (increase) decrease in other assets (6,557) (177) (2,164) (28,502) (801) (38,201) Net increase (decrease) in interest payable 1,557 424 (16,395) 33,006 18,592 Net decrease in current and deferred taxes (6,108) (2,277) (37,458) (5,144) (50,987) Net increase in postretirement benefit obligation 9,708 9,708 Net increase (decrease) in other liabilities 5,207 (1) 31,695 (10,846) 2,368 28,423 --------- --------- --------- ----------- --------- ----------- Total adjustments (261,126) (4,799) (2,912) 290,543 290,581 312,287 --------- --------- --------- ----------- --------- ----------- Net cash (used in) provided by operating activities (3,568) 51 6,040 567,608 (286) 569,845 --------- --------- --------- ----------- --------- ----------- Cash flows from investing activities: Net (increase) decrease in money market investment (31,800) (1,793) 73,926 (529,179) 450,750 (38,096) Purchases of investment securities held-to-maturity (6,070,728) (6,070,728) Maturities of investment securities held-to-maturity 6,095,690 6,095,690 Purchases of investment securities available-for-sale (94,299) (8,515) (1,266) (6,201,587) 154 (6,305,513) Maturities of investment securities available-for-sale 50,000 5,417,356 5,467,356 Proceeds from sales of investment securities available-for-sale 3,308 165,029 168,337 Net disbursements on loans (126,042) (16,961) (323,166) (2,802,459) 325,327 (2,943,301) Proceeds from sale of loans 920,421 920,421 Acquisition of loan portfolios (5,945) (5,945) Capital contribution from (to) Subsidiary 3,542 (125,725) (36,486) (4,644) 163,313 Assets acquired, net of cash (2,925) 1,207 (1,718) Acquisition of premises and equipment (108,428) (108,428) Proceeds from sale of premises and equipment 24,923 24,923 Dividends received from subsidiary 314,348 (314,348) --------- --------- --------- ----------- --------- ----------- Net cash provided by (used in) investing activities 119,057 (152,994) (286,992) (3,102,476) 626,403 (2,797,002) --------- --------- --------- ----------- --------- ----------- Cash flows from financing activities: Net increase in deposits 1,134,197 (632,696) 501,501 Net (decrease) increase in federal funds purchases and securities sold under agreements to repurchase (51,438) (341,700) 677,276 53,842 337,980 Net increase (decrease) in other short-term borrowings 19,463 20,719 73,797 872,245 (13,750) 972,474 Proceeds from issuance of notes payable 47,838 7,007 703,100 125,808 (94,317) 789,436 Payments of notes payable (156,086) (12,558) (78,057) (246,701) Dividends paid to parent company (314,348) 314,348 Dividends paid (87,012) (87,012) Proceeds from issuance of common stock 9,387 9,387 Treasury stock acquired (53,919) (53,919) Capital contribution from parent 125,421 60,125 (185,546) --------- --------- --------- ----------- --------- ----------- Net cash (used in) provided by financing activities (115,681) 153,147 279,111 2,542,745 (636,176) 2,223,146 --------- --------- --------- ----------- --------- ----------- Net (decrease) increase in cash and due from banks (192) 204 (1,841) 7,877 (10,059) (4,011) Cash and due from banks at beginning of year 524 23 2,505 685,361 (20,706) 667,707 --------- --------- --------- ----------- --------- ----------- Cash and due from banks at end of year $ 332 $ 227 $ 664 $ 693,238 $ (30,765) $ 663,696 ========= ========= ========= =========== ========= ===========
F-67 94 Statement of Cash Flow
Year ended December 31, 1998 ---------------------------------------------------------------------------------------------------------------------------------- Popular, Inc. PIBI PNA Other Elimination Popular, Inc. (In thousands) Holding Co. Holding Co. Holding Co. subsidiaries Entries Consolidated -------------- ------------ ----------- ----------- ------------ ----------- ------------ Cash flows from operating activities: Net income $ 232,348 $ 9,198 $ 10,463 $ 247,269 $(266,930) $ 232,348 --------- --------- --------- ----------- --------- ----------- Adjustments to reconcile net income to cash provided by operating activities: Equity in undistributed earnings of subsidiaries (232,970) (9,305) (9,708) (13,891) 265,874 Depreciation and amortization of premises and equipment 62,649 62,649 Provision for loan losses 137,213 137,213 Amortization of intangibles 27,860 27,860 Net gain on sale of investment securities available-for-sale (4,303) (1,971) (2,659) (8,933) Net loss on disposition of premises and equipment 167 167 Net gain on sale of loans (2,265) (2,265) Amortization of premiums and accretion of discounts on investments 25 2,920 2,945 Increase in loans held-for-sale (378,955) (378,955) Amortization of deferred loan fees and costs (2,399) (2,399) Net increase in trading securities (96,424) (96,424) Net decrease (increase) in interest receivable 136 8 (186) (36,466) 575 (35,933) Net (increase) decrease in other assets (1,651) (47) (974) 76,612 (3,935) 70,005 Net increase (decrease) in interest payable 2,376 10 (314) 8,066 10,138 Net increase (decrease) in current and deferred taxes 367 4,181 (14,256) (838) (10,546) Net increase in postretirement benefit obligation 9,254 9,254 Net increase (decrease) in other liabilities 419 (8) 605 4,028 6,146 11,190 --------- --------- --------- ----------- --------- ----------- Total adjustments (235,601) (9,342) (8,367) (218,546) 267,822 (204,034) --------- --------- --------- ----------- --------- ----------- Net cash (used in) provided by operating activities (3,253) (144) 2,096 28,723 892 28,314 --------- --------- --------- ----------- --------- ----------- Cash flows from investing activities: Net (increase) decrease in money market investment (3,700) 7,769 (95,429) (335,853) 400,487 (26,726) Purchases of investment securities held-to-maturity (11,713,516) (11,713,516) Maturities of investment securities held-to-maturity 11,893,268 11,893,268 Purchases of investment securities available-for-sale (7,362) (5,006) (3,277) (5,357,074) (5,372,719) Maturities of investment securities available-for-sale 5,000 2,810,884 2,815,884 Proceeds from sales of investment securities available-for-sale 7,700 6,971 908,738 923,409 Net disbursements on loans (77,700) (134,200) (1,596,811) 223,642 (1,585,069) Proceeds from sale of loans 740,462 740,462 Acquisition of loan portfolios (62,247) (62,247) Capital contribution to Subsidiary (119,941) (91,071) (33,198) 244,210 Assets acquired, net of cash (29,501) (89,941) 102,274 (17,168) Acquisition of premises and equipment (103,577) (103,577) Proceeds from sale of premises and equipment 16,630 16,630 Dividends received from subsidiary 70,925 (70,925) --------- --------- --------- ----------- --------- ----------- Net cash (used in) provided by investing activities (125,078) (117,809) (349,074) (2,696,822) 797,414 (2,491,369) --------- --------- --------- ----------- --------- ----------- Cash flows from financing activities: Net increase in deposits 1,316,203 (126,432) 1,189,771 Net deposits acquired 36,297 36,297 Net (decrease) increase in federal funds purchases and securities sold under agreements to repurchase (337) (7,000) 341,700 1,096,236 (77,428) 1,353,171 Net increase (decrease) in other short-term borrowings 222,613 5,000 (5,373) 604,754 (531,713) 295,281 Proceeds from issuance of notes payable 115,000 17,893 44,093 176,986 Payments of notes payable (144,211) (78,627) (151,884) 55,415 (319,307) Dividends paid (72,021) (67,925) 67,925 (72,021) Proceeds from issuance of common stock 7,433 7,433 Capital contribution from parent 119,941 89,941 34,327 (244,209) --------- --------- --------- ----------- --------- ----------- Net cash provided by (used in) financing activities 128,477 117,941 347,641 2,885,901 (812,349) 2,667,611 --------- --------- --------- ----------- --------- ----------- Net increase in cash and due from banks 146 (12) 663 217,802 (14,043) 204,556 Cash and due from banks at beginning of year 378 35 1,842 467,559 (6,663) 463,151 --------- --------- --------- ----------- --------- ----------- Cash and due from banks at end of year $ 524 $ 23 $ 2,505 $ 685,361 $ (20,706) $ 667,707 ========= ========= ========= =========== ========= ===========
F-68